Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED November 27, 2016

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM              TO             

Commission file number: 001-01185

 

 

GENERAL MILLS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   41-0274440

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Number One General Mills Boulevard

Minneapolis, Minnesota

  55426
(Address of principal executive offices)   (Zip Code)

(763) 764-7600

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     ☒    Accelerated filer     
Non-accelerated     ☐   (Do not check if a smaller reporting company)    Smaller reporting company    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of Common Stock outstanding as of December 13, 2016: 580,011,272 (excluding 174,602,056 shares held in the treasury).


Table of Contents

General Mills, Inc.

Table of Contents

 

          Page  

PART I – Financial Information

  
Item 1.   

Financial Statements

  
  

Consolidated Statements of Earnings for the quarters and six-month periods ended November 27, 2016 and November 29, 2015

     3   
  

Consolidated Statements of Comprehensive Income for the quarters and six-month periods ended November 27, 2016 and November 29, 2015

     4   
  

Consolidated Balance Sheets as of November 27, 2016, and May 29, 2016

     5   
  

Consolidated Statements of Total Equity and Redeemable Interest for the six-month period ended November 27, 2016 and the fiscal year ended May 29, 2016

     6   
  

Consolidated Statements of Cash Flows for the six-month periods ended November 27, 2016 and November 29, 2015

     7   
Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     25   
Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     46   
Item 4.   

Controls and Procedures

     46   

PART II – Other Information

  
Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     47   
Item 6.   

Exhibits

     48   
Signatures      49   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

Consolidated Statements of Earnings

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions, Except per Share Data)

 

     Quarter Ended     Six-Month
Period Ended
 
     Nov. 27,
2016
     Nov. 29,
2015
    Nov. 27,
2016
     Nov. 29,
2015
 

Net sales

   $     4,112.1       $     4,424.9      $     8,020.0       $     8,632.8   

Cost of sales

     2,592.6         2,884.3        5,083.6         5,537.6   

Selling, general, and administrative expenses

     708.1         772.7        1,420.3         1,583.9   

Divestitures Loss (Gain)

     13.5         (199.1     13.5         (199.1

Restructuring, impairment, and other exit costs

     29.0         61.3        87.9         121.4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating profit

     768.9         905.7        1,414.7         1,589.0   

Interest, net

     75.5         73.8        149.4         149.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings before income taxes and after-tax earnings from joint ventures

     693.4         831.9        1,265.3         1,439.9   

Income taxes

     227.4         311.5        404.0         510.1   

After-tax earnings from joint ventures

     29.8         23.2        54.0         48.9   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net earnings, including earnings attributable to redeemable and noncontrolling interests

     495.8         543.6        915.3         978.7   

Net earnings attributable to redeemable and noncontrolling interests

     14.0         14.1        24.5         22.6   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net earnings attributable to General Mills

   $ 481.8       $ 529.5      $ 890.8       $ 956.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings per share - basic

   $ 0.82       $ 0.88      $ 1.50       $ 1.59   
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings per share - diluted

   $ 0.80       $ 0.87      $ 1.47       $ 1.56   
  

 

 

    

 

 

   

 

 

    

 

 

 

Dividends per share

   $ 0.48       $ 0.44      $ 0.96       $ 0.88   
  

 

 

    

 

 

   

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Consolidated Statements of Comprehensive Income

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

 

     Quarter Ended     Six-Month
Period Ended
 
     Nov. 27,
2016
    Nov. 29,
2015
    Nov. 27,
2016
    Nov. 29,
2015
 

Net earnings, including earnings attributable to redeemable and noncontrolling interests

   $ 495.8      $ 543.6      $ 915.3      $ 978.7   

Other comprehensive income (loss), net of tax:

        

Foreign currency translation

     (105.7     (70.3     (25.3     (212.5

Other fair value changes:

        

Securities

     (0.1     0.1        0.3          

Hedge derivatives

     32.1        0.1        47.3        10.4   

Reclassification to earnings:

        

Hedge derivatives

     (7.8     (0.3     (10.6     0.4   

Amortization of losses and prior service costs

     31.8        35.9        62.4        66.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (49.7     (34.5     74.1        (134.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     446.1        509.1        989.4        843.8   

Comprehensive loss attributable to redeemable and noncontrolling interests

     (43.5     (33.6     (36.7     (16.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to General Mills

   $ 489.6      $ 542.7      $ 1,026.1      $ 859.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Consolidated Balance Sheets

GENERAL MILLS, INC. AND SUBSIDIARIES

(In Millions, Except Par Value)

 

     Nov. 27,
2016
    May 29,
2016
 
     (Unaudited)        

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 809.7      $ 763.7   

Receivables

     1,382.7        1,360.8   

Inventories

     1,525.5        1,413.7   

Prepaid expenses and other current assets

     393.6        399.0   
  

 

 

   

 

 

 

Total current assets

     4,111.5        3,937.2   

Land, buildings, and equipment

     3,571.3        3,743.6   

Goodwill

     8,679.1        8,741.2   

Other intangible assets

     4,487.4        4,538.6   

Other assets

     752.8        751.7   
  

 

 

   

 

 

 

Total assets

   $ 21,602.1      $ 21,712.3   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities:

    

Accounts payable

   $ 1,938.3      $ 2,046.5   

Current portion of long-term debt

     1,507.6        1,103.4   

Notes payable

     1,421.7        269.8   

Other current liabilities

     1,376.8        1,595.0   
  

 

 

   

 

 

 

Total current liabilities

     6,244.4        5,014.7   

Long-term debt

     6,542.0        7,057.7   

Deferred income taxes

     1,506.4        1,399.6   

Other liabilities

     1,981.8        2,087.6   
  

 

 

   

 

 

 

Total liabilities

     16,274.6        15,559.6   
  

 

 

   

 

 

 

Redeemable interest

     801.7        845.6   

Stockholders’ equity:

    

Common stock, 754.6 shares issued, $0.10 par value

     75.5        75.5   

Additional paid-in capital

     1,179.4        1,177.0   

Retained earnings

     12,931.8        12,616.5   

Common stock in treasury, at cost, shares of 174.4 and 157.8

     (7,529.2     (6,326.6

Accumulated other comprehensive loss

     (2,476.9     (2,612.2
  

 

 

   

 

 

 

Total stockholders’ equity

     4,180.6        4,930.2   

Noncontrolling interests

     345.2        376.9   
  

 

 

   

 

 

 

Total equity

     4,525.8        5,307.1   
  

 

 

   

 

 

 

Total liabilities and equity

   $     21,602.1      $     21,712.3   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Consolidated Statements of Total Equity and Redeemable Interest

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions, Except per Share Data)

 

 

 

 

           
    $.10 Par Value Common Stock                                
    (One Billion Shares Authorized)                                
    Issued     Treasury                                
    Shares     Par
Amount
    Additional
Paid-In
Capital
    Shares     Amount     Retained
Earnings
   

Accumulated

Other

Comprehensive

Loss

   

Non-

controlling
Interests

   

Total

Equity

   

Redeemable

Interest

 
                                                                                 

Balance as of May 31, 2015

    754.6      $ 75.5      $ 1,296.7        (155.9   $ (6,055.6   $ 11,990.8      $ (2,310.7   $ 396.0      $ 5,392.7      $ 778.9   

Total comprehensive income (loss)

              1,697.4        (301.5     11.2        1,407.1        30.3   

Cash dividends declared ($1.78 per share)

              (1,071.7         (1,071.7  

Shares purchased

          (10.7     (606.7           (606.7  

Stock compensation plans (includes income tax benefits of $94.1)

        (46.3     8.8        335.7              289.4     

Unearned compensation related to restricted stock unit awards

        (63.3               (63.3  

Earned compensation

        84.8                  84.8     

Increase in redemption value of redeemable interest

        (91.5               (91.5     91.5   

Acquisition of interest in subsidiary

        (3.4             (1.1     (4.5  

Distributions to noncontrolling and redeemable interest holders

                                                            (29.2     (29.2     (55.1

Balance as of May 29, 2016

    754.6        75.5        1,177.0        (157.8     (6,326.6     12,616.5        (2,612.2     376.9        5,307.1        845.6   

Total comprehensive income (loss)

              890.8        135.3        (7.4     1,018.7        (29.3

Cash dividends declared ($0.48 per share)

              (575.5         (575.5  

Shares purchased

          (20.5     (1,349.9           (1,349.9  

Stock compensation plans (includes income tax benefits of $59.7)

        36.3        3.9        147.3              183.6     

Unearned compensation related to restricted stock unit awards

        (77.3               (77.3  

Earned compensation

        56.6                  56.6     

Increase in redemption value of redeemable interest                

        (13.2               (13.2     13.2   

Distributions to noncontrolling and redeemable interest holders

                                                            (24.3     (24.3     (27.8

Balance as of Nov. 27, 2016

    754.6      $ 75.5      $ 1,179.4        (174.4   $ (7,529.2   $ 12,931.8      $ (2,476.9   $ 345.2      $ 4,525.8      $ 801.7   
                                                                                 
                                                                                 

See accompanying notes to consolidated financial statements.    

 

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Table of Contents

Consolidated Statements of Cash Flows

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

 

     Six-Month Period Ended  
     Nov. 27,
2016
    Nov. 29,
2015
 

Cash Flows - Operating Activities

    

Net earnings, including earnings attributable to redeemable and noncontrolling interests

   $ 915.3      $ 978.7   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     301.1        292.5   

After-tax earnings from joint ventures

     (54.0     (48.9

Distributions of earnings from joint ventures

     31.9        28.6   

Stock-based compensation

     56.2        52.7   

Deferred income taxes

     94.6        (32.7

Tax benefit on exercised options

     (59.7     (44.7

Pension and other postretirement benefit plan contributions

     (22.6     (22.7

Pension and other postretirement benefit plan costs

     17.9        58.9   

Divestitures loss (gain)

     13.5        (199.1

Restructuring, impairment, and other exit costs

     71.0        89.8   

Changes in current assets and liabilities

     (372.3     57.0   

Other, net

     (5.3     (54.1
  

 

 

   

 

 

 

Net cash provided by operating activities

     987.6        1,156.0   
  

 

 

   

 

 

 

Cash Flows - Investing Activities

    

Purchases of land, buildings, and equipment

     (318.3     (293.5

Investments in affiliates, net

     (7.7     11.7   

Proceeds from disposal of land, buildings, and equipment

     0.4        1.2   

Proceeds from divestitures

     17.5        822.7   

Exchangeable note

     13.0          

Other, net

     15.1        (19.1
  

 

 

   

 

 

 

Net cash (used) provided by investing activities

     (280.0     523.0   
  

 

 

   

 

 

 

Cash Flows - Financing Activities

    

Change in notes payable

     1,164.5        (293.7

Payment of long-term debt

     (0.1     (0.3

Proceeds from common stock issued on exercised options

     77.0        64.5   

Tax benefit on exercised options

     59.7        44.7   

Purchases of common stock for treasury

     (1,349.9     (549.0

Dividends paid

     (575.5     (530.9

Distributions to noncontrolling and redeemable interest holders

     (4.6     (77.2

Other, net

            0.1   
  

 

 

   

 

 

 

Net cash used by financing activities

     (628.9     (1,341.8
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (32.7     (21.6
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     46.0        315.6   

Cash and cash equivalents - beginning of year

     763.7        334.2   
  

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 809.7      $ 649.8   
  

 

 

   

 

 

 

Cash Flow from changes in current assets and liabilities:

    

Receivables

   $ (45.3   $ (109.9

Inventories

     (120.7     (196.2

Prepaid expenses and other current assets

     (2.3     18.6   

Accounts payable

     (19.9     56.3   

Other current liabilities

     (184.1     288.2   
  

 

 

   

 

 

 

Changes in current assets and liabilities

   $ (372.3   $ 57.0   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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GENERAL MILLS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Background

The accompanying Consolidated Financial Statements of General Mills, Inc. (we, us, our, General Mills, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature, including the elimination of all intercompany transactions and any noncontrolling and redeemable interests’ share of those transactions. Operating results for the quarter ended November 27, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending May 28, 2017.

These statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended May 29, 2016. The accounting policies used in preparing these Consolidated Financial Statements are the same as those described in Note 2 to the Consolidated Financial Statements in that Form 10-K. Certain terms used throughout this report are defined in the “Glossary” section below.

(2) Divestitures

During the second quarter of fiscal 2017, we sold our Martel, Ohio manufacturing facility in our Convenience Stores and Foodservice segment and simultaneously entered into a co-packing arrangement with the purchaser. We received $17.5 million in cash, and recorded a pre-tax loss of $13.5 million.

During the second quarter of fiscal 2016, we sold our North American Green Giant product lines for $822.7 million in cash, and we recorded a pre-tax gain of $199.1 million. We received net cash proceeds of $788.0 million after transaction-related costs. After the divestiture, we retained a brand intangible asset on our Consolidated Balance Sheets of $30.1 million related to our continued use of the Green Giant brand in certain markets outside of North America.

 

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(3) Restructuring Initiatives

We are currently pursuing several multi-year restructuring initiatives designed to increase our efficiency and focus our business behind our key growth strategies. Charges related to these activities were as follows:

 

    Quarter Ended
Nov. 27, 2016
    Quarter Ended
Nov. 29, 2015
 
In Millions   Severance     Asset
Write-
offs
    Accelerated
Depreciation
    Other     Total     Severance     Asset
Write-
offs
    Accelerated
Depreciation
    Other     Total  

Closure of Melbourne, Australia plant

  $ 11.3      $      $ 0.7      $      $ 12.0      $      $      $      $      $   

Restructuring of certain International product lines

    4.1        2.2        (0.3     0.9        6.9                                      

Closure of Vineland, New Jersey plant

    (0.1            7.0        0.1        7.0                                      

Project Compass

                                       2.2                      (0.1     2.1   

Project Century

    0.2        5.0        5.4        5.3        15.9        25.8        10.1        21.2        23.9        81.0   

Total

  $ 15.5      $ 7.2      $ 12.8      $ 6.3      $ 41.8      $ 28.0      $ 10.1      $ 21.2      $ 23.8      $ 83.1   
                                                                                 
                   
    Six-Month Period Ended
Nov. 27, 2016
    Six-Month Period Ended
Nov. 29, 2015
 
In Millions   Severance     Asset
Write-
offs
    Accelerated
Depreciation
    Other     Total     Severance     Asset
Write-
offs
    Accelerated
Depreciation
    Other     Total  

Closure of Melbourne, Australia plant

  $ 11.3      $      $ 0.7      $      $ 12.0      $      $      $      $      $   

Restructuring of certain International product lines

    6.4        35.8        (0.3     1.4        43.3                                      

Closure of Vineland, New Jersey plant

    12.3               14.0        1.6        27.9                                      

Project Compass

                  0.2        0.8        1.0        47.1                      6.5        53.6   

Project Century

    0.5        8.1        14.6        6.9        30.1        28.1        12.5        42.6        28.0        111.2   

Project Catalyst

                                       0.2                             0.2   

Total

  $ 30.5      $ 43.9      $ 29.2      $ 10.7      $ 114.3      $ 75.4      $ 12.5      $ 42.6      $ 34.5      $ 165.0   
                                                                                 

In the second quarter of fiscal 2017, we notified the employees and their representatives of our decision to close our pasta manufacturing facility in Melbourne, Australia in our International segment to improve our margin structure. This action will affect approximately 350 positions, and we expect to incur approximately $34 million of net expenses relating to this action, most of which will be non-cash. We recorded $12.0 million of restructuring charges in the second quarter of fiscal 2017 relating to this action. We expect these actions to be completed by the end of fiscal 2018.

In the first quarter of fiscal 2017, we announced a plan to restructure certain product lines in our International segment. To eliminate excess capacity, we will close our snacks manufacturing facility in Marília, Brazil and cease production operations for meals and snacks at our facility in São Bernardo do Campo, Brazil. We will also cease production of certain underperforming snack products at our facility in Nanjing, China. These and other actions, which are subject to appropriate consultation with employees and their representatives where required by law or practice, will affect approximately 420 positions in our Brazilian operations and approximately 440 positions in our Greater China operations. We expect to incur approximately $46 million of net expenses of which approximately $8 million will be cash. We recorded $6.9 million of restructuring charges in the second quarter of fiscal 2017 and $43.3 million in the six-month period ended November 27, 2016 relating to this action. We expect these actions to be completed by the end of fiscal 2017.

In the first quarter of fiscal 2017, we approved a plan to close our Vineland, New Jersey facility to eliminate excess soup capacity in our U.S. Retail segment. This action will affect approximately 370 positions, and we expect to

 

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incur approximately $66 million of net expenses, of which approximately $23 million will be cash. We recorded $7.0 million of restructuring charges in the second quarter of fiscal 2017 and $27.9 million in the six-month period ended November 27, 2016 relating to this action. We expect this action to be completed by the end of fiscal 2019.

In the first quarter of fiscal 2016, we approved Project Compass, a restructuring plan designed to enable our International segment to accelerate long-term growth through increased organizational effectiveness and reduced administrative expense. In connection with this project, we expect to eliminate approximately 725 to 775 positions. We expect to incur approximately $58 million of net expenses, all of which will be cash. We recorded $1.0 million of restructuring expenses in the six-month period ended November 27, 2016 relating to this action. We recorded $2.1 million of restructuring charges in the second quarter of fiscal 2016 and $53.6 million in the six-month period ended November 29, 2015. We expect this action to be completed by the end of fiscal 2017.

Project Century (Century) began in fiscal 2015 and is a review of our manufacturing and distribution network to streamline operations and identify potential capacity reductions. As part of Century, in the second quarter of fiscal 2016, we notified the employees and their representatives of our decision to close the dough and dry mix manufacturing facility in our International segment supply chain located in Berwick, United Kingdom. This action will affect approximately 265 positions, and we expect to incur approximately $33 million of net expenses related to this action, of which $12 million will be cash. We recorded $0.5 million of restructuring charges in the second quarter of fiscal 2017 and $2.0 million in the six-month period ended November 27, 2016 relating to this action. We expect these actions to be completed by the end of fiscal 2018.

As part of Century, in the second quarter of fiscal 2016, we notified the employees and their representatives of our decision to close our pasta manufacturing facility located in East Tamaki, New Zealand in our International segment supply chain. This action affected 20 positions, and we incurred less than $1 million of net expenses related to this action, most of which was cash. We recorded $0.4 million of restructuring charges in the six-month period ended November 29, 2015. This action was completed in fiscal 2017.    

As part of Century, in the first quarter of fiscal 2016, we approved a restructuring plan to close our cereal and dry dinner manufacturing plant in West Chicago, Illinois in our U.S. Retail segment supply chain. This action will affect approximately 500 positions, and we expect to incur approximately $108 million of net expenses relating to this action, of which approximately $44 million will be cash. We recorded $5.5 million of restructuring charges in the second quarter of fiscal 2017 and $12.9 million in the six-month period ended November 27, 2016 relating to this action. We recorded $64.0 million in the second quarter of fiscal 2016 and the six-month period ended November 29, 2015 relating to this action. We expect this action to be completed by the end of fiscal 2019.

As part of Century, in the first quarter of fiscal 2016, we approved a restructuring plan to close our snacks manufacturing facility in Joplin, Missouri in our U.S. Retail segment supply chain. This action affected approximately 120 positions, and we incurred $6.6 million of net expenses relating to this action, including $2.9 million in the second quarter of fiscal 2016 and $7.8 million in the six-month period ended November 29, 2015, of which less than $1 million was cash. This action was completed in fiscal 2016.

In addition, we recorded restructuring charges of $9.9 million in the second quarter of fiscal 2017, $13.7 million in the second quarter of fiscal 2016, $15.2 million in the six-month period ended November 27, 2016, and $39.0 million in the six-month period ended November 29, 2015 relating to other Century actions previously announced.

During the six-month period ended November 27, 2016, we paid $43.3 million in cash relating to restructuring initiatives.

In addition to restructuring charges, we recorded $11.1 million of project-related costs in cost of sales in the second quarter of fiscal 2017 and $24.9 million in the six-month period ended November 27, 2016. We paid $28.6 million in cash in the six-month period ended November 27, 2016 for project-related costs. We expect to incur approximately $29.5 million of project-related costs in future periods related to our restructuring initiatives.

 

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Restructuring charges and project-related costs are recorded in our Consolidated Statements of Earnings as follows:

 

     Quarter Ended      Six-Month
Period Ended
 
In Millions    Nov. 27, 2016      Nov. 29, 2015      Nov. 27, 2016      Nov. 29, 2015  

Cost of sales

   $ 12.8       $ 21.8       $ 26.4       $ 43.6   

Restructuring, impairment, and other exit costs

     29.0         61.3         87.9         121.4   

Total restructuring charges

     41.8         83.1         114.3         165.0   
                                     

Project-related costs classified in cost of sales

   $ 11.1       $ 16.2       $ 24.9       $ 29.3   
                                     

The roll forward of our restructuring and other exit cost reserves, included in other current liabilities, is as follows:

 

In Millions    Severance    

Contract

Termination

   

Other

Exit Costs

    Total  

Reserve balance as of May 29, 2016

   $ 73.6      $ 1.5      $ 1.5      $ 76.6   

Fiscal 2017 charges, including foreign currency translation

     31.2               2.2        33.4   

Utilized in fiscal 2017

     (37.5     (1.7     (2.4     (41.6

Reserve balance as of Nov. 27, 2016

   $ 67.3      $ (0.2   $ 1.3      $ 68.4   
                                  

The charges recognized in the roll forward of our reserves for restructuring and other exit costs do not include items charged directly to expense (e.g., asset impairment charges, the gain or loss on the sale of restructured assets, and the write-off of spare parts) and other periodic exit costs recognized as incurred, as those items are not reflected in our restructuring and other exit cost reserves on our Consolidated Balance Sheets.

(4) Goodwill and Other Intangible Assets

The components of goodwill and other intangible assets are as follows:

 

In Millions    Nov. 27,
2016
     May 29,
2016
 

Goodwill

   $ 8,679.1       $ 8,741.2   

Other intangible assets:

     

Intangible assets not subject to amortization:

     

Brands and other indefinite-lived intangibles

     4,125.4         4,147.5   

Intangible assets subject to amortization:

     

Franchise agreements, customer relationships, and other finite-lived intangibles

     513.7         536.9   

Less accumulated amortization

     (151.7      (145.8

Intangible assets subject to amortization, net

     362.0         391.1   

Other intangible assets

     4,487.4         4,538.6   

Total

   $ 13,166.5       $ 13,279.8   
                   

Based on the carrying value of finite-lived intangible assets as of November 27, 2016, annual amortization expense for each of the next five fiscal years is estimated to be approximately $27 million.

 

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The changes in the carrying amount of goodwill during fiscal 2017 were as follows:

 

In Millions    U.S.
Retail
     International     Convenience Stores
and Foodservice
    Joint
Ventures
    Total  

Balance as of May 29, 2016

   $ 6,292.9       $ 1,121.0      $ 921.1      $ 406.2      $ 8,741.2   

Divestiture

                    (2.3            (2.3

Other activity, primarily foreign currency translation

             (40.8            (19.0     (59.8

Balance as of Nov. 27, 2016

   $ 6,292.9       $ 1,080.2      $ 918.8      $ 387.2      $ 8,679.1   
                                           

The changes in the carrying amount of other intangible assets during fiscal 2017 were as follows:

 

In Millions    U.S.
Retail
    International     Joint
Ventures
     Total  

Balance as of May 29, 2016

   $ 3,211.7      $ 1,263.9      $ 63.0       $ 4,538.6   

Other activity, primarily foreign currency translation

     (1.8     (50.5     1.1         (51.2

Balance as of Nov. 27, 2016

   $ 3,209.9      $ 1,213.4      $ 64.1       $ 4,487.4   
                                   

Our annual goodwill and indefinite-lived intangible asset testing was performed on the first day of the second quarter of fiscal 2017. As of the assessment date, there was no impairment of any of our goodwill or indefinite-lived intangible assets as their related fair values were substantially in excess of the carrying values, except for the Immaculate Baking brand and the Latin America reporting unit. The excess fair value above the carrying value of this brand asset and reporting unit is as follows:

 

In Millions    Carrying
Value
     Excess Fair Value
Above Carrying
Value
 

Immaculate Baking

   $ 12.0         17

Latin America

   $ 523.0         15
                   

In addition, while having significant coverage as of our fiscal 2017 assessment date, the Progresso, Green Giant and Food Should Taste Good brand assets had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.

(5) Inventories

The components of inventories were as follows:

 

In Millions    Nov. 27,
2016
     May 29,
2016
 

Raw materials and packaging

   $ 384.3       $ 397.3   

Finished goods

     1,239.0         1,163.1   

Grain

     102.3         72.6   

Excess of FIFO over LIFO cost

     (200.1      (219.3

Total

   $ 1,525.5       $ 1,413.7   
                   

 

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(6) Risk Management Activities

Many commodities we use in the production and distribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), non-fat dry milk, natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts is to achieve certainty with regard to the future price of commodities purchased for use in our supply chain. We manage our exposures through a combination of purchase orders, long-term contracts with suppliers, exchange-traded futures and options, and over-the-counter options and swaps. We offset our exposures based on current and projected market conditions and generally seek to acquire the inputs at as close to our planned cost as possible.

We use derivatives to manage our exposure to changes in commodity prices. We do not perform the assessments required to achieve hedge accounting for commodity derivative positions. Accordingly, the changes in the values of these derivatives are recorded currently in cost of sales in our Consolidated Statements of Earnings.

Although we do not meet the criteria for cash flow hedge accounting, we believe that these instruments are effective in achieving our objective of providing certainty in the future price of commodities purchased for use in our supply chain. Accordingly, for purposes of measuring segment operating performance, certain gains and losses are reported in unallocated corporate items outside of segment operating results until such time that the exposure we are managing affects earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic effects of the derivative without experiencing the resulting mark-to-market volatility, which remains in unallocated corporate items.

Unallocated corporate items for the quarters and six-month periods ended November 27, 2016, and November 29, 2015 included:

 

      Quarter Ended     Six-Month
Period Ended
 
In Millions    Nov. 27,
2016
     Nov. 29,
2015
    Nov. 27,
2016
    Nov. 29,
2015
 

Net gain (loss) on mark-to-market valuation of certain commodity positions

   $ 3.0       $ (31.7   $ (15.9   $ (54.0

Net loss on commodity positions reclassified from unallocated corporate items to segment operating profit

     14.4         35.2        23.7        62.1   

Net mark-to-market revaluation of certain grain inventories

     11.7         4.2        4.7        2.3   

Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items

   $ 29.1       $ 7.7      $ 12.5      $ 10.4   
                                   

As of November 27, 2016, the net notional value of commodity derivatives was $164.0 million, of which $72.4 million related to energy inputs and $91.6 million related to agricultural inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.

In advance of planned debt financing, during the third quarter of fiscal 2016 and the first quarter of fiscal 2017, we entered into $400 million and $100 million, respectively, of treasury locks due February 15, 2017 with an average fixed rate of 2.0 percent.

As of November 27, 2016, the net notional value of foreign exchange derivatives was $900.0 million.

The fair values of the derivative positions used in our risk management activities and other assets recorded at fair value were not material as of November 27, 2016, and were Level 1 or Level 2 assets and liabilities in the fair value hierarchy. We did not significantly change our valuation techniques from prior periods.

We offer certain suppliers access to a third party service that allows them to view our scheduled payments online. The third party service also allows suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct

 

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relationship with the suppliers, the third party, or any financial institutions concerning this service. All of our accounts payable remain as obligations to our suppliers as stated in our supplier agreements. As of November 27, 2016, $560.2 million of our total accounts payable is payable to suppliers who utilize this third party service.

(7) Debt

The components of notes payable were as follows:

 

In Millions    Nov. 27,
2016
     May 29,
2016
 

U.S. commercial paper

   $ 1,184.9       $   

Financial institutions

     236.8         269.8   

Total

   $ 1,421.7       $ 269.8   
                   

To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding notes payable. Commercial paper is a continuing source of short-term financing. We have commercial paper programs available to us in the United States and Europe. We also have committed, uncommitted, and asset-backed credit lines that support our foreign operations.

The following table details the fee-paid committed and uncommitted credit lines we had available as of November 27, 2016:

 

In Billions    Facility
Amount
     Borrowed
Amount
 

Credit facility expiring:

     

May 2021

   $ 2.7       $   

June 2019

     0.2         0.1   

Total committed credit facilities

     2.9         0.1   

Uncommitted credit facilities

     0.4         0.1   

Total committed and uncommitted credit facilities

   $ 3.3       $ 0.2   
                   

In fiscal 2016, we entered into a $2.7 billion fee-paid committed credit facility that is scheduled to expire in May 2021. Concurrent with the execution of this credit facility, we terminated our $1.7 billion and $1.0 billion credit facilities.

The credit facilities contain covenants, including a requirement to maintain a fixed charge coverage ratio of at least 2.5 times. We were in compliance with all credit facility covenants as of November 27, 2016.

Long-Term Debt

The fair values and carrying amounts of long-term debt, including the current portion, were $8,347.2 million and $8,049.6 million, respectively, as of November 27, 2016. The fair value of long-term debt was estimated using market quotations and discounted cash flows based on our current incremental borrowing rates for similar types of instruments. Long-term debt is a Level 2 liability in the fair value hierarchy.

In January 2016, we issued €500.0 million principal amount of floating-rate notes due January 15, 2020. Interest on the notes is payable quarterly in arrears. We may redeem the notes if certain tax laws change and we would be obligated to pay additional amounts on the notes. These notes are senior unsecured obligations that include a change of control repurchase provision. The net proceeds were used to repay a portion of our maturing long-term debt.

In January 2016, we repaid $250 million of 0.875 percent fixed-rate notes and $750 million of floating-rate notes.

 

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Certain of our long-term debt agreements contain restrictive covenants. As of November 27, 2016, we were in compliance with all of these covenants.

(8) Redeemable and Noncontrolling Interests

We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl. Sodiaal International (Sodiaal) holds the remaining interests in each of the entities. On the acquisition date, we recorded the $904.4 million fair value of Sodiaal’s 49 percent euro-denominated interest in Yoplait SAS as a redeemable interest on our Consolidated Balance Sheets. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up to three times before December 2024. We adjust the value of the redeemable interest through additional paid-in capital on our Consolidated Balance Sheets quarterly to the redeemable interest’s redemption value, which approximates its fair value. Yoplait SAS pays dividends annually if it meets certain financial metrics set forth in its shareholders’ agreement. As of November 27, 2016, the redemption value of the euro-denominated redeemable interest was $801.7 million.

A subsidiary of Yoplait SAS has an exclusive milk supply agreement for its European operations with Sodiaal through July 1, 2021. Net purchases totaled $123.5 million for the six-month period ended November 27, 2016 and $107.6 million for the six-month period ended November 29, 2015.

On the acquisition dates, we recorded the $281.4 million fair value of Sodiaal’s 50 percent euro-denominated interest in Yoplait Marques SNC and 50 percent Canadian dollar-denominated interest in Liberté Marques Sàrl as noncontrolling interests on our Consolidated Balance Sheets. Yoplait Marques SNC earns a royalty stream through a licensing agreement with Yoplait SAS for the rights to Yoplait and related trademarks. Liberté Marques Sàrl earns a royalty stream through licensing agreements with certain Yoplait group companies for the rights to Liberté and related trademarks. These entities pay dividends annually based on their available cash as of their fiscal year end.

The third-party holder of the Class A Interests in our General Mills Cereals, LLC (GMC) consolidated subsidiary receives quarterly preferred distributions from available net income based on the application of a floating preferred return rate to the holder’s capital account balance established in the most recent mark-to-market valuation (currently $251.5 million). The preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction. On June 1, 2015, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 125 basis points.

Our noncontrolling interests contain restrictive covenants. As of November 27, 2016, we were in compliance with all of these covenants.

 

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(9) Stockholders’ Equity

The following tables provide details of total comprehensive income:

 

    Quarter Ended     Quarter Ended  
    Nov. 27, 2016     Nov. 29, 2015  
    General Mills     Noncontrolling
Interests
    Redeemable
Interest
    General Mills     Noncontrolling
Interests
    Redeemable
Interest
 
In Millions   Pretax     Tax     Net     Net     Net     Pretax     Tax     Net     Net     Net  

Net earnings, including earnings attributable to redeemable and noncontrolling interests

                  $ 481.8      $ 6.0      $ 8.0                      $ 529.5      $ 3.9      $ 10.2   

Other comprehensive income (loss):

                   

Foreign currency translation

  $ (49.6   $        (49.6     (18.0     (38.1   $ (22.8   $        (22.8     (17.5     (30.0

Other fair value changes:

                   

Securities

    (0.1            (0.1                   0.1               0.1                 

Hedge derivatives

    48.5        (16.0     32.5               (0.4     2.1        (1.1     1.0               (0.9

Reclassification to earnings:

                   

Hedge derivatives (a)

    (7.0     0.2        (6.8            (1.0     (1.2     0.2        (1.0            0.7   

Amortization of losses and prior service costs (b)

    51.4        (19.6     31.8                      57.7        (21.8     35.9                 

Other comprehensive income (loss)

  $ 43.2      $ (35.4     7.8        (18.0     (39.5   $ 35.9      $ (22.7     13.2        (17.5     (30.2

Total comprehensive income (loss)

                  $ 489.6      $ (12.0   $ (31.5                   $ 542.7      $ (13.6   $ (20.0
                                                                                 

 

(a) (Gain) loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and selling, general, and administrative (SG&A) expenses for foreign exchange contracts.

 

(b) Loss reclassified from AOCI into earnings is reported in SG&A expenses.

 

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    Six-Month Period Ended     Six-Month Period Ended  
    Nov. 27, 2016     Nov. 29, 2015  
    General Mills     Noncontrolling
Interests
    Redeemable
Interest
    General Mills     Noncontrolling
Interests
    Redeemable
Interest
 
In Millions   Pretax     Tax     Net     Net     Net     Pretax     Tax     Net     Net     Net  

Net earnings, including earnings attributable to redeemable and noncontrolling interests

                  $ 890.8      $ 7.8      $ 16.7                      $ 956.1      $ 6.5      $ 16.1   

Other comprehensive loss:

                   

Foreign currency translation

  $ 37.0      $        37.0        (15.2     (47.1   $ (172.7   $        (172.7     (12.2     (27.6

Other fair value changes:

                   

Securities

    0.5        (0.2     0.3                                                    

Hedge derivatives

    58.7        (14.1     44.6               2.7        15.3        (4.2     11.1               (0.7

Reclassification to earnings:

                   

Hedge derivatives (a)

    (8.6     (0.4     (9.0            (1.6     (2.3     0.8        (1.5            1.9   

Amortization of losses and prior service costs (b)

    100.8        (38.4     62.4                      107.4        (40.6     66.8                 

Other comprehensive income (loss)

  $ 188.4      $ (53.1     135.3        (15.2     (46.0   $ (52.3   $ (44.0     (96.3     (12.2     (26.4

Total comprehensive income (loss)

                  $ 1,026.1      $ (7.4   $ (29.3                   $ 859.8      $ (5.7   $ (10.3
                                                                                 

 

(a) (Gain) loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.

 

(b) Loss reclassified from AOCI into earnings is reported in SG&A expenses.

Accumulated other comprehensive loss balances, net of tax effects, were as follows:

 

In Millions    Nov. 27,
2016
     May 29,
2016
 

Foreign currency translation adjustments

   $ (607.2    $ (644.2

Unrealized gain (loss) from:

     

Securities

     4.1         3.8   

Hedge derivatives

     10.1         (25.5

Pension, other postretirement, and postemployment benefits:

     

Net actuarial loss

     (1,898.0      (1,958.2

Prior service costs

     14.1         11.9   

Accumulated other comprehensive loss

   $ (2,476.9    $ (2,612.2
                   

 

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(10) Stock Plans

We have various stock-based compensation programs under which awards, including stock options, restricted stock, restricted stock units, and performance awards, may be granted to employees and non-employee directors. These programs and related accounting are described in Note 11 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 29, 2016.

Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings was as follows:

 

     Quarter Ended      Six-Month
Period Ended
 
In Millions    Nov. 27,
2016
     Nov. 29,
2015
     Nov. 27,
2016
     Nov. 29,
2015
 

Compensation expense related to stock-based payments

   $ 18.6       $ 21.4       $ 57.6       $ 54.3   
                                     

Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings includes amounts recognized in restructuring, impairment, and other exit costs in fiscal 2016.

As of November 27, 2016, unrecognized compensation expense related to non-vested stock options, restricted stock units, and performance share units was $136.7 million. This expense will be recognized over 23 months, on average.

Net cash proceeds from the exercise of stock options less shares used for withholding taxes and the intrinsic value of options exercised were as follows:

 

     Six-Month
Period Ended
 
In Millions    Nov. 27,
2016
     Nov. 29,
2015
 

Net cash proceeds

   $ 77.0       $ 64.5   

Intrinsic value of options exercised

   $ 131.9       $ 102.0   
                   

We estimate the fair value of each stock option on the grant date using a Black-Scholes option-pricing model. Black-Scholes option-pricing models require us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. We estimate our future stock price volatility using the historical volatility over the expected term of the option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. We also have considered, but did not use, implied volatility in our estimate, because trading activity in options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. Our method of selecting the other valuation assumptions is explained in Note 11 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 29, 2016.

 

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The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:

 

     Six-Month
Period Ended
 
      Nov. 27,
2016
    Nov. 29,
2015
 

Estimated fair values of stock options granted

   $ 8.80      $ 7.24   

Assumptions:

    

Risk-free interest rate

     1.7     2.4

Expected term

     8.5 years        8.5 years   

Expected volatility

     17.8     17.6

Dividend yield

     2.9     3.2
                  

Information on stock option activity follows:

 

     

Options

Outstanding

(Thousands)

   

Weighted-
Average
Exercise

Price Per
Share

    

Weighted-

Average
Remaining
Contractual

Term
(Years)

    

Aggregate

Intrinsic

Value

(Millions)

 

Balance as of May 29, 2016

     32,401.6      $ 37.09         

Granted

     2,446.0        66.52         

Exercised

     (3,302.9     30.37         

Forfeited or expired

     (62.4     58.48                     

Outstanding as of Nov. 27, 2016

     31,482.3      $ 40.04         4.57       $ 710.9   

Exercisable as of Nov. 27, 2016

     22,465.8      $ 33.63         3.15       $ 644.0   
                                    

Information on restricted stock and performance share unit activity follows:

 

     Equity Classified      Liability Classified  
      Share-Settled
Units
(Thousands)
   

Weighted-
Average

Grant-Date

Fair Value

     Share-Settled
Units
(Thousands)
   

Weighted-
Average

Grant-Date

Fair Value

 

Non-vested as of May 29, 2016

     5,100.4      $ 48.60         211.4      $ 48.37   

Granted

     1,335.7        67.35         48.7        66.95   

Vested

     (1,392.5     39.99         (89.6     38.77   

Forfeited

     (160.2     55.50         (5.9     56.56   

Exercisable as of Nov. 27, 2016

     4,883.4      $ 55.96         164.6      $ 56.02   
                                   

The total grant date fair value of restricted stock unit awards that vested during the period follows:

 

     Six-Month
Period Ended
 
In Millions    Nov. 27,
2016
     Nov. 29,
2015
 

Total grant date fair value

   $ 59.6       $ 93.7   
                   

 

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(11) Earnings Per Share

Basic and diluted earnings per share (EPS) were calculated using the following:

 

     Quarter Ended      Six-Month
Period Ended
 
In Millions, Except per Share Data    Nov. 27,
2016
     Nov. 29,
2015
     Nov. 27,
2016
     Nov. 29,
2015
 

Net earnings attributable to General Mills

   $ 481.8       $ 529.5       $ 890.8       $ 956.1   
                                     

Average number of common shares - basic EPS

     588.8         599.4         594.4         600.8   

Incremental share effect from: (a)

           

Stock options

     8.1         9.8         8.8         10.1   

Restricted stock, restricted stock units, and other

     2.8         3.2         2.8         3.2   

Average number of common shares - diluted EPS

     599.7         612.4         606.0         614.1   
                                     

Earnings per share - basic

   $ 0.82       $ 0.88       $ 1.50       $ 1.59   

Earnings per share - diluted

   $ 0.80       $ 0.87       $ 1.47       $ 1.56   
                                     

 

(a) Incremental shares from stock options, restricted stock units, and performance share units are computed by the treasury stock method. Stock options, restricted stock units, and performance share units excluded from our computation of diluted EPS because they were not dilutive were as follows:

 

     Quarter Ended      Six-Month
Period Ended
 
In Millions    Nov. 27,
2016
     Nov. 29,
2015
     Nov. 27,
2016
     Nov. 29,
2015
 

Anti-dilutive stock options, restricted stock units, and performance share units

     2.5         2.2         2.2         2.6   
                                     

(12) Share Repurchases

Share repurchases were as follows:

 

     Quarter Ended      Six-Month
Period Ended
 
In Millions    Nov. 27,
2016
     Nov. 29,
2015
     Nov. 27,
2016
     Nov. 29,
2015
 

Shares of common stock

     14.9         6.8         20.5         9.5   

Aggregate purchase price

   $ 950.2       $ 385.2       $ 1,349.9       $ 537.3   
                                     

During the second quarter of fiscal 2016, we entered into an accelerated share repurchase (ASR) agreement with an unrelated third party financial institution to repurchase an aggregate of $225.0 million of our outstanding common stock. Under the ASR agreement, we paid $225.0 million to the financial institution and received 3.7 million shares of common stock with a fair value of $213.3 million during the second quarter of fiscal 2016. We recorded an additional 0.2 million shares of common stock upon the completion of the ASR agreement in the third quarter of fiscal 2016. We recorded this transaction as an increase in treasury stock of $213.3 million, and recorded the remaining $11.7 million as a decrease to additional paid-in capital on our Consolidated Balance Sheets as of November 29, 2015. Upon completion of the ASR agreement, we reclassified the $11.7 million to treasury stock from additional paid-in capital on our Consolidated Balance Sheets.

 

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(13) Statements of Cash Flows

Our Consolidated Statements of Cash Flows include the following:

 

     Six-Month
Period Ended
 
In Millions    Nov. 27,
2016
     Nov. 29,
2015
 

Net cash interest payments

   $ 141.9       $ 145.1   

Net income tax payments

   $ 290.8       $ 346.9   
                   

(14) Retirement and Postemployment Benefits

Beginning in fiscal 2017, we changed the method used to estimate the service and interest cost components of the net periodic benefit expense for our U.S. and most of our international defined benefit pension, other postretirement benefit and postemployment benefit plans. We adopted a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash flows. This method provides a more precise measurement of service and interest costs by correlating the timing of the plans’ liability cash flows to the corresponding rate on the yield curve. Previously, we estimated service cost and interest cost using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. This change does not affect the measurement of our benefit obligations related to these plans. We have accounted for this change prospectively as a change in accounting estimate beginning in the first quarter of fiscal 2017. The change in methodology resulted in a decrease in service and interest cost of approximately $17 million in the three months ended November 27, 2016 and approximately $34 million in the six-month period ended November 27, 2016 compared to what our costs would have been under the previous method. We expect this change to result in a reduction in our service and interest cost of approximately $68 million for fiscal 2017 compared to our previous methodology. The fiscal 2017 reduction in our net periodic benefit expense as a result of this change in methodology is partially offset by a reduction in our weighted-average expected rate of return on plan assets for our principal defined benefit pension and other postretirement plans in the United States to 8.25 percent as a result of asset changes that decreased investment risk in the portfolio.

 

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Components of net periodic benefit expense are as follows:

 

     Defined Benefit
Pension Plans
    Other Postretirement
Benefit Plans
    Postemployment
Benefit Plans
 
     Quarter Ended     Quarter Ended     Quarter Ended  
In Millions    Nov. 27,
2016
    Nov. 29,
2015
    Nov. 27,
2016
    Nov. 29,
2015
    Nov. 27,
2016
     Nov. 29,
2015
 

Service cost

   $ 30.0      $ 33.7      $ 3.1      $ 4.7      $ 2.2       $ 1.9   

Interest cost

     54.1        67.0        7.9        11.0        0.7         1.0   

Expected return on plan assets

     (121.7     (124.3     (12.1     (11.5               

Amortization of losses

     47.6        47.3        0.7        1.6        0.5         0.2   

Amortization of prior service costs (credits)

     0.6        1.2        (1.3     (1.3     0.1         0.6   

Other adjustments

     2.1        5.0        1.3        2.4        3.4         3.3   

Settlement or curtailment losses

     2.9        11.3        0.7        0.2                  

Net expense

   $ 15.6      $ 41.2      $ 0.3      $ 7.1      $ 6.9       $ 7.0   
                                                   
             
     Defined Benefit
Pension Plans
    Other Postretirement
Benefit Plans
    Postemployment
Benefit Plans
 
     Six-Month
Period Ended
    Six-Month
Period Ended
    Six-Month
Period Ended
 
In Millions    Nov. 27,
2016
    Nov. 29,
2015
    Nov. 27,
2016
    Nov. 29,
2015
    Nov. 27,
2016
     Nov. 29,
2015
 

Service cost

   $ 60.0      $ 67.4      $ 6.2      $ 9.5      $ 4.4       $ 3.8   

Interest cost

     108.3        134.0        16.0        22.0        1.4         2.0   

Expected return on plan assets

     (243.5     (248.6     (24.2     (23.1               

Amortization of losses

     95.0        94.7        1.3        3.3        0.9         0.4   

Amortization of prior service costs (credits)

     1.2        2.4        (2.6     (2.7     0.3         1.2   

Other adjustments

     2.1        5.0        1.3        2.4        6.8         6.5   

Settlement or curtailment losses

     4.4        11.3        0.7        0.2                  

Net expense (income)

   $ 27.5      $ 66.2      $ (1.3   $ 11.6      $ 13.8       $ 13.9   
                                                   

(15) Business Segment Information

We operate in the consumer foods industry. We have three operating segments by type of customer and geographic region as follows: U.S. Retail; International; and Convenience Stores and Foodservice.

Our U.S. Retail segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, and e-commerce grocery providers operating throughout the United States. Our product categories in this business segment are ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products including meal kits, granola bars, and cereal.

Our International segment consists of retail and foodservice businesses outside of the United States. Our product categories include ready-to-eat cereals, shelf stable and frozen vegetables, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza snacks, refrigerated yogurt, grain and fruit snacks, and super-premium ice cream and frozen desserts. We also sell super-premium ice cream and frozen desserts directly to consumers through owned retail shops. Our International segment also includes products manufactured in the United States for export, mainly to Caribbean and Latin American markets, as well as products we manufacture for sale to

 

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our international joint ventures. Revenues from export activities and franchise fees are reported in the region or country where the end customer is located.

In our Convenience Stores and Foodservice segment, our major product categories are ready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, and baking mixes. Many products we sell are branded to the consumer and nearly all are branded to our customers. We sell to distributors and operators in many customer channels including foodservice, convenience stores, vending, and supermarket bakeries in the United States.

Operating profit for these segments excludes unallocated corporate items, gain or loss on divestitures, and restructuring, impairment, and other exit costs. Unallocated corporate items include corporate overhead expenses, variances to planned domestic employee benefits and incentives, contributions to the General Mills Foundation, asset and liability remeasurement impact of hyperinflationary economies, restructuring initiative project-related costs, and other items that are not part of our measurement of segment operating performance. These include gains and losses arising from the revaluation of certain grain inventories and gains and losses from mark-to-market valuation of certain commodity positions until passed back to our operating segments. These items affecting operating profit are centrally managed at the corporate level and are excluded from the measure of segment profitability reviewed by executive management. Under our supply chain organization, our manufacturing, warehouse, and distribution activities are substantially integrated across our operations in order to maximize efficiency and productivity. As a result, fixed assets and depreciation and amortization expenses are neither maintained nor available by operating segment.

Our operating segment results were as follows:

 

     Quarter Ended     Six-Month
Period Ended
 
In Millions    Nov. 27,
2016
     Nov. 29,
2015
    Nov. 27,
2016
     Nov. 29,
2015
 

Net sales:

          

U.S. Retail

   $ 2,521.3       $ 2,761.9      $ 4,853.1       $ 5,293.1   

International

     1,103.3         1,157.2        2,233.1         2,356.2   

Convenience Stores and Foodservice

     487.5         505.8        933.8         983.5   

Total

   $ 4,112.1       $ 4,424.9      $ 8,020.0       $ 8,632.8   

Operating profit:

          

U.S. Retail

   $ 615.4       $ 600.4      $ 1,209.8       $ 1,230.1   

International

     105.9         136.2        205.9         253.2   

Convenience Stores and Foodservice

     109.1         102.8        201.8         182.6   

Total segment operating profit

     830.4         839.4        1,617.5         1,665.9   

Unallocated corporate items

     19.0         71.5        101.4         154.6   

Divestitures loss (gain)

     13.5         (199.1     13.5         (199.1

Restructuring, impairment, and other exit costs

     29.0         61.3        87.9         121.4   

Operating profit

   $ 768.9       $ 905.7      $ 1,414.7       $ 1,589.0   
                                    

(16) New Accounting Pronouncements

In the first quarter of fiscal 2017, we adopted new accounting requirements for the presentation of certain investments using the net asset value, providing a practical expedient to exclude such investments from categorization within the fair value hierarchy and separate disclosure. The adoption of this guidance did not impact our results of operations or financial position.

In the first quarter of fiscal 2017, we adopted new accounting requirements which permit reporting entities with a fiscal year-end that does not coincide with a month-end to apply a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end

 

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and apply such practical expedient consistently to all plans. The adoption of this guidance is not expected to have a material impact on our results of operations or financial position.

(17) Subsequent Events

Subsequent to the end of our second quarter, we approved restructuring actions designed to better align our organizational structure with our strategic initiatives. In connection with these actions, we expect to eliminate approximately 400 to 600 positions globally, subject to consultation with employees and employee representatives in locations as required. In the third quarter of fiscal 2017, we expect to record total pre-tax restructuring charges of approximately $60 to $90 million, reflecting primarily one-time, cash employee severance expenses. These restructuring actions are expected to be completed by the end of fiscal 2018. We expect to generate $70 to $90 million in savings in connection with these actions by the end of fiscal 2018. In addition, we are currently assessing the impact of these organizational structure changes on our reporting segments and expect to begin reporting in modified segments in the third quarter of fiscal 2017.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INTRODUCTION

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the fiscal year ended May 29, 2016 for important background regarding, among other things, our key business drivers. Significant trademarks and service marks used in our business are set forth in italics herein. Certain terms used throughout this report are defined in the “Glossary” section below.

CONSOLIDATED RESULTS OF OPERATIONS

Second Quarter Results

In the second quarter of fiscal 2017, operating results reflected challenging net sales performance. However, we continued progress against our cost savings and margin expansion initiatives. The net sales decline of 7 percent was driven by volume reductions in the U.S. Retail and International segments, including the impact of the divestiture of our North American Green Giant product lines (Green Giant), which were partially offset by positive net price realization and mix. Operating profit margin of 18.7 percent was down 180 basis points from year-ago levels primarily driven by a gain from the Green Giant divestiture in fiscal 2016. Adjusted operating profit margin increased 160 basis points to 19.6 percent, driven by the impact of cost savings and spending optimization initiatives. Diluted earnings per share of $0.80 declined 8 percent compared to the second quarter of fiscal 2016 which included the gain from the Green Giant divestiture. Adjusted diluted earnings per share, which excludes certain items affecting comparability, increased 4 percent to $0.85 compared to the second quarter last year (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).

A summary of our consolidated financial results for the second quarter of fiscal 2017 follows:

 

Quarter Ended Nov. 27, 2016   In millions, except
per share
    Quarter Ended
Nov. 27, 2016 vs.
Nov. 29, 2015
    Percent of Net
Sales
    Constant-
Currency
Growth (a)
 

Net sales

  $ 4,112.1        (7 )%     

Operating profit

    768.9        (15 )%      18.7  

Net earnings attributable to General Mills

    481.8        (9 )%     

Diluted earnings per share

  $ 0.80        (8 )%     
       

Organic net sales growth rate (a)

      (4 )%     

Total segment operating profit (a)

    830.4        (1 )%        Flat   

Adjusted operating profit margin (a)

        19.6  

Diluted earnings per share, excluding certain items affecting comparability (a)

  $ 0.85        4             5
                                 

 

(a) See the “Non-GAAP Measures” section below for our use of measures not defined by GAAP.

 

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Consolidated net sales were as follows:

 

     Quarter Ended  
      Nov. 27,
2016
     Nov. 27, 2016 vs
Nov. 29, 2015
     Nov. 29,
2015
 

Net sales (in millions)

   $ 4,112.1         (7)      %       $ 4,424.9   
     

 

 

    

Contributions from volume growth (a)

        (10)     pts      

Net price realization and mix

        3      pts      

Foreign currency exchange

              Flat            
                            

 

(a) Measured in tons based on the stated weight of our product shipments.

The 7 percent decline in net sales primarily reflected lower organic net sales and the Green Giant divestiture in fiscal 2016.

Organic net sales declined 4 percent driven by volume declines in the U.S. Retail and International segments, which were partially offset by positive net price realization and mix. To improve comparability of results from period to period, organic net sales exclude the impacts of foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a 53rd week of results, when applicable.

Components of organic net sales growth are shown in the following table:

 

Quarter Ended Nov. 27, 2016 vs.

Quarter Ended Nov. 29, 2015

           

Contributions from organic volume growth (a)

    (7)      pts

Organic net price realization and mix

    3      pts
 

 

 

Organic net sales growth

    (4)      pts

Foreign currency exchange

    Flat           

Acquisitions and divestitures (b)

    (3)      pts

Net sales growth

    (7)      pts
             

 

(a) Measured in tons based on the stated weight of our product shipments.

 

(b) Primarily the Green Giant divestiture in fiscal 2016.

Cost of sales decreased $292 million from the second quarter of fiscal 2016 to $2,593 million. The decrease included a $269 million decrease attributable to lower volume and a $12 million increase attributable to product rate and mix. The impact from both volume and product rate and mix included the effects of the divestiture of Green Giant. We recorded a $29 million net decrease in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories in the second quarter of fiscal 2017 compared to a net decrease of $8 million in the second quarter of fiscal 2016. We recorded $13 million of restructuring charges in cost of sales in the second quarter of fiscal 2017 compared to $22 million in the same period last year. We also recorded $11 million of restructuring initiative project-related costs in the second quarter of fiscal 2017 compared to $16 million in the same period last year (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report).

Selling, general, and administrative (SG&A) expenses decreased $65 million to $708 million in the second quarter of fiscal 2017 compared to the same period in fiscal 2016. The decrease in SG&A expenses primarily reflects a 20 percentage point decrease in media and advertising expense and savings from Project Compass and our other cost management initiatives. SG&A expenses as a percent of net sales in the second quarter of fiscal 2017 decreased 24 basis points compared with the second quarter of fiscal 2016.

 

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Divestiture loss totaled $14 million from the sale of our Martel, Ohio manufacturing facility during the second quarter of fiscal 2017. Divestiture gain totaled $199 million from the sale of our Green Giant product lines during the second quarter of fiscal 2016.

Restructuring, impairment, and other exit costs totaled $29 million in the second quarter of fiscal 2017 compared to $61 million in the same period last year.

Total charges associated with our current restructuring initiatives were as follows:

 

     As Reported  
     Quarter Ended  
     Nov. 27, 2016      Nov. 29, 2015  
In Millions    Charge      Cash      Charge      Cash  

Closure of Melbourne, Australia plant

   $ 12.0       $       $       $   

Restructuring of certain International product lines

     6.9         7.1                   

Closure of Vineland, New Jersey plant

     7.0         1.2                   

Project Compass

             3.7         2.1         16.9   

Project Century

     15.9         13.0         81.0         7.3   

Project Catalyst

             0.9                 15.9   

Combination of certain operational facilities

             1.5                 0.8   

Total restructuring charges (a)

     41.8         27.4         83.1         40.9   

Project-related costs

     11.1         11.9         16.2         15.0   

Restructuring charges and project-related costs

   $ 52.9       $ 39.3       $ 99.3       $ 55.9   
                                     

 

(a) Includes $12.8 million of restructuring charges recorded in cost of sales in fiscal 2017 and $21.8 million in fiscal 2016.

For further information on these restructuring initiatives, please refer to Note 3 to the Consolidated Financial Statements in Part 1, Item 1 of this report.

Interest, net for the second quarter of fiscal 2017 totaled $76 million, up $2 million from fiscal 2016, driven primarily by higher rates, partially offset by lower average debt balances and changes in the mix of debt.

The effective tax rate for the second quarter of fiscal 2017 was 32.8 percent compared to 37.4 percent for the second quarter of fiscal 2016. The 4.6 percentage point decrease was primarily related to significant non-deductible expenses related to the Green Giant divestiture in the second quarter of fiscal 2016. Our effective tax rate excluding certain items affecting comparability was 32.4 percent in the second quarter of fiscal 2017 compared to 32.3 percent in the second quarter of fiscal 2016 (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).

 

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After-tax earnings from joint ventures for the second quarter of fiscal 2017 increased to $30 million compared to $23 million in the same quarter last fiscal year, primarily driven by volume growth and lower SG&A expenses for Cereal Partners Worldwide (CPW) and volume growth and lower input costs for Häagen-Dazs Japan, Inc. (HDJ). On a constant-currency basis, after-tax earnings from joint ventures increased 27 percent (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The change in net sales for each joint venture is set forth in the following table:

 

     Quarter Ended Nov. 27, 2016  
     

Percentage Change in
Joint Venture

Net Sales

as Reported

     Impact of Foreign
Currency
Exchange
     Percentage Change in
Joint Venture
Net Sales on Constant-
Currency Basis
 

CPW

     (1)%         (4)    pts         3%   

HDJ

     40 %         19     pts         21%   

Joint Ventures

     6 %         (1)    pts         7%   
                            

The components of our joint ventures’ net sales growth are shown in the following table:

 

Quarter Ended Nov. 27, 2016 vs.

Quarter Ended Nov. 29, 2015

   CPW    HDJ

Contributions from volume growth (a)

          pts      18        pts

Net price realization and mix

     (1)      pt      3        pts

Foreign currency exchange

     (4)      pts      19        pts

Net sales growth

     (1)      pt      40        pts
                           

 

(a) Measured in tons based on the stated weight of our product shipments.

Average diluted shares outstanding decreased by 13 million in the second quarter of fiscal 2017 from the same period a year ago due to the impact of share repurchases, partially offset by option exercises.

 

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Six-Month Results

In the six-month period ended November 27, 2016, operating results reflected challenging net sales performance. However, we continued progress against our cost savings and margin expansion initiatives. The 7 percent decline in net sales was driven by volume reductions in the U.S. Retail and International segments, including the impact of the divestiture of Green Giant, which were partially offset by positive net price realization and mix. Operating profit margin of 17.6 percent was down 80 basis points from year-ago levels primarily driven by a gain from the Green Giant divestiture in fiscal 2016. In the six-month period ended November 27, 2016, we made good progress toward our fiscal 2017 adjusted operating profit margin goal of 18.3 percent with an increase of 120 basis points over the same period in the prior year to 19.4 percent, driven by the impact of cost savings and spending optimization initiatives. For the six-month period ended November 27, 2016, diluted earnings per share of $1.47 declined 6 percent compared to the same period in fiscal 2016 which included the gain from the Green Giant divestiture. Adjusted diluted earnings per share, which excludes certain items affecting comparability, on a constant-currency basis for the six-month period ended November 27, 2016, increased 2 percent compared to the same period of fiscal 2016 (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).

A summary of our consolidated financial results for the six-month period ended November 27, 2016 follows.

 

Six-Month Period Ended Nov. 27, 2016   In millions, except
per share
    Six-Month
Period Ended
Nov. 27, 2016  vs.
Nov. 29, 2015
    Percent of Net
Sales
    Constant-
Currency
Growth (a)
 

Net sales

  $ 8,020.0        (7 )%     

Operating profit

    1,414.7        (11 )%      17.6  

Net earnings attributable to General Mills

    890.8        (7 )%     

Diluted earnings per share

  $ 1.47        (6 )%     
       

Organic net sales growth rate (a)

      (4 )%     

Total segment operating profit (a)

    1,617.5        (3 )%        (2 )% 

Adjusted operating profit margin (a)

        19.4  

Diluted earnings per share, excluding certain items affecting comparability (a)

  $ 1.63        1  %              2
                                 

 

(a) See the “Non-GAAP Measures” section below for our use of measures not defined by GAAP.

Consolidated net sales were as follows:

 

     Six-Month Period Ended  
      Nov. 27,
2016
     Nov. 27, 2016 vs
Nov. 29, 2015
     Nov. 29,
2015
 

Net sales (in millions)

   $ 8,020.0         (7)  %       $ 8,632.8   
     

 

 

    

Contributions from volume growth (a)

        (9) pts      

Net price realization and mix

        3  pts      

Foreign currency exchange

              (1) pt            
                            

 

(a) Measured in tons based on the stated weight of our product shipments.

The 7 percent decline in net sales primarily reflected lower organic net sales and the Green Giant divestiture in fiscal 2016.

Organic net sales declined 4 percent driven by volume declines in the U.S. Retail and International segments, which were partially offset by positive net price realization and mix. To improve comparability of results from period to

 

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period, organic net sales exclude the impacts of foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a 53rd week of results, when applicable.

Components of organic net sales growth are shown in the following table:

 

Six-Month Period Ended Nov. 27, 2016 vs.

Six-Month Period Ended Nov. 29, 2015

           

Contributions from organic volume growth (a)

    (6)      pts

Organic net price realization and mix

         pts
 

 

 

Organic net sales growth

    (4)      pts

Foreign currency exchange

    (1)      pt

Acquisitions and divestitures (b)

    (2)      pts

Net sales growth

    (7)      pts
             

 

(a) Measured in tons based on the stated weight of our product shipments.

 

(b) Primarily the Green Giant divestiture in fiscal 2016.

Cost of sales decreased $454 million from the six-month period ended November 29, 2015, to $5,084 million. The decrease included a $482 million decrease attributable to lower volume and a $52 million increase attributable to product rate and mix. The impact from both volume and product rate and mix included the effects of the divestiture of Green Giant. We recorded $26 million of restructuring charges in cost of sales in the six-month period ended November 27, 2016, compared to $44 million in the same period last year. We also recorded $25 million of restructuring initiative project-related costs in the six-month period ended November 27, 2016 compared to $29 million in the same period last year (please refer to Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report). We recorded a $12 million net decrease in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories in the six-month period ended November 27, 2016, compared to a net decrease of $10 million in the six-month period ended November 29, 2015.

SG&A expenses decreased $164 million to $1,420 million in the six-month period ended November 27, 2016, compared to the same period in fiscal 2016. The decrease in SG&A expenses primarily reflects a 22 percentage point decrease in media and advertising expense and cost management initiatives. SG&A expenses as a percent of net sales in the six-month period ended November 27, 2016 decreased 64 basis points compared with the same period of fiscal 2016.

Divestiture loss totaled $14 million from the sale of our Martel, Ohio manufacturing facility during the second quarter of fiscal 2017. Divestiture gain totaled $199 million from the sale of our Green Giant product lines during the second quarter of fiscal 2016.

Restructuring, impairment, and other exit costs totaled $88 million in the six-month period ended November 27, 2016 compared to $121 million in the same period last year.

 

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Total charges associated with our restructuring initiatives consisted of the following:

 

     Six-Month Period Ended      Fiscal 2016 and 2015      Estimated  
     Nov. 27, 2016      Nov. 29, 2015      Total      Future      Total         
In Millions    Charge      Cash      Charge      Cash      Charge      Cash      Charge      Cash      Charge      Cash      Savings (b)  

Closure of Melbourne, Australia plant

   $ 12.0       $       $       $       $       $       $ 22       $       $ 34       $      

Restructuring of certain International product lines

     43.3         10.4                                         3                 46         8      

Closure of Vineland, New Jersey Plant

     27.9         1.2                                         38         22         66         23      

Project Compass

     1.0         8.0         53.6         25.5         54.7         36.1         3         14         58         58      

Project Century

     30.1         20.6         111.2         13.1         364.4         46.1         42         83         436         150      

Project Catalyst

             0.5         0.2         35.6         140.9         92.8                 25         141         118      

Combination of certain operational facilities

             2.6                 1.0         13.9         11.0         1                 15         12            

Total restructuring charges (a)

     114.3         43.3         165.0         75.2         573.9         186.0         109         144         796         369      

Project-related costs

     24.9         28.6         29.3         27.2         70.7         64.2         29         32         125         125            

Restructuring charges and project-related costs

   $ 139.2       $ 71.9       $ 194.3       $ 102.4       $ 644.6       $ 250.2       $ 138       $ 176       $ 921       $ 494       $ 620   
                                                                                                    

 

(a) Includes $26.4 million of restructuring charges recorded in cost of sales during fiscal 2017 and $43.6 million in 2016.

 

(b) Cumulative annual savings targeted by fiscal 2018. Includes savings from SG&A cost reduction projects.

For further information on these restructuring initiatives, please refer to Note 3 to the Consolidated Financial Statements in Part 1, Item 1 of this report.

Interest, net for the six-month period ended November 27, 2016, totaled $149 million, flat to the same period of fiscal 2016.

The effective tax rate for the six-month period ended November 27, 2016, was 31.9 percent compared to 35.4 percent for the six-month period ended November 29, 2015. The 3.5 percentage point decrease was primarily due to significant non-deductible expenses related to the Green Giant divestiture in the second quarter of fiscal 2016. Our effective tax rate excluding certain items affecting comparability was 31.9 percent for the six-month period ended November 27, 2016 compared to 32.3 percent in the six-month period ended November 29, 2015 (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP).

After-tax earnings from joint ventures for the six-month period ended November 27, 2016, increased to $54 million compared to $49 million in the same period year in fiscal 2016, primarily driven by lower input costs and favorable foreign currency exchange for HDJ. On a constant-currency basis, after-tax earnings from joint ventures increased 8 percent (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The change in net sales for each joint venture is set forth in the following table:

 

     Six-Month Period Ended Nov. 27, 2016  
      Percentage Change in
Joint Venture
Net Sales
as Reported
     Impact of Foreign
Currency
Exchange
     Percentage Change in
Joint Venture
Net Sales on Constant-
Currency Basis
 

CPW

     (3)%         (5)    pts         2%   

HDJ

     30%         19     pts         11%   

Joint Ventures

     3%         (1)    pts         4%   
                            

 

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The components of our joint ventures’ net sales growth are shown in the following table:

 

Six-Month Period Ended Nov. 27, 2016 vs.

Six-Month Period Ended Nov. 29, 2015

   CPW      HDJ  

Contributions from volume growth (a)

            pts         9          pts   

Net price realization and mix

     (1)        pt         2          pts   

Foreign currency exchange

     (5)        pts         19          pts   

Net sales growth

     (3)        pts         30          pts   
                                   

 

(a) Measured in tons based on the stated weight of our product shipments.

Average diluted shares outstanding decreased by 8 million in the six-month period ended November 27, 2016, compared to the same period a year ago due to the impact of share repurchases, partially offset by option exercises.

SEGMENT OPERATING RESULTS

Our businesses are organized into three operating segments: U.S. Retail; International; and Convenience Stores and Foodservice.

U.S. Retail Segment Results

U.S. Retail net sales were as follows:

 

     Quarter Ended      Six-Month Period Ended  
      Nov. 27,
2016
     Nov. 27, 2016 vs
Nov. 29, 2015
     Nov. 29,
2015
     Nov. 27,
2016
     Nov. 27, 2016 vs
Nov. 29, 2015
     Nov. 29,
2015
 

Net sales (in millions)

   $ 2,521.3         (9)  %       $ 2,761.9       $ 4,853.1         (8)  %       $ 5,293.1   
     

 

 

          

 

 

    

Contributions from volume growth (a)

        (14) pts               (13) pts      

Net price realization and mix

              5  pts                           5  pts            
                                                       

 

(a) Measured in tons based on the stated weight of our product shipments.

The decrease in U.S. Retail net sales for the quarter and six-month periods ended November 27, 2016 was driven by declines in the Meals, Yogurt, Baking and Cereal operating units, partially offset by growth in the Snacks operating unit. The decline in net sales also includes the impact of the Green Giant divestiture from the Meals operating unit in fiscal 2016.

The components of U.S. Retail organic net sales growth are shown in the following table:

 

     Quarter Ended      Six-Month
Period Ended
 
      Nov. 27, 2016      Nov. 27, 2016  

Contributions from organic volume growth (a)

     (10) pts         (9) pts   

Organic net price realization and mix

     4  pts         4  pts   
  

 

 

    

 

 

 

Organic net sales growth

     (6) pts         (5) pts   

Acquisitions and divestitures (b)

     (3) pts         (3) pts   

Net sales growth

     (9) pts         (8) pts   
                   

 

(a) Measured in tons based on the stated weight of our product shipments.

 

(b) Primarily the Green Giant divestiture in fiscal 2016.

The decrease in U.S. Retail contributions from organic volume growth for the quarter and six-month periods ended November 27, 2016 reflect the impact of reduced marketing and trade support and increased competition in key categories.

 

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U.S. Retail net sales percentage change by operating unit are shown in the following table:

 

     Quarter Ended     Six-Month
Period Ended
 
      Nov. 27, 2016     Nov. 27, 2016  

Meals

     (17 )%      (18 )% 

Yogurt

     (17     (16

Cereal

     (3     (4

Baking Products

     (7     (6

Snacks

     1        2   

Total

     (9 )%      (8 )% 
                  

Segment operating profit grew 2 percent to $615 million in the second quarter of fiscal 2017 compared to $600 million in the same period of fiscal 2016, primarily driven by benefits from cost savings initiatives and a decrease in media and advertising expense.

Segment operating profit decreased 2 percent to $1,210 million in the six-month period ended November 27, 2016 compared to the same period of fiscal 2016, primarily driven by volume declines and the impact of the Green Giant divestiture, partially offset by a decrease in SG&A expenses, including cost savings initiatives and a decrease in media and advertising expense.

International Segment Results

International net sales were as follows:

 

     Quarter Ended      Six-Month
Period Ended
 
      Nov. 27,
2016
     Nov. 27, 2016 vs.
Nov. 29, 2015
     Nov. 29,
2015
     Nov. 27,
2016
     Nov. 27, 2016 vs.
Nov. 29, 2015
     Nov. 29,
2015
 

Net sales (in millions)

   $ 1,103.3         (5)     %       $ 1,157.2       $ 2,233.1         (5)     %       $ 2,356.2   
     

 

 

          

 

 

    

Contributions from volume growth (a)

        (3)    pts               (3)    pts      

Net price realization and mix

        Flat                        1       pt      

Foreign currency exchange

              (2)    pts                           (3)    pts            
                                                       

 

(a) Measured in tons based on the stated weight of our product shipments.

The 5 percent decline in International net sales for the second quarter of fiscal 2017 was driven by declines in the Canada, Europe, and Asia/Pacific regions, partially offset by an increase in the Latin America region. These results included unfavorable foreign exchange and the divestitures of Green Giant in the Canada region, and our Venezuela subsidiary and Argentina foodservice business in the Latin America region in fiscal 2016.

The 5 percent decline in International net sales for the six-month period ended November 27, 2016 was driven by declines across all regions. These results included the impacts of unfavorable foreign exchange and fiscal 2016 divestitures.

 

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The components of International organic net sales growth are shown in the following table:

 

     Quarter Ended      Six-Month
Period Ended
 
      Nov. 27, 2016      Nov. 27, 2016  

Contributions from organic volume growth (a)

     (3)  pts         (3)  pts   

Organic net price realization and mix

     2   pts         2   pts   
  

 

 

    

 

 

 

Organic net sales growth

     (1)   pt         (1)    pt   

Foreign currency exchange

     (2)  pts         (3)  pts   

Acquisitions and divestitures (b)

     (2)  pts         (1)    pt   

Net sales growth

     (5)  pts         (5)  pts   
                   

 

(a) Measured in tons based on the stated weight of our product shipments.

 

(b) Green Giant, Venezuela subsidiary, and Argentina foodservice divestitures in fiscal 2016.

The decrease in International contributions from organic volume growth for the quarter and six-month periods ended November 27, 2016 primarily reflect the impact of declines in Europe and Canada.

International net sales percentage change by region are shown in the following tables:

 

     Quarter Ended Nov. 27, 2016  
      Percentage Change in
Net Sales
as Reported
    Percentage Change in
Net Sales on Constant-
Currency Basis (a)
 

Europe

     (7 )%      (3 )% 

Canada

     (8     (7

Latin America

     2        (2

Asia/Pacific

     (3     Flat   

Total

     (5 )%      (3 )% 
                  

 

(a) See the “Non-GAAP Measures” section below for our use of this measure.

 

     Six-Month Period Ended Nov. 27,  2016  
      Percentage Change in
Net Sales
as Reported
    Percentage Change in
Net Sales on Constant
Currency Basis (a)
 

Europe

     (8 )%      (4 )% 

Canada

     (6     (5

Asia/Pacific

     (3     1   

Latin America

     (1     Flat   

Total

     (5 )%      (3 )% 
                  

 

(a) See the “Non-GAAP Measures” section below for our use of this measure.

Segment operating profit decreased 22 percent to $106 million in the second quarter of fiscal 2017 compared to $136 million in the same period of fiscal 2016. Segment operating profit decreased 19 percent to $206 million in the six-month period ended November 27, 2016, compared to $253 million in the same period of fiscal 2016. These results were primarily driven by currency-driven inflation on imported products in certain markets and the impact of the Green Giant divestiture. International segment operating profit decreased 18 percent on a constant-currency basis in the second quarter of fiscal 2017 compared to the second quarter of fiscal 2016. International segment operating

 

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profit for the six-month period ended November 27, 2016, decreased 15 percent on a constant-currency basis compared to the same period of fiscal 2016 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

Convenience Stores and Foodservice Segment Results

Convenience Stores and Foodservice net sales were as follows:

 

     Quarter Ended      Six-Month
Period Ended
 
      Nov. 27,
2016
     Nov. 27, 2016 vs
Nov. 29, 2015
     Nov. 29,
2015
     Nov. 27,
2016
     Nov. 27, 2016 vs
Nov. 29, 2015
     Nov. 29,
2015
 

Net sales (in millions)

   $ 487.5         (4)      %       $ 505.8       $ 933.8         (5)      %       $ 983.5   
     

 

 

          

 

 

    

Contributions from volume growth (a)

        Flat                         (1)      pt      

Net price realization and mix