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 February 26, 2017

 

☐	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 March 14, 2017: 576,135,402 (excluding 178,477,926 shares held in the treasury).

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General Mills, Inc.

Table of Contents

 

				Page
PART I – Financial Information
Item 1.		Financial Statements
		Consolidated Statements of Earnings for the quarters and nine-month periods ended February  26, 2017 and February 28, 2016			3
		Consolidated Statements of Comprehensive Income for the quarters and nine-month periods ended February  26, 2017 and February 28, 2016			4
		Consolidated Balance Sheets as of February 26, 2017, and May 29, 2016			5
		Consolidated Statements of Total Equity and Redeemable Interest for the nine-month period ended February 26, 2017 and the fiscal year ended May 29, 2016			6
		Consolidated Statements of Cash Flows for the nine-month periods ended February  26, 2017 and February 28, 2016			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			43
Item 4.		Controls and Procedures			44
PART II – Other Information
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 6.		Exhibits			45
Signatures					46

 

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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								Nine-Month Period Ended
		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Net sales		$	3,793.2			$	4,002.4			$	11,813.2			$	12,635.2
Cost of sales			2,485.5				2,644.9				7,569.1				8,182.5
Selling, general, and administrative expenses			687.6				755.8				2,107.9				2,339.7
Divestitures loss (gain)			—				(1.5	)			13.5				(200.6	)
Restructuring, impairment, and other exit costs			77.6				16.9				165.5				138.3
Operating profit			542.5				586.3				1,957.2				2,175.3
Interest, net			76.4				77.2				225.8				226.3
Earnings before income taxes and after-tax earnings from joint ventures			466.1				509.1				1,731.4				1,949.0
Income taxes			107.0				157.6				511.0				667.7
After-tax earnings from joint ventures			11.1				16.2				65.1				65.1
Net earnings, including earnings attributable to redeemable and noncontrolling interests			370.2				367.7				1,285.5				1,346.4
Net earnings attributable to redeemable and noncontrolling interests			12.4				6.0				36.9				28.6
Net earnings attributable to General Mills		$	357.8			$	361.7			$	1,248.6			$	1,317.8
Earnings per share - basic		$	0.62			$	0.61			$	2.12			$	2.20
Earnings per share - diluted		$	0.61			$	0.59			$	2.08			$	2.15
Dividends per share		$	0.48			$	0.44			$	1.44			$	1.32

See accompanying notes to consolidated financial statements.

 

3

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Consolidated Statements of Comprehensive Income

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

 

		Quarter Ended								Nine-Month Period Ended
		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Net earnings, including earnings attributable to redeemable and noncontrolling interests		$	370.2			$	367.7			$	1,285.5			$	1,346.4
Other comprehensive income (loss), net of tax:
Foreign currency translation			113.7				(39.9	)			88.4				(252.4	)
Other fair value changes:
Securities			0.5				(0.2	)			0.8				(0.2	)
Hedge derivatives			(4.9	)			19.0				42.4				29.4
Reclassification to earnings:
Hedge derivatives			(8.7	)			(3.7	)			(19.3	)			(3.3	)
Amortization of losses and prior service costs			29.9				31.0				92.3				97.8
Other comprehensive income (loss), net of tax			130.5				6.2				204.6				(128.7	)
Total comprehensive income			500.7				373.9				1,490.1				1,217.7
Comprehensive income (loss) attributable to redeemable and noncontrolling interests			16.4				20.1				(20.3	)			4.1
Comprehensive income attributable to General Mills		$	484.3			$	353.8			$	1,510.4			$	1,213.6

See accompanying notes to consolidated financial statements.

 

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Consolidated Balance Sheets

GENERAL MILLS, INC. AND SUBSIDIARIES

(In Millions, Except Par Value)

 

		Feb. 26, 2017				May 29, 2016
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	899.1			$	763.7
Receivables			1,427.5				1,360.8
Inventories			1,461.0				1,413.7
Prepaid expenses and other current assets			340.4				399.0
Total current assets			4,128.0				3,937.2
Land, buildings, and equipment			3,575.2				3,743.6
Goodwill			8,705.8				8,741.2
Other intangible assets			4,499.7				4,538.6
Other assets			761.6				751.7
Total assets		$	21,670.3			$	21,712.3
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	1,855.3			$	2,046.5
Current portion of long-term debt			604.7				1,103.4
Notes payable			1,942.0				269.8
Other current liabilities			1,341.5				1,595.0
Total current liabilities			5,743.5				5,014.7
Long-term debt			7,176.4				7,057.7
Deferred income taxes			1,547.7				1,399.6
Other liabilities			1,930.0				2,087.6
Total liabilities			16,397.6				15,559.6
Redeemable interest			869.2				845.6
Stockholders’ equity:
Common stock, 754.6 shares issued, $0.10 par value			75.5				75.5
Additional paid-in capital			1,129.8				1,177.0
Retained earnings			13,008.8				12,616.5
Common stock in treasury, at cost, shares of 178.5 and 157.8			(7,800.3	)			(6,326.6	)
Accumulated other comprehensive loss			(2,350.4	)			(2,612.2	)
Total stockholders’ equity			4,063.4				4,930.2
Noncontrolling interests			340.1				376.9
Total equity			4,403.5				5,307.1
Total liabilities and equity		$	21,670.3			$	21,712.3

See accompanying notes to consolidated financial statements.

 

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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)																							1,248.6				261.8				(5.0	)			1,505.4				(15.3	)
Cash dividends declared ($1.44 per share)																							(856.3	)											(856.3	)
Shares purchased															(25.4	)			(1,650.9	)															(1,650.9	)
Stock compensation plans (includes income tax benefits of $65.1)											20.9				4.7				177.2																198.1
Unearned compensation related to restricted stock unit awards											(77.9	)																							(77.9	)
Earned compensation											76.4																								76.4
Increase in redemption value of redeemable interest											(66.6	)																							(66.6	)			66.6
Distributions to noncontrolling and redeemable interest holders																															(31.8	)			(31.8	)			(27.7	)
Balance as of Feb. 26, 2017			754.6			$	75.5			$	1,129.8				(178.5	)		$	(7,800.3	)		$	13,008.8			$	(2,350.4	)		$	340.1			$	4,403.5			$	869.2

See accompanying notes to consolidated financial statements.

 

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Consolidated Statements of Cash Flows

GENERAL MILLS, INC. AND SUBSIDIARIES

(Unaudited) (In Millions)

 

		Nine-Month Period Ended
		Feb. 26, 2017				Feb. 28, 2016
Cash Flows - Operating Activities
Net earnings, including earnings attributable to redeemable and noncontrolling interests		$	1,285.5			$	1,346.4
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			448.3				441.2
After-tax earnings from joint ventures			(65.1	)			(65.1	)
Distributions of earnings from joint ventures			43.7				38.6
Stock-based compensation			76.4				71.7
Deferred income taxes			140.1				37.7
Tax benefit on exercised options			(65.1	)			(57.2	)
Pension and other postretirement benefit plan contributions			(34.0	)			(35.2	)
Pension and other postretirement benefit plan costs			26.9				88.2
Divestitures loss (gain)			13.5				(200.6	)
Restructuring, impairment, and other exit costs			141.1				83.0
Changes in current assets and liabilities			(404.0	)			206.0
Other, net			(48.6	)			(92.2	)
Net cash provided by operating activities			1,558.7				1,862.5
Cash Flows - Investing Activities
Purchases of land, buildings, and equipment			(475.2	)			(477.6	)
Acquisitions, net of cash acquired			—				(84.0	)
Investments in affiliates, net			4.8				63.7
Proceeds from disposal of land, buildings, and equipment			1.2				4.5
Proceeds from divestitures			17.5				825.8
Exchangeable note			13.0				19.5
Other, net			14.7				(16.8	)
Net cash (used) provided by investing activities			(424.0	)			335.1
Cash Flows - Financing Activities
Change in notes payable			1,681.3				54.8
Issuance of long-term debt			750.0				542.9
Payment of long-term debt			(1,003.0	)			(1,000.3	)
Proceeds from common stock issued on exercised options			90.5				103.0
Tax benefit on exercised options			65.1				57.2
Purchases of common stock for treasury			(1,650.9	)			(601.8	)
Dividends paid			(856.3	)			(794.6	)
Distributions to noncontrolling and redeemable interest holders			(59.5	)			(81.7	)
Net cash used by financing activities			(982.8	)			(1,720.5	)
Effect of exchange rate changes on cash and cash equivalents			(16.5	)			(28.6	)
Increase in cash and cash equivalents			135.4				448.5
Cash and cash equivalents - beginning of year			763.7				334.2
Cash and cash equivalents - end of period		$	899.1			$	782.7
Cash Flow from changes in current assets and liabilities:
Receivables		$	(75.1	)		$	(48.7	)
Inventories			(42.1	)			(89.3	)
Prepaid expenses and other current assets			53.3				(2.6	)
Accounts payable			(100.4	)			75.9
Other current liabilities			(239.7	)			270.7
Changes in current assets and liabilities		$	(404.0	)		$	206.0

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 February 26, 2017 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 & 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 Feb. 26, 2017																				Quarter Ended Feb. 28, 2016
In Millions		Severance				Asset Write- offs				Accelerated Depreciation				Other				Total				Severance				Asset Write- offs				Accelerated Depreciation				Other				Total
Global reorganization		$	67.4			$	—			$	—			$	5.7			$	73.1			$	—			$	—			$	—			$	—			$	—
Closure of Melbourne, Australia plant			—				—				5.6				0.1				5.7				—				—				—				—				—
Restructuring of certain international product lines			0.6				1.6				—				0.1				2.3				—				—				—				—				—
Closure of Vineland, New Jersey plant			—				0.4				7.1				0.2				7.7				—				—				—				—				—
Project Compass			(1.4	)			—				—				—				(1.4	)			(0.9	)			—				—				0.1				(0.8	)
Project Century			0.2				1.7				3.4				1.8				7.1				7.4				10.4				17.0				9.1				43.9
Project Catalyst			—				—				—				—				—				(8.9	)			—				—				—				(8.9	)
Combination of certain operational facilities			(0.5	)			—				—				—				(0.5	)			—				—				—				—				—
Total		$	66.3			$	3.7			$	16.1			$	7.9			$	94.0			$	(2.4	)		$	10.4			$	17.0			$	9.2			$	34.2
		Nine-Month Period Ended Feb. 26, 2017																				Nine-Month Period Ended Feb. 28, 2016
In Millions		Severance				Asset Write- offs				Accelerated Depreciation				Other				Total				Severance				Asset Write- offs				Accelerated Depreciation				Other				Total
Global reorganization		$	67.4			$	—			$	—			$	5.7			$	73.1			$	—			$	—			$	—			$	—			$	—
Closure of Melbourne, Australia plant			11.3				—				6.3				0.1				17.7				—				—				—				—				—
Restructuring of certain international product lines			7.0				37.4				(0.3	)			1.5				45.6				—				—				—				—				—
Closure of Vineland, New Jersey plant			12.3				5.4				16.1				1.8				35.6				—				—				—				—				—
Project Compass			(1.4	)			—				0.2				0.8				(0.4	)			46.2				—				—				6.6				52.8
Project Century			0.7				9.8				18.0				8.7				37.2				35.5				22.9				59.6				37.1				155.1
Project Catalyst			—				—				—				—				—				(8.7	)			—				—				—				(8.7	)
Combination of certain operational facilities			(0.5	)			—				—				—				(0.5	)			—				—				—				—				—
Total		$	96.8			$	52.6			$	40.3			$	18.6			$	208.3			$	73.0			$	22.9			$	59.6			$	43.7			$	199.2

In the third quarter of fiscal 2017, 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. We expect to incur approximately $80 million of net expenses relating to these actions, all of which will be cash. We recorded $73.1 million of restructuring charges in the third quarter of fiscal 2017 relating to these actions. We expect these actions to be completed by the end of fiscal 2018.

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 Europe & Australia 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 $5.7 million of restructuring charges in the third quarter of fiscal 2017 and $17.7 million in the nine-month period ended February 26, 2017 relating to this action. We expect these actions to be completed by the end of fiscal 2019.

In the first quarter of fiscal 2017, we announced a plan to restructure certain product lines in our Asia & Latin America segment. To eliminate excess capacity, we closed our snacks manufacturing facility in Marília, Brazil and ceased production operations for meals and snacks at our facility in São Bernardo do Campo, Brazil. We ceased production of certain underperforming snack products at our facility in Nanjing, China. These and other actions will affect approximately 420 positions in our Brazilian operations and approximately 440 positions in our Greater China operations. We expect to incur approximately $38 million of net expenses of which approximately $4 million will be cash. We recorded $2.3 million of restructuring charges in the third quarter of fiscal 2017 and $45.6

 

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million in the nine-month period ended February 26, 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 approved a plan to close our Vineland, New Jersey facility to eliminate excess soup capacity in our North America Retail segment. This action will affect approximately 370 positions, and we expect to incur approximately $65 million of net expenses, of which approximately $18 million will be cash. We recorded $7.7 million of restructuring charges in the third quarter of fiscal 2017 and $35.6 million in the nine-month period ended February 26, 2017 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 operations to accelerate long-term growth through increased organizational effectiveness and reduced administrative expense. In connection with this project, we eliminated 749 positions. We incurred $54.3 million of net expenses, all of which was cash. In the third quarter of fiscal 2017, we reduced the estimate of charges related to this action by $1.4 million. We recorded $52.8 million of restructuring charges in the nine-month period ended February 28, 2016 related to this action. This action was completed in the third quarter of fiscal 2017.

Project Century (Century) began in fiscal 2015 and was 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 Europe & Australia segment supply chain located in Berwick, United Kingdom. This action affected 265 positions, and we incurred $32 million of net expenses related to this action, of which $12 million was cash. We recorded $1.2 million of restructuring charges in the nine-month period ended February 26, 2017 and $17.7 million in the nine-month period ended February 28, 2016 related to this action. 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 North America Retail segment supply chain. This action will affect approximately 500 positions, and we expect to incur approximately $105 million of net expenses relating to this action, of which approximately $44 million will be cash. We recorded $6.7 million of restructuring charges in the third quarter of fiscal 2017 and $19.6 million in the nine-month period ended February 26, 2017 relating to this action. We recorded $8.2 million in the third quarter of fiscal 2016 and $72.2 million in the nine-month period ended February 28, 2016 relating to this action. We expect this action to be completed by the end of fiscal 2018.

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 North America Retail segment supply chain. This action affected approximately 120 positions, and we incurred $6.6 million of net expenses relating to this action, including $0.6 million in the third quarter of fiscal 2016 and $8.4 million in the nine-month period ended February 28, 2016, of which less than $1 million was cash. This action was completed in fiscal 2016.

In addition, we recorded restructuring charges of $0.4 million in the third quarter of fiscal 2017, $17.4 million in the third quarter of fiscal 2016, $16.4 million in the nine-month period ended February 26, 2017, and $56.8 million in the nine-month period ended February 28, 2016 relating to other Century actions previously announced.

During the nine-month period ended February 26, 2017, we paid $67.1 million in cash relating to restructuring initiatives.

In addition to restructuring charges, we recorded $11.5 million of project-related costs in cost of sales in the third quarter of fiscal 2017, $10.1 million in the third quarter of fiscal 2016, $36.4 million in the nine-month period ended February 26, 2017 and $39.4 million in the nine-month period ended February 28, 2016. We paid $11.5 million in cash in the third quarter of fiscal 2017 for project-related costs. We expect to incur approximately $17.1 million of project-related costs in future periods related to our restructuring initiatives.

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

 

		Quarter Ended								Nine-Month Period Ended
In Millions		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Cost of sales		$	16.4			$	17.3			$	42.8			$	60.9
Restructuring, impairment, and other exit costs			77.6				16.9				165.5				138.3
Total restructuring charges			94.0				34.2				208.3				199.2
Project-related costs classified in cost of sales		$	11.5			$	10.1			$	36.4			$	39.4

 

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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			97.4				0.9				8.3				106.6
Utilized in fiscal 2017			(54.5	)			(1.6	)			(6.5	)			(62.6	)
Reserve balance as of Feb. 26, 2017		$	116.5			$	0.8			$	3.3			$	120.6

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		Feb. 26, 2017				May 29, 2016
Goodwill		$	8,705.8			$	8,741.2
Other intangible assets:
Intangible assets not subject to amortization:
Brands and other indefinite-lived intangibles			4,143.7				4,147.5
Intangible assets subject to amortization:
Franchise agreements, customer relationships, and other finite-lived intangibles			514.4				536.9
Less accumulated amortization			(158.4	)			(145.8	)
Intangible assets subject to amortization, net			356.0				391.1
Other intangible assets			4,499.7				4,538.6
Total		$	13,205.5			$	13,279.8

Based on the carrying value of finite-lived intangible assets as of February 26, 2017, annual amortization expense for each of the next five fiscal years is estimated to be approximately $27 million.

During the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership, enhance global scale, and drive improved operational agility to maximize our growth capabilities. As a result of this global reorganization, we reassessed our operating segments as well as our reporting units. Under our new organization structure, our chief operating decision maker assesses performance and makes decisions about resources to be allocated to our segments at the North America Retail, Convenience Stores & Foodservice, Europe & Australia, and Asia & Latin America operating segment level. See Note 15 for additional information on our operating segments. Our reporting units were unchanged with the exception of combining our former U.S. Meals and U.S. Baking reporting units into a single reporting unit.

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

 

In Millions		North America Retail				Convenience Stores & Foodservice				Europe & Australia				Asia & Latin America				Joint Ventures				Total
Balance as of May 29, 2016		$	6,410.3			$	921.1			$	716.5			$	287.1			$	406.2			$	8,741.2
Divestiture			—				(2.3	)			—				—				—				(2.3	)
Other activity, primarily foreign currency translation			(0.6	)			—				(50.2	)			37.9				(20.2	)			(33.1	)
Balance as of Feb. 26, 2017		$	6,409.7			$	918.8			$	666.3			$	325.0			$	386.0			$	8,705.8

 

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

 

In Millions		Total
Balance as of May 29, 2016		$	4,538.6
Other activity, primarily foreign currency translation			(38.9	)
Balance as of Feb. 26, 2017		$	4,499.7

Our annual goodwill intangible asset test was performed on the first day of the second quarter of fiscal 2017 and we determined there was no impairment of our goodwill intangible assets as their related fair values were substantially in excess of the carrying values, except for the Latin America reporting unit. We did not consider the new organization structure to be a triggering event requiring a subsequent goodwill impairment test as our reporting units remain unchanged, with the exception of combining the former U.S. Meals and U.S. Baking reporting units.

Our indefinite-lived intangible asset test 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 indefinite-lived intangible assets as their related fair values were substantially in excess of the carrying values, except for the Immaculate Baking brand intangible asset.

The excess fair value above the carrying value of the Latin America reporting unit and the Immaculate Baking brand intangible asset is as follows:

 

In Millions		Carrying Value				Excess Fair Value Above Carrying Value
Latin America		$	523.0				15	%
Immaculate Baking		$	12.0				17	%

In addition, while having significant coverage as of our fiscal 2017 assessment date, the Progresso, Green Giant, and Food Should Taste Good brand intangible 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		Feb. 26, 2017				May 29, 2016
Raw materials and packaging		$	369.3			$	397.3
Finished goods			1,191.1				1,163.1
Grain			93.3				72.6
Excess of FIFO over LIFO cost			(192.7	)			(219.3	)
Total		$	1,461.0			$	1,413.7

(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.

 

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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 nine-month periods ended February 26, 2017, and February 28, 2016 included:

 

		Quarter Ended								Nine-Month Period Ended
In Millions		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Net gain (loss) on mark-to-market valuation of certain commodity positions		$	—			$	(42.7	)		$	(15.9	)		$	(96.7	)
Net loss on commodity positions reclassified from unallocated corporate items to segment operating profit			4.0				39.8				27.7				101.9
Net mark-to-market revaluation of certain grain inventories			4.2				(4.4	)			8.9				(2.1	)
Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items		$	8.2			$	(7.3	)		$	20.7			$	3.1

As of February 26, 2017, the net notional value of commodity derivatives was $279.1 million, of which $57.9 million related to energy inputs and $221.2 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. All of these treasury locks were cash settled for $17.2 million during the third quarter of fiscal 2017, concurrent with the issuance of our $750.0 million 10-year fixed-rate notes.

As of February 26, 2017, the net notional value of foreign exchange derivatives was $871.0 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 February 26, 2017, 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 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 February 26, 2017, $563.0 million of our total accounts payable were payable to suppliers who utilize this third party service.

(7) Debt

The components of notes payable were as follows:

 

In Millions		Feb. 26, 2017				May 29, 2016
U.S. commercial paper		$	1,637.9			$	—
Financial institutions			304.1				269.8
Total		$	1,942.0			$	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.

 

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The following table details the fee-paid committed and uncommitted credit lines we had available as of February 26, 2017:

 

In Billions		Facility Amount				Borrowed Amount
Credit facility expiring:
May 2021		$	2.7			$	—
June 2019			0.2				0.2
Total committed credit facilities			2.9				0.2
Uncommitted credit facilities			0.5				0.1
Total committed and uncommitted credit facilities		$	3.4			$	0.3

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 February 26, 2017.

Long-Term Debt

The fair values and carrying amounts of long-term debt, including the current portion, were $8,107.5 million and $7,781.1 million, respectively, as of February 26, 2017. 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 March 2017, subsequent to the end of our fiscal third quarter, we issued €300.0 million principal amount of floating-rate notes due March 20, 2019. 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 outstanding commercial paper.

In February 2017, we repaid $1.0 billion of 5.7 percent fixed-rate notes.

In January 2017, we issued $750.0 million principal amount of 3.2 percent fixed-rate notes due February 10, 2027. Interest on the notes is payable semi-annually in arrears. We may redeem the notes in whole, or in part, at any time at the applicable redemption price. The 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 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.

Certain of our long-term debt agreements contain restrictive covenants. As of February 26, 2017, 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 February 26, 2017, the redemption value of the euro-denominated redeemable interest was $869.2 million.

 

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A subsidiary of Yoplait SAS has an exclusive milk supply agreement for its European operations with Sodiaal through July 1, 2021. Net purchases totaled $189.5 million for the nine-month period ended February 26, 2017 and $213.5 million for the nine-month period ended February 28, 2016.

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 February 26, 2017, 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
		Feb. 26, 2017																				Feb. 28, 2016
		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										$	357.8			$	2.9			$	9.5											$	361.7			$	1.7			$	4.3
Other comprehensive income (loss):
Foreign currency translation		$	109.0			$	—				109.0				(0.5	)			5.2			$	(50.4	)		$	—				(50.4	)			9.5				1.0
Other fair value changes:
Securities			0.7				(0.2	)			0.5				—				—				(0.3	)			0.1				(0.2	)			—				—
Hedge derivatives			(6.2	)			1.3				(4.9	)			—				—				15.7				(0.2	)			15.5				—				3.5
Reclassification to earnings:
Hedge derivatives (a)			(9.8	)			1.8				(8.0	)			—				(0.7	)			(4.7	)			0.9				(3.8	)			—				0.1
Amortization of losses and prior service costs (b)			48.0				(18.1	)			29.9				—				—				49.7				(18.7	)			31.0				—				—
Other comprehensive income (loss)		$	141.7			$	(15.2	)			126.5				(0.5	)			4.5			$	10.0			$	(17.9	)			(7.9	)			9.5				4.6
Total comprehensive income										$	484.3			$	2.4			$	14.0											$	353.8			$	11.2			$	8.9

 

(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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		Nine-Month Period Ended																				Nine-Month Period Ended
		Feb. 26, 2017																				Feb. 28, 2016
		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										$	1,248.6			$	10.7			$	26.2											$	1,317.8			$	8.2			$	20.4
Other comprehensive income (loss):
Foreign currency translation		$	146.0			$	—				146.0				(15.7	)			(41.9	)		$	(223.1	)		$	—				(223.1	)			(2.7	)			(26.6	)
Other fair value changes:
Securities			1.2				(0.4	)			0.8				—				—				(0.3	)			0.1				(0.2	)			—				—
Hedge derivatives			52.5				(12.8	)			39.7				—				2.7				31.0				(4.4	)			26.6				—				2.8
Reclassification to earnings:
Hedge derivatives (a)			(18.4	)			1.4				(17.0	)			—				(2.3	)			(7.0	)			1.7				(5.3	)			—				2.0
Amortization of losses and prior service costs (b)			148.8				(56.5	)			92.3				—				—				157.1				(59.3	)			97.8				—				—
Other comprehensive income (loss)		$	330.1			$	(68.3	)			261.8				(15.7	)			(41.5	)		$	(42.3	)		$	(61.9	)			(104.2	)			(2.7	)			(21.8	)
Total comprehensive income (loss)										$	1,510.4			$	(5.0	)		$	(15.3	)										$	1,213.6			$	5.5			$	(1.4	)

 

(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		Feb. 26, 2017				May 29, 2016
Foreign currency translation adjustments		$	(498.2	)		$	(644.2	)
Unrealized gain (loss) from:
Securities			4.6				3.8
Hedge derivatives			(2.8	)			(25.5	)
Pension, other postretirement, and postemployment benefits:
Net actuarial loss			(1,867.7	)			(1,958.2	)
Prior service costs			13.7				11.9
Accumulated other comprehensive loss		$	(2,350.4	)		$	(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								Nine-Month Period Ended
In Millions		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Compensation expense related to stock-based payments		$	20.1			$	19.1			$	77.7			$	73.4

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 February 26, 2017, unrecognized compensation expense related to non-vested stock options, restricted stock units, and performance share units was $117.1 million. This expense will be recognized over 21 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:

 

		Nine-Month Period Ended
In Millions		Feb. 26, 2017				Feb. 28, 2016
Net cash proceeds		$	90.5			$	103.0
Intrinsic value of options exercised		$	153.1			$	141.7

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.

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

 

		Nine-Month Period Ended
		Feb. 26, 2017				Feb. 28, 2016
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	%

 

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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			(3,980.2	)			30.43
Forfeited or expired			(103.9	)			57.44
Outstanding as of Feb. 26, 2017			30,763.5			$	40.22				4.37			$	662.9
Exercisable as of Feb. 26, 2017			21,816.9			$	33.75				2.96			$	602.6

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			1,387.9				67.08				49.1				66.92
Vested			(1,610.1	)			41.75				(89.6	)			38.77
Forfeited			(272.4	)			57.25				(8.6	)			57.18
Exercisable as of Feb. 26, 2017			4,605.8			$	56.07				162.3			$	55.99

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

 

		Nine-Month Period Ended
In Millions		Feb. 26, 2017				Feb. 28, 2016
Total grant date fair value		$	71.2			$	98.4

 

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(11) Earnings Per Share

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

 

		Quarter Ended								Nine-Month Period Ended
In Millions, Except per Share Data		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Net earnings attributable to General Mills		$	357.8			$	361.7			$	1,248.6			$	1,317.8
Average number of common shares - basic EPS			580.7				595.6				589.8				599.1
Incremental share effect from: (a)
Stock options			7.8				9.6				8.5				9.9
Restricted stock, restricted stock units, and other			2.9				3.3				2.8				3.2
Average number of common shares - diluted EPS			591.4				608.5				601.1				612.2
Earnings per share - basic		$	0.62			$	0.61			$	2.12			$	2.20
Earnings per share - diluted		$	0.61			$	0.59			$	2.08			$	2.15

 

(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

Nine-Month Period Ended

In Millions

Feb. 26, 2017

Feb. 28, 2016

Feb. 26, 2017

Feb. 28, 2016

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

2.4

1.2

2.2

2.7

(12) Share Repurchases

Share repurchases were as follows:

 

		Quarter Ended								Nine-Month Period Ended
In Millions		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Shares of common stock			4.9				1.1				25.4				10.6
Aggregate purchase price		$	301.0			$	64.5			$	1,650.9			$	601.8

(13) Statements of Cash Flows

Our Consolidated Statements of Cash Flows include the following:

 

		Nine-Month Period Ended
In Millions		Feb. 26, 2017				Feb. 28, 2016
Net cash interest payments		$	263.8			$	269.6
Net income tax payments		$	394.3			$	421.1

 

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(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 United States 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 February 26, 2017 and approximately $51 million in the nine-month period ended February 26, 2017 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.

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		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Service cost		$	29.9			$	33.5			$	3.2			$	4.7			$	2.2			$	1.9
Interest cost			54.1				66.9				8.2				11.0				0.7				1.0
Expected return on plan assets			(121.6	)			(124.2	)			(12.1	)			(11.5	)			—				—
Amortization of losses			47.2				47.6				0.6				1.7				0.4				0.1
Amortization of prior service costs (credits)			0.6				1.2				(1.5	)			(1.4	)			0.2				0.6
Other adjustments			—				0.1				—				—				3.4				2.8
Net expense (income)		$	10.2			$	25.1			$	(1.6	)		$	4.5			$	6.9			$	6.4
		Defined Benefit Pension Plans								Other Postretirement Benefit Plans								Postemployment Benefit Plans
		Nine-Month Period Ended								Nine-Month Period Ended								Nine-Month Period Ended
In Millions		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Service cost		$	89.9			$	100.9			$	9.4			$	14.2			$	6.6			$	5.7
Interest cost			162.4				200.9				24.2				33.0				2.1				3.0
Expected return on plan assets			(365.1	)			(372.8	)			(36.3	)			(34.6	)			—				—
Amortization of losses			142.2				142.3				1.9				5.0				1.3				0.5
Amortization of prior service costs (credits)			1.8				3.6				(4.1	)			(4.1	)			0.5				1.8
Other adjustments			2.1				5.1				1.3				2.4				10.2				9.3
Settlement or curtailment losses			4.4				11.3				0.7				0.2				—				—
Net expense (income)		$	37.7			$	91.3			$	(2.9	)		$	16.1			$	20.7			$	20.3

 

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(15) Business Segment Information

We operate in the consumer foods industry. In the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership, enhance global scale, and drive improved operational agility to maximize our growth capabilities. This global reorganization required us to reevaluate our operating segments. Under our new organization structure, our chief operating decision maker assesses performance and makes decisions about resources to be allocated to our operating segments as follows: North America Retail; Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America.

We have restated our net sales by segment and segment operating profit to reflect our new operating segments. These segment changes had no effect on previously reported consolidated net sales, operating profit, net earnings attributable to General Mills, or earnings per share.

Our North America Retail operating segment consists of our former U.S. Retail operating units and our Canada region. Within our North America Retail operating segment, our former U.S. Meals operating unit and U.S. Baking operating unit have been combined into one operating unit: U.S. Meals & Baking. The 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. 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 ready-to-eat cereal.

Our Convenience Stores & Foodservice operating segment was unchanged. Our major product categories in this segment 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.

Our Europe & Australia operating segment consists of our former Europe region. The segment reflects retail and foodservice businesses in the greater Europe & Australia regions. Our product categories include refrigerated yogurt, meal kits, super-premium ice cream, refrigerated and frozen dough products, shelf stable vegetables, grain snacks, and dessert and baking mixes. We also sell super-premium ice cream directly to consumers through owned retail shops. Revenues from franchise fees are reported in the region or country where the end customer is located.

Our Asia & Latin America operating segment consists of our former Asia/Pacific and Latin America regions. The segment consists of retail and foodservice businesses in the greater Asia and South America regions. Our product categories include super-premium ice cream and frozen desserts, refrigerated and frozen dough products, dessert and baking mixes, meal kits, salty and grain snacks, wellness beverages, and refrigerated yogurt. We also sell super-premium ice cream and frozen desserts directly to consumers through owned retail shops. Our Asia & Latin America 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 our international joint ventures. Revenues from export activities are reported in the region or country where the end customer is located.

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.

 

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Our operating segment results were as follows:

 

		Quarter Ended								Nine-Month Period Ended
In Millions		Feb. 26, 2017				Feb. 28, 2016				Feb. 26, 2017				Feb. 28, 2016
Net sales:
North America Retail		$	2,499.0			$	2,686.6			$	7,804.8			$	8,460.7
Convenience Stores & Foodservice			448.5				453.7				1,382.3				1,437.2
Europe & Australia			424.5				439.4				1,338.0				1,431.3
Asia & Latin America			421.2				422.7				1,288.1				1,306.0
Total		$	3,793.2			$	4,002.4			$	11,813.2			$	12,635.2
Operating profit:
North America Retail		$	516.7			$	552.7			$	1,795.9			$	1,886.0
Convenience Stores & Foodservice			93.6				90.6				295.4				273.2
Europe & Australia			42.0				33.6				127.2				143.9
Asia & Latin America			10.0				2.5				61.3				42.2
Total segment operating profit			662.3				679.4				2,279.8				2,345.3
Unallocated corporate items			42.2				77.7				143.6				232.3
Divestitures loss (gain)			—				(1.5	)			13.5				(200.6	)
Restructuring, impairment, and other exit costs			77.6				16.9				165.5				138.3
Operating profit		$	542.5			$	586.3			$	1,957.2			$	2,175.3

(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 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.

 

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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

Third Quarter Results

In the third 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 5 percent was driven by declining contributions from volume in the North America Retail segment which were partially offset by positive net price realization and mix. Operating profit margin of 14.3 percent was down 30 basis points from year-ago levels primarily driven by an increase in restructuring expenses. Adjusted operating profit margin increased 100 basis points to 16.9 percent, driven by the impact of cost savings and spending optimization initiatives. Diluted earnings per share of $0.61 increased 3 percent compared to the third quarter of fiscal 2016 and adjusted diluted earnings per share, which excludes certain items affecting comparability, on a constant-currency basis increased 8 percent compared to the third 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 third quarter of fiscal 2017 follows:

 

Quarter Ended Feb. 26, 2017		In millions, except per share				Quarter Ended Feb. 26, 2017 vs. Feb. 28, 2016				Percent of Net Sales				Constant- Currency Growth (a)
Net sales		$	3,793.2				(5	)%
Operating profit			542.5				(7	)%			14.3	%
Net earnings attributable to General Mills			357.8				(1	)%
Diluted earnings per share		$	0.61				3	%
Organic net sales growth rate (a)							(5	)%
Total segment operating profit (a)			662.3				(2	)%							(2	)%
Adjusted operating profit margin (a)											16.9	%
Diluted earnings per share,     excluding certain items affecting comparability (a)		$	0.72				11	%							8	%

 

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

Consolidated net sales were as follows:

 

Quarter Ended

Feb. 26, 2017

Feb. 26, 2017 vs Feb. 28, 2016

Feb. 28, 2016

Net sales (in millions)

$

3,793.2

(5)     %

$

4,002.4

Contributions from volume growth (a)

(6)    pts

Net price realization and mix

1      pt

Foreign currency exchange

Flat

 

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

The 5 percent decline in net sales primarily reflected lower organic net sales.

 

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Organic net sales declined 5 percent driven by organic volume declines in the North America Retail and Asia & Latin America 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 53^rd week of results, when applicable.

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

 

Quarter Ended Feb. 26, 2017 vs. Quarter Ended Feb. 28, 2016
Contributions from organic volume growth (a)			(7)   pts
Organic net price realization and mix			2    pts
Organic net sales growth			(5)   pts
Foreign currency exchange			Flat
Acquisitions and divestitures			Flat
Net sales growth			(5)   pts

 

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

Cost of sales decreased $159 million from the third quarter of fiscal 2016 to $2,486 million. The decrease included a $152 million decrease attributable to lower volume and a $7 million increase attributable to product rate and mix. We recorded an $8 million net decrease in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories in the third quarter of fiscal 2017 compared to a net increase of $7 million in the third quarter of fiscal 2016. We recorded $16 million of restructuring charges in cost of sales in the third quarter of fiscal 2017 compared to $17 million in the same period last year. We also recorded $12 million of restructuring initiative project-related costs in the third quarter of fiscal 2017 compared to $10 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 $68 million to $688 million in the third quarter of fiscal 2017 compared to the same period in fiscal 2016. The decrease in SG&A expenses primarily reflects savings from cost management initiatives and an 8 percentage point decrease in media and advertising expense. SG&A expenses as a percent of net sales in the third quarter of fiscal 2017 decreased 76 basis points compared with the third quarter of fiscal 2016.

Restructuring, impairment, and other exit costs totaled $78 million in the third quarter of fiscal 2017 compared to $17 million in the same period last year.

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

 

		As Reported
		Quarter Ended
		Feb. 26, 2017								Feb. 28, 2016
In Millions		Charge				Cash				Charge				Cash
Global reorganization		$	73.1			$	9.2			$	—			$	—
Closure of Melbourne, Australia plant			5.7				0.1				—				—
Restructuring of certain international product lines			2.3				0.2				—				—
Closure of Vineland, New Jersey plant			7.7				0.3				—				—
Project Compass			(1.4	)			3.4				(0.8	)			3.6
Project Century			7.1				8.9				43.9				24.9
Project Catalyst			—				0.6				(8.9	)			11.3
Combination of certain operational facilities			(0.5	)			1.1				—				1.2
Total restructuring charges (a)			94.0				23.8				34.2				41.0
Project-related costs			11.5				11.5				10.1				10.5
Restructuring charges and project-related costs		$	105.5			$	35.3			$	44.3			$	51.5

 

(a)	Includes $16.4 million of restructuring charges recorded in cost of sales in fiscal 2017 and $17.3 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 third quarter of fiscal 2017 totaled $76 million, down $1 million from fiscal 2016.

 

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The effective tax rate for the third quarter of fiscal 2017 was 23.0 percent compared to 31.0 percent for the third quarter of fiscal 2016. The 8.0 percentage point decrease was primarily due to favorable impacts of French tax legislation and other favorable discrete tax items that occurred during the third quarter of fiscal 2017. Our effective tax rate excluding certain items affecting comparability was 24.7 percent in the third quarter of fiscal 2017 compared to 30.8 percent in the third quarter of fiscal 2016 (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 third quarter of fiscal 2017 decreased to $11 million compared to $16 million in the same quarter last fiscal year, primarily driven by an asset write-off for Cereal Partners Worldwide (CPW) and lower volume growth for Häagen-Dazs Japan, Inc. (HDJ). On a constant-currency basis, after-tax earnings from joint ventures decreased 35 percent (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The components of our joint ventures’ net sales growth are shown in the following table:

 

Quarter Ended Feb. 26, 2017 vs. Quarter Ended Feb. 28, 2016		CPW				HDJ
Contributions from volume growth (a)			3     pts				(6)    pts
Net price realization and mix			1       pt				1       pt
Foreign currency exchange			(2)    pts				3     pts
Net sales growth			2     pts				(2)    pts

 

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

The change in net sales for each joint venture on a constant-currency basis is set forth in the following table:

 

Quarter Ended Feb. 26, 2017

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

2 %

(2)    pts

4 %

HDJ

(2)%

3     pts

(5)%

Joint Ventures

1 %

(1)     pt

2 %

Average diluted shares outstanding decreased by 17 million in the third quarter of fiscal 2017 from the same period a year ago due to the impact of share repurchases, partially offset by option exercises.

Nine-Month Results

In the nine-months ended February 26, 2017, 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 declining contributions from volume in the North America Retail and Europe & Australia segments, including the impact of the divestiture of the North American Green Giant product lines (Green Giant). Operating profit margin of 16.6 percent was down 60 basis points from year-ago levels primarily driven by a gain from the Green Giant divestiture in fiscal 2016. In the nine-month period ended February 26, 2017, we made progress toward our revised fiscal 2017 adjusted operating profit margin goal of 18 percent with an increase of 110 basis points over the same period in the prior year to 18.6 percent, driven by the impact of cost savings and spending optimization initiatives. For the nine-month period ended February 26, 2017, diluted earnings per share of $2.08 decreased 3 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 nine-month period ended February 26, 2017, increased 4 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).

 

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A summary of our consolidated financial results for the nine-month period ended February 26, 2017 follows:

 

Nine-Month Period Ended Feb. 26, 2017		In millions, except per share				Nine-Month Period Ended Feb. 26, 2017 vs. Feb. 28, 2016				Percent of Net Sales				Constant- Currency Growth (a)
Net sales		$	11,813.2				(7	)%
Operating profit			1,957.2				(10	)%			16.6	%
Net earnings attributable to General Mills			1,248.6				(5	)%
Diluted earnings per share		$	2.08				(3	)%
Organic net sales growth rate (a)							(5	)%
Total segment operating profit (a)			2,279.8				(3	)%							(2	)%
Adjusted operating profit margin (a)											18.6	%
Diluted earnings per share, excluding certain items affecting comparability (a)		$	2.35				4	%							4	%

 

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

Consolidated net sales were as follows:

 

Nine-Month Period Ended

Feb. 26, 2017

Feb. 26, 2017 vs Feb. 28, 2016

Feb. 28, 2016

Net sales (in millions)

$

11,813.2

(7)  %

$

12,635.2

Contributions from volume growth (a)

(8) pts

Net price realization and mix

2  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 5 percent driven by volume declines in the North America Retail, Europe & Australia, and Asia & Latin America 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:

 

Nine-Month Period Ended Feb. 26, 2017 vs. Nine-Month Period Ended Feb. 28, 2016
Contributions from organic volume growth (a)			(7)  pts
Organic net price realization and mix			2   pts
Organic net sales growth			(5)  pts
Foreign currency exchange			(1)   pt
Acquisitions and divestitures (b)			(1)   pt
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.

 

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Cost of sales decreased $613 million from the nine-month period ended February 28, 2016, to $7,569 million. The decrease included a $639 million decrease attributable to lower volume and a $65 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 $43 million of restructuring charges in cost of sales in the nine-month period ended February 26, 2017, compared to $61 million in the same period last year. We also recorded $36 million of restructuring initiative project-related costs in the nine-month period ended February 26, 2017 compared to $39 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 $21 million net decrease in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories in the nine-month period ended February 26, 2017, compared to a net decrease of $3 million in the nine-month period ended February 28, 2016.

SG&A expenses decreased $232 million to $2,108 million in the nine-month period ended February 26, 2017, compared to the same period in fiscal 2016. The decrease in SG&A expenses primarily reflects a 17 percentage point decrease in media and advertising expense and savings from cost management initiatives. SG&A expenses as a percent of net sales in the nine-month period ended February 26, 2017 decreased 67 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 $201 million, primarily from the sale of our Green Giant product lines during the second quarter of fiscal 2016.

Restructuring, impairment, and other exit costs totaled $165 million in the nine-month period ended February 26, 2017 compared to $138 million in the same period last year.

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

 

		Nine-Month Period Ended																Fiscal 2016 and 2015								Estimated
		Feb. 26, 2017								Feb. 28, 2016								Total								Future								Total
In Millions		Charge				Cash				Charge				Cash				Charge				Cash				Charge				Cash				Charge				Cash				Savings (b)
Global reorganization		$	73.1			$	9.2			$	—			$	—			$	—			$	—			$	7			$	71			$	80			$	80
Closure of Melbourne, Australia plant			17.7				0.1				—				—				—				—				16				—				34				—
Restructuring of certain international product lines			45.6				10.6				—				—				—				—				—				(7	)			38				4
Closure of Vineland, New Jersey plant			35.6				1.5				—				—				—				—				30				16				65				18
Project Compass			(0.4	)			11.4				52.8				29.1				54.7				36.1				—				7				55				55
Project Century			37.2				29.5				155.1				38.0				364.4				46.3				15				66				417				142
Project Catalyst			—				1.1				(8.7	)			46.9				140.9				92.8				—				25				141				94
Combination of certain operational facilities			(0.5	)			3.7				—				2.2				13.3				11.0				—				—				13				15
Total restructuring charges (a)			208.3				67.1				199.2				116.2				573.3				186.2				68				178				843				408
Project-related costs			36.4				40.2				39.4				37.7				70.7				64.2				17				20				124				124
Restructuring charges and project-related costs		$	244.7			$	107.3			$	238.6			$	153.9			$	644.0			$	250.4			$	85			$	198			$	967			$	532			$	700

 

(a)	Includes $42.8 million of restructuring charges recorded in cost of sales during fiscal 2017 and $60.9 million in fiscal 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 nine-month period ended February 26, 2017, totaled $226 million, flat to the same period of fiscal 2016.

The effective tax rate for the nine-month period ended February 26, 2017, was 29.5 percent compared to 34.3 percent for the nine-month period ended February 28, 2016. The 4.8 percentage point decrease was primarily due to significant non-deductible expenses related to the Green Giant divestiture in the second quarter of fiscal 2016, as well as favorable impacts of French tax legislation and other favorable discrete tax items that occurred during the third quarter of fiscal 2017. Our effective tax rate excluding certain items affecting comparability was 29.8 percent for the nine-month period ended February 26, 2017 compared to 31.9 percent in the nine-month period ended February 28, 2016 (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 nine-month period ended February 26, 2017, were $65 million, flat to the same period in fiscal 2016, as favorable foreign currency exchange and lower input costs for HDJ were offset by an asset write-off and unfavorable foreign currency exchange for CPW. On a constant-currency basis, after-tax earnings from joint ventures decreased 3

 

28

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percent (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The components of our joint ventures’ net sales growth are shown in the following table:

 

Nine-Month Period Ended Feb. 26, 2017 vs. Nine-Month Period Ended Feb. 28, 2016		CPW				HDJ
Contributions from volume growth (a)		3  pts				3   pts
Net price realization and mix		Flat				2   pts
Foreign currency exchange		(4)  pts				12   pts
Net sales growth		(1)    pt				17   pts

 

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

The change in net sales for each joint venture on a constant-currency basis is set forth in the following table:

 

		Nine-Month Period Ended February 26, 2017
		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			17	%		12     pts					5	%
Joint Ventures			2	%		(1)      pt					3	%

Average diluted shares outstanding decreased by 11 million in the nine-month period ended February 26, 2017, compared to the same period a year ago due to the impact of share repurchases, partially offset by option exercises.

SEGMENT OPERATING RESULTS

In the third quarter of fiscal 2017, we announced a new global organization structure to streamline our leadership, enhance global scale, and drive improved operational agility to maximize our growth capabilities. As a result of this global reorganization, beginning in the third quarter of fiscal 2017, we are reporting results for our four operating segments as follows: North America Retail; Convenience Stores & Foodservice; Europe & Australia; and Asia & Latin America. We have restated our net sales by segment and segment operating profit amounts to reflect our new operating segments. These segment changes had no effect on previously reported consolidated net sales, operating profit, net earnings attributable to General Mills, or earnings per share.

Our North America Retail operating segment consists of our former U.S. Retail operating units and our Canada region. Within our North America Retail operating segment, our former U.S. Meals operating unit and U.S. Baking operating unit have been combined into one operating unit: U.S. Meals & Baking. Our Europe & Australia operating segment consists of our former Europe region. Our Asia & Latin America operating segment consists of our former Asia/Pacific and Latin America regions. Our Convenience Stores & Foodservice operating segment was unchanged. For further information on our operating segments, please refer to Note 15 to the Consolidated Financial Statements in Part 1, Item 1 of this report.

North America Retail Segment Results

North America Retail net sales were as follows:

 

Quarter Ended

Nine-Month Period Ended

Feb. 26, 2017

Feb. 26, 2017 vs Feb. 28, 2016

Feb. 28, 2016

Feb. 26, 2017

Feb. 26, 2017 vs Feb. 28, 2016

Feb. 28, 2016

Net sales (in millions)

$

2,499.0

(7)     %

$

2,686.6

$

7,804.8

(8)     %

$

8,460.7

Contributions from volume growth (a)

(9)    pts

(12)    pts

Foreign currency exchange

Flat

Flat

Net price realization and mix

2    pts

4    pts

 

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

 

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The 7 percent decrease in North America Retail net sales for the quarter ended February 26, 2017 was driven by declines in the U.S. Meals & Baking, U.S. Yogurt, U.S. Snacks, and U.S. Cereal operating units, partially offset by growth in the Canada operating unit.

The 8 percent decline in North America Retail net sales for the nine-month period ended February 26, 2017 was driven by declines in the U.S. Meals & Baking, U.S. Yogurt, U.S. Cereal, and Canada operating units. The decline in net sales also includes the impact of the Green Giant divestiture from the U.S. Meals & Baking and Canada operating units in fiscal 2016.

The components of North America Retail organic net sales growth are shown in the following table:

 

		Quarter Ended				Nine-Month Period Ended
		Feb. 26, 2017				Feb. 26, 2017
Contributions from organic volume growth (a)			(10)    pts				(9)   pts
Organic net price realization and mix			2     pts				3    pts
Organic net sales growth			(8)    pts				(6)   pts
Foreign currency exchange			Flat				Flat
Acquisitions and divestitures (b)			1     pt				(2)   pts
Net sales growth			(7)    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.

North America Retail organic net sales decreased 8 percentage points for the quarter ended February 26, 2017 and decreased 6 percentage points for the nine-month period ended February 26, 2017 compared to the same periods in the prior year, which reflect the impact of reduced marketing and trade support and increased competition in key categories.

North America Retail net sales percentage change by operating unit are shown in the following table:

 

		Quarter Ended				Nine-Month Period Ended
		Feb. 26, 2017				Feb. 26, 2017
U.S. Meals & Baking			(10	)%			(12	)%
U.S. Yogurt			(20	)			(17	)
U.S. Snacks			(4	)			Flat
U.S. Cereal			(1	)			(3	)
Canada (a)			4				(3	)
Total			(7	)%			(8	)%

 

(a)	On a constant currency basis, Canada net sales decreased 1 percent for the quarter ended February 26, 2017 and decreased 4 percent for the nine-month period ended February 26, 2017. See the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP.

Segment operating profit decreased 7 percent to $517 million in the third quarter of fiscal 2017 compared to $553 million in the same period of fiscal 2016, primarily driven by volume declines, partially offset by a decline in media and advertising expense and benefits from cost savings initiatives. Segment operating profit decreased 7 percent on a constant-currency basis in the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

Segment operating profit decreased 5 percent to $1,796 million in the nine-month period ended February 26, 2017 compared to $1,886 million in the same period of fiscal 2016, primarily driven by volume declines, currency-driven inflation on products imported into Canada, and the impact of the Green Giant divestiture, partially offset by a decrease in SG&A expenses, including a decline in media and advertising expense and benefits from cost savings initiatives. Segment operating profit for the nine-month period ended February 26, 2017, decreased 5 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).

 

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Convenience Stores & Foodservice Segment Results

Convenience Stores & Foodservice net sales were as follows:

 

		Quarter Ended												Nine-Month Period Ended
		Feb. 26, 2017				Feb. 26, 2017 vs Feb. 28, 2016				Feb. 28, 2016				Feb. 26, 2017				Feb. 26, 2017 vs Feb. 28, 2016				Feb. 28, 2016
Net sales (in millions)		$	448.5			(1)     %				$	453.7			$	1,382.3			(4)      %				$	1,437.2
Contributions from volume growth (a)						1       pt												Flat
Net price realization and mix						(2)    pts												(4)    pts

 

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

The 1 percent decline in Convenience Stores & Foodservice net sales in the third quarter of fiscal 2017 was driven by a decline in non-Focus 6 platforms, partially offset by an increase in the Focus 6 platforms.

The 4 percent decline in Convenience Stores & Foodservice net sales in the nine-month period ended February 26, 2017 was driven primarily by market index pricing on bakery flour, partially offset by an increase in the Focus 6 platforms.

The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:

 

		Quarter Ended				Nine-Month Period Ended
		Feb. 26, 2017				Feb. 26, 2017
Contributions from organic volume growth (a)			1      pt				Flat
Organic net price realization and mix			(2)   pts				(4)    pts
Organic net sales growth			(1)     pt				(4)    pts
Acquisitions and divestitures			NM				NM
Net sales growth			(1)     pt				(4)    pts

 

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

Segment operating profit increased 3 percent to $94 million in the third quarter of fiscal 2017 compared to $91 million in the third quarter of fiscal 2016. The increase was primarily driven by benefits from cost savings initiatives and lower input costs.

Segment operating profit increased by 8 percent to $295 million for the nine-month period ended February 26, 2017 from $273 million in the same period last year. The increase was primarily driven by benefits from cost savings initiatives, lower input costs, and higher grain merchandise earnings.

Europe & Australia Segment Results

Europe & Australia net sales were as follows:

 

		Quarter Ended												Nine-Month Period Ended
		Feb. 26, 2017				Feb. 26, 2017 vs. Feb. 28, 2016				Feb. 28, 2016				Feb. 26, 2017				Feb. 26, 2017 vs. Feb. 28, 2016				Feb. 28, 2016
Net sales (in millions)		$	424.5			(3)     %				$	439.4			$	1,338.0			(7)     %				$	1,431.3
Contributions from volume growth (a)