Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

We are a global packaged foods company. We develop distinctive value-added food products and market them under unique brand names. We work continuously to improve our core products and to create new products that meet consumers’ evolving needs and preferences. In addition, we build the equity of our brands over time with strong consumer-directed marketing, innovative new products, and effective merchandising. We believe our brand-building strategy is the key to winning and sustaining leading share positions in markets around the globe.

Our fundamental financial goal is to generate superior returns for our shareholders over the long term. We believe that increases in organic net sales, adjusted operating profit, adjusted earnings per share (EPS), free cash flow, and cash return to shareholders are key drivers of financial performance for our business.

Our long-term growth objectives are to consistently deliver:

•		low single-digit annual growth in organic net sales;

•		mid single-digit annual growth in adjusted operating profit;

•		high single-digit annual growth in adjusted diluted EPS;

•		free cash flow conversion averaging above 95 percent of adjusted net earnings after tax; and

•		cash return to shareholders averaging above 90 percent of free cash flow, including an attractive dividend yield.

We continue to pursue our Consumer First strategy and execute against our global growth framework: 1) competing effectively on all brands and across all geographies through strong innovation, effective consumer marketing, and excellent in-store execution; 2) accelerating growth on our four differential growth platforms, which are Häagen-Dazs ice cream, snack bars, Old El Paso Mexican food, and our portfolio of natural and organic food brands; and 3) reshaping our portfolio through growth-enhancing acquisitions and divestitures, including the acquisition of Blue Buffalo. By focusing on this growth framework, we expect to generate financial performance consistent with the long-term growth objectives listed above, which we believe should result in long-term value creation for our shareholders.

In fiscal 2019 we executed well and met or exceeded each of our key full-year financial targets, including organic net sales growth and constant-currency growth in net sales, adjusted operating profit, and adjusted diluted EPS. Relative to fiscal 2018, we improved our net sales performance in U.S. Yogurt and our emerging market businesses, we increased our contributions from innovation, we stabilized our distribution trends in the U.S., and we generated greater benefits from net price realization and mix through our Strategic Revenue Management capability. These results were partially offset by challenging performance for U.S. snack bars, leaving our organic net sales growth at the low end of the range outlined in our initial annual targets.

We successfully transitioned Blue Buffalo into the General Mills portfolio in fiscal 2019, achieving our goals of double-digit pro forma growth in net sales and segment operating profit excluding the impact of purchase accounting. The combination of record-level Holistic Margin Management (HMM) savings, increased benefits from net price realization and mix, and strong cost management drove growth in constant-currency adjusted operating profit and adjusted diluted EPS ahead of our initial targets. Finally, we continued to maintain a disciplined focus on cash, resulting in another year of strong free cash flow conversion.

Our consolidated net sales for fiscal 2019 rose 7 percent to $16.9 billion. On an organic basis, net sales essentially matched year-ago levels. Operating profit of $2.5 billion increased 4 percent. Adjusted operating profit of $2.8 billion increased 9 percent and increased 10 percent on a constant-currency basis. Diluted EPS of $2.90 was down 20 percent compared to fiscal 2018 results. Adjusted diluted EPS was up 4 percent to $3.22 per share and increased 4 percent on a constant-currency basis (See the “Non-GAAP Measures” section below for a description of our use of measures not defined by generally accepted accounting principles (GAAP)).

Net cash provided by operations totaled $2.8 billion in fiscal 2019 representing a conversion rate of 157 percent of net earnings, including earnings attributable to redeemable and noncontrolling interests. This cash generation supported capital investments totaling $538 million, and our resulting free cash flow was $2.3 billion at a conversion rate of 115 percent of adjusted net earnings, including earnings attributable to redeemable and noncontrolling interests. We also returned cash to shareholders through dividends totaling $1.2 billion and reduced total debt outstanding by $1.3 billion.

A detailed review of our fiscal 2019 performance compared to fiscal 2018 appears below in the section titled “Fiscal 2019 Consolidated Results of Operations.” A detailed review of our fiscal 2018 performance compared to our fiscal 2017 performance is set forth in Part II, Item 7 of our Form 10-K for the fiscal year ended May 27, 2018 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Fiscal 2018 Results of Consolidated Operations.”

In fiscal 2020, our plans include continued strong innovation and investments in capabilities and brand building to accelerate our topline growth, efficiency initiatives to maintain our strong margins, and a disciplined focus on cash to further reduce our leverage. We remain confident that executing our Consumer First strategy and our Compete, Accelerate, and Reshape growth framework will drive sustainable, profitable growth and attractive long-term returns for our shareholders.

Our key full-year fiscal 2020 targets are summarized below:

•		Organic net sales are expected to increase 1 to 2 percent.

•		Constant-currency adjusted operating profit is expected to increase 2 to 4 percent from the base of $2.8 billion reported in fiscal 2019. Benefit of the 53rd week in fiscal 2020 will be reinvested in capabilities and brand-building initiatives to drive improvement in our organic net sales growth rate in 2020 and beyond.

•		Constant-currency adjusted diluted EPS are expected to increase 3 to 5 percent from the base of $3.22 earned in fiscal 2019.

•		Free cash flow conversion is expected to be at least 95 percent of adjusted after-tax earnings.

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

Certain terms used throughout this report are defined in a glossary in Item 8 of this report.

FISCAL 2019 CONSOLIDATED RESULTS OF OPERATIONS

In fiscal 2018, we acquired Blue Buffalo, which became our Pet operating segment. We are reporting the Pet operating segment results on a one-month lag and, accordingly, our fiscal 2018 results did not include Pet segment operating results.

In fiscal 2019, net sales increased 7 percent compared to last year, primarily reflecting the addition of Blue Buffalo. Organic net sales were flat in the fiscal year ended May 26, 2019. Operating profit margin of 14.9 percent was down 50 basis points from year-ago levels primarily driven by impairment charges recorded for certain intangible and manufacturing assets and unfavorable mark-to-market valuation of certain commodity positions. Adjusted operating profit margin increased 30 basis points to 16.9 percent, primarily driven by lower selling, general, and administrative expenses in our North America Retail segment and the addition of Blue Buffalo, partially offset by higher input costs. Diluted earnings per share of $2.90 decreased 20 percent primarily driven by a one-time benefit recorded in fiscal 2018 related to the Tax Cuts and Jobs Act (TCJA). Adjusted diluted earnings per share of $3.22 increased 4 percent on a constant-currency basis (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 fiscal 2019 follows:


Fiscal 2019	In millions, except per share		Fiscal 2019 vs. Fiscal 2018		Percent of Net Sales		Constant- Currency Growth (a)
Net sales	$	16,865.2		7 %				9 %
Operating profit		2,515.9		4 %		14.9 %
Net earnings attributable to General Mills		1,752.7		(18) %
Diluted EPS	$	2.90		(20) %

Organic net sales growth rate (a)				Flat
Adjusted operating profit (a)		2,858.0		9 %		16.9 %		10 %
Adjusted diluted EPS (a)	$	3.22		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:


	Fiscal 2019		Fiscal 2019 vs. Fiscal 2018		Fiscal 2018
Net sales (in millions)	$	16,865.2		7 %	$	15,740.4

Contributions from volume growth (a)				5 pts
Net price realization and mix				4 pts
Foreign currency exchange				(2)pts

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

The 7 percent increase in net sales in fiscal 2019 reflects the addition of Blue Buffalo, favorable net price realization and mix across all other segments, and higher contributions from volume growth in the Asia & Latin America segment, partially offset by lower contributions from volume growth in the North America Retail, Europe & Australia, and Convenience Stores & Foodservice segments.

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


Fiscal 2019 vs. Fiscal 2018
Contributions from organic volume growth (a)			(2)pts
Organic net price realization and mix			2 pts

Organic net sales growth			Flat
Foreign currency exchange			(2)pts
Acquisition and divestitures			9 pts

Net sales growth			7 pts

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

Organic net sales in fiscal 2019 were flat compared to fiscal 2018, as favorable organic net price realization and mix was offset by declining contributions from organic volume growth.

Cost of sales increased $804 million in fiscal 2019 to $11,108 million. The increase was driven by a $503 million increase due to higher volume and a $194 million increase attributable to product rate and mix, including the impact of the Blue Buffalo acquisition. In fiscal 2019, we recorded a $53 million charge related to the fair value adjustment of inventory acquired in the Blue Buffalo acquisition. We recorded a $36 million net increase in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories compared to a net decrease of $32 million in fiscal 2018 (please see Note 7 to the Consolidated Financial Statements in Item 8 of this report). In fiscal 2019, we recorded $10 million of restructuring charges in cost of

sales compared to $14 million in fiscal 2018. We also recorded $1 million of restructuring initiative project-related costs in cost of sales in fiscal 2019 compared to $11 million in fiscal 2018 (please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information).

Gross margin increased 6 percent in fiscal 2019 versus fiscal 2018. Gross margin as a percent of net sales of 34.1 percent decreased 40 basis points compared to fiscal 2018.

Selling, general and administrative (SG&A) expenses increased $86 million to $2,936 million in fiscal 2019 compared to fiscal 2018. The increase in SG&A expenses primarily reflects the addition of Blue Buffalo, partially offset by a decrease in media and advertising expense. SG&A expenses as a percent of net sales in fiscal 2019 decreased 70 basis points compared to fiscal 2018.

Divestitures loss totaled $30 million in fiscal 2019. In fiscal 2019, we sold our La Salteña fresh pasta and refrigerated dough business in Argentina, and recorded a pre-tax loss of $35 million. We also sold our yogurt business in China and simultaneously entered into a new Yoplait license agreement with the purchaser for their use of the Yoplait brand. We recorded a pre-tax gain of $5 million.

Restructuring, impairment, and other exit costs totaled $275 million in fiscal 2019 compared to $166 million in fiscal 2018.

In fiscal 2019, as a result of lower sales projections in our long range plans for the businesses supporting our Progresso, Food Should Taste Good, and Mountain High brand intangible assets, we recorded $193 million of impairment charges related to these brand intangible assets (please see Note 6 to the Consolidated Financial Statements in Item 8 of this report for additional information).

In addition, in fiscal 2019, we recorded a $15 million charge related to the impairment of certain manufacturing assets in our North America Retail and Asia & Latin America segments.

Charges associated with our restructuring initiatives recognized in fiscal 2019 consisted of the following:


Expense, in Millions
Targeted actions in global supply chain	$	80.2
Charges associated with restructuring actions previously announced		(2.6)

Total (a)	$	77.6

(a)	Includes restructuring charges recorded in cost of sales of $9.9 million.

In fiscal 2019, we approved restructuring actions to drive efficiencies in targeted areas of our global supply chain. In connection with these actions we recorded $80 million of restructuring charges, consisting of $23 million of severance expense and $57 million of other costs, primarily asset write-offs. Four of our operating segments were affected by these actions including $54 million related to our North America Retail segment, $13 million related to our Asia & Latin America segment, $12 million related to our Europe & Australia segment, and $1 million related to our Pet segment. We expect these actions to be completed by the end of fiscal 2022.

We spent $49 million of cash related to restructuring initiatives in fiscal 2019.

Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information.

Benefit plan non-service income totaled $88 million in fiscal 2019 compared to $89 million in fiscal 2018 (please see to Note 2 to the Consolidated Financial Statements in Item 8 of this report for additional information).

Interest, net for fiscal 2019 totaled $522 million, $148 million higher than fiscal 2018, primarily driven by higher debt levels due to financing for the Blue Buffalo acquisition.

Our effective tax rate for fiscal 2019 was 17.7 percent compared to 2.7 percent in fiscal 2018. The 15.0 percentage point increase reflects the lower statutory rate in fiscal 2019 being more than offset by the impact of the one-time, provisional net benefit of $524 million recorded in fiscal 2018 related to the TCJA. Our adjusted effective tax rate was 21.8 percent in fiscal 2019 compared to 25.7 percent in fiscal 2018 (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The 3.9 percentage point decrease in the adjusted effective tax rate was primarily due to the net benefits associated with the TCJA, partially offset by the change in earnings mix by jurisdiction.

The TCJA includes provisions affecting our fiscal 2019 effective tax rate, including but not limited to: a reduction in the U.S. corporate tax rate on domestic operations to 21 percent; a provision that taxes U.S. allocated expenses and certain income from foreign operations (GILTI); a limitation on deductible interest expense; the repeal of the domestic manufacturing deduction; and a limitation on the deductibility of certain executive compensation. In fiscal 2019, we completed our accounting for the tax effects of the TCJA and recorded a benefit of $7 million which included adjustments to the transition tax and the measurement of our net U.S. deferred tax liability.

After-tax earnings from joint ventures decreased $13 million to $72 million in fiscal 2019 compared to fiscal 2018, primarily driven by our $11 million after-tax share of restructuring charges at CPW, and lower net sales and higher input costs for HDJ. On a constant-currency basis, after-tax earnings from joint ventures decreased 14 percent, including the CPW restructuring charge (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:


Fiscal 2019 vs. Fiscal 2018	CPW		HDJ		Total
Contributions from volume growth (a)		(1) pt		(3) pts
Net price realization and mix		2 pts		(4) pts

Net sales growth in constant currency		1 pt		(7) pts		(1) pt
Foreign currency exchange		(6) pts		(1) pt		(5) pts

Net sales growth		(5) pts		(8) pts		(6) pts

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

Average diluted shares outstanding increased by 20 million in fiscal 2019 from fiscal 2018 due to the impact of the fiscal 2018 share issuance to partially fund the acquisition of Blue Buffalo and option exercises.

RESULTS OF SEGMENT OPERATIONS

Our businesses are organized into five operating segments: North America Retail; Convenience Stores & Foodservice; Europe & Australia; Asia & Latin America; and Pet. We are reporting the Pet operating segment results on a one-month lag and, accordingly, our fiscal 2018 results did not include Pet segment operating results.

The following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal 2019 and 2018:


	Fiscal Year
	2019				2018
In Millions	Dollars		Percent of Total		Dollars		Percent of Total

*Net Sales*
North America Retail	$	9,925.2		59%	$	10,115.4		64%
Convenience Stores & Foodservice		1,969.1		12		1,930.2		12
Europe & Australia		1,886.7		11		1,984.6		13
Asia & Latin America		1,653.3		10		1,710.2		11
Pet		1,430.9		8		-		-

Total	$	16,865.2		100%	$	15,740.4		100%


*Segment Operating Profit*
North America Retail	$	2,277.2		72%	$	2,217.4		80%
Convenience Stores & Foodservice		419.5		13		392.6		14
Europe & Australia		123.3		4		142.1		5
Asia & Latin America		72.4		2		39.6		1
Pet		268.4		9		-		-

Total	$	3,160.8		100%	$	2,791.7		100%

Segment operating profit as reviewed by our executive management excludes unallocated corporate items, net gain/loss on divestitures, and restructuring, impairment, and other exit costs that are centrally managed.

NORTH AMERICA RETAIL SEGMENT

Our North America Retail operating 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 refrigerated yogurt, nutrition bars, meal kits, salty snacks, ready-to-eat cereal, and grain snacks.

North America Retail net sales were as follows:


	Fiscal 2019		Fiscal 2019 vs. 2018 Percentage Change		Fiscal 2018
Net sales (in millions)	$	9,925.2		(2) %	$	10,115.4
Contributions from volume growth (a)				(3)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 2 percent decrease in North America Retail net sales for fiscal 2019 was driven by a decrease in contributions from volume growth and unfavorable foreign currency exchange, partially offset by an increase in net price realization and mix.

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


	Fiscal 2019 vs. 2018 Percentage Change
Contributions from organic volume growth (a)		(2)pts
Organic net price realization and mix		1 pt
Organic net sales growth		(1)pt
Foreign currency exchange		(1)pt
Divestiture (b)		Flat
Net sales growth		(2)pts

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

(b)	Related to the divestiture of North American Green Giant product lines.

North America Retail organic net sales decreased 1 percent in fiscal 2019 compared to fiscal 2018, driven by a decrease in contributions from organic volume growth partially offset by favorable organic net price realization and mix.

Net sales for our North America Retail operating units are shown in the following table:


In Millions	Fiscal 2019	Fiscal 2019 vs. 2018 Percentage Change	Fiscal 2018
U.S. Meals & Baking	$ 3,839.8	(1)%	$ 3,865.7
U.S. Cereal	2,255.4	Flat	2,251.8
U.S. Snacks	2,060.9	(4)%	2,140.5
U.S. Yogurt and Other	906.7	(2)%	927.4
Canada (a)	862.4	(7)%	930.0
Total	$ 9,925.2	(2)%	$ 10,115.4

(a)	On a constant currency basis, Canada operating unit net sales decreased 4 percent in fiscal 2019. See the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP.

Segment operating profit increased 3 percent to $2,277 million in fiscal 2019, compared to $2,217 million in fiscal 2018, primarily driven by lower SG&A expenses, partially offset by lower contributions from volume growth. Segment operating profit increased 3 percent on a constant-currency basis in fiscal 2019 compared to fiscal 2018 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

CONVENIENCE STORES & FOODSERVICE SEGMENT

Our major product categories in our Convenience Stores & Foodservice operating 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.

Convenience Stores & Foodservice net sales were as follows:


	Fiscal 2019		Fiscal 2019 vs. 2018 Percentage Change		Fiscal 2018
Net sales (in millions)	$	1,969.1		2 %	$	1,930.2
Contributions from volume growth (a)				(2)pts
Net price realization and mix				4 pts

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

Convenience Stores & Foodservice net sales increased 2 percent in fiscal 2019, driven by favorable net price realization and mix partially offset by a decrease in contributions from volume growth.

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


	Fiscal 2019 vs. 2018 Percentage Change
Contributions from organic volume growth (a)		(2)pts
Organic net price realization and mix		4 pts
Organic net sales growth		2 pts
Net sales growth		2 pts

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

Segment operating profit increased 7 percent to $420 million in fiscal 2019, compared to $393 million in fiscal 2018, primarily driven by favorable net price realization and mix, partially offset by higher input costs.

EUROPE & AUSTRALIA SEGMENT

Our Europe & Australia operating segment reflects retail and foodservice businesses in the greater Europe and 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 franchisee is located.

Europe & Australia net sales were as follows:


	Fiscal 2019		Fiscal 2019 vs. 2018 Percentage Change		Fiscal 2018
Net sales (in millions)	$	1,886.7		(5) %	$	1,984.6
Contributions from volume growth (a)				(3)pts
Net price realization and mix				2 pts
Foreign currency exchange				(4)pts

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

The 5 percent decrease in Europe & Australia net sales in fiscal 2019 was driven by unfavorable foreign currency exchange and lower contributions from volume growth, partially offset by favorable net price realization and mix.

The components of Europe & Australia organic net sales growth are shown in the following table:


	Fiscal 2019 vs. 2018 Percentage Change
Contributions from organic volume growth (a)		(3)pts
Organic net price realization and mix		2 pts
Organic net sales growth		(1)pt
Foreign currency exchange		(4)pts
Net sales growth		(5)pts

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

The 1 percent decrease in Europe & Australia organic net sales growth in fiscal 2019 was driven by a decrease in contributions from organic volume growth partially offset by favorable organic net price realization and mix.

Segment operating profit decreased 13 percent to $123 million in fiscal 2019, compared to $142 million in the same period of fiscal 2018 primarily driven by lower contributions from volume growth and higher input costs, including currency-driven inflation on imported products in certain markets, partially offset by lower SG&A expenses. Segment operating profit decreased 8 percent on a constant-currency basis in fiscal 2019 compared to fiscal 2018 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

ASIA & LATIN AMERICA SEGMENT

Our Asia & Latin America operating 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 and franchise fees are reported in the region or country where the end customer or franchisee is located.

Asia & Latin America net sales were as follows:


	Fiscal 2019		Fiscal 2019 vs. 2018 Percentage Change		Fiscal 2018
Net sales (in millions)	$	1,653.3		(3)%	$	1,710.2
Contributions from volume growth (a)				1 pt
Net price realization and mix				3 pts
Foreign currency exchange				(7)pts

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

Asia & Latin America net sales decreased 3 percent in fiscal 2019 compared to fiscal 2018, driven by unfavorable foreign currency exchange, partially offset by favorable net price realization and mix and an increase in contributions from volume growth.

The components of Asia & Latin America organic net sales growth are shown in the following table:


	Fiscal 2019 vs. 2018 Percentage Change
Contributions from organic volume growth (a)		3 pts
Organic net price realization and mix		3 pts
Organic net sales growth		6 pts
Foreign currency exchange		(7)pts
Divestitures (b)		(2)pts
Net sales growth		(3)pts

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

(b)	Impact of the divestiture of our La Salteña business in Argentina and our Yoplait business in China.

The 6 percent increase in Asia & Latin America organic net sales in fiscal 2019 was driven by favorable organic net price realization and mix and an increase in contributions from organic volume growth.

Segment operating profit increased 83 percent to $72 million in fiscal 2019, compared to $40 million in fiscal 2018, primarily driven by higher contributions from volume growth, higher net price realization and mix and lower SG&A expenses, partially offset by higher input costs, including currency-driven inflation on imported

products in certain markets. Segment operating profit increased 71 percent on a constant-currency basis in fiscal 2019 compared to fiscal 2018 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

PET SEGMENT

Our Pet operating segment includes pet food products sold primarily in the United States in national pet superstore chains, e-commerce retailers, grocery stores, regional pet store chains, mass merchandisers, and veterinary clinics and hospitals. Our product categories include dog and cat food (dry foods, wet foods, and treats) made with whole meats, fruits, and vegetables and other high-quality natural ingredients. Our tailored pet product offerings address specific dietary, lifestyle, and life-stage needs and span different product types, diet types, breed sizes for dogs, lifestages, flavors, product functions and textures, and cuts for wet foods. We are reporting the Pet operating segment results on a one-month lag and accordingly, our fiscal 2018 results did not include Pet segment operating results.

Pet net sales were as follows:


	Fiscal
	2019		2018
Net sales (in millions)	$	1,430.9	$	-

Pet net sales and segment operating profit in fiscal 2019 totaled $1,431 million and $268 million, respectively. Pet operating profit includes a $53 million purchase accounting adjustment related to inventory acquired and $13 million of amortization of the customer list intangible asset.

UNALLOCATED CORPORATE ITEMS

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. This includes gains and losses from the mark-to-market valuation of certain commodity positions until passed back to our operating segments in accordance with our policy as discussed in Note 7 to the Consolidated Financial Statements in Item 8 of this report.

In fiscal 2019, unallocated corporate expense increased $134 million to $340 million compared to $206 million last year, primarily driven by compensation and benefits expenses. In fiscal 2019, we recorded a $36 million net increase in expense related to mark-to-market valuation of certain commodity positions and grain inventories compared to a $32 million net decrease in expense in the prior year. In addition, we recorded $10 million of restructuring charges, and $1 million of restructuring initiative project-related costs in cost of sales in fiscal 2019, compared to $14 million of restructuring charges and $11 million of restructuring initiative project-related costs in cost of sales in fiscal 2018. In fiscal 2019, we recorded a $16 million gain from a legal recovery related to our Yoplait SAS subsidiary and $23 million of gains related to certain investment valuation adjustments. We also recorded $26 million of integration costs in fiscal 2019 related to our acquisition of Blue Buffalo compared to $34 million of transaction and integration costs in fiscal 2018. In addition, we recorded a $3 million loss related to the impact of hyperinflationary accounting for our Argentina subsidiary in fiscal 2019.

IMPACT OF INFLATION

We experienced input cost inflation of 4 percent in fiscal 2019 and 4 percent in fiscal 2018, primarily on commodity inputs. We expect input cost inflation of approximately 4 percent in fiscal 2020. We attempt to minimize the effects of inflation through HMM, planning, and operating practices. Our risk management practices are discussed in Item 7A of this report.

LIQUIDITY

The primary source of our liquidity is cash flow from operations. Over the most recent two-year period, our operations have generated $5.6 billion in cash. A substantial portion of this operating cash flow has been returned to shareholders through share repurchases and dividends. We also use cash from operations to fund our capital expenditures and acquisitions. We typically use a combination of cash, notes payable, and long-term debt, and occasionally issue shares of stock, to finance significant acquisitions.

As of May 26, 2019, we had $399 million of cash and cash equivalents held in foreign jurisdictions. As a result of the TCJA, the historic undistributed earnings of our foreign subsidiaries were taxed in the U.S. via the one-time repatriation tax in fiscal 2018. We have re-evaluated our assertion and have concluded that although earnings prior to fiscal 2018 will remain permanently reinvested, we will no longer make a permanent reinvestment assertion beginning with our fiscal 2018 earnings. As part of the accounting for the TCJA, we recorded local country withholding taxes related to certain entities from which we began repatriating undistributed earnings and will continue to record local country withholding taxes on all future earnings. As a result of the transition tax, we may repatriate our cash and cash equivalents held by our foreign subsidiaries without such funds being subject to further U.S. income tax liability (please see Note 14 to the Consolidated Financial Statements in Item 8 of this report for additional information).

Cash Flows from Operations


	Fiscal Year
In Millions	2019		2018

Net earnings, including earnings attributable to redeemable and noncontrolling interests	$	1,786.2	$	2,163.0
Depreciation and amortization		620.1		618.8
After-tax earnings from joint ventures		(72.0)		(84.7	)
Distributions of earnings from joint ventures		86.7		113.2
Stock-based compensation		84.9		77.0
Deferred income taxes		93.5		(504.3	)
Pension and other postretirement benefit plan contributions		(28.8)		(31.8	)
Pension and other postretirement benefit plan costs		6.1		4.6
Divestitures loss		30.0		-
Restructuring, impairment, and other exit costs		235.7		126.0
Changes in current assets and liabilities, excluding the effects of acquisitions and divestitures		(7.5)		542.1
Other, net		(27.9)		(182.9	)

Net cash provided by operating activities	$	2,807.0	$	2,841.0

During fiscal 2019, cash provided by operations was $2,807 million compared to $2,841 million in the same period last year. The $34 million decrease was primarily driven by a $377 million decrease in net earnings and a $550 million change in current assets and liabilities, partially offset by a $598 million change in deferred income taxes. The $550 million change in current assets and liabilities was primarily driven by a $413 million change in the timing of accounts payable, including the impact of longer payment terms implemented in prior fiscal years. The change in deferred income taxes was primarily related to the $638 million provisional benefit from revaluing our net U.S. deferred tax liabilities to reflect the new U.S. corporate tax rate as a result of the TCJA in fiscal 2018.

We strive to grow core working capital at or below the rate of growth in our net sales. For fiscal 2019, core working capital decreased 34 percent, compared to a net sales increase of 7 percent. As of May 26, 2019, our core working capital balance totaled $385 million, down 34 percent versus last year, this is primarily driven by continued benefits from our payment terms extension program and lower inventory balances. In fiscal 2018, core working capital decreased 27 percent, compared to a net sales increase of 1 percent.

Cash Flows from Investing Activities


	Fiscal Year
In Millions	2019		2018

Purchases of land, buildings, and equipment	$	(537.6)	$	(622.7)
Acquisitions, net of cash acquired		-		(8,035.8)
Investments in affiliates, net		0.1		(17.3)
Proceeds from disposal of land, buildings, and equipment		14.3		1.4
Proceeds from divestitures		26.4		-
Other, net		(59.7)		(11.0)

Net cash used by investing activities	$	(556.5)	$	(8,685.4)

In fiscal 2019, we used $556 million of cash through investing activities compared to $8.7 billion in fiscal 2018. This decrease was primarily driven by the acquisition of Blue Buffalo for an aggregate purchase price of $8.0 billion, including $103 million of consideration for net debt repaid, in fiscal 2018. We invested $538 million in land, buildings, and equipment in fiscal 2019, $85 million less than fiscal 2018.

We expect capital expenditures to be approximately 3.5 percent of reported net sales in fiscal 2020. These expenditures will fund initiatives that are expected to fuel growth, support innovative products, and continue HMM initiatives throughout the supply chain.

Cash Flows from Financing Activities


	Fiscal Year
In Millions	2019		2018

Change in notes payable	$	(66.3)	$	327.5
Issuance of long-term debt		339.1		6,550.0
Payment of long-term debt		(1,493.8)		(600.1)
Proceeds from common stock issued on exercised options		241.4		99.3
Proceeds from common stock issued		-		969.9
Purchases of common stock for treasury		(1.1)		(601.6)
Dividends paid		(1,181.7)		(1,139.7)
Investments in redeemable interest		55.7		-
Distributions to noncontrolling and redeemable interest holders		(38.5)		(51.8)
Other, net		(31.2)		(108.0)

Net cash (used) provided by financing activities	$	(2,176.4)	$	5,445.5

Financing activities used $2.2 billion of cash in fiscal 2019 compared to providing $5.4 billion in fiscal 2018. We had $1.2 billion of net debt repayments in fiscal 2019 compared to $6.3 billion of net debt issuances in fiscal 2018, which partially funded the acquisition of Blue Buffalo. For more information on our debt issuances and payments, please refer to Note 8 to the Consolidated Financial Statements in Item 8 of this report.

During fiscal 2019, we received $241 million of net proceeds from common stock issued on exercised options compared to $99 million in fiscal 2018. During fiscal 2018, we received $970 million of net proceeds from common stock issued to fund a portion of the Blue Buffalo acquisition.

Share repurchases in fiscal 2019 were insignificant. During fiscal 2018, we repurchased 11 million shares of our common stock for $602 million.

Dividends paid in fiscal 2019 totaled $1,182 million, or $1.96 per share, consistent with fiscal 2018.

Selected Cash Flows from Joint Ventures

Selected cash flows from our joint ventures are set forth in the following table:


	Fiscal Year
Inflow (Outflow), in Millions	2019		2018

Investments in affiliates, net	$	(0.1)		$ (17.3)
Dividends received		86.7		113.2

CAPITAL RESOURCES

Total capital consisted of the following:


In Millions	May 26, 2019		May 27, 2018

Notes payable	$	1,468.7	$	1,549.8
Current portion of long-term debt		1,396.5		1,600.1
Long-term debt		11,624.8		12,668.7

Total debt		14,490.0		15,818.6
Redeemable interest		551.7		776.2
Noncontrolling interests		313.2		351.3
Stockholders’ equity		7,054.5		6,141.1

Total capital	$	22,409.4	$	23,087.2

The following table details the fee-paid committed and uncommitted credit lines we had available as of May 26, 2019:


In Billions	Facility Amount		Borrowed Amount

Credit facility expiring:
May 2022	$	2.7	$	-
June 2019		0.2		-

Total committed credit facilities		2.9		-
Uncommitted credit facilities		0.7		0.2

Total committed and uncommitted credit facilities	$	3.6	$	0.2

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 uncommitted and asset-backed credit lines that support our foreign operations.

Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of May 26, 2019, we were in compliance with all of these covenants.

We have $1,396 million of long-term debt maturing in the next 12 months that is classified as current, including $500 million of 2.2 percent notes due October 2019, €300.0 euro-denominated 0.0 percent notes due January 2020, and €500.0 million euro-denominated floating-rate notes due January 2020. We believe that cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months.

As of May 26, 2019, our total debt, including the impact of derivative instruments designated as hedges, was 74 percent in fixed-rate and 26 percent in floating-rate instruments, compared to 73 percent in fixed-rate and 27 percent in floating-rate instruments on May 27, 2018.

Our net debt to operating cash flow ratio declined to 5.0 in fiscal 2019 from 5.4 in fiscal 2018, primarily driven by a decrease in long-term debt. Our net debt-to-adjusted earnings before net interest, income taxes, depreciation and amortization ratio declined to 3.9 in fiscal 2019 from 4.2 on a pro forma basis in fiscal 2018, consistent with our plans to reduce our leverage following our acquisition of Blue Buffalo (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP).

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 these entities. We consolidate these entities into our consolidated financial statements. We record Sodiaal’s 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl as noncontrolling interests, and its 49 percent interest in Yoplait SAS as a redeemable interest on our Consolidated Balance Sheets. These euro- and Canadian dollar-denominated interests are reported in U.S. dollars 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. As of May 26, 2019, the redemption value of the redeemable interest was $552 million which approximates its fair value.

During the second quarter of fiscal 2019, Sodiaal invested $56 million in Yoplait SAS.

The third-party holder of the General Mills Cereals, LLC (GMC) Class A Interests 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 $252 million). On June 1, 2018, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 142.5 basis points. The preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction.

We have an option to purchase the Class A Interests for consideration equal to the then current capital account value, plus any unpaid preferred return and the prescribed make-whole amount. If we purchase these interests, any change in the third-party holder’s capital account from its original value will be charged directly to retained earnings and will increase or decrease the net earnings used to calculate EPS in that period.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

As of May 26, 2019, we have issued guarantees and comfort letters of $682 million for the debt and other obligations of consolidated subsidiaries, and guarantees and comfort letters of $134 million for the debt and other obligations of non-consolidated affiliates, mainly CPW. In addition, off-balance sheet arrangements are generally limited to the future payments under non-cancelable operating leases, which totaled $483 million as of May 26, 2019.

As of May 26, 2019, we invested in four variable interest entities (VIEs). None of our VIEs are material to our results of operations, financial condition, or liquidity as of and for the fiscal year ended May 26, 2019.

Our defined benefit plans in the United States are subject to the requirements of the Pension Protection Act (PPA). In the future, the PPA may require us to make additional contributions to our domestic plans. We do not expect to be required to make any contributions in fiscal 2020.

The following table summarizes our future estimated cash payments under existing contractual obligations, including payments due by period:


	Payments Due by Fiscal Year
In Millions	Total		2020		2021 -22		2023 -24		2025 and Thereafter

Long-term debt (a)	$	13,093.0	$	1,396.3	$	3,338.4	$	2,810.2	$	5,548.1
Accrued interest		92.6		92.6		-		-		-
Operating leases (b)		482.6		120.0		186.7		112.9		63.0
Capital leases		0.3		0.2		0.1		-		-
Purchase obligations (c)		2,961.8		2,605.1		321.9		27.6		7.2

Total contractual obligations		16,630.3		4,214.2		3,847.1		2,950.7		5,618.3
Other long-term obligations (d)		1,302.4		-		-		-		-

Total long-term obligations	$	17,932.7	$	4,214.2	$	3,847.1	$	2,950.7	$	5,618.3

(a)	Amounts represent the expected cash payments of our long-term debt and do not include $0.3 million for capital leases or $72.0 million for net unamortized debt issuance costs, premiums and discounts, and fair value adjustments.

(b)	Operating leases represents the minimum rental commitments under non-cancelable operating leases.

(c)

The majority of the purchase obligations represent commitments for raw material and packaging to be utilized in the normal course of business and for consumer marketing spending commitments that support our brands. For purposes of this table, arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty and with short notice (usually 30 days). Any amounts reflected on the Consolidated Balance Sheets as accounts payable and accrued liabilities are excluded from the table above.

(d)

The fair value of our foreign exchange, equity, commodity, and grain derivative contracts with a payable position to the counterparty was $17.3 million as of May 26, 2019, based on fair market values as of that date. Future changes in market values will impact the amount of cash ultimately paid or received to settle those instruments in the future. Other long-term obligations mainly consist of liabilities for accrued compensation and benefits, including the underfunded status of certain of our defined benefit pension, other postretirement benefit, and postemployment benefit plans, and miscellaneous liabilities. We expect to pay approximately $20 million of benefits from our unfunded postemployment benefit plans and approximately $18 million of deferred compensation in fiscal 2020. We are unable to reliably estimate the amount of these payments beyond fiscal 2020. As of May 26, 2019, our total liability for uncertain tax positions and accrued interest and penalties was $165.1 million.

SIGNIFICANT ACCOUNTING ESTIMATES

For a complete description of our significant accounting policies, please see Note 2 to the Consolidated Financial Statements in Item 8 of this report. Our significant accounting estimates are those that have a meaningful impact on the reporting of our financial condition and results of operations. These estimates include our accounting for promotional expenditures, valuation of long-lived assets, intangible assets, redeemable interest, stock-based compensation, income taxes, and defined benefit pension, other postretirement benefit, and postemployment benefit plans.

Revenue Recognition

Our revenues are reported net of variable consideration and consideration payable to our customers, including trade promotion, consumer coupon redemption and other costs, including estimated allowances for returns, unsalable product, and prompt pay discounts. Trade promotions are recorded using significant judgment of estimated participation and performance levels for offered programs at the time of sale. Differences between estimated expenses and actual costs are recognized as a change in management estimate in a subsequent period. Our accrued trade liabilities were $484 million as of May 26, 2019, and $500 million as of May 27, 2018. Because these amounts are significant, if our estimates are inaccurate we would have to make adjustments in subsequent periods that could have a significant effect on our results of operations.

Valuation of Long-Lived Assets

We estimate the useful lives of long-lived assets and make estimates concerning undiscounted cash flows to review for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Fair value is measured using discounted cash flows or independent appraisals, as appropriate.

Intangible Assets

Goodwill and other indefinite-lived intangible assets are not subject to amortization and are tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. Our estimates of fair value for goodwill impairment testing are determined based on a discounted cash flow model. We use inputs from our long-range planning process to determine growth rates for sales and profits. We also make estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors.

We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Intangible assets that are deemed to have definite lives are amortized on a straight-line basis, over their useful lives, generally ranging from 4 to 30 years. Our estimate of the fair value of our brand assets is based on a discounted cash flow model using inputs which include projected revenues from our long-range plan, assumed royalty rates that could be payable if we did not own the brands, and a discount rate.

As of May 26, 2019, we had $20.6 billion of goodwill and indefinite-lived intangible assets. While we currently believe that the fair value of each intangible exceeds its carrying value and that those intangibles so classified will contribute indefinitely to our cash flows, materially different assumptions regarding future performance of our businesses or a different weighted-average cost of capital could result in material impairment losses and amortization expense. We performed our fiscal 2019 assessment of our intangible assets as of the first day of the second quarter of fiscal 2019. As a result of lower sales projections in our long-range plans for the businesses supporting the Progresso, Food Should Taste Good, and Mountain High brand intangible assets, we recorded the following impairment charges:


In Millions	Impairment Charge		Fair Value as of Nov. 25, 2018
Progresso	$	132.1	$	330.0
Food Should Taste Good		45.1		-
Mountain High		15.4		-

Total	$	192.6	$	330.0

Significant assumptions used in that assessment included our long-range cash flow projections for the businesses, royalty rates, weighted-average cost of capital rates, and tax rates.

Our Latin America reporting unit and the Yoki brand intangible asset had fair values that were not substantially in excess of the carry value. The excess fair value as of the fiscal 2019 test date of the Latin America reporting unit and the Yoki brand intangible asset were as follows:


In Millions	Carrying Value of Intangible Asset		Excess Fair Value as of Fiscal 2019 Test Date

Latin America	$	209.0		7%
Yoki	$	49.1		10%

While having significant coverage as of our fiscal 2019 assessment date, the Pillsbury brand intangible asset and U.S. Yogurt reporting unit had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment.

Redeemable Interest

In fiscal 2019, we adjusted the redemption value of Sodiaal’s redeemable interest in Yoplait SAS based on a discounted cash flow model. The significant assumptions used to estimate the redemption value include projected revenue growth and profitability from our long-range plan, capital spending, depreciation and taxes, foreign currency exchange rates, and a discount rate. As of May 26, 2019, the redemption value of the redeemable interest was $552 million.

Stock-based Compensation

The valuation of stock options is a significant accounting estimate that requires us to use judgments and assumptions that are likely to have a material impact on our financial statements. Annually, we make predictive assumptions regarding future stock price volatility, employee exercise behavior, dividend yield, and the forfeiture rate. For more information on these assumptions, please see Note 11 to the Consolidated Financial Statements in Item 8 of this report.

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


	Fiscal Year
	2019		2018		2017

Estimated fair values of stock options granted	$	5.35	$	6.18	$	8.80
Assumptions:
Risk-free interest rate		2.9 %		2.2 %		1.7 %
Expected term		8.5 years		8.2 years		8.5 years
Expected volatility		16.3 %		15.8 %		17.8 %
Dividend yield		4.3 %		3.6 %		2.9 %

The risk-free interest rate for periods during the expected term of the options is based on the U.S. Treasury zero-coupon yield curve in effect at the time of grant. An increase in the expected term by 1 year, leaving all other assumptions constant, would increase the grant date fair value by 9 percent. If all other assumptions are held constant, a one percentage point increase in our fiscal 2019 volatility assumption would increase the grant date fair value of our fiscal 2019 option awards by 8 percent.

To the extent that actual outcomes differ from our assumptions, we are not required to true up grant-date fair value-based expense to final intrinsic values. Historical data has a significant bearing on our forward-looking assumptions. Significant variances between actual and predicted experience could lead to prospective revisions in our assumptions, which could then significantly impact the year-over-year comparability of stock-based compensation expense.

Any corporate income tax benefit realized upon exercise or vesting of an award in excess of that previously recognized in earnings (referred to as a windfall tax benefit) is presented in the Consolidated Statements of Cash Flows as an operating cash flow. The actual impact on future years’ cash flows will depend, in part, on the volume of employee stock option exercises during a particular year and the relationship between the exercise-date market value of the underlying stock and the original grant-date fair value previously determined for financial reporting purposes.

Realized windfall tax benefits and shortfall tax deficiencies related to the exercise or vesting of stock-based awards are recognized in the Consolidated Statement of Earnings. Because employee stock option exercise behavior is not within our control, it is possible that significantly different reported results could occur if different assumptions or conditions were to prevail.

Income Taxes

We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the quarter of such change. For more information on income taxes, please see Note 14 to the Consolidated Financial Statements in Item 8 of this report.

Defined Benefit Pension, Other Postretirement Benefit, and Postemployment Benefit Plans

We have defined benefit pension plans covering many employees in the United States, Canada, Switzerland, France, and the United Kingdom. We also sponsor plans that provide health care benefits to many of our retirees in the United States, Canada, and Brazil. Under certain circumstances, we also provide accruable benefits, primarily severance, to former and inactive employees in the United States, Canada, and Mexico. Please see Note 13 to the Consolidated Financial Statements in Item 8 of this report for a description of our defined benefit pension, other postretirement benefit, and postemployment benefit plans.

We recognize benefits provided during retirement or following employment over the plan participants’ active working lives. Accordingly, we make various assumptions to predict and measure costs and obligations many years prior to the settlement of our obligations. Assumptions that require significant management judgment and have a material impact on the measurement of our net periodic benefit expense or income and accumulated benefit obligations include the long-term rates of return on plan assets, the interest rates used to discount the obligations for our benefit plans, and health care cost trend rates.

Expected Rate of Return on Plan Assets

Our expected rate of return on plan assets is determined by our asset allocation, our historical long-term investment performance, our estimate of future long-term returns by asset class (using input from our actuaries, investment services, and investment managers), and long-term inflation assumptions. We review this assumption annually for each plan; however, our annual investment performance for one particular year does not, by itself, significantly influence our evaluation.

Our historical investment returns (compound annual growth rates) for our United States defined benefit pension and other postretirement benefit plan assets were 6.6 percent, 6.6 percent, 10.3 percent, 8.4 percent, and 7.9 percent for the 1, 5, 10, 15, and 20 year periods ended May 26, 2019.

On a weighted-average basis, the expected rate of return for all defined benefit plans was 7.25 percent for fiscal 2019, 7.88 percent for fiscal 2018, and 8.17 percent for fiscal 2017. For fiscal 2020, we lowered 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 7.0 percent due to asset allocation changes and expected asset returns.

Lowering the expected long-term rate of return on assets by 100 basis points would increase our net pension and postretirement expense by $70 million for fiscal 2020. A market-related valuation basis is used to reduce

year-to-year expense volatility. The market-related valuation recognizes certain investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Our outside actuaries perform these calculations as part of our determination of annual expense or income.

Discount Rates

We 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 utilizing a full yield curve approach by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash flows. Our discount rate assumptions are determined annually as of May 31 for our defined benefit pension, other postretirement benefit, and postemployment benefit plan obligations. We work with our outside actuaries to determine the timing and amount of expected future cash outflows to plan participants and, using the Aa Above Median corporate bond yield, to develop a forward interest rate curve, including a margin to that index based on our credit risk. This forward interest rate curve is applied to our expected future cash outflows to determine our discount rate assumptions.

Our weighted-average discount rates were as follows:


	Defined Benefit Pension Plans			Other Postretirement Benefit Plans			Postemployment Benefit Plans

Effective rate for fiscal 2020 service costs		4.17	%		4.04	%		3.51%
Effective rate for fiscal 2020 interest costs		3.45	%		3.28	%		2.84%
Obligations as of May 31, 2019		3.91	%		3.79	%		3.10%
Effective rate for fiscal 2019 service costs		4.34	%		4.27	%		3.99%
Effective rate for fiscal 2019 interest costs		3.92	%		3.80	%		3.37%
Obligations as of May 31, 2018		4.20	%		4.17	%		3.60%
Effective rate for fiscal 2018 service costs		4.37	%		4.27	%		3.54%
Effective rate for fiscal 2018 interest costs		3.45	%		3.24	%		2.67%

Lowering the discount rates by 100 basis points would increase our net defined benefit pension, other postretirement benefit, and postemployment benefit plan expense for fiscal 2020 by approximately $55 million. All obligation-related experience gains and losses are amortized using a straight-line method over the average remaining service period of active plan participants or over the average remaining lifetime of the remaining plan participants if the plan is viewed as “all or almost all” inactive participants.

Health Care Cost Trend Rates

We review our health care cost trend rates annually. Our review is based on data we collect about our health care claims experience and information provided by our actuaries. This information includes recent plan experience, plan design, overall industry experience and projections, and assumptions used by other similar organizations. Our initial health care cost trend rate is adjusted as necessary to remain consistent with this review, recent experiences, and short-term expectations. Our initial health care cost trend rate assumption is 6.7 percent for retirees age 65 and over and 6.4 percent for retirees under age 65 at the end of fiscal 2019. Rates are graded down annually until the ultimate trend rate of 4.5 percent is reached in 2029 for all retirees. The trend rates are applicable for calculations only if the retirees’ benefits increase as a result of health care inflation. The ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inflation plus an appropriate health care cost premium. Assumed trend rates for health care costs have an important effect on the amounts reported for the other postretirement benefit plans.

A one percentage point change in the health care cost trend rate would have the following effects:


In Millions	One Percentage Point Increase		One Percentage Point Decrease

Effect on the aggregate of the service and interest cost components in fiscal 2020	$	1.4	$	(1.3)
Effect on the other post retirement accumulated benefit obligation as of May 26, 2019		43.5		(40.3)

Any arising health care claims cost-related experience gain or loss is recognized in the calculation of expected future claims. Once recognized, experience gains and losses are amortized using a straight-line method over the average remaining service period of active plan participants or over the average remaining lifetime of the remaining plan participants if the plan is viewed as “all or almost all” inactive participants.

Financial Statement Impact

In fiscal 2019, we recorded net defined benefit pension, other postretirement benefit, and postemployment benefit plan expense of $24 million compared to $23 million of expense in fiscal 2018 and $56 million of expense in fiscal 2017. As of May 26, 2019, we had cumulative unrecognized actuarial net losses of $2.0 billion on our defined benefit pension plans and cumulative unrecognized actuarial net gains of $81 million on our postretirement and postemployment benefit plans, mainly as the result of liability increases from lower interest rates, partially offset by recent increases in the values of plan assets. These unrecognized actuarial net losses will result in increases in our future pension and postretirement benefit expenses because they currently exceed the corridors defined by GAAP.

Actual future net defined benefit pension, other postretirement benefit, and postemployment benefit plan income or expense will depend on investment performance, changes in future discount rates, changes in health care cost trend rates, and other factors related to the populations participating in these plans.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In August 2017, the Financial Accounting Standards Board (FASB) issued new hedge accounting requirements. The new standard amends the hedge accounting recognition and presentation requirements to better align an entity’s risk management activities and financial reporting. The new standard also simplifies the application of hedge accounting guidance. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for us is the first quarter of fiscal 2020. We do not expect this guidance to have a material impact on our results of operations or financial position.

In February 2016, the FASB issued new accounting requirements for accounting, presentation and classification of leases. This will result in certain leases being capitalized as a right of use asset with a related liability on our Consolidated Balance Sheets. The requirements of the new standard and subsequent amendments are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for us is the first quarter of fiscal 2020. The requirements of the new standard and subsequent amendments allow for either the modified retrospective transition approach, which requires application of the guidance in all comparative periods presented, or the cumulative effect adjustment approach, which requires application of the guidance at the adoption date.

We are in the process of implementing lease accounting software, developing a centralized business process, and implementing corresponding controls. We have substantially completed our analysis of the impact of this standard on our lease portfolio. We will adopt this guidance in the first quarter of fiscal 2020 using the cumulative effect adjustment approach and electing certain practical expedients permitted under the transition guidance, including not reassessing whether existing contracts contain leases and carrying forward the historical

classification of those leases. In addition, we will also elect to not recognize leases with an initial term of 12 months or less on our Consolidated Balance Sheets. We do not expect the effects to the Consolidated Financial Statements to be pervasive. We estimate that we will record right of use assets and related liabilities of approximately $400 to $500 million, subject to the completion of our assessment and the fluctuation of our lease portfolio and discount rates. We do not expect this guidance to have a material impact on our Consolidated Statements of Earnings or our Consolidated Statements of Cash Flows. See Note 15 to the Consolidated Financial Statements in Item 8 of this report for noncancelable future lease commitments.

NON-GAAP MEASURES

We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information to investors, and include these measures in other communications to investors.

For each of these non-GAAP financial measures, we are providing below a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why we believe the non-GAAP measure provides useful information to investors, and any additional material purposes for which our management or Board of Directors uses the non-GAAP measure. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure.

Several measures below are presented on an adjusted basis. The adjustments are either items resulting from infrequently occurring events or items that, in management’s judgment, significantly affect the year-to-year assessment of operating results.

Organic Net Sales Growth Rates

We provide organic net sales growth rates for our consolidated net sales and segment net sales. This measure is used in reporting to our Board of Directors and executive management and as a component of the measurement of our performance for incentive compensation purposes. We believe that organic net sales growth rates provide useful information to investors because they provide transparency to underlying performance in our net sales by excluding the effect that foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a 53rd week, when applicable, have on year-to-year comparability. A reconciliation of these measures to reported net sales growth rates, the relevant GAAP measures, are included in our Consolidated Results of Operations and Results of Segment Operations discussions in the MD&A above.

Net Sales Growth Rate on a Constant-currency Basis

We believe this measure of net sales provides useful information to investors because it provides transparency to the underlying performance by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets.

Net sales growth rate on a constant-currency basis is calculated as follows:


	Fiscal 2019
Percentage change in net sales as reported		7 %
Impact of foreign currency exchange		(2) pts

Percentage change in net sales on a constant-currency basis		9 %

Adjusted Diluted EPS and Related Constant-currency Growth Rate

This measure is used in reporting to our Board of Directors and executive management and as a component of the measurement of our performance for incentive compensation purposes. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate earnings performance on a comparable year-to-year basis.

The reconciliation of our GAAP measure, diluted EPS, to adjusted diluted EPS and the related constant-currency growth rate follows:


	Fiscal Year
Per Share Data	2019			2018		2019 vs. 2018 Change		2017		2016		2015

Diluted earnings per share, as reported	$	2.90		$	3.64		(20) %	$	2.77	$	2.77	$	1.97
Net tax benefit (a)		(0.01	)		(0.89)				-		-		-
Tax items (a)		(0.12	)		0.07				-		-		0.13
Mark-to-market effects (b)		0.05			(0.04)				(0.01)		(0.07)		0.09
Divestitures loss (gain) (c)		0.03			-				0.01		(0.10)		-
Acquisition transaction and integration costs (c)		0.03			0.10				-		-		0.02
Restructuring charges (d)		0.10			0.11				0.26		0.26		0.35
Project-related costs (d)		-			0.01				0.05		0.06		0.01
Asset impairments (d)		0.26			0.11				-		-		0.28
Investment valuation adjustments (e)		(0.03	)		-				-		-		-
CPW restructuring charges (f)		0.02			-				-		-		-
Legal recovery (g)		(0.01	)		-				-		-		-
Venezuela currency devaluation		-			-				-		-		0.01

Adjusted diluted earnings per share	$	3.22		$	3.11		4 %	$	3.08	$	2.92	$	2.86

Foreign currency exchange impact							Flat

Adjusted diluted earnings per share growth, on a constant-currency basis							4 %

(a)	See Note 14 to the Consolidated Financial Statements in Item 8 of this report.

(b)	See Note 7 to the Consolidated Financial Statements in Item 8 of this report.

(c)	See Note 3 to the Consolidated Financial Statements in Item 8 of this report.

(d)	See Note 4 to the Consolidated Financial Statements in Item 8 of this report.

(e)	Valuation gains on certain corporate investments.

(f)	The CPW restructuring charges are related to initiatives designed to improve profitability and growth that were approved in fiscal 2018 and 2019.

(g)	Legal recovery related to our Yoplait SAS subsidiary.

See our reconciliation below of the effective income tax rate as reported to the adjusted effective income tax rate for the tax impact of each item affecting comparability.

Free Cash Flow Conversion Rate

We believe this measure provides useful information to investors because it is important for assessing our efficiency in converting earnings to cash and returning cash to shareholders. The calculation of free cash flow conversion rate and net cash provided by operating activities conversion rate, its equivalent GAAP measure, follows:


In Millions	Fiscal 2019

Net earnings, including earnings attributable to redeemable and noncontrolling interests, as reported	$	1,786.2

Net tax benefit (a)	$	(7.2)
Tax item (a)		(72.9)
Mark-to-market effects, net of tax (b)		27.7
Acquisition integration costs, net of tax (c)		19.7
Divestitures loss, net of tax (c)		16.4
Restructuring charges, net of tax (d)		63.0
Project-related costs, net of tax (d)		1.1
Asset impairments, net of tax (d)		159.7
Hyperinflationary accounting, net of tax (e)		3.2
Investment valuation adjustments, net of tax (f)		(17.6)
Legal recovery, net of tax (g)		(10.8)
CPW restructuring costs, net of tax (h)		11.1

Adjusted net earnings, including earnings attributable to redeemable and noncontrolling interests	$	1,979.6



Net cash provided by operating activities	$	2,807.0
Purchases of land, buildings, and equipment		(537.6)

Free cash flow	$	2,269.4



Net cash provided by operating activities conversion rate		157%

Free cash flow conversion rate		115%

(a)	See Note 14 to the Consolidated Financial Statements in Item 8 of this report.

(b)	See Note 7 to the Consolidated Financial Statements in Item 8 of this report.

(c)	See Note 3 to the Consolidated Financial Statements in Item 8 of this report.

(d)	See Note 4 to the Consolidated Financial Statements in Item 8 of this report.

(e)	Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.

(f)	Valuation gains on certain corporate investments.

(g)	Legal recovery related to our Yoplait SAS subsidiary.

(h)	The CPW restructuring charges are related to initiatives designed to improve profitability and growth that were approved in fiscal 2018 and 2019.

See our reconciliation below of the effective income tax rate as reported to the adjusted effective income tax rate for the tax impact of each item affecting comparability.

Constant-currency After-Tax Earnings from Joint Ventures Growth Rate

We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our joint ventures by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets.

After-tax earnings from joint ventures growth rates on a constant-currency basis are calculated as follows:


	Fiscal
	2019

Percentage change in after-tax earnings from joint ventures as reported		(15) %
Impact of foreign currency exchange		(1) pt

Percentage change in after-tax earnings from joint ventures on a constant-currency basis		(14) %

Net Sales Growth Rate for Canada Operating Unit on a Constant-currency Basis

We believe this measure of our Canada operating unit net sales provides useful information to investors because it provides transparency to the underlying performance for the Canada operating unit within our North America Retail segment by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets.

Net sales growth rates for our Canada operating unit on a constant-currency basis are calculated as follows:


	Fiscal
	2019

Percentage change in net sales as reported		(7) %
Impact of foreign currency exchange		(3) pts

Percentage change in net sales on a constant-currency basis		(4) %

Constant-currency Segment Operating Profit Growth Rates

We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our segments by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets.

Our segments’ operating profit growth rates on a constant-currency basis are calculated as follows:


	Fiscal 2019
	Percentage Change in Operating Profit as Reported		Impact of Foreign Currency Exchange		Percentage Change in Operating Profit on Constant-Currency Basis

North America Retail		3 %		Flat		3 %
Europe & Australia		(13)		(5) pts		(8)
Asia & Latin America		83 %		12 pts		71 %

Adjusted Effective Income Tax Rates

We believe this measure provides useful information to investors because it presents the adjusted effective income tax rate on a comparable year-to-year basis.

Adjusted effective income tax rates are calculated as follows:


	Fiscal Year Ended
	May 26, 2019					May 27, 2018					May 28, 2017					May 29, 2016					May 31, 2015
In Millions	Pretax Earnings (a)			Income Taxes		Pretax Earnings (a)			Income Taxes		Pretax Earnings (a)			Income Taxes		Pretax Earnings (a)			Income Taxes		Pretax Earnings (a)		Income Taxes

As reported	$	2,082.0		$	367.8	$	2,135.6		$	57.3	$	2,271.3		$	655.2	$	2,403.6		$	755.2	$	1,761.9	$	586.8
Net tax benefit (b)		-			7.2		-			523.5		-			-		-			-		-		-
Tax items (b)		-			72.9		-			(40.9)		-			-		-			-		-		(78.6)
Mark-to-market effects (c)		36.0			8.3		(32.1	)		(10.0)		(13.9	)		(5.1)		(62.8	)		(23.2)		89.7		33.2
Divestitures loss (gain) (d)		30.0			13.6		-			-		13.5			4.3		(148.2	)		(82.2)		-		-
Acquisition transaction and integration costs (d)		25.6			5.9		83.9			25.4		-			-		-			-		16.0		5.6
Restructuring charges (e)		77.6			14.6		82.7			21.4		224.1			70.2		229.8			69.0		343.5		125.8
Project-related costs (e)		1.3			0.2		11.3			3.3		43.9			15.7		57.5			20.7		13.2		4.9
Asset impairments (e)		207.4			47.7		96.9			32.0		-			-		-			-		260.0		83.1
Hyperinflationary accounting (f)		3.2			-		-			-		-			-		-			-		-		-
Investment valuation adjustments (g)		(22.8	)		(5.2)		-			-		-			-		-			-		-		-
Legal recovery (h)		(16.2	)		(5.4)		-			-		-			-		-			-		-		-
Venezuela currency devaluation		-			-		-			-		-			-		-			-		8.0		-

As adjusted	$	2,424.1		$	527.6	$	2,378.3		$	612.0	$	2,538.9		$	740.3	$	2,479.9		$	739.5	$	2,492.3	$	760.8

Effective tax rate:
As reported					17.7%					2.7%					28.8%					31.4%				33.3%
As adjusted					21.8%					25.7%					29.2%					29.8%				30.5%

Sum of adjustments to income taxes				$	159.8				$	554.7				$	85.1				$	(15.7)			$	174.0

Average number of common shares - diluted EPS					605.4					585.7					598.0					611.9				618.8

Impact of income tax adjustments on Adjusted diluted EPS				$	(0.26)				$	(0.95)				$	(0.14)				$	0.03			$	(0.28)

(a)	Earnings before income taxes and after-tax earnings from joint ventures.

(b)	See Note 14 to the Consolidated Financial Statements in Item 8 of this report.

(c)	See Note 7 to the Consolidated Financial Statements in Item 8 of this report.

(d)	See Note 3 to the Consolidated Financial Statements in Item 8 of this report.

(e)	See Note 4 to the Consolidated Financial Statements in Item 8 of this report.

(f)	Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.

(g)	Valuation gains on certain corporate investments.

(h)	Legal recovery related to our Yoplait SAS subsidiary.

Adjusted Operating Profit as a Percent of Net Sales (Adjusted Operating Profit Margin)

We believe this measure provides useful information to investors because it is important for assessing our operating profit margin on a comparable year-to-year basis.

Our adjusted operating profit margins are calculated as follows:


	Fiscal Year
Percent of Net Sales	2019				2018				2017				2016				2015

Operating profit as reported	$	2,515.9		14.9 %	$	2,419.9		15.4 %	$	2,492.1		16.0 %	$	2,719.1		16.4 %	$	2,071.8	11.8 %
Mark-to-market effects (a)		36.0		0.2 %		(32.1	)	(0.2)%		(13.9	)	(0.1)%		(62.8	)	(0.4)%		89.7	0.5 %
Divestitures loss (gain) (b)		30.0		0.2 %		-		- %		6.5		- %		(148.2	)	(0.9)%		-	- %
Acquisition transaction and integration costs (b)		25.6		0.1 %		34.0		0.2 %		-		- %		-		- %		16.0	0.1 %
Restructuring charges (c)		77.6		0.5 %		82.7		0.5 %		221.9		1.4 %		209.3		1.3%		305.7	1.7 %
Project-related costs (c)		1.3		- %		11.3		0.1 %		43.9		0.3 %		57.5		0.4%		13.2	0.1 %
Asset impairments (c)		207.4		1.2 %		96.9		0.6 %		-		- %		-		- %		260.0	1.5 %
Hyperinflationary accounting (d)		3.2		- %		-		- %		-		- %		-		- %		-	- %
Investment valuation adjustments (e)		(22.8	)	(0.1)%		-		- %		-		- %		-		- %		-	- %
Legal recovery (f)		(16.2	)	(0.1)%		-		- %		-		- %		-		- %		-	- %
Venezuela currency devaluation		-		- %		-		- %		-		- %		-		- %		8.0	- %

Adjusted operating profit	$	2,858.0		16.9 %	$	2,612.7		16.6 %	$	2,750.5		17.6 %	$	2,774.9		16.8 %	$	2,764.4	15.7 %

(a)	See Note 7 to the Consolidated Financial Statements in Item 8 of this report.

(b)	See Note 3 to the Consolidated Financial Statements in Item 8 of this report.

(c)	See Note 4 to the Consolidated Financial Statements in Item 8 of this report.

(d)	Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.

(e)	Valuation gains on certain corporate investments.

(f)	Legal recovery related to our Yoplait SAS subsidiary.

Adjusted Operating Profit Growth on a Constant-currency Basis

We believe that this measure provides useful information to investors because it is the operating profit measure we use to evaluate operating profit performance on a comparable year-to-year basis. Additionally, the measure is evaluated on a constant-currency basis by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange rates.

Our adjusted operating profit growth on a constant-currency basis is calculated as follows:


	Fiscal Year
	2019			2018			Change
Operating profit as reported	$	2,515.9		$	2,419.9			4 %
Mark-to-market effects (a)		36.0			(32.1	)
Divestitures loss (b)		30.0			-
Acquisition transaction and integration costs (b)		25.6			34.0
Restructuring charges (c)		77.6			82.7
Project-related costs (c)		1.3			11.3
Asset impairments (c)		207.4			96.9
Hyperinflationary accounting (d)		3.2			-
Investment valuation adjustments (e)		(22.8	)		-
Legal recovery (f)		(16.2	)		-

Adjusted operating profit	$	2,858.0		$	2,612.7			9 %

Foreign currency exchange impact								(1) pt

Adjusted operating profit growth, on a constant-currency basis								10 %

(a)	See Note 7 to the Consolidated Financial Statements in Item 8 of this report.

(b)	See Note 3 to the Consolidated Financial Statements in Item 8 of this report.

(c)	See Note 4 to the Consolidated Financial Statements in Item 8 of this report.

(d)	Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.

(e)	Valuation gains on certain corporate investments.

(f)	Legal recovery related to our Yoplait SAS subsidiary.

Net Debt-to-Adjusted Earnings before Net Interest, Income Taxes, Depreciation and Amortization (EBITDA) Ratio

We believe that this measure provides useful information to investors because it is an indicator of our ability to incur additional debt and to service our existing debt. The reconciliation of adjusted EBITDA to net earnings attributable to General Mills on a pro forma basis, its GAAP equivalent, as well as the calculation of the net debt-to-adjusted EBITDA ratio are as follows:


	Fiscal Year
In Millions	2019			2018
Total debt (a)	$	14,490.0		$	15,818.6
Cash		450.0			399.0

Net debt	$	14,040.0		$	15,419.6


Net earnings attributable to General Mills, as reported (b)	$	1,752.7		$	2,252.4
Net earnings attributable to redeemable and noncontrolling interests		33.5			32.0
After-tax earnings from joint ventures		(72.0	)		(84.7	)
Income taxes		367.8			104.3

Earnings before income taxes and after-tax earnings from joint ventures		2,082.0			2,304.0
Interest, net		521.8			527.8
Depreciation and amortization		620.1			642.6

EBITDA		3,223.9			3,474.4
Asset impairments (c)		207.4			96.9
Restructuring charges (c)		77.6			82.7
Project-related costs (c)		1.3			11.3
Mark-to-market effects (d)		36.0			(32.1	)
Divestitures loss (e)		30.0			-
Acquisition integration costs (e)		25.6			-
Investment valuation adjustments (f)		(22.8	)		-
Legal recovery (g)		(16.2	)		-
Hyperinflationary accounting (h)		3.2			-

Adjusted EBITDA	$	3,566.0		$	3,633.2



Net debt-to-adjusted EBITDA ratio		3.9			4.2

(a)	Notes payable and long-term debt, including current portion.

(b)	Fiscal 2018 net earnings attributable to General Mills is a pro forma figure presented in Note 3 to the Consolidated Financial Statements in Item 8 of this report.

(c)	See Note 4 to the Consolidated Financial Statements in Item 8 of this report.

(d)	See Note 7 to the Consolidated Financial Statements in Item 8 of this report.

(e)	See Note 3 to the Consolidated Financial Statements in Item 8 of this report.

(f)	Valuation gains on certain corporate investments.

(g)	Legal recovery related to our Yoplait SAS subsidiary.

(h)	Impact of hyperinflationary accounting for our Argentina subsidiary, which was sold in the third quarter of fiscal 2019.

Forward-Looking Financial Measures

Our fiscal 2020 outlook for organic net sales growth and adjusted operating profit and adjusted diluted EPS are non-GAAP financial measures that exclude, or have otherwise been adjusted for, items impacting comparability, including the effect of foreign currency exchange rate fluctuations, restructuring charges and project-related costs, acquisition integration costs, and commodity mark-to-market effects. Our fiscal 2020 outlook for organic net sales growth also excludes the effect of a 53rd week, acquisitions, and divestitures. We are not able to reconcile these forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures without unreasonable efforts because we are unable to predict with a reasonable degree of certainty the actual impact of changes in foreign currency exchange rates and commodity prices or the timing of acquisitions, divestitures and restructuring actions throughout fiscal 2020. The unavailable information could have a significant impact on our fiscal 2020 GAAP financial results.

For fiscal 2020, we currently expect: foreign currency exchange rates (based on a blend of forward and forecasted rates and hedge positions), acquisitions, divestitures, and a 53rd week to increase net sales growth by approximately 1 to 2 percentage points; foreign currency exchange rates to have an immaterial impact on adjusted operating profit and adjusted diluted EPS growth; and restructuring charges and project-related costs related to actions previously announced to total approximately $49 million.

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. We also may make written or oral forward-looking statements, including statements contained in our filings with the SEC and in our reports to shareholders.

The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “plan,” “project,” or similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those currently anticipated or projected. We wish to caution you not to place undue reliance on any such forward-looking statements.

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that could affect our financial performance and could cause our actual results in future periods to differ materially from any current opinions or statements.

Our future results could be affected by a variety of factors, such as: competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets, including our acquisition of Blue Buffalo and issues in the integration of Blue Buffalo and retention of key management and employees; unfavorable reaction to our acquisition of Blue Buffalo by customers, competitors, suppliers, and employees; changes in capital structure; changes in the legal and regulatory environment, including tax legislation, labeling and advertising regulations, and litigation; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer

perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disruptions or inefficiencies in the supply chain; effectiveness of restructuring and cost saving initiatives; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure or breach of our information technology systems; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war.

You should also consider the risk factors that we identify in Item 1A of this report, which could also affect our future results.

We undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events.

Previous: Item 6. Selected Financial Data · Next: Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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