annual report 2015 - general mills

8/16/2019 Annual Report 2015 - General Mills

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General Mills2 0 1 5 A N N U A L R E P O R T

Making Food People Love


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Fiscal 2015 Financial Summary

In millions, except per share andreturn on capital data

Weeks EndedMay ,

Weeks EndedMay , Change

Change on a ConstantCurrency Basis *

Net Sales , , –

Segment Operating Pro t* , , – –

Net Earnings Attributable to General Mills , , –

Diluted Earnings per Share (EPS) . . –

Adjusted Diluted EPS, Excluding Certain Items

Affecting Comparability* . .

Return on Average Total Capital* . . – basis points – basis points

Average Diluted Shares Outstanding –

Dividends per Share . .

*See page for discussion of non-GAAP measures .

U.S. Retail InternationalConvenience Storesand Foodservice

Net Sales(dollars in millions)

Adjusted DilutedEarnings per Share*(dollars)

Segment Operating Pro t*(dollars in millions)

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General Mills at a Glance

U.S. RetailNet Salesby Operating Unit

Joint VenturesNet Sales by Joint Venture(not consolidated,proportionate share)

Convenience Storesand FoodserviceNet Sales by Brand Type

InternationalNet Sales by Region

$ 10.5 Billion Meals

Cereal

Snacks

Baking Products

Yogurt and Other

$5.1 Billion Europe

Canada

Asia/Paci c

Latin America

$ 2.0 Billion Branded to

Foodservice Operators

Branded to Consumers

Unbranded

$ 1.1 Billion Cereal Partners

Worldwide (CPW)

Häagen-DazsJapan (HDJ)

Joint Ventures

Making Food People Love

At General Mills, we serve the world by makingfood people love. We’re putting the consumer

rst, understanding their food preferences, howthey shop and how they cook today, and respond-ing quickly to those desires. By focusing onconsumer needs, we expect to drive market-leading growth for General Mills and deliversuperior returns to our shareholders.

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Ken Powell Chairman andChief Executive Offi cer

General Mills 2015 operating performance

was mixed. Where we had product news andmarketing messages that were on-trendwith consumers’ evolving food preferences, ourbusinesses grew. But we didn’t have enough ofthese initiatives to lift our sales in the aggregate,and our pro t growth was less than originallytargeted. Strategic actions that we’ve takenduring the year will position us for stronger performance in 2016.

General Mills net sales for the scal year ended May , ,declined percent to . billion, as unfavorable foreignexchange offset the bene ts of a rd week in the scal yearand six months of incremental contribution from the Annie’s, Inc.( Annie’s ) organic foods business we acquired in October .Excluding the impact of foreign exchange, our net sales increased

percent in scal .* Total segment operating pro t declined percent to . billion. On a constant-currency basis, total

segment operating pro t declined percent.

Diluted earnings per share totaled . in , below the prioryear primarily due to restructuring costs, an impairment chargeand a one-time tax expense. Adjusted diluted earnings per share,which excludes these and certain other items affecting compara-bility of results, rose percent to . . Excluding the impact offoreign exchange, adjusted diluted earnings per share increased

percent.

To Our Shareholders:

General MillsTotal Shareholder Return( scal years, stock price appreciationplus reinvested dividends, compoundannual growth)

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Dividends per Share (dollars)

Latest Years

Latest Years

Source: Bloomberg

* See page for a reconciliation of this and other non-GAAP measures used inthis letter.

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Net sales for U.S. Retail, our largest business seg-ment, declined percent to . billion. Our brandsachieved share gains in categories representing

percent of our retail sales in Nielsen-measuredchannels, but overall sales trends in many categorieswere weak, re ecting the impact of changingconsumer food preferences.

Consumers are increasingly interested in naturalfoods with simple ingredients and are limiting thingslike gluten, simple carbohydrates and arti cial ingre-dients. They also are looking for more protein, ber,whole grains and organic products. And they aresnacking more than ever. In categories where weapplied a “consumer rst” approach and responded tothese changes, we posted good growth. For example,

retail sales for our grain snacks grew percent, andwe gained nearly two point s of market share on thestrength of our Nature Valley and Fiber One brands.Yoplait yogurt generated solid sales and share gains,led by strong performance on our Greek variet-ies, and we saw a resurgence of interest in YoplaitOriginal yogurt as we emphasized its all-familysnack appeal.

Our Convenience Stores and Foodservice segmenthad outstanding results in scal . Net salesreached the billion mark, a percent increase overlast year. And segment operating pro t grew per-

cent to a record million. We remain focusedon six key product platforms in foodservice channels:

Growing Our Core with Yoplait By putting the consumer rst, we gener-ated percent retail sales growth andgained nearly a point of market share for ourU.S. Retail yogurt business in scal .

Consumers like the health bene ts of yogurt,and Greek varieties remain the largest seg-ment of the billion U.S. yogur t category.We’ve been promoting the great taste ofour Yoplait Greek varieties, and launchedYoplait Greek Whips! for consumerswho prefer a lighter yogurt texture with just

calories per serving. We also renewedgrowth on Yoplait Original yogurt by adver-tising its all-family appeal as a great-tasting,good-for-you snack. We recently reducedsugar across this line by percent. Andretail sales for our kid-oriented yogurts

returned to growth, driven by the removalof arti cial colors and avors. We have moreconsumer- rst innovation coming in ,including Yoplait Plenti , a combination ofgrains and seeds mixed into delicious Yoplait Greek yogurt, for consumers looking for aheartier yogurt experience.

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cereal, snacks, yogurt, mixes, biscuits and frozenbreakfast. These priority businesses, which accountfor more than percent of the segment’s operatingpro t, posted combined net sales growth of percent

for the year.

Net sales for our International segment declined percent to . billion, and segment operating pro t

declined percent, re ecting negative foreign cur-rency translation effects. On a constant-currencybasis, International net sales grew percent and seg-ment operating pro t rose percent. This includedconstant-currency net sales gains of percent inLatin America, percent in the Asia/Paci c regionand percent in the Europe region.

In addition to these three operating segments, wehold -percent non-consolidated interests in two joint ventures outside of North America. Together,Cereal Partners Worldwide (CPW) and Häagen-DazsJapan (HDJ) contributed million in after-taxearnings in scal . This was percent below lastyear’s results, re ecting unfavorable foreign currencyexchange. On a constant-currency basis, af ter-taxearnings from joint ventures matched year-ago levels.

In scal , we returned . billion to share-holders through share repurchases and dividends.We repurchased approximately million sharesof common stock, reducing our average number of

shares outstanding by percent. We also increasedour annual dividend by percent, including raising ourquarterly dividend rate effective with our May payment. The new annualized rate of . representsa yield of roughly percent at recent prices forGeneral Mills stock. General Mills and its predeces-sor rm have paid shareholder dividends withoutinterruption or reduction for years, and our planscall for increasing our dividend as our earnings grow.

Our total shareholder return, which is a combinationof stock price appreciation and dividends , totaled

percent in scal . This lagged the broadermarket, as the S&P Index generated percentreturn for the year. Over the past ve, , and even

years, General Mills has consistently delivereddouble-digit returns to shareholders. We outper-formed the broader market during all of those timeperiods except during the most recent ve scalyears, when the S&P Index posted a strong

percent annual compound return to shareholders.

Product renovation and new itemsthat met changing consumer interests generated good growth in scal 2015.

Our Five Global Categories Are Large and Growing

Category Retail

Sales in BillionsProjected

Growth*

Ready-to-eat Cereal

Ice Cream

Yogurt

Convenient Meals

Sweet and Savory Snacks

*Projected -year compound rateSource: Euromonitor, calendar

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new products that meet changing consumer needs. For example,nearly percent of U.S. consumers have purchased gluten-freeproducts as recently as our fourth scal quarter, so we’veincreased our gluten-free cereal offerings to include varieties ofgranola and hot oatmeal. And s tarting this summer, ve varietiesof Cheerios will be gluten free. For consumers desiring more sim-ple ingredients, we are removing arti cial avors and colors fromarti cial sources from all of our Big G cereals by December .

In our Convenience Stores and Foodservice business, we con-tinue to innovate on our Pillsbury line of frozen breakfast itemsserved in K- schools. This line of pancakes, waffl es, Frenchtoast and bagels can be heated right in the package — quick andeasy preparation for foodservice operators — and kids lovethe great taste of these portable breakfast treats. We’re nowexpanding this concept to school lunchrooms with a heat-and-

serve line of Old El Paso gorditas.

Around the world, consumer preferences are changing, too. OurInternational business has been innovating on our global brands,launching Häagen-Dazs super-premium ice cream stick bars inFrance, new vegetable-packed varieties of Wanchai Ferry dump-lings in China, and a line of Nature Valley popcorn bars in the UK.

These are just a few examples of the initiatives we have underwayto grow our core brands. We have more exciting product newscoming across all of our business segments throughout scal

that we believe will generate sales and pro t growth.

Reshape Our Portfolio for GrowthWe’ve been reshaping our business through acquisitions, divesti-tures and expansion of our existing brands into new geographies.In the U.S., we’ve been growing our natural and organic portfolioover the past years. It star ted with the acquisitionof Small Planet Foods, which included Cascadian Farm and MuirGlen brands. Since then, we’ve added to our portfolio withLärabar nutrition bars, Immaculate baking products, Food ShouldTaste Good snacks, and Mountain High and Liberté yogurt. Withthe addition of a full year of results for Annie’s , our natural andorganic sales total nearly million, and we expect this port-folio to exceed billion in annual sales by .

Over the past decade, we’ve taken act ions to focus ourConvenience Stores and Foodservice portfolio. The result is aportfolio that leverages our well-known consumer brands —more than percent of our sales come from products that arebranded to foodservice operators or the nal consumer. And

Expanding Our Natural andOrganic Food PortfolioU.S. industry sales for natural and organicfoods have been growing at a double-digitpace over the past three years. And sa lesare projected to continue to grow at adouble-digit rate. We’ve been building ourcapabilities for sourcing, manufacturingand marketing natural and organic brandsfor the past years. With the acquisitionof Annie’s, Inc. in October , we’re nowthe fourth-largest natural and organic foodmanufacturer in the U.S. We have strong

levels of innovation coming in acrossour brands, including new Cascadian Farm cereals, Annie’s soups and Food ShouldTaste Good snack bars. We see great oppor-tunities to grow our brands by innovating,and by increasing their distribution in nat-ural and organic stores and in traditionalgrocery outlets.

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Growing Our InternationalCore with Old El PasoDespite slow economic growth and achallenging marketplace, General Millsposted percent constant-currency netsales growth in scal in our Europe region,which also includes Australia and New Zealand. Thisperformance was led by Old El Paso Mexican foods.Old El Pas o is a global brand — it’s available in marketsworldwide. The convenience of these Mexican dinner kits,combined with innovative new products, is a great t for consumerseverywhere who like to experiment with foods with ethnic avors.In our Europe region, net sales for Old El Paso grew by double digits onthe strength of our Stand ’n Stuff tortillas, supported by strong levelsof advertising. In , we’ll introduce an Old El Paso Restaurante line

in European markets. These kits contain high-quality ingredients andzesty avor combinations for a restaurant-quality meal at home.

We delivered million in cost savings from theseactions in scal and expect this to grow tobetween million and million in scal from all our initiatives combined. A portion of thesesavings is being reinvested into the business throughactivities like consumer-focused promotions andproduct development and renovation — actions thatdrive future sales growth.

Our People Drive Our SuccessThe skill and talent of our , employees aroundthe world gives me con dence we will achieve our

performance goals. Their hard work and dedica-tion is truly a competitive advantage for us. Severalmembers of our leadership team have announcedtheir retirement in the past scal year. Marc Belton,Mike Davis, Luis Merizalde, Rick Palmore and KrisWenker all made signi cant contributions to GeneralMills, and I want to thank them for their dedication toour company during their careers here. In addition,

I’d like to thank Ray Gilmartin, Judy Hope and HildaOchoa-Brillembourg, who are retiring from our board ofdirectors in September. They have provided invaluablecounsel during their many years of service on our board.

In closing, I want to thank you for your investmentin General Mills . We are keenly focused on drivingvalue for you, our shareholders. We appreciateyour con dence in our strategies and our company.And we look forward to reporting on continuedstrong performance in the future as we make foodpeople love.

Kendall J. PowellChairman and Chief Executive Offi cerAugust ,

International Performanceby Geographic Region( scal , dollars in millions)

Net Sales

% Change ona Constant

Currency Basis*

Europe ,

Canada , Flat

Asia/Paci c ,

Latin America

Total International ,

*See page for discussion of non-GA AP measures.

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Financial Review

Contents

Financial Summary

Selected Financial Data

Management’s Discussion and Analysis of Financial

Condition and Results of OperationsNon-GAAP Measures

Reports of Management and Independent RegisteredPublic Accounting Firm

Consolidated Financial Statements

Notes to Consolidated Financial Statements

Basis of Presentation and Reclassi cations

Summary of Signi cant Accounting Policies

Acquisition and Divestiture

Restructuring, Impairment, and Other Exit Costs

Investments in Unconsolidated Joint Ventures

Goodwill and Other Intangible Assets

Financial Instruments, Risk Management Activities, and Fair Values

Debt

Redeemable and Noncontrolling Interests

Stockholders’ Equity

Stock Plans

Earnings per Share

Retirement Bene ts and Postemployment Bene ts

Income Taxes

Leases, Other Commitments, and Contingencies

Business Segment and Geographic Information

Supplemental Information

Quarterly Data

Glossary

Total Return to Stockholders

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Financial Summary

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INCREASING OUR EFFICIENCY

For the past several years, we have been increasing our

productivity and effi ciency to offset input cost inationand uel our consumer rst initiatives. Input cost ination has been averaging to percent over the past veyears, and we expect costs to remain in ationary orthe oreseeable uture. Holistic Margin Management

HMM is our company wide initiative to use productivity savings, mix management and price realizationto offset input cost ination, protect margins and generate unds to reinvest in sales generating activities.Tanks to HMM actions that helped drive savings inour cost o sales, we’ve been able to hold our grossmargin relatively steady or the past eight years. Tisperiod was marked by signi cant volatility o inputcosts rom year to year and a change in our productmix as we acquired new businesses.

o ensure we remain competitive in the marketplace, we took additional actions in scal to increase oureffi ciency. Project Century is our effort to streamlineour North American supply chain. Project Catalyst is

ocused on increasing our organizational effectivenessacross our U.S. businesses. And in June, we launchedProject Compass to increase organizational effectiveness within our International business segment. Wealso are making changes to policies and practices thatreduce overhead expense across the company.

Combined, these initiatives generated $ million incost savings in scal , and we expect to achieve$ million to $ million in cost savings in scal .

GENERATING CASH

Our businesses have a long history o strong cash generation. Over the past ve years, we produced a cumulative $ . billion o operating cash ow.

Our discipline on core working capital, which isaccounts receivable plus inventories less accounts payable, has contributed to our operating cash ow. Overthe past several years, we’ve been able to reduce ourcore working capital primarily through improvementsin managing our accounts payable. Since , our core

working capital has declined by nearly percent, while our net sales have grown by nearly percentduring that time period. In scal , we reduced ourcore working capital by percent.

Adjusted Gross Margin*(percent of net sales)

*See page 31 for discussion ofnon-GAAP measures.

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Cash Flow from Operations(dollars in millions)

Core Working Capital(dollars in millions)

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USES OF CA SH

Our rst priority or this cash is investment in growth

opportunities and cost saving projects we’ve identiedacross our businesses. On average, our annual xedasset investment represents percent o net sales. Inscal , xed asset investments totaled $ millionin line with our percent o net sales average. In scal

, we expect to invest approximately $ millioin capital expenditures, including initiatives related toProject Century and projects to increase our productioncapacity on growing businesses.

Afer capital investment, we prioritize cash returns toshareholders through dividends and share repurchases.Cash dividends to shareholders totaled more than$ billion in scal . Since scal , our dividenper share have grown at an percent compound rate.In March , our board o directors approved a percent increase in the quarterly dividend rate effective

with the May payment. Te current annualizedrate o $ . represents a yield o roughly percent arecent market prices or General Mills stock. GeneralMills and its predecessor rm have paid regular dividends without interruption or reduction or years,and our goal is to continue increasing dividends overtime, in line with our earnings growth.

We also return cash to shareholders through sharerepurchases. Since , our share repurchase activity has lowered average diluted shares outstanding byroughly percent a year, consistent with our long termshare reduction target. Tat’s despite the act that weused cash to und the strategic acquisitions o YoplaitInternational, Yoki and Annie’s during that time. In scal , we repurchased million shares or a totao $ . billion.

Net income growth and disciplined uses o cash arethe drivers o increasing returns on average total capital ROC . General Mills ROC has declined in receyears, primarily due to the acquisitions o YoplaitInternational, Yoki and Annie’s. Our plans or cal

or improved ROC, powered by earnings growth andcontinued prudent capital management.

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Average Diluted Shares Outstanding(shares in millions)

Fixed Asset Investment(percent of net sales)

Dividends Paid(dollars in millions)

Return on Average Total Capital*(percent)

*See page 31 for discussion ofnon-GAAP measures.

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Te ollowing table sets orth selected nancial data or each o the scal years in the ve year period endedMay , :

Fiscal YearIn Millions, Except Per Share Data, Percentages and Ratios 2015 a 2014 2013 2012 2011

Operating data:Net sales $ 17,630.3 $ 17,909.6 $ 17,774.1 $ 16,657.9 $ 14,880.2Gross margin b 5,949.2 6,369.8 6,423.9 6,044.7 5,953.5Selling, general, and administrative expenses 3,328.0 3,474.3 3,552.3 3,380.7 3,192.0

otal segment operating prot c 3,035.0 3,153.9 3,222.9 3,011.6 2,945.6Divestiture gain 65.5 17.4Net earnings attributable to General Mills 1,221.3 1,824.4 1,855.2 1,567.3 1,798.3Advertising and media expense 823.1 869.5 895.0 913.7 843.7Research and development expense 229.4 243.6 237.9 245.4 235.0Average shares outstanding:

Diluted 618.8 645.7 665.6 666.7 664.8

Earnings per share: Diluted $ 1.97 $ 2.83 $ 2.79 $ 2.35 $ 2.70 Diluted, excluding certain items affecting comparability c $ 2.86 $ 2.82 $ 2.72 $ 2.56 $ 2.48Operating ratios:Gross margin as a percentage o net sales 33.7% 35.6% 36.1% 36.3% 40.0%Selling, general, and administrative expenses as a

percentage o net sales 18.9% 19.4% 20.0% 20.3% 21.5%otal segment operating prot

as a percentage o net sales c 17.2% 17.6% 18.1% 18.1% 19.8%Effective income tax rate 33.3% 33.3% 29.2% 32.1% 29.7%Return on average total capital b c 11.2% 11.6% 12.0% 12.7% 13.7%Balance sheet data:Land, buildings, and equipment $ 3,783.3 $ 3,941.9 $ 3,878.1 $ 3,652.7 $ 3,345.9

otal assets 21,964.5 23,145.7 22,658.0 21,096.8 18,674.5Long term debt, excluding current portion 7,607.7 6,423.5 5,926.1 6,161.9 5,542.5

otal debt b 9,223.9 8,785.8 7,969.1 7,429.6 6,885.1Cash ow data:Net cash provided by operating activities $ 2,542.8 $ 2,541.0 $ 2,926.0 $ 2,407.2 $ 1,531.1Capital expenditures 712.4 663.5 613.9 675.9 648.8Fixed charge coverage ratio b 5.54 8.04 7.62 6.26 7.03Operating cash ow to debt ratio b 27.6% 28.9% 36.7% 32.4% 22.2%Share data:Low stock price $ 48.86 $ 46.86 $ 37.55 $ 34.95 $ 33.57High stock price 57.14 54.40 50.93 41.05 39.95Closing stock price 56.15 53.81 48.98 39.08 39.29Cash dividends per common share 1.67 1.55 1.32 1.22 1.12Number o ull and part time employees 42,000 43,000 41,000 34,500 35,000

a Fiscal was a week year; all other scal years were weeks.b See “Glossary” on page o this report or denition.c See “Non GAAP Measures” on page o this report or our discussion o this measure not dened by generally accepted accounting principles.

Selected Financial Data

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EXECUTIVE OVERVIEW

We are a global consumer oods company. We develop

distinctive value added ood products and market themunder unique brand names. We work continuously toimprove our core products and to create new productsthat meet consumers’ evolving needs and pre erences.In addition, we build the equity o our brands over time

with strong consumer directed marketing, innovativenew products, and effective merchandising. We believeour brand building strategy is the key to winning andsustaining leading share positions in markets aroundthe globe.

Our undamental nancial goal is to generate superior returns or our stockholders over the long term.

We believe that increases in net sales, segment operating pro t, earnings per share EPS , and return onaverage total capital are the key drivers o nancial per

ormance or our business.Our long term growth objectives are to consistently

deliver:• low single digit annual growth in net sales;• mid single digit annual growth in total segment

operating prot;• high single digit annual growth in diluted EPS

excluding certain items affecting comparability; and• improvement in return on average total capital.

We believe that this inancial per ormance, coupled with an attractive dividend yield, should result inlong term value creation or stockholders. We returna substantial amount o cash to stockholders throughdividends and share repurchases.

Our scal per ormance was mixed. Our twosmaller operating segments delivered growth. Operatingprot or the Convenience Stores and Foodservice segment increased percent to an all time high o $million. Operating results or the International segment

were muted by a signicant negative impact rom oreign currency exchange and slowing economic growthin key emerging markets, but the segment achievedgood margin expansion and prot growth in constantcurrency. Results or our U.S. Retail segment were disappointing, as both net sales and segment operatingpro t declined. Our brands achieved share gains incategories representing percent o our products’sales in measured U.S. retail channels, but overall salestrends in many categories were weak, re ecting theimpact o changing consumer ood pre erences.

Our consolidated net sales or the scal year endedMay , , declined percent to $ . billion,un avorable oreign exchange offset the bene ts o a

rd week and six months o incremental contribution rom the Annie’s Inc. Annie’s natural and organioods business acquired in October . On a con

stant currency basis, net sales increased percent.otal segment operating pro t o $ . billion declined percent and percent in constant currency. Diluted

EPS declined percent to $ . per share. Adjusteddiluted EPS, which excludes certain items affectingcomparability o results, rose percent to $ . pershare and increased percent on a constant currencybasis. Tese results were in line with our expectations

which were revised in the second quarter o scal .Our return on average total capital declined basispoints to . percent. See the “Non GAAP Measursection below or discussion o total segment operating pro it, adjusted diluted EPS, constant currencynets sales growth rates, constant currency total segment operating pro t growth rate, constant currencyadjusted diluted EPS growth rate, and return on average total capital, which are not de ned by generallyaccepted accounting principles GAAP .

Net cash provided by operations totaled $ . billionin scal . Tis cash generation supported capitalinvestments totaling $ million in scal . Walso returned signicant cash to stockholders throughan percent dividend increase, and share repurchasestotaling $ . billion.

We recorded the ollowing achievements related toour other key operating objectives or scal :• Product improvements on established brands andnew product introductions designed to respond toevolving consumer ood pre erences generated goodgrowth or a variety o our product lines. Examplesincluded renewed sales growth or our U.S. Yogurtoperating unit; strong sales contributions rom protein enriched cereal varieties; robust consumer demandacross international markets or new Old El PasoMexican ood items; and double digit growth or ouU.S. port olio o natural and organic ood products.• Te acquisition o Annie’s in October signi cantly expanded our scale and participation in theattractive U.S. natural and organic ood category.Combined net sales in the U.S. or our port olio onatural and organic brands exceeded $ million inscal .

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

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• We increased our share o U.S. cereal category measured dollar sales.• We increased our share o U.S. yogurt category mea

sured dollar sales, including strong gains in the Greekyogurt segment, and renewed sales growth in the regular and child yogurt segments. Our internationalyogurt operations expanded to China with rst production and order shipments to the Shanghai marketcommencing near the end o the scal year.• We generated strong levels o supply chain productivity savings in through our ongoing HolisticMargin Management HMM e orts. Beyond thisprogram, we began several new cost savings initiatives during the scal year. Project Century is oureffort to simpli y our North American supply chain.Project Catalyst is ocused on increasing the agility andeffectiveness o our U.S. Retail and corporate organizations, and we are making changes to various corporate policies and practices to reduce overhead expense.

ogether, these three initiatives generated more than$ million in cost savings during scal , and theyare expected to produce a cumulative $ to $ million in savings in scal .• We delivered strong cash returns to stockholdersthrough dividends o $ . per share and share repurchases totaling $ . billion. Share repurchase activityin scal and reduced the average number odiluted shares outstanding in scal by percent

rom scal .A detailed review o our scal per ormance

appears below in the section titled “Fiscal Consolidated Results o Operations.”

Our sales and earnings growth targets or scal re ect the impact o one less week compared to scal

. Te Annie’s business will contribute monthso incremental results. We expect oreign currencyexchange will continue to have a negative impact onreported results or our international operations, and

we expect the operating environment in our largedeveloping markets China and Brazil to remain uncertain. We estimate our input cost ination or scal at percent. With these assumptions in mind:• We expect scal net sales to essentially match

levels in constant currency, re ecting the impacto one less week o business.• We expect scal total segment operating protto increase at a low single digit rate in constant currency, as HMM and our more recent cost saving initiatives increase our effi ciency and improve margins.

• We expect scal adjusted diluted EPS to increaseat a mid single digit rate in constant currency.• Our scal plans call or continued strong cash

returns to stockholders. Te current annualized dividend rate o $ . per share is up percent rom theannual dividend paid in . Share repurchases in scal are expected to result in a net reductionin average diluted shares outstanding o approximately

percent.Certain terms used throughout this report are

dened in a glossary on page o this report.

FISCAL CONSOLIDATED RESULTS OFOPER ATIONS

Fiscal had weeks compared to weeks inscal .

Fiscal net sales declined percent to $ ,million and increased percent on a constant currency basis. In scal , net earnings attributableto General Mills were $ , million, down percent

rom $ , million in scal , and we reporteddiluted EPS o $ . in scal , down percent

rom $ . in scal . Fiscal results includerestructuring related charges, an inde inite livedintangible asset impairment charge, tax impact o therepatriation o oreign earnings, losses rom the markto market valuation o certain commodity positionsand grain inventories, integration costs resulting romthe acquisition o Annie’s, and the impact o Venezuelacurrency devaluation. Fiscal results include theimpact o Venezuela currency devaluation, a gain on thedivestiture o certain grain elevators, losses rom themark to market valuation o certain commodity positions and grain inventories, and restructuring chargesrelated to our scal productivity and cost savingsplan. Diluted EPS excluding these items affecting comparability totaled $ . in scal , up percent rom$ . in scal . Diluted EPS excluding certain itemsaffecting comparability on a constant currency basisincreased percent compared to scal see the“Non GAAP Measures” section below or a descriptiono our use o these measures not dened by GAAP .

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Net sales declined percent to $ , million in scal rom $ , in scal . Te components onet sales growth are shown in the ollowing table:

Fiscal vs.

Contributions rom volume growth a 1 ptNet price realization and mix 2 ptsForeign currency exchange 3 ptsNet sales growth 2 pts

a Measured in tons based on the stated weight o our product shipments.

Te rd week in scal contributed approximately percentage point o net sales growth, re ecting percentage point o growth rom volume.

Cost o sales increased $ million in scal to$ , million. In scal , we recorded a $ millionnet increase in cost o sales related to mark to market valuation o certain commodity positions and graininventories as described in Note to the ConsolidatedFinancial Statements on page o this report, compared to a net decrease o $ million in scal . In scal , we recorded $ million o restructuringcharges in cost o sales. Product mix drove a $ millionincrease in cost o sales. We also recorded a $ million

oreign exchange loss in scal related to Venezuelacurrency devaluation compared to a $ million loss inscal . Lower volume drove a $ million decreasein cost o sales.

We also expect to incur approximately $ milliono restructuring initiative project related cash costs andrecorded $ million o these costs in cost o sales in scal please re er to Note to the ConsolidatedFinancial Statements on page o this report .

Gross margin declined percent in scal versu scal . Gross margin as a percent o net sales o

percent decreased basis points compared to

scal .Selling, general and administrative SG&A expensedecreased $ million in scal versus scal primarily due to a percent decrease in advertisingand media expense, and savings rom Project Catalyst

please re er to Note to the Consolidated FinanciaStatements on page o this report and our othercost management initiatives. In scal , we recordeda $ million charge related to Venezuela currency devaluation compared to a $ million charge in scal In addition, we recorded $ million o integrationcosts in scal related to our acquisition o Annie’sSG&A expenses as a percent o net sales decreased basis points compared to scal .

Restructuring, impairment, and other exit costtotaled $ million in scal compared to $ million in scal .

During the ourth quarter o scal , we made astrategic decision to redirect certain resources supporting our Green Giant business in our U.S. Retail segmentto other businesses within the segment. As a result,

we recorded a $ million impairment charge in theourth quarter o scal related to the Green Gian

brand intangible asset.Restructuring charges recorded in restructuring,

impairment, and other exit costs were $ million inscal compared to $ million in scal . otcharges associated with our restructuring initiativesrecognized in iscal and consisted o t

ollowing:

As Reported EstimatedIn Millions Fiscal 2015 Fiscal 2014 Future Total Charge Cash Charge Cash Charge Cash Charge Cash Savings

otal Century a $ 181.8 $ 12.0 $ $ $ 111 $ 109 $ 293 $ 121Catalyst 148.4 45.0 73 148 118International 13.9 6.5 1.0 6.0 1 8 15 14

Other 0.6 0.1 2.6 16.4 otal restructuring charges a 343.5 63.6 3.6 22.4 112 190 456 253Project related costs recorded in costs o sales 13.2 9.7 52 55 65 65Restructuring charges and project related costs $ 356.7 $ 73.3 $ 3.6 $ 22.4 $ 164 $ 245 $ 521 $ 318Future cumulative annual savings $ 350

a Includes $ . million o restructuring charges recorded in cost o sales during scal .b Cumulative annual savings estimated by scal . Includes savings rom SG&A cost reduction projects.

Please re er to Note to the Consolidated Financial Statements on page o this report or more in ormationregarding our restructuring activities.

ANNUAL REPORT


18/90


19/90

Redeemable interest decreased $ million rom scal , primarily driven by oreign exchange.

Retained earnings increased $ million rom scal

, re ecting scal net earnings o $ , million less dividends declared o $ , million.Treasurystock increased $ million rom scal , drivenby $ , million o share repurchases, partially offset by $ million related to stock based compensation plans. Additional paid in capital increased $million rom scal , primarily driven by redeemableinterest revaluation, partially offset by stock compensation activity. AOCI increased by $ million romscal .

Noncontrolling interests decreased $ million romscal , primarily driven by oreign exchange.

FISCAL CONSOLIDATED RESULTS OFOPERATIONS

Our consolidated results or scal include one additional quarter o operating activity rom the acquisitiono Yoki Alimentos S.A. Yoki in Brazil, one additionalquarter o operating activity rom the assumption othe Canadian Yoplait ranchise license, and three additional quarters o operating activity rom the acquisition o Immaculate Baking Company in the UnitedStates. Collectively, these items are re erred to as “newbusinesses” in comparing our scal results toscal .

Fiscal net sales grew percent to $ , millionincluding percentage point o growth contributed bynew businesses and percentage point o un avorable

oreign currency exchange. In scal , net earnings attributable to General Mills were $ , million,down percent rom $ , million in scal , and

we reported diluted EPS o $ . in scal , up percent rom $ . in scal . Fiscal resultsinclude a gain on the divestiture o certain grain ele

vators, the impact o Venezuela currency devaluation,gains rom the mark to market valuation o certaincommodity positions and grain inventories, and restructuring charges related to our scal productivityand cost savings plan. Fiscal results include theeffects rom various discrete tax items, the impact o

Venezuela currency devaluation, restructuring chargesrelated to our scal productivity and cost savingsplan, integration costs resulting rom the acquisitiono Yoki, and gains rom the mark to market valuationo certain commodity positions and grain inventories.

Diluted EPS excluding these items affecting comparability totaled $ . in scal , up percent rom $ .in scal see the “Non GAAP Measures” secti

below or a description o our use o this measure notdened by GAAP .Net sales grew percent in scal to $ ,

rom $ , in scal . Te components o nsales growth are shown in the ollowing table:

Fiscal vs.

Contributions rom volume growth a 1 pNet price realization and mix 1 ptForeign currency exchange 1 pNet sales growth 1 pt


Net sales growth included percentage point ogrowth rom new businesses. Contributions rom volume growth included percentage points rom newbusinesses.

Cost o sales increased $ million in scal to $ , million. Higher volume drove an $ mlion increase in cost o sales. Product mix also drovean $ million increase in cost o sales. In scal

we recorded a $ million net decrease in cost o salesrelated to mark to market valuation o certain commodity positions and grain inventories as described in Note

to the Consolidated Financial Statements on page o this report, compared to a net decrease o $ millionin scal . We also recorded a $ million oreigexchange loss in scal related to the Venezuelacurrency devaluation compared to a $ million loss inscal . In scal , we also recorded a $ millnon recurring expense related to the assumption o theCanadian Yoplait ranchise license.

Gross margin declined percent in scal versuscal . Gross margin as a percent o net sales o percent was unchanged compared to scal .

SG&A expenses decreased $ million in scal

versus scal . Te decrease in SG&A expenses wasprimarily driven by a percent decrease in advertising and media expense, a smaller contribution to theGeneral Mills Foundation, a decrease in incentive compensation expense, and lower pension expense compared to scal . In scal , we recorded a $million charge related to Venezuela currency devaluation compared to a $ million charge in scal . Inaddition, we recorded $ million o integration costs

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in scal related to our acquisition o Yoki. SG&Aexpenses as a percent o net sales decreased percentcompared to scal .

During scal , we recorded a divestiture gain o$ million related to the sale o certain grain elevatorsin our U.S. Retail segment. Tere were no divestituresin scal .

Interest, net or scal totaled $ million, $million lower than scal . Te average interest ratedecreased basis points, including the effect o the mixo debt, generating a $ million decrease in net interest. Average interest bearing instruments increased$ million, generating a $ million increase innet interest.

Our consolidated effective tax rate or scal was. percent compared to . percent in scal .

Te . percentage point increase was primarily relatedto the restructuring o our General Mills Cereals, LLC

GMC subsidiary during the rst quarter o scal , which resulted in a $ million decrease to de erredincome tax liabilities related to the tax basis o theinvestment in GMC and certain distributed assets, witha corresponding non cash reduction to income taxes.During scal , we also recorded a $ million discrete decrease in income tax expense and an increasein our de erred tax assets related to certain actionstaken to restore part o the tax bene ts associated

with Medicare Part D subsidies which had previouslybeen reduced in scal with the enactment o thePatient Protection and Affordable Care Act, as amendedby the Health Care and Education Reconciliation Act o

. Our scal tax expense also includes a $million charge associated with the liquidation o a corporate investment.

Afer tax earnings rom joint ventures or scal decreased to $ million compared to $ million

in scal primarily driven by increased consumerspending at CPW and un avorable oreign currencyexchange rom HDJ. Te change in net sales or each

joint venture is set orth in the ollowing table:

As Reported Constant Currency BasisFiscal Fiscal

vs. vs.

CPW 1 % FlatHDJ 8 9%Joint Ventures 2 % 2%

he components o our joint ventures’ net salesgrowth are shown in the ollowing table:

Fiscal vs. Fiscal CPW HDJ

Contributions rom volume growth Flat 11 ptsNet price realization and mix Flat 2 ptsForeign currency exchange 1 pt 17 ptsNet sales growth 1 pt 8 pts

Average diluted shares outstanding decreased by million in scal rom scal due primarily tothe repurchase o million shares, partially offset bythe issuance o million shares related to stock compensation plans.

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RESULTS OF SEGMENT OPERATIONS

Our businesses are organized into three operating

segments: U.S. Retail; International; and ConvenienceStores and Foodservice.Beginning in the irst quarter o iscal , we

changed how we assess segment operating per ormance

to exclude the asset and liability remeasurement impactrom hyperin lationary economies. his impact is

now included in unallocated corporate items. All peri

ods presented have been changed to con orm to thispresentation.

Te ollowing tables provide the dollar amount and percentage o net sales and operating pro t rom eachsegment or scal years , , and :

Fiscal Year

Percent Percent PercenIn Millions Dollars o Total Dollars o Total Dollars o TotaNet Sales

U.S. Retail $10,507.0 60% $10,604.9 59% $10,614.9 60%International 5,128.2 29 5,385.9 30 5,200.2 29Convenience Stores and Foodservice 1,995.1 11 1,918.8 11 1,959.0 11

otal $17,630.3 100% $17,909.6 100% $17,774.1 100%

Segment Operating ProtU.S. Retail $2,159.3 71% $2,311.5 73% $2,392.9 74%International 522.6 17 535.1 17 515.4 16Convenience Stores and Foodservice 353.1 12 307.3 10 314.6 10

otal $3,035.0 100% $3,153.9 100% $3,222.9 100%

Segment operating pro t excludes unallocated cor

porate items, gain on divestitures, and restructuring,impairment, and other exit costs because these itemsaffecting operating pro t are centrally managed atthe corporate level and are excluded rom the measure o segment protability reviewed by our executivemanagement.

U.S. Retail Segment Beginning with the second quarter o scal , we realigned certain operating units

within our U.S. Retail operating segment. We alsochanged the name o our Yoplait operating unit toYogurt and our Big G operating unit to Cereal. Frozen

Foods transitioned into Meals and Baking Products.Small Planet Foods transitioned into Snacks, Cereal,and Meals. Te Yogurt operating unit was unchanged.

We revised the amounts previously reported in the netsales and net sales percentage change by operatingunit within our U.S. Retail segment to con orm to thenew operating unit structure. Tese realignments hadno effect on previously reported consolidated net sales,operating segments’ net sales, operating prot, segment

operating pro t, net earnings attributable to General

Mills, or EPS. In addition, results rom the acquiredAnnie’s business are included in the Meals and Snacksoperating units.

Our U.S. Retail segment reects business with a wide variety o grocery stores, mass merchandisers, membership stores, natural ood chains, and drug, dollarand discount chains operating throughout the UnitedStates. Our product categories in this business segmentare ready to eat cereals, re rigerated yogurt, soup, meakits, shel stable and rozen vegetables, re rigeratedand rozen dough products, dessert and baking mixes,

rozen pizza and pizza snacks, grain, ruit and savorysnacks, and a wide variety o organic products including meal kits, granola bars, and cereal.

In scal , net sales or our U.S. Retail segmen were $ , million, down percent compared to sca

. In scal , net sales or this segment totale$ , million, at compared to scal .

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Te components o U.S. Retail net sales growth areshown in the ollowing table:

Fiscal Fiscal vs. vs.

Contributions rom volume growth a 1 pt FlatNet price realization and mix Flat FlatNet sales growth 1 pt Flat


Te acquisition o Annie’s added percentage pointo net sales growth, re ecting percentage point ogrowth rom volume in scal . Te rd weekin scal contributed approximately percentagepoint o net sales growth, reecting percentage pointo growth rom volume.

Net sales or our U.S. retail operating units are shownin the ollowing table:

Fiscal YearIn Millions

Meals $ 2,674.3 $ 2,772.4 $ 2,836.0Cereal 2,330.1 2,410.2 2,407.8Snacks 2,134.4 1,997.8 1,867.6Baking Products 1,969.8 2,096.1 2,133.9Yogurt and other 1,398.4 1,328.4 1,369.6

otal $ 10,507.0 $ 10,604.9 $ 10,614.9

U.S. Retail net sales percentage change by operatingunit are shown in the ollowing table:


Meals 4 % 2 %Cereal 3 FlatBaking Products 6 2Snacks 7 7Yogurt 5 3

otal 1 % Flat

Segment operating pro t o $ , million in scal

declined $ million, or percent, rom scal .Te decrease was primarily driven by lower volume andan increase in supply chain costs, partially offset by a percent reduction in advertising and media expense.

Segment operating pro t o $ , million in scal declined $ million, or percent, rom scal .

Te decrease re ected higher trade spending, partiallyoffset by a percent reduction in advertising and mediaexpense.

International Segment Our International segmentconsists o retail and oodservice businesses outsideo the United States. Our product categories include

ready to eat cereals, shel stable and rozen vegetables,meal kits, re rigerated and rozen dough products, dessert and baking mixes, rozen pizza snacks, re rigerated yogurt, grain and ruit snacks, and super premiumice cream and rozen desserts. We also sell super premium ice cream and rozen desserts directly to consumers through owned retail shops. Our Internationalsegment also includes products manu actured in theUnited States or export, mainly to Caribbean and LatinAmerican markets, as well as products we manu acture

or sale to our international joint ventures. Revenuesrom export activities and ranchise ees are reported

in the region or country where the end customer islocated.

Net sales or our International segment were down percent in scal compared to scal , to

$ , million. Net sales totaled $ , million in scal, up percent rom $ , million in scal .

Te components o International net sales growth areshown in the ollowing table:


Contributions rom volume growth a Flat 5 ptsNet price realization and mix 6 pts 3 pts

Foreign currency exchange 11 pts 4 ptsNet sales growth 5 pts 4 ptsa Measured in tons based on the stated weight o our product shipments.

Te rd week in scal contributed approximately percentage point o net sales growth, re ecting percentage point o growth rom volume.

Net sales or our International segment by geographicregion are shown in the ollowing table:

Fiscal YearIn Millions

Europe a $2,126.5 $2,188.8 $2,214.6Canada 1,105.1 1,195.3 1,210.5Asia/Pacic 1,023.5 981.8 899.1Latin America 873.1 1,020.0 876.0

otal $5,128.2 $5,385.9 $5,200.2a Fiscal net sales or the Europe region include an additional month

o results.

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International change in net sales by geographicregion are shown in the ollowing table:

Percentage Change inPercentage Change in Net Sales on ConstantNet Sales as Reported Currency Basis a

Fiscal Fiscal Fiscal Fiscal vs. vs. vs. vs.

Europe 3 % 1 % 5% 4 %Canada 8 1 Flat 5Asia/Pacic 4 9 5 9Latin America 14 16 17 38

otal 5 % 4% 6% 8%a See the “Non GAAP Measures” section below or our use o this measure.

Segment operating pro t or scal declined percent to $ million rom $ million in scal

, primarily driven by un avorable oreign currencyexchange and higher input costs, partially offset by

avorable net price realization and mix. Internationalsegment operating prot increased percent on a constant currency basis in scal compared to scal

see the “Non GAAP Measures” section below orour use o this measure .

Segment operating prot or scal grew percent to $ million rom $ million in scal ,primarily driven by volume growth, avorable net pricerealization and mix, and an additional quarter o results

rom the Yoki acquisition, partially offset by un avor

able oreign currency and higher input costs. In addition, we recorded a $ million non recurring expenserelated to the assumption o the Canadian Yoplait

ranchise license in scal . International segmentoperating prot increased percent on a constant currency basis in scal compared to scal seethe “Non GAAP Measures” section below or our use othis measure .

Convenience Stores and Foodservice Segment In ourConvenience Stores and Foodservice segment our majorproduct categories are ready to eat cereals, snacks,

re rigerated yogurt, rozen break asts, unbaked andully baked rozen dough products, baking mixes, and our. Many products we sell are branded to the consumer and nearly all are branded to our customers. Wesell to distributors and operators in many customerchannels including oodservice, convenience stores,

vending, and supermarket bakeries. Substantially allo this segment’s operations are located in the UnitedStates.

For scal , net sales or our Convenience Storeand Foodservice segment increased percent to $ ,million. For scal , net sales decreased percent to

$ , million compared to $ , million in scal Te components o Convenience Stores and Foodservicenet sales growth are shown in the ollowing table:


Contributions rom volume growth a 1 pt 1 Net price realization and mix 3 pts 1 pForeign currency exchange NM NMNet sales growth 4 pts 2 pt


Te rd week in scal contributed approximately percentage points o net sales growth, reecting percentage points o growth rom volume.

In scal , segment operating pro t was $million, up percent rom $ million in scal Te increase was primarily driven by avorable netprice realization and mix and higher volume.

In scal , segment operating prot was $ million, down percent rom $ million in scal Te decrease was primarily driven by volume declines,un avorable net price realization, and investments toprotect and grow the business.

Unallocated Corporate Items Beginning in the rstquarter o scal , we changed how we assess segment operating per ormance to exclude the asset andliability remeasurement impact rom hyperin ationary economies. Tis impact is now included in unallocated corporate items. All periods presented have beenchanged to con orm to this presentation.

Unallocated corporate items include corporate overhead expenses, variances to planned domestic employeebene ts and incentives, contributions to the GeneralMills Foundation, asset and liability remeasurementimpact o hyperin ationary economies, restructuring

initiative project related costs, and other items thatare not part o our measurement o segment operating per ormance. Tis includes gains and losses rommark to market valuation o certain commodity positions until passed back to our operating segments inaccordance with our policy as discussed in Note tothe Consolidated Financial Statements on page othis report.

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24/90

For scal , unallocated corporate expense totaled$ million compared to $ million last year. In scal , we recorded a $ million net increase in

expense related to mark to market valuation o certaincommodity positions and grain inventories, comparedto a $ million net decrease in expense in scal .In addition, we recorded $ million o restructuring charges, and $ million o restructuring initiativeproject related costs in cost o sales in scal . Werecorded an $ million oreign exchange loss relatedto the remeasurement o assets and liabilities o our

Venezuelan subsidiary compared to $ million in scal. We also recorded $ million o integration costs

resulting rom the acquisition o Annie’s in scal .For scal , unallocated corporate expense totaled

$ million compared to $ million in scal . In scal , we recorded a $ million net decrease inexpense related to mark to market valuation o certaincommodity positions and grain inventories, comparedto a $ million net decrease in expense in the prioryear. Compensation and bene t expenses decreased$ million and the contribution to the General MillsFoundation decreased in scal compared to scal

. We also recorded a $ million oreign exchangeloss related to the remeasurement o assets and liabilities o our Venezuelan subsidiary in scal compared to $ million in scal . In scal , wealso recorded $ million o integration costs related tothe acquisition o Yoki.

Venezuela is a highly in ationary economy, and weremeasure the value o the assets and liabilities o our

Venezuelan subsidiary based on the exchange rate at which we expect to remit dividends in U.S. dollars. InFebruary , the Venezuelan government establisheda new oreign exchange market mechanism SICAD and at that time indicated that it would be the market through which U.S. dollars would be obtained orthe remittance o dividends. On February , , the

Venezuelan government replaced SICAD with a neworeign exchange market mechanism SIMADI . We

expect to be able to access U.S. dollars through theSIMADI market. SIMADI has signi cantly higher oreign exchange rates than those available through theother oreign exchange mechanisms. In scal ,

we recorded an $ million oreign exchange loss inunallocated corporate items resulting rom the remeasurement o assets and liabilities o our Venezuelansubsidiary at the SIMADI rate o bolivars per U.S.dollar. Our Venezuela operations represent less than

percent o our consolidated assets, liabilities, net sales,and segment operating pro t. As o May , , wehad $ . million o non U.S. dollar cash balances in

Venezuela.IMPACT OF INFLATION

Our gross margin per ormance in scal re ectsthe impact o percent input cost in ation, primarilyon commodities inputs. We expect input cost in ationo percent in scal . We attempt to minimizethe effects o in ation through HMM, planning, andoperating practices. Our risk management practices arediscussed on page o this report.

LIQUIDITY

Te primary source o our liquidity is cash ow romoperations. Over the most recent three year period, ouroperations have generated $ . billion in cash. A substantial portion o this operating cash ow has beenreturned to stockholders through share repurchasesand dividends. We also use cash rom operations to

und our capital expenditures and acquisitions. We typically use a combination o cash, notes payable, andlong term debt to nance signi cant acquisitions andmajor capital expansions.

As o May , , we had $ million o cash andcash equivalents held in oreign jurisdictions which willbe used to und oreign operations and acquisitions.During the ourth quarter o scal , we approved aone time repatriation o $ million o oreign earnings. Tis action reduced the economic cost o undingcurrent restructuring initiatives and the acquisition oAnnie’s completed in scal . We recorded a discreteincome tax charge o $ million in scal relatedto this action, and we expect to make approximately$ million in related cash income tax paymentsrelated to this action. We have previously asserted thatour oreign earnings are permanently reinvested and

will only be repatriated in a tax neutral manner, andthis one time repatriation does not change this ongoing assertion.

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Cash Flows rom Operations

Fiscal YearIn Millions 2015 2014 2013

Net earnings, includingearnings attributable toredeemable andnoncontrolling interests $1,259.4 $1,861.3 $1,892.5

Depreciation and amortization 588.3 585.4 588.0Afer tax earnings

rom joint ventures 84.3 89.6 98.8Distributions o earnings

rom joint ventures 72.6 90.5 115.7Stock based compensation 106.4 108.5 100.4De erred income taxes 25.3 172.5 81.8

ax benet on exercised options 74.6 69.3 103.0

Pension and other postretirementbenet plan contributions 49.5 49.7 223.2Pension and other postretirement

benet plan costs 91.3 124.1 131.2Divestiture gain 65.5 Restructuring, impairment,

and other exit costs 531.1 18.8 60.2Changes in current assets

and liabilities, excluding theeffects o acquisitions 214.7 32.2 471.1

Other, net 137.9 76.2 30.5Net cash provided by

operating activities $2,542.8 $2,541.0 $2,926.0

In scal , our operations generated $ . billiono cash, at compared to scal . Te $ millionchange in current assets and liabilities was primarilydriven by the timing o trade and promotion accruals,changes in tax accruals, and changes in derivative positions. Tis was largely offset by lower net earnings,

which included a $ million non cash impairmentcharge and $ million o non cash restructuringcharges, and a $ million change in net de erredincome taxes.

We strive to grow core working capital at or below

the rate o growth in our net sales. For scal , core working capital decreased percent, primarily due toa decrease in accounts receivable and an increase inaccounts payable, compared to a net sales decline o percent. In scal , core working capital decreased percent, compared to net sales growth o percent, andin scal , core working capital decreased percent,compared to net sales growth o percent.

In scal , our operations generated $ . billion ocash compared to $ . billion in scal . Te $million decrease was primarily due to a $ million

change in current assets and liabilities. Te changein current assets and liabilities was primarily drivenby a $ million change in other current liabilitieslargely due to changes in trade promotion and incometax accruals, and a $ million change in inventory.In addition, in scal we made a $ million

voluntary contribution to our principal domestic pension plans.

Cash Flows rom Investing Activities

Fiscal YearIn Millions 2015 2014 2013

Purchases o land, buildings,and equipment $ 712.4 $ 663.5 $ 613

Acquisitions,net o cash acquired 822.3 898.

Investments in affi liates, net 102.4 54.9 40Proceeds rom disposal o land,

buildings, and equipment 11.0 6.6 24.2Proceeds rom divestiture 121.6 Exchangeable note 27.9 29.3 16.2Other, net 4.0 0.9 Net cash used by

investing activities $ 1,602.2 $ 561.8 $ 1,51

In iscal , cash used by investing activitieincreased by $ . billion rom scal . We investe$ million in land, buildings, and equipment in scal , $ million more than the same period lastyear. In the second quarter o scal , we acquiredAnnie’s, a publicly traded ood company headquarteredin Berkeley, Cali ornia, or an aggregate purchase prico $ million, net o $ million o cash acquired. Wmade $ million o investments in affi liates, primarilyCPW, in scal . In addition, we received $ millioin payments rom Sodiaal International Sodiaal in scal against the $ million exchangeable note wpurchased in scal .

In iscal , cash used by investing activitiedecreased by $ million rom scal . We investe$ million in land, buildings, and equipment in scal

, $ million more than in scal . We mad$ million o investments in affi liates, primarily CPWin scal . In the ourth quarter o scal , wsold certain grain elevators or $ million in cash

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27/90

Te ollowing table details the ee paid committedand uncommitted credit lines we had available as oMay , :

Facility BorrowedIn Billions Amount Amount

Credit acility expiring: April 2017 $ 1.7 $ May 2019 1.0 June 2019 0.2 0.1

otal committed credit acilities 2.9 0.1Uncommitted credit acilities 0.5 0.1

otal committed anduncommitted credit acilities $3.4 $0.2

o ensure availability o unds, we maintain bank

credit lines suffi cient to cover our outstanding notespayable. Commercial paper is a continuing source oshort term nancing. We have commercial paper programs available to us in the United States and Europe.

We also have uncommitted and asset backed creditlines that support our oreign operations. Te credit

acilities contain several covenants, including a requirement to maintain a xed charge coverage ratio o atleast . times.

Certain o our long term debt agreements, our creditacilities, and our noncontrolling interests contain

restrictive covenants. As o May , , we were in

compliance with all o these covenants. We have $ , million o long term debt maturingin the next months that is classied as current. Webelieve that cash ows rom operations, together withavailable short and long term debt nancing, will beadequate to meet our liquidity and capital needs or atleast the next months.

As o May , , our total debt, including theimpact o derivative instruments designated as hedges,

was percent in xed rate and percent in oating rate instruments, compared to percent in xedrate and percent in oating rate instruments onMay , .

Improvement in return on average total capital is oneo our key per ormance measures see the “Non GAAPMeasures” section below or our discussion o this measure, which is not dened by GAAP . Return on averagetotal capital decreased basis points rom . percentin scal to . percent in scal as scal earnings declined. On a constant currency basis, returnon average total capital decreased basis points. We

also believe that our xed charge coverage ratio andthe ratio o operating cash ow to debt are importantmeasures o our nancial strength. Our xed charge

coverage ratio in scal was . compared to .in scal . Te measure decreased rom scal as earnings be ore income taxes and afer tax earnings

rom joint ventures decreased by $ million including a $ million non cash pretax charge related toan inde nite lived intangible asset impairment and a$ million pretax increase in restructuring chargesin scal . Our operating cash ow to debt ratiodecreased . percentage points to . percent in scal

, driven by an increase in total debt. We have a percent controlling interest in Yoplait

SAS and a percent interest in Yoplait Marques SNCand Liberté Marques Sàrl. Sodiaal holds the remaininginterests in each o these entities. We consolidate theseentities into our consolidated nancial statements. Werecord Sodiaal’s percent interest in Yoplait MarquesSNC and Liberté Marques Sàrl as noncontrolling interests, and their percent interest in Yoplait SAS as aredeemable interest on our Consolidated Balance Sheets.Tese euro and Canadian dollar denominated interestsare reported in U.S. dollars on our Consolidated BalanceSheets. Sodiaal has the ability to put a limited portiono its redeemable interest to us at air value once peryear through a maximum term expiring December

. As o May , , the redemption value o redeemable interest was $ million which approximates its air value.

Te third party holder o the General Mills Cereals,LLC GMC Class A Interests receives quarterly pr

erred distributions rom available net income based onthe application o a oating pre erred return rate, tothe holder’s capital account balance established in themost recent mark to market valuation currently $million . For scal , the oating pre erred rate waequal to the sum o three month LIBOR plus basipoints. Te pre erred return rate is adjusted every threeyears through a negotiated agreement with the ClassA Interest holder or through a remarketing auction.On June , , subsequent to our year end, the oating pre erred return rate on GMC’s Class A Interests

was reset to the sum o three month LIBOR plus basis points.

We have an option to purchase the Class A Interestsor consideration equal to the then current capital

account value, plus any unpaid pre erred return and theprescribed make whole amount. I we purchase these

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interests, any change in the third party holder’s capitalaccount rom its original value will be charged directlyto retained earnings and will increase or decrease the

net earnings used to calculate EPS in that period.OFF BALANCE SHEET ARRANGEMENTS ANDCONTRACTUAL OBLIGATIONS

As o May , , we have issued guarantees andcom ort letters o $ million or the debt and otherobligations o consolidated subsidiaries, and guaranteesand com ort letters o $ million or the debt andother obligations o non consolidated affi liates, mainlyCPW. In addition, o balance sheet arrangementsare generally limited to the uture payments undernon cancelable operating leases, which totaled $million as o May , .

As o May , , we had invested in ve variableinterest entities VIEs . None o our VIEs are material toour results o operations, nancial condition, or liquidity as o and or the year ended May , .

Te ollowing table summarizes our uture estimatedcash payments under existing contractual obligations,including payments due by period:

Payments Due by Fiscal Year andIn Millions otal Tereafer

Long term debta

$ 8,615.4 $1,000.0 $1,707.5 $1,650.0 $4,257.9Accrued interest 91.8 91.8 Operating leases b 400.5 108.4 133.1 77.4 81.6Capital leases 1.5 0.6 0.6 0.3 Purchase obligations c 2,363.8 2,124.2 141.8 65.5 32.3Total contractual

obligations 11,473.0 3,325.0 1,983.0 1,793.2 4,371.8Other long term

obligations d 1,738.2 Total long term

obligations $13,211.2 $3,325.0 $1,983.0 $1,793.2 $4,371.8a Amounts represent the expected cash payments o our long term

debt and do not include $ million or capital leases or $ million or net

unamortized bond premiums and discounts and air value adjustments.b Operating leases represents the minimum rental commitments under

non cancelable operating leases.

c Te majority o the purchase obligations represent commitments orraw material and packaging to be utilized in the normal course o business and or consumer marketing spending commitments that support ourbrands. For purposes o this table, arrangements are considered purchaseobligations i a contract species all signicant terms, including xed orminimum quantities to be purchased, a pricing structure, and approximatetiming o the transaction. Most arrangements are cancelable without asignicant penalty and with short notice usually days . Any amounts

reected on the Consolidated Balance Sheets as accounts payable andaccrued liabilities are excluded rom the table above.

d Te air value o our oreign exchange, equity, commodity, and grainderivative contracts with a payable position to the counterparty was $

million as o May , , based on air market values as o that date.Future changes in market values will impact the amount o cash ultimatelypaid or received to settle those instruments in the uture. Other long termobligations mainly consist o liabilities or accrued compensation and benets, including the under unded status o certain o our dened benetpension, other postretirement benet, and postemployment benet plans,and miscellaneous liabilities. We expect to pay $ million o benets romour un unded postemployment benet plans and $ million o de erredcompensation in scal . We are unable to reliably estimate the amounto these payments beyond scal . As o May , , our total liability or uncertain tax positions and accrued interest and penalties was$ million.

SIGNIFICANT ACCOUNTING ESTIMATES

For a complete description o our signi cant accounting policies, see Note to the Consolidated FinancialStatements on page o this report. Our signi cantaccounting estimates are those that have a meaning

ul impact on the reporting o our nancial conditionand results o operations. Tese estimates include ouraccounting or promotional expenditures, valuation olong lived assets, intangible assets, redeemable interest,stock based compensation, income taxes, and de nedbene it pension, other postretirement bene it, andpost employment benet plans.

Promotional Expenditures Our promotional activitiesare conducted through our customers and directly orindirectly with end consumers. Tese activities include:payments to customers to per orm merchandisingactivities on our behal , such as advertising or in storedisplays; discounts to our list prices to lower retail shelprices; payments to gain distribution o new products;coupons, contests, and other incentives; and media andadvertising expenditures. Te recognition o these costsrequires estimation o customer participation and per

ormance levels. Tese estimates are based on the orecasted customer sales, the timing and orecasted costso promotional activities, and other actors. Differencesbetween estimated expenses and actual costs are recognized as a change in management estimate in a subsequent period. Our accrued trade, coupon, and consumermarketing liabilities were $ million as o May ,

, and $ million as o May , . Becauseour total promotional expenditures including amountsclassied as a reduction o revenues are signicant, iour estimates are inaccurate we would have to make

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adjustments in subsequent periods that could have amaterial effect on our results o operations.

Valuation o Long Lived Assets We estimate the use ullives o long lived assets and make estimates concerning undiscounted cash ows to review or impairment

whenever events or changes in circumstances indicatethat the carrying amount o an asset or asset groupmay not be recoverable. Fair value is measured usingdiscounted cash ows or independent appraisals, asappropriate.

Intangible Assets Goodwill and other inde nite livedintangible assets are not subject to amortization and aretested or impairment annually and whenever eventsor changes in circumstances indicate that impairment may have occurred. Our estimates o air value

or goodwill impairment testing are determined basedon a discounted cash ow model. We use inputs romour long range planning process to determine growthrates or sales and pro ts. We also make estimates odiscount rates, perpetuity growth assumptions, marketcomparables, and other actors.

We evaluate the use ul lives o our other intangibleassets, mainly brands, to determine i they are nite orindenite lived. Reaching a determination on use ul li erequires signicant judgments and assumptions regarding the uture effects o obsolescence, demand, competition, other economic actors such as the stability othe industry, known technological advances, legislativeaction that results in an uncertain or changing regulatory environment, and expected changes in distributionchannels , the level o required maintenance expenditures, and the expected lives o other related groups oassets. Intangible assets that are deemed to have denite lives are amortized on a straight line basis, overtheir use ul lives, generally ranging rom to years.Our estimate o the air value o our brand assets isbased on a discounted cash ow model using inputs

which include projected revenues rom our long rangeplan, assumed royalty rates that could be payable i wedid not own the brands, and a discount rate.

As o May , , we had $ . billion o good will and inde nite lived intangible assets. While wecurrently believe that the air value o each intangible exceeds its carrying value and that those intangibles so classi ed will contribute inde nitely to ourcash ows, materially different assumptions regarding

uture per ormance o our businesses or a different

weighted average cost o capital WACC could resultsignicant impairment losses and amortization expense.

We per ormed our scal assessment o our intan

gible assets as o November , . As o our annuassessment date, there was no impairment o any oour intangible assets as their related air values weresubstantially in excess o the carrying values, except

or the Mountain High , Uncle Toby’s, and Green Gianbrands. Te excess air value above the carrying valueo these brand assets were as ollows:

Excess FaValue Abov

Carrying CarryingIn Millions Value Value

Mountain High $ 35.4 3Uncle Toby’s $ 57.7 7Green Giant $ 425.9 13

At the end o the ourth quarter o scal , wemade a strategic decision to redirect certain resourcessupporting our Green Giant business in our U.S. Retailsegment to other businesses within the segment.Tere ore, uture sales and pro tability projections inour long range plan or this business declined. As aresult o this triggering event, we per ormed an interimimpairment assessment o the Green Giant brandintangible asset as o May , , and determined thathe air value o the brand asset no longer exceeded thecarrying value o the asset. Signi cant assumptionsused in that assessment included our updated longrange cash ow projections or the Green Giant business, an updated royalty rate, a WACC, and a tax rate.

We recorded a $ million impairment charge in theourth quarter o scal related to this asset.Our Green Giant, Uncle Toby’s and Mountain

High brands have experienced declining businessper ormance, and we will continue to monitor thesebusinesses.

Redeemable Interest During the third quarter o s

cal , we adjusted the redemption value o Sodiaalredeemable interest in Yoplait SAS based on a discounted cash ow model. Te signi cant assumptionsused to estimate the redemption value include projectedrevenue growth and pro tability rom our long rangeplan, capital spending, depreciation and taxes, oreigncurrency exchange rates, and a discount rate. As oMay , , the redemption value o the redeemabinterest was $ million.

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Stock based Compensation he valuation o stockoptions is a signi icant accounting estimate thatrequires us to use judgments and assumptions that

are likely to have a material impact on our nancialstatements. Annually, we make predictive assumptionsregarding uture stock price volatility, employee exercise behavior, dividend yield, and the or eiture rate. Formore in ormation on these assumptions, please re erto Note to the Consolidated Financial Statements onpage o this report.

Te estimated air values o stock options grantedand the assumptions used or the Black Scholesoption pricing model were as ollows:

Fiscal Year2015 2014 2013

Estimated air values ostock options granted $ 7.22 $ 6.03 $ 3.65

Assumptions: Risk ree interest rate 2.6% 2.6% 1.6%

Expected term 8.5 years 9.0 years 9.0 yearsExpected volatility 17.5% 17.4% 17.3%Dividend yield 3.1% 3.1% 3.5%

Te risk ree interest rate or periods during theexpected term o the options is based on the U.S.

reasury zero coupon yield curve in effect at the timeo grant. An increase in the expected term by year,

leaving all other assumptions constant, would increasethe grant date air value by percent. I all otherassumptions are held constant, a one percentage pointincrease in our scal volatility assumption wouldincrease the grant date air value o our scal option awards by percent.

o the extent that actual outcomes differ rom ourassumptions, we are not required to true up grantdate air value based expense to nal intrinsic values.However, these differences can impact the classi cation o cash tax benets realized upon exercise o stockoptions, as explained in the ollowing two paragraphs.

Furthermore, historical data has a signi cant bearingon our orward looking assumptions. Signi cant variances between actual and predicted experience couldlead to prospective revisions in our assumptions, whichcould then signicantly impact the year over year comparability o stock based compensation expense.

Any corporate income tax benet realized upon exercise or vesting o an award in excess o that previouslyrecognized in earnings re erred to as a wind all tax

benet is presented in the Consolidated Statements oCash Flows as a nancing cash ow. Te actual impacton uture years’ nancing cash ows will depend, in

part, on the volume o employee stock option exercisesduring a particular year and the relationship betweenthe exercise date market value o the underlying stockand the original grant date air value previously determined or nancial reporting purposes.

Realized wind all tax bene ts are credited to additional paid in capital within the Consolidated BalanceSheets. Realized short all tax benets amounts whichare less than that previously recognized in earnings are rst offset against the cumulative balance o wind alltax benets, i any, and then charged directly to incometax expense, potentially resulting in volatility in ourconsolidated effective income tax rate. We calculated acumulative amount o wind all tax benets or the purpose o accounting or uture short all tax benets andcurrently have suffi cient cumulative wind all tax benets to absorb projected arising short alls, such that wedo not currently expect uture earnings to be affectedby this provision. However, as employee stock optionexercise behavior is not within our control, it is possiblethat materially different reported results could occur idifferent assumptions or conditions were to prevail.

Income Taxes We apply a more likely than not threshold to the recognition and derecognition o uncertaintax positions. Accordingly, we recognize the amount otax benet that has a greater than percent likelihoodo being ultimately realized upon settlement. Futurechanges in judgment related to the expected ultimateresolution o uncertain tax positions will affect earningsin the quarter o such change. For more in ormation onincome taxes, please re er to Note to the ConsolidatedFinancial Statements on page o this report.

De ined Bene it Pension, Other PostretirementBenet, and Postemployment Benet Plans We havedened benet pension plans covering many employeesin the United States, Canada, France, and the UnitedKingdom. We also sponsor plans that provide healthcare bene ts to many o our retirees in the UnitedStates, Canada, and Brazil. Under certain circumstances,

we also provide accruable benets to ormer or inactiveemployees in the United States, Canada, and Mexico,and members o our Board o Directors, including severance and certain other benets payable upon death.Please re er to Note to the Consolidated Financial

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Statements on page o this report or a descriptiono our de ned bene t pension, other postretirementbenet, and postemployment benet plans.

We recognize benets provided during retirement orollowing employment over the plan participants’ active working lives. Accordingly, we make various assumptions to predict and measure costs and obligationsmany years prior to the settlement o our obligations.Assumptions that require signi icant management

judgment and have a material impact on the measurement o our net periodic benet expense or income andaccumulated bene t obligations include the long termrates o return on plan assets, the interest rates usedto discount the obligations or our bene t plans, andhealth care cost trend rates.

Expected Rate o Return on Plan Assets Our expectedrate o return on plan assets is determined by ourasset allocation, our historical long term investmentper ormance, our estimate o uture long term returnsby asset class using input rom our actuaries, investment services, and investment managers , and longterm ination assumptions. We review this assumptionannually or each plan, however, our annual investmentper ormance or one particular year does not, by itsel ,signicantly inuence our evaluation.

Our historical investment returns compound annualgrowth rates or our United States de ned bene tpension and other postretirement bene t plan assets

were . percent, . percent, . percent, . percent,and . percent or the , , , , and year periodsended May , .

On a weighted average basis, the expected rate oreturn or all dened benet plans was . percent or scal , . percent or scal , and . percent or scal .

Lowering the expected long term rate o return onassets by basis points would increase our net pension and postretirement expense by $ million or scal

. A market related valuation basis is used to reduceyear to year expense volatility. Te market related valuation recognizes certain investment gains or losses overa ve year period rom the year in which they occur.Investment gains or losses or this purpose are the di

erence between the expected return calculated usingthe market related value o assets and the actual returnbased on the market related value o assets. Our outside actuaries per orm these calculations as part o ourdetermination o annual expense or income.

Discount Rates Our discount rate assumptions aredetermined annually as o the last day o our scal year

or our de ned bene t pension, other postretirement

bene t, and postemployment bene t plan obligations. We work with our outside actuaries to determine thetiming and amount o expected uture cash out owsto plan participants and, using the Aa Above Mediancorporate bond yield, to develop a orward interest ratecurve, including a margin to that index based on ourcredit risk. Tis orward interest rate curve is appliedto our expected uture cash outows to determine ourdiscount rate assumptions.

Our weighted average discount rates were as ollows:

Dened Other Benet Postretirement Postemployment

Pension Benet BenePlans Plans Plans

Obligations as oMay 31, 2015, andscal 2016 expense 4.38% 4.20% 3.55%

Obligations as oMay 25, 2014, andscal 2015 expense 4.54% 4.51% 3.82%

Fiscal 2014 expense 4.54% 4.52% 3.70%

Lowering the discount rates by basis points wouldincrease our net de ned bene t pension, other postretirement bene t, and postemployment bene t planexpense or scal by approximately $ millioAll obligation related experience gains and losses areamortized using a straight line method over the averageremaining service period o active plan participants.

Health Care Cost Trend Rates We review our healthcare cost trend rates annually. Our review is based ondata we collect about our health care claims experience and in ormation provided by our actuaries. Tisin ormation includes recent plan experience, plandesign, overall industry experience and projections, andassumptions used by other similar organizations. Our

annual report 2015 - general mills

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