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GENERAL MILLS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) INTRODUCTION This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the fiscal year ended May 25, 2014, for important background regarding, among other things, our key business drivers. Significant trademarks and service marks used in our business are set forth in italics herein. Certain terms used throughout this report are defined in the "Glossary" section below. CONSOLIDATED RESULTS OF OPERATIONS First Quarter Results For the first quarter of fiscal 2015, net sales declined 2 percent to $4,268 million. Total segment operating profit was $690 million, 15 percent lower than the first quarter of fiscal 2014 and also 15 percent lower on a constant currency basis. Diluted earnings per share (EPS) of $0.55 was down 21 percent compared to the first quarter of fiscal 2014. Diluted EPS excluding certain items affecting comparability was $0.61 in the first quarter of fiscal 2015 compared to $0.70 in the same period last year. Diluted EPS excluding certain items affecting comparability on a constant currency basis decreased 13 percent compared to the first quarter of fiscal 2014 (see the "Non-GAAP Measures" section below for our use of these measures not defined by GAAP). Net sales declined 2 percent to $4,268 million for the first quarter of fiscal 2015 compared to the same period last year due to a 2 percentage point decrease in contributions from volume growth and 1 percentage point of unfavorable foreign currency exchange, partially offset by 1 percentage point of favorable net price realization and mix. Components of net sales growth First Quarter of Fiscal 2015 vs. Convenience Stores Combined First Quarter of Fiscal 2014 U.S. Retail International and Foodservice Segments Contributions from volume growth (a) -2pts -1pt -1pt -2pts Net price realization and mix -3pts 7pts 2pts 1pt Foreign currency exchange NA -4pts NM -1pt Net sales growth -5pts 2pts 1pt -2pts (a) Measured in tons based on the stated weight of our product shipments. Cost of sales increased $70 million from the first quarter of fiscal 2014 to $2,830 million. The increase was driven by a $66 million increase attributable to product mix, partially offset by a $44 million decrease in cost of sales attributable to lower volume. In the first quarter of fiscal 2015, we recorded a $49 million net increase in cost of sales related to the mark-to-market valuation of certain commodity positions and grain inventories compared to a net increase of $1 million in the first quarter of fiscal 2014. Selling, general, and administrative (SG&A) expenses decreased $8 million to $867 million in the first quarter of fiscal 2015 versus the same period in fiscal 2014. The decrease in SG&A expenses was primarily driven by lower compensation expense, partially offset by a 1 percentage point increase in media and advertising expense. SG&A expenses as a percent of net sales in the first quarter of fiscal 2015 were up 30 basis points compared with the first quarter of fiscal 2014. Restructuring, impairment, and other exit costs were $14 million in the first quarter of fiscal 2015 compared to $3 million in the same period last year. During the first quarter of fiscal 2015, we approved a plan to combine certain Yoplait and General Mills operational facilities within our International segment to increase efficiencies and reduce costs. Approximately 240 positions will be affected by these actions. We expect to incur approximately $15 million of net expenses relating to these actions and we recorded $14 million of expense in the first quarter of fiscal 2015, including $13 million of severance and $1 million of asset write-offs and other costs. We expect these actions to be completed in fiscal 2016. 28 -------------------------------------------------------------------------------- Table of Contents We are currently pursuing several multi-year restructuring initiatives designed to increase our efficiency and focus our business behind our key growth strategies. Project Century is a review of our North American manufacturing and distribution network to streamline operations and identify potential capacity reductions, with a goal of annual savings of approximately $100 million by the end of fiscal 2017. We are also pursuing overhead cost reduction efforts, that have a goal of $40 million of savings in fiscal 2015, with additional savings expected in fiscal 2016. For additional information, please see Note 17 to the Consolidated Financial Statements in Part I, Item 1 of this report. Interest, net for the first quarter of fiscal 2015 totaled $78 million, a $1 million decrease from the same period of fiscal 2014. The average interest rate decreased 58 basis points, including the effect of the mix of debt, generating a $12 million decrease in net interest. Average interest bearing instruments increased $1,010 million, generating an $11 million increase in net interest. The effective tax rate for the first quarter of fiscal 2015 was 31.8 percent compared to 32.3 percent for the first quarter of fiscal 2014. The 0.5 percentage point decrease was primarily due to favorable audit settlements in the first quarter of fiscal 2015, partially offset by the expiration of certain favorable tax laws. After-tax earnings from joint ventures increased to $26 million compared to $24 million in the same quarter last fiscal year, primarily due to favorable quarterly tax expense and favorable foreign currency exchange at Cereal Partners Worldwide (CPW). In the first quarter of fiscal 2015, net sales for CPW increased 1 percent driven by a 2 percentage point increase from favorable foreign currency exchange, partially offset by a 1 percentage point decrease in contributions from volume growth. Net sales for Häagen-Dazs Japan, Inc. (HDJ) was flat as 5 percentage points of contribution from volume growth were offset by a 3 percentage point decrease from unfavorable foreign currency exchange and a 2 percentage point decrease due to unfavorable net price realization and mix. Average diluted shares outstanding decreased by 31 million in the first quarter of fiscal 2015 from the same period a year ago due to the impact of share repurchases, partially offset by option exercises. Net earnings attributable to General Mills were $345 million in the first quarter of fiscal 2015, down 25 percent from $459 million last year. Diluted EPS was $0.55 in the first quarter of fiscal 2015, down 21 percent from $0.70 last year. These results include the effects from the mark-to-market valuation of certain commodity positions and grain inventories and restructuring charges. Diluted EPS excluding certain items affecting comparability was $0.61 in the first quarter of fiscal 2015 compared to $0.70 in the same period last year. Diluted EPS excluding certain items affecting comparability on a constant currency basis in the first quarter of fiscal 2015, decreased 13 percent compared to the first quarter of fiscal 2014 (see the "Non-GAAP Measures" section below for our use of these measures not defined by GAAP and our discussion of the items affecting comparability). SEGMENT OPERATING RESULTS Our businesses are organized into three operating segments: U.S. Retail; International; and Convenience Stores and Foodservice. Beginning in the first quarter of fiscal 2015, we have changed how we assess segment operating performance to exclude the asset and liability remeasurement impact from hyperinflationary economies. This impact is now included in unallocated corporate items. All periods presented have been changed to conform to this presentation. U.S. Retail Segment Results Net sales for our U.S. Retail segment of $2,444 million in the first quarter of fiscal 2015 decreased 5 percentage points compared to the first quarter of fiscal 2014 due to 3 percentage points of unfavorable net price realization and mix, including the impact of merchandising expense phasing, and a 2 percentage point decline in contributions from volume growth. The 5 percentage point decrease in net sales was primarily driven by the Big G, Baking Products, Meals, and Frozen Foods divisions, partially offset by increases in the Snacks, Yoplait, and Small Planet Foods divisions. 29-------------------------------------------------------------------------------- Table of Contents U.S. Retail Net Sales Percentage Change by Division Quarter Ended Aug. 24, 2014 Big G (9 )% Baking Products (11 ) Snacks 3 Frozen Foods (6 ) Yoplait 1 Meals (13 ) Small Planet Foods 2 Total (5 )% Segment operating profit decreased 25 percent to $457 million in the first quarter of fiscal 2015. The decrease was primarily driven by unfavorable net price realization, lower volume, and unfavorable product mix. International Segment Results Net sales for our International segment of $1,351 million increased 2 percent in the first quarter of fiscal 2015 compared to the same period of fiscal 2014. The components of net sales growth included 7 percentage points of favorable net price realization and mix, partially offset by 4 percentage points of unfavorable foreign currency exchange and a 1 percentage point decrease in contributions from volume growth. International Net Sales Percentage Change by Geographic Region Percentage Percentage Change in Change in Net Net Sales on Constant Sales as Reported Currency Basis (a) Quarter Ended Quarter Ended Aug. 24, 2014 Aug. 24, 2014 Europe 9 % 4 % Canada (6 ) (2 ) Asia/Pacific 4 4 Latin America (4 ) 20 Total 2 % 6 % (a) See the "Non-GAAP Measures" section below for our use of this measure. The 2 percentage point increase in fiscal 2015 first quarter net sales in the International segment was driven by growth in our Europe and Asia/Pacific regions, partially offset by declines in the Canada and Latin America regions. On a constant currency basis, International segment net sales grew 6 percent, with 20 percent growth in the Latin America region, 4 percent growth in the Asia/Pacific region, and 4 percent growth in the Europe region, partially offset by a 2 percent decline in the Canada region. Segment operating profit increased 16 percent to $146 million in the first quarter of fiscal 2015 compared to the same period of fiscal 2014, primarily driven by favorable net price realization and mix. International segment operating profit increased 17 percent on a constant currency basis in the first quarter of fiscal 2015 compared to the first quarter of fiscal 2014 (see the "Non-GAAP Measures" section below for our use of this measure not defined by GAAP). 30 -------------------------------------------------------------------------------- Table of Contents Convenience Stores and Foodservice Segment Results Net sales for the segment of $473 million increased 1 percentage point in the first quarter of fiscal 2015 compared to the same period of fiscal 2014. The increase was driven by 2 percentage points of favorable net price realization and mix, partially offset by a 1 percentage point decline in contributions from volume growth. Segment operating profit for the first quarter of fiscal 2015 increased 18 percent to $87 million compared to the first quarter of fiscal 2014 primarily due to lower input costs and favorable net price realization and mix, partially offset by a decrease in volume. UNALLOCATED CORPORATE ITEMS Beginning in the first quarter of fiscal 2015, we have changed how we assess segment operating performance to exclude the asset and liability remeasurement impact from hyperinflationary economies. This impact is now included in unallocated corporate items. All periods presented have been changed to conform to this presentation. Unallocated corporate expense totaled $119 million in the first quarter of fiscal 2015 compared to $74 million in the same period in fiscal 2014. In the first quarter of fiscal 2015, we recorded a $49 million net increase in expense related to the mark-to-market valuation of certain commodity positions and grain inventories, compared to a $1 million net increase in expense in the first quarter of fiscal 2014. Venezuela is a highly inflationary economy and as such, we remeasure the value of the assets and liabilities of our Venezuelan subsidiary based on the exchange rate at which we expect to remit dividends in U.S. dollars. In February 2014, the Venezuelan government established a new foreign exchange market mechanism ("SICAD 2") and has indicated that this will be the market through which U.S. dollars will be obtained for the remittance of dividends. This market has significantly higher foreign exchange rates than those available through the other foreign exchange mechanisms. In the first quarter of fiscal 2015, we recorded an immaterial impact in unallocated corporate items resulting from the remeasurement of assets and liabilities of our Venezuelan subsidiary at the SICAD 2 rate. We have been able to access U.S. dollars through the SICAD 2 market. Our Venezuela operations represent less than 1 percent of our consolidated assets, liabilities, net sales, and segment operating profit. At August 24, 2014, we had $3.7 million of non-U.S. dollar cash balances in Venezuela. LIQUIDITY During the quarter ended August 24, 2014, our operations generated $329 million of cash compared to $381 million in the same period last year. The $52 million decrease is primarily due to lower earnings in the first quarter of fiscal 2015 compared to the first quarter of fiscal 2014. Cash used by investing activities during the quarter ended August 24, 2014, was $197 million, $84 million more than the same period in fiscal 2014. We invested $149 million in land, buildings, and equipment during the first quarter of fiscal 2015, $25 million more than the previous year. We made $33 million of net investments in affiliates, primarily CPW, in the first quarter of fiscal 2015. Cash used by financing activities during the first quarter ended August 24, 2014, was $153 million compared to $237 million in the same period last year. We had $244 million more net debt issuances in the first quarter of fiscal 2015 than the same period a year ago. We also paid $439 million in cash to repurchase common stock and paid $254 million of dividends in the first quarter fiscal 2015 compared to $298 million and $248 million, respectively, in the same period last year. As of August 24, 2014, we had $816 million of cash and cash equivalents held in foreign jurisdictions which will be used to fund foreign operations and potential acquisitions. There is currently no need to repatriate these funds in order to meet domestic funding obligations or scheduled cash distributions. If we choose to repatriate cash held in foreign jurisdictions, we intend to do so only in a tax-neutral manner. 31 -------------------------------------------------------------------------------- Table of Contents CAPITAL RESOURCES Our capital structure was as follows: Aug. 24, May 25, In Millions 2014 2014 Notes payable $ 1,795.4 $ 1,111.7 Current portion of long-term debt 855.4 1,250.6 Long-term debt 6,669.1 6,423.5 Total debt 9,319.9 8,785.8 Redeemable interest 959.1 984.1 Noncontrolling interests 480.5 470.6 Stockholders' equity 6,202.3 6,534.8 Total capital $ 16,961.8 $ 16,775.3 To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding short-term borrowings. Commercial paper is a continuing source of short-term financing. We have commercial paper programs available to us in the United States and Europe. We also have committed, uncommitted, and asset-backed credit lines that support our foreign operations. The following table details the fee-paid committed and uncommitted credit lines we had available as of August 24, 2014: Facility Borrowed In Billions Amount Amount Credit facility expiring: April 2017 $ 1.7 $ - May 2019 1.0 - June 2019 0.3 0.1 Total committed credit facilities 3.0 0.1 Uncommitted credit facilities 0.4 0.2 Total committed and uncommitted credit facilities $ 3.4 $ 0.3 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, currently equal to the sum of three-month LIBOR plus 110 basis points, to the holder's capital account balance established in the most recent mark-to-market valuation (currently $252 million). The preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction. The holder of the Class A Interests may initiate a liquidation of GMC under certain circumstances, including, without limitation, the bankruptcy of GMC or its subsidiaries, GMC's failure to deliver the preferred distributions on the Class A Interests, GMC's failure to comply with portfolio requirements, breaches of certain covenants, lowering of our senior debt rating below either Baa3 by Moody's or BBB- by Standard & Poor's, and a failed attempt to remarket the Class A Interests. In the event of a liquidation of GMC, each member of GMC will receive the amount of its then current capital account balance. We may avoid liquidation by exercising our option to purchase the Class A Interests. We may exercise our 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 unrelated third-party investor'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. 32-------------------------------------------------------------------------------- Table of Contents We have a 51 percent controlling interest in Yoplait S.A.S. and a 50 percent interest in Yoplait Marques S.A.S. and Liberté Marques S.a.r.l. Sodiaal International (Sodiaal) holds the remaining interests in each of these entities. We consolidate these entities into our consolidated financial statements. As of August 24, 2014, we recorded Sodiaal's 50 percent interests in Yoplait Marques S.A.S. and Liberté Marques S.a.r.l. as noncontrolling interests, and the fair value of its 49 percent interest in Yoplait S.A.S. as a redeemable interest on our Consolidated Balance Sheets. These euro-denominated interests are reported in U.S. dollars on our Consolidated Balance Sheets. Sodiaal has the ability to put a limited portion of its redeemable interest to us at fair value once per year through a maximum term expiring December 2020. As of August 24, 2014, the redemption value of the redeemable interest was $1.0 billion which approximates its fair value. Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of August 24, 2014, we were in compliance with all of these covenants. On September 8, 2014, we entered into a definitive agreement to acquire all of the outstanding shares of Annie's Inc., a U.S. producer of branded organic and natural food products, for $46 per share in cash. The proposed transaction has an aggregate value of approximately $820 million. We expect the transaction to close by December 31, 2014. We intend to finance this acquisition through available credit. We have $855 million of long-term debt maturing in the next 12 months that is classified as current, primarily $750 million of 5.2 percent notes due in March 2015. 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. OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS There were no material changes outside the ordinary course of our business in our contractual obligations or off-balance sheet arrangements during the first quarter of fiscal 2015. SIGNIFICANT ACCOUNTING ESTIMATES Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 25, 2014. The accounting policies used in preparing our interim fiscal 2015 Consolidated Financial Statements are the same as those described in our Form 10-K. Our significant accounting estimates are those that have 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. The assumptions and methodologies used in the determination of those estimates as of August 24, 2014, are the same as those described in our Annual Report on Form 10-K for the fiscal year ended May 25, 2014. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In May 2014, the Financial Accounting Standards Boards issued new accounting requirements for the recognition of revenue from contracts with customers. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods, which for us is the first quarter of fiscal 2018. We do not expect this guidance to have a material impact on our results of operations or financial position. In June 2014, the Financial Accounting Standards Boards issued new accounting requirements for share-based payment awards issued based upon specific performance targets. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2015, and interim periods within those annual periods, which for us is the first quarter of fiscal 2017. We do not expect this guidance to have a material impact on our results of operations or financial position. 33-------------------------------------------------------------------------------- Table of Contents 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 our management or the Board of Directors believes the non-GAAP measure provides useful information to investors, and any additional 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. Constant Currency Diluted EPS Excluding Certain Items Affecting Comparability This measure is used in reporting to our executive management and as a component of the Board of Director's 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-over-year basis. The adjustments are either items resulting from infrequently occurring events or items that, in management's judgment, significantly affect the year-over-year assessment of operating results. The reconciliation of our GAAP measure, diluted EPS, to diluted EPS excluding certain items affecting comparability and the related constant currency growth rate follows: Quarter Ended Aug. 24, Aug. 25, Per Share Data 2014 2013 Change Diluted earnings per share, as reported $ 0.55 $ 0.70 (21 )% Mark-to-market effects (a) 0.05 - Restructuring costs (b) 0.01 - Diluted earnings per share, excluding certain items affecting comparability $ 0.61 $ 0.70 (13 )% Foreign currency exchange impact - % Diluted earnings per share growth, excluding certain items affecting comparability, on a constant currency basis (13 )% (a) Net gain from mark-to-market valuation of certain commodity positions and grain inventories. See Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report. (b) See Note 3 to the Consolidated Financial Statements in Part I, Item 1 of this report. 34 -------------------------------------------------------------------------------- Table of Contents Total Segment Operating Profit This measure is used in reporting to our executive management and as a component of the Board of Directors' 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 segment performance. A reconciliation of this measure to operating profit, the relevant GAAP measure, is included in Note 15 to the Consolidated Financial Statements in Part I, Item 1 of this report. Total Segment Operating Profit Growth Rate on a Constant Currency Basis is calculated as follows: Quarter Ended Aug. 24, 2014 Percentage Change in Total Impact of Foreign Percentage Change in Total Segment Operating Profit as Currency Segment Operating Profit on Reported Exchange Constant Currency Basis Total Segment Operating Profit (15 )% Flat (15 )% Constant Currency International Segment Operating Profit Growth Rate We believe that this measure provides useful information to investors because it provides transparency to underlying performance of the International segment by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign exchange markets. Quarter Ended Aug. 24, 2014 Percentage Change in Impact of Foreign Percentage Change in Segment Segment Operating Profit as Currency Operating Profit on Constant Reported Exchange Currency Basis International Segment Operating Profit 16 % (1 ) pt 17 % Constant Currency Net Sales Growth Rates for Our International Segment We believe that this measure of our International segment and region net sales provides useful information to investors because it provides transparency to the underlying performance in markets outside the United States by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign exchange markets. Quarter Ended Aug. 24, 2014 Percentage Change in Impact of Foreign Percentage Change in Net Sales Currency Net Sales on Constant as Reported Exchange Currency Basis Europe 9 % 5 pts 4 % Canada (6 ) (4 ) (2 ) Asia/Pacific 4 - 4 Latin America (4 ) (24 ) 20 Total International 2 % (4 ) pts 6 % 35 -------------------------------------------------------------------------------- Table of Contents GLOSSARY AOCI. Accumulated other comprehensive income (loss). Constant currency. Financial results translated to U.S. dollars using constant foreign currency exchange rates based on the rates in effect for the comparable prior-year period. To present this information, current period results for entities reporting in currencies other than United States dollars are translated into United States dollars at the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Therefore, the foreign currency impact is equal to current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year. Derivatives. Financial instruments such as futures, swaps, options, and forward contracts that we use to manage our risk arising from changes in commodity prices, interest rates, foreign exchange rates, and stock prices. Euribor. Euro Interbank Offered Rate. Fair value hierarchy. For purposes of fair value measurement, we categorize assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in activemarkets or quoted prices for identical assets or liabilities in inactive markets. Level 3: Unobservable inputs reflecting management's assumptions about the inputs used in pricing the asset or liability. Generally Accepted Accounting Principles (GAAP). Guidelines, procedures, and practices that we are required to use in recording and reporting accounting information in our financial statements. Goodwill. The difference between the purchase price of acquired companies plus the fair value of any noncontrolling and redeemable interests and the related fair values of net assets acquired. Hedge accounting. Accounting for qualifying hedges that allows changes in a hedging instrument's fair value to offset corresponding changes in the hedged item in the same reporting period. Hedge accounting is permitted for certain hedging instruments and hedged items only if the hedging relationship is highly effective, and only prospectively from the date a hedging relationship is formally documented. Interest bearing instruments. Notes payable, long-term debt, including current portion, cash and cash equivalents, and certain interest bearing investments classified within prepaid expenses and other current assets and other assets. International segment operating profit. Excludes the asset and liability remeasurement impact of hyperinflationary economies from our segment operating profits. LIBOR. London Interbank Offered Rate. Mark-to-market. The act of determining a value for financial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item. Net mark-to-market valuation of certain commodity positions. Realized and unrealized gains and losses on derivative contracts that will be allocated to segment operating profit when the exposure we are hedging affects earnings. 36-------------------------------------------------------------------------------- Table of Contents Net price realization. The impact of list and promoted price changes, net of trade and other price promotion costs. Noncontrolling interests. Interests of subsidiaries held by third parties. Notional principal amount. The principal amount on which fixed-rate or floating-rate interest payments are calculated. OCI. Other Comprehensive Income. Redeemable interest. Interest of subsidiaries held by a third party that can be redeemed outside of our control and therefore cannot be classified as a noncontrolling interest in equity. Total debt. Notes payable and long-term debt, including current portion. Translation adjustments. The impact of the conversion of our foreign affiliates' financial statements to U.S. dollars for the purpose of consolidating our financial statements. 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 Securities and Exchange Commission (SEC) and in our reports to stockholders. 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; changes in capital structure; changes in laws and regulations, including labeling and advertising regulations; 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; 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. 37 -------------------------------------------------------------------------------- Table of Contents You should also consider the risk factors that we identify in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended May 25, 2014, 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. |