Analysis of Debt
Total Debt (Carrying Amount)
General Mills Inc., balance sheet: debt
US$ in thousands
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
Total debt exhibited a period of relative stability between 2014 and 2017, followed by a significant expansion in 2018 and a moderate contraction in 2019. The overall debt profile shifted from a baseline average of approximately 9 billion US dollars in the early period to a peak of over 15.8 billion US dollars, indicating a substantial increase in leverage during the latter part of the analyzed timeframe.
- Total Debt Trajectory
- Between May 25, 2014, and May 28, 2017, total debt fluctuated within a narrow range of 8.4 billion to 9.5 billion US dollars. A sharp escalation is observed in May 27, 2018, where total debt rose to 15.8 billion US dollars, representing a year-over-year increase of approximately 66.7%. This peak was followed by a reduction to 14.5 billion US dollars by May 26, 2019.
- Long-Term Obligations
- Long-term debt, excluding the current portion, acted as the primary driver of the total debt balance. This component remained relatively consistent from 2014 to 2017, staying between 6.4 billion and 7.6 billion US dollars. The significant spike in total leverage in 2018 is directly attributable to this category, which surged to 12.7 billion US dollars before declining to 11.6 billion US dollars in 2019.
- Short-Term Debt and Notes Payable
- Short-term liabilities showed higher volatility relative to their total balance. Notes payable decreased steadily from 1.1 billion US dollars in 2014 to a low of 269.8 million US dollars in 2016, before reversing trend to reach 1.5 billion US dollars in 2018. Similarly, the current portion of long-term debt fluctuated between 604.7 million and 1.6 billion US dollars, peaking in 2018, which suggests a realignment of debt maturities during that period.
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Total Debt (Fair Value)
| May 26, 2019 | |
|---|---|
| Selected Financial Data (US$ in thousands) | |
| Notes payable | 1,468,700) |
| Long-term debt, including the current portion | 13,272,800) |
| Total debt (fair value) | 14,741,500) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 1.02 |
Based on: 10-K (reporting date: 2019-05-26).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on debt: 3.34%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 4.20% | 1,400,000) | 58,800) | |
| 3.15% | 1,000,000) | 31,500) | |
| 3.70% | 850,000) | 31,450) | |
| 4.00% | 800,000) | 32,000) | |
| 3.20% | 750,000) | 24,000) | |
| 4.70% | 650,000) | 30,550) | |
| 3.20% | 600,000) | 19,200) | |
| 2.10% | 560,100) | 11,762) | |
| 1.00% | 560,100) | 5,601) | |
| 4.55% | 500,000) | 22,750) | |
| 2.60% | 500,000) | 13,000) | |
| 5.40% | 500,000) | 27,000) | |
| 4.15% | 500,000) | 20,750) | |
| 3.65% | 500,000) | 18,250) | |
| 2.20% | 500,000) | 11,000) | |
| 1.50% | 448,100) | 6,722) | |
| 0.00% | 336,100) | —) | |
| 2.20% | 224,000) | 4,928) | |
| 6.59% | 104,200) | 6,867) | |
| 3.40% | 1,468,700) | 49,936) | |
| Total | 12,751,300) | 426,065) | |
| 3.34% | |||
Based on: 10-K (reporting date: 2019-05-26).
1 US$ in thousands
2 Weighted-average interest rate = 100 × 426,065 ÷ 12,751,300 = 3.34%
Interest Costs Incurred
General Mills Inc., interest costs incurred
US$ in thousands
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
The analysis of interest costs over the six-year period reveals a period of relative stability followed by a significant escalation in debt-servicing expenses.
- Total Interest Expense Trends
- Total interest expense remained relatively stable between 2014 and 2017, fluctuating within a narrow range from 306.7 million to 335.5 million. A sharp upward trajectory emerged in 2018, with expenses increasing to 389.5 million, followed by a substantial surge to 530.2 million in 2019. This represents a significant increase in the cost of borrowing during the final two years of the period.
- Analysis of Capitalized Interest
- Capitalized interest showed a modest increase in the early part of the period, peaking at 7.7 million in 2016. From 2017 onward, a consistent downward trend is observed, with the value falling to 2.8 million by 2019. This decline suggests a reduction in the scale of qualifying capital expenditure projects that allow for the capitalization of interest costs.
- Net Interest Expense Impact
- Interest expense, net of capitalized interest, closely tracks the movement of total interest expense due to the relatively small magnitude of capitalization. The net expense grew from 302.1 million in 2017 to 527.4 million in 2019. The simultaneous increase in net interest costs and the decrease in capitalized interest indicate that the rise in overall interest expense is driven by an increase in total debt obligations or higher applicable interest rates rather than investment-related activities.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
2019 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense, net of capitalized interest
= 2,681,400 ÷ 527,400 = 5.08
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest expense
= 2,681,400 ÷ 530,200 = 5.06
An analysis of the interest coverage metrics reveals a general deterioration in the ability to service interest obligations relative to earnings over the period from 2014 to 2019. While the ratios remain comfortably above the critical threshold of 1.0, indicating a continued capacity to meet interest payments, the overall trajectory suggests a reduction in the margin of safety.
- Adjusted Interest Coverage Ratio Trends
- The adjusted interest coverage ratio, which accounts for capitalized interest, demonstrates significant volatility. Starting at a high of 9.47 in 2014, the ratio experienced a sharp decline to 6.48 in 2015 before recovering to 8.77 in 2016. Following this recovery, a consistent downward trend is observed, with the ratio falling to 8.67 in 2017, 6.69 in 2018, and reaching a period low of 5.06 by May 2019.
- Comparative Analysis of Coverage Metrics
- A close correlation is maintained between the interest coverage ratio without capitalized interest and the adjusted ratio throughout the six-year period. The adjusted ratio is consistently lower than the non-adjusted ratio by a small margin, implying that the impact of capitalized interest on the overall debt-servicing capacity is minimal but persistent.
- Financial Solvency Observations
- The decline from a peak of 9.47 to 5.06 represents a substantial contraction in the coverage multiple. This pattern suggests either a decline in operating profitability or an increase in the cost of debt servicing over the analyzed timeframe, resulting in a weakened financial buffer by the end of the period.
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