Summary Of Significant Accounting Policies

12 Months Ended

May 28, 2023

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents 

We consider all investments purchased with an original maturity of three months or less to be cash equivalents.

Inventories 

All inventories in the United States other than grain are valued at the lower of cost, using the last-in, first-out (LIFO) method, or

market. Grain inventories are valued at net realizable value, and all related cash contracts and derivatives are valued at fair value, with

all net changes in value recorded in earnings currently.

Inventories outside of the United States are generally valued at the lower of cost, using the first-in, first-out (FIFO) method, or net

realizable value.

Shipping costs associated with the distribution of finished product to our customers are recorded as cost of sales and are recognized

when the related finished product is shipped to and accepted by the customer.

Land, Buildings, Equipment, and Depreciation 

Land is recorded at historical cost. Buildings and equipment, including capitalized interest and internal engineering costs, are recorded

at cost and depreciated over estimated useful lives, primarily using the straight-line method. Ordinary maintenance and repairs are

charged to cost of sales. Buildings are usually depreciated over

40

 years, and equipment, furniture, and software are usually

depreciated over

3

 to

10

 years. Fully depreciated assets are retained in buildings and equipment until disposal. When an item is sold or

retired, the accounts are relieved of its cost and related accumulated depreciation and the resulting gains and losses, if any, are

recognized in earnings. 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an

asset (or asset group) may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash

flows from the operation and disposition of the asset group are less than the carrying amount of the asset group. Asset groups have

identifiable cash flows and are largely independent of other asset groups. Measurement of an impairment loss would be based on the

excess of the carrying amount of the asset group over its fair value. Fair value is measured using a discounted cash flow model or

independent appraisals, as appropriate.

Goodwill and Other Intangible Assets 

Goodwill is not subject to amortization and is tested for impairment annually and whenever events or changes in circumstances

indicate that impairment may have occurred. We perform our annual goodwill and indefinite-lived intangible assets impairment test as

of the first day of the second quarter of the fiscal year. Impairment testing is performed for each of our reporting units. We compare

the carrying value of a reporting unit, including goodwill, to the fair value of the unit. Carrying value is based on the assets and

liabilities associated with the operations of that reporting unit, which often requires allocation of shared or corporate items among

reporting units. If the carrying amount of a reporting unit exceeds its fair value, impairment has occurred. We recognize an

impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value up to the total amount of

goodwill allocated to the reporting unit. Our estimates of fair value are determined based on a discounted cash flow model. Growth

rates for sales and profits are determined using inputs from our long-range planning process. We also make estimates of discount rates,

perpetuity growth assumptions, market comparables, and other factors. 

We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are finite or indefinite-lived. Reaching a

determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand,

competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results

in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance

expenditures, and the expected lives of other related groups of assets. Intangible assets that are deemed to have finite lives are

amortized on a straight-line basis, over their useful lives, generally ranging from

4

 to

30

 years.

Our indefinite-lived intangible assets, mainly intangible assets primarily associated with the

Blue Buffalo

,

 Pillsbury

,

Totino’s

,

Old El

Paso

,

Progresso

,

 Annie’s

,

Nudges

, and

Häagen-Dazs

 brands, are also tested for impairment annually and whenever events or changes

in circumstances indicate that their carrying value may not be recoverable. Our estimate of the fair value of the brands is based on a

discounted cash flow model using inputs which included projected revenues from our long-range plan, assumed royalty rates that

could be payable if we did not own the brands, and a discount rate. 

Our finite-lived intangible assets, primarily acquired customer relationships, are reviewed for impairment whenever events or changes

in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when

estimated undiscounted future cash flows from the operation and disposition of the asset are less than the carrying amount of the asset.

Assets generally have identifiable cash flows and are largely independent of other assets. Measurement of an impairment loss would

be based on the excess of the carrying amount of the asset over its fair value. Fair value is measured using a discounted cash flow

model or other similar valuation model, as appropriate.

Leases

We determine whether an arrangement is a lease at inception. When our lease arrangements include lease and non-lease components,

we account for lease and non-lease components (e.g. common area maintenance) separately based on their relative standalone prices. 

Any lease arrangements with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheet, and we

recognize lease costs for these lease arrangements on a straight-line basis over the lease term. Many of our lease arrangements provide

us with options to exercise one or more renewal terms or to terminate the lease arrangement. We include these options when we are

reasonably certain to exercise them in the lease term used to establish our right of use assets and lease liabilities. Generally, our lease

agreements do not include an option to purchase the leased asset, residual value guarantees, or material restrictive covenants.

We have certain lease arrangements with variable rental payments. Our lease arrangements for our Häagen-Dazs retail shops often

include rental payments that are based on a percentage of retail sales. We have other lease arrangements that are adjusted periodically

based on an inflation index or rate. The future variability of these payments and adjustments are unknown, and therefore they are not

included as minimum lease payments used to determine our right of use assets and lease liabilities. Variable rental payments are

recognized in the period in which the obligation is incurred. 

As most of our lease arrangements do not provide an implicit interest rate, we apply an incremental borrowing rate based on the

information available at the commencement date of the lease arrangement to determine the present value of lease payments.

Investments in Unconsolidated Joint Ventures 

Our investments in companies over which we have the ability to exercise significant influence are stated at cost plus our share of

undistributed earnings or losses. We receive royalty income from certain joint ventures, incur various expenses (primarily research

and development), and record the tax impact of certain joint venture operations that are structured as partnerships. In addition, we

make advances to our joint ventures in the form of loans or capital investments. We also sell certain raw materials, semi-finished

goods, and finished goods to the joint ventures, generally at market prices.

In addition, we assess our investments in our joint ventures if we have reason to believe an impairment may have occurred including,

but not limited to, as a result of ongoing operating losses, projected decreases in earnings, increases in the weighted-average cost of

capital, or significant business disruptions. The significant assumptions used to estimate fair value include revenue growth and

profitability, royalty rates, capital spending, depreciation and taxes, foreign currency exchange rates, and a discount rate. By their

nature, these projections and assumptions are uncertain. If we were to determine the current fair value of our investment was less than

the carrying value of the investment, then we would assess if the shortfall was of a temporary or permanent nature and write down the

investment to its fair value if we concluded the impairment is other than temporary.

Revenue Recognition 

Our revenues primarily result from contracts with customers, which are generally short-term and have a single performance obligation

– the delivery of product. We recognize revenue for the sale of packaged foods at the point in time when our performance obligation

has been satisfied and control of the product has transferred to our customer, which generally occurs when the shipment is accepted by

our customer. Sales include shipping and handling charges billed to the customer and are reported net of variable consideration and

consideration payable to our customers, including trade promotion, consumer coupon redemption and other reductions to the

transaction price, including estimated allowances for returns, unsalable product, and prompt pay discounts. Sales, use, value-added,

and other excise taxes are not included in revenue. Trade promotions are recorded using significant judgment of estimated

participation and performance levels for offered programs at the time of sale. Differences between estimated and actual reductions to

the transaction price are recognized as a change in estimate in a subsequent period. We generally do not allow a right of return.

However, on a limited case-by-case basis with prior approval, we may allow customers to return product. In limited circumstances,

product returned in saleable condition is resold to other customers or outlets. Receivables from customers generally do not bear

interest. Payment terms and collection patterns vary around the world and by channel, and are short-term, and as such, we do not have

any significant financing components. Our allowance for doubtful accounts represents our estimate of expected credit losses related to

our trade receivables. We pool our trade receivables based on similar risk characteristics, such as geographic location, business

channel, and other account data. To estimate our allowance for doubtful accounts, we leverage information on historical losses, asset-

specific risk characteristics, current conditions, and reasonable and supportable forecasts of future conditions. Account balances are

written off against the allowance when we deem the amount is uncollectible. Please see Note 17 for a disaggregation of our revenue

into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic

factors. We do not have material contract assets or liabilities arising from our contracts with customers.

Environmental Costs 

Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are

expensed. Liabilities for anticipated remediation costs are recorded on an undiscounted basis when they are probable and reasonably

estimable, generally no later than the completion of feasibility studies or our commitment to a plan of action.

Advertising Production Costs 

We expense the production costs of advertising the first time that the advertising takes place.

Research and Development 

All expenditures for research and development (R&D) are charged against earnings in the period incurred. R&D includes expenditures

for new product and manufacturing process innovation, and the annual expenditures are comprised primarily of internal salaries,

wages, consulting, and supplies attributable to R&D activities. Other costs include depreciation and maintenance of research facilities,

including assets at facilities that are engaged in pilot plant activities.

Foreign Currency Translation 

For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are

translated at the period-end exchange rates. Income statement accounts are translated using the average exchange rates prevailing

during the period. Translation adjustments are reflected within accumulated other comprehensive loss (AOCI) in stockholders’ equity.

Gains and losses from foreign currency transactions are included in net earnings for the period, except for gains and losses on

investments in subsidiaries for which settlement is not planned for the foreseeable future and foreign exchange gains and losses on

instruments designated as net investment hedges. These gains and losses are recorded in AOCI.

Derivative Instruments 

All derivatives are recognized on our Consolidated Balance Sheets at fair value based on quoted market prices or our estimate of their

fair value, and are recorded in either current or noncurrent assets or liabilities based on their maturity. Changes in the fair values of

derivatives are recorded in net earnings or other comprehensive income, based on whether the instrument is designated and effective

as a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in AOCI are

reclassified to earnings in the period the hedged item affects earnings. If the underlying hedged transaction ceases to exist, any

associated amounts reported in AOCI are reclassified to earnings at that time.

Stock-based Compensation 

We generally measure compensation expense for grants of restricted stock units and performance share units using the value of a share

of our stock on the date of grant. We estimate the value of stock option grants using a Black-Scholes valuation model. Generally,

stock-based compensation is recognized straight line over the vesting period. Our stock-based compensation expense is recorded in

selling, general , and administrative (SG&A) expenses and cost of sales in our Consolidated Statements of Earnings and allocated to

each reportable segment in our segment results.

Certain equity-based compensation plans contain provisions that accelerate vesting of awards upon retirement, termination, or death of

eligible employees and directors. We consider a stock-based award to be vested when the employee’s or director’s retention of the

award is no longer contingent on providing subsequent service. Accordingly, the related compensation cost is generally recognized

immediately for awards granted to retirement-eligible individuals or over the period from the grant date to the date retirement

eligibility is achieved, if less than the stated vesting period.

We report the benefits of tax deductions in excess of recognized compensation cost as an operating cash flow.

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

We sponsor several domestic and foreign defined benefit plans to provide pension, health care, and other welfare benefits to retired

employees. Under certain circumstances, we also provide accruable benefits, primarily severance, to former or inactive employees in

the United States, Canada, and Mexico. We recognize an obligation for any of these benefits that vest or accumulate with service.

Postemployment benefits that do not vest or accumulate with service (such as severance based solely on annual pay rather than years

of service) are charged to expense when incurred. Our postemployment benefit plans are unfunded.

We recognize the underfunded or overfunded status of a defined benefit pension plan as an asset or liability and recognize changes in

the funded status in the year in which the changes occur through AOCI.

Use of Estimates 

Preparing our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States

requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosures of contingent assets

and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

These estimates include our accounting for revenue recognition, valuation of long-lived assets, intangible assets, stock-based

compensation, income taxes, and defined benefit pension, other postretirement benefit and postemployment benefit plans. Actual

results could differ from our estimates.

New Accounting Standards 

In the first quarter of fiscal 2021,

we adopted new accounting requirements related to the measurement of credit losses on financial

instruments, including trade receivables. The new standard and subsequent amendments replace the incurred loss impairment model

with a forward-looking expected credit loss model, which will generally result in earlier recognition of credit losses. Our allowance

for doubtful accounts represents our estimate of expected credit losses related to our trade receivables. We pool our trade receivables

based on similar risk characteristics, such as geographic location, business channel, and other account data. To estimate our allowance

for doubtful accounts, we leverage information on historical losses, asset-specific risk characteristics, current conditions, and

reasonable and supportable forecasts of future conditions. Account balances are written off against the allowance when we deem the

amount is uncollectible. We adopted the requirements of the new standard and subsequent amendments using the modified

retrospective transition approach, and recorded a decrease to retained earnings of $

5.7

 million after-tax