SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 26,
1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____ TO _____
Commission file number: 1-1185
GENERAL MILLS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-0274440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Number One General Mills Boulevard
Minneapolis, MN 55426
(Mail: P.O. Box 1113) (Mail: 55440)
(Address of principal executive offices) (Zip Code)
(612) 540-2311
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ___
As of March 20, 1995, General Mills had 158,104,264 shares of its
$.10 par value common stock outstanding (excluding 46,049,068 shares
held in treasury).
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
GENERAL MILLS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (In Millions, Except per Share Data)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
February 26, February 27, February 26, February 27,
1995 1994 1995 1994
Continuing Operations:
Sales $ 1,287.0 $1,346.5 $3,948.3 $4,201.7
Costs and Expenses:
Cost of sales 528.5 517.4 1,583.2 1,599.9
Selling, general and
administrative 516.2 587.9 1,577.6 1,813.4
Depreciation and amortization 47.9 44.1 141.5 127.0
Interest, net 26.2 17.5 74.6 58.5
Unusual expenses 139.6 - 139.6 -
Total Costs and Expense 1,258.4 1,166.9 3,516.5 3,598.8
Earnings from Continuing
Operations before Taxes 28.6 179.6 431.8 602.9
Income Taxes 5.3 66.9 155.6 235.6
Earnings from Continuing
Operations 23.3 112.7 276.2 367.3
Discontinued Operations,
net of Tax (17.9) 32.3 29.2 87.7
Cumulative Effect to May 31, 1993 of
Continuing Operations Accounting
Changes - - - (3.5)
Net Earnings $ 5.4 $ 145.0 $ 305.4 $ 451.5
Earnings per Share:
Continuing Operations $ .15 $ .71 $ 1.75 $ 2.31
Discontinued Operations (.12) .20 .18 .54
Accounting Changes - - - (.02)
Net Earnings per Share $ .03 $ .91 $ 1.93 $ 2.83
Dividends per Share $ .47 $ .47 $ 1.41 $ 1.41
Average Number of Common Shares 157.9 159.0 157.9 159.3
See accompanying notes to consolidated condensed financial statements.
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
(Unaudited) (Unaudited)
February 26, February 27, May 29,
1995 1994 1994
ASSETS
Current Assets:
Cash and cash equivalents $ 25.0 $ 63.0 $ 26.5
Receivables 370.7 411.2 283.6
Inventories:
Valued primarily at FIFO 183.6 162.6 107.6
Valued at LIFO (FIFO value exceeds LIFO by
$57.1, $61.3 and $53.0, respectively) 293.1 283.9 245.1
Prepaid expenses and other current assets 96.1 72.7 81.9
Deferred income taxes 142.1 146.8 198.1
Total Current Assets 1,110.6 1,140.2 942.8
Land, Buildings and Equipment, at Cost 2,639.1 2,531.7 2,573.8
Less accumulated depreciation (1,155.2) (1,009.0)(1,045.5)
Net Land, Buildings and Equipment 1,483.9 1,522.7 1,528.3
Net assets of Restaurant Operations 1,586.6 1,418.2 1,467.8
Other Assets 1,010.2 788.6 894.0
Total Assets $5,191.3 $4,869.7 $4,832.9
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 444.3 $ 552.0 $ 534.2
Current portion of long-term debt 125.3 72.5 115.1
Notes payable 729.0 473.4 433.3
Accrued taxes 48.2 170.0 147.4
Other current liabilities 407.5 349.4 336.4
Total Current Liabilities 1,754.3 1,617.3 1,566.4
Long-term Debt 1,482.9 1,422.3 1,413.3
Deferred Income Taxes 251.3 199.3 211.5
Deferred Income Taxes - Tax Leases 177.0 191.8 189.8
Other Liabilities 172.7 173.7 178.7
Total Liabilities 3,838.2 3,604.4 3,559.7
Common Stock Subject to Put Options 20.0 98.9 122.0
Stockholders' Equity:
Cumulative preference stock, none issued - - -
Common stock, 204.2 shares issued 357.6 273.9 251.0
Retained earnings 2,542.0 2,438.2 2,457.9
Less common stock in treasury, at cost,
shares of 46.1, 45.4 and 45.7,
respectively (1,375.1) (1,319.5)(1,334.4)
Unearned compensation and other (135.4) (161.8) (160.2)
Cumulative foreign currency adjustment (56.0) (64.4) (63.1)
Total Stockholders' Equity 1,333.1 1,166.4 1,151.2
Total Liabilities and Equity $5,191.3 $4,869.7 $4,832.9
See accompanying notes to consolidated condensed financial statements.
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) (In Millions)
Thirty-Nine Weeks Ended
February 26, February 27,
1995 1994
Cash Flows - Operating Activities:
Earnings from continuing operations $276.2 $363.8
Adjustments to reconcile earnings to cash flow:
Depreciation and amortization 141.5 127.0
Deferred income taxes 85.2 19.4
Change in current assets and liabilities, net of
effects from business acquired (461.9) (186.7)
Unusual expenses 139.6 -
Other, net (9.7) 7.5
Cash provided by continuing operations 170.9 331.0
Restaurants and other discontinued operations 178.9 187.7
Net Cash Provided by Operating Activities 349.8 518.7
Cash Flows - Investment Activities:
Purchases of land, buildings and equipment (106.3) (161.1)
Investments in businesses, intangibles and
affiliates, net (35.0) (119.3)
Purchases of marketable investments (19.6) (50.8)
Proceeds from sale of marketable investments 16.4 32.1
Other, net (17.6) 2.5
Restaurant investment activities, net (287.0) (252.6)
Net Cash Used by Investment Activities (449.1) (549.2)
Cash Flows - Financing Activities:
Increase in notes payable 288.3 138.7
Issuance of long-term debt 133.1 219.1
Payment of long-term debt (51.0) (58.5)
Common stock issued 17.8 14.5
Purchases of common stock for treasury (57.7) (127.8)
Dividends paid (223.5) (224.8)
Other, net (9.2) (4.4)
Net Cash Provided (Used) by Financing Activities 97.8 (43.2)
Decrease in Cash and Cash Equivalents $ (1.5) $ (73.7)
See accompanying notes to consolidated condensed financial statements.
GENERAL MILLS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) Background
These financial statements do not include certain information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments
considered necessary for a fair presentation have been included and are of
a normal recurring nature. Operating results for the thirty-nine weeks
ended February 26, 1995, are not necessarily indicative of the results that
may be expected for the fiscal year ending May 28, 1995.
These statements should be read in conjunction with the financial
statements and footnotes included in our annual report for the year ended
May 29, 1994. The accounting policies used in preparing these financial
statements are the same as those described in our annual report except for
the change in accounting for marketable investments, as discussed in note
(4) below.
(2) Discontinued Operations
During the third quarter, we announced plans to separate into two
independent public corporations, one for Consumer Foods and one for
Restaurants. General Mills, Inc. will be the Consumer Foods company.
Plans are to spin off our Restaurant operations as a separate free-standing
company to our shareholders. It is planned that General Mills'
shareholders will receive one share of common stock in the Restaurant
company, to be known as Darden Restaurants, Inc., for each share of General
Mills common stock owned as of the record date for the distribution. It is
expected that the two companies will become separate entities on
approximately June 1, 1995, subject to final approval of the General Mills
Board of Directors. Restaurants are now presented as Discontinued
Operations for all periods presented.
Discontinued Operations, net of tax, and Restaurants' net sales are
summarized as follows (in millions):
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Feb. 26 Feb. 27 Feb. 26 Feb. 27
1995 1994 1995 1994
Restaurant operations $ 31.8 $ 32.3 $ 78.9 $ 84.0
Restaurant restructuring (42.0) - (42.0) -
Restaurant accounting changes - - - 3.7
Spin-off costs (7.7) - (7.7) -
Discontinued Operations $(17.9) $ 32.3 $ 29.2 $ 87.7
Restaurant net sales $803.4 $754.9 $2,325.0 $2,171.7
Restaurant operations comprise ongoing operations exclusive of unusual
items. The restructuring charge is the net cost of restaurant closings in
the U.S. and Canada. The accounting changes are the net cumulative effect
to May 31, 1993 of Restaurants' adoption of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", and
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Spin-
off costs include expenses associated with the separation into two
companies and distribution of shares of Darden Restaurants, Inc. "Net
assets of Restaurant Operations" is classified as a noncurrent asset
because it is principally composed of land, buildings and equipment.
(3) Unusual Items
In the third quarter, we recorded restructuring charges related to
shutting down and scaling back production systems at four food
manufacturing locations. The charges primarily included asset
writeoffs, costs to dispose of assets and severance costs. These
charges totalled $139.6 million pretax, $82.8 million after tax ($.52
per share).
(4) Marketable Investments
We adopted SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," during the first quarter. The standard requires
accounting for investments at fair value instead of amortized cost for
those securities that are not intended to be held to maturity. All of our
marketable investments are classified as available-for-sale and are now
reported at fair value with the unrealized gain or loss, net of taxes,
recorded in the "Unearned compensation and other" account, within
Stockholders' Equity. The net unrealized gain as of February 26, 1995, was
$21.3 million. There was no impact on net earnings.
(5) Statements of Cash Flows
During the first nine months of fiscal 1995, we paid $76.3 million for
interest (net of amount capitalized) on a consolidated basis,
including our discontinued operations. For the same period for
Statement of Earnings purposes, we allocated $16.7 million, net of
$3.0 million capitalized, to our discontinued operations.
Also for the same period, we paid $162.6 million (consolidated) for
income taxes. For Statement of Earnings purposes, our discontinued
operations income tax expense for the nine months was $7.8 million.
(6) Long-term Debt
During the first nine months of fiscal 1995, we issued $125.0 million of
debt under our medium-term note program with various maturities ranging
from 2 to 12 years and various interest rates from 6.4% to 8.0%.
(7) Stockholders' Equity and Put Options
During the first nine months, we purchased 1.0 million shares of common
stock for $57.7 million, primarily from the exercise of put options,
previously sold in private placements.
(8) Investments in Affiliates
During the first nine months, we made additional capital contributions and
advances of $38.5 million to Cereal Partners Worldwide.
(9) Subsequent Event
On March 1, 1995, we signed a letter of intent for the sale of Gorton's to
Unilever United States, Inc., New York City, in a cash transaction.
Gorton's, a General Mills division headquartered in Gloucester, Mass., is a
leading marketer of frozen and canned seafood products to the grocery and
foodservice markets in the United States and Canada.
The transaction is expected to be completed by fiscal year-end, subject to
completion of the purchaser's due diligence investigation, government
approvals and signing of a definitive contract.
Beginning with our fourth quarter financial statements, Gorton's will be
presented as Discontinued Operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Continuing operations generated $160.1 million less cash in the first
nine months of fiscal 1995 than in the prior period. This decrease in
cash provided by operations as compared to last year was caused by a
$275.2 million increase in the working capital change (principally,
increased rates of cash absorption in inventories and liabilities),
partially offset by a $115.1 million increase in cash from operations,
after adjustment for non-cash charges.
Fiscal 1995 capital expenditures for continuing operations are
estimated to be $160 million or less. During the first nine months,
capital expenditures totaled $106.3 million. Our fixed-asset
investment has decreased from recent peak levels, which included
adding cereal production capacity. The investment activities of
Discontinued Operations are principally capital expenditures by
Restaurants.
Purchases of marketable investments made during fiscal 1994 to take
advantage of interest rate spreads declined to lesser amounts in
fiscal 1995.
Our short-term outside financing is obtained through private placement
of commercial paper and bank notes. Our level of notes payable
fluctuates based on cash flow needs.
In the first nine months of fiscal 1995, $125.0 million of debt was issued
under our medium-term note program.
In the first nine months of fiscal 1995, $57.7 million was paid for
common stock for our treasury, primarily from the exercise of put
options that were previously sold in private placements.
As a result of the planned spinoff of the Restaurant operations, General
Mills expects certain changes in its liquidity and financing needs. Prior
to the spinoff, the Restaurant subsidiary will borrow funds, which will
enable it to remit approximately $350 million to General
Mills. This will enable General Mills to reduce Notes Payable and establish
the initial capital structure of each company as of the time of distribution.
RESULTS OF OPERATIONS
During December 1994, the company announced plans to separate into two
independent public corporations, one for Consumer Foods, and one for
Restaurants. The existing company (General Mills, Inc.) will be the
Consumer Foods company. It is expected that shares of the Restaurant
company (Darden Restaurants, Inc.) will be distributed to shareholders
approximately June 1, 1995.
Therefore, this quarter is the first time that the Restaurant
operations are presented as a component of Discontinued Operations.
Prior periods have been restated to present Restaurant operations in
the Discontinued Operations category.
The Discontinued Operations category includes (1) the results of
Restaurant operations, (2) Restaurants' restructuring charges, (3) the
costs of the spinoff, and (4) for fiscal 1994 only, the Discontinued
Operations' share of accounting changes. These components are
discussed in more detail below, and in Note 2 of Notes to the
Financial Statements.
For the 13 weeks ended Feb. 26, 1995, combined Consumer Food and
Restaurant earnings before restructuring charges were 87 cents per
share, down 4 percent from last year. Through nine months, combined
earnings before restructuring charges totaled $2.77 per share compared
to $2.83 in the previous year. After restructuring and discontinued
operations charges, third-quarter and cumulative 1995 net earnings
were 3 cents per share and $1.93 per share, respectively.
During the first quarter, the company adopted SFAS #115 ("Accounting for
Certain Investments in Debt and Equity Securities") with no impact on net
earnings.
CONSUMER FOODS (CONTINUING OPERATIONS)
Third quarter sales for Consumer Foods of $1,287.0 million declined
4 percent from the prior year due to unit volume decline and Big G
cereals' lower selling prices. Year-to-date sales for Consumer
Foods of $3,948.3 million were down 6 percent.
Third quarter earnings from Consumer Foods totaled $106.1 million
($.67 per share), before restructuring charges of $82.8 million ($.52
per share). Prior-year third-quarter earnings from Consumer Foods
were $112.7 million ($.71 per share), with no restructuring charges.
Cumulative earnings from the nine months from Consumer Foods totaled
$359.0 million ($2.27 per share) before the third-quarter
restructuring charges. Prior-year nine months earnings from Consumer
Foods were $367.3 million ($2.31 per share). Third-quarter profit
results reflected lower shipments of domestic snack products, as well
as the impact of trade-promotion changes implemented in January in
most of the company's non-cereal U.S. dry grocery businesses. These
promotion changes result in one-time trade inventory reductions.
Third-quarter domestic retail package food unit volume was down 3
percent.
In the United States, Betty Crocker main meal and side dish mixes,
Yoplait and Colombo yogurts and Foodservice lines recorded volume
gains. Big G cereal unit volume was 2 percent below the heavily
promoted levels achieved in last year's quarter, but profits were
higher. The company continued to make progress in rebuilding its
cereal market share. In February, Big G's pound share exceeded 23
percent, the highest monthly level of this fiscal year.
Outside the United States, unit volume for Canadian food operations
increased 10 percent for the quarter. The Snack Ventures Europe joint
venture with PepsiCo Foods International continued to achieve good
results, with volume for the quarter up about 10 percent. In
addition, the company's CPW cereal joint venture with Nestle reported
a 23-percent volume gain for the period.
Quarterly interest expense increased by $8.7 million compared to last
year, primarily due to increased working capital, higher interest
rates, and previous borrowings associated with the company's share
repurchase program.
Consumer Foods restructuring charges of $82.8 million, or 52 cents per
share, primarily related to shutting down and scaling back production
systems at four food manufacturing locations. Manufacturing capacity
after these changes should support expected volume growth over the
next several years.
The third-quarter income tax rate for continuing operations decreased from
37.2% last year to 18.5% this year. The accumulated nine months' rate
decreased from 39.1% to 36.0%. The decreases were principally caused by
the incremental tax benefits on the $139.6 million (pretax) restructuring
charges being recorded in the third quarter's results.
DISCONTINUED OPERATIONS
Discontinued Operations consist primarily of the Restaurant operations
plus restructuring charges. Discontinued Operations also includes
expected spinoff expenses.
Third-quarter earnings from the discontinued Restaurant operations
totaled 20 cents per share before restructuring charges, even with
last year's results, despite various operating actions taken to
enhance future growth. Restaurants sales grew 6 percent in the
quarter to $803.4 million.
Red Lobster continued to perform well, with same-store sales even with
and earnings exceeding last year's third-quarter results. Following
success in test markets, Red Lobster in mid-January introduced a new
menu in two-thirds of the country that offers 15 entrees priced under
$10. Extensive testing shows this menu approach briefly diminishes
same-store sales and profits, but results in higher sales and profits
within six months after implementation.
At The Olive Garden, recent improvements in food offerings and
increased marketing support resulted in customer traffic gains and a 2-
percent increase in same-store sales. However, the combined effect of
the many menu changes temporarily reduced operating efficiency, and
profits declined versus last year's third quarter. China Coast
continued to focus on operational execution and showed improved weekly
sales trends, but development costs were significantly above the prior
year. At the end of the quarter, there were 694 Red Lobster, 477 The
Olive Garden, and 50 China Coast units in operation in North America.
Restaurant restructuring charges totaled $42.0 million, or 27 cents
per share. These charges primarily related to 35 selected unit
closings, principally The Olive Garden units in California and Canada.
Through nine months, Restaurant earnings before restructuring charges
totaled 50 cents per share, compared to 52 cents per share a year
earlier.
Third-quarter results for discontinued operations also include costs
related to the separation of the two companies, which totaled $7.7
million, or 5 cents per share.
During March we signed a letter of intent to sell our Gorton's seafood
operation. The sale is expected to be completed in the fourth
quarter. Gorton's operating results will be reclassified into
Discontinued Operations, beginning with fourth-quarter and fiscal year-
end reporting.
FISCAL 1995 OUTLOOK
The company expects general operating trends experienced in the third
quarter to continue during the fourth quarter for both continuing and
discontinued operations. Planned fourth-quarter restructuring and
operating actions are expected to include the gain on the sale of
Gorton's seafood business, restructuring of General Mills' Red Lobster
joint venture in Japan, and other actions designed to accelerate
future growth, in addition to those already taken in the third quarter.
As a result, the company expects fiscal 1995 reported net results,
for both the entire company as well as continuing operations alone,
will be below the prior year.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10(a) Standstill Agreement with CPC International
Inc. dated October 17, 1994.
Exhibit 10(b) Addendum No. 3 to the Protocol of
Cereal Partners Worldwide.
Exhibit 11 Statement re Computation of Earnings per Share.
Exhibit 12 Statement re Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
On December 16, 1994, the Company filed a report on Form 8-K
consisting of the press release that described the planned
separation of its Consumer Foods and Restaurant businesses
into two independent public companies.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GENERAL MILLS, INC.
(Registrant)
Date April 7, 1995 /s/ S. S. Marshall
S. S. Marshall
Senior Vice President,
General Counsel and Secretary
Date April 7, 1995 /s/ K. L.Thome
K. L. Thome
Senior Vice President,
Financial Operations
Exhibit 11
GENERAL MILLS, INC.
COMPUTATION OF EARNINGS PER SHARE
(In Millions, Except per Share Data)
Thirty-Nine Weeks Ended
February 26, February 27,
1995 1994
Net Earnings $305.4 $451.5
Computation of Shares:
Weighted average number of shares outstanding,
excluding shares held in treasury (a) 157.9 159.3
Net shares resulting from the assumed exercise of
certain stock options (b) 2.0* 2.5*
Total common shares and common share equivalents 159.9 161.8
Earnings per Share $1.93 $2.83
Notes to Exhibit 11:
(a) Computed as the weighted average of net shares outstanding
on stock-exchange trading days.
(b) Common share equivalents are computed by the "treasury
stock" method. This method first determines the number of
shares issuable under stock options that had an option
price below the average market price for the period, and
then deducts the number of shares that could have been
repurchased with the proceeds of options exercised.
* Common share equivalents are not material. As a result,
earnings per share have been computed using the weighted
average number of shares outstanding of 157.9 million and
159.3 million for the first nine months of fiscal 1995 and
1994, respectively.
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
Thirty-Nine Weeks Ended Fiscal Year Ended
Feb. 26, Feb. 27, May 29, May 30, May 31, May 26, May 27,
1995 1994 1994 1993 1992 1991 1990
Ratio of Earnings
to Fixed Charges 5.48 8.32 6.12 8.43 8.97 7.68 7.33
For purposes of computing the ratio of earnings to fixed charges, earnings
represent pretax income from continuing operations plus fixed charges (net
of capitalized interest). Fixed charges represent interest (whether
expensed or capitalized) and one-third (the proportion deemed
representative of the interest factor) of rents of continuing operations.