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 NOVEMBER 23, 1997
/ / 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 December 12, 1997, General Mills had 158,429,896 shares of its $.10 par
value common stock outstanding (excluding 45,723,436 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 Twenty-Six Weeks Ended
November 23, November 24, November 23, November 24,
1997 1996 1997 1996
----------- ----------- ---------- -------
Sales $ 1,638.3 $1,560.1 $ 3,054.8 $2,875.7
Costs and Expenses:
Cost of sales 653.7 659.4 1,197.6 1,195.2
Selling, general and administrative 645.4 587.5 1,223.0 1,098.2
Depreciation and amortization 48.5 43.0 97.4 85.9
Interest, net 27.3 24.5 58.5 47.3
Unusual items 166.8 - 166.4 48.4
--------- --------- --------- --------
Total Costs and Expenses 1,541.7 1,314.4 2,742.9 2,475.0
--------- -------- --------- --------
Earnings before Taxes and Earnings
(Losses) of Joint Ventures 96.6 245.7 311.9 400.7
Income Taxes 31.6 90.5 113.1 147.0
Earnings (Losses) from Joint Ventures (.4) 1.5 .1 .7
--------- -------- --------- --------
Net Earnings $ 64.6 $ 156.7 $ 198.9 $ 254.4
========= ======== ========= ========
Earnings per Share $ .41 $ 1.00 $ 1.25 $ 1.62
========= ========= ========= =========
Dividends per Share $ .53 $ .50 $ 1.06 $ 1.00
========= ========= ========= =========
Average Number of Common Shares 158.2 156.5 158.9 157.2
========= ========= ========= =========
See accompanying notes to consolidated condensed financial statements.
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
(Unaudited) (Unaudited)
November 23, November 24, May 25,
1997 1996 1997
--------- -------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 29.9 $ 28.3 $ 12.8
Receivables 442.8 428.4 419.1
Inventories:
Valued primarily at FIFO 219.7 154.2 155.9
Valued at LIFO (FIFO value exceeds LIFO by
$48.2, $58.4 and $47.5, respectively) 251.9 242.1 208.5
Prepaid expenses and other current assets 111.5 128.3 107.3
Deferred income taxes 103.8 101.2 107.7
--------- -------- ---------
Total Current Assets 1,159.6 1,082.5 1,011.3
--------- -------- ---------
Land, Buildings and Equipment, at Cost 2,416.8 2,474.7 2,571.6
Less accumulated depreciation (1,243.9) (1,218.3) (1,292.2)
--------- -------- ---------
Net Land, Buildings and Equipment 1,172.9 1,256.4 1,279.4
Intangibles 641.0 107.8 655.2
Other Assets 975.6 959.0 956.5
--------- -------- ---------
Total Assets $ 3,949.1 $3,405.7 $ 3,902.4
========= ======== =========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 689.2 $ 617.1 $ 599.7
Current portion of long-term debt 93.8 107.5 139.0
Notes payable 183.8 421.6 204.3
Accrued taxes 114.0 141.7 97.0
Other current liabilities 304.1 232.4 252.5
--------- -------- ---------
Total Current Liabilities 1,384.9 1,520.3 1,292.5
Long-term Debt 1,596.9 1,078.8 1,530.4
Deferred Income Taxes 271.3 243.1 272.1
Deferred Income Taxes - Tax Leases 136.4 154.5 143.7
Other Liabilities 170.4 168.4 169.1
--------- -------- ---------
Total Liabilities 3,559.9 3,165.1 3,407.8
--------- -------- ---------
Stockholders' Equity:
Cumulative preference stock, none issued - - -
Common stock, 204.2 shares issued 596.8 389.6 578.0
Retained earnings 1,566.6 1,506.7 1,535.4
Less common stock in treasury, at cost,
shares of 46.0, 48.3 and 44.3, respectively (1,660.8) (1,553.6) (1,501.9)
Unearned compensation and other (50.9) (52.8) (58.0)
Cumulative foreign currency adjustment (62.5) (49.3) (58.9)
--------- -------- ---------
Total Stockholders' Equity 389.2 240.6 494.6
--------- -------- ---------
Total Liabilities and Equity $ 3,949.1 $3,405.7 $ 3,902.4
========= ======== =========
See accompanying notes to consolidated condensed financial statements.
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) (In Millions)
Twenty-Six Weeks Ended
November 23, November 24,
1997 1996
----------- ---------
Cash Flows - Operating Activities:
Earnings from continuing operations $198.9 $254.4
Adjustments to reconcile earnings to cash flow:
Depreciation and amortization 97.4 85.9
Deferred income taxes (2.4) (3.8)
Change in current assets and liabilities (19.1) (67.6)
Unusual items 166.4 48.4
Other, net (11.5) (5.4)
------ ------
Cash provided by continuing operations 429.7 311.9
Cash used by discontinued operations (3.8) (3.9)
------ ------
Net Cash Provided by Operating Activities 425.9 308.0
------ ------
Cash Flows - Investment Activities:
Purchases of land, buildings and equipment (80.5) (78.4)
Investments in businesses, intangibles and
affiliates, net of investment returns and
dividends 8.7 (23.6)
Purchases of marketable investments (5.5) (3.9)
Proceeds from sale of marketable investments 31.2 21.3
Other, net (39.1) (40.6)
------ ------
Net Cash Used by Investment Activities (85.2) (125.2)
------ ------
Cash Flows - Financing Activities:
Change in notes payable (18.3) 277.7
Issuance of long-term debt 103.8 3.9
Payment of long-term debt (77.8) (109.9)
Common stock issued 53.4 23.4
Purchases of common stock for treasury (215.2) (209.9)
Dividends paid (168.8) (157.5)
Other, net (.7) (2.8)
------ ------
Net Cash Used by Financing Activities (323.6) (175.1)
------ ------
Increase in Cash and Cash Equivalents $ 17.1 $ 7.7
====== ======
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 twenty-six weeks ended November 23,
1997 are not necessarily indicative of the results that may be expected for the
fiscal year ending May 31, 1998.
These statements should be read in conjunction with the financial statements and
footnotes included in our annual report for the year ended May 25, 1997. The
accounting policies used in preparing these financial statements are the same as
those described in our annual report.
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
(2) Unusual Items
In the first quarter of fiscal 1998 we recorded several unusual items resulting
in a net after-tax charge of $.1 million. We received an insurance settlement
from one of our carriers related to costs incurred in fiscal 1995 and 1996
(charged against fiscal 1994) from the improper use of a pesticide by an
independent contractor in treating some of the company's oat supplies. Snack
Ventures Europe (SVE), our joint venture with PepsiCo, Inc., recorded
restructuring charges for productivity initiatives primarily related to
production consolidation. We also recorded charges associated with restructuring
our sales regions and our trade and promotion organization.
In the second quarter of fiscal 1998, we recorded restructuring charges of
$166.8 million pretax, $100.1 million after tax ($.63 per share) primarily
related to improving the cost structure of our North American cereal operations.
We shut down one cereal system at our Lodi, California facility and closed our
two smallest plants, located in South Chicago, Illinois and Etobicoke, Ontario.
The charges included approximately $137 million in non-cash charges primarily
related to asset write-offs, and approximately $30 million of cash charges,
primarily related to costs to dispose of assets and pay severance. Most of this
cash will be paid by fiscal year end. An additional smaller restructuring charge
is expected to be recorded in the third quarter. It is expected that these
restructuring activities will be substantially completed by the end of fiscal
1998. Annualized cost savings from these actions are estimated at $22 million
after-tax (14 cents per share).
In the first quarter of fiscal 1997 we adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The non-cash charge upon adoption
of SFAS No. 121 was $48.4 million pretax, $29.2 million after tax ($.18 per
share). The charge represented a reduction in the carrying amounts of certain
impaired assets to their estimated fair value.
(3) Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Adoption of
SFAS No. 128 is required in our third quarter of fiscal 1998; all prior periods
will be restated when SFAS No. 128 is adopted. SFAS No. 128 requires dual
presentation of basic and diluted earnings per share (EPS) on the statement of
earnings. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period (such as related to
outstanding stock options). The EPS as reported and the pro forma basic and
diluted EPS of the company are as follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended
Nov. 23, Nov. 24, Nov. 23, Nov. 24,
1997 1996 1997 1996
---- ---- ---- ----
EPS as reported $.41 $1.00 $1.25 $1.62
Basic EPS $.41 $1.00 $1.25 $1.62
Diluted EPS $.40 $ .98 $1.22 $1.59
The thirteen and twenty-six weeks ended November 23, 1997 included restructuring
charges related to North American cereal operations (see "Unusual Items" note).
Excluding the unusual charge, EPS as reported, basic EPS, and diluted EPS for
the thirteen and twenty-six weeks were $1.04, $1.04 and $1.01; and $1.88, $1.88,
and $1.83, respectively.
The twenty-six weeks ended November 24, 1996 included an unusual charge related
to the adoption of SFAS No. 121 (see "Unusual Items" note). Excluding the
unusual charge, EPS as reported, basic EPS, and diluted EPS were $1.80, $1.80
and $1.77, respectively.
(4) Statements of Cash Flows
During the first six months, we paid $59.3 million for interest (net of amount
capitalized) and $84.3 million for income taxes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Operations generated $117.8 million more cash in the first half of fiscal 1998
than in the same prior-year period. The increase in cash provided by operations
as compared to last year was caused by a $48.5 million decrease in the working
capital change and by a $69.3 million increase in cash from operations, after
adjustment for non-cash charges.
Fiscal 1998 capital expenditures are estimated to be approximately $175 million.
During the first six months, capital expenditures totaled $80.5 million.
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.
Our long-term outside financing is obtained primarily through our medium-term
note program. First half activity under this program consisted of issuance of
$100.0 million in notes and debt payments of $75.2 million.
RESULTS OF OPERATIONS
Second quarter sales of $1,638.3 million grew 5 percent from the prior year.
First half sales of $3,054.8 million grew 6 percent. Second quarter earnings
from operations of $164.7 million ($1.04 per share) before restructuring charges
of $100.1 million ($.63 per share) (See Note (2)), increased by 5 percent from
$156.7 million ($1.00 per share) reported last year. Including restructuring
charges, second quarter earnings this year were $64.6 million ($.41 per share).
Cumulative earnings from operations of $299.1 million ($1.88 per share) before
unusual items of $100.2 million, ($.63 per share), were up 5 percent from $283.6
million ($1.80 per share), before the non-cash charge associated with the
adoption of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of"last year. Adoption of SFAS No. 121 resulted in a non-cash,
after-tax charge of $29.2 million, or 18 cents per share. Including unusual
items, first half earnings this year were $198.9 million ($1.25 per share).
Including the non-cash charge, last year first half earnings were $254.4 million
($1.62 per share).
The second-quarter earnings gain was driven by 6 percent growth in worldwide
unit volume on top of the 9 percent volume increase reported in the same period
a year earlier.
In the United States, General Mills' total retail unit volume grew 5 percent in
the second quarter and was up 7 percent through the first six months. Excluding
the acquired Ralcorp brands, domestic retail unit volume was down 2 percent in
the quarter and even with last year through the first half, as second-quarter
Big G cereal shipments fell below the prior year's record levels, offsetting
volume gains across the remaining U.S. businesses.
Total Big G cereal volume including the acquired Chex and Cookie Crisp brands
was up 1 percent in the second quarter and up 5 percent through six months. Chex
cereal shipments in November exceeded expectations, and represented good
momentum going into the holiday season, when the popularity of Chex Party Mix
drives strong consumer volume for the franchise. Excluding acquired brands, Big
G volume was 11 percent below last year's, when second-quarter volume grew more
than 10 percent reflecting the launch of three new cereals and strong
performance from a sample-size merchandising program.
Cereal category volume in all Nielsen measured outlets grew 2.6 percent in the
quarter, reflecting continued acceleration from the 1 percent growth rate
achieved in fiscal 1997. Big G cereals' total share of market through six months
was 25.6 percent. Market share excluding acquired brands is 23.3 percent,
virtually even with Big G's 23.4 percent share for fiscal 1997.
Combined unit volume for the company's remaining domestic retail businesses grew
9 percent in the quarter. Snack food volume was up more than 20 percent for both
the quarter and first half including the Chex Mix line. Excluding Chex Mix,
snacks volume was up 5 percent in the first half and 2 percent above last year's
second quarter, when volume grew 12 percent. This performance was broad based,
with fruit snacks, Pop Secret microwave popcorn and grain snacks all posting
first-half market share gains. Yogurt volume grew 18 percent in the quarter on
continued good performance by core Yoplait product lines and the successful
expansion of Colombo yogurt distribution to the western United States. Betty
Crocker main meal and side dish volume was up 1 percent. Combined volume for
dessert, flour and baking mix businesses was up 4 percent in the quarter despite
heightened competitive promotional levels in the dessert category.
Second-quarter volume for foodservice operations grew 5 percent.
International unit volume grew 11 percent in both the second quarter and first
six months, led by the Cereal Partners Worldwide (CPW) joint venture with
Nestle. CPW unit volume grew 12 percent in the quarter, reflecting continued
broad-based volume and share strength across major European and Latin American
markets. Snack Ventures Europe (SVE), the company's joint venture with PepsiCo,
recorded 7 percent volume growth in the quarter. Volume for the International
Dessert Partners venture with CPC International in Latin America was up 17
percent through six months and 1 percent above last year's second quarter, which
included initial shipments to expansion markets. In Canada, quarterly unit
volume was up 2 percent.
During the second quarter, General Mills repurchased 1.3 million shares of
common stock at an average price of $65 per share. Through six months, share
repurchases totaled 3.1 million shares. Average shares outstanding totaled 158.2
million for the second quarter compared to 156.5 million in the prior year,
reflecting shares issued in the February 1997 Ralcorp acquisition. Interest
expense in the second quarter totaled $27.3 million, up from $24.5 million last
year due to the Ralcorp acquisition and share repurchase activities.
Our tax rates (excluding unusual items) for the second quarter and first half of
fiscal 1998 were 37.3 percent and 37.5 percent, respectively, compared to 36.8
percent and 37.0 percent in last year's second quarter and first half. Our
reported tax rates for the first six months of fiscal 1998 and 1997 were 36.3
percent and 36.7 percent, respectively.
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on September 22, 1997.
(b) All directors nominated were elected at the Annual Meeting.
(c) For the election of directors, the results were as follows:
Richard M. Bressler For 137,140,009
Withheld 978,259
Livio D. DeSimone For 137,335,605
Withheld 782,663
William T. Esrey For 137,356,180
Withheld 762,088
Charles W. Gaillard For 137,411,151
Withheld 707,117
Judith R. Hope For 137,303,126
Withheld 815,142
Kenneth A. Macke For 137,162,022
Withheld 956,246
Michael D. Rose For 137,369,103
Withheld 749,165
Stephen W. Sanger For 137,405,337
Withheld 712,931
A. Michael Spence For 137,383,106
Withheld 735,162
Dorothy A. Terrell For 137,380,191
Withheld 738,077
Raymond G. Viault For 137,424,026
Withheld 694,242
C. Angus Wurtele For 137,381,639
Withheld 736,629
On the ratification of the appointment of KPMG Peat Marwick LLP as
auditors for fiscal 1998 the results were as follows:
For: 137,402,167
Against: 213,944
Abstain: 502,157
On the proposal to adopt an amendment to the Company's Restated
Certificate of Incorporation, the results were as follows:
For: 125,551,716
Against: 1,865,121
Abstain: 743,931
Broker Non-Vote: 9,957,500
The stockholders' proposal requesting that the directors take action
to adopt cumulative voting was rejected:
For: 32,984,566
Against: 88,292,079
Abstain: 5,034,414
Broker Non-Vote: 11,807,209
Item 5. Other Information.
This report contains certain forward-looking statements which are based on
management's current views and assumptions regarding future events and financial
performance. These statements are qualified by reference to the section
"Cautionary Statement Relevant to Forward-Looking Information" in Item 1 of our
Annual Report on Form 10-K for the fiscal year ended May 25, 1997, which lists
important factors that could cause actual results to differ materially from
those discussed in this report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 11 Statement of Computation of Earnings per Share.
Exhibit 12 Statement of Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the second
quarter of fiscal 1998.
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 January 5, 1998 /s/ S. S. Marshall
--------------- -------------------------------------
S. S. Marshall
Senior Vice President,
General Counsel
Date January 5, 1998 /s/ K. L. Thome
--------------- -------------------------------------
K. L. Thome
Senior Vice President,
Financial Operations