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 25,
1996
/ / 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 19, 1996, General Mills had 159,401,368 shares of its
$.10 par value common stock outstanding (excluding 44,751,964 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 25, February 26, February 25, February 26,
1996 1995 1996 1995
Continuing Operations:
Sales $1,309.2 $1,224.2 $4,033.9 $3,798.2
Costs and Expenses:
Cost of sales 533.1 520.9 1,654.8 1,576.2
Selling, general and
administrative 523.1 467.9 1,533.4 1,445.0
Depreciation and
amortization 45.0 46.7 138.4 137.8
Interest, net 25.1 25.7 77.9 73.2
Unusual expenses - 139.6 - 139.6
Total Costs and Expenses 1,126.3 1,200.8 3,404.5 3,371.8
Earnings from Continuing
Operations before Taxes 182.9 23.4 629.4 426.4
Income Taxes 66.6 3.2 230.5 153.4
Earnings from Continuing
Operations 116.3 20.2 398.9 273.0
Discontinued Operations
after Taxes - (14.8) - 32.4
Net Earnings $ 116.3 $ 5.4 $ 398.9 $ 305.4
Earnings per Share:
Continuing operations $ .73 $ .13 $ 2.51 $ 1.73
Discontinued operations - (.10) - .20
Net Earnings per Share $ .73 $ .03 $ 2.51 $ 1.93
Dividends per Share $ .47 $ .47 $ 1.41 $ 1.41
Average Number of
Common Shares 159.2 157.9 158.8 157.9
See accompanying notes to consolidated condensed financial statements.
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
(Unaudited) (Unaudited)
February 25, February 26, May 28,
1996 1995 1995
ASSETS
Current Assets:
Cash and cash equivalents $ 35.7 $ 26.2 $ 13.0
Receivables 375.5 345.9 277.3
Inventories:
Valued primarily at FIFO 214.5 181.1 134.7
Valued at LIFO (FIFO value exceeds LIFO by
$55.0, $47.7 and $53.0, respectively) 205.7 278.7 237.3
Prepaid expenses and other current assets 90.4 94.9 80.8
Deferred income taxes 135.1 142.1 153.8
Total Current Assets 1,056.9 1,068.9 896.9
Land, Buildings and Equipment, at Cost 2,521.3 2,576.7 2,611.9
Less accumulated depreciation (1,176.2) (1,116.2) (1,155.3)
Net Land, Buildings and Equipment 1,345.1 1,460.5 1,456.6
Net assets of Discontinued Operations - 1,637.5 -
Other Assets 1,034.2 996.1 1,004.7
Total Assets $3,436.2 $5,163.0 $3,358.2
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 505.4 $ 427.0 $ 494.0
Current portion of long-term debt 66.9 125.3 93.7
Notes payable 216.0 728.9 112.9
Accrued taxes 149.9 47.2 108.8
Other current liabilities 312.9 403.2 411.5
Total Current Liabilities 1,251.1 1,731.6 1,220.9
Long-term Debt 1,242.7 1,482.9 1,400.9
Deferred Income Taxes 261.2 249.1 248.6
Deferred Income Taxes - Tax Leases 160.4 177.0 169.1
Other Liabilities 169.1 169.3 177.7
Total Liabilities 3,084.5 3,809.9 3,217.2
Common Stock Subject to Put Options - 20.0 -
Stockholders' Equity:
Cumulative preference stock, none issued - - -
Common stock, 204.2 shares issued 383.3 357.6 379.5
Retained earnings 1,410.4 2,542.0 1,233.3
Less common stock in treasury, at cost,
shares of 44.8, 46.1 and 46.3,
respectively (1,338.7) (1,375.1) (1,372.1)
Unearned compensation and other (52.9) (135.4) (57.9)
Cumulative foreign currency adjustment (50.4) (56.0) (41.8)
Total Stockholders' Equity 351.7 1,333.1 141.0
Total Liabilities and Equity $3,436.2 $5,163.0 $3,358.2
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 25, February 26,
1996 1995
Cash Flows - Operating Activities:
Earnings from continuing operations $398.9 $273.0
Adjustments to reconcile earnings to cash flow:
Depreciation and amortization 138.4 137.8
Deferred income taxes 26.0 85.0
Change in current assets and liabilities (121.3) (449.2)
Unusual expenses - 139.6
Other, net (3.8) (10.3)
Cash provided by continuing operations 438.2 175.9
Cash provided (used) by discontinued operations (14.5) 173.8
Net Cash Provided by Operating Activities 423.7 349.7
Cash Flows - Investment Activities:
Purchases of land, buildings and equipment (89.4) (104.1)
Investments in businesses, intangibles
and affiliates (29.5) (34.9)
Purchases of marketable investments (19.7) (19.6)
Proceeds from sale of marketable investments 21.8 16.4
Other, net (2.3) (17.7)
Discontinued operations investment activities, net - (289.2)
Net Cash Used by Investment Activities (119.1) (449.1)
Cash Flows - Financing Activities:
Increase in notes payable 28.8 288.3
Issuance of long-term debt 40.4 133.1
Payment of long-term debt (150.5) (51.0)
Common stock issued 34.9 17.8
Purchases of common stock for treasury (1.7) (57.7)
Dividends paid (223.8) (223.5)
Other, net (10.0) (9.2)
Net Cash Provided (Used) by
Financing Activities (281.9) 97.8
Increase (Decrease) in Cash and Cash Equivalents $ 22.7 $(1.6)
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 25, 1996 are not necessarily indicative of the results that
may be expected for the fiscal year ending May 26, 1996.
These statements should be read in conjunction with the financial
statements and footnotes included in our annual report for the year ended
May 28, 1995. 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) Discontinued Operations
As of May 28, 1995, General Mills distributed the common stock of Darden
Restaurants, Inc. (Darden) to General Mills' shareholders. This
distribution reduced Stockholders' Equity by $1,218.7 million. Our
former restaurant operations included in Darden are now presented as a
part of Discontinued Operations for all periods presented.
On May 18, 1995, we sold Gorton's, a leading marketer of frozen and canned
seafood products, to Unilever United States, Inc. Gorton's is also
included in Discontinued Operations for all periods presented.
(3) Statements of Cash Flows
During the first nine months, we paid $67.1 million for interest (net of
amount capitalized) and $148.8 million for income taxes.
(4) Long-term Debt
In the third quarter of fiscal 1996, a new shelf registration statement
filed with the Securities and Exchange Commission became effective for the
issuance of up to $500 million in unsecured debt securities. The
registration includes our continuing medium-term note program.
(5) Unusual Items
In the third quarter of fiscal 1995, we recorded restructuring charges
related to shutting down and scaling back production systems at four
food manufacturing locations. The charges primarily included asset
write-offs, costs to dispose of assets and severance costs. These
charges totalled $139.6 million pretax, and $82.8 million after tax
($.52 per share). Additional restructuring charges totaling $43.6
million pretax, $28.8 million after tax ($.19 per share) were recorded
in the fourth quarter of fiscal 1995. It is expected that these
restructuring activities will be substantially completed by the end of
fiscal 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
During the fiscal year ended May 28, 1995 the company spun off its
restaurant operations as a separate, free-standing company, Darden
Restaurants, Inc., and sold the Gorton's frozen and canned seafood
products business. The financial statements present the related assets
and results as Discontinued Operations. The restaurant spinoff reduced
Stockholders' Equity by $1,218.7 million at May 28, 1995.
Continuing operations generated $262.3 million more cash through the
first nine months of fiscal 1996 than in the same prior-year period.
The increase in cash provided from continuing operations was mainly due
to stronger operating results and a lower rate of increase in working
capital. Our cash flow also reflected lower capital expenditures.
Capital expenditures through nine months totaled $89.4 million, and for
the full fiscal year are expected to reach approximately $125 million
compared to $157 million in the prior year. If our operations perform
as expected in the final quarter, we should generate significant cash
from operations after capital investments for fiscal 1996, which is
consistent with our longer-term cash flow expectations. For fiscal 1996
through 1998, we expect our capital investment needs (including
development spending for our international joint ventures) to average
significantly less per year than in the previous five-year period.
Subject to meeting earnings-increase expectations, cash flow from operations
after capital investments should grow and would be available to support
growth initiatives including new business development, stock repurchases
and dividend increases.
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 nine months' activity included new
debt of $35.0 million and principal payments of $141.3 million under
this program.
In February 1996, we filed a new shelf registration statement with the
Securities and Exchange Commission permitting the issuance of up to $500
million in unsecured debt securities, which will be available for the
issuance of medium-term notes under our continuing program and for other
long-term debt offerings.
The nine months' cash flow has permitted us to reduce total debt
(including Deferred Income Taxes-Tax Leases) by $90.6 million (long-term
debt, exclusive of current portion, was reduced by $158.2 million).
During the same period Total Stockholders' Equity has increased by $210.7
million.
RESULTS OF OPERATIONS
Third quarter sales of $1,309.2 million grew 7 percent from the prior
year. Year-to-date sales of $4,033.9 million grew 6 percent. Third
quarter earnings from operations of $116.3 million ($.73 per share) were
up 13 percent from $103.0 million ($.65 per share) before restructuring
charges of $82.8 million ($.52 per share), reported last year. Last
year's third-quarter restructuring charges primarily related to
elimination of the company's least-efficient consumer foods manufacturing
capacity. Including those charges, 1995 earnings per share for continuing
operations were 13 cents in the third quarter and $1.73 through nine
months. Cumulative earnings of $398.9 million ($2.51 per share) were up
12 percent from $355.8 million ($2.25 per share) before restructuring
charges, reported last year. The prior-year comparisons exclude results
for Gorton's and the restaurant operations.
The record results through nine months keep General Mills on pace toward
its fiscal 1996 goal. The third-quarter results were driven by strong
performance across our domestic businesses, including broad-based unit
volume growth, strong profit gains by Big G cereals, Betty Crocker mixes
and Gold Medal, and profit recovery in snacks. Year to date, the good
progress reflects this domestic business momentum, as well as solid
productivity improvement and accelerating international performance.
Third-quarter results for U.S. operations reflected unit volume gains for
every major business unit. Total domestic retail unit volume was up 7
percent from the prior year period, when volume was affected by the
company's transition to new, efficient promotion strategies that have
increased overall efficiency but resulted in one-time trade inventory
reductions when they were implemented. This year's third-quarter volume
strength included an 11 percent gain for Betty Crocker products driven by
Helper dinner mixes, and a 10 percent volume gain for snacks fueled by
innovative new offerings such as Pop Secret Jumbo Pop microwave popcorn and
Sweet Rewards fat-free snack bars. Gold Medal products' volume grew 9
percent on the strength of dessert and baking mix performance. Big G
cereals posted a 5 percent volume gain, and Yoplait-Colombo yogurt volume
grew 3 percent.
Big G's 5 percent volume gain for the period outpaced a strengthening ready-
to-eat cereal market. Category volume in all measured outlets grew nearly
2 percent in the quarter, the strongest rate of growth in 18 months. Big
G's performance was driven by well-supported product innovation efforts.
These include new Frosted Cheerios, which achieved a 1.5 percent pound
market share for the period; product improvements on several established
brands; and the recent repositioning and relaunch of two cereals (Honey
Frosted Wheaties and Crispy Wheaties `n Raisins) as extensions of the
Wheaties brand franchise. Big G's pound share of the U.S. grocery cereal
market was 24.3 percent in the third quarter, up 1.2 points from the same
period a year earlier. Nine-month share was up 1.5 points to 23.4 percent.
Through nine months, total domestic retail volume was up 6 percent, led by
gains of 10 percent for Big G cereals and 6 percent for Betty Crocker.
Market shares were even or up for most major product lines with the
exception of fruit and grain snacks, where further product innovation is
needed to fully restore share levels.
Results for international operations were on target through nine months,
including planned heavy development spending in the third quarter to
support new market expansion by the company's international strategic
alliances. Continued strong international volume gains boosted General
Mills' worldwide unit volume growth to 8 percent for both the third quarter
and nine months. General Mills' Canadian food operations reported volume
gains of 5 percent in the quarter and 11 percent through nine months.
Cereal Partners Worldwide (CPW), the company's cereal joint venture with
Nestle, achieved a 23-percent volume increase in the quarter and 22-percent
growth through nine months, with share gains in nearly every major market.
Unit volume for the Snack Ventures Europe joint venture with PepsiCo Foods
International grew 10 percent in the third quarter and 14 percent through
nine months, including expansion into Eastern European markets. Late in
the quarter, the International Dessert Partners joint venture with CPC
International began introducing its initial line of dessert mix products in
northern Mexico. Expansion to additional Latin American markets is planned
later in the calendar year.
Net interest expense for the first nine months increased by $4.7 million
compared to last year, primarily due to higher interest rates.
The effective tax rate for the first nine months of fiscal 1996 of 36.6%
was more than the 36.0% rate for the first nine months of fiscal 1995.
Last year's rate was lower because of the incremental tax benefit on the
$139.6 million (pretax) restructuring charge recorded in last year's
third quarter results.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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 19, 1995, the Company filed a report on Form
8-K dated December 11, 1995 which included exhibits containing
(i) the Rights Agreement, dated as of December 11, 1995, between
General Mills, Inc. and Norwest Bank Minnesota, N.A., as Rights
Agent; (ii) the Company's By-Laws as amended by the Board of
Directors on December 11, 1995; and (iii) a new form of
Management Continuity Agreement approved by the Board of
Directors on December 11, 1995.
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 5, 1996 /s/ S. S. Marshall
S. S. Marshall
Senior Vice President,
General Counsel and Secretary
Date April 5, 1996 /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 25, February 26,
1996 1995
Net Earnings $398.9 $305.4
Computation of Shares:
Weighted average number of shares outstanding,
excluding shares held in treasury (a) 158.8 157.9
Net shares resulting from the assumed exercise of
certain stock options (b) 3.1* 2.0*
Total common shares and common share equivalents 161.9 159.9
Earnings per Share $2.51 $1.93
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 158.8 million and
157.9 million for the first nine months of fiscal 1996 and
1995, respectively.
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
Thirty-Nine Weeks Ended Fiscal Year Ended
February 25, February 26, May 28, May 29, May 30, May 31, May 26,
1996 1995 1995 1994 1993 1992 1991
Ratio of Earnings
to Fixed Charges 7.56 5.50 4.10 6.18 8.62 9.28 8.06
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from our
Form 10-Q for the thirty-nine week period ended February 25, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<PERIOD-END> FEB-25-1996
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