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 AUGUST 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 September 19, 1996, General Mills had 156,710,289 shares of its $.10 par
value common stock outstanding (excluding 47,443,043 shares held in treasury).
<PAGE>
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
August 25, August 27,
1996 1995
Sales $1,315.6 $1,276.3
Costs and Expenses:
Cost of sales 535.8 525.6
Selling, general and administrative 510.7 458.8
Depreciation and amortization 42.9 46.7
Interest, net 22.8 27.0
Unusual items 48.4 -
-------- --------
Total Costs and Expenses 1,160.6 1,058.1
-------- --------
Earnings before Taxes and Earnings
(Losses) of Joint Ventures 155.0 218.2
Income Taxes 56.5 82.4
Earnings (Losses) from Joint Ventures (.8) 1.1
-------- --------
Net Earnings $ 97.7 $ 136.9
======== ========
Earnings per Share $ .62 $ .86
======== ========
Dividends per Share $ .50 $ .47
======== ========
Average Number of Common Shares 157.9 158.4
======== ========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
<CAPTION>
(Unaudited) (Unaudited)
August 25, August 27, May 26,
1996 1995 1996
--------- --------- -------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 33.1 $ 16.7 $ 20.6
Receivables 429.3 330.1 337.8
Inventories:
Valued primarily at FIFO 175.4 185.0 186.3
Valued at LIFO (FIFO value exceeds LIFO by
$57.0, $55.0 and $55.7, respectively) 254.2 249.3 209.2
Prepaid expenses and other current assets 143.3 77.4 132.6
Deferred income taxes 111.7 142.6 108.6
-------- -------- --------
Total Current Assets 1,147.0 1,001.1 995.1
-------- -------- --------
Land, Buildings and Equipment, at Cost 2,447.8 2,624.2 2,508.0
Less accumulated depreciation (1,194.9) (1,187.3) (1,195.6)
-------- -------- --------
Net Land, Buildings and Equipment 1,252.9 1,436.9 1,312.4
Other Assets 1,013.5 1,017.0 987.2
-------- -------- --------
Total Assets $3,413.4 $3,455.0 $3,294.7
======== ======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 654.9 $ 490.1 $ 590.7
Current portion of long-term debt 96.3 130.8 75.4
Notes payable 300.5 139.9 141.6
Accrued taxes 180.7 165.3 124.3
Other current liabilities 236.5 378.5 259.9
-------- -------- --------
Total Current Liabilities 1,468.9 1,304.6 1,191.9
Long-term Debt 1,153.8 1,334.9 1,220.9
Deferred Income Taxes 241.6 258.4 250.0
Deferred Income Taxes - Tax Leases 158.0 169.6 157.5
Other Liabilities 165.3 177.8 166.7
-------- -------- --------
Total Liabilities 3,187.6 3,245.3 2,987.0
-------- -------- --------
Stockholders' Equity:
Cumulative preference stock, none issued - - -
Common stock, 204.2 shares issued 385.5 381.0 384.3
Retained earnings 1,427.8 1,296.2 1,408.6
Less common stock in treasury, at cost,
shares of 47.2, 45.6 and 45.2, respectively (1,476.4) (1,361.0) (1,367.4)
Unearned compensation and other (58.4) (57.9) (61.2)
Cumulative foreign currency adjustment (52.7) (48.6) (56.6)
-------- -------- --------
Total Stockholders' Equity 225.8 209.7 307.7
-------- -------- --------
Total Liabilities and Equity $3,413.4 $3,455.0 $3,294.7
======== ======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) (In Millions)
<CAPTION>
Thirteen Weeks Ended
August 25, August 27,
1996 1995
<S> <C> <C>
Cash Flows - Operating Activities:
Earnings from continuing operations $ 97.7 $136.9
Adjustments to reconcile earnings to cash flow:
Depreciation and amortization 42.9 46.7
Deferred income taxes (12.6) 20.0
Change in current assets and liabilities (38.8) (76.9)
Unusual expenses 48.4 -
Other, net (.5) (2.1)
------ ------
Cash provided by continuing operations 137.1 124.6
Cash used by discontinued operations (1.8) (10.2)
------ ------
Net Cash Provided by Operating Activities 135.3 114.4
------ ------
Cash Flows - Investment Activities:
Purchases of land, buildings and equipment (34.6) (30.3)
Investments in businesses, intangibles and affiliates (4.8) (11.9)
Purchases of marketable investments (2.0) (1.8)
Proceeds from sale of marketable investments 18.7 5.8
Other, net (25.0) (7.9)
------ ------
Net Cash Used by Investment Activities (47.7) (46.1)
------ ------
Cash Flows - Financing Activities:
Increase in notes payable 157.1 27.4
Issuance of long-term debt 1.9 16.8
Payment of long-term debt (44.8) (45.3)
Common stock issued 5.7 10.9
Purchases of common stock for treasury (116.3) -
Dividends paid (79.1) (74.4)
Other, net .4 -
------ ------
Net Cash Used by Financing Activities (75.1) (64.6)
------ ------
Increase in Cash and Cash Equivalents $ 12.5 $ 3.7
====== ======
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
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 thirteen weeks ended August 25, 1996
are not necessarily indicative of the results that may be expected for the
fiscal year ending May 25, 1997.
These statements should be read in conjunction with the financial statements and
footnotes included in our annual report for the year ended May 26, 1996. The
accounting policies used in preparing these financial statements are the same as
those described in our annual report, except that the Company adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", as of the
beginning of fiscal 1997 (see note 3 below).
Certain amounts in the prior year's financial statements have been reclassified
to conform to the current year's presentation.
(2) Acquisition
On August 13, 1996, the Company entered into an agreement to purchase the
branded ready-to-eat cereal and snack mix businesses of Ralcorp Holdings, Inc.,
including its Chex and Cookie Crisp brands, for a total price of $570 million,
payable in General Mills common stock and through the assumption of Ralcorp
debt. The acquisition is expected to close following approval by Ralcorp
shareholders and federal regulatory agencies. The transaction includes a
Cincinnati, Ohio manufacturing facility that employs 240 people, and trademark
and technology rights for the branded products in the Americas.
(3) Unusual Items
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" as of the beginning of fiscal 1997. The initial, non-cash charge
upon adoption of SFAS 121 was $48.4 million pre-tax, $29.2 million after-tax
($.18 per share). The charge represents a reduction in the carrying amounts of
certain impaired assets to their estimated fair value, determined on the basis
of estimated cash flows or net realizable value. The impairments relate to
assets not currently in use, assets significantly underutilized, and assets with
limited planned future use.
(4) Statements of Cash Flows
During the quarter, we paid $6.6 million for interest (net of amount
capitalized) and $10.3 million for income taxes.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Operations generated $12.5 million more cash in the first quarter of fiscal 1997
than in the same prior-year period. The increase in cash provided by operations
as compared to last year was caused by a $38.1 million decrease in the working
capital change (principally, reduced rate of increase in inventories and
increased accounts payable) partially offset by a $25.6 million decrease in cash
from operations, after adjustment for non-cash charges.
Fiscal 1997 capital expenditures are estimated to be approximately $170 million.
During the first three months, capital expenditures totaled $34.6 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 quarter activity included repurchases and debt payments of
$44.6 million under this program. In August 1996, effective in October 1996, we
called $50.0 million of medium-term notes due in October 1997 with an interest
rate of 7.2%.
In the first quarter of fiscal 1997, we acquired 2.2 million shares of common
stock for our treasury for $116.3 million.
RESULTS OF OPERATIONS
Sales in the first quarter grew 3 percent to $1,315.6 million. First quarter
earnings from operations of $126.9 million ($.80 per share), before the non-cash
charge associated with the adoption of SFAS No. 121 (see Note (3)) decreased by
7 percent from $136.9 million ($.86 per share) 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 this non-cash charge, first quarter earnings were $97.7 million
($.62 per share).
On June 19, we announced actions to lower prices and cost-per-serving an average
11 percent on brands representing 42 percent of Big G cereal volume. These
actions are expected to reduce full-year fiscal 1997 sales by $100 million and
net earnings by $30 to $35 million, or 20 cents per share. More than half of
this earnings impact fell in the first quarter of 1997, including the costs of
floor stock protection.
First-quarter operating results excluding effects of the cereal pricing actions
met the company's goals, and reflected continuation of the broad-based volume
and market share momentum established in fiscal 1996. Our worldwide unit volume
grew 4 percent in the quarter, reflecting continued strong levels of product and
marketing innovation across the company.
Results for U.S. operations reflected broad-based volume and share strength.
Total domestic unit volume grew 3 percent in the quarter, following an 11
percent volume gain in the fourth quarter of fiscal 1996 that included shipments
supporting early June merchandising programs built around the company's U.S.
Olympic team sponsorship. Quarterly market shares increased for most of the
company's major businesses.
Big G cereal volume grew nearly 4 percent in the quarter. Frosted Cheerios and
extensions of the Wheaties franchise introduced in 1996 continued to perform
well, and the special Team USA Cheerios introduced as part of our Olympics
sponsorship contributed additional volume. Effective merchandising programs
focused on the Olympics, new products and recently improved established brands
also contributed to Big G's volume gain. Reflecting this performance, Big G's
pound market share grew by more than 1 point in the quarter to reach 23.7
percent. Cereal category volume grew 2.1 percent in all measured outlets. New
Betty Crocker Cinnamon Streusel and Dutch Apple cereals began shipping on
September 16, and new French Toast Crunch cereal is being introduced to the
trade for shipment beginning in mid-October.
Helper dinner mixes recorded a 12 percent volume gain and a 2 point market share
increase for the first quarter, with continued effective merchandising and good
performance from three new lower sodium varieties introduced in June. Yogurt
volume grew 13 percent, reflecting the success of product improvements and
distinctive new flavor additions to core Yoplait brands, and the expansion of
Colombo yogurt distribution beyond the Northeast into the north central United
States. Combined market share for Yoplait and Colombo was a record at nearly 24
percent. The new line of Betty Crocker Sweet Rewards reduced-fat and fat-free
dessert mixes and continued strength of Whipped Deluxe ready-to-spread frosting
drove 6 percent volume growth and a 1 point increase in first quarter market
share for Betty Crocker desserts. As expected, snacks volume was 5 percent below
last year's first quarter, which included unusually strong back-to-school
merchandising.
As anticipated, earnings for international operations were down in the first
quarter, primarily reflecting introductory market development costs for our
International Dessert Partners (IDP) joint venture with CPC International in
Latin America. IDP is introducing an 11-item line of dessert mix products in
Colombia, Mexico, Brazil and Argentina, and initial response from trade and
consumers has been good. Cereal Partners Worldwide (CPW), our cereal joint
venture with Nestle, reported a 15 percent unit volume increase for the quarter,
with share gains in most major markets. Development costs for CPW were
significantly less than in last year's first quarter, despite recent expansion
to Argentina and current entry into Brazil. First-quarter volume was flat for
Snack Ventures Europe, our joint venture with PepsiCo, compared with
particularly strong volume driven by promotional programs in last year's first
quarter. Quarterly volume for Canadian food businesses grew 6 percent.
We continue to generate strong free cash flow, which enabled us to accelerate
our share repurchase activity during the first quarter. We repurchased 2.15
million shares during the quarter for $116.3 million. As a result, average
shares outstanding for the quarter fell to 157.9 million, down 1 million shares
from the average for fiscal 1996. This repurchase activity is consistent with
our previously stated goal of reducing shares outstanding by 1 to 2 percent
annually.
Interest expense was $4 million lower for the quarter, primarily reflecting
lower debt levels and rates. Our reported tax rate for the quarter was 36.5
percent. Excluding the effects of SFAS No. 121, our tax rate for the quarter was
37.2 percent, compared to 37.8 percent in last year's quarter.
<PAGE>
PART II. OTHER INFORMATION
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.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the first
quarter of fiscal 1997.
<PAGE>
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 October 3, 1996 /s/ S. S. Marshall
--------------- ---------------------------------------
S. S. Marshall
Senior Vice President,
General Counsel and Secretary
Date October 3, 1996 /s/ K. L. Thome
--------------- ---------------------------------------
K. L. Thome
Senior Vice President,
Financial Operations
Exhibit 11
<TABLE>
GENERAL MILLS, INC.
COMPUTATION OF EARNINGS PER SHARE
(In Millions, Except per Share Data)
<CAPTION>
Thirteen Weeks Ended
August 25, August 27,
1996 1995
----------- ---------
<S> <C> <C>
Net Earnings $ 97.7 $136.9
======= ======
Computation of Shares:
Weighted average number of shares outstanding,
excluding shares held in treasury (a) 157.9 158.4
Net shares resulting from the assumed exercise of
certain stock options (b) 2.8* 2.7*
Shares potentially issuable under compensation plans .1* -*
------- ------
Total common shares and common share equivalents 160.8 161.1
======= ======
Earnings per Share $ .62 $ .86
======= ======
<FN>
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 158.4 million for the first quarter of fiscal 1997 and
1996, respectively.
</FN>
</TABLE>
Exhibit 12
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Thirteen Weeks Ended Fiscal Year Ended
August 25, August 27, May 26, May 28, May 29, May 30, May 31,
1996 1995 1996 1995 1994 1993 1992
---------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings
to Fixed Charges 6.25 7.59 6.94 4.10 6.18 8.62 9.28
</TABLE>
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 thirteen week period ended August 25, 1996, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-25-1997
<PERIOD-END> AUG-25-1996
<CASH> 33,100,000
<SECURITIES> 0
<RECEIVABLES> 429,300,000
<ALLOWANCES> 0
<INVENTORY> 429,600,000
<CURRENT-ASSETS> 1,147,000,000
<PP&E> 2,447,800,000
<DEPRECIATION> (1,194,900,000)
<TOTAL-ASSETS> 3,413,400,000
<CURRENT-LIABILITIES> 1,468,900,000
<BONDS> 1,153,800,000
0
0
<COMMON> 385,500,000
<OTHER-SE> (159,700,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,413,400,000
<SALES> 1,315,600,000
<TOTAL-REVENUES> 1,315,600,000
<CGS> 535,800,000
<TOTAL-COSTS> 535,800,000
<OTHER-EXPENSES> 42,900,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,800,000
<INCOME-PRETAX> 155,000,000
<INCOME-TAX> 56,500,000
<INCOME-CONTINUING> 97,700,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,700,000
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
