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 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 March 19, 1997, General Mills had 161,178,868 shares of its $.10 par value
common stock outstanding (excluding 42,974,464 shares held in treasury).
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
GENERAL MILLS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (In Millions, Except per Share Data)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Feb. 23, Feb. 25, Feb. 23, Feb. 25,
1997 1996 1997 1996
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Sales $1,289.6 $1,309.2 $4,165.3 $4,033.9
Costs and Expenses:
Cost of sales 548.3 533.1 1,743.5 1,654.8
Selling, general and administrative 470.0 515.8 1,568.2 1,524.5
Depreciation and amortization 45.1 45.0 131.0 138.4
Interest, net 25.2 25.1 72.5 77.9
Unusual expenses - - 48.4 -
------- ------- ------- -------
Total Costs and Expenses 1,088.6 1,119.0 3,563.6 3,395.6
------- ------- ------- -------
Earnings before Taxes and Earnings
(Losses) of Joint Ventures 201.0 190.2 601.7 638.3
Income Taxes 72.7 70.4 219.7 236.8
Earnings(Losses)from Joint Ventures (5.5) (3.5) (4.8) (2.6)
-------- -------- -------- --------
Net Earnings $ 122.8 $ 116.3 $ 377.2 $ 398.9
======= ======= ======= =======
Earnings per Share $ .78 $ .73 $ 2.40 $ 2.51
======= ======= ======= =======
Dividends per Share $ .50 $ .47 $ 1.50 $ 1.41
======= ======= ======= =======
Average Number of Common Shares 157.5 159.2 157.3 158.8
======= ======= ======= =======
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<TABLE>
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
<CAPTION>
(Unaudited) (Unaudited)
February 23, February 25, May 26,
1997 1996 1996
--------- --------- ------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 31.0 $ 35.7 $ 20.6
Receivables 413.7 375.5 337.8
Inventories:
Valued primarily at FIFO 184.6 214.5 186.3
Valued at LIFO (FIFO value exceeds LIFO by
$59.6, $55.0 and $55.7, respectively) 228.4 205.7 209.2
Prepaid expenses and other current assets 141.6 90.4 132.6
Deferred income taxes 107.0 135.1 108.6
------- ----- -----
Total Current Assets 1,106.3 1,056.9 995.1
------- ----- -----
Land, Buildings and Equipment, at Cost 2,532.2 2,521.3 2,508.0
Less accumulated depreciation (1,251.6) (1,176.2) (1,195.6)
------- -------- --------
Net Land, Buildings and Equipment 1,280.6 1,345.1 1,312.4
Intangibles 657.6 114.4 110.3
Other Assets 943.3 919.8 876.9
------- ------- --------
Total Assets $3,987.8 $3,436.2 $3,294.7
======== ======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 548.3 $ 505.4 $ 590.7
Current portion of long-term debt 158.5 66.9 75.4
Notes payable 442.0 216.0 141.6
Accrued taxes 151.0 149.9 124.3
Other current liabilities 260.1 312.9 259.9
-------- ------- --------
Total Current Liabilities 1,559.9 1,251.1 1,191.9
Long-term Debt 1,224.7 1,242.7 1,220.9
Deferred Income Taxes 240.0 261.2 250.0
Deferred Income Taxes - Tax Leases 147.1 160.4 157.5
Other Liabilities 167.1 169.1 166.7
-------- ------- --------
Total Liabilities 3,338.8 3,084.5 2,987.0
-------- ------- --------
Stockholders' Equity:
Cumulative preference stock, none issued - - -
Common stock, 204.2 shares issued 578.9 383.3 384.3
Retained earnings 1,552.2 1,410.4 1,408.6
Less common stock in treasury, at cost,
shares of 42.4, 44.8 and 45.2,
respectively (1,370.0) (1,338.7) (1,367.4)
Unearned compensation and other (54.0) (52.9) (61.2)
Cumulative foreign currency adjustment (58.1) (50.4) (56.6)
-------- ------- --------
Total Stockholders' Equity 649.0 351.7 307.7
-------- ------- --------
Total Liabilities and Equity $3,987.8 $3,436.2 $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>
Thirty-Nine Weeks Ended
February 23, February 25,
1997 1996
<S> <C> <C>
Cash Flows - Operating Activities:
Earnings from continuing operations $ 377.2 $ 398.9
Adjustments to reconcile earnings to cash flow:
Depreciation and amortization 131.0 138.4
Deferred income taxes (7.2) 26.0
Change in current assets and liabilities, net
of effects from business acquired (148.6) (121.3)
Unusual expenses 48.4 --
Other, net (10.4) (3.8)
------ ------
Cash provided by continuing operations 390.4 438.2
Cash used by discontinued operations (5.3) (14.5)
------ ------
Net Cash Provided by Operating Activities 385.1 423.7
------ ------
Cash Flows - Investment Activities:
Purchases of land, buildings and equipment (113.7) (89.4)
Investments in businesses, intangibles and
affiliates (28.3) (29.5)
Purchases of marketable investments (5.9) (19.7)
Proceeds from sale of marketable investments 36.9 21.8
Other, net (19.5) (2.3)
------ ------
Net Cash Used by Investment Activities (130.5) (119.1)
------ ------
Cash Flows - Financing Activities:
Increase in notes payable 245.3 28.8
Issuance of long-term debt 46.8 40.4
Payment of long-term debt (119.5) (150.5)
Common stock issued 47.4 34.9
Purchases of common stock for treasury (219.8) (1.7)
Dividends paid (235.7) (223.8)
Other, net (8.7) (10.0)
------ ------
Net Cash Used by Financing Activities (244.2) (281.9)
------ ------
Increase in Cash and Cash Equivalents $ 10.4 $ 22.7
====== ======
<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 thirty-nine weeks ended February 23,
1997, 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 January 31, 1997, the Company acquired the branded ready-to-eat cereal and
snack mix businesses of Ralcorp Holdings, Inc., including its Chex and Cookie
Crisp brands. This acquisition includes a Cincinnati, Ohio, manufacturing
facility that employs 240 people, and trademark and technology rights for the
branded products in the Americas. The purchase price of $570 million (subject to
a purchase price adjustment) involves a combination of about $355 million in
General Mills common stock (approximately 5.4 million shares) and the assumption
of about $215 million of Ralcorp debt and accrued interest. This acquisition has
been accounted for under the purchase method of accounting. The purchase price
has been preliminarily allocated based on estimated fair values at date of
acquisition, pending final determination of certain acquired balances. The
results of the acquired businesses have been included in the consolidated
financial statements since the date of acquisition.
(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
recorded in the first quarter upon adoption of SFAS No. 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 impaired assets include machinery and equipment related to inventory
production at various plant locations. 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 first nine months, we paid $58.8 million for interest (net of amount
capitalized) and $186.4 million for income taxes.
In the third quarter, we issued common stock of $355 million and assumed debt
and accrued interest of $215 million in the acquisition of the branded business
of Ralcorp Holdings, Inc. (see Note 2).
(5) Stockholders' Equity
We purchased 3.9 million shares of our common stock in the open market for
$219.2 million during the first nine months of fiscal 1997.
We also issued put options, through private placements, for 2.2 million shares
of our common stock for $3.5 million in premiums. As of February 23, 1997, put
options for 1.5 million shares remain outstanding at exercise prices ranging
from $64.00 to $66.71 per share with exercise dates from May 1997 to August
1997.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Operations generated $47.8 million less cash in the first nine months of fiscal
1997 than in the same prior-year period. The decrease in cash provided by
operations as compared to last year was caused by a $27.3 million increase in
the working capital change (principally, a decrease in accounts payable) and by
a $20.5 million decrease in cash from operating results, after adjustment for
non-cash charges.
Fiscal 1997 capital expenditures are estimated to be approximately $160.0
million. During the first nine months, capital expenditures totaled $113.7
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 nine months activity included issuance of $38.0 million and
repurchases and debt payments of $117.2 million under this program.
In the first nine months of fiscal 1997, we acquired 3.9 million shares of
common stock for our treasury for $219.2 million.
RESULTS OF OPERATIONS
Third quarter sales of $1,289.6 million were down 1 percent from the prior year
due to lower Big G cereal prices implemented in June 1996 and a 1 percent
decline in domestic retail packaged food volume. The unit volume comparison
reflects lower levels of marketing spending in this year's third quarter and the
impact of two less shipping days in the period due to holiday timing. Nine
months sales of $4,165.3 million grew 3 percent.
Third quarter earnings from operations of $122.8 million ($.78 per share) were
up 6 percent from $116.3 million ($.73 per share) reported last year. Results
for the third quarter were reduced 2 cents per share as expected by the
acquisition of the Ralcorp branded cereal and snacks businesses completed
January 31, 1997. Cumulative earnings from operations of $406.4 million ($2.58
per share), before the non-cash charge associated with the adoption of SFAS No.
121 (see Note (3)) increased 2 percent from $398.9 million ($2.51 per share)
last year. Adoption of SFAS No. 121 resulted in a first quarter non-cash,
after-tax charge of $29.2 million, or 18 cents per share. Including this
non-cash charge, nine months earnings were $377.2 million ($2.40 per share).
The first half of this year was characterized by above-trendline 6 percent unit
volume growth, but earnings were essentially flat because they included the
majority of the impact from Big G's cereal price declines. Third-quarter results
show just the reverse--domestic volume was down slightly but earnings were up,
reflecting lower levels of marketing activity versus the prior year and the full
implementation of expense reductions made in conjunction with the cereal price
declines.
The nine-month earnings results include approximately 18 cents of the expected
20 cents per share earnings impact in 1997 from Big G's cereal price decline,
with about 2 cents falling in the third quarter. The nine-month unit volume and
earnings results, excluding the effects of the cereal price declines, were in
line with our expectations. Fourth-quarter marketing activity will include the
launch of our corporate-wide promotion centered on the movie "The Lost World:
Jurassic Park." We expect unit volume growth to resume in the fourth quarter.
The strength of that volume increase will be the key factor determining our
annual earnings gain.
Through nine months, total domestic retail unit volume was up 4 percent, and
market shares were even or up for virtually all of the company's major product
lines. For the third quarter, Snacks led unit volume performance with an 8
percent gain, including good growth from fruit snacks and strong initial results
for new Golden Grahams Treats snack bars. Yoplait and Colombo yogurt volume was
up 9 percent in the quarter, driven by good performance from core Yoplait lines
and the continued successful geographic expansion of Colombo distribution.
Third-quarter volumes for desserts and Helper dinner mixes were down from
particularly strong prior-year levels.
Big G cereal unit volume was down 3 percent in the third quarter reflecting the
shift of some volume into the second quarter, when cereal volume grew more than
10 percent, and lower promotional spending levels versus the prior year. The new
French Toast Crunch and Betty Crocker Cinnamon Streusel and Dutch Apple cereals
introduced in the second quarter continued to post good initial results.
Together with Frosted Cheerios, introduced in September 1995, these new cereals
contributed more than 3 share points in the quarter. Through nine months, Big G
volume was up 4 percent, outpacing the ready-to-eat cereal category's 1 percent
growth in all measured outlets. As a result, Big G share through nine months
(excluding the acquired Ralcorp brands) was up nearly 1 point to 24 percent.
Unit volume for the company's expanding international operations was up 8
percent for the third quarter and through nine months. Cereal Partners Worldwide
(CPW), the company's joint venture with Nestle, led international volume
performance with 18 percent gains in the quarter and nine months. CPW continues
to record share gains in its major established markets while expanding to new
market areas. Late in calendar 1996 CPW entered Brazil, and the venture is
currently expanding to markets in central and eastern Europe. In Canada, cereal
volume was up more than 17 percent in the third quarter, pacing a total unit
volume increase of 15 percent. Volume for the Snack Ventures Europe (SVE) joint
venture with PepsiCo was down in the quarter and through nine months versus
prior-year results that included heavy promotional activity in key markets. The
International Dessert Partners (IDP) joint venture with CPC International
expanded operations beyond its four initial Latin American markets to Uruguay,
Chile and Peru, and continued to record good distribution gains in its
introductory year. International earnings for the quarter and nine months were
below the prior year's, primarily due to year-one development spending for IDP,
SVE's key market volume declines, and new market expansion by CPW.
During the quarter, General Mills issued approximately 5.4 million common shares
in conjunction with its acquisition of the Ralcorp branded cereal and snacks
businesses. Following the close of that transaction, the company renewed its
share repurchase activity, consistent with the previously stated long-term goal
of reducing shares outstanding by 1 to 2 percent annually. Third quarter
purchases totaled 150,000 shares, bringing the nine-month total to 3.9 million
shares repurchased. Third-quarter average shares outstanding totaled 157.5
million shares, down 1.7 million shares from the same period a year earlier.
Interest expense was $5.4 million lower for the first nine months, primarily
reflecting lower debt levels and rates. Our reported tax rate for the first nine
months was 36.5 percent. Excluding the effects of SFAS No. 121, our tax rate for
the first nine months was 36.7 percent, compared to 37.1 percent in last year's
comparable period.
PART II. OTHER INFORMATION
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 26, 1996, 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 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 January 28, 1997 the Company filed a report on Form 8-K updating the
financial statements contained in the December 27, 1996 Proxy
Statement-Prospectus concerning the acquisition of Ralcorp Holdings,
Inc. and on February 13, 1997 the Company filed a report on Form 8-K
describing the completion of the transaction and filing as exhibits
certain documents relating to the acquisition and debt assumed by the
Company in connection with the acquisition.
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 3, 1997 /s/ S. S. Marshall
------------- ----------------------------------
S. S. Marshall
Senior Vice President,
General Counsel
Date April 3, 1997 /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>
Thirty-Nine Weeks Ended
February 23, February 25,
1997 1996
<S> <C> <C>
Net Earnings $377.2 $398.9
====== ======
Computation of Shares:
Weighted average number of shares outstanding,
excluding shares held in treasury (a) 157.3 158.8
Net shares resulting from the assumed exercise of
certain stock options (b) 4.2* 3.1*
Total common shares and common share equivalents 161.5 161.9
====== =====
Earnings per Share $ 2.40 $ 2.51
<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 157.3 million and 158.8 million for the first nine months of fiscal 1997
and 1996, respectively.
</FN>
</TABLE>
Exhibit 12
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Thirty-Nine Weeks Ended Fiscal Year Ended
February 23, February 25, May 26, May 28, May 29, May 30, May 31,
1997 1996 1996 1995 1994 1993 1992
--------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings
to Fixed Charges 7.48 7.56 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 pretax earnings or
losses of joint ventures 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 23, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-25-1997
<PERIOD-START> MAY-27-1996
<PERIOD-END> FEB-23-1997
<CASH> 31,000,000
<SECURITIES> 0
<RECEIVABLES> 413,700,000
<ALLOWANCES> 0
<INVENTORY> 413,000,000
<CURRENT-ASSETS> 1,106,300,000
<PP&E> 2,532,200,000
<DEPRECIATION> (1,251,600,000)
<TOTAL-ASSETS> 3,987,800,000
<CURRENT-LIABILITIES> 1,559,900,000
<BONDS> 1,224,700,000
0
0
<COMMON> 578,900,000
<OTHER-SE> 70,100,000
<TOTAL-LIABILITY-AND-EQUITY> 3,987,800,000
<SALES> 4,165,300,000
<TOTAL-REVENUES> 4,165,300,000
<CGS> 1,743,500,000
<TOTAL-COSTS> 1,743,500,000
<OTHER-EXPENSES> 131,000,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,500,000
<INCOME-PRETAX> 601,700,000
<INCOME-TAX> 219,700,000
<INCOME-CONTINUING> 377,200,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377,200,000
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.40
</TABLE>
