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 30, 1998
/ / 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 23, 1998, General Mills had 152,937,831 shares of its
$.10 par value common stock outstanding (excluding 51,215,501 shares
held in treasury).
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
GENERAL MILLS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (In Millions, Except per Share Data)
Thirteen Weeks Ended
August 30,August 24,
1998 1997
<S> <C> <C>
Sales $1,473.1 $1,416.5
Costs and Expenses:
Cost of sales 583.7 581.7
Selling, general and administrative 634.1 588.7
Interest, net 29.8 31.2
Unusual items - (.4)
Total Costs and Expenses 1,247.6 1,201.2
Earnings before Taxes and Earnings
(Losses) of Joint Ventures 225.5 215.3
Income Taxes 83.1 81.5
Earnings (Losses) from Joint Ventures 2.6 .5
Net Earnings $ 145.0 $ 134.3
Earnings per Share $ .94 $ .84
Average Number of Common Shares 154.1 159.7
Earnings per Share - Assuming Dilution $ .92 $ .82
Average Number of Common Shares - Assuming
Dilution 157.4 163.7
Dividends per Share $ .53 $ .53
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
(Unaudited) (Unaudited)
----------- -----------
August 30, August 24, May 31,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 29.7 $ 18.2 $ 6.4
Receivables 458.4 419.3 395.1
Inventories:
Valued primarily at FIFO 211.2 205.7 168.3
Valued at LIFO (FIFO value exceeds LIFO by
$39.1, $48.5 and $39.1, respectively) 261.6 251.6 221.4
Prepaid expenses and other current assets 74.0 111.1 107.2
Deferred income taxes 135.4 106.7 136.9
Total Current Assets 1,170.3 1,112.6 1,035.3
Land, Buildings and Equipment, at Cost 2,539.7 2,605.9 2,489.0
Less accumulated depreciation (1,336.6) (1,330.8) (1,302.7)
Net Land, Buildings and Equipment 1,203.1 1,275.1 1,186.3
Intangibles 625.4 649.2 630.4
Other Assets 1,026.1 925.6 1,009.4
Total Assets $4,024.9 $3,962.5 $3,861.4
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 657.7 $ 662.8 $ 593.1
Current portion of long-term debt 146.9 171.4 153.2
Notes payable 424.1 189.9 264.1
Accrued taxes 197.9 169.3 148.5
Other current liabilities 254.1 232.3 284.8
Total Current Liabilities 1,680.7 1,425.7 1,443.7
Long-term Debt 1,612.2 1,497.0 1,640.4
Deferred Income Taxes 282.5 275.8 284.8
Deferred Income Taxes - Tax Leases 129.4 144.1 129.1
Other Liabilities 174.3 173.8 173.2
Total Liabilities 3,879.1 3,516.4 3,671.2
Stockholders' Equity:
Cumulative preference stock, none issued - - -
Common stock, 204.2 shares issued 620.5 585.8 619.6
Retained earnings 1,686.2 1,585.6 1,622.8
Less common stock in treasury, at cost,
shares of 51.0, 45.6 and 49.4,
respectively (2,048.0) (1,604.1) (1,935.7)
Unearned compensation (73.1) (79.0) (75.4)
Accumulated other comprehensive income (39.8) (42.2) (41.1)
Total Stockholders' Equity 145.8 446.1 190.2
Total Liabilities and Equity $4,024.9 $3,962.5 $3,861.4
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) (In Millions)
Thirteen Weeks Ended
August 30, August 24,
1998 1997
---- ----
Cash Flows - Operating Activities:
Net earnings $145.0 $134.3
Adjustments to reconcile earnings to cash flow:
Depreciation and amortization 47.1 48.9
Deferred income taxes (3.9) 2.9
Change in current assets and liabilities (41.2) 20.4
Unusual items - (.4)
Other, net (7.6) 9.7
Cash provided by continuing operations 139.4 215.8
Cash used by discontinued operations (.8) (1.1)
Net Cash Provided by Operating Activities 138.6 214.7
Cash Flows - Investment Activities:
Purchases of land, buildings and equipment (63.0) (40.1)
Investments in businesses, intangibles and
affiliates, net of investment returns
and dividends (2.9) 15.4
Purchases of marketable investments (2.4) (2.2)
Proceeds from sale of marketable investments 16.8 30.6
Other, net .9 (24.2)
Net Cash Used by Investment Activities (50.6) (20.5)
Cash Flows - Financing Activities:
Change in notes payable 161.8 (9.2)
Issuance of long-term debt 2.4 2.1
Payment of long-term debt (31.8) (.2)
Common stock issued 10.4 18.6
Purchases of common stock for treasury (125.6) (119.2)
Dividends paid (82.0) (84.7)
Other, net .1 3.8
Net Cash Used by Financing Activities (64.7) (188.8)
Increase in Cash and Cash Equivalents $ 23.3 $ 5.4
See accompanying notes to consolidated condensed financial statements.
<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 30, 1998
are not necessarily indicative of the results that may be expected for the
fiscal year ending May 30, 1999.
These statements should be read in conjunction with the financial statements and
footnotes included in our annual report for the year ended May 31, 1998. 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.
(3) Statements of Cash Flows
During the quarter, we made interest payments of $15.9 million (net of amount
capitalized) and paid $34.9 million in income taxes.
(4) Comprehensive Income
We adopted Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," effective June 1, 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components, including all changes in equity during a period except those
resulting from investments by owners or distributions to owners. The following
table summarizes total comprehensive income for the periods presented (in
millions):
Thirteen Weeks Ended
Aug. 30, Aug. 24,
1998 1997
Net Earnings $145.0 $134.3
Other comprehensive income (loss):
Unrealized gain on securities 2.7 2.3
Foreign currency translation
adjustments (1.4) (7.6)
----------- ----- -----
1.3 (5.3)
Total comprehensive income $146.3 $129.0
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Operations generated $76.4 million less cash in the first quarter of fiscal 1999
than in the same prior-year period. The decrease in cash provided by operations
as compared to last year was caused by a $61.6 million increase in the working
capital change (primarily due to receivables) and by a $14.8 million decrease in
cash from operations, after adjustment for non-cash items.
Fiscal 1999 capital expenditures are estimated to be approximately $200 million.
During the first three months, capital expenditures totaled $63.0 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. Activity through three months under this program consisted of debt
payments of $30.0 million.
In the first quarter of fiscal 1999, we acquired 1.9 million shares of common
stock for our treasury for $125.6 million.
RESULTS OF OPERATIONS
Sales in the first quarter grew 4 percent to $1,473.1 million. First quarter net
earnings of $145.0 million ($.94 per share), increased by 8 percent from $134.3
million ($.84 per share). Basic earnings per share of $.94 for the first quarter
of fiscal 1999 were up 12 percent from $.84 earned in the same period last year.
Diluted earnings per share also rose 12 percent to $.92.
We recorded several unusual items in the first quarter last year that added a
net $.4 million to pre-tax income and had no material after-tax impact. These
items included charges related to productivity initiatives by the company's
Snack Ventures Europe joint venture with PepsiCo and several other small
restructuring actions, which were offset by receipt of a settlement from one of
the company's insurance carriers for costs previously incurred from an
independent contractor's improper treatment of some oat supplies.
First-quarter results met our expectations and represented a good start to the
year. Unit volume was up for each of our U.S. retail food divisions in the
quarter. International unit volume grew 5 percent, with earnings from our joint
ventures contributing to profit growth. In addition, we continued to record good
productivity gains companywide.
Our domestic unit volume grew 4 percent in the first quarter, with Big G cereal
volume up 1 percent and combined volume for all other U.S. businesses up 6
percent. Unit volume for our convenience food businesses (yogurt and snack
foods) was up 9 percent. This included gains of 17 percent for fruit snacks and
11 percent for Pop Secret microwave popcorn, driven by strong new flavor
varieties and effective back-to-school merchandising programs. Chex Mix snack
volume was up 30 percent. Yogurt volume grew more than 13 percent in the first
quarter, led by Yoplait Original Style, Custard Style and Trix multipack product
lines. Volume for Betty Crocker baking products, dinner and side dish mixes rose
nearly 5 percent. Foodservice volume was down 1 percent in the first quarter.
Big G cereals' 1 percent volume increase included good performance from
established brands, led by Cheerios, Honey Nut Cheerios and the line of Total
fortified cereals. Cinnamon Grahams cereal, introduced nationwide in August
1997, and new Honey Nut Chex, which began entering distribution in about 20
percent of the U.S. in August 1998, also contributed to volume growth. For the
cereal category, pound volume in all measured outlets declined 1 percent from
the prior year, when first-quarter category volume grew 2 percent. Big G retail
movement in the quarter was also below year-ago levels, reflecting differences
in new product activity and merchandising timing. Big G's pound market share for
the period was 24.5 percent and dollar share was 30.3 percent.
Combined unit volume for our international operations grew 5 percent in the
first quarter. Cereal Partners Worldwide (CPW), our joint venture with Nestle,
led international performance and achieved a 9 percent volume gain. The volume
growth was broadly based, including good increases recorded in western European
markets, Poland, and Latin America. Volume for the International Dessert
Partners (IDP) joint venture with Bestfoods in Latin America was lower in the
quarter. Snack Ventures Europe (SVE), our joint venture with PepsiCo, posted a
12 percent volume increase with good performance in core Western European
markets. In Canada, unit volume declined slightly and profits were adversely
affected by the impact of foreign currency translation. However, Canadian cereal
unit volume was up 1 percent and market shares were strong.
During the quarter, we repurchased 1.9 million shares of common stock at an
average price of approximately $66 per share. This activity is consistent with
our ongoing share repurchase program, which has a goal of reducing the number of
shares outstanding by an average of 1 to 2 percent annually. Average shares
outstanding (basic) for the quarter totaled 154.1 million. This was down
significantly from the previous year's first-quarter average of 159.7 million
shares, which reflected the issuance of 5.4 million shares in conjunction with
our February 1997 acquisition of the Ralcorp branded cereal and snack
businesses. Cumulative open-market share repurchases since that time have
exceeded the number of shares issued in that transaction. Interest expense in
the first quarter totaled $29.8 million, down slightly from last year's $31.2
million due to favorable rates.
Our tax rate (excluding unusual items) for the quarter was 36.9 percent compared
to 37.7 percent in last year's quarter. The rate decrease was due primarily to a
reduced state effective rate. Our reported tax rates for first quarter fiscal
1999 and 1998 were 36.9 percent and 37.9 percent, respectively.
YEAR 2000
The year 2000 issue is the result of computer programs written using two digits
(rather than four) to define years. Computers or other equipment with
date-sensitive software may recognize "00" as 1900 rather than 2000. This could
result in system failures or miscalculations. If we, or our significant
customers, suppliers or other third parties fail to correct year 2000 issues,
our ability to operate our businesses could be affected.
We have assessed the impact of year 2000 issues on the processing of
date-related information for all of our information systems infrastructure and
non-technical assets (e.g., plant production equipment). All systems and assets
have been inventoried and classified as to their compliance with year 2000 data
processing. Any systems found year 2000 deficient will be modified, upgraded or
replaced. Project plans anticipate all existing, critical information systems
infrastructure to be year 2000 compliant by early in calendar 1999 and all plant
production equipment to be year 2000 compliant by the middle of calendar 1999.
Contingency plans will be in place by the middle of calendar 1999 to address any
failures resulting from relationships with significant customers, suppliers or
other third parties. However these plans do not guarantee that circumstances
beyond our control will not adversely impact our operations. Based on
assessments and testing to date, we do not expect the financial impact of
addressing internal system year 2000 issues to be material to our financial
position, results of operations or cash flows.
<PAGE>
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 31, 1998, 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 first
quarter of fiscal 1999.
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 8, 1998 /s/ S. S. Marshall
S. S. Marshall
Senior Vice President,
General Counsel
Date October 8, 1998 /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)
Thirteen Weeks Ended
August 30, August 24,
1998 1997
Net Earnings $145.0 $134.3
Average Number of Common Shares - Basic EPS (a) 154.1 159.7
Incremental Share Effect from:
-Stock options (b) 3.2 3.9
-Restricted stock, stock rights and puts .1 .1
Average Number of Common Shares - Diluted EPS 157.4 163.7
Earnings per Share - Basic $ .94 $ .84
Earnings per Share - Assuming Dilution $ .92 $ .82
Notes to Exhibit 11:
(a) Computed as the weighted average of net shares outstanding on
stock-exchange trading days.
(b) Common share equivalents from stock options 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.
Exhibit 12
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Thirteen Weeks Ended Fiscal Year Ended
August 30, August 24, May 31, May 25, May 26, May 28, May 29,
1998 1997 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings
to Fixed Charges 7.29 6.70 5.63 6.54 6.94 4.10 6.18
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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from our
Form 10-Q for the thirteen week period ended Augu7st 30, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-30-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-30-1998
<CASH> 29,700,000
<SECURITIES> 0
<RECEIVABLES> 458,400,000
<ALLOWANCES> 0
<INVENTORY> 472,800,000
<CURRENT-ASSETS> 1,170,300,000
<PP&E> 2,539,700,000
<DEPRECIATION> (1,336,600,000)
<TOTAL-ASSETS> 4,024,900,000
<CURRENT-LIABILITIES> 1,680,700,000
<BONDS> 1,612,200,000
0
0
<COMMON> 620,500,000
<OTHER-SE> (474,700,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,024,900,000
<SALES> 1,473,100,000
<TOTAL-REVENUES> 1,473,100,000
<CGS> 583,700,000
<TOTAL-COSTS> 583,700,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,800,000
<INCOME-PRETAX> 225,500,000
<INCOME-TAX> 83,100,000
<INCOME-CONTINUING> 145,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,000,000
<EPS-PRIMARY> .94
<EPS-DILUTED> .92
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from our
Form 1o-Q for the thirteen week period ended August 24, 1997, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> MAY-26-1997
<PERIOD-END> AUG-24-1997
<CASH> 18,200,000
<SECURITIES> 0
<RECEIVABLES> 419,300,000
<ALLOWANCES> 0
<INVENTORY> 457,300,000
<CURRENT-ASSETS> 1,112,600,000
<PP&E> 2,605,900,000
<DEPRECIATION> (1,330,800,000)
<TOTAL-ASSETS> 3,962,500,000
<CURRENT-LIABILITIES> 1,425,700,000
<BONDS> 1,497,000,000
0
0
<COMMON> 585,800,000
<OTHER-SE> (139,700,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,962,500,000
<SALES> 1,416,500,000
<TOTAL-REVENUES> 1,416,500,000
<CGS> 581,700,000
<TOTAL-COSTS> 581,700,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,200,000
<INCOME-PRETAX> 215,300,000
<INCOME-TAX> 81,500,000
<INCOME-CONTINUING> 134,300,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,300,000
<EPS-PRIMARY> .84
<EPS-DILUTED> .82
</TABLE>
