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 27, 2000
/ / 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)
(763) 764-2311
(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, 2000, General Mills had 282,602,249 shares of its $.10 par
value common stock outstanding (excluding 125,704,415 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 27, August 29,
2000 1999
--------- ---------
Sales $1,674.9 $1,573.6
Costs and Expenses:
Cost of sales 653.3 621.4
Selling, general and administrative 725.5 677.2
Interest, net 54.8 32.7
-------- --------
Total Costs and Expenses 1,433.6 1,331.3
-------- --------
Earnings before Taxes and Earnings
from Joint Ventures 241.3 242.3
Income Taxes 85.4 87.3
Earnings from Joint Ventures 3.0 3.5
-------- --------
Net Earnings $ 158.9 $ 158.5
======== ========
Earnings per Share - Basic $ .56 $ .52
======== ========
Average Number of Common Shares 283.7 304.2
======== ========
Earnings per Share - Diluted $ .55 $ .50
======== ========
Average Number of Common Shares -
Assuming Dilution 290.5 314.2
======== ========
Dividends per Share $ .275 $ .275
======== ========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
(Unaudited) (Unaudited)
----------- -----------
August 27, August 29, May 28,
2000 1999 2000
--------- --------- --------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 53.2 $ 46.0 $ 25.6
Receivables 555.5 522.0 500.6
Inventories:
Valued primarily at FIFO 223.2 228.0 211.8
Valued at LIFO (FIFO value exceeds LIFO by
$32.4, $34.0 and $32.4, respectively) 334.7 282.1 298.7
Prepaid expenses and other current assets 78.4 77.4 87.7
Deferred income taxes 65.9 98.3 65.9
-------- -------- --------
Total Current Assets 1,310.9 1,253.8 1,190.3
-------- -------- --------
Land, Buildings and Equipment, at Cost 2,992.6 2,810.1 2,949.2
Less accumulated depreciation (1,571.4) (1,459.2) (1,544.3)
-------- -------- --------
Net Land, Buildings and Equipment 1,421.2 1,350.9 1,404.9
Intangibles 870.4 838.6 870.3
Other Assets 1,166.7 1,061.0 1,108.2
-------- -------- --------
Total Assets $4,769.2 $4,504.3 $4,573.7
======== ======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 616.7 $ 678.1 $ 641.5
Current portion of long-term debt 367.7 129.6 413.5
Notes payable 1,153.3 751.1 1,085.8
Accrued taxes 177.7 184.7 104.9
Other current liabilities 264.9 274.8 283.4
-------- -------- --------
Total Current Liabilities 2,580.3 2,018.3 2,529.1
Long-term Debt 1,917.9 1,687.3 1,760.3
Deferred Income Taxes 302.2 293.6 297.2
Deferred Income Taxes - Tax Leases 90.0 111.5 89.8
Other Liabilities 180.8 177.3 186.1
-------- -------- --------
Total Liabilities 5,071.2 4,288.0 4,862.5
-------- -------- --------
Stockholders' Equity:
Cumulative preference stock, none issued - - -
Common stock, 408.3 shares issued 696.2 666.2 680.6
Retained earnings 2,194.8 1,902.7 2,113.9
Less common stock in treasury, at cost, shares
of 125.5, 104.1 and 122.9, respectively (3,051.0) (2,222.1) (2,934.9)
Unearned compensation (63.5) (69.1) (62.7)
Accumulated other comprehensive income (78.5) (61.4) (85.7)
-------- -------- --------
Total Stockholders' Equity (302.0) 216.3 (288.8)
--------- -------- ---------
Total Liabilities and Equity $4,769.2 $4,504.3 $4,573.7
======== ======== ========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GENERAL MILLS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) (In Millions)
Thirteen Weeks Ended
----------------------
August 27, August 29,
2000 1999
--------- ---------
<S> <C> <C>
Cash Flows - Operating Activities:
Net earnings $158.9 $158.5
Adjustments to reconcile earnings to cash flow:
Depreciation and amortization 51.1 47.9
Deferred income taxes 1.8 4.9
Changes in current assets and liabilities (30.8) (53.1)
Tax benefit on exercised options 5.7 17.2
Other, net (20.8) (10.6)
------- -------
Cash provided by continuing operations 165.9 164.8
Cash used by discontinued operations (.1) (.7)
------- -------
Net Cash Provided by Operating Activities 165.8 164.1
------ -------
Cash Flows - Investment Activities:
Purchases of land, buildings and equipment (60.3) (67.0)
Investments in businesses, intangibles and
affiliates, net of investment returns and dividends (35.6) (194.1)
Purchases of marketable investments (10.1) (2.8)
Proceeds from sale of marketable investments .4 .4
Other, net (.3) 8.0
------- ------
Net Cash Used by Investment Activities (105.9) (255.5)
Cash Flows - Financing Activities:
Change in notes payable 68.3 226.0
Issuance of long-term debt 177.9 51.6
Payment of long-term debt (62.0) (23.4)
Common stock issued 14.9 23.8
Purchases of common stock for treasury (161.8) (61.0)
Dividends paid (78.1) (83.7)
Other, net 8.5 .2
------ ------
Net Cash Used by Financing Activities (32.3) 133.5
------- ------
Increase in Cash and Cash Equivalents $ 27.6 $ 42.1
====== ======
See accompanying notes to consolidated condensed financial statements.
</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 27, 2000
are not necessarily indicative of the results that may be expected for the
fiscal year ending May 27, 2001.
These statements should be read in conjunction with the financial statements and
footnotes included in our annual report for the year ended May 28, 2000. 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) Pending Acquisition
On July 16, 2000, the Company and Diageo plc (Diageo) entered into a merger
agreement, under which the Company expects to acquire Diageo's worldwide
Pillsbury operations. The transaction will be accounted for as a purchase. Under
the terms of the agreement, the Company will acquire Pillsbury in a
stock-for-stock exchange. The consideration to Diageo will include 141 million
shares of the Company's common stock and the assumption of $5.14 billion of
Pillsbury debt. Up to $642 million of the total transaction value may be repaid
to the Company at the first anniversary of the closing, depending on the
Company's stock price at that time. The total cost of the acquisition (exclusive
of direct acquisition costs) is estimated at approximately $10.2 billion. The
transaction has been approved by the boards of directors of both companies, and
is subject to regulatory review and approval by both companies' shareholders.
The transaction is expected to close late in calendar 2000. The Company's
results of operations will include Pillsbury's operations beginning with the
acquisition date.
(3) Statements of Cash Flows
During the quarter, we made interest payments of $34.6 million (net of amount
capitalized) and paid $2.3 million in income taxes.
(4) Comprehensive Income
The following table summarizes total comprehensive income for the periods
presented (in millions):
Thirteen Weeks Ended
----------------------
Aug. 27, Aug. 29,
2000 1999
------- -------
Net Earnings $ 158.9 $158.5
Other comprehensive income (loss):
Unrealized gain (loss) on securities 5.4 (2.2)
Foreign currency translation adjustments 1.8 (2.3)
---- -----
7.2 (4.5)
----- -------
Total comprehensive income $ 166.1 $154.0
======== =======
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Continuing operations generated $165.9 million of cash in the first quarter of
fiscal 2001 compared to $164.8 million in the same prior-year period.
Fiscal 2001 capital expenditures are estimated to be approximately $300 million,
exclusive of any capital expenditures associated with the Pillsbury business,
which the Company expects to acquire during the fiscal year. If the acquisition
of the Pillsbury business is completed late in calendar 2000 as planned, total
fixed asset spending for fiscal 2001 would be approximately $400 million. During
the first three months, capital expenditures totaled $60.3 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 the
issuance of $175.3 million in notes and debt payments of $61.5 million.
RESULTS OF OPERATIONS
Sales in the first quarter grew 6 percent to $1,674.9 million. Earnings before
interest, taxes and joint ventures grew 8 percent to $296.1 million. However,
interest expense in the quarter was $22.1 million higher than last year's first
quarter, due to increased debt levels associated with prior year acquisitions
and share repurchase activity. As a result, first quarter net earnings of $158.9
million were essentially even with last year's $158.5 million. Basic earnings
per share of $.56 for the first quarter of fiscal 2001 were up 8 percent from
$.52 earned in the same period last year. Diluted earnings per share rose to
$.55 from $.50 in the same period last year.
First-quarter domestic unit volume grew more than 7 percent. That gain included
5 percent volume growth from the Company's established businesses, and 2
percentage points of incremental volume growth from the Gardetto's and Small
Planet Foods businesses acquired in fiscal 2000.
Domestic noncereal volume grew 12 percent in the quarter, 8 percent excluding
acquisitions. The Company's convenience foods business (snacks and yogurt) led
this growth with a 20 percent unit volume increase. In yogurt, strong growth for
core Yoplait and Yoplait Go-Gurt brands drove double-digit gains in both
shipments and retail volume. Yoplait and Colombo increased their leadership
dollar share 2 points to 35 percent for the quarter. Snacks volume also grew at
a double-digit pace, on the strength of good growth for Chex Mix, Nature Valley
granola bars and fruit snacks. Combined unit volume for Betty Crocker baking
products, side dish and dinner mixes was down 1 percent. Volumes for family
flour and baking mixes were lower, and Betty Crocker dessert mix shipments were
down slightly, but first-quarter consumer movement for desserts was up 3
percent. Unit volume for Helper dinner mixes increased 8 percent, led by 7
percent growth from the core Hamburger Helper line. Foodservice unit volume was
up 14 percent, with continued good growth for cereals, refrigerated yogurt and
snacks, including the incremental contribution from Gardettos. Strong growth for
General Mills brands in convenience stores also contributed to that foodservice
volume gain.
<PAGE>
Big G's first quarter comparison was particularly difficult. Last year's first
quarter included introductory marketing activity for three new products, which
fueled a 3 percent increase in shipments and a 7 percent consumer volume gain.
In the current year's first quarter, Big G shipments were up slightly and retail
pound volume was down 5 percent. As a result, Big G's pound market share for the
quarter decreased 1 point to 25 percent. These declines reflect a lower
contribution from new products. However, market share for Big G's top 10
established brands grew slightly, led by Cheerios, Cinnamon Toast Crunch and
Lucky Charms. At the end of the quarter, two new Big G products began shipping
regionally: Milk n' Cereal Bars and Harmony, a cereal designed to meet the
unique nutritional needs of women. These new products will contribute to Big G's
volume and market share for the remainder of fiscal 2001.
Combined unit volume for the Company's international operations grew 11 percent
in the first quarter. Snack Ventures Europe (SVE), the Company's joint venture
with PepsiCo, posted a first-quarter volume gain of 13 percent. That gain was
driven by good performance in SVE's core markets and the venture's continued
recovery in Russia. Cereal Partners Worldwide (CPW), the Company's joint venture
with Nestle, posted a 3 percent volume increase. CPW recorded good volume gains
in a number of its key markets across Europe, Latin America and Asia. In the
U.K., CPW's volume was down slightly due to lower private label shipments, but
volume for its U.K. branded business was up 8 percent. Earnings after tax from
the Company's joint ventures were $3.0 million, compared to $3.5 million last
year. For the Company's wholly-owned food business in Canada, first-quarter
volume increased 15 percent. That growth was led by a 7 percent increase in
cereal shipments and strong growth for snacks.
As a result of the Company's ongoing share repurchase program, average basic
shares outstanding for the quarter totaled 283.7 million this year, 7 percent
lower than the 304.2 million average a year earlier. Average diluted shares
outstanding declined 8 percent to 290.5 million. During the quarter, General
Mills repurchased approximately 3.6 million shares of common stock. Interest
expense for the quarter totaled $54.8 million, up $22.1 million versus the prior
year, reflecting the impact of higher debt levels associated with prior year
acquisitions and the repurchase of 23.2 million shares of General Mills common
stock last year. If the acquisition of the Pillsbury business is completed in
calendar 2000 as planned, interest expense for fiscal 2001 will be significantly
above the $151.9 million total reported in fiscal 2000 due to the incremental
debt associated with the acquisition.
Our tax rate for the quarter was 35.4 percent compared to 36.0 percent in last
year's quarter. The rate decrease was due to positive effects of various tax
initiatives and credits. If the acquisition of Pillsbury is completed in fiscal
2001, our effective tax rate will be higher, as goodwill amortization associated
with this proposed acquisition is not tax deductible.
We continue to expect that the previously announced Pillsbury acquisition will
be completed before the end of the calendar year. The Company is making good
progress on plans for a rapid and smooth integration, and it is expected that
the addition of Pillsbury's businesses will provide new platforms for
innovation, to unlock supply chain and administrative synergies, and to
accelerate topline and bottomline growth.
<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 28, 2000, 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
(i) On July 17, 2000, the Company filed Form 8-K with respect to the
announcement by the Registrant that it had entered into an
agreement with Diageo plc to acquire the worldwide operations of
The Pillsbury Company.
(ii) On July 20, 2000, the Company filed Form 8-K, filing as exhibits,
the Agreement and Plan of Merger, dated as of July 16, 2000, by
and among the Registrant, General Mills North American Business,
Inc., Diageo plc and The Pillsbury Company, and the form of
Stockholders Agreement.
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 5, 2000 /s/ S. S. Marshall
--------------- ---------------------------------------
S. S. Marshall
Senior Vice President,
Corporate Affairs and General Counsel
Date October 5, 2000 /s/ K. L. Thome
--------------- ---------------------------------------
K. L. Thome
Senior Vice President,
Financial Operations
<PAGE>
Exhibit 11
GENERAL MILLS, INC.
COMPUTATION OF EARNINGS PER SHARE
(In Millions, Except per Share Data)
Thirteen Weeks Ended
-------------------------
August 27, August 29,
2000 1999
---------- ---------
Net Earnings $ 158.9 $ 158.5
======= =======
Average Number of Common Shares - Basic EPS (a) 283.7 304.2
Incremental Share Effect from:
-Stock options (b) 6.2 9.8
-Restricted stock, stock rights and puts .6 .2
------- -------
Average Number of Common Shares - Diluted EPS 290.5 314.2
======= =======
Earnings per Share - Basic $ .56 $ .52
======= =======
Earnings per Share - Diluted $ .55 $ .50
======= =======
Notes to Exhibit 11:
(a) Computed as the weighted average of net shares outstanding on
stock-exchange trading days.
(b) Incremental shares 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.
<PAGE>
Exhibit 12
<TABLE>
<CAPTION>
RATIO OF EARNINGS TO FIXED CHARGES
Thirteen Weeks Ended Fiscal Year Ended
---------------------- ------------------------------------------
August 27, August 29, May 28, May 30, May 31, May 25, May 26,
2000 1999 2000 1999 1998 1997 1996
---------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings
to Fixed Charges 4.96 7.29 6.25 6.67 5.63 6.54 6.94
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
represent pretax income from operations, plus pretax earnings or losses of joint
ventures plus fixed charges less adjustment for capitalized interest. Fixed
charges represent gross interest and one-third (the proportion deemed
representative of the interest factor) of rents of continuing operations.
