SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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General Mills, Inc.
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<PAGE>
On August 18, 2000, General Mills, Inc. commenced the mailing of its annual
report to shareholders (the "General Mills Annual Report") containing the
following letter to shareholders:
To Our Shareholders:
o The 11,000 women and men of General Mills delivered outstanding performance
in fiscal 2000, generating record financial results for the company.
o Our reported sales grew 7 percent to $6.7 billion.
o Our operating profits grew faster, up 8 percent to nearly $1.1 billion.
o Earnings after tax reached $614.4 million.
o And our diluted earnings per share (EPS) increased 11 percent to a record
$2.00. Excluding goodwill amortization, diluted EPS grew to $2.07. This was
the third straight year that our earnings per share grew at a double-digit
pace.
There were four key factors that drove our performance in 2000. First - and most
important - was the strong unit volume growth achieved by our brands. Total
worldwide unit volume increased 7 percent. That overall gain included
incremental contributions from the Gardetto's snack business and Small Planet
Foods organic brands we acquired in 2000. Lloyd's refrigerated entrees and
Farmhouse side dish mixes, both acquired during the second half of 1999, also
gave us some incremental volume. But setting aside the contributions from
acquisitions, shipments for our established businesses still grew 4 percent in
2000.
This good growth included a 2 percent volume gain by Big G cereals,
which outpaced the cereal category's performance in 2000. As a result, Big G's
share of this market's $7.5 billion in retail dollar sales grew to an
industry-leading 33 percent. Our Yoplait and Colombo yogurt brands posted their
fourth consecutive year of double-digit volume growth in 2000, and Yoplait alone
became the $2 billion yogurt market's number one brand based on dollar sales.
Our Betty Crocker businesses, snack food operations, and foodservice operations
each achieved annual volume gains before acquisitions, too.
Our volume growth in 2000 is a continuation of the progress we've
achieved in recent years. Our domestic unit volume has increased at a compound
rate of better than 5 percent a year since 1996, and our international volume
has grown even faster.
The second key to our growth in 2000 was continued margin expansion.
Our gross margin increased to 59.7 percent of sales, due in large part to
productivity gains achieved across our supply chain activities. We reinvested a
large portion of those productivity savings in marketing programs to build
established brands and support a high level of new product activity. But our
operating margin still improved, to 16.4 percent of sales. That's up from 15.3
percent three years ago, and up from 11.6 percent in 1990.
International business results were a third source of earnings growth
in 2000. Together, our Cereal Partners Worldwide joint venture with Nestle and
our Snack Ventures Europe joint venture with PepsiCo contributed after-tax
profits to General Mills for the first time. We were committed to reaching this
inflection point in 2000, and expect these international ventures to be a
significant source of earnings growth for the company in the years ahead.
<PAGE>
The final factor contributing to our earnings per share growth in 2000
was share repurchases. When our stock price weakened early in calendar 2000,
along with those of many other nontechnology-related companies, we announced
plans to accelerate our repurchases of General Mills stock. In total, we bought
back 23.2 million shares. As a result, basic shares outstanding at year-end
totaled 285.4 million, 6 percent lower than the balance at the close of fiscal
1999.
Our strong operating performance in 2000 was not fully reflected in
the price performance of General Mills' shares. With investor interest focused
on technology stocks for much of the year, price appreciation for consumer
stocks, including ours, was limited. As a result, price appreciation plus
dividends resulted in a total return to General Mills shareholders of 5 percent
in 2000. While this clearly didn't match the Nasdaq's strong return during the
same period, our performance was generally in line with the S&P 500, and we
soundly outperformed our food peer group, which posted a negative 8 percent
return for the year.
Exciting Growth Prospects
We believe that the ability to deliver superior growth will result in
the creation of superior shareholder returns over the long term. That's why
we're very excited about our recently announced plans to acquire the worldwide
Pillsbury operations from Diageo -- because we believe this business combination
can accelerate our sales and earnings growth.
With this acquisition, our worldwide sales base will nearly double, to
almost $13 billion including our share of joint venture revenues. Our expanded
business portfolio will be focused on brands that hold leading share positions
across a number of refrigerated, frozen and dry grocery categories, as shown in
the table below. In fact, brands accounting for 85 percent of our total U.S.
volume will rank number one or number two in their respective categories.
<TABLE>
<CAPTION>
Leading Market Positions
Dollars in Millions Category Size Dollar Share Rank
------------------- ------------- ------------ ----
<S> <C> <C> <C>
General Mills
Ready-to-eat Cereals $7,500 33% 1
Yogurt 2,030 35 1
Dessert Mixes 1,080 41 1
Microwave Popcorn 690 24 2
Refrigerated Meals 580 14 1
Dinner Mixes 570 63 1
Fruit Snacks 460 59 1
Family Flour 340 41 1
Pillsbury
Refrigerated Dough 1,480 79 1
Frozen Vegetables/Meal Starters 2,080 23 1
Ready-to-serve Soup 1,400 22 2
Frozen Breakfast Foods 870 37 2
Frozen Hot Snacks 480 33 1
Mexican Dinner Kits/Shells 280 39 1
Data: ACNielsen
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</TABLE>
Beyond strengthening our U.S. retail business, Pillsbury's operations
will give us significantly broader capabilities in the fast-growing foodservice
channel. In fact, we'll rank as one of the top U.S. foodservice manufacturers
based on dollar sales. And outside the U.S., the addition of Pillsbury will more
than double our sales in fast-growing international markets. Page 4 of this
report shows how the combination of Pillsbury and General Mills creates a
stronger, more balanced portfolio positioned to deliver faster growth.
<PAGE>
Since 1995, our reported sales have grown at a 6 percent compound
rate. With Pillsbury added to our portfolio, we expect our sales growth rate to
be at least a percentage point higher. In addition, we estimate that this
combination will result in pre-tax cost savings of approximately $220 million by
2002, and $400 million annually by fiscal 2003. Those anticipated savings
reflect greater supply-chain efficiencies, streamlining of general and
administrative functions, and synergies in selling and marketing activities.
With the faster topline growth we expect, and opportunities for
ongoing productivity innovation, we believe our EPS growth rate will accelerate,
too. Previously, we were targeting 10 to 13 percent average annual growth in
earnings per share for General Mills over the next decade. With Pillsbury's
businesses added to the mix, our EPS growth rate target will increase, to a
range of 11 to 15 percent. Assuming this transaction is completed as anticipated
in December 2000, General Mills' reported earnings per share would decline in
2001 reflecting the impact of transaction costs and goodwill amortization.
However, we would expect our diluted EPS excluding goodwill amortization (often
called cash EPS) to grow modestly in 2001. Then in 2002 and 2003, we would
expect to deliver EPS growth rates well above our 11 to 15 percent long-term
target, powered by the synergies outlined earlier.
A proxy statement containing detailed information on Pillsbury and
this transaction will be mailed to all General Mills shareholders this fall, in
advance of a special shareholders' meeting we will call to seek your approval of
the acquisition. You are urged to read this proxy statement carefully, because
it will contain important information regarding this business combination. The
transaction also is subject to approval by Diageo shareholders and to regulatory
review.
People Make the Difference
Mike Rose and Angus Wurtele will retire from the General Mills Board
of Directors in September, according to the board's tenure policy. Both have
provided valuable counsel to General Mills for 15 years, and we thank them for
their distinguished service.
As we start the new fiscal year, General Mills people are focused on
delivering superior results again in 2001. We look forward to welcoming
Pillsbury people around the globe to the company. Our two firms have a shared
Minnesota heritage tracing back more than a century, as well as a shared
commitment to building strong and distinctive consumer food brands. The
collective talents, insights and dedication of the people in both companies give
us great confidence in our future.
Sincerely,
/s/ Stephen W. Sanger
Stephen W. Sanger
Chairman of the Board
and Chief Executive Officer
/s/ Stephen R. Demerit
Stephen R. Demeritt
Vice Chairman
/s/ Raymond G. Viault
Raymond G. Viault
Vice Chairman
August 10, 2000
* * * *
<PAGE>
Pages 4-5 of the General Mills Annual Report contain the following introductory
language:
General Mills and Pillsbury
A Stronger Portfolio
Combining General Mills and Pillsbury creates a $13 billion food
company, focused on leading brands that compete in attractive
categories worldwide.
Pages 4-5 of the General Mills Annual Report also contain a pie chart showing
the percentage of General Mills' revenues, on a pro forma basis giving effect to
the pending acquisition of Pillsbury (excluding revenues from businesses
expected to be divested), in each of the Foodservice, International, Dry
Grocery, Refrigerated and Frozen Foods categories along with the following text:
Foodservice Sales $1.7 billion (13%)
With Pillsbury added, our foodservice business will quadruple in size,
making us one of the top U.S. manufacturers in this fast-growing
channel.
International Sales $2.3 billion (18%)
Our sales in fast-growing international markets will exceed $2
billion, including our share of CPW and SVE joint-venture revenues.
Pillsbury's international operations give us manufacturing,
distribution and sales infrastructure in a number of global markets.
Dry Grocery Sales $5.8 billion (46%)
In addition to our current products, which include Big G cereals,
Betty Crocker mixes, Chex Mix and Fruit Roll-Ups snacks, Hamburger
Helper, and Gold Medal flour, we'll offer two new great-tasting and
convenient dry grocery brands - Progresso soups and Old El Paso
Mexican foods.
Refrigerated Sales $1.8 billion (14%)
We'll be the second-largest player in U.S. refrigerated grocery.
Pillsbury's leadership position in the $1.5 billion refrigerated dough
category complements our leading market shares in the $2 billion
yogurt category and the $580 million market for refrigerated entrees.
Frozen Foods Sales $1.2 billion (9%)
We'll have a presence in the freezer case now, with Pillsbury frozen
breakfast pastries and waffles, Green Giant frozen vegetables and meal
starters, and Totino's frozen pizza and snacks. Pillsbury also markets
Haagen-Dazs ice cream as part of a U.S. venture with Nestle.
Key Growth Drivers
We see four strategies as the keys to growing our business and
creating shareholder value. The following pages of this report show
how these strategies are fueling growth for our current businesses. We
believe these same strategies will drive growth for Pillsbury brands.
Product Innovation
Innovation that keeps established brands vital and creates successful
new food products is the key to superior unit volume growth. We will
innovate to add value to our food brands, particularly in ways that
add health benefits or make our products more convenient for
consumers.
Channel Expansion
While traditional grocery stores still account for more than 80
percent of our sales, consumers' food purchases in other channels -
from specialty stores to foodservice outlets - are growing at faster
rates. We will leverage the strength of our brands in these emerging
sales channels.
<PAGE>
International Expansion
From Europe to Latin America to Asia, the markets for convenient,
branded food products are showing strong growth. We will continue to
expand our participation in international markets and build global
food brands.
Margin Expansion
Productivity is the key to growing earnings faster than sales. We see
plenty of opportunity still ahead to innovate and achieve ongoing
productivity gains across the company.
Important Information:
In connection with the pending acquisition of Pillsbury, General Mills will be
filing a Proxy Statement with the Securities and Exchange Commission. SECURITY
HOLDERS OF GENERAL MILLS ARE URGED TO READ THE PROXY STATEMENT WHEN IT BECOMES
AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION REGARDING THIS BUSINESS
COMBINATION. Investors and security holders may obtain a free copy of the proxy
statement when it becomes available at the Securities and Exchange Commission's
website at www.sec.gov.
The materials in this filing contain forward-looking statements based on
management's current expectations and assumptions. Such statements are subject
to certain risks and uncertainties that could cause actual results to differ. In
particular, our predictions about the Pillsbury acquisition could be affected by
regulatory and stockholder approvals; integration problems; failure to achieve
synergies; unanticipated liabilities; inexperience in new business lines; and
changes in the competitive environment. In addition, our future results also
could be affected by a variety of factors such as: competitive dynamics in the
U.S. ready-to-eat cereal market, including pricing and promotional spending
levels by competitors; the impact of competitive products and pricing; product
development; actions of competitors other than as described above; acquisitions
or dispositions of businesses or assets; changes in capital structure; changes
in laws and regulations, including changes in accounting standards; customer
demand; effectiveness of advertising and marketing spending or programs;
consumer perception of health-related issues; economic conditions, including
changes in inflation rates or interest rates; fluctuations in the cost and
availability of supply-chain resources; and foreign economic conditions,
including currency rate fluctuations. The company undertakes no obligation to
publicly revise any forward-looking statements to reflect future events or
circumstances.
