-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PMsh+/gdpJneZaaIjBnWt0TuAdSAAyfAiREm6QKcKIJNtHXtC3Hh5tthOGoOu8pb iD+b6hEGHYRz0fpNmCgqtA== 0000950134-03-010710.txt : 20030730 0000950134-03-010710.hdr.sgml : 20030730 20030730171054 ACCESSION NUMBER: 0000950134-03-010710 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020526 FILED AS OF DATE: 20030730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MILLS INC CENTRAL INDEX KEY: 0000040704 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 410274440 STATE OF INCORPORATION: DE FISCAL YEAR END: 0525 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-01185 FILM NUMBER: 03812290 BUSINESS ADDRESS: STREET 1: NUMBER ONE GENERAL MILLS BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55426 BUSINESS PHONE: (763) 764-7600 MAIL ADDRESS: STREET 1: P O BOX 1113 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 10-K/A 1 c75386a1e10vkza.txt AMENDMENT TO FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K/A --------------------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 26, 2002 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 incorporation (I.R.S. Employer Identification No.) or organization) NUMBER ONE GENERAL MILLS BOULEVARD MINNEAPOLIS, MN 55426 (MAIL: P.O. BOX 1113) (MAIL: 55440) (Address of principal executive offices) (Zip Code)
(763) 764-7600 (Registrant's telephone number, including area code) --------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: ---------------------
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $.10 par value New York Stock Exchange
--------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE --------------------- 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of Common Stock held by non-affiliates of the Registrant, based on the closing price of $39.70 per share as reported on the New York Stock Exchange on July 25, 2002: $11,412 million. Number of shares of Common Stock outstanding as of July 25, 2002: 367,756,985 (including 11,428 shares set aside for the exchange of shares of Ralcorp Holdings, Inc. and excluding 134,549,679 shares held in the treasury). DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Proxy Statement for its 2002 Annual Meeting of Stockholders are incorporated by reference into Part III, and portions of Registrant's 2002 Annual Report to Stockholders are incorporated by reference into Parts I, II and IV. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. COMPANY OVERVIEW General Mills, Inc. was incorporated in Delaware in 1928. The terms "General Mills," "Company" and "Registrant" mean General Mills, Inc. and its subsidiaries unless the context indicates otherwise. The Company is a leading producer of packaged consumer foods and operates exclusively in the consumer foods industry. The Company's multiple operating segments are organized generally by product categories. Following the acquisition of The Pillsbury Company (described below), the Company restructured its management organization and aggregated its businesses into three reportable segments: 1) U.S. Retail; 2) Bakeries and Foodservice; and 3) International. U.S. Retail consists of cereals, meals, refrigerated and frozen dough products, baking products, snacks, yogurt and health venture activities. The Bakeries and Foodservice segment consists of products marketed to retail and wholesale bakeries and offered to the commercial and non-commercial foodservice sectors throughout the United States and Canada, such as restaurants and school cafeterias. The International segment is made up of retail business outside the United States and foodservice business outside of the United States and Canada. A more detailed description of the product categories for each reportable segment is set forth below. On October 31, 2001, General Mills completed the acquisition of the worldwide businesses of The Pillsbury Company from Diageo plc ("Diageo") in a stock and cash transaction that included 134 million shares of General Mills common stock, together with cash paid to Diageo and assumed debt of Pillsbury totaling $3,830 million. On November 1, 2001, under the terms of a stockholders agreement, Diageo exercised a put option to sell to General Mills 55 million shares of General Mills common stock at a price of $42.14 per share. The 79 million shares of General Mills common stock retained by Diageo were valued at $3,576 million. Therefore, the total stock consideration was $5,894 million, and the total acquisition consideration was approximately $9,724 million. In addition to the payments described above, General Mills may be required to pay Diageo, on April 30, 2003, up to $395 million, depending on General Mills' stock price and the number of General Mills shares that Diageo continues to hold on that date. If the average of the daily high and low price per share of the Company's stock for the 20 full trading days preceding April 30, 2003 is less than $49 per share, Diageo will receive an amount per share equal to the difference between $49 and the General Mills stock price, up to a maximum of $5 per share. If the Company's stock price is $49 per share or more, Diageo will not receive any additional payment. For a more detailed description of the Pillsbury acquisition, please see Note Two to Consolidated Financial Statements appearing on pages 33 through 35 of the Company's 2002 Annual Report to Stockholders which is filed as Exhibit 13 to this Form 10-K/A and incorporated herein by reference. Since the completion of the acquisition, activities related to the integration of Pillsbury and the Company have included combining selling organizations, merging benefit plans and payroll systems, combining all U.S. businesses under a single invoicing system and reconfiguring certain manufacturing facilities. The integration of the Pillsbury businesses and operations will continue throughout fiscal 2003. The Company's combination with Pillsbury is expected to produce cost synergies of $350 million in fiscal 2003 and $475 million by the end of the second full year of integration. In order to obtain regulatory clearance for the acquisition of Pillsbury, the Company arranged to divest certain businesses. On November 13, 2001, International Multifoods Corporation (IMC) purchased the Pillsbury dessert and specialty products businesses as well as certain General Mills' brands and the General Mills' Toledo, Ohio production facilities for $316 million. After-tax cash proceeds from this transaction were used to reduce the debt incurred in the Pillsbury acquisition. Pursuant to the agreement with IMC, General Mills also agreed to purchase and install certain equipment and to convert the Toledo production facility to produce the dessert and specialty products for the divested businesses at an estimated cost to General Mills of $70 million, of which $47 million has been expended through May 26, 2002. 1 In addition, Pillsbury had a 50 percent equity interest in Ice Cream Partners USA LLC (ICP), a joint venture Pillsbury formed with Nestle USA during fiscal 2000 for the manufacture, marketing and distribution of Haagen-Dazs and Nestle ice cream products in the United States. On December 26, 2001, Nestle USA exercised its right, triggered by the change of ownership of Pillsbury, to buy the 50 percent stake of ICP that it did not already own. Nestle USA paid General Mills approximately $641 million for its 50 percent of the joint venture and a long-term, paid-in-full license for the Haagen-Dazs brand in the United States. BUSINESS SEGMENTS U.S. RETAIL In the United States, General Mills markets its retail products primarily through its own sales organization, supported by advertising and other promotional activities. These products primarily are distributed directly to retail food chains, cooperatives, membership stores and wholesalers. Certain food products, such as yogurt and some refrigerated products, are sold through distributors and brokers. The Company's principal product categories in the U.S. Retail segment are as follows: Big G Cereals. General Mills produces and sells a number of ready-to-eat cereals, including such brands as: Cheerios, Honey Nut Cheerios, Frosted Cheerios, Apple Cinnamon Cheerios, Multi-Grain Cheerios, Team Cheerios, Wheaties, Wheaties Raisin Bran, Frosted Wheaties, Wheaties Energy Crunch, Lucky Charms, Total Corn Flakes, Whole Grain Total, Total Raisin Bran, Brown Sugar and Oat Total, Trix, Golden Grahams, Wheat Chex, Corn Chex, Rice Chex, Multi-Bran Chex, Honey Nut Chex, Kix, Berry Berry Kix, Fiber One, Reese's Puffs, Cocoa Puffs, NesQuik, Cookie Crisp, Cinnamon Toast Crunch, French Toast Crunch, Clusters, Raisin Nut Bran, Oatmeal Crisp, Basic 4, and Harmony. The Company also offers Big G Milk 'n Cereal Bars in four flavors. In 2002, the Company introduced Frosted Mini Chex and Chex Morning Mix, a portable cereal in a single-serve pouch. Meals. General Mills manufactures and sells several lines of convenient dinner products, including Betty Crocker dry packaged dinner mixes under the Hamburger Helper, Tuna Helper and Chicken Helper trademarks, and a line of refrigerated barbeque products under the Lloyd's Barbeque name. Also under the Betty Crocker trademark, the Company sells dry packaged specialty potatoes, Potato Buds instant mashed potatoes, Suddenly Salad and Bac*O's salad topping. The Company also manufactures and markets shelf stable microwavable meals under the Bowl Appetit! trademark. With the acquisition of Pillsbury, the Company has added Old El Paso Mexican foods and dinner kits, Progresso soups and ingredients and Green Giant canned and frozen vegetables and meal starters to its convenient meal products. Pillsbury USA. General Mills manufactures and sells refrigerated and frozen dough products, frozen breakfast products and frozen pizza and snack products through the Pillsbury USA division. Refrigerated dough products marketed under the Pillsbury brand include Grands! biscuits and sweet rolls, Big Country and Golden Layers biscuits, Pillsbury Ready to Bake and Big Deluxe Classics cookies, and Pillsbury rolls, biscuits, cookies, breads and pie crust. Frozen dough product offerings include Home Baked Classics biscuits, rolls and other bakery goods. Breakfast products sold under the Pillsbury trademark include Toaster Strudel, Toaster Scrambles and Pillsbury frozen pancakes and waffles. All the breakfast and refrigerated and frozen dough products incorporate the well-known Doughboy logo. Frozen pizza and snack products are marketed under the Totino's and Jeno's trademarks. Baking Products. General Mills makes and sells a line of dessert mixes under the Betty Crocker trademark, including SuperMoist cake mixes, Rich & Creamy and Soft Whipped ready-to-spread frostings, Supreme brownie and dessert bar mixes, muffin mixes and other mixes used to prepare dessert and baking items. The Company markets a variety of baking mixes under the Bisquick trademark, sells pouch mixes under the Betty Crocker name, and produces family flour under the Gold Medal brand introduced in 1880. Snacks. General Mills markets Pop*Secret microwave popcorn; a line of grain snacks including Nature Valley granola bars; a line of fruit snacks including Fruit Roll-Ups, Fruit By The Foot and Gushers; 2 a line of snack mix products including Chex Mix and Gardetto's snack mix; and savory snacks marketed under the name Bugles. Yoplait-Colombo/Health Ventures. General Mills manufactures and sells yogurt products, including Yoplait Original, Yoplait Light, Custard Style, Trix, Yumsters, Go-GURT, yogurt in a tube for children, and Expresse, an adult-oriented yogurt packaged in a portable tube. In fiscal 2002, the Company also introduced Yoplait Whips!, a mousse-like yogurt and Yoplait Nouriche, a meal replacement yogurt drink. The Company also manufactures and sells a variety of refrigerated cup yogurt products under the Colombo brand name. As part of its health ventures activities, General Mills markets organic frozen fruits and vegetables, meals and entrees, a wide variety of canned tomato products including tomatoes and spaghetti sauce, frozen juice concentrates, fruit spreads, and frozen desserts under its Cascadian Farm and Muir Glen trademarks. BAKERIES AND FOODSERVICE General Mills markets mixes and unbaked, par-baked and fully baked dough products to retail, supermarket and wholesale bakeries under the Pillsbury and Gold Medal trademarks. In addition, General Mills sells flour to bakery, foodservice and manufacturing customers. The Company also markets dough products, branded baking mixes, cereals, snacks, dinner and side dish products, refrigerated and soft-serve frozen yogurt, and custom products to outlets like restaurants, including quick serve restaurants, school cafeterias, convenience stores and vending companies. INTERNATIONAL The Company's international businesses consist of operations and sales in Canada, Latin America, Europe and Asia/Pacific. Outside the U.S., the Company's products are manufactured in 16 countries and distributed in over 100 countries. In Canada, the Company markets products in many categories, including cereals, meals, refrigerated dough products, baking products and snacks. Outside of North America, the Company offers numerous local brands in addition to such internationally recognized brands as Haagen-Dazs ice cream, Old El Paso Mexican foods, Green Giant vegetables, Pillsbury dough products and mixes, Betty Crocker mixes and Bugles snacks. The Company also sells mixes and dough products to bakery and foodservice customers outside of the United States and Canada. These international businesses are managed through wholly owned subsidiaries and joint ventures with sales and marketing organizations in 32 countries. Additional geographic information is incorporated herein by reference from Note 18 to Consolidated Financial Statements appearing on pages 58 through 60 of the Company's 2002 Annual Report to Stockholders filed as Exhibit 13 to this Form 10-K/A. FINANCIAL INFORMATION ABOUT REPORTABLE SEGMENTS The following tables set forth the percentage of net sales and operating profit from each reportable segment:
% OF NET SALES FOR FISCAL YEARS ENDED MAY ------------------ 2002 2001 2000 ---- ---- ---- U.S. Retail................................................. 77% 88% 88% Bakeries and Foodservice.................................... 13 7 7 International............................................... 10 5 5 --- --- --- Total Segment Net Sales................................... 100% 100% 100%
3
% OF OPERATING PROFIT FOR FISCAL YEARS ENDED MAY --------------------- 2002 2001 2000 ----- ----- ----- U.S. Retail................................................. 85% 91% 91% Bakeries and Foodservice.................................... 12 8 7 International............................................... 3 1 2 --- --- --- Total Segment Operating Profit............................ 100% 100% 100%
Financial information for the Company's reportable business segments is incorporated herein by reference from Note 18 to Consolidated Financial Statements appearing on pages 58 through 60 of the Company's 2002 Annual Report to Stockholders filed as Exhibit 13 to this Form 10-K/A. JOINT VENTURES In addition to its consolidated operations, the Company manufactures and sells products through several joint ventures. Domestic Joint Ventures. The Company has a 50 percent equity interest in 8th Continent, LLC, a joint venture formed with DuPont to develop and market soy foods and beverages. This venture began marketing a line of 8th Continent soymilk in July 2001. International Joint Ventures. The Company has a 50 percent equity interest in Cereal Partners Worldwide (CPW), a joint venture with Nestle, S.A., that competes in more than 80 countries and republics. The following cereal products were marketed by CPW under the umbrella Nestle trademark in fiscal 2002: Choco Clusters, Lion, Nesfit, Sporties, Trio, Clusters, NesQuik, Multi-Cheerios, Honey Nut Cheerios, Golden Grahams, Cini Minis, Chocapic, Trix, Estrelitas, Gold, Kix, Milo, Fibre 1, Kangus, Fitness, Shredded Wheat, Shreddies, Country Corn Flakes, Honey Stars, Koko Krunch, Snow Flakes, Zucosos, Frutina, Apple Minis, Crunch, Fitness & Fruit, La Lechera, and Moca. CPW also manufactures private label cereals for customers in the United Kingdom and cereal bars in several European countries. Snack Ventures Europe (SVE), the Company's joint venture with PepsiCo, Inc., manufactures and sells snack foods in Holland, France, Belgium, Spain, Portugal, Greece, the Baltics, Hungary, and Russia. The Company has a 40.5 percent equity interest in SVE. As a result of the Pillsbury acquisition, the Company has a 50 percent interest in each of five joint ventures for the manufacture, distribution and marketing of Haagen-Dazs frozen ice cream products and novelties in the following countries: Japan, Korea, Taiwan, Thailand and the Philippines. The Company also has a 50 percent interest in Seretram, a joint venture with Co-op de Pau for the production of Green Giant canned corn in France. See Note Four to Consolidated Financial Statements appearing on pages 37 and 38 of the Company's 2002 Annual Report to Stockholders, filed as Exhibit 13 to this Form 10-K/A and incorporated into this description by reference. COMPETITION The consumer foods market is highly competitive, with numerous competitors of varying sizes in the United States and throughout the world. The Company's principal strategies for competing in the marketplace include superior product quality, innovative advertising, product promotion, product innovations and price. In most product categories, the Company competes not only with other widely advertised branded products of major companies, but also with generic products and private label products, which are generally sold at lower prices. Internationally, the Company primarily competes with local manufacturers, and each country includes a unique group of competitors. 4 CUSTOMERS During fiscal 2002, one customer, Wal-Mart Stores, Inc., accounted for approximately 12 percent of the Company's net sales. SEASONALITY In general, demand for the Company's products is evenly balanced throughout the year. However, demand for the Company's refrigerated dough, frozen baked goods and baking products is stronger in the fourth calendar quarter. Demand for Progresso soup is higher during the fall and winter months. Internationally, demand for Haagen-Dazs ice cream is higher during the summer months and demand for the baking mix and dough products increases during winter months. Due to the offsetting impact of these demand trends, as well as the different seasons in the northern and southern hemispheres, the Company's international net sales are generally evenly balanced throughout the year. GENERAL INFORMATION Trademarks and Patents. The Company's products are marketed under trademarks and service marks owned by or licensed to the Company. Trademarks and service marks are vital to the Company's business. The most significant trademarks and service marks of the Company are set forth in italics in the business discussions above. As part of the sale to IMC of certain Pillsbury dessert and specialty product businesses, IMC received an exclusive royalty-free license to use the Doughboy trademark and Pillsbury brand in the desserts and baking mix categories. The licenses are renewable without cost in 20-year increments at IMC's discretion. The Company considers the collective rights under its various patents, which expire from time to time, a valuable asset, but the Company does not believe that its businesses are materially dependent upon any single patent or group of related patents. With the exception of its joint venture activities, the Company's activities under licenses or other franchises or concessions are not material. Raw Materials and Supplies. The principal raw materials used by General Mills are cereal grains, sugar, dairy products, vegetables, fruits, meats, other agricultural products, vegetable oils, plastic and paper packaging materials, operating supplies and energy. General Mills has some long-term fixed price contracts, but the majority of such raw materials are purchased on the open market. General Mills believes that it will be able to obtain an adequate supply of needed ingredients and packaging materials. Occasionally and where possible, General Mills makes advance purchases of items significant to its business in order to ensure continuity of operations. The Company's objective is to procure materials meeting both the Company's quality standards and its production needs at the lowest total cost to the Company. The Company's strategy is to buy these materials at price levels that allow a targeted profit margin. Since commodities generally represent the largest variable cost in manufacturing the Company's products, to the extent possible, the Company hedges the risk associated with adverse price movements using exchange-traded futures and options, forward cash contracts and over-the-counter hedging mechanisms. These tools enable the Company to manage the related commodity price risk over periods of time that exceed the period of time in which the physical commodity is available. Accordingly, the Company uses these hedging tools to mitigate the risks associated with adverse price movements and not to speculate in the marketplace. See also Note Seven to Consolidated Financial Statements appearing on pages 41 through 44 of the Company's 2002 Annual Report to Stockholders, filed as Exhibit 13 to this Form 10-K/A and incorporated into this section by reference and the "Market Risk Management" section of the Report's "Management's Discussion and Analysis" appearing on page 20 of the Company's 2002 Annual Report to Stockholders, filed as Exhibit 13 to this Form 10-K/A and incorporated herein by reference. Capital Expenditures. During the three fiscal years ended May 26, 2002, General Mills' aggregate capital expenditures amounted to $1,081 million, not including the cost of acquired companies. The Company expects to spend approximately $750 million for such purposes in fiscal 2003, including 5 construction costs to expand the Company's headquarters and costs of integrating Pillsbury into the Company's information systems. Research and Development. Major research and development facilities are located at the Pillsbury Technical Center in Minneapolis, Minnesota and the James Ford Bell Technical Center in Golden Valley (suburban Minneapolis), Minnesota. With a staff of approximately 1,100, these research facilities are responsible for most of the food research for the Company. Research and development expenditures amounted to $131 million in fiscal 2002, $83 million in fiscal 2001 and $77 million in fiscal 2000. General Mills' research and development resources are focused on new product development, product improvement, process design and improvement, packaging, and exploratory research in new business areas. Employees. At May 26, 2002, General Mills had 29,859 employees. Environmental Matters. As of June, 2002, the Company was involved with the following active cleanup sites associated with the alleged release or threatened release of hazardous substances or wastes:
SITE CHEMICAL OF CONCERN - ---- ------------------- Central Steel Drum, Newark, NJ no single hazardous material specified East Hennepin, Minneapolis, MN trichloroethylene GBF/Pittsburgh, Antioch, CA no single hazardous material specified Gloucester, MA petroleum fuel products King's Road Landfill, Toledo, OH no single hazardous material specified Kipp, KS carbon tetrachloride Lorentz Barrel, San Jose, CA no single hazardous material specified NL Industries, Granite City, IL lead Northside Sanitary Landfill, Zionsville, no single hazardous material specified IN Operating Industries, Los Angeles, CA no single hazardous material specified PCB Treatment, Kansas City, MO PCBs Pennsauken Landfill, Pennsauken, NJ no single hazardous material specified PET, St. Louis, MO tetrachloroethylene Sauget Landfill, Sauget, IL no single hazardous material specified Shafer Metal Recycling, Minneapolis, MN lead Safer Textiles, Moonachie, NJ tetrachloroethylene Stuckey's, Doolittle, MO petroleum fuel products Try-Chem, Milwaukee, WI no single hazardous material specified
These matters involve several different procedural contexts, including litigation initiated by governmental authorities and/or private parties, administrative proceedings commenced by regulatory agencies, and demand letters issued by regulatory agencies and/or private parties. Of the 18 matters in the table above, the Company is a party to current litigation related to two cleanup sites: - Pennsauken Solid Waste Management Authority, et al. v. State of New Jersey, et al., Defendants -- Quick-Way, Inc., Defendant and Third-party Plaintiff, v. A-1 Accoustical Ceiling, Inc., et al. involves a State of New Jersey superfund site where a former subsidiary of the Company has been sued as a third-party defendant. The Company is defending this action under the terms of an indemnification agreement. The amount of the clean up liability has not been determined. - West Coast Home Builders, Inc. v. Ashland Inc., et al. involves a claim for an unspecified amount of damages for the diminished value of property adjacent to a State of California superfund site. The cleanup of the site is covered by an existing settlement agreement between the State of California and a group of the potentially responsible parties. The Company has executed a Tolling Agreement with the Plaintiff and expects the existing litigation to be dismissed. In addition, the potentially responsible parties have an insurance policy that covers the costs of cleanup in excess of amounts 6 already paid, including third party claims related to the site. We believe the claims are covered by the insurance policy and that the Company does not have any financial exposure as a result of this litigation. The Company recognizes that its potential exposure with respect to any of these sites may be joint and several, but has concluded that its probable aggregate exposure is not material. This conclusion is based upon, among other things, the Company's payments and/or accruals with respect to each site; the number, ranking, and financial strength of other potentially responsible parties identified at each of the sites; the status of the proceedings, including various settlement agreements, consent decrees or court orders; allocations of volumetric waste contributions and allocations of relative responsibility among potentially responsible parties developed by regulatory agencies and by private parties; remediation cost estimates prepared by governmental authorities or private technical consultants; and the Company's historical experience in negotiating and settling disputes with respect to similar sites. The Company's operations are subject to the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation and Liability Act, and the Federal Insecticide, Fungicide and Rodenticide Act, and all similar state environmental laws applicable to the jurisdictions in which we operate. Based on current facts and circumstances, General Mills believes that neither the results of its environmental proceedings nor its compliance in general with environmental laws or regulations will have a material adverse effect upon the capital expenditures, earnings or competitive position of the Company. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, together with their ages and business experience, are summarized below: Randy G. Darcy, age 51, is Senior Vice President, Supply Chain. Mr. Darcy joined the Company in 1987, was named Vice President, Director of Manufacturing, Technology and Operations in 1989 and was named to his present position in 1994. Mr. Darcy was employed by Procter & Gamble from 1973 to 1987, serving in a variety of management positions. Rory A. M. Delaney, age 57, is Senior Vice President, Strategic Technology Development. Mr. Delaney joined the Company in this position in 2001 from The Pillsbury Company where he spent a total of 8 years, last serving as Senior Vice President of Technology, responsible for the development and application of food technologies for Pillsbury's global operations. Prior to joining the Pillsbury Company, Mr. Delaney spent 18 years in the Frito-Lay/PepsiCo business, last serving as Senior Vice President of Technology for Frito-Lay, North America. Stephen R. Demeritt, age 58, is Vice Chairman of the Company, with responsibility for General Mills' cereal, snacks and yogurt businesses, General Mills Canada, consumer insights and advertising, Small Planet Foods, and the 8th Continent, Cereal Partners Worldwide and Snack Ventures Europe joint ventures. He has served as Vice Chairman since October 1999. Mr. Demeritt joined General Mills in 1969 and served in a variety of consumer food marketing positions. He was president of International Foods from 1991 to 1993 and from 1993 to 1999 was Chief Executive Officer of Cereal Partners Worldwide, our global cereal joint venture with Nestle. James A. Lawrence, age 49, is Executive Vice President, Chief Financial Officer, with additional responsibility for international operations. Mr. Lawrence joined the Company in this position in 1998 from Northwest Airlines where he was Executive Vice President, Chief Financial Officer. Prior to joining Northwest Airlines in 1996, he was at Pepsi-Cola International, serving initially as Executive Vice President and subsequently as President and Chief Executive Officer for its operations in Asia, the Middle East and Africa. Siri S. Marshall, age 54, is Senior Vice President, Corporate Affairs, General Counsel and Secretary. Ms. Marshall joined the Company in 1994 as Senior Vice President, General Counsel and Secretary. 7 Ms. Marshall joined the Company in 1994 from Avon Products, Inc. where she spent 15 years, last serving as Senior Vice President, General Counsel and Secretary. Michael A. Peel, age 52, is Senior Vice President, Human Resources and Corporate Services. Mr. Peel joined the Company in this position in 1991 from PepsiCo where he spent 14 years, last serving as Senior Vice President, Human Resources, responsible for PepsiCo Worldwide Foods. Jeffrey J. Rotsch, age 52, is Senior Vice President, with overall responsibility for Consumer Food Sales and Channel Development. Mr. Rotsch joined the Company in 1974 and served as the president of several divisions, including Betty Crocker and Big G cereals. He was elected Senior Vice President in 1993 and named to his present position in November 1997. Stephen W. Sanger, age 56, has been Chairman and Chief Executive Officer of General Mills since 1995. Mr. Sanger joined the Company in 1974 and served as the head of several business units, including Yoplait USA and Big G cereals. He was elected a Senior Vice President in 1989, an Executive Vice President in 1991, Vice Chairman in 1992 and President in 1993. He is a director of Target Corporation and Donaldson Company, Inc. and Chairman of the Board of Directors of Grocery Manufacturers of America. Danny L. Strickland, age 53, is Senior Vice President, Innovation, Technology and Quality. Mr. Strickland joined the Company in this position in 1997 from Johnson & Johnson where he held the position of Executive Vice President, Worldwide Absorbent Products and Material Research from 1993 to 1997. Prior to joining Johnson & Johnson, he spent five years at Kraft General Foods as Vice President of Technology. Kenneth L. Thome, age 54, is Senior Vice President, Financial Operations. Mr. Thome joined the Company in 1969 and was named Vice President, Controller for Convenience and International Foods Group in 1985, Vice President, Controller for International Foods in 1989, Vice President, Director of Information Systems in 1991 and was elected to his present position in 1993. Raymond G. Viault, age 58, is Vice Chairman of the Company with responsibility for General Mills' meals, baking products, and Pillsbury USA and bakeries and foodservice businesses. Mr. Viault joined the Company as Vice Chairman in 1996 from Philip Morris, where he had been based in Zurich, Switzerland, serving since 1990 as President of Kraft Jacobs Suchard. Mr. Viault was with Kraft General Foods a total of 20 years, serving in a variety of major marketing and general management positions. Mr. Viault is a director of VF Corporation and Newell Rubbermaid Inc. AVAILABLE INFORMATION General Mills is a reporting company under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The public may read and copy any Company filings at the Commission's Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Because the Company makes filings to the Commission electronically, you may access this information at the Commission's Internet site (http://www.sec.gov). This site contains reports, proxies and information statements and other information regarding issuers that file electronically with the Commission. You can also learn more about General Mills at the Company's web site located at http://www.generalmills.com. CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Report contains or incorporates by reference forward looking statements with respect to annual or long-term goals of the Company. The Company and its representatives also may from time to time make written or oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and in its reports to stockholders. 8 The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying important factors that could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. In particular, the Company's predictions about the future volume and earnings could be affected by difficulties resulting from the Pillsbury acquisition, such as integration problems, failure to achieve synergies, difficulty consolidating manufacturing capacity, unanticipated liabilities, inexperience in new business lines, and changes in the competitive environment. The Company's future results also could be affected by a variety of additional 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. The Company's debt securities are rated by rating organizations. Investors should note that a security rating is not a recommendation to buy, sell or hold securities, that it is subject to revision or withdrawal at any time by the assigning rating agency, and that each rating should be evaluated independently of any other rating. ITEM 2. PROPERTIES. The Company's principal executive offices and main research facilities are Company-owned, and are located in the Minneapolis, Minnesota metropolitan area. General Mills owns and operates numerous manufacturing facilities, and maintains many sales and administrative offices and warehouses, mainly in the United States. Other facilities are operated in Canada, and elsewhere around the world. In addition to owned facilities, the Company acquired 583,885 square feet of leased office space in Minneapolis with the acquisition of the Pillsbury business. A portion of this space has been sublet and the Company intends to sublet the remaining space upon completion of the headquarters office addition. Please see Note 17 to Consolidated Financial Statements appearing on pages 57 and 58 of the Company's 2002 Annual Report to Stockholders which is filed as Exhibit 13 to this Form 10-K/A and incorporated herein by reference. As of May 2002, General Mills operated 91 food production facilities for a wide variety of food products. Of these plants, 54 are located in the United States, 11 in Europe, 11 in Asia, eight in Canada and Mexico, six in Latin America and one in Africa. The Company owns wheat flour mills at seven locations: Avon, Iowa; Buffalo, New York; Great Falls, Montana; Johnson City, Tennessee; Kansas City, Missouri; Vallejo, California; and Vernon, California. The Company operates 11 terminal grain elevators and has country grain elevators in 34 locations, primarily in Idaho and Montana. General Mills also owns or leases warehouse space aggregating approximately 16,500,000 square feet, of which approximately 11,400,000 square feet are leased. A number of sales and administrative offices are maintained in the United States, Canada, and elsewhere around the world, totaling 2,900,000 square feet. 9 ITEM 3. LEGAL PROCEEDINGS. In management's opinion, there were no claims or litigation pending at May 26, 2002, the outcome of which could have a material adverse effect on the consolidated financial position or results of operations of the Company. See the information contained under the section entitled "Environmental Matters," on page 6 of this report, for a discussion of environmental matters in which the Company is involved. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters require disclosure here. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information relating to the market prices and dividends of the Company's common stock contained in Note 19 to Consolidated Financial Statements and in the Six-Year Financial Summary appearing on pages 61 and 23 of Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 to this Form 10-K/A is incorporated into this report by reference. As of July 25, 2002, the number of record holders of common stock was 38,047. The Company's common stock ($.10 par value) is listed on the New York Stock Exchange. ITEM 6. SELECTED FINANCIAL DATA. The information for fiscal years 1998 through 2002 contained in the Six-Year Financial Summary on page 23 of Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 to this Form 10-K/A is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information in the section entitled "Management's Discussion and Analysis" on pages 12 through 22 of Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 to this Form 10-K/A is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information in the "Market Risk Management" subsection of the section entitled "Management's Discussion and Analysis" on page 20 of Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 to this Form 10-K/A is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information on pages 25 through 61 of Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 to this Form 10-K/A is incorporated herein by reference. 10 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No matters require disclosure here. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information contained in the sections entitled "Information About Nominees For the Board of Directors" and "Section 16(a): Beneficial Ownership Reporting Compliance" contained in Registrant's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information contained on pages 25 through 31 of Registrant's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders is incorporated herein by reference. The information appearing under the heading "Report of Compensation Committee on Executive Compensation" is not incorporated herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS. (a) The information contained in the section entitled "Stock Ownership of General Mills Directors and Officers" contained in Registrant's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders is incorporated herein by reference. (b) The following table provides information about General Mills common stock that may be issued upon the exercise of stock options and stock units under all of the Registrant's equity compensation plans in effect as of May 26, 2002. EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE NUMBER OF SECURITIES UNDER EQUITY TO BE ISSUED UPON WEIGHTED-AVERAGE COMPENSATION PLANS EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REFLECTED IN THE WARRANTS AND RIGHTS WARRANTS AND RIGHTS FIRST COLUMN) PLAN CATEGORY (A) (B) (C) - ------------- -------------------- -------------------- --------------------- Equity compensation plans approved by security holders(1)................... 47,259,001 $32.77 7,077,803 Equity compensation plans not approved by security holders(2)................... 24,130,414 $41.96 2,271,038 ---------- ------ --------- Total..................... 71,389,415 $35.88 9,348,841 ========== ====== =========
- --------------- (1) Includes stock options and stock units granted under the following shareholder-approved plans: Executive Incentive Plan, 1998 Senior Management Stock Plan, 1995 Salary Replacement Stock Option Plan, and 2001 Compensation Plan for Non-Employee Directors, and the following shareholder-approved plans, which have been discontinued: Stock Option and Long-Term Incentive Plan of 1988, 1990 Stock Plan for Non-Employee Directors, 1990 Salary Replacement Stock Option Plan, Stock Option and Long-Term Incentive Plan of 1993, and 1996 Compensation Plan for Non-Employee Directors. No awards may be granted under any of the discontinued plans. Column (a) includes 179,935 stock units granted to key employees and non-employee directors under the following plans: Executive Incentive Plan, 2001 Compensation Plan for Non-Employee Directors, Long-Term Incentive Plan of 1993, 1996 Compensation Plan for Non-Employee Directors and 37,302 11 stock units granted to key employees but deferred under the following plans: Executive Incentive Plan and Stock Option Long-Term Incentive Plan of 1993. Column (c) excludes restricted stock units to be awarded under the Executive Incentive Plan that are tied to the amount of an executive's incentive award, which is based on Company and individual performance. The Plan imposes a limit on the amount of an executive's annual incentive award. (2) Column (a) includes 88,219 stock units and 8,000 deferred stock units granted to employees under the 1998 Employee Stock Plan. Also, the column includes 499 stock units, representing dividend equivalents credited based on dividends paid on the Company's common stock that are reinvested and deferred in additional stock units, and 842 stock units, representing the Company's matching contributions in common stock allocable to incentive compensation and restricted stock granted under various stock plans and deferred under the Deferred Compensation Plan. 1998 Employee Stock Plan In June 1998, the Board of Directors adopted the 1998 Employee Stock Plan, which became effective September 28, 1998. All employees of the Company are eligible to receive grants of stock options, restricted stock or restricted stock units under the Plan. Non-qualified stock options are available for grant under the Plan at an option price that is 100% of the fair market value on the date the option is granted. Stock options expire within 10 years and one month following the grant date and generally become exercisable in four years. Awards of restricted stock and restricted stock units under the Plan are limited to 15% of the authorized shares. The Plan contains provisions covering the treatment of stock options, restricted stock and stock units upon an employee's resignation, retirement or death. In the event of a change of control of the Company, stock options, restricted stock and stock units granted under the Plan will immediately vest, stock options will become exercisable, and restricted stock and common stock and dividend equivalents to be issued in respect of stock units will be immediately distributed to an employee. 28,000,000 shares are authorized for issuance under the Plan. Deferred Compensation Plan The Company's Deferred Compensation Plan was approved by the Compensation Committee of the Board of Directors and became effective on May 1, 1984. The Plan is a non-qualified compensation plan that provides for the deferral of cash incentives, common stock issued under the Company's stock option plans, restricted stock and restricted stock units issued under the Company's various stock plans. An employee can elect to defer up to 100% of annual incentive compensation, receipt of shares of common stock resulting from a stock-for-stock exercise of stock options under the Company's stock option plans, shares of common stock attributable to nonvested restricted stock or restricted stock units under the Company's restricted stock plans. Certain key and highly compensated management employees of the Company are eligible to participate and defer compensation under the Plan. Deferred Cash or Stock Unit Account. A deferred cash incentive compensation account is established for each participant electing to defer such compensation. Each participant's deferred cash account is credited monthly with a rate of return based on the investment performance of participant-selected 401(k) Savings Plan funds for the prior month. A deferred stock unit account is established for an employee electing to defer receipt of common stock under a stock option grant or shares of restricted stock or restricted stock units under the Company's stock plans. Dividend equivalent amounts can be paid out to the employee or credited to an employee's account to reflect dividends paid on the Company's common stock, based on the number of stock units deferred and credited to an employee's deferred account. Company Contributions in Cash and Stock. The Company credits the deferred cash account of each participant in the Plan with an additional amount that will equal the value of the employer matching contributions that the Company would have otherwise made to the participant's 401(k) Savings Plan account if the employee had not deferred compensation under the Plan. The Company credits the deferred stock unit account of each participant in the Plan with additional stock units in an amount equal to the value of the employer matching contributions that the Company would have otherwise 12 made to the employee's 401(k) Savings Plan account if the employee had not deferred compensation under the Plan. Provisions Covering Resignation, Retirement, Death and Change of Control. The Plan contains provisions covering the payout of deferred cash and stock unit accounts upon an employee's resignation, retirement or death. In the event of a change in control of the Company, shares of common stock and cash attributable to stock units and dividend equivalents credited to an employee's deferred stock unit account under the Plan will be immediately distributed. In addition, a trust has been established to hold Company assets as a reserve for the discharge of certain Company obligations under the Plan in the event of a change of control. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained on pages 10 through 12 of Registrant's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 14. CONTROLS AND PROCEDURES. Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the disclosure controls, since the date of their evaluation. - --------------- The Company's Annual Report on Form 10-K for the fiscal year ended May 26, 2002, at the time of its filing with the Securities and Exchange Commission, shall modify and supersede all prior documents filed pursuant to Sections 13, 14 and 15(d) of the 1934 Act for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by reference such Annual Report on Form 10-K. 13 INDEPENDENT AUDITORS' REPORT The Stockholders and the Board of Directors General Mills, Inc.: Under date of June 24, 2002, we reported on the consolidated balance sheets of General Mills, Inc. and subsidiaries as of May 26, 2002 and May 27, 2001 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the fiscal years in the three-year period ended May 26, 2002, as contained in the 2002 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K/A for the fiscal year ended May 26, 2002. In connection with our audits of the aforementioned consolidated financial statements, we have also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Minneapolis, Minnesota June 24, 2002 14 INDEPENDENT AUDITORS' CONSENT The Board of Directors General Mills, Inc.: We consent to incorporation by reference in the Registration Statements (Nos. 2-49637 and 333-75808) on Form S-3 and Registration Statements (Nos. 2-13460, 2-53523, 2-95574, 33-24504, 33-27628, 33-32059, 33-36892, 33-36893, 33-50337, 33-62729, 333-13089, 333-32509, 333-65311, 333-65313, 333-90010, 333-90012 and 333-102695) on Form S-8 of General Mills, Inc. of our report dated June 24, 2002, relating to the consolidated balance sheets of General Mills, Inc. and subsidiaries as of May 26, 2002 and May 27, 2001 and the related consolidated statements of earnings, stockholders' equity, and cash flows and our report dated June 24, 2002 on the related financial statement schedule for each of the fiscal years in the three-year period ended May 26, 2002, which reports are included or incorporated by reference in the May 26, 2002 annual report on Form 10-K/A of General Mills, Inc. /s/ KPMG LLP Minneapolis, Minnesota July 30, 2003 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: Consolidated Statements of Earnings for the Fiscal Years Ended May 26, 2002, May 27, 2001 and May 28, 2000 (incorporated herein by reference to page 26 of the Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 herewith). Consolidated Balance Sheets at May 26, 2002 and May 27, 2001 (incorporated herein by reference to page 27 of the Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 herewith). Consolidated Statements of Cash Flows for the Fiscal Years Ended May 26, 2002, May 27, 2001 and May 28, 2000 (incorporated herein by reference to page 28 of the Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 herewith). Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended May 26, 2002, May 27, 2001 and May 28, 2000 (incorporated herein by reference to page 29 of the Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 herewith). Notes to Consolidated Financial Statements (incorporated herein by reference to pages 30 through 61 of the Registrant's 2002 Annual Report to Stockholders filed as Exhibit 13 herewith). 2. Financial Statement Schedules: For the Fiscal Years Ended May 26, 2002, May 27, 2001 and May 28, 2000: II -- Valuation and Qualifying Accounts 3. Exhibits:
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 Agreement and Plan of Merger, dated as of July 16, 2000 by and among the Registrant, General Mills North American Businesses, Inc., Diageo plc and The Pillsbury Company (incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 8-K filed July 20, 2000). 2.2 First Amendment dated as of April 12, 2001 to Agreement and Plan of Merger dated as of July 16, 2000 by and among the Registrant, General Mills North American Businesses, Inc., Diageo plc and The Pillsbury Company (incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 8-K filed April 13, 2001). 2.3 Second Amendment, dated as of October 31, 2001, to Agreement and Plan of Merger, dated as of July 16, 2000, by and among the Registrant, General Mills North American Businesses, Inc., Diageo plc and The Pillsbury Company (incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 8-K filed November 2, 2001). +3.1 Registrant's Restated Certificate of Incorporation, as amended to date. 3.2 Registrant's By-Laws, as amended to date (incorporated herein by reference to Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). +4.1 Indenture between Registrant and U.S. Bank Trust National Association (f.k.a. Continental Illinois National Bank and Trust Company of Chicago), as amended to date by Supplemental Indentures Nos. 1 through 8. 4.2 Rights Agreement dated as of December 11, 1995 between Registrant and Wells Fargo Bank Minnesota, N.A. (f.k.a. Norwest Bank Minnesota, N.A.) (incorporated herein by reference to Exhibit 1 to Registrant's Registration Statement on Form 8-A filed January 2, 1996).
16
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.3 Indenture between Registrant and U.S. Bank Trust National Association (f.k.a. First Trust of Illinois, National Association) dated February 1, 1996 (incorporated herein by reference to Exhibit 4.1 to Registrant's Registration Statement on Form S-3 effective February 23, 1996). +4.4 Indenture between Ralcorp Holdings, Inc. and The First National Bank of Chicago, as supplemented to date by the First Supplemental Indenture among Ralcorp Holdings, Inc., Registrant and The First National Bank of Chicago. 4.5 Amendment No. 1 dated as of July 16, 2000, to the Rights Agreement dated as of December 11, 1995 between Registrant and Wells Fargo Bank Minnesota, N.A. (f.k.a. Norwest Bank Minnesota, N.A.) (incorporated by reference to Exhibit 1 to Registrant's Report on Form 8-A/A dated July 25, 2000). *10.1 Stock Option and Long-Term Incentive Plan of 1988, as amended to date (incorporated herein by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). 10.2 Addendum No. 3 effective as of March 15, 1993 to Protocol of Cereal Partners Worldwide (incorporated herein by reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). +*10.3 1998 Employee Stock Plan, as amended to date. *10.4 Amended and Restated Executive Incentive Plan, as amended to date (incorporated herein by reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 27, 2001). *10.5 Management Continuity Agreement, as amended to date (incorporated herein by reference to Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 27, 2001). *10.6 Supplemental Retirement Plan, as amended to date (incorporated herein by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10.7 Executive Survivor Income Plan, as amended to date (incorporated herein by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). *10.8 Executive Health Plan, as amended to date (incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 10-Q for the period ended February 24, 2002). *10.9 Supplemental Savings Plan, as amended to date (incorporated herein by reference to Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10.10 1996 Compensation Plan for Non-Employee Directors, as amended to date (incorporated herein by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). *10.11 General Mills, Inc. 1995 Salary Replacement Stock Option Plan, as amended to date (incorporated herein by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10.12 General Mills, Inc. Deferred Compensation Plan, as amended to date (incorporated herein by reference to Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 27, 2001). *10.13 Supplemental Benefits Trust Agreement dated February 9, 1987, as amended and restated as of September 26, 1988 (incorporated herein by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999).
17
EXHIBIT NUMBER DESCRIPTION ------- ----------- *10.14 Supplemental Benefits Trust Agreement dated September 26, 1988 (incorporated herein by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). 10.15 Agreements dated November 29, 1989 by and between General Mills, Inc. and Nestle, S.A. (incorporated herein by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). 10.16 Protocol and Addendum No. 1 to Protocol of Cereal Partners Worldwide dated November 21, 1989 (incorporated herein by reference to Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 27, 2001). *10.17 1990 Salary Replacement Stock Option Plan, as amended to date (incorporated herein by reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). 10.18 Addendum No. 2 dated March 16, 1993 to Protocol of Cereal Partners Worldwide (incorporated herein by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). 10.19 Agreement dated July 31, 1992 by and between General Mills, Inc. and PepsiCo, Inc. (incorporated herein by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). *10.20 Stock Option and Long-Term Incentive Plan of 1993, as amended to date (incorporated herein by reference to Exhibit 10.20 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). 10.21 Standstill Agreement with CPC International, Inc. dated October 17, 1994 (incorporated herein by reference to Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10.22 1998 Senior Management Stock Plan, as amended to date (incorporated herein by reference to Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10.23 2001 Compensation Plan for Non-employee Directors (incorporated herein by reference to Exhibit 10.2 to Registrant's Report on Form 10-Q for the period ended February 24, 2002). +12 Statement of Ratio of Earnings to Fixed Charges. 13 2002 Annual Report to Stockholders (only those portions expressly incorporated by reference herein shall be deemed filed with the Commission). +21 List of Subsidiaries of General Mills, Inc. 23 Consent of KPMG LLP (contained on page 15 of this Report). 24 Power of Attorney. 99.1 364-Day Credit Agreement, dated as of January 24, 2001, among the Registrant, The Chase Manhattan Bank, as Administrative Agent, and the other financial institutions party thereto (incorporated by reference to Exhibit 99.1 to Registrant's Quarterly Report on Form 10-Q for the period ended February 25, 2001). 99.2 Five Year Credit Agreement, dated as of January 24, 2001, among the Registrant, The Chase Manhattan Bank, as Administrative Agent, and the other financial institutions party hereto (incorporated by reference to Exhibit 99.2 to Registrant's Quarterly Report on Form 10-Q for the period ended February 25, 2001).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 99.3 Amendment No. 1, dated as of October 31, 2001, to 364-Day Credit Agreement, dated as of January 24, 2001, among the Registrant, The Chase Manhattan Bank, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.1 to Registrant's Report on Form 8-K filed February 2, 2002). 99.4 Amendment No. 2, dated as of January 23, 2002, to 364-Day Credit Agreement, dated as of January 24, 2001, among the Registrant, JPMorgan Chase Bank, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.2 to Registrant's Report on Form 8-K filed February 2, 2002). 99.5 Amendment No. 1, dated as of October 31, 2001, to Five-Year Credit Agreement, dated as of January 24, 2001, among the Registrant, The Chase Manhattan Bank, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.3 to Registrant's Report on Form 8-K filed February 2, 2002). 99.6 364-Day Credit Agreement, dated as of October 30, 2001, among Registrant, Morgan Guaranty Trust Company of New York, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.1 to Registrant's Report on Form 8-K filed November 15, 2001). 99.7 Amendment No. 1, dated as of November 9, 2001, to Credit Agreement, dated as of October 30, 2001, among Registrant, Morgan Guaranty Trust Company of New York, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.2 to Registrant's Report on Form 8-K filed November 15, 2001). 99.8 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. 99.9 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
- --------------- * Items that are management contracts or compensatory plans or arrangements required to be filed as exhibits pursuant to Item 14(c) of Form 10-K. + Previously filed. (b) Reports on Form 8-K. None. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ S.S. MARSHALL ------------------------------------ S.S. Marshall Senior Vice President, Corporate Affairs, General Counsel and Secretary Dated: July 30, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director July 30, 2003 ------------------------------------------------ Vice Chairman (Stephen R. Demeritt) * Director July 30, 2003 ------------------------------------------------ (Livio D. DeSimone) * Director July 30, 2003 ------------------------------------------------ (William T. Esrey) * Director July 30, 2003 ------------------------------------------------ (Raymond V. Gilmartin) * Director July 30, 2003 ------------------------------------------------ (Judith R. Hope) * Director July 30, 2003 ------------------------------------------------ (Robert L. Johnson) * Director July 30, 2003 ------------------------------------------------ (John M. Keenan) * Director July 30, 2003 ------------------------------------------------ (Heidi G. Miller) /s/ STEPHEN W. SANGER Chairman of the Board and Chief July 30, 2003 ------------------------------------------------ Executive Officer (Stephen W. Sanger)
20
SIGNATURE TITLE DATE --------- ----- ---- * Director July 30, 2003 ------------------------------------------------ (A. Michael Spence) * Director July 30, 2003 ------------------------------------------------ (Dorothy A. Terrell) * Director July 30, 2003 ------------------------------------------------ Vice Chairman (Raymond G. Viault) * Director July 30, 2003 ------------------------------------------------ (Paul S. Walsh) /s/ KENNETH L. THOME Senior Vice President, July 30, 2003 ------------------------------------------------ Financial Operations (Kenneth L. Thome) (Principal Accounting Officer) /s/ JAMES A. LAWRENCE Executive Vice President, July 30, 2003 ------------------------------------------------ Chief Financial Officer (James A. Lawrence) (Principal Financial Officer) *By: /s/ S.S. MARSHALL ------------------------------------------ S.S. Marshall Attorney-in-Fact
21 I, Stephen W. Sanger, Chairman of the Board and Chief Executive Officer of General Mills, Inc., certify that: 1. I have reviewed this amended annual report on Form 10-K/A of General Mills, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ STEPHEN W. SANGER -------------------------------------- Stephen W. Sanger Chairman of the Board and Chief Executive Officer Date: July 30, 2003 22 I, James A. Lawrence, Chief Financial Officer of General Mills, Inc., certify that: 1. I have reviewed this amended annual report on Form 10-K/A of General Mills, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ JAMES A. LAWRENCE -------------------------------------- James A. Lawrence Chief Financial Officer Date: July 30, 2003 23 GENERAL MILLS, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED --------------------------- MAY 26, MAY 27, MAY 28, 2002 2001 2000 ------- ------- ------- (IN MILLIONS) ALLOWANCE FOR POSSIBLE LOSSES ON ACCOUNTS RECEIVABLE: Balance at beginning of year........................... $ 6 $ 6 $ 5 Additions charged to expense........................... 3 1 3 Additions from acquisitions............................ 15 -- -- Bad debt write-offs.................................... (2) (2) (3) Other adjustments and reclassifications................ (1) 1 1 ---- ---- ---- Balance at end of year................................. $ 21 $ 6 $ 6 ==== ==== ==== VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS: Balance at beginning of year........................... $ 3 $ 5 $ 5 Additions charged to expense........................... 7 -- -- Reductions credited to expense......................... -- (2) -- ---- ---- ---- Balance at end of year................................. $ 10 $ 3 $ 5 ==== ==== ==== RESTRUCTURING AND OTHER EXIT COSTS: Balance at beginning of year........................... $ 9 $ 10 $ 44 Additions charged to expense........................... 134 12 -- Net amounts utilized for restructuring activities...... (36) (13) (34) ---- ---- ---- Balance at end of year................................. $107 $ 9 $ 10 ==== ==== ==== RESERVE FOR LIFO VALUATION: Balance at beginning of year........................... $ 30 $ 32 $ 34 Increment (Decrement).................................. 1 (2) (2) ---- ---- ---- Balance at end of year................................. $ 31 $ 30 $ 32 ==== ==== ====
24 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 Agreement and Plan of Merger, dated as of July 16, 2000 by and among the Registrant, General Mills North American Businesses, Inc., Diageo plc and The Pillsbury Company (incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 8-K filed July 20, 2000). 2.2 First Amendment dated as of April 12, 2001 to Agreement and Plan of Merger dated as of July 16, 2000 by and among the Registrant, General Mills North American Businesses, Inc., Diageo plc and The Pillsbury Company (incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 8-K filed April 13, 2001). 2.3 Second Amendment, dated as of October 31, 2001, to Agreement and Plan of Merger, dated as of July 16, 2000, by and among the Registrant, General Mills North American Businesses, Inc., Diageo plc and The Pillsbury Company (incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 8-K filed November 2, 2001). +3.1 Registrant's Restated Certificate of Incorporation, as amended to date. 3.2 Registrant's By-Laws, as amended to date (incorporated herein by reference to Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). +4.1 Indenture between Registrant and U.S. Bank Trust National Association (f.k.a. Continental Illinois National Bank and Trust Company of Chicago), as amended to date by Supplemental Indentures Nos. 1 through 8. 4.2 Rights Agreement dated as of December 11, 1995 between Registrant and Wells Fargo Bank Minnesota, N.A. (f.k.a. Norwest Bank Minnesota, N.A.) (incorporated herein by reference to Exhibit 1 to Registrant's Registration Statement on Form 8-A filed January 2, 1996). 4.3 Indenture between Registrant and U.S. Bank Trust National Association (f.k.a. First Trust of Illinois, National Association) dated February 1, 1996 (incorporated herein by reference to Exhibit 4.1 to Registrant's Registration Statement on Form S-3 effective February 23, 1996). +4.4 Indenture between Ralcorp Holdings, Inc. and The First National Bank of Chicago, as supplemented to date by the First Supplemental Indenture among Ralcorp Holdings, Inc., Registrant and The First National Bank of Chicago. 4.5 Amendment No. 1 dated as of July 16, 2000, to the Rights Agreement dated as of December 11, 1995 between Registrant and Wells Fargo Bank Minnesota, N.A. (f.k.a. Norwest Bank Minnesota, N.A.) (incorporated by reference to Exhibit 1 to Registrant's Report on Form 8-A/A dated July 25, 2000). *10.1 Stock Option and Long-Term Incentive Plan of 1988, as amended to date (incorporated herein by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). 10.2 Addendum No. 3 effective as of March 15, 1993 to Protocol of Cereal Partners Worldwide (incorporated herein by reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). +*10.3 1998 Employee Stock Plan, as amended to date. *10.4 Amended and Restated Executive Incentive Plan, as amended to date (incorporated herein by reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 27, 2001). *10.5 Management Continuity Agreement, as amended to date (incorporated herein by reference to Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 27, 2001).
EXHIBIT NUMBER DESCRIPTION ------- ----------- *10.6 Supplemental Retirement Plan, as amended to date (incorporated herein by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10.7 Executive Survivor Income Plan, as amended to date (incorporated herein by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). *10.8 Executive Health Plan, as amended to date (incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 10-Q for the period ended February 24, 2002). *10.9 Supplemental Savings Plan, as amended to date (incorporated herein by reference to Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10.10 1996 Compensation Plan for Non-Employee Directors, as amended to date (incorporated herein by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). *10.11 General Mills, Inc. 1995 Salary Replacement Stock Option Plan, as amended to date (incorporated herein by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10.12 General Mills, Inc. Deferred Compensation Plan, as amended to date (incorporated herein by reference to Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 27, 2001). *10.13 Supplemental Benefits Trust Agreement dated February 9, 1987, as amended and restated as of September 26, 1988 (incorporated herein by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). *10.14 Supplemental Benefits Trust Agreement dated September 26, 1988 (incorporated herein by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). 10.15 Agreements dated November 29, 1989 by and between General Mills, Inc. and Nestle, S.A. (incorporated herein by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). 10.16 Protocol and Addendum No. 1 to Protocol of Cereal Partners Worldwide dated November 21, 1989 (incorporated herein by reference to Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 27, 2001). *10.17 1990 Salary Replacement Stock Option Plan, as amended to date (incorporated herein by reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 30, 1999). 10.18 Addendum No. 2 dated March 16, 1993 to Protocol of Cereal Partners Worldwide (incorporated herein by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). 10.19 Agreement dated July 31, 1992 by and between General Mills, Inc. and PepsiCo, Inc. (incorporated herein by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). *10.20 Stock Option and Long-Term Incentive Plan of 1993, as amended to date (incorporated herein by reference to Exhibit 10.20 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). 10.21 Standstill Agreement with CPC International, Inc. dated October 17, 1994 (incorporated herein by reference to Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000).
EXHIBIT NUMBER DESCRIPTION ------- ----------- *10.22 1998 Senior Management Stock Plan, as amended to date (incorporated herein by reference to Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10.23 2001 Compensation Plan for Non-employee Directors (incorporated herein by reference to Exhibit 10.2 to Registrant's Report on Form 10-Q for the period ended February 24, 2002). +12 Statement of Ratio of Earnings to Fixed Charges. 13 2002 Annual Report to Stockholders (only those portions expressly incorporated by reference herein shall be deemed filed with the Commission). +21 List of Subsidiaries of General Mills, Inc. 23 Consent of KPMG LLP (contained on page 15 of this Report). 24 Power of Attorney. 99.1 364-Day Credit Agreement, dated as of January 24, 2001, among the Registrant, The Chase Manhattan Bank, as Administrative Agent, and the other financial institutions party thereto (incorporated by reference to Exhibit 99.1 to Registrant's Quarterly Report on Form 10-Q for the period ended February 25, 2001). 99.2 Five Year Credit Agreement, dated as of January 24, 2001, among the Registrant, The Chase Manhattan Bank, as Administrative Agent, and the other financial institutions party hereto (incorporated by reference to Exhibit 99.2 to Registrant's Quarterly Report on Form 10-Q for the period ended February 25, 2001). 99.3 Amendment No. 1, dated as of October 31, 2001, to 364-Day Credit Agreement, dated as of January 24, 2001, among the Registrant, The Chase Manhattan Bank, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.1 to Registrant's Report on Form 8-K filed February 2, 2002). 99.4 Amendment No. 2, dated as of January 23, 2002, to 364-Day Credit Agreement, dated as of January 24, 2001, among the Registrant, JPMorgan Chase Bank, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.2 to Registrant's Report on Form 8-K filed February 2, 2002). 99.5 Amendment No. 1, dated as of October 31, 2001, to Five-Year Credit Agreement, dated as of January 24, 2001, among the Registrant, The Chase Manhattan Bank, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.3 to Registrant's Report on Form 8-K filed February 2, 2002). 99.6 364-Day Credit Agreement, dated as of October 30, 2001, among Registrant, Morgan Guaranty Trust Company of New York, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.1 to Registrant's Report on Form 8-K filed November 15, 2001). 99.7 Amendment No. 1, dated as of November 9, 2001, to Credit Agreement, dated as of October 30, 2001, among Registrant, Morgan Guaranty Trust Company of New York, as Administrative Agent, and the other financial institutions party thereto. (incorporated herein by reference to Exhibit 99.2 to Registrant's Report on Form 8-K filed November 15, 2001). 99.8 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. 99.9 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
- --------------- * Items that are management contracts or compensatory plans or arrangements required to be filed as exhibits pursuant to Item 14(c) of Form 10-K. + Previously filed. EX-13 3 c75386a1exv13.txt 2002 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS General Mills is a global consumer foods company. We compete in markets around the world by developing differentiated food products that consumers recognize as superior to alternative offerings. We market our value-added products under unique brand names, and build the equity of those brands with strong consumer-directed advertising and innovative merchandising. We believe this brand-building strategy is the key to winning and sustaining market share leadership. With the addition of the Pillsbury businesses, we have expanded our portfolio of leading consumer brands. We believe that this portfolio will generate superior financial returns for our shareholders over the long term. Our financial performance is determined by how well we execute the key elements of our business model. These business drivers are: unit volume growth, which is the single most critical element; productivity initiatives, to mitigate the effects of cost inflation; efficient utilization of capital; and prudent management of risk. This section of the annual report discusses our critical accounting policies, the results of our operations, our liquidity and financial condition, and our risk management practices. CRITICAL ACCOUNTING POLICIES For a complete description of our significant accounting policies, please see Note One to the consolidated financial statements. Our critical accounting policies are those that have meaningful impact on the reporting of our financial condition and results, and that require significant management judgment and estimates. These policies include our accounting for (a) trade and consumer promotion activities; (b) asset impairments; and (c) income taxes. The amount and timing of expense recognition for trade and consumer promotion activities involve management judgment related to estimated participation and performance levels. The vast majority of year-end liabilities associated with these activities are resolved within the following fiscal year and therefore do not require highly uncertain long-term estimates. Evaluating the impairment of long-lived assets, including goodwill, involves management judgment in estimating the fair values and future cash flows related to these assets. Although the predictability of long-term cash flows may be somewhat uncertain, our evaluations indicate fair values of assets significantly in excess of stated book values. Therefore, we believe the risk of unrecognized impairment is low. Income tax expense involves management judgment as to the ultimate resolution of any tax issues. Historically, our assessments of the ultimate resolution of tax issues have been reasonably accurate. The current open issues are not dissimilar from historical items. NEW ACCOUNTING RULES ADOPTED In fiscal 2002, we adopted four new accounting policies, all required by new accounting standards. Each of these new rules is discussed in more detail in Note One (O) to the consolidated financial statements. At the beginning of the year, we adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires all derivatives to be recorded at fair value on the balance sheet and establishes new accounting rules for hedging. The cumulative effect of adopting this accounting change was a $3 million after-tax charge to earnings and a $158 million after-tax charge to Accumulated Other Comprehensive Income, recorded in the first quarter of fiscal 2002. SFAS No. 141, "Business Combinations," requires all business combinations to be accounted for using the purchase method. The Pillsbury transaction was accounted for as a purchase. Under SFAS No. 142, "Goodwill and Other Intangible Assets," the amortization of goodwill is eliminated and goodwill 12 is tested for impairment. We completed our assessment of goodwill in the second quarter of 2002 and found no impairment. In the fourth quarter of 2002, we adopted Emerging Issues Task Force (EITF) Issue 01-09, which resulted in the reclassification of certain coupon and trade promotion expenses from selling, general and administrative expenses to a reduction of net sales. All sales and selling, general and administrative expenses throughout this report and our consolidated financial statements reflect the adoption of Issue 01-09. RESULTS OF OPERATIONS -- 2002 VS. 2001 The acquisition of The Pillsbury Company, on Oct. 31, 2001, significantly affected fiscal 2002 comparisons for our results of operations. Annual net sales rose 46 percent, to $7.95 billion, including seven months of Pillsbury results. Worldwide unit volume for fiscal 2002 was 49 percent above last year's. However, on a comparable basis, as if General Mills had owned Pillsbury for all of fiscal 2001 and 2002, worldwide unit volume grew only slightly. This performance, caused by the initial disruption of combining General Mills' and Pillsbury's organizations, was significantly below General Mills' historical trends and reduced our earnings in fiscal 2002. The Pillsbury acquisition also materially altered our business structure. Our Bakeries and Foodservice and International business segments, which now represent larger portions of our sales and earnings, have lower gross margins than General Mills' historical margin. These businesses also are generally supported with lower marketing spending as a percent of sales. Cost of goods sold as a percent of sales rose from 52 percent in fiscal 2001 to 59 percent in fiscal 2002. About three-quarters of that increase was due to our new business structure, as discussed in the preceding paragraph. The remainder of the increase was largely due to reduced operating leverage. Reduced operating leverage is defined as decreased absorption of fixed operating costs as a result of lower volume levels. Our selling, general and administrative expense includes items which are associated with infrequently occurring events: (a) merger-related costs which relate to the planning and execution of the integration of Pillsbury including consulting, system conversions, relocation, training and communications amounting to $52 million in 2002 and $8 million in 2001; (b) insurance settlement income relating to a 1994 oats handling incident of $30 million in 2002 and $55 million in 2001; and (c) a special contribution of $30 million to the General Mills Foundation in 2002 to increase its net assets to an appropriate level following the acquisition of Pillsbury. Selling, general and administrative costs as a percent of sales were 26 percent and 25 percent in fiscal 2001 and 2002, respectively. The infrequently occurring items increased selling, general and administrative costs as a percent of sales by .7 percent in fiscal 2002, but had the effect of reducing selling, general and administrative costs as a percent of sales by .8 percent in fiscal 2001. The resulting year over year 1.5 percent increase in selling, general and administrative costs as a percent of sales was offset by other factors, which caused a reduction in selling, general and administrative costs as a percent of sales of 2.4 percent. Over half of that reduction was due to our new business structure, as discussed above. The remainder of that reduction was primarily due to the benefit of administrative cost synergies achieved in the second half of the year. Our fiscal 2002 results included restructuring and other exit costs of $134 million pretax, $84 million after tax, as discussed in more detail in Note Three to the consolidated financial statements. These costs were related to approved plans established to accomplish the integration of Pillsbury, and for severance costs and asset write-offs necessitated by the sale of our Toledo, Ohio, plant as required to obtain regulatory clearance for the acquisition of Pillsbury. We anticipate incurring additional costs under plans currently approved or expected to be approved within one year of the date of the acquisition. Our current estimate of this expense is approximately $50 million pretax. Our fiscal 2001 results included restructuring and other exit costs of $12 million pretax, $7 million after tax, associated with the decision to exit the Squeezit beverage business. 13 Interest expense doubled due to the additional debt associated with the Pillsbury acquisition. Average diluted shares outstanding were 342 million in 2002, up 17 percent from 292 million in fiscal 2001 due to the additional shares issued to Diageo. Net earnings (including cumulative effect of change in accounting principle, as described in more detail in Note One (O) to the consolidated financial statements) were $458 million, down 31% from fiscal 2001. Diluted earnings per share were $1.34 compared to $2.28 in fiscal 2001. U.S. RETAIL SEGMENT Our U.S. Retail segment includes Big G cereals, Meals, Pillsbury USA, Baking Products, Snacks, Yoplait-Colombo and Small Planet Foods. Net sales for these operations totaled $6.14 billion in fiscal 2002, compared to $4.79 billion in fiscal 2001. Operating profits totaled $1.07 billion, up 1 percent from the prior year. Comparable unit volume was 1 percent below the prior year, primarily due to the disruption caused by our sales force integration, as well as a reduced level of new products and promotional activity during the integration period. Volume gains in Yoplait-Colombo, Snacks and Pillsbury USA were more than offset by declines in Big G cereals, Meals and Baking Products. BAKERIES AND FOODSERVICE SEGMENT Our Bakeries and Foodservice business includes sales to wholesale and retail bakeries, foodservice distributors, convenience stores, vending and foodservice operators. Net sales for our Bakeries and Foodservice operations reached $1.03 billion in fiscal 2002 compared to $397 million in fiscal 2001, and operating profits rose 60 percent to $146 million, reflecting the incremental contribution from Pillsbury's operations and good growth in General Mills' foodservice business. Comparable unit volume was essentially unchanged, reflecting overall weak foodservice industry trends and lower results for our in-store retail bakery segment. INTERNATIONAL SEGMENT Our International operations include our business in Canada, as well as our consolidated operations in Europe, Asia and Latin America. With the addition of Pillsbury's international businesses, net sales for our International operations totaled $778 million in fiscal 2002 compared to $263 million in 2001. Operating profits grew to $45 million, more than double last year's $17 million total. Comparable unit volume rose 4 percent for the year, driven by good growth in Canada, Europe and Asia. PENSION ACCOUNTING In fiscal 2002, we recorded net pension and postretirement income of $60 million compared to $66 million in 2001. As noted in Note Fourteen to the consolidated financial statements, key assumptions which determine this income include the discount rate and expected rate of return on plan assets. Our discount rate assumption is determined annually based on the interest rate for long-term high-quality corporate bonds. The discount rate used to determine the pension and other postretirement obligations as of the balance sheet date is the rate in effect as of that measurement date. That same discount rate is also used to determine pension and other postretirement income or expense for the following fiscal year. The discount rates used in our pension and other postretirement assumptions were 8.25% for the obligation as of May 28, 2000 and for our fiscal 2001 income and expense estimate, 7.75% for the obligation as of May 27, 2001 and for our fiscal 2002 income and expense estimate, and 7.50% for the obligation as of May 26, 2002 and for our fiscal 2003 income and expense estimate. Our expected rate of return on plan assets is determined by our asset allocation, our historical long-term investment performance, and our estimate of long-term return expectations by asset class using input from our actuaries, several consultants and economists as well as long-term inflation assumptions. For fiscal 2001 and 2002, we assumed a rate of return of 10.4% on our pension plan assets and 10.0% on our other postretirement plan assets. 14 In addition to our assumptions about the discount rate and the expected rate of return on plan assets, we base our determination of pension expense or income on a market-related valuation of assets which reduces year-to-year volatility in accordance with SFAS No. 87, "Employers' Accounting for Pensions". This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market- related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded. As of May 26, 2002, we had cumulative losses of approximately $334 million which remain to be recognized in the calculation of the market-related value of assets on our pension plans, and $154 million on our postretirement plans. These unrecognized net actuarial losses could result in decreases in our future pension income depending on several factors, including whether such losses at each measurement date exceed the corridor in accordance with SFAS No. 87. As of May 26, 2002, the losses did not exceed the corridor. For our fiscal 2003 pension and other postretirement income and expense estimate, we have reduced the discount rate to 7.50%, based on interest rates as of May 26, 2002. Based on this discount rate, the expected rate of return on assets (10.4% for pension plan assets and 10.0% for other postretirement plan assets), and various other assumptions, we estimate that our net pension and postretirement income, exclusive of curtailments, if any, will approximate $48 million in fiscal 2003. Actual future net pension and postretirement income will depend on future investment performance, changes in future discount rates and various other factors related to the populations participating in our pension and postretirement plans. Lowering the expected long-term rate of return on assets by 50 basis points would reduce our net pension and postretirement income for fiscal 2003 by approximately $16 million. Lowering the discount rate by 50 basis points would decrease our net pension and postretirement income for fiscal 2003 by approximately $7 million. Our pension plans were overfunded by $571 million as of May 26, 2002. Based on our actuarial assumptions, we will not be required to make any cash contributions to our plans for at least the next three years, and we made contributions of $7 million in 2002 and $11 million in 2001. Our other postretirement benefit plans were underfunded by $378 million. Based on our actuarial assumptions, we expect to make cash contributions of approximately $30 million for each of the next three years, which compares to actual cash contributions of $29 million in 2002 and $28 million in 2001. CORPORATE ITEMS Interest expense roughly doubled in fiscal 2002 to $416 million, as we incurred additional debt related to our Pillsbury acquisition and our repurchase of 55 million shares from Diageo. We have entered into interest rate swap contracts to lock in our interest rate on floating-rate debt. These contracts total a net $3.5 billion in notional amount and convert floating-rate debt to an average fixed rate of approximately 6 percent with maturities averaging three years. Because the Pillsbury acquisition was delayed from its anticipated closing, and because interest rates declined during that period, we have incurred approximately $435 million unrealized pretax losses from these interest rate swap contracts classified as cash flow hedges. These losses were recorded in Accumulated Other Comprehensive Income and are being reclassified into interest expense over the life of the hedges. Taking into account the effect of these interest rate swaps, the average interest rate on our total debt is approximately 6 1/2 percent. For fiscal 2003, we estimate our interest expense will be approximately $600 million. Our effective tax rate in fiscal 2002 was 36 percent. We expect our tax rate for fiscal 2003 to be a maximum of 35 1/2 percent, and we may be able to reduce it further during the year. JOINT VENTURE EARNINGS (AFTER TAX, DOLLARS IN MILLIONS) [BAR CHART] 98 -9 99 -15 00 3 01 17 02 33
15 JOINT VENTURES General Mills' proportionate share of joint venture net sales grew to $777 million, compared to $666 million in fiscal 2001. Total after-tax earnings from joint venture operations reached $33 million in fiscal 2002, compared with $17 million reported a year earlier. Profits for Cereal Partners Worldwide (CPW), our joint venture with Nestle, and Snack Ventures Europe (SVE), our joint venture with PepsiCo, together grew to $31 million. In addition, Haagen-Dazs joint ventures established by Pillsbury in Asia contributed profits for the six months included in our results. These profit gains were partially offset by introductory marketing expense of 8th Continent, the Company's soymilk joint venture with DuPont. FISCAL 2001 RESULTS VS. 2000 In fiscal 2001, net sales grew 5 percent to $5.45 billion. Earnings after tax grew 8 percent to $665 million. Diluted earnings per share comparable for goodwill grew 14 percent to $2.35, up from $2.07 in fiscal 2000. Net earnings per diluted share as reported were $2.28 vs. $2.00 in fiscal 2000. Total U.S. Retail unit volume grew 4 percent in fiscal 2001, led by gains in Big G cereals, Yoplait-Colombo and Snacks. Net sales grew 5 percent to $4.79 billion. Operating profits grew 4 percent to $1.06 billion. Foodservice results in 2001 included 9 percent unit volume growth. Net sales and operating profit each grew 12 percent, to $397 million and $91 million, respectively. International unit volume grew 10 percent with gains across our business. Net sales were up 2 percent to $263 million and operating profit was essentially flat at $17 million. Fiscal 2000 earnings after tax grew 15 percent to $614 million, compared to $535 million for fiscal 1999. Net earnings per diluted share comparable for goodwill grew to $2.07 from $1.75. Net earnings per diluted share as reported increased to $2.00 from $1.70 in fiscal 1999. Net sales grew 7 percent to reach $5.2 billion. It is our view that changes in the general rate of inflation have not had a significant effect on profitability over the three most recent years. We attempt to minimize the effects of inflation through appropriate planning and operating practices. Our market risk management practices are discussed later in this section. CASH FLOWS Sources and uses of cash in the past three years are shown in the following table. Over the most recent three-year period, General Mills' operations have generated $2.4 billion in cash. In 2002, cash flow from operations totaled $916 million. That was up from the previous year due to: (1) a $32 million increase in earnings before depreciation, amortization, restructuring and other exit costs, including the change in deferred income taxes, (2) the receipt of $55 million of insurance settlement proceeds, and (3) a $110 million decrease in the use of working capital, partially offset by components of our earnings which did not generate operating cash flows: pension income (up $26 million) and joint venture earnings (up $36 million). CASH FLOW FROM OPERATIONS (DOLLARS IN MILLIONS) [BAR CHART] 98 805 99 713 00 725 01 740 02 916
16 CASH SOURCES (USES)
FISCAL YEAR ----------------------- 2002 2001 2000 ------- ----- ----- (IN MILLIONS) From continuing operations................................. $ 916 $ 740 $ 725 From discontinued operations............................... (3) (3) (3) Fixed assets, net.......................................... (485) (306) (262) Investments in businesses, intangibles and affiliates, net...................................................... (3,688) (96) (295) Change in marketable securities............................ 24 (28) (6) Proceeds from disposition of businesses.................... 939 -- -- Other investments, net..................................... (61) (30) (1) Increase in outstanding debt, net.......................... 5,746 183 956 Proceeds from minority investors........................... 150 -- -- Common stock issued........................................ 139 107 76 Treasury stock purchases................................... (2,436) (226) (820) Dividends paid............................................. (358) (312) (329) Other...................................................... 28 10 (20) ------- ----- ----- Increase in Cash and Cash Equivalents...................... $ 911 $ 39 $ 21 ======= ===== =====
In fiscal 2002, capital investment for fixed assets grew to $540 million, including seven months of Pillsbury fixed asset spending. We expect capital expenditures to increase in fiscal 2003, to approximately $750 million. Regular capital investment will grow as we support a full year of Pillsbury-related fixed asset spending. We also plan to add capacity for fast-growing businesses such as Yoplait yogurt. In addition, we have two acquisition-related projects requiring capital expenditures in 2003. We have construction costs to expand our headquarters so that we can consolidate at one location. We also are integrating Pillsbury into General Mills' information systems. In order to obtain regulatory clearance for the acquisition of Pillsbury, we arranged to divest certain businesses as described more fully in Note Two to the consolidated financial statements. In addition, Nestle USA exercised its right, triggered by the change of ownership of Pillsbury, to purchase our stake in a joint venture. Net cash proceeds from these dispositions of $939 million were used to reduce our debt level. Dividends in 2002 totaled $1.10 per share, a payout of 82 percent of diluted earnings per share. We intend to maintain the prevailing $1.10 annual dividend rate per share in fiscal 2003. We currently estimate that average diluted shares outstanding in fiscal 2003 will increase to 382 million. Cash used for share repurchases in 2002 totaled $2.44 billion. Of that, $2.32 billion was used to repurchase 55 million shares from Diageo at a price of $42.14 per share. The company repurchased an additional 3.2 million shares on the open market at an average price of approximately $28, net of put and call option premiums. We do not expect to repurchase any significant number of shares in fiscal 2003. FINANCIAL CONDITION Our balance sheet changed significantly with the acquisition of Pillsbury. As shown in the table below, our adjusted debt plus minority interest grew to over $9 billion, and our stockholders' equity grew to $3.6 billion due to the net 79 million shares issued to Diageo. The market value of General Mills stockholders' equity increased as well, due to price appreciation and the increase in shares outstanding. As of May 26, 2002, our equity market capitalization was $16.6 billion, based on a price of $45.10 per share with 367 million basic shares outstanding. Our total market capitalization, including debt, minority interest and equity capital, is shown in the chart at right. 17 TOTAL CAPITALIZATION (AT FISCAL YEAR-END, DOLLARS IN BILLIONS) [BAR CHART]
ADJUSTED DEBT MARKET VALUE OF EQUITY PLUS MINORITY INTEREST ---------------------- ---------------------- 2000........................................... 11.7 3.5 2001........................................... 12.0 3.6 2002........................................... 16.6 9.1
CAPITAL STRUCTURE
MAY 26, MAY 27, 2002 2001 ------- ------- (IN MILLIONS) Notes payable............................................... $ 3,600 $ 858 Current portion of long-term debt........................... 248 349 Long-term debt.............................................. 5,591 2,221 Deferred income taxes -- tax leases......................... 71 74 ------- ------ Total debt.................................................. 9,510 3,502 Debt adjustments: Leases -- debt equivalent................................. 423 266 Certain cash and cash equivalents......................... (894) -- Marketable investments, at cost........................... (135) (143) ------- ------ Adjusted debt............................................... 8,904 3,625 Minority interest........................................... 153 -- ------- ------ Adjusted debt plus minority interest........................ 9,057 3,625 Stockholders' equity........................................ 3,576 52 ------- ------ Total Capital............................................... $12,633 $3,677 ======= ======
On October 31, 2001, when we acquired Pillsbury, the associated debt we took on was $3.83 billion, of which all but $0.2 billion was short term. In February 2002, we issued $3.5 billion in five- and 10-year bonds, replacing a portion of that short-term debt. As discussed earlier, we have entered into interest rate swap contracts to lock in our interest rate on our floating-rate debt. Combined, nearly 90 percent of our debt is now fixed rate. We consider our leases and deferred income taxes related to tax leases as part of our debt structure, and both are fixed-rate obligations. The next table, when reviewed in conjunction with the capital structure table, shows the composition of our debt structure including the impact of using derivative instruments. DEBT STRUCTURE
MAY 26, 2002 MAY 27, 2001 ------------- ------------ (IN MILLIONS) Floating-rate......................................... $ 602 7% $1,974 55% Fixed-rate............................................ 7,961 88% 1,311 36% Leases -- debt equivalent............................. 423 4% 266 7% Deferred income taxes -- tax leases................... 71 1% 74 2% ------ ---- ------ --- Adjusted Debt plus Minority Interest.................. $9,057 100% $3,625 100% ====== ==== ====== ===
18 At the end of fiscal 2002, approximately half of our debt was long term, 41 percent was short term (excluding the impact of reclassification from our long-term credit facility), and the balance was leases and tax-benefit leases. We plan to refinance the majority of our short-term debt with long-term debt in fiscal 2003. Commercial paper is a continuing source of short-term financing. We can issue commercial paper in the United States and Canada, as well as in Europe through a program established in fiscal 1999. The table below details the fee-paid credit lines we had available as of May 26, 2002. We have $4 billion in committed credit lines available to us, $2.1 billion as part of our core facilities and $1.9 billion as part of a bridge facility we set up at the time of the acquisition. Additionally, we have $45 million in uncommitted credit lines available. COMMITTED CREDIT FACILITIES
AMOUNT EXPIRATION ------------- ---------- Core Facilities.......................................... $1.05 billion January 2003 $1.05 billion January 2006 Bridge Facility.......................................... $1.90 billion October 2002 ------------- Total Credit Lines....................................... $4.00 billion =============
We believe that two important measures of financial strength are the ratios of fixed charge coverage and cash flow to debt. With the increased debt associated with our acquisition, our fixed charge coverage in fiscal 2002 was 2.5 times compared to 5.3 times in fiscal 2001, and cash flow to debt was 10 percent compared to 24 percent in 2001. We do not expect to pay down any significant amount of debt in 2003. However, given the cash generating nature of our business, we expect that stronger cash flow over the following years will allow us to reduce our debt and significantly strengthen our ratios. Our goal is to return to a mid single-A rating for our long-term debt, and to the top tier short-term rating, where we were prior to our announcement of the Pillsbury acquisition. Currently, Standard and Poor's Corporation has ratings of "BBB+" on our publicly held long-term debt and "A-2" on our commercial paper. Moody's Investors Services, Inc. has ratings of "Baa1" for our long-term debt and "P-2" for our commercial paper. Fitch Ratings, Inc. rates our long-term debt "BBB+" and our commercial paper "F-2." Dominion Bond Rating Service in Canada currently rates General Mills as "A-low." In fiscal 2002, we sold a minority interest in a subsidiary to a third-party investor for $150 million and we used the net proceeds to refinance some of our short-term debt. This subsidiary holds some of our manufacturing assets and trademarks. All assets, liabilities and results of operations of the subsidiary are reflected in our financial statements, and the third party's investment is reflected as minority interest on our balance sheet. We did not have any preferred distribution obligations to the third-party investor in fiscal 2002. We may sell additional minority interests, as this structure may provide favorable financing terms, be viewed more positively by the rating agencies and generate tax efficiencies. Subsequent to fiscal year end, we sold a minority interest in another subsidiary for $150 million. For more information on these minority interests, refer to Note Nine to the consolidated financial statements. 19 CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS LONG-TERM FINANCIAL OBLIGATIONS
LESS THAN PAYMENTS DUE BY PERIOD TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS - ---------------------- ------ --------- --------- --------- ------------- (IN MILLIONS) Long-term debt, including current maturities...................... $5,839 $248 $329 $1,590 $3,672 Operating leases.................. 287 59 79 53 96 ------ ---- ---- ------ ------ Total........................... $6,126 $307 $408 $1,643 $3,768 ====== ==== ==== ====== ======
Our other commercial commitments as of May 26, 2002, include: - Guarantees of approximately $212 million of debt and other obligations of unconsolidated affiliates, primarily CPW and SVE. - Commitments for the purchase of goods, services and equipment to be used in the production of our products for approximately $500 million with terms up to three years. These commitments do not exceed projected requirements over the related terms and are in the normal course of business. We are contingently liable for the payment of up to $395 million to Diageo, depending on the General Mills stock price during the 20-day period preceding April 30, 2003. We expect these commitments will be fully covered by normal operating cash flow including, with respect to the guarantees of unconsolidated affiliates, the operating cash flow of the affiliates. In addition, as of May 26, 2002, we had $975 million of cash and cash equivalents. EURO CONVERSION Twelve of the 15 member countries of the European Economic and Monetary Union adopted the euro as a common legal currency in January 2002. General Mills' operating subsidiaries affected have addressed the systems and business issues raised by the euro currency conversion. These issues included, among others (1) the need to adapt computer and other business systems and equipment to accommodate euro-denominated transactions; and (2) the competitive impact of cross-border price transparency. The euro conversion has not had material impact on General Mills' operations or financial results. MARKET RISK MANAGEMENT Our Company is exposed to market risk stemming from changes in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in our earnings and cash flows. In the normal course of business, we actively manage our exposure to these market risks by entering into various hedging transactions, authorized under company policies that place clear controls on these activities. The counterparties in these transactions are highly rated financial institutions. Our hedging transactions include (but are not limited to) the use of a variety of derivative financial instruments. We use derivatives only where there is an underlying exposure; we do not use them for trading or speculative purposes. Additional information regarding our use of financial instruments is included in Note Seven to the consolidated financial statements. Interest Rates -- We manage our debt structure and our interest rate risk through the use of fixed-and floating-rate debt, and through the use of derivatives. We use interest rate swaps to hedge our exposure to interest rate changes, and also to lower our financing costs. Generally under these swaps, we agree with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed notional principal amount. Our primary exposure is to U.S. interest rates. As of May 26, 2002, we had $9.506 billion of agreed notional principal amounts (the principal amount on which the fixed or floating interest rate is calculated) outstanding. 20 Foreign Currency Rates -- Foreign currency fluctuations can affect our net investments and earnings denominated in foreign currencies. We primarily use foreign currency forward contracts and option contracts to selectively hedge our cash flow exposure to changes in exchange rates. These contracts function as hedges, since they change in value inversely to the change created in the underlying exposure as foreign exchange rates fluctuate. Our primary exchange rate exposure is with the Canadian dollar, the euro, the Japanese yen and the British pound against the U.S. dollar. Commodities -- Certain ingredients used in our products are exposed to commodity price changes. We manage this risk through an integrated set of financial instruments, including purchase orders, noncancelable contracts, futures contracts, futures options and swaps. Our primary commodity price exposures are to cereal grains, sugar, vegetables, fruits, other agricultural products, vegetable oils, packaging materials and energy costs. Value at Risk -- These estimates are intended to measure the maximum potential fair value General Mills could lose in one day from adverse changes in market interest rates, foreign exchange rates or commodity prices, under normal market conditions. A Monte Carlo (VAR) methodology was used to quantify the market risk for our exposures. The models assumed normal market conditions and used a 95 percent confidence level. The VAR calculation used historical interest rates, foreign exchange rates and commodity prices from the past year to estimate the potential volatility and correlation of these rates in the future. The market data were drawn from the RiskMetrics(TM) data set. The calculations are not intended to represent actual losses in fair value that we expect to incur. Further, since the hedging instrument (the derivative) inversely correlates with the underlying exposure, we would expect that any loss or gain in the fair value of our derivatives would be generally offset by an increase or decrease in the fair value of the underlying exposures. The positions included in the calculations were: debt; investments; interest rate swaps; foreign exchange forwards and options; and commodity swaps, futures and options. The calculations do not include the underlying foreign exchange and commodities-related positions that are hedged by these market-risk-sensitive instruments. The table below presents the estimated maximum potential one-day loss in fair value for our interest rate, foreign currency and commodity market-risk-sensitive instruments outstanding on May 26, 2002. The amounts were calculated using the VAR methodology described earlier.
FAIR VALUE IMPACT ------------------------------------------------------- AT MAY 26, 2002 AVERAGE DURING 2002 AT MAY 27, 2001 --------------- ------------------- --------------- (IN MILLIONS) Interest rate instruments............. $39 $36 $28 Foreign currency instruments.......... 1 1 1 Commodity instruments................. 1 1 1 === === ===
21 FORWARD-LOOKING STATEMENTS Throughout this report to shareholders, we discuss some of our expectations regarding the Company's future performance. All of these forward-looking statements are based on our current expectations and assumptions. Such statements are subject to certain risk and uncertainties that could cause actual results to differ. In particular, our predictions about future volume and earnings could be affected by difficulties resulting from the Pillsbury acquisition, such as integration problems; failure to achieve synergies; unanticipated liabilities; inexperience in new business lines; and changes in the competitive environment. Our future results also could be affected by a variety of additional 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 disposals of business 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; and economic conditions including currency rate fluctuations. The Company undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. 22 GENERAL MILLS, INC. 2002 SIX-YEAR FINANCIAL SUMMARY
MAY 26, 2002 MAY 27, 2001 MAY 28, 2000 MAY 30, 1999 MAY 31, 1998 MAY 25, 1997 ------------ ------------ ------------ ------------ ------------ ------------ (IN MILLIONS, EXCEPT PER SHARE DATA) FINANCIAL RESULTS Earnings per share -- basic... $ 1.38 $ 2.34 $ 2.05 $ 1.74 $ 1.33 1.41 Earnings per share -- diluted............ 1.34 2.28 2.00 1.70 1.30 1.38 Dividends per share........... 1.10 1.10 1.10 1.08 1.06 1.02 Return on average total capital..................... 9.1% 23.6% 24.4% 23.7% 20.0% 23.3% Net sales..................... 7,949 5,450 5,173 4,834 4,736 4,398 Costs and expenses: Cost of sales............... 4,771 2,841 2,698 2,593 2,538 2,475 Selling, general and administrative........... 1,961 1,393 1,376 1,223 1,240 1,064 Interest, net............... 416 206 152 119 117 101 Restructuring and other exit costs.................... 134 12 -- 41 164 -- SFAS No. 121 adoption....... -- -- -- -- -- 48 Earnings before taxes and earnings (losses) of joint ventures.................... 667 998 947 858 677 710 Income taxes.................. 239 350 336 308 246 259 Earnings (losses) of joint ventures.................... 33 17 3 (15) (9) (6) Earnings before accounting changes..................... 461 665 614 535 422 445 Accounting changes............ (3) -- -- -- -- -- Earnings including accounting changes..................... 458 665 614 535 422 445 Earnings as a % of sales...... 5.8% 12.2% 11.9% 11.1% 8.9% 10.1% Average common shares: Basic....................... 331 284 299 306 316 316 Diluted..................... 342 292 307 315 325 323 ------- ------- ------- ------- ------- ------- FINANCIAL POSITION Total assets.................. 16,540 5,091 4,574 4,141 3,861 3,902 Land, buildings and equipment, net......................... 2,764 1,501 1,405 1,295 1,186 1,279 Working capital at year-end... (2,310) (801) (1,339) (598) (408) (281) Long-term debt, excluding current portion............. 5,591 2,221 1,760 1,702 1,640 1,530 Stockholders' equity.......... 3,576 52 (289) 164 190 495 ------- ------- ------- ------- ------- ------- OTHER STATISTICS Total dividends............... 358 312 329 331 336 321 Purchases of land, buildings and equipment............... 506 307 268 281 184 163 Research and development...... 131 83 77 70 66 61 Advertising media expenditures................ 489 358 361 348 366 306
23
MAY 26, 2002 MAY 27, 2001 MAY 28, 2000 MAY 30, 1999 MAY 31, 1998 MAY 25, 1997 ------------ ------------ ------------ ------------ ------------ ------------ (IN MILLIONS, EXCEPT PER SHARE DATA) Wages, salaries and employee benefits.................... 1,105 666 644 636 608 564 Number of employees (actual).................... 29,859 11,001 11,077 10,664 10,228 10,200 ------- ------- ------- ------- ------- ------- Common stock price: High for year............... 52.86 46.35 43.94 42.34 39.13 34.38 Low for year................ 41.61 31.38 29.38 29.59 30.00 26.00 Year-end.................... 45.10 42.20 41.00 40.19 34.13 32.13
- --------------- All share and per share data have been adjusted for the two-for-one stock split in November 1999. All sales-related and selling, general and administrative information prior to fiscal 2002 has been restated for the adoption of EITF Issue 01-09. 24 INDEPENDENT AUDITORS' REPORT The Stockholders and the Board of Directors of General Mills, Inc.: We have audited the accompanying consolidated balance sheets of General Mills, Inc. and subsidiaries as of May 26, 2002 and May 27, 2001, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the fiscal years in the three-year period ended May 26, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of General Mills, Inc. and subsidiaries as of May 26, 2002 and May 27, 2001, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended May 26, 2002 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Minneapolis, Minnesota June 24, 2002 25 GENERAL MILLS, INC. 2002 CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEAR ENDED --------------------------- MAY 26, MAY 27, MAY 28, 2002 2001 2000 ------- ------- ------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net Sales................................................... $7,949 $5,450 $5,173 Costs and Expenses: Cost of sales............................................. 4,771 2,841 2,698 Selling, general and administrative....................... 1,961 1,393 1,376 Interest, net............................................. 416 206 152 Restructuring and other exit costs........................ 134 12 -- ------ ------ ------ Total Costs and Expenses............................... 7,282 4,452 4,226 ------ ------ ------ Earnings before Taxes and Earnings from Joint Ventures...... 667 998 947 Income Taxes................................................ 239 350 336 Earnings from Joint Ventures................................ 33 17 3 ------ ------ ------ Earnings before Cumulative Effect of Change in Accounting Principle................................................. 461 665 614 Cumulative Effect of Change in Accounting Principle......... (3) -- -- ------ ------ ------ Net Earnings................................................ $ 458 $ 665 $ 614 ====== ====== ====== Earnings per Share -- Basic: Earnings before cumulative effect of change in accounting principle.............................................. $ 1.39 $ 2.34 $ 2.05 Cumulative effect of change in accounting principle....... (.01) -- -- ------ ------ ------ Net Earnings per Share -- Basic........................ $ 1.38 $ 2.34 $ 2.05 ====== ====== ====== Average Number of Common Shares............................. 331 284 299 ====== ====== ====== Earnings per Share -- Diluted: Earnings before cumulative effect of change in accounting principle.............................................. $ 1.35 $ 2.28 $ 2.00 Cumulative effect of change in accounting principle....... (.01) -- -- ------ ------ ------ Net Earnings per Share -- Diluted...................... $ 1.34 $ 2.28 $ 2.00 ====== ====== ====== Average Number of Common Shares -- Assuming Dilution........ 342 292 307 ====== ====== ======
See accompanying notes to consolidated financial statements. 26 GENERAL MILLS, INC. 2002 CONSOLIDATED BALANCE SHEETS
MAY 26, MAY 27, 2002 2001 ------- ------- (IN MILLIONS) ASSETS Current Assets: Cash and cash equivalents................................. $ 975 $ 64 Receivables, less allowance for doubtful accounts of $21 in 2002 and $6 in 2001................................. 1,010 664 Inventories............................................... 1,055 519 Prepaid expenses and other current assets................. 156 99 Deferred income taxes..................................... 241 62 ------- ------ Total Current Assets................................... 3,437 1,408 Land, Buildings and Equipment at cost, net.................. 2,764 1,501 Goodwill.................................................... 8,473 804 Other Intangible Assets..................................... 90 66 Other Assets................................................ 1,776 1,312 ------- ------ Total Assets........................................... $16,540 $5,091 ======= ====== LIABILITIES AND EQUITY Current Liabilities: Accounts payable.......................................... $ 1,217 $ 619 Current portion of long-term debt......................... 248 349 Notes payable............................................. 3,600 858 Other current liabilities................................. 682 383 ------- ------ Total Current Liabilities.............................. 5,747 2,209 Long-term Debt.............................................. 5,591 2,221 Deferred Income Taxes....................................... 336 349 Deferred Income Taxes -- Tax Leases......................... 71 74 Other Liabilities........................................... 1,066 186 ------- ------ Total Liabilities...................................... 12,811 5,039 ------- ------ Minority Interest........................................... 153 -- Stockholders' Equity: Cumulative preference stock, none issued.................. -- -- Common stock, 502 shares issued in 2002 and 408 shares issued in 2001......................................... 5,733 745 Retained earnings......................................... 2,568 2,468 Less common stock in treasury, at cost, 135 shares in 2002 and 123 shares in 2001................................. (4,292) (3,014) Unearned compensation..................................... (57) (54) Accumulated other comprehensive income.................... (376) (93) ------- ------ Total Stockholders' Equity............................. 3,576 52 ------- ------ Total Liabilities and Equity........................... $16,540 $5,091 ======= ======
See accompanying notes to consolidated financial statements. 27 GENERAL MILLS, INC. 2002 CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED --------------------------- MAY 26, MAY 27, MAY 28, 2002 2001 2000 ------- ------- ------- (IN MILLIONS) Cash Flows -- Operating Activities: Net earnings.............................................. $ 458 $ 665 $ 614 Adjustments to reconcile net earnings to cash flow: Depreciation and amortization.......................... 296 223 209 Deferred income taxes.................................. 93 49 44 Changes in current assets and liabilities, excluding effects from businesses acquired...................... 37 (73) (126) Tax benefit on exercised options....................... 46 33 34 Cumulative effect of change in accounting principle.... 3 -- -- Pension and other postretirement activity.............. (105) (102) (61) Restructuring and other exit costs..................... 134 12 -- Other, net............................................. (46) (67) 11 ------- ----- ----- Cash provided by continuing operations.................... 916 740 725 Cash used by discontinued operations...................... (3) (3) (3) ------- ----- ----- Net Cash Provided by Operating Activities......... 913 737 722 ------- ----- ----- Cash Flows -- Investment Activities: Purchases of land, buildings and equipment................ (506) (307) (268) Investments in businesses, intangibles and affiliates, net of investment returns and dividends.................... (3,688) (96) (295) Purchases of marketable securities........................ (46) (98) (18) Proceeds from sale of marketable securities............... 70 70 12 Proceeds from disposal of land, buildings and equipment... 21 1 6 Proceeds from disposition of businesses................... 939 -- -- Other, net................................................ (61) (30) (1) ------- ----- ----- Net Cash Used by Investment Activities............ (3,271) (460) (564) ------- ----- ----- Cash Flows -- Financing Activities: Change in notes payable................................... 2,688 295 566 Issuance of long-term debt................................ 3,485 296 501 Payment of long-term debt................................. (427) (408) (111) Proceeds from minority investors.......................... 150 -- -- Common stock issued....................................... 139 107 76 Purchases of common stock for treasury.................... (2,436) (226) (820) Dividends paid............................................ (358) (312) (329) Other, net................................................ 28 10 (20) ------- ----- ----- Net Cash Provided (Used) by Financing Activities..................................... 3,269 (238) (137) ------- ----- ----- Increase in Cash and Cash Equivalents....................... 911 39 21 Cash and Cash Equivalents -- Beginning of Year.............. 64 25 4 ------- ----- ----- Cash and Cash Equivalents -- End of Year.................... $ 975 $ 64 $ 25 ======= ===== ===== Cash Flows from Changes in Current Assets and Liabilities, Excluding Effects from Businesses Acquired: Receivables............................................... $ 265 $ (94) $ 11 Inventories............................................... (12) (9) (51) Prepaid expenses and other current assets................. 12 (17) (5) Accounts payable.......................................... (90) 7 (50) Other current liabilities................................. (138) 40 (31) ------- ----- ----- Changes in Current Assets and Liabilities................... $ 37 $ (73) $(126) ======= ===== =====
See accompanying notes to consolidated financial statements 28 GENERAL MILLS, INC. 2002 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
$.10 PAR VALUE COMMON STOCK (ONE BILLION SHARES AUTHORIZED) ---------------------------------- ACCUMULATED ISSUED TREASURY OTHER --------------- ---------------- RETAINED UNEARNED COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT EARNINGS COMPENSATION INCOME TOTAL ------ ------ ------ ------- -------- ------------ ------------- ------- (IN MILLIONS, EXCEPT PER SHARE DATA) BALANCE AT MAY 30, 1999.................. 408 $ 658 (104) $(2,195) $1,828 $(69) $ (57) $ 165 === ====== ==== ======= ====== ==== ===== ======= Comprehensive Income: Net earnings........................... 614 614 Other comprehensive income, net of tax: Unrealized losses on securities...... (8) (8) Foreign currency translation......... (22) (22) Minimum pension liability adjustment......................... 1 1 --- ------ ---- ------- ------ ---- ----- ------- Other comprehensive income............. (29) (29) ----- ------- Total comprehensive income............... 585 --- ------ ---- ------- ------ ---- ----- ------- Cash dividends declared ($1.10 per share), net of income taxes of $1...... (328) (328) Stock compensation plans (includes income tax benefits of $39)................... -- 25 4 101 126 Shares purchased......................... (23) (848) (848) Put and call option premiums/settlements, net.................................... -- (2) -- 7 5 Unearned compensation related to restricted stock awards................ (13) (13) Earned compensation and other............ 19 19 --- ------ ---- ------- ------ ---- ----- ------- BALANCE AT MAY 28, 2000.................. 408 $ 681 (123) $(2,935) $2,114 $(63) $ (86) $ (289) === ====== ==== ======= ====== ==== ===== ======= Comprehensive Income: Net earnings........................... 665 665 Other comprehensive income, net of tax: Unrealized losses on securities...... 5 5 Foreign currency translation......... (7) (7) Minimum pension liability adjustment......................... (5) (5) --- ------ ---- ------- ------ ---- ----- ------- Other comprehensive income............. (7) (7) ----- ------- Total comprehensive income............... 658 --- ------ ---- ------- ------ ---- ----- ------- Cash dividends declared ($1.10 per share), net of income taxes of $1...... (311) (311) Stock compensation plans (includes income tax benefits of $38)................... -- 34 5 124 158 Shares purchased......................... (5) (198) (198) Put and call option premiums/settlements, net.................................... -- 30 -- (5) 25 Unearned compensation related to restricted stock awards................ (13) (13) Earned compensation and other............ 22 22 --- ------ ---- ------- ------ ---- ----- ------- BALANCE AT MAY 27, 2001.................. 408 $ 745 (123) $(3,014) $2,468 $(54) $ (93) $ 52 === ====== ==== ======= ====== ==== ===== ======= Comprehensive Income: Net earnings........................... 458 458 Other comprehensive income, net of tax: Cumulative effect of adopting SFAS No. 133............................ (158) (158) Unrealized losses on hedge derivatives........................ (114) (114) Unrealized losses on securities...... (11) (11) Foreign currency translation......... (4) (4) Minimum pension liability adjustment......................... 4 4 --- ------ ---- ------- ------ ---- ----- ------- Other comprehensive income............. (283) (283) ----- ------- Total comprehensive income............... 175 --- ------ ---- ------- ------ ---- ----- ------- Cash dividends declared ($1.10 per share), net of income taxes of $1...... (358) (358) Shares issued for acquisition............ 94 4,902 40 992 5,894 Shares repurchased from Diageo........... (55) (2,318) (2,318) Stock compensation plans (includes income tax benefits of $53)................... -- 46 6 176 222 Shares purchased......................... (3) (119) (119) Put and call option premiums/settlements, net.................................... -- 40 -- (9) 31 Unearned compensation related to restricted stock awards................ (29) (29) Earned compensation and other............ 26 26 --- ------ ---- ------- ------ ---- ----- ------- BALANCE AT MAY 26, 2002.................. 502 $5,733 (135) $(4,292) $2,568 $(57) $(376) $ 3,576 === ====== ==== ======= ====== ==== ===== =======
See accompanying notes to consolidated financial statements. 29 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Preparing our consolidated financial statements in conformity with generally accepted U.S. accounting principles requires us to make estimates and assumptions that affect reported amounts of assets, liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from our estimates. Certain prior years' amounts have been reclassified to conform with the current year presentation. (A) Principles of Consolidation -- Our consolidated financial statements include parent company operations and majority-owned subsidiaries as well as General Mills' investment in and share of net earnings or losses of 20- to 50-percent-owned companies, which are recorded on an equity basis. Our fiscal year ends on the last Sunday in May. Years 2002, 2001 and 2000 each consisted of 52 weeks. Our wholly owned international operations, with the exception of Canada and our export operations, are reported for the 12 calendar months ending April 30. The results of the acquired Pillsbury operations are reflected in our financial results from Nov. 1, 2001. (B) Land, Buildings, Equipment and Depreciation -- Buildings and equipment are depreciated over estimated useful lives, primarily using the straight-line method. Buildings are usually depreciated over 40 to 50 years, and equipment is depreciated over three to 15 years. Depreciation charges for 2002, 2001 and 2000 were $283 million, $194 million and $183 million, respectively. Accelerated depreciation methods generally are used for income tax purposes. When an item is sold or retired, the accounts are relieved of its cost and related accumulated depreciation; the resulting gains and losses, if any, are recognized. (C) Inventories -- Inventories are valued at the lower of cost or market. We generally use the LIFO method of valuing inventory because we believe that it is a better match with current revenues. However, FIFO is used for most foreign operations, where LIFO is not recognized for income tax purposes and the operations often lack the staff to handle LIFO complexities accurately. (D) Intangible Assets -- Goodwill represents the difference between the purchase prices of acquired companies and the related fair values of net assets acquired and accounted for by the purchase method of accounting. On May 28, 2001, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Intangible Assets." This Statement eliminates the amortization of goodwill and instead requires that goodwill be tested annually for impairment. See Note One (O) for the effects of this adoption. We capitalize the costs of software internally developed or externally purchased for internal use. The costs of patents, copyrights and other amortizable intangible assets are amortized evenly over their estimated useful lives. (E) Recoverability of Long-Lived Assets -- We review long-lived assets, including identifiable intangibles and goodwill, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is deemed impaired and written down to its fair value if estimated related future cash flows are less than its carrying amount. (F) Foreign Currency Translation -- For most of our foreign operations, local currencies are considered the functional currency. Assets and liabilities are translated using exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rates prevailing throughout the period. Translation effects are classified within Accumulated Other Comprehensive Income in Stockholders' Equity. (G) Financial Instruments -- See Note One (O) for a description of our adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." See Note Seven for a description of our accounting policies related to financial instruments. 30 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (H) Revenue Recognition -- We recognize sales upon shipment to our customers consistent with sales terms. We generally do not allow a right of return. Reported sales are net of certain coupon and trade promotion costs. Coupons are expensed when distributed based on estimated redemptions. Trade promotions are expensed based on estimated participation and performance levels for offered programs. (I) Shipping and Handling -- Shipping and handling costs associated with internal movement of inventories are recorded as cost of sales and recognized when the related finished product is shipped to the customer. Shipping costs associated with the distribution of finished product to our customers are recorded as selling, general and administrative expense and recognized when the related finished product is shipped to the customer. The amount recorded in selling, general and administrative expense was $243 million, $161 million and $141 million in fiscal 2002, 2001 and 2000, respectively. (J) Research and Development -- All expenditures for research and development are charged against earnings in the year incurred. The charges for 2002, 2001 and 2000 were $131 million, $83 million and $77 million, respectively. (K) Advertising Costs -- Advertising expenses (including production and communication costs) for 2002, 2001 and 2000 were $489 million, $358 million and $361 million, respectively. Prepaid advertising costs (including syndication properties) of $36 million and $34 million were reported as assets at May 26, 2002, and May 27, 2001, respectively. We expense the production costs of advertising the first time that the advertising takes place. (L) Stock-Based Compensation -- We use the intrinsic value method for measuring the cost of compensation paid in Company common stock. This method defines our cost as the excess of the stock's market value at the time of the grant over the amount that the employee is required to pay. Our stock option plans require that the employee's payment (i.e., exercise price) be the market value as of the grant date. (M) Earnings per Share -- Basic Earnings per Share (EPS) is computed by dividing net earnings by the weighted average number of common shares outstanding. Diluted EPS includes the effect of all dilutive potential common shares (primarily related to outstanding in-the-money stock options). (N) Cash and Cash Equivalents -- We consider all investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents totaling $77 million are designated as collateral for certain derivative liabilities. (O) Accounting Rules Adopted -- On the first day of fiscal 2002, we adopted three new accounting rules. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires all derivatives to be recorded at fair value on the balance sheet and establishes new accounting rules for hedging. We recorded the cumulative effect of adopting this accounting change, as follows:
INCLUDED IN ACCUMULATED INCLUDED OTHER IN COMPREHENSIVE EARNINGS INCOME -------- ------------- (IN MILLIONS, EXCEPT PER SHARE DATA) Pretax...................................................... $ (5) $(251) Income tax effects.......................................... 2 93 ----- ----- Total..................................................... $ (3) (158) ===== ===== Per Diluted Share Net Earnings Effect....................... $(.01) =====
31 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) This cumulative effect was primarily associated with the impact of lower interest rates on the fair-value calculation for delayed-starting interest rate swaps we entered into in anticipation of our Pillsbury acquisition and other financing requirements. Refer to Note Seven and Note Ten for more information. We also adopted SFAS No. 141, "Business Combinations," which requires use of the purchase method of accounting for all business combinations initiated after June 30, 2001. The third Statement we adopted at the start of the year was SFAS No. 142, "Goodwill and Intangible Assets." This Statement eliminates the amortization of goodwill and instead requires that goodwill be tested annually for impairment. Goodwill amortization expense in fiscal 2001 totaled $23 million pretax, $22 million after tax. Transitional impairment tests of our goodwill did not require adjustment to any of our goodwill carrying values. The following table adjusts earnings and earnings per share for the adoption of SFAS No. 142.
FISCAL YEAR ENDED ------------------------------------------ MAY 26, 2002 MAY 27, 2001 MAY 28, 2000 ------------ ------------ ------------ (IN MILLIONS, EXCEPT PER SHARE DATA) Reported Net Earnings:......................... $ 458 $ 665 $ 614 Add back goodwill amortization............... -- 22 21 ----- ----- ----- Adjusted Net Earnings........................ $ 458 $ 687 $ 635 ===== ===== ===== Basic Earnings per Share: Reported EPS -- basic........................ $1.38 $2.34 $2.05 Add back goodwill amortization............... -- .08 .07 ----- ----- ----- Adjusted Basic EPS........................... $1.38 $2.42 $2.12 ===== ===== ===== Diluted Earnings per Share: Reported EPS -- diluted...................... $1.34 $2.28 $2.00 Add back goodwill amortization............... -- .07 .07 ----- ----- ----- Adjusted Diluted EPS......................... $1.34 $2.35 $2.07 ===== ===== =====
The Financial Accounting Standard Board's (FASB's) Emerging Issues Task Force (EITF) Issue 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products," requires recording certain coupon and trade promotion expenses as reductions of revenues and was effective for us in our fourth quarter 2002. Since adopting this requirement resulted only in the reclassification of certain expenses from selling, general and administrative expense to a reduction of net sales, it did not affect our financial position or net earnings. The impact was a reduction of net sales, and a corresponding reduction in selling, general and administrative expense, of $2,246 million, $1,628 million and $1,527 million in 2002, 2001 and 2000, respectively. (P) New Accounting Rules -- In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that a single accounting model be used for long-lived assets to be disposed of by sale, and broadens the presentation of discontinued operations to include more disposal transactions. SFAS No. 144 is effective for us with the beginning of fiscal 2003. We do not expect the adoption of SFAS No. 144 to have a material impact on the Company's financial statements. 32 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. ACQUISITIONS On Oct. 31, 2001, we acquired the worldwide Pillsbury operations from Diageo plc (Diageo). Pillsbury, based in Minneapolis, Minn., has built a portfolio of leading food brands, such as Pillsbury refrigerated dough, Green Giant, Old El Paso, Progresso and Totino's. Pillsbury had sales of $6.1 billion (before EITF Issue 01-09 reclassification) in its fiscal year ended June 30, 2001, including businesses subsequently divested. We believe the addition of Pillsbury's businesses will enhance our future growth and generate significant cost synergies. The transaction was accounted for as a purchase. Under terms of the agreement between General Mills and Diageo, we acquired Pillsbury in a stock and cash transaction. Consideration to Diageo included 134 million General Mills common shares. Under a stockholders' agreement, Diageo had a put option to sell directly to us 55 million shares of General Mills common stock at a price of $42.14 per share, which Diageo exercised on Nov. 1, 2001. Therefore, those 55 million shares were valued at a total of $2,318 million. The 79 million shares of General Mills common stock retained by Diageo were valued at $3,576 million based on the three-day average trading price prior to the closing of $45.27 per share. Therefore, the total stock consideration was $5,894 million. The cash paid to Diageo and assumed debt of Pillsbury totaled $3,830 million. As a result, the total acquisition consideration (exclusive of direct acquisition costs) was approximately $9,724 million. Under terms of the agreement, Diageo holds contingent value rights that may require payment to Diageo on April 30, 2003, of up to $395 million, depending on the General Mills stock price and the number of General Mills shares that Diageo continues to hold on that date. If the General Mills stock price averages less than $49 per share for the 20 trading days prior to that date, Diageo will receive an amount per share equal to the difference between $49 and the General Mills stock trading price, up to a maximum of $5 per share. The stockholders' agreement between General Mills and Diageo includes a standstill provision, under which Diageo is precluded from buying additional shares in General Mills for a 20-year period following the close of the transaction, or for three years following the date on which Diageo owns less than 5 percent of General Mills' outstanding shares, whichever is earlier. The agreement also generally requires pass-through voting by Diageo, so its shares will be voted in the same proportion as the other General Mills shares are voted. So long as Diageo owns at least 50 percent of the 134 million shares it originally received in this transaction, Diageo may designate two individuals to the General Mills Board of Directors. Our preliminary estimate of the allocation of the purchase price as of May 26, 2002, was as follows:
(IN MILLIONS) Current Assets.............................................. $ 1,258 Land, Buildings and Equipment............................... 1,103 Investments and Assets to be Sold........................... 1,006 Other Non-current Assets.................................... 263 Deferred Tax Assets......................................... 111 Goodwill and Intangibles.................................... 7,669 ------- Total Assets.............................................. 11,410 ------- Current Liabilities......................................... (1,235) Other Non-current Liabilities............................... (451) ------- Total Liabilities......................................... (1,686) ------- Purchase Consideration...................................... $ 9,724 =======
33 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The allocation of the purchase price is based on preliminary estimates, subject to revisions when appraisals and integration plans have been finalized. Revisions to the allocation, which may be significant, will be reported as changes to various assets and liabilities, including goodwill, other intangible assets, and deferred income taxes. As of May 26, 2002, the goodwill balance includes all of the excess purchase price of the Pillsbury acquisition, as the valuation of specific intangible assets has not yet been completed. We expect the valuation to result in a significant value for nonamortizable brands. We do not anticipate significant amounts to be allocated to amortizable intangible assets and, therefore, the amount of intangibles amortization is not expected to be material to the results of operations in future periods. In order to obtain regulatory clearance for the acquisition of Pillsbury, we arranged to divest certain businesses. On Nov. 13, 2001, International Multifoods Corporation (IMC) purchased the Pillsbury dessert and specialty products businesses as well as certain General Mills brands and the General Mills Toledo production facilities for $316 million. After-tax cash proceeds from this transaction were used to reduce General Mills debt. Under the agreement with IMC, General Mills expects to spend approximately $70 million for the purchase and installation of certain production assets at the Toledo plant, of which $47 million has been expended through May 26, 2002. As part of the transaction, IMC received an exclusive royalty-free license to use the Doughboy trademark and Pillsbury brand in the desserts and baking mix categories. The licenses are renewable without cost in 20-year increments at IMC's discretion. Since the sale of the assets to IMC was integral to the Pillsbury acquisition, and because the assets sold were adjusted to fair market value as part of the purchase of Pillsbury, there was no gain or loss recorded on the sale in the Company's consolidated statement of earnings. Pillsbury had a 50 percent equity interest in Ice Cream Partners USA LLC (ICP), a joint venture Pillsbury formed with Nestle USA during fiscal 2000 for the manufacture, marketing and distribution of Haagen-Dazs and Nestle ice cream products in the United States. On Dec. 26, 2001, Nestle USA exercised its right, triggered by the change of ownership of Pillsbury, to buy the 50 percent stake of ICP that it did not already own. Nestle paid us $641 million for our 50 percent of the joint venture and a long-term, paid-in-full license for the Haagen-Dazs brand in the United States. Net proceeds from this transaction also were used to reduce our debt level. We are reconfiguring our cereal production as a result of selling our Toledo, Ohio, plant to IMC. We also incurred a number of one-time costs associated with the acquisition of Pillsbury, and the associated divestiture of certain businesses and assets to IMC. (See Note Three.) In February 2002, we decided to close two Pillsbury facilities in order to utilize the operating capacity of the newly combined companies more fully. We closed the Geneva, Ill., plant, which produced frozen breakfast products; and the Anthony, Texas, production facility, which produced various Mexican food products. Our exit liabilities connected to these plant closures amount to $22 million and have been included in the purchase price allocation of Pillsbury. Approximately 370 employees were affected by these two plant closures. We do not anticipate any significant loss associated with the exit liabilities established pursuant to the acquisition. We continue to evaluate plans to consolidate manufacturing, warehouse and distribution activities into fewer locations. The closure of additional Pillsbury facilities could result in additional severance and other exit liabilities, which would increase the excess purchase price. These amounts will be recorded on our consolidated balance sheet as adjustments to the excess purchase price when plans have been finalized and announced. The integration of Pillsbury into General Mills' operations also may result in the restructuring of certain General Mills activities. These actions could result in additional unusual charges, which will be recorded as expense in our consolidated statements of earnings in the period during which plans are finalized. 34 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Actual results of acquired business operations are included in the consolidated statement of earnings for the period from Nov. 1, 2001 through May 26, 2002. The following unaudited pro forma information presents a summary of our consolidated results of operations and the acquired Pillsbury operations as if the acquisition had occurred on May 29, 2000.
FISCAL YEAR ENDED ------------------------------- MAY 26, 2002 MAY 27, 2001 -------------- -------------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales................................................... $9,936 $10,089 Earnings before cumulative effect of change in accounting principle................................................. 495 849 Net earnings................................................ 492 849 Earnings per Share -- Basic EPS before cumulative effect of change in accounting principle.............................................. 1.36 2.34 Net EPS -- Basic.......................................... 1.35 2.34 Earnings per Share -- Diluted EPS before cumulative effect of change in accounting principle.............................................. 1.32 2.29 Net EPS -- Diluted........................................ 1.31 2.29 ====== =======
These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on acquisition debt. They do not reflect the effect of synergies that would have been expected to result from the integration of the Pillsbury businesses. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred on May 29, 2000, or of future results of the consolidated entities. On Jan. 13, 2000, we acquired Small Planet Foods of Sedro-Woolley, Wash. Small Planet Foods is a leading producer of branded organic food products marketed under the Cascadian Farm and Muir Glen trademarks. On Aug. 12, 1999, we acquired Gardetto's Bakery, Inc. of Milwaukee, Wis. Gardetto's is a leading national brand of baked snack mixes and flavored pretzels. On June 30, 1999, we acquired certain grain elevators and related assets from Koch Agriculture Company. The aggregate purchase price of these acquisitions, which were accounted for using the purchase method, was approximately $227 million, and associated goodwill was $153 million. The results of the acquired businesses have been included in the consolidated financial statements since their respective acquisition dates. Our fiscal 2000 financial results would not have been materially different if we had made these acquisitions at the beginning of the fiscal year. Through fiscal 2001, the goodwill associated with the acquisitions made in fiscal 2000 was amortized over 40 years on a straight-line basis. As described in Note One (O), we adopted SFAS No. 142, which eliminated goodwill amortization at the beginning of fiscal 2002. 3. RESTRUCTURING AND OTHER EXIT COSTS In fiscal 2002, we recorded restructuring and other exit costs totaling $134 million pretax expense, $84 million after tax, pursuant to approved plans related to the acquisition of Pillsbury. These costs consisted of $87 million pretax of cereal plant shutdown and reconfiguration charges, $38 million pretax of severance costs primarily related to sales organization and headquarters department realignment, and $9 million pretax of two flour mill restructuring/closing charges. The cereal reconfiguration charges were for severance costs and asset write-offs necessitated by the sale of our Toledo, Ohio, plant as required to obtain regulatory clearance for the acquisition of Pillsbury. 35 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) These restructuring and other exit costs included severance costs related to 1,078 employees. These employees included all levels and a variety of areas within the Company, including management, supervisory, technical and production personnel. These costs also included the write-off of $52 million of cereal production assets and $6 million of flour production assets, primarily in our U.S. Retail segment. The carrying value of these assets was $58 million, net of amounts transferred to other facilities, and we expect to dispose of these assets within 12 months. In fiscal 2001, we made the decision to exit the Squeezit beverage business. The charge associated with this action, primarily noncash write-downs associated with asset disposals, totaled $12 million pretax, $7 million after tax. At May 26, 2002, there was no remaining reserve balance related to these exit costs. The analysis of our restructuring and other exit cost reserve activity is as follows:
PENSION AND POSTRETIREMENT ASSET CURTAILMENT SEVERANCE WRITE-OFF COSTS OTHER TOTAL --------- --------- -------------- ----- ----- (IN MILLIONS) Manufacturing/Distribution Streamlining Reserve Balance at May 30, 1999........ $ 3 $ 14 -- $ 27 $ 44 Amounts Utilized in 2000............... (2) (14) -- (18) (34) ---- ---- ---- ---- ---- Reserve Balance at May 28, 2000........ 1 -- -- 9 10 Amounts Utilized in 2001............... -- -- -- (5) (5) ---- ---- ---- ---- ---- Reserve Balance at May 27, 2001........ 1 -- -- 4 5 Amounts Utilized in 2002............... -- (2) -- (2) (4) ---- ---- ---- ---- ---- Reserve Balance at May 26, 2002........ $ 1 $ (2) -- $ 2 $ 1 Squeezit Business Exit 2001 Charges........................... -- $ 12 -- -- $ 12 Amounts Utilized in 2001............... -- (8) -- -- (8) ---- ---- ---- ---- ---- Reserve Balance at May 27, 2001........ -- 4 -- -- 4 2002 Charges, net of credits........... 4 (4) -- -- -- Amounts Utilized in 2002............... (4) -- -- -- (4) ---- ---- ---- ---- ---- Reserve Balance at May 26, 2002........ -- -- -- -- $ -- Cereal Reconfiguration 2002 Charges........................... $ 24 $ 52 $ 11 -- $ 87 Amounts Utilized in 2002............... (3) (5) (11) -- (19) ---- ---- ---- ---- ---- Reserve Balance at May 26, 2002........ $ 21 $ 47 -- -- $ 68 Flour Mills Consolidation 2002 Charges........................... $ 2 $ 6 -- $ 1 $ 9 Amounts Utilized in 2002............... -- -- -- (1) (1) ---- ---- ---- ---- ---- Reserve Balance at May 26, 2002........ $ 2 $ 6 -- -- $ 8
36 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION AND POSTRETIREMENT ASSET CURTAILMENT SEVERANCE WRITE-OFF COSTS OTHER TOTAL --------- --------- -------------- ----- ----- (IN MILLIONS) Sales and Headquarters Severance 2002 Charges........................... $ 38 -- -- -- $ 38 Amounts Utilized in 2002............... (8) -- -- -- (8) ---- ---- ---- ---- ---- Reserve Balance at May 26, 2002........ $ 30 -- -- -- $ 30 Consolidated Reserve Balance at May 30, 1999........ $ 3 $ 14 $ -- $ 27 $ 44 Amounts Utilized in 2000............... (2) (14) -- (18) (34) ---- ---- ---- ---- ---- Reserve Balance at May 28, 2000........ 1 -- -- 9 10 2001 Charges........................... -- 12 -- -- 12 Amounts Utilized in 2001............... -- (8) -- (5) (13) ---- ---- ---- ---- ---- Reserve Balance at May 27, 2001........ 1 4 -- 4 9 2002 Charges, net of credits........... 68 54 11 1 134 Amounts Utilized in 2002............... (15) (7) (11) (3) (36) ---- ---- ---- ---- ---- Reserve Balance at May 26, 2002........ $ 54 $ 51 -- $ 2 $107
4. INVESTMENTS IN JOINT VENTURES We have a 50 percent equity interest in Cereal Partners Worldwide (CPW), a joint venture with Nestle that manufactures and markets ready-to-eat cereals outside the United States and Canada. We have a 40.5 percent equity interest in Snack Ventures Europe (SVE), our joint venture with PepsiCo that manufactures and markets snack foods in continental Europe. We have a 50 percent equity interest in 8th Continent, LLC, a domestic joint venture formed in 2001 with DuPont to develop and market soy foods and beverages. As a result of the Pillsbury acquisition, we have 50 percent interests in the following joint ventures for the manufacture, distribution and marketing of Haagen-Dazs frozen ice cream products and novelties: Haagen-Dazs Japan K.K., Haagen-Dazs Korea Company Limited, Haagen-Dazs Taiwan Limited, Haagen-Dazs Distributors (Thailand) Company Limited, and Haagen-Dazs Marketing & Distribution (Philippines) Inc. We also have a 50 percent interest in Seretram, a joint venture with Co-op de Pau for the production of Green Giant canned corn in France. The joint ventures are reflected in our financial statements on an equity accounting basis. We record our share of the earnings or losses of these joint ventures. (The table that follows reflects the joint ventures on a 100 percent basis.) We also receive royalty income from certain of these joint ventures, incur various expenses (primarily research and development) and record the tax impact of certain of the joint venture operations that are structured as partnerships. Our cumulative investment in these joint ventures (including our share of earnings and losses) was $326 million, $218 million and $198 million at the end of 2002, 2001 and 2000, respectively. We made aggregate investments in the joint ventures of $38 million, $25 million and $29 million (net of a $6 million loan repayment) in 2002, 2001 and 2000, respectively. We received aggregate dividends from the joint ventures of $17 million, $3 million and $5 million in 2002, 2001 and 2000, respectively. Summary combined financial information for the joint ventures on a 100 percent basis follows. Since we record our share of CPW results on a two-month lag, CPW information is included as of and for the 12 months ended March 31. The Haagen-Dazs and Seretram joint ventures are reported as of and for the 37 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) six months ended April 30, 2002. The SVE and 8th Continent information is consistent with our May year-end. COMBINED FINANCIAL INFORMATION -- JOINT VENTURES -- 100% BASIS
FISCAL YEAR ------------------------ 2002 2001 2000 ------ ------ ------ (IN MILLIONS) Net Sales.................................................. $1,693 $1,468 $1,429 Gross Profit............................................... 755 664 619 Earnings (losses) before Taxes............................. 94 61 (4) Earnings (losses) after Taxes.............................. 78 48 (22) ====== ====== ======
MAY 26, 2002 MAY 27, 2001 ------------ ------------ (IN MILLIONS) Current Assets.............................................. $587 $476 Noncurrent Assets........................................... 712 614 Current Liabilities......................................... 630 585 Noncurrent Liabilities...................................... 9 2 ==== ====
Our proportionate share of joint venture sales was $777 million, $666 million and $652 million for 2002, 2001 and 2000, respectively. 38 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. BALANCE SHEET INFORMATION The components of certain balance sheet accounts are as follows:
MAY 26, 2002 MAY 27, 2001 ------------ ------------ (IN MILLIONS) Land, Buildings and Equipment: Land...................................................... $ 54 $ 25 Buildings................................................. 1,151 636 Equipment................................................. 2,916 2,226 Construction in progress.................................. 497 292 ------- ------- Total land, buildings and equipment.................... 4,618 3,179 Less accumulated depreciation............................. (1,854) (1,678) ------- ------- Net land, buildings and equipment...................... $ 2,764 $ 1,501 ======= ======= Goodwill: Total goodwill............................................ $ 8,559 $ 892 Less accumulated amortization............................. (86) (88) ------- ------- Goodwill............................................... $ 8,473 $ 804 ======= ======= Intangible Assets: Intangible assets, primarily capitalized software......... $ 129 $ 93 Less accumulated amortization............................. (39) (27) ------- ------- Intangible assets...................................... $ 90 $ 66 ======= ======= Other Assets: Prepaid pension........................................... $ 1,001 $ 677 Marketable securities, at market.......................... 160 187 Investments in and advances to affiliates................. 320 214 Miscellaneous............................................. 295 234 ------- ------- Total other assets..................................... $ 1,776 $ 1,312 ======= =======
The changes in the carrying amount of goodwill for the fiscal year ended May 26, 2002, are as follows:
PILLSBURY UNALLOCATED EXCESS BAKERIES AND PURCHASE U.S. RETAIL FOODSERVICE INTERNATIONAL CORPORATE PRICE TOTAL ----------- ------------ ------------- --------- ----------- ------ (IN MILLIONS) Balance at May 27, 2001............... $745 $59 $ -- $ -- $ -- $ 804 Pillsbury transaction........ -- -- -- -- 7,669 7,669 ---- --- ----- ----- ------ ------ Balance at May 26, 2002............... $745 $59 $ -- $ -- $7,669 $8,473 ==== === ===== ===== ====== ======
The Pillsbury acquisition valuation and purchase price allocation has not yet been completed. (See Note Two.) Therefore, all the excess purchase price is currently accounted for in goodwill. When the purchase price allocation is completed, the amount allocated to goodwill will change and the remaining goodwill will be allocated to our operating segments. 39 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Intangible asset amortization expense was $13 million, $6 million and $5 million for fiscal 2002, 2001 and 2000, respectively. Excluding amortization for intangible assets acquired as part of the Pillsbury acquisition, estimated amortization expense for the next five fiscal years (in millions) is as follows: $15 in 2003, $12 in 2004, $11 in 2005, $9 in 2006 and $8 in 2007. As of May 26, 2002, a comparison of cost and market values of our marketable securities (which are debt and equity securities) was as follows:
MARKET GROSS GROSS COST VALUE GAIN LOSS ---- ------ ----- ----- (IN MILLIONS) Held to maturity: Debt securities....................................... $ 3 $ 3 $-- $ -- Equity securities..................................... 2 2 -- -- ---- ---- --- ----- Total.............................................. $ 5 $ 5 $-- $ -- ==== ==== === ===== Available for sale: Debt securities....................................... $130 $155 $25 $ -- Equity securities..................................... -- -- -- -- ---- ---- --- ----- Total.............................................. $130 $155 $25 $ -- ==== ==== === =====
Realized gains from sales of marketable securities were $15 million, $4 million and $3 million in 2002, 2001 and 2000, respectively. The aggregate unrealized gains and losses on available-for-sale securities, net of tax effects, are classified in Accumulated Other Comprehensive Income within Stockholders' Equity. Scheduled maturities of our marketable securities are as follows:
HELD TO MATURITY AVAILABLE FOR SALE -------------- ------------------- MARKET MARKET COST VALUE COST VALUE ----- ------ ------- --------- (IN MILLIONS) Under one year (current)............................... $ -- $ -- $ -- $ -- From 1 to 3 years...................................... -- -- 45 52 From 4 to 7 years...................................... -- -- 5 5 Over 7 years........................................... 3 3 80 98 Equity securities...................................... 2 2 -- -- ----- ----- ---- ---- Totals............................................... $ 5 $ 5 $130 $155 ===== ===== ==== ====
40 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INVENTORIES The components of inventories are as follows:
MAY 26, MAY 27, 2002 2001 ------- ------- (IN MILLIONS) Raw materials, work in process and supplies................. $ 234 $129 Finished goods.............................................. 753 326 Grain....................................................... 99 94 Reserve for LIFO valuation method........................... (31) (30) ------ ---- Total inventories......................................... $1,055 $519 ====== ====
At May 26, 2002, and May 27, 2001, respectively, inventories of $720 million and $282 million were valued at LIFO. LIFO accounting had negligible impact on 2002, 2001 and 2000 earnings. Results of operations were not materially affected by a liquidation of LIFO inventory. The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for LIFO valuation method. 7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The carrying amounts and fair values of our financial instruments (based on market quotes and interest rates at the balance sheet dates) were as follows:
MAY 26, 2002 MAY 27, 2001 ----------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------ -------- ------ (IN MILLIONS) Assets: Cash and cash equivalents....................... $ 975 $ 975 $ 64 $ 64 Receivables..................................... 1,010 1,010 664 664 Marketable securities........................... 160 160 187 187 Liabilities: Accounts payable................................ 1,217 1,217 619 619 Debt............................................ 9,439 9,507 3,428 3,500 Derivatives relating to: Debt............................................ (435) (435) -- (250) Commodities..................................... 9 9 -- (3) Foreign currencies.............................. (6) (6) -- 4
The Company is exposed to certain market risks as a part of its ongoing business operations and uses derivative financial and commodity instruments, where appropriate, to manage these risks. Derivatives are financial instruments whose value is derived from one or more underlying financial instruments. Examples of underlying instruments are currencies, equities, commodities and interest rates. In general, instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged, and must be designated as a hedge at the inception of the contract. With the adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as of May 28, 2001, we record the fair value of all outstanding derivatives in receivables or other liabilities. Gains and losses related to the ineffective portion of any hedge are recorded in various costs and expenses, depending on the nature of the derivative. 41 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Each derivative transaction we enter into is designated at inception as a hedge of risks associated with specific assets, liabilities or future commitments, and is monitored to determine if it remains an effective hedge. Effectiveness is based on changes in the derivative's market value or cash flows being highly correlated with changes in market value or cash flows of the underlying hedged item. We do not enter into or hold derivatives for trading or speculative purposes. None of our derivative instruments is excluded from our assessment of hedge effectiveness. We use derivative instruments to reduce financial risk in three areas: interest rates, foreign currency and commodities. The notional amounts of derivatives do not represent actual amounts exchanged by the parties and, thus, are not a measure of the Company's exposure through its use of derivatives. We enter into interest rate swap, foreign exchange, and commodity swap agreements with a diversified group of highly rated counterparties. We enter into commodity futures transactions through various regulated exchanges. These transactions may expose the Company to credit risk to the extent that the instruments have a positive fair value, but we have not experienced any material losses nor do we anticipate any losses. The Company does not have a significant concentration of risk with any single party or group of parties in any of its financial instruments. Qualifying derivatives are reported as part of hedge arrangements as follows: Cash Flow Hedges -- Gains and losses on these instruments are recorded in Other Comprehensive Income until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from Accumulated Other Comprehensive Income to the Consolidated Statements of Earnings on the same line item as the underlying transaction risk. When we issue fixed rate debt, the corresponding interest rate swaps are dedesignated as hedges and the amount related to those swaps within accumulated other comprehensive income will be reclassified into earnings over the life of the interest rate swaps. Foreign Exchange Transaction Risk -- The Company is exposed to fluctuations in foreign currency cash flows related primarily to third-party purchases, intercompany product shipments, and intercompany loans. Forward contracts of generally less than 12 months duration are used to hedge some of these risks. Effectiveness is assessed based on changes in forward rates. Interest Rate Risk -- The Company is exposed to interest rate volatility with regard to existing variable-rate debt and planned future issuances of fixed-rate debt. The Company uses interest rate swaps, including forward-starting swaps, to reduce interest rate volatility, and to achieve a desired proportion of variable vs. fixed-rate debt, based on current and projected market conditions. Variable-to-fixed interest rate swaps are accounted for as cash flow hedges, with effectiveness assessed based on either the hypothetical derivative method or changes in the present value of interest payments on the underlying debt. The amount of hedge ineffectiveness was less than $1 million. Price Risk -- The Company is exposed to price fluctuations primarily as a result of anticipated purchases of ingredient and packaging materials. The Company uses a combination of long cash positions with suppliers, exchange-traded futures and option contracts and over-the-counter hedging mechanisms to reduce price fluctuations in a desired percentage of forecasted purchases over a period of generally less than one year. Commodity contracts are accounted for as cash flow hedges, with effectiveness assessed based on changes in futures prices. The amount of hedge ineffectiveness was less than $1 million. We use a grain merchandising operation to provide us efficient access to and more informed knowledge of various commodities markets. This operation uses futures and options to hedge its net inventory position to minimize market exposure. As of May 26, 2002, our grain merchandising operation had futures and options contracts that essentially hedged its net inventory position. None of the contracts extended beyond May 2003. All futures contracts and futures options are exchange-based instruments with 42 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ready liquidity and determinable market values. Neither results of operations nor the year-end positions from our grain merchandising operation were material to the Company's overall results. Unrealized losses from cash flow hedges recorded in Accumulated Other Comprehensive Income as of May 26, 2002, totaled $432 million pretax, primarily related to interest rate swaps we entered into in contemplation of future borrowings and other financing requirements (primarily related to the Pillsbury acquisition), which are being reclassified into interest expense over the life of the interest rate hedge. (See Note Eight regarding swaps settled or neutralized.) The estimated net amount of the existing gains and losses in accumulated other comprehensive income as of May 26, 2002 that is expected to be reclassified into earnings within the next twelve months is $171 million. Fair Value Hedges -- Fair value hedges involve recognized assets, liabilities or firm commitments as the hedged risks. Foreign Exchange Translation Risk -- The Company is exposed to fluctuations in the value of foreign currency investments in subsidiaries and cash flows related primarily to repatriation of these investments. Forward contracts, generally less than 12 months duration, are used to hedge some of these risks. Effectiveness is assessed based on changes in forward rates. Effective gains and losses on these instruments are recorded as a foreign currency translation adjustment in Other Comprehensive Income. The Company enters into foreign currency forward contracts to reduce volatility in the translation of foreign currency earnings to U.S. dollars. Gains and losses on these instruments are recorded in selling, general and administrative expense, generally reducing the exposure to translation volatility during a full-year period. Our net balance sheet exposure consists of the net investment in foreign operations, translated using the exchange rates in effect at the balance sheet date. The components of our net balance sheet exposure by geographic region are as follows:
MAY 26, MAY 27, 2002 2001 ------- ------- (IN MILLIONS) Europe...................................................... $363 $181 North/South America......................................... 248 37 Asia/Other.................................................. 101 16 ---- ---- Net Balance Sheet Exposure................................ $712 $234 ==== ====
Interest Rate Risk -- The Company currently uses interest rate swaps to reduce funding costs associated with certain debt issues and to achieve a desired proportion of variable vs. fixed-rate debt, based on current and projected market conditions. Fixed-to-variable interest rate swaps are accounted for as fair value hedges with effectiveness assessed based on changes in the fair value of the underlying debt, using incremental borrowing rates currently available on loans with similar terms and maturities. Effective gains and losses on these derivatives and the underlying hedged items are recorded as interest expense. 43 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table indicates the types of swaps used to hedge various assets and liabilities, and their weighted average interest rates. Average variable rates are based on rates as of the end of the reporting period. The swap contracts mature during time periods ranging from 2003 to 2014.
MAY 26, 2002 MAY 27, 2001 ------------------ ------------------ ASSET LIABILITY ASSET LIABILITY ----- --------- ----- --------- (IN MILLIONS) Pay floating swaps -- notional amount.............. -- $2,692 -- $ 340 Average receive rate............................. -- 5.4% -- 7.1% Average pay rate................................. -- 1.8% -- 4.0% Pay fixed swaps -- notional amount................. -- $6,814 -- $5,766 Average receive rate............................. -- 1.8% -- 4.1% Average pay rate................................. -- 6.4% -- 6.6% ==== ====== ==== ======
The interest rate differential on interest rate swaps used to hedge existing assets and liabilities is recognized as an adjustment of interest expense or income over the term of the agreement. 8. DEBT Notes Payable -- The components of notes payable and their respective weighted average interest rates at the end of the periods are as follows:
MAY 26, 2002 MAY 27, 2001 ------------------ ------------------ WEIGHTED WEIGHTED AVERAGE AVERAGE NOTES INTEREST NOTES INTEREST PAYABLE RATE PAYABLE RATE ------- -------- ------- -------- (IN MILLIONS) U.S. commercial paper.......................... $ 3,288 2.1% $ 733 4.4% Canadian commercial paper...................... 34 2.3 27 4.6 Euro commercial paper.......................... 809 2.2 768 4.9 Financial institutions......................... 519 2.1 330 4.4 Amounts reclassified to long-term debt......... (1,050) -- (1,000) -- ------- --- ------- --- Total Notes Payable.......................... $ 3,600 $ 858 ======= === ======= ===
See Note Seven for a description of related interest-rate derivative instruments. To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding short-term borrowings. As of May 26, 2002, we had $4.0 billion in committed lines and $45 million in uncommitted lines. We have revolving credit agreements expiring in January 2006 covering the fee-paid credit lines that provide us with the ability to refinance short-term borrowings on a long-term basis; accordingly, a portion of our notes payable has been reclassified to long-term debt. The revolving credit agreements provide for borrowings of up to $1.05 billion. Long-Term Debt -- During fiscal 2002, General Mills filed a Registration Statement with the Securities and Exchange Commission covering the sale of up to $8.0 billion in debt securities. In February 2002, we issued $3.5 billion of notes: $2.0 billion of 6 percent notes due 2012 with an effective interest rate of 7.75 percent; and $1.5 billion of 5 1/8 percent notes due 2007 with an effective interest rate of 5.90 percent. Interest is payable semiannually on February 15 and August 15, beginning August 15, 2002. Proceeds from the notes were used to repay short-term debt incurred in connection with the Pillsbury 44 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) acquisition. Following the February offering, $4.5 billion remains available under the Registration Statement for future use. In anticipation of the Pillsbury acquisition and other financing needs, we entered into interest rate swap contracts during fiscal 2001 and fiscal 2002 totaling $7.1 billion to attempt to lock in our interest rate on associated debt. In September 2001, $100 million of these swaps expired. In connection with the February notes offering, we closed out $3.5 billion of these swaps. The notional amount of the swaps settled for cash totaled $1.1 billion and the net cash payment was $13 million. The notional amount of the swaps that were neutralized with offsetting swaps totaled $2.4 billion. These swaps had been designated as cash flow hedges. Therefore, the mark-to-market value for these swaps has been recorded in Other Comprehensive Income. The amount currently recorded in Accumulated Other Comprehensive Income ($242 million pretax) will be reclassified to interest expense over the lives of the swap contracts (primarily five to 10 years). The remaining $3.5 billion of these interest rate swap contracts continue to fix our interest rate on certain of our notes payable, primarily our commercial paper program.
MAY 26, MAY 27, 2002 2001 ------- ------- (IN MILLIONS) 6% notes due 2012........................................... $2,000 $ -- 5 1/8% notes due 2007....................................... 1,500 -- Medium-term notes, 4.8% to 9.1%, due 2003 to 2078........... 922 1,274 7.0% notes due Sept. 15, 2004............................... 150 157 Zero coupon notes, yield 11.1%, $261 due Aug. 15, 2013...... 78 70 Zero coupon notes, yield 11.7%, $54 due Aug. 15, 2004....... 42 38 8.2% ESOP loan guaranty, due through June 30, 2007.......... 21 30 Notes payable, reclassified................................. 1,050 1,000 Other....................................................... 76 1 ------ ------ 5,839 2,570 Less amounts due within one year............................ (248) (349) ------ ------ Total Long-term Debt...................................... $5,591 $2,221 ====== ======
See note seven for a description of related interest-rate derivative instruments. In 2001, we issued $284 million of debt under our medium-term note program with maturities up to two years and interest rates varying from 7.0 to 7.4 percent. The Company has guaranteed the debt of the Employee Stock Ownership Plan; therefore, the loan is reflected on our consolidated balance sheets as long-term debt with a related offset in Unearned Compensation in Stockholders' Equity. The sinking fund and principal payments due on long-term debt are (in millions) $248, $104, $225, $54 and $1,536 in 2003, 2004, 2005, 2006 and 2007, respectively. The 2005 and 2006 amounts are exclusive of $12 million and $5 million, respectively, of interest yet to be accreted on zero coupon notes. The notes payable that are reclassified under our revolving credit agreement are not included in these principal payments. Our marketable securities (see Note Five) include zero coupon U.S. Treasury and other top-rated securities. These investments are intended to provide funds for the payment of principal and interest for the zero coupon notes due Aug. 15, 2004, and Aug. 15, 2013. 45 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. MINORITY INTEREST In April 2002, the Company and certain of its wholly owned subsidiaries contributed assets with an aggregate fair market value of approximately $4 billion to another subsidiary (GMC), a limited liability company. GMC is a separate and distinct legal entity from the Company and its subsidiaries, and has separate assets, liabilities, businesses and operations. The contributed assets consist primarily of manufacturing assets and intellectual property associated with the production and retail sale of Big G ready-to-eat cereals, Progresso soups and Old El Paso products. In exchange for the contribution of these assets, GMC issued the managing membership interest and Class A and Class B preferred membership interests to wholly owned subsidiaries of the Company. The managing member directs the business activities and operations of GMC and has fiduciary responsibilities to GMC and its members. Other than rights to vote on certain matters, holders of the Class A and Class B interests have no right to direct the management of GMC. In May 2002, GMC sold approximately 30 percent of the Class A interests to an unrelated third-party investor in exchange for $150 million. The Class A interests receive quarterly preferred distributions at a floating rate equal to the three-month LIBOR plus 90 basis points. The GMC limited liability company agreement requires that the rate of the preferred distributions for the Class A interests be reset by agreement between the third-party investors and GMC every five years, beginning in May 2007. If GMC and the investors fail to mutually agree on a new rate of preferred distributions, GMC must remarket the securities. Upon a failed remarketing, the rate over LIBOR will be increased by 75 basis points (up to a maximum total of 300 basis points following a scheduled reset date). In the event of four consecutive failed remarketings, the third-party investors can force a liquidation and winding up of GMC. GMC has a scheduled duration of 20 years. However, GMC, through the managing member, may elect to redeem all of the Class A interests held by third-party investors at any time for an amount equal to the investors' capital accounts, plus an optional retirement premium if such retirement occurs prior to June 2007. Under certain circumstances, GMC also may be dissolved and liquidated earlier. Events requiring liquidation include, without limitation, the bankruptcy of GMC or its subsidiaries, failure to deliver the preferred quarterly return, failure to comply with portfolio requirements, breaches of certain covenants, and four consecutive failed attempts to remarket the Class A interests. In the event of a liquidation of GMC, the third-party investors that hold the Class A interests would be entitled to repayment from the proceeds of liquidation prior to the subsidiaries of the Company that are members of GMC. The managing member may avoid liquidation in most circumstances by exercising an option to purchase the preferred interests. An election to redeem the preferred membership interests could impact the Company's liquidity by requiring the Company to refinance the redemption price or liquidate a portion of GMC assets. Currently, all of the Class B interests are held by a subsidiary of the Company. The Company may offer the Class B interests and the remaining, unsold Class A interests to third-party investors on terms and conditions to be determined. For financial reporting purposes, the assets, liabilities, results of operations, and cash flows of GMC are included in the Company's consolidated financial statements. The third-party investor's Class A interest in GMC is reflected as a minority interest on the consolidated balance sheet of the Company. Subsequent to fiscal year end, General Mills Capital, Inc. (GM Capital), a wholly owned subsidiary, sold $150 million of its Series A preferred stock to an unrelated third-party investor. GM Capital regularly enters into transactions with the Company to purchase receivables of the Company. These receivables are included in the consolidated balance sheet and the $150 million purchase price for the Series A preferred stock will be reflected as additional minority interest on the balance sheet. The proceeds from the issuance of the preferred stock were used to pay down commercial paper. 46 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. STOCKHOLDERS' EQUITY Cumulative preference stock of 5 million shares, without par value, is authorized but unissued. We have a shareholder rights plan that entitles each outstanding share of common stock to one right. Each right entitles the holder to purchase one two-hundredths of a share of cumulative preference stock (or, in certain circumstances, common stock or other securities), exercisable upon the occurrence of certain events. The rights are not transferable apart from the common stock until a person or group has acquired 20 percent or more, or makes a tender offer for 20 percent or more, of the common stock. Then each right will entitle the holder (other than the acquirer) to receive, upon exercise, common stock of either the Company or the acquiring company having a market value equal to two times the exercise price of the right. The initial exercise price is $120 per right. The rights are redeemable by the Board of Directors at any time prior to the acquisition of 20 percent or more of the outstanding common stock. The shareholder rights plan has been specifically amended so that the Pillsbury transaction described in Note Two does not trigger the exercisability of the rights. The rights expire on Feb. 1, 2006. At May 26, 2002, there were 367 million rights issued and outstanding. The Board of Directors has authorized the repurchase, from time to time, of common stock for our treasury, provided that the number of treasury shares shall not exceed 170 million. Through private transactions in fiscal 2002 and 2001 that were a part of our stock repurchase program, we issued put options and purchased call options related to our common stock. In 2002 and 2001, we issued put options for 7 million and 17 million shares for $17 million and $36 million in premiums paid to the Company, respectively. As of May 26, 2002, put options for 10 million shares remained outstanding at exercise prices ranging from $37.00 to $47.00 per share with exercise dates from June 14, 2002, to May 20, 2003. In 2002 and 2001, we purchased call options for 4 million and 8 million shares for $16 million and $34 million in premiums paid by the Company, respectively. As of May 26, 2002, call options for 9 million shares remained outstanding at exercise prices ranging from $34.00 to $54.84 per share with exercise dates from June 17, 2002, to Nov. 20, 2003. 47 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table provides details of Other Comprehensive Income:
OTHER TAX COMPRE- PRETAX (EXPENSE) HENSIVE CHANGE BENEFIT INCOME ------ --------- ------- (IN MILLIONS) Fiscal year ended May 28, 2000 Foreign currency translation........................... $ (25) $ 3 $ (22) Minimum pension liability.............................. 1 -- 1 Other fair value changes: Securities.......................................... (13) 5 (8) ----- ---- ----- Other Comprehensive Income............................... $ (37) $ 8 $ (29) ===== ==== ===== Fiscal year ended May 27, 2001 Foreign currency translation........................... $ (8) $ 1 $ (7) Minimum pension liability.............................. (8) 3 (5) Other fair value changes: Securities.......................................... 8 (3) 5 ----- ---- ----- Other Comprehensive Income............................... $ (8) $ 1 $ (7) ===== ==== ===== Fiscal year ended May 26, 2002 Foreign currency translation........................... $ (4) $ -- $ (4) Minimum pension liability.............................. 7 (3) 4 Other fair value changes: Securities.......................................... (3) 1 (2) Hedge derivatives................................... (343) 127 (216) Reclassification to earnings: Securities.......................................... (15) 6 (9) Hedge derivatives................................... 163 (61) 102 Cumulative effect of adopting SFAS No. 133............. (251) 93 (158) ----- ---- ----- Other Comprehensive Income............................... $(446) $163 $(283) ===== ==== =====
Except for reclassification to earnings, changes in Other Comprehensive Income are primarily noncash items. Accumulated Other Comprehensive Income balances were as follows:
MAY 26, MAY 27, 2002 2001 ------- ------- (IN MILLIONS) Foreign currency translation adjustments.................... $(113) $(109) Unrealized gain (loss) from: Securities................................................ 16 27 Hedge derivatives......................................... (272) -- Pension plan minimum liability.............................. (7) (11) ----- ----- Accumulated Other Comprehensive Income...................... $(376) $ (93) ===== =====
48 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. STOCK PLANS The Company uses broad-based stock plans to help ensure alignment with stockholders' interests. A total of 8,984,631 shares are available for grant under the 1998 senior management plan through Oct. 1, 2005, the 1998 employee plan (which has no specified duration) and the 2001 director plan through Sept. 30, 2006. Shares available for grant are reduced by shares issued, net of shares surrendered to the Company in stock-for-stock exercises. Options may be priced only at 100 percent of the fair market value at the date of grant. No options now outstanding have been re-priced since the original date of grant. Options now outstanding include some granted under the 1988, 1990, 1993 and 1995 option plans, under which no further rights may be granted. All options expire within 10 years and one month after the date of grant. The stock plans provide for full vesting of options upon completion of specified service periods, or in the event there is a change of control. Stock subject to a restricted period and a purchase price, if any (as determined by the Compensation Committee of the Board of Directors), may be granted to key employees under the 1998 employee plan. Restricted stock, up to 50 percent of the value of an individual's cash incentive award, may be granted through the Executive Incentive Plan. Certain restricted stock awards require the employee to deposit personally owned shares (on a one-for-one basis) with the Company during the restricted period. The 2001 director plan allows each nonemployee director to annually receive 1,000 restricted stock units convertible to common stock at a date of the director's choosing following his or her one-year term. In 2002, 2001 and 2000, grants of 691,115, 353,500 and 330,229 shares of restricted stock or units were made to employees and directors with weighted average values at grant of $46.93, $37.61 and $38.49 per share, respectively. On May 26, 2002, a total of 1,634,158 restricted shares and units were outstanding under all plans. The 1988 plan permitted the granting of performance units corresponding to stock options granted. The value of performance units was determined by return on equity and growth in earnings per share measured against preset goals over three-year performance periods. For seven years after a performance period, holders may elect to receive the value of performance units (with interest) as an alternative to exercising corresponding stock options. On May 26, 2002, there were 48,614 options outstanding with corresponding performance unit accounts. The value of these options exceeded the value of the performance unit accounts. We will not incur any additional compensation expense in connection with these performance units. 49 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table contains information on stock option activity. Approximately 33 percent of the options outstanding at May 26, 2002, were granted under the Salary Replacement Option and Deposit Stock Option Plans, both of which have been discontinued.
WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE OPTIONS PRICE PER OPTIONS PRICE PER EXERCISABLE SHARE OUTSTANDING SHARE ----------- --------- ----------- --------- (THOUSANDS) (THOUSANDS) Balance at May 30, 1999................... 24,232 $25.05 53,076 $28.17 Granted................................. 11,445 37.49 Exercised............................... (5,679) 21.82 Expired................................. (552) 33.42 ------ ------ ------ ------ Balance at May 28, 2000................... 25,412 26.40 58,290 30.57 Granted................................. 11,600 38.07 Exercised............................... (5,651) 24.60 Expired................................. (741) 35.98 ------ ------ ------ ------ Balance at May 27, 2001................... 27,724 27.79 63,498 32.40 Granted................................. 14,567 48.17 Exercised............................... (6,569) 27.64 Expired................................. (421) 39.44 ------ ------ ------ ------ Balance at May 26, 2002................... 30,149 $29.18 71,075 $36.03 ====== ====== ====== ======
The following table provides information regarding options exercisable and outstanding as of May 26, 2002:
WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE REMAINING OPTIONS PRICE PER OPTIONS PRICE PER CONTRACTUAL RANGE OF EXERCISE PRICE PER SHARE EXERCISABLE SHARE OUTSTANDING SHARE LIFE - --------------------------------- ----------- --------- ----------- --------- ----------- (THOUSANDS) (THOUSANDS) (YEARS) Under $25....................... 4,976 $22.61 4,982 $22.61 2.26 $25-$30......................... 12,392 26.46 12,401 26.47 2.53 $30-$35......................... 9,822 32.24 19,836 33.28 6.65 $35-$40......................... 173 36.96 8,464 37.43 6.25 Over $40........................ 2,786 41.77 25,392 45.02 8.91 ------ ------ ------ ------ ---- 30,149 $29.18 71,075 $36.03 6.38 ====== ====== ====== ====== ====
Stock-based compensation expense related to restricted stock for 2002, 2001 and 2000 was $16 million, $11 million and $9 million, respectively, using the intrinsic value-based method of accounting for stock-based compensation plans. Effective with 1997, we adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 allows either a fair value-based method or an intrinsic value-based method of accounting for such compensation plans. Had compensation expense for our stock option plan grants been determined using the fair value-based method, net earnings, basic earnings per share and diluted earnings per share would have been approximately $384 million, $1.16 and $1.13, respectively, for 2002; $621 million, $2.19 and $2.15, respectively, for 2001; and, $575 million, $1.92 and $1.89, respectively, for 2000. The weighted average fair values at grant date of the options 50 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) granted in 2002, 2001 and 2000 were estimated as $11.77, $8.78 and $8.89, respectively, using the Black-Scholes option-pricing model with the following weighted average assumptions:
2002 2001 2000 ------- ------- ------- Risk-free interest rate.................................. 5.1% 5.6% 6.3% Expected life............................................ 7 years 7 years 7 years Expected volatility...................................... 20% 20% 18% Expected dividend growth rate............................ 8% 8% 8%
The Black-Scholes model requires the input of highly subjective assumptions and may not provide a reliable measure of fair value. 12. EARNINGS PER SHARE Basic and diluted earnings per share (EPS) were calculated using the following:
FISCAL YEAR ------------------ 2002 2001 2000 ---- ---- ---- (IN MILLIONS) Net earnings................................................ $458 $665 $614 ---- ---- ---- Average number of common shares -- basic EPS................ 331 284 299 ---- ---- ---- Incremental share effect from: Stock options............................................. 11 8 8 Restricted stock, stock rights and puts................... -- -- -- ---- ---- ---- Average number of common shares -- diluted EPS.............. 342 292 307 ==== ==== ====
The diluted EPS calculation does not include 4 million, 8 million and 9 million average anti-dilutive stock options, nor does it include 13 million, 15 million and 8 million average anti-dilutive put options in 2002, 2001 and 2000, respectively. 13. INTEREST EXPENSE The components of net interest expense are as follows:
FISCAL YEAR ------------------ 2002 2001 2000 ---- ---- ---- (IN MILLIONS) Interest expense............................................ $445 $223 $168 Capitalized interest........................................ (3) (2) (2) Interest income............................................. (26) (15) (14) ---- ---- ---- Interest, net............................................. $416 $206 $152 ==== ==== ====
During 2002, 2001 and 2000, we paid interest (net of amount capitalized) of $346 million, $215 million and $167 million, respectively. 14. RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS We have defined-benefit retirement plans covering most employees. Benefits for salaried employees are based on length of service and final average compensation. The hourly plans include various monthly amounts for each year of credited service. Our funding policy is consistent with the requirements of federal 51 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) law. Our principal retirement plan covering salaried employees has a provision that any excess pension assets would vest in plan participants if the plan is terminated within five years of a change in control. We sponsor plans that provide health-care benefits to the majority of our retirees. The salaried health-care benefit plan is contributory, with retiree contributions based on years of service. We fund related trusts for certain employees and retirees on an annual basis. Trust assets related to the above plans consist principally of listed equity securities, corporate obligations and U.S. government securities. 52 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Reconciliation of the funded status of the plans and the amounts included in the balance sheet are as follows:
POSTRETIREMENT PENSION PLANS BENEFIT PLANS --------------- -------------- 2002 2001 2002 2001 ------ ------ ------ ----- (IN MILLIONS) Fair Value of Plan Assets Beginning fair value............................... $1,606 $1,578 $ 237 $230 Actual return on assets............................ (2) 83 (10) (2) Acquisition........................................ 1,167 -- -- -- Company contributions.............................. 7 11 29 28 Plan participant contributions..................... -- -- 5 2 Benefits paid from plan assets..................... (107) (66) (28) (21) ------ ------ ----- ---- Ending Fair Value.................................... $2,671 $1,606 $ 233 $237 ====== ====== ===== ==== Projected Benefit Obligation Beginning obligations.............................. $1,077 $ 958 $ 286 $231 Service cost....................................... 34 18 11 6 Interest cost...................................... 122 79 33 21 Plan amendment..................................... 21 1 (13) -- Curtailment........................................ 5 -- 2 -- Plan participant contributions..................... -- -- 5 2 Actuarial loss (gain).............................. (15) 87 72 42 Acquisition........................................ 963 -- 248 -- Actual benefits paid............................... (107) (66) (33) (16) ------ ------ ----- ---- Ending Obligations................................... $2,100 $1,077 $ 611 $286 ====== ====== ===== ==== Funded Status of Plans............................... $ 571 $ 529 $(378) $(49) ------ ------ ----- ---- Unrecognized actuarial loss........................ 334 106 154 59 Unrecognized prior service costs (credits)......... 49 36 (17) (5) Unrecognized transition asset...................... (3) (18) -- -- ------ ------ ----- ---- Net Amount Recognized................................ $ 951 $ 653 $(241) $ 5 ====== ====== ===== ==== Amounts Recognized on Balance Sheets Prepaid asset...................................... $1,001 $ 677 $ 82 $ 75 Accrued liability.................................. (62) (44) (323) (70) Intangible asset................................... -- 1 -- -- Minimum liability adjustment in equity............. 12 19 ------ ------ ----- ---- Net Amount Recognized................................ $ 951 $ 653 $(241) $ 5 ====== ====== ===== ====
53 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Plans with obligations in excess of plan assets:
POSTRETIREMENT PENSION PLANS BENEFIT PLANS -------------- --------------- 2002 2001 2002 2001 ----- ----- ------ ------ (IN MILLIONS) Accumulated benefit obligation........................... $71 $44 $466 $166 Plan assets at fair value................................ 9 -- 45 41
Assumptions as of year-end are:
POSTRETIREMENT PENSION PLANS BENEFIT PLANS ------------- --------------- 2002 2001 2002 2001 ----- ----- ------ ------ Discount rate.............................................. 7.50% 7.75% 7.50% 7.75% Rate of return on plan assets.............................. 10.4 10.4 10.0 10.0 Salary increases........................................... 4.4 4.4 -- -- Annual increase in cost of benefits........................ -- -- 8.3 6.6
The annual increase in cost of postretirement benefits is assumed to decrease gradually in future years, reaching an ultimate rate of 5.2 percent in the year 2007. Components of net benefit (income) or expense each year are as follows:
POSTRETIREMENT PENSION PLANS BENEFIT PLANS --------------------- ------------------ 2002 2001 2000 2002 2001 2000 ----- ----- ----- ---- ---- ---- (IN MILLIONS) Service cost............................ $ 34 $ 18 $ 20 $11 $ 6 $ 6 Interest cost........................... 122 79 69 33 21 17 Expected return on plan assets.......... (241) (159) (142) (23) (23) (22) Amortization of transition asset........ (15) (15) (14) -- -- -- Amortization of (gains) losses.......... 2 2 1 3 1 1 Amortization of prior service costs (credits)............................. 8 6 6 (1) (2) (2) Settlement or curtailment losses........ 5 -- -- 2 -- -- ----- ----- ----- --- ---- ---- Net (income) expense.................. $ (85) $ (69) $ (60) $25 $ 3 $ -- ===== ===== ===== === ==== ====
Assumed trend rates for health-care costs have an important effect on the amounts reported for the postretirement benefit plans. If the health-care cost trend rate increased by 1 percentage point in each future year, the aggregate of the service and interest cost components of postretirement expense would increase for 2002 by $5 million, and the postretirement accumulated benefit obligation as of May 26, 2002, would increase by $51 million. If the health-care cost trend rate decreased by 1 percentage point in each future year, the aggregate of the service and interest cost components of postretirement expense would decrease for 2002 by $4 million, and the postretirement accumulated benefit obligation as of May 26, 2002, would decrease by $44 million. The General Mills Savings Plan is a defined contribution plan that covers our salaried and nonunion employees. It had net assets of $1,666 million at May 26, 2002, and $1,071 million at May 27, 2001. This plan is a 401(k) savings plan that includes a number of investment funds and an Employee Stock Ownership Plan (ESOP). The ESOP's only assets are Company common stock and temporary cash balances. Company expense recognized in 2002, 2001 and 2000 was $9 million, $8 million and $8 million, 54 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) respectively. The ESOP's share of this expense was $3 million, $7 million and $7 million, respectively. The ESOP's expense is calculated by the "shares allocated" method. The ESOP uses Company common stock to convey benefits to employees and, through increased stock ownership, to further align employee interests with those of shareholders. The Company matches a percentage of employee contributions to the ESOP with a base match plus a variable year-end match that depends on annual results. Employees receive the Company match in the form of common stock. The ESOP originally purchased Company common stock principally with funds borrowed from third parties (and guaranteed by the Company). The ESOP shares are included in net shares outstanding for the purposes of calculating earnings per share. The ESOP's third-party debt is described in Note Eight. The Company treats cash dividends paid to the ESOP the same as other dividends. Dividends received on leveraged shares (i.e., all shares originally purchased with the debt proceeds) are used for debt service, while dividends received on unleveraged shares are passed through to participants. The Company's cash contribution to the ESOP is calculated so as to pay off enough debt to release sufficient shares to make the Company match. The ESOP uses the Company's cash contributions to the plan, plus the dividends received on the ESOP's leveraged shares, to make principal and interest payments on the ESOP's debt. As loan payments are made, shares become unencumbered by debt and are committed to be allocated. The ESOP allocates shares to individual employee accounts on the basis of the match of employee payroll savings (contributions), plus reinvested dividends received on previously allocated shares. In 2002, 2001 and 2000, the ESOP incurred interest expense of $2 million, $3 million and $4 million, respectively. The ESOP used dividends of $8 million, $7 million and $9 million, along with Company contributions of $3 million, $6 million and $6 million to make interest and principal payments in the respective years. The number of shares of Company common stock in the ESOP is summarized as follows:
MAY 26, 2002 MAY 27, 2001 --------------- --------------- (NUMBER OF SHARES, IN THOUSANDS) Unreleased shares........................................... 1,170 1,652 Committed to be allocated................................... 15 24 Allocated to participants................................... 5,500 5,680 ----- ----- Total shares.............................................. 6,685 7,356 ===== =====
15. PROFIT-SHARING PLAN The Executive Incentive Plan provides incentives to key employees who have the greatest potential to contribute to current earnings and successful future operations. All employees at the level of vice president and above participate in the plan. These awards are approved by the Compensation Committee of the Board of Directors, which consists solely of independent, outside directors. Awards are based on performance against pre-established goals approved by the Committee. Profit-sharing expense was $11 million, $12 million and $10 million in 2002, 2001 and 2000, respectively. 55 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. INCOME TAXES The components of earnings before income taxes and earnings of joint ventures and the corresponding income taxes thereon are as follows:
FISCAL YEAR ------------------ 2002 2001 2000 ---- ---- ---- (IN MILLIONS) Earnings before income taxes: U.S. ..................................................... $653 $991 $919 Foreign................................................... 14 7 28 ---- ---- ---- Total earnings before income taxes................... $667 $998 $947 ---- ---- ---- Income taxes: Current: Federal................................................ $127 $283 $280 State and local........................................ 8 20 14 Foreign................................................ 11 (2) (2) ---- ---- ---- Total current........................................ 146 301 292 ---- ---- ---- Deferred: Federal................................................ 84 42 44 State and local........................................ 15 5 (5) Foreign................................................ (6) 2 5 ---- ---- ---- Total deferred....................................... 93 49 44 ---- ---- ---- Total Income Taxes................................ $239 $350 $336 ==== ==== ====
During 2002, 2001 and 2000, we paid income taxes of $196 million, $231 million and $284 million, respectively. In fiscal 1982 and 1983 we purchased certain income tax items from other companies through tax lease transactions. Total current income taxes charged to earnings reflect the amounts attributable to operations and have not been materially affected by these tax leases. Actual current taxes payable relating to 2002, 2001 and 2000 operations were increased by approximately $3 million, $16 million and $22 million, respectively, due to the current effect of tax leases. These tax payments do not affect taxes for statement of earnings purposes since they repay tax benefits realized in prior years. The repayment liability is classified as Deferred Income Taxes -- Tax Leases. The following table reconciles the U.S. statutory income tax rate with the effective income tax rate:
FISCAL YEAR ------------------ 2002 2001 2000 ---- ---- ---- U.S. statutory rate......................................... 35.0% 35.0% 35.0% ---- ---- ---- State and local income taxes, net of federal tax benefits... 2.3 1.6 1.3 Other, net.................................................. (1.5) (1.6) (.8) ---- ---- ---- Effective Income Tax Rate................................. 35.8% 35.0% 35.5% ==== ==== ====
56 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:
MAY 26, 2002 MAY 27, 2001 --------------- --------------- (IN MILLIONS) Accrued liabilities......................................... $106 $ 65 Unusual charges............................................. 104 9 Compensation and employee benefits.......................... 111 73 Unrealized hedge losses..................................... 163 -- Tax credit carryforwards.................................... 51 8 Other....................................................... 23 14 ---- ---- Gross deferred tax assets................................. 558 169 ---- ---- Depreciation................................................ 281 134 Prepaid pension asset....................................... 289 255 Intangible assets........................................... 22 10 Other....................................................... 51 54 ---- ---- Gross deferred tax liabilities............................ 643 453 ---- ---- Valuation allowance......................................... 10 3 ---- ---- Net Deferred Tax Liability................................ $ 95 $287 ==== ====
We have not recognized a deferred tax liability for unremitted earnings of $87 million from our foreign operations because we do not expect those earnings to become taxable to us in the foreseeable future and because a determination of the potential liability is not practicable. If a portion were to be remitted, we believe income tax credits would substantially offset any resulting tax liability. 17. LEASES AND OTHER COMMITMENTS An analysis of rent expense by property leased follows:
FISCAL YEAR ------------------ 2002 2001 2000 ---- ---- ---- (IN MILLIONS) Warehouse space............................................. $26 $25 $24 Equipment................................................... 23 11 8 Other....................................................... 19 7 7 --- --- --- Total Rent Expense........................................ $68 $43 $39 === === ===
Some leases require payment of property taxes, insurance and maintenance costs in addition to the rent payments. Contingent and escalation rent in excess of minimum rent payments and sublease income netted in rent expense were insignificant. Noncancelable future lease commitments (in millions) are: $59 in 2003, $44 in 2004, $35 in 2005, $31 in 2006, $22 in 2007 and $96 after 2007, with a cumulative total of $287. These future lease commitments will be partially offset by future sublease receipts of $46 million. We are contingently liable under guaranties and comfort letters for $212 million. The guaranties and comfort letters are principally issued to support borrowing arrangements, primarily for our joint ventures. 57 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) We remain the guarantor on certain leases and other obligations of Darden Restaurants, Inc. (Darden), an entity we spun off as of May 28, 1995. However, Darden has indemnified us against any related loss. The Company is involved in various claims, including environmental matters, arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters, either individually or in aggregate, will not have a material adverse effect on the Company's financial position or results of operations. 18. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION We operate exclusively in the consumer foods industry, with multiple operating segments organized generally by product categories. Following the acquisition of Pillsbury, we restructured our management organization. Consistent with our new organization and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we have aggregated our operating segments into three reportable segments: 1) U.S. Retail; 2) Bakeries and Foodservice; and 3) International. U.S. Retail consists of cereals, meals, refrigerated and frozen dough products, baking products, snacks, yogurt and other. Our Bakeries and Foodservice segment consists of products marketed to bakeries and offered to the commercial and noncommercial foodservice sectors throughout the United States and Canada. The International segment includes our retail business outside the United States and our foodservice business outside of the United States and Canada. During 2002, there was one individual customer that generated 12 percent of our net sales. There were no individual customers that generated more than 10 percent of our net sales during 2001 and 2000. Management reviews operating results to evaluate segment performance. Operating profit for the reportable segments excludes general corporate items and restructuring and other exit costs. Interest expense and income taxes are centrally managed at the corporate level and, therefore, are not allocated to segments since they are excluded from the measure of segment profitability reviewed by the Company's management. Under our supply chain organization, our manufacturing, warehouse, distribution and sales activities are substantially integrated across our operations in order to maximize efficiency and productivity. As a result, fixed assets, capital expenditures for long-lived assets, and depreciation and amortization expenses are not maintained nor available by operating segment. 58 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The measurement of operating segment results is generally consistent with the presentation of the consolidated statements of earnings. Intercompany transactions between reportable operating segments were not material in the periods presented.
FISCAL YEAR ------------------------ 2002 2001 2000 ------ ------ ------ (IN MILLIONS) Net Sales: U.S. Retail.............................................. $6,143 $4,790 $4,560 Bakeries and Foodservice................................. 1,028 397 355 International............................................ 778 263 258 ------ ------ ------ Total................................................. $7,949 $5,450 $5,173 ====== ====== ====== Operating Profit U.S. Retail.............................................. $1,066 $1,057 $1,013 Bakeries and Foodservice................................. 146 91 81 International............................................ 45 17 18 ------ ------ ------ Total................................................. 1,257 1,165 1,112 Unallocated corporate income (expense)................... (40) 51 (13) Restructuring and other exit costs....................... (134) (12) -- Interest, net............................................ (416) (206) (152) ------ ------ ------ Earnings before taxes and earnings from Joint Ventures............................................ 667 998 947 Income Taxes............................................... 239 350 336 Earnings from Joint Ventures............................... 33 17 3 ------ ------ ------ Earnings before cumulative effect of change in accounting principle................................................ 461 665 614 Cumulative effect of change in accounting principle........ (3) -- -- ------ ------ ------ Net Earnings............................................... $ 458 $ 665 $ 614 ====== ====== ======
59 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table provides net sales information for our primary product categories:
FISCAL YEAR ------------------------ 2002 2001 2000 ------ ------ ------ (IN MILLIONS) Product Categories: U.S. Retail: Big G Cereals......................................... $1,866 $1,963 $1,986 Meals................................................. 1,161 580 555 Pillsbury USA......................................... 793 -- -- Baking Products....................................... 786 824 804 Snacks................................................ 722 711 630 Yogurt/Health Ventures/Other.......................... 815 712 585 ------ ------ ------ Total U.S. Retail................................... 6,143 4,790 4,560 ------ ------ ------ Bakeries and Foodservice................................. 1,028 397 355 ------ ------ ------ International: Canada................................................ 283 177 178 Rest of World......................................... 495 86 80 ------ ------ ------ Total International................................. 778 263 258 ------ ------ ------ Consolidated Total............................... $7,949 $5,450 $5,173 ====== ====== ======
The following table provides earnings information for our joint venture activities by operating segment:
FISCAL YEAR ------------------- 2002 2001 2000 ---- ---- ----- (IN MILLIONS) Earnings (Loss) After Tax: U.S. Retail............................................... $(6) $-- $ -- International............................................. 39 17 3 --- --- ----- Total.................................................. $33 $17 $ 3 === === =====
The following table provides financial information by geographic area:
FISCAL YEAR ------------------------ 2002 2001 2000 ------ ------ ------ (IN MILLIONS) Net sales: U.S. .................................................... $7,139 $5,187 $4,915 Non-U.S. ................................................ 810 263 258 ------ ------ ------ Consolidated Total.................................... $7,949 $5,450 $5,173 ====== ====== ====== Long-lived assets: U.S. .................................................... $2,549 $1,488 $1,395 Non-U.S. ................................................ 215 13 10 ------ ------ ------ Consolidated Total.................................... $2,764 $1,501 $1,405 ====== ====== ======
60 GENERAL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. QUARTERLY DATA (UNAUDITED) Summarized quarterly data for 2002 and 2001 follows:
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER --------------- --------------- --------------- --------------- 2002 2001 2002 2001 2002 2001 2002 2001 ------ ------ ------ ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE AND MARKET PRICE AMOUNTS) Net sales.......................... $1,404 $1,306 $1,842 $1,500 $2,379 $1,323 $2,324 $1,321 Gross profit....................... 680 653 802 747 881 615 815 594 Earnings before cumulative effect of change in accounting principle........................ 191 159 131 203 82 157 57 146 Net earnings....................... 188 159 131 203 82 157 57 146 Earnings per share before cumulative effect of change in accounting principle: Basic............................ .67 .56 .43 .72 .23 .55 .16 .51 Diluted.......................... .65 .55 .41 .70 .22 .54 .15 .50 Net earnings per share: Basic............................ .66 .56 .43 .72 .23 .55 .16 .51 Diluted.......................... .64 .55 .41 .70 .22 .54 .15 .50 Dividends per share................ .275 .275 .275 .275 .275 .275 .275 .275 Market price of common stock: High............................. 45.36 41.75 51.16 43.44 52.86 45.40 50.39 46.35 Low.............................. 42.05 32.13 42.50 31.38 43.22 38.75 41.61 37.26
61 EX-24 4 c75386a1exv24.txt POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ Stephen R. Demeritt ----------------------- Stephen R. Demeritt Dated: July 26, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ Livio DeSimone ------------------ Livio DeSimone Dated: July 29, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ William T. Esrey -------------------- William T. Esrey Dated: July 29, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ Raymond V. Gilmartin ------------------------ Raymond V. Gilmartin Dated: August 1, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ Judith Richards Hope ------------------------ Judith Richards Hope Dated: July 29, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ Robert L. Johnson --------------------- Robert L. Johnson Dated: August 5, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ Heidi G. Miller ------------------- Heidi G. Miller Dated: August 1, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ A. Michael Spence --------------------- Dr. A. Michael Spence Dated: August 2, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ Dorothy A. Terrell ---------------------- Dorothy A. Terrell Dated: July 26, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ Raymond G. Viault --------------------- Raymond G. Viault Dated: July 26, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ John M. Keenan ------------------ John M. Keenan Dated: August 7, 2002 POWER OF ATTORNEY I appoint S. S. Marshall and K. L. Thome, together and separately, to be my attorneys-in-fact. This means they may, in my place: - sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and all amendments to it; and - file this form and any amendments, including all exhibits and other documents, with the Securities and Exchange Commission; and - perform the acts that need to to be done concerning these filings; and - name others to take their place. I am responsible for everything my attorneys-in-fact do when acting lawfully within the scope of this Power of Attorney. /s/ Paul S. Walsh ------------------ Paul S. Walsh Dated: July 29, 2002 EX-99.8 5 c75386a1exv99w8.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER EXHIBIT 99.8 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Stephen W. Sanger, Chairman of the Board and Chief Executive Officer of General Mills, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K/A of the Company for the fiscal year ended May 26, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ STEPHEN W. SANGER -------------------------------------- Stephen W. Sanger Chairman of the Board and Chief Executive Officer Dated: July 30, 2003 A signed original of this written statement required by Section 906 has been provided to General Mills, Inc. and will be retained by General Mills, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.9 6 c75386a1exv99w9.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER EXHIBIT 99.9 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, James A. Lawrence, Chief Financial Officer of General Mills, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K/A of the Company for the fiscal year ended May 26, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ JAMES A. LAWRENCE -------------------------------------- James A. Lawrence Chief Financial Officer Dated: July 30, 2003 A signed original of this written statement required by Section 906 has been provided to General Mills, Inc. and will be retained by General Mills, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----