GIS

General Mills, Inc. 10-K Summary (Fiscal Year Ended May 27, 2007)

Business Context and Reporting Period

General Mills, Inc. is a leading global manufacturer and marketer of branded, packaged consumer foods. The company operates in three segments: U.S. Retail, International, and Bakeries and Foodservice. As of May 27, 2007, products were manufactured in 18 countries and marketed in over 100 countries. The reporting period covers the fiscal year ended May 27, 2007.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 6% to $12.4 billion, driven by 4 percentage points of unit volume growth and 2 percentage points from price/product mix. Foreign currency exchange added 1 percentage point.
• Profitability: Operating profit rose 5% to $2.06 billion. Gross margin percentage improved to 36.1% despite higher ingredient and energy costs, offset by manufacturing efficiencies.
• Expenses: Selling, general, and administrative (SG&A) expenses increased 9.7% to $2.39 billion, primarily due to a $78 million increase in consumer marketing spending and $69 million in incremental stock compensation expense from the adoption of SFAS 123R.
• Segment Performance:
  • U.S. Retail: Sales up 4%; Operating profit up 5%.
  • International: Sales up 16% (exceeding $2 billion for the first time); Operating profit up 11%.
  • Bakeries and Foodservice: Sales up 5%; Operating profit up 28%.
• Restructuring: Total restructuring, impairment, and exit costs were $39 million, including a $37 million non-cash impairment charge for underperforming product lines in the Bakeries and Foodservice segment.

Guidance, Outlook, and Risks

Outlook and Guidance: Management expects fiscal 2008 capital expenditures to be approximately $575 million. The company plans to continue share repurchases with a goal of reducing average diluted shares outstanding by a net 2%. A dividend increase to $1.56 per share annually was approved. Management anticipates pricing and cost-saving initiatives will largely offset significant input cost inflation for dairy, oils, and grains.

Accounting Changes: Effective fiscal 2008, the company will discontinue hedge accounting for new commodity derivatives, which will result in volatility in gross margins and net earnings as changes in derivative values are recorded in earnings currently.

Risks and Contingencies:

• Commodity Prices: Volatility in raw material costs (grains, dairy, energy) remains a primary risk.
• Tax Matters: The IRS concluded examinations for 2002 and 2003 tax years and proposed adjustments related to the Pillsbury acquisition and GMC subsidiary. Management believes it has meritorious defenses, but an unfavorable resolution could have a material adverse impact.
• Customer Concentration: Wal-Mart accounted for 20% of consolidated net sales and 27% of U.S. Retail sales.
• Intangible Assets: The company holds $6.8 billion in goodwill and $3.7 billion in indefinite-lived intangible assets. While fair values currently exceed carrying values, significant changes in assumptions could lead to impairment losses.

Investor Verification Checklist

• Verify the impact of the new commodity derivative accounting policy (SFAS 133) on future earnings volatility starting fiscal 2008.
• Monitor the resolution of the IRS examination regarding the Pillsbury acquisition and GMC subsidiary tax benefits.
• Assess the sustainability of the 16% sales growth in the International segment, particularly regarding currency fluctuations.
• Review the progress of cost-saving initiatives to offset inflation in dairy, oil, and grain costs.
• Track the execution of the $575 million capital expenditure plan for fiscal 2008.