General Mills (GIS)

Bakeries and Foodservice Changes in Net Sales by Customer Segment

    Operating profits for the segment were $148 million in fiscal 2007, up 28 percent from $116 million in fiscal 2006. The business was able to offset record levels of input cost inflation with a combination of pricing actions, sourcing productivity and manufacturing improvements.

    Fiscal 2006 operating profits for the segment were $116 million, up 7 percent from $108 million in fiscal 2005. Unit volume was flat, and pricing actions essentially covered supply chain cost inflation of $41 million.

UNALLOCATED CORPORATE EXPENSES   Unallocated corporate expenses include variances to planned corporate overhead expenses, variances to planned domestic employee benefits and incentives, all stock compensation costs, annual contributions to the General Mills Foundation, and other items that are not part of our measurement of segment operating performance.

    For fiscal 2007, unallocated corporate expenses were $163 million, compared to $123 million in fiscal 2006. Fiscal 2007 included $69 million of incremental expense relating to the impact of the adoption of SFAS 123R, and fiscal 2006 included $33 million of charges related to increases in environmental reserves and a write-down of the asset value of a low-income housing investment. Excluding these items, unallocated corporate expenses were essentially unchanged from fiscal 2006.

    Unallocated corporate expenses were $123 million in fiscal 2006 compared to $32 million in fiscal 2005. Fiscal 2006 included: higher domestic employee benefit expense, including incentives, which increased by $61 million over fiscal 2005; increases in environmental reserves of $23 million; and a $10 million write-down of the asset value of a low-income housing investment.

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JOINT VENTURES   In addition to our consolidated operations, we manufacture and sell products through several joint ventures.

International Joint Ventures   We have a 50 percent equity interest in CPW that manufactures and markets ready-to-eat cereal products in more than 130 countries and republics outside the United States and Canada. CPW also markets cereal bars in several European countries and manufactures private label cereals for customers in the United Kingdom. Results from our CPW joint venture are reported for the 12 months ended March 31. On July 14, 2006, CPW acquired the Uncle Tobys cereal business in Australia for approximately $385 million. We funded our 50 percent share of the purchase price by making additional advances to and equity contributions in CPW totaling $135 million (classified as investments in affiliates, net, on the Consolidated Statements of Cash Flows) and by acquiring a 50 percent undivided interest in certain intellectual property for $58 million (classified as acquisitions on the Consolidated Statements of Cash Flows). We funded the advances to CPW and our equity contribution from cash generated from our international operations, including our international joint ventures.

    We have 50 percent equity interests in Häagen-Dazs Japan, Inc. and Häagen-Dazs Korea Company Limited. We also had a 49 percent equity interest in HD Distributors (Thailand) Company Limited. Subsequent to its fiscal year end, we acquired a controlling interest in this joint venture. These joint ventures manufacture, distribute, and market Häagen-Dazs frozen ice cream products and novelties. As noted on page 15, in fiscal 2007, we changed the reporting period for the Häagen-Dazs joint ventures. Accordingly, fiscal 2007 results include only 11 months of results from these joint ventures compared to 12 months in fiscal 2006 and 2005.

    We have a 50 percent equity interest in Seretram, a joint venture for the production of Green Giant canned corn in France. Seretram’s results are reported as of and for the 12 months ended April 30.

    On February 28, 2005, SVE was terminated and our 40.5 percent interest was redeemed. Fiscal 2005 after-tax joint venture earnings include our share of the after-tax earnings of SVE through that date.

Domestic Joint Venture   We have a 50 percent equity interest in 8th Continent, LLC, a joint venture to develop and market soy-based products. 8th Continent’s results are presented on the same basis as our fiscal year.

    Our share of after-tax joint venture earnings increased from $69 million in fiscal 2006 to $73 million in fiscal 2007. This growth was largely driven by strong core brand volume and organic net sales growth, new product innovation, and increases in brand-building consumer marketing spending, partially offset by a $2 million impact of the change in reporting period for the Häagen-Dazs joint ventures.

    Our share of after-tax joint venture earnings decreased from $94 million in fiscal 2005 to $69 million in fiscal 2006 reflecting the absence of SVE earnings and the inclusion of $8 million of restructuring costs for CPW in fiscal 2006.

    The change in net sales for each joint venture is set forth in the following table: