This excerpt taken from the GIS 10-Q filed Jan 5, 2007.
LIQUIDITY AND CAPITAL RESOURCES
During the first twenty-six weeks of fiscal 2007, operating activities provided cash of $565 million. This compares to cash provided by operations in the first twenty-six weeks of fiscal 2006 of $787 million. The decrease in cash provided by operations in the first twenty-six weeks of fiscal 2007 compared to last year is primarily the result of a $282 million higher use of working capital partially offset by increased non-cash stock compensation expense of $59 million. The higher use of working capital resulted from increases in inventories versus the same period a year ago because of commodity market conditions, primarily in the grain markets; increases in receivables resulting from higher sales levels; and smaller increases in other current liabilities primarily related to accrued taxes and accrued trade and consumer promotion expense at the end of the second quarter in fiscal 2007. Our grain inventories increased from $78 million at May 28, 2006 to $150 million at November 26, 2006, compared to an increase from $73 million to $90 million over the same period in fiscal 2006.
During the first twenty-six weeks of fiscal 2007, investments for land, buildings and equipment totaled $149 million compared to $113 million in the first twenty-six weeks last year. We expect to spend approximately $425 to $450 million for capital projects in fiscal 2007.
During the first twenty-six weeks of fiscal 2007, CPW completed the acquisition of the Uncle Tobys cereal business in Australia. 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 beneficial interest in certain intellectual property for $58 million (classified as acquisitions on the Consolidated Statements of Cash Flows).
During the first twenty-six weeks of fiscal 2007, we repurchased 17 million shares of common stock for $890 million. This compares to our repurchase of 16 million shares of common stock for $752 million in the first twenty-six weeks of fiscal 2006.
Our total debt balances were as follows:
Our notes payable balance increased $1,175 million from May 28, 2006 to November 26, 2006, primarily to refinance the payment at maturity of $500 million of our long-term debt in October 2006, share repurchases and our higher level of working capital during the first twenty-six weeks of fiscal 2007. Notes payable increased $1,782 million to $2,081 million in the first twenty-six weeks of fiscal 2006. As of November 26, 2006, our zero coupon convertible debentures are included in the current portion of long-term debt based on the put rights of the holders.
Commercial paper is a continuing source of short-term financing. We issue commercial paper in the United States, Canada and Europe. Our commercial paper borrowings are supported by fee-paid committed credit lines consisting of a $1.1 billion facility expiring in October 2007, a $750 million facility expiring in January 2009, and a $1.1 billion facility expiring in October 2010. As of November 26, 2006, we had no outstanding borrowings under these facilities.
During the first twenty-six weeks of fiscal 2007, we entered into $600 million of pay-fixed, forward-starting interest rate swaps with an average fixed-rate of 5.7 percent in anticipation of fixed-rate debt refinancing that we expect to occur later in fiscal 2007.
We have $1.7 billion of long-term debt maturing in the next 12 months and classified as current. We believe that cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months.
In October 2004, Lehman Brothers Holdings Inc. issued $750 million of notes which are mandatorily exchangeable for shares of our common stock. In connection with the issuance of those notes, an affiliate of Lehman Brothers entered into a forward purchase contract with us, under which we are obligated to deliver to such affiliate between 14 million and 17 million shares of our common stock, subject to adjustment under certain circumstances. These shares will be deliverable by us in October 2007, in exchange for the $750 million in cash or, in certain circumstances, securities of an affiliate of Lehman Brothers.
There were no material changes outside the ordinary course of our business in our contractual obligations or off-balance-sheet arrangements during the twenty-six week period ended November 26, 2006.
On December 11, 2006, our Board of Directors approved an increase in our quarterly dividend to 37 cents per share, payable on February 1, 2007, to shareholders of record on January 10, 2007. The previous quarterly dividend rate of 35 cents per share was established with the August 1, 2006 payment. During the first twenty-six weeks of fiscal 2007, we paid $247 million in dividends.
On December 11, 2006, our Board of Directors also approved a new authorization for us to repurchase up to 75 million shares of our common stock. This replaces the prior authorization which permitted us to repurchase shares up to a treasury share balance of 170 million. Purchases under the new authorization can be made in the open market or in privately negotiated transactions, including the use of call options and other derivative instruments, Rule 10b5-1 trading plans and accelerated repurchase programs. The authorization has no pre-established termination date.