General Mills (GIS)

Thirteen-Week Results

For the quarter ended November 26, 2006, we reported diluted earnings per share of $1.08, up 11 percent from $0.97 per share earned in the same period last year. Earnings after tax were $385 million in the second quarter of fiscal 2007, up 4 percent from $370 million last year. Net sales for the thirteen weeks ended November 26, 2006 grew 5 percent to $3.47 billion and total segment operating profit increased 11 percent to $714 million (see page 23 for a discussion of this measure not defined by generally accepted accounting principles (GAAP)).

Net sales growth during the second quarter of fiscal 2007 was the result of 3 points of volume growth and 2 points of growth from price increases and a product mix that included higher priced items. Volume growth was recorded in all of our operating segments.

Gross margins (defined as net sales less cost of sales) increased nearly 40 basis points from the second quarter last year to 36.9 percent of sales. Gross margins improved despite higher input costs, reflecting favorable product mix, pricing and productivity.

Selling, general and administrative expense (SG&A) increased $46 million in the quarter versus the same period a year ago. SG&A as a percent of net sales in the quarter increased 50 basis points from last year to 17.5 percent. This increase was driven primarily by a $17 million increase in stock-based compensation expense ($12 million of which was an incremental effect from the adoption of SFAS 123R).

In the second quarter of fiscal 2007, we recorded income related to restructuring and other exit activities of $1 million associated with adjustments to restructuring actions previously announced. In the second quarter of fiscal 2006, we recorded restructuring and other exit costs of $2 million, primarily associated with an asset impairment recognized at our Swedesboro, New Jersey plant.

As a result of the factors discussed above, our operating profit increased $33 million to $675 million, or 5 percent, from the second quarter last year.

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Interest expense for the quarter totaled $110 million, a $6 million increase from the second quarter last year. The increase primarily reflects higher interest rates versus last year.

The effective tax rate was 35.9 percent for the second quarter of fiscal 2007, compared to 35.3 percent for the second quarter of fiscal 2006.

Earnings after tax from joint ventures totaled $23 million in the second quarter, compared to $22 million from a year earlier. Net sales for CPW were up 20 percent. This included contributions from the Uncle Tobys business in Australia acquired by CPW in the first quarter of fiscal 2007. The fiscal 2007 second quarter also included a $1 million after-tax reduction in CPW’s net earnings as a result of its previously announced restructuring project in the United Kingdom. Net sales for our Häagen-Dazs ice cream joint ventures in Asia increased 3 percent from the 2006 second quarter. 8^th Continent, our soy products joint venture with DuPont, also recorded a 3 percent net sales increase in the quarter.

Average diluted shares outstanding decreased by 27 million from the second quarter of fiscal 2006 due primarily to the repurchase of a significant portion of our contingently convertible debentures in October 2005 and the completion of a consent solicitation related to the remaining convertible debentures in December 2005. As a result of these actions, no shares of common stock underlying the debentures will be considered outstanding after December 12, 2005, for purposes of calculating our diluted earnings per share, unless our average share price for the period is above the accreted value of the debentures. In addition we have repurchased 20 million shares of our stock since the second quarter of fiscal 2006, 3 million of which were repurchased in the second quarter of fiscal 2007. The repurchases were partially offset by the issuance of shares upon stock option exercises and the vesting of restricted stock units.

Thirteen-Week Results

For the quarter ended February 26, 2006, we reported diluted earnings per share of $0.68, up 17 percent from $0.58 per share earned in the same period last year. Earnings after tax were $246 million in the third quarter of fiscal 2006, up 7 percent from $230 million last year.

Net sales for the thirteen weeks ended February 26, 2006 grew 3 percent to $2.86 billion, driven by a 3 percent unit volume increase, primarily in International and U.S. Retail. Promotional spending and foreign currency exchange effects were down slightly compared to the same period in fiscal 2005.

Cost of sales was up $51 million in the quarter versus last year. This increase in cost of sales was primarily due to unit volume increases, as supply chain efficiencies largely offset cost increases due to inflation. The third quarter of fiscal 2005 also included $3 million of additional expense, primarily accelerated depreciation, associated with certain exit activities. Cost of sales as a percent of net sales decreased slightly from 61.1 percent to 61.0 percent.

Selling, general and administrative expense (SG&A) was up $74 million in the quarter versus last year. SG&A as a percent of net sales in the quarter increased from 20.9 percent last year to 22.9 percent this year. The increase in SG&A from the third quarter of fiscal 2005 is largely the result of a $28 million increase in employee benefit costs in our domestic operations, including incentives, a $22 million increase in customer freight expense primarily due to increased fuel costs, and a $15 million increase in advertising expense in our U.S. Retail operating segment.

Net interest expense for the quarter totaled $101 million, 6 percent below last year’s third quarter amount of $107 million, primarily as the result of last year’s debt pay down and the maturation of interest rate swaps. Last year’s net interest expense also included $12 million of interest income from the resolution of certain tax issues.

In the third quarter of fiscal 2006, we recorded restructuring and other exit costs of $5 million, consisting of $2 million primarily for severance costs associated with the closure of our frozen dough foodservice plant in Swedesboro, New Jersey; $2 million of restructuring costs at our Allentown, Pennsylvania frozen waffle plant, primarily related to product and production realignment; and $1 million associated with restructuring actions previously announced. This compares to restructuring and other exit costs of $3 million recorded in the third quarter of fiscal 2005.

The costs associated with previously announced restructuring actions included in cost of sales decreased during the quarter. In the third quarter of fiscal 2006, there was no associated expense recorded in cost of sales, whereas in the third quarter of fiscal 2005 the associated expense recorded in cost of sales was $3 million.

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The effective tax rate for the third quarter of fiscal 2006 was 34.7 percent, reflecting the year-to-date impact of a change in the annual effective tax rate from 35.5 percent to 35.3 percent. Last year’s third-quarter effective tax rate was 46.5 percent. Last year’s third-quarter taxes included $45 million in expense representing a portion of taxes associated with the disposition of our interest in the Snack Ventures Europe (SVE) joint venture.

Earnings after tax from joint ventures totaled $15 million in the third quarter, down from $23 million a year earlier due to the absence of earnings from the divested SVE joint venture, which was terminated on February 28, 2005. Earnings from SVE were $8 million in the third quarter of fiscal 2005. Cereal Partners Worldwide (CPW), our ready-to-eat cereal joint venture with Nestlé, had 8 percent unit volume growth in the quarter. Net sales grew 2 percent, as the unit volume growth was offset by unfavorable foreign exchange. Net sales for our Häagen-Dazs ice cream joint ventures in Asia were down 22 percent from the fiscal 2005 third quarter due to an unseasonably cold winter and increased competitive pressure in Japan. 8^th Continent, our soy products joint venture with DuPont, had 13 percent net sales growth in the quarter.

Average diluted shares outstanding decreased by 41 million from the third quarter of fiscal 2005 due to the repurchase of a significant portion of our contingently convertible debentures in October 2005, the completion of a consent solicitation related to the remaining convertible debentures in December 2005 and the repurchases of 17 million shares during fiscal 2006, partially offset by the issuance of shares upon stock option exercises.

Thirteen-Week Results

For the quarter ended November 27, 2005, we reported diluted earnings per share of $0.97, up 5 percent from $0.92 per share earned in the same period last year. Earnings after tax were $370 million in the second quarter of fiscal 2006, up 1 percent from $367 million last year. Net sales for the thirteen weeks ended November 27, 2005 grew 3 percent to $3.27 billion, and segment operating profits decreased 2 percent to $647 million.

Net sales growth during the second quarter of fiscal 2006 was the result of 2 points of volume growth, primarily in International and U.S. Retail, and 1 point of growth from net price realization (defined as the impact of list and promoted price increases net of increases in trade promotion costs) and product mix across all of our businesses. Promotional spending and foreign currency exchange effects were flat compared to the same period in fiscal 2005.

Cost of sales was up $39 million in the quarter versus last year. Cost of sales increased $47 million primarily due to unit volume increases, as supply chain efficiencies largely offset cost increases due to inflation. The second quarter of fiscal 2005 also included $8 million of additional expense, primarily accelerated depreciation, associated with certain exit activities. Cost of sales as a percent of sales decreased from 59.6 percent to 58.9 percent.

Selling, general and administrative expense (SG&A) was up $63 million in the quarter versus last year. SG&A as a percent of sales in the quarter increased from 20.1 percent last year to 21.4 percent this year. The increase in SG&A from the second quarter of fiscal 2005 is largely the result of an increase in consumer marketing spending, primarily advertising, of $41 million over last year, and increased customer freight costs, up $24 million from a year ago primarily due to increased fuel costs.

Interest expense for the quarter totaled $103 million, 18 percent below last year’s second quarter amount of $125 million, primarily as the result of last year’s debt pay down.

In the second quarter of fiscal 2006, we recorded restructuring and other exit costs of $2 million, primarily associated with an additional asset impairment recognized at one of our production plants. This compares to restructuring and other exit costs of $3 million recorded in the second quarter of fiscal 2005. The costs associated with previously announced restructuring actions included in cost of sales also decreased during the quarter. In the second quarter of fiscal 2006, there was no associated expense recorded in cost of sales and in the second quarter of fiscal 2005, the associated expense recorded in cost of sales was $8 million.

The effective tax rate was 35.4 percent for the second quarter of fiscal 2006. This compares to 33.3 percent in the second quarter of fiscal 2005. Last year’s second-quarter tax rate was lower primarily due to the resolution of certain tax items.

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Earnings after tax from joint ventures totaled $21 million in the second quarter, down from $24 million a year earlier due to the absence of earnings from the divested Snack Ventures Europe (SVE) joint venture, which was terminated on February 28, 2005. Earnings from SVE were $8 million in the second quarter of fiscal 2005. Cereal Partners Worldwide (CPW), our joint venture with Nestlé, posted a 4 percent net sales gain for the period. Net sales for our Häagen-Dazs ice cream joint ventures in Asia also were up 4 percent from the fiscal 2005 second quarter. 8^th Continent, our soy products joint venture with DuPont, achieved 9 percent net sales growth in the quarter.

Average diluted shares outstanding decreased by 22 million from the second quarter of fiscal 2005 due to the impact of our fiscal 2006 repurchases of 16 million shares, our repurchase of 17 million shares from Diageo plc in October 2004, and the repurchase of our contingently convertible debentures in October 2005, partially offset by the issuance of shares upon stock option exercises.

Thirteen-Week Results

For the quarter ended August 28, 2005, we reported net diluted earnings per share of $0.64, up 42 percent from $0.45 per share earned in the same period last year. Earnings after tax were $252 million in the first quarter of fiscal 2006, up 38 percent from $183 million last year. Net sales for the thirteen weeks ended August 28, 2005 grew 3 percent to $2.66 billion and segment operating profits increased 21 percent to $500 million.

Net sales growth during the first quarter of fiscal 2006 was the result of 1 point of volume growth, primarily in International, and 2 points of growth from pricing and product mix across all of our businesses. Promotional spending and foreign currency exchange effects were flat compared to the same period in fiscal 2005.

Cost of sales was down $24 million in the quarter versus last year. Cost of sales as a percent of sales decreased from 61.2 percent to 58.5 percent primarily as the result of manufacturing efficiencies and product mix partially offset by increased energy costs. Cost of sales in the first quarter of fiscal 2005 also included $5 million of costs associated with a product recall in our Snacks division.

Selling, general and administrative expense (SG&A) was up $31 million in the quarter versus last year. SG&A as a percent of sales in the quarter increased from 23.6 percent last year to 24.1 percent this year. The increase in SG&A from the first quarter of fiscal 2005 is primarily the result of customer freight costs and corporate expense items. Customer freight costs increased by $23 million from a year ago, primarily the result of increased fuel costs. Corporate expense items increased to $37 million from $20 million as a result of higher employee benefit expense and a $10 million write-down of the asset value of a low-income housing investment.

Interest expense for the quarter totaled $90 million, lower than last year’s first quarter amount of $113 million, primarily as the result of last year’s debt pay down and the maturation of interest rate swaps.

In the first quarter of fiscal 2006, we recorded restructuring and other exit costs of $9 million, including $8 million of an asset impairment charge and $1 million associated with restructuring actions previously announced. This compares to restructuring and other exit costs of $40 million recorded in the first quarter of fiscal 2005. The costs associated with previously announced restructuring actions included in cost of sales also decreased during the quarter to $2 million, down from $5 million in the first quarter of fiscal 2005.

The effective tax rate was 35.7 percent for the first quarter. This compares to 34.6 percent in first quarter fiscal 2005. The increase in the tax rate from 2005 is primarily the result of increased state tax expense.

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Earnings after tax from joint ventures totaled $18 million in the first quarter, compared to $26 million a year earlier. Our Snack Ventures Europe (SVE) joint venture was terminated on February 28, 2005 and our interest was redeemed. Earnings from our joint ventures excluding SVE in the first quarter of fiscal 2005 were $16 million. Net sales for Cereal Partners Worldwide (CPW), our joint venture with Nestlé, were up 8 percent. Net sales for our Häagen-Dazs ice cream joint ventures in Asia matched the results from the 2005 first quarter. 8^th Continent, our soy products joint venture with DuPont, achieved double-digit net sales growth in the quarter, and increased its dollar share of the refrigerated soymilk category sales to 17 percent.

Average shares outstanding decreased by 14 million from the first quarter of fiscal 2005 due primarily to the impact of our repurchase of shares from Diageo plc in October 2004 and our fiscal 2006 first quarter share repurchases, offset by the issuance of shares upon stock option exercises.

Thirteen-Week Results

Net sales for the thirteen weeks ended February 27, 2005 grew 3 percent to $2.77 billion. As noted in the table below, unit volume contributed 2 points, favorable pricing and product mix provided 3 points of benefit, and foreign exchange added 1 point. Higher promotional spending in the period, primarily in our U.S. Retail segment, subtracted 3 points.

Thirteen-Week Results

Net sales for the thirteen weeks ended November 28, 2004 grew 4 percent to $3.17 billion. As noted in the table below, unit volume contributed 1 point, favorable pricing and product mix provided 4 points of benefit, and foreign exchange added 1 point. Higher promotional spending in the period, primarily in our U.S. Retail segment, subtracted 2 points.