GENERAL MILLS INC - 10-K Annual Report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange 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. [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]

Aggregate market value of Common Stock held by non-affiliates of the Registrant, based on the closing price of $45.96 per share as reported on the New York Stock Exchange on November 22, 2002 (the last business day of Registrant’s most recently completed second fiscal quarter): $13,255 million.

Number of shares of Common Stock outstanding as of July 24, 2003: 372,642,064 (including shares set aside for the exchange of shares of Ralcorp Holdings, Inc. and excluding 129,664,600 shares held in the treasury).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant’s Proxy Statement for its 2003 Annual Meeting of Stockholders are incorporated by reference into Part III.

TABLE OF CONTENTS

	Page
Part I
Item 1. Business	1
Item 2. Properties	9
Item 3. Legal Proceedings	9
Item 4. Submission of Matters to a Vote of Security Holders	9
Part II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters	10
Item 6. Selected Financial Data	10
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation	11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	19
Item 8. Financial Statements and Supplementary Data	20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	54
Item 9A. Controls and Procedures	54
Part III
Item 10. Directors and Executive Officers of the Registrant	55
Item 11. Executive Compensation	55
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	55
Item 13. Certain Relationships and Related Transactions	55
Item 14. Principal Accountants Fees and Services	55
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K	56
Signatures	60

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.

General Mills is a leading producer of packaged consumer foods and operates exclusively in the consumer foods industry. The Company’s businesses are divided into three reportable segments:

	•	U.S. Retail;
	•	Bakeries and Foodservice; and
	•	International.

The Company’s operating segments are organized generally by product categories. U.S. Retail consists of cereals, meals, refrigerated and frozen dough products, baking products, snacks, yogurt and organic foods. The Bakeries and Foodservice segment consists of products marketed to retail and wholesale bakeries and offered to the commercial and noncommercial 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”). With the Pillsbury acquisition, the Company added established, market-leading brands to its U.S. retail business, more than doubled its foodservice business, significantly increased its international presence and created opportunities for productivity improvement and cost synergies. 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, migrating all U. S. businesses to single invoicing and supply chain information systems and reconfiguring certain manufacturing facilities. For a more detailed description of the Pillsbury acquisition, please see Note Two to the Consolidated Financial Statements appearing on pages 30 through 32 in Item Eight of this report.

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 are also 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, MultiGrain Cheerios, Team Cheerios, 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, Oatmeal Crisp, Basic 4, Harmony, and Raisin Nut Bran. The Company also offers Big G Milk ‘n Cereal Bars in four flavors. In 2003, the Company introduced Berry Burst Cheerios in two flavors, Strawberry and Triple Berry.

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, Old El Paso Mexican foods and dinner kits, Progresso soups and ingredients, Green Giant canned and frozen vegetables and meal starters, 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 microwave meals under the Betty Crocker Bowl Appetit! trademark.

Pillsbury USA. General Mills manufactures and sells refrigerated and frozen dough products, frozen breakfast products and frozen pizza and snack products. Refrigerated dough products marketed under the Pillsbury brand include Grands! biscuits and sweet rolls, 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 pastries, Toaster Scrambles pastries 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; a line of snack mix products including Chex Mix and Gardetto’s snack mix; and savory snacks marketed under the name Bugles.

Yoplait-Colombo. General Mills manufactures and sells yogurt products, including Yoplait Original, Yoplait Light, Custard Style, Trix, Yumsters, Go-GURT, yogurt-in-a-tube for children, 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.

Organic. 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, frozen desserts and cereal under its Cascadian Farm and Muir Glen trademarks.

BAKERIES AND FOODSERVICE. General Mills markets mixes and unbaked, par-baked and fully-baked frozen dough products to retail, supermarket and wholesale bakeries under the Pillsbury and Gold Medal trademarks. In addition, the Company sells flour to bakery, foodservice and manufacturing customers. The Company also markets frozen 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. General Mills’ international businesses consist of operations and sales in Canada, Latin America, Europe and the Asia/Pacific region. 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 Häagen-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 33 countries.

For additional geographic information please see Note Eighteen to the Consolidated Financial Statements appearing on pages 51 through 53 in Item Eight of this report.

Financial Information About Reportable Segments

The following tables set forth the percentage of net sales and operating profit from each reportable segment:

Percent of Net Sales

For Fiscal Years Ended May

U.S. Retail	71	%	74	%	84	%
Bakeries and Foodservice	17		16		11
International	12		10		5

Total Segment Net Sales	100	%	100	%	100	%

Percent of Operating Profit

For Fiscal Years Ended May

U.S. Retail	88	%	84	%	90	%
Bakeries and Foodservice	8		12		8
International	4		4		2

Total Segment Operating Profit	100	%	100	%	100	%

Financial information for the Company’s reportable business segments is set forth in Note Eighteen to the Consolidated Financial Statements appearing on pages 51 through 53 in Item Eight of this report.

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-based beverages. This venture began marketing a line of 8th Continent soymilk to limited markets in July 2001 and nationally in June 2003.

INTERNATIONAL JOINT VENTURES. The Company has a 50 percent equity interest in Cereal Partners Worldwide (“CPW”), a joint venture with Nestlé, S.A., that distributes products in more than 130 countries and republics. The cereal products marketed by CPW under the umbrella Nestlé trademark in fiscal 2003 included: Apple & Cinnamon Cheerios, Apple Minis, Banana Nut Clusters, Basic 4, Chocapic, Choco Clusters, Choco Flakes, Cini-Minis, Clusters, Coco Shreddies, Cocoa Flakes, Cocoa Puffs, Cookie Crisp, Corn Flakes, Crunch, Estrelitas, Fibra Max Fibre 1, Fitness, Fitness and Fruit, Frosted Cheerios, Frosted Shreddies, Frutina, Gold, Golden Grahams, Golden Nuggets, Heritage, Honey Nut Cheerios, Honey Nut Flakes, Honey Nut Shredded Wheat, Honey Stars, Kangus, Kix, Koko Krunch, KosmoStars, La Lechera, Lion, Lucky Charms, Milk & Egg Stars, Milo, Monsters, Muesli, Multi Cheerios, Nescau, Nesquik, Shredded Wheat, Shreddies, Snow Flakes, Snow Flakes Chocolate, Total Raisin Bran, Total Whole Grain, Trio, Trix and Cheerios. CPW also manufactures cereal bars in several European countries and private label cereals for customers in the United Kingdom.

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. The products marketed by SVE in fiscal 2003 included: 3-Ds, Bugles, Doritos, Fritos, Hamka’s, Lay’s, Ruffles and Dippas.

The Company has a 50 percent interest in each of four joint ventures for the manufacture, distribution and marketing of Häagen-Dazs frozen ice cream products and novelties in the following countries: Japan, Korea, 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 the Consolidated Financial Statements appearing on page 34 in Item Eight of this report.

Competition

The consumer foods market is highly competitive, with numerous manufacturers of varying sizes in the United States and throughout the world. The Company’s principal strategies for competing in each of its segments 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.

Customers

During fiscal 2003, one customer, Wal-Mart Stores, Inc., accounted for approximately 13 percent of the Company’s consolidated net sales and 17 percent of the Company’s sales in the U.S. Retail segment. No other customer accounted for 10 percent or more of the Company’s consolidated net sales. In the U. S. Retail and Bakeries and Foodservice segments, during fiscal 2003, the top five customers accounted for approximately 43 percent and 35 percent of net sales, respectively.

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 Häagen-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. Trademarks and service marks are vital to the Company’s businesses. The Company’s products are marketed under trademarks and service marks that are owned by or licensed to the Company. The most significant trademarks and service marks used in the Company’s businesses are set forth in italics in the business discussions above. These marks include the trademarks used in our international joint ventures that are owned by or licensed to the joint ventures. In addition, some of the Company’s products are marketed under or in combination with trademarks that have been licensed from others, including Yoplait yogurt, Reese’s Puffs and NesQuik cereal brands, Hershey’s chocolate included with a variety of products, and a variety of characters and brands used on fruit snacks, including Sunkist, Pokémon, and various Disney, Warner Bros. and Sesame Workshop characters.

As part of the sale to International Multifoods Corporation (“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.

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. The Company has some long-term fixed price contracts, but the majority of such raw materials are purchased on the open market. The Company believes that it will be able to obtain an adequate supply of needed ingredients and packaging materials. Occasionally and where possible, the Company 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 the Consolidated Financial Statements appearing on pages 37 through 39 in Item Eight of this report and the “Market Risk Management” section of Management’s Discussion and Analysis of Financial Condition and Results of Operation appearing on pages 18 and 19 in Item Seven of this report.

Capital Expenditures. During the fiscal year ended May 25, 2003, General Mills’ aggregate capital expenditures for fixed assets and intangibles amounted to $750 million, including construction costs to consolidate the Company’s headquarters and expenditures associated with the acquisition and integration of Pillsbury. The Company expects to spend approximately $650 million for capital projects in fiscal 2004, primarily for fixed assets to support further growth, increase supply chain productivity and complete the Pillsbury integration.

Research and Development. Major research and development facilities are located at the Riverside Technical Center in Minneapolis, Minnesota and the James Ford Bell Technical Center in Golden Valley (suburban Minneapolis), Minnesota. 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. Research and development expenditures amounted to $149 million in fiscal 2003, $131 million in fiscal 2002, and $83 million in fiscal 2001.

Employees. At May 25, 2003, General Mills had approximately 27,300 employees.

Food Quality and Safety Regulation. The manufacture and sale of consumer food products is highly regulated. In the United States, the Company’s activities are subject to regulation by various government agencies, including the Food and Drug Administration, United States Department of Agriculture, Federal Trade Commission and Department of Commerce, as well as various state and local agencies. The Company’s business is also regulated by similar agencies outside of the United States.

Environmental Matters. As of June 2003, General Mills 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, IN	No single hazardous material specified
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

These matters involve several different actions, 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 17 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 cleanup 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 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, the Company 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 section below summarizes the executive officers of General Mills, together with their ages and business experience:

Randy G. Darcy, age 52, is Senior Vice President, Chief Technical Officer with responsibilities for Supply Chain, Research and Development and Quality and Regulatory Operations. Mr. Darcy joined the Company in 1987, was named Vice President, Director of Manufacturing, Technology and Operations in 1989, served as Senior Vice President, Supply Chain from 1994 to 2003 and was named to his present position in 2003. Mr. Darcy was employed by Procter & Gamble from 1973 to 1987, serving in a variety of management positions.

Rory A. M. Delaney, age 58, 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 eight 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 with PepsiCo, last serving as Senior Vice President of Technology for Frito-Lay North America.

Stephen R. Demeritt, age 59, is Vice Chairman of the Company, with responsibility for Big G Cereals, Snacks, Yoplait-Colombo, 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 Nestlé. Mr. Demeritt is a director of Eastman Chemical Company.

James A. Lawrence, age 50, is Executive Vice President, Chief Financial Officer, with additional responsibility for international operations. Mr. Lawrence joined the Company as Chief Financial Officer 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 55, 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 from Avon Products, Inc. where she spent 15 years, last serving as Senior Vice President, General Counsel and Secretary.

Michael A. Peel, age 53, 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 53, is Senior Vice President, President, Consumer Foods Sales. 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 President, Consumer Foods Sales, in November 1997.

Stephen W. Sanger, age 57, has been Chairman of the Board 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, Donaldson Company, Inc., Wells Fargo & Company and Grocery Manufacturers of America.

Kenneth L. Thome, age 55, 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 the Meals, Baking Products, 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

Availability of Reports. 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: www.sec.gov. This site contains reports, proxies and information statements and other information regarding issuers that file electronically with the Commission.

Web site Access. Our internet Web site address is www.generalmills.com. We make available, free of charge at the “Investor Information” portion of this Web site, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the 1934 Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Commission. Reports of beneficial ownership filed pursuant to Section 16(a) of the 1934 Act are also available on our Web site.

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 Commission and in its reports to stockholders.

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.

The Company’s future results could be affected by a variety of factors, such as:

•

competitive dynamics in the U.S. ready-to-eat cereal market, including pricing and promotional spending levels by competitors;

•

economic conditions, including changes in inflation rates or interest rates;

•

product development and the success of new items;

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acquisitions or dispositions of businesses or assets;

•

actions of competitors other than as described above;

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changes in capital structure;

•

changes in laws and regulations, including changes in accounting standards;

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customer demand;

•

effectiveness of advertising and marketing spending or programs;

•

consumer perception of health-related issues, including obesity;

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fluctuations in the cost and availability of supply chain resources;

•

foreign economic conditions, including currency rate fluctuations; and

•

political unrest in foreign markets and economic uncertainty due to terrorism or war.

Our future predictions about volume and earnings could be affected by difficulties resulting from the Pillsbury acquisition, such as:

•

integration problems;

•

failure to achieve anticipated synergies;

•

difficulty consolidating manufacturing capacity;

•

unanticipated liabilities;

•

inexperience in new business lines and geographic operating locations; and

•

changes in the competitive environment.

The Company specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events.

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.

General Mills’ principal executive offices and main research facilities are Company-owned, and are located in the Minneapolis, Minnesota metropolitan area. The Company 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 which has been sublet. See Note Seventeen to Consolidated Financial Statements appearing on pages 50 and 51 in Item Eight of this report.

As of May 2003, General Mills operated 71 facilities for the production of a wide variety of food products. Of these plants, 41 are located in the United States, 11 in Asia, seven in Canada and Mexico, six in Europe, five in Latin America and one in South Africa.

The Company owns flour mills at eight locations: Avon, Iowa; Buffalo, New York; Great Falls, Montana; Kansas City, Missouri; Minneapolis, Minnesota (2); Vallejo, California; and Vernon, California. The Company operates seven terminal grain elevators and has country grain elevators in eight locations, plus additional seasonal elevators, primarily in Idaho.

The Company also owns or leases warehouse space aggregating approximately 10,800,000 square feet, of which approximately 7,500,000 square feet are leased. A number of sales and administrative offices are maintained by the Company in the United States, Canada, and elsewhere around the world, totaling 2,800,000 square feet.

Item 3. Legal Proceedings.

In management’s opinion, there were no claims or litigation pending as of May 25, 2003, 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 pages 6 and 7 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 Company’s common stock is listed on the New York Stock Exchange. On July 24, 2003, there were approximately 37,373 record holders of the Company’s common stock. Information regarding the market prices for the Company’s common stock and dividend payments for the two most recent fiscal years is set forth in Note Nineteen to the Consolidated Financial Statements on page 53 in Item Eight of this report.

Item 6. Selected Financial Data.

SIX-YEAR FINANCIAL SUMMARY

In Millions, Except per Share Data and Number of Employees

FINANCIAL RESULTS
Earnings per share — basic	$ 2.49		$ 1.38		$ 2.34		$ 2.05		$ 1.74		$ 1.33
Earnings per share — diluted	2.43		1.34		2.28		2.00		1.70		1.30
Dividends per share	1.10		1.10		1.10		1.10		1.08		1.06
Return on average total capital	10.0	%	9.1	%	23.6	%	24.4	%	23.7	%	20.0	%
Net sales	10,506		7,949		5,450		5,173		4,834		4,736
Costs and expenses:
Cost of sales	6,109		4,662		2,841		2,698		2,593		2,538
Selling, general and administrative	2,472		2,070		1,393		1,376		1,223		1,240
Interest, net	547		416		206		152		119		117
Restructuring and other exit costs	62		134		12		—		41		164
Earnings before taxes and earnings (losses) of joint ventures	1,316		667		998		947		858		677
Income taxes	460		239		350		336		308		246
Earnings (losses) of joint ventures	61		33		17		3		(15	)	(9	)
Earnings before accounting changes	917		461		665		614		535		422
Accounting changes	—		(3	)	—		—		—		—
Net earnings	917		458		665		614		535		422
Net earnings as a % of sales	8.7	%	5.8	%	12.2	%	11.9	%	11.1	%	8.9	%
Average common shares:
Basic	369		331		284		299		306		316
Diluted	378		342		292		307		315		325

FINANCIAL POSITION AT YEAR-END
Total assets	18,227		16,540		5,091		4,574		4,141		3,861
Land, buildings and equipment, net	2,980		2,764		1,501		1,405		1,295		1,186
Working capital	(265	)	(2,310	)	(801	)	(1,339	)	(598	)	(408	)
Long-term debt, excluding current portion	7,516		5,591		2,221		1,760		1,702		1,640
Stockholders’ equity	4,175		3,576		52		(289	)	164		190

OTHER STATISTICS
Total dividends	406		358		312		329		331		336
Purchases of land, buildings and equipment	711		506		307		268		281		184
Research and development	149		131		83		77		70		66
Advertising media expenditures	519		489		358		361		348		366
Wages, salaries and employee benefits	1,395		1,105		666		644		636		608
Number of employees	27,338		28,519		11,001		11,077		10,664		10,228

Common stock price:
High for year	48.18		52.86		46.35		43.94		42.34		39.13
Low for year	37.38		41.61		31.38		29.38		29.59		30.00
Year-end	46.56		45.10		42.20		41.00		40.19		34.13

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.

Certain expenses have been reclassified from cost of sales to selling, general and administrative expense to more appropriately categorize various expenses that are not clearly associated with production activity. In addition, certain items previously reported as unusual items have been reclassified to restructuring and other exit costs, to selling, general and administrative expense, and to cost of sales.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

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. We believe that our business portfolio, expanded in fiscal 2002 with the acquisition of Pillsbury, 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 key 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 on Form 10-K 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; (c) income taxes; and (d) pension and postretirement liabilities.

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.

We are required to evaluate our long-lived assets, including goodwill, for impairment and write down the value of any assets when they are determined to be impaired. Evaluating the impairment of long-lived assets 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 uncertain, our evaluations indicate fair values for our long-lived assets and goodwill that are 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 tax issues are not dissimilar in size or substance from historical items.

The accounting for pension and other postretirement liabilities requires the estimation of several critical factors. Because changes in these estimates can have a significant impact, we have described them in more detail below in the section titled “Pension Accounting.”

Results of Operations — 2003 vs. 2002

The acquisition of Pillsbury, on October 31, 2001, significantly affected fiscal 2003 comparisons for our results of operations, as our fiscal 2002 results include only seven months of ownership of the Pillsbury businesses. Net earnings (including cumulative effect of change in accounting principle, adopted in fiscal 2002, as described in more detail in the section below titled “New Accounting Rules”) were $917 million, up 100 percent from fiscal 2002. Diluted earnings per share were $2.43 compared to $1.34 in fiscal 2002. Annual net sales rose 32 percent, to $10.5 billion, driven by a 30 percent increase in worldwide unit volume for fiscal 2003. The balance of the net sales growth was primarily attributable to promotional efficiencies. On a comparable basis, as if General Mills had owned Pillsbury for all of fiscal 2002, worldwide unit volume grew 3 percent. This performance reflects improvement in our U.S. Retail segment but was constrained by economic factors limiting growth in our Bakeries and Foodservice segment and Latin American operations in our International segment.

The Pillsbury acquisition materially altered our business structure. Our Bakeries and Foodservice segment and International segment, which now represent larger portions of our sales and earnings, have lower gross margins than General Mills' historical margins. These businesses also are generally supported with lower marketing spending as a percent of sales.

Cost of goods sold as a percent of sales declined from 59 percent in fiscal 2002 to 58 percent in fiscal 2003. This reduction reflects the benefit of synergies created from the Pillsbury acquisition. Increased operating leverage, defined as increased absorption of fixed operating cost as a result of higher volume levels, was offset by the incremental five months of Pillsbury’s business structure versus fiscal 2002 as discussed in the previous paragraph.

Selling, general and administrative costs include certain infrequently occurring items. In fiscal 2003, we recorded $70 million of costs related to the planning and execution of the integration of Pillsbury, including consulting, system conversions, relocation, training and communications, compared to $52 million of similar expenditures in fiscal 2002. Selling, general and administrative costs as a percent of sales were 24 percent in fiscal 2003 compared to 26 percent in 2002. The above noted infrequently occurring items increased selling, general and administrative costs as a percent of sales by 1 percent in both fiscal 2002 and 2003. The two percentage point year-over-year decrease in selling, general and administrative costs as a percent of sales was primarily generated by synergies.

Our fiscal 2003 results included restructuring and other exit costs of $62 million as discussed in more detail in Note Three to the consolidated financial statements. These were primarily severance costs and asset write-downs related to plans established to accomplish the integration of Pillsbury.

Our fiscal 2002 results included restructuring and other exit costs of $134 million, including charges related to the sale of our Toledo, Ohio plant to International Multifoods Corporation as required to obtain regulatory clearance for the acquisition of Pillsbury, and to severance costs for sales organization and headquarters department realignment.

Interest expense increased 31 percent in fiscal 2003 due to the full-year impact of the additional debt associated with the Pillsbury acquisition. Average diluted shares outstanding were 378 million in fiscal 2003, up 11 percent from 342 million in fiscal 2002 due to the full-year impact of shares issued to Diageo as part of the acquisition.

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 $7.41 billion in fiscal 2003, compared to $5.91 billion in fiscal 2002. Operating profits totaled $1.75 billion, up 66 percent from the prior year. Comparable unit volume grew 4 percent versus fiscal 2002 fueled by an increase in product and marketing innovation. All of our U.S. Retail businesses experienced volume growth except Baking Products, which declined due to significant competitive promotional activity.

BAKERIES AND FOODSERVICE SEGMENT. Our Bakeries and Foodservice segment includes sales to wholesale and retail bakeries, foodservice distributors, convenience stores, vending and foodservice operators. Net sales for our Bakeries and Foodservice operations reached $1.80 billion in fiscal 2003 compared to $1.26 billion in fiscal 2002, while operating profit was $156 million, up only 1 percent from the prior year in spite of the inclusion of twelve months of Pillsbury results in fiscal 2003 compared to seven months of results included in fiscal 2002. Operating profits reflect higher supply chain costs as operations were affected by manufacturing realignments from the Pillsbury merger and higher commodity costs which could not be recovered fully through pricing actions. Comparable unit volume was essentially unchanged, reflecting overall weak foodservice industry trends.

INTERNATIONAL SEGMENT. Our International segment includes our business in Canada, as well as our consolidated operations in Europe, the Asia/Pacific region and Latin America. Net sales for our International operations totaled $1.30 billion in fiscal 2003 compared to $778 million in 2002. Operating profits grew to $91 million, more than double last year’s $45 million total. Comparable unit volume declined 1 percent for the year, driven by a 20 percent decline in Latin America that was almost offset by strong volumes in Canada, Europe and the Asia/Pacific region.

PENSION ACCOUNTING. In fiscal 2003, we recorded net pension and postretirement income of $42 million, net of $6 million of curtailments, compared to $60 million, net of $11 million of curtailments, in fiscal 2002. As detailed in Note Fourteen to the consolidated financial statements, key assumptions that 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 7.75 percent for the obligation as of May 27, 2001 and for our fiscal 2002 income and expense estimate, 7.50 percent for the obligation as of May 26, 2002 and for our fiscal 2003 income and expense estimate, and 6.00 percent for the obligation as of May 25, 2003 and for our fiscal 2004 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 future long-term returns by asset class using input from our actuaries, several consultants and economists as well as long-term inflation assumptions. For fiscal 2002 and 2003, we assumed a rate of return of 10.4 percent on our pension plan assets and 10.0 percent on our other postretirement plan assets. For fiscal 2004 we have reduced our rate of return assumptions to 9.6 percent for assets in both plans.

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 25, 2003, we had cumulative losses of approximately $1.2 billion on our pension plans and $343 million on our postretirement plans. These unrecognized net actuarial losses will result in decreases in our future pension income if they continue to exceed the corridor defined by SFAS No. 87.

For our fiscal 2004 pension and other postretirement income and expense estimate, we have reduced the discount rate to 6.0 percent, based on interest rates as of May 25, 2003. We have also reduced the expected rate of return on plan assets to 9.6 percent. Based on these rates and various other assumptions including the amortization of unrecognized net actuarial losses, we estimate that our net pension and postretirement expense, exclusive of curtailments, if any, will approximate $12 million in fiscal 2004 compared to income of $48 million, exclusive of curtailments, in fiscal 2003. Actual future net pension and postretirement income or expense 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 increase our net pension and postretirement expense for fiscal 2004 by approximately $17 million. Lowering the discount rate by 50 basis points would increase our net pension and postretirement expense for fiscal 2004 by approximately $22 million.

Our pension plans were underfunded by $224 million as of May 25, 2003. Based on our actuarial assumptions, we expect required cash contributions of less than $10 million in fiscal 2004, and we made contributions of $9 million in fiscal 2003 and $7 million in fiscal 2002. Our other postretirement benefit plans were underfunded by $612 million as of May 25, 2003. Based on our actuarial assumptions, we expect to make cash contributions of approximately $20 million for each of the next three years, which compares to actual cash contributions of $2 million in fiscal 2003 and $29 million in fiscal 2002.

CORPORATE ITEMS. Net interest expense rose in fiscal 2003 to $547 million, which includes a full year of interest on the additional debt incurred related to the Pillsbury acquisition. During fiscal 2003 we issued approximately $2 billion of long-term debt securities and used the proceeds to repay short-term debt. We have in place a net amount of interest rate swaps that convert $1.5 billion of floating rate debt to fixed rates. These swaps have an average life of one year and have an average fixed rate of 5.0 percent. As of May 25, 2003, $49 million of pretax losses from these swap contracts were recorded within accumulated other

comprehensive income. As explained in Note Seven to the consolidated financial statements, 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. Taking into account the effect of all of our interest rate swaps, the average interest rate on our total debt is approximately 5.9 percent. Our effective tax rate in fiscal 2003 was 35 percent.

JOINT VENTURES. General Mills' proportionate share of joint venture net sales grew to $997 million, compared to $777 million in fiscal 2002. Total after-tax earnings from joint venture operations almost doubled to reach $61 million in fiscal 2003, compared with $33 million reported a year earlier. Profits for Cereal Partners Worldwide (CPW), our joint venture with Nestlé, and Snack Ventures Europe (SVE), our joint venture with PepsiCo, together grew to $45 million. In addition, Häagen-Dazs joint ventures contributed a full year of results. These profit gains were partially offset by continued marketing investment for 8th Continent, the Company’s soymilk joint venture with DuPont.

Results of Operations — 2002 vs. 2001

General Mills completed the acquisition of The Pillsbury Company on October 31, 2001. Fiscal 2002 net sales grew 46 percent to $7.95 billion including the seven months of Pillsbury results. Worldwide volume grew 49 percent, although on a comparable basis, as if General Mills had owned Pillsbury for all of fiscal 2001 and fiscal 2002, volume grew slightly. Earnings after tax declined 31 percent to $458 million. Net earnings per diluted share declined 41 percent to $1.34, from $2.28 in fiscal 2001. This significant reduction in General Mills’ earnings was caused by the initial disruption of combining General Mills’ and Pillsbury’s organizations.

Total U.S. Retail comparable unit volume declined 1 percent in fiscal 2002. Volume gains in Yoplait-Colombo, Snacks and Pillsbury USA were more than offset by volume declines seen in Big G cereals, Meals and Baking Products. The reduced volume resulted from the merger-related disruption to our sales force and a reduced level of new products and promotional activity during the integration period. Net sales in the U.S. Retail segment grew to $5.91 billion from $4.57 billion. Operating profits were flat at $1.06 billion. Foodservice results in fiscal 2002 included comparable unit volume that was essentially unchanged from fiscal 2001. Net sales more than doubled to $1.26 billion and operating profit grew 63 percent to reach $155 million. International comparable unit volume grew 4 percent and net sales nearly tripled to $778 million. Operating profit grew from $17 million to $45 million.

Impact of Inflation

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 appro

FORM 10-K