SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(Rule 14a-101)
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General Mills, Inc.
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(Name of Registrant as Specified in Its Charter)
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The following letter was sent to certain General Mills shareholders beginning on
September 9, 2003.
[LOGO]
G
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GENERAL MILLS
September 9, 2003
Dear Shareholder:
Attached is some additional information about the two proxy items you raised
concerns about:
Re-election of Paul Walsh
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Paul Walsh was one of two directors appointed by Diageo in accordance with the
provisions of the Pillsbury acquisition agreement. Neither Diageo appointed
Director serves on Board committees, and both will come off the Board when
Diageo sells their General Mills' shares.
2003 Stock Compensation Plan
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We appreciate the opportunity to address the two concerns you have raised:
o Dilution: Originally, both Institutional Investor Services and Glass,
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Lewis, & Company, were concerned about the overall level of dilution due to
our higher than average past share usage. After extensive review and
analysis, they independently concluded that our large outstanding share
balance is due to highly unique circumstances. Perhaps more important, they
both concluded that the direction the new plan proposes strikes a desirable
balance between providing competitive performance incentives and further
reducing annual share usage. Both ISS and Glass, Lewis are recommending
shareholders approve the proposed Plan.
- 2 -
It is important to note that our overhang is higher than average for reasons
critical to our past success:
1. We have granted options to all employees, not just executives.
2. We had unique ownership building programs in place in the 1990's
(which have since been discontinued) that enabled employees to elect
stock options in place of traditional cash compensation and benefits
as described on Proxy pages 28 and 29.
3. We have unusually long stock option vesting and holding periods.
4. Stock options have been our only form of long-term compensation.
Our past share usage is far closer to the average for our industry if the
discontinued programs and "all employee" stock option grants, both of which were
unique in our peer group, are removed from the overhang calculation.
The other unique factor regarding overall dilution that should be considered is
the Company's stock buyback philosophy and history. Since 1988 the Company has
bought back a total of 73 million shares more than the new shares it has issued
as part of its compensation programs. This practice has mitigated actual
dilution in the past. We intend to resume this opportunistic buyback of company
stock in the next several years once our debt level from the Pillsbury
acquisition is brought down to targeted levels.
The following table illustrates how netting out the unique ownership building
programs and the impact from our excess share repurchases would bring our
overhang down very close to the 14.2% Average of our consumer products peer
group:
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ADJUSTED OVERHANG PERCENTAGE
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Stock overhang per FY 2003 Annual Report 77.8 million
+ 2003 Stock Compensation Plan +15.0 million
- Cancelled shares from 1998 Plans -1.3 million
- Shares from Salary Replacement Grants -19.7 million
- Shares from Deposit Stock Option Grants -2.4 million
- Shares from "All-Employee" Grants -4.0 million
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Adjusted Stock Overhang 65.4 million
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Current Shares Outstanding 370 million
+ Excess Share Repurchases +73 million
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Adjusted Shares Outstanding 443 million
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Adjusted Overhang Percentage 65.4 MILLION
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443 MILLION
=14.8%
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- 3 -
Duration of Plan: At two years in duration, the proposed 2003 Stock Plan
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would be, (by far) the shortest authorization in place for any company in
our peer group. We proposed a two-year plan after lots of investor feedback
and believe it is responsive to the multiple objectives of (1) managing
down our stock overhang, (2) maintaining flexibility given the current
dynamic nature of executive compensation practices, and (3) avoiding the
cost/time investment/disruption of annual requests for additional shares.
While we have asked for a 2-year authorization, we have committed to
reducing our share usage to no greater than 2% annually (and then only if
our performance significantly exceeds our peer group). As we intend to
cancel any unused shares once the successor plan is adopted in 2005, the
impact on overhang during this timeframe will be no different than had we
requested annual 2% authorizations.
We believe our compensation practices have served shareholders well and have
been integral to our achievement of total shareholder returns that have
significantly exceeded the S&P 500 over the past 5 years, past 20 years, and
even the past 50 years. We also believe the proposed 2003 Plan strikes a good
balance for shareholders, continuing to provide strong stock incentives while
moderating share usage. As a major investor in General Mills' stock, we very
much want and need your support of our 2003 Plan. We look forward to answering
any additional questions you might have.
Sincerely,