Decision Case - 5

Decision Case 12-1

1. General Mills and Kellogg's both use the indirect method for Operating Activities in the cash flow.
The calculation will begin with net income and will be reconciled to net cash flow from operations.

2. There is an increase of $353 million in net cash due Operating Activities in General Mills. The largest
adjustment is $457.1 million in depreciation and amortization.
For Kellogg, net cash from operating activities has decreased by $635 million. The most significant
contribution of $643 million is done by pension and other post-retirement benefit.

3. General Mills spent $ 649.9 million to acquire property and equipment in 2010, while Kellogg spent
$ 474 million.
Compared to the previous year, General Mills spent an additional of $ 87.3 million and Kellogg spent
an additional of $ 97 million in 2009.

4.
Kellogg (In Millions)
Issuances of Long-Term Debt $ 987
Common Stock Purchases $ 1052
General Mills
Proceeds from common stock issued on exercised options $ 388.8
Purchases of common stock for treasury $ 691.8

During the recent year, both the companies repurchased some of their shares.
Other considerations for repurchasing common stock include available stock for distribution to
shareholders, maintaining market price, ownership reasons, and maintaining the company's financial
ratios, thereby balancing the firm's financial well-being.

Decision Case 12-2

1. Cash Flow Adequacy Ratio = (Cash Flow from Operating Activities - Capital Expenditure) / Average
Debt Over the Next Five Years

General Mills Kellogg

Cash Flow from Operating Activities $ 2,181.2 $ 1,008
Capital Expenditure $ 649.9 $ 474
Average Debt in 5 years $ 644.98 $ 491.4
Cash Flow Adequacy Ratio 2.37 1.09

2. According to the cash flow adequacy ratio, both companies' cash is sufficient to repay their
respective debts maturing in the next five years. However, General Mills' ratio is significantly higher
(approximately 100 percent) than Kellogg's.