Exhibit 99.1
THE PILLSBURY COMPANY, SUBSIDIARIES,
AND RELATED ENTITIES
(wholly owned by Diageo plc)
Combined Financial Statements
June 30, 2001, 2000, and 1999
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Pillsbury Company:
We have audited the accompanying combined balance sheets of The Pillsbury
Company, its subsidiaries and its related entities (the Company), a Business of
Diageo plc., as of June 30, 2001 and 2000, and the related combined statements
of operations, stockholders' deficit and comprehensive income (loss), and cash
flows for each of the fiscal years in the three-year period ended June 30, 2001.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Pillsbury
Company, its subsidiaries and its related entities, a Business of Diageo plc.,
as of June 30, 2001 and 2000, and the results of their operations and their cash
flows for each of the fiscal years in the three-year period ended June 30, 2001,
in conformity with accounting principles generally accepted in the United States
of America.
November 7, 2001
Minneapolis, Minnesota
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Combined Balance Sheets
June 30, 2001 and 2000
ASSETS 2001 2000
------ ------
(In millions,
except share
information)
Current assets:
Cash and cash equivalents $ 51 56
Receivables:
Trade receivables, less allowance for returns, discounts
and doubtful accounts of $12 in 2001 and $14 in 2000 408 399
Other accounts receivable 41 42
Inventories 463 468
Prepaids and other assets 103 105
------- -------
Total current assets 1,066 1,070
------- -------
Investment in joint ventures 134 136
Goodwill and other intangibles, net 6,426 6,648
Property, plant, and equipment, net 1,376 1,412
Other long-term assets 260 198
------- -------
Total assets $ 9,262 9,464
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 307 354
Accrued advertising and promotions 101 118
Accrued compensation and benefits 138 99
Accrued income taxes 146 129
Current portion of long-term debt 67 43
Other current liabilities 165 244
------- -------
Total current liabilities 924 987
------- -------
Payables to affiliated companies, net 7,450 7,486
Long-term debt 163 161
Deferred taxes 1,054 1,036
Other long-term liabilities 403 412
------- -------
Total liabilities 9,994 10,082
------- -------
Stockholders' deficit:
Common stock and paid-in capital - par value $1 per share;
1,000 shares authorized, issued and outstanding 3,295 3,169
Accumulated deficit (3,968) (3,774)
Accumulated other comprehensive loss (59) (13)
------- -------
Total stockholders' deficit (732) (618)
------- -------
Total liabilities and stockholders' deficit $ 9,262 9,464
======= =======
See accompanying notes to combined financial statements.
2
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Combined Statements of Operations
For the years ended June 30, 2001, 2000 and 1999
2001 2000 1999
------- ------- -------
(In millions)
Sales $ 6,067 6,078 6,137
Costs and expenses:
Cost of sales (3,434) (3,438) (3,467)
Selling, general, and administrative (1,793) (1,853) (1,930)
Amortization of intangibles (208) (206) (201)
Other income 21 28 28
Unusual items (44) (63) (93)
Net interest expense - external (20) (14) (11)
Net interest expense - affiliated companies (646) (616) (540)
Factoring and other charges from
affiliated companies (23) (70) (70)
Losses on disposal of businesses
and tangible fixed assets (6) (13) (76)
------- ------- -------
Total costs and expenses (6,153) (6,245) (6,360)
------- ------- -------
Loss before taxes and earnings from
joint ventures (86) (167) (223)
Income tax benefit (expense) (54) 4 (17)
Earnings from joint ventures, net of
income taxes 26 22 10
------- ------- -------
Net loss $ (114) (141) (230)
======= ======= =======
See accompanying notes to combined financial statements.
3
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Combined Statements of Stockholders' Deficit and Comprehensive Income (Loss)
For the years ended June 30, 2001, 2000 and 1999
COMMON ACCUMULATED
STOCK AND OTHER
PAID-IN ACCUMULATED COMPREHENSIVE
CAPITAL DEFICIT INCOME (LOSS) TOTAL
------------- ------------ ------------- -------------
(In millions)
Balance at September 30, 1998 $ 2,909 (2,915) (13) (19)
Comprehensive income (loss):
Net loss -- (230) -- (230)
Other comprehensive income (loss):
Foreign currency translation -- -- (9) (9)
------------- -------------
Other comprehensive income (9) (9)
------------- -------------
Total comprehensive loss (239)
-------------
Capital contributions from parent entity 144 -- -- 144
Dividends declared to affiliated entities -- (481) -- (481)
------------- ------------ ------------- -------------
Balance at June 30, 1999 3,053 (3,626) (22) (595)
Comprehensive income (loss):
Net loss -- (141) -- (141)
Other comprehensive income:
Foreign currency translation -- -- 9 9
------------- -------------
Other comprehensive loss 9 9
------------- -------------
Total comprehensive loss (132)
-------------
Capital contributions from parent entity 116 -- -- 116
Dividends declared to affiliated entities -- (7) -- (7)
------------- ------------ ------------- -------------
Balance at June 30, 2000 3,169 (3,774) (13) (618)
Comprehensive income (loss):
Net loss -- (114) -- (114)
Other comprehensive income:
Foreign currency translation -- -- (46) (46)
Cummulative effect of an accounting change, net of tax -- -- (3) (3)
Reclassification of derivative loss to earnings, net of tax -- -- 3 3
------------- -------------
Other comprehensive income (46) (46)
------------- -------------
Total comprehensive loss (160)
-------------
Capital contributions from parent entity 126 -- -- 126
Dividends declared to affiliated entities -- (80) -- (80)
------------- ------------ ------------- -------------
Balance at June 30, 2001 $ 3,295 (3,968) (59) (732)
============= ============ ============= =============
See accompanying notes to combined financial statements.
4
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Combined Statements of Cash Flows
For the years ended June 30, 2001, 2000 and 1999
2001 2000 1999
----- ----- -----
(In millions)
Cash flows - operating activities:
Net loss $(114) (141) (230)
Adjustments to reconcile net loss to cash flow:
Depreciation and amortization 373 363 340
Deferred income taxes 19 67 (58)
Write-downs of property, plant, and equipment -- -- 43
Loss (gain) on disposals 6 13 76
Change in current assets and liabilities, net of effects
from businesses acquired:
Receivables (8) 26 (22)
Inventories 5 (47) 1
Prepaids and other assets (61) (37) (25)
Accounts payable (47) 17 35
Accruals and other current liabilities (64) (133) 75
----- ----- -----
Net cash provided by operating activities 109 128 235
----- ----- -----
Cash flows - investment activities:
Purchases of property, plant, and equipment (156) (262) (333)
Proceeds from disposal of property, plant, and equipment 2 4 30
Acquisitions of businesses -- (172) (526)
Proceeds from disposition of businesses -- 7 221
----- ----- -----
Net cash used by investment activities (154) (423) (608)
----- ----- -----
Cash flows - financing activities:
Proceeds from long-term debt 29 29 11
Payment of long-term debt (2) (24) (128)
Net borrowings from affiliated entities 89 303 957
Dividends paid (80) (7) (482)
Other, net 4 5 14
----- ----- -----
Net cash provided by financing activities 40 306 372
----- ----- -----
Increase (decrease) in cash and cash equivalents (5) 11 (1)
Cash and cash equivalents at beginning of year 56 45 46
----- ----- -----
Cash and cash equivalents at end of year $ 51 56 45
===== ===== =====
Supplemental cash flow information:
Cash paid for interest $ 668 628 555
Cash paid (received) for taxes 1 (16) 10
See accompanying notes to combined financial statements.
5
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
(1) OWNERSHIP OF THE COMPANY
The Pillsbury Company (hereafter Pillsbury), its subsidiaries and its
related entities (hereafter the Company) included in the combined
financial statements is a wholly owned indirect subsidiary of Diageo
plc (Diageo), a company incorporated under the laws of England and
Wales.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) DESCRIPTION OF BUSINESS
The Company operates in a single segment, the production,
marketing and distribution of packaged food. Pillsbury
operates through three divisions: Pillsbury North America,
Pillsbury Bakeries and Foodservice, and Pillsbury
International. Pillsbury North America produces, markets, and
distributes a wide range of consumer food packaged goods in
the United States and Canada. Pillsbury Bakeries and
Foodservice manufactures and markets products to
in-store/retail bakery and foodservice markets in the United
States and Canada, and to wholesale bakery markets in the
United States. Pillsbury International produces, markets, and
distributes consumer food products principally in Europe, Asia
Pacific, Latin America, and South Africa. Pillsbury's
principal brands include: Pillsbury refrigerated baked goods,
Pillsbury Grands! refrigerated biscuits and sweet rolls,
Pillsbury Toaster breakfast pastries, Hungry Jack refrigerated
baked goods, dehydrated potatoes, frozen pancakes and pancake
mixes, waffles and syrup, Pillsbury desserts and baking mixes,
Green Giant frozen and canned vegetables, Green Giant Create a
Meal! meal starters, Totino's frozen pizza and snacks, Old El
Paso Mexican foods, Progresso soups and Italian ingredient
foods, frozen yogurt and sorbet products, Martha White baking
mixes, Pet-Ritz frozen pie shells, and Haagen-Dazs ice cream
through its joint venture with Nestle USA.
(b) BASIS OF PRESENTATION - PRINCIPLES OF COMBINATION AND FISCAL
YEAR END
The combined financial statements include all entities managed
and controlled by Pillsbury which are legally owned by
Pillsbury, Diageo, or its affiliates. All material
intercompany balances and transactions have been eliminated in
combination. All numbers in the accompanying footnote tables
are presented in millions of dollars unless otherwise
identified. Certain expenses of Diageo Inc., its U.S. parent,
are allocated to Pillsbury and other Diageo Inc. U.S.
companies based on revenues. Pillsbury's allocated costs were
$6.6 million in 2001, $10.8 million in 2000, and $8.9 million
in 1999. The Company believes this allocation method to be
reasonable and estimates that on a stand-alone basis the
Company would have incurred expenses of a similar amount.
These costs are included in the Statement of Operations
caption "Factoring and other charges from affiliated
companies." The remainder of the charges in that line are
principally factoring costs and are not allocated costs.
(c) REVENUE RECOGNITION
Revenue from product sales are recognized upon shipment of the
product.
6 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
(d) FOREIGN CURRENCY TRANSLATION
Foreign currency balance sheets are translated into U.S.
dollars at the end-of-period exchange rates and operating
statements are translated at the weighted-average exchange
rates for each period. Local currencies have been determined
to be the functional currencies. The resulting translation
gains or losses are included in "Accumulated other
comprehensive income (loss)" within stockholders' deficit.
(e) CASH EQUIVALENTS
Cash and cash equivalents, include short-term highly liquid
investments with original maturities of three months or less.
(f) INVENTORIES
Inventories are stated at the lower of cost or market. The
Company generally uses LIFO as the preferred method of valuing
inventory, as Pillsbury believes that it is a better match of
current costs with current revenues. However, FIFO is used in
most of Pillsbury's foreign operations, where LIFO is not
recognized for income tax purposes and the operations often
lack the staffs to accurately handle LIFO complexities.
(g) FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage
its exposures to fluctuations in commodity prices. Derivative
instruments are used for risk management purposes only within
a framework of policies and guidelines authorized by the
Pillsbury board of directors.
(h) INVESTMENTS IN JOINT VENTURES
Investments in the common stock of joint ventures are
accounted for by the equity method.
(i) PROPERTY, PLANT, AND EQUIPMENT
Owned property, plant, and equipment are stated at cost. Plant
and equipment under capital leases are stated at the present
value of minimum lease payments.
Depreciation on plant and equipment is calculated on the
straight-line method over the estimated useful lives of the
assets within the following ranges: buildings and improvements
- 10 to 50 years; machinery and equipment - 5 to 20 years; and
computer software - 3 to 5 years. Plant and equipment held
under capital leases and leasehold improvements are amortized
straight line over the estimated useful life of the asset.
(j) GOODWILL
Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a
straight-line basis over the expected periods to be benefited,
generally 40 years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be
recovered through
7 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash
flows using a discount rate reflecting the Company's average
cost of funds. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash
flows are not achieved.
(k) RESEARCH AND DEVELOPMENT AND ADVERTISING COSTS
Research and development and advertising costs are expensed as
incurred. Research and development costs were $76 million, $75
million, and $82 million in 2001, 2000, and 1999,
respectively. Advertising costs were $182 million, $192
million, and $197 million in 2001, 2000, and 1999,
respectively.
(l) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date. Deferred taxes are not
provided on the unremitted earnings of foreign affiliates
which management considers to be invested indefinitely.
(m) STOCK OPTION PLANS
Certain employees of the Company participate in stock-based
compensation plans of its parent entity, Diageo. The Company
records compensation expense related to these plans based on a
systematic allocation by Diageo. Diageo applies the intrinsic
value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related interpretations, in
accounting for its fixed plan stock options.
(n) PENSION AND OTHER POSTRETIREMENT PLANS
The cost of providing pensions and other postretirement
benefits is charged against income on a systematic basis, with
pension surpluses and deficits allocated over the expected
remaining lives of current employees. Differences between the
amounts charged in the statements of operations and payments
made to pension and other plans are treated as assets or
liabilities. Deferred tax is provided for on these assets and
liabilities. Unfunded postretirement medical benefit
liabilities are included in other long-term liabilities in the
balance sheet.
(o) SALE OF ACCOUNTS RECEIVABLE
The Company entered into an agreement with Diageo to sell, on
an ongoing basis and without recourse, trade accounts
receivable to an affiliated entity issuer of receivable-backed
paper. The Company is responsible for servicing the
receivables. The agreement was effective through September
2000.
8 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
(p) RECOVERABILITY OF LONG-LIVED ASSETS
The Company reviews long-lived assets, including identifiable
intangibles and associated goodwill, for impairment when
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An asset is deemed
impaired and written down to its fair value if estimated
related future cash flows are less than its carrying amount.
(q) NEW ACCOUNTING STANDARDS
Effective July 1, 2000, Pillsbury adopted Statement of
Financial Accounting Standards (SFAS) 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded
in other contracts and for hedging activities. All
derivatives, whether designated in hedging relationships or
not, are required to be recorded on the balance sheet at fair
value. At adoption, Pillsbury considered all derivatives to be
cash flow hedges. The effects of the adoption of SFAS 133
resulted in a charge to other comprehensive income (OCI) of
$2.5 million (net of tax of $1.6 million). This amount was
reclassified to earnings during the year ended June 30, 2001.
In 2001, the Company adopted the provisions of Emerging Issues
Task Force Issue (EITF) 00-10, ACCOUNTING FOR SHIPPING AND
HANDLING FEES AND COSTS. As required by EITF 00-10, the
Company has historically classified shipping and handling
costs billed to customers as revenues and the costs of
shipping and handling are classified as cost of goods sold.
In May 2000, the EITF of the Financial Accounting Standards
Board (FASB) reached a consensus on Issue 00-14, ACCOUNTING
FOR CERTAIN SALES INCENTIVES. The issue addresses recognition
and income statement classification of certain sales
incentives. In April 2001, the EITF reached a consensus on
Issue 00-25, VENDOR INCOME STATEMENT CHARACTERIZATION OF
CONSIDERATION PAID TO A RESELLER OF THE VENDOR'S PRODUCTS. The
issue addresses when consideration from a vendor is either (a)
an adjustment of the selling prices of the vendor's products
to the retailer and, therefore, should be deducted from
revenue when recognized in the vendor's income statement, or
(b) a cost incurred by the vendor for assets or services
provided by the retailer to the vendor and, therefore, should
be included as a cost or an expense when recognized in the
vendor's income statement. Issues 00-14 and 00-25 will be
effective for Pillsbury in fiscal 2002. Since the adoption of
these issues will result only in the reclassification of
certain sales incentive and trade promotion expenses from
selling, general, and administrative expense to a reduction of
net sales, the adoption will not affect Pillsbury's financial
position.
In July 2001, the FASB issued Statement No. 141, BUSINESS
COMBINATIONS, and Statement No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. Statement 141 requires that the purchase
method of accounting be used for all business combinations
completed after June 30, 2001. Statement 142 will require that
goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at
least annually in accordance with the provisions of Statement
142. Statement 142 will also require that intangible assets
with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF.
9 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
The Company is required to adopt the provisions of Statement
141 immediately, and Statement 142 effective January 1, 2002.
Furthermore, any goodwill and any intangible asset determined
to have an indefinite useful life acquired in a purchase
business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-Statement 142 accounting
literature. Goodwill and intangible assets acquired in
business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement
142.
Statement 141 will require upon adoption of Statement 142,
that the Company evaluate its existing intangible assets and
goodwill that were acquired in a prior purchase business
combination, and to make any necessary reclassifications in
order to conform with the new criteria in Statement 141 for
recognition apart from goodwill. Upon adoption of Statement
142, the Company will be required to reassess the useful lives
and residual values of all intangible assets acquired in
purchase business combinations, and make any necessary
amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible
asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment
loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting
principle in the first interim period.
As of June 30, 2001, the Company has unamortized goodwill and
other intangibles in the amount of $6.4 billion, which will be
subject to the transition provisions of Statements 141 and
142. Amortization expense related to goodwill was $208 million
for the year ended June 30, 2001. Because of the extensive
effort needed to comply with adopting Statements 141 and 142,
it is not practicable to reasonably estimate the impact of
adopting these Statements on the Company's financial
statements at the date of this report, including whether any
transitional impairment losses will be required to be
recognized as the cumulative effect of a change in accounting
principle.
In October 2001, the FASB issued Statement No. 144, ACCOUNTING
FOR THE IMPAIRMENT OF DISPOSAL OF LONG-LIVED ASSETS, which
addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. While SFAS No.
144 supersedes SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
it retains many of the fundamental provisions of that
Statement. SFAS No. 144 becomes effective for fiscal years
beginning after December 15, 2001. The Company is evaluating
SFAS No. 144 to determine the impact on its financial
condition and results of operations.
(r) USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
10 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
(3) ACQUISITIONS AND DISPOSITIONS
(a) ACQUISITIONS
In February 2000, the Company acquired DCA Bakery, for $100
million with resulting goodwill of $80 million. DCA Bakery
makes and sells a variety of bakery mixes, fillings, icings,
and glazes. During fiscal 2000, the Company acquired a
Brazilian business and several other international businesses
for a total of $71 million which resulted in $59 million of
goodwill.
In May 1999, the Company acquired Hazelwood Farms Bakeries,
one of the country's largest manufacturers of frozen dough
sold to stores for making their own bakery products, for $350
million with resulting goodwill of $307 million. During fiscal
1999, the Company acquired several international businesses
for $10 million, which resulted in goodwill of $7 million.
All acquisitions have been accounted for using the purchase
method of accounting and the resulting goodwill is being
amortized over 40 years. The results of acquired businesses
have been included in the combined financial statements since
their respective acquisition dates. Financial results would
not have been materially different if these acquisitions would
have been made at the beginning of the fiscal year in which
they were acquired.
(b) DISPOSITIONS
During fiscal 2000, the Company sold its Mexican distribution
company and several other international businesses. These
dispositions resulted in a loss of $13 million.
In March 1999, the Company sold several non-core businesses
involving six regional brands. This sale resulted in a loss of
$50 million. Also, during fiscal 1999, the Company sold its
foodservice and European dehydrated and frozen potato
businesses, and other businesses and assets, respectively,
resulting in a loss of $26 million.
(4) UNUSUAL ITEMS
In fiscal 2001, the Company recorded restructuring charges of $16
million. The charges were principally related to two plant closures. At
June 30, 2001, there was a remaining reserve of $16 million.
In fiscal 2001, the Company recorded $30 million for merger costs
related to the acquisition of the Company by General Mills. These costs
were primarily comprised of retention incentives and legal and outside
professional fees.
In fiscal 2000, the Company recorded restructuring charges of $38
million. The charges were principally related to reducing costs and
restructuring the sales organization. The charges were principally for
related employee termination costs (400 positions), and sales broker
transition payments. There was a remaining reserve of $1.1 million and
$17 million at June 30, 2001 and 2000, respectively, related primarily
to the completion of the employee terminations and completion of the
transition to brokers. During fiscal 2001, the Company determined that
$5 million of the provision was no longer required based on cost
projections.
11 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
In connection with the creation of the ice cream joint venture with
Nestle USA, the Company incurred professional fees and severance costs
of $8 million in fiscal 2000.
During fiscal 2000, the Company incurred $9 million of integration
costs related to the February 2000 acquisition of DCA Bakery including
headquarters employee terminations and research and development (R&D)
product quality and consolidation costs. There was a remaining reserve
of $0 million and $7 million at June 30, 2001 and 2000, respectively,
related primarily to the completion of the headquarters closure in
August 2000.
During fiscal 2000, the Company recorded $8 million for the completion
of the integration of the fiscal 1999 acquisitions of the bakery
products division of Heinz and Hazelwood Farms Bakeries. There was a
remaining reserve of $0 million and $4 million at June 30, 2001 and
2000, respectively, for completion of a plant closure and product
consolidation costs. During fiscal 2001, the Company recorded an
additional $5 million for additional costs.
During fiscal 1999, the Company recorded $28 million of integration
costs related to the 1999 acquisitions of the bakery products division
of Heinz and Hazelwood Farms Bakeries. These charges were for employee
terminations, plant closures including asset write-downs of $7 million,
and other exit costs. At June 30, 2001 and 2000, there was no remaining
liability for these fiscal 1999 actions.
During fiscal 1999, the Company incurred costs of $65 million for the
closure of a Haagen-Dazs production facility. The costs were
principally for employee terminations ($16 million) and asset
write-downs ($36 million). There was a remaining reserve of $0 million
and $1.5 million at June 30, 2001 and 2000, respectively, for closed
plant maintenance and security. During fiscal 2001, the Company
determined that $2 million of the provision was no longer required
based on cost projections.
(5) INVENTORIES
The components of inventories are as follows:
2001 2000
-------- -------
Raw materials, work in process, and supplies $ 120 117
Finished goods 343 351
-------- -------
463 468
Reserve for LIFO valuation method -- --
-------- -------
$ 463 468
======== =======
At June 30, 2001 and 2000, respectively, inventories of $371 million and
$361 million were valued at LIFO. There has not been any material
liquidation of the Company's LIFO inventory layers. The carrying value
of inventories approximates current cost.
12 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
(6) PROPERTY, PLANT, AND EQUIPMENT
The components of property, plant, and equipment are as follows:
2001 2000
-------- --------
Land and improvements $ 36 37
Building and improvements 790 703
Machinery and equipment 1,231 1,140
Computer software 88 37
Construction in process 106 249
-------- --------
2,251 2,166
Less accumulated depreciation (875) (754)
-------- --------
$ 1,376 1,412
======== ========
Included in gross property, plant, and equipment is $26 million and $27
million as of June 30, 2001 and 2000, respectively, in respect of
assets held under capital leases.
(7) INTANGIBLE ASSETS
Goodwill and other intangibles arise primarily from the acquisitions of
Pet Incorporated in 1995 and The Pillsbury Company in 1989 and are
being amortized principally over 40 years. Accumulated amortization
included in goodwill and other intangible assets was $1,895 million and
$1,679 million as of June 30, 2001 and 2000, respectively.
(8) DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used
to manage well-defined commodity price risks.
The Company uses purchased options and futures contracts to hedge
anticipated purchases of wheat flour, soybean oil, and corn flour.
Heating oil options are used to hedge anticipated purchases of diesel
fuel. Under the option contracts, the Company has the right, but not
the obligation, to buy these commodities at an agreed-to price. The
derivatives are recorded as assets and liabilities with changes in
values recorded in earnings currently.
The aggregate contract value of the Company's futures and option
contracts were $32 million and $8 million at June 30, 2001 and 2000,
respectively. These contracts covered six to seven and one to five
months of usage as of June 30, 2001 and 2000, respectively. The
unrealized net losses on these derivative contracts recorded in cost of
goods sold at June 30, 2001 was $2.2 million. The fair value is
estimated using option pricing models that value the potential for the
option to become in-the-money through changes in commodity prices
during the remaining term of the agreement.
13 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
The Company is exposed to credit losses in the event of nonperformance
by the counterparties to its futures and option contracts. The Company
anticipates, however, that counterparties will be able to fully satisfy
their obligations under the contracts. The Company does not obtain
collateral to support financial instruments, but monitors the credit
standing of the counterparties.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at June 30, 2001 and
2000. Note 8 presents the estimated fair values of derivative financial
instruments. The fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties.
2001 2000
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ -------- ------------ --------
Financial assets:
Cash and cash equivalents $ 51 51 56 56
Trade accounts receivables 408 408 399 399
Other receivables 41 41 42 42
Other current assets 103 103 105 105
Financial liabilities:
Trade accounts payable 307 307 354 354
Accrued expenses 385 385 346 346
Other current liabilities (nonderivatives) 165 165 242 242
Long-term debt 163 170 204 202
Due to affiliated companies 7,450 7,391 7,486 7,217
The carrying amounts shown in the table are included in the combined
balance sheets under the indicated captions.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents, trade accounts receivables, other
receivables, other current assets, trade accounts payables, accrued
expenses, and other current liabilities (nonderivatives). The carrying
amounts approximate fair value because of the short maturity of these
instruments.
Long-term debt and due to affiliated companies: The fair value of the
Company's long-term debt is estimated by discounting the future cash
flows of each instrument at rates currently offered to the Company for
similar debt instruments of comparable maturities by the Company's
bankers.
14 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
(10) INVESTMENTS IN JOINT VENTURES
The Company has a number of investments in joint ventures which are
generally 50% owned and are carried in the combined balance sheet under
the equity method. Royalty income is also received from most of these
joint ventures; various expenses, primarily research and development,
are incurred; and tax impacts of certain of the joint ventures are
recorded by the Company since they are structured as partnerships.
The investment in joint ventures was $134 million and $136 million at
June 30, 2001 and 2000, respectively.
Most of the joint ventures are for the manufacture and distribution of
Haagen-Dazs ice cream products. The principal investment is Ice Cream
Partners USA, LLC ("ICP"), a joint venture with Nestle USA formed
during fiscal 2000 for the manufacture, marketing, and distribution of
Haagen-Dazs and Nestle ice cream products in the United States.
(11) TRANSACTIONS WITH AFFILIATED COMPANIES
The Company factored its domestically held and certain foreign-held
trade accounts receivable, without recourse, to Diageo Finance Ireland
through September 2000. Total receivables factored during the year
ended June 30, 2001 amounted to $1,417 million. Factored receivables of
$0 million and $323 million are included as a trade accounts receivable
and a related payable to affiliate on the balance sheet at June 30,
2001 and 2000 respectively. Total factoring costs consist of discount
and commission expense. The discount is based upon LIBOR interest rates
over the average collection period. Commission expense is based upon a
percentage of the factored receivables. Total factoring cost was $14.6
million in 2001, $57.4 million in 2000, and $57.6 million in 1999. The
Company received a separate fee for servicing the receivables of $.3
million in 2001, $1.4 million in 2000, and $2.0 million in 1999.
(12) LEASES
The Company is obligated under various capital leases for property,
plant, and equipment. At June 30, 2001 and 2000, the gross amount of
plant and equipment and related accumulated amortization recorded under
capital leases were as follows:
2000 2001
-------- -------
Building and improvements $ 20 23
Machinery and equipment 6 4
-------- -------
26 27
Less accumulated amortization (8) (8)
-------- -------
$ 18 19
======== =======
Amortization of assets held under capital leases is included with
depreciation expense.
15 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
The Company also has several noncancelable operating leases, primarily
for property, plant, and equipment. These leases generally contain
renewal options for periods ranging from one to ten years and require
the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases for the years ended June
30, 2001, 2000, and 1999 was $37 million, $52 million, and $52 million,
respectively.
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) and
future minimum capital lease payments as of June 30, 2001 are:
CAPITAL OPERATING
YEAR ENDING JUNE 30 LEASES LEASES
----------------------------------------------- ----------- --------------
2002 $ 1 37
2003 1 26
2004 1 21
2005 1 17
2006 1 16
Thereafter 1 95
----------- --------------
Total minimum lease payments 6 $ 212
==============
Less amount representing interest 1
-----------
Present value of net minimum
capital lease payments 5
Less current installments of obligations
under capital leases 1
-----------
Obligations under capital leases,
excluding current installments $ 4
===========
16 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
(13) LONG-TERM DEBT
Long-term debt at June 30, 2001 and 2000 consists of the following:
2001 2000
-------- --------
Unsecured debt to affiliate, Diageo Investment Corporation
(DIC), at 9% due no later than June 2008 $ 4,248 4,249
Net unsecured debt to DIC, at various rates based on LIBOR 3,057 2,977
Unsecured debt outside the U.S., payable to Diageo affiliates 143 261
Third party debt in the U.S. (face amounts totaling
$165.0 million), primarily at a rate of 6.5% 164 161
Third party debt outside the U.S., at variable rates 66 42
-------- --------
Total long-term debt 7,678 7,690
Less current installments (67) (43)
-------- --------
Long-term debt, excluding current installments $ 7,611 7,647
======== ========
Long-term debt to third parties is either guaranteed by Diageo or
supported by a letter of credit that is guaranteed by Diageo. The debt
agreements do not contain any significant covenants.
The aggregate maturities of long-term debt for each of the five years
subsequent to June 30, 2001 are as follows: 2002, $67 million; 2003, $1
million; 2004, $90 million; 2005, $1 million; and 2006, $0 million.
Thereafter, $7,519 million.
(14) INCOME TAXES
The Company files a consolidated U.S. income tax return with Diageo
Inc., its U.S. parent, pursuant to a tax-sharing arrangement with
Diageo Inc. The Company calculates the financial statement expense,
income tax provision and related balance sheet amounts, exclusive of
certain reserves maintained by the parent, computed as if the Company
filed a separate return.
Losses from operations of the Company before income taxes comprised:
2001 2000 1999
-------- ------- -------
United States $ (91) (190) (281)
Rest of the world 5 23 58
-------- ------- -------
$ (86) (167) (223)
======== ======= =======
17 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
Income tax (expense) benefit attributable to loss before taxes consists
of:
CURRENT DEFERRED TOTAL
----------- ------------ --------
Year ended June 30, 2001:
U.S. federal $ (6) (13) (19)
State and local (12) (2) (14)
Foreign (17) (4) (21)
----------- ------------ -------
$ (35) (19) (54)
=========== ============ =======
Year ended June 30, 2000:
U.S. federal $ 65 (18) 47
State and local (9) (4) (13)
Foreign 15 (45) (30)
----------- ------------ -------
$ 71 (67) 4
=========== ============ =======
Year ended June 30, 1999:
U.S. federal $ (14) 57 43
State and local (24) 5 (19)
Foreign (37) (4) (41)
----------- ------------ -------
$ (75) 58 (17)
=========== ============ =======
The following table reconciles the U.S. statutory income tax rate with
the effective income tax rate:
2001 2000 1999
------- ------- --------
Expected tax benefit using the U.S. statutory
rate at 35% $ 30 58 78
Increase (reduction) in income taxes resulting from:
Losses unable to be utilized (23) (12) (10)
Effect of foreign taxes 3 7 (7)
State and local income taxes, net of federal
income tax benefit (9) (8) (12)
Difference in tax basis -- (3) (36)
Intangible amortization (31) (37) (33)
Tax entity reorganization (26) -- --
Other, net 2 (1) 3
------- ------- --------
Tax benefit (expense) as recorded $ (54) 4 (17)
======= ======= ========
18 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 2001 and 2000 are presented below:
2001 2000
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 59 33
Restructuring and integration costs 10 27
Compensation and employee benefits 94 120
Other 28 33
-------- --------
Total gross deferred tax assets 191 213
Less valuation allowance (59) (33)
-------- --------
Net deferred tax assets 132 180
-------- --------
Deferred tax liabilities:
Depreciation (130) (134)
Intangible assets (1,047) (1,074)
Inventories (9) (8)
-------- --------
Total gross deferred liabilities (1,186) (1,216)
-------- --------
Net deferred tax asset (liability) $ (1,054) (1,036)
======== ========
The valuation allowance for deferred tax assets as of June 30, 2001 and
2000 was $59 million and $33 million, respectively. The valuation
allowance relates to foreign net operating loss carryovers. The net
change in the total valuation allowance for the years ended June 30,
2001 and 2000 was an increase of $26 million and an increase of $12
million, respectively. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets
are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net
of the existing valuation allowances at June 30, 2001.
At June 30, 2001, Pillsbury has net operating loss carryforwards in
various foreign jurisdictions of $170 million which are available to
offset future taxable income.
19 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
(15) STOCK OPTION PLANS
DESCRIPTION OF THE PLANS
Prior to the merger of Grand Metropolitan Public Limited Company
(GrandMet) and Guinness PLC (Guinness) in December 1997 that formed
Diageo (the Merger), Pillsbury participants in certain of the former
GrandMet executive share option plans could only exercise options if a
performance criteria was satisfied. In summary, this required that
GrandMet's ordinary share price outperform the 'FTSE 100' Index over a
five-year rolling period. As a result of the merger, participants in
these former GrandMet share option plans had a choice of exercising
their options or exchanging their options in respect of GrandMet
ordinary shares for options of an equivalent number of Diageo ordinary
shares, in each case with no performance criteria applying.
(a) EXECUTIVE PLANS (FIXED PLANS)
U.S. SHARE OPTION PLAN ('USSOP')
This is a long-term incentive plan under which options to
purchase Diageo's American Depository Shares (ADSs) are
granted to senior U.S. executives. Under the plan, senior
executives are granted an option to purchase ADSs at the
higher of the nominal value of the ADSs and the market price
of the ADSs at the time the option is granted. Options granted
prior to January 1, 1994 may normally only be exercised
between three and seven years after their grant.
UK EXECUTIVE SHARE OPTION PLANS ('ESOP')
The Diageo group operates executive share option plans and a
supplemental plan for senior executives. ESOP incorporates the
former GrandMet plan. Options issued under these plans may
normally be exercised between three and ten years after the
date granted. No new awards have been made under this plan
since 1997.
(b) SAVINGS PLANS (FIXED PLANS)
During the 1999 fiscal year, the Diageo group funded a trust
to acquire 14.6 million Diageo shares to meet obligations in
respect of options previously granted to employees under
savings-related share option plans; in the past, Diageo has
issued new shares to employees upon their exercising such
options.
UK SAVINGS-RELATED SHARE OPTION PLAN ('SRSOP')
The UK savings-related share option plan is an Inland Revenue
approved plan available to all UK employees. The plan provides
a long-term savings opportunity for employees who have been
with Diageo for at least one year and who work eight hours or
more a week. The options may be exercised normally after
three, five, or seven years, according to the length of the
option period chosen by the employee, at a price not less than
80% of the market value of the shares at the time of the
option grant.
20 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
INTERNATIONAL SAVINGS-RELATED SHARE OPTION PLAN
('INTERNATIONAL')
The group also operates an international savings-related share
option plan. The plan provides a long-term savings opportunity
for employees outside the United States and United Kingdom.
The plan has employment and discount criteria devised in
accordance with local conditions and practices. Options to buy
shares are discounted by rates ranging from zero to 20%.
U.S. EMPLOYEE STOCK PURCHASE PLAN ('USESPP')
This plan provides a long term savings and investment
opportunity for U.S. employees who have been with the Company
for at least one year and who work more than 20 hours a week.
The options may normally be exercised 27 months after the
grant of the option at a price equivalent to 85% of the market
value of the ADSs at the time of the grant.
(c) EXECUTIVE INCENTIVE PLANS (VARIABLE PLANS)
Awards of shares were granted to senior executives under the
GrandMet restricted share plan ('RSP'), with eventual transfer
in the case of the RSP dependent on the performance of
GrandMet's annualized total shareholder return ('TSR') against
a comparator group of companies at the end of a minimum of
three years after the date of grant.
(d) EXPENSES OF THE PLANS
As described previously, the Company records compensation
expense on these plans as allocated to it by its parent
entity, Diageo. Any liabilities associated with these plans
are carried on Diageo's books and have not been reflected in
the Company's combined financial statements. The allocated
expense is based upon the number of Company participants in
the respective plans. The allocated expense recorded by the
Company for the years ended June 30, 2001, 2000, and 1999 was
$6 million, $8 million, and $12 million, respectively.
(16) PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors several noncontributory defined benefit retirement
plans covering substantially all of its employees. The benefits are
based on years of credited service and benefit multipliers.
Substantially all of the plans are funded by annual contributions to
tax-exempt trusts. Plan assets consist principally of equity
securities, corporate obligations, and government bonds.
In addition to the Company's defined benefit pension plan, the Company
and its subsidiaries provide health care and other benefits to
substantially all retired employees and covered dependents. Generally,
employees who have attained certain age and service requirements are
eligible for these benefits.
21 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
The following table sets forth the plan's benefit obligations, fair
value of plan assets, and funded status at June 30, 2001 and 2000:
PENSION POSTRETIREMENT
BENEFITS BENEFITS
------------------- -------------------
2001 2000 2001 2000
--------- -------- ------- --------
Projected benefit obligations at beginning of the year $ 820 886 196 206
Service cost 19 23 3 3
Interest cost 63 62 15 14
Plan amendments -- -- -- --
Actuarial (gain) loss 57 (98) 28 (13)
Benefits and expenses paid (58) (54) (16) (15)
Other -- -- -- 1
--------- -------- ------- --------
Projected benefit obligations at end of the year 901 819 226 196
--------- -------- ------- --------
Plan assets at fair value at beginning of the year 1,485 1,253 11 12
Actual return on plan assets (172) 285 11 --
Contributions by the Company 2 1 15 14
Benefits and expenses paid (58) (54) (16) (15)
--------- -------- ------- --------
Plan assets at fair value at end of the year 1,257 1,485 21 11
--------- -------- ------- --------
Excess (deficiency) of plan assets
over benefit obligations 356 666 (205) (185)
Unrecognized net transition obligation (1) (2) -- --
Unrecognized prior service cost 15 16 (3) (3)
Unrecognized net gain (213) (585) (46) (67)
Other -- -- 4 4
--------- -------- ------- --------
Net prepaid asset (accrued liability) at end of the year $ 157 95 (250) (251)
========= ======== ======= ========
22 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
The following weighted average assumptions were used to determine the
Company's obligations under the plans:
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ------------------
2001 2000 2001 2000
------- ------- ------- -------
Weighted-average assumptions as of June 30:
Discount rate 7.50% 8.00% 7.50% 8.00%
Expected return on plan assets 10.00% 10.00% 10.00% 10.00%
Rate of compensation increase 6.25% 6.25% 6.00% 6.00%
Annual decrease in cost of benefits -- -- 1.00% 1.00%
For measurement purposes, a 6% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2001 (7% in
2000). The rate was assumed to decrease gradually to 5% for 2002 and
remain at that level thereafter.
Components of pension net income for the years ended June 30, 2001,
2000, and 1999 are as follows:
2001 2000 1999
------ ------ ------
Service cost $ 19 23 23
Interest cost 63 62 60
Expected return on assets (124) (108) (96)
Amortization of:
Unrecognized prior service cost 1 1 1
Unrecognized transitional obligation (1) (1) (1)
Unrecognized net gain (19) (5) --
------ ------ ------
Net periodic pension income $ (61) (28) (13)
====== ====== ======
Components of the postretirement medical and life insurance cost for
the years ended June 30, 2001, 2000, and 1999 are as follows:
2001 2000 1999
------- ------- -------
Service cost $ 3 3 4
Interest cost 16 14 14
Expected return on assets (1) (1) (1)
Amortization of:
Unrecognized prior service cost (1) -- (1)
Unrecognized net gain (3) (3) (2)
Other -- 1 --
------- ------- -------
Net periodic cost $ 14 14 14
======= ======= ======
23 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
The impact on the service and interest cost of the postretirement cost
and accumulated postretirement benefit obligations of a 1% increase and
a 1% decrease in future medical care inflation are as follows:
2001 2000 1999
------- ------- -------
Impact of 1% increase in medical care inflation rates:
Aggregate of service and interest cost $ 1 1 1
Accumulated postretirement benefit obligations
at end of the period 13 11 12
Impact of 1% decrease in medical care inflation rates:
Aggregate of service and interest cost (1) (1) (1)
Accumulated postretirement benefit obligations
at end of the period (12) (10) (12)
The Company and certain of its subsidiaries sponsor various defined
contribution profit sharing and capital accumulation plans. Charges to
earnings for these plans were $9 million, $10 million, and $9 million
for the years ended June 30, 2001, 2000, and 1999, respectively.
(17) COMMITMENTS AND CONTINGENCIES
(a) LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters, either
individually or in the aggregate, will not have a material
adverse effect on the Company's combined financial position,
results of operations, or liquidity.
(b) PURCHASE COMMITMENTS
The Company has purchase commitments with a key alliance
partner and its financing institution to purchase $97 million
in raw material packaging products over the sixteen-month
period subsequent to the balance sheet date.
24 (Continued)
THE PILLSBURY COMPANY, SUBSIDIARIES, AND RELATED ENTITIES
(wholly owned by Diageo plc)
Notes to Combined Financial Statements
June 30, 2001 and 2000
(18) GEOGRAPHICAL INFORMATION
The following table presents sales (by destination) and total assets by
geographical location:
REST OF
U.S. EUROPE THE WORLD TOTAL
-------- -------- -------- --------
Year ended June 30, 2001:
Sales $ 4,892 374 801 6,067
Total assets 8,589 246 436 9,271
Year ended June 30, 2000:
Sales $ 4,925 370 783 6,078
Total assets 8,654 278 532 9,464
Year ended June 30, 1999:
Sales $ 5,151 408 578 6,137
Total assets 8,665 302 421 9,388
The following table provides sales information for our three divisions
(as described in note 2):
PILLSBURY PILLSBURY
NORTH BAKERIES AND PILLSBURY
AMERICA FOODSERVICE INTERNATIONAL TOTAL
--------------------------------------------------------
Year ended June 30, 2001 3,950 1,215 903 6,068
Year ended June 30, 2000 3,900 1,245 933 6,078
Year ended June 30, 1999 4,254 959 924 6,137
(19) SUBSEQUENT EVENT
On October 31, 2001, Diageo sold the Company to General Mills, Inc. for
134 million shares of General Mills, Inc. stock and cash paid and
assumed debt by General Mills, Inc. totaling $3.8 billion. Certain
Retail and Foodservice businesses of Pillsbury will be disposed of in
connection with the transaction. The Retail businesses to be divested
include: Pillsbury Desserts & Baking Mixes; Martha White Desserts and
Baking Mixes; Hungry Jack Potatoes and Dry Breakfast, including certain
international export sales in Puerto Rico, U.S. Virgin Islands, and
Mexico; and Pet Milk. The Foodservice business includes non-custom
foodservice dry mix products in boxes of seven pounds and less and
non-custom frosting products in packages of eleven pounds and less.
Also, in connection with the transaction, a joint venture partner of
Pillsbury has announced the intention to exercise the option to
purchase the U.S. Haagen-Dazs joint venture assets.
25