Exhibit 99.2
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma information is presented to show the estimated
effect of our acquisition of Diageo's worldwide Pillsbury operations
("Pillsbury"). The acquisition was effected as described in Item 2 to our Form
8-K dated November 2, 2001.
Pro forma adjustments related to the pro forma combined balance sheet have been
determined assuming the acquisition had been consummated on August 26, 2001. The
pro forma combined balance sheet combines our consolidated balance sheet as of
August 26, 2001 with Pillsbury's combined balance sheet as of June 30, 2001. The
pro forma combined statement of earnings combines the companies' respective
earnings statements as if the acquisition had occurred at the beginning of the
periods presented. Our consolidated statement of earnings for the fifty-two
weeks ended May 27, 2001 is combined with Pillsbury's combined statement of
operations for the year ended June 30, 2001. Our consolidated statement of
earnings for the thirteen weeks ended August 26, 2001 is combined with
Pillsbury's combined statement of operations for the quarter ended June 30,
2001. The unaudited pro forma combined financial statements are based on the
assumptions and adjustments described in the accompanying notes.
The pro forma adjustments reflecting the consummation of the acquisition are
based upon the purchase method of accounting and upon the assumptions set forth
in the Notes hereto, including the issuance of 134 million shares of General
Mills common stock and the immediate repurchase from Diageo of 55 million shares
under a put option exercised by Diageo. This pro forma combined financial
information should be read in conjunction with the historical financial
statements of General Mills, filed as part of our Annual Report on Form 10-K for
the year ended May 27, 2001 and the historical financial statements of
Pillsbury, which are contained herein.
The pro forma adjustments do not reflect cost savings from synergies which may
be realized nor integration costs to be incurred subsequent to the acquisition.
The unaudited pro forma combined financial statements are not necessarily
indicative of the financial position or operating results that would have
occurred had the acquisition been consummated on the dates, or at the beginning
of the periods, for which the consummation of the acquisition is being given
effect. Therefore these unaudited pro forma combined financial statements should
not be construed as representative of future operations. For purposes of
preparing the General Mills' consolidated financial statements, subsequent to
the acquisition, General Mills will establish a new basis for Pillsbury's assets
and liabilities based upon the fair values thereof and the General Mills
purchase price, including the costs of the acquisition. A final determination of
required purchase accounting adjustments, including the allocation of the
purchase price to the assets acquired and liabilities assumed based on their
respective fair values, has not yet been completed. Accordingly, the purchase
accounting adjustments made in connection with the development of the pro forma
combined financial information are preliminary and have been made solely for
purposes of developing such pro forma combined financial information. General
Mills has undertaken a study to determine the fair value of certain of
Pillsbury's assets and liabilities and will make appropriate purchase accounting
adjustments upon completion of that study. The actual financial position and
results of operations will differ, perhaps significantly, from the pro forma
amounts reflected herein.
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PRO FORMA COMBINED BALANCE SHEET
AS OF AUGUST 26, 2001
(IN MILLIONS) (UNAUDITED)
PRO FORMA(A)
---------------------------------
GENERAL MILLS PILLSBURY TRANSACTION
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
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Cash and cash equivalents $ 53 $ 51 $ $ 104
Receivables, net 600 449 1,049
Inventories 582 463 (34)(B) 1,011
Prepaids and other current assets 82 103 185
Deferred income taxes 62 62
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Total Current Assets 1,379 1,066 (34) 2,411
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Land, buildings and equipment at cost, net 1,512 1,376 (119)(C) 2,769
Other assets 1,390 394 (102)(D) 1,682
(6,426)(E)
Goodwill and intangible assets 878 6,426 7,689(F) 8,567
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Total Assets $ 5,159 $ 9,262 $ 1,008 $ 15,429
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Accounts payable $ 548 $ 408 $ 62(G) $ 1,018
Current portion of long-term debt 353 67 420
Notes payable 877 877
Accrued taxes 151 146 (146)(H) 151
Accrued payroll 74 138 212
Other current liabilities 178 165 16(I) 359
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Total Current Liabilities 2,181 924 (68) 3,037
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Long-term debt 2,213 163 5,279(J) 7,655
Payables to affiliates 7,450 (7,450)(K) 0
Deferred income taxes 210 1,054 (1,106)(L) 158
Deferred income taxes - tax leases 75 75
Other liabilities 577 403 45(M) 1,025
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Total Liabilities 5,256 9,994 (3,300) 11,950
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Common stock 764 3,295 1,607(N) 5,666
Retained earnings 2,577 (3,968) 3,968(N) 2,577
Treasury stock (3,053) (1,326)(N) (4,379)
Unearned compensation (50) (50)
Accumulated other comprehensive income (335) (59) 59(N) (335)
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Total Stockholders' Equity (97) (732) 4,308 3,479
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Total Liabilities and Equity $ 5,159 $ 9,262 $ 1,008 $ 15,429
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Notes to Pro Forma Combined Balance Sheet (dollar amounts in millions)
(A) The accompanying pro forma combined balance sheet combines the General
Mills balance sheet as of August 26, 2001 with the Pillsbury balance sheet
as of June 30, 2001 as if the Merger had been consummated at August 26,
2001. The Pillsbury historical balance sheet includes those assets and
liabilities either directly attributable to Pillsbury or that have been
allocated to Pillsbury based upon methods considered reasonable by Diageo's
management. Adjustments are made to the pro forma combined balance sheet to
exclude assets and liabilities associated with businesses divested or to be
divested. Also, the debt on this pro forma combined balance sheet includes
appropriate reductions for estimated net proceeds associated with
businesses divested or to be divested.
(B) This estimated adjustment to inventories is comprised of (1) an adjustment
to reflect the new book basis for the Pillsbury inventories, using the
purchase method of accounting (increase of $20) and (2) an adjustment to
exclude inventories of businesses divested or to be divested ($54).
(C) This adjustment for fixed assets is comprised of (1) an adjustment to
reflect certain Pillsbury fixed assets at fair value (decrease of $68) and
(2) an adjustment to exclude fixed assets of businesses divested or to be
divested ($51). There may be further adjustments to reflect certain
Pillsbury fixed assets at fair value upon completion of the study to
determine the fair value of certain of Pillsbury's assets and liabilities.
(D) This adjustment is to exclude assets of businesses divested or to be
divested ($102).
(E) This adjustment is to eliminate the book basis of intangible assets on the
Pillsbury balance sheet as of the closing.
(F) This adjustment represents the excess of the purchase price paid by General
Mills over the sum of the estimated amounts preliminarily assigned to
identifiable assets acquired, less liabilities assumed in the acquisition.
This estimated amount will ultimately be assigned as part of the final
purchase price allocation to the identifiable assets acquired, less
liabilities assumed in the acquisition and then to identified intangible
assets and goodwill as required by the application of the purchase method
of accounting. Since the study to determine the fair value of certain of
Pillsbury's assets and liabilities is not yet complete, this excess has not
been allocated to any intangible assets other than goodwill.
(G) This adjustment represents the estimated accrued transaction costs related
to the acquisition. The costs include General Mills' financial advisory,
legal, accounting and similar expenses as well as certain accruals for
employee termination and facility exit costs.
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(H) This adjustment eliminates the accrued income taxes on the Pillsbury
combined balance sheet since Diageo has retained Pillsbury's accrued taxes
through the close date of the acquisition.
(I) This adjustment is to reflect certain Pillsbury vacation accruals at fair
value as of the acquisition.
(J) This adjustment of $5,279 represents the amount of debt that will
ultimately be included on the General Mills balance sheet as a result of
the Pillsbury acquisition and related divestitures. It includes (1) $3,600
for cash paid to Diageo (net of external debt on the Pillsbury combined
balance sheet assumed by General Mills; (2) $2,318 for cash paid for the
immediate repurchase from Diageo of 55 million shares under a put option
exercised by Diageo; less (3) estimated after-tax proceeds of $639 realized
or to be realized from the disposition of businesses divested or to be
divested.
(K) This adjustment is to eliminate the payables to affiliates that are
reflected on the Pillsbury combined balance sheet as of June 30, 2001.
These payables to Diageo affiliates are no longer liabilities as of the
closing of the acquisition.
(L) This estimated adjustment for deferred taxes is to reflect the tax effect
on the difference between the new book basis and the tax basis of the
acquired assets and liabilities of Pillsbury, including fair value
adjustments, using the purchase method of accounting.
(M) This is a fair value adjustment for certain Pillsbury postretirement
benefit plans based upon actuarial valuations.
(N) These adjustments are to eliminate the Pillsbury stockholders' equity
accounts as of the acquisition closing and to record (1) the estimated
market valuation of the General Mills shares issued in the acquisition
($5,894) less (2) the cost of the General Mills shares immediately
repurchased under a put option exercised by Diageo ($2,318).
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PRO FORMA COMBINED STATEMENT OF EARNINGS
13 Weeks Ended August 26, 2001
(in millions, except per share data) (unaudited)
PRO FORMA(A)
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GENERAL MILLS PILLSBURY DIVESTED TRANSACTION
HISTORICAL HISTORICAL BUSINESSES ADJUSTMENTS COMBINED
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Sales $ 1,771 $ 1,295 $ (126) $ (B) $ 2,940
Cost of sales 720 773 (64) 1,429
Selling, general and administrative 739 423 (39) (52)(C) 1,071
Interest, net 49 159 (66)(D) 142
Unusual items (15) 36 21
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Earnings before taxes and earnings (losses) of
joint ventures 278 (96) (23) 118 277
Income tax expense (benefit) 95 (12) (10) 31(E) 104
Earnings (losses) from joint ventures 8 10 (3) 15
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Earnings before cumulative effect of
change in acounting principle 191 (74) (16) 87 188
Cumulative effect of change in accounting principle (3) (3)
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Net earnings $ 188 $ (74) $ (16) $ 87 $ 185
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Earnings per share - basic:
Earnings before cumulative effect of
change in acounting principle 0.67 N/A N/A N/A 0.52
Cumulative effect of change in accounting principle (0.01) N/A N/A N/A (0.01)
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Net earnings $ 0.66 N/A N/A N/A $ 0.51
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Average number of common shares - basic 284.7 N/A N/A 79.0(F) 363.7
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Earnings per share - diluted:
Earnings before cumulative effect of
change in acounting principle 0.65 N/A N/A N/A 0.50
Cumulative effect of change in accounting principle (0.01) N/A N/A N/A (0.01)
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Net earnings $ 0.64 N/A N/A N/A $ 0.49
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Average number of common shares - assuming dilution 294.8 N/A N/A 79.0(F) 373.8
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PRO FORMA COMBINED STATEMENT OF EARNINGS
Year Ended May 27, 2001
(in millions, except per share data) (unaudited)
PRO FORMA(A)
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GENERAL MILLS PILLSBURY DIVESTED MERGER
HISTORICAL HISTORICAL BUSINESSES ADJUSTMENTS COMBINED
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Sales $ 7,078 $ 6,067 $ (653) $ (B) $12,492
Cost of sales 2,841 3,434 (335) 5,940
Selling, general and administrative 3,068 1,994 (190) (208)(C) 4,664
Interest, net 206 681 (307)(D) 580
Unusual items (35) 44 9
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Earnings before taxes and earnings (losses) of
joint ventures 998 (86) (128) 515 1,299
Income tax expense (benefit) 350 54 (52) 141 (E) 493
Earnings (losses) from joint ventures 17 26 43
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Net earnings $ 665 $ (114) $ (76) $ 374 $ 849
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Earnings per share - basic $ 2.34 N/A N/A N/A $ 2.34
Average number of common shares 283.9 N/A N/A 79.0(F) 362.9
Earnings per share - diluted $ 2.28 N/A N/A N/A $ 2.29
Average number of common shares - assuming dilution 292.0 N/A N/A 79.0(F) 371.0
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Notes to Pro Forma Combined Statements of Earnings (dollar amounts in millions)
(A) The accompanying pro forma combined statement of earnings for the year
ended May 27, 2001 combines the General Mills consolidated statement of
earnings for the 52 weeks ended May 27, 2001 with the Pillsbury combined
statement of earnings for the year ended June 30, 2001, as if the
acquisition had been consummated at May 29, 2000. The accompanying pro
forma combined statement of earnings for the 13 weeks ended August 26, 2001
combines the General Mills consolidated statement of earnings for the 13
weeks ended August 26, 2001 with the Pillsbury combined statement of
earnings for the 3 months ended June 30, 2001, as if the acquisition had
been consummated at May 28, 2001. The Pillsbury historical statement of
earnings includes those revenues and expenses either directly attributable
to Pillsbury or that have been allocated based upon methods considered
reasonable by Diageo's management. Adjustments are made to the pro forma
combined statements of earnings to eliminate revenues and expenses
associated with businesses divested or to be divested. The pro forma
combined statements of earnings do not include pro forma adjustments to
reflect cost savings from synergies which may be realized subsequent to the
acquisition. One-time, nonrecurring transaction and integration costs
associated with the acquisition are not reflected in these pro forma
combined statements of earnings. A final determination of the required
purchase accounting adjustments has not yet been made, and the earnings
results will vary from these pro forma earnings shown.
(B) Sales (and the implicit selling prices) are all as reported historically,
and have not been adjusted for any price changes.
(C) This adjustment represents the elimination of Pillsbury amortization of
intangibles. Since the study to determine the fair value of certain of
Pillsbury's assets and liabilities is not yet complete, the excess purchase
price has not been allocated to any intangible assets other than goodwill.
Therefore there is no additional amortization expense included in the pro
forma combined statements of earnings. When the study is complete and fair
value amounts are assigned to identifiable intangibles with definite lives,
there will be additional amortization expense included in the combined
statement of earnings, however we do not anticipate such amortization to be
material.
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(D) The interest adjustment for the 13 weeks ended August 26, 2001 of a
reduction of $66 represents (1) the elimination of $154 of Pillsbury
interest expense on its payables to affiliates and (2) the addition of $88
for estimated interest expense (assuming a rate of 6.7%) for the debt that
will ultimately be included on the General Mills balance sheet as a result
of the Pillsbury acquisition and related divestitures.
The interest adjustment for the year ended May 27, 2001 of a reduction of
$307 represents (1) the elimination of $661 of Pillsbury interest expense
on its payables to affiliates and (2) the addition of $354 for estimated
interest expense (assuming a rate of 6.7%) for the debt that will
ultimately be included on the General Mills balance sheet as a result of
the Pillsbury acquisition and related divestitures.
The assumed interest rate is consistent with the Company's anticipated
effective interest rate considering the interest rate swaps entered into in
anticipation of the Pillsbury acquisition.
(E) The adjustment to tax expense results from providing taxes at a 37.0% rate
(net combined federal and state) on the pro forma pretax interest
adjustment. Any income tax benefit that Pillsbury had recorded associated
with its amortization of intangibles is also eliminated.
(F) This adjustment reflects (1) the 134 million shares of General Mills Common
Stock issued to Diageo in the acquisition less (2) the 55 million shares
immediately repurchased from Diageo under a put option exercised by Diageo.
For purposes of the pro forma information, such shares were deemed to be
outstanding for the entire period.
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