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EXHIBIT 99.1
PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Combined Financial Statements
June 30, 2001 and 2000
(With Independent Auditors' Report Thereon)
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
General Mills, Inc.:
We have audited the accompanying Combined Statements of Direct Assets of the
Pillsbury Retail and Foodservice Businesses and Other Businesses of General
Mills, Inc. as of June 30, 2001 and 2000 and the related Combined Statements of
Direct Earnings Before Interest and Taxes of the Pillsbury Retail and
Foodservice Businesses and Other Businesses of General Mills, Inc. for each of
the years in the three-year period ended June 30, 2001. These financial
statements are the responsibility of the management of General Mills, Inc. 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 combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the combined financial statements. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the direct assets of the Pillsbury Retail and Foodservice
Businesses and Other Businesses of General Mills, Inc. as of June 30, 2001 and
2000, and the related direct earnings before interest and taxes of the Pillsbury
Retail and Foodservice Businesses and Other Businesses of General Mills, Inc.
for each of the years in the three-year period ended June 30, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
December 14, 2001
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PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Combined Statements of Direct Assets
(In thousands)
<Table>
<Caption>
Sept. 30, June 30, June 30,
2001 2001 2000
----------- -------- --------
(unaudited)
Assets:
Inventories $74,799 60,138 58,376
Prepaid expenses 2,191 1,698 2,234
------- ------- -------
Total current assets 76,990 61,836 60,610
Repair parts inventory 482 495 489
Machinery and equipment, net 22,465 23,515 26,082
------- ------- -------
Total assets 99,937 85,846 87,181
------- ------- -------
Liabilities:
Accrued consumer promotions 5,539 4,799 5,850
------- ------- -------
Total liabilities 5,539 4,799 5,850
------- ------- -------
Net direct assets $94,398 81,047 81,331
======= ======= =======
</Table>
See accompanying notes to combined financial statements.
2
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PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Combined Statements of Direct Earnings Before Interest and Taxes
(In thousands)
<Table>
<Caption>
Three Months Ended Year Ended
------------------- -----------------------------
Sept. 30, Sept. 30, June 30, June 30, June 30,
2001 2000 2001 2000 1999
-------- -------- ------- -------- --------
(unaudited)
Direct revenues, net $135,213 155,041 616,415 625,163 601,875
Cost of goods sold 74,285 84,592 334,979 346,746 333,716
-------- -------- -------- -------- --------
Gross margin 60,928 70,449 281,436 278,417 268,159
Advertising and sales
promotions 33,140 34,860 150,233 148,798 133,823
Brokerage 1,762 1,929 8,089 4,384 3,664
Direct selling,
administrative, and other 6,747 6,837 29,049 33,849 39,631
-------- -------- -------- -------- --------
Direct earnings before
interest and taxes $ 19,279 26,823 94,065 91,386 91,041
======== ======== ======== ======== ========
</Table>
See accompanying notes to combined financial statements.
3
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PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Notes to Combined Financial Statements
June 30, 2001 and 2000
(1) DESCRIPTION OF BUSINESS
International Multifoods Corporation (the "Buyer") has entered into an
Amended Asset Purchase and Sale Agreement (the "Agreement"), dated
October 24, 2001, with General Mills, Inc. ("General Mills") and The
Pillsbury Company ("Pillsbury"). The Agreement provides, among other
things, for the purchase of certain assets and assumption of certain
liabilities of Pillsbury and General Mills (together, the "Company"),
pertaining to the Retail and Foodservice businesses of Pillsbury (the
"Pillsbury Businesses") and certain flour and meals businesses of
General Mills (the "Other Businesses") (collectively the "Combined
Businesses"). The Retail business included in the combined statements
of direct earnings before interest and taxes consists of Pillsbury
Desserts & Baking Mixes, Martha White Desserts and Baking Mixes, and
Hungry Jack Potatoes and Dry Breakfast products including certain
international export sales in Puerto Rico, U.S. Virgin Islands, and
Mexico. Product offerings include several hundred SKUs across a broad
spectrum of dessert, muffin, quick bread, biscuit, and pancake mixes
that are formulated and packaged specifically for use in retail
operations. The Foodservice business included in the combined
statements of direct earnings before interest and taxes consists of
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. Product offerings include approximately 100 SKUs across a broad
spectrum of dessert, muffin, roll, biscuit, and griddle mixes that are
formulated and packaged specifically for use in foodservice operations.
The Other Businesses included in the combined statements of direct
earnings before interest and taxes consist of the Robin Hood, Red Band,
LaPina and Softasilk flour brands, the Pet Milk Brand, and Farmhouse
Food brand products. Product offerings include approximately 65 SKUs
across a broad spectrum of flour and meals products that are formulated
and packaged specifically for use in retail operations. The
accompanying combined statements present the direct assets as of June
30, 2001 and 2000 of the Pillsbury Businesses and Other Businesses and
direct revenue, costs of goods sold, advertising and sales promotion
expenses, brokerage expenses, and direct selling, administrative, and
other expenses for the years ended June 30, 2001, 2000, and 1999 for
the Pillsbury Businesses and Other Businesses. The production of the
Retail and Foodservice businesses is primarily performed at plants in
Murfreesboro, Tennessee and Martel, Ohio, respectively. However, there
are other Pillsbury manufacturing and distribution operations at these
plants. At these shared sites, only the dedicated assets that are
directly used in the businesses being sold are included in the combined
statements of direct assets. Only certain of these direct assets will
be sold under the Agreement. The revenues of the Pillsbury Businesses
are primarily generated by sales within the United States.
The production of the Other businesses is primarily performed at plants
in Lodi and Vallejo, California and various co-pack facilities in the
United States. However, there are other General Mills manufacturing and
distribution operations at these California plants. At these shared
sites, only the dedicated assets that are directly used in the
businesses being sold are included in the combined statements of direct
assets. Only certain of these direct assets will be sold under the
Agreement. The revenues of the Other Businesses are primarily generated
by sales within the United States
4
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PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Notes to Combined Financial Statements
June 30, 2001 and 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) BASIS OF PRESENTATION - PRINCIPLES OF COMBINATION
The accompanying statements have been prepared on the accrual basis of
accounting. The accompanying statements may not necessarily reflect the
results of operations of the Combined Businesses in the future.
The Company does not account for the Combined Businesses as a separate
entity. Accordingly, the information included in the accompanying
financial statements has been obtained from the consolidated financial
records of Pillsbury and General Mills, respectively. The statements of
direct earnings before interest and taxes include allocations as
discussed below. The Company's management believes that the allocations
are reasonable; however, these allocated expenses are not necessarily
indicative of costs that would have been incurred by the Combined
Businesses on a stand-alone basis because certain other selling,
administrative, and other expenses are provided to the Combined
Businesses that are not included in the accompanying statements as
discussed below. Interest and tax expense have not been included in the
statements of direct earnings before interest and taxes, as these
expenses are not specifically identifiable to the Combined Businesses.
The statements of direct earnings before interest and taxes include
allocations of certain plant costs, as discussed below. The Company's
management believes these allocations are reasonable; however, these
allocated costs may not be indicative of costs that would have been
incurred by the Combined Businesses on a stand-alone basis because
these allocated costs are based on the structure of certain plant
operations and related activities, as managed and operated by the
Company.
The statements of direct earnings before interest and taxes includes
depreciation expense related to the Company facilities that produced
the products.
The statements of direct earnings before interest and taxes for the
years ended June 30, 2000 and 1999 have been adjusted to include
certain allocations to conform with the presentation for the year ended
June 30, 2001.
The Other Businesses of General Mills are included in the statements of
direct earnings before interest and taxes and the statements of net
direct assets on a one-month lag.
(b) INVENTORIES
Raw materials and supplies consist of all ingredients and packaging of
the Combined Businesses at the Company's Martel, Ohio, Murfreesboro,
Tennessee and Lodi and Vallejo, California production facilities and
ingredients and packaging at co-pack facilities. Finished product
inventories represent all finished products of the Combined Businesses
maintained at the Company's various production facilities and
third-party distribution centers.
Inventories are stated at the lower of cost or market. Cost is
determined primarily using the last-in, first-out (LIFO) method.
5
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PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Notes to Combined Financial Statements
June 30, 2001 and 2000
(c) PREPAID EXPENSES
Prepaid expenses primarily represent payments made through June 30 of
each respective year relating to advertising and promotion programs
which will be executed subsequent to June 30 of each respective year.
(d) REPAIR PARTS INVENTORY
Repair parts inventory represents spare parts for capitalized
equipment, primarily tooling lines. Storeroom parts inventory is valued
on an average cost basis and the parts are expensed as they are used.
As equipment is removed or replaced, the associated parts are reviewed
for obsolescence and written off as necessary.
(e) MACHINERY AND EQUIPMENT
Machinery and equipment represents certain fixed assets located at the
Company's Martel, Ohio, Murfreesboro, Tennessee and Lodi and Vallejo,
California production facilities that are directly used in the
businesses.
Machinery and equipment is stated at historical cost, net of
accumulated depreciation directly related to the fixed assets.
Alterations and major overhauls which extend the lives or increase the
capacity of the assets are capitalized. Maintenance repairs and minor
renewals are expensed as incurred. Depreciation is computed using the
straight-line method over the estimated useful lives, primarily within
the range from 3 to 20 years for machinery and equipment.
(f) ACCRUED CONSUMER PROMOTIONS
Accrued consumer promotions consist primarily of coupon liabilities for
the Retail business. An accrual is established at the time the
promotion is made available to the consumer. Coupon liabilities
represent the full amount of the liability at each respective year-end.
The Buyer will assume any liabilities for manufacturer's coupons issued
prior to, or on, the closing date of the Agreement and relating to the
Pillsbury Businesses, which coupons are received by the clearinghouse
for reimbursement beginning sixty days after the closing date of the
Agreement.
(g) REVENUE RECOGNITION
Revenue from the sale of products is recognized at the time the
products are shipped. Direct revenue includes gross sales less cash
discounts which generally are 2% of gross sales, special pricing
agreement discounts, and adjustments for sales returns and unsaleables
for the Pillsbury Businesses products.
(h) COST OF GOODS SOLD
Cost of goods sold includes costs of materials, labor, overhead, and
distribution. Overhead allocations are based on estimated time spent by
employees, relative use of facilities, and other related costs.
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PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Notes to Combined Financial Statements
June 30, 2001 and 2000
Certain other corporate overhead functions are provided to the Combined
Businesses by the Company and are not directly attributable or
specifically identifiable to the Combined Businesses and, therefore,
have been excluded from product costs in the accompanying statements.
These expenses primarily include the Company's corporate related
expenses, such as engineering and safety, and corporate production
expenses.
(i) ADVERTISING AND SALES PROMOTIONS (A&SP)
Retail A&SP spending represents advertising, consumer promotions,
variable trade, and fixed trade costs. The A&SP applicable to the
above-referenced SKUs which is included in the statements is specific
to the SKUs and does not include general Pillsbury costs such as
cross-business promotions and shared allocations.
Foodservice A&SP spending represents promotional, advertising, and
other marketing expenses classified as trade and non-trade spending.
Costs specifically identified at the SKU level were included, while
remaining costs were allocated. The trade spending applicable to the
above-referenced SKUs was determined using an allocation method that
was based upon the ratio of total gross sales of all of the SKUs in the
Foodservice Business. Non-trade spending was allocated to the
Foodservice Business based on identified costs.
Other Businesses A&SP spending represents promotional, advertising, and
other marketing expenses classified primarily as trade spending. Costs
specifically identified at the SKU level were included, while remaining
costs were allocated. The trade spending applicable to the
above-referenced SKUs was primarily determined using an allocation
method that was based upon the ratio of total gross sales of all of the
SKUs in the respective Other Businesses.
(j) BROKERAGE
Brokerage spending is a direct cost identified at the SKU level.
(k) DIRECT SELLING, ADMINISTRATIVE, AND OTHER
Retail costs include direct expenses for selling, administrative, and
research and development that are specifically identifiable to the
Retail business. There are other allocations for administration
allocated to the Retail business based on net sales for the Retail
business compared to total sales for the Pillsbury North America
division. These allocated expenses represent charges that are
attributable to the Retail business and include Pillsbury North America
division's related expenses for human resources, finance, and
operations. Other administrative expenses, which are managed at a
Pillsbury corporate level, are not directly attributable to the Retail
business and, therefore, have been excluded from the accompanying
combined statements. Such expenses include central management systems,
corporate strategy and finance, facilities rent and security, and
government and corporate affairs.
7
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PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Notes to Combined Financial Statements
June 30, 2001 and 2000
Foodservice costs include direct expenses for selling, administrative,
and research and development that are specifically identifiable to
Foodservice products. There are other allocations for administration
allocated to Foodservice products based on sales of the Foodservice
products business compared to total sales for the Pillsbury Bakeries
and Foodservice division. These allocated expenses represent charges
that are attributable to Foodservice products and include Pillsbury
Bakeries and Foodservice division's related expenses for human
resources, finance, and operations. Other administrative expenses,
which are managed at a Pillsbury corporate level, are not directly
attributable to Foodservice products and, therefore, have been excluded
in the accompanying statements. Such expenses include central
management systems, corporate strategy and finance, facilities rent and
security, and government and corporate affairs.
Other Businesses costs include direct expenses for selling,
administrative, and research and development that are specifically
identifiable to their respective products. There are other allocations
for administration allocated to Other Businesses products based on
sales for the respective products compared to total sales for the
respective divisions. These allocated expenses represent charges that
are attributable to the respective Other Businesses products and
include each division's related expenses for human resources, finance,
marketing, operations and corporate management functions.
(l) ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective July 1, 2000, the Pillsbury Businesses adopted 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, the Pillsbury
Businesses 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 $440 thousand. This amount was recorded
as a charge to earnings during the year ended June 30, 2001. The Other
Businesses do not directly utilize any derivatives for hedging
activities.
(m) 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 amounts
reported in the financial statements and accompanying disclosures.
Actual results could differ from these estimates. Also, as discussed in
note 2(a), these financial statements include allocations and estimates
that are not necessarily indicative of the costs and expenses that
would have resulted if the Combined Businesses had been operated as a
separate entity, or of the future results of the Combined Businesses.
8
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PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Notes to Combined Financial Statements
June 30, 2001 and 2000
(3) INVENTORIES
The components of inventories are as follows (in thousands):
<Table>
<Caption>
2001 2000
---------- ----------
Raw materials $ 6,907 6,809
Finished goods 53,231 51,567
---------- ----------
$ 60,138 58,376
========== ==========
</Table>
The carrying value of inventories approximates current cost. Raw materials,
which have been allocated based on usage during the preceding year, for
Pillsbury Businesses are $5.1 million and $3.6 million at June 30, 2001
and 2000, respectively.
(4) DERIVATIVES
The Pillsbury Businesses are exposed to risk from fluctuating prices for
grain products used in the manufacturing process. The Pillsbury
Businesses hedge a portion of this risk through the use of commodity
futures and options contracts. These derivatives are recorded as assets
and liabilities with changes in values recorded in earnings currently.
At June 30, 2001, the Pillsbury Businesses had a series of futures and
option contracts outstanding through October 2001 with contract values of
$10.5 million. The unrealized net losses on these derivative contracts
recorded in cost of goods sold at June 30, 2001 was $711 thousand.
(5) MACHINERY AND EQUIPMENT
The components of machinery and equipment are as follows (in thousands):
<Table>
<Caption>
2001 2000
-------- --------
Machinery and equipment $ 59,066 59,157
Construction in process 1,280 711
-------- --------
60,346 59,868
Less accumulated depreciation (36,831) (33,786)
-------- --------
$ 23,515 26,082
======== ========
</Table>
9
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PILLSBURY RETAIL AND FOODSERVICE BUSINESSES
AND OTHER BUSINESSES OF GENERAL MILLS, INC.
Notes to Combined Financial Statements
June 30, 2001 and 2000
(6) COMMITMENTS AND CONTINGENCIES
(a) LEGAL PROCEEDINGS
From time to time, the Combined Businesses may be subjected to certain
lawsuits and claims, and other actions arising in the normal course of
business. Such lawsuits and claims to the extent they relate to
activities of the Company through the closing date, as defined in the
Agreement, are the responsibility of the Company.
(b) COMMITMENTS
Certain products of the Retail business are manufactured by third
parties, and International Multifoods Corporation will assume
Pillsbury's co-packing agreements with these third parties.
Under the terms of the Agreement, approximately one year from the date
of the closing of the Agreement, the Company will sell to International
Multifoods Corporation its plant in Toledo, Ohio for $11.5 million. In
order to comply with the Agreement and close the sale of the plant, the
Company is committed to installing new production assets over the next
12 months at an estimated cost of approximately $70 million.
10