Milling & Baking News - April 13, 2004 - 14

B U S I N E S S

General Mills sheds more light
on inquiry into sales practices
NEW YORK - General Mills, Inc. last
week offered greater insight concerning
the Securities and Exchange Commission's
investigation into its sales practices, while
industry analysts urged the company to
settle the case in a timely fashion.
In its quarterly filing with the S.E.C.,
General Mills detailed the concerns that
prompted the agency to begin its investigation last October. At that time, some
analysts surmised that the inquiry focused on the potential sale of the company's stake in Diageo P.L.C., from which it
purchased Pillsbury two years ago.
The S.E.C. in early February filed
notice that it would recommend civil
action against General Mills. By then,
allegations from a former General Mills
manager indicated the investigation
likely centered on so-called "trade loading," a commonly used sales practice in
the packaged food industry. (See Milling
& Baking News of Feb. 3, Page 10.)

Indeed, the quarterly filing last week
confirmed that the S.E.C.'s staff does not
think the company adequately discloses
the "practice of 'loading' at the end of
fiscal quarters to help meet internal sales
targets or the impact of such quarterend 'loading' on current and future
period results of operations."
The filing explained that the
term "loading" refers to discounts
or other promotional programs
that encourage retailers and
wholesalers to boost purchases
of General Mills products.
In addition, the filing stated
that the S.E.C. thinks the company
has "misstated" its policy on product
returns.
The S.E.C.'s February notice, called
a Wells Notice, also covers actions by
Stephen W. Sanger, the company's chief
executive, and James Lawrence, chief
financial officer.

Former I.B.C. director and son
settle insider trading charges
WASHINGTON - The Securities and Exchange Commission on April 7 filed a settled
civil injunctive suit against a former director of
Interstate Bakeries Corp. and his son, a stock
broker, alleging insider trading in I.B.C. stock.
The complaint alleged that E. Garrett
(Garry) Bewkes Jr., while a director of I.B.C.,
received adverse material non-public information in advance of a company board
of directors' meeting and advised his son,
Robert D. Bewkes, to sell his I.B.C. stock.
"Approximately 10 minutes after receiving that advice, Robert Bewkes sold more
than 16,000 shares of I.B.C. owned by himself, his family and a number of clients," the
S.E.C. said.
Garry Bewkes, 76, was a member of the
Interstate Bakeries board of directors from
1992 until July 2, 2003. Robert Bewkes, 48,

was a broker from 1991 until June 30, 2003.
According to the S.E.C. complaint, on Jan.
29, 2003, a few days prior to a scheduled
I.B.C. board meeting, Garry Bewkes received
"a highly confidential I.B.C. report detailing
the company's deteriorating financial condition. On Feb. 2, 2003, the day before the
board meeting, Garry Bewkes telephoned
Robert Bewkes, told him that I.B.C.'s business was 'lousy' and advised him to sell any
I.B.C. stock that Robert Bewkes owned."
The S.E.C. complaint said that within 10
minutes of that phone call, Robert Bewkes
sold 16,230 shares of I.B.C. stock owned by
himself, family members and clients at prices ranging from $14.30 to $14.42 per share.
"On Feb. 12, 2003, I.B.C. announced a reduction in its estimates for earnings during
fiscal year 2003 from $1.30 per share to 90c

Standard and Poor's lowers New World
Restaurant Group's ratings; outlook 'negative'
NEW YORK - Standard and Poor's
Ratings last week lowered its ratings on
Golden, Colo.-based New World Restaurant
Group Inc. to CCC+ from B- and noted that
the outlook for the company is "negative."
S.&P. said that the rating action was
based on New World's declining operating
performance and very limited liquidity.
S.&P. further noted that the competitive
restaurant market and changing consumer
14 / Milling & Baking News, April 13, 2004

preferences to low-carbohydrate diets had
pressured the company's performance.
New World has a particularly strong
vulnerability to the low-carbohydrate craze
due to its reliance on a single primary product, bagels, the ratings service said.
Same-store sales at New World fell 3.5%
in 2003 while operating margins dropped to
13.6% from 15.5% the year before.
New World has $6.5 million in available

Mr. Sanger has repeatedly denied
that he or the company engaged in
any wrongdoing, and last week's filing
stated that "it is not possible to predict
how long the investigation will continue
or whether the S.E.C. will bring any legal
action against the company."
Industry analysts have suggested that
the company negotiate a settlement with
the agency to avoid restlessness on the
part of investors and customers.
"If our reading is correct, the
remedy appears to be some modest reshuffling/restatement of results," David Nelson, an industry
analyst with Credit Suisse First
Boston, wrote in a research report.
"(That's) not a big problem. The
problem for investors is that this
investigation continues to drag on.
"We note that the closure on the
Pillsbury acquisition took a lengthy 16
months due to intransigence by General
Mills with the Federal Trade Commission over rights to the Dough Boy icon
- over which time the value of Pillsbury
deteriorated." MBN

to 95c per share," the S.E.C. complaint said.
"On that day, the price of I.B.C. stock fell from
$13.64 per share to $10.22 per share. By selling
16,230 shares of I.B.C. stock on Feb. 3, 2003,
Robert Bewkes, his family and his clients
avoided losses of approximately $67,517."
Simultaneously with the filing of the Commission's complaint in U.S. District Court for
the Southern District of New York, Garry
Bewkes and Robert Bewkes, without admitting or denying the allegations, consented to
the entry of final judgments enjoining them
from future antifraud violations, the S.E.C.
said. Garry Bewkes was ordered to pay a
civil penalty of $67,517, plus prejudgment
interest; Robert Bewkes was ordered to pay
$67,517 in disgorgement and a civil penalty
of $67,517, plus prejudgment interest.
Robert Bewkes also consented to the
entry of a Commission order barring him
from association with any broker, dealer, or
investment adviser, with a right to reapply
after five years. MBN

cash, $14 million of availability on the company's revolving credit facility and more
than $21 million in interest payments due
by July 2004. The company has $2.1 million
of maturities due in 2004.
"The ratings on New World reflect the
risks associated with the company's relatively small size in the highly competitive
restaurant industry, its reliance on a single
primary product and day part, weak cash
flow protection measures, and a highly leveraged capital structure," said S.&P.'s credit
analyst Robert Lichtenstein. MBN
bakingbusiness.com / world-grain.com

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Milling & Baking News - April 13, 2004

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