Back to GetFilings.com





SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

(X)    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003.

( )    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ____________.

Commission file number: 1-12619


Ralcorp Holdings, Inc.
(Exact name of registrant as specified in its charter)
 

 
Missouri
 
43-1766315
(State of Incorporation)
 
(I.R.S. Employer
 
 
Identification No.)
 
 
 
800 Market Street, Suite 2900
 
 
St. Louis, MO
 
63101
(Address of principal
 
(Zip Code)
executive offices)
 
 

(314) 877-7000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (x) No ( )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act). Yes (x) No ( )

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Common Stock
 
Outstanding Shares at
par value $.01 per share
 
February 12, 2004
 
 
29,084,835
 
     
 
RALCORP HOLDINGS, INC.

INDEX

 
 
PAGE
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Condensed Consolidated Statement of Earnings
1
     
 
Condensed Consolidated Statement of Comprehensive Income
1
     
 
Condensed Consolidated Balance Sheet
2
 
 
 
 
Condensed Consolidated Statement of Cash Flows
3
 
 
 
 
Notes to Condensed Consolidated Financial Statements
4
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial
 
 
Condition and Results of Operations
10
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
15
 
 
 
Item 4.
Controls and Procedures
15
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 5.
Other Information
16
 
 
 
Item 6.
Exhibits and Reports on Form 8-K
16







(i)
 
 
     
 
PART I.  FINANCIAL INFORMATION
 
Item 1.  Financial Statements.
 
RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
(Dollars in millions except per share data)
 
 
   

Three Months Ended

 

December 31,

 

  

 2003

 

 2002

Net Sales

  

$

362.5

   

$

348.3

 

Cost of products sold

  

(291.9  )

 

(279.8 )

Gross Profit

    

70.6

     

68.5

 

Selling, general and administrative expenses

    

(45.0

)

    

(40.2

)

Interest expense, net

    

(1.7

)

    

(1.1

)

Restructuring charges

    

(.3

)

    

(7.2

)

Litigation settlement income

  

-    

5.7   

Earnings before Income Taxes

    

 

      

 

  

  and Equity Earnings

    

23.6

     

25.7

 

Income taxes

  

(8.6  )

 

(9.2  )

Earnings before Equity Earnings

    

15.0

     

16.5

 

Equity in loss of Vail Resorts, Inc.,

    

 

      

 

  

  net of related deferred income taxes

  
(3.3  )
  
(3.2  )
Net Earnings  

$

 11.7     $ 13.3  
   
 

Earnings per Share

   

 

      

 

  

  Basic

  

$

.41

   

$

.45

 

  Diluted

  

$

.39

   

$

.44

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 
RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in millions)
 

 

  

Three Months Ended

 

  

December 31,

 

  

2003

 

2002

   

 

    

 

  

Net Earnings

  

$

11.7

 

$

13.3

 

Other comprehensive income (loss)

  

.9

 

(.7  )

Comprehensive Income

  

$                  12.6

 

$                   12.6

   
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
   1  
 
RALCORP HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in millions)
 
   

Dec. 31, 

 

 

 

Sep. 30,

 

 

 

2003

 

 2003

Assets

    

 

      

 

  

  Current Assets

    

 

      

 

  

    Cash and cash equivalents

  

$

28.5

   

$

29.0

 

    Investment in Ralcorp Receivables Corporation

    

42.5

     

52.4

 

    Receivables, net

    

21.7

     

10.9

 

    Inventories

    

159.3

     

145.7

 

    Deferred income taxes

    

2.7

     

2.9

 
    Prepaid expenses and other current assets     4.3        3.0  
   
 

      Total Current Assets

    

259.0

     

243.9

 

  Investment in Vail Resorts, Inc.

    

75.1

      

80.1

 

  Property, Net

    

332.3

     

265.3

 

  Goodwill

    

399.1

     

177.6

 

  Other Intangible Assets, Net

    

                     15.4

      

15.7

 
  Other Assets     13.3       11.7  
   
 
       Total Assets   $ 1,094.2     $ 794.3  
   
 

Liabilities and Shareholders' Equity

    

 

      

 

  

  Current Liabilities

    

 

      

 

  

    Accounts payable

  

$

75.0

   

$

85.1

 

    Other current liabilities

  

                          57.1

 

                          45.6

   
 

      Total Current Liabilities

    

132.1

     

130.7

 

  Long-term Debt

    

425.9

     

155.9

 

  Deferred Income Taxes

    

32.3

     

20.0

 
  Other Liabilities     77.7       75.0  
   
 
      Total Liabilities     668.0       381.6  
   
 

  Shareholders' Equity

    

 

      

 

  

    Common stock

    

.3

     

.3

 

    Capital in excess of par value

    

114.3

     

114.1

 

    Retained earnings

    

405.5

     

393.8

 

    Common stock in treasury, at cost

    

(76.2

)

    

(76.9

)

    Unearned portion of restricted stock     (.1 )     (.1 )
    Accumulated other comprehensive loss     (17.6 )     (18.5 )
   
 
      Total Shareholders' Equity     426.2       412.7  
   
 
      Total Liabilities and Shareholders' Equity   $ 1,094.2     $ 794.3   
      
 

See accompanying Notes to Condensed Consolidated Financial Statements.    

 

 

   2  
 
 
RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in millions)
 
 

Three Months Ended

 

December 31,

 

2003

 

2002

Cash Flows from Operating Activities

  

 

      

 

  

  Net earnings

$

11.7

   

$

13.3

 

  Adjustments to reconcile net earnings to net

  

 

      

 

  

    cash flow provided by operating activities:

  

 

      

 

  

      Depreciation and amortization

  

9.9

     

10.9

 

      Impairment and loss on sale of business

  

-

     

5.0

 

      Equity in loss of Vail Resorts, Inc.

  

5.0

     

4.9

 

      Deferred income taxes

  

(2.2

)

    

(4.8

)

      Sale of receivables, net

  

5.4

     

4.4

 

      Changes in current assets and liabilities, net

  

(9.3

)

    

26.6

 

      Other, net

                      3.5

 

                         -

      Net Cash Provided by Operating Activities

                    24.0
                     60.3

Cash Flows from Investing Activities

  

 

      

 

  

  Business acquisitions, net of cash acquired

  

(287.2

)

    

-

 

  Additions to property and intangible assets

  

(8.0

)

    

(6.2

)

  Proceeds from sale of property

                           -
                       2.4
      Net Cash Used by Investing Activities   (295.2 )     (3.8 )
  

Cash Flows from Financing Activities

  

 

      

 

  

  Proceeds from issuance of long-term debt

  

270.0

     

-

 

  Net repayments under credit arrangements

  

-

     

(25.2

)

  Purchase of treasury stock
  
-
     
(27.8
)
  Proceeds from exercise of stock options
                        .7
 
                        .1
     Net Cash Provided (Used) by Financing Activities   270.7       (52.9 )
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
  
(.5
)
    
3.6
 
Cash and Cash Equivalents, Beginning of Period

                    29.0

 

                     3.2

Cash and Cash Equivalents, End of Period

$                  28.5

  

$                   6.8

 
 
 

See accompanying Notes to Condensed Consolidated Financial Statements.  

 
 
 
   3  
 
 

RALCORP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions except per share data)

NOTE 1 – PRESENTATION OF CONDENSED FINANCIAL STATEMENTS

The accompanying unaudited historical financial statements of the Company have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the periods presented. All such adjustments are of a normal recurring nature. Operating results for the periods presented are not necessarily indicative of the results for the full year. Certain prior year amounts have been reclassified to conform with the current year’s presentation. These statements should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 2003.

NOTE 2 – RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2003, the Financial Accounting Standards Board revised Statement of Financial Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” The revision modifies the disclosure requirements for annual financial statements and adds disclosure requirements for interim financial statements. The revised statement will be effective for Ralcorp beginning with its financial statements for the quarter ending March 31, 2004.

NOTE 3 – ACQUISITION

On December 3, 2003, the Company completed the purchase of 100 percent of the stock of Value Added Bakery Holding Company, also known as Bakery Chef. Bakery Chef is a leading manufacturer of frozen griddle products (pancakes, waffles, and French toast) and pre-baked biscuits and breads. The acquisition provides a platform for increasing Ralcorp’s existing access to the food service channel and allows entry into the frozen food segment.

Through December 31, 2003, Ralcorp paid a total of $287.3 related to the acquisition, including amounts paid to the former owners and holders of Bakery Chef’s outstanding indebtedness, as well as investment advisory fees, legal fees, and other related costs. During the second quarter, Ralcorp will pay an additional amount (expected to be less than $3.0) representing a final net asset settlement. Based on a preliminary allocation of the acquisition cost to assets acquired and liabilities assumed, the Company recorded $221.5 to goodwill as of December 31, 2003. That allocation is subject to change pending the completion of appraisals, analyses, and other tasks necessary to determine the fair values of those assets and liabilities. The Company plans to finalize the allocation by the end of the second quarter.

Ralcorp’s consolidated financial statements include Bakery Chef’s results of operations since the acquisition date, reported as the “Frozen Pancakes, Biscuits & Breads” segment. The following pro forma information discloses Ralcorp’s results of operations as though the business combination had been completed as of the beginning of each period presented. These pro forma results do not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations. They include an assumed allocation of $80 of the acquisition cost to intangibles subject to amortization with an assumed useful life of fifteen years, although nothing has been allocated to such intangibles as of December 31, 2003.

 
Three Months Ended
 
December 31,

 

 2003

 

2002 
Net sales
$       394.0
 
$        391.9
Net earnings
           13.2
 
            15.9
Basic earnings per share
             .46
 
              .53
Diluted earnings per share
             .44
 
              .52

 
  4   
 
 
NOTE 4 – STOCK-BASED COMPENSATION

Stock-based compensation is recognized using the intrinsic value method. Accordingly, no compensation expense has been recognized for the stock options granted since the exercise price was equal to the fair market value of the shares at the grant date. If the Company had used the fair value method, net earnings and earnings per share would have been reduced as shown in the following table.
 
 

Three Months Ended

 

December 31,

 

 

2003

 

2002

 

 

Net earnings, as reported

$

11.7

   

$

13.3

 

Deduct: Total stock-based employee

  

 

      

 

  

  compensation expense determined

  

 

      

 

  

  under fair value based method,

  

 

      

 

  

  net of related tax effect

            (.6 )

  

 (.6  )

  

Pro forma net earnings

$        11.1

  

$       12.7

  
 

Earnings per share:

  

 

      

 

  

  Basic - as reported

$

.41

   

$

.45

 

  Basic - pro forma

$

.38

   

$

.43

 

 

  

 

      

 

  

  Diluted - as reported

$

.39

   

$

.44

 

  Diluted - pro forma

$

.37

    

$

.42

 

 
NOTE 5 – RESTRUCTURING CHARGES

In the quarter ended March 31, 2003, Ralcorp announced its plans to close its in-store bakery (ISB) facility in Kent, WA, part of the Cereals, Crackers & Cookies segment, and transfer production to a new ISB plant located in Utah. The Company is also in the process of transferring production from two other ISB facilities located near the new plant and expects to complete the project by April of 2004. The following table details the amount included in “Restructuring charges” for the first quarter of fiscal 2004, the cumulative amount incurred through December 31, 2003, and the cumulative amount expected to be incurred through project completion. All other costs associated with this project are charged to operating expenses as incurred or capitalized, as appropriate.
 
 
Three Months
 
Cumulative
 
Expected
 
Ended
 
Through
 
Cumulative
 
Dec. 31, 2003
 
Dec. 31, 2003
 
Total
Removal and relocation of equipment
  $                  .1
 
  $               1.4
 
  $         1.9
Write-off of abandoned property
                      .2
 
                     .4
 
               .4
Operating lease termination costs
                       -
 
                   1.2
 
             1.2
Employee termination benefits
                       -
 
                     .2
 
               .2
 
 
 
 
  $                  .3
 
  $               3.2
 
  $         3.7
 
In the quarter ended December 31, 2002, the Company finalized its plans to reduce operations at its Streator, IL facility and transfer production of all product lines except peanut butter to other Dressings, Syrups, Jellies & Sauces locations. By the end of that quarter, related charges totaling $.9 were recorded and included in “Restructuring charges” on the statement of earnings. This project was completed in the third quarter of fiscal 2003 with total charges of $1.4.

 
   5  
 
Also in the quarter ended December 31, 2002, the Company sold its ketchup business, including certain equipment and inventory, and recorded a net loss on the sale of $1.3 (adjusted to $1.4 in the third quarter). Further, management determined that the resulting reduced cash flows from its tomato paste business, which had supplied the Company’s ketchup production, was less than the carrying value of its paste production facility located near Williams, CA. Accordingly, the fair value of the related fixed assets as of December 31, 2002, was assessed based on a preliminary market quote, resulting in an impairment charge of $5.0. Both of these charges are included in “Restructuring charges” on the statement of earnings. The ketchup and paste operations were both part of the Dressings, Syrups, Jellies & Sauces segment.

NOTE 6 – LITIGATION SETTLEMENT INCOME

During the three months ended December 31, 2002, the Company received payments in partial settlement of its claims related to vitamin antitrust litigation. These payments are shown net of related expenses as “Litigation settlement income” on the statement of earnings.

NOTE 7 – EARNINGS PER SHARE

The weighted-average shares outstanding for basic and diluted earnings per share were as follows (in thousands):
 
 

Three Months Ended

December 31,

 

2003

 

2002

Weighted Average Shares

 

  

 

   for Basic Earnings per Share

28,945

 

29,833

   Dilutive effect of: