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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 MARCH 31, 2004.

( )   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
 
May 12, 2004
 
 
29,227,190
 
     
 
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
11
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
17
 
 
 
Item 4.
Controls and Procedures
17
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 2. Changes in Securities and Use of Proceeds  18 
     
Item 4.
Submission of Matters to a Vote of Security Holders
18
     
Item 5.
Other Information
18
 
 
 
Item 6.
Exhibits and Reports on Form 8-K
18







 
 
 
 
 
  (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

 

Six Months Ended

 

 

March 31,

 

March 31,

 

 

 
   

2004

 

2003

 

2004

 

2003

   
 
 
 
Net Sales
  
$
383.4
   
$
314.4
   
$
745.9
   
$
662.7
 
Cost of products sold
    
(303.1
)
    
(253.9
)
    
(595.0
)
    
(533.7
)
 
 
 
 
Gross Profit
    
80.3
     
60.5
     
150.9
     
129.0
 
Selling, general and administrative expenses
    
(50.5
)
    
(42.6
)
    
(95.5
)
    
(82.8
)
Interest expense, net
    
(3.8
)
    
(.7
)
    
(5.5
)
    
(1.8
)
Restructuring charges
    
(.3
)
    
(4.0
)
    
(.6
)
    
(11.2
)
Litigation settlement income
    
.8
     
8.9
     
.8
     
14.6
 
   
 
 
 
Earnings before Income Taxes
    
 
      
 
      
 
      
 
  
  and Equity Earnings
    
26.5
     
22.1
     
50.1
     
47.8
 
Income taxes
    
(9.7
)
    
(8.0
)
    
(18.3
)
    
(17.2
)
   
 
 
 
Earnings before Equity Earnings
    
16.8
     
14.1
     
31.8
     
30.6
 
Equity in (loss) earnings of Vail Resorts, Inc.,
    
 
      
 
    
 
      
 
  
  net of related deferred income taxes
    
(.5
)
    
2.7
     
(3.8
)
    
(.5
)
   
 
 
 
Net Earnings
  
$
16.3
   
$
16.8
   
$
28.0
   
$
30.1
 
 
  
 
 
 
Earnings per Share
   
 
      
 
      
 
      
 
  
  Basic
  
$
.56
   
$
.58
   
$
.96
   
$
1.02
 
  Diluted
  
$
.54
   
$
.57
   
$
.94
   
$
1.01
 

See accompanying Notes to Condensed Consolidated Financial Statements.

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

 

 

Three Months Ended

 

Six Months Ended

 

 

March 31,

 

March 31,

 

  
 
   

2004

 

2003

 

2004

 

2003

 

  

 

 

 
Net Earnings
  
$
16.3
   
$
16.8
   
$
28.0
   
$
30.1
 
Other comprehensive income (loss)
    
.1
     
(.4
)
    
1.0
     
(1.1
)
   
 
 
 
Comprehensive Income
  
$
16.4
   
$
16.4
   
$
29.0
   
$
29.0
 
 
  
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
   1  
 
RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in millions)
 

 

Mar. 31,

 

Sep. 30,

 

2004

 

2003

 
 
Assets
  
  Current Assets
  
 
      
 
  
    Cash and cash equivalents
$
30.2
   
$
29.0
 
    Investment in Ralcorp Receivables Corporation
  
42.6
     
52.4
 
    Receivables, net
  
21.8
     
10.9
 
    Inventories
  
170.3
     
145.7
 
    Deferred income taxes
  
2.7
     
2.9
 
    Prepaid expenses and other current assets
  
4.6
     
3.0
 
 
 
      Total Current Assets
  
272.2
     
243.9
 
  Investment in Vail Resorts, Inc.
  
74.2
     
80.1
 
  Property, Net
  
338.3
     
265.3
 
  Goodwill
  
337.7
     
177.6
 
  Other Intangible Assets, Net
  
96.1
     
15.7
 
  Other Assets
  
11.3
     
11.7
 
 
 
      Total Assets
$
1,129.8
   
$
794.3
 
 
 
Liabilities and Shareholders' Equity
  
 
      
 
  
  Current Liabilities
  
 
      
 
  
   Accounts payable
$
92.1
   
$
85.1
 
   Other current liabilities
  
57.6
     
45.6
 
 
 
      Total Current Liabilities
  
149.7
     
130.7
 
  Long-term Debt
  
425.8
     
155.9
 
  Deferred Income Taxes
  
31.8
     
20.0
 
  Other Liabilities
  
77.4
     
75.0
 
 
 
      Total Liabilities
  
684.7
     
381.6
 
 
 
  Shareholders' Equity
  
 
      
 
  
    Common stock
  
.3
     
.3
 
    Capital in excess of par value
  
114.4
     
114.1
 
    Retained earnings
  
421.8
     
393.8
 
    Common stock in treasury, at cost
  
(73.6
)
    
(76.9
)
    Unearned portion of restricted stock
  
(.3
)
    
(.1
)
    Accumulated other comprehensive loss
  
(17.5
)
    
(18.5
)
 
 
      Total Shareholders' Equity
  
445.1
     
412.7
 
 
 
      Total Liabilities and Shareholders' Equity
$
1,129.8
   
$
794.3
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
   2  
 
 
RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in millions)

 

 Six Months Ended

 

March 31,

 

 

2004 

 

 2003

 

 
Cash Flows from Operating Activities
  
 
      
 
  
  Net earnings
$
28.0
   
$
30.1
 
  Adjustments to reconcile net earnings to net
  
 
      
 
  
    cash flow provided by operating activities:
  
 
      
 
  
    Depreciation and amortization
  
21.6
     
20.2
 
    Sale of receivables, net
  
(2.5
)
    
2.6
 
    Deferred income taxes
  
(2.7
)
    
(.6
)
    Equity in loss of Vail Resorts, Inc.
  
5.9
     
.8
 
    Tomato paste asset impairment
  
-
     
5.0
 
    Loss on sale of tomato paste business
  
-
     
3.5
 
    Other changes in current assets and liabilities, net
          
       of effects of business acquisitions  
4.5
      
25.2
  
    Other, net
  
5.8
     
1.3
 
 
 
      Net Cash Provided by Operating Activities
  
60.6
     
88.1
 
 
 
Cash Flows from Investing Activities
  
 
      
 
  
  Business acquisitions, net of cash acquired
  
(313.1
)
    
-
 
  Additions to property and intangible assets
  
(19.7
)
    
(16.9
)
  Proceeds from sale of property
  
.3
     
2.4
 
  Proceeds from sale of tomato paste business
  
-
     
3.0
 
 
 
      Net Cash Used by Investing Activities
  
(332.5
)
    
(11.5
)
 
 
Cash Flows from Financing Activities
  
 
      
 
  
  Proceeds from issuance of long-term debt
  
270.0
     
-
 
  Net repayments under credit arrangements
  
-
     
(42.8
)
  Purchase of treasury stock
  
-
     
(28.6
)
  Proceeds from exercise of stock options
  
3.2
     
.6
 
  Other, net
  
(.1
)
    
-
 
 
 
      Net Cash Provided (Used) by Financing Activities
  
273.1
     
(70.8
)
 
 
Net Increase in Cash and Cash Equivalents
  
1.2
     
5.8
 
Cash and Cash Equivalents, Beginning of Period
  
29.0
     
3.2
 
 
 
Cash and Cash Equivalents, End of Period
$
30.2
   
$
9.0
 
 
 
 
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. Those interim disclosures are included in Note 5.


NOTE 3 – ACQUISITIONS

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. Bakery Chef is reported as the “Frozen Pancakes, Biscuits & Breads” segment. Ralcorp paid a total of $289.3 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. Based on a preliminary allocation of the acquisition cost to assets acquired and liabilities assumed, the Company recorded $156.9 to goodwill as of March 31, 2004. The allocation is subject to change pending the comple tion of appraisals, analyses, and other tasks necessary to determine the fair values of the assets and liabilities, but the preliminary allocation included the following intangible assets subject to amortization:
 
 

Amount

  

Weighted-average

 

Assigned

  

 Amortization Period

 
 
Customer relationships
$
75.0
 
16.3 years
Trademarks
  
7.4
 
17.4 years
 
 
  Total
$
82.4
 
16.4 years
 
 
 
On February 27, 2004, the Company purchased the assets of Concept 2 Bakers (C2B), including a bakery located in Fridley, Minnesota. Through March 31, 2004, Ralcorp paid a total of $23.9 related to the acquisition, and future payments are not expected to be material. Based on a preliminary allocation of the acquisition cost to assets acquired and liabilities assumed, the Company recorded $3.2 to goodwill as of March 31, 2004. C2B is operated and reported as part of Bremner’s in-store bakery group in the “Cereals, Crackers & Cookies” segment.

 
 
  4   
 
 

Ralcorp’s consolidated financial statements include the results of operations for these acquisitions since their respective acquisition date. The following pro forma information discloses Ralcorp’s results of operations as though these business combinations 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.
 

 

Three Months Ended

 

 Six Months Ended

 

 March 31,

 

 March 31,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 
Net sales
$
400.6
 
$
372.3
 
$
794.6
 
$
764.2
Net earnings
  
17.3
   
19.5
   
30.5
   
35.4
Basic earnings per share
  
.60
   
.68
   
1.05
   
1.21
Diluted earnings per share
  
.58
   
.66
   
1.02
   
1.18

 
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

 

Six Months Ended

 

March 31,

 

March 31,

 

 

 

 2004

 

2003

 

2004

 

2003

 

 

 

 
Net earnings, as reported
$
16.3
   
$
16.8
   
$
28.0
   
$
30.1
 
Deduct: Total stock-based employee
  
 
      
 
      
 
      
 
  
  compensation expense determined
  
 
      
 
      
 
      
 
  
  under fair value based method,
  
 
      
 
      
 
      
 
  
  net of related tax effect
  
(.7
)
    
(.6
)
    
(1.3
)
    
(1.2
)
 
 
 
 
Pro forma net earnings
$
15.6
   
$
16.2
   
$
26.7
   
$
28.9