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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 JUNE 30, 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
 
August 10, 2004
 
 
29,255,940
 
     
 
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 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

  

Nine Months Ended

 

June 30,

 

June 30,

 
 

 

2004

 

2003

 

2004

 

2003

 

 

 

 
Net Sales
$
386.3
   
$
311.5
   
$
1,132.2
   
$
974.2
 
Cost of products sold
  
(305.6
)
    
(249.0
)
    
(900.6
)
    
(782.7
)
 
 
 
 
Gross Profit
  
80.7
     
62.5
     
231.6
     
191.5
 
Selling, general and administrative expenses
  
(52.0
)
    
(42.7
)
    
(147.5
)
    
(125.5
)
Interest expense, net
  
(3.7
)
    
(.8
)
    
(9.2
)
    
(2.6
)
Restructuring charges
  
(.4
)
    
(2.2
)
    
(1.0
)
    
(13.4
)
Litigation settlement income
  
.1
     
-
     
.9
     
14.6
 
 
 
 
 
Earnings before Income Taxes
  
 
      
 
      
 
      
 
  
  and Equity Earnings
  
24.7
     
16.8
     
74.8
     
64.6
 
Income taxes
  
(9.0
)
    
(6.1
)
    
(27.3
)
    
(23.3
)
 
 
 
 
Earnings before Equity Earnings
  
15.7
     
10.7
     
47.5
     
41.3
 
Equity in earnings of Vail Resorts, Inc.,
  
 
      
 
      
 
      
 
  
  net of related deferred income taxes
  
8.9
     
5.3
     
5.1
     
4.8
 
 
 
 
 
Net Earnings
$
24.6
   
$
16.0
   
$
52.6
   
$
46.1
 
 
 
 
 
Earnings per Share
 
 
      
 
      
 
      
 
  
  Basic
$
.84
   
$
.55
   
$
1.80
   
$
1.58
 
  Diluted
$
.82
   
$
.54
   
$
1.76
   
$
1.55
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.


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

Three Months Ended

  

Nine Months Ended

 

June 30,

 

June 30,

 

 

 

2004

 

2003

 

2004

 

2003

 
 
 
 
Net Earnings
$
24.6
   
$
16.0
   
$
52.6
   
$
46.1
 
Other comprehensive (loss) income
  
(3.5
)
    
.4
     
(2.5
)
    
(.7
)
 
 
 
 
Comprehensive Income
$
21.1
   
$
16.4
   
$
50.1
   
$
45.4
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
  1   
 
 

RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in millions)
 

 

June 30,

  

Sep. 30,

 

2004

 

2003

 
 
Assets
  
 
      
 
  
  Current Assets
  
 
      
 
  
    Cash and cash equivalents
$
21.2
   
$
29.0
 
    Investment in Ralcorp Receivables Corporation
  
74.5
     
52.4
 
    Receivables, net
  
20.4
     
10.9
 
    Inventories
  
174.1
     
145.7
 
    Deferred income taxes
  
4.8
     
2.9
 
    Prepaid expenses and other current assets
  
3.4
     
3.0
 
 
 
      Total Current Assets
  
298.4
     
243.9
 
  Investment in Vail Resorts, Inc.
  
88.0
     
80.1
 
  Property, Net
  
341.8
     
265.3
 
  Goodwill
  
365.2
     
177.6
 
  Other Intangible Assets, Net
  
87.9
     
15.7
 
  Other Assets
  
11.3
     
11.7
 
 
 
      Total Assets
$
1,192.6
   
$
794.3
 
 
 
Liabilities and Shareholders' Equity
  
 
      
 
  
  Current Liabilities
  
 
      
 
  
    Accounts payable
$
98.5
   
$
85.1
 
    Other current liabilities
  
64.0
     
45.6
 
 
 
      Total Current Liabilities
  
162.5
     
130.7
 
Long-term Debt
  
424.5
     
155.9
 
Deferred Income Taxes
  
57.1
     
20.0
 
Other Liabilities
  
79.5
     
75.0
 
 
 
      Total Liabilities
  
723.6
     
381.6
 
 
 
Shareholders' Equity
  
 
      
 
  
    Common stock
  
.3
     
.3
 
    Capital in excess of par value
  
115.0
     
114.1
 
    Retained earnings
  
446.4
     
393.8
 
    Common stock in treasury, at cost
  
(71.5
)
    
(76.9
)
    Unearned portion of restricted stock
  
(.2
)
    
(.1
)
    Accumulated other comprehensive loss
  
(21.0
)
    
(18.5
)
 
 
      Total Shareholders' Equity
  
469.0
     
412.7
 
 
 
      Total Liabilities and Shareholders' Equity
$
1,192.6
   
$
794.3
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
  2   
 
 

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

Nine Months Ended

 

June 30,

 
 

2004 

 

2003 

 
 
Cash Flows from Operating Activities
  
 
      
 
  
  Net earnings
$
52.6
   
$
46.1
 
  Adjustments to reconcile net earnings to net
  
 
      
 
  
    cash flow provided by operating activities:
  
 
      
 
  
    Depreciation and amortization
  
34.3
     
29.3
 
    Sale of receivables, net
  
(34.2
)
    
(24.6
)
    Deferred income taxes
  
1.8
     
2.0
 
    Equity in earnings of Vail Resorts, Inc.
  
(7.9
)
    
(7.3
)
    Tomato paste asset impairment
  
-
     
5.0
 
    Loss on sale of tomato paste business
  
-
     
3.6
 
    Other changes in current assets and liabilities, net
  
 
      
 
  
      of effects of business acquisitions
  
11.8
      
33.4
 
    Other, net
  
2.8
     
5.1
 
 
 
      Net Cash Provided by Operating Activities
  
61.2
      
92.6
 
 
 
 
  
 
      
 
  
Cash Flows from Investing Activities
  
 
      
 
  
  Business acquisitions, net of cash acquired
  
(313.1
)
    
-
 
  Additions to property and intangible assets
  
(34.9
)
    
(26.2
)
  Proceeds from sale of property
  
.4
     
2.5
 
  Proceeds from sale of tomato paste business
  
-
     
2.9
 
 
 
      Net Cash Used by Investing Activities
  
(347.6
)
    
(20.8
)
 
 
 
  
 
      
 
  
Cash Flows from Financing Activities
  
 
      
 
  
  Proceeds from issuance of long-term debt
  
270.0
     
150.0
 
  Net borrowings (repayments) under credit arrangements
  
4.3
     
(173.0
)
  Purchase of treasury stock
  
-
     
(28.6
)
  Proceeds from exercise of stock options
  
4.4
      
.8
 
  Other, net
  
(.1
)
    
-
 
 
 
      Net Cash Provided (Used) by Financing Activities
  
278.6
     
(50.8
)
 
 
 
  
 
      
 
  
Net (Decrease) Increase in Cash and Cash Equivalents
  
(7.8
)
    
21.0
 
Cash and Cash Equivalents, Beginning of Period
  
29.0
     
3.2
 
 
 
Cash and Cash Equivalents, End of Period
$
21.2
   
$
24.2
 
 
 
 
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 (FASB) 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.

In March 2004, the Emerging Issues Task Force (EITF) reached a final consensus on Issue 03-6, "Participating Securities and the Two-class Method Under FASB Statement No. 128, Earnings Per Share." EITF 03-6 addresses a number of questions regarding the computation of earnings per share ("EPS") by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends. EITF 03-6 requires the use of the two-class method for computing basic EPS when participating convertible securities exist. EITF 03-6 is effective for fiscal periods beginning after March 31, 2004, and was adopted by the Company in the quarter ended June 30, 2004. The Company has relatively few participating securities, so the effects of EITF 03-6 are minor. Because applying EITF 03-6 to previously reported EPS calculations results in immaterial changes to basic EPS (no more than $.01 per share f or any period) and no changes to diluted EPS, the Company has not restated those EPS amounts.

FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the FSP) was issued in May 2004. It provides guidance on accounting for the effects of the new Medicare prescription drug legislation by employers whose prescription drug benefits are actuarially equivalent to the drug benefit under Medicare Part D. It also contains complex rules for transition that permit various alternative prospective and retroactive transition approaches. For public companies, the FSP is effective as of the first interim or annual period beginning after June 15, 2004. The Company is in the process of evaluating the effect of the FSP on its financial statements.
 
 
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 $184.8 to goodwill as of June 30, 2004. The allocation is subject to change pending the complet ion of analyses necessary to determine the fair values of certain assets and liabilities. The allocation included $69.0 of customer relationships and $6.3 of trademarks, subject to amortization over a 16-year weighted-average amortization period.


 
   4  
 
 
 
On February 27, 2004, the Company purchased the assets of Concept 2 Bakers (C2B), including a bakery located in Fridley, Minnesota. Ralcorp paid a total of $23.9 related to the acquisition. Based on a preliminary allocation of the acquisition cost to assets acquired and liabilities assumed, the Company recorded $2.9 to goodwill as of June 30, 2004. C2B is operated and reported as part of Bremner’s in-store bakery group in the “Cereals, Crackers & Cookies” segment.

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

  

Nine Months Ended

  
 

June 30,

 

June 30,

 

 
 
 
 

2004

 

2003

 

2004

 

2003

 

 
 
 
 
 
Net sales
$
386.3
 
$
364.0
 
$
1,180.9
 
$
1,128.2
 
Net earnings
  
24.9
   
19.1
   
55.4
   
54.6
 
Basic earnings per share
  
.85
   
.66
   
1.89
   
1.87
 
Diluted earnings per share
  
.83
   
.65
   
1.85
   
1.83
 
 

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

 

Nine Months Ended

 

June 30,

 

June 30,

 
 

 

2004

 

2003 

 

2004 

 

2003 

 
 
 
 
Net earnings, as reported
$
24.6
   
$
16.0
   
$
52.6
   
$
46.1
 
Deduct: Total stock-based employee
  
 
      
 
      
 
      
 
  
  compensation expense determined
  
 
      
 
      
 
      
 
  
  under fair value based method,
  
 
      
 
      
 
      
 
  
  net of related tax effect
  
(.7
)
    
(.7
)
    
(2.0
)
    
(1.9
)
 
 
 
 
Pro forma net earnings
$
23.9
   
$
15.3
   
$
50.6
   
$