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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-12619
RALCORP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS ARTICLES)
MISSOURI 43-1766315
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
800 MARKET STREET
ST. LOUIS, MISSOURI 63101
(314) 877-7000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE
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Common Stock, $.01 par value........... New York Stock Exchange, Inc.
Common Stock Purchase Rights........... New York Stock Exchange, Inc.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Registrant 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
and has been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.[ ]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant $553,311,624.98 based upon the closing market price on November
21, 1997. Excluded from this figure is the voting stock held by Registrant's
Directors, who are the only persons known to Registrant who may be considered
to be its "affiliates" as defined under Rule 12b-2.
Number of shares of Common Stock, $.01 par value, outstanding as of
close of business on November 21, 1997: 33,011,317.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Shareholders for the year ended September 30,
1997, to the extent indicated in Parts I, II and IV. Except as to
information specifically incorporated, the 1997 Annual Report to Shareholders
is not to be deemed filed as part of this Form 10-K report.
2. Proxy Statement filed with the Commission dated December 15, 1997,
to the extent indicated in Part III.
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Report. These
forward-looking statements are identified by their use of terms and phrases
such as "anticipates," "intends," "should," "believes" and similar
expressions elsewhere in this report. The Company's results of operations
and liquidity status may differ materially from those in the forward-looking
statements. Such statements are based on management's current view and
assumptions, and involve risks and uncertainties that could affect expected
results. For example any of the following factors cumulatively or
individually may impact expected results:
(i) If the Company is unable to maintain a meaningful price gap
between its private label products and the branded products of its
competitors, then the Company's private label operations could incur
operating losses;
(ii) Significant increases in the cost of certain raw materials used
in the Company's products, to the extent not reflected in the price of the
Company's products, could adversely impact the Company's results. For
example, the cost of wheat can change significantly;
(iii) In light of its significant ownership in Vail Resorts, Inc., the
Company's non-cash earnings can be adversely affected by Vail's unfavorable
performance;
(iv) The baby food segment has experienced volume declines which has
and could continue to negatively impact the Company's results;
(v) The Company's businesses compete in mature segments with
competitors having large percentages of segment sales; and
(vi) The Company's profit growth depends largely on the ability to
successfully introduce new products and aggressively manage costs across all
parts of the Company. For example, increased promotional spending by the
baby food segment leader could negatively impact the Company's results.
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TABLE OF CONTENTS
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PART I
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Item 1. Business 2
Recent Business Developments 2
Other Information Pertaining to the Business of the Company 2
Item 2. Properties 7
Item 3 Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 4(a) Executive Officers of the Registrant 8
PART II
Item 5. Market for Registrant's Common Equity and Related Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 7(a) Quantitative and Qualitative Disclosure About Market Risk 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 11
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PART I
ITEM 1. BUSINESS.
Ralcorp Holdings, Inc. is a Missouri corporation incorporated on
October 23, 1996. Its principal executive offices are located at 800 Market
Street, St. Louis, Missouri 63101. The terms "Company", "Ralcorp" and
"Registrant" as used herein refer to Ralcorp Holdings, Inc. and its
consolidated subsidiaries.
The Company is primarily engaged in the manufacturing, distribution and
marketing of private label ready-to-eat and hot cereal products, private
label and branded crackers, private label cookies, and branded baby food and
juices.
The following sections of the 1997 Annual Report to Shareholders
contain financial and other information concerning the Company's business
developments and operations, and are incorporated herein by reference:
"Financial Review" on pages 14 through 20; "Business Segment Information" on
pages 20 through 21; "Acquisition" on page 32; and "Supplemental Earnings
Statement Information" on page 38.
RECENT BUSINESS DEVELOPMENTS
The Company was incorporated on October 23, 1996, under the name "New
Ralcorp Holdings, Inc." as a wholly owned subsidiary of the company known as
Ralcorp Holdings, Inc. ("Old Ralcorp"). The Company was formed to facilitate
Old Ralcorp's divestiture of its branded cereal and snack business. To
effect the divestiture, Old Ralcorp undertook a series of internal
transactions whereby the businesses, assets and liabilities of Old Ralcorp's
branded cereal and snack business (the "Branded Business") were transferred
to a newly formed subsidiary ("Chex Inc.") and the businesses, assets and
liabilities of Old Ralcorp's private label foods businesses, baby food
business and ownership interest in Vail Resorts, Inc. were owned by the
Company. Following this internal restructuring on January 31, 1997, Old
Ralcorp spun-off the Company by distributing the Company's Common Stock to
each owner of Old Ralcorp Common Stock on a share-for-share basis (the
"Distribution"). Following the Distribution on January 31, 1997, a
subsidiary of General Mills, Inc. ("General Mills") was merged (the "Merger")
into Old Ralcorp (which then consisted solely of Old Ralcorp's branded cereal
and snack business through its subsidiary Chex Inc.), with Old Ralcorp
surviving the Merger as a subsidiary of General Mills. The Merger Agreement
setting forth the terms of the Merger (the "Merger Agreement") is an Exhibit
to this Report. After the Merger, the Company changed its name to "Ralcorp
Holdings, Inc." Unless the context otherwise indicates, references to
"Ralcorp" and "Company" for periods prior to the Distribution are references
to Old Ralcorp.
On January 3, 1997, the Company sold its ski resort operations to Vail
Resorts, Inc. ("Vail") in exchange for approximately twenty-three percent of
Vail's outstanding common stock (7,554,406 shares) and the assumption by Vail
of the resort operations' debt. The Company has retained its ownership
interest in Vail.
On April 21, 1997, the Company acquired the Wortz Company ("Wortz") for
approximately $46 million in total consideration. Wortz produces and sells
private label crackers and cookies with annual sales of approximately $70
million. The business is now part of the Company's private label cracker and
cookie operation.
OTHER INFORMATION PERTAINING TO THE BUSINESS OF THE COMPANY
AGREEMENT AND PLAN OF REORGANIZATION
The Company, Old Ralcorp and General Mills entered into an Agreement
and Plan of Reorganization (the "Reorganization Agreement") providing for,
among other things, the principal corporate transactions required to effect
the Distribution and certain other agreements governing the relationship
between the Company and General Mills with respect to or in consequence of
the Distribution. The Reorganization Agreement is an Exhibit to this Report.
Indemnification. Pursuant to the Reorganization Agreement, General
Mills and the Company agreed to indemnify each other for losses, liabilities,
claims, damages, obligations, payments, costs and expenses (including,
without limitation, reasonable attorneys' fees) (collectively, "Indemnifiable
Losses"), arising from
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certain matters. The indemnification provided by the Reorganization Agreement
also applies to the indemnified parties' respective affiliates, employees,
directors, benefit plan fiduciaries, shareholders, agents, consultants,
representatives, successors, transferees and assigns.
(I) Specifically, General Mills, agreed to indemnify the Company against
Indemnifiable Losses arising from the following:
(a) essentially all liabilities of the Branded Business (the "Branded
Liabilities") except for litigation set forth as identified in the
Reorganization Agreement (the "Scheduled Branded Litigation") and the
"Unknown Branded Liabilities" (defined as all Branded Liabilities other than
Branded Liabilities disclosed to General Mills in the Reorganization
Agreement, the Scheduled Branded Litigation and Post-Closing Branded
Liabilities (as defined below)), to the extent the Company is obligated to
indemnify General Mills pursuant to the Reorganization Agreement;
(b) any breach or violation of any covenant made in the Merger
Agreement, the Reorganization Agreement or any other ancillary agreement by
General Mills, or, with respect to covenants to be performed after the
Merger, by Old Ralcorp or Chex Inc.; or
(c) subject to the limitations described below, any breach or
violation of any representation or warranty (without regard to materiality
qualifications contained therein) made by General Mills in the Merger
Agreement.
(II) The Company agreed to indemnify General Mills against Indemnifiable
Losses arising from the following:
(a) any and all liabilities assumed by the Company pursuant to the
Reorganization Agreement;
(b) subject to the limitations described below, any and all Branded
Liabilities other than (i) the Known Branded Liabilities and (ii) the
"Post-Closing Branded Liabilities," which are defined as Branded Liabilities
relating to or arising from the ownership, use or possession of the assets of
the Branded Business or the operation of the Branded Business after the
Merger;
(c) any breach or violation of any covenant made in the Merger
Agreement, the Reorganization Agreement or any other ancillary agreement
thereto by the Company or, with respect to covenants to be performed before
the Distribution, by the Company;
(d) the ownership, use or possession of the Company's Assets or the
operation of the Company's business, whether relating to or arising out of
occurrences prior to or after the Merger, except to the extent liability
therefor is assumed pursuant to the Reorganization Agreement;
(e) subject to the limitations described below, any breach or
violation of any representation or warranty (without regard to materiality
qualifications contained therein) made by Old Ralcorp in the Merger Agreement
or made by the Company in the Reorganization Agreement;
(f) any third party claim to the extent relating to the actions of the
Old Ralcorp Board in authorizing the Distribution or the Merger; or
(g) any third party claim arising out of the disclosures contained in
the Information Statement describing the Distribution, other than disclosures
based on information provided by or on behalf of General Mills for inclusion
herein.
(III) The indemnification obligations described above are subject to the
following limitations:
(a) Notwithstanding the expiration of the representations and
warranties in the Merger Agreement or anything else to the contrary in the
Merger Agreement, the indemnification obligations described above with
respect to breaches of representations or warranties will survive the
Distribution for eighteen months, at which
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time they will expire automatically, except with respect to written claims for
indemnification made in good faith prior to such expiration (which claims will
survive such expiration);
(b) The indemnification obligation of the Company described in
paragraph (II)(b) above with respect to certain pre-closing Branded
Liabilities will survive the Distribution Date for five years, at which time
it will expire automatically, except with respect to written claims for
indemnification made in good faith prior to such expiration (which claims
will survive such expiration);
(c) The indemnification obligations of General Mills for breaches of
representations or warranties will apply only to the extent Indemnifiable
Losses therefrom exceed $6 million in the aggregate; and
(d) The indemnification obligations of the Company for breaches of
representations or warranties and for certain pre-closing Branded Liabilities
will apply only to the extent Indemnifiable Losses therefrom exceed $6
million in the aggregate.
Post-Distribution Covenants. In the Reorganization Agreement, the
Company has agreed to covenants whereby the Company will not engage in
certain transactions for a period of time after the Distribution. For
example, for a period of two years following the Distribution the Company may
not: make a material disposition of its assets or capital stock; repurchase
its shares without satisfying applicable federal tax regulations; issue
capital stock in the aggregate exceeding ten percent of its issued and
outstanding stock; liquidate or merge with another company; or cease
conducting its businesses. If the Company desires to undertake any of the
foregoing within the two year period, the Company must first obtain an
opinion of legal counsel or ruling from the IRS that such desired activity
will not jeopardize the tax-free nature of the Distribution or Merger.
Additionally, the Company has agreed to maintain a certain minimum net
worth level for a period up to five years after the Distribution Date. For
the first two years the net worth of the Company can be not less than $100
million. As of September 30, 1997 the Company's net worth was $286.7
million.
POST-DISTRIBUTION AGREEMENTS
Tax Sharing Agreement. The Tax Sharing Agreement provides that each of
General Mills and the Company are responsible for and will indemnify the
other party against its (and its respective affiliates) allocable share of
tax liabilities before and after the Distribution. The Company is liable for
all taxes of (a) the Company or any of its affiliates for any pre- or
post-Distribution tax period, (b) Old Ralcorp or any affiliate for any
pre-Distribution tax period, including any liabilities resulting from an
audit or other adjustment to previously filed tax returns and (c) any person
arising out of or directly resulting from any of the transactions set forth
in the Reorganization, or the Merger Agreement unless such liability results
from a breach of certain covenants by General Mills with respect to taxes.
General Mills will be liable for all taxes of Old Ralcorp or any Old Ralcorp
affiliate attributable to any post-Distribution tax period. In the Tax
Sharing Agreement, General Mills and the Company agreed to cooperate with
respect to the preparation and filing of tax returns and with respect to any
tax-related challenges or proceedings.
Technology Agreement. The Company and General Mills are subject to a
Technology Agreement (the "Technology Agreement") pursuant to which the
parties' rights with respect to certain shared technology is determined.
Generally, the Company licenses from General Mills the technology necessary
to produce certain cereal and snack mix products produced by Old Ralcorp
immediately prior to the Distribution. Additionally, the Technology
Agreement contains certain provisions pursuant to which the Company has
agreed not to make certain products for certain periods of time, except as
may otherwise be provided in the Supply Agreement or in the Distribution
Agreement. The Company has also agreed not to use on its products any snack
mix recipes that have been used in the three years prior to the Distribution
in connection with Chex products. The Technology Agreement provides that the
Company will not make or sell (a) any ready-to-eat cereals that are Cookie
Crisp-type products in the United States, its territories, possessions,
military installations or the Commonwealth of Puerto Rico for the eighteen
month period commencing upon the Distribution; (b) any ready-to-eat cereals
that are Chex and Cookie Crisp-type products outside of the United States,
its territories, possessions, military installations or the Commonwealth of
Puerto Rico for the five year period commencing upon the Distribution; (c) any
snack mix, cereal-based or otherwise, anywhere in the world for the two year
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period commencing upon the Distribution; and (d) any snack mix containing those
products, or a product substantially similar to, or identical to, products which
have been, prior to the Distribution, offered for sale in connection with any
form of the Chex trademark, which shall include products sold under the Crispy
Hexagon designation, for the five year period commencing upon the Distribution.
Trademark Agreement. The Company and General Mills are also subject to
a Trademark Agreement that facilitates the assignment and/or license among
the Company and General Mills and its subsidiaries of certain trademarks,
service marks, trade dress and copyrights.
Supply Agreement. Pursuant to a Supply Agreement, the Company has
agreed to produce for General Mills, Chex and Cookie Crisp products at prices
agreed to in arms-length negotiations.
TRADEMARKS
The Company owns a number of trademarks that it considers substantially
important to its business, including "BEECH-NUT," "BEECH-NUT NATURALS" and
"STAGES".
SEGMENTS
The Company is presently comprised of one business segment: Consumer
Foods.
CONSUMER FOODS
The Company's business is comprised of three product lines: private
label cereal, (the "Private Label Cereal Business"); branded baby food (the
"Baby Food Business") and private label and branded crackers and private
label cookies (the "Cracker and Cookie Business").
PRIVATE LABEL CEREAL BUSINESS
Currently, the Private Label Cereal Business accounts for approximately
50% of the Company's sales. However, in fiscal year 1997, the business
incurred a significant operating loss in the first two quarters but became
profitable during the third fiscal quarter. Private label ready-to-eat
cereals are currently produced at three operating facilities. The Company's
Cracker and Cookie Business produces a shredded wheat cereal for the Private
Label Cereal Business. The Company's ready-to-eat cereals are made up of
twenty-four different types of private label cereals, manufactured for
approximately 275 customers. Private label and branded hot cereals are
produced at one facility. The hot cereal products include old fashioned
oatmeal, quick oats, plain instant oatmeal, flavored instant oatmeal, farina
and instant Ralston, a branded hot wheat cereal. The Private Label Cereal
Business also sells hot cereal under the brand Three Minute Oats. The
Company believes it is the largest manufacturer of the private label
ready-to-eat and hot cereals.
The Company's ready-to-eat and hot cereals are warehoused in and
distributed through four independent distribution facilities and two of its
Plants and shipped to customers principally via independent truck lines. The
ready-to-eat and hot cereal products are sold to grocery wholesalers, retail
chains, mass merchandisers, warehouse club outlets and other customers
through in-house district sales managers and independent food brokers.
CRACKER AND COOKIE BUSINESS
The Company believes its Cracker and Cookie Business is currently the
leading private-label cracker manufacturer and a producer of private label
cookies for sale in the United States. The Cracker and Cookie Business also
produces Ry Krisp branded crackers. Management positions the Cracker and
Cookie Business as the premier quality and low cost producer of a wide
variety of private label crackers and specialty cookies. On April 21, 1997,
the Company purchased the Wortz Company which will essentially double the
Company's private label cracker and cookie sales.
The Cracker and Cookie Business operates three plants: one produces
solely Ry Krisp crackers and two produce all of the Company's private label
crackers and cookies. The Cracker and Cookie Business' products
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are largely produced to order and shipped directly to customers. Private label
crackers and cookies are sold through a broker network. Branded Ry Krisp
crackers are sold through a direct store distributor network.
BABY FOOD BUSINESS
The Baby Food Business produces baby food, juice and cereal under the
Beech-Nut brand. The brand is positioned as a high quality product that does
not contain additives such as sugar and starch in most of its food items.
The Baby Food Business sales are regional, with eleven major geographic areas
located in the east and west coast regions of the United States, accounting
for approximately 75% of total volume.
The Baby Food Business produces baby food and juices at one plant and
baby cereal at another plant, both located in the state of New York, where
the Baby Food Business sells a significant portion of its products.
Beech-Nut products are marketed to retailers through an outside broker
network and in some areas a direct sales force. Products are shipped
directly to customer accounts from a plant, an on-site warehouse and one
independent distribution center in California.
OWNERSHIP OF VAIL STOCK
The Company owns 7,554,406 shares of Vail Resorts, Inc. Common Stock
(approximately 22.6% of the shares outstanding as of September 30, 1997).
Additionally, two of the Company's Directors, Messrs. Stiritz and Micheletto,
are on the Vail Board of Directors. Currently, the Company utilizes the
equity method of accounting to reflect the portion of Vail's earnings (or
losses) applicable to the Company on a non-cash basis.
Pursuant to a Shareholder Agreement entered into in connection with the
acquisition of the Vail Common Stock, the Company must sell its Vail Common
Stock in a registered offering allowed under the Shareholder Agreement or in
private transactions after July 3, 1998 (provided the purchaser agrees to be
bound by the Shareholder Agreement). Vail's results of operations are highly
seasonal and are dependent in part on weather conditions and consumers'
discretionary spending trends. In light of the significance of the Company's
ownership in Vail in comparison to earnings and assets of the Company,
changes in the price of Vail's Common Stock can impact the Company's stock
price.
COMPETITION
The Company's businesses face intense competition from large branded
cereal, cracker and cookie manufacturers, highly competitive private label
cereal, cracker and cookie manufacturers, and large branded baby food
manufacturers. Top branded ready-to-eat cereal competitors include Kellogg,
General Mills, Kraft Foods and Quaker Oats. In the first half of calendar
year 1996, major branded producers significantly reduced prices of many
branded ready-to-eat cereal products and began advertising and promotion
spending to publicize such decreases. The result was a dramatic drop in
earnings of the Private Label Cereal Business. The Baby Food Business is
believed to currently rank second in sales for baby food products and its top
competitor, Gerber Products Company, produces about 68% of branded baby foods
sold in the United States. Recently, Gerber altered its product formulations
to eliminate or reduce added starch and sugar. The Baby Food Business
advertising has emphasized, for a number of years, the absence of added sugar
and starch in many of its Beech-Nut baby food products. The Cracker and
Cookie Business faces intense competition from large branded manufacturers
such as Nabisco and Keebler/Sunshine who possess approximately 36% and 21%,
respectively, of the branded cracker category and similar shares in the
cookie category (on a volume basis). In addition, private label cracker and
cookie manufacturers provide significant competition in the store brand
segment.
The industries in which the Company compete are highly sensitive to
both pricing and promotion. Competition is based upon product quality,
price, effective promotional activities, and the ability to identify and
satisfy emerging consumer preferences. These industries are expected to
remain highly competitive in the foreseeable future. Future growth
opportunities for the Company are expected to depend on the Company's ability
to implement strategies for competing effectively in all of its businesses,
primarily the Private Label Cereal Business, including strategies relating to
enhancing the performance of its employees, maintaining effective cost
control programs, developing and implementing methods for more efficient
manufacturing and
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distribution operations, and developing successful new products, while at the
same time maintaining aggressive pricing and promotion of its products.
EMPLOYEES
The Company employs approximately 2,500 people in the United States.
Approximately 1,000 of the Company's personnel are covered by nine union
contracts and, from time to time the Company has experienced union organizing
activities at its non-union plants. The contracts expire at various times
beginning on April 5, 1998 and ending October 6, 2002. The Company believes
its relations with its employees, including union employees, are good.
RAW MATERIALS
The principal raw materials used in the Company's businesses are grain
and grain products, flour, sugar, fruits and vegetables. The Company
purchases such raw materials from local, regional, national and international
suppliers. The cost of raw materials used in the Company's products may
fluctuate widely due to weather conditions, government regulations, economic
climate, or other unforeseen circumstances. Agricultural products represent
30% to 40% of the Company's cost of goods sold in fiscal 1997. The cost of
packaging supplies, predominately paper based, have increased over the past
several years. Packaging prices represent 20% to 30% of the Company's cost
of good sold in fiscal 1997. From time to time the Company will enter into
supply contracts for periods up to twelve months to secure favorable pricing
for ingredient and packaging supplies.
GOVERNMENTAL REGULATION; ENVIRONMENTAL MATTERS
The operations of the Company are subject to regulation by various
federal, state and local governmental entities and agencies. As a producer
of goods for human consumption, such operations are subject to stringent
production and labeling standards. In the early 1990's, new labeling
regulations were promulgated and implemented which have required the Company
to modify the information disclosed on their packaging. Management expects
that similar changes in laws in the future could be implemented without a
material adverse impact on the Company if existing packaging stock may be used
during a transition period while packaging information is modified.
The operations of the Company, like those of similar businesses, are
subject to various federal, state and local laws and regulations with respect
to environmental matters, including air and water quality, underground fuel
storage tanks, waste handling and disposal and other regulations intended to
protect public health and the environment. While it is difficult to quantify
with certainty the potential financial impact of actions regarding
expenditures for environmental matters, particularly remediation, and future
capital expenditures for environmental control equipment, in the opinion of
management, based upon the information currently available, the ultimate
liability arising from such environmental matters, taking into account
established accruals for estimated liabilities, should not have a material
effect on the Company's capital expenditures or consolidated results of
operations or financial position. For additional information on Environmental
matters, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 16 "Commitments and
Contingencies" on page 37 of the Company's 1997 Annual Report to Shareholders
filed herewith.
ITEM 2. PROPERTIES.
The Company's principal properties are its manufacturing locations.
Shown below are the Company's owned principal properties. The Company leases
its principal executive offices and research and development facilities in
St. Louis, Missouri. Management believes its facilities are suitable and
adequate for the purposes for which they are used and are adequately
maintained.
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Cereal Plants Cracker and Cookie Plants Baby Food Plants
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Battle Creek, MI Princeton, KY Fort Plain, NY
Cedar Rapids, IA Poteau, OK Canajoharie, NY
Lancaster, OH Minneapolis, MN
Sparks, NV
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ITEM 3. LEGAL PROCEEDINGS.
Ralcorp is a party to a number of legal proceedings in various state
and federal jurisdictions arising out of the operations of its businesses.
These proceedings are in varying stages and many may proceed for protracted
periods of time. Some proceedings involve highly complex questions of fact
and law.
On January 4, 1993, Ralston Purina Company ("Ralston") was served with
the first of nine substantively identical actions currently pending in the
United States District Court for the District of New Jersey. The suits have
been consolidated and styled In Re Baby Food Antitrust Litigation, No.
92-5495 (NHP). The consolidated proceeding is a certified class action by and
on behalf of all direct purchasers of baby foods (other than the defendants
and governmental entities), alleging that the Beech-Nut baby food business
(and its predecessor, Nestle Holdings, Inc.) together with Gerber Products
Company and H.J. Heinz Company, conspired to fix, maintain and stabilize the
prices of baby foods during the period January 1, 1975 to August 31, 1992,
and seeking treble damages. On January 19 and 21, 1993, Ralston was served
with two actions on behalf of indirect purchasers (consumers) of baby food in
California which contain substantively identical charges. These actions have
been consolidated in the Superior Court for the County of San Francisco and
styled Bruce, et al. v. Gerber Products Company, et al., No. 94-8857. On July
28, 1997, Judge Nicholas H. Politan granted Ralston's Motion For Summary
Judgment in the case then pending in the U.S. District Court for the District
of New Jersey and dismissed the case with prejudice. Plaintiffs have
appealed Judge Politan's ruling. On January 19, 1993, Ralston was served with
a similar action filed in Alabama state court on behalf of indirect
purchasers of baby food in Alabama, styled Johnson, et al. v. Gerber Products
Company et al., No. 93-L-0333-NE. Both state actions allege violations of
state antitrust laws and are substantively identical to each other. The
Bruce and Johnson cases remain inactive pending resolution of In Re Baby
Food, Antitrust Litigation. Similar state actions may be filed in states
having laws permitting suits by indirect purchasers. Ralston and the Company
through the Reorganization Agreement with General Mills have agreed in the
Reorganization Agreement with Ralston in connection with the 1994 spin-off
("Ralston Reorganization Agreement") that all expenses related to the above
antitrust matters will be shared equally, but that Ralcorp's liability for
any settlement or judgment will not exceed $5 million, any amount in excess
of that would be paid by Ralston. Expenses and liability with respect to
certain other lawsuits which are not believed by Ralcorp to be material,
either individually or in the aggregate, will also be shared pursuant to the
Ralston Reorganization Agreement.
Based upon a review of the petitions in the above antitrust matters, it
appears that those actions contain questionable allegations and that there
are numerous meritorious defenses. The amount of alleged liability, if any,
from these proceedings cannot be determined with certainty; however, in the
opinion of management, based upon the information presently known, as well as
upon the limitation of its liabilities set forth in the Ralston
Reorganization Agreement, the ultimate liability of the Company, if any,
arising from the pending legal proceedings, as well as from asserted legal
claims and known potential legal claims which are probable of assertion,
taking into account established accruals for estimated liabilities, should
not be material to the Company's consolidated financial position or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the security holders during the
fourth quarter of fiscal year 1997.
ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<C> <C> <S>
Joe R. Micheletto 61 Chief Executive Officer and President since 1996. He served as Co-Chief
Executive Officer and Chief Financial Officer from 1994 to 1996 with the
Company. He served as Vice President and Controller of Ralston Purina from
1985 to 1994, and as Chief Executive Officer of Ralston Resorts from 1991 to
1997. Mr. Micheletto is also a Director of the Company.
8
<PAGE> 10
Kevin J. Hunt 46 Corporate Vice President; and President, Bremner, Inc. He has held the same
position with the Company since 1995. Mr. Hunt joined Ralston Purina in 1985.
In 1988, he was named Director of Marketing for Continental Baking Company,
and in 1992 he was named Director of Planning for Ralston Purina and President
of Bremner, Inc.
Robert W. Lockwood 54 Corporate Vice President, General Counsel and Secretary of the Company. He
has held the same position with the Company since 1994. Mr. Lockwood joined
Ralston Purina in 1976. In 1981, he was named Associate Counsel and Assistant
Secretary; and in 1989, he was named Vice President, Senior Counsel and
Assistant Secretary.
James A. Nichols 49 Corporate Vice President, and President, Ralston Foods. He has held the same
position with the Company since 1995. Mr. Nichols joined Ralston Purina in
1975. In 1985 he was named Vice President and Director of Marketing-Cereal.
In 1989, he was named President, Beech-Nut Nutrition Corporation. In 1994,
he was named Corporate Vice President and President of Beech-Nut Nutrition
Corporation.
David P. Skarie 51 Corporate Vice President and Director of Customer Development of Ralston
Foods. He has held the same position with the Company since 1994. Mr. Skarie
joined Ralston Purina in 1986. In 1988, he was named National Sales Director,
General Merchandise. In 1990, he was named Vice President, Eastern Division
Sales. In 1991, he was named Vice President, Field Sales. In 1993, he was
named Vice President-Director, Customer Development, Human Foods.
Susan P. Widham 40 Corporate Vice President; and President, Beech-Nut Nutrition Corporation. She
has held the same position with the Company since 1996. Ms. Widham joined
Ralston Purina in 1985. In 1991, she was named Group Director, Marketing for
Beech-Nut. In 1994, she was named Vice President, Director of Marketing for
Beech-Nut; and in 1995, was named Executive Vice President, Director of
Marketing for Beech-Nut. In December, 1995, she was named Executive Vice
President and Director of Branded Foods Marketing for Ralston Foods. In
October, 1996, she was named Executive Vice President and President of
Beech-Nut Nutrition Corporation.
Ronald D. Wilkinson 47 Corporate Vice President and Director of Product Supply of Ralston Foods. He
has held the same position with the Company since 1996. Mr. Wilkinson joined
Ralcorp in November, 1995. In 1991, he was named Director, Engineering U.S.
Cereals for the Quaker Oats Company; and in 1992, was named Vice President,
Supply Chain U.S. Cereals for The Quaker Oats Company. In November, 1995, Mr.
Wilkinson joined Old Ralcorp as Executive Vice President and Director,
Manufacturing for Ralston Foods; and in June, 1996, was named Executive Vice
President and Director of Product Supply for Ralston Foods.
<CAPTION>
(Ages are as of December 31, 1997)
</TABLE>
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS.
The Company's common stock (RAH) is traded on the New York Stock
Exchange. There were 18,581 common shareholders of record on November 21,
1997. Other information required by Item 5 appears under the caption, "Common
Stock Data", on page 41 of the 1997 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The summary of financial data appears on page 13 of the 1997 Annual
Report to Shareholders under the caption "Five Year Financial Summary" and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information appearing under the captions "Financial Review" on pages 14
through 20 and "Business Segment Information" on pages 20 through 21 of the
1997 Annual Report to Shareholders is hereby incorporated by reference.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Information appearing under the caption in Note 13 "Financial
Instruments And Risk Management" on page 35 of the 1997 Annual Report to
Shareholders is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company and its
subsidiaries, appearing on pages 25 through 39, together with the report
thereon of Price Waterhouse LLP on page 24, and the supplementary data under
the caption "Quarterly Financial Information" on page 40 of the 1997 Annual
Report to Shareholders are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors on pages 2 through 3 and information
under the caption "Compliance with Section 16(a) of The Exchange Act" on page
5 of the Company's Notice of Annual Meeting and Proxy Statement dated
December 15, 1997, is hereby incorporated by reference. Information regarding
Executive Officers of the Company is included under Item 4(a) of Part I.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Executive Compensation" on pages 10
through 13, and the remuneration information under the caption "Directors'
Meetings, Committees and Fees" on page 5 of the Company's Notice of Annual
Meeting and Proxy Statement dated December 15, 1997, is hereby incorporated
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The discussion of the security ownership of certain beneficial owners
and management appearing under the caption "Ownership of the Company's
Securities" on pages 3 through 4 of the Company's Notice of Annual Meeting
and Proxy Statement dated December 15, 1997, is hereby incorporated by
reference.
10
<PAGE> 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under the captions "Compensation Committee
Interlocks and Insider Participation" on page 16 and "Indebtedness of
Management" on page 17 of the Company's Notice of Annual Meeting and Proxy
Statement dated December 15, 1997, is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed with this report:
(1) Financial statements previously incorporated by reference under
Item 8 hereinabove.
-Report of Independent Accountants.
-Consolidated Statement of Earnings-for years ended September 30,
1997, 1996 and 1995.
-Consolidated Balance Sheet-at September 30, 1997 and 1996.
-Consolidated Statement of Cash Flows-for years ended September
30, 1997, 1996 and 1995.
-Consolidated Statement of Shareholders Equity-for the three
years ended September 30, 1997.
-Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules: None
(3) Exhibits. See the Index to Exhibits that appears at the end of
this document and which is incorporated herein. Exhibits 10.14 to 10.35 are
management compensation plans or arrangements.
(b) Reports on Form 8-K. The Registrant filed one Form 8-K on July 2, 1997,
announcing the change of its Right's Agent.
11
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Ralcorp Holdings, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RALCORP HOLDINGS, INC.
By: /s/Joe R. Micheletto
---------------------------------
Joe R. Micheletto
Chief Executive Officer
and President
December 23, 1997
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints R. W. Lockwood and T. G. Granneman and
each of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resolution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Joe R. Micheletto Chief Executive Officer, President December 23, 1997
- ----------------------------- and Director (Principal Executive
Joe R. Micheletto Officer and Principal Financial Officer)
/s/Thomas G. Granneman Vice President and Controller December 23, 1997
- ----------------------------- (Principal Accounting Officer)
Thomas G. Granneman
/s/William H. Danforth Director December 23, 1997
- -----------------------------
William H. Danforth
/s/William D. George, Jr. Director December 23, 1997
- -----------------------------
William D. George, Jr.
/s/Jack W. Goodall Director December 23, 1997
- -----------------------------
Jack W. Goodall
/s/David W. Kemper Director December 23, 1997
- -----------------------------
David W. Kemper
/s/William P. Stiritz Director December 23, 1997
- -----------------------------
William P. Stiritz
</TABLE>
12
<PAGE> 14
FINANCIAL STATEMENTS AND SCHEDULES
The consolidated financial statements of the Registrant have been
incorporated by reference under Item 8. Financial statements of the
Registrant's 50% or less owned companies have been omitted because, in the
aggregate, they are not significant. Financial Schedules not included have
been omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.
13
<PAGE> 15
<TABLE>
RALCORP HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1997
INDEX TO EXHIBITS
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<C> <S>
<F*>3.1 Restated Articles of Incorporation of Ralcorp Holdings, Inc. (Filed as Exhibit 3.1 to the Company's Form 10-Q
for the period ending December, 31, 1996).
<F*>3.2 Bylaws of Ralcorp Holdings, Inc. (Filed as Exhibit 3.2 to the Company's Registration Statement on Form 10
dated December 27, 1996).
<F*>4.1 Shareholder Protection Rights Agreement (Filed as Exhibit 4.1 to the Company's Registration Statement on
Form 10 dated December 27, 1996).
<F*>4.2 First Amendment to Shareholder Rights Protection Plan (Filed as Exhibit 4 to the Company's Form 10-Q for the
period ending June 30, 1997).
<F*>10.1 Credit Agreement dated as of January 31, 1997 among Ralcorp Holdings, Inc., the Lenders named therein and
The First National Bank of Chicago, as Agent (Filed as Exhibit 10.1 to the Company's Form 10-Q for the period
ending December 31, 1996).
<F*>10.2 Reorganization Agreement dated as of January 31, 1997 by and among Ralcorp Holdings, Inc., New Ralcorp
Holdings, Inc., Ralston Foods, Inc. Chex Inc. and General Mills, Inc. (Filed as Exhibit 10.2 to the Company's
Form 10-Q for the period ending December 31, 1997).
<F*>10.3 Tax Sharing Agreement dated as of January 31, 1997 between Ralcorp Holdings, Inc. and New Ralcorp Holdings,
Inc. (Filed as Exhibit 10.5 to the Company's Form 10-Q for the period ending December 31, 1996).
<F*>10.4 Transition Services-Supply Agreement dated as of January 31, 1997 between Chex Inc. and New Ralcorp Holdings,
Inc. (Filed as Exhibit 10.6 to the Company's Form 10-Q for the period ending December 31, 1996).
<F*>10.5 Technology Agreement dated as of January 31, 1997 by and among Ralcorp Holdings, Inc., New Ralcorp Holdings,
Inc. and Chex Inc. (Filed as Exhibit 10.4 to the Company's Form 10-Q for the period ending December 31,
1996).
<F*>10.6 Trademark Agreement dated as of January 31, 1997 by and among Ralcorp Holdings, Inc., New Ralcorp Holdings,
Inc. and Chex Inc. (Filed as Exhibit 10.3 to the Company's Form 10-Q for the period ending December 31,
1996).
<F*>10.7 Agreement and Plan of Merger dated as of August 13, 1996 by and among Ralcorp Holdings, Inc., General Mills,
Inc. and General Mills Missouri, Inc. (Filed as Exhibit 2.6 to the Company's Registration Statement on
Form 10 dated December 27, 1996).
<F*>10.8 Stock Purchase Agreement by and among Vail resorts, Inc., Ralston Foods, Inc. and Ralston Resorts, Inc. dated
July 22, 1996 (Filed as Exhibit 10.16 to the Company's Registration Statement on Form 10, dated December 27,
1996).
<F*>10.9 Shareholder Agreement dated as of January 3, 1997 among Vail Resorts, Inc., Ralston Foods, Inc. and Apollo
Ski Partners L.P. (Filed as Exhibit 10.9 to the Company's Form 10-Q for the period ending December 31, 1996).
<F*>10.10 Stock Purchase Agreement among Bremner, Inc. and all of the shareholders of the Wortz Company dated March 14,
1997 (Filed as Exhibit 10.1 to the Company's Form 10-Q for the period ending March 31, 1997).
10.11 Amendment to Agreement and Plan of Merger dated October 26, 1996 by and among Ralcorp Holdings, Inc.,
General Mills, Inc. and General Mills Missouri, Inc.
14
<PAGE> 16
<CAPTION>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<C> <S>
<F*>10.12 Second Amendment to Agreement and Plan of Merger dated January 29, 1997 by and among Ralcorp Holdings, Inc.,
General Mills, Inc., and General Mills Missouri, Inc. (Filed as Exhibit 10.7 to the Company's Form 10-Q for
the period ending December 31, 1996).
<F*>10.13 Third Amendment to Agreement and Plan of Merger dated January 31, 1997 by and among Ralcorp Holdings, Inc.,
General Mills, Inc. and General Mills Missouri, Inc. (Filed as Exhibit 10.8 to the Company's Form 10-Q for
the period ending December 31, 1996).
<F*>10.14 Incentive Stock Plan (Filed as Exhibit 10.01 to the Company's Registration Statement on Form 10 dated
December 27, 1997).
<F*>10.15 Form of 1997 Non-Qualified Stock Option Agreement (Filed as Exhibit 10.1 to Company's Form 10-Q for the
period ending June 30, 1997).
<F*>10.16 Form of 1997 Non-Qualified Stock Option Agreement for Non-Management Directors (Filed as Exhibit 10.2 to
Company's Form 10-Q for the period ending June 30, 1997).
<F*>10.17 Form of Management Continuity Agreement (Filed as Exhibit 10.3 to the Company's Form 10-Q for the period
ending June 30, 1997).
<F*>10.18 Employment Agreement For J.R. Micheletto (Filed as Exhibit 10.4 to the Company's Form 10-Q for the period
ending June 30, 1997).
10.18(a) Amendment to Employment Agreement For J.R. Micheletto
<F*>10.19 Employment Agreement For K.J. Hunt (Filed as Exhibit 10.5 to the Company's Form 10-Q for the period ending
June 30, 1997).
<F*>10.20 Employment Agreement For R.W. Lockwood (Filed as Exhibit 10.6 to the Company's Form 10-Q for the period
ending June 30, 1997).
<F*>10.21 Employment Agreement For J.A. Nichols (Filed as Exhibit 10.7 to the Company's Form 10-Q for the period
ending June 30, 1997).
<F*>10.22 Employment Agreement For D.P. Skarie (Filed as Exhibit 10.8 to the Company's Form 10-Q for the period ending
June 30, 1997).
10.23 Employment Agreement for S.P. Widham.
10.24 Employment Agreement for R.D. Wilkinson.
<F*>10.25 Split Dollar Second to Die Life Insurance Arrangement (Filed as Exhibit 10.07 to the Company's Registration
Statement on Form 10 dated December 27, 1996).
<F*>10.26 Change in Control Severance Plan (Filed as Exhibit 10.06 to the Company's Registration Statement on Form 10
dated December 27, 1996).
<F*>10.28 Deferred Compensation Plan for Non-Management Directors (Filed as Exhibit 10.08 to the Company's
Registration Statement on For 10 dated December 27, 1996).
<F*>10.29 Deferred Compensation Plan for Key Employees (Filed as Exhibit 10.09 to the Company's Registration Statement
on Form 10 dated December 27, 1996).
<F*>10.30 Executive Life Insurance Plan (Filed as Exhibit 10.10 to the Company's Registration Statement on Form 10
Dated December 27, 1996).
<F*>10.31 Executive Health Plan (Filed as Exhibit 10.11 to the Company's Registration Statement on Form 10 Dated
December 27, 1996).
<F*>10.32 Executive Long Term Disability Plan (Filed as Exhibit 10.12 to the Company's Registration Statement on Form
10 dated December 27, 1996).
<F*>10.33 Supplemental Retirement Plan (Filed as Exhibit 10.14 to the Company's Registration Statement on Form 10
dated December 27, 1996).
<F*>10.34 Executive Savings Investment Plan (Filed as Exhibit 10.15 to the Company's Registration Statement on Form 10
dated December 27, 1996).
<F*>10.35 Form of Indemnification Agreement (Filed as Exhibit 10.13 to the Company's Registration Statement on Form 10
dated December 27, 1996).
13 Portion of the 1997 Annual Report to Shareholders
15
<PAGE> 17
<CAPTION>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<C> <S>
21 Subsidiaries of the Company
23(a) Consent of Price Waterhouse LLP
23(b) Consent of Arthur Andersen LLP
<F*>24 Power of Attorney (Included in Part II)
27 Financial Data Schedule
99.1 Opinion of Arthur Anderson LLP
<FN>
- --------------
<F*>Incorporated by reference
</TABLE>
16
<PAGE> 1
Exhibit 10.11
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG RALCORP HOLDINGS, INC.,
GENERAL MILLS, INC. AND GENERAL MILLS MISSOURI, INC.
This Amendment to Agreement and Plan of Merger is dated as of October 25,
1996 by and among Ralcorp Holdings, Inc., a Missouri corporation (the
"Company"), General Mills, Inc., a Delaware corporation (the "Acquiror"),
and General Mills Missouri, Inc., a Missouri corporation and a wholly-owned
subsidiary of Acquiror ("Merger Sub").
WHEREAS, the parties hereto are parties to an Agreement and Plan of
Merger dated as of August 13, 1996 (the "Merger Agreement");
WHEREAS, pursuant and subject to the terms and conditions of the
Merger Agreement and the Reorganization Agreement attached thereto as Exhibit
A (the "Reorganization Agreement"), which will be entered into prior to the
effective time of the merger contemplated thereby, the parties hereto have
agreed to consummate the following transactions: (a) certain of the assets
and liabilities of the branded cereals and branded snacks business (the
"Branded Business") currently operated by the Company's wholly-owned
subsidiary, Ralston Foods, Inc. ("Foods"), will be contributed by Foods to
a newly-formed subsidiary (the "Branded Subsidiary"); (b) all the stock of
the Branded Subsidiary will be distributed by Foods to the Company; (c) all
of the shares of capital stock of a Missouri corporation to be formed as a
wholly-owned subsidiary of the Company and the parent of Foods ("New Holdings")
will be distributed on a pro rata basis to the Company's stockholders; and
(d) Merger Sub will be merged into the Company, with the Company as the
surviving corporation; and
WHEREAS, the parties desire to amend the Merger Agreement and the exhibits
thereto (the "Transaction Documents") to reflect the following revised version
of the transactions recited above: (a) the Company will form a wholly-owned
Missouri subsidiary ("New Ralcorp"), into which Foods will be merged (the
"Internal Merger"), with New Ralcorp as the surviving corporation; (b) the
Branded Business will be contributed by New Ralcorp (as successor to Foods) to
the Branded Subsidiary (the "Branded Contribution"); (c) all the stock of the
Branded Subsidiary will be distributed by New Ralcorp to the Company; (d) all
of the shares of the capital stock of New Ralcorp will be distributed on a
pro rata basis to the Company's stockholders; and (d) Merger Sub will be merged
into the Company, with the Company as the surviving corporation; and
WHEREAS, these revisions are structural only and are not intended to
affect the substantive rights or obligations of the parties to the Merger
Agreement and the related agreements.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in the Merger Agreement and this Amendment,
the parties hereto agree as follows:
<PAGE> 2
1. Section 2.1 of the Reorganization Agreement is hereby amended in its
entirety as follows:
2.1 INTERNAL MERGER; SPINOFF TO RALCORP. Prior to the transactions
contemplated by Article III, Ralcorp shall merge Foods into New Ralcorp
with New Ralcorp surviving the Internal Merger. After the Internal Merger
and the transactions contemplated by Article III but prior to the
Distribution Date, New Ralcorp shall distribute all of the issued and
outstanding shares of capital stock of the Branded Subsidiary to Ralcorp.
2. The parties acknowledge and agree that the Internal Merger will occur
prior to the Branded Contribution. The parties further acknowledge and agree
that New Ralcorp will take the place of New Holdings and, after the Internal
Merger, Foods in the transactions contemplated by the Merger Agreement and the
Ancillary Agreements (as defined in the Reorganization Agreement). Accordingly,
the parties hereby agree that each of the Merger Agreement and the Ancillary
Agreements is hereby amended to (a) substitute New Ralcorp for New Holdings in
each instance, and (b) substitute New Ralcorp for Foods in each instance to the
extent the context refers to Foods after the Internal Merger.
3. The parties agree that, prior to their execution, the Ancillary
Agreements will be revised to reflect the foregoing amendments and will be
executed and delivered, as so revised, at the Closing.
4. Except as expressly amended hereby, the Merger Agreement shall remain
in full force and effect.
2
<PAGE> 3
IN WITNESS WHEREOF, Acquiror, Merger Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
GENERAL MILLS, INC.
By: /s/ T.J. Brown
---------------------------
Name: T.J. Brown
-------------------------
Title: Vice President
-------------------------
GENERAL MILLS MISSOURI, INC.
By: /s/ T.J. Brown
---------------------------
Name: T.J. Brown
-------------------------
Title: Vice President
-------------------------
RALCORP HOLDINGS, INC.
By: /s/ J.R. Micheletto
---------------------------
Name: J.R. Michelletto
-------------------------
Title: Chief Executive Officer
-------------------------
and President
3
<PAGE> 1
EXHIBIT 10.18(a)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") made between
Joe R. Micheletto (the "Executive") and Ralcorp Holdings, Inc., a corporation
with its principal place of business at 800 Market Street, St. Louis,
Missouri and its subsidiaries and affiliates (the "Company'),
WITNESSETH THAT:
RECITALS
--------
WHEREAS, on April 10, 1997, the Company and the Executive entered
into an Employment Agreement (the "Agreement"), and
WHEREAS, on May 20, 1997, the Nominating and Compensation Committee
of the Board of Directors of the Company (the "Committee"), in light of the
Executive's leadership in restructuring the Company and the Committee's
desire to ensure Executive's continued service, approved a modification to
the Employment Agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, the Company and Executive hereby agree as follows:
1) The amount "$150,000" shall be inserted in the first line of
paragraph B of SECTION FIVE in lieu of the amount "$75,000".
IN WITNESS WHEREOF, the parties have executed this Agreement on the
11th day of November, 1997.
RALCORP HOLDINGS, INC.
/s/ J. R. Micheletto By: /s/ R. W. Lockwood
- --------------------------- --------------------------------
Executive R. W. Lockwood
Secretary
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") made between Susan P.
Widham (the "Executive") and Ralcorp Holdings, Inc., a corporation with its
principal place of business at 800 Market Street, St. Louis, Missouri, and
its subsidiaries and affiliates (the "Company"),
WITNESSETH THAT:
RECITALS
--------
WHEREAS, the Company was incorporated on October 23, 1996; and
WHEREAS, the Company was spun-off from its former parent company,
Ralcorp Holdings, Inc. ("Old Ralcorp") on January 31, 1997; and
WHEREAS, Executive is presently employed by the Company and has
substantial experience as an executive level manager for the Company; and
WHEREAS, the Company desires to secure Executive's employment for a
definite period of time; and
WHEREAS, Executive desires to be employed by the Company in the
executive capacity described in SECTION TWO of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the Company and Executive hereby agree as follows:
SECTION ONE
DEFINITIONS
-----------
The following terms shall have the meanings set forth below:
A. "Involuntary Termination" shall be any termination of the
-----------------------
Executive's employment with the Company, other than a
Termination for Cause, (a) to which the Executive objects
orally or in writing or (b) which follows any of the following:
(i) without the express written consent of the Executive,
(a) the assignment of the Executive to any duties
materially inconsistent with the Executive's positions,
duties, responsibilities and status on the effective
date of this Agreement or (b) a material change in the
Executive's titles, offices, or reporting
responsibilities as in effect on the effective date of
this Agreement and with respect to either (a) or (b) the
situation is not remedied within thirty (30) days after
receipt by the Company of written notice by the
Executive; provided, however, (a) and (b) herein shall
not constitute an "Involuntary Termination" if either
situation is in connection with the Executive's death or
disability; or
<PAGE> 2
(ii) without the express written consent of the Executive, a
reduction in the Executive's annual salary or
opportunity for total annual compensation, in effect on
the effective date of this Agreement which is not
remedied within thirty (30) days after receipt by the
Company of written notice by the Executive; or
(iii) without the express written consent of the Executive,
the Executive is required to be based more than 100
miles from Executive's office location on the effective
date of this Agreement, except for required travel on
business to an extent substantially consistent with the
business travel obligations of the Executive on the
effective date of this Agreement; or
(iv) without the express written consent of the Executive,
(a) failure by the Company to continue in effect benefit
and compensation plans which may include a stock
ownership plan, a stock purchase plan, a stock option
plan, a defined benefit pension plan, a defined
contribution pension plan, a life insurance plan, a
health and accident plan, and/or a disability plan which
are, in the aggregate, substantially equivalent in value
to those in which the Executive is participating or
entitled to participate on the effective date of this
Agreement; or (b) the taking of any action by the
Company that would (1) adversely affect the
participation in or materially reduce the aggregate
value to the Executive of benefits under such plans
either in terms of the amount of benefits provided or
the level of the Executive's participation relative to
other participants; or (2) cause a failure to provide
the number of paid vacation days to which the Executive
was then entitled in accordance with the Company's
normal vacation policy in effect on the effective date
of this Agreement, which in either situation (a) or (b)
is not remedied within thirty (30) days after receipt by
the Company of written notice by the Executive; or
(v) the liquidation, dissolution, consolidation, or merger
of the Company or transfer of all or substantially all
of its assets, unless a successor or successors (by
merger, consolidation, or otherwise) to which all or a
significant portion of its assets have been transferred
expressly assumes in writing all duties and obligations
of the Company as here set forth.
The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to any circumstances set forth above.
B. "Termination for Cause" shall be a termination because of:
---------------------
(i) the continued failure by the Executive to devote
reasonable time and effort to the performance of the
Executive's duties (other than any such failure
resulting from the Executive's incapacity due to
physical or mental illness) after written demand
therefor has been delivered to the Executive by the
Company that specifically identifies how the Executive
has not devoted reasonable time and effort to the
performance of the Executive's duties; or
2
<PAGE> 3
(ii) the willful engaging by the Executive in misconduct
which is materially injurious to the Company, monetarily
or otherwise; or
(iii) the Executive's conviction of a felony or a crime
involving moral turpitude;
in any case as determined by the Board of Directors of the
Company (the "Board") upon the good faith vote of not less than
a majority of the Directors then in office, after reasonable
notice to the Executive specifying in writing the basis or
bases for the proposed Termination for Cause and after the
Executive has been provided an opportunity to be heard before a
meeting of the Board held upon reasonable notice to all
Directors; provided, however, that a Termination for Cause
shall not include a termination attributable to:
(i) bad judgment or negligence on the part of the Executive
other than habitual negligence; or
(ii) an act or omission believed by the Executive in good
faith to have been in, or not opposed to, the best
interests of the Company and reasonably believed by the
Executive to be lawful.
C. "Voluntary Termination" shall be any termination of the
---------------------
Executive's employment with the Company other than an Involuntary Termination
or a Termination for Cause.
SECTION TWO
EMPLOYMENT
----------
The Company hereby employs Executive as Corporate Vice President; and
President, Beech-Nut Nutrition Corporation. Executive's day-to-day reporting
responsibilities shall be to the Company's Chief Executive Officer. Subject
to SECTION EIGHT, the Company may modify or realign Executive's duties and
responsibilities as it deems necessary during the term of this Agreement.
SECTION THREE
BEST EFFORTS OF EXECUTIVE
-------------------------
Executive agrees that the Executive will at all times faithfully and to
the best of the Executive's ability, experience and talent, perform all of
the duties that may be required of or from the Executive pursuant to the
express and implicit terms hereof. Executive acknowledges that the Executive
is obligated to manage the business of the Company in a sound and
businesslike manner and in material conformity with all laws and regulations
governing the conduct of the business of the Company.
3
<PAGE> 4
SECTION FOUR
TERM
----
The term of this Agreement shall be three years beginning on February
1, 1997 and ending on January 31, 2000 (the "Term"). This Agreement may be
extended for additional periods upon the mutual written agreement of the
parties.
SECTION FIVE
COMPENSATION
------------
During the Term of this Agreement, Executive shall be entitled to the
following:
A. The Company shall pay Executive a minimum monthly base salary
of $12,500.00, payable on the last day of each month. The base salary may be
increased by the Company at any time during the Term of this Agreement;
provided, however, that until January 31, 2000, Executive's monthly base
salary shall not be less than the amount set forth above.
B. The Company shall pay Executive a minimum annual bonus of
$37,500.00, payable in October of each year. The annual bonus may be
increased by the Company at any time during the Term of this Agreement;
provided, however, that until January 31, 2000, Executive's annual bonus
shall not be less than the amount set forth above.
C. Executive shall be provided with an executive level benefit
program including stock options and/or stock grants as determined by the
Company. Any such stock options shall become immediately exercisable, and
such stock grants shall vest immediately, upon Executive's Involuntary
Termination during the Term of this Agreement.
D. Executive shall be eligible for coverage under such pension
plan, group health insurance plan, 401(k) plan, vacation, holiday and other
programs or policies in effect from time to time for salaried Executives of
the Company.
SECTION SIX
OLD RALCORP STOCK OPTIONS
-------------------------
It is understood that Old Ralcorp previously granted Executive certain
Non-Qualified Stock Options. It is further understood and agreed that Old
Ralcorp paid Executive a lump sum payment that represents fair compensation
for these Non-Qualified Stock Options. Executive understands and agrees that
Executive received this lump sum payment in lieu of these options and that
Executive forfeits all Old Ralcorp Non-Qualified Stock Options, and rights
thereunder, which Executive had not exercised at the time Executive received
the lump sum payment.
4
<PAGE> 5
SECTION SEVEN
CHANGE OF CONTROL
-----------------
Contemporaneously with the execution of this Agreement, the Executive
and the Company will enter into a Management Continuity Agreement providing
benefits under certain circumstances in the event of a Change-in-Control of
the Company, as defined in such Management Continuity Agreement. Such
benefits will be in addition to those provided under this Agreement;
provided, however, that any benefits paid under said Management Continuity
Agreement shall be reduced by amounts paid hereunder in respect of periods
after Executive's termination of employment following a Change-in-Control.
Executive agrees that the previous Management Continuity Agreement entered
into by Executive with Old Ralcorp is null and void and Executive releases
any claims to benefits under the previous Management Continuity Agreement.
SECTION EIGHT
TERMINATION
-----------
A. The Company reserves the right to terminate the employment of
Executive at any time with or without cause. However, in the event of
Executive's Involuntary Termination prior to January 31, 2000, Executive
shall be entitled to the following:
(i) payment within sixty (60) days after Executive's
Involuntary Termination of Executive's minimum base
salary under this Agreement for the remainder of the
three-year term, in cash in a lump sum without discount
or pro-ration; and
(ii) payment within sixty (60) days after Executive's
Involuntary Termination of the minimum annual bonuses
which Executive would have been entitled to receive
under this Agreement during the remainder of the
three-year term, in cash in a lump sum without discount
or pro-ration; and
(iii) continuation for the remainder of the three-year term of
the Executive's participation in each life, health,
accident and disability plan in which the Executive was
entitled to participate immediately prior to the
Executive's termination, upon the same terms and
conditions, including those with respect to spouses and
dependents, applicable at such time; provided, however,
that if the terms of any such benefit plan do not permit
continued participation by the Executive, then the
Company will arrange, at the Company's sole cost and
expense, to provide the Executive a benefit
substantially similar to, and no less favorable than, on
an after-tax basis, the benefit the Executive was
entitled to receive under such plan immediately prior
the Executive's termination; provided further, however,
that the benefit to be provided or payments to be made
hereunder may be reduced by the benefits provided or
payments made (in either case on an after-tax basis) by
a subsequent employer for the same occurrence or event;
and
5
<PAGE> 6
(iv) payment in cash in a lump sum, within sixty (60) days
after the Executive's termination, of the difference
between the present values as of the date of the
termination of (a) the benefits under the Company's
Retirement Plan and Supplemental Retirement Plan which
the Executive and the Executive's beneficiary, if
applicable, would have been entitled to receive had the
Executive remained employed by the Company at a
compensation level equal to that provided in this
Agreement for the entirety of the three-year term, and
(b) the actual benefit, if any, to which the Executive
and the Executive's beneficiary are entitled under the
Retirement Plan and the Supplemental Retirement Plan.
For purposes of this subparagraph, present value shall
be calculated in accordance with Section 417(e)(3) of
the Internal Revenue Code of 1986, as amended (the
"Code"); no reduction factors for early retirement shall
be applied in the calculation of benefits; and
(v) payment, on a current basis, of any actual costs and
expenses of litigation incurred by the Executive,
including costs of investigation and reasonable
attorney's fees, in the event the Executive is a party
to any legal action to enforce or to recover damages for
breach of this Agreement, or to recover or recoup from
the Executive or the Executive's legal representative or
beneficiary any amounts paid under or pursuant to this
Agreement, regardless of the outcome of such litigation,
plus interest at the applicable federal rate provided
for in Section 7872(f)(2) of the Code.
B. The Executive may file with the Secretary or any Assistant
Secretary of the Company a written designation of a beneficiary or contingent
beneficiaries to receive the payments described above in the event of the
Executive's death following the Executive's Involuntary Termination but prior
to payment by the Company. The Executive may from time to time revoke or
change any such designation of beneficiary and any designation of beneficiary
pursuant to this Agreement shall be controlling over any other disposition,
testamentary or otherwise; provided, however, that if the Company shall be in
doubt as to the right of any such beneficiary to receive such payments, it
may determine to pay such amounts to the legal representative of the
Executive, in which case the Company shall not be under any further liability
to anyone. In the event that such designated beneficiary or legal
representative becomes a party to a legal action to enforce or to recover
damages for breach of this Agreement, or to recover or recoup from the
Executive or the Executive's estate, legal representative or beneficiary any
amounts paid under or pursuant to this Agreement, regardless of the outcome
of such litigation, the Company shall pay their actual costs and expenses of
such litigation, including costs of investigation and reasonable attorneys'
fees, plus interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code; provided, however, that the Company shall not be
required to pay such costs and expenses in connection with litigation to
determine the proper payee, among two or more claimants, of the payments
pursuant to this Agreement.
6
<PAGE> 7
C. In the event of Executive's Voluntary Termination or
Termination for Cause, Executive shall not be entitled to receive any of the
pay or benefits that would have been provided pursuant to this Agreement
except for pay already earned and benefits already vested at the time of such
termination.
D. In the event that Executive's employment is terminated for any
reason during the Term of this Agreement, Executive shall not be eligible to
participate in any other severance pay plan established by the Company for
its Executives unless such severance pay plan provides benefits of greater
value in the aggregate than those available under this Agreement, in which
case Executive shall be entitled to benefits under such severance pay plan
but not under this Agreement.
SECTION NINE
CONFIDENTIALITY
---------------
Executive agrees that, in addition to any other limitations contained
in this Agreement, regardless of the circumstances of Executive's termination
of employment, Executive will not take, or communicate or disclose to any
person, firm, corporation or other entity, any information relating to the
Company's customer lists, prices, trade secrets, methods, systems,
advertising, or any other confidential knowledge or secrets that Executive
might from time to time acquire with respect to the business of the Company
or any of its affiliates or subsidiaries, unless Executive obtains written
consent of the Company. Executive also specifically acknowledges the
continued validity and effect of any Agreement as to Confidentiality and
Inventions previously signed by Executive and that the terms of any such
agreement are incorporated into this Agreement by this reference.
SECTION TEN
NON-COMPETITION
---------------
In the event Executive's employment terminates pursuant to SECTION
EIGHT, Executive will not, for the duration of this Agreement, on Executive's
own behalf, or on behalf of any other person, firm, partnership or
corporation, engage in the branded baby food business as either a proprietor,
officer, director, partner, employee or consultant.
7
<PAGE> 8
SECTION ELEVEN
ARBITRATION
-----------
As additional consideration for this Agreement, Executive agrees that
any differences, claims, or matters in dispute arising between the Company
and Executive out of or in connection with the Executive's employment or the
termination of the Executive's employment by the Company including, but not
limited to the terms and conditions of this Agreement, allegations of
wrongful termination, allegations of employment discrimination or allegations
of discriminatory or retaliatory discharge under any federal, state or local
discrimination law shall be submitted by them to arbitration by the American
Arbitration Association, or its successor, and the determination of the
American Arbitration Association, or its successor, shall be final and
absolute. The arbitrator shall be governed by the duly promulgated rules and
regulations of the American Arbitration Association, or its successor, and
the pertinent provisions of the laws of the State of Missouri relating to
arbitration. The decision of the arbitrator may be entered as a judgment in
any court of the State of Missouri or elsewhere.
SECTION TWELVE
MISCELLANEOUS PROVISIONS
------------------------
A. The Company shall be entitled to withhold from any payments
made pursuant to this Agreement, including SECTION EIGHT hereof, any federal,
state or local taxes required to be withheld by law or regulation.
B. This Agreement represents the entire agreement between the
parties and any prior understandings or representations of any kind preceding
the effective date of this Agreement shall not be binding on either party
except to the extent incorporated into this Agreement. This Agreement shall
not be altered, amended or modified except in writing signed by the Chief
Executive Officer of the Company and by the Executive.
C. This Agreement shall be binding upon and shall inure to the
benefit of the assigns, heirs, legatees or personal representatives of
Executive and the successors or assigns of the Company.
D. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise. The Company may not assign this Agreement
other than to a successor to all or substantially all of the business and/or
assets of the Company. Neither this Agreement nor any right or
8
<PAGE> 9
interest hereunder shall be assignable or transferable by Executive, the
Executive's beneficiaries or Executive's legal representatives without the
Company's prior written consent; provided, however, that nothing in this
Section shall preclude (i) Executive from designating a beneficiary to
receive any benefit payable hereunder upon the Executive's death, or (ii) the
executors, administrators, or other legal representatives of the Executive's
estate from assigning or transferring any rights hereunder to the person or
persons entitled thereunto.
E. The headings of sections are included solely for convenience of
reference and shall not control the meaning or interpretation of any of the
provisions of this Agreement.
F. This Agreement shall be construed according to the laws of the
State of Missouri without giving effect to the conflict of laws provisions
thereof.
G. No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be deemed
a continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a wavier of such term or condition for the future or of any act
other than that specifically waived.
H. If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect any other provision of the
Agreement not held so invalid, and each such other provision shall to the
full extent consistent with law continue in full force and effect.
The parties have entered into this Agreement based solely upon the
terms and conditions set forth herein. THIS AGREEMENT CONTAINS A
BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE
PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
10th day of November, 1997.
RALCORP HOLDINGS, INC.
/s/ S. W. Widham By: /s/ J. R. Micheletto
- ---------------------------- --------------------------------
Executive J. R. Micheletto
Chief Executive Officer
and President
9
<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") made between Ronald D.
Wilkinson, (the "Executive") and Ralcorp Holdings, Inc., a corporation with
its principal place of business at 800 Market Street, St. Louis, Missouri,
and its subsidiaries and affiliates (the "Company"),
WITNESSETH THAT:
RECITALS
--------
WHEREAS, the Company was incorporated on October 23, 1996; and
WHEREAS, the Company was spun-off from its former parent company,
Ralcorp Holdings, Inc. ("Old Ralcorp") on January 31, 1997; and
WHEREAS, Executive is presently employed by the Company and has
substantial experience as an executive level manager for the Company; and
WHEREAS, the Company desires to secure Executive's employment for a
definite period of time; and
WHEREAS, Executive desires to be employed by the Company in the
executive capacity described in SECTION TWO of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the Company and Executive hereby agree as follows:
SECTION ONE
DEFINITIONS
-----------
The following terms shall have the meanings set forth below:
A. "Involuntary Termination" shall be any termination of the
-----------------------
Executive's employment with the Company, other than a Termination for Cause,
(a) to which the Executive objects orally or in writing or (b) which follows
any of the following:
(i) without the express written consent of the Executive, (a)
the assignment of the Executive to any duties materially
inconsistent with the Executive's positions, duties,
responsibilities and status on the effective date of this
Agreement or (b) a material change in the Executive's
titles, offices, or reporting responsibilities as in effect
on the effective date of this Agreement and with respect to
either (a) or (b) the situation is not remedied within
thirty (30) days after receipt by the Company of written
notice by the Executive; provided, however, (a) and (b)
herein shall not constitute an "Involuntary Termination" if
either situation is in connection with the Executive's
death or disability; or
<PAGE> 2
(ii) without the express written consent of the Executive, a
reduction in the Executive's annual salary or opportunity
for total annual compensation, in effect on the effective
date of this Agreement which is not remedied within thirty
(30) days after receipt by the Company of written notice by
the Executive; or
(iii) without the express written consent of the Executive, the
Executive is required to be based more than 100 miles from
Executive's office location on the effective date of this
Agreement, except for required travel on business to an
extent substantially consistent with the business travel
obligations of the Executive on the effective date of this
Agreement; or
(iv) without the express written consent of the Executive, (a)
failure by the Company to continue in effect benefit and
compensation plans which may include a stock ownership
plan, a stock purchase plan, a stock option plan, a defined
benefit pension plan, a defined contribution pension plan,
a life insurance plan, a health and accident plan, and/or a
disability plan which are, in the aggregate, substantially
equivalent in value to those in which the Executive is
participating or entitled to participate on the effective
date of this Agreement; or (b) the taking of any action by
the Company that would (1) adversely affect the
participation in or materially reduce the aggregate value
to the Executive of benefits under such plans either in
terms of the amount of benefits provided or the level of
the Executive's participation relative to other
participants; or (2) cause a failure to provide the number
of paid vacation days to which the Executive was then
entitled in accordance with the Company's normal vacation
policy in effect on the effective date of this Agreement,
which in either situation (a) or (b) is not remedied within
thirty (30) days after receipt by the Company of written
notice by the Executive; or
(v) the liquidation, dissolution, consolidation, or merger of
the Company or transfer of all or substantially all of its
assets, unless a successor or successors (by merger,
consolidation, or otherwise) to which all or a significant
portion of its assets have been transferred expressly
assumes in writing all duties and obligations of the
Company as here set forth.
The Executive's continued employment shall not constitute consent
to, or a waiver of rights with respect to any circumstances set
forth above.
B. "Termination for Cause" shall be a termination because of:
---------------------
(i) the continued failure by the Executive to devote reasonable
time and effort to the performance of the Executive's duties
(other than any such failure resulting from the Executive's
incapacity due to physical or mental illness) after written
demand therefor has been delivered to the Executive by the
Company that specifically identifies how the Executive has
not devoted reasonable time and effort to the performance of
the Executive's duties; or
2
<PAGE> 3
(ii) the willful engaging by the Executive in misconduct which is
materially injurious to the Company, monetarily or otherwise;
or
(iii) the Executive's conviction of a felony or a crime involving
moral turpitude;
in any case as determined by the Board of Directors of the Company
(the "Board") upon the good faith vote of not less than a majority
of the Directors then in office, after reasonable notice to the
Executive specifying in writing the basis or bases for the proposed
Termination for Cause and after the Executive has been provided an
opportunity to be heard before a meeting of the Board held upon
reasonable notice to all Directors; provided, however, that a
Termination for Cause shall not include a termination attributable
to:
(i) bad judgment or negligence on the part of the Executive other
than habitual negligence; or
(ii) an act or omission believed by the Executive in good faith to
have been in, or not opposed to, the best interests of the
Company and reasonably believed by the Executive to be lawful.
C. "Voluntary Termination" shall be any termination of the
---------------------
Executive's employment with the Company other than an Involuntary
Termination or a Termination for Cause.
SECTION TWO
EMPLOYMENT
----------
The Company hereby employs Executive as its Corporate Vice President
and Director of Product Supply. Executive's day-to-day reporting
responsibilities shall be to the Company's Chief Executive Officer. Subject
to SECTION EIGHT, the Company may modify or realign Executive's duties and
responsibilities as it deems necessary during the term of this Agreement.
SECTION THREE
BEST EFFORTS OF EXECUTIVE
-------------------------
Executive agrees that the Executive will at all times faithfully and to
the best of the Executive's ability, experience and talent, perform all of
the duties that may be required of or from the Executive pursuant to the
express and implicit terms hereof. Executive acknowledges that the Executive
is obligated to manage the business of the Company in a sound and
businesslike manner and in material conformity with all laws and regulations
governing the conduct of the business of the Company.
3
<PAGE> 4
SECTION FOUR
TERM
----
The term of this Agreement shall be three years beginning on February
1, 1997 and ending on January 31, 2000 (the "Term"). This Agreement may be
extended for additional periods upon the mutual written agreement of the
parties.
SECTION FIVE
COMPENSATION
------------
During the Term of this Agreement, Executive shall be entitled to the
following:
A. The Company shall pay Executive a minimum monthly base salary of
$12,500.00, payable on the last day of each month. The base salary may be
increased by the Company at any time during the Term of this Agreement;
provided, however, that until January 31, 2000, Executive's monthly base
salary shall not be less than the amount set forth above.
B. The Company shall pay Executive a minimum annual bonus of
$25,000.00, payable in October of each year. The annual bonus may be
increased by the Company at any time during the Term of this Agreement;
provided, however, that until January 31, 2000, Executive's annual bonus
shall not be less than the amount set forth above.
C. Executive shall be provided with an executive level benefit
program including stock options and/or stock grants as determined by the
Company. Any such stock options shall become immediately exercisable, and
such stock grants shall vest immediately, upon Executive's Involuntary
Termination during the Term of this Agreement.
D. Executive shall be eligible for coverage under such pension plan,
group health insurance plan, 401(k) plan, vacation, holiday and other
programs or policies in effect from time to time for salaried Executives of
the Company.
SECTION SIX
OLD RALCORP STOCK OPTIONS
-------------------------
It is understood that Old Ralcorp previously granted Executive certain
Non-Qualified Stock Options. It is further understood and agreed that Old
Ralcorp paid Executive a lump sum payment that represents fair compensation
for these Non-Qualified Stock Options. Executive understands and agrees that
Executive received this lump sum payment in lieu of these options and that
Executive forfeits all Old Ralcorp Non-Qualified Stock Options, and rights
thereunder, which Executive had not exercised at the time Executive received
the lump sum payment.
4
<PAGE> 5
SECTION SEVEN
CHANGE OF CONTROL
-----------------
Contemporaneously with the execution of this Agreement, the Executive
and the Company will enter into a Management Continuity Agreement providing
benefits under certain circumstances in the event of a Change-in-Control of
the Company, as defined in such Management Continuity Agreement. Such
benefits will be in addition to those provided under this Agreement;
provided, however, that any benefits paid under said Management Continuity
Agreement shall be reduced by amounts paid hereunder in respect of periods
after Executive's termination of employment following a Change-in-Control.
Executive agrees that the previous Management Continuity Agreement entered
into by Executive with Old Ralcorp is null and void and Executive releases
any claims to benefits under the previous Management Continuity Agreement.
SECTION EIGHT
TERMINATION
-----------
A. The Company reserves the right to terminate the employment of
Executive at any time with or without cause. However, in the event of
Executive's Involuntary Termination prior to January 31, 2000, Executive
shall be entitled to the following:
(i) payment within sixty (60) days after Executive's
Involuntary Termination of Executive's minimum base salary
under this Agreement for the remainder of the three-year
term, in cash in a lump sum without discount or pro-ration;
and
(ii) payment within sixty (60) days after Executive's
Involuntary Termination of the minimum annual bonuses which
Executive would have been entitled to receive under this
Agreement during the remainder of the three-year term, in
cash in a lump sum without discount or pro-ration; and
(iii) continuation for the remainder of the three-year term of
the Executive's participation in each life, health,
accident and disability plan in which the Executive was
entitled to participate immediately prior to the
Executive's termination, upon the same terms and
conditions, including those with respect to spouses and
dependents, applicable at such time; provided, however,
that if the terms of any such benefit plan do not permit
continued participation by the Executive, then the Company
will arrange, at the Company's sole cost and expense, to
provide the Executive a benefit substantially similar to,
and no less favorable than, on an after-tax basis, the
benefit the Executive was entitled to receive under such
plan immediately prior the Executive's termination;
provided further, however, that the benefit to be provided
or payments to be made hereunder may be reduced by the
benefits provided or payments made (in either case on an
after-tax basis) by a subsequent employer for the same
occurrence or event; and
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<PAGE> 6
(iv) payment in cash in a lump sum, within sixty (60) days after
the Executive's termination, of the difference between the
present values as of the date of the termination of (a) the
benefits under the Company's Retirement Plan and
Supplemental Retirement Plan which the Executive and the
Executive's beneficiary, if applicable, would have been
entitled to receive had the Executive remained employed by
the Company at a compensation level equal to that provided
in this Agreement for the entirety of the three-year term,
and (b) the actual benefit, if any, to which the Executive
and the Executive's beneficiary are entitled under the
Retirement Plan and the Supplemental Retirement Plan. For
purposes of this subparagraph, present value shall be
calculated in accordance with Section 417(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"); no
reduction factors for early retirement shall be applied in
the calculation of benefits; and
(v) payment, on a current basis, of any actual costs and
expenses of litigation incurred by the Executive, including
costs of investigation and reasonable attorney's fees, in
the event the Executive is a party to any legal action to
enforce or to recover damages for breach of this Agreement,
or to recover or recoup from the Executive or the
Executive's legal representative or beneficiary any amounts
paid under or pursuant to this Agreement, regardless of the
outcome of such litigation, plus interest at the applicable
federal rate provided for in Section 7872(f)(2) of the
Code.
B. The Executive may file with the Secretary or any Assistant
Secretary of the Company a written designation of a beneficiary or contingent
beneficiaries to receive the payments described above in the event of the
Executive's death following the Executive's Involuntary Termination but prior
to payment by the Company. The Executive may from time to time revoke or
change any such designation of beneficiary and any designation of beneficiary
pursuant to this Agreement shall be controlling over any other disposition,
testamentary or otherwise; provided, however, that if the Company shall be in
doubt as to the right of any such beneficiary to receive such payments, it
may determine to pay such amounts to the legal representative of the
Executive, in which case the Company shall not be under any further liability
to anyone. In the event that such designated beneficiary or legal
representative becomes a party to a legal action to enforce or to recover
damages for breach of this Agreement, or to recover or recoup from the
Executive or the Executive's estate, legal representative or beneficiary any
amounts paid under or pursuant to this Agreement, regardless of the outcome
of such litigation, the Company shall pay their actual costs and expenses of
such litigation, including costs of investigation and reasonable attorneys'
fees, plus interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code; provided, however, that the Company shall not be
required to pay such costs and expenses in connection with litigation to
determine the proper payee, among two or more claimants, of the payments
pursuant to this Agreement.
6
<PAGE> 7
C. In the event of Executive's Voluntary Termination or Termination
for Cause, Executive shall not be entitled to receive any of the pay or
benefits that would have been provided pursuant to this Agreement except for
pay already earned and benefits already vested at the time of such
termination.
D. In the event that Executive's employment is terminated for any
reason during the Term of this Agreement, Executive shall not be eligible to
participate in any other severance pay plan established by the Company for
its Executives unless such severance pay plan provides benefits of greater
value in the aggregate than those available under this Agreement, in which
case Executive shall be entitled to benefits under such severance pay plan
but not under this Agreement.
SECTION NINE
CONFIDENTIALITY
---------------
Executive agrees that, in addition to any other limitations contained
in this Agreement, regardless of the circumstances of Executive's termination
of employment, Executive will not take, or communicate or disclose to any
person, firm, corporation or other entity, any information relating to the
Company's customer lists, prices, trade secrets, methods, systems,
advertising, or any other confidential knowledge or secrets that Executive
might from time to time acquire with respect to the business of the Company
or any of its affiliates or subsidiaries, unless Executive obtains written
consent of the Company. Executive also specifically acknowledges the
continued validity and effect of any Agreement as to Confidentiality and
Inventions previously signed by Executive and that the terms of any such
agreement are incorporated into this Agreement by this reference.
SECTION TEN
NON-COMPETITION
---------------
In the event Executive's employment terminates pursuant to SECTION
EIGHT, Executive will not, for the duration of this Agreement, on Executive's
own behalf, or on behalf of any other person, firm, partnership or
corporation, engage in the private label cereal business as either a
proprietor, officer, director, partner, employee or consultant.
7
<PAGE> 8
SECTION ELEVEN
ARBITRATION
-----------
As additional consideration for this Agreement, Executive agrees that
any differences, claims, or matters in dispute arising between the Company
and Executive out of or in connection with the Executive's employment or the
termination of the Executive's employment by the Company including, but not
limited to the terms and conditions of this Agreement, allegations of
wrongful termination, allegations of employment discrimination or allegations
of discriminatory or retaliatory discharge under any federal, state or local
discrimination law shall be submitted by them to arbitration by the American
Arbitration Association, or its successor, and the determination of the
American Arbitration Association, or its successor, shall be final and
absolute. The arbitrator shall be governed by the duly promulgated rules and
regulations of the American Arbitration Association, or its successor, and
the pertinent provisions of the laws of the State of Missouri relating to
arbitration. The decision of the arbitrator may be entered as a judgment in
any court of the State of Missouri or elsewhere.
SECTION TWELVE
MISCELLANEOUS PROVISIONS
------------------------
A. The Company shall be entitled to withhold from any payments made
pursuant to this Agreement, including SECTION EIGHT hereof, any federal,
state or local taxes required to be withheld by law or regulation.
B. This Agreement represents the entire agreement between the
parties and any prior understandings or representations of any kind preceding
the effective date of this Agreement shall not be binding on either party
except to the extent incorporated into this Agreement. This Agreement shall
not be altered, amended or modified except in writing signed by the Chief
Executive Officer of the Company and by the Executive.
C. This Agreement shall be binding upon and shall inure to the
benefit of the assigns, heirs, legatees or personal representatives of
Executive and the successors or assigns of the Company.
D. This Agreement shall inure to the benefit of and be binding upon
the Company and its successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise. The Company may not assign this Agreement
other than to a successor to all or substantially all of the business and/or
assets of the Company. Neither this Agreement nor any right or
8
<PAGE> 9
interest hereunder shall be assignable or transferable by Executive, the
Executive's beneficiaries or Executive's legal representatives without the
Company's prior written consent; provided, however, that nothing in this
Section shall preclude (i) Executive from designating a beneficiary to
receive any benefit payable hereunder upon the Executive's death, or (ii) the
executors, administrators, or other legal representatives of the Executive's
estate from assigning or transferring any rights hereunder to the person or
persons entitled thereunto.
E. The headings of sections are included solely for convenience of
reference and shall not control the meaning or interpretation of any of the
provisions of this Agreement.
F. This Agreement shall be construed according to the laws of the
State of Missouri without giving effect to the conflict of laws provisions
thereof.
G. No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be deemed
a continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a wavier of such term or condition for the future or of any act
other than that specifically waived.
H. If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect any other provision of the
Agreement not held so invalid, and each such other provision shall to the
full extent consistent with law continue in full force and effect.
The parties have entered into this Agreement based solely upon the
terms and conditions set forth herein. THIS AGREEMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
13th day of May, 1997.
RALCORP HOLDINGS, INC.
/s/ R. D. Wilkinson By: /s/ J. R. Micheletto
- ---------------------------- --------------------------------
Executive J. R. Micheletto
Chief Executive Officer
and President
9
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R A L C O R P H O L D I N G S, I N C.
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F I V E Y E A R F I N A N C I A L S U M M A R Y
<TABLE>
<CAPTION>
(In millions except per share data) FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------
STATEMENT OF EARNINGS DATA 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $739.7 $1,027.4 $1,013.4 $987.0 $902.8
Depreciation and Amortization 24.4 46.4 46.7 44.2 35.3
Earnings (Loss) before Income Taxes,
Interest Expense and Cumulative
Effect of Accounting Changes 549.8 (46.3) 83.0 100.2 87.7
As a Percent of Sales 74.3% (4.5%) 8.2% 10.2% 9.7%
Earnings (Loss) before Income Taxes and
Cumulative Effect of Accounting Changes $541.9 $(73.1) $54.8 $87.9 $85.1
Income Taxes 10.4 (26.3) 21.4 34.3 33.2
Earnings (Loss) before Cumulative Effect
of Accounting Changes 531.5 (46.8) 33.4 53.6 51.9
Net Earnings (Loss) <Fa>,<Fb>,<Fc>,<Fd>,<Fe>,<Ff> 531.5 (46.8) 33.4 53.6 42.6
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------------
BALANCE SHEET DATA 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working Capital <Fg> $ 56.5 $ 92.4 $104.7 $ 81.8 $ 54.8
Property at Cost, Net 154.3 322.6 417.1 416.2 412.6
Additions (during the period) 21.0 60.2 59.3 38.2 50.8
Depreciation (during the period) 22.5 43.5 44.1 41.7 34.0
Total Assets 400.3 627.1 716.2 700.1 626.4
Long-Term Debt - 376.6 395.4 389.4 30.3
Shareholders' Equity 286.7 107.4 162.4 141.2
Ralston Equity Investment 474.4
<FN>
<Fa> Includes, in 1997, a $515.4 non-taxable gain on the sale of Ralcorp's
branded cereal and snack business.
<Fb> Includes, in 1997, a $19.7 pre-tax restructuring charge ($12.4 after
taxes) to cover severance payments to employees eliminated as a result
of the Company's sale of its branded cereal and snack business and also
severance packages received by certain separated employees. The
original charges of $23.0 were taken in the first and second quarters
of 1997. In the fourth quarter of 1997, Ralcorp reversed $3.3 of the
second quarter charge.
<Fc> Includes, in 1996, a $109.5 pre-tax impairment charge ($68.8 after
taxes) related to its private label ready-to-eat cereal and consumer
hot cereal operations.
<Fd> Includes, in 1996, a $16.5 pre-tax restructuring charge ($10.4 after
taxes) to recognize the costs related to the restructuring of its
ready-to-eat cereal business. The original charge of $20.7 was taken
in the third quarter of 1996. In the fourth quarter of 1996, Ralcorp
reversed $4.2 of the original amount. This reversal was offset by $4.0
($2.5 after taxes) of transaction fees related to the sale of Resort
Operations.
<Fe> Includes, in 1995, $21.9 pre-tax nonrecurring charge ($13.6 after
taxes) related to the exit of industrial oats and oats milling
operations and impairment of the consumer hot cereal business.
<Ff> The cumulative effect of accounting changes for postretirement benefits
other than pensions and for income taxes reduced earnings by $9.3,
after taxes, in the year ended September 30, 1993.
<Fg> Excludes cash and cash equivalents and current maturities of long-term
debt, where applicable.
</TABLE>
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R A L C O R P H O L D I N G S, I N C.
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F I N A N C I A L R E V I E W
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity and capital
resources of Ralcorp Holdings, Inc. (Company). This discussion should be
read in conjunction with the Business Segment Information, Unaudited Pro
Forma Combined Financial Information, Consolidated Financial Statements and
Notes to Consolidated Financial Statements.
The comparisons of fiscal 1997 operations to those of 1996, and of 1996
to 1995, are affected by the significant changes to the Company's mix of
businesses, as well as the restructuring and nonrecurring charges recorded
over these years. As a result, comparative results are more difficult to
analyze and explain. Where practicable, this discussion will attempt to
address not only the financial results as reported, but also the key results
and factors affecting Ralcorp's on-going businesses.
For financial reporting purposes, Ralcorp is a "successor registrant"
to the Ralcorp Holdings, Inc. that was acquired by General Mills, Inc. on
January 31, 1997 (Old Ralcorp) and, as such, all financial statements
represent the historical financial information of Old Ralcorp, for periods
prior to January 31, 1997, and Ralcorp, for subsequent periods. Therefore,
references to the "Company" or "Ralcorp", as they relate to financial
information for periods prior to January 31, 1997, are references to Old
Ralcorp.
OVERVIEW
The Company and the businesses which comprise the Company experienced
dramatic changes in fiscal 1997. In January 1997, the Company completed two
significant divestitures, as the branded cereal and snack mix businesses
(Branded Business) were sold to General Mills, Inc. (General Mills) and the
Company's ski resorts operations (Resort Operations) were sold to Vail
Resorts, Inc. (Vail). The sale of the Branded Business to General Mills
generated $570 million, comprised of $355 million in General Mills stock for
distribution to Ralcorp shareholders and the assumption of $215 million in
Ralcorp debt and related accrued interest. In exchange for the Company's
Resort Operations, Vail assumed $165 million in Resorts debt and Ralcorp
received an approximate 22.6% ownership interest in Vail. In addition, on
April 21, 1997 the Company acquired the Wortz Company (Wortz), a private
label cracker and cookie operation. Since its acquisition, Wortz has been
operated as part of the Company's Bremner operation.
The business landscape at Ralcorp has changed and as a result, the
Company again recorded charges for restructuring its business processes.
These charges covered expenses related to the unfortunate loss of jobs, as
well as important process improvement costs needed to reduce an operational
structure previously in place to support a much larger company.
Operationally, fiscal 1997 was a year in which the on-going businesses
of Ralcorp achieved mixed performance levels throughout the year. The
Bremner cracker and cookie business experienced favorable operating results
through improved volume and product mix and the inclusion of Wortz since its
acquisition. The Beech-Nut baby food business operating results declined as
volumes fell below prior year levels and an increasingly competitive
environment continued to pressure Beech-Nut's results. Store brand cereals
struggled on lower volumes in the first half of fiscal 1997, but posted
volume improvements in both the third and fourth quarters of the year.
Though this limited period of improvement is not sufficient to indicate a
trend toward regular volume increases, the turnaround is encouraging.
Finally, for the period subsequent to the sale of Resort Operations to Vail
through September 30, 1997, the Company recorded $4.7 in equity earnings, an
amount in line with management's expectations.
OPERATING RESULTS
Operating results for fiscal 1997 and fiscal 1996 were impacted by
certain significant one-time items, which make year-to-year comparisons
difficult. In fiscal 1997, the Company recorded a $515.4 million tax-free
gain on the sale of the Branded Business to General Mills. Also in fiscal
1997, the Company recorded two restructuring charges totaling $19.7 million
($12.4 million after taxes or $.37 per share). The first of these charges
taken in the first quarter was $4.6 million ($2.9 million after taxes or $.09
per share) and covered expenses related to the severance packages received by
certain separated employees. The second charge of $15.1 million ($9.5
million after taxes or $.28 per share) was directly attributable to the sale
of the Branded Business, and covered expenses for severance payments,
information systems contract termination penalties and other costs related to
the disposition. In fiscal 1996, the Company recorded a $109.5 million pre-tax
impairment charge ($68.8 million after taxes or $2.09 per share) related
to its private label ready-to-eat cereal and consumer hot cereal operations.
This charge was recorded under the provisions of Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of" (FAS 121); see the
"Nonrecurring Charges" footnote in the Notes to Consolidated Financial
Statements. Also, in fiscal 1996, the Company recorded a pre-tax charge of
$16.5 million ($10.4 million after taxes or $.31 per share) to recognize the
costs related to the restructuring of its ready-to-eat cereal operations.
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R A L C O R P H O L D I N G S, I N C.
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Including the above referenced charges, the Company recorded net
earnings of $531.5 million or $16.11 per share for fiscal 1997, compared to a
net loss of $46.8 million or $1.42 per share for fiscal 1996. Exclusive of
the charges, fiscal 1997 resulted in net earnings of $28.5 million or $.86
per share compared to fiscal 1996 net earnings of $32.4 million or
$.98 per share. Net sales in fiscal 1997 were $739.7 million compared to
$1,027.4 million in fiscal 1996, a decline of $287.7 million or 28.0%. This
significant drop in net sales reflects the fact that sales from the Branded
Business and Resort Operations are included only through their respective
sale dates, partially offset by the additional net sales from Wortz since its
April 21, 1997 acquisition, as well as increased sales volume from the
original Bremner operation.
FISCAL 1997 COMPARED TO FISCAL 1996
Consumer Foods
Comparisons of operating results in the Consumer Foods segment on a
historical basis are complicated by the inclusion of the Company's Branded
Business only through January 31, 1997, the date of the Branded Business'
sale.
Consumer Foods net sales declined significantly from fiscal 1997 to
fiscal 1996, as net sales dropped to $706.6 million in fiscal 1997 from
$892.0 million in the prior fiscal year. This decline is due to the
inclusion of the now divested branded cereal and snack operation in the full
prior fiscal year's results. On a pro forma basis, excluding Branded
Business sales, Consumer Foods net sales recorded slight improvements
primarily on the strength of increased cracker and cookie sales. Cracker and
cookie sales benefited on a year-over-year comparison through the inclusion
of Wortz, since its acquisition, while sales from the original Bremner
operation also improved on favorable volume growth and product mix. Baby
food sales were virtually flat in fiscal 1997 compared to fiscal 1996 as the
effects of favorable pricing were offset by volume declines. Year-over-year
comparisons of store brand cereal sales showed a slight decline from fiscal
1996, however, store brand cereal volume improved in each of the last two
1997 fiscal quarters.
Operating profit, exclusive of the charges mentioned earlier, declined
$7.1 million, or 10.5%, to $60.2 million in fiscal 1997. This decline again
is primarily attributable to the Branded Business being included for the full
prior year. The store brand cereal business was able to operate profitably
for the full year. Previously, management had anticipated that it would be
sometime in fiscal 1998 before the store brand cereal business would return
to profitability. Bremner's operating profit improved significantly over the
prior year on the inclusion of Wortz, as well as on volume growth, a
favorable product mix and more favorable ingredient costs. The decline in
Beech-Nut's operating profit, however, practically offset the improvements at
Bremner. A meaningful decline in volumes, partially offset by increased
prices, and higher advertising and promotion expenses made necessary in the
increasingly competitive baby food industry, caused Beech-Nut's operating
profit decrease.
Resorts
During the period of October 1, 1996 through the January 3, 1997 sale
date of Resort Operations to Vail, the Company recorded net sales of $33.1
million and operating profit of $.3 million.
Ralcorp sold its three ski resort operations to Vail, in exchange for
the assumption of $165 million in Resort debt and an approximate 22.6% post-IPO
equity interest in Vail. Through this transaction, the Company directly
holds approximately 7.55 million shares of Vail Common Stock. As a result of
its approximate 22.6% ownership interest in Vail, Ralcorp recorded $4.7
million of pre-tax equity earnings, or $.09 per share, after taxes.
Typically, the Company will record more than 100 percent of its annual equity
earnings related to Vail in its fiscal second and third quarters. As the
Company moves forward with its current mix of businesses, the equity earnings
from the Company's investment in Vail could become more significant. It must
be noted that the skiing industry is mature, with slow growth, and high
levels of competition and any adverse operating performance at Vail will have
a negative effect on the Company's results. Company management, however, is
confident that Vail management will operate their ski resort operations in a
manner consistent with the best interest of the Company.
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R A L C O R P H O L D I N G S, I N C.
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Consolidated
Costs of products sold as a percentage of sales was 57.5% for the
current fiscal year compared to 52.3% for the prior year. Selling, general
and administrative expense as a percent of sales decreased to 17.1% for the
current year fourth quarter compared to 20.1% for the same quarter of the
prior year and was basically flat in a comparison of full fiscal years. The
decline in selling, general and administrative expense as a percent of sales
on a quarter-to-quarter comparison, as well as the flat comparison between
fiscal years, are indications of how the Company has been able to remove
significant portions of a cost structure that was historically in place to
support a larger corporation. The increase in costs of products sold as a
percentage of sales, however, reflects the fact that many of the Company's
higher margin products were eliminated through the sale of the Branded
Business. Advertising and promotion expense as a percentage of sales has
declined significantly in a year-to-year comparison, reflecting the reduced
level of advertising and promotional support necessary for a primarily
private label company. Net interest expense, for fiscal 1997 was $7.9
million or 1.1% of net sales compared to $26.8 million or 2.6% of net sales
in fiscal 1996. This decline reflects the predominantly debt-free status the
Company has experienced subsequent to the two January 1997 sale transactions.
Income taxes, which include federal and state taxes, were 39.2% of pre-tax
earnings, excluding the tax-free gain on sale of the Branded Business, for
fiscal 1997, compared to 36.0% of pre-tax losses in fiscal 1996. This
difference in the effective tax rate is primarily due to the Company
recording significant one-time charges in fiscal 1996. Tax provisions
generally reflect statutory tax rates.
FISCAL 1996 COMPARED TO FISCAL 1995
During the full fiscal years of 1996 and 1995 the Company operated in
two business segments, the "Consumer Foods" segment, comprised of the branded
and private label cereals and branded snacks, baby food and crackers and
cookies businesses, and the "Resort Operations" segment, consisting of the
Keystone, Breckenridge and Arapahoe Basin ski resorts.
Consumer Foods
Consumer Foods sales were essentially flat from 1995 to 1996, as segment
sales went from $886.0 million in fiscal 1995 to $892.0 million in fiscal 1996.
This slight increase was driven by significantly higher Chex Mix snack volume
(which continued to realize the positive effects of a successful restage),
increased cereal prices taken in advance of the category-wide pricing declines,
higher baby food prices and volume, and improved cracker and cookie volumes.
Substantially offsetting these positive factors were the significantly lower
branded and private label cereal volumes. Dramatic price decreases coupled
with promotional activities during fiscal 1996, directly and negatively
effected the Company's cereal volumes. Branded cereal volume declined
approximately 10% in the year and private label cereal volume declined
approximately 4%. Although minor branded cereal products volumes were down
significantly, the mainline Chex franchise performed reasonably well, down only
slightly from fiscal 1995. Sales of branded cereal is somewhat seasonal
because of the Company's Chex Party Mix holiday promotion. Management believes
that erosion of a portion of the price gap between branded and private label
cereal products, occurring primarily in the third and fourth quarters of fiscal
1996, resulted in the Company's first private label cereal volume decline.
As referred to earlier, Consumer Foods operating results for fiscal
1996 included certain significant one-time charges. In addition, in fiscal
1995, the Company recorded pre-tax nonrecurring charges totaling $21.9
million ($13.6 million after taxes or $.41 per share) related to management's
decision to exit the industrial oats business, close oats milling operations
and impair certain long-lived assets related to the remaining consumer hot
cereal business. These fiscal 1995 charges were determined under the
provisions of FAS 121. The combination of charges included in both fiscal
1996 and 1995 make year-to-year comparisons difficult. Therefore, in an
effort to present an analysis of the most comparable operating results, the
following discussion of Consumer Foods operating profit will exclude those
charges.
Operating profit for the segment decreased 29.5% in fiscal 1996 to
$67.3 million compared to $95.5 million in the previous year. The
significant decline is due primarily to lower cereal results partially offset
by improvements in Chex Mix and the baby food and cracker and cookie
businesses. In the cereal and snack business, operating profit declined as a
result of higher advertising and promotion expense, the continued negative
impact of increased ingredient costs and higher information systems costs,
partially offset by the strong performance of Chex Mix snacks and cereal
pricing increases taken in advance of the category-wide pricing decline.
Spider-Man cereal, introduced in fiscal 1995's fourth quarter, was an
earnings disappointment with volumes significantly below expectations.
Production of Spider-Man cereal has been discontinued. The Beech-Nut baby
food business results improved primarily on strong domestic volume gains and
favorable pricing, partially offset by higher ingredient costs. In addition,
baby food operations were slowed in the second half of fiscal 1996 due to
increased competitive pressures. The Bremner cracker and cookie business
increased its operating results in fiscal 1996 by adding new product sales
and new accounts, resulting in additional volume, and by continuing to lower
production costs.
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Resort Operations
Resort Operations sales improved 6.3% in fiscal 1996 to $135.4 million
compared to $127.4 million in 1995. The sales increase resulted primarily
from a 5% improvement in skier visits, as well as an approximate 3% increase
in room nights. Total skier visits for fiscal 1996 were 2.7 million. These
improvements were the direct result of good ski conditions during the key
winter months. As a result of these factors, Resort Operations recorded a
record $23.0 million operating profit in fiscal 1996 compared to $17.1
million in the prior year, an improvement of 34.5%.
The skiing industry is mature with slow overall growth and is highly
competitive. The Company's ski resorts compete with all types of recreation
and vacation alternatives for the consumers' discretionary spending.
Operating results for this segment are highly seasonal. Historically,
the resorts have earned more than the entire fiscal year's operating profit
during the fiscal second quarter, which contains the peak of the ski season.
Consolidated
Consolidated net sales increased 1.4% in fiscal 1996 to $1,027.4
million due to improved revenues of Chex Mix and the Resort Operations, as
well as favorable volume gains in both the cracker and cookie and baby food
businesses. Cost of products sold as a percentage of sales was 52.3% in both
fiscal 1996 and 1995 as increased Resort Operations revenues offset the
increase in ingredient costs that affected the Company's other businesses.
Selling, general and administrative expenses increased to 17.3% of sales in
1996 compared to 16.3% of sales in 1995 due to higher information systems
costs and the inclusion, in fiscal 1996, of approximately $4.0 million of
transaction costs related to the Company's proposed sale of its Resort
Operations. Advertising and promotion expense as a percentage of sales
increased to 22.7% of sales in fiscal 1996 from 21.0% in fiscal 1995. A
significant portion of this increase was due to spending associated with
Spider-Man, a new branded cereal in fiscal 1996, which was discontinued, and
stepped up promotional spending necessary to protect the Company's mainline
Chex franchise and its declining private label cereal business. Advertising
and promotion spending in support of the very successful Chex Mix restage was
also higher in fiscal 1996. Income taxes, which include federal and state
taxes, were 36.0% of pre-tax losses in fiscal 1996 compared to 39.1% of
pre-tax earnings in fiscal 1995. This decline in the effective tax rate is
primarily due to the Company recording significant one-time charges in fiscal
1996. Tax provisions on earnings generally reflect statutory tax rates.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
The Company's primary source of liquidity is cash flow from operations,
which decreased to $77.5 million in 1997 compared to $91.8 million in 1996
due primarily to the reduced level of earnings before non-cash items such as
depreciation, amortization, non-cash portions of restructuring charges and
the tax-free gain on sale of the Branded Business. The elimination of two
earnings streams through the sale transactions completed during the current
fiscal year's second quarter contributed to the net earnings decline.
Partially offsetting the net earnings decrease was the favorable cash flow
impact of reduced operating assets, primarily inventories and accounts
receivable. The $11.4 million increase in operating cash flow in 1996
compared to 1995 was due primarily to reduced working capital needs. Working
capital, excluding cash and cash equivalents and current maturities of long-
term debt, was $56.5 million at September 30, 1997 compared to $92.4 million
and $104.7 million at September 30, 1996 and 1995, respectively. The Company
had no cash balances at September 30, 1996 and 1995.
The Company's businesses have historically focused on generating
positive cash flows through operations. For the three years ended September
30, 1997, the Company was able to generate $249.7 million of cash from
operations. Management believes that the Company will continue to generate
operating cash flow through its mix of businesses and expects that future
liquidity requirements will be met through a combination of operating cash
flow and strategic use of borrowings available under its working capital
credit facility.
INVESTING ACTIVITIES
Investing activities in 1997 include the April 1997 purchase, for $41.6
million, of Wortz, a private label cracker and cookie operation headquartered
in Poteau, OK. Capital expenditures were $24.9 million, $66.7 million and
$66.1 million in fiscal years 1997, 1996 and 1995, respectively. Capital
expenditures for fiscal 1998 are expected to be approximately $25-$30
million. The significant reduction in capital expenditures in fiscal 1997 is
due to the decrease in the overall size of the Company, as well as the
incorporation of sound cost controls while maintaining efficient operating
facilities.
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FINANCING ACTIVITIES
As a result of the Branded Business and Resort Operations sales in
January 1997, Ralcorp emerged debt free. On April 21, 1997, the Company
borrowed $20.6 million through its existing credit facility, the proceeds of
which were used as partial consideration for the purchase of Wortz. By
September 30, 1997 this amount had been completely repaid leaving no
outstanding debt as of that time, compared to total long-term debt at
September 30, 1996 of $376.6 million.
To meet its on-going working capital needs the Company
has available a $50 million working capital credit facility. The proceeds of
the facility may be used to fund Ralcorp's working capital needs, capital
expenditures, and other general corporate purposes. Provisions of the $50
million credit facility require the Company to maintain certain financial
ratios and a minimum level of shareholders' equity. At no time subsequent to
the obtaining of this credit facility through the remainder of fiscal 1997,
was the Company in danger of violating any of these provisions. Management
does not currently believe that any risks inherent in the Company's on-going
businesses are likely to materially endanger the maintenance of the requisite
ratios or level of shareholders' equity.
During fiscal 1997, the Company made no repurchases of its Common Stock
compared to repurchases of $8.6 million and $13.5 million in the years ended
September 30, 1996 and 1995, respectively. Subsequent to the end of fiscal
1997, the Company's Board of Directors approved an authorization to buy back
up to one million shares of the Company's Common Stock. This authorization
allows Company management to make purchases from time to time at prevailing
market prices.
OUTLOOK
Ralcorp, through its Ralston Foods division, continues to operate in
the highly competitive ready-to-eat cereal category. Management believes the
increased presence of competitors' low priced branded bagged cereals is
having, and may continue to have, a negative impact on industry-wide profits.
Also, consolidation among members of the grocery trade may lead to increased
wholesale price pressure from larger grocery trade customers and could result
in the loss of key cereal accounts if the surviving entities are not
customers of the Company. To be successful, Ralcorp must maintain an
effective price gap between its private label cereal products and those
products of top branded cereal competitors. Ralcorp management has been
somewhat successful at removing excess costs from its cereal operations in
order to attain a cost basis that will allow it to maintain an adequate price
gap and still provide a quality alternative to branded cereals. Management
intends to continue to focus on cost elimination where appropriate. During
the second half of fiscal 1997, Ralcorp's cereal subsidiary posted an
operating profit, further demonstrating the success of its cost cutting
efforts to date. Despite the return to profitability, it must be cautioned
that this does not guarantee future profitability.
In baby foods, significant competitive pressures and an overall decline
in the baby food category are important concerns for the management of
Beech-Nut. Beech-Nut continues to focus on the production of high quality
products, maintaining its presence in key regional markets and emphasizing
cost reductions and controls. With regard to the Bremner cracker and cookie
business, the addition of the Wortz Company, acquired on April 21, 1997, had
an immediate and positive effect on sales, operating profit and customer
base. The existing Bremner business continued to achieve good results for
the fiscal year on improved volume, sales and product mix. Despite the
present positive performance and favorable results from the Wortz
acquisition, Bremner still faces significant competition from large branded
and regional private label producers.
With much of the transition to a predominantly private label foods
company completed, Ralcorp management intends to take the appropriate steps
necessary to grow the Company's businesses. Such steps could include
additional improvement in operating efficiencies, expanding the customer base
where possible, continued product improvement and innovation, and, as
previously mentioned, maintaining a meaningful price gap between branded
products and all of its private label offerings.
Management realizes that in addition to improved operations and
enhanced efficiencies, a key growth opportunity may exist through strategic
acquisitions. The acquisition of the Wortz Company serves as an example.
Management intends to explore, where appropriate, those acquisition
opportunities that strategically fit with the Company's current mix of
businesses. Ralcorp's low level of outstanding debt should provide the
Company greater flexibility to act upon any such opportunities.
ENVIRONMENTAL MATTERS
The operations of the Company, like those of similar businesses, are
subject to various federal, state, and local laws and regulations intended to
protect public health and the environment, including air and water quality
and waste handling and disposal. The Company has received notices from the
U.S. Environmental Protection Agency, state agencies, and/or private parties
seeking contribution, that it has been identified as a "potentially
responsible party" (PRP) under the Comprehensive Environmental Response,
Compensation and Liability Act, and the Company may be required to share in
the cost of cleanup with respect to one waste disposal site related to the
Branded
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- -------------------------------------------------------------------------------
Business. Pursuant to a Reorganization Agreement with General Mills, General
Mills has agreed to indemnify and defend the Company for and against
liabilities associated with the site. General Mills' indemnification and
defense obligations are limited as more fully discussed in the "Commitments
and Contingencies" footnote in the Notes to Consolidated Financial
Statements. The Company's ultimate liability in connection with
environmental matters may depend on many factors including, but not limited
to, the volume of material contributed to the site, the existence of other
parties responsible for remediation and their financial viability, reports of
experts (internal or external), and the remediation methods and technology to
be used. Based upon the information currently available, the ultimate
liability arising from environmental matters should not have a material
effect on the Company's financial position or results of operations.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 - "Earnings per
Share" (FAS 128). This Statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. FAS 128 simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15 -
"Earnings per Share". FAS 128 replaces the presentation of primary earnings
per share with basic earnings per share. As applicable, FAS 128 retains the
presentation of fully diluted earnings per share for those entities with
complex capital structures. The provisions of FAS 128 are effective for the
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted and
restatement of all prior period earnings per share is required. Company
management believes that the provisions of this Statement will not have a
significant effect on the Company's historical calculations of earnings per
share.
In June 1997, the FASB issued two new Statements of Financial
Accounting Standards. The first, Statement of Financial Accounting Standards
No. 130 - "Reporting Comprehensive Income" (FAS 130), establishes standards
for reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. FAS 130 is effective for
fiscal years beginning after December 15, 1997 and any restatement of
financial statements for earlier periods provided for comparative purposes is
required. Company management does not expect the provisions of FAS 130 to
have a material impact on the Company's consolidated financial statements.
Also issued in June 1997 was Statement of Financial Accounting Standards No.
131 - "Disclosure about Segments of an Enterprise and Related Information"
(FAS 131), which establishes standards for how public business enterprises
report information about operating segments in annual financial statements
and requires selected information about operating segments in interim
financial reports. FAS 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. FAS 131 is effective for financial statements for periods
beginning after December 15, 1997. Company management continues to evaluate
the definition of a segment as presented in FAS 131 and what its impact will
have on future disclosures.
INFLATION
Management recognizes that inflationary pressures may have an adverse
impact on the Company through higher asset replacement costs, related
depreciation and higher material costs. The Company tries to minimize these
effects through cost reductions and productivity improvements as well as
price increases to maintain reasonable profit margins. It is management's
view, however, that inflation has not had a significant impact on operations
in the three years ended September 30, 1997.
CAUTIONARY STATEMENT ON
FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act are made throughout this document and including
information under the section titled "Financial Review", and are preceded by,
followed by or include the words "intends," "believes," "expects,"
"anticipates," "should" or similar expressions elsewhere in this document.
The Company's results of operations and liquidity status may differ
materially from those in the forward-looking statements. Such statements are
based on management's current views and assumptions, and involve risks and
uncertainties that could affect expected results. For example, any of the
following factors cumulatively or individually may impact expected results:
(i) If the Company is unable to maintain a meaningful price gap between
its private label products and the branded products of its competitors, then
the Company's private label operations could incur operating losses;
(ii) Significant increases in the cost of certain raw materials used in
the Company's products, to the extent not reflected in the price of the
Company's products, could adversely impact the Company's results. For
example, the cost of wheat can change significantly;
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(iii) In light of its significant ownership in Vail Resorts, Inc., the
Company's non-cash earnings can be adversely affected by Vail's unfavorable
performance;
(iv) The baby food segment has experienced volume declines which have
and could continue to negatively impact the Company's results;
(v) The Company's businesses compete in mature segments with
competitors having large percentages of segment sales; and
(vi) The Company's profit growth depends largely on the ability to
successfully introduce new products and aggressively manage costs across all
parts of the Company. For example, increased promotional spending by the
baby food segment leader could negatively impact the Company's results.
- -------------------------------------------------------------------------------
B U S I N E S S S E G M E N T I N F O R M A T I O N
Summarized financial information by business segment follows. The segments
were comprised of the following:
Consumer Foods
Cereals and Snacks
Baby Foods
Crackers and Cookies
Resort Operations (through January 3, 1997)
The Consumer Foods segment consists of cereals, baby food products and
other specialty grocery products, primarily crackers, cookies, and snacks,
and the coupon redemption business, through January 31, 1996, the effective
sale date of this business. Reflected in the Consumer Foods segment is the
sale of the Company's branded cereal and snack business on January 31, 1997,
and the purchase of the Wortz Company, a private label cracker and cookie
company, on April 21, 1997. The Resort Operations segment consisted of the
Keystone, Arapahoe Basin and Breckenridge resorts, through January 3, 1997,
the date of its sale to Vail Resorts, Inc. As of September 30, 1997, however
the Company maintained an approximate 22.6% equity interest in Vail Resorts,
Inc.
Sales between business segments were immaterial. No single customer
accounted for 10% or more of sales.
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B U S I N E S S S E G M E N T I N F O R M A T I O N ( C O N T I N U E D )
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES BY PRODUCT LINES AND SEGMENTS
Consumer Foods
Cereal and Snacks $437.0 $ 661.4 $ 670.1
Baby Foods 151.1 152.8 147.2
Crackers and Cookies 118.5 77.8 68.7
-------------------------------------------------------
Subtotal $706.6 $ 892.0 $ 886.0
Resort Operations 33.1 135.4 127.4
-------------------------------------------------------
Total $739.7 $1,027.4 $1,013.4
=======================================================
OPERATING PROFIT
Consumer Foods <Fa> $ 40.5 $ (58.7) $ 73.6
Resort Operations .3 23.0 17.1
-------------------------------------------------------
Total $ 40.8 $ (35.7) $ 90.7
Gain on Sale of Branded Business 515.4
Equity Earnings in Vail Resorts, Inc. 4.7
Unallocated Corporate and
Miscellaneous Expense <Fb> (11.1) (10.6) (7.7)
Interest Expense (7.9) (26.8) (28.2)
-------------------------------------------------------
Earnings (Loss) before Income Taxes $541.9 $ (73.1) $ 54.8
=======================================================
ASSETS AT YEAR END
Consumer Foods <Fc> $304.2 $ 342.5 $ 472.9
Resort Operations <Fd> 236.2 226.4
Corporate <Fe> 96.1 48.4 16.9
-------------------------------------------------------
Total $400.3 $ 627.1 $ 716.2
=======================================================
DEPRECIATION EXPENSE
Consumer Foods $ 18.6 $ 29.8 $ 31.3
Resort Operations 3.9 13.7 12.8
PROPERTY ADDITIONS
Consumer Foods $ 13.2 $ 42.3 $ 49.7
Resort Operations 7.8 17.9 9.6
<FN>
<Fa> Reflects $19.7 in pre-tax restructuring charges taken as part of
extensive downsizing initiatives at the Company in 1997. Includes the
pre-tax nonrecurring charges of $109.5 and the pre-tax restructuring
charge of $16.5 in 1996. Includes the pre-tax nonrecurring charges of
$21.9 in 1995.
<Fb> Corporate expenses includes a cash settlement of stock options and
awards of $2.8 and $.8 in miscellaneous resort transaction fees in
1997. Includes the $4.0 transaction fees related to the sale of the
Company's Resort Operations in 1996.
<Fc> Reflects assets of the Branded Business being sold to General Mills and
assets of the Wortz Company acquisition, in 1997. Includes the asset
impairment charge of $109.5 and the asset writedown of $7.3 relating to
the restructuring charge in 1996. Includes the asset writedown portion
of the nonrecurring charges related to the consumer hot cereal business
of $20.5 in 1995.
<Fd> Assets eliminated through sale of Resort Operations to Vail Resorts in
1997.
<Fe> Includes $55.4 representing the equity investment in Vail Resorts as of
September 30, 1997.
</TABLE>
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RESPONSIBILITY FOR FINANCIAL STATEMENTS
The preparation and integrity of the financial statements of Ralcorp
Holdings, Inc. are the responsibility of its management. These statements
have been prepared in accordance with generally accepted accounting
principles and in the opinion of management fairly present the Company's
financial position, results of operations and cash flow.
The Company maintains accounting and internal control systems which it
believes are adequate to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition and that the
financial records are reliable for preparing financial statements. The
selection and training of qualified personnel, the establishment and
communication of accounting and administrative policies and procedures, and
an extensive program of internal audits are important elements of these
control systems.
The report of Price Waterhouse LLP, independent accountants, on their
audits of the accompanying financial statements follows. This report states
that their audits were performed in accordance with generally accepted
auditing standards. These standards include an evaluation of internal
control for the purpose of establishing a basis for reliance thereon relative
to the scope of their audits of the financial statements.
The Board of Directors, through its Audit Committee consisting solely
of nonmanagement directors, meets periodically with management and the
independent accountants to discuss audit and financial reporting matters. To
assure independence, Price Waterhouse LLP has direct access to the Audit
Committee.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Ralcorp Holdings, Inc.
In our opinion, based upon our audits and the report of other auditors,
the accompanying consolidated balance sheets and the related consolidated
statements of earnings, of shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of Ralcorp Holdings,
Inc. and its subsidiaries at September 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended September 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits.
We did not audit the financial statements of Vail Resorts, Inc., an
investment which is reflected in the accompanying financial statements using
the equity method of accounting. The Company's investment in Vail Resorts,
Inc. at September 30, 1997 was $55,400,000 and the equity in its net income
was $4,700,000 for the year then ended. Those statements were audited by
other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Vail
Resorts, Inc., is based solely on the report of the other auditors.
We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the report
of other auditors provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
St. Louis, Missouri
November 5, 1997
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- -------------------------------------------------------------------------------
<TABLE>
C O N S O L I D A T E D S T A T E M E N T O F E A R N I N G S
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
(Dollars in millions except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 739.7 $1,027.4 $1,013.4
-----------------------------------------------
Costs and Expenses
Cost of products sold 425.2 536.8 530.4
Selling, general and administrative 126.5 177.6 164.9
Advertising and promotion 138.6 233.3 213.2
Interest expense, net 7.9 26.8 28.2
Restructuring charges 19.7 16.5
Nonrecurring charges 109.5 21.9
Gain on sale of Branded Business (515.4)
Equity earnings in Vail Resorts, Inc. (4.7)
-----------------------------------------------
197.8 1,100.5 958.6
-----------------------------------------------
Earnings (Loss) before Income Taxes 541.9 (73.1) 54.8
Income Taxes 10.4 (26.3) 21.4
-----------------------------------------------
Net Earnings (Loss) $ 531.5 $ (46.8) $ 33.4
===============================================
Earnings (Loss) per Common Share $ 16.11 $ (1.42) $ 1.00
===============================================
The above financial statement should be read in conjunction with the Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
C O N S O L I D A T E D B A L A N C E S H E E T
<CAPTION>
SEPTEMBER 30,
--------------------------------
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 8.4 $ -
Receivables, less allowance for doubtful accounts 52.9 75.5
Inventories 72.5 103.3
Prepaid expenses 9.3 14.2
--------------------------------
Total Current Assets 143.1 193.0
Investments and Other Assets 89.1 88.1
Deferred Income Taxes 13.8 23.4
Property at Cost
Land 2.2 27.9
Buildings 49.5 112.6
Machinery and equipment 204.4 370.4
Construction in progress 8.0 26.1
--------------------------------
264.1 537.0
Accumulated depreciation 109.8 214.4
--------------------------------
154.3 322.6
--------------------------------
Total Assets $400.3 $627.1
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ - $ 1.8
Accounts payable and accrued liabilities 78.2 100.6
--------------------------------
Total Current Liabilities 78.2 102.4
Long-Term Debt 376.6
Other Liabilities 35.4 40.7
Commitments and Contingencies
Shareholders' Equity
Common stock - $.01 par value, issued shares:
1997 - 33,011,317 and 1996 - 33,924,848 .3 .3
Capital in excess of par value 110.1 130.9
Retained earnings (deficit) 176.3 (.2)
Common stock in treasury, at cost, 1,007,932 shares in 1996 (22.7)
Unearned portion of restricted stock (.9)
--------------------------------
Total Shareholders' Equity 286.7 107.4
--------------------------------
Total Liabilities and Shareholders' Equity $400.3 $627.1
================================
The above financial statement should be read in conjunction with the Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
(Dollars in millions) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow from Operations
Net earnings (loss) $ 531.5 $(46.8) $ 33.4
Adjustments to reconcile earnings to net cash
flow provided by operations:
Depreciation and amortization 24.4 46.4 46.7
Gain on sale of Branded Business (515.4)
Nonrecurring charges 109.5 21.9
Restructuring charges (net of cash paid) 2.4 11.0
Deferred income taxes 8.6 (45.8) (8.4)
Changes in assets and liabilities used in operations
Decrease (increase) in receivables 24.9 10.8 (8.6)
Decrease (increase) in inventories 15.8 6.9 (16.0)
(Increase) decrease in prepaid expenses (27.0) (.9) (1.0)
Decrease (increase) in long-term receivables 5.7
Increase (decrease) in accounts payable and
accrued liabilities 10.8 (5.9) (.4)
Other, net 1.5 6.6 7.1
--------------------------------------------
Net cash flow from operations 77.5 91.8 80.4
============================================
Cash Flow from Investing Activities
Acquisition (41.6)
Additions to property and intangible assets (24.9) (66.7) (66.1)
Proceeds from the sale of property 3.4 6.0 4.3
Other, net (2.9) (3.7) (2.7)
--------------------------------------------
Net cash used by investing activities (66.0) (64.4) (64.5)
--------------------------------------------
Cash Flow from Financing Activities
Net repayments under credit agreement (17.0) (2.2)
Repayments of long-term debt, including current
maturities (3.1) (1.8) (.2)
Repurchase of common stock (8.6) (13.5)
Other, net
--------------------------------------------
Net cash used by financing activities (3.1) (27.4) (15.9)
--------------------------------------------
Net Increase in Cash and Cash Equivalents 8.4 - -
Cash and Cash Equivalents, Beginning of Year - - -
--------------------------------------------
Cash and Cash Equivalents, End of Year $ 8.4 $ - $ -
============================================
The above financial statement should be read in conjunction with the Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
CO N S O L I D A T E D S T A T E M E N T O F S H A R E H O L D E R S ' E Q U I T Y
<CAPTION>
(Dollars in millions, shares in thousands) FOR THE THREE YEARS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------------------------------
Common Stock Unearned
Common Stock Capital in in Treasury, at cost Portion of
----------------- Excess of ------------------------ Retained Restricted
Shares Amount Par Value Shares Amount Earnings Stock
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 33,922 $ .3 $ 130.9 - $ - $ 13.2 $(3.2)
Net earnings 33.4
Treasury stock purchased (633) (13.5)
Activity under stock plans 3 .1 (26) (.3)
Amortization of restricted stock 1.5
------------------------------------------------------------------------------------
Balance, September 30, 1995 33,925 $ .3 $ 131.0 (659) $(13.8) $ 46.6 $(1.7)
Net earnings (loss) (46.8)
Treasury stock purchased (349) (8.6)
Activity under stock plans (.1) (.3)
Amortization of restricted stock .8
------------------------------------------------------------------------------------
Balance, September 30, 1996 33,925 $ .3 $ 130.9 (1,008) $(22.7) $ (.2) $ (.9)
Net earnings 531.5
Activity under stock plans (52) (.7) 146 2.6
Amortization of restricted stock .1
Accelerated vesting of restricted stock .8
Distribution of General Mills Stock to
Shareholders (355.0)
Retire treasury stock (862) (20.1) 862 $ 20.1
------------------------------------------------------------------------------------
Balance, September 30, 1997 33,011 $ .3 $ 110.1 - $ - $176.3 $ -
====================================================================================
The above financial statement should be read in conjunction with the Notes to Consolidated Financial Statements.
</TABLE>
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(Dollars in millions except per share data)
NOTE 1 - GENERAL INFORMATION
Effective at the close of business on March 31, 1994 (the 1994 Spin-off
Date) Ralcorp Holdings, Inc. became an independent, publicly owned company as
a result of the distribution by Ralston Purina Company (Ralston) of Ralcorp's
$.01 par value Common Stock (Ralcorp Stock) to holders of Ralston-Ralston
Purina Group Common Stock $.10 par value (RPG Stock), at a distribution ratio
of one for three (the 1994 Spin-off). Included in this transaction was the
transfer of substantially all of the assets and liabilities related to the
branded and private label cereal business (excluding cereal products
manufactured in Korea and France), baby food business, branded and private
label crackers and cookies business, coupon redemption business and the ski
operations business (collectively, the Ralcorp Businesses), all of which were
previously owned by Ralston. Ralston did not retain any ownership interest
in Ralcorp Holdings, Inc.
For the purpose of governing certain of the relationships between
Ralston and Ralcorp, as well as providing an orderly transition, Ralston and
Ralcorp entered into various agreements, including the Agreement and Plan of
Reorganization (the 1994 Spin-off Reorganization Agreement), Tax Sharing
Agreement, Bridging Agreement, Trademark Agreement and other agreements.
On January 3, 1997, Ralcorp sold its ski resort holdings to Vail
Resorts, Inc. (Vail) in exchange for the assumption of $165 in Resort
Operations debt and an approximate 22.6% post-IPO equity interest in the
combined Vail. Vail stock began trading on the New York Stock Exchange on
February 4, 1997.
On January 31, 1997, the original Ralcorp Holdings, Inc.
(Old Ralcorp) was merged with a subsidiary of General Mills, Inc. (the
Merger). Immediately prior to the Merger, Old Ralcorp spun-off its private
label cereal, branded baby food and private label cracker and cookie
businesses and its ownership interest in Vail (the Spin-Off) by distributing
one share of New Ralcorp Holdings, Inc. Common Stock for each share of Old
Ralcorp Common Stock owned as of the close of business on January 31, 1997
(Distribution Date). Immediately prior to the Spin-Off, New Ralcorp
Holdings, Inc. (Ralcorp) changed its name to Ralcorp Holdings, Inc. and in
the Merger, Old Ralcorp, which was now comprised of the branded cereal and
snack mix businesses (the Branded Business), changed its name to General
Mills Missouri, Inc. This completed the $570 transaction with General Mills,
Inc. (General Mills) that was first announced in August 1996. The $570 value
was reached by General Mills assuming $215 in Ralcorp debt and related
accrued interest and funding the remaining $355 through the distribution of
General Mills stock to Ralcorp shareholders of record on January 31, 1997.
For financial reporting purposes, Ralcorp is a "successor registrant"
to Old Ralcorp and, as such, the accompanying Ralcorp financial statements
represent the historical financial position and results of operations of Old
Ralcorp, for periods prior to January 31, 1997, and Ralcorp, for subsequent
periods. Therefore, references to the "Company" or "Ralcorp", for periods
prior to January 31, 1997, are references to Old Ralcorp, without giving
effect to the Merger or the Spin-Off.
NOTE 2 - BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation - The financial statements as of, and for the years
ended September 30, 1997 and 1996 are presented on a consolidated basis. All
significant intercompany transactions have been eliminated.
These financial statements include the accounts of Ralcorp and its
majority-owned subsidiaries. Investments in affiliated companies, 20%
through 50%-owned, are carried at equity.
Cash equivalents for purposes of the Consolidated Statement of Cash
Flows are considered to be all highly liquid investments with an original
maturity of three months or less.
Financial Instruments - The Company has a policy which allows the use
of various derivative financial instruments to manage the Company's financial
risk that exists as part of conducting business. Under the policy, the
Company is not permitted to engage in speculative or leveraged transactions
that have the potential for a disproportionate ratio between the change in
value of the liability being hedged and the expected change in value of the
related derivative instrument. The Company will not hold or issue financial
instruments for trading purposes. As of September 30, 1997, the Company
had no material derivative financial instruments outstanding.
Inventories are valued generally at the lower of average cost or
market. In connection with purchasing key raw ingredient materials, the
Company follows a policy of from time to time using commodities futures
contracts in the management of commodities pricing risks that are inherent to
its business operations. Such instruments are not held or issued for trading
purposes. The Company uses these hedging instruments to reduce the risk of
price fluctuations related to future raw materials requirements for
commodities such as corn, wheat, oats and flour. The terms of such
instruments generally do not exceed twelve months, and depend on the
commodity and other market factors. Such contracts are accounted for as
hedges, with related gains and losses ultimately included as part of the cost
of products sold. The effect of any realized or deferred gains or losses is
immaterial to the financial condition and results of operations of the
Company.
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Property at Cost - Expenditures for new facilities and those which
substantially increase the useful lives of the property, including interest
during construction, are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When properties are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from
the accounts and gains or losses on the disposition are reflected in
earnings.
Depreciation is generally provided on the straight-line basis by
charges to costs or expenses at rates based on the estimated useful lives of
the properties. Estimated useful lives range from 3 to 25 years for
machinery and equipment and 10 to 50 years for buildings.
Intangible Assets include the excess of cost over the net tangible
assets of acquired businesses and are amortized over estimated periods of
related benefit ranging from 4 to 40 years. The Company also defers systems
development costs when they reach technological feasibility. Amounts
deferred are amortized over estimated periods of related benefit not to
exceed 5 years. Intangible assets are included in Investments and Other
Assets.
Impairment - The Company continually evaluates whether events or
circumstances have occurred which might impair the recoverability of the
carrying value of its long-lived assets, identifiable intangibles and
goodwill.
Income Taxes have been provided in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109). FAS 109 requires the liability method of income tax accounting,
accordingly, a deferred tax liability or asset is recognized for the effect
of temporary differences between financial and tax reporting.
Earnings per Share - The computation of earnings per common share for
the years ended September 30, 1997, 1996 and 1995 are based on the weighted
average number of shares of Ralcorp Stock outstanding for the years then
ended.
Advertising Costs are expensed in the year in which the costs are
incurred.
Estimates - The preparation of financial statements in conformity with
Generally Accepted Accounting Principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets
and liabilities. Actual results could differ from those estimates.
NOTE 3 - EQUITY INVESTMENT IN VAIL RESORTS, INC.
The Company's equity investment in affiliated companies includes an
approximate 22.6% interest in Vail at September 30, 1997. The Company
accounts for its investment in Vail by the equity accounting method. The
carrying value of this investment was $55.4 at September 30, 1997. The
market value of the Company's investment in Vail was $202.1 at September 30,
1997. As of the January 1997 sale of Ralston Resorts, the Company's equity
interest in the underlying net assets of Vail exceeded the net book value of
the net assets contributed by the Company to Vail by $37.5. This excess is
being amortized ratably to the investment in Vail over 20 years.
Except in limited circumstances, terms of a shareholder agreement
provide that, the Company will not acquire any additional shares of Vail
stock. The Company has registration rights with respect to the Vail stock,
but the shareholder agreement provides that, with certain limited exceptions,
Vail and its largest shareholder can purchase at market prices any Vail stock
the Company desires to sell. The shareholder agreement provides that the
Company will vote the shares of Vail stock in accordance with the
recommendation of Vail's Board of Directors with respect to shareholder
proposals and nominations to that Board, and with respect to other proposals,
in proportion to the votes of all other shareholders. However, the Company
may vote as it deems appropriate with respect to proposals for the merger of
Vail, the sale of all Vail assets, the creation of any other class of voting
stock of Vail or changes to Vail's certificate of incorporation or bylaws if
such changes adversely affect the Company's rights under the shareholder
agreement. The Company has two representatives on the 17-member Vail Board
of Directors.
Presented below is summary financial information of Vail:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
- ----------------------------------------------------------------------
<S> <C>
Current assets $ 79.5
Noncurrent assets 779.6
----------------
Total assets $859.1
================
Current liabilities $ 81.1
Noncurrent liabilities 372.3
Stockholders' equity 405.7
----------------
Total liabilities and stockholders' equity $859.1
================
</TABLE>
-30-
<PAGE> 17
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
- ------------------------------------------------------------------------
<S> <C>
Net sales $246.2
Total operating expenses 205.2
------------------
Income from operations $ 41.0
==================
Net income $ 14.1
==================
Company's equity income, net of deferred taxes $ 2.9
==================
</TABLE>
NOTE 4 - RESTRUCTURING CHARGES
During the year ended September 30, 1997, the Company recorded a pre-
tax restructuring charge of $15.1 ($9.5 after taxes or $.29 per common share)
to cover costs associated with the sale of the Company's Branded Business,
including severance payments to employees whose jobs were eliminated and
financial penalties related to the early termination of information systems
contracts. The level of systems support included in these contracts was no
longer warranted after the Branded Business sale. Also, during the year
ended September 30, 1997, the Company recorded a pre-tax restructuring charge
of $4.6 ($2.9 after taxes or $.09 per common share). This charge covered
severance costs for certain employees whose jobs were eliminated in
downsizing initiatives.
For the year ended September 30, 1996, the Company recorded a pre-tax
charge of $16.5 ($10.4 after taxes or $.31 per common share) to recognize the
costs related to the restructuring of its ready-to-eat cereal subsidiary,
Ralston Foods. As a result of this restructuring plan, certain positions
were eliminated from the Ralston Foods division and corporate support groups,
primarily at the Company's headquarters in St. Louis, MO. In addition, the
restructuring plan included the partial closing of the Ralston Foods
production facility in Battle Creek, MI.
The restructuring charges and their utilization are summarized in the
following table.
<TABLE>
<CAPTION>
FY 1996 UTILIZED IN FY 1997 UTILIZED IN BALANCE OF
CHARGES FY 1996 CHARGES FY 1997 RESERVE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries, severance
and benefits $ 8.0 $ (5.0) $ 8.8 $(11.2) $ .6
Asset writedowns 7.3 (7.3) 3.0 (2.2) .8
Contract penalties 6.2 (6.2) -
Other 1.2 (.5) 1.7 (1.0) 1.4
---------------------------------------------------------------------------
Total restructuring
charges $16.5 $(12.8) $19.7 $(20.6) $2.8
===========================================================================
</TABLE>
NOTE 5 - NONRECURRING CHARGES
In September 1996, the Company recorded a $109.5 pre-tax impairment
charge related to its private label ready-to-eat and hot cereal operations.
Dramatic changes in the pricing and promotion environment of the ready-to-eat
cereal category and the effect these changes had and will continue to have on
the Company's private label cereal business, caused the Company to record
this charge. The charge was determined under the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," (FAS 121)
which was issued by the Financial Accounting Standards Board in March 1995.
FAS 121 established accounting standards for recognizing the impairment of
long-lived assets, identifiable intangibles and goodwill, whether to be
disposed of or to be held and used. In general, FAS 121 requires recognition
of an impairment loss when the sum of undiscounted expected future cash flows
is less than the carrying amount of such assets. Ultimately, it was
determined that the projection of future cash flows generated by the private
label cereal operations would not be sufficient to recover the carrying value
of assets associated with such operations. The amount of the September 1996
impairment loss was recognized by the Company as a write-down of fixed assets
to fair value.
In September 1995, the Company decided to exit the industrial oats
business and close oats milling operations at its Cedar Rapids, IA facility.
This decision did not affect the Company's branded and private label consumer
hot cereal business which continues to operate at the Cedar Rapids location.
The consumer and industrial oats businesses were acquired in November 1993 as
part of the acquisition of the National Oats Company from Curtice Burns
Foods, Inc.
The decision to exit the industrial business and close milling
operations was reached due to excess industry capacity which depressed
selling prices despite significantly higher raw ingredient costs. In
addition, the location of the milling operations placed the Company at a
competitive disadvantage due to higher freight costs. As a result, the
Company recorded, in fiscal 1995, a nonrecurring pre-tax charge of $10.1 to
cover the costs of exit, consisting primarily of the write-down of the
carrying value of related fixed assets, or $9.8, to fair value less related
disposition costs. The fiscal 1995 operating loss, for the operations
affected by the exit decision, was approximately $3.7.
In addition to the exit-related charge, the Company also recorded a
non-recurring pre-tax charge of $11.8 in fiscal 1995 representing the
impairment of the remaining fixed and intangible assets related to the
consumer hot cereal business. A portion of the fiscal 1996 impairment charge
also pertained to these assets. The entry of a significant new competitor
into
-31-
<PAGE> 18
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
the private label hot cereal category adversely affected the price structure
of the category and precipitated the impairment charge. Like the fiscal 1996
charge, this charge and the previously mentioned exit charge, were determined
under the provisions of FAS 121. The amount of the September 1995 impairment
loss was recognized by the Company as a write-down of goodwill and fixed
assets to fair value.
With regard to all the above referenced charges, fair value was
determined as the present value of estimated expected future cash flows using
a discount rate commensurate with
the risks involved.
NOTE 6 - TRANSACTIONS WITH RALSTON
The Company and Ralston entered into a Bridging Agreement in connection
with the 1994 Spin-off under which Ralston continued to provide certain
administrative, technical services and office facilities for the Company's
headquarters. As of September 30, 1995 most of these arrangements had ended.
Prior to the 1994 Spin-off the expenses related to these services were
allocated to the Company based on utilization or other methods deemed
reasonable by management. Actual expenses paid by the Company to Ralston
were $1.6, $1.7 and $19.2 for the years ended September 30, 1997, 1996 and
1995, respectively.
NOTE 7 - ACQUISITION
On April 21, 1997, the Company completed the purchase of the Wortz
Company, a private label cracker and cookie operation. Wortz, which will be
operated as part of the Company's Bremner operation, is headquartered in
Poteau, OK, with annual sales of approximately $70. The acquisition was
financed by a combination of available cash and debt under the Company's
credit facility and accounted for using the purchase method of accounting,
whereby, the results of operations are included in the consolidated statement
of earnings from the date of acquisition.
The total consideration given in relation to this acquisition was
approximately $46.0, of which, $4.4 is expected to be paid in fiscal 1998.
Goodwill associated with this acquisition is included in the "Investments and
Other Assets" line of the accompanying Consolidated Balance Sheet at
September 30, 1997.
NOTE 8 - DIVESTITURES
On January 31, 1997, the Company effectively sold its Branded Business
through a tax-free transaction with General Mills. This transaction was
valued at $570, comprised of General Mills assuming $215 in Company debt and
related accrued interest and the remaining $355 coming through the
distribution of General Mills stock to Ralcorp shareholders of record on
January 31, 1997. Subsequent to the Merger, the Company recorded a $515.4
tax-free gain related to this sale transaction.
On January 3, 1997, the Company effectively sold its ski resort
operations to Vail in exchange for an approximate 22.6% of Vail's outstanding
common stock, or 7,554,406 shares, and the assumption by Vail of $165 of
Resorts debt. In accordance with Accounting Principles Board Opinion No. 29
- - "Accounting for Nonmonetary Transactions" (APB 29), the Resort Operations
transaction with Vail has been treated as a nonmonetary exchange. The
assumption of debt and the issuance of equity qualifies this transaction as
being nonmonetary in nature. Therefore, the initial equity investment in
Vail has been recorded at Ralcorp's net book value of assets contributed, or
$50.7. The Company records the pre-tax amount of the Company's equity
interest in the earnings of Vail as an increase to its Investment account.
Equity earnings aggregated $4.7 in fiscal 1997, including $1.5 of
amortization income. This amortization income is the result of the basis
difference between the net book value of the net assets contributed to Vail
and the Company's approximate 22.6% equity interest in the Vail net assets,
which is being amortized over 20 years.
NOTE 9 - INCOME TAXES
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
United States $ 1.6 $ 17.9 $ 26.2
State .2 1.6 3.6
-------------------------------------------
Total current 1.8 19.5 29.8
-------------------------------------------
DEFERRED:
United States 7.5 (42.1) (7.9)
State 1.1 (3.7) (.5)
-------------------------------------------
Total deferred 8.6 (45.8) (8.4)
-------------------------------------------
Provision (benefit) for
income taxes $10.4 $(26.3) $(21.4)
===========================================
</TABLE>
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<PAGE> 19
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
Income taxes were 39.2%, 36.0% and 39.1% of pre-tax earnings in 1997,
1996 and 1995, respectively. A reconciliation of income taxes with amounts
computed at the statutory federal rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed tax at federal statutory
rate (35.0% for all years) $ 9.3 $(25.6) $19.2
State income taxes, net of federal
tax benefit .9 (2.3) 2.0
Other, net .2 1.6 .2
---------------------------------------
$10.4 $(26.3) $21.4
=======================================
</TABLE>
The deferred tax assets and deferred tax liabilities as set forth on
the Consolidated Balance Sheet at September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
-----------------------------------------------------------------
1997 1996 1997 1996
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT:
Accrued liabilities $ 4.3 $ 5.4
Inventories 2.2 3.0
Other items .4 .4
-----------------------------------------------------------------
Total current 6.9 8.8 - -
-----------------------------------------------------------------
NONCURRENT:
Property basis differences 8.0 4.0
Postretirement benefits 5.5 5.9
Intangible assets 6.6 7.0
Workers' compensation 2.6 3.0
Deferred compensation 2.2 1.7
Equity investment in Vail 12.1
Equity earnings 1.8
Other items 2.8 1.8
-----------------------------------------------------------------
Total noncurrent 27.7 23.4 13.9 -
-----------------------------------------------------------------
Total deferred taxes $34.6 $32.2 $13.9 $ -
=================================================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The Company believes it is probable that the net deferred tax assets,
reflected above, will be realized on future tax returns, primarily from the
generation of future taxable income.
Total income tax payments made by the Company were $4.5 and $25.9 for the
years ended September 30, 1997 and 1996, respectively.
NOTE 10 - PENSION PLAN
The Company sponsors a noncontributory defined benefit pension plan
which covers substantially all regular employees in the United States. The
plan provides retirement benefits based on years of service and final-average
or career-average earnings. It is the Company's practice to fund pension
liabilities in accordance with the minimum and maximum limits imposed by the
Employee Retirement Income Security Act of 1974 (ERISA) and federal income
tax laws. Plan assets consist primarily of investments in commingled
employee benefit trusts consisting of marketable equity securities, corporate
and government debt securities and real estate.
The components of net pension costs include the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
DEFINED BENEFIT PLAN 1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Service cost (benefits earned
during the period) $ 4.3 $ 4.3 $ 4.0
Interest cost on projected
benefit obligation 5.8 5.6 4.8
Return on plan assets (24.5) (10.7) (8.3)
Net amortization and deferral 17.2 4.8 3.1
----------------------------------
Total $ 2.8 $ 4.0 $ 3.6
==================================
</TABLE>
The following table presents the funded status of the Company's defined
benefit plan and amounts recognized in the balance sheet at September 30,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF:
Vested benefits $(48.1) $(54.6)
Nonvested benefits (6.3) (7.5)
--------------------------
Accumulated benefit obligation (54.4) (62.1)
Effect of projected future salary increases (11.2) (17.3)
--------------------------
Projected benefit obligation (65.6) (79.4)
Plan assets at fair value 98.2 86.3
--------------------------
Plan assets in excess of projected
benefit obligation 32.6 6.9
Unrecognized net gain (37.7) (16.7)
Unrecognized prior service cost 1.5 3.9
Unrecognized net asset at transition (.4) (.6)
--------------------------
Accrued pension costs included in the
Consolidated Balance Sheet $ (4.0) $ (6.5)
==========================
</TABLE>
-33-
<PAGE> 20
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
The Company recognized curtailment gains in 1997 and 1996 of $3.4 and
$.7, respectively, to the pension plan. The fiscal 1997 curtailment gain
resulted from the reduction of employees through the Branded Business sale
and fiscal 1997 restructuring initiatives. The curtailment gain in fiscal
1996 was a result of jobs eliminated through restructuring initiatives in
that fiscal year. See the "Restructuring Charges" footnote for further
discussion of restructuring activities that took place in fiscal years 1997
and 1996.
The key actuarial assumptions used in determining net pension costs and
the projected benefit obligation were as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.625% 7.625%
Rate of future compensation
increases 5.25% 5.25%
Long-term rate of return on
plan assets 9.50% 9.50%
</TABLE>
In addition, the Company sponsors a defined contribution plan covering
a substantial majority of its employees under which the Company makes
matching contributions. The Company matching contribution is capped at a
certain percentage of employee earnings. The costs of the Company's defined
contribution plan for the years ended September 30, 1997, 1996 and 1995 were
$2.8, $5.2 and $5.7, respectively. During fiscal 1997, the Company revised
its defined contribution plan whereby; effective on April 1, 1997 and
depending on years of service, for each dollar contributed by participants,
up to 6% of pre-tax earnings, the Company will contribute fifty cents. Prior
to this modification the Company made "dollar-for-dollar" matching
contributions up to 6% of pre-tax earnings.
NOTE 11 - POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS AND OTHER
POSTEMPLOYMENT BENEFITS
The Company provides health care and life insurance benefits for
certain groups of retired employees who meet specified age and years of
service requirements. The Company is, however, phasing out its subsidy of
medical benefits for a substantial majority of its future retirees. Retiree
contributions are adjusted periodically in order to share increases in the
costs of providing medical benefits.
The net periodic cost of postretirement benefits includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ .2 $ .3 $ .3
Interest cost 1.1 1.0 .9
Amortization of unrecognized
prior service cost .1 .1 (.1)
-------------------------------------
Net periodic postretirement
benefit cost $1.4 $1.4 $1.1
=====================================
</TABLE>
The following table sets forth the status of the Company's
postretirement benefit plans at September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 8.5 $ 3.4
Fully eligible active plan participants 3.0 6.5
Other active plan participants 3.3 4.4
------------------------
Total accumulated postretirement benefit
obligation 14.8 14.3
Unrecognized net gain - 1.8
Unrecognized prior service cost (.5) (.7)
------------------------
Accrued postretirement benefit costs
included in Consolidated Balance Sheet $14.3 $15.4
========================
</TABLE>
The Company recognized curtailment gains in 1997 and 1996 of $1.8 and
$.2, respectively, to the postretirement medical and life insurance plan.
The fiscal 1997 curtailment gain resulted from the reduction of employees,
and their related postretirement benefit liability, through the Branded
Business sale and fiscal 1997 restructuring initiatives. The curtailment
gain in fiscal 1996 was a result of jobs eliminated through restructuring
initiatives in the fiscal year. See the "Restructuring Charges" footnote for
further discussion of restructuring activities that took place in the fiscal
years 1997 and 1996.
Actuarial assumptions used to determine the accumulated postretirement
benefit obligation include a discount rate of 7-5/8% in 1997 and 1996. For
1997 and 1996, the annual increase in per capita costs of covered health care
benefits is assumed to be 6%. If the health care trend rates were increased
one percentage point, the current year postretirement benefit costs would
have increased $.2 and the accumulated postretirement benefit obligation as
of September 30, 1997 would have increased by $1.7.
-34-
<PAGE> 21
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
NOTE 12 - LONG-TERM DEBT
As of September 30, 1997, the Company had no outstanding long-term debt
remaining on its Consolidated Balance Sheet.
As discussed in the "General Information" footnote of this document,
terms of the respective individual sale agreements provided that Vail
Resorts, Inc. assume $165 of Resorts debt and General Mills, Inc. assume the
balance of outstanding Company debt.
At September 30, 1996, long-term debt associated with the Company's
businesses consisted of the following:
<TABLE>
<CAPTION>
September 30, 1996
- -------------------------------------------------------------------------------
<S> <C>
8.75% Notes due 2004 $150.0
Bank Credit Agreements 200.1
10.85% and 11.15% Notes due
9/30/97 and 9/30/98 3.0
Refunding Revenue Bonds Series 90-
7.20% -7.875% due 9/2/98, 9/1/06
and 9/1/08 20.4
Refunding Revenue Bonds Series 91-
7.125% and 7.375% due 9/1/02
and 9/1/10 3.0
Other 1.9
----------
378.4
Less Current Portion (1.8)
----------
$376.6
==========
</TABLE>
Included in the Bank Credit Agreements line item, at September 30,
1996, was $140.0 of bank debt borrowed directly by the Company's Resort
Operations and fully guaranteed by the Company. This debt amount represents
a portion of the Resorts debt assumed by Vail through the January 3, 1997
sale of Resort Operations to Vail.
The Company has a $50 working capital credit facility. The proceeds of
the facility may be used to fund Ralcorp's working capital needs, capital
expenditures, and other general corporate purposes. Provisions, of the $50
credit facility require the Company to maintain certain financial ratios and
a minimum level of shareholders' equity.
NOTE 13 - FINANCIAL INSTRUMENTS
AND RISK MANAGEMENT
Fair Values
The Company's financial instruments primarily will include certain
short-term instruments and short and long-term debt. As of September 30,
1996, the fair value of long-term debt, including current maturities, was
$391.6 compared to the carrying value of $378.4. The fair value of the
Company's long-term debt has been estimated using primarily quoted market
prices obtained through independent pricing sources for the same or similar
types of borrowing arrangements, taking into consideration the underlying
terms of the debt, such as the coupon rate, term to maturity, tax impact to
investors and imbedded call options, if any.
Due to their nature, the carrying amounts of short-term financial
instruments, such as marketable securities, receivables and accounts payable,
reported on the Consolidated Balance Sheet approximate fair value.
Interest Rate Swap Agreements
In fiscal 1996, the Company entered into two interest rate swap
transactions, in order to hedge its exposure to interest rate fluctuations on
$100 of existing floating rate borrowings under the bank credit agreements.
Through these interest rate swaps, the Company paid interest based on a fixed
rate while receiving a LIBOR-based floating rate. The impact of these
interest rate swaps on interest expense was immaterial to the Company's
results of operations. As a result of the sale of the Branded Business to
General Mills, General Mills assumed these interest rate swap transactions.
Therefore, at September 30, 1997, the Company was not party to any interest
rate swap agreements.
Concentration of Credit Risk
The Company's primary concentration of credit risk is related to
certain trade accounts receivable due from several highly leveraged or "at
risk" customers. At September 30, 1997 and 1996 the amount of such
receivables was $2.4 and $3.1, respectively. Consideration was given to the
financial position of these customers when determining the appropriate
allowance for doubtful accounts.
NOTE 14 - SHAREHOLDERS' EQUITY
The Company's Restated Articles of Incorporation authorize the issuance
of up to 300,000,000 shares of $.01 par value Common Stock. As of September
30, 1997, the Company had approximately 33,011,000 shares of Common Stock
issued and outstanding. The Company has not issued any shares of Preferred
Stock. The terms of any series of Preferred Stock (including but not limited
to the dividend rate, voting rights, convertibility into other Company
securities and redemption) may be set by the Company's Board of Directors.
On December 18, 1996, the Company's Board of Directors declared a
dividend distribution of one share purchase right (Right) for each
outstanding share of the Company's Common Stock. Each Right entitles a
shareholder to purchase from the Company one common share at an exercise
price of $30 per share subject to antidilution adjustments. The Rights,
however,
-35-
<PAGE> 22
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
become exercisable only at the time a person or group acquires, or commences
a public tender offer for 20% or more of the Company's Common Stock. If an
acquiring person or group acquires 20% or more of the Company's Common Stock,
the price will be further adjusted so that each Right (other than those held
by the acquiring person or group) would entitle the holder to acquire for the
exercise price a number of shares of the Company's Common Stock found by
dividing the then current exercise price by the number of shares of Company
Common Stock for which a Right is then exercisable and dividing that amount
by 50% of the then current per share market price of the Company's Common
Stock. In the event that the Company merges with, or transfers 50% or more
of its assets or earning power to, any person or group after the Rights
become exercisable, holders of the Rights may purchase, at the exercise
price, Common Stock of the acquiring entity having a value equal to twice the
exercise price. The Rights can be redeemed by the Board of Directors at $.01
per Right only up to the tenth business day after a person or group acquires
20% or more of the Company's Common Stock. Also, following the acquisition
by a person or group of beneficial ownership of at least 20% but less than
50% of the Company's Common Stock, the Board may exchange the Rights for
Common Stock at a ratio of one share of Common Stock per Right. The Rights
expire on January 31, 2007. The Rights replaced similar rights that were
redeemed on January 31, 1997, by payment of a redemption price of $.05 per
Right in connection with the sale of the Branded Business to General Mills,
Inc. The total payment made by the Company as a result of this redemption
was approximately $1.7.
The Company did not repurchase any shares of its Common Stock during
the fiscal year. Subsequent to the end of fiscal 1997, the Company's Board
of Directors approved an authorization to buy back up to one million shares
of the Company's Common Stock. This authorization allows Company management
to make purchases from time to time at prevailing market prices.
At September 30, 1997, there were 2,894,300 shares of Company Common
Stock reserved under various employee incentive compensation and benefit
plans.
NOTE 15 - INCENTIVE COMPENSATION
During fiscal 1997 and shortly before the Spin-Off, the
Board of Directors adopted the Incentive Stock Plan (Plan), which reserves
shares to be used for various stock based compensation awards. The Plan
provides that eligible employees may receive stock option awards and other
stock awards payable in whole or part by the issuance of stock. In
connection with the Spin-Off, all previous outstanding stock-based
compensation awards and the Old Ralcorp plan were terminated. To effect this
termination, the Company's Board of Directors accelerated the vesting of the
outstanding stock options and the value of those "in-the-money" options were
paid to the recipients in cash. Stock options that had an exercise price
higher than the market price of Ralcorp Stock were valued at $.50 per share.
As a result, included in the Consolidated Statement of Earnings for the year
ended September 30, 1997, was a stock option settlement expense of $2.8. In
addition, the Company's Board of Directors accelerated the vesting of all
outstanding restricted stock awards.
Under the provisions of the Plan, 850,000 stock option awards were
issued at an option price equal to the fair market value of the shares at
grant date and accordingly, no charge against earnings was made. The
weighted-average remaining contractual life of the 850,000 stock options
outstanding at September 30, 1997, is 9.6 years.
Changes in incentive and nonqualified stock options outstanding are
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVG.
SHARES UNDER EXERCISE
OPTION PRICES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at September 30, 1995
($13.23 to $26.14 per share) 1,302,627 $17.94
--------------------------------------
Granted -
Exercised ($13.23 to $24.08 per share) (13,555) 14.10
Canceled (63,191) 19.21
--------------------------------------
Outstanding at September 30, 1996
($13.23 to $26.14 per share) 1,225,881 17.93
--------------------------------------
Granted ($12.00 per share) 850,000 12.00
Exercised ($13.23 to $24.08 per share) (186,271) 15.46
Spin-Off Termination/Canceled (1,039,610) 18.38
--------------------------------------
Outstanding at September 30, 1997
($12.00 per share) 850,000 12.00
======================================
Weighted-average fair value of
options granted during fiscal 1997 6.05
Shares exercisable at:
September 30, 1996 245,019 15.05
--------------------------------------
September 30, 1997 - -
--------------------------------------
</TABLE>
At September 30, 1997, under the Plan, there were 2,012,431 shares
available for future awards. In addition, at September 30, 1997 there were
no restricted stock awards outstanding. However, the Company's accounting
policy for restricted stock awards provides that compensation cost be
recognized over the appropriate vesting period.
Effective September 30, 1997, the Company elected to disclose the pro
forma effects of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based
-36-
<PAGE> 23
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
Compensation" (FAS 123). As allowed under the provisions of FAS 123, the
Company will continue to apply APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations in accounting for the stock
options awarded under the Plan. Accordingly, as previously discussed, no
compensation cost has been recognized for the stock options granted in fiscal
1997. Had compensation cost for the Plan been determined consistent with FAS
123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997
- -------------------------------------------------------------------------------------
<S> <C>
Net Income:
As reported $531.5
Pro forma $531.0
Earnings per share:
As reported $ 16.11
Pro forma $ 16.09
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1997
- -------------------------------------------------------------------------------------
<S> <C>
Expected volatility 30.00%
Risk-free interest rate 6.67%
Expected lives 5 - 9.5 years
</TABLE>
NOTE 16 - COMMITMENTS
AND CONTINGENCIES
The Company is a party to a number of legal proceedings
in various state and federal jurisdictions. These proceedings are in varying
stages and many may proceed for protracted periods of time. Some proceedings
involve highly complex questions of fact and law.
On January 4, 1993, Ralston was served with the first of nine
substantively identical actions currently pending in the United States
District Court for the District of New Jersey. The suits have been
consolidated and styled In Re Baby Food Antitrust Litigation, No. 92-5495
(NHP). The consolidated proceeding is a certified class action by and on
behalf of all direct purchasers of baby foods (other than the defendants and
governmental entities), alleging that the Beech-Nut baby food business (and
its predecessor Nestle Holdings, Inc.) together with Gerber Products Company
and H. J. Heinz Company, conspired to fix, maintain and stabilize the prices
of baby foods during the period January 1, 1975 to August 31, 1992, and
seeking treble damages.
On January 19 and 21, 1993, Ralston was served with two class actions
on behalf of indirect purchasers (consumers) of baby food in California,
which contain substantially identical charges. These actions have been
consolidated in the Superior Court for the County of San Francisco and styled
Bruce, et al. v. Gerber Products Company, et al., No. 94-8857. On January
19, 1993, Ralston was served with a similar action filed in Alabama state
court on behalf of indirect purchasers of baby food in Alabama, styled
Johnson, et al. v. Gerber Products Company, et al., No. 93-L-0333-NE. Both
state actions allege violations of state antitrust laws and are substantively
identical to each other. On July 28, 1997, Judge Nicholas H. Politan granted
Ralston's Motion For Summary Judgment in the case then pending in the U.S.
District Court for the District of New Jersey and dismissed the case with
prejudice. Plaintiffs have appealed Judge Politan's ruling. The Bruce and
Johnson cases remain inactive pending resolutions of In Re Baby Food,
Antitrust Litigation. Similar state actions may be filed in states having
laws permitting suits by indirect purchasers. Ralston and the Company have
agreed in the 1994 Spin-off Reorganization Agreement that all expenses
related to the above antitrust matters will be shared equally, but that
Ralcorp's liability for any settlement or judgment will not exceed $5, any
amount in excess of that would be paid by Ralston. Expenses and liability
with respect to certain other lawsuits which are not believed by the Company
to be material, either individually or in the aggregate, will also be shared
pursuant to the 1994 Spin-off Reorganization Agreement.
The operations of the Company, like those of similar businesses, are
subject to various federal, state, and local laws and regulations intended to
protect public health and the environment, including air and water quality
and waste handling and disposal. The Company has received notices from the
U.S. Environmental Protection Agency, state agencies, and/or private parties
seeking contribution, that it has been identified as a "potentially
responsible party" (PRP) under the Comprehensive Environmental Response,
Compensation and Liability Act, and the Company may be required to share in
the cost of cleanup with respect to one waste disposal site related to the
Branded Business. Pursuant to a Reorganization Agreement with General Mills,
General Mills has agreed to indemnify and defend the Company for and against
liabilities associated with the site. General Mills' indemnification and
defense obligations are limited as more fully discussed below. The Company's
ultimate liability in connection with environmental matters may depend on
many factors including, but not limited to, the volume of material
contributed to the site, the existence of other parties responsible for
remediation and their financial viability, reports of experts (internal or
external), and the remediation methods and technology to be used.
-37-
<PAGE> 24
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
Except as noted, many of the foregoing matters are in preliminary
stages, involve complex issues of law and fact and may proceed for protracted
periods of time. The amount of alleged liability, if any, from these
proceedings cannot be determined with certainty; however, in the opinion of
Company management, based upon the information presently known as well as
upon the limitation of its liabilities set forth in the 1994 Spin-off
Reorganization Agreement and the Reorganization Agreement with General Mills,
the ultimate liability of the Company, if any, arising from the pending legal
proceedings, as well as from asserted legal claims and known potential legal
claims which are probable of assertion, taking into account established
accruals for estimated liabilities (if any), should not be material to the
Company's consolidated financial position and results of operation. In
addition, while it is difficult to quantify with certainty the potential
financial impact of actions regarding expenditures for environmental matters,
in the opinion of management, based upon the information currently available,
the ultimate liability arising from such environmental matters should not be
material to the Company's consolidated financial position and results of
operation.
Through the Reorganization Agreement with General Mills, General Mills
assumed all liabilities associated with the Branded Business, whether arising
prior to or after General Mills' acquisition of the Branded Business.
However, if the combined liabilities for matters unknown at the Distribution
Date, for known litigation disclosed to General Mills on the Distribution
Date and related to the Branded Business, and for breaches of representations
and warranties made by the Company to General Mills, exceed $6, then the
Company may be required to indemnify General Mills for the foregoing matters
to the extent associated liabilities exceed $6. The Company's potential
indemnification responsibility associated with breaches of representations
and warranties expires July 31, 1998, provided no claim is asserted prior to
that date. The Company's potential indemnification responsibilities related
to unknown liabilities and disclosed litigation expire January 31, 2002,
provided no claim is asserted prior to that date. Presently, management
believes there is not a significant likelihood that liabilities assumed by
General Mills and breaches of representations and warranties will exceed in
the aggregate, $6.
In connection with the sale of the Company's Resort Operations in 1997,
Vail assumed the obligation to repay, when due, certain indebtedness of
Resort Operations consisting of the following: Series 1990 Sports Facilities
Refunding Revenue Bonds in the aggregate principal amount of $20.36, bearing
interest at rates ranging from 7.2% to 7.875% and maturing in installment in
1998, 2006, and 2008; and Series 1991 Sports Facilities Refunding Revenue
Bonds in the aggregate principal amount of $3, bearing interest at 7.125% for
the portion maturing in 2002 and 7.375% for the portion maturing in 2010
(collectively, "Resort Operations Debt"). The Resort Operations Debt is
guaranteed by Ralston. Pursuant to the 1994 Spin-off Reorganization
Agreement, the Company agreed to indemnify Ralston for any liabilities
associated with the guarantees. To facilitate the sale of the Branded
Business, General Mills acquired the legal entity originally obligated to so
indemnify Ralston. Pursuant to the Reorganization Agreement with General
Mills, however, the Company has agreed to indemnify General Mills for any
liabilities it may incur with respect to indemnifying Ralston relating to the
aforementioned guarantees. Presently, management believes that there is not
a significant likelihood that Vail will default on its repayment obligations
with respect to the Resort Operations Debt.
In the opinion of management, the sale of Resorts (see the
"Divestitures" footnote) qualifies as a non-taxable exchange of stock under
Section 368 (a) (1) (B) of the Internal Revenue Code. Therefore, the
Company's tax basis in Resorts stock was carried over to its investment in
the 7,554,406 shares of Vail stock (approximately $3 per share).
Accordingly, no deferred tax (or interest, if any) has been provided on this
transaction.
Lease Commitments
Future minimum rental commitments under noncancelable operating leases
in effect as of September 30, 1997 were: 1998 - $2.0, 1999 - $1.8, 2000 -
$1.7, 2001 - $1.9, 2002 - $1.8, thereafter - $4.7.
Future minimum rental commitments to be received under noncancelable
operating subleases in effect as of September 30, 1997 were: 1998 - $.3,
1999 - $.4, 2000 - $.4, 2001 - $.5, 2002 - $.5, thereafter - $1.5.
Total rental expense for all operating leases was $4.0 in 1997, $5.3 in 1996
and $4.1 in 1995.
NOTE 17 - SUPPLEMENTAL EARNINGS
STATEMENT INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and repairs $21.2 $32.5 $29.7
Research and development 3.9 6.5 7.4
</TABLE>
NOTE 18 - SUPPLEMENTAL CASH FLOW
STATEMENT INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $4.5 $27.6 $27.9
Income taxes paid 4.6 25.9 29.7
</TABLE>
-38-
<PAGE> 25
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
NOTE 19 - SUPPLEMENTAL BALANCE SHEET
INFORMATION
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RECEIVABLES-
Trade $43.7 $ 63.3
Income Taxes 8.5 6.6
Other 1.7 6.6
Allowance for doubtful accounts (1.0) (1.0)
------------------------------
$52.9 $ 75.5
==============================
INVENTORIES-
Raw materials and supplies $23.5 $ 26.5
Finished products 49.0 76.8
------------------------------
$72.5 $103.3
==============================
PREPAID EXPENSES-
Deferred income tax benefits $ 6.9 $ 8.8
Prepaid expenses 2.4 5.4
------------------------------
$ 9.3 $ 14.2
==============================
INVESTMENTS AND OTHER ASSETS-
Goodwill (net of accumulated amortization:
1997-$.9 and 1996-$7.9) $22.7 $ 29.1
Intangible assets (net of accumulated
amortization: 1997-$1.6
and 1996-$2.5) 9.6 14.1
Property held for development 12.4
Investments in affiliated companies 55.4 29.1
Deferred charges and other assets 1.4 3.4
------------------------------
$89.1 $ 88.1
==============================
ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES-
Trade accounts payable $40.9 $ 54.7
Incentive compensation, salaries
and vacations 4.9 7.0
Property taxes 2.5 5.3
Shutdown reserves 4.2 7.6
Advertising and promotion 4.9 9.6
Accrued Wortz acquisition-related items 4.4
Other items 16.4 16.4
------------------------------
$78.2 $100.6
==============================
OTHER LIABILITIES-
Postretirement medical and life $14.3 $ 15.4
Deferred compensation 5.7 4.4
Workers' compensation 7.3 7.7
Other items 8.1 13.2
------------------------------
$35.4 $ 40.7
==============================
</TABLE>
NOTE 20 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance, beginning of year $1.0 $ .8 $ .7
Provision charged to expense .2 .8 .4
Writeoffs, less recoveries (.2) (.6) (.3)
---------------------------------------------------
Balance, end of year $1.0 $1.0 $ .8
===================================================
</TABLE>
-39-
<PAGE> 26
R A L C O R P H O L D I N G S, I N C.
- --------------------------------------------------------------------------------
Q U A R T E R L Y F I N A N C I A L I N F O R M A T I O N (U N A U D I T E D)
(Dollars in millions, except per share data)
The results of any single quarter are not necessarily indicative of the
Company's results for the full year. Prior to fiscal 1997, earnings of the
Company were highly seasonal, primarily due to Resort Operations which earned
more than the entire year's operating profit during the second fiscal
quarter. Cereal operations were also affected by seasonal Chex party mix
promotions which increased sales volume during the first fiscal quarters.
Subsequent to January 1997, however, the Company changed dramatically with
the sales of the Company's Branded Business and Resort Operations to General
Mills, Inc. and Vail Resorts, Inc., respectively. Earnings of the Company
remain seasonal, however, due to the Company's continuing equity interest in
Vail.
<TABLE>
<CAPTION>
FISCAL 1997 First Second Third Fourth
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $292.9 $161.4 $140.7 $144.7
Gross profit 151.7 67.1 47.8 47.9
Net earnings 13.1 <Fa> 510.4 <Fb><Fc> 3.1 4.9 <Fd>
Net earnings per common share<Fh><Fi> .40 <Fa> 15.47 <Fb><Fc> .09 .15 <Fd>
<CAPTION>
FISCAL 1996 First Second Third Fourth
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $295.3 $277.4 $230.1 $224.6
Gross profit 153.0 138.0 103.5 96.1
Net earnings (loss) 14.7 21.2 (16.3) <Fe> (66.4) <Ff><Fg>
Net earnings (loss) per common share<Fh><Fi> .44 .64 (.50) <Fe> (2.02) <Ff><Fg>
<FN>
<Fa> Net earnings and earnings per share were negatively affected by the
inclusion of a pre-tax restructuring charge of $4.6 ($2.9 after taxes,
or $.09 per share).
<Fb> Net earnings and earnings per share were negatively affected by the
inclusion of a pre-tax restructuring charge of $18.4 ($11.6 after
taxes, or $.35 per share).
<Fc> Net earnings and earnings per share include a $516.5 tax-free gain on
the sale of the Branded Business.
<Fd> Net earnings and earnings per share include the favorable affect of a
$3.3 ($2.1 after tax or $.06 per share) adjustment to the restructuring
charge taken in the second quarter, partially offset by $1.1 in net
charges to the tax-free gain referred to in note (c).
<Fe> Net earnings (loss) and earnings (loss) per share were negatively
effected by the inclusion of pre-tax restructuring charge of $20.7
($12.7 after taxes, or $.39 per share).
<Ff> Net earnings (loss) and earnings (loss) per share were negatively
affected by the inclusion of pre-tax nonrecurring charges of $109.5
($68.8 after taxes, or $2.09 per share) and the recording of certain
transaction costs related to the Company's Resort Operations sale
totaling $4.0, pre-tax ($2.5 after taxes, or $.08 per share).
Partially offsetting these negative factors was a pre-tax adjustment to
the third quarter restructuring charge of $4.2 ($2.6 after taxes, or
$.08 per share).
<Fg> Net earnings were favorably impacted by adjustments to advertising and
promotion accruals recorded earlier in the year. This adjustment
became necessary when it was determined that redemption levels for in
-ad coupon programs and cereal sales volumes were below the
expectations used to record advertising and promotion expense in the
previous fiscal 1996 quarters.
<Fh> Based on actual weighted-average outstanding shares of Ralcorp Stock
for all periods presented.
<Fi> Earnings (loss) per common share is computed independently for each of
the periods presented, therefore, the sum of the earnings
per common share amounts for the quarters may not equal the total for
the year.
</TABLE>
-40-
<PAGE> 27
R A L C O R P H O L D I N G S, I N C.
- -------------------------------------------------------------------------------
G E N E R A L C O R P O R A T E I N F O R M A T I O N
GENERAL OFFICE
Ralcorp Holdings, Inc.
P.O. Box 618
St. Louis, MO 63188-0618
Telephone: 314/877-7000
Internet: www.ralcorp.com
DATE AND STATE OF
INCORPORATION
Ralcorp - October 23, 1996 - Missouri
Old Ralcorp - January 19, 1994 - Missouri
NUMBER OF RECORD
SHAREHOLDERS
18,780
NUMBER OF EMPLOYEES
Approximately 2,500
NOTICE OF ANNUAL MEETING
The 1998 Annual Meeting of Shareholders will be held at the Gateway Center,
One Gateway Drive, Collinsville, Illinois at 10:00 a.m., Thursday, January
29, 1998. Proxy material for the Meeting is enclosed.
INDEPENDENT ACCOUNTANTS
Price Waterhouse, St. Louis, Missouri
FISCAL YEAR END
September 30
COMMON STOCK DATA
(for the year ended September 30)
MARKET PRICE RANGE:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
First Quarter First Quarter
$18-3/4 - $21-1/2 $23 - $27-5/8
Second Quarter<F*> Second Quarter
$10-1/4 - $23 $23-5/8 - $28-3/8
Third Quarter Third Quarter
$9-3/4 - $14-3/4 $20-5/8 - $25-3/8
Fourth Quarter Fourth Quarter
$15 - $20-5/8 $19-3/4 - $22-1/2
<FN>
<F*> On January 31, 1997, General Mills, Inc. acquired Old Ralcorp in connection
with its purchase of the Branded Business. Stock prices on or before that
date are those of Old Ralcorp. After that date, the stock prices are those
of Ralcorp.
</TABLE>
FORM 10-K INFORMATION
AND INVESTOR INQUIRIES
Shareholders may obtain, without charge, a copy of the Company's most recent
Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, by directing inquiries to:
Ralcorp Holdings, Inc.
Attn: Shareholder Services
P.O. Box 618
St. Louis, MO 63188-0618
Telephone: 314/877-7046
TRANSFER AGENT
AND REGISTRAR
Shareholder inquiries should be directed as indicated below:
For Address Changes and
Other Miscellaneous Inquiries:
First Chicago Trust Company
of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
(201) 324-0498
(800) 446-2617
For Stock Transfers and Changes
of Ownership:
Same as above, except
P.O. Box 2506
Shareholders may also communicate with First Chicago through the Internet.
Address: http://www.fctc.com
EXCHANGE LISTING
New York Stock Exchange, Inc.
(Ticker Symbol - RAH)
BOARD OF DIRECTORS
William H. Danforth <F1>,<F2>
Chairman of the Board,
Washington University
William D. George, Jr. <F1>,<F2>
Retired President and Chief Executive Officer,
S.C. Johnson & Son, Inc.
(consumer products)
Jack W. Goodall <F1>,<F2>
Chairman of the Board, Foodmaker, Inc.
(restaurants)
David W. Kemper <F1>,<F2>
Chairman, President and
Chief Executive Officer,
Commerce Bancshares, Inc.
(bank holding company)
Joe R. Micheletto
Chief Executive Officer and
President, Ralcorp Holdings, Inc.
William P. Stiritz <F1>,<F2>,<F3>
Chairman of the Board, Ralston Purina
Company (consumer products)
[FN]
<F1> Member of Audit Committee
<F2> Member of Nominating and
Compensation Committee
<F3> Chairman of the Board
A photograph of each director appears in the Proxy Statement for the
Company's Annual Meeting of Shareholders to be held on January 29, 1998.
OFFICERS
Joe R. Micheletto<F*>
Chief Executive Officer and President
Thomas G. Granneman
Vice President and Controller
Kevin J. Hunt<F*>
Corporate Vice President; and President,
Bremner, Inc.
Robert W. Lockwood<F*>
Corporate Vice President,
General Counsel and Secretary
James A. Nichols<F*>
Corporate Vice President; and President,
Ralston Foods
Daniel J. Sescleifer
Vice President and Treasurer
David P. Skarie<F*>
Corporate Vice President and
Director of Customer Development
Susan P. Widham<F*>
Corporate Vice President; and President,
Beech-Nut Nutrition Corporation
Ronald D. Wilkinson<F*>
Corporate Vice President and
Director of Product Supply
[FN]
<F*>Corporate Officer RAH
Listed
NYSE
THE NEW YORK STOCK EXCHANGE
-41-
<PAGE> 1
EXHIBIT 21
LIST OF RALCORP HOLDINGS, INC. SUBSIDIARIES
Beech-Nut Nutrition Corporation
State of Incorporation: Nevada
Bremner, Inc.
State of Incorporation: Nevada
National Oats Company
State of Incorporation: Nevada
RH Financial Corporation
State of Incorporation: Nevada
Ralston Food Sales, Inc.
State of Incorporation: Nevada
Wortz Company
State of Incorporation: Arkansas
<PAGE> 1
Exhibit 23(a)
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-20879 and No. 333-20881) of Ralcorp Holdings,
Inc. of our report dated November 5, 1997 appearing on page 24 of the 1997
Annual Report to Shareholders which is incorporated in this Annual Report on
Form 10-K.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
St. Louis, Missouri
December 23, 1997
<PAGE> 1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
Exhibit 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated November 5, 1997 (related to the consolidated
financial statements of Vail Resorts, Inc. and subsidiaries for the fiscal
year ended September 30, 1997, not presented separately herein), included in
this Form 10-K into Ralcorp Holdings, Inc. previously filed Registration
Statements on Form S-8, File No. 333-20879 and No. 333-20881, pertaining to
Ralcorp Holdings, Inc.
/s/ Arthur Andersen LLP
Denver, Colorado,
November 5, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 46
<ALLOWANCES> 1
<INVENTORY> 73
<CURRENT-ASSETS> 135
<PP&E> 264
<DEPRECIATION> 110
<TOTAL-ASSETS> 400
<CURRENT-LIABILITIES> 78
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 287
<TOTAL-LIABILITY-AND-EQUITY> 400
<SALES> 740
<TOTAL-REVENUES> 740
<CGS> 425
<TOTAL-COSTS> 425
<OTHER-EXPENSES> 265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 542
<INCOME-TAX> 10
<INCOME-CONTINUING> 532
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 532
<EPS-PRIMARY> 16.11
<EPS-DILUTED> 16.11
<FN>
Excluded from the above cost/expense
information are restructuring charges
of $20, pre-tax.
Excluded from the above revenues are
a tax-free gain on sale of $515 and
equity earnings of $5, pre-tax.
</TABLE>
<PAGE> 1
[ARTHUR ANDERSEN LLP LOGO]
Exhibit 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Vail Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of VAIL RESORTS,
INC., formerly known as Gillett Holdings, Inc. (a Delaware corporation), and
subsidiaries as of September 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1997 (not presented herein).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
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 financial position of Vail Resorts, Inc. and
subsidiaries as of September 30, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Denver, Colorado,
November 5, 1997.
