<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ----- TO ------.
Commission file number: 1-12619
Ralcorp Holdings, Inc.
(Exact Name Of Registrant As Specified In Its Charter)
Missouri 43-1766315
(State of Incorporation) (I.R.S. Employer
Identification No.)
800 Market Street, Suite 2900
St. Louis, MO 63101
(Address of principal (Zip Code)
executive offices)
(314) 877-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (x) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding Shares at
par value $.01 per share February 12, 1998
32,845,317
<PAGE> 2
RALCORP HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Consolidated Statement of Earnings 1
Condensed Consolidated Balance Sheet 2
Condensed Consolidated Statement of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Unaudited Pro Forma Combined Financial Information 7
Pro Forma Combined Statement of Earnings 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Other Information 13
(i)
<PAGE> 3
<TABLE>
<CAPTION>
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in millions except per share data)
Three Months Ended
December 31,
---------------
1997 1996
------- ------
<S> <C> <C>
Net Sales $137.2 $292.9
------- ------
Costs and Expenses
Cost of products sold 90.2 141.2
Selling, general and administrative 23.6 38.4
Advertising and promotion 13.7 80.3
Interest (income) expense, net (.1) 6.9
Restructuring charge 4.6
Equity loss in Vail Resorts, Inc. 2.0
------- ------
129.4 271.4
------- ------
Earnings before Income Taxes 7.8 21.5
Income Taxes 3.0 8.4
------- ------
Net Earnings $ 4.8 $ 13.1
======= ======
Basic Earnings per Common Share $ .14 $ .40
======= ======
Diluted Earnings per Common Share $ .14 $ .40
======= ======
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
<PAGE> 4
<TABLE>
<CAPTION>
RALCORP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(Condensed)
(Dollars in millions)
Dec. 31, Sept. 30,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ .7 $ 8.4
Receivables, less allowance for doubtful
accounts of $1.1 and $1.0, respectively 46.0 52.9
Inventories -
Raw materials and supplies 26.7 23.5
Finished products 49.8 49.0
Prepaid expenses 10.7 9.3
---------- ----------
Total Current Assets 133.9 143.1
---------- ----------
Investments and Other Assets 88.5 89.1
---------- ----------
Deferred Income Taxes 13.8 13.8
---------- ----------
Property at Cost 265.4 264.1
Accumulated depreciation 113.8 109.8
---------- ----------
151.6 154.3
---------- ----------
Total $ 387.8 $ 400.3
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ - $ -
Accounts payable 34.1 40.9
Other current liabilities 27.5 37.3
---------- ----------
Total Current Liabilities 61.6 78.2
---------- ----------
Long-Term Debt - -
---------- ----------
Other Liabilities 36.1 35.4
---------- ----------
Shareholders' Equity
Common stock .3 .3
Capital in excess of par value 110.1 110.1
Retained earnings 181.1 176.3
Common stock in treasury, at cost (1.4) -
---------- ----------
Total Shareholders' Equity 290.1 286.7
---------- ----------
Total $ 387.8 $ 400.3
========== ==========
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed)
(Dollars in millions)
Three Months Ended
December 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Cash Flow from Operations
Net earnings $ 4.8 $ 13.1
Non-cash items included in income 4.6 10.7
Restructuring charge 4.6
Changes in assets and liabilities used in operations (10.9) 25.1
Other, net 2.6 1.9
------- -------
Net cash flow from operations 1.1 55.4
------- -------
Cash Flow from Investing Activities
Acquisition (4.2)
Property and intangible asset additions, net (3.3) (11.0)
Other, net .1 (1.3)
------- -------
Net cash used by investing activities (7.4) (12.3)
------- -------
Cash Flow from Financing Activities
Net cash flow used by debt (43.1)
Treasury stock purchases (1.4) -
------- -------
Net cash used by financing activities (1.4) (43.1)
------- -------
Net Decrease in Cash and Cash Equivalents (7.7) -
Cash and Cash Equivalents, Beginning of Year 8.4
------- -------
Cash and Cash Equivalents, End of Quarter $ .7 $ -
======= =======
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE> 6
RALCORP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Dollars in millions except per share data)
NOTE 1 - SALE TRANSACTIONS
On January 3, 1997, the United States Department of Justice approved the sale
of Ralcorp's ski resort holdings to Vail Resorts, Inc. Ralcorp sold its three
Colorado ski resort properties of Keystone, Breckenridge and Arapahoe Basin to
Vail Resorts, Inc. in exchange for the assumption of $165 million in Resorts
debt and a 22.6% equity interest in the combined Vail Resorts.
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. Immediately prior to the
Spin-Off, New Ralcorp Holdings, Inc. (Ralcorp) changed its name to Ralcorp
Holdings, Inc. and in the Merger, Old Ralcorp changed its name to General
Mills Missouri, Inc. This completed the $570 transaction with General Mills.
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", for periods prior to January 31, 1997,
are references to Old Ralcorp, without giving effect to the Merger or the
Spin-Off.
NOTE 2 - PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited historical financial statements of the Company have
been prepared in accordance with the instructions for Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments
considered necessary for a fair presentation, have been included. Operating
results for any quarter are not necessarily indicative of the results for any
other quarter or for the full year. These statements should be read in
connection with the financial statements and notes included in the Company's
Annual Report to Shareholders for the year ended September 30, 1997.
NOTE 3 - EQUITY INTEREST IN VAIL RESORTS, INC.
Upon the sale of the Company's Resort Operations to Vail Resorts, Inc.,
Ralcorp retained an equity ownership interest in Vail, which as of December
31, 1997 was 22.1%. In accordance with Accounting Principles Board Opinion
No. 29 - "Accounting for Nonmonetary Transactions" (APB 29), the Resort
Operations sale 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, by meeting the
provisions of APB 29, the initial equity investment in Vail was recorded at
Ralcorp's net book value of assets contributed, or $50.7. This initial equity
investment is then adjusted by the pre-tax amount of the Company's equity
interest in the net earnings or losses of Vail. Amortization income is
included as a component of the Company's equity earnings. This amortization
income is the result of the Company's equity interest in the underlying net
assets of Vail as of January 3, 1997 exceeding the net book value of the net
assets contributed by the Company to Vail by $37.5. This excess is being
amortized ratably over twenty years.
Through the first quarter ended December 31, 1997, the Company's equity
stake in Vail resulted in a non-cash, pre-tax loss of $2.0 million, including
the appropriate amortization income. Due to a change in Vail's fiscal year
end, from September 30th to July 31st, the Company's first quarter results
include only the Company's equity portion of Vail's operating results for
October 1997.
NOTE 4 - ACQUISITION
On April 21, 1997, the Company completed the purchase of the Wortz
Company, a private label cracker and cookie operation. Wortz, which is being
operated as part of the Company's Bremner operation, is headquartered in
Poteau, OK. 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.
4
<PAGE> 7
RALCORP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Dollars in millions except per share data)
The total consideration given in relation to this acquisition was $45.8,
of which, $4.2 was paid in the quarter ended December 31, 1997. Goodwill
associated with this acquisition is included in the "Investments and Other
Assets" line of the accompanying Consolidated Balance Sheet.
NOTE 5 - RESTRUCTURING CHARGES
In the quarter ended March 31, 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, in the quarter ended
December 31, 1996, 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 restructuring its ready-to-eat cereal division. In addition,
the restructuring plan included the partial closing of the Ralston Foods
production facility in Battle Creek, MI.
The balance of these restructuring charges and their utilization during
the quarter ended December 31, 1997 are summarized in the following table.
<TABLE>
<CAPTION>
Balance of Utilized in Balance of
Reserve at Three months Reserve at
Sept. 30, 1997 FY 1998 Dec. 31, 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Salaries, severance and
benefits $ .6 $ - $ .6
Asset writedowns .8 (.4) .4
Other 1.4 (.1) 1.3
--------------- -------------- --------------
Total restructuring charges $ 2.8 $ (.5) $ 2.3
=============== ============== ==============
</TABLE>
NOTE 6 - EARNINGS PER SHARE
In the current quarter ended December 31, 1997, the Company adopted Statement
of Financial Accounting Standards No. 128 - "Earnings per Share" (FAS 128).
By so doing, prior year earnings per share have been restated to conform to
the presentation required by FAS 128 of basic and diluted earnings per share.
The weighted average shares outstanding used to compute earnings per common
share (basic and diluted) for the quarters ended December 31, 1997 and 1996
are based on the weighted average number of Ralcorp Stock shares outstanding
for the periods then ended. In addition, the calculation of diluted earnings
per share includes the conversion of outstanding stock options. Earnings per
common share (basic and diluted) are computed independently for all of the
periods presented, therefore, the sum of earnings per common share amounts
(basic and diluted) for the quarters may not total the year-to-date.
The weighted average numbers of common shares used for all periods (basic
and diluted) are as follows:
Quarter ended December 31, 1997 - Basic........32,997,000
Quarter ended December 31, 1997 - Diluted......33,318,000
Quarter ended December 31, 1996 - Basic........32,883,000
Quarter ended December 31, 1996 - Diluted......33,163,000
Actual outstanding shares of Ralcorp Common Stock at December 31, 1997
were 32,925,000.
5
<PAGE> 8
RALCORP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Dollars in millions except per share data)
NOTE 7 - RECEIVABLES consists of the following:
<TABLE>
<CAPTION>
Dec. 31, Sept. 30,
1997 1997
---------- -----------
<S> <C> <C>
Trade receivables $ 39.0 $ 43.7
Other 8.1 10.2
Allowance for doubtful accounts (1.1) (1.0)
---------- -----------
$ 46.0 $ 52.9
========== ===========
</TABLE>
NOTE 8 - INVESTMENTS AND OTHER ASSETS consists of the following:
<TABLE>
<CAPTION>
Dec. 31, Sept. 30,
1997 1997
--------- ----------
<S> <C> <C>
Intangible assets $ 33.8 $ 32.3
Investments in affiliated companies 53.3 55.4
Deferred charges and other assets 1.4 1.4
--------- ----------
$ 88.5 $ 89.1
========= ==========
</TABLE>
NOTE 9 - OTHER CURRENT LIABILITIES consists of the following:
<TABLE>
<CAPTION>
Dec. 31, Sept. 30,
1997 1997
--------- ----------
<S> <C> <C>
Accrued advertising and promotion $ 7.5 $ 4.9
Incentive compensation, salaries
and vacations 4.6 4.9
Restructuring and shutdown reserves 3.3 4.2
Accrued Wortz acquistion-related items 4.4
Other items 12.1 18.9
--------- ----------
$ 27.5 $ 37.3
========= ==========
</TABLE>
6
<PAGE> 9
RALCORP HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Ralcorp was organized for the purpose of effecting the Spin-Off and the Merger
and has operated as an independent company only since January 31, 1997. The
Ralcorp historical financial information is presented in the "Ralcorp
Historical" column of the unaudited pro forma combined statement of earnings
for the three months ended December 31, 1996. During this period the various
spun-off businesses operated as divisions or subsidiaries of Old Ralcorp.
This historical financial statement includes the results of operations of the
branded cereal and snack businesses (the Branded Business), which Ralcorp sold
to General Mills on January 31, 1997 and the Resort Operations, which Ralcorp
sold to Vail Resorts, Inc. on January 3, 1997. Therefore, the historical
financial statement does not reflect the combined results of operations that
would have existed had Ralcorp been an independent company. Since Ralcorp did
not operate independently during the period shown, the unaudited pro forma
information may not necessarily reflect future results of operations or what
the results of operations would have been had the formation of Ralcorp and its
related businesses occurred at the beginning of the period shown.
The pro forma combined statement of earnings for the three months ended
December 31, 1996 presents the combined results of Ralcorp's operations
assuming that the sale of the Branded Business and the sale of the Resort
Operations had occurred as of October 1, 1996. This statement of earnings has
been prepared by adjusting the historical information for the effect of costs
and expenses and the recapitalization which might have occurred had the
Spin-Off and the sale of the Resort Operations occurred at the beginning of
this period.
The "Branded Business" and "Resort Operations" columns in the pro forma
combined statement of earnings represents the combined historical results of
operations of the Branded Business and the consolidated historical results of
operations of the Resort Operations, respectively.
Please read the Notes to the Unaudited Pro Forma Combined Financial
Information for a discussion of adjustments made to the historical financial
information in order to calculate the Ralcorp pro forma financial information.
7
<PAGE> 10
<TABLE>
<CAPTION>
RALCORP HOLDINGS, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
(in millions except per share data)
Three Months Ended December 31, 1996
Pro Forma
Ralcorp Branded Resort Adjustments Pro Forma
----------------------
Historical Business Operations Debit Credit Ralcorp
----------- ---------- ------------ ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 292.9 $ (141.9) $ (29.2) $ 121.8
----------- ---------- ------------ ------- -------- ---------
Costs and Expenses
Cost of products sold 141.2 (34.7) (25.7) 1.0 (a) 81.8
Selling, general and
administrative 38.4 (14.9) (3.4) 5.5 (a) 25.6
Advertising and promotion 80.3 (66.5) (1.4) 12.4
Equity earnings in
Vail Resorts 1.2 (b) (1.2)
Interest expense 6.9 (1.1) (2.8) 2.7 (c) .3
Restructuring charge 4.6 - 4.6
----------- ---------- ------------ ------- -------- ---------
271.4 (117.2) (33.3) 6.5 3.9 123.5
----------- ---------- ------------ ------- -------- ---------
Earnings before
Income Taxes 21.5 (24.7) 4.1 (6.5) (3.9) (1.7)
Income Taxes 8.4 (9.5) 1.6 1.1 (d) (.6)
----------- ---------- ------------ ------- -------- ---------
Net Earnings $ 13.1 $ (15.2) $ 2.5 $ (6.5) $ (5.0) $ (1.1)
=========== ========== ============ ======= ======== =========
Earnings per common share
Basic (e) $ .40 $ (.03)
=========== =========
Diluted (e) $ .40 $ (.03)
=========== =========
Weighted average shares outstanding:
Basic(e) 32.9 32.9
Diluted(e) 33.2 33.2
<FN>
Notes to Unaudited Pro Forma Combined Financial Information
(a) To reflect the fixed costs (i.e., fixed manufacturing, information systems, general administrative and corporate
overhead) included in the combined historical results of operations of the Branded Business absorbed by Ralcorp
with the sale of the Branded Business.
(b) To reflect Ralcorp's equity earnings in Vail Resorts. The equity earnings include $.5 million for the three
months ended December 31, 1996 of amortization income. The amortization income is the result of the basis
difference between the net book value of the Resort Operations' net assets contributed to Vail Resorts and
Ralcorp's approximate 22.6% equity interest in Vail Resorts' net assets. This basis difference is being
amortized ratably over 20 years.
(c) To reduce interest expense due to General Mills assuming $215.0 million of Ralcorp debt upon the sale of the
Branded Business. Interest expense shown of $.3 million for the three months ended December 31, 1996, is related
to estimated revolving credit facility debt needed to finance working capital.
(d) To reflect the tax effect of the pro forma adjustments shown at an effective rate of 38%.
(e) The weighted average number of shares used to compute Ralcorp earnings per share (basic and diluted) is based on
the weighted average number of Ralcorp common shares outstanding (basic and diluted) during the three months
ended December 31, 1996.
</TABLE>
8
<PAGE> 11
RALCORP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 information of Ralcorp included
in this discussion and the accompanying financial statements represent the
historical financial information of Old Ralcorp. Therefore, references to the
"Company", as they relate to financial information for periods prior to
January 31, 1997, are references to Old Ralcorp.
HIGHLIGHTS
For the quarter ended December 31, 1997, sales and net earnings were $137.2
million and $4.8 million compared to $292.9 million and $16.0 million,
excluding a restructuring charge, for the comparable prior year period. Basic
and diluted earnings per share for the current year's first quarter were $.14
compared to last year's first quarter basic and diluted earnings per share of
$.49, exclusive of the restructuring charge effect. In the quarter ended
December 31, 1996 the Company recorded a pre-tax restructuring charge of $4.6
million ($2.9 million after-tax or $.09 per share) to cover expenses related
to severance costs for certain separated employees whose jobs were eliminated
in downsizing initiatives. Including this charge in the prior year's first
fiscal quarter, net earnings and earnings per share (basic and diluted) were
reduced to $13.1 million and $.40, respectively.
The prior year's first quarter included the operating results of the Company's
Branded Business and Resort Operations. The Unaudited Pro Forma Combined
Financial Information included elsewhere in this document, reflects the pro
forma results of operations of the Ralcorp businesses assuming the
divestitures of the Company's Branded Business and Resort Operations were
completed as of October 1, 1996. The sale of Resort Operations to Vail
Resorts, Inc. was completed on January 3, 1997 and the sale of the Branded
Business to General Mills, Inc. was completed on January 31, 1997. On a pro
forma basis, excluding the above mentioned restructuring charge, sales, net
earnings and earnings per share (basic and diluted) for the quarter ended
December 31, 1996 were $121.8 million, $1.8 million and $.06, respectively.
On a pro forma basis, including the restructuring charge, operations for the
quarter ended December 31, 1996 resulted in a net loss of $1.1 million, or
$.03 per share (basic and diluted).
<TABLE>
<CAPTION>
SALES BY DIVISION
THREE MONTHS ENDED DECEMBER 31
1997 1996*
------ ------
<S> <C> <C>
Ralston Foods $ 66.4 $ 62.7
Bremner 39.8 22.5
Beech-Nut 31.0 36.6
------ ------
$137.2 $121.8
====== ======
<FN>
* On a pro forma basis
</TABLE>
9
<PAGE> 12
DISCUSSION OF BUSINESSES
The Company operated its Resort Operations through the first quarter of fiscal
1997. With the sale of its Resort Operations on January 3, 1997 to Vail, the
Company operates solely in the Consumer Foods segment, while maintaining an
equity interest in Vail Resorts, Inc.
CONSUMER FOODS
Comparisons of operating results in the Consumer Foods segment on a historical
basis are complicated by the fact that the operations of the Company's Branded
Business are included in the entire prior fiscal year's first quarter. As
previously mentioned, the sale of the Branded Business to General Mills
occurred on January 31, 1997.
Consumer Foods sales of $137.2 million for the first quarter of fiscal 1998
represents a decrease of 48.0% or $126.5 million when comparing to the first
quarter of fiscal 1997. This quarter to quarter decline was primarily due to
the inclusion of the Branded Business results of operations in the prior
year's first quarter. On a comparison of current year quarter sales to prior
year quarter sales, excluding the benefit of the Branded Business, sales
improved $15.4 million. Sales in the current year's first quarter
significantly benefited on increases from the Bremner cracker and cookie
operation. Bremner sales, which improved $17.3 million, were helped in the
current year from a full quarter of Wortz Company sales and an improved
product mix. The Wortz Company, a private label cracker and cookie operation,
was acquired on April 21, 1997. In addition, store brand cereals, the
Company's only remaining cereal operation, showed a $3.7 million sales
improvement over the prior year on a 3.3 percent volume increase. This marks
the third consecutive quarter that store brand cereal has recorded
year-over-year volume gains. Offsetting some of the sales improvements, was a
$5.6 million sales decline from the Company's Beech-Nut baby food division.
The baby food business, while still profitable, was negatively effected by
both a shrinking category and significant competitive pressure. On a current
year quarter to prior year quarter comparison, Beech-Nut experienced an
approximate 18 percent case volume decline.
Consumer Foods operating profit for the quarter ended December 31, 1997, was
$10.7 million, significantly below the Branded Business-enhanced operating
profit level of the prior year's first quarter of $36.2 million, excluding the
previously mentioned $4.6 million restructuring charge in this prior year
period. In the current year's first quarter, Ralston Foods, the Company's
store brand cereals division, recorded positive operating profit on the
strength of volume growth, while maintaining a low cost base. Bremner
operating profit improved considerably over the prior year period with the
addition of Wortz, significantly lower ingredient costs (namely, flour costs)
and an improved product mix. Operating results at Beech-Nut were
significantly down from the prior year, again, due to the decline in the
overall baby food category and heavy competitive pressure.
RESORT OPERATIONS
Resort Operations recorded first quarter fiscal 1997 sales and operating loss
of $29.2 million and $1.3 million, respectively. Due to the sale of the
Company's Resort Operations to Vail Resorts, Inc. on January 3, 1997, there
are no comparable current year figures.
EQUITY INTEREST IN VAIL RESORTS, INC.
Upon the sale of the Company's Resort Operations to Vail in January 1997,
Ralcorp retained an equity ownership interest in Vail, which as of December
31, 1997 was 22.1 percent. Maintaining an equity interest in Vail Resorts
does not eliminate the Company's exposure to the seasonality issues inherent
in the winter ski resort industry. Through the first quarter ended December
31, 1997, the Company's equity stake in Vail resulted in a non-cash, pre-tax
loss of $2.0 million. Ralcorp's first quarter reporting does not include any
of the historically profitable ski months, which are primarily December
through March. Commencing with fiscal year ending July 31, 1998, Vail has
changed its fiscal year end from September 30th to July 31st. As a result,
the Company's first quarter includes only its equity portion of Vail's
operating results for October 1997.
RESULTS OF OPERATIONS
Cost of products sold as a percentage of sales for the quarters ended December
31, 1997 and 1996 were 65.7% and 48.2%, respectively. This increase can be
attributable to the fact that many of the Company's higher margin products
were eliminated through the sale of the Branded Business, store brand products
by their market nature usually are priced at a lower margin. Selling, general
and administrative expense as a percent of sales increased to 17.2% in the
first quarter of the current year compared to 13.1% in the prior period. The
level of selling, general and administrative expense in the current year's
first quarter is consistent with the levels experienced by the Company in the
periods subsequent to the two sale transactions. Advertising and promotion
10
<PAGE> 13
expenses decreased to 10.0% of sales from 27.4% in the prior year period
reflecting the significantly reduced level of advertising and promotional
support necessary for a predominantly store brand company. Income taxes were
39.0% of earnings before income taxes in the current quarter compared to 39.1%
in the year ago period.
FINANCIAL CONDITION
The Company's primary source of liquidity is cash flow from operations, which
decreased to $1.1 million for the three months ended December 31, 1997
compared to $55.4 million for the same period in the prior year. This decline
is due to various factors including, the reduced level of income with the
elimination of the earnings streams from the Branded Business and Resort
Operations and a significant reduction in the current year's first quarter of
accrued liabilities and accounts payable as certain one-time items were paid
in the quarter. Such one-time items include a final payment related to the
Wortz acquisition and a fee paid to terminate a contract with Ralston Purina
regarding international distribution of cereal products. Net working capital,
excluding cash and cash equivalents, was $71.6 million at December 31, 1997
compared to $56.5 million at September 30, 1997.
Property and intangible asset additions decreased to $3.3 million for the
first quarter of fiscal 1998 compared to $11.0 million in the prior year
quarter. Of the prior year amount, approximately $7.4 million represented
Resort Operations additions. During the first quarter of fiscal 1998 the
Company repurchased $1.4 million of its Common Stock. The Company transacted
no stock repurchases during the quarter ended December 31, 1996. As reflected
on the Consolidated Balance Sheet, the Company remains essentially debt free
at December 31, 1997, as was the case at September 30, 1997.
During the first quarter ended December 31, 1997, the Company's Board of
Directors approved an authorization to buy back up to one million shares of
the Company's Common Stock from time to time as management determines. As of
February 9, 1998, the Company had repurchased 166,000 shares for approximately
$2.7 million pursuant to such authorization.
OUTLOOK
Ralcorp, through its Ralston Foods subsidiary, continues to operate in the
competitive environment that exists in the ready-to-eat cereal category.
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. Also, 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 cereal sales and profitability. 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 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.
In baby foods, continued significant competitive pressures and an overall
decline in the baby food category are important concerns for the management of
Beech-Nut. Beech-Nut is focused on the production of high quality products,
the successful introduction of its new "BEECH-NUT NATURALS" line, 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 had an immediate and positive effect on sales,
operating profit and customer base. Bremner continues to achieve good results
on lower costs, and improved 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.
Ralcorp management intends to take the appropriate steps to grow the Company's
predominantly private label 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.
Company management realizes that in addition to improved operations and
enhanced efficiencies, a key growth opportunity may exist through strategic
acquisitions. 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.
11
<PAGE> 14
RALCORP LIQUIDITY
To meet its on-going working capital needs Ralcorp has obtained 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
Ralcorp to maintain certain financial ratios and a minimum level of
shareholders' equity.
Management believes that Ralcorp will be able to generate positive operating
cash flows through its mix of businesses and expects that future liquidity
requirements will be met through a combination of existing cash balances,
operating cash flow and, as necessary, use of borrowings available under its
working capital credit facility.
INFORMATION SYSTEMS DEVELOPMENTS AND YEAR 2000 ISSUES
In relation to the Company's on-going focus on cost removal and process
improvement, the Company's information technology strategy includes the
elimination of existing mainframe computer systems and the migration to a
server environment. A key component of executing this strategy is currently
in process as the Company is replacing, modifying or upgrading the primary
systems and technology necessary to manage the business. The Company's
accounting policy is to capitalize the related external costs. The timing of
these improvements is also beneficial as the resulting information systems
hierarchy will be year 2000 compliant.
As the year 2000 approaches there are certain problems inherent with
information systems processing, primarily, many computer systems include
application software that processes date sensitive data based on the use of
only two digits. These systems may be unable to process such data by, and in
some cases before, the year 2000. The Company has developed plans that it
believes will address the impact of replacing or modifying all secondary
systems to resolve the processing problems involved with the year 2000. Such
plans include a thorough evaluation of electronic information transfers to
vendors, internal and external customers and other third parties. Based on
the Company's current expectations, the costs anticipated in making the
Company's ancillary information systems year 2000 compliant should not be
material to its financial position or results of operations.
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 Management's
Discussion and Analysis and this document, and are preceded by, followed by or
include the words "intends," "believes," "expects," "anticipates," "should" or
similar expressions. 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 cereal products and the branded products of its competitors,
then the Company's cereal business 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 interest in Vail Resorts,
Inc., the Company's non-cash earnings can be adversely affected by Vail's
unfavorable performance;
(iv) The Company's baby food business has experienced significant volume
declines which have, and could continue to have, a negative impact on the
Company's operating 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.
12
<PAGE> 15
PART II. OTHER INFORMATION
There is no information required to be reported under any items except those
indicated below.
Item 4. Submission of Matters to a Vote of Security Holders.
On January 29, 1998, the Registrant held its Annual Meeting of Shareholders at
which the following Directors were elected Directors of the Registrant, each
for a term of three years expiring at the Annual Meeting of Shareholders to be
held in 2001, or when their successors are elected:
Abstentions/
Votes For Votes Against Broker Nonvotes
---------- -------------- ----------------
William D. George, Jr. 29,178,829 N/A 558,011
William P. Stiritz 29,091,167 N/A 645,673
At the same meeting, the Registrant's shareholders also approved the Ralcorp
Holdings, Inc. Incentive Stock Plan.
Abstentions/
Votes For Votes Against Broker Nonvotes
---------- -------------- ----------------
Incentive Stock Plan 20,577,346 2,297,992 6,861,502
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RALCORP HOLDINGS, INC.
By: /s/ T. G. GRANNEMAN
------------------------
T. G. Granneman
Duly Authorized Signatory and
Chief Accounting Officer
13
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
14
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<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 47
<ALLOWANCES> 1
<INVENTORY> 77
<CURRENT-ASSETS> 134
<PP&E> 265
<DEPRECIATION> 114
<TOTAL-ASSETS> 388
<CURRENT-LIABILITIES> 62
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 290
<TOTAL-LIABILITY-AND-EQUITY> 388
<SALES> 137
<TOTAL-REVENUES> 137
<CGS> 90
<TOTAL-COSTS> 90
<OTHER-EXPENSES> 37
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8
<INCOME-TAX> 3
<INCOME-CONTINUING> 5
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
