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, 1998.
( ) 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 10, 1999
31,140,949
<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 6
Unaudited Pro Forma Combined Statement of Earnings 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
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,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net Sales $ 154.9 $ 137.2
-------- --------
Costs and Expenses
Cost of products sold 112.0 90.2
Selling, general and administrative 22.3 23.6
Advertising and promotion 6.5 13.7
Interest income, net - (.1)
Equity loss in Vail Resorts, Inc. 4.0 2.0
-------- --------
144.8 129.4
-------- --------
Earnings before Income Taxes 10.1 7.8
Income Taxes 3.8 3.0
-------- --------
Net Earnings $ 6.3 $ 4.8
======== ========
Basic Earnings per Share $ .20 $ .14
======== ========
Diluted Earnings per Share $ .20 $ .14
======== ========
<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,
1998 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1.5 $ 12.3
Receivables, net 56.6 45.2
Inventories -
Raw materials and supplies 23.7 23.7
Finished products 32.8 37.8
Prepaid expenses 2.6 1.8
Other current assets 6.2 6.2
-------- --------
Total Current Assets 123.4 127.0
Investment in Vail Resorts, Inc. 62.0 66.0
Intangible Assets, Net 71.0 70.3
Property, Net 151.9 150.2
Other Assets 4.4 4.4
-------- --------
$ 412.7 $ 417.9
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 36.8 $ 50.7
Other current liabilities 28.3 30.7
-------- --------
Total Current Liabilities 65.1 81.4
-------- --------
Long-Term Debt 13.3 -
-------- --------
Other Liabilities 30.7 29.2
-------- --------
Shareholders' Equity
Common stock .3 .3
Capital in excess of par value 110.1 110.1
Retained earnings 226.2 219.9
Common stock in treasury, at cost (33.0) (23.0)
-------- --------
Total Shareholders' Equity 303.6 307.3
-------- --------
$ 412.7 $ 417.9
======== ========
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
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<TABLE><CAPTION>
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed)
(Dollars in millions)
Three Months Ended
December 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Cash Flows from Operations
Net Earnings $ 6.3 $ 4.8
Non-cash items included in net earnings 9.6 6.6
Changes in assets and liabilities, net of
effects of acquisitions (23.5) (10.9)
Other, net 1.5 .6
------- -------
Net cash flow (used) provided by operations (6.1) 1.1
------- -------
Cash Flows from Investing Activities
Business acquisitions, net of cash acquired (2.7) (4.2)
Additions to property and intangible assets, net (5.3) (3.3)
Other, net - .1
------- -------
Net cash used by investing activities (8.0) (7.4)
------- -------
Cash Flows from Financing Activities
Proceeds under credit agreement, net 13.3 --
Purchase of treasury stock (10.0) (1.4)
------- -------
Net cash provided (used) by financing activities 3.3 (1.4)
------- -------
Net Decrease in Cash and Cash Equivalents (10.8) (7.7)
Cash and Cash Equivalents, Beginning of Period 12.3 8.4
------- -------
Cash and Cash Equivalents, End of Period $ 1.5 $ .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, 1998
(Dollars in millions, shares in thousands)
NOTE 1 - PRESENTATION OF CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited historical financial statements of the Company have
been prepared in accordance with the instructions for Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. 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, 1998.
NOTE 2 - EQUITY INTEREST IN VAIL RESORTS, INC.
On November 6, 1997, Vail announced a change in its fiscal year end from
September 30 to July 31. As a result, the Company reports equity earnings on a
two-month time lag. The Company's results for the quarter ended December 31,
1998 reflect the Company's equity portion of Vail's losses for the unprofitable
ski months of August through October 1998. Because of the timing of the change
in fiscal year end, the Company's results for the quarter ended December 31,
1997 include losses from Vail for only the month of October 1997.
NOTE 3 - EARNINGS PER SHARE
Basic and diluted earnings per share were calculated using the following:
<TABLE><CAPTION>
Three Months Ended
December 31,
------------------
1998 1997
------ ------
<S> <C> <C>
Net earnings $ 6.3 $ 4.8
====== ======
Weighted average shares for
basic earnings per share 31,418 32,997
Dilutive effect of:
Stock options 268 268
Deferred compensation awards 224 53
------ ------
Weighted average shares for
diluted earnings per share 31,910 33,318
====== ======
</TABLE>
NOTE 4 - RECEIVABLES, NET consisted of the following:
<TABLE><CAPTION>
Dec. 31, Sept. 30,
1998 1998
-------- --------
<S> <C> <C>
Receivables $ 57.9 $ 46.4
Allowance for doubtful accounts (1.3) (1.2)
-------- --------
$ 56.6 $ 45.2
======= =======
</TABLE>
4
<PAGE> 7
NOTE 5 - PROPERTY, NET consisted of the following:
<TABLE><CAPTION>
Dec. 31, Sept. 30,
1998 1998
-------- --------
<S> <C> <C>
Property at cost $ 255.8 $ 250.2
Accumulated depreciation (103.9) (100.0)
-------- --------
$ 151.9 $ 150.2
======== ========
</TABLE>
NOTE 6 - INTANGIBLE ASSETS, NET consisted of the following:
<TABLE><CAPTION>
Dec. 31, Sept. 30,
1998 1998
-------- --------
<S> <C> <C>
Intangible assets at cost $ 76.8 $ 74.8
Accumulated amortization (5.8) (4.5)
-------- --------
$ 71.0 $ 70.3
======== ========
</TABLE>
NOTE 7 - LONG-TERM DEBT
As of December 31, 1998, the Company had $13.3 of outstanding long-term debt on
its Consolidated Balance Sheet. The balance of this long-term debt was made
available through the Company's bank credit agreements. Proceeds of this
outstanding debt were used primarily to fund a purchase of treasury stock and
first quarter estimated income tax payments. The Company was debt-free at
September 30, 1998.
NOTE 8 - COMMON STOCK IN TREASURY
<TABLE><CAPTION>
Shares Cost
------ ------
<S> <C> <C>
Common stock in treasury, September 30, 1998 1,300 $ 23.0
Purchase of treasury stock 586 10.0
------ ------
Common stock in treasury, December 31, 1998 1,886 $ 33.0
====== ======
</TABLE>
NOTE 9 - SUBSEQUENT EVENT
On February 11, 1999, the Company announced that it had reached a definitive
agreement to purchase Martin Gillet & Co., Inc., a leading private label
manufacturer of mayonnaise and pourable, shelf-stable salad dressings. Martin
Gillet's general offices and a manufacturing plant are located in Baltimore, MD,
with additional plants located in Kansas City, KS and Los Angeles, CA. Annual
sales total approximately $70.
5
<PAGE> 8
RALCORP HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Combined Statement of Earnings for the three months
ended December 31, 1997 presents the combined results of Ralcorp's operations
assuming the divestiture of Beech-Nut Nutrition Corporation was completed as of
the beginning of that period. Please read the Notes to Unaudited Pro Forma
Combined Statement of Earnaings that follow the Unaudited Pro Forma Combined
Statement of Earnings for a discussion of adjustments made to the historical
financial information in order to calculate the Ralcorp pro forma financial
information. This pro forma financial information may not necessarily reflect
the actual results of operations that would have been achieved, nor are they
necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
RALCORP HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(In millions except per share data)
Three Months Ended December 31, 1997
Historical Beech-Nut Pro Forma Pro Forma
Ralcorp Operations Adjustments Ralcorp
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 137.2 $ (31.0) $ 106.2
------------------------------------------------
Costs and Expenses
Cost of products sold 90.2 (16.0) 74.2
Selling, general and
administrative 23.6 (5.9) $ .3 (a) 18.0
Advertising and promotion 13.7 (8.7) 5.0
Interest income, net (.1) (.8) (b) (.9)
Equity loss in
Vail Resorts, Inc. 2.0 2.0
------------------------------------------------
129.4 (30.6) (.5) 98.3
------------------------------------------------
Earnings before Income Taxes 7.8 (.4) .5 7.9
Income Taxes 3.0 (.2) .2 (c) 3.0
------------------------------------------------
Net Earnings $ 4.8 $ (.2) $ .3 $ 4.9
===============================================
Basic Earnings per Share $ .14 $ .15
======== ========
Diluted Earnings per Share $ .14 $ .15
======== ========
Weighted Average Shares Outstanding
Basic 33.0 $ 33.0
======== ========
Diluted 33.3 $ 33.3
======== ========
<FN>
Notes to Unaudited Pro Forma Combined Statement of Earnings.
(a) To reflect the fixed costs (i.e., information systems, general
administrative and corporate overhead) included in the historical results of
operations of Beech-Nut absorbed by Ralcorp with the sale of Beech-Nut.
(b) Interest income shown of $.8 million reflects residual interest earned
on short term investments.
(c) To reflect the tax effect of the pro forma adjustments shown at an
effective rate of 38%.
</TABLE>
6
<PAGE> 9
RALCORP HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
HIGHLIGHTS
For the quarter ended December 31, 1998, sales and net earnings were $154.9
million and $6.3 million compared to $137.2 million and $4.8 million for the
comparative prior year period. These figures represent a 12.9 percent increase
in sales and a nearly 31.3 percent improvement in net earnings.
On an earnings per share basis, the Company recorded basic and diluted earnings
per share for the current year's first quarter of $.20 compared to last year's
first quarter basic and diluted earnings per share of $.14.
The prior year's first quarter included the operating results of the Company's
branded baby food business, the Beech-Nut Nutrition Corporation (Beech-Nut).
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 divestiture of Beech-Nut was completed as of October 1,
1997. The sale of Beech-Nut was actually completed on September 10, 1998. On a
pro forma basis, operations for the quarter ended December 31, 1997 resulted in
net earnings of $4.9 million, or $.15 per share (basic and diluted).
<TABLE><CAPTION>
NET SALES BY DIVISION
Three Months Ended
December 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Ralston Foods $ 73.0 $ 66.4
Bremner 44.5 39.8
Beech-Nut - 31.0
--------- ---------
Consumer Foods 117.5 137.2
--------- ---------
Snack Nuts 37.4 -
--------- ---------
Total Net Sales $ 154.9 $ 137.2
========= =========
</TABLE>
DISCUSSION OF BUSINESSES
With the fiscal 1998 acquisitions of snack nut companies, Flavor House, Inc. and
Nutcracker Brands, Inc., the Company reports its results in two operating
segments - Consumer Foods and Snack Nuts - while maintaining an equity interest
in Vail Resorts, Inc.
CONSUMER FOODS
On a historical basis, sales in the Consumer Foods segment were down $19.7
million for the current year quarter, as the prior year comparative period
included $31.0 million in sales from the now divested Beech-Nut operation. On a
comparison of current quarter sales to prior year quarter sales, excluding the
benefit of Beech-Nut, segment sales improved $11.3 million. This significant
sales dollar increase can be attributed to higher sales from both the Company's
cereal and cracker and cookie operations. Ralcorp's cereal business recorded
improved sales over the prior year's first quarter on the strength of
significant volume gains from its hot cereal business, increased volume
requirements of certain co-packing arrangements and a slightly improved product
mix. In a comparison of the current year quarter to the prior year quarter, the
Company's ready-to-eat cereal volume declined only 1.2 percent, significantly
below the level of volume declines experienced in the overall domestic
ready-to-eat cereal category. For the same comparative periods, the Company's
hot cereal volume rose 30 percent, outpacing a category with grocery channel
volume declines of nearly 7 percent. The 11.8 percent sales revenue gain
recorded by Ralcorp's cracker and cookie business, when comparing current and
prior year's first quarters, reflects the benefit in the current year from a
full quarter of Sugar Kake Cookie Inc. sales. Sugar Kake, a primarily private
label cookie operation, was acquired in August 1998.
7
<PAGE> 10
Consumer Foods operating profit for the quarter ended December 31, 1998, was
$13.0 million, a 21.5 percent improvement over the prior year's first quarter,
which included $.4 million of operating profit from the Company's former branded
baby food business. In the current year's first quarter, Ralston Foods, the
Company's store brand cereals division, recorded operating profit improvement on
volume increases in hot cereal and co-packing activity. Also contributing to
improved operating profit at the Company's cereal division were favorable
production yields and aggressive cost containment. Bremner made year-over-year
operating profit gains on the addition of its Sugar Kake cookie operation, which
was not in prior year results, while the pre-existing Bremner operation improved
on a continued shift in cracker product mix to higher margin offerings. In
addition, the further integration of the Wortz Company continues to provide
Bremner with enhanced yield and production efficiencies.
It is important to note that certain aspects of the Company's Consumer Foods'
businesses, particularly within the cereal operation, are seasonal in nature.
SNACK NUTS
The Company's Snack Nuts segment recorded sales and operating profit in the
current year's first fiscal quarter of $37.4 million and $3.7 million,
respectively. There are no prior year comparisons, as the Company first began
operating in the snack nut category in April 1998, with the acquisition of
Flavor House, Inc.
Operations in the Snack Nuts segment are somewhat seasonal, with a higher
percentage of sales and operating profits expected to be recorded in the first
fiscal quarter.
EQUITY INTEREST IN VAIL RESORTS, INC.
Upon the sale of Ralcorp's resort operations to Vail Resorts, Inc., Ralcorp
retained an equity ownership interest in Vail, which was approximately 21.9
percent as of December 31, 1998. For the first fiscal quarter ended December
31, 1998, the Company's equity stake in Vail Resorts resulted in a non-cash,
pre-tax loss of $4.0 million. Through the first quarter ended December 31,
1997, the Company recorded a non-cash, pre-tax equity loss of $2.0 million. Due
to the timing of a fiscal year end change at Vail, the prior year equity loss
represents the Company's portion of Vail's operating results for only the month
of October 1997. The current year quarter equity loss is based on a full
quarter of results involving the historically unprofitable ski months of August
through October.
RESULTS OF OPERATIONS
Cost of products sold as a percentage of sales for the quarters ended December
31, 1998 and 1997 were 72.3% and 65.7%, respectively. This increase can be
attributed to the current year effect of the snack nuts business, which is a
very commodity-driven business with higher cost of sales. The snack nuts
business basically replaced the now divested branded baby food business, which
had historically lower cost of sales. Selling, general and administrative
expense as a percent of sales decreased to 14.4% in the first quarter of the
current year compared to 17.2% in the prior period. Factors affecting this
decrease again include the replacement of Beech-Nut, which had a significantly
higher cost structure, with the snack nuts business. In addition, both the
cereal and cracker and cookie operations have been able to keep costs basically
flat on higher sales revenue. Advertising and promotion expenses decreased to
4.2% of sales from 10.0% in the prior year period reflecting the elimination of
the advertising and promotion expenses associated with the branded baby food
business. As a predominantly store brand company the level of advertising and
promotional support is significantly reduced. Income taxes were 38.0% of
earnings before income taxes in the current quarter compared to 39.0% in the
year ago period, indicating a year-over-year change in effective state income
tax rates.
8
<PAGE> 11
FINANCIAL CONDITION
The Company's primary source of liquidity is cash flow provided from operations.
For the quarter ended December 31, 1998 the operations of the businesses used
net cash in the amount of $6.1 million compared to providing net cash of $1.1
million for the three months ended December 31, 1997. This decline is primarily
due to a significant increase in trade accounts receivable caused by increased
customer sales and information systems conversions. The conversion of primary
accounts receivable and invoicing systems caused delayed invoices and customer
payments during the period. These delays had been rectified by the end of the
current year's first quarter and the level of outstanding receivables had
improved. In addition, there was a significant reduction in the current year's
first quarter of accounts payable to levels consistent with other interim
periods. Net working capital, excluding cash and cash equivalents, was $56.8
million at December 31, 1998 compared to $33.3 million at September 30, 1998.
As reflected on the accompanying Consolidated Statement of Cash Flows, during
the first fiscal quarter of 1999 the Company paid $2.7 million on business
acquisitions. This amount represents the Company's purchase of the land and
building associated with the Nutcracker Brands snack nut operation. Property
and intangible asset additions were $5.3 million for the current year's first
quarter compared to $3.3 million in the prior year quarter. During the first
quarter of fiscal 1999 the Company repurchased $10.0 million of its Common Stock
compared to $1.4 million in the comparative prior year quarter. The Company's
current year repurchase activity reflects the results of the Company's Dutch
Auction self-tender offer completed in November 1998. As reflected on the
Consolidated Balance Sheet, the Company had $13.3 million of outstanding debt.
The balance of this debt was made available through Ralcorp's bank credit
agreements. Proceeds of this outstanding debt were used primarily to fund the
cash requirements of the Dutch Auction and first quarter estimated income tax
payments. The Company was debt-free at September 30, 1998.
During the quarter ended December 31, 1998, the Company's Board of Directors
approved an authorization to buy back up to two million shares of the Company's
Common Stock from time to time as management determines. As of February 10,
1999, the Company had not completed any stock repurchases pursuant to such
authorization. As referred to earlier, however, the Company did conduct a Dutch
Auction self-tender offer, through which 586,368 shares were repurchased.
OUTLOOK
The first fiscal quarter of 1999 marked Ralcorp's first full quarter as a
predominantly private label, or store brand, operation. The Company's
management firmly believes that the opportunities in the private label and value
brand areas are favorable for future growth and prosperity. The results for the
quarter ended December 31, 1998, as mentioned, the first without any branded
operations, were encouraging.
Ralcorp does, however, continue to operate in some intensely competitive food
categories. It is because of this level of competition that it is important to
the Company's outlook to continue to diversify and strengthen its business mix.
Significant steps have been taken to reshape the Company and lessen its reliance
on any one area of its business. Management anticipates that it will continue
to improve its business mix both through internal sales and profit growth, as
well as through key strategic acquisitions or alliances.
In few other food categories is the level of competition for the consumer dollar
as intense as in the ready-to-eat cereal category. Competition comes from large
branded box cereal manufacturers, branded bagged cereal producers and other
private label cereal providers. In addition, the category has failed to record
any meaningful growth in recent history, which has added to the competitive
nature. When the competition focuses on price, the environment for a private
label producer becomes even more challenging. Ralston Foods must continue to
maintain an effective price gap between its private label cereal products and
those of branded cereal producers. Aggressive cost containment will remain an
important focus of the entire organization to ensure price gaps can be
maintained. Finally, the cereal division hopes to continue to diversify its
internal business mix. The first quarter of fiscal 1999 results reflect some of
this mix change as the hot cereal business and co-packing initiatives were
significant contributors to operations.
9
<PAGE> 12
The Company's Bremner cracker and cookie subsidiary also conducts business in a
very competitive category. Major branded competitors aggressively market and
promote their branded offerings and many smaller, regional category participants
provide additional competitive pressures. Despite this environment, the
Company's cracker and cookie business remains strong. Further integration of
recent acquisitions should aid the subsidiary's outlook. Bremner continues to
realize improved operating efficiencies on the cracker side of the business and
the addition of Sugar Kake provides the Company a quality, low cost producer, as
well as critical mass on the cookie side of the operation. Just as it has been
key to Bremner's operating results to date, continuing to focus on cost
containment, the production of quality alternatives to branded products and an
emphasis on shifting its product mix to higher margin products, will be key to
its future.
The first full quarter of operations for the combined Nutcracker and Flavor
House snack nut operation was successful. The snack nut business is very
seasonal, however, and the Company expects that its first fiscal quarter, which
encompasses the holiday season, will result in a significant portion of the
year's revenues and profits. Therefore, the financial outlook for this business
for the remainder of fiscal 1999 is to continue to post quarterly profits, but
not to the level experienced during the quarter ended December 31, 1998. From
an operational perspective, the Company's snack nut business will continue to
focus on fully leveraging its combined strengths, growing its customer base and
maintaining the quality of its products.
As referenced earlier, Ralcorp management realizes that in addition to improved
operations, effective cost containment 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 intentions of being the premier provider of private
label, or value-oriented, food products. Ralcorp's low level of outstanding
debt should provide the Company greater flexibility to act upon any such
opportunities.
RALCORP LIQUIDITY
To meet its on-going working capital needs Ralcorp has in place a $100 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 $100 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
The Company uses computer hardware and software in various aspects of its
business, including production, distribution and administration, which will
require modification or replacement in order to interpret the Year 2000
appropriately. The Company is in the process of implementing a plan to identify
and correct all affected hardware and software. As part of this plan, the
Company monitors and tests the implementation of needed corrections.
The Company's on-going information technology strategy includes the elimination
of mainframe computer systems and the migration to a server environment in order
to reduce costs and improve functionality. A key component to the execution of
this strategy is currently in progress as the Company is replacing, upgrading or
enhancing primary systems and technology necessary to manage the business. The
Company's current accounting policy is to capitalize the related external costs
and amortize them over a period not to exceed five years. The Company's
replacement of primary systems is now substantially complete and the resulting
information systems hierarchy is substantially Year 2000 ready. The initial
assessment of all other systems hardware and software, including processors
10
<PAGE> 13
within production and other equipment, is complete and remediation is
progressing on schedule. The Company anticipates that modifications and
replacements to these systems and equipment will be substantially complete by
June 30, 1999. Testing of these changes is taking place as soon as they are
completed. The Company expects all testing should be completed by the end of
fiscal 1999.
Based upon current expectations, management anticipates that the incremental
costs to the Company to modify or replace its systems in order to remediate the
Year 2000 issue should not exceed $1 million, most of which will be expended in
fiscal 1999. Such costs do not include normal system upgrades and replacements.
The Company has implemented a program of contacting significant customers,
critical suppliers and other outside parties to determine the extent to which
the Company's systems and operations are vulnerable to any failures by these
outside parties to satisfactorily address their Year 2000 issues. In the event
that any of the Company's significant customers, critical suppliers or outside
parties do not successfully and timely achieve Year 2000 readiness, and the
Company is unable to replace them with new customers or alternate suppliers, the
Company's business or operations could be adversely affected.
While the Company expects to identify and resolve its Year 2000 issues, if
modifications and replacements are not made on a timely basis there can be no
absolute assurance that there will not be a material adverse effect on the
Company. In addition, if critical third parties fail to convert their systems
in a timely manner and in a way that is compatible with the Company's systems,
such failures would result in an interruption of critical service to the Company
resulting in a number of operational inconveniences and inefficiencies for the
Company and its customers.
The Company is in the process of developing contingency plans to be implemented
in the event of untimely or incomplete remediation of both internal and third
party Year 2000 issues. Such contingency plans are being designed to mitigate
any Year 2000 failures encountered, but there can be no absolute assurance that
these plans, even if successful, will totally mitigate all Year 2000 related
failures.
The discussion of the Company's efforts, and management's expectations, relating
to Year 2000 readiness are forward-looking statements. The Company's ability to
achieve Year 2000 readiness and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, the availability
of testing resources, vendors ability to modify proprietary software, and
unanticipated problems identified in the ongoing compliance review.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 21E of the Exchange
Act are made throughout this document and include information under the section
titled "Financial Review," and are preceded by, followed by or include the words
"believes," "expects," "anticipates" 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, successfully
introduce new products or successfully manage costs across all parts of the
Company, then the Company's private label businesses could incur operating
losses;
(ii) 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;
11
<PAGE> 14
(iii) 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 and various nuts can change significantly;
(iv) 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;
(v) The Company is currently generating profit from certain co-packing contract
arrangements with other manufacturers within its competitive categories. The
termination or expiration of these contracts, and the inability of the Company
to replace this level of business could negatively effect the Company's
operating results;
(vi) The Company's businesses compete in mature segments with competitors having
large percentages of segment sales; and
(vii) The Company's disclosure under the heading "INFORMATION SYSTEMS
DEVELOPMENTS AND YEAR 2000 ISSUES" includes cautionary statements regarding the
Company's ability to successfully address Year 2000 compliance issues, and such
statements are incorporated herein.
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 28, 1999, the Registrant held its Annual Meeting of Shareholders at
which the following Director was elected Director of the Registrant, for a term
of three years expiring at the Annual Meeting of Shareholders to be held in
2002, or when his successor is elected:
Abstentions/
Votes For Votes Against Broker Nonvotes
---------- -------------- ----------------
David W. Kemper 27,510,535 298,170 N/A
Item 5. Other Information.
On February 11, 1999 the Registrant announced that it reached a definitive
agreement to purchase Martin Gillet & Co., Inc., a leading private label
manufacturer of mayonnaise and pourable, shelf-stable salad dressing. Annual
sales for Martin Gillet total approximately $70 million. The transaction is
expected to be completed within forty-five days. Terms of the transaction were
not disclosed.
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
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 58
<ALLOWANCES> 1
<INVENTORY> 57
<CURRENT-ASSETS> 123
<PP&E> 256
<DEPRECIATION> 104
<TOTAL-ASSETS> 413
<CURRENT-LIABILITIES> 65
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0
0
<OTHER-SE> 304
<TOTAL-LIABILITY-AND-EQUITY> 413
<SALES> 155
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<CGS> 112
<TOTAL-COSTS> 112
<OTHER-EXPENSES> 33
<LOSS-PROVISION> 0
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