SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000.
( ) 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 May 11, 2000
29,859,907
<PAGE>
RALCORP HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Statement of Earnings 1
Consolidated Balance Sheet 2
Consolidated Statement of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 11
PART II. OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
(i)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in millions except per share data, shares in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 173.2 $ 150.3 $ 378.1 $ 305.2
-------- -------- -------- --------
Costs and Expenses
Cost of products sold 130.9 108.6 286.4 220.6
Selling, general and administrative 21.0 21.1 46.6 43.4
Advertising and promotion 6.0 6.8 12.2 13.3
Interest expense, net 1.3 .3 2.4 .3
Equity in (earnings) loss
of Vail Resorts, Inc. (2.8) (4.1) 1.6 (.1)
-------- -------- -------- --------
156.4 132.7 349.2 277.5
-------- -------- -------- --------
Earnings before Income Taxes 16.8 17.6 28.9 27.7
Income Taxes 6.2 6.7 10.7 10.5
-------- -------- -------- --------
Net Earnings $ 10.6 $ 10.9 $ 18.2 $ 17.2
======== ======== ======== ========
Basic Earnings per Share $ .35 $ .35 $ .60 $ .55
======== ======== ======== ========
Diluted Earnings per Share $ .34 $ .34 $ .59 $ .54
======== ======== ======== ========
Weighted average shares for
basic earnings per share 30,329 31,133 30,433 31,276
Dilutive effect of:
Stock options 236 385 345 327
Deferred compensation awards 213 284 204 254
-------- -------- -------- --------
Weighted average shares for
diluted earnings per share 30,778 31,802 30,982 31,857
======== ======== ======== ========
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
RALCORP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(Condensed)
(Dollars in millions)
March 31, Sept. 30,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2.3 $ 1.9
Receivables, net 55.3 59.9
Inventories-
Raw materials and supplies 34.7 31.9
Finished products 46.5 43.4
Prepaid expenses 2.8 2.8
Other current assets 5.6 5.5
-------- --------
Total Current Assets 147.2 145.4
Investment in Vail Resorts, Inc. 69.1 70.7
Other Investments 1.2 -
Intangible Assets, Net 138.1 100.7
Property, Net 188.9 165.5
Other Assets .4 1.5
-------- --------
$ 544.9 $ 483.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 34.7 $ 53.4
Other current liabilities 32.2 23.7
-------- --------
Total Current Liabilities 66.9 77.1
-------- --------
Long-term Debt 101.5 42.8
-------- --------
Deferred Income Taxes 11.1 6.9
-------- --------
Other Liabilities 32.9 32.9
-------- --------
Shareholders' Equity
Common stock .3 .3
Capital in excess of par value 110.0 110.1
Retained earnings 274.5 256.3
Common stock in treasury, at cost (52.3) (42.6)
-------- --------
Total Shareholders' Equity 332.5 324.1
-------- --------
$ 544.9 $ 483.8
======== ========
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed)
(Dollars in millions)
Six Months Ended
March 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flows from Operations
Net earnings $ 18.2 $ 17.2
Non-cash items included in net earnings 18.2 13.3
Changes in working capital, net of
effects of acquisitions (12.9) (20.3)
Other, net (.2) 1.1
-------- --------
Net cash flow provided by operations 23.3 11.3
-------- --------
Cash Flows from Investing Activities
Business acquisitions, net of cash acquired (59.7) (53.2)
Additions to property and intangible assets, net (12.2) (10.5)
Proceeds from sale of property .1 .1
-------- --------
Net cash used by investing activities (71.8) (63.6)
-------- --------
Cash Flows from Financing Activities
Proceeds under credit agreement, net 58.7 53.4
Purchase of treasury stock (10.2) (10.0)
Proceeds from the exercise of stock options .4 .2
-------- --------
Net cash provided by financing activities 48.9 43.6
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents .4 (8.7)
Cash and Cash Equivalents, Beginning of Period 1.9 12.3
-------- --------
Cash and Cash Equivalents, End of Period $ 2.3 $ 3.6
======== ========
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
RALCORP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(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, 1999.
NOTE 2 - ACQUISITIONS
On October 4, 1999, the Company completed the purchase of Ripon Foods, Inc. for
$39.7. Ripon Foods manufactures a wide variety of high quality private label
and branded cookie products, including sugar wafers and wire cut and enrobed
cookies. Ripon Foods is located in Ripon, WI and has annual sales of
approximately $64.
On January 31, 2000, the Company completed the purchase of Cascade Cookie
Company, Inc. (Cascade) for $22.0. Cascade is a leading manufacturer and
marketer of high quality cookies that are sold to the in-store bakeries of major
U.S. grocery chains and selected mass merchandisers. Cascade's is located in
Kent, Washington and has annual sales of approximately $19.
Both of these acquisitions were accounted for using the purchase method, whereby
the results of operations are included in the consolidated statement of earnings
from the date of acquisition. Pro forma results of the Company, assuming these
acquisitions had been made at the beginning of each period presented, would not
be materially different from the results reported. Under purchase accounting,
the purchase price is allocated to acquired assets and liabilities based on
their estimated fair values at the date of acquisition, and any excess is
allocated to goodwill. Such allocations are subject to adjustment when
additional analysis concerning asset and liability balances is finalized.
Management does not expect the final allocations to differ materially from the
preliminary allocation amounts included herein. Goodwill relating to each
acquisition is being amortized on a straight-line basis over 25 years.
NOTE 3 - RECEIVABLES, NET consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, Sep. 30,
2000 1999
-------- --------
<S> <C> <C>
Receivables $ 57.1 $ 62.0
Allowance for doubtful accounts (1.8) (2.1)
-------- --------
$ 55.3 $ 59.9
======== ========
</TABLE>
NOTE 4 - OTHER INVESTMENTS
In March 2000, the Company funded a portion of its deferred compensation
liability by investing $1.2 in certain mutual funds in the same amounts as
selected by the participating employees. Because management's intent is to
invest in a manner that matches the deferral options chosen by the participants
and those participants can elect to transfer amounts in or out of each of the
designated deferral options at any time, these investments have been classified
as trading assets and are stated at fair value. Both realized and unrealized
gains and losses on these assets are included in earnings and offset the related
change in the deferred compensation liability.
4
<PAGE>
NOTE 5 - INTANGIBLE ASSETS, NET consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, Sep. 30,
2000 1999
-------- --------
<S> <C> <C>
Intangible assets at cost $ 152.7 $ 110.8
Accumulated amortization (14.6) (10.1)
-------- --------
$ 138.1 $ 100.7
======== ========
</TABLE>
NOTE 6 - PROPERTY, NET consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, Sep. 30,
2000 1999
-------- --------
<S> <C> <C>
Property at cost $ 313.5 $ 280.4
Accumulated depreciation (124.6) (114.9)
-------- --------
$ 188.9 $ 165.5
======== ========
</TABLE>
NOTE 7 - LONG-TERM DEBT
The Company had outstanding borrowings of $101.5 and $42.8 as of March 31, 2000
and September 30, 1999, respectively. The balance of this debt was made
available through uncommitted credit arrangements with banks and was classified
as long-term debt based on management's ability and intent to refinance it on a
long-term basis. The additional borrowings during the period were used to help
fund the acquisitions of Ripon Foods and Cascade.
NOTE 8 - SEGMENT INFORMATION
The tables below present information about the Company's reportable segments:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales
Cereals, Crackers & Cookies $ 126.2 $ 121.1 $ 260.1 $ 238.6
Snack Nuts 31.4 23.7 86.0 61.1
Mayonnaise & Dressings 15.6 5.5 32.0 5.5
-------- -------- -------- --------
Total $ 173.2 $ 150.3 $ 378.1 $ 305.2
======== ======== ======== ========
Operating Profit
Cereals, Crackers & Cookies $ 14.3 $ 14.3 $ 30.5 $ 27.3
Snack Nuts .6 1.1 4.5 4.8
Mayonnaise & Dressings .3 .4 .9 .4
-------- -------- -------- --------
Total segment operating profit 15.2 15.8 35.9 32.5
Equity earnings (loss) 2.8 4.1 (1.6) .1
Unallocated corporate expenses (1.2) (2.3) (5.4) (4.9)
-------- -------- -------- --------
Earnings before income taxes $ 16.8 $ 17.6 $ 28.9 $ 27.7
======== ======== ======== ========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Mar. 31, Sep. 30,
2000 1999
-------- --------
<S> <C> <C>
Total Assets
Cereals, Crackers & Cookies $ 336.2 $ 272.2
Snack Nuts 85.0 87.1
Mayonnaise & Dressings 42.0 41.7
Corporate 81.7 82.8
-------- --------
Total $ 544.9 $ 483.8
======== ========
</TABLE>
NOTE 9 - SUBSEQUENT EVENT
On May 1, 2000, the Company completed the purchase of James P. Linette, Inc.,
which manufactures chocolate products, including peanut butter and caramel cups,
as well as chocolate covered peanuts. Linette is located in Womelsdorf, PA and
has annual sales of approximately $28.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
OVERVIEW
Net earnings for the second quarter ended March 31, 2000 were $10.6 million
($.34 per diluted share), down $.3 million from the second quarter last year.
Net earnings for the six-month period ended March 31, 2000 were $18.2 million,
up 5.8 percent from $17.2 million last year.
Total net sales were up $22.9 million and $72.9 million for the three and six
months ended March 31, 2000, respectively. These 15 percent and 24 percent
increases were due primarily to the timing of the Company's strategic business
acquisitions. Net sales by segment are presented in the table below and
discussed in the following segment analysis sections.
<TABLE>
<CAPTION>
NET SALES BY SEGMENT Three Months Ended Six Months Ended
(In Millions) March 31, March 31,
- ------------------------------ ------------------ -----------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Ralston Foods $ 70.0 $ 77.3 $ 143.8 $ 150.3
Bremner 56.2 43.8 116.3 88.3
------- ------- ------- -------
CEREALS, CRACKERS & COOKIES 126.2 . 121.1 260.1 238.6
SNACK NUTS 31.4 23.7 86.0 61.1
MAYONNAISE & DRESSINGS 15.6 5.5 32.0 5.5
------- ------- ------- -------
Total Net Sales $ 173.2 $ 150.3 $ 378.1 $ 305.2
======= ======= ======= =======
</TABLE>
Cost of products sold as a percentage of sales was 75.6% and 75.7% for the
quarter and six months ended March 31, 2000, respectively, compared to 72.3% for
both the quarter and six months ended March 31, 1999. The increases are
primarily the result of the change in the segment sales mix, with larger
portions coming from the more commodity-driven Snack Nuts and Mayonnaise &
Dressings businesses, which have higher costs of sales than the Cereals,
Crackers & Cookies businesses.
6
<PAGE>
Selling, general and administrative expenses were 12.1% and 12.3% of sales for
the quarter and six months ended March 31, 2000, respectively, down from 14.0%
and 14.2% in the corresponding periods last year. This decrease is again
attributable to the Company's changing business mix, since both the Snack Nuts
segment and the Mayonnaise & Dressings segment operate on a lower administrative
cost base. This category of expenses was also affected by favorable
mark-to-market adjustments to the Company's deferred compensation liability,
largely based on changes in Ralcorp's stock price. These adjustments yielded
pre-tax income of $1.7 million and $1.0 million for the quarter and six months
ended March 31, 2000, respectively, compared to pre-tax expense of $.3 million
and $1.1 million for the corresponding periods last year.
Advertising and promotion expenses were 3.5% and 3.2% of sales for the quarter
and six-month periods ended March 31, 2000, respectively, down from 4.5% and
4.4% in the corresponding periods last year. The decline was primarily due to
the aforementioned changing business mix. As a predominantly store brand
company, the level of advertising and promotional expenditures will likely
remain minor.
Interest expense for the quarter and six months ended March 31, 2000 was $1.3
and $2.4, respectively, compared to $.3 million for both the corresponding
periods a year ago. The increase is the result of additional debt outstanding
throughout the current year periods due to the acquisitions of Ripon Foods in
October 1999 and Cascade Cookie Company in January 2000.
The Company's 21.9 percent ownership interest in Vail Resorts, Inc. resulted in
equity earnings of $2.8 million for the quarter ended March 31, 2000, down $1.3
million from the second quarter last year, and equity losses of $1.6 million for
the six months ended March 31, 2000, compared to equity earnings of $.1 million
for the six-month period last year. The unfavorable results in the current year
periods, which reflect Vail's operations through January 31, 2000, are largely
attributable to slow millennium period travel patterns across the U.S. and weak
pre-Christmas activity caused by poor early season snow conditions.
The effective income tax rate was 37.0 percent for the quarter and six months
ended March 31, 2000 and 38.0 percent in the corresponding periods ended March
31, 1999. The decrease is primarily due to reduced state income taxes.
CEREALS, CRACKERS & COOKIES
Second quarter and six-month net sales for the Cereals, Crackers & Cookies
segment were up $5.1 million and $21.5 million, respectively, from last year.
This increase is due primarily to the additional revenue acquired through the
current year purchases of Ripon Foods, Inc. and Cascade Cookie Company, which
are operated as part of Bremner, Ralcorp's cracker and cookie division. Ripon
Foods, a cookie, sugar wafer and breakfast bar producer, was acquired on October
4, 1999, and Cascade, which produces cookies for in-store bakeries, was acquired
on January 31, 2000. For more information, see Note 2 of the accompanying Notes
to Condensed Consolidated Financial Statements.
The Company's ready-to-eat and hot cereal division, Ralston Foods, recorded
decreased sales for the three-month and six-month periods, principally due to
lower volumes. Previously, Company management disclosed that a cereal
co-manufacturing agreement was terminated effective December 31, 1999. The
reduction of volume related to this agreement was a significant factor in the
revenue decline at Ralston Foods. In addition, Ralston Foods' ready-to-eat
volume declined 7 percent during the three months ended March 31, 2000 as a
result of increased competitive trade dealing in the value segment of the
category and a year-over-year decline in retailer store brand promotions. The
Company's hot cereal volume declined 12 percent in the quarter. Management
believes the unusually warm winter weather led to reduced consumption of hot
cereal during the period. Moreover, the current period faced difficult
comparisons to the prior year quarter when hot cereal volume had increased 23
percent year-over-year. Volume comparisons for the six months ended March 31,
2000 also reflected declines as ready-to-eat cereal volumes fell 1.9 percent
from last year compared to a corresponding 1.3 percent increase for the prior
year period. Hot cereal volume for the same period was down 6 percent from last
year compared to a corresponding 26.6 percent increase for the prior year
period.
7
<PAGE>
As previously stated, sales revenue increases at Bremner resulted from the
addition of Ripon Foods and Cascade Cookie Company in the current year. Second
quarter cracker volumes of the pre-existing Bremner businesses declined 3
percent from the prior year, which management attributes to the aforementioned
warm winter weather. Nevertheless, cracker volumes for the six-month period
were up 2.4 percent from last year due to strong sales in this year's first
fiscal quarter.
From an operating results perspective, the Cereals, Crackers & Cookies segment
recorded second quarter operating profit unchanged from the prior year and
six-month profit up nearly 12 percent. Bremner operating profit improved in
both the quarter and six-month periods primarily due to the Ripon and Cascade
acquisitions. Six-month results for Bremner were also benefited by strong first
quarter cracker volume gains in the pre-existing Bremner operations and
favorable raw material and packaging supply costs.
Ralston Foods second quarter operating profit was negatively impacted by the
aforementioned loss of comanufacturing business. The Company previously
disclosed that the loss of this comanufacturing agreement could negatively
impact diluted earnings per share for the last nine months of fiscal 2000 in the
range of $.08 to $.10 per share. Importantly, despite lower volumes in the
quarter, Ralston Foods' continuing businesses reported operating profit
consistent with the previous year on the strength of improved product mix and
lower costs. For the six-month period, Ralston Foods reported improved
operating profit with improved product mix and lower costs offsetting the impact
of reduced volumes and the reduction of comanufacturing business.
SNACK NUTS
Second quarter and six-month net sales for the Snack Nuts segment increased 32
percent and 41 percent, respectively, reflecting incremental business from
Southern Roasted Nuts of Georgia, as well as significantly improved volumes in
pre-existing operations. Southern Roasted, the Company's third snack nut
operation, was acquired in late March 1999.
Despite the improved volumes and net sales, Snack Nuts second quarter operating
profit fell $.5 million from last year as the segment continued to be negatively
impacted by the high cost of cashews due to a worldwide shortage of this key
commodity ingredient. Snack Nuts management anticipates some relief in cashew
costs for the Company's third and fourth quarters. In addition, the segment is
moving ahead with its plans to consolidate the operations of the three snack nut
businesses into two locations at Billerica, MA and Dothan, AL, which management
believes will result in increased efficiencies.
As discussed in Note 9 of the accompanying Notes to Condensed Consolidated
Financial Statements, Ralcorp acquired James P. Linette, Inc., a chocolate candy
manufacturer, on May 1, 2000. Linette is operated as part of the Snack Nuts
segment and is expected to contribute annual net sales of approximately $28
million.
MAYONNAISE & DRESSINGS
The Company's fiscal 2000 second quarter and six-month net sales included $15.6
million and $32.0 million, respectively, from Martin Gillet, a maker of private
label mayonnaise and salad dressings. Martin Gillet was acquired at the
beginning of March 1999, so prior year net sales included only $5.5 for the
corresponding quarter and six-month periods. Operating profit was $.3 million
and $.9 million for the second quarter and first six months this year, compared
to $.4 million for March 1999.
Cost reduction efforts at Martin Gillet continue and management anticipates that
the benefits of these efforts will be realized over the next twelve months.
8
<PAGE>
FINANCIAL CONDITION
At March 31, 1999, the Company continued to show substantial liquidity with net
working capital (excluding cash and cash equivalents) of $78.0 million, up from
$66.4 million at September 30, 1999. Excluding the net working capital acquired
during the six months, which was negative $1.3 million, the increase for the
period was $12.9 million. Capital resources remained strong with a net worth of
$332.5 million and a long-term debt to total capital ratio of 23.4 percent at
March 31, 2000.
The Company's primary source of liquidity is cash flows from operations, which
provided $23.3 million in the six months ended March 31, 2000 through net
earnings (excluding noncash expenses and losses) offset by the increase in
working capital. Net cash used by investing activities included $37.7 million
for the acquisition of Ripon Foods, Inc. in October 1999 and $22.0 million for
the January 2000 acquisition of Cascade Cookie Company. Capital expenditures
were $12.2 million for the first six months this year, up from $10.5 million for
the same period last year, a trend which is expected to continue. During
February and March 2000, the Company repurchased nearly 700,000 shares of its
common stock for $10.2 million. During the six months ended March 31, 2000,
long-term debt increased $58.7 as a result of additional borrowings under
uncommitted credit arrangements with banks. These borrowings were used to fund
the acquisition costs of Ripon and Cascade.
Management believes the Company 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 flows and, as necessary, borrowings under committed and
uncommitted credit arrangements.
During the first quarter of the prior fiscal year, 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 May
11, 2000, 690,700 shares remained available for repurchase pursuant to such
authorization.
OUTLOOK
The Company's management believes that the opportunities in the private label
and value brand areas are favorable for long-term growth. The Company
anticipates maintaining its business and growth focus on these areas of food
retailing.
Ralcorp operates in intensely competitive food categories. It is because of
this competitive environment that it is important for the Company to continue to
diversify and strengthen its business mix. The Company has taken significant
steps to reshape the Company and lessen its reliance on any one business segment
and to achieve sufficient scale in the categories in which it operates.
Management expects to continue to improve its business mix through volume and
profit growth of existing businesses, as well as through key strategic
acquisitions or alliances. Acquisitions are opportunistic; therefore management
does not control the availability of acquisition targets and acquisition timing.
The level of competition in the ready-to-eat cereal category is intense.
Competition comes from large branded box cereal manufacturers, branded bagged
cereal producers and other private label cereal providers. Recently, the cereal
category has failed to record meaningful growth, which has added to the
competitive environment. When the competition focuses on gaining volume through
price/promotion, as has been the case in recent periods, the environment for a
private label producer becomes even more challenging, while the profitability of
the entire category is diminished. Ralston Foods must maintain an effective
price gap between its quality private label cereal products and those of branded
cereal producers, thereby providing the best value alternative for the consumer.
Aggressive cost containment - and where possible, cost reductions - will
continue to be a primary focus of the organization. Finally, the cereal
division hopes to further its private label leading position through expanded
distribution, garnering additional volume with the consolidating retail base and
new product development/emulations.
9
<PAGE>
The Company's cracker and cookie division, Bremner, also conducts business in a
very competitive category. Major branded competitors continue to aggressively
market and promote their branded offerings and many smaller, regional
participants provide additional competitive pressures. In light of this
environment, the Company's cracker and cookie business has had to defend its
leading store brand cracker position. Bremner's ability to successfully respond
to market conditions will be important to its results of operations. In
addition, further integration of recent acquisitions should aid the division's
outlook. Fiscal 2000 will bring the challenge of integrating the acquisitions
of Ripon Foods, Inc., and Cascade Cookie Company. Ripon Foods is a high quality
manufacturer of enrobed and wire-cut cookies and sugar wafers, giving Bremner
the capability to produce a full line of cookies. Cascade is a high quality
producer of cookies sold primarily through the in-store baking section of food
markets. However, just as they have been key to Bremner's operating results to
date, a focus on cost containment, the production of quality alternatives to
branded products, an emphasis on improving its product mix, where possible, and
organic volume growth, will be important to its future.
The outlook for the overall snack nut category remains favorable, as the
category leader continues to drive growth in this snack food segment. As
referred to above, the current year's first six months results were negatively
impacted by the high cost of cashews - a key commodity ingredient - due to a
worldwide shortage. Recently, it appears that cashew costs are trending down
from significant highs. This easing of cashew prices should improve the
profitability outlook for the Company's snack nut operation in the remainder of
fiscal 2000. In addition, the Company's snack nut business is finalizing its
consolidation of three plant operations down to two plants (the third snack nut
operation came via the acquisition of Southern Roasted Nuts of Georgia, Inc., on
March 24, 1999). The addition of chocolate candy capability through the
acquisition of James P. Linette will increase the scope of products offered by
the segment. From an operational perspective, Nutcracker Brands will continue
to focus on fully leveraging the combined strengths of all of its operations,
growing its customer base and maintaining the quality of its products.
The March 4, 1999 acquisition of Martin Gillet & Co., Inc. demonstrates the
Company's strategy of diversifying its business portfolio, thereby reducing its
reliance on any one operation. While adding Martin Gillet does expand Ralcorp's
private label product offerings into the private label mayonnaise and shelf
stable salad dressings, it also takes the Company into another competitive,
commodity-driven category with large branded players and numerous regional
producers. Management, however, believes opportunities exist to expand Martin
Gillet's customer base and remove costs from this operation. Ultimately, the key
opportunity is to benefit from a more diversified portfolio of product
offerings.
Management will continue to explore 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 underleveraged
balance sheet should provide the Company greater flexibility to act upon any
such opportunities.
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 "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and are preceded by, followed by or include the words
"believes," "should," "expects," "anticipates" or similar expressions elsewhere
in this document. The Company's results of operations and financial condition
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, the Company's private label businesses could incur operating losses;
10
<PAGE>
(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;
(iii) Significant increases in the cost of certain raw materials (e.g., wheat,
soybean oil, various nuts) 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;
(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-manufacturing
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 affect the
Company's operating results; and
(vi) The Company's businesses compete in mature segments with competitors having
large percentages of segment sales.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management believes that there have been no material changes in the Company's
market risk during the six months ended March 31, 2000. For additional
information, refer to Item 7(A) of the Company's Annual Report on Form 10-K for
the year ended September 30, 1999.
11
<PAGE>
PART II. OTHER INFORMATION
There is no information required to be reported under any items except those
indicated below.
Item 5. Other Information
On May 2, 2000 the Registrant announced that on May 1, 2000 it completed the
purchase of James P. Linette, Inc., a privately held chocolate candy
manufacturer located in Womelsdorf, PA. Linette gives the Company's snack nut
business new capabilities in the higher consumer consumption areas of store
brand candy and chocolate-coated nuts. Annual sales for Linette are
approximately $28 million.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 28, 2000 the Registrant reported improved First Quarter Fiscal 2000
earnings for the first quarter ended December 31, 1999.
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
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RALCORP
HOLDINGS, INC.'S FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,300
<SECURITIES> 0
<RECEIVABLES> 57,100
<ALLOWANCES> 1,800
<INVENTORY> 81,200
<CURRENT-ASSETS> 147,200
<PP&E> 313,500
<DEPRECIATION> 124,600
<TOTAL-ASSETS> 544,900
<CURRENT-LIABILITIES> 66,900
<BONDS> 0
<COMMON> 300
0
0
<OTHER-SE> 332,200
<TOTAL-LIABILITY-AND-EQUITY> 544,900
<SALES> 378,100
<TOTAL-REVENUES> 378,100
<CGS> 286,400
<TOTAL-COSTS> 286,400
<OTHER-EXPENSES> 62,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,400
<INCOME-PRETAX> 28,900
<INCOME-TAX> 10,700
<INCOME-CONTINUING> 18,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,200
<EPS-BASIC> 0.60
<EPS-DILUTED> 0.59
</TABLE>
