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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994. COMMISSION FILE NO. 1-4582
RALSTON PURINA COMPANY
INCORPORATED IN MISSOURI-IRS EMPLOYER IDENTIFICATION NO. 43-0470580
CHECKERBOARD SQUARE, ST. LOUIS, MISSOURI 63164
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 314-982-1000
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<TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- ---------------------
<S> <C>
RALSTON-RALSTON PURINA GROUP NEW YORK STOCK EXCHANGE, INC.
COMMON STOCK, PAR VALUE $.10 PER SHARE CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE INCORPORATED
RALSTON-CONTINENTAL BAKING GROUP NEW YORK STOCK EXCHANGE, INC.
COMMON STOCK, PAR VALUE $.10 PER SHARE CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE INCORPORATED
RALSTON-RALSTON PURINA GROUP NEW YORK STOCK EXCHANGE, INC.
COMMON STOCK PURCHASE RIGHTS CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE INCORPORATED
RALSTON-CONTINENTAL BAKING GROUP NEW YORK STOCK EXCHANGE, INC.
COMMON STOCK PURCHASE RIGHTS CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE INCORPORATED
5 3/4% CONVERTIBLE SUBORDINATED DEBENTURES NEW YORK STOCK EXCHANGE, INC.
9 1/2% SINKING FUND DEBENTURES NEW YORK STOCK EXCHANGE, INC.
9% NOTES NEW YORK STOCK EXCHANGE, INC.
9 3/8% SINKING FUND DEBENTURES NEW YORK STOCK EXCHANGE, INC.
9 1/4% DEBENTURES NEW YORK STOCK EXCHANGE, INC.
9.30% DEBENTURES NEW YORK STOCK EXCHANGE, INC.
8 5/8% DEBENTURES NEW YORK STOCK EXCHANGE, INC.
</TABLE>
Registrant has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein and will not be contained, to the best of
registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes No X
--- ---
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AS OF THE CLOSE OF BUSINESS ON NOVEMBER 30, 1994:
$4,871,377,750.
(Excluded from this figure is the voting stock held by Registrant's
Directors, who are the only persons known to Registrant who may be
considered to be its "affiliates" as defined under Rule 12b-2.)
Number of shares of Ralston-Ralston Purina Group Common Stock ("RAL
Stock"), $.10 par value, outstanding as of the close of business on
November 30, 1994: 104,077,952.
Number of shares of Ralston-Continental Baking Group Common Stock
("CBG Stock"), $.10 par value, outstanding as of close of business on
November 30, 1994: 20,587,889.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Ralston Purina Company 1994 Annual Report to
Shareholders (Parts I and II of Form 10-K).
2. Portions of Ralston Purina Company Notice of Annual Meeting and
Proxy Statement dated December 15, 1994 (Part III of Form 10-K).
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NOTE ON PRESENTATION
Ralston Purina Company ("Ralston" or the "Company") is a diversified
company which is principally engaged in the pet food, battery products,
protein supplement, and, outside the United States, animal feed
businesses through its Ralston Purina Group, and the fresh bakery
products business through its Continental Baking Group. On March 31,
1994, Ralston spun-off the domestic cereal, baby food, cookie and
cracker, all-seasons resort and coupon redemption businesses as part of
Ralcorp Holdings, Inc. Ralston distributed Ralcorp Stock to holders of
its RAL Stock on the basis of one share of Ralcorp Stock for every
three shares of RAL Stock held as of the close of business on that
date.
Ralston continues to include consolidated financial information in
its periodic reports required by the Securities Exchange Act of 1934
(the "1934 Act"), in its annual and quarterly shareholder reports and
in other financial communications. The consolidated financial
statements are supplemented with separate financial statements of the
Ralston Purina Group and the Continental Baking Group, together with
the related Management's Discussion and Analyses, descriptions of
business and other financial and business information to the extent
such information is required to be presented in the report being filed.
The financial information of the Ralston Purina Group and the
Continental Baking Group, taken together, includes all accounts which
comprise the corresponding consolidated financial information of
Ralston.
For consolidated financial reporting purposes, one of Ralston's
reportable industry segments, the Bakery Products Segment, corresponds
with the Continental Baking Group, but the Ralston Purina Group is
comprised of four other reportable segments, Pet and Human Foods,
Battery Products, Agricultural Products-International, and Soy Protein
Products and Other. The attribution of assets, liabilities (including
contingent liabilities) and stockholders' equity among the Ralston
Purina Group and the Continental Baking Group for the purpose of
preparing their respective financial statements does not affect legal
title to such assets or responsibility for such liabilities. Holders of
RAL Stock and CBG Stock are common stockholders of Ralston, which
continues to be responsible for its liabilities. Financial impacts
arising from the Ralston Purina Group or the Continental Baking Group
which affect the overall cost of Ralston's capital could affect the
results of operations and financial condition of both groups.
Accordingly, the Ralston consolidated financial information should be
read in connection with the Ralston Purina Group and Continental Baking
Group financial information.
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PART I
ITEM 1. BUSINESS.
The Company, incorporated in Missouri in 1894, is the world's largest
producer of dry dog and dry and soft-moist cat foods. It is also the
largest wholesale baker of fresh delivered bread and sweet-baked goods
in the United States and is the world's largest manufacturer of dry
cell battery products. The Company is also a major producer of dietary
soy protein, fiber food ingredients, polymer products and, outside the
United States, feeds for livestock and poultry. The Company has a
number of trademarks, such as PURINA, RALSTON, the CHECKERBOARD logo,
CHOW, DOG CHOW, CAT CHOW, WONDER, HOSTESS, EVEREADY and ENERGIZER among
others, which it considers of substantial importance and which it uses
individually or in conjunction with other Company trademarks.
The Company is presently comprised of five Business Segments-Pet and
Human Foods, Battery Products, Agricultural Products-International, and
Soy Protein Products and Other, all of which are conducted by the
Company's Ralston Purina Group, and Bakery Products which is conducted
by the Company's Continental Baking Group. On March 31, 1994, Ralston
spun-off the domestic cereal, baby food, cookie and cracker, all-
seasons resort, and coupon redemption businesses as part of Ralcorp
Holdings, Inc.
RALSTON PURINA GROUP
The Pet and Human Foods Segment consists of Ralston Purina's Pet
Products and the consumer products operations of Ralston Purina
International. Pet Products produces and sells dog and cat foods under
the PURINA name, including DOG CHOW, CAT CHOW and numerous other dog
and cat food brands. The international consumer products operations of
the Company produce dog and cat food and cereal in 10 countries. The
Company operates 21 manufacturing facilities in the United States and
worldwide for the production of human and pet foods. The Segment also
includes the domestic cereal, baby food and cookie and cracker and
coupon redemption businesses spun-off as part of Ralcorp Holdings, Inc.
on March 31, 1994.
The Battery Products Segment manufactures and sells primary
batteries, rechargeable batteries and battery-powered lighting products
in the United States and worldwide, principally under the trademarks
EVEREADY and ENERGIZER. The Company's domestic and foreign battery
operations have been organized as Eveready Battery Company, Inc. and
Ralston Purina Overseas Battery Company, respectively, both wholly
owned subsidiaries of the Company. Thirty-seven manufacturing
facilities are operated in the United States and abroad for the
production of battery and related products.
The Agricultural Products-International Segment consists primarily of
the business of manufacturing CHOW brand formula feeds and animal
health products in 63 Ralston Purina International Division facilities
outside the United States. On November 15, 1994, the Company signed a
Letter of Intent to sell the businesses of this segment to a wholly
owned subsidiary of PM Holdings, Inc.
The Soy Protein Products and Other Segment consists of the protein
technologies business of Protein Technologies International Holdings,
Inc., a holding company and a wholly owned subsidiary of the Company.
Its operating subsidiaries primarily manufacture food protein, food
fiber and industrial polymer products in seven plants, five of which
are located in the United States. The Segment also includes the all-
seasons resort operations spun-off as part of Ralcorp Holdings, Inc.
for the period from October 1, 1993 to March 31, 1994.
The principal raw materials used in the Pet and Human Foods Segment
are grain and grain products, flour, fruits and vegetables, protein
ingredients, meat by-products and sugar; in Battery Products, the
principal raw materials used are manganese dioxide, zinc, acetylene
black and potassium hydroxide; in Soy Protein Products and Other, the
principal raw materials used are protein ingredients for Protein
Technologies products; and in Agricultural Products-International, the
principal materials used are grain and grain products and protein
ingredients. The Company purchases such raw materials from local,
regional, national and international suppliers. The cost of raw
materials used in these products may fluctuate due to weather
conditions, government regulations, economic climate, or other
unforeseen circumstances. The
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Company manages exposure to changes in the commodities markets as
considered necessary by hedging certain of its ingredient requirements
such as soybean meal, corn or wheat. Sales prices of the Company's
agricultural products, a large portion of the production costs of which
are represented by the costs of raw materials, are adjusted frequently
to reflect changes in raw material costs. Prices of other products are
adjusted less frequently. The rapid turnover of certain raw material
inventory items and the ability to substitute ingredients in some of
these products, such as formula feeds, provide further protection
against fluctuating raw material prices.
Pet foods are marketed in the United States primarily through direct
sales forces and food brokers to grocery wholesalers, retail chains and
other customers. Battery products and food protein and industrial
polymer products are marketed in the United States and internationally
primarily through direct sales forces. Agricultural products are
distributed primarily through a network of approximately 3,500
independent dealers outside the United States.
Competition is intense in each of the Business Segments operated by
the RPG Group. In the Pet and Human Foods and Battery Products
Segments, the principal competitors are regional, national and
international manufacturers whose products compete with those of the
Company for shelf space and consumer acceptance. In the Agricultural
Products-International Segment, the Company competes with other large
feed manufacturers, cooperatives, single-owner establishments and in
the case of many markets, government feed companies. The business of
the Battery Products Segment tends to be somewhat seasonal, with strong
fall and winter sales reflecting the effect of holiday buying of
batteries.
The operations of the RPG Group, like those of similar businesses,
are subject to various federal, state and local laws and regulations
intended to protect the public health and the environment, including
air and water quality, underground fuel storage tanks and waste
handling and disposal. The Company has received notices from the U.S.
Environmental Protection Agency, state agencies, and/or private parties
seeking contribution, that it has been identified as a "potentially
responsible party" (PRP), under the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, and the RPG Group
may be required to share in the cost of cleanup with respect to
approximately 16 "Superfund" sites. The Company's, and the RPG Group's
ultimate liability in connection with those sites may depend on many
factors, including the volume of material contributed to the site, the
number of other PRP's and their financial viability, and the
remediation methods and technology to be used. While it is difficult to
quantify the potential financial impact of actions involving
environmental matters, particularly remediation costs at waste disposal
sites and future capital expenditures for environmental control
equipment, in the opinion of management, the ultimate liability arising
from such environmental matters, taking into account established
accruals for estimated liabilities, is not expected to have a material
adverse effect on the combined financial position, capital
expenditures, earnings and competitive position of the Company or of
the RPG Group.
In 1994 and 1992, the RPG Group adopted restructuring plans for its
world-wide battery production capacity and certain administrative
functions. The RPG Group continues to review its battery production
capacity and its business structure in light of pervasive global
trends, including the continuing shift from carbon zinc to alkaline
products and easing of trade restrictions in many regions. Future
periods will likely include further provisions for restructuring.
The RPG Group employs 10,529 employees in the United States and
21,510 in foreign jurisdictions.
CONTINENTAL BAKING GROUP
The Bakery Products segment consists of the operations of the
Company's wholly owned subsidiary, Continental Baking Company, which is
the principal entity comprising the Company's CBG Group. The principal
bread products produced by the CBG Group, are white breads, variety
breads, reduced calorie breads, rolls, buns and English muffins,
marketed under the brand names WONDER, HOME PRIDE, BREAD DU JOUR and
BEEFSTEAK. The CBG Group also produces bread for sale under private
labels. The majority of the CBG Group's bread sales are generated by
white breads and variety breads, the latter consisting of wheat, whole
wheat, rye and other whole grain breads. Variety breads generally sell
at higher prices and at somewhat more favorable margins than private
label bread products. As a result, the CBG Group places greater
emphasis on the development and sale of its branded products,
especially the variety
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brand breads. However, in recent years, sales have been shifting toward
lower margin breads. The CBG Group distributes bread products in areas
comprising approximately 77% of the U.S. population. The CBG Group's
principal marketing areas for bread include the Northeast, the Midwest
and the West Coast. The majority of the CBG Group's bread sales volume
is to supermarkets. For each of the last three fiscal years of the
Company, bread sales have accounted for approximately 55% of the CBG
Group's sales.
The CBG Group's sweet baked goods include snack cakes, donuts, snack
pies, muffins, and other sweet baked items, and are consumed as snacks,
meal-time desserts, and breakfast items. These products are sold under
the HOSTESS brand name and include product names TWINKIES as well as
DING DONGS, HO HO's and SUZY Q's. For each of the last three fiscal
years of the Company, sweet baked goods have accounted for
approximately 45% of the CBG Group's sales comprised of approximately
60% of snack cakes and 40% of breakfast products. The CBG Group
distributes its sweet baked goods in areas representing approximately
85% of the U.S. population. The CBG Group's principal marketing areas
for sweet baked goods include the Northeast, the Midwest and the West
Coast. Multiple packs are sold primarily through supermarkets and
snack-pack products are sold both in supermarkets and convenience
stores. Cake sales tend to be somewhat seasonal with historically weak
winter and summer periods.
The CBG Group's sales representatives make approximately 200,000
direct sales calls and deliveries every business day from 550
geographically dispersed distribution branches. The CBG Group maintains
a "direct store door" sales system which distributes its products daily
to approximately 125,000 food retailers, including grocery stores,
chain store supermarkets, convenience stores, wholesale clubs and other
retail food outlets. In addition, the CBG Group sells products to food
service customers such as vending machine operators, restaurants, fast
food chains, schools, military facilities and other institutions.
Fresh baked products are delivered directly from each of the CBG
Group's bakeries to a series of distribution depots from which the CBG
Group's sales representatives begin their route deliveries. Product
shelf life is generally three days for bread and seven days for sweet
baked good products. Each sales representative is responsible for
maintaining direct customer relations with each account, as well as
delivering fresh products and removing unsold products for direct
delivery to the CBG Group's thrift stores. All sales representatives
work on an incentive sales commission added to a base salary. A direct
line of communication from the sales representative to the bakery sales
management permits the sales management to maintain close contacts with
the buying patterns and competitive pressures that occur in the CBG
Group's numerous market areas.
The CBG Group's distribution fleet includes approximately 7,500 route
trucks, 800 tractors and 1,000 trailers, of which approximately 99% are
owned. Because of its program of scheduled maintenance, the CBG Group
believes that its distribution fleet is in good condition, and does not
anticipate the need to make major capital expenditures regarding its
fleet in the near future.
The CBG Group also operates approximately 600 thrift stores for the
sale of the Company's bakery products removed from retail stores at the
expiration of code dates. The CBG Group's thrift stores also sell
limited amounts of other items from time to time. Approximately two-
thirds of the stores are located at the CBG Group's distribution
depots, while the others are free-standing units located along the CBG
Group's distribution routes. Over the past several years, the CBG Group
has undertaken efforts to upgrade existing thrift stores and to open
additional stores. Thrift store sales for fiscal 1994 were
approximately 10% of total CBG Group sales.
Thirty-five bakeries are operated in the United States for the
production of bread products and sweet baked goods. The CBG Group
employs approximately 22,060 people. Approximately 85% of the CBG
Group's personnel are covered by approximately 350 union contracts.
Bakery personnel are generally represented by the Bakery, Confectionery
and Tobacco Workers International Union and sales personnel are
generally represented by the International Brotherhood of Teamsters
Union.
The ingredients of bread and cake products, principally flour, sugar
and edible oils, are readily available from numerous sources. The CBG
Group engages in commodities hedging programs from time to time and
also attempts to lock in prices through advance purchase contracts when
prices are expected to increase. The CBG Group utilizes a program of
central purchasing of baking ingredients and packaging materials to
obtain competitive prices.
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The CBG Group faces intense competition in all of its market areas
from large, national bakeries and smaller regional operators, as well
as from supermarket chains with their own bakeries or private label
products and other bakery product and snack producers. The CBG Group's
bread products compete with other fresh-baked, frozen, and heat-and-
serve bread and bread-related products. Campbell Taggert, Inc. (owned
by Anheuser Busch), Interstate Bakeries Corporation and Flowers
Industries, Inc. are the Company's largest bread competitors. The
Company's sweet baked products compete with other snack cakes, donuts,
snack pies, muffins and other sweet baked goods, as well as cookies,
candy, and other snacks. McKee Baking and Interstate Bakeries
Corporation, marketing sweet baked goods under the brand names LITTLE
DEBBIE and DOLLY MADISON, respectively, are the Company's largest sweet
baked goods competitors.
The baking industry is mature with little or no growth in most
segments. As a result, most of the CBG Group's competitors are
experiencing the same problems. Weak sales, high promotion spending and
poor sales mix are at the heart of the CBG Group's profit declines in
recent years. Most of the CBG Group's problems are centered in the
bread business, with declining premium bread sales, poor bread sales
mix and limited pricing opportunities. Results are also off sharply in
thrift stores, with customer traffic down significantly. Finally, the
current environment is one that favors the low cost operator.
Competition in the baking business is based on product quality and
freshness, price, brand loyalty, effective promotional activities, and
the ability to identify and satisfy emerging consumer preferences.
Customer service, including frequency of deliveries and maintaining
fully stocked shelves, is also an important competitive factor. In a
market that has become increasingly price-oriented and value driven,
the CBG Group is facing intense competition from lower cost operators
offering longer shelf life products at heavily discounted prices.
The categories of the baking industry in which the CBG Group is most
directly involved are expected to grow at about the same rate as
population growth, and to remain highly competitive in the foreseeable
future. Future growth opportunities for the CBG Group will depend on
the CBG Group's ability to implement strategies for competing
effectively in the bakery industry, including strategies relating to
enhancing the performance of its employees, maintaining effective cost
control programs, developing and implementing methods for more
efficient bakery and distribution operations, and developing successful
new products, while at the same time maintaining aggressive pricing and
promotion of its products.
This past fiscal year, the CBG Group implemented a comprehensive
cost-reduction program. While the CBG Group successfully met the cost
reduction targets in Fiscal 1994, the previously described problems
more than offset the benefits of the cost reduction program. The CBG
Group also initiated a major head-count reduction in Fiscal 1994,
including a 30 percent reduction of the St. Louis headquarters staff.
Future periods will likely include further provisions for
restructuring.
The operations of the CBG Group, like those of similar businesses,
are subject to various federal, state, and local laws and regulations
intended to protect the public health and the environment, including
air and water quality, underground fuel storage tanks and waste
handling and disposal. The CBG Group has approximately 300 underground
fuel storage tanks at various locations throughout the United States
which are subject to federal and state regulations establishing minimum
standards for such tanks and where necessary, remediation of associated
contamination. The CBG Group is presently in the process of testing and
evaluating, and, if necessary, removing, replacing or upgrading such
tanks in order to comply with such laws. In addition, the Company has
received notices from the U.S. Environmental Protection Agency, state
agencies, and/or private parties seeking contribution, that it has been
identified as a "potentially responsible party" (PRP), under the
Comprehensive Environmental Response, Compensation and Liability Act,
as amended, and the CBG Group may be required to share in the cost of
cleanup with respect to approximately 3 "Superfund" sites. The
Company's, and the CBG Group's ultimate liability in connection with
those sites may depend on many factors including the volume of material
contributed to the site, the number of other PRP's and their financial
viability, and the remediation methods and technology to be used. While
it is difficult to quantify the potential financial impact of actions
involving environmental matters, particularly remediation costs at
waste disposal sites and future capital expenditures for environmental
control equipment, in the opinion of management, the ultimate liability
arising from such environmental matters, taking into account
established accruals for estimated liabilities, is not expected to have
a material adverse effect on the combined financial position, capital
expenditures, earnings and competitive position of the Company or the
CBG Group.
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The Company, as a whole, employs 32,589 employees in the United
States and 21,510 in foreign jurisdictions. The descriptions of the
businesses of the Company and its RPG Group and CBG Group appearing
under "Ralston Purina Company and Subsidiaries Financial Review-
Highlights and Outlook" on page 77, "Ralston Purina Group Financial
Review-Highlights and Outlook" on page 15 and "Continental Baking Group
Financial Review-Highlights and Outlook" on page 51; "Ralston Purina
Company and Subsidiaries Financial Review-Liquidity and Capital
Resources" on page 78, "Ralston Purina Group Financial Review-Liquidity
and Capital Resources" on page 17 and "Continental Baking Group
Financial Review-Liquidity and Capital Resources" on page 52; "Ralston
Purina Company and Subsidiaries Business Segment Information" on pages
85 through 87, and "Ralston Purina Group Business Segment Information"
on pages 21 through 23, and "Ralston Purina Company and Subsidiaries
Supplemental Earnings Statement Information" on page 110, "Ralston
Purina Group Supplemental Earnings Statement Information" on page 44
and "Continental Baking Group Supplemental Earnings Statement
Information" on page 71 of the Ralston Purina Company 1994 Annual
Report to Shareholders are hereby incorporated by reference.
ITEM 2. PROPERTIES.
A list of the Company's principal plants and facilities as of
November 1, 1994 follows. The Company believes that such plants and
facilities, in the aggregate, are adequate, suitable and of sufficient
capacity for purposes of conducting its current business.
RALSTON PURINA GROUP
PET AND HUMAN FOODS
PET FOOD PLANTS
United States
Atlanta, GA
Clinton, IA<F2R>
Davenport, IA
Denver, CO
Dunkirk, NY
Flagstaff, AZ
Oklahoma City, OK
Zanesville, OH
International
Cuautitlan, Mexico<F8>
Encrucijada, Venezuela<F8>
Guatemala City, Guatemala<F8>
Innisfail, Alberta, Canada
Mississauga, Ontario, Canada
Monjos, Spain<F8>
Montfort-Sur-Risle, France
Mosquera, Columbia<F8>
Portogruaro, Italy<F8>
Ribeirao Preto, Brazil<F7>
Songtan, Korea<F8>
CEREAL PLANTS
International
Aire-Sur-Adour, France
Kunsan, Korea<F8>
BATTERY PRODUCTS
BATTERY AND RELATED PRODUCTS PLANTS
United States
Asheboro, NC<F4>
Bennington, VT
Fremont, OH
Gainesville, FL
Garretsville, OH
Marietta, OH
Maryville, MO
Newport News, VA
Red Oak, IA
St. Albans, VT
International
Alexandria, Egypt
Sao Paulo, Brazil
Beccar, Argentina
Beijing, PRC<F10>
Cali, Colombia
Caudebec Les Elbeuf, France<F2>
Istanbul, Turkey
Itapecerica, Brazil
Ekala, Sri Lanka
Jakarta, Indonesia
Johore Bahru, Malaysia
Juarez, Mexico
Jurong, Singapore<F4>
La Chaux-de-Fonds, Switzerland
Manila, Philippines
Cebu, Philippines
Nakuru, Kenya<F6>
New Territories, Hong Kong
Sydney, Australia
Macau
Slany, Czech Republic
Tanfield Lea, United
Kingdom
Tecamac, Mexico
Tema, Ghana
Walkerton, Ontario,
Canada
Zaragoza, Spain
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AGRICULTURAL PRODUCTS-INTERNATIONAL
FEED PLANTS
International<F9>
Addison, Ontario, Canada
Barcelona, Venezuela
Bastia-Umbra, Italy
Benavente, Portugal
Benavente, Spain<F1>
Borgoratto, Italy
Buga, Colombia
Cabimus, Venezuela
Canoas, Brazil
Cantanhede, Portugal
Carmo Do Cajuru, Brazil<F2>
Carnoet, France
Cartegena, Colombia
Chiclayo, Peru
Courchelettes, France
Cuautitlan, Mexico<F3>
Dos Hermanas, Spain<F1>
Drummondville, Quebec, Canada
Encrucijada, Venezuela<F3>
Galicia, Spain<F1>
Gonen, Turkey
Guadalajara, Mexico
Guatemala City, Guatemala<F3>
Inhumas, Brazil
Karcag, Hungary
Kunsan, Korea<F7>
Lima, Peru
Longue, France
Luleburgaz, Turkey
Macon, France
Maracaibo, Venezuela
Marcilla, Spain<F1>
Maringa, Brazil
Merida, Spain<F1>
Mexicali, Mexico
Monjos, Spain<F1><F3>
Monterrey, Mexico
Mosquera, Colombia<F3>
Nanjing, People's Rep. of China
Obregon, Mexico
Palmerston, Ontario, Canada
Paulinia, Brazil
Pommevic, France
Ponta Grossa, Brazil
Portogruaro, Italy<F3>
Pulilan, Philippines
Pusan, Korea
Recife, Brazil
Ribeirao Preto, Brazil<F3>
St. Romuald, Quebec, Canada
Salamanca, Mexico
San Felice, Italy
Songtan, Korea<F3>
Sorcy, France
Sospiro, Italy
Strathroy, Ontario, Canada
Tehuacan, Mexico
Termoli, Italy
Torrejon, Spain<F1>
Torreon, Mexico
Valencia, Spain<F1>
Volta Redonda, Brazil
Woodstock, Ontario, Canada
HATCHERIES
Valencia, Venezuela
HOG OPERATIONS
Maracay, Venezuela<F1>
SOY PROTEIN PRODUCTS AND OTHER
FOOD PROTEIN PLANTS
United States
Memphis, TN
Pryor, OK
International
Hannan, Japan<F1>
Ieper, Belgium
INDUSTRIAL PROTEIN PLANT
Louisville, KY
POWDERED ALPHA CELLULOSE PLANT
Urbana, OH
DAIRY FOOD SYSTEMS PLANT
Hager City, WI
CONTINENTAL BAKING GROUP
BREAD BAKERIES
Akron, OH
Anchorage, AK
Buffalo, NY
Columbus, OH
Hodgkins, IL
Jamaica, NY
Phoenix, AZ
Pomona, CA
Portland, OR
Richmond, VA
Sacramento, CA
Salt Lake City, UT
San Pedro, CA
Seattle, WA
Spokane, WA
Tulsa, OK
Utica, NY
Waterloo, IA
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CAKE BAKERIES
Detroit, MI
Glendale, CA
Los Angeles, CA
Schiller Park, IL
Seattle, WA
BREAD AND CAKE BAKERIES
Dallas, TX
Davenport, IA
Denver, CO
East Brunswick, NJ
Indianapolis, IN
Kansas City, MO
Memphis, TN
Natick, MA
Ogden, UT
Philadelphia, PA
St. Louis, MO
San Francisco, CA
OTHER PROPERTIES
RESEARCH FACILITIES
Gray Summit, MO<F5>
St. Louis, MO<F5A>
Tanfield Lea, United Kingdom
Westlake, OH<F5B>
MACHINE SHOP AND FOUNDRY
St. Louis, MO
ADMINISTRATIVE AND EXECUTIVE OFFICES
St. Louis, MO
In addition to the properties identified above, the Company and its
subsidiaries own and/or operate retail thrift stores for sale of bakery
products, sales offices, regional offices, storage facilities,
distribution centers and terminals and related properties.
[FN]
- -----
<F1> 20% to 50% owned interests
<F2> Leased; <F2R> Leased pursuant to industrial revenue bond financing
<F3> Also produces pet food
<F4> Two plants
<F5> Provides service for Human and Pet Foods; <F5A> Human and Pet Foods
and Soy Protein Products and Other; <F5B> Battery Products
<F6> Less than 20% owned interest
<F7> Also produces cereal
<F8> Also produces feed
<F9> On November 15, 1994, the Company signed a Letter of Intent to
sell the businesses of the Agricultural Products-International
Segment to a wholly owned subsidiary of PM Holdings, Inc.
<F10> Plant has closed since November 1, 1994.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to a number of legal proceedings in various
state, federal and foreign jurisdictions. These proceedings are in
varying stages and many may proceed for protracted periods of time.
Some proceedings involve highly complex questions of fact and law.
On September 27, 1994, the Company's wholly-owned subsidiary,
Continental Baking Company was served with a subpoena by the Dallas,
Texas office of the Antitrust Division of the U.S. Department of
Justice requiring it to produce records to a Federal Grand Jury. The
subpoena seeks information regarding the sale of bread and bread
products (including snack cakes), principally in the State of Texas,
during the period from January 1, 1986 to present.
On January 4, 1993, the Company was served with the first of nine
substantively identical actions currently pending in the United States
District Court for the District of New Jersey. The suits have been
consolidated and styled In Re Baby Food Antitrust Litigation, No.
92-5495 (NHP). The consolidated proceeding is a certified class action
by and on behalf of all direct purchasers of baby foods (other than the
defendants and governmental entities), alleging that the Beech-Nut baby
food business (owned by the Company from November, 1989 until April,
1994, and now owned by Ralcorp Holdings, Inc.) and its
7
<PAGE> 10
predecessor Nestle Holdings, Inc., together with Gerber Products
Company and H.J. Heinz Company, conspired to fix, maintain and
stabilize the prices of baby foods during the period January 1, 1975 to
August 31, 1992. The suit seeks treble damages.
On January 19 and 21, 1993, the Company was served with two class
actions on behalf of indirect purchasers (consumers) of baby food in
California, which contain substantially identical charges. These
actions have been consolidated in the Superior Court for the County of
San Francisco and styled Bruce, et al. v. Gerber Products Company, et
al., No 94-8857. On January 19, 1993, Ralston was served with a similar
action filed in Alabama state court on behalf of indirect purchasers of
baby food in Alabama, styled Johnson, et al. v. Gerber Products
Company, et al., No. 93-L-0333-NE. The California and Alabama state
actions allege violations of state antitrust laws, seek treble damages
and are substantively identical to each other. Similar state actions
may be filed in states having laws permitting suits by indirect
purchasers.
The Company and Ralcorp Holdings, Inc. have agreed that all liability
and expenses related to the federal and state baby food antitrust
matters will be shared equally, except that the Company will be solely
responsible for any settlement or judgment exceeding a certain set
amount.
On January 6, 1993, the Company was served with an action entitled
Sunshine Mills, Inc. v. Ralston Purina Co., CV-93-P-0024-W, which is
currently pending in the United States District Court for the Northern
District of Alabama. The suit charged the Company with attempted
monopolization, conspiracy in restraint of trade and unlawful price
discrimination, together with false advertising and tortious
interference with business relations, in connection with its marketing
activities in pet foods. The Company has filed counterclaims
challenging certain labeling and advertising activities of Sunshine.
Both parties moved for summary judgment on the other's case; and on
October 31, 1994, the trial court granted summary judgment for the
Company with respect to Sunshine's claims of attempted monopolization,
conspiracy in restraint of trade, unlawful price discrimination, and
tortious interference with business relations to the extent that such
claim was predicated on the same Company activities claimed to violate
federal antitrust law.
On April 26, 1993, the Company also received two letters of inquiry
from the Federal Trade Commission seeking information related to the
allegations in the Sunshine lawsuit. One of these inquires has been
closed with no further action against the Company.
The Baby Food and Sunshine matters contain questionable allegations;
and, in the opinion of management, the Company has numerous meritorious
defenses to each. The amount of alleged liability asserted by these
actions cannot be determined with certainty. In the opinion of
management, however, the ultimate liability of the Company, if any,
arising from these proceedings, other legal claims and known potential
legal claims which are probable of assertion, taking into account
established accruals for estimated liabilities, should not be material
to the financial position of the Company, but could be material to
results of operations or cash flows for a particular quarter or annual
period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT.
A list of the executive officers of the Company and their business
experience follows:
William P. Stiritz, 60, Chairman of the Board, Chief Executive
Officer and President since 1982 and Corporate Officer since 1973;
President and Chief Executive Officer 1981-82; Group Vice President,
Grocery Products and Restaurant Operations 1979-81. Company service, 31
years.
Robert W. Bracken, 56, Vice President; President and Chief Operating
Officer of Continental Baking Company and Corporate Officer since 1992;
Executive Vice President with responsibility for field operations
1989-92; Executive Vice President-Operations 1981-89; also held
position of General Manager, Eastern Division of CBC 1983-85. Company
service, 23 years.
Jay W. Brown, 49, Vice President; Chairman of the Board and Chief
Executive Officer, Continental Baking Company since 1985 and Corporate
Officer since 1984; President, Van Camp Seafood Division 1983-84; Vice
President, Foodmaker, Inc. 1981-83. Company service, 24 years.
8
<PAGE> 11
Franklin J. Cornwell, Jr., 52, Vice President; Chief Executive
Officer, Ralston Purina International since 1992 and Corporate Officer
since 1984; Director, Business Development, 1984-92; Division Vice
President, Corporate Development 1981-84; Executive Vice President,
Foodmaker, Inc. 1978-81. Company service, 28 years.
James R. Elsesser, 50, Vice President and Chief Financial Officer
since 1985 and Corporate Officer since 1985; Vice President, March-
September, 1985; Treasurer, February-September, 1985. Company service,
10 years.
Paul H. Hatfield, 58, Vice President; Chief Executive Officer and
President, Protein Technologies International, Inc. since 1987 and
Corporate Officer since 1977; Group Vice President and President,
Protein Technologies and Ralston Purina International 1985-87; Group
Vice President and President, Diversified Businesses and Ralston Purina
International 1982-85; Group Vice President, Protein Technologies, Food
Enterprises and Mariculture Operations 1979-82. Company service, 35
years.
Patrick C. Mannix, 49, Vice President; Executive Vice President,
Eveready Battery Company, International since 1991 and Corporate
Officer since 1992; Area Chairman, Asia Pacific operations, Eveready
Battery, 1985-91. Company service, 31 years, including 23 years with
Eveready Battery Division of Union Carbide Corporation.
W. Patrick McGinnis, 47, Vice President; President and Chief
Executive Officer, Grocery Products Group since 1992 and Corporate
Officer since 1984; President and Chief Operating Officer, Grocery
Products Group 1989-92; Vice President and President, Branded Foods
Group 1987-89; Vice President and Executive Vice President, Grocery
Products Division 1984-87; Division Vice President, Marketing, Grocery
Products Division 1983-84; Executive Vice President and Director,
Grocery Products Division, Ralston Purina Canada, Inc. 1980-83. Company
service, 22 years.
George L. Meffert, Jr., 54, Vice President; Executive Vice President,
North America, Eveready Battery Company, since 1988 and Corporate
Officer since 1992; Area Chairman, Latin American operations, Eveready
Battery, 1985-88. Company service, 29 years, including 21 years with
Eveready Battery Division of Union Carbide Corporation.
J. Patrick Mulcahy, 50, Vice President; Chairman of the Board, Chief
Executive Officer and President, Eveready Battery Company, Inc., and
responsible for Ralston Purina International since 1987 and Corporate
Officer since 1984; Vice President and Director, Corporate Strategic
Planning and Administration 1984-86; Division Vice President, Strategic
Planning 1981-84; Division Vice President, Director of Marketing,
Grocery Products Group 1980-81. Company service, 27 years.
James M. Neville, 55, Vice President, General Counsel and Secretary
since 1989, and Corporate Officer since 1983; Vice President and
General Counsel 1984-89. Company service, 11 years.
Ronald D. Winney, 52, Treasurer and Corporate Officer since 1985;
Division Vice President and Assistant Treasurer 1984-85; Assistant
Treasurer 1977-85. Company service, 25 years.
Anita M. Wray, 40, Corporate Vice President and Controller since
April 1994; Division Vice President and Director of Financial
Accounting Services, 1985-1994. Company service, 15 years.
(Ages and years of service as of December 31, 1994.)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's RAL Stock and CBG Stock is listed on the New York Stock
Exchange, Chicago Stock Exchange, Pacific Stock Exchange and has
unlisted trading privileges on the Philadelphia, Boston and Cincinnati
Stock Exchanges. As of September 30, 1994, there were 24,959
shareholders of record of the Company's RAL Stock and 19,574
shareholders of record of the Company's CBG Stock.
9
<PAGE> 12
<TABLE>
The following tables set forth dividends paid and range of market
prices for the RAL Stock and the CBG Stock (for the year ended
September 30):
<CAPTION>
DIVIDENDS PAID
--------------------------------------------------------------
RAL STOCK CBG STOCK
---------------------- ------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
First Quarter........................................ $.30 <F*> .08 <F*>
Second Quarter....................................... .30 <F*> <F*>
Third Quarter........................................ .30 <F*> <F*>
Fourth Quarter....................................... .30 <F*> <F*>
(1st month of 1993 only)
Fourth Quarter....................................... .30 .08
(2nd and 3rd months of 1993 only)
</TABLE>
<TABLE>
<CAPTION>
MARKET PRICE RANGE
---------------------------------------------------------------
RAL STOCK CBG STOCK
---------------------- ------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
First Quarter........................................$42 3/4-38 1/4 <F*> $10 -7 1/2 <F*>
Second Quarter.......................................$46 3/8-38 1/4 <F*> $ 9 5/8-6 3/8 <F*>
Third Quarter........................................$39 1/2-33 1/2 <F*> $ 6 7/8-4 1/2 <F*>
Fourth Quarter.......................................$42 1/4-34 3/8 <F*> $ 6 -4 <F*>
(1st month of 1993 only)
Fourth Quarter....................................... $40 3/4-33 1/2 $10 5/8-8 1/2
(2nd and 3rd months of 1993 only)
<FN>
- -----
<F*> On July 30, 1993, the Company's shareholders approved the amendment
of the Company's Restated Articles of Incorporation to authorize a
new class of common stock, the CBG Stock, and to re-designate the
Company's existing common stock ("Old Common Stock") as RAL Stock.
Immediately thereafter the Company's Board of Directors authorized
the distribution of one share of CBG Stock for every five shares of
the Old Common Stock held. For the first, second and third quarters
of 1993, dividends paid on the Old Common Stock were $.30, .316 and
.316, respectively, and the market price range was $49 1/2-40 7/8,
$52 1/8-44 5/8, and $51-43 3/4, respectively. For the first month of
the fourth quarter of 1993, no dividends were paid and the market
price range of the Old Common Stock was $46 7/8-37 7/8.
</TABLE>
The Board of Directors intends to declare and pay dividends on RAL
Stock and CBG Stock based on the financial condition and results of
operations of the Ralston Purina Group and the Continental Baking
Group, respectively, although it has no obligation under Missouri law
to do so. In determining its dividend policy with respect to RAL Stock
and CBG Stock, the Board will rely on the separate financial statements
of the Ralston Purina Group and the Continental Baking Group,
respectively. The method of calculating earnings per share for RAL
Stock and CBG Stock reflects the Board's intent that separately
reported earnings and the surplus of the Ralston Purina Group and the
Continental Baking Group, as determined consistent with the Company's
Restated Articles of Incorporation, are available for payment of
dividends to the respective classes of stock, although legally
available funds of the Company and liquidation preferences of these
classes of stock do not necessarily correspond with these amounts.
Dividends on RAL Stock and CBG Stock are limited to legally available
funds of the Company, which are determined on the basis of the entire
corporation. Distributions on RAL Stock and CBG Stock would be
precluded by a failure to pay dividends on preferred stock of the
Company. Any net losses of the Ralston Purina Group and the Continental
Baking Group and distributions on RAL Stock and CBG Stock, as well as
any preferred stock, will reduce the legally available funds of the
Company available for payment of dividends on RAL Stock and CBG Stock
as well as any preferred stock.
In addition, dividends on CBG Stock cannot exceed the Available CBG
Dividend Amount, an amount which is intended to be similar to the
amount which would be legally available for dividends if the
10
<PAGE> 13
Continental Baking Group were an independent corporation (excluding the
effect of adopting FAS 106 and FAS 109).
The Board has adopted certain policies with respect to the Ralston
Purina Group and the Continental Baking Group, including, without
limitation, the intention to: (i) sell assets and provide services
between the Groups only on a fair value basis, as determined by the
Board in the good faith exercise of its business judgment; and (ii)
treat funds generated by sales of RAL Stock or CBG Stock (except for
sales of CBG Stock deemed to represent the Retained Interest of the
Ralston Purina Group in the Continental Baking Group) and securities
convertible into such stock as assets of the Ralston Purina Group or
the Continental Baking Group, as the case may be, and apply such funds
to acquire assets or reduce liabilities of the Ralston Purina Group or
the Continental Baking Group, respectively. These policies may be
modified or rescinded by action of the Board, or the Board may adopt
additional policies, without the approval of holders of the two classes
of the Company's common stock, although the Board has no present
intention to do so.
ITEM 6. SELECTED FINANCIAL DATA.
The summary of selected financial data regarding Ralston Purina
Company, the RPG Group and the CBG Group appearing on pages 75 through
76, 14 and 50 of the Ralston Purina Company 1994 Annual Report to
Shareholders is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information appearing under "Ralston Purina Company and Subsidiaries
Financial Review" on pages 77 through 84, "Ralston Purina Group
Financial Review" on pages 15 through 20 and "Continental Baking Group
Financial Review" on pages 51 through 53, and the information appearing
under "Ralston Purina Company and Subsidiaries Business Segment
Information" on pages 85 through 87 and "Ralston Purina Group Business
Segment Information" on pages 21 through 23 of the Ralston Purina
Company 1994 Annual Report to Shareholders is hereby incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company and its
subsidiaries appearing on pages 89 through 111, the combined financial
statements of the Ralston Purina Group appearing on pages 25 through 45
and the combined financial statements of the Continental Baking Group
appearing on pages 55 through 73, together with the reports thereon of
Price Waterhouse on pages 88, 24 and 54, respectively, and the
supplementary data under "Ralston Purina Company and Subsidiaries
Quarterly Financial Information" on pages 112 and 113, "Ralston Purina
Group Quarterly Financial Information" on page 46 and "Continental
Baking Group Quarterly Financial Information" on page 74 of the Ralston
Purina Company 1994 Annual Report to Shareholders are hereby
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT.
The information regarding directors on pages 5 through 12 of the
Ralston Purina Company Notice of Annual Meeting and Proxy Statement
dated December 15, 1994 is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Executive Compensation" on pages 13
through 17, "Stock Ownership" on pages 7 through 10, and the
remuneration information under "Directors' Meetings, Committees and
Fees" on pages 11 and 12 of the Ralston Purina Company Notice of Annual
Meeting and Proxy Statement dated December 15, 1994 is hereby
incorporated by reference.
11
<PAGE> 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The discussion of the security ownership of certain beneficial owners
and management appearing under "Stock Ownership" on pages 7 through 10
of the Ralston Purina Company Notice of Annual Meeting and Proxy
Statement dated December 15, 1994 is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
1. Documents filed with this report:
a. Financial statements previously incorporated by reference under
Item 8 hereinabove.
Report of Independent Accountants.
Consolidated Statement of Earnings-for years ended September 30,
1994, 1993 and 1992.
Consolidated Balance Sheet-for years ended September 30, 1994
and 1993.
Consolidated Statement of Cash Flows-for years ended September
30, 1994, 1993, and 1992.
Consolidated Statement of Shareholders Equity-for years ended
September 30, 1994, 1993 and 1992.
Notes to Financial Statements.
b. Financial Statement Schedules V and VI attached, together with
the Report of Independent Accountants thereon.*
Schedule V-Property, Plant and Equipment as filed herewith.
Schedule VI-Accumulated Depreciation of Property, Plant and
Equipment as filed herewith.
c. Exhibits (Listed by numbers corresponding to the Exhibit Table
of Item 601 in Regulation S-K).
(3i) The Restated Articles of Incorporation of Ralston Purina
Company, effective July 30, 1993, are hereby incorporated
by reference to the Company's Form 10-K for the fiscal
year ended September 30, 1993.<F*>
(3ii) The By-Laws of Ralston Purina Company, as amended
September 24, 1993 are hereby incorporated by reference
to the Company's Form 10-K for the fiscal year ended
September 30, 1993.<F*>
(4) The Second Amended Rights Agreement, effective July 30,
1993, is hereby incorporated by reference to the Company's
Form 10-K for the fiscal year ended September 30, 1993.<F*>
(4) The Certificate of Designation of Ralston Purina Company
Series A ESOP Preferred Stock dated as of July 30, 1993, is
hereby incorporated by reference to the Company's Form 10-K
for the fiscal year ended September 30, 1993.<F*>
(4) Ralston Purina Company agrees to furnish the SEC, upon its
request, a copy of any instrument defining the rights of
holders of long-term debt of the Company and its
consolidated subsidiaries and any of its unconsolidated
subsidiaries for which financial statements are required to
be filed.
(10) Material Contracts.
(i) The following material contracts are hereby incorporated by
reference to the Company's Form 10-K for the fiscal year
ended September 30, 1983.
(a) Form of letter agreement dated June 18, 1982, to
certain officers providing for deferral of bonuses for
fiscal year 1982.
(b) Form of letter agreement to certain officers regarding
Deferred Bonus Plan.
12
<PAGE> 15
(ii) The following material contracts are hereby incorporated
by reference to the Company's Form 10-K for the fiscal
year ended September 30, 1985.
(a) Form of Agreement for Conversion of Deferred
Compensation.
(b) Form of Agreement for Conversion of Existing Deferrals
over $100,000.
(c) Form of Agreement for Conversion of 1968 Restricted
Stock.
(d) Form of Agreement for Conversion of Benefits under the
Supplemental Death Benefits Plan.
(e) Form of Agreement for Deferral of 1985 Annual Cash
Bonus.
(f) Form of Agreement for Deferral of 1985 ITIP Award
Accruals.
(g) Form of Non-Qualified Stock Option, effective
September 22, 1983, as amended.
(iii) The Form of 1986 Stock Performance Award is incorporated
by reference to the Company's Form 10-K for the fiscal
year ended September 30, 1986.
(iv) The following material contracts are hereby incorporated
by reference to the Company's Form 10-K for the fiscal
year ended September 30, 1987.
(a) Form of Agreement for Deferral of 1986 Annual Cash
Bonus.
(b) Form of Agreement for Deferral of 1986 ITIP Award
Accruals.
(v) The following material contracts are hereby incorporated by
reference to the Company's Form 10-K for the fiscal year
ended September 30, 1988.
(a) Executive Life Plan, as amended September 24, 1987.
(b) Ralston Purina Company Incentive Compensation Plan, as
adopted December 15, 1966, and amended September 1,
1968, and September 25, 1987.
(c) Ralston Purina Company 1972 Incentive Compensation
Plan, as amended September 25, 1987.
(d) Form of Agreements for Deferral of 1987 Annual and
Special Cash Bonuses.
(e) Form of Agreements for Deferral of 1988 Annual and
Special Cash Bonuses.
(f) Form of Stock Performance Awards, effective March 24,
1988.
(g) Ralston Purina Company 1982 Incentive Stock Plan as
amended June 19, 1985, and January 21 and March 25,
1988.
(h) Ralston Purina Company 1988 Incentive Stock Plan, as
amended January 21 and March 25, 1988.
(i) Personal Financial Planning Program, as amended July
21, 1988.
(j) Retirement Plan for Non-Management Directors, as
amended November 20, 1987 and July 22, 1988.
(k) Form of Non-Qualified Stock Option, effective September
22, 1988.
(l) Executive Health Plan, as amended April 1, 1985,
September 24, 1987 and July 21 and November 17, 1988.
(vi) The following material contracts are hereby incorporated by
reference to the Company's Form 10-K for the fiscal year
ended September 30, 1989.
(a) Ralston Purina Company Supplemental Retirement Plan, as
amended May 26, 1989.
(b) Change in Control Severance Compensation Plan, as
amended September 21, 1989.
(c) Executive Long-Term Disability Plan, as adopted
September 22, 1989.
(d) Executive Savings Investment Plan, as amended May 25,
1989.
(e) Personal Financial Planning Program, as amended May 25,
1989.
13
<PAGE> 16
(vii) The following material contracts are hereby incorporated
by reference to the Company's Form 10-K for the fiscal
year ended September 30, 1990.
(a) Form of Management Continuity Agreements, as amended
September 28, 1990.
(b) Form of Non-Qualified Stock Option, effective May
24, 1990.
(c) Deferred Compensation Plan for Non-Management
Directors, as amended September 25, 1987, July 22,
1988 and May 25, 1990.
(d) Deferred Compensation Plan for Key Employees, as
amended September 21, 1989, April 9, 1990 and
November 21, 1990.
(e) Form of Agreement for Deferral of 1985, 1986 and
1989 Annual and Special Cash Bonuses.
(f) Form of letter amending Restricted Stock Awards and
Non-Qualified Stock Options, as of September 27,
1990.
(viii) The following material contracts are hereby
incorporated by reference to the Company's Form 10-K
for the fiscal year ended September 30, 1991.
(a) Form of Split Dollar Second to Die Insurance
Agreement.
(b) Form of letter amending certain outstanding
Restricted Stock Awards and Non-Qualified Stock
Options, as of November 21, 1991.
(c) Form of letter for Deferral of 1992 Bonus Award.
(ix) The following material contracts are hereby
incorporated by reference to the Company's Form 10-K
for the fiscal year ended September 30, 1992.
(a) Form of letter amending certain outstanding
Restricted Stock Awards and Non-Qualified Stock
Options, dated as of September 29, 1992.
(b) Form of letter for Deferral of 1993 Bonus Award.
(c) Form of Agreement for Deferral of 1991 Annual and
Special Cash Bonuses.
(d) Form of Agreement for Deferral of 1991 Annual Cash
Bonus.
(e) Form of 1991 Non-Qualified Stock Option.
(f) Form of Indemnification Agreement with directors and
corporate officers.
(x) The following material contracts are hereby incorporated
by reference to the Company's Form 10-K for the fiscal
year ended September 30, 1993.
(a) Form of Agreement for Deferral of 1992 Annual and
Special Bonuses.
(b) Form of Agreement for Deferral of 1992 Annual Cash
Bonus.
(c) Form of Amendment to 1988 Non-Qualified Stock
Option.
(d) Form of Amendment to 1990 Non-Qualified Stock
Option.
(e) Form of Amendment to 1991 Non-Qualified Stock
Option.
(f) Form of Deferred Compensation Plan for Key
Employees, as amended, September 21, 1989, April 9,
1990, November 21, 1990, December 11, 1992, July 30,
1993 and November 18, 1993.
(g) Form of Deferred Compensation Plan for Non-
Management Directors, as amended September 25, 1987,
July 22, 1988, May 25, 1990, October 27, 1992, July
30, 1993 and November 18, 1993.
(h) Form of letter amending Restricted Stock Awards,
dated as of September 24, 1993.
(i) Conversion Opportunity for Continental Baking
Company Employees dated October 13, 1993.
(j) 1993 Salary Acceleration Request and Agreement dated
November 17, 1992.
(k) 1994 Salary Acceleration Request and Agreement dated
October 14, 1993.
14
<PAGE> 17
(xi) Form of Letter for Deferral of 1995 Bonus Award.
(xii) The Agreement and Plan of Reorganization between the
Company and Several of its Subsidiaries and Ralcorp
Holdings, Inc. dated March 31, 1994 is incorporated by
reference to the Company's Form 8-K/A dated April 14,
1994.<F*>
(xiii) Form of Conversion Agreement and Option for Continental
Baking Company Employees, effective November 18, 1993.
(xiv) Trust Agreement between Ralston Purina Company and
Wachovia Bank of North Carolina, N.A., dated as of
September 15, 1994.<F*>
(xv) Leveraged Incentive Plan, adopted as of September 23,
1994.
(11) Statement re: Computation of Per Share Earnings.<F*>
(13) Pages 13 to 113 of the Ralston Purina Company Annual
Report to Shareholders 1994, which are incorporated
herein by reference, are filed herewith.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule
[FN]
- -----
<F*> Not a management contract or compensatory plan or arrangement.
2. Current Reports on Form 8-K:
Not Applicable.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RALSTON PURINA COMPANY
By WILLIAM P. STIRITZ
...................................
William P. Stiritz
Chairman of the Board and
Chief Executive Officer
Date: December 28, 1994
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on December 28, 1994, by the
following persons on behalf of the registrant in the capacities
indicated.
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
WILLIAM P. STIRITZ Chairman of the Board, Chief Executive Officer, President and
- ----------------------------------------------------------------- Director
William P. Stiritz
JAMES R. ELSESSER Vice President and Chief Financial Officer
- -----------------------------------------------------------------
James R. Elsesser
ANITA M. WRAY Vice President and Controller
- -----------------------------------------------------------------
Anita M. Wray
DAVID R. BANKS Director
- -----------------------------------------------------------------
David R. Banks
JOHN H. BIGGS Director
- -----------------------------------------------------------------
John H. Biggs
THEODORE A. BURTIS Director
- -----------------------------------------------------------------
Theodore A. Burtis
DONALD DANFORTH, JR. Director
- -----------------------------------------------------------------
Donald Danforth, Jr.
WILLIAM H. DANFORTH Director
- -----------------------------------------------------------------
William H. Danforth
DAVID C. FARRELL Director
- -----------------------------------------------------------------
David C. Farrell
M. DARRELL INGRAM Director
- -----------------------------------------------------------------
M. Darrell Ingram
Director
- -----------------------------------------------------------------
John F. McDonnell
KATHERINE D. ORTEGA Director
- -----------------------------------------------------------------
Katherine D. Ortega
</TABLE>
16
<PAGE> 19
FINANCIAL STATEMENT AND SCHEDULES
The consolidated financial statements of the Registrant have been
incorporated by reference under Item 8. Financial statements of the
Registrant's 50% or less owned companies have been omitted because, in
the aggregate, they are not significant.
Schedules V & VI attached hereto should be read in conjunction with
the financial statements included in Item 8. Schedules not included
have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Ralston Purina Company
Our audits of the consolidated financial statements of Ralston Purina
Company, the combined financial statements of Ralston Purina Group and
the combined financial statements of Continental Baking Group referred
to in our reports dated November 4, 1994, except as to the "Subsequent
Event" note, which is dated as of November 15, 1994 for Ralston Purina
Company and Ralston Purina Group, appearing on page 88, 24 and 54,
respectively, of the Ralston Purina Company 1994 Annual Report to
Shareholders (which reports and financial statements are incorporated
by reference in this Annual Report on Form 10-K), also included an
audit of the Financial Statement Schedules listed in Item 14.1.b. of
this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements.
PRICE WATERHOUSE LLP
St. Louis, Missouri
November 4, 1994
F-1
<PAGE> 20
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
SCHEDULE V - PROPERTY PLANT AND EQUIPMENT (DOLLARS IN MILLIONS)
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING AT OTHER CLOSE
CLASSIFICATION OF PERIOD COST<Fa> CORETIREMENTS<Fb> CHANGES<Fc> OF PERIOD
-------------- ---------- --------- ----------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994
Land.......................................... $ 179.4 $ 4.2 $ (67.7) $ 0.9 $ 116.8
Buildings..................................... 822.2 35.3 (157.1) 4.9 705.3
Machinery and equipment....................... 2,790.4 321.4 (546.0) 16.0 2,581.8
Construction in progress...................... 149.8 (4.2) (21.7) 123.9
-------- ------ ------- ----- --------
$3,941.8 $356.7 $(792.5) $21.8 $3,527.8
======== ====== ======= ===== ========
YEAR ENDED SEPTEMBER 30, 1993
Land.......................................... $ 158.8 $ 35.7 $ (10.4) $ (4.7) $ 179.4
Buildings..................................... 798.7 56.1 (10.0) (22.6) 822.2
Machinery and equipment....................... 2,662.0 285.4 (87.8) (69.2) 2,790.4
Construction in progress...................... 145.5 4.3 149.8
-------- ------ ------- ------ --------
$3,765.0 $381.5 $(108.2) $(96.5) $3,941.8
======== ====== ======= ====== ========
YEAR ENDED SEPTEMBER 30, 1992
Land.......................................... $ 147.0 $ 15.1 $ (3.7) $ 0.4 $ 158.8
Buildings..................................... 738.7 53.5 (6.4) 12.9 798.7
Machinery and equipment....................... 2,340.4 377.9 (93.1) 36.8 2,662.0
Construction in progress...................... 216.4 (70.9) 145.5
-------- ------- ------- ------ --------
$3,442.5 $375.6 $(103.2) $ 50.1 $3,765.0
======== ====== ======= ====== ========
<FN>
- -----
<Fa> Additions for the year ended September 30, 1994 include $24.6 for
the acquisition of National Oats ($.5 Land, $6.8 Buildings, $17.0
Machinery and Equipment, and $.3 Construction in Progress).
Additions for the year ended September 30, 1993 included $56.4 for
the acquisition of Breckenridge ($23.9 Land, $5.5 Buildings, $26.5
Machinery and Equipment, and $.5 Construction in Progress) and $4.3
for the acquisition of Gates ($1.2 Land, $2.1 Buildings, and $1.0
Machinery and Equipment). Additions for the year ended September
30, 1992 includes $29.9 for the acquisition of Tudor ($5.1 Land,
$5.5 Buildings and $19.3 Machinery and Equipment) and $20.3 for the
acquisition of Ever Ready Limited ($3.5 Land, $7.7 Buildings and
$9.1 Machinery and Equipment).
<Fb> Retirements for the year ended September 30, 1994 include $645.3
for the spin-off of Ralcorp ($54.6 Land, $132.5 Buildings, $436.4
Machinery and Equipment and $21.8 Construction in Progress).
<Fc> Changes in foreign assets due to foreign currency translation.
</TABLE>
F-2
<PAGE> 21
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY,
PLANT AND EQUIPMENT (DOLLARS IN MILLIONS)
<CAPTION>
PROPERTY
ADDITIONS WRITEDOWNS
BALANCE AT CHARGED TO ASSOCIATED BALANCE AT
BEGINNING COSTS AND WITH OTHER CLOSE
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS<Fa> RESTRUCTURING CHANGES<Fb> OF PERIOD
-------------- ---------- ---------- --------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994
Buildings..................... $ 269.1 $ 29.8 $ (42.5) $ 7.9 $ 1.6 $ 265.9
Machinery and equipment....... 1,341.1 234.9 (253.0) 35.0 6.5 1,364.5
-------- ------ ------- ----- ------ --------
$1,610.2 $264.7 $(295.5) $42.9 $ 8.1 $1,630.4
======== ====== ======= ===== ====== ========
YEAR ENDED SEPTEMBER 30, 1993
Buildings..................... $ 247.3 $ 33.1 $ (4.7) $ (6.6) $ 269.1
Machinery and equipment....... 1,211.3 230.4 (70.8) (29.8) 1,341.1
-------- ------ ------ ----- ------ --------
$1,458.6 $263.5 $(75.5) $ 0.0 $(36.4) $1,610.2
======== ====== ====== ===== ====== ========
YEAR ENDED SEPTEMBER 30, 1992
Buildings..................... $ 213.0 $ 31.5 $ (1.5) $ 4.3 $ 247.3
Machinery and equipment....... 1,045.8 223.2 (73.8) 16.1 1,211.3
-------- ------ ------ ----- ------ --------
$1,258.8 $254.7 $(75.3) $ 0.0 $ 20.4 $1,458.6
======== ====== ====== ===== ====== ========
<FN>
- -----
<Fa> Retirements for the year ended September 30, 1994 include $188.5
for the spin-off of Ralcorp ($29.4 Buildings and $159.1 Machinery
and Equipment).
<Fb> Changes in accumulated depreciation due to foreign currency
translation.
</TABLE>
F-3
<PAGE> 22
SR-438
<PAGE> 1
Exhibit xi
RESPONSE DUE DECEMBER 31, 1994
November 21, 1994
PERSONAL AND HIGHLY CONFIDENTIAL
- --------------------------------
Potential Fiscal 1995 Bonus Plan Participants Employed by the
Corporate Division (Corporate Officers only)
DEFERRAL OF POTENTIAL FISCAL 1995 BONUS AWARD
---------------------------------------------
The Deferred Compensation Plan for Key Employees gives you the
opportunity to defer all or a portion of your annual cash bonus,
subject to the approval of the Human Resources Committee of the
Board of Directors. In general, deferring compensation has the
advantage of postponing payment of tax and of allowing any earnings
on the deferred amount to accumulate free of tax until distributed.
To protect the tax status of the 1995 bonus deferral program, YOU
MUST:
* DECIDE NOW whether to defer all or part of any 1995 annual
cash bonus you might receive, and
* PROMPTLY RETURN THE ENCLOSED ELECTION FORM. IF WE DO NOT
RECEIVE YOUR ELECTION FORM BY DECEMBER 31, 1994, YOU WILL
BE INELIGIBLE TO DEFER ANY 1995 ANNUAL BONUS AWARD.
DEFERRAL OPTIONS FOR 1995:
- --------------------------
You may choose from three deferral accounts:
* Equity Option (the RPG and CBG Stock Equivalent Accounts),
which features a 25% COMPANY MATCH (note: match may not be
offered every year);
* Short-Term Variable Interest Option (payable in January,
1996);
* Variable Interest Option.
SPECIAL REMINDERS:
- ------------------
In making your election, please refer to the enclosed 1988
Incentive Stock Plan Prospectus and The Deferred Compensation Plan
for Key Employees. Also refer to Attachment 1, Factors to
Consider. You should keep in mind that YOUR ELECTION TO DEFER MAY
--------------------------
NOT BE CHANGED.
- ---------------
You will once again be given the opportunity to transfer your
deferrals (other than the match) among the Equity and Variable
Interest accounts. Participants with these deferred accounts will
be contacted sometime next year.
<PAGE> 2
PLEASE RETURN ONE COPY OF THE 1995 BONUS DEFERRAL ELECTION FORM,
ATTACHMENT 2, BY DECEMBER 31, 1994 WHETHER OR NOT YOU REQUEST A
----------------------------
DEFERRAL. A duplicate form is enclosed for your records. If you
- ---------
request a deferral, it will be considered for 1995 annual bonus
awards only. AS WITH ALL CORRESPONDENCE INVOLVING EXECUTIVE
COMPENSATION, PLEASE TREAT THIS MATERIAL WITH THE UTMOST
CONFIDENTIALITY.
If you have any questions, please feel free to call me at extension
1918.
Pam Brennan - 1A
Corporate Compensation
Enclosures
<PAGE> 3
RESPONSE DUE DECEMBER 31, 1994
November 21, 1994
PERSONAL AND HIGHLY CONFIDENTIAL
- --------------------------------
Potential Fiscal 1995 Bonus Plan Participants (Other than Corp.
Div. & CBC Employees)
DEFERRAL OF POTENTIAL FISCAL 1995 BONUS AWARD
---------------------------------------------
The Deferred Compensation Plan for Key Employees gives you the
opportunity to defer all or a portion of your annual cash bonus,
subject to the approval of the Human Resources Committee of the
Board of Directors. In general, deferring compensation has the
advantage of postponing payment of tax and of allowing any earnings
on the deferred amount to accumulate free of tax until distributed.
To protect the tax status of the 1995 bonus deferral program, YOU
MUST:
* DECIDE NOW whether to defer all or part of any 1995 annual
cash bonus you might receive, and
* PROMPTLY RETURN THE ENCLOSED ELECTION FORM. IF WE DO NOT
RECEIVE YOUR ELECTION FORM BY DECEMBER 31, 1994, YOU WILL
BE INELIGIBLE TO DEFER ANY 1995 ANNUAL BONUS AWARD.
DEFERRAL OPTIONS FOR 1995:
- --------------------------
You may choose from three deferral accounts:
* Equity Option (the RPG Stock Equivalent Account), which
features a 25% COMPANY MATCH (note: match may not be
offered every year);
* Short-Term Variable Interest Option (payable in January,
1996);
* Variable Interest Option.
SPECIAL REMINDERS:
- ------------------
In making your election, please refer to the enclosed 1988
Incentive Stock Plan Prospectus and The Deferred Compensation Plan
for Key Employees. Also refer to Attachment 1, Factors to
Consider. You should keep in mind that YOUR ELECTION TO DEFER MAY
--------------------------
NOT BE CHANGED.
- ---------------
You will once again be given the opportunity to transfer your
deferrals (other than the match) among the Equity and Variable
Interest accounts. Participants with these deferred accounts will
be contacted sometime next year.
PLEASE RETURN ONE COPY OF THE 1995 BONUS DEFERRAL ELECTION FORM,
ATTACHMENT 2, BY DECEMBER 31, 1994 WHETHER OR NOT YOU REQUEST A
----------------------------
DEFERRAL. A duplicate form is enclosed for
- ---------
<PAGE> 4
your records. If you request a deferral, it will be considered for 1995
annual bonus awards only. AS WITH ALL CORRESPONDENCE INVOLVING EXECUTIVE
COMPENSATION, PLEASE TREAT THIS MATERIAL WITH THE UTMOST
CONFIDENTIALITY.
If you have any questions, please feel free to call me at extension
1918.
Pam Brennan - 1A
Corporate Compensation
Enclosures
<PAGE> 5
RESPONSE DUE DECEMBER 31, 1994
November 21, 1994
PERSONAL AND HIGHLY CONFIDENTIAL
- --------------------------------
Potential Fiscal 1995 Bonus Plan Participants Employed by the CBC
DEFERRAL OF POTENTIAL FISCAL 1995 BONUS AWARD
---------------------------------------------
The Deferred Compensation Plan for Key Employees gives you the
opportunity to defer all or a portion of your annual cash bonus,
subject to the approval of the Human Resources Committee of the
Board of Directors. In general, deferring compensation has the
advantage of postponing payment of tax and of allowing any earnings
on the deferred amount to accumulate free of tax until distributed.
To protect the tax status of the 1995 bonus deferral program, YOU
MUST:
* DECIDE NOW whether to defer all or part of any 1995 annual
cash bonus you might receive, and
* PROMPTLY RETURN THE ENCLOSED ELECTION FORM. IF WE DO NOT
RECEIVE YOUR ELECTION FORM BY DECEMBER 31, 1994, YOU WILL
BE INELIGIBLE TO DEFER ANY 1995 ANNUAL BONUS AWARD.
DEFERRAL OPTIONS FOR 1995:
- --------------------------
You may choose from three deferral accounts:
* Equity Option (the CBG Stock Equivalent Accounts), which
features a 25% COMPANY MATCH (note: match may not be
offered every year);
* Short-Term Variable Interest Option (payable in January,
1996);
* Variable Interest Option.
SPECIAL REMINDERS:
- ------------------
In making your election, please refer to the enclosed 1988
Incentive Stock Plan Prospectus and The Deferred Compensation Plan
for Key Employees. Also refer to Attachment 1, Factors to
Consider. You should keep in mind that YOUR ELECTION TO DEFER MAY
--------------------------
NOT BE CHANGED.
- ---------------
You will once again be given the opportunity to transfer your
deferrals (other than the match) among the Equity and Variable
Interest accounts. Participants with these deferred accounts will
be contacted sometime next year.
PLEASE RETURN ONE COPY OF THE 1995 BONUS DEFERRAL ELECTION FORM,
ATTACHMENT 2, BY DECEMBER 31, 1994 WHETHER OR NOT YOU REQUEST A
----------------------------
DEFERRAL. A duplicate form is enclosed for
- ---------
<PAGE> 6
your records. If you request a deferral, it will be considered for 1995
annual bonus awards only. AS WITH ALL CORRESPONDENCE INVOLVING EXECUTIVE
COMPENSATION, PLEASE TREAT THIS MATERIAL WITH THE UTMOST CONFIDENTIALITY.
If you have any questions, please feel free to call me at extension
1918.
Pam Brennan - 1A
Corporate Compensation
Enclosures
<PAGE> 1
Exhibit xiii
CONVERSION AGREEMENT AND OPTION
-------------------------------
RALSTON PURINA COMPANY (the "Company"), effective
, as amended
, granted a Non-Qualified Stock Option (the
"Original Option") to =========== ("Optionee") to purchase shares
of the Company's $.10 par value Ralston-Ralston Purina Group Common
Stock ("RPG Stock") and shares of the Company's $.10 par value
Ralston-Continental Baking Group Common Stock ("CBG Stock"),
pursuant to the Company's 1988 Incentive Stock Plan (the "Plan").
As Optionee is an employee of Continental Baking Company, a wholly
owned subsidiary of the Company, the results of operations of which
are reflected in the performance of the CBG Stock, the Company has
permitted Optionee to elect to convert a portion of such option to
acquire RPG Stock into an option to acquire additional shares of
CBG Stock in the manner and on the terms and conditions described
herein. Accordingly, Optionee has elected to convert a portion of
the option to acquire shares of RPG Stock granted pursuant to the
Original Option into an additional option to acquire shares of CBG
Stock as described below.
1. Amendment of Original Option. The Original Option shall
----------------------------
hereby be amended by reducing the number of options to acquire
shares of RPG Stock stated therein by =======. All other
terms and conditions of the Original Option shall remain
unchanged, including all terms with respect to the option to
acquire shares of CBG Stock granted therein.
2. Grant of CBG Option. In consideration of the reduction of the
-------------------
number of options to acquire shares of RPG Stock granted in
the Original Option, Optionee is hereby granted an option (the
"Additional CBG Option") to acquire ========= shares of CBG
Stock at a price of $8.875 per share pursuant to the terms of
------
the Plan. Subject to the provisions of the Plan and the
following terms, Optionee may exercise this Additional CBG
Option in whole or in part from time to time by tendering to
the Company written notice of exercise together with the
purchase price in cash, or in shares of CBG Stock at their
fair market value as determined by the Human Resources
Committee of the Company's Board of Directors.
3. Normal Exercise. This Additional CBG Option becomes
---------------
exercisable at the rate of 50% per year on September 24 in
each of the years 1994 and 1995. This Additional CBG Option
remains exercisable through September 23, 1997, unless
Optionee is no longer employed by the Company, in which case
the Additional CBG Option is exercisable only in accordance
with the provisions of paragraph 5 below.
4. Acceleration. Notwithstanding the above, this Additional CBG
------------
Option is fully exercisable before the normal exercise dates
set forth in paragraph 3 hereof upon the occurrence of any of
the following events while Optionee is employed by the
Company:
a. Death of Optionee;
b. Declaration of Optionee's total and permanent disability;
c. The voluntary termination of employment of Optionee if
the Optionee has fulfilled the applicable requirements to
qualify for an unreduced benefit, in whole or in part, at
or after early retirement or normal retirement age under
any of the
<PAGE> 2
Company's retirement programs, or any other retirement
programs (e.g., governmental or national programs), to which
the Company contributes or has contributed on the Optionee's
behalf, or if the Optionee has attained the age of 62;
d. The involuntary termination of employment of Optionee,
other than a termination for cause; or
e. A "Change of Control", which, for purposes of this
Agreement occurs when (i) a person, as defined under the
securities laws of the United States, acquires beneficial
ownership of more than 50% of the outstanding voting
securities of the Company; or (ii) the directors of the
Company immediately before a business combination between
the Company and another entity, or a proxy contest for
the election of directors, shall, as a result thereof,
cease to constitute a majority of the Board of Directors
of the Company or any successor to the Company.
5. Exercise After Certain Events. If Optionee's employment with
-----------------------------
the Company terminates upon any of the following events or if
there has been a declaration of forfeiture pursuant to Section
IV of the Plan, any shares exercisable on the date of such
event shall remain exercisable during the period stated below,
but, in any event, not later than September 23, 1997:
a. If Optionee's employment is terminated due to any of the
events described in paragraphs 4a, 4b, or 4c hereof, such
shares shall remain exercisable for three years
thereafter;
b. If Optionee's employment is involuntarily terminated
other than for cause, such shares shall remain
exercisable for six months thereafter;
c. If Optionee's employment is terminated for cause, if
Optionee voluntarily terminates his employment other than
as described in 5a above, or if there has been a
declaration of forfeiture of this Additional CBG Option
pursuant to Section IV of the Plan, such shares shall
remain exercisable for seven days thereafter; or
d. Notwithstanding 5c above, after a Change of Control, if
Optionee voluntarily terminates his employment other than
as described in 5a above or if there has been a
declaration of forfeiture of this Additional CBG Option
by reason of the events described in Sections IV(A)(3) or
(4) of the Plan, such shares shall remain exercisable for
six months thereafter.
Any shares which are not exercisable pursuant to paragraphs 3 or 4
above on the date of the above events of termination will not be
exercisable.
6. Forfeiture. This Additional CBG Option is subject to
----------
forfeiture under Section IV of the Plan. If there is an event of
forfeiture, only those shares that are exercisable at that time may
be exercised as set forth in paragraph 5 hereof.
7. Termination for Cause. For purposes of this Additional CBG
---------------------
Option, the term "termination for cause" shall mean the Optionee's
termination of employment with the Company because of the willful
engaging by the Optionee in gross misconduct; provided, however,
that a termination for cause shall not include termination
attributable to (i) poor work performance, bad judgment or
negligence on the part of the Optionee, (ii) an act or omission
believed by the Optionee in good faith to have been in or not
opposed to the best interests of the Company and reasonably
believed by the Optionee to be lawful, or (iii) the good faith
conduct of the Optionee
<PAGE> 3
in connection with a Change of Control (including opposition to or support
of such Change of Control).
8. This Conversion Agreement and Option shall be effective
November 18, 1993.
ACKNOWLEDGED RALSTON PURINA COMPANY
AND ACCEPTED:
Optionee
By:--------------------------
- ------------------------- W. P. Stiritz
Date Chairman of the Board and
Chief Executive Officer
- -------------------------
Location
<PAGE> 1
Exhibit xiv
TRUST AGREEMENT
Dated as of September 15, 1994
between
RALSTON PURINA COMPANY
and
WACHOVIA BANK OF NORTH CAROLINA, N.A.
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
SECTION 1. Establishment Of Trust 1
SECTION 2. Payments to Plan Participants and Their Beneficiaries 4
SECTION 3. Trustee Responsibility Regarding Payments to Trust
Beneficiary When Company Is Insolvent 8
SECTION 4. Payments to Company 9
SECTION 5. Investment Authority 10
SECTION 6. Disposition of Income 13
SECTION 7. Accounting by Trustee 13
SECTION 8. Responsibility of Trustee 14
SECTION 9. Compensation and Expenses of Trustee 15
SECTION 10. Resignation and Removal of Trustee and Designation
of Successor Trustee 16
SECTION 11. Amendment or Termination 17
SECTION 12. Miscellaneous 18
SECTION 13. Effective Date 22
</TABLE>
(i)
<PAGE> 3
(a) This Agreement made as of this 15th day of
September, 1994, by and between Ralston Purina Company
("Company") and Wachovia Bank of North Carolina, N.A.
("Trustee");
(b) WHEREAS, Company has adopted the benefit
plans and programs (Plan(s)), as listed in Schedule 1, for
the benefit of certain employees of Company and its
affiliates;
(c) WHEREAS, Company has incurred or expects to
incur liability under the terms of such Plan(s) with
respect to the individuals participating in such Plan(s);
(d) WHEREAS, Company wishes to establish a trust
("Trust") and to contribute to the Trust assets that shall
be held therein, subject to the claims of Company's
creditors in the event of Company's Insolvency, as herein
defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified
in the Plan(s);
(e) WHEREAS, it is the intention of the parties
that this Trust shall constitute an unfunded arrangement
and shall not affect the status of those Plan(s) that are
unfunded and maintained for the purpose of providing
deferred compensation for a select group of management or
highly compensated employees for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA");
(f) WHEREAS, it is the intention of Company to
make contributions to the Trust to provide itself with a
source of funds to assist it in the meeting of its
liabilities under the Plan(s);
NOW, THEREFORE, the parties do hereby establish the
Trust and agree that the Trust shall be comprised, held and
disposed of as follows:
Section 1. Establishment of Trust.
INITIAL (a) Company hereby deposits with Trustee, in
DEPOSIT trust, such stock, insurance policies and other property,
as it deems appropriate in accordance with Section 1(k),
having a total value of $240,000,000 as of September 15,
1994. Such property shall become the principal of the
Trust to be held, administered and disposed of by Trustee
as provided in this Trust Agreement.
TRUST IS (b) The Trust hereby established shall be
IRREVOCABLE irrevocable.
COMPANY IS (c) The Trust is intended to be a grantor trust,
GRANTOR; NAME of which Company is the grantor, within the meaning of
OF TRUST subpart E, part I, subchapter J, chapter 1, subtitle A of
the Internal Revenue Code of 1986, as amended ("Code"), and
shall be construed
<PAGE> 4
accordingly. It shall be known as the Ralston Purina
Company Grantor Trust Dated September 15, 1994.
TRUST ASSETS (d) The principal of the Trust, and any earnings
USED ONLY FOR thereon, shall be held separate and apart from other funds
PARTICIPANTS of Company and shall be used exclusively for the uses and
AND CREDITORS. purposes of Plan participants and general creditors as
PARTICIPANTS herein set forth. Plan participants and their
ARE GENERAL beneficiaries shall have no preferred claim on, or any
CREDITORS. beneficial ownership interest in, any assets of the Trust.
Any rights created under the Plan(s) and this Trust
Agreement shall be mere unsecured contractual rights of
Plan participants and their beneficiaries against Company.
Any assets held by the Trust will be subject to the claims
of Company's general creditors under federal and state law
in the event of Insolvency, as defined in Section 3(a)
herein.
80% FUNDING OF (e) Prior to a Change of Control, Company, on or
BENEFITS BEFORE before June 1 of each year, shall make additional deposits
CHANGE OF CONTROL of cash or other property in trust with Trustee, to augment
the principal to be held, administered and disposed of by
CHOICE OF Trustee as provided in this Trust Agreement, in an amount
ACTUARIAL calculated to ensure that the value of assets in the Trust
ASSUMPTIONS TO (including, subject to Section 1(i), any funds allocated to
DETERMINE the Expense Account) shall be equal to at least 80% of the
"PRESENT VALUE" present value, as of December 31 of the preceding year, of
amounts required to pay each Plan participant or
beneficiary the benefits, pursuant to pension plans named
in Schedule 1, which Plan participants have accrued as of
December 31 of such preceding year or benefits, with
respect to other plans named in Schedule 1, which they or
their beneficiaries are expected to be paid during their
entire period of participation in the Plan(s). For
purposes of this Trust Agreement, "present value" shall be
determined on the basis of the assumptions contained in the
most recent Payment Schedules (as defined in Section 2(a))
prepared prior to, or as of, such deposit. Initial
assumptions shall be established by Company in the first
Payment Schedules. Such assumptions may thereafter be
changed (i) prior to a Change of Control by agreement of
Company and Trustee and (ii) subsequent to a Change of
Control by Trustee, as appropriate, but only after
consultation with and approval by an enrolled independent
actuary retained by Trustee and delivery to the affected
participants of written notice of the proposed changes at
least sixty (60) days prior to the effective date of a
proposed change.
FUNDING INCREASES (f) Upon a Change of Control or a breach by
TO 100% WITHIN Company of its obligation in Section 12(e), Company shall,
10 DAYS AFTER as soon as possible, but in no event later than 10 business
CHANGE OF days following the Change of Control or Trustee's notifi-
CONTROL; BREACH cation to Company that a breach has occurred, make a
OF SECTION 12(e); contribution of cash or other property to the Trust in an
OR UPON BOARD amount calculated to ensure that the value of assets in the
VOTE TO INCREASE Trust (including, subject to Section 1(i), any funds
FUNDING allocated to the Expense Account) is sufficient to pay each
Plan participant or beneficiary 100% of the present value,
as of December 31 of the year prior to the year in which
the Change of Control occurred, of the benefits, pursuant
to pension plans named in Schedule 1, which Plan
participants have accrued as of December 31 of such
preceding year or benefits, with respect to other plans
named in Schedule 1, which they or their beneficiaries are
expected to be paid
- 2 -
<PAGE> 5
during their entire period of participation in the Plan(s).
Subject to Section 11, the Board may also, at any time,
approve an amendment to the Trust to increase the
percentage of the present value of benefit plan liabilities
required to be funded immediately prior to such amendment.
100% FUNDING (g) After a Change of Control, on or before June
CONTINUED AFTER 1 of each year, Company shall be required to deposit
CHANGE OF additional cash or other property to the Trust in an amount
CONTROL that is calculated to ensure that the value of assets in
the Trust (including, subject to Section 1(i), any funds
allocated to the Expense Account) is sufficient to pay
each Plan participant or beneficiary 100% of the present
value, as of December 31 of the preceding year, of amounts
required to pay each Plan participant or beneficiary the
benefits, pursuant to pension plans named in Schedule 1,
which Plan participants have accrued as of December 31 of
such preceding year or benefits, with respect to other
plans named in Schedule 1, which they or their
beneficiaries are expected to be paid during their entire
period of participation in the Plan(s).
COMPANY REQUIRED (h) In the event that Company or its Affiliates
TO CONTRIBUTE or Associates borrow against, or Trustee loans to Company
FUNDS EQUAL TO or its Affiliates or Associates the proceeds of any
AMOUNTS BORROWED borrowing against, an insurance policy held as an asset of
FROM LIFE the Trust, Company shall contribute to the Trust at that
INSURANCE time assets which are equal in value to the amounts
POLICIES borrowed and which meet the criteria set forth in Section
1(k). If Company contributes to the Trust a policy
against which it has previously borrowed, Company shall
contribute to the Trust, coincident with the contribution
of the policy, assets which are equal in value to the
amount borrowed and which meet the criteria set forth in
Section 1(k). Notwithstanding any subsequent repayment of
amounts borrowed, assets contributed pursuant to this
provision at the time of borrowing may not be withdrawn
from the Trust by Company except as permitted under
Section 4(b).
EXPENSE (i) In addition to deposits made to the Trust
ACCOUNT pursuant to subparagraphs (e), (f), (g) or (h) of this
Section 1, prior to a Change of Control Company may deliver
to Trustee such other assets, to be allocated to an Expense
Account, as may be considered appropriate to provide for
the payment of expenses of the Trust. Upon a Change of
Control, Company shall deliver to Trustee, within 10 days
following the Change of Control, not less than the amount
specified in Schedule 2 as necessary to pay the anticipated
expenses to be incurred by the Trust. Except as provided
in Section 3, any such Expense Account deposits, and
earnings thereon, shall be applied solely toward the
payment of Trust expenses; provided, however, that amounts
credited to the Expense Account shall be included in
calculating the ratio of the present value of Plan
liabilities to Trust assets until such time as Trustee, in
its discretion, determines that at least one dollar of
amounts allocated to the Expense Account has been used, or
is likely to be used within three months, to pay expenses
incurred on account of, or in anticipation of, litigation.
After such a determination, assets allocated to the Expense
Account shall not be included in the calculation of Trust
assets available for the payment of Plan benefits.
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<PAGE> 6
80% OR 100% (j) If Company fails to make timely deposits to
FUNDING DEFAULT the Trust when required under subparagraphs (e), (f), (g),
TO BE CURED (h) or (i) of this Section 1, Company shall be considered
WITHIN 30 DAYS; to be in default of its obligations under the Trust
CHANGE OF CONTROL Agreement. Within (i) thirty (30) days after such default
FUNDING DEFAULT with respect to subparagraphs (e) or (g) occurs, or (ii)
WITHIN 5 DAYS five (5) days after any default with respect to subpara-
graphs (f), (h) or (i) occurs, Company is required to cure
the default by depositing in the Trust an amount
sufficient to satisfy the funding obligations set forth in
subparagraphs (e), (f), (g), (h) or (i), as applicable,
together with interest thereon equal to the prime rate
offered by Citibank, N.A., or such other major banking
institution as may be designated by Trustee, compounded
daily during the period of default.
TYPE OF ASSETS (k) Assets contributed by Company at any time to
WHICH MAY BE the Trust must be (i) in the opinion of Trustee, liquid or
CONTRIBUTED BY easily liquidated; and (ii) in the case of equity
COMPANY securities, including Common Shares, traded on a national
securities exchange or on the NASDAQ National Market
System. Debt securities must be at least "investment
grade", as that term is commonly used by debt rating
agencies. Subject to the foregoing requirements, prior to
a Change of Control, Company may satisfy its funding
obligations in whole or in part by contributing equity, but
not debt, securities of Company. After a Change of
Control, Company may not contribute Common Shares or
securities of any Affiliate or Associate.
Section 2. Payments to Plan Participants and Their
Beneficiaries.
ANNUAL PAYMENT (a) Beginning on the date Company first
SCHEDULES contributes assets to the Trust, and subsequently no later
than May 1 each calendar year thereafter, Company shall
deliver to Trustee a schedule ("Payment Schedule") that
indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides
a formula or other instructions acceptable to Trustee for
determining the amounts so payable, the form in which such
amount is to be paid (as provided for or available under
the Plan(s)), and the time of commencement for payment of
such amounts. The Payment Schedules shall be
substantially in the form of Schedule 3 and shall include,
without limitation by specification, (i) the name of each
participant entitled to receive benefits under each Plan,
(ii) the current address of such participant, (iii) the
beneficiaries, if applicable, designated by such
participant, (iv) to the extent then determinable, the
amount of benefit payments to which such participant is
entitled (including, where payments are to be determined
by reference to the value of Common Shares the number of
Common Shares with respect to which the benefit is to be
determined and the manner, if any, of crediting dividends
on such Common Shares), (v) the date or event on which
such benefit payments are to be made, (vi) the extent to
which such benefits are payable other than in cash, (vii)
the actuarial and other assumptions, if any, utilized to
calculate the benefits, and (viii) such additional
information (such as date of birth, years of service,
and/or compensation of a participant) as shall be
necessary to enable Trustee to determine the amount, time,
and form of payment of each benefit payable to such
participant. Each such Payment
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<PAGE> 7
Schedule shall also include a calculation of the present
ANNUAL UPDATE value, as of December 31 of the preceding year, of amounts
OF PRESENT VALUE required to pay each Plan participant or beneficiary the
OF BENEFITS benefits pursuant to pension plans named in Schedule 1,
which they have accrued as of December 31 or benefits, with
respect to other plans named in Schedule 1, which they or
their beneficiaries are expected to be paid during their
period of participation in the Plan(s). Except as
otherwise provided herein, Trustee shall make payments to
the Plan participants and their beneficiaries in accordance
with such Payment Schedule. Trustee shall make provision
for the reporting and withholding of any federal, state or
local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of
the Plan(s), and shall pay amounts withheld to the
appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by Company.
BEFORE CHANGE (b) Prior to a Change of Control, in the interim
OF CONTROL, between delivery of annual Payment Schedules, Company shall
COMPANY TO as soon as practicable notify Trustee in writing of any and
UPDATE PAYMENT all changes which relate to the commencement or termination
SCHEDULES of payment of benefits or change in amount of benefits
BETWEEN ANNUAL payable (due to retirement, termination of service, death
UPDATES TO of a participant, acceleration of payment of benefits under
ADDRESS CHANGES the terms of a Plan, or otherwise). Each such notice shall
IN BENEFITS IN be dated, shall set forth the name of each Plan participant
PAY STATUS or beneficiary with respect to whom the Payment Schedules
are being changed (or who is being added to or deleted from
the Payment Schedules), and all additions to or changes
from the information previously supplied with respect to
such Plan participant or beneficiary. Any update of the
Payment Schedules shall supersede the prior Payment
Schedules with respect to the new information provided but
in no event shall such updates be used to recalculate the
present value of plan liabilities as established in the
annual Payment Schedules except with respect to preparation
of a subsequent annual Payment Schedule.
TRUSTEE TO (c) No later than thirty (30) days after the
UPDATE PAYMENT occurrence of a Change of Control, Company shall provide
SCHEDULES AFTER Trustee with Payment Schedules updated to the date of the
CHANGE OF Change of Control. Subsequent to a Change of Control,
CONTROL Trustee shall be charged with keeping the Payment Schedules
accurate and current, including, but not limited to,
preparing, on or before May 1 each calendar year, Payment
Schedules in the same manner required of Company, prior to
a Change of Control, as set forth in Section 2(a) and, in
the interim between annual Payment Schedules, Section 2(b).
In carrying out its duty to prepare the Payment Schedules
annually and to update them on an interim basis as needed,
Trustee shall be entitled to obtain assistance from
Company, participants, beneficiaries and independent third
parties, including, but not limited to, actuaries retained
by Trustee (other than any actuarial firm retained by
Company), as may be necessary in order for Trustee to
fulfill its duties under this Trust Agreement.
ACCESS TO (d) Company shall keep accurate books and records
EMPLOYEE with respect to the eligibility of employees to participate
RECORDS in the Plans and the benefits payable under the Plans, and
shall provide such information and access to such books and
records to
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<PAGE> 8
Trustee and any independent third party referred
to in Section 2(c) at such time or times as Trustee shall
reasonably request. If, at any time subsequent to a Change
of Control, Company fails or refuses to give Trustee
participant data or access to such books and records,
Trustee shall be entitled to rely on information obtained
by it from the respective participants (including such
information as Trustee may obtain after a claim for
benefits has been made) for the purpose of calculating
benefits pursuant to the Payment Schedules.
ANNUAL ACCOUNT (e) As soon as practicable following a Change of
STATEMENTS TO Control, Trustee shall notify each participant listed on
PARTICIPANTS the most recent Payment Schedule, as updated, in writing of
AFTER CHANGE the amount of his or her benefit under the Payment
OF CONTROL Schedules. Thereafter, Trustee shall mail, by May 15 each
year, an account statement ("Account Statement") to each
such participant at his or her address listed on the most
recent Payment Schedule. The Account Statement shall
contain a statement, as of December 31 of the prior
calendar year, of the amount of benefit payments to which
the participant is entitled; a summary of the assets of the
Trust; and a statement notifying the participant that he or
she has the right to receive or examine a copy of this
Trust Agreement and examine Trustee's account filed with
Company pursuant to Section 7. In addition, Trustee shall
notify each participant of any failure by Company to
provide the information or access referred to in Section
2(d), or to make deposits pursuant to subparagraphs (e),
(f), (g), (h), (i) or (j) of Section 1.
PLAN (f) The entitlement of a Plan participant or his
ADMINISTRATOR TO or her beneficiaries to benefits under the Plan(s) shall be
DETERMINE determined by the Plan Administrator or such party as it
PARTICIPANT'S shall designate under the Plan(s), and any claim for such
ENTITLEMENT TO benefits shall be considered and reviewed under the
PLAN BENEFITS procedures set out in the Plan(s). Company has provided or
will promptly provide Trustee with a copy of each of the
Plans and shall provide Trustee with a copy of any
amendment to a Plan promptly upon its adoption.
COMPANY TO PAY (g) If the principal of the Trust, and any
TRUST AMOUNT OF earnings thereon, that, subject to Section 1(i), are
SHORTFALL IN available to pay benefits are not sufficient at any time to
MONTHLY BENEFIT fully fund the present value, established as of the most
PAYMENTS recent calculation required under Section 2(a), of all
liabilities under the Plans for benefit payments to Plan
participants or their beneficiaries, Trustee shall
calculate each month the portion of each benefit payment
it may make, with respect to the Plans in each class,
consistent with the provisions of Section 2(i). Trustee
shall promptly notify Company of the amount of any
shortfall in funds available to pay benefits for such
month, and Company shall, within three (3) working days
after receipt of such notification, contribute to the
Trust cash equal to the amount of the shortfall. Each
such contribution shall be applied by Trustee to pay
benefits payable under the terms of the Plans for the
month for which such contribution is made, and shall not
be included in the calculation of the ratio of Trust
assets to the present value of Plan liabilities. Any such
contributions by Company in excess of amounts necessary to
fund the shortfall described above shall be retained in
the Trust and included in the calculation of the ratio of
Trust assets to the present value of Plan liabilities.
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<PAGE> 9
TRUSTEE MAY PAY (h) In lieu of Trustee's making payment of
TO OTHER GRANTOR benefits directly to Plan participants and their benefi-
TRUSTS ciaries in accordance with the Payment Schedules, Trustee
may at its discretion make a deposit or deposits directly
to the trust established pursuant to the Trust Agreement
dated as of November 16, 1988 between Ralston Purina
Company and Wachovia Bank and Trust Company, N.A. (
"November 1988 Trust") so that the trustee(s) of such
other trust may use such funds to pay Plan participants
and their beneficiaries according to the terms of such
trust and their payment schedules. If applicable under
the terms of the other trust, Trustee shall certify to the
trustee of such other trust the amount of deposits being
made with respect to (i) each account allocated to a
participant under such other trust, (ii) an account
representing a category of unallocated benefits of
participants or (iii) any expense account described in
such trust.
TRUST ASSETS (i) In the event that assets in the Trust are
ALLOCATED TO insufficient to fully fund the present value of liabilities
PLAN LIABILITIES under all the Plans set forth in Schedule 1, and Company
BASED ON has not paid benefits under the Plans in full directly to
PRIORITY CLASS Plan participants or their beneficiaries when they become
payable, Trustee shall pay such benefits either directly to
the participants or beneficiaries under the Payment
Schedules or, in its discretion, to the November 1988
Trust, according to the following priority of payment:
CLASS 1: Deferred Compensation Plan for Key
Employees; Executive
Savings Investment Plan
CLASS 2: Supplemental Retirement Plan
CLASS 3: Executive Health Plan and Executive
Long Term Disability Plan
CLASS 4: Executive Life Plan
CLASS 5: Current Year's Bonus Plan
CLASS 6: Officers' Liability Insurance
CLASS 7: Other Plans
Trustee shall apply the available funds first to
satisfy the obligations set forth in the relevant Payment
Schedule with respect to the Plans in Class 1. To the
extent total Trust assets available to pay benefits are
less than the present value of the liabilities of the Plans
in Class 1, Trustee shall make benefit payments, to
participants and beneficiaries of such Plans who are
currently entitled to payment, in amounts proportionate to
the ratio of the Trust assets available to pay benefits to
the present value of liabilities of such Plans in Class 1.
To the extent the present value of liabilities calculated
with respect to the Plans in Class 1 can be fully satisfied
by Trust assets available to pay benefits, remaining assets
in the Trust shall be allocated in the same manner to
satisfy the obligations of the Plans in each of the other
Classes in sequence, taking into account the portion of
funds in the Trust previously allocated to preceding
Classes of Plans in order to calculate the proportion of
each benefit payment which should be satisfied from Trust
assets. Notwithstanding any provisions
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<PAGE> 10
PRIORITY SCHEDULE of Section 11 to the contrary, this schedule of priority
TO BE AMENDED Classes and the Plans named therein shall not be amended
ONLY WITH CONSENT to the detriment of Plan participants and beneficiaries
OF CLASS MEMBERS covered by the schedule prior to such amendment without
the written consent of a majority of Plan participants and
beneficiaries in each Class.
COMPANY RETAINS (j) Nothing in this Trust Agreement shall relieve
OBLIGATION TO Company of its obligation to pay benefits pursuant to the
PAY Plans, except to the extent benefits are paid to the
participant or beneficiary from Trust assets.
Notwithstanding anything to the contrary in Section 2(g),
Company may, upon notification in writing to the Trustee,
pay from Company assets, directly to Plan participants
and their beneficiaries, all benefits due under the
Plans. In such event, Company may, at its election,
receive reimbursement from Trustee, in the month
following such payment, of such amounts equal to the
portion of each benefit payment Trustee would otherwise
be authorized to make with respect to Plans in each
Class, consistent with the provisions of Section 2(i).
If Trustee, in the exercise of its discretion, determines
to its satisfaction that Company has failed, or is likely
to fail, to keep its promise to pay benefits from Company
assets as indicated, Trustee shall notify Company that
the arrangement for direct payment of benefits by Company
is no longer in effect and that the parties shall
thereafter follow the payment arrangement set forth in
Section 2(g).
DEFAULT IN If Company at any time fails to contribute funds to
PAYING BENEFITS the Trust as required by Section 2(g), and has not
otherwise paid to Participants those benefits which
Trustee was unable to pay due to Company's non-compliance
with Section 2(g), then, when Company next contributes
cash or other property to the Trust, the amounts required
to be contributed under Section 2 shall include, but not
be limited to, the aggregate amount of all payments which
were not made due to Company's non-compliance. Trustee
is entitled in its discretion to rely on information
obtained by it from participants or beneficiaries
regarding their failure to receive benefits when due.
Section 3. Trustee Responsibility Regarding
Payments to Trust Beneficiary When Company Is Insolvent.
DEFINITION OF (a) Trustee shall cease payment of benefits to
INSOLVENCY Plan participants and their beneficiaries if Company is
Insolvent. Company shall be considered "Insolvent" for
purposes of this Trust Agreement if (i) Company is unable
to pay its debts as they become due, or (ii) Company is
subject to a pending proceeding as a debtor under the
United States Bankruptcy Code.
TRUST ASSETS (b) At all times during the continuance of this
SUBJECT TO Trust, as provided in Section 1(d), the principal and
CREDITORS' income of the Trust shall be subject to claims of general
CLAIMS creditors of Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief
Executive Officer of Company shall have the duty to
inform Trustee in writing of Company's Insolvency.
If a person claiming to be a creditor of Company
alleges in
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<PAGE> 11
NO BENEFITS PAID writing to Trustee that Company has become
PENDING DETERMINATION Insolvent, Trustee shall determine whether Company
OF INSOLVENCY is Insolvent and, pending such determination,
Trustee shall discontinue payment of benefits to
Plan participants or their beneficiaries.
TRUSTEE'S (2) Unless Trustee has actual knowledge
DETERMINATION OF of Company's Insolvency, or has received notice from
INSOLVENCY Company or a person claiming to be a creditor
alleging that Company is Insolvent, Trustee shall
have no duty to inquire whether Company is
Insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be
furnished to Trustee and that provides Trustee with
a reasonable basis for making a determination
concerning Company's solvency.
TRUSTEE TO (3) If at any time Trustee has determined
DISCONTINUE BENEFIT that Company is Insolvent, Trustee shall discontinue
PAYMENTS DURING payments to Plan participants or their beneficiaries
INSOLVENCY and shall hold the assets of the Trust for the
benefit of Company's general creditors. Nothing in
PARTICIPANTS ARE this Trust Agreement shall in any way diminish any
GENERAL CREDITORS rights of Plan participants or their beneficiaries
to pursue their rights as general creditors of
Company with respect to benefits due under the
Plan(s) or otherwise.
PAYMENTS RESUME (4) Trustee shall resume the payment of
AFTER INSOLVENCY benefits to Plan participants or their beneficiaries
in accordance with Section 2 of this Trust Agreement
only after Trustee has determined that Company is
not Insolvent (or is no longer Insolvent).
MAKE-UP PAYMENTS (c) Provided that there are sufficient assets, if
AFTER INSOLVENCY Trustee discontinues the payment of benefits from the
Trust pursuant to Section 3(b) hereof and subsequently
resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all
payments due to Plan participants or their beneficiaries
under the terms of the Plan(s) and this Trust for the
period of such discontinuance, less the aggregate amount
of any payments made to Plan participants or their
beneficiaries by Company in lieu of the payments provided
for hereunder during any such period of discontinuance.
Section 4. Payments to Company.
LIMITED REVERSION (a) Except as provided in this Section 4 and
TO COMPANY Section 3 hereof, Company shall have no right or power to
direct Trustee to return to Company or to divert to
others any of the Trust assets before payment of all
benefits has been made to Plan participants and their
beneficiaries pursuant to the terms of the Plan(s).
EXCESS OVER 125% (b) If the aggregate assets of the Trust, valued
FUNDING: ADDITION as of the end of the month in which each annual Payment
TO EXPENSE ACCOUNT Schedule described in Section 2(a) or 2(c) is delivered
AND REVERSION TO to, or prepared by, Trustee, exceed 125% of the present
COMPANY value of liabilities under all
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<PAGE> 12
Plans as set forth as of December 31 on such annual
Payment Schedule, then any excess first shall be allocated
to the Expense Account to the extent that the amount
allocated to the Expense Account at that time is less than
the amount credited thereto as of the date of a Change of
Control; provided, however, that Trustee, in its sole and
complete discretion, may allocate additional amounts to
the Expense Account if it deems such allocations to be
appropriate to meet possible future expenses of the
Trust. Trustee shall promptly notify Company of any
remaining excess and shall, if Company so requests in
writing within thirty (30) days after receipt of such
notification, deliver all or a part of such excess amount
to Company, but if such assets consist of Common Shares
of Company, such assets shall not be delivered to Company
between a record date and a shareholder meeting date.
Section 5. Investment Authority.
INVESTMENT IN (a) Trustee may invest in securities (including
COMPANY STOCK stock or rights to acquire stock) or obligations issued
PERMITTED by Company. All rights associated with assets of the
Trust shall be exercised by Trustee or the person
designated by Trustee, and shall in no event be
exercisable by or rest with Plan participants or their
beneficiaries.
COMPANY'S RIGHT Except as set forth below, Company shall have the
TO SUBSTITUTE right at any time, and from time to time in its sole
ASSETS discretion, to substitute assets of equal fair market
value for any asset held by the Trust as long as such
assets are (i) deemed by Trustee in its discretion to be
liquid or easily liquidated; (ii) in the case of equity
securities, including Common Shares, traded on a national
securities exchange or on the NASDAQ National Market
System; and (iii) in the case of debt securities, ranked
at least as investment grade as defined in Section 1(k).
This right is exercisable by Company in a nonfiduciary
capacity without the approval or consent of any person in
a fiduciary capacity. Notwithstanding this right, (i)
Company shall not be permitted to substitute other assets
for its Common Shares held by the Trust between a record
date for a shareholder meeting, and the date of such
meeting, or in the event that capital of Company is
impaired; (ii) prior to a Change of Control, with respect
to the substitution of Common Shares for other assets in
the Trust, Company may substitute only equity securities
which meet the criteria set forth above in this Section
5(a); and (iii) after a Change of Control, Company may
not substitute Common Shares, or stock of any Affiliate
or Associate for any assets in the Trust.
INVESTMENT (b) Trustee shall invest and reinvest the
GUIDELINES SET principal and income of the Trust fund and keep the Trust
BY COMPANY BEFORE fund invested, without distinction between principal and
CHANGE OF CONTROL income, in accordance with the investment guidelines
OR FAILURE TO attached as Schedule 4 hereto or such written guidelines
CURE DEFAULT; as may be furnished from time to time (prior to a Change
THEREAFTER BY of Control or an event of default described in Section
TRUSTEE 1(j)) by Company. When a Change of Control occurs, or an
event of default is not cured in a timely manner, Trustee
is authorized to disregard, if it deems it prudent to do
so, investment guidelines furnished by Company.
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<PAGE> 13
GENERAL POWERS (c) In addition to the powers and duties
OF TRUSTEE specified elsewhere in this Trust Agreement, and subject
to the investment guidelines provided pursuant to Section
5(b), Trustee shall have the following powers and
authority with respect to the Trust fund:
(i) To purchase securities or any other
kind of property and to retain such securities
or other property, regardless of
diversification and without being limited to
investments authorized by law for the
investment of trust funds.
SALE OF COMPANY (ii) To sell, exchange or transfer any
SECURITIES BY securities or other property at public or
TRUSTEE: COMPANY'S private sale for cash or on credit and grant
RIGHT OF FIRST options for the purchase or exchange thereof;
REFUSAL AND provided that, if Trustee elects to exercise
REGISTRATION its rights, with respect to Common Shares held
OBLIGATION in the Trust, pursuant to this Section
5(c)(ii), Company must be offered the right of
first refusal to engage in such transaction
with Trustee on terms consistent with Trustee's
fiduciary obligations and with the terms and
conditions of a Stock Restriction and
Registration Rights Agreement, dated as of
September 15, 1994, between Company and
Trustee, attached hereto as Exhibit A.
(iii) To participate in any plan of
reorganization, consolidation, merger,
combination, liquidation or other similar
transaction relating to any Trust fund
property, and to consent to or oppose any such
plan or any action thereunder, or any contract,
lease, mortgage, purchase, sale or other action
by any corporation or other entity, involving
any of the securities of which may at any time
be held in the Trust fund, and to do any act
with reference thereto.
(iv) To deposit any Trust fund property
with any protective, reorganization or similar
committee; to delegate discretionary power to
any such committee; and to pay all or a part of
the expenses and compensation of any such
committee and any assessments levied with
respect to any property so deposited.
(v) To exercise any conversion
privilege or subscription right available in
connection with any Trust fund property, and to
do any act with reference thereto, including
the exercise of options, the making of
agreements or subscriptions and the payment of
expenses, assessments or subscriptions, which
may be deemed necessary or advisable in
connection therewith, and to hold and retain
any securities or other property which it may
so acquire.
(vi) Subject to Section 8(c), to
commence or defend suits or legal proceedings
and to represent the Trust in any other suits
or legal
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<PAGE> 14
proceedings in which it has an interest, and to
settle or compromise any claims, debts or damages,
due or owing, or possibly due or owing, to or from
the Trust.
RIGHT TO VOTE (vii) To exercise, personally or by
SECURITIES general or limited power of attorney, any
right, including the right to vote, appurtenant
to any securities or other such property.
RIGHT TO BORROW (viii) Subject to the provisions of any
MONEY AND PLEDGE indentures relating to indebtedness of Company
SECURITIES OR existing prior to a Change of Control, to
OTHER PROPERTY borrow money from any lender, including
Company, in such amounts and upon such terms
and conditions as shall be deemed advisable or
proper to carry out the purposes of the Trust,
and to pledge any securities or other property
for the repayment of any such loan.
(ix) To hold all or part of the Trust
fund uninvested.
(x) To commingle assets of the Trust
fund, for investment purposes only, with assets
of other trust funds established by Company or
its Affiliates and designated in Schedule 5,
provided that Trustee shall maintain separate
records with respect to each such other trust
or Plan.
(xi) To invest and reinvest all or any
specified portion of the Trust fund through the
medium of any common, collective or commingled
trust fund which has been or may hereafter be
established and maintained by Trustee, provided
that prior to investing any portion of the
Trust fund for the first time in any such
common, collective or commingled trust fund,
Trustee shall advise Company of its intent to
make such an investment and furnish to Company
any information it may reasonably request with
respect to such common, collective or
commingled trust fund.
(xii) To form corporations or
partnerships and to create trusts to hold title
to any such property, upon such terms and
conditions as may be deemed advisable.
(xiii) To acquire, renew or extend, or
participate in the acquisition, renewal or
extension of, any mortgage, and to agree to a
reduction in the rate of interest on any
indebtedness or mortgage or to any other
modification or change in the terms of any
indebtedness or mortgage or of any guarantee
pertaining thereto, in any manner and to any
extent that may be deemed advisable for the
protection of the Trust, or the preservation of
any covenant or condition of any indebtedness
or mortgage or in the performance of any
guarantee, or to
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<PAGE> 15
enforce any default in such manner and to such
extent as may be deemed advisable; and to exercise
and enforce any and all rights of foreclosure, to
bid on any property on foreclosure, to take deed in
lieu of foreclosure with or without paying a
consideration therefor and in connection
therewith to release the obligation on the bond
secured by such mortgage, and to exercise and
enforce in any action, suit or proceeding at
law or in equity, any rights or remedies in
respect of any such indebtedness or mortgage or
guarantee.
RIGHT TO HOLD (xiv) To acquire, purchase, hold and be
INSURANCE the owner of any individual or group life
CONTRACTS insurance or medical contracts or individual or
group annuity contracts and to take such action
with respect to such contracts as necessary or
advisable to carry out the terms of this Trust
Agreement.
(xv) To register or hold any securities
or other property held by it in its own name or
in the name of any custodian of such property
or of its nominee, including the nominee of any
system for the central handling of securities,
with or without the addition of words
indicating that such securities are held in a
fiduciary capacity, to deposit or arrange for
the deposit of any such securities with such a
system, and to hold any securities in bearer
form.
(xvi) Subject to the provisions of any
indentures relating to indebtedness of Company
existing prior to a Change of Control, to make,
execute and deliver, as Trustee, any and all
deeds, leases, notes, bonds, guarantees,
mortgages, conveyances, contracts, waivers,
releases or other instruments in writing
necessary or proper for the accomplishment of
any of the foregoing powers.
Section 6. Disposition of Income.
INCOME ON During the term of this Trust, all income received
ASSETS TO BE by the Trust, net of expenses and taxes, shall be
REINVESTED accumulated and reinvested.
Section 7. Accounting by Trustee.
ACCOUNTING BY Trustee shall keep accurate and detailed records of
TRUSTEE all investments, receipts, disbursements, and all other
transactions required to be made, including such specific
records as shall be agreed upon in writing between
Company and Trustee. Within sixty (60) days following
the close of each calendar year and within sixty (60)
days after removal or resignation of Trustee, Trustee
shall deliver to Company a written account of its
administration of the Trust during such year or during
the period from the close of the last preceding year to
the date of such removal or resignation, setting forth
all investments, receipts, disbursements and other
transactions effected by it,
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<PAGE> 16
including a description of all securities and investments
purchased and sold with the cost or net proceeds of such
purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities
and other property held in the Trust at the end of such
year or as of the date of such removal or resignation, as
the case may be.
Section 8. Responsibility of Trustee.
FIDUCIARY (a) Trustee shall act with the care, skill,
STANDARD prudence and diligence under the circumstances then
prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct
of an enterprise of a like character and with like aims,
provided, however, that Trustee shall incur no liability
to any Person for any action taken pursuant to a
direction, request or approval given by Company which is
contemplated by, and in conformity with, the terms of the
Plan(s) or this Trust and is given in writing by Company.
Except as otherwise provided in Section 8(c), in the
event of a dispute, involving the Trust, between Company
and any other Person, Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
INDEMNIFICATION (b) Company shall, to the extent permitted by
OF TRUSTEE law, indemnify Trustee and hold it harmless from and
against any claim or liability that may be asserted
against or incurred by Trustee by reason of its taking or
refraining from taking any action hereunder, including,
without limiting the generality of the foregoing, any
claim or liability brought against Trustee by Company;
provided, however, that such indemnity shall not apply if
such claim or liability is due to Trustee's gross
negligence or willful misconduct. To the extent that
Company has not fulfilled its obligations under the
foregoing provisions of this Section 8(b), after final
judgment is entered, Trustee shall be reimbursed out of
the assets of the Trust.
RESTRICTION ON (c) Trustee shall not itself commence any legal
TRUSTEE'S action, whether in the nature of an interpleader action,
RIGHT TO SUE request for declaratory judgment, or otherwise,
requesting the court to (i) determine the validity of
this Trust Agreement or any provision thereof or (ii)
make any determination with respect to benefits which
this Trust Agreement requires to be made by Trustee.
AGENTS AND (d) Trustee may engage any legal counsel,
CONSULTANTS including counsel to Company, or any other suitable agents,
to consult with respect to the interpretation of this Trust
Agreement, the duties of Trustee hereunder, the
transactions contemplated by this Trust Agreement or any
act which Trustee proposes to take or omit. Trustee may
rely upon the advice of such counsel or agents, and pay
their reasonable fees, expenses and compensation;
provided, however, that following the occurrence of a
Change of Control such counsel or agent shall not be
counsel or agent for Company.
(e) Trustee shall have, without exclusion, all
powers conferred on Trustees by applicable law, unless
expressly provided otherwise herein; provided, however,
- 14 -
<PAGE> 17
that if an insurance policy is held as an asset of the
Trust, Trustee shall have no power to name a beneficiary
of the policy other than the Trust, to assign the policy
(as distinct from conversion of the policy to a different
form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against policy.
(f) However, notwithstanding the provisions of
Section 8(e) above, Trustee may loan to Company the
proceeds of any borrowing against an insurance policy
held as an asset of the Trust.
(g) Notwithstanding any powers granted to Trustee
pursuant to this Trust Agreement or to applicable law,
Trustee shall not have any power that could give this
Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of
section 301.7701-2 of the Procedure and Administrative
Regulations promulgated pursuant to the Internal Revenue
Code.
Section 9. Compensation and Expenses of Trustee.
COMPANY TO PAY (a) (i) Company shall from time to time pay
TAXES LEVIED taxes of any and all kinds whatsoever which at any
ON TRUST FUND time are levied or assessed upon or become payable
in respect of the Trust fund, the income or any
property forming a part thereof, or any security
transaction pertaining thereto. To the extent that
any taxes levied or assessed upon the Trust fund are
not paid by Company when due, Trustee shall pay such
taxes out of the Trust fund and the provisions of
Section 9(c) shall apply. In addition, Trustee
shall immediately notify each Plan participant in
writing of the failure of Company to pay the taxes.
(ii) With respect to any taxes levied or
assessed upon the Trust fund, Trustee shall, at
Company expense, contest the validity of such taxes
in any manner deemed appropriate by Company or its
counsel, but only if Trustee has received an
indemnity bond or other security satisfactory to it
to pay any expenses of such contest. Alternatively,
Company may itself contest the validity of any such
taxes.
TRUSTEE FEES (b) Trustee shall be paid compensation by Company
AND EXPENSES in accordance with Trustee's regular schedule of fees for
trust services and applicable investment management
services, as in effect from time to time, unless Company
and Trustee otherwise agree. Trustee shall be reimbursed
by Company for its reasonable expenses of management and
administration of the Trust, including reasonable
compensation of counsel and any actuary or other agent
engaged by Trustee to assist it in such management and
administration.
- 15 -
<PAGE> 18
USE OF (c) Expenses of the Trust shall be paid by
EXPENSE Company. If Company does not pay these expenses, to the
ACCOUNT extent there is a balance remaining in the Expense Account,
ASSETS Trustee shall withdraw from the Expense Account amounts
required for payment of Trustee's fees and Trust expenses
(including taxes). Trustee shall demand reimbursement
from Company for such fees and expenses, and Company
shall immediately deposit into the Trust fund, for credit
to the Expense Account, a sum equal to the amount paid by
the Trust fund for such fees and expenses. In the event
that Company shall fail or refuse to make such
reimbursement upon demand, and there is no balance in the
Expense Account, Trustee may satisfy such obligations out
of the assets of the Trust fund. Trustee shall also
notify all Plan participants or beneficiaries of any
failure by Company to reimburse the Trust fund pursuant
to this Section 9.
Section 10. Resignation and Removal of Trustee and
Designation of Successor Trustee.
REMOVAL OF (a) At any time prior to a Change of Control,
TRUSTEE BEFORE Company may remove Trustee with or without cause upon at
CHANGE OF least ninety (90) days' notice in writing to Trustee. No
CONTROL removal of Trustee shall be effective until Company has
appointed in writing a successor Trustee that is
independent and not subject to the control of either
Company or the Plan participants and their beneficiaries,
and which must be a bank which is a national banking
association member and established under the laws of one
of the states of the United States, and which has equity
in excess of $100 million, or a trust company whose trust
assets under investment would place it among the 100
largest trust companies in the United States; and such
successor has accepted the appointment in writing.
(b) Subsequent to a Change of Control, Trustee
may be removed in accordance with the procedure of Section
10(a) and the following procedure:
(i) Company may give notice in writing to
Trustee of removal, appoint a successor Trustee and
REMOVAL OF receive an acceptance of the appointment in writing;
TRUSTEE AFTER and
CHANGE OF
CONTROL (ii) Company shall then notify each Plan
participant or beneficiary on the most recent
Payment Schedule of the proposed removal and
designation of the specified successor Trustee.
Each Plan participant or beneficiary shall then vote
for or against such action. If a majority do not
approve the proposed action, then a court of
competent jurisdiction located in the State of
Missouri shall have the final decision on removal of
Trustee and selection of a successor Trustee.
- 16 -
<PAGE> 19
RESIGNATION OF (c) Trustee may resign at any time upon at least
TRUSTEE ninety (90) days' notice in writing to Company, except
that any such resignation prior to a Change of Control
shall not be effective until Company has appointed in
writing a successor Trustee meeting the requirements set
forth in Section 10(a), and such successor has accepted
the appointment in writing. Following a Change of
Control, the resignation of Trustee, and the appointment
of a successor Trustee, shall become effective after the
successor trustee meeting the requirements of Section
10(a) is appointed in writing by Company and then
approved by a vote of a majority of all participants or
beneficiaries.
SUCCESSOR (d) Each successor Trustee, during such period as
TRUSTEE it shall act as such, shall have the powers and duties
herein conferred upon Trustee, and the word "Trustee"
wherever used herein, except where the context otherwise
requires, shall be deemed to include any successor
Trustee. Upon designation of a successor Trustee in
accordance with this Section 10, such resigned or removed
Trustee shall promptly assign, transfer, deliver and pay
over to such Trustee, in conformity with the requirements
of applicable law, the assets and properties in its
control or possession then constituting the Trust fund.
(e) The successor Trustee need not examine the
records and acts of any prior Trustee and may retain or
dispose of existing Trust assets, subject to Sections 7
and 8 hereof. The successor Trustee shall not be
responsible for, and Company shall indemnify and defend
the successor Trustee from, any claim or liability
resulting from any action or inaction of any prior
Trustee, or from any other past event, or any condition
existing at the time it becomes successor Trustee.
Section 11. Amendment or Termination.
AMENDMENT BY (a) Prior to a Change of Control or an event of
COMPANY PRIOR default described in Section 1(j), Company may from time
TO CHANGE to time amend, in whole or in part, any or all of the
OF CONTROL provisions of this Trust Agreement without the consent of
OR DEFAULT any Plan participant or beneficiary; provided, however,
that (i) no amendment will be made to this Trust
Agreement or the Plans which will cause this Trust
AMENDMENTS CAN Agreement, any Plan or the assets of the Trust fund to be
INCREASE MANDATED governed by or subject to Part 2, 3 or 4 of Title I of
FUNDING the Employee Retirement Income Security Act of 1974, as
PERCENTAGES BUT amended, (ii) no amendment will be made which will cause
NEVER DECREASE the assets of the Trust fund to be taxable to Plan
THEM BELOW participants or beneficiaries prior to the distribution
ORIGINAL 80% OR therefrom, (iii) no such amendment shall adversely affect
100% MANDATES any benefits reflected on the Payment Schedules to the
date of such amendment in respect of any Plan participant
or beneficiary, or the amount of assets of the Trust fund
allocable thereto, (iv) no such amendment shall reduce
the percentage of the present value of benefit plan
liabilities, which are required to be funded pursuant to
Section 1, to an amount below 80% prior to a Change of
Control or below 100% after a Change of Control, and (v)
no such
- 17 -
<PAGE> 20
amendment shall increase the duties or responsibilities of
Trustee unless Trustee consents thereto in writing.
AMENDMENT BY (b) Following a Change of Control or an event of
CONSENT OF default described in Section 1(j), this Trust Agreement
MAJORITY OF may be amended (always subject to the restrictions set
PARTICIPANTS forth in Section 11(a)), only with the prior written
AFTER CHANGE consent of a majority of participants and beneficiaries
OF CONTROL OR who, at the time such amendment is sought, are listed on
DEFAULT the most recent Payment Schedules. Upon receipt of a
request from Company for an amendment, Trustee shall be
responsible for requesting such consents in a timely
fashion.
AMENDMENTS TO (c) Notwithstanding anything in this Section 11
CONFORM WITH to the contrary, this Trust Agreement and certain of the
LAW Plans, as appropriate, shall be amended from time to time
(without the consent of any Plan participant or
beneficiary) to maintain such Plans as "unfunded" Plans
"maintained primarily for the purpose of providing
deferred compensation for a select group of management or
highly compensated employees" for purposes of ERISA, the
Code, or any other applicable law, and to maintain the
Trust as a "grantor trust," and to insure that deposits
to the Trust by Company will not constitute a taxable
event, and income and gains of the Trust fund will not be
taxable as income and gain to the Trust or to Plan
participants and beneficiaries under the Plans, and that
benefits paid to Plan participants and beneficiaries from
the Trust fund will be deductible to Company in the year
of payment.
NO AMENDMENT (d) Company and Trustee shall execute such
TO MAKE TRUST amendments of this Trust Agreement as shall be necessary
REVOCABLE to give effect to any amendment made pursuant to this
Section 11. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan(s) or
shall make the Trust revocable.
TERMINATION OF (e) The Trust shall not terminate until the date
TRUST AND on which Plan participants and their beneficiaries are no
REVERSION OF longer entitled to benefits pursuant to the terms of the
ASSETS Plan(s). Upon termination of the Trust, any assets
remaining in the Trust shall be returned to Company.
Section 12. Miscellaneous.
(a) Any provision of this Trust Agreement
prohibited by law shall be ineffective to the extent of
any such prohibition, without invalidating the remaining
provisions hereof.
NO ALIENATION (b) Benefits payable to Plan participants and
OF BENEFITS their beneficiaries under this Trust Agreement may not be
anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal
or equitable process.
- 18 -
<PAGE> 21
MISSOURI LAW (c) This Trust Agreement shall be governed by and
TO GOVERN construed in accordance with the laws of the State of
Missouri.
(d) For purposes of this Trust:
DEFINITION OF CHANGE
OF CONTROL: (i) "Change of Control" shall mean the
(i) BENEFICIAL time when (A) any Acquiring Person, either individ-
OWNERSHIP EXCEEDING ually or together with such Persons' Affiliates or
20% OF OUTSTANDING Associates, shall have become the Beneficial Owner,
VOTES, OR (ii) directly or indirectly, of more than 20% of the
CONTINUING DIRECTORS total votes of outstanding Common Shares of Company;
NO LONGER A MAJORITY (B) individuals who shall qualify as Continuing
OF THE BOARD; OR Directors shall have ceased for any reason to
(iii) DECLARATION constitute at least a majority of the Board of
OF CHANGE OF Directors of Company; or (C) a majority of the
CONTROL BY individuals who shall qualify as Continuing
DIRECTORS Directors shall approve a declaration that a Change
of Control has occurred. Trustee may rely upon
written notice from an officer of Company or upon
filings by Company or such Acquiring Person with the
Securities and Exchange Commission to determine that
a Change of Control has occurred. In addition, upon
any publication in The Wall Street Journal
indicating that a Change of Control may have
occurred, Trustee immediately shall make appropriate
inquiry to determine whether the Change of Control
has occurred.
(ii) "Acquiring Person" shall mean any
Person who or which, together with all Affiliates
and Associates of such Person, shall become the
Beneficial Owner of Common Shares representing 20%
or more of the total votes of all then outstanding
Common Shares, but shall not include (i) Company,
any Subsidiary (as such term is hereinafter defined)
of Company, any employee benefit plan of Company or
any Subsidiary of Company, or any entity holding
Common Shares for or pursuant to the terms of any
such plan, or (ii) any Person (an "Inadvertent
Acquiring Person") whose status as an Acquiring
Person results solely from (a) a change in the
relative votes of any class or series of the Common
Shares and/or (b) the acquisition of Common Shares
by Company, which actions increase the number of
votes represented by the Common Shares beneficially
owned by such Person to 20% or more of the total
votes of all Common Shares then outstanding;
provided, however, that if a Person shall become an
Inadvertent Acquiring Person and shall, after any
such time, and while such status shall continue,
become the Beneficial Owner of any additional Common
Shares of Company, then such Person shall be deemed
to be an Acquiring Person as of the acquisition of
such additional Common Shares. For purposes of this
definition, "total votes of all then outstanding
Common Shares" shall be determined on any relevant
date in accordance with Company's Restated Articles
of Incorporation as of the most recent record date
for any annual or special meeting of shareholders of
Company, or if later, as of the most recent public
announcement by Company of the total votes of all
then outstanding Common Shares. "Person" shall
- 19 -
<PAGE> 22
mean any individual, firm, corporation or other
entity, and shall include any successor (by merger
or otherwise) of such entity.
(iii) "Affiliate" and "Associate" shall
have the respective meanings ascribed to such terms
in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of
this Agreement.
(iv) "Beneficial Owner" shall mean a
Person who shall be deemed to have acquired
"beneficial ownership" of, or to "beneficially
own", any securities:
(A) which such Person or any of such
Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(B) which such Person or any of such
Person's Affiliates or Associates has (A) the
right to acquire (whether such right is
exercisable immediately or only after the
passage of time) pursuant to any agreement,
arrangement or understanding (other than
customary agreements with and between
underwriters and selling group members with
respect to a bona fide public offering of
securities), or upon the exercise of
currently exercisable conversion or exchange
rights, warrants or options, or otherwise;
provided, however, that a Person shall not
be deemed the Beneficial Owner of, or to
beneficially own, securities tendered
pursuant to a tender or exchange offer made
by or on behalf of such Person or any of
such Person's Affiliates or Associates until
such tendered securities are accepted for
purchase or exchange; or (B) the right to
vote pursuant to any agreement, arrangement
or understanding; provided, however, that a
Person shall not be deemed the Beneficial
Owner of, or to beneficially own, any
security if the agreement, arrangement or
understanding to vote such security (1)
arises solely from a revocable proxy or
consent given to such Person in response to
a public proxy or consent solicitation made
pursuant to, and in accordance with, the
applicable rules and regulations promulgated
under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor
report); or
(C) which are beneficially owned,
directly or indirectly, by any other Person
with which such Person or any of such
Person's Affiliates or Associates has any
agreement, arrangement or understanding
(other than customary agreements with and
between underwriters and selling group
members with respect to a bona fide public
offering of securities) for the purpose of
acquiring, holding, voting or disposing of
any securities of Company.
- 20 -
<PAGE> 23
Notwithstanding anything in this
definition of "Beneficial Owner" to the
contrary, the phrase "then outstanding", when
used with reference to a Person's beneficial
ownership of securities of Company, shall
mean the number of such securities then
issued and outstanding together with the
number of such securities not then actually
issued and outstanding which such Person
would be deemed to own beneficially
hereunder.
(v) "Common Shares" when used with
reference to Company shall mean shares of Company's
common stock, par value $.10 per share, which
presently consists of shares of Ralston-Ralston
Purina Group Common Stock and shares of
Ralston-Continental Baking Group Common Stock, and
any other class or classes or series of common
stock of Company resulting from any subdivision,
combination, recapitalization or reclassification
of shares of such common stock. "Common Shares"
when used with reference to any entity which is a
successor to the obligations of Company pursuant to
Section 12(g) shall mean any capital stock or other
equity interest of such entity.
(vi) "Continuing Director" means any
member of the Board of Directors of Company, while
such individual is a member of the Board, who is
not an Affiliate or Associate of an Acquiring
Person or of any such Acquiring Person's Affiliate
or Associate and was a member of the Board prior to
the time when such Acquiring Person shall have
become an Acquiring Person, and any successor of a
Continuing Director, while such successor is a
member of the Board, who is not an Acquiring Person
or any Affiliate or Associate of an Acquiring
Person or a representative or nominee of an
Acquiring Person or of any affiliate or associate
of such Acquiring Person and is recommended or
elected to succeed the Continuing Director by a
majority of the Continuing Directors.
(vii) "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.
RESTRICTIONS ON (e) Company shall not engage in any transaction
DEALINGS WITH with a Related Person (as defined below) or any Affiliate
RELATED PERSONS: or Associate of such Related Person unless, prior to such
MUST GUARANTEE transaction, the Related Person (or, if there is more
OBLIGATIONS OR than one Related Person, the Related Person which is the
SHOW TRUSTEE ultimate parent of the Related Persons, as determined by
TRANSACTION Trustee) either (i) guarantees the obligations of Company
WON'T DECREASE pursuant to the Plans and this Trust Agreement, or (ii)
COMPANY'S NET demonstrates to the satisfaction of Trustee that the
WORTH IN proposed transaction will not result immediately after
TRANSACTIONS the transaction in a diminution of Company's net worth;
INVOLVING MORE provided that the foregoing shall not apply to any
THAN $75 MILLION transaction or series of transactions in which the
aggregate amount involved is not in excess of
$75,000,000. If there shall be a transaction with a
Related Person or an Affiliate or Associate of such
Related Person, Company shall notify Trustee in
- 21 -
<PAGE> 24
writing within ten (10) days following such transaction.
Trustee shall thereupon determine if such transaction
violates this Section 12(e). If Trustee determines that
the transaction does violate this Section, Trustee may
demand rescission, specific performance or such other
action as it deems prudent. If such demand is not
complied with within twenty (20) days, Trustee shall apply
to a court of competent jurisdiction for appropriate
relief. For purposes of this Section, a "Related Person"
shall mean any Person other than any employee benefit plan
of Company or its Affiliate who directly or indirectly (i)
is or by the transaction would become the Beneficial
Owner of 10% or more of the voting securities of Company,
(ii) has engaged in or is engaging in a proxy contest as
a result of which one or more of such Person's nominees
were or would be elected to the Board of Directors of
Company or (iii) has engaged in or is engaging in a
tender offer for stock of Company.
(f) Trustee acknowledges that it is or may become
a creditor of Company and undertakes to ensure at all times
that a "Chinese Wall," as that term is commonly
understood in the banking community, exists between
Trustee's trust department and its commercial banking
department.
RESTRICTIONS (g) Company covenants that it will not merge or
ON CORPORATE consolidate with any other corporation, or sell or convey
MERGER OR all or substantially all of its assets to any Person,
CONSOLIDATION unless (i) either Company shall be the continuing
corporation, or the successor corporation or the Person
which acquires by sale or conveyance substantially all
the assets of Company (if other than Company) shall be a
corporation organized under the laws of the United States
of America or any State thereof and shall expressly
assume the due and punctual fulfillment of all
obligations and the due and punctual performance and
observance of all of the covenants and conditions of this
Trust Agreement to be performed or observed by Company by
a supplemental agreement satisfactory to Trustee,
executed and delivered to Trustee by such corporation,
and (ii) Company or such successor corporation or Person,
as the case may be, shall not, immediately after such
merger or consolidation, or such sale or conveyance, be
in default in the performance of any such covenant or
condition. In case of any such consolidation, merger,
sale or conveyance, and following such an assumption by
such successor corporation or Person, such successor
corporation or Person shall succeed to and be substituted
for Company, with the same effect as if it had been named
herein.
Section 13. Effective Date.
The effective date of this Trust Agreement shall be
September 15, 1994.
Section 14. Headings.
Headings of sections and descriptive summaries of
provisions of the Trust are inserted for convenience of
reference. They constitute no part of the Trust Agreement
- 22 -
<PAGE> 25
and shall not be deemed to modify, explain, enlarge or
restrict any provision of this Trust Agreement or affect
the construction hereof.
IN WITNESS WHEREOF, this Trust Agreement has
been duly executed by the parties hereto as of the day
and year first above written.
RALSTON PURINA COMPANY
By---------------------
Attest
-----------------------------
Assistant Secretary
WACHOVIA BANK OF NORTH
CAROLINA, N.A.
By---------------------
Attest
-----------------------------
- 23 -
<PAGE> 26
STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT
DATED AS OF
SEPTEMBER 15, 1994
BETWEEN
RALSTON PURINA COMPANY
AND
WACHOVIA BANK OF NORTH CAROLINA, N.A., AS TRUSTEE
UNDER TRUST AGREEMENT DATED AS OF SEPTEMBER 15, 1994
- 1 -
<PAGE> 27
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Restrictions on Transfer of Shares . . . . . . . . . . . . . . . . . . . . . 2
3.2 Current Public Information . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Right of Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV
REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Required Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Incidental Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Amendments; Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i
<PAGE> 28
INDEX OF DEFINITIONS
--------------------
The meaning of the following terms as used in this
Agreement can be found where referenced below:
CBG Stock Recital B
Commission Section 4.1
Company First Paragraph
Inspectors Section 4.3(m)
Offer Notice Section 3.2
Records Section 4.3(m)
RPG Stock Recital B
Securities Act Section 3.1
Shares Recital C
Trust Recital A
Trust Agreement First Paragraph
Trustee First Paragraph
ii
<PAGE> 29
REGISTRATION RIGHTS AGREEMENT
-----------------------------
Agreement, dated as of September 15, 1994, between
Ralston Purina Company, a Missouri corporation (the "Company"), and
Wachovia Bank of North Carolina, N.A. (the "Trustee"), in its
representative capacity as trustee under Trust Agreement dated as
of September 15, 1994, with the Company (the "Trust Agreement").
RECITALS
--------
A. Pursuant to the Trust Agreement, the Company has
established a trust (the "Trust") to provide a source of funds to
assist the Company in meeting its obligations under various
employee benefit plans and programs. The Trust is an irrevocable
grantor trust established under the laws of the State of Missouri
with the full legal right, power and authority to acquire, own,
transfer and dispose of shares of the Company's stock and other
assets.
B. Pursuant to the Trust Agreement, the Company may,
from time to time, deposit in the Trust shares of the Company's
Ralston - Ralston Purina Group Common Stock, par value $.10 per
share ("RPG Stock"), and shares of the Company's Ralston -
Continental Baking Group Common Stock, par value $.10 per share
("CBG Stock"), to be held, administered and disposed of by the
Trustee as provided in the Trust Agreement.
C. The parties hereto desire to restrict the sale,
assignment, transfer, pledge or other disposition by the Trust of
any such shares of RPG Stock and CBG Stock and any other shares of
RPG Stock and CBG Stock which the Trustee may otherwise acquire for
the Trust (collectively, the "Shares") and to provide the Trust
certain rights and obligations in respect thereto as hereinafter
provided.
NOW THEREFORE, in consideration of the mutual covenants
and agreements contained herein, the parties hereto agree as
follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
1.1 ORGANIZATION. The Company has been duly
------------
incorporated and is validly existing as a corporation in good
standing under the laws of the State of Missouri, with full
corporate power and authority to execute, deliver and perform this
Agreement.
1.2 AUTHORITY. The execution, delivery and performance
---------
of this Agreement by the Company have been duly authorized by all
necessary corporate action of the Company. This Agreement has been
duly executed and delivered by the Company and, assuming due
authority, execution and delivery by the Trustee on behalf of the
Trust, this Agreement
1
<PAGE> 30
constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
1.3 ISSUANCE. Any Shares deposited by the Company in
--------
the Trust will, when so deposited, be duly authorized, validly
issued, fully paid and non-assessable.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE
---------------------------------------------
The Trustee represents and warrants to the Company as
follows:
2.1 ORGANIZATION. The Trustee has been duly
------------
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation with
full corporate and trust power and authority to execute, deliver
and perform this Agreement on behalf of the Trust.
2.2 AUTHORITY. The execution, delivery and performance
---------
of this Agreement by the Trustee on behalf of the Trust have been
duly authorized by all necessary corporate action of the Trustee.
This Agreement has been duly executed and delivered by the Trustee
on behalf of the Trust and, assuming due authority, execution and
delivery by the Company, this Agreement constitutes a valid and
binding obligation of the Trust, enforceable against the Trust in
accordance with its terms.
ARTICLE III
COVENANTS
-----------
The Trustee hereby covenants and agrees with the Company
as follows:
3.1 RESTRICTIONS ON TRANSFER OF SHARES. The Trustee
----------------------------------
understands and acknowledges that any Shares acquired directly or
indirectly from the Company in a transaction which is not
registered under the Securities Act of 1933, as amended
("Securities Act"), would constitute "restricted securities" within
the meaning of Rule 144(a)(3) under the Securities Act and that
this Trust may be deemed to be an "affiliate" of the Company within
the meaning of Rule 144(a)(1) under the Securities Act.
Accordingly, the Trustee hereby agrees not to sell, assign,
transfer, pledge or otherwise dispose of, or grant options or
warrants with respect to, any Shares without registering or
qualifying the same under the Securities Act and other applicable
securities laws except in a transaction which is exempt from the
registration requirements of such laws. Prior to any transfer of
Shares which is not registered under an effective registration
statement under the Securities Act (other than a transfer pursuant
to Rule 144 under the Securities Act or other comparable rule or a
transfer to the Company pursuant to Section 3.3 hereof), the
Trustee will, in addition to the Offer Notice required by
Section 3.3 hereof, give the Company written notice describing the
manner and circumstances of the proposed transfer in
2
<PAGE> 31
sufficient detail to enable the Company to concur that such transfer may be
effected without registration (in this connection, the Company may
seek and rely upon an unqualified written opinion of counsel
knowledgeable in securities laws matters, addressed to the Company
and in form and substance reasonably satisfactory to the Company,
to the effect that the proposed transfer may be effected without
registration under the Securities Act and other applicable
securities laws).
3.2 CURRENT PUBLIC INFORMATION. The Company will
--------------------------
endeavor in good faith to comply with the current public
information requirements of Rule 144(c) under the Securities Act
and to remain eligible to register securities on Form S-3 (or any
other comparable form adopted by the Securities and Exchange
Commission).
3.3 RIGHT OF PURCHASE. The Trustee hereby agrees that,
-----------------
if at any time the Trustee has a bona fide intention to sell,
assign, transfer, pledge or otherwise dispose of, or grant options
or warrants with respect to, any Shares then held in the Trust, the
Trustee shall promptly so notify the Company in writing (an "Offer
Notice"), specifying the number of Shares involved, which Offer
Notice shall constitute an offer by the Trustee to sell the Shares
subject thereto to the Company (or its designee) at a price per
Share equal to the mean between the high and low sales prices per
share of the RPG Stock or CBG Stock, as the case may be, as
reported on the New York Stock Exchange list of Composite
Transactions ("Composite List") on the date of receipt of the Offer
Notice by the Company. The procedures for acceptance or refusal of
the offer contained in the Offer Notice shall be as follows:
(a) The Company shall notify the Trustee by the close of
business on the business day after receipt by the Company of
the Offer Notice of its decision to accept, in whole or in
part, or reject the offer contained in the Offer Notice. In
the case of an acceptance, in whole or in part, the Company
shall certify that the Company has the funds or will use its
best efforts to obtain the funds necessary to enable the
Company to pay for (or shall designate a buyer with funds to
pay for) the Shares specified in such Offer Notice and shall
specify a closing date within five (5) business days after the
date of such acceptance.
(b) If the Company accepts the offer contained in the
Offer Notice, in whole or in part, the Company (or its
designee) and the Trust shall be legally obligated to
consummate the sale contemplated thereby on the closing date
set forth in the acceptance notice; provided, however, that
the Company (or its designee) may not acquire less than all of
the Shares specified in the Offer Notice if the Trustee, in
its sole discretion, determines that the remainder of such
Shares could not be sold or otherwise disposed of by the Trust
upon the same or substantially comparable terms.
(c) If the Company does not notify the Trustee within
the time specified that it elects to purchase all of the
Shares specified in the Offer Notice, rejects such offer or
otherwise fails to purchase all such Shares, the Trustee shall
be free during the sixty (60) day period after receipt by the
Company of the Offer Notice (or, in the case of a sale
3
<PAGE> 32
pursuant to Section 4.1 hereof, such longer period as may be
necessary to complete the sale in accordance therewith) to
sell the number of Shares specified in such Offer Notice which
the Company does not elect to purchase in accordance with the
terms of this Agreement.
(d) If the Trustee does not complete such sale within
the period contemplated by Section 3.3(c), the provisions of
this Section 3.3 shall again apply and no sale or sales by the
Trustee of Shares shall be made otherwise than in accordance
with the terms of this Agreement.
3.4 LEGENDS. Each certificate representing Shares
-------
(whether acquired directly or indirectly from the Company or
otherwise) shall be submitted to the Company for imprinting legends
thereon in substantially the following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAW, AND MAY BE OFFERED OR
SOLD ONLY PURSUANT TO REGISTRATION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM SUCH REGISTRATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE PROVISIONS OF THE STOCK RESTRICTION AND REGISTRATION
RIGHTS AGREEMENT, DATED AS OF SEPTEMBER 15, 1994, BETWEEN THE
COMPANY AND WACHOVIA BANK OF NORTH CAROLINA, N.A., AS TRUSTEE,
AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT
ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF SUCH AGREEMENT, A COPY OF WHICH MAY BE
OBTAINED FROM THE SECRETARY OF THE COMPANY."
Such legends may be removed from any certificate representing
Shares covered by an effective registration statement filed
pursuant to Section 4.1 or Section 4.2 hereof or which the Trustee
has sold pursuant to Rule 144 under the Securities Act or other
comparable rule. Following a "Change of Control" (as defined in
the Trust Agreement) or an event of default under Section 1(j) of
the Trust Agreement, the Trustee shall have no further obligation
hereunder to submit certificates representing Shares for imprinting
legends pursuant to this Section 3.4.
ARTICLE IV
REGISTRATION RIGHTS
-------------------
4.1 REQUIRED REGISTRATION. If at any time the Trustee
---------------------
desires to sell, assign, transfer, pledge or otherwise dispose of,
or grant options or warrants with respect to, Shares then held in
the Trust in a transaction for which an exemption from the
registration requirements
4
<PAGE> 33
under the Securities Act is not available, and the Company does not accept
the Trustee's offer to sell all of such Shares pursuant to Section 3.3
hereof, the Company, upon receipt of a written request from the Trustee,
will prepare and file a registration statement on Form S-3 under the
Securities Act (or any other comparable form thereunder adopted by
the Securities and Exchange Commission) covering a public offering
of at least $20,000,000 aggregate market value of Shares.
Notwithstanding the foregoing, the Trustee shall not be entitled to
request any such registration at any time within the six month
period after the effective date of any registration statement filed
pursuant to Section 4.1 or 4.2 hereof, unless there shall have
occurred a "Change of Control" (as defined in the Trust Agreement)
or there shall then exist an event of default under Section 1(j) of
the Trust Agreement. If requested by the Company or the Trustee,
such public offering will be managed by one or more nationally
recognized investment banking firms reasonably acceptable to the
Company and the Trustee. Unless a "Change of Control" of the
Company (as defined in the Trust Agreement) shall have occurred or
unless the Company is then considered to be in default of its
obligations under the Trust Agreement (as provided in Section 1(i)
of the Trust Agreement), the Company may postpone the filing of a
registration statement requested pursuant to this Section 4.1 for
a period of up to 145 days if the Company reasonably determines and
certifies to the Trustee that such a filing would (i) adversely
affect any proposed financing, acquisition, recapitalization or
other material transaction by the Company or (ii) otherwise cause
an undue hardship for the Company; provided, however, that if such
filing is delayed or is reasonably expected to be delayed for a
period of more than thirty (30) days as a result of any such event,
the Trustee may, upon written request to the Company, require that
the Company purchase from the Trust, subject to the Company having
sufficient legally available funds for such purchase and securing
any needed third party consents, the number of Shares specified in
its registration request, at a price per Share equal to the mean
between the high and low sales prices per share of the RPG Stock or
CBG Stock, as the case may be, as reported on the Composite List,
on the date of receipt of such request by the Company. The Company
may include in any registration statement filed pursuant to this
Section 4.1 shares of the RPG Stock or CBG Stock or any other class
of stock of the Company for the account of the Company or any other
stockholder of the Company; provided, however, that if, in the
reasonable good faith judgment of any managing underwriter(s) of
such public offering, the total number of shares which the Trust,
the Company and any such holder(s) intend to include in such public
offering is such as to materially and adversely affect the success
of such offering, then the number of shares to be offered for the
account of the Company and for the account of any such holder(s)
shall be reduced or limited to the extent necessary to reduce the
total number of shares included in such public offering to the
number of shares recommended by such managing underwriter(s).
4.2 INCIDENTAL REGISTRATION. If, at any time, the
-----------------------
Company shall determine to proceed with the preparation and filing
of a registration statement under the Securities Act on behalf of
the Company or any of its other security holders (other than any
registration statement pursuant to Section 4.1 or a registration
statement on Form S-8 or Form S-4 or any other comparable form that
may be adopted by the Securities and Exchange Commission) covering
a proposed public offering of any shares of RPG Stock or CBG Stock
or any other class of stock of the Company, the Company will, as
soon as practicable thereafter, give written notice of its
determination to the Trustee. Upon the written request of the
Trustee given within ten (10) days
5
<PAGE> 34
after receipt of any such notice from the Company, the Company will, except
as herein provided, include all such Shares which the Trustee requests in
such registration statement; provided, however, that (a) nothing herein
shall prevent the Company from, at any time, abandoning or delaying
any such registration, and (b) if the Company determines not to
proceed with a registration after the registration statement has
been filed with the Securities and Exchange Commission and the
Company's decision not to proceed is primarily based upon the
anticipated public offering price of the securities to be sold by
the Company, the Trustee may request that the Company complete the
registration for the benefit of the Trust; and provided, further,
that, if such registration is not completed, the Trustee may, upon
written request to the Company, require that the Company purchase
from the Trust, subject to the Company having sufficient legally
available funds for such purchase and securing any needed third
party consents, the number of Shares which the Trust has requested
be included in such registration, at a price per Share equal to the
mean between the high and low sales prices per share of the RPG
Stock or CBG Stock, as the case may be, as reported on the
Composite List, on the date such registration is abandoned. The
Company may require that the Shares requested for inclusion in a
registration statement pursuant to this Section 4.2 be included in
any underwritten public offering on the same terms and conditions
as the other securities being sold therein. If, in the reasonable
good faith judgment of the managing underwriter(s) of such public
offering, the inclusion of all of the Shares originally covered by
such request for registration would materially and adversely affect
the success of such offering, then the number of Shares to be
offered for the account of the Trust shall be reduced or limited to
the extent necessary to reduce the total number of shares included
in such public offering to the number of shares recommended by such
managing underwriter(s); provided, however, that in such event the
Trustee may, upon written request to the Company, require that the
Company purchase from the Trust, subject to the Company having
sufficient legally available funds for such purchase and securing
any needed third party consents, at a price per Share equal to the
mean between the high and low sales prices per share of the RPG
Stock or CBG Stock, as the case may be, as reported on the
Composite List, on the date of receipt of such request by the
Company.
4.3 REGISTRATION PROCEDURES. If and whenever the
-----------------------
Company is required by the provisions of Sections 4.1 or 4.2 hereof
to effect the registration of any Shares under the Securities Act,
the Company will:
(a) as promptly as practicable, prepare and file with
the Securities and Exchange Commission a registration
statement with respect to such Shares, and use reasonable best
efforts to cause such registration statement to become and
remain effective for such period as may be reasonably
necessary to effect the sale of such Shares, not to exceed six
(6) months;
(b) as promptly as practicable, prepare and file with
the Securities and Exchange Commission such amendments to such
registration statement and supplements to the prospectus
contained therein as may be necessary to keep such
registration statement effective for such period as may be
reasonably necessary to effect the sale of such Shares, not to
exceed six (6) months;
6
<PAGE> 35
(c) furnish to the Trustee and to any underwriters of
the Shares being registered such number of copies of the
registration statement, any amendment or supplement thereto,
preliminary prospectus, final prospectus and such other
documents as the Trustee and such underwriters may reasonably
request in order to facilitate the public offering of such
Shares;
(d) use reasonable efforts to register or qualify the
Shares covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as the
Trustee may reasonably request within twenty (20) days
following the original filing of such registration statement,
except that the Company shall not for any purpose be required
to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
7
<PAGE> 36
(e) notify the Trustee, promptly after it shall
receive notice thereof, of the time when such
registration statement has become effective or a
supplement to any prospectus forming a part of such
registration statement has been filed;
(f) notify the Trustee promptly of any request
by the Securities and Exchange Commission for the
amending or supplementing of such registration
statement or prospectus or for additional information;
(g) prepare and file with the Securities and
Exchange Commission, promptly upon the request of the
Trustee, any amendment or supplement to such
registration statement or prospectus which, in the
opinion of counsel for the Trustee (and concurred in
by counsel for the Company), is required under the
Securities Act or the rules and regulations thereunder
in connection with the distribution of the Shares by
the Trustee;
(h) if, at the time when a prospectus relating
to Shares is required to be delivered under the
Securities Act, any event shall have occurred as the
result of which such prospectus would include an
untrue statement of a material fact or omit to state
any material fact necessary to make the statements
therein, in the light of the circumstances in which
they were made, not misleading, promptly notify the
Trustee of such occurrence and prepare and promptly
file with the Securities and Exchange Commission any
amendment or supplement to such registration statement
or prospectus as may be necessary to correct such
statement or omission; provided that, upon receipt of
such notice, the Trustee shall forthwith discontinue
the sale of the Shares covered by such registration
statement or prospectus until receipt of such
amendment or supplement, or until it is advised in
writing by the Company that the use of the applicable
prospectus in all jurisdictions may be resumed;
(i) advise the Trustee, promptly after it shall
receive notice or obtain knowledge thereof, of the
issuance of any stop order by the Securities and
Exchange Commission suspending the effectiveness of
such registration statement or the initiation or
threatening of any proceeding for that purpose and
promptly use reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal
if such stop order should be issued;
(j) at the request of the Trustee, furnish at
the closing provided for in any underwriting
agreement: (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of
such registration, and (ii) a comfort letter, dated
such date, from the independent certified public
accountants of the Company, each addressed to the
underwriters and to the Trustee, and each in customary
form and covering such matters of the type
<PAGE> 37
customarily covered by opinions or comfort letters, as the case
may be, as the Trustee or the managing underwriter may
reasonably request;
(k) otherwise use reasonable best efforts to
comply with all applicable rules and regulations of
the Securities and Exchange Commission, and make
available to its security holders, as soon as
reasonably practicable, an earnings statement covering
a period of twelve (12) months, beginning after the
effective date of the registration statement, which
earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(l) use reasonable efforts to cause all such
Shares covered by the registration to be listed on
each securities exchange on which shares of the RPG
Stock and CBG Stock may then be listed; and
(m) make available for inspection by the
Trustee, any underwriter participating in any sale of
Shares pursuant to such registration statement and any
attorney, accountant or other professional retained by
the Trustee or any such underwriter (collectively, the
"Inspectors"), all financial and other records,
pertinent corporate documents and properties of the
Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their
due diligence responsibilities under the Securities
Act, and cause the Company's officers, directors and
employees to supply all information reasonably
requested by any Inspector in connection with such
registration statement. The Company shall not be
required to disclose Records which the Company
determines, in good faith, to be confidential and
which it notifies the Inspectors are confidential
unless the Inspectors agree in writing with the
Company that such Records shall not be disclosed by
the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a
misstatement or omission in such registration
statement or (ii) the disclosure or release of such
Records is requested or required pursuant to oral
questions, interrogatories, requests for information
or documents or a subpoena or other order from a court
of competent jurisdiction or other process; provided
that prior to any disclosure or release pursuant to
clause (ii), the Inspectors shall provide the Company
with prompt notice of any such request or requirement
so that the Company may seek an appropriate protective
order or waive such Inspectors' obligation not to
disclose such Records; and, provided further, that if
-------- -------
failing the entry of a protective order or the waiver
by the Company permitting the disclosure or release of
such Records, the Inspectors, upon advice of counsel,
are legally compelled to disclose such Records, the
Inspectors may disclose that portion of the Records
which counsel has advised the Inspectors that the
Inspectors are legally compelled to disclose. The
Trustee agrees that information obtained by the
Trustee solely as a result of such inspections (not
including any information obtained from a third party
who, insofar as is known to the Trustee after
reasonable inquiry, is not prohibited from providing
such information by a
- 2 -
<PAGE> 38
contractual, legal or fiduciary obligation to the Company) shall be
deemed confidential and shall not be used by it as the basis
for any market transaction in the securities of the
Company or otherwise used to the competitive
disadvantage of the Company unless and until such
information is made generally available to the public.
The Trustee further agrees that it will, upon learning
that disclosure of such Records is sought in a court
of competent jurisdiction, give notice to the Company
and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of the
Records deemed confidential.
4.4 EXPENSES. With respect to any registration
--------
requested pursuant to Section 4.1 and with respect to each
inclusion of Shares in a registration statement pursuant to
Section 4.2, the Company shall bear the following fees,
costs and expenses: all registration, filing and NASD
fees, listing fees and expenses, printing expenses, fees
and disbursements of counsel and accountants for the
Company, the Company's internal expenses, the premiums and
other costs of policies of insurance against liability
arising out of the public offering, if the Company so
desires such insurance, and the legal fees and
disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or
qualified. Underwriting fees, discounts and commissions
and transfer taxes with respect to any sale of Shares by
the Trust shall be paid out of the proceeds of such sale.
4.5 INDEMNIFICATION. In the event that any
---------------
Shares are included in a registration statement under
Sections 4.1 or 4.2:
(a) the Company will indemnify and hold harmless
the Trust, the Trustee, its officers, directors and
agents and each person, if any, who controls the
Trustee (within the meaning of Section 15 of the
Securities Act) and any underwriter for the Trust, to
the full extent permitted by law, from and against any
and all loss, damage, liability, cost and expense to
which any such indemnified person may become subject
under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are
caused by any untrue statement or alleged untrue
statement of any material fact contained in such
registration statement, any prospectus or any
preliminary prospectus contained therein or any
amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein,
in light of the circumstances in which they were made,
not misleading, except insofar as any such loss,
damage, liability, cost or expense arises out of or is
based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in
conformity with information furnished in writing by or
on behalf of any underwriter for the Trust; provided,
however, that the Company shall not be liable to any
such indemnified person to the extent that any such
loss, damage, liability, cost or expense arises out of
- 3 -
<PAGE> 39
or is based upon an untrue statement or omission made
in any preliminary prospectus if (i) such indemnified
person failed to send or deliver a copy of the final
prospectus with or prior to the delivery of written
confirmation of the sale by such indemnified person of
Shares to the person asserting the claim from which
such loss, damage, liability, cost or expense arises
and (ii) the final prospectus would have corrected
such untrue statement or such omission; and provided
further, that the Company shall not be liable in any
such case to the extent that any such loss, damage,
liability, cost or expense arises out of or is based
upon an untrue statement or omission in any prospectus
if (x) such untrue statement or omission is corrected
in an amendment or supplement to such prospectus, and
(y) having previously been furnished by or on behalf
of the Company with copies of such prospectus as so
amended or supplemented, such indemnified person
thereafter fails to deliver such prospectus as so
amended or supplemented prior to or concurrently with
the sale of Shares to the person asserting the claim
from which such loss, damage, liability, cost or
expense arises.
(b) The Trustee will cause any underwriter for
the Trust to agree in writing with the Company to
indemnify and hold harmless the Company, its officers,
directors and agents, each person, if any, who
controls the Company (within the meaning of Section 15
of the Securities Act), from and against any and all
loss, damage, liability, cost or expense to which the
Company or any such other indemnified person may
become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such
registration statement, any prospectus or any
preliminary prospectus contained therein or any
amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein,
in light of the circumstances in which they were made,
not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was
so made in reliance upon and in conformity with
information furnished in writing by or on behalf of
such underwriter.
(c) Promptly after receipt by an indemnified
party pursuant to the provisions of paragraph (a) or
(b) of this section of notice of the commencement of
any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party
will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said
paragraph (a) or (b), promptly notify the indemnifying
party of the commencement thereof; but the omission to
so notify the indemnifying party will not relieve it
from any liability which it may have to any
indemnified party otherwise than hereunder. In case
such action is brought against any indemnified party
and it notifies the indemnifying party of the
commencement
- 4 -
<PAGE> 40
thereof, the indemnifying party shall have the right to participate
in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, if the
defendants in any action include both the indemnified
party or parties and the indemnifying party and, in
the reasonable judgment of the indemnifying party and
the indemnified party or parties, there is a conflict
of interest between them which would prevent counsel
for the indemnifying party from also representing the
indemnified party or parties, the indemnified party or
parties shall have the right to select separate
counsel to participate in the defense of such action
on behalf of such indemnified party or parties at the
expense of the indemnifying party. It is understood
that the indemnifying party shall not be liable for
reasonable fees and expenses of more than one such
separate counsel. After notice from the indemnifying
party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party
will not be liable to such indemnified party pursuant
to the provisions of said paragraph (a) or (b) for any
legal or other expense subsequently incurred by such
indemnified party in connection with the defense
thereof other than reasonable costs of investigation,
unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the
preceding sentence, (ii) the indemnifying party shall
not have employed counsel satisfactory to the
indemnified party to represent the indemnified party
within a reasonable time after the notice of the
commencement of the action, or (iii) the indemnifying
party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying
party. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its
consent, but if settled with such consent, or if there
be a final judgment for the plaintiff, the
indemnifying party shall indemnify and hold harmless
such indemnified parties from and against any loss or
liability (to the extent stated above) by reason of
such settlement or judgment. No indemnifying party
shall, without the prior written consent of the
indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which
any indemnified party is a party and indemnity has
been sought hereunder by such indemnified party,
unless such settlement includes an unconditional
release of such indemnified party from all liability
arising out of such proceeding.
(d) In order to provide for contribution in
circumstances in which the indemnification provided
for in paragraph (a) or (b) of this Section 4.5 is for
any reason (other than by reason of the provisions of
such paragraph (a) or (b)) held to be unavailable from
either the Company or any underwriter for the Trust,
the Trustee will cause any underwriter for the Trust
to agree in writing with the Company that the Company
and such underwriter shall each contribute to the
aggregate losses, claims, damages and liabilities of
the nature contemplated by such indemnification
provisions (including any investigation, legal and
other expenses incurred in connection with, or any
amount paid in
- 5 -
<PAGE> 41
settlement of, any action, suit or proceeding or any claims asserted
therein); provided, however, that no party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to
contribution from any party who was not guilty of such
fraudulent misrepresentation. In determining the
amount of contribution to which the respective parties
are entitled, there shall be considered the relative
benefits received by each party from the sale of
shares of the Company's stock in such offering, the
parties' relative knowledge and access to information
concerning the matter with respect to which the claim
was asserted, the opportunity to correct and prevent
any statement or omission, and any other equitable
considerations appropriate under the circumstances.
No party shall be liable for contribution with respect
to any action or claim settled without its consent.
ARTICLE V
MISCELLANEOUS
-------------
5.1 BINDING EFFECT. This Agreement shall be binding upon
--------------
and inure to the benefit of and be enforceable against the
parties hereto and their respective successors.
5.2 GOVERNING LAW. This Agreement shall in all respects
-------------
be governed by, and enforced and interpreted in accordance
with, the substantive laws of the State of Missouri, as
applied to contracts made and performed within the State of
Missouri without regard to principles of conflicts of law.
5.3 NOTICES. All notices, consents, requests,
-------
instructions or other communications provided for herein
shall be in writing and shall be delivered personally or
sent by certified or registered mail, postage prepaid, or
delivered by a reputable overnight courier service with
charges prepaid, or transmitted by telegram or facsimile,
and addressed as follows:
If to the Company: Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Attention: Secretary
Telephone: (314) 982-1000
FAX (314) 982-1288
If to the Trustee: Wachovia Bank of North
Carolina, N.A.
Employee Benefit Trust Service
301 North Main Street
Winston-Salem, NC 27150-3099
Attention: John Smith
Telephone: (910) 770-6984
- 6 -
<PAGE> 42
FAX: (910) 770-4059
Either party may change the address to which notices are to
be addressed by giving the other party notice in the manner
herein set forth. Notice shall be deemed given (i) on the
date of delivery or transmission if personally delivered or
transmitted by telegram or facsimile, (ii) on the next
business day following delivery to a reputable overnight
courier and (iii) on the third business day following the
date mailed.
5.4 AMENDMENTS; COUNTERPARTS. This Agreement may be
------------------------
amended or modified only by written instrument signed by
the Company and the Trustee. This Agreement may be
executed in counterparts, each of which shall be deemed an
original and all of which, taken together, shall constitute
one agreement.
5.5 HEADINGS. Section and Article headings used in
--------
this Agreement have no legal significance and are used
solely for convenience of reference.
IN WITNESS WHEREOF, the Company and the Trustee have
executed this Agreement as of the date set forth in the
first paragraph.
RALSTON PURINA COMPANY
By
--------------------------------
Its
--------------------------------
WACHOVIA BANK OF NORTH
CAROLINA, N.A., TRUSTEE
By
--------------------------------
Its
--------------------------------
- 7 -
<PAGE> 1
Exhibit xv
LEVERAGED INCENTIVE PLAN SPECIFICATIONS
PLAN CONCEPT
To provide an intermediate-term cash incentive award for a select
group of key executives whose actions can positively impact
shareholder value.
ELIGIBILITY
Eligibility for this plan has been limited to certain key
executives nominated by the Chief Executive Officer and approved by
the Human Resources Committee of the Board of Directors.
Participants must remain employed by the Company throughout the 3-
year performance period to be eligible to receive payment under the
Plan.
PERFORMANCE MEASURE
Average compound growth in Total Shareholder Return (stock price
appreciation plus dividends) will be measured over a three-year
period beginning October 1, 1994 and ending September 30, 1997.
This measurement will be made in both absolute terms and in
relation to a group of peer companies (see next page). Appropriate
adjustments will be made in the event of divestiture, acquisition,
recapitalization, or other financial restructuring of the Company.
In calculating the beginning and ending stock price under the Plan,
the average of the previous ten trading days will be used.
AWARD OPPORTUNITY
<TABLE>
A cash award will be made at the end of the three-year period based
on the following schedule:
<CAPTION>
- --------------------------------------------------------------------------------------------------------
IF RALSTON PURINA GROUP'S TOTAL THE PLAN WILL PAY THIS
SHAREHOLDER RETURN (TSR) % OF SALARY<F*>...
COMPOUND GROWTH RATE IS...
- --------------------------------------------------------------------------------------------------------
<S> <C>
20% or Higher 100%
19% 90%
18% 80%
17% 70%
16% 60%
15% 50%
14% 45%
13% 40%
12% 35%
11% 30%
10% 25%
Less Than 10% 0%
- --------------------------------------------------------------------------------------------------------
<FN>
<F*> . Defined as aggregate salary over the 3-year period.
. Amounts in between those shown above will be calculated
using straight-line interpolation
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
LEVERAGED INCENTIVE PLAN SPECIFICATIONS (CONT)
AWARD OPPORTUNITY (CONT)
If Ralston Purina Group's 3-year performance meets or exceeds the
75th percentile of its peer Competitor Group, an additional 25% of
aggregate salary will be paid. This 25% peer-group payout will be
made irrespective of the absolute level of Total Shareholder
Return.
PERFORMANCE PEER GROUP
- - S&P's Foods and Household Products Indices plus Duracell -
Archer Daniels Midland H. J. Heinz
Borden, Inc. Hershey Foods Corp.
Campbell Soup Company Kellogg Company
The Clorox Company Pet Incorporated
Colgate-Palmolive Company The Proctor & Gamble Company
ConAgra, Inc. The Quaker Oats Company
CPC International Inc. Ralston Purina Company
Duracell Sara Lee Company
General Mills Unilever United States, Inc.
Gerber Products Company Wm. Wrigley Jr. Company
. Companies must be in the sample for the entire 3 years to be counted
. Dividend reinvestment, market cap weightings, etc., calculated using
S&P methodology
. Final calculations related to the Peer Group's performance will be
overseen by Hewitt Associates or another independent consulting firm.
Form and Timing of Payment
- --------------------------
The award will be made in cash as soon as practicable after the
-------
close of the three-year performance period.
If the Ralston Purina Company should cease to be a publicly-traded
company, participant awards earned to that date would be paid as
soon as practicable thereafter on a pro-rata basis.
If, in the year of payment, a participant's compensation exceeds
the Company's $1 Million limit on deductible compensation, the
Human Resources Committee may, at its sole discretion and without
the consent of participants, defer payment or a portion thereof
until the year in which compensation would be deductible. The
Committee retains the discretion to effect deferrals in other
circumstances as it deems appropriate.
Whether deferred or paid in cash, awards will be included in annual
benefit earnings with the exception of health and welfare plans.
<PAGE> 1
Exhibit 11
<TABLE>
RALSTON PURINA GROUP
COMPUTATION OF EARNINGS PER SHARE
(in millions, except per share data)
<CAPTION>
Pro Forma
Year Year
Ended Ended
September 30, September 30,
1994 1993
---- ----
<S> <C> <C>
EARNINGS PER COMMON SHARE OUTSTANDING
Earnings before extraordinary item and
cumulative effect of accounting changes $231.1 $ 283.6
Dividend on Series A ESOP convertible
preferred stock, net of tax (18.4) (19.1)
------ ------
$212.7 $264.5
Extraordinary item (7.9) (9.9)
Cumulative effect of accounting changes (120.3)
------ -------
Net earnings $204.8 $ 134.3
====== =======
Weighted average shares - primary
earnings per share calculation 100.5 103.3
====== =======
Earnings per common share outstanding:
Earnings before extraordinary item and
cumulative effect of accounting changes $ 2.12 $ 2.56
Extraordinary Item (0.08) (0.10)
Cumulative effect of accounting changes (1.16)
------ -------
Net Earnings $ 2.04 $ 1.30
====== =======
EARNINGS PER SHARE ASSUMING FULL DILUTION
Earnings before extraordinary item and
cumulative effect of accounting changes $231.1 $ 283.6
Adjustments to earnings to reflect assumed
ESOP preferred stock conversion (4.2) (6.5)
Extraordinary item (7.9) (9.9)
Cumulative effect of accounting changes (120.3)
------ -------
Net earnings for fully diluted earnings
per share calculation $219.0 $ 146.9
====== =======
Weighted average number of shares outstanding 100.5 103.3
Convertible preferred stock 10.0 10.0
Dilutive effect of stock options 0.2 0.0
Shares issuable on conversion of debentures 0.1 0.1
Dilutive effect of deferred compensation awards 0.1 0.1
------ -------
Weighted average shares - fully diluted
earnings per share calculation 110.9 113.5
====== =======
Earnings per share assuming full dilution:
Earnings before extraordinary item and
cumulative effect of accounting changes $ 2.05 $ 2.44
Extraordinary item (0.07) (0.09)
Cumulative effect of accounting changes (1.06)
------ -------
Net earnings $ 1.98 $ 1.29
====== =======
</TABLE>
<PAGE> 2
Exhibit 11
<TABLE>
CONTINENTAL BAKING GROUP
COMPUTATION OF EARNINGS PER SHARE
(in millions, except per share data)
<CAPTION>
Pro Forma
52 Weeks 52 Weeks
Ended Ended
September 24, September 25,
1994 1993
---- ----
<S> <C> <C>
EARNINGS PER COMMON SHARE OUTSTANDING
Earnings (loss) before extraordinary item and
cumulative effect of accounting changes $(25.8) $ 31.0
Dividend on Series A ESOP convertible
preferred stock, net of tax (1.8) (1.9)
------ ------
$(27.6) $ 29.1
Extraordinary item (1.6) (1.9)
Cumulative effect of accounting changes (86.6)
------ ------
Net loss $(29.2) $(59.4)
====== ======
Weighted average number of shares outstanding 20.5 20.7
Shares issuable with respect to RPG Group's
retained interest in the CBG Group 16.8 16.9
------ ------
Weighted average shares - primary
earnings per share calculation 37.3 37.6
====== ======
Earnings per common share outstanding:
Earnings (loss) before extraordinary item and
cumulative effect of accounting changes $(0.74) $ 0.77
Extraordinary item (0.04) (0.05)
Cumulative effect of accounting changes (2.30)
------ ------
Net loss $(0.78) $(1.58)
====== =======
EARNINGS PER SHARE ASSUMING FULL DILUTION
Earnings (loss) before extraordinary item and
cumulative effect of accounting changes $(25.8) $ 31.0
Adjustments to earnings (loss) to reflect assumed
ESOP preferred stock conversion (3.1) (2.9)
Extraordinary item (1.6) (1.9)
Cumulative effect of accounting changes (86.6)
------ -------
Net loss for fully diluted
earnings per share calculation $(30.5) $(60.4)
====== ======
Weighted average number of common shares outstanding 20.5 20.7
Shares issuable with respect to RPG Group's
retained interest in the CBG Group 16.8 16.9
Convertible preferred stock 4.3 4.4
Dilutive effect of stock options 0.2
Dilutive effect of deferred compensation awards
------ ------
Weighted average shares - fully diluted
earnings per share calculation 41.6 42.2
====== ======
Earnings per share assuming full dilution:
Earnings (loss) before extraordinary item and
cumulative effect of accounting changes $(0.69) $ 0.67
Extraordinary item (0.04) (0.05)
Cumulative effect of accounting changes (2.05)
------ -------
Net loss $(0.73)<F*> $(1.43)
====== ======
<FN>
<F*> Due to anti-dilution as computed above for the 52 weeks ended September 24, 1994, fully diluted earnings per share
as reported on the statement of earnings is revised to exclude anti-dilutive securities from the computation.
</TABLE>
<PAGE> 3
Exhibit 11
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in millions, except per share data)
<CAPTION>
10 Months
Ended
July 30,
1993
----
<S> <C>
EARNINGS PER COMMON SHARE OUTSTANDING
Earnings before extraordinary item and
cumulative effect of accounting changes $ 292.2
Dividend on Series A ESOP convertible
preferred stock, net of tax (17.5)
------
$ 274.7
Extraordinary item (6.8)
Cumulative effect of accounting changes (206.9)
-------
Net earnings $ 61.0
=======
Weighted average shares - primary
earnings per share calculation 103.6
=======
Earnings per common share outstanding:
Earnings before extraordinary item and
cumulative effect of accounting changes $ 2.65
Extraordinary item (0.06)
Cumulative effect of accounting changes (2.00)
-------
Net earnings $ 0.59
=======
EARNINGS PER SHARE ASSUMING FULL DILUTION
Earnings before extraordinary item and
cumulative effect of accounting changes $ 292.2
Adjustments to earnings to reflect assumed
ESOP preferred stock conversion (7.0)
Extraordinary item (6.8)
Cumulative effect of accounting changes (206.9)
-------
Net earnings for fully diluted earnings
per share calculation $ 71.5
=======
Weighted average number of common shares outstanding 103.6
Convertible preferred stock 10.3
Dilutive effect of stock options 0.2
Shares issuable on conversion of debentures
Dilutive effect of deferred compensation awards 0.1
-------
Weighted average shares - fully diluted
earnings per share calculation 114.2
=======
Earnings per share assuming full dilution:
Earnings before extraordinary item and
cumulative effect of accounting changes $ 2.50
Extraordinary item (0.06)
Cumulative effect of accounting changes (1.81)
-------
Net earnings $ 0.63
=======
</TABLE>
<PAGE> 1
Exhibit 13
RALSTON PURINA COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
Holders of Ralston-Ralston Purina Group Common Stock (RPG Stock) and
Ralston-Continental Baking Group Common Stock (CBG Stock) are common
shareholders of the Ralston Purina Company (Company). Although the
financial statements of the Ralston Purina Group (RPG Group) and the
Continental Baking Group (CBG Group) separately report the assets,
liabilities and shareholders equity of the Company attributed to each
group, this attribution does not affect legal title to such assets or
responsibility for such liabilities. Financial impacts arising from the
RPG Group or the CBG Group that affect the consolidated results of
operations or financial position of the Company could affect the
results of operations or financial position of both groups.
Accordingly, the Company's Consolidated Financial Statements and
Financial Review should be read in conjunction with the Combined
Financial Statements and Financial Review sections of the Ralston
Purina Group and the Continental Baking Group.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Ralston Purina Group
Five Year Summary.................................................................................................. 14
Financial Review................................................................................................... 15
Business Segment Information....................................................................................... 21
Responsibility for Financial Statements............................................................................ 24
Report of Independent Accountants.................................................................................. 24
Combined Statement of Earnings..................................................................................... 25
Combined Balance Sheet............................................................................................. 26
Combined Statement of Cash Flows................................................................................... 27
Notes to Financial Statements...................................................................................... 28
Quarterly Financial Information.................................................................................... 46
Continental Baking Group
Five Year Summary.................................................................................................. 50
Financial Review................................................................................................... 51
Responsibility for Financial Statements............................................................................ 54
Report of Independent Accountants.................................................................................. 54
Combined Statement of Earnings..................................................................................... 55
Combined Balance Sheet............................................................................................. 56
Combined Statement of Cash Flows................................................................................... 57
Notes to Financial Statements...................................................................................... 58
Quarterly Financial Information.................................................................................... 74
Ralston Purina Company
Five Year Summary.................................................................................................. 75
Financial Review................................................................................................... 77
Business Segment Information....................................................................................... 85
Responsibility for Financial Statements............................................................................ 88
Report of Independent Accountants.................................................................................. 88
Consolidated Statement of Earnings................................................................................. 89
Consolidated Balance Sheet......................................................................................... 91
Consolidated Statement of Cash Flows............................................................................... 92
Consolidated Statement of Shareholders Equity...................................................................... 93
Notes to Financial Statements...................................................................................... 95
Quarterly Financial Information.................................................................................... 112
</TABLE>
13
<PAGE> 2
<TABLE>
RALSTON PURINA GROUP
Five Year Financial Summary
<CAPTION>
(In millions except per share and percentage data)
For the year ended September 30,
-------------------------------------------------------------------
STATEMENT OF EARNINGS DATA 1994<Fa> 1993 1992 1991 1990
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales............................................ $5,759.3 $5,915.4 $5,748.3 $5,424.8 $5,152.3
Depreciation and Amortization........................ 232.9 236.5 223.3 193.0 172.1
Earnings (Loss) Related to Retained Interest in the
CBG Group........................................... (13.1) (26.7) 20.8 27.9 31.0
Earnings before Income Taxes, Interest Expense,
Extraordinary Item and Cumulative Effect of
Accounting Changes.................................. 642.2 712.2 690.8 745.4 741.6
As a Percent of Sales.............................. 11.2% 12.0% 12.0% 13.7% 14.4%
Earnings before Income Taxes, Extraordinary Item and
Cumulative Effect of Accounting Changes............. $ 451.3 $ 501.5 $ 478.7 $ 566.7 $ 565.3
Income Taxes......................................... 220.2 217.9 186.5 210.7 208.9
Earnings before Extraordinary Item and Cumulative
Effect of Accounting Changes<Fb>.................... 231.1 283.6 292.2 356.0 356.4
As a Percent of Sales.............................. 4.0% 4.8% 5.1% 6.6% 6.9%
Net Earnings<Fc>..................................... $ 223.2 $ 153.4 $ 285.8 $ 356.0 $ 356.4
Earnings after Preferred Stock Dividend.............. 204.8 134.3 266.7 337.2 337.8
<CAPTION>
As of September 30,
----------------------------------------------------------------------------
BALANCE SHEET DATA 1994(a) 1993 1992 1991 1990
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital...................................... $ 142.4 $ 251.5 $ 113.8 $ 519.9 $ 317.0
Property at Cost, Net................................ 1,300.4 1,742.7 1,733.4 1,613.5 1,477.3
Additions (during the year)........................ 242.5 230.7 253.3 322.2 259.1
Depreciation (during the year)..................... 189.5 191.7 186.9 156.4 142.2
Total Assets......................................... 3,791.0 4,293.9 4,422.1 3,914.1 3,707.5
Long-Term Debt....................................... 1,251.6 1,731.6 1,752.6 1,685.8 1,574.4
Redeemable Preferred Stock........................... 427.4 463.9 463.9 462.6 457.7
RPG Group Equity..................................... 340.1 436.4 584.3 693.8 511.7
Per Share.......................................... 3.40<Fd> 4.29
Common RPG Stock Outstanding......................... 100.0<Fd> 101.8
- ------------------------------------------------------------------------
<CAPTION>
SHARE AND PER SHARE DATA
RPG Stock (Pro forma in 1993 and 1992 assuming
two classes of common stock): For the year ended
Earnings before Extraordinary Item and Cumulative September 30,
-----------------------------------------------
Effect of Accounting Changes 1994 1993<Fe> 1992
---- -------- ----
<S> <C> <C> <C>
Primary.......................................... $ 2.12 $ 2.56 $ 2.57
Fully Diluted.................................... 2.05 2.44 2.44
Net Earnings
Primary.......................................... 2.04 1.30 2.51
Fully Diluted.................................... 1.98 1.29 2.39
Dividends Declared on RPG Stock...................... 1.20 .60<Ff>
Average Shares Outstanding-RPG Stock............... 100.5 103.3 106.3
<FN>
- -----
<Fa> On March 31, 1994, the Company effected a spin-off of Ralcorp
Holdings, Inc., its private label and branded cereal, baby food,
crackers and cookie, ski resort and coupon redemption businesses.
The RPG Group's earnings and cash flows reflect the operations of
those businesses through March 31, 1994. Pro forma results of
operations of the RPG Group without the Ralcorp businesses appear
on page 32.
<Fb> Before extraordinary charges for early retirement of debt of $7.9
for 1994, $9.9 for 1993 and $6.4 for 1992. Also, before charges for
the cumulative effect of accounting changes of $159.2 (which
includes $38.9 related to the RPG Group's retained interest in the
CBG Group) in 1993.
<Fc> After tax provisions reduced earnings by $72.8 in 1994, $24.5 in
1992, $18.0 in 1991 and $12.9 in 1990. Provisions were for
restructuring in all years and also included gains on disposition
of property in 1992, environmental costs in 1991 and settlement of
litigation in 1990. Also, the incremental impact of adopting FAS
106 and FAS 109 resulted in a reduction of net earnings of $15.1 in
1993.
<Fd> Does not reflect 4.0 shares held by the Company's Grantor Trust.
<Fe> Earnings before extraordinary item per share of RPG Stock for the
two months ended September 30, 1993 were $.40 and $.38 on a primary
and fully diluted basis, respectively. Net earnings per share for
the same period were $.36 and $.34.
<Ff> Represents dividends declared on redesignated RPG Stock from July
30, 1993 through September 30, 1993.
</TABLE>
14
<PAGE> 3
RALSTON PURINA GROUP
FINANCIAL REVIEW
Effective July 30, 1993, the Company has two classes of common stock,
RPG Stock and CBG Stock. RPG Stock is intended to reflect the
performance of the RPG Group which consists of the Company's non-bakery
businesses.
The following discussion is a summary of the key factors management
considers necessary in reviewing the RPG Group's results of operations,
liquidity, capital resources, and operating segment results. This
discussion should be read in conjunction with the Business Segment
Information and the Combined Financial Statements of the RPG Group and
related notes.
Highlights and Outlook
Net earnings for the RPG Group were $223.2 million for the year
compared to $153.4 million in 1993. Included in net earnings in 1994
are extraordinary losses on early retirement of debt of $7.9 million,
after taxes, restructuring charges primarily in the Battery Products
segment of $72.8 million, after taxes, and earnings related to spun-off
businesses of $37.5 million. Included in net earnings in 1993 are
extraordinary losses on early retirement of debt of $9.9 million, after
taxes, a charge for the cumulative effect of accounting change related
to postretirement benefits other than pensions of $130.7 million, after
taxes, a credit for the cumulative effect of accounting change related
to income taxes of $10.4 million, a decrease of $38.9 million in the
RPG Group's earnings related to its retained interest in the CBG Group
due to the CBG Group's accounting changes, and earnings related to
spun-off businesses of $45.2 million. Excluding the effect of items
previously discussed, net earnings decreased $10.9 million in 1994 on
lower earnings related to the retained interest in the CBG Group and
lower returns on other investments, partially offset by improved
operating results and lower interest expense.
Earnings per share, exclusive of the aforementioned items were $2.48
and $2.37 on a primary and fully diluted basis, respectively, for 1994
compared to pro forma primary and fully diluted earnings per share,
exclusive of the aforementioned items, of $2.50 and $2.38. Earnings per
share comparisons benefited from fewer outstanding shares in 1994,
reflecting stock repurchases.
In 1993, net earnings decreased $132.4 million, primarily on
accounting changes. In 1992, the RPG Group recognized an extraordinary
loss on early retirement of debt of $6.4 million, after taxes, and
provisions for restructuring of international battery manufacturing and
agricultural operations, offset by a gain on sale of assets, of $24.5
million, after taxes. Earnings in 1992 also included $30.3 million
related to spun-off businesses. Excluding the effect of the
aforementioned items in 1993 and 1992, net earnings decreased in 1993
by $9.1 million as improved results in the Battery Products segment
were more than offset by higher expense related to accounting changes
of $15.1 million, after taxes, and lower earnings related to the
retained interest in the CBG Group of $8.6 million.
The fourth quarter of 1994 reflected a net loss of $26.5 million
compared to net earnings of $54.3 million in the 1993 fourth quarter.
Exclusive of restructuring provisions in the current year fourth
quarter, and an extraordinary loss of $4.2 million, after taxes, and
results of spun-off operations of $6.3 million in 1993, earnings
declined $5.9 million primarily on lower earnings related to the
retained interest in the CBG Group and lower operating results
partially offset by lower net interest expense.
Operating Results
On March 31, 1994, the Company effected a spin-off of its private
label and branded cereal, baby food, crackers and cookies, ski resort
and coupon redemption businesses (Ralcorp). The RPG Group's earnings
and cash flows reflect the operations of those businesses through March
31, 1994.
Included in the period under review are the following acquisitions
that affect comparability of operating results for the periods.
Fiscal 1993-The Company acquired ski and real estate assets in the
resort of Breckenridge, Colorado (which were spun-off on
March 31, 1994) and the assets of a nickel-based
rechargeable battery business, which have been attributed
to the RPG Group.
Fiscal 1992-The Company acquired two battery products businesses,
operating primarily in the United Kingdom, Spain and
Portugal, which have been attributed to the RPG Group.
Net Sales
Net sales decreased $156.1 million or 2.6% in 1994 on the exclusion
of sales of spun-off businesses after March 31, 1994, partially offset
by increases in battery products and pet foods. In 1993, net sales
increased $167.1 million or 2.9%,
15
<PAGE> 4
RALSTON PURINA GROUP
FINANCIAL REVIEW (Continued)
primarily due to inclusion for the full year of battery operations acquired
in 1992 and alkaline battery volume growth, offset by declines in the Pet
and Human Foods segment. Comments on sales changes by business segment may
be found in the Business Segment section of this financial review.
Gross Profit
Gross profit of the RPG Group decreased 4% in 1994 on the exclusion
of spun-off operations. Excluding such operations, gross profit
increased 3% on increases in all other segments. In 1993, gross profit
increased 3%. Gross profit as a percentage of sales was 42.7% in 1994
compared to 43.3% in 1993 and 1992. Sales growth in the Battery
Products segment, which has generally lower margin percentages,
unfavorably impacted the Group's gross profit percentages in both 1994
and 1993. In addition, gross profit percentages in the Pet and Human
Foods segment were lower in 1994. In 1993, improved margin percentages
in Battery Products were offset by declines in Pet and Human Foods.
Cost of products sold in the Pet and Human Foods, Agricultural
Products and Soy Protein Products and Other segments are somewhat
dependent on commodity market prices. Prices may fluctuate due to
weather conditions, government regulations, economic climate or other
unforeseen circumstances. The Company manages exposure to changes in
the commodities markets as considered necessary by hedging certain of
its ingredient requirements such as soybean meal, corn or wheat.
Commodity costs have represented 30 to 35% of cost of products sold
during the three year period ended September 30, 1994. The Company used
futures contracts to hedge approximately 15 to 20% of such commodity
purchases or 5 to 7% of cost of products sold during that period. As of
September 30, 1994, the Company owned futures contracts, attributed to
the RPG Group, with an aggregate value of approximately $60 million.
Operating Expenses
Selling, general and administrative expenses decreased 4% in 1994 on
the exclusion of spun-off businesses. Excluding the effect of spun-off
businesses, selling general and administrative costs increased only 1%
while sales increased 4%. In 1993, selling, general and administrative
costs increased 8% on the reclassification of certain costs related to
postretirement benefits other than pensions previously classified as
interest expense and the inclusion of acquired operations.
Interest Expense and Other Income/Expense
Interest expense decreased in 1994 to $190.9 million compared to
$210.7 million in 1993 and $212.1 million in 1992. The decrease in 1994
reflects the reduction of debt due to the spin-off of Ralcorp. The
decrease in 1993 occurred as expense of higher average borrowings was
more than offset by a change in the classification of certain costs
related to postretirement benefits other than pensions in 1993. These
costs are reflected as interest in 1992 and as cost of products sold
and selling, general and administrative expenses in 1994 and 1993. In
1994, other income/expense, net, increased $9.0 million on lower
returns on other investments, partially offset by lower translation and
exchange losses. In 1993, translation and exchange losses increased
$8.0 million while investment and miscellaneous income decreased $8.2
million.
Earnings (Loss) Related to Retained Interest in the CBG Group
The RPG Group recognized a loss related to its retained interest in
the CBG Group of $13.1 million in 1994 compared to $26.7 million in
1993 and earnings of $20.8 million in 1992. The 1993 loss includes
$38.9 million related to accounting changes of the CBG Group. Excluding
such accounting changes, the retained interest earnings declined by
$25.3 million in 1994 and $8.6 million in 1993. Lower results reflect
continuing volume declines and unfavorable product mix in bread
products and lower thrift store volume in the CBG Group in both years
and, in the current year, higher ingredient, production and
distribution costs.
Income Taxes
Income taxes, which include federal, state and foreign taxes, were
48.8% of pre-tax earnings before extraordinary item and cumulative
effect of accounting changes in 1994, 43.4% in 1993 and 39.0% in 1992.
The increased percentage in 1994 reflects pre-tax losses which did not
result in tax benefits due to tax loss situations or particular
statutes of a country. The provision for income taxes in 1993 was $7.6
million higher than in 1992 due to the change in the method of
accounting for income taxes. Income taxes in 1993 also increased $4.3
million as a result of a change to the federal tax rate.
16
<PAGE> 5
RALSTON PURINA GROUP
FINANCIAL REVIEW (Continued)
In addition to the aforementioned factors, income tax percentages are
influenced by the inclusion of the RPG Group's earnings (loss) related
to its retained interest in the CBG Group, on an after tax basis, in
the computation of pre-tax earnings. The income tax percentages in 1994
and 1993 are increased due to the inclusion of a loss related to the
retained interest and the percentage is decreased in 1992 due to the
inclusion of earnings related to the retained interest.
Liquidity and Capital Resources
For the year ended September 30, 1994, cash flow from operations was
$428.3 million compared to $554.0 million and $458.4 million for fiscal
years 1993 and 1992, respectively. The 1994 decrease in cash flow from
operations resulted primarily from an increase in accounts receivable
and changes in other working capital items. Working capital was $142.4
million at September 30, 1994 compared to $251.5 million and $113.8
million at September 30, 1993 and 1992, respectively. The decrease in
working capital in 1994 is due to higher current maturities of long-
term debt and short-term debt, partially offset by higher current
assets and lower accounts payable and accrued liabilities. The increase
in 1993 is primarily due to lower short-term borrowings and a decrease
in accounts payable and accrued liabilities.
Capital expenditures were $242.5 million, $230.7 million and $253.3
million in fiscal years 1994, 1993 and 1992, respectively. Projected
capital expenditures of $270 million in 1995 are expected to be
financed with funds generated from operations.
The acquisition of European battery operations in 1992 for
approximately $315 million represented significant investments.
The Company manages most financial activities of the groups on a
centralized, consolidated basis. The liquidity and capital resources of
the Company provide financial and operating flexibility to each group.
After redesignation of the Company's common stock to RPG Stock on July
30, 1993, equity transactions are imputed based on specific
identification of treasury stock purchases, dividends and other equity
transactions to each class of stock and group financial statements.
During 1994, the Company purchased $100.9 million of RPG Stock and paid
dividends of $120.4 million on RPG Stock. Financing activities for 1993
included RPG Group contributions to corporate equity transactions of
$131.3 million for the period prior to the redesignation and purchases
of and dividend payments on RPG Stock of $59.5 million and $30.9
million, respectively, after July 30, 1993. Prior to the redesignation,
each group was attributed corporate equity transactions. The RPG
Group's contribution to corporate equity transactions in 1992 was
$428.4 million. As of November 21, 1994, 1,883,900 shares remained
under the Board of Directors' authorization for the purchase of up to 3
million shares of RPG Stock.
The RPG Group's portion of centrally managed debt decreased $325.5
million in 1994 while specifically attributed long and short-term debt,
primarily foreign borrowings, increased $100.3 million. Centrally
managed debt decreased $219.6 million and increased $298.8 million in
1993 and 1992, respectively. Specifically attributed debt increased
$225.8 million and $156.6 million in 1993 and 1992, respectively.
Coincident with the spin-off of Ralcorp on March 31, 1994, the
Company redeemed 334,109 shares of its Series A 6.75% Preferred Stock
at its guaranteed minimum value. The shares were redeemed by the
Company in connection with the cessation of participation in the
Company's Savings Investment Plan by plan participants employed by
Ralcorp following the spin-off. Issued in connection with the
redemption were 789,417 shares of RPG Stock.
Environmental Matters
The operations of the Company, like those of other companies engaged
in similar businesses, are subject to various federal, state, and local
laws and regulations intended to protect the public health and the
environment, including air and water quality, underground fuel storage
tanks, and waste handling and disposal. The Company has received
notices from the U.S. Environmental Protection Agency, state agencies,
and/or private parties seeking contribution, that it has been
identified as a "potentially responsible party" (PRP), under the
Comprehensive Environmental Response, Compensation and Liability Act,
and may be required to share in the cost of cleanup with respect to
approximately 16 "Superfund" sites. The Company's ultimate liability in
connection with those sites may depend on many factors, including the
volume of material contributed to the site, the number of other PRP's
and their financial viability, and the remediation methods and
technology to be used. While it is difficult to quantify the potential
financial impact of actions involving environmental matters,
17
<PAGE> 6
RALSTON PURINA GROUP
FINANCIAL REVIEW (Continued)
particularly remediation costs at waste disposal sites and future
capital expenditures for environmental control equipment, in the
opinion of management, the ultimate liability arising from such
environmental matters, taking into account established accruals for
estimated liabilities, should not be material to the financial position
of the RPG Group, but could be material to results of operations or
cash flows for a particular quarter or annual period.
Inflation
Management recognizes that inflationary pressures may have an adverse
effect on the Company through higher asset replacement costs and
related depreciation and higher material costs. The RPG Group tries to
minimize these effects through cost reductions and productivity
improvements as well as price increases to maintain reasonable profit
margins. It is management's view, however, that inflation has not had a
significant impact on operations in the three years ended September 30,
1994.
Foreign Exchange
The RPG Group is engaged in the manufacture and sale of products in
over 160 countries on a global basis. The Company enters into foreign
exchange forward contracts and options to mitigate the RPG Group's
economic exposure to changes in exchange rates. These exposures arise
from three major areas: (a) non-U.S. dollar cash flows to the U.S. from
foreign subsidiaries expected within a year or less, (b) cash flows to
a foreign country in a currency other than the subsidiary's functional
currency, and (c) future cash flows at the operating margin level.
Contracts are entered into to offset exposures on a net basis. The
level of such actions is dependent on seasonality of the RPG Group's
activities and on specific market conditions involving various
currencies. See Commitments and Contingencies note to financial
statements for additional information about foreign currency contracts.
<TABLE>
The RPG Group's investments in foreign subsidiaries with a functional
currency other than the U.S. dollar are generally considered long-term.
As a result, the Company does not generally hedge these net
investments. Capital structuring techniques are used to manage net
investment in foreign currencies as considered necessary. Additionally,
the RPG Group attempts to limit its U.S. dollar net monetary
liabilities in currencies of hyperinflationary countries primarily in
South and Central America. Net foreign investments as of September 30,
1994 were:
<CAPTION>
Net
Region Investment
------ ----------
<S> <C>
Europe...................................................................................... $528
Asia Pacific................................................................................ 123
Central and South America................................................................... 124
Other....................................................................................... 21
----
$796
====
</TABLE>
Restructuring Activities
In the fourth quarter of 1994, the RPG Group recorded provisions for
restructuring of its world-wide carbon zinc battery production capacity
and certain administrative functions. Such provisions, together with
additional provisions for previously recorded restructurings, totaled
$83.9 million. Of the total pre-tax charge for restructuring, cash cost
includes termination benefits of $26.2 million, payment of guaranteed
debt of $4.3 million and other exit costs of $7.0 million. Non-cash
charges of $46.4 million primarily relate to anticipated losses on
disposal of land, buildings and machinery and equipment. As of
September 30, 1994, no material actions contemplated in the
restructuring plan have taken place.
Restructuring actions will result in the closing of seven plants and
severance of approximately 1,700 employees. Such actions are expected
to be substantially completed by 1995 for five plants and 1996 for the
remaining two plants. Additional charges associated with these plant
closings of $40 to $50 million, pre-tax, are expected in future
periods. Two additional plant closings are planned for 1997 with
expected charges of $25 to $40 million, pre-tax. The Company expects to
fund the costs of the plan from internal sources and available
borrowing capacity.
As a result of the restructuring actions to be taken in 1995 and
1996, the Company expects lower pre-tax operating costs in 1995 of
approximately $10 million, increasing to $34 million on an annualized
basis by 1997. Savings from the planned actions will be used for profit
improvement and business-building initiatives.
<TABLE>
Provisions for restructuring international battery and agricultural
operations in 1992 consisted of $32.4 million of severance and employee
related costs, $6.9 million of costs to hold or sell fixed assets, $3.7
million of other cash costs and
18
<PAGE> 7
RALSTON PURINA GROUP
FINANCIAL REVIEW (Continued)
$22.3 million of fixed asset writedown on expected disposition losses. The
following summarizes activities related to such reserves:
<CAPTION>
(in millions)
<S> <C>
1992 restructuring provision................................................................ $ 65.3
Cash exit costs incurred thru 9/30/94....................................................... (32.2)
Losses on disposal of fixed assets thru 9/30/94............................................. (.1)
Reduction due to translation................................................................ (8.7)
Net provision increases in 1994............................................................. 7.9
-----
Remaining reserve balance at 9/30/94........................................................ $32.2
=====
</TABLE>
Activities related to the 1992 restructuring provisions are expected
to be completed in 1995.
<TABLE>
As a result of the restructuring actions covered by the 1992
provision, pre-tax cost savings have been or are expected to be as
follows:
<CAPTION>
(in millions)
Ultimate Annual
1993 1994 Reduction
---- ---- ---------------
<S> <C> <C> <C>
International battery products.................................................. $2 $16 $30
International agricultural products............................................. 8 11 13
</TABLE>
Business Segment Information
Summarized financial information on a worldwide basis by business
segments for the three years ended September 30, 1994 is set forth
below. During these years the segments comprised the following:
Pet and Human Foods
Pet foods
Cereals-domestic (Spun-off March 31, 1994)
Baby food products (Spun-off March 31, 1994)
Other specialty grocery products, including crackers, cookies and
snacks (Spun-off March 31, 1994)
Cereal and other-international
Battery products
Alkaline, carbon zinc, lithium and rechargeable batteries,
miniatures, flashlights and other related products
Agricultural Products-international
Animal feeds
Soy Protein Products and Other
Dietary soy protein, fiber food ingredients and polymer products
All seasons resort (Spun-off March 31, 1994)
Included in the period under review are the following items which
affect comparability of operating results for the periods.
Battery Products
Includes carbon zinc manufacturing and administrative restructuring
provisions of $80.5 million in 1994. Includes manufacturing
restructuring provisions of $53.3 million and gain on sale of assets of
$41.5 million in 1992.
Agricultural Products
Includes $12.0 million restructuring provision in 1992.
Comments, amounts and percentages in the remaining Business Segment
discussion exclude the effects of the items discussed above and spun-
off businesses.
Pet and Human Foods
Sales in the Pet and Human Foods segment increased 3.6%, on higher
domestic and international dog and cat food volume. In 1993, sales
decreased 2.0% on lower domestic dry dog food volume, partially offset
by higher international pet food volume. Domestic pet food volume in
1993 was negatively impacted by the retail trade's rationalization of
inventories.
19
<PAGE> 8
RALSTON PURINA GROUP
FINANCIAL REVIEW (Continued)
Operating profit for the Pet and Human Foods segment increased 1.6%
in 1994, as higher volume was partially offset by higher domestic
ingredient costs. Operating profit was flat in 1993 as higher
international volume was offset by lower domestic volume and an
unfavorable product mix.
Operating profit for the fourth quarter of 1994 declined as more
moderate volume increases than those experienced earlier in the year
were more than offset by higher ingredient costs and advertising and
promotion expense.
The pet foods industry is mature and non-cyclical with strong cash
flows. Competition is intense and volume growth depends on innovative
new product introductions and focused advertising and promotion
spending. Consolidation of the retail industry and growth of the mass
merchandiser segment has resulted, and will continue to result, in
significant changes in the product distribution pattern and trade
promoting and pricing practices of the RPG Group. Increased
profitability depends on developing mutually beneficial relationships
with the trade.
Battery Products
Sales for the Battery Products segment increased 7% in 1994 on the
inclusion of rechargeable operations acquired in August 1993 and higher
alkaline volume in the North America and Asia Pacific regions. In 1993,
sales increased 10% on higher international volume from European
battery operations acquired during 1992 and alkaline battery volume
growth in the North America, Asia Pacific and South America regions.
Battery Products' operating profit increased 7% in 1994 on volume
increases and acquired operations partially offset by substantial
European declines. European operations declined on unfavorable product
mix and significant declines in carbon zinc volume. European operations
were negatively impacted by the consolidation of the trade, poor
economic conditions and a strategic advertising investment to launch
the Energizer brand to supplant several existing alkaline brands.
Operating profit in 1993 increased 18% due to increased margins and
volume in domestic alkaline batteries, contribution of acquired
European operations and higher alkaline volume in the Asia Pacific and
South America region, partially offset by an unfavorable domestic
product mix.
Domestically, the battery products business continues to face intense
competition. While carbon zinc batteries dominate on a worldwide basis,
there is a rapid shift to alkaline batteries in more developed markets
such as the U.S., Canada, Europe and Japan.
In 1994 and 1992, the RPG Group adopted restructuring plans for its
world-wide battery production capacity and certain administrative
functions. The RPG Group continues to review its battery production
capacity and its business structure in light of pervasive global
trends, including the continuing shift from carbon zinc to alkaline
products and easing of trade restrictions in many regions. Future
periods will likely include further provisions for restructuring. (See
Restructuring Activities section of this financial review.)
Agricultural Products
Sales declined 1.4% on lower volume in Europe, partially offset by
increases in Asia and the Americas. Sales in the fourth quarter
increased 3.5% as European declines moderated. In 1993, sales declined
1.1% as slightly higher volume was more than offset by lower prices and
unfavorable exchange rates.
Operating profit declined 4.3% in 1994 as European declines were
partially offset by improvements in most other areas of the world.
Operating profit increased 28% in 1993, primarily on cost reductions.
The Company signed a letter of intent on November 15, 1994 to sell
the RPG Group's international agribusiness operations to PM Holdings
Corporation, the parent company of Purina Mills, Inc. The transaction
is subject to approval by the Board of Directors of both companies,
necessary government approvals and the completion of a definitive sales
agreement.
Soy Protein Products and Other
Sales for the soy protein products business increased 10% in 1994 on
strong volume in food protein products. Sales increased 1.2% in 1993 on
higher volume. Operating profit increased 8.4% in 1994 as higher volume
was partially offset by higher raw material costs and unfavorable
foreign currency exchange rates. In 1993, operating profit increased
1.8% as higher volume and favorable cost of products sold were
partially offset by selling and new product development expenses.
20
<PAGE> 9
RALSTON PURINA GROUP
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Dollars in millions 1994<Fa> 1993 1992
- ------------------- -------- ---- ----
<S> <C> <C> <C>
Sales by Product Lines and Segments
Pet and Human Foods
Pet Foods..................................................................... $1,753.0 $1,686.9 $1,733.7
Cereal and other-international................................................ 41.2 45.0 34.1
-------- -------- --------
Continuing businesses......................................................... 1,794.2 1,731.9 1,767.8
Cereal and other-domestic (spun-off March 31, 1994)........................... 420.9 805.2 784.6
-------- -------- --------
Subtotal.................................................................... 2,215.1 2,537.1 2,552.4
-------- -------- --------
Battery Products................................................................ 2,112.7 1,978.8 1,798.0
-------- -------- --------
Agricultural Products........................................................... 1,007.2 1,022.0 1,033.0
-------- -------- --------
Soy Protein Products and Other..................................................
Soy protein products.......................................................... 322.1 293.6 289.9
All seasons resort (spun-off March 31, 1994).................................. 102.2 83.9 75.0
-------- -------- --------
Subtotal.................................................................... 424.3 377.5 364.9
-------- -------- --------
Total..................................................................... $5,759.3 $5,915.4 $5,748.3
======== ======== ========
Operating Profit
Pet and Human Foods
Continuing businesses......................................................... $ 333.2 $ 327.9 <Fc> $ 327.9
Cereal and other-domestic (spun-off March 31, 1994)........................... 34.0 85.4 <Fc> 59.8
-------- -------- --------
Subtotal................................................................... 367.2 413.3 387.7
-------- -------- --------
Battery Products................................................................ 188.5<Fb> 250.9 <Fc> 200.2 <Fe>
-------- -------- --------
Agricultural Products........................................................... 46.6 48.7 <Fc> 26.0 <Ff>
-------- -------- --------
Soy Protein Products and Other
Soy protein products.......................................................... 66.9 61.7 <Fc> 60.6
All seasons resort (spun-off March 31, 1994).................................. 33.9 2.5 3.8
-------- -------- --------
Subtotal.................................................................... 100.8 64.2 64.4
-------- -------- --------
Total..................................................................... 703.1 777.1 678.3
Unallocated Corporate and Miscellaneous Expenses................................ (47.8) (38.2)<Fc> (8.3)
Interest Expense................................................................ (190.9) (210.7)<Fd> (212.1)
Earnings (loss) Related to Retained Interest in the CBG Group................... (13.1) (26.7) 20.8
-------- -------- --------
Earnings before Income Taxes, Extraordinary Item and Cumulative Effect of
Accounting Changes....................................................... $ 451.3 $ 501.5 $ 478.7
======== ======== ========
<FN>
- -----
<Fa> On March 31, 1994, the Company effected a spin-off of Ralcorp
Holdings, Inc., its private label and branded cereal, baby food,
crackers and cookies, ski resort and coupon redemption businesses.
The combined earnings and cash flows through March 31, 1994 reflect
the operations of those businesses. Pro forma results of operations
of the RPG Group without the Ralcorp businesses appear on page 32.
<Fb> Includes restructuring provisions of $80.5.
<Fc> Includes additional expense of change in accounting for
postretirement benefits other than pensions of $7.1 for Pet and
Human Foods-continuing businesses, $1.3 for cereal and other, $5.0
for Battery Products, $1.2 for Agricultural Products, $1.6 for Soy
Protein Products and Other and $9.4 for unallocated corporate
expenses.
<Fd> Excludes certain expenses related to postretirement benefits other
than pensions which were classified as interest expense in prior
years. Such expenses were $13.8 in 1993.
<Fe> Includes restructuring provisions of $53.3, offset by gain on sale
of property of $41.5.
<Ff> Includes restructuring provisions of $12.0.
</TABLE>
21
<PAGE> 10
RALSTON PURINA GROUP
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Dollars in millions 1994 1993 1992
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Assets at Year End
Pet and Human Foods
Continuing businesses......................................................... $ 515.4 $ 481.2 $ 502.5
Cereal and other-domestic (spun-off March 31, 1994)........................... 392.7 374.7
-------- -------- --------
Subtotal.................................................................... 515.4 873.9 877.2
-------- -------- --------
Battery Products................................................................ 2,114.3 2,117.2 2,231.4
-------- -------- --------
Agricultural Products........................................................... 318.9 305.9 345.0
-------- -------- --------
Soy Protein Products and Other
Soy protein products.......................................................... 324.1 313.8 316.0
All seasons resort (spun-off March 31, 1994).................................. 232.4 142.9
-------- -------- --------
Subtotal.................................................................... 324.1 546.2 458.9
-------- -------- --------
Subtotal.................................................................. 3,272.7 3,843.2 3,912.5
Corporate Assets................................................................ 505.8 423.3 451.5
Retained Interest in the CBG Group.............................................. 12.5 27.4 58.1
-------- -------- --------
Total..................................................................... $3,791.0 $4,293.9 $4,422.1
======== ======== ========
Depreciation Expense
Pet and Human Foods
Continuing businesses......................................................... $ 33.7 $ 30.5 $ 29.7
Cereal and other-domestic (spun-off March 31, 1994)........................... 13.8 24.5 21.0
-------- -------- --------
Subtotal.................................................................... 47.5 55.0 50.7
-------- -------- --------
Battery Products................................................................ 83.8 75.6 79.0
-------- -------- --------
Agricultural Products........................................................... 15.7 15.2 16.3
-------- -------- --------
Soy Protein Products and Other
Soy protein products.......................................................... 20.6 18.9 16.6
All seasons resort (spun-off March 31, 1994).................................. 6.0 9.5 7.5
-------- -------- --------
Subtotal.................................................................... 26.6 28.4 24.1
-------- -------- --------
Property Additions
Pet and Human Foods
Continuing businesses......................................................... 49.3 32.3 34.8
Cereal and other-domestic (spun-off March 31, 1994)........................... 13.6 41.6 48.4
-------- -------- --------
Subtotal.................................................................... 62.9 73.9 83.2
-------- -------- --------
Battery Products................................................................ 114.6 96.9 82.2
-------- -------- --------
Agricultural Products........................................................... 21.5 21.7 27.3
-------- -------- --------
Soy Protein Products and Other
Soy protein products.......................................................... 20.2 18.8 25.9
All seasons resort (spun-off March 31, 1994).................................. 6.2 9.4 17.2
-------- -------- --------
Subtotal.................................................................... 26.4 28.2 43.1
-------- -------- --------
</TABLE>
22
<PAGE> 11
RALSTON PURINA GROUP
BUSINESS SEGMENT INFORMATION
Export sales and sales between business segments were immaterial. No
single customer accounted for 10% or more of sales. Minority interests
in earnings of certain RPG Group businesses and the RPG Group's share
of the net earnings of minority owned businesses attributed to the RPG
Group were not significant and have been included in operating profit.
GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
Financial information by geographic location for the past three years
is set forth below.
<CAPTION>
Dollars in millions 1994<Fa> 1993 1992
- ------------------- -------- ---- ----
<S> <C> <C> <C>
Sales
United States................................................................. $3,166.8 $3,322.3 $3,335.9
Europe........................................................................ 949.6 1,050.4 964.1
South & Central America....................................................... 721.9 685.7 647.0
Asia Pacific.................................................................. 683.0 596.6 525.1
Other......................................................................... 238.0 260.4 276.2
-------- -------- --------
Total....................................................................... $5,759.3 $5,915.4 $5,748.3
======== ======== ========
Operating Profit
United States................................................................. $ 602.2 $ 583.9<Ff> $ 559.8
Europe........................................................................ .8<Fb> 66.2 (4.5)<Fg>
South & Central America....................................................... 26.2<Fc> 40.4 22.1 <Fh>
Asia Pacific.................................................................. 68.5<Fd> 73.4 97.8 <Fi>
Other......................................................................... 5.4<Fe> 13.2 3.1 <Fj>
-------- -------- --------
Total....................................................................... $ 703.1 $ 777.1 $ 678.3
======== ======== ========
Assets
United States................................................................. $1,667.5 $2,255.3 $2,122.3
Europe........................................................................ 834.2 842.5 1,061.0
South & Central America....................................................... 252.4 245.6 248.6
Asia Pacific.................................................................. 414.1 377.9 332.8
Other......................................................................... 104.5 121.9 147.8
-------- -------- --------
Total....................................................................... $3,272.7 $3,843.2 $3,912.5
======== ======== ========
<FN>
- -----
<Fa> On March 31, 1994, the Company effected a spin-off of Ralcorp
Holdings, Inc., its private label and branded cereal, baby food,
crackers and cookies, ski resort and coupon redemption businesses.
The combined earnings and cash flows through March 31, 1994 reflect
the operations of those businesses. Pro forma results of operations
of the RPG Group without the Ralcorp businesses appear on page 32.
<Fb> Includes restructuring provisions of $32.8.
<Fc> Includes restructuring provisions of $21.7.
<Fd> Includes restructuring provisions of $14.7.
<Fe> Includes restructuring provisions of $8.4.
<Ff> Includes additional expense of change in accounting for
postretirement benefits other than pensions of $25.6.
<Fg> Includes restructuring provisions of $53.6.
<Fh> Includes restructuring provisions of $11.7.
<Fi> Includes gain on sale of property of $41.5, and restructuring gains
of $9.5.
<Fj> Includes restructuring provisions of $9.5.
</TABLE>
23
<PAGE> 12
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The preparation and integrity of the financial statements of the RPG
Group are the responsibility of the Company's management. These
statements have been prepared in conformance with generally accepted
accounting principles and in the opinion of management fairly present
the RPG Group's financial position, results of operations and cash
flows.
The Company maintains accounting and internal control systems which
it believes are adequate to provide reasonable assurance that assets
are safeguarded against loss from unauthorized use or disposition and
that the financial records are reliable for preparing financial
statements. The selection and training of qualified personnel, the
establishment and communication of accounting and administrative
policies and procedures, and an extensive program of internal audits
are important elements of these control systems.
The report of Price Waterhouse LLP, independent accountants, on their
audits of the accompanying financial statements is shown below. This
report states that the audits were made in accordance with generally
accepted auditing standards. These standards include a study and
evaluation of internal control for the purpose of establishing a basis
for reliance thereon relative to the scope of their audits of the
financial statements.
The Board of Directors, through its Audit Committee consisting solely
of nonmanagement directors, meets periodically with management,
internal audit and the independent accountants to discuss audit and
financial reporting matters. To assure independence, Price Waterhouse
LLP has direct access to the Audit Committee.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Ralston Purina Company
In our opinion, the accompanying combined balance sheet and the
related combined statements of earnings and of cash flows present
fairly, in all material respects, the financial position of the Ralston
Purina Group at September 30, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the
period ended September 30, 1994, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of Ralston Purina Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above.
As discussed in the Summary of Accounting Policies note to the
financial statements, Ralston Purina Company changed its method of
accounting for postretirement benefits other than pensions and income
taxes in 1993.
The Ralston Purina Group is a business group of Ralston Purina
Company (as described in the Basis of Presentation note to these
financial statements); accordingly, the combined financial statements
of the Ralston Purina Group should be read in connection with the
consolidated financial statements of Ralston Purina Company.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
November 4, 1994, except as to the
"Subsequent Event" note which
is dated as of November 15, 1994
24
<PAGE> 13
<TABLE>
RALSTON PURINA GROUP
COMBINED STATEMENT OF EARNINGS
<CAPTION>
Year ended September 30,
------------------------------------
(Dollars in millions except per share data) 1994 1993 1992
- ------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Sales....................................................................... $5,759.3 $5,915.4 $5,748.3
-------- -------- --------
Costs and Expenses
Cost of products sold......................................................... 3,299.7 3,353.0 3,261.4
Selling, general and administrative........................................... 980.3 1,023.3 949.6
Advertising and promotion..................................................... 722.8 791.9 851.4
Interest...................................................................... 190.9 210.7 212.1
Gain on sale of assets........................................................ (41.5)
Provisions for restructuring.................................................. 83.9 65.3
Other (income)/expense, net................................................... 17.3 8.3 (7.9)
-------- -------- --------
5,294.9 5,387.2 5,290.4
-------- -------- --------
Earnings (Loss) Related to Retained Interest in the CBG Group................... (13.1) (26.7) 20.8
--------- --------- --------
Earnings before Income Taxes, Extraordinary Item and Cumulative Effect of
Accounting Changes............................................................. 451.3 501.5 478.7
Income Taxes.................................................................... 220.2 217.9 186.5
-------- -------- --------
Earnings before Extraordinary Item and Cumulative Effect of Accounting Changes.. 231.1 283.6 292.2
Extraordinary Item-Loss on Early Retirement of Debt............................. (7.9) (9.9) (6.4)
--------- -------- --------
Earnings before Cumulative Effect of Accounting Changes......................... 223.2 273.7 285.8
Cumulative Effect of Accounting Changes:
Postretirement benefits other than pensions................................... (130.7)
Income taxes.................................................................. 10.4
-------- -------- --------
Net Earnings.................................................................... 223.2 153.4 285.8
Preferred Stock Dividend, Net of Taxes.......................................... 18.4 19.1 19.1
-------- -------- --------
Earnings after Preferred Stock Dividend......................................... $ 204.8 $ 134.3 $ 266.7
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Earnings per share of RPG Stock (Pro forma in 1993 and 1992 assuming two classes
of common stock, unaudited):
Primary
Earnings before Extraordinary Item and Cumulative Effect of Accounting
Changes.................................................................... $2.12 $ 2.56 $2.57
Extraordinary Item.......................................................... (.08) (.10) (.06)
Cumulative Effect of Accounting Changes..................................... (1.16)
----- ------ -----
Net Earnings................................................................ $2.04 $ 1.30 $2.51
===== ====== =====
Fully Diluted
Earnings before Extraordinary Item and Cumulative Effect of Accounting
Changes.................................................................... $2.05 $ 2.44 $2.44
Extraordinary Item.......................................................... (.07) (.09) (.05)
Cumulative Effect of Accounting Changes..................................... (1.06)
----- ------ -----
Net Earnings................................................................ $1.98 $ 1.29 $2.39
===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Primary Fully Diluted
-------------------------------------------------
2 months ended 2 months ended
September 30, 1993 September 30, 1993
------------------ ------------------
<S> <C> <C>
Earnings per share of RPG Stock for the two months ended September 30, 1993:
Earnings before Extraordinary Item............................................ $ .40 $ .38
Extraordinary Item............................................................ (.04) (.04)
----- -----
Net Earnings.................................................................. $ .36 $ .34
===== =====
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
25
<PAGE> 14
<TABLE>
RALSTON PURINA GROUP
COMBINED BALANCE SHEET
<CAPTION>
September 30,
--------------------
(Dollars in millions) 1994 1993
- --------------------- ---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................................................... $ 112.4 $ 57.4
Receivables, less allowance for doubtful accounts.............................................. 730.6 673.2
Inventories.................................................................................... 677.2 748.4
Other current assets........................................................................... 142.2 142.2
--------- --------
Total Current Assets......................................................................... 1,662.4 1,621.2
--------- --------
Retained Interest in the CBG Group............................................................... 12.5 27.4
--------- --------
Investments and Other Assets..................................................................... 815.7 902.6
--------- --------
Property at Cost
Land........................................................................................... 51.2 115.2
Buildings...................................................................................... 490.0 612.1
Machinery and equipment........................................................................ 1,816.7 2,088.3
Construction in progress....................................................................... 98.4 111.9
--------- --------
2,456.3 2,927.5
Accumulated depreciation..................................................................... 1,155.9 1,184.8
--------- --------
1,300.4 1,742.7
--------- --------
Total...................................................................................... $ 3,791.0 $4,293.9
========= ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt........................................................... $ 223.2 $ 80.1
Notes payable.................................................................................. 454.3 393.9
Accounts payable and accrued liabilities....................................................... 772.4 833.1
Dividends payable.............................................................................. 38.4 38.3
Income taxes................................................................................... 31.7 24.3
--------- --------
Total Current Liabilities.................................................................... 1,520.0 1,369.7
--------- --------
Long-Term Debt................................................................................... 1,251.6 1,731.6
--------- --------
Deferred Income Taxes............................................................................ 63.6 138.4
--------- --------
Other Liabilities................................................................................ 383.6 386.0
--------- --------
Commitments and Contingencies....................................................................
Redeemable Preferred Stock....................................................................... 427.4 463.9
--------- --------
Unearned ESOP Compensation....................................................................... (195.3) (232.1)
--------- --------
RPG Group Equity................................................................................. 340.1 436.4
--------- --------
Total...................................................................................... $ 3,791.0 $4,293.9
========= ========
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
26
<PAGE> 15
<TABLE>
RALSTON PURINA GROUP
COMBINED STATEMENT OF CASH FLOWS
<CAPTION>
Year ended September 30,
------------------------------------
(Dollars in millions) 1994 1993 1992
- --------------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operations
Net earnings.................................................................. $ 223.2 $ 153.4 $ 285.8
Adjustments to reconcile net earnings to net cash flow provided by operations
Extraordinary item.......................................................... 7.9 9.9 6.4
Cumulative effect of accounting changes..................................... 120.3
Non-cash restructuring reserves............................................. 46.4 22.3
Retained interest in CBG Group's earnings................................... 13.1 26.7 (20.8)
Depreciation and amortization............................................... 232.9 236.5 223.3
Deferred income taxes....................................................... (28.6) 4.5 (2.4)
Gain on sale of property.................................................... (41.5)
Changes in assets and liabilities used in operations........................
Increase in accounts receivable........................................... (130.2) (16.8) (108.2)
(Increase) decrease in inventories........................................ (1.6) (20.6) 28.4
(Increase) decrease in other current assets............................... (25.6) (2.5) 7.5
Increase in accounts payable and accrued liabilities...................... 70.3 49.8 50.9
Increase (decrease) in other current liabilities.......................... 1.6 (6.9) 13.1
Other, net.................................................................. 18.9 (.3) (6.4)
------- ------- -------
Net cash flow from operations.............................................. 428.3 554.0 458.4
------- ------- -------
Cash Flow from Investing Activities
Property additions............................................................ (242.5) (230.7) (253.3)
Proceeds from the sale of property............................................ 33.8 30.3 60.5
Acquisition of businesses..................................................... (39.2) (142.8) (315.2)
Other, net.................................................................... .3 34.9 (29.9)
------- ------- -------
Net cash used by investing activities...................................... (247.6) (308.3) (537.9)
------- ------- -------
Cash Flow from Financing Activities
Proceeds from issuance of debt for spin-off................................... 370.0
Net proceeds from (payments on) centrally managed debt........................ (325.5) (219.6) 298.8
Proceeds from specifically attributed long-term debt.......................... 37.7 90.7
Principal payments on specifically attributed long-term debt, including
current maturities........................................................... (26.2) (16.6) (6.2)
Net increase in specifically attributed notes payable......................... 88.8 151.7 162.8
Cash provided for corporate equity transactions prior to redesignation of
Ralston Common Stock to RPG Stock............................................ (131.3) (428.4)
RPG Stock Purchases........................................................... (100.9) (59.5)
Dividends paid................................................................ (151.2) (30.9)
Other, net.................................................................... 1.9
------- ------- -------
Net cash provided (used) by financing activities........................... (105.4) (215.5) 27.0
------- ------- -------
Effect of Exchange Rate Changes on Cash......................................... (20.3) (31.8) (30.2)
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents............................ 55.0 (1.6) (82.7)
Cash and Cash Equivalents, Beginning of Period.................................. 57.4 59.0 141.7
------- ------- -------
Cash and Cash Equivalents, End of Period........................................ $ 112.4 $ 57.4 $ 59.0
======= ======= =======
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
27
<PAGE> 16
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions except per share data)
Basis of Presentation
Effective July 30, 1993, the Company has two classes of common stock,
RPG Stock and CBG Stock. RPG Stock is intended to reflect the
performance of the Company's non-bakery businesses.
The financial statements of the RPG Group include the financial
position, results of operations and cash flows of the Pet and Human
Foods, Battery Products, Agricultural Products and Soy Protein Products
and Other segments and a portion of the Company's corporate assets and
liabilities and related transactions which are not separately
identified with operations of a specific segment. The RPG Group
financial statements are prepared using the amounts included in the
Company's consolidated financial statements. Corporate amounts
reflected in these financial statements are determined based upon
methods which management believes to be reasonable (see Related Party
Activities note).
The Company provides to holders of RPG Stock separate financial
statements, financial review, descriptions of business and other
relevant information for the RPG Group. Notwithstanding the attribution
of assets and liabilities (including contingent liabilities) between
the RPG Group and CBG Group for the purpose of preparing their
respective financial statements, this attribution does not affect legal
title to such assets or responsibility for such liabilities of the
Company or any of its subsidiaries. Holders of RPG Stock are common
shareholders of the Company, which continues to be responsible for all
of its liabilities. Financial impacts arising from the CBG Group that
affect the consolidated results of operations or financial position of
the Company could affect the results of operations or financial
position of the RPG Group. Accordingly, the Company's consolidated
financial information should be read in connection with the RPG Group
financial information.
The Net Debt (see Related Party Activities note) and preferred stock
components of the capital structure attributed to the RPG Group and the
CBG Group as determined by the Board have been reflected in the
financial statements as of March 31, 1993. The Redeemable Preferred
Stock has been attributed to each Group based on estimated relative
market values of the respective groups prior to the distribution of CBG
Stock.
The amount of Net Debt reflected in the financial statements has been
adjusted based upon the cash flow impacts of the debt and other cash
flows, including corporate transactions, occurring during those
periods. In attributing corporate equity transactions to each Group
prior to July 30, 1993, the Company has maintained the relationship of
each Group's debt to total capitalization to the Company's debt to
total capitalization. Subsequent to July 30, 1993, equity transactions
are imputed as a result of the specific attribution of the cash flow
impacts of treasury stock purchases, dividends and other equity
transactions to the respective Group financial statements. Such
attribution impacts the attribution of Net Debt to the RPG Group.
The Board intends to declare and pay dividends on the RPG Stock based
primarily on the earnings and cash flow capabilities and business
requirements of the RPG Group although there is no requirement to do
so. Dividends that may be paid to holders of RPG Stock are limited to
legally available funds of the Company.
The accounting policies applicable to the preparation of the
financial statements of the RPG Group may be modified or rescinded at
the sole discretion of the Board without approval of shareholders,
although there is no current intention to do so.
Summary of Accounting Policies
The RPG Group's significant accounting policies, which conform to
generally accepted accounting principles and are applied on a
consistent basis among years, except as indicated, are described below:
Principles of Combination-These financial statements include the
combined accounts of those Company majority-owned businesses comprising
the RPG Group as described above. All significant intercompany
transactions within the RPG Group are eliminated. The RPG Group's
investments in affiliated companies, 20% to 50% owned, are carried at
equity.
The RPG Group's earnings include 45% of the earnings (loss) of the
CBG Group, as discussed below. Minority interests in earnings of the
RPG Group businesses and the RPG Group's share of the net earnings of
minority owned businesses attributed to the RPG Group are included in
selling, general and administrative expenses.
28
<PAGE> 17
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Foreign Currency Translation-Foreign currency financial statements of
foreign operations where the local currency is the functional currency
are translated using exchange rates in effect at period end for assets
and liabilities and average exchange rates during the period for
results of operations. Related translation adjustments are reported as
a separate component of RPG Group equity. For foreign operations where
the U.S. dollar is the functional currency and for countries which are
considered highly inflationary, translation practices differ in that
inventories, properties, accumulated depreciation and depreciation
accounts are translated at historical rates of exchange and related
translation adjustments are included in earnings. Gains and losses from
foreign currency transactions are generally included in earnings.
Financial Instruments-The Company enters into interest rate swap and
cap agreements in the management of interest rate exposure. The
differential to be paid or received is normally accrued as interest
rates change and is recognized over the life of the agreements. In
addition, in order to hedge foreign currency exposures on firm
commitments, the Company regularly enters into forward foreign currency
contracts. Gains and losses resulting from these instruments are
recognized in the same period as the underlying hedged transaction.
Cash Equivalents for purposes of the statement of cash flows are
considered to be all highly liquid investments with a maturity of three
months or less when purchased. Cash flow from hedging transactions are
classified in the same category as the cash flow from the item being
hedged.
Inventories are valued generally at the lower of average cost or
market. The Company hedges certain of its grain and commodity purchases
as considered necessary to reduce the risk associated with market price
fluctuations. Gains and losses on hedges of future grain and commodity
purchases are recognized in the same period as the related purchase
transaction.
Retained Interest in the CBG Group-The RPG Group has a 45% Retained
Interest in the business, assets and liabilities of the CBG Group. The
RPG Group's Retained Interest in the CBG Group (Retained Interest) is
increased (decreased) for 45% of the earnings (loss) after preferred
stock dividends and decreased by 45% of the CBG Group's cash provided
for corporate equity transactions prior to the distribution of CBG
Stock and by equity transactions specifically attributed to the CBG
Group subsequent to the distribution of CBG Stock.
The Retained Interest is represented by a number of shares of CBG
Stock that the Company may issue for the account of the RPG Group. Such
shares deemed to represent the Retained Interest as of September 30,
1994 and 1993 were 16,715,758 and 16,931,823, respectively. The number
of shares representing 100% of the equity value of the Company
attributable to the CBG Group (issued and outstanding shares of CBG
Stock plus shares of CBG Stock deemed to represent the Retained
Interest) were 37,303,528 and 37,630,942 at September 30, 1994 and
1993, respectively. The shares deemed to represent the Retained
Interest are not outstanding shares of CBG Stock and cannot be voted by
the RPG Group. As additional shares of CBG Stock are issued, the
Retained Interest will decrease. When a dividend or other distribution
is paid or distributed in respect to the outstanding CBG Stock, or any
amount paid to repurchase shares of CBG Stock, the consideration for
which is attributed to the CBG Group, the RPG Group financial
statements will be credited, and the CBG Group financial statements
charged with, an amount equal to the product of the aggregate
transaction amount times a fraction. The numerator of the fraction is
the number of unissued shares of CBG Stock then issuable with respect
to the Retained Interest and the denominator of which is the number of
shares of CBG Stock then outstanding.
Property at Cost-Expenditures for new facilities and those which
substantially increase the useful lives of the property, including
interest during construction, are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and gains or losses on the dispositions
are reflected in earnings.
Depreciation is generally provided on the straight-line basis by
charges to costs or expenses at rates based on the estimated useful
lives of the properties. Estimated useful lives range from 3 to 25
years for machinery and equipment and 10 to 50 years for buildings.
Intangible Assets, which are included in Investments and Other
Assets, represent the excess of cost over the net tangible assets of
acquired businesses and are amortized over estimated periods of related
benefit ranging from 5 to 40 years. Intangible assets resulting from
acquisitions of businesses in the RPG Group have been attributed to the
RPG Group.
29
<PAGE> 18
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Subsequent to acquisition, the RPG Group continually evaluates
whether later events and circumstances have occurred that indicate the
remaining estimated useful life of an intangible asset may warrant
revision or that the remaining balance of an intangible asset may not
be recoverable. The measurement of possible impairment is based on the
ability to recover the balance of intangible assets from expected
future operating cash flows on an undiscounted basis. In the opinion of
management, no such impairment existed as of September 30, 1994 and
1993.
Income Taxes-The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109) effective
October 1, 1992. FAS 109 requires the liability method of income tax
accounting. The impact of this change is discussed in the Income Taxes
note to financial statements. The RPG Group is included in the
consolidated federal income tax return filed by the Company. The
Company's consolidated provision and actual cash payments for income
taxes have been allocated between the RPG Group and the CBG Group in
accordance with the Company's tax allocation policy for such groups. In
general, the consolidated tax provision and related tax payments or
refunds are allocated between the RPG Group and the CBG Group, for
group financial statement purposes, based principally upon the
financial income, taxable income, credits and other amounts directly
related to the respective group. Deferred income taxes are recognized
for the effect of temporary differences between financial and tax
reporting. No additional U.S. taxes have been provided on earnings of
foreign subsidiaries expected to be reinvested indefinitely. Additional
income taxes are provided, however, on planned repatriations of foreign
earnings after taking into account tax-exempt earnings and applicable
foreign tax credits.
Postretirement Benefits Other Than Pensions-The Company adopted
Statement of Financial Accounting Standards No. 106 "Employer's
Accounting for Postretirement Benefits Other Than Pensions" (FAS 106)
effective October 1, 1992. The impact of this change is discussed in
the Postretirement Benefits Other Than Pensions note to financial
statements.
Advertising Costs-The RPG Group expenses advertising costs as
incurred.
Earnings Per Share-Primary earnings per share are based on the
average number of shares of RPG Stock outstanding during the period for
which earnings per share are reported. The average number of shares of
RPG Stock outstanding for the year ended September 30, 1994 was
100,547,000 and for the period after July 30, 1993 through September
30, 1993 was 102,199,000. The 1993 and 1992 pro forma earnings per
share are based on the assumption that the RPG Stock had been
outstanding as of the beginning of the periods presented. Primary pro
forma earnings per share are based on pro forma average number of
shares of RPG Stock outstanding of 103,329,000 in 1993 and 106,314,000
in 1992. The pro forma earnings per share are not necessarily
indicative of results that would have occurred if the RPG Stock had
been outstanding for the periods presented.
Fully diluted earnings per share and pro forma fully diluted earnings
per share assumes the conversion of the Company's Series A 6.75%
preferred stock (redeemable preferred stock) and other dilutive
securities into RPG Stock. For purposes of calculating fully diluted
earnings per share, net earnings have been adjusted for the RPG Group's
portion of additional contribution to the Company's employee stock
ownership plan and their related trust (ESOP) that would have been
required had the Redeemable Preferred Stock been converted as of the
beginning of the period.
Reclassifications-Certain reclassifications have been made to the
1993 and 1992 financial statements to conform with the 1994
presentation.
Business Segment Information
The Business Segment Information and Geographic Segment Information
sections, appearing on pages 21 through 23 herein, are an integral part
of these financial statements.
Related Party Activities
Financial-As a matter of policy, the Company manages most financial
activities of the RPG Group and CBG Group on a centralized,
consolidated basis. Cash deposits from the RPG Group's domestic
operations are transferred to the Company on a daily basis and the
Company funds RPG Group's disbursement bank accounts as required. Other
financial activities include the investment of surplus cash, the
issuance, repayment and repurchase of short-term and long-term debt,
the issuance, repurchase and redemption of preferred stock, and the
issuance and repurchase of common stock.
30
<PAGE> 19
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
The centrally managed financial balances, exclusive of preferred
stock, are reflected in each Group's financial statements through the
Net Debt attribution (as described in the Basis of Presentation note).
"Net Debt" is the aggregate of the Company's long-term debt (including
current maturities), notes payable, cash and cash equivalents, deferred
financing costs and other financing related balances except for (a)
foreign financial activities specifically identified with the RPG
Group, (b) certain asset-based borrowings and (c) the ESOP debt
guarantee. Each component included in the Company's total Net Debt is
attributed to the RPG Group and the CBG Group in proportion to the
ratio of each Group's attributed Net Debt balance to the Company's
total Net Debt.
<TABLE>
The RPG Group's portion of the Company's centrally managed financial
activities (other than amounts specifically attributed to the RPG
Group) is as follows:
<CAPTION>
RPG Group Consolidated
--------------------- --------------------
September 30, September 30,
--------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash and Cash Equivalents....................................... $ 45.6 $ 2.5 $ 59.2 $ 3.0
Investments and Other Assets.................................... 16.3 27.5 21.2 32.5
Current Maturities of Long-Term Debt............................ (172.7) (32.8) (224.3) (38.8)
Notes Payable................................................... (40.7) (48.1)
Accounts Payable and Accrued Liabilities........................ (72.2) (101.8) (93.8) (120.4)
Long-Term Debt.................................................. (975.6) (1,419.3) (1,267.0) (1,677.1)
--------- --------- --------- ---------
Net Debt........................................................ $(1,158.6) $(1,564.6) $(1,504.7) $(1,848.9)
========= ========= ========= =========
Net Interest Expense............................................ $ 127.1 $ 146.9 $ 157.3 $ 174.3
========= ========= ========= =========
Effective Interest Rate......................................... 9.3% 8.9% 9.3% 8.9%
=== === === ===
</TABLE>
Shared Services-A portion of corporate general, administrative and
other shared services has been allocated between the RPG Group and CBG
Group based upon utilization. Costs which the Company cannot reasonably
attribute to the RPG Group and the CBG Group based upon utilization are
attributed to each Group in proportion to the simple average of the
ratios of each Group's net sales and total operating assets to the
Company's net sales and total operating assets for the period in which
such costs are attributed, which method management believes to be
reasonable. These allocations were $49.7 in 1994, $49.9 in 1993 and
$48.8 in 1992.
The RPG Group provides certain general and administrative services to
the CBG Group at negotiated rates. The RPG Group's charges to the CBG
Group for such services were $11.7, $14.2 and $14.2 in 1994, 1993 and
1992, respectively.
<TABLE>
Sales to and Purchases from Related Parties-The RPG Group sells
certain ingredients and goods for resale to the CBG Group and purchases
certain products for export from the CBG Group. These transactions are
at negotiated prices. Included in the statement of earnings are sales
to and purchases from the CBG Group as follows:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net sales.............................................. $2.6 $4.4 $3.7
==== ==== ====
Purchases.............................................. $5.8 $5.6
==== ====
</TABLE>
Acquisitions
On November 19, 1993, the Company purchased the oats processing and
packaging and cereal making operations of the National Oats Company
division of Curtice Burns Foods, Inc., along with certain related
manufacturing assets, for approximately $39.
On August 27, 1993, the Company purchased the nickel-based
rechargeable battery business of Gates Energy Products, Inc. for
approximately $52. In May 1993, the Company purchased Victoria U.S.A.
Inc.'s ski assets and substantially all of its real estate in the
resort of Breckenridge, Colorado for approximately $90.
31
<PAGE> 20
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
On July 15, 1992, the Company completed the purchase of Ever Ready
Limited from Hanson, PLC, London for $245.2 in cash. On February 18,
1992, the Company acquired the consumer battery products business of
Sociedad Espanola Del Acumulador Tudor, a battery products manufacturer
based in Spain and Portugal, for $70.0 in cash.
These acquisitions were accounted for using the purchase method of
accounting, and accordingly, the results of operations are included in
the consolidated statement of earnings from the date of acquisition.
Assuming these acquisitions had occurred as of the beginning of the
respective fiscal years, it would not have had a material effect on net
sales or net earnings.
Divestitures
On March 31, 1994, the Company effected a spin-off of its private
label and branded cereal, baby food, crackers and cookies, ski resort
and coupon redemption businesses (the Distribution). One share of stock
of the new company, Ralcorp Holdings, Inc. (Ralcorp), was distributed
for each three shares of RPG Stock held by shareholders. The combined
earnings and cash flows of the RPG Group reflect the operations of
those businesses through March 31, 1994.
The following pro forma data reflect the results of operations for
the year ended September 30, 1994 and 1993 of the RPG Group as if the
Distribution had occurred as of October 1, 1992. Such data have been
prepared by adjusting the historical statements for the effect of
costs, expenses, assets and liabilities and the recapitalization which
might have occurred had the Distribution been effected as of October 1,
1992. This pro forma data may not necessarily reflect the combined
results of operations that would have existed had the Distribution
occurred as of that date.
<TABLE>
Pro Forma Combined Statement of Earnings
(unaudited)
<CAPTION>
Year Ended
September 30,
--------------------
1994 1993
---- ----
<S> <C> <C>
Net Sales<Fa>.................................................................................... $5,236.2 $5,024.3
-------- --------
Cost and Expenses
Cost of products sold<Fa>...................................................................... 3,032.8 2,884.6
Selling, general and administrative<Fa>........................................................ 908.7 897.4
Advertising and promotion<Fa>.................................................................. 606.0 583.4
Interest<Fb>................................................................................... 183.5 195.5
Provision for restructuring.................................................................... 83.9
Other (income)/expense, net<Fa>................................................................ 17.1 7.7
-------- --------
4,832.0 4,568.6
-------- --------
Loss related to retained interest in the CBG Group............................................... (13.1) (26.7)
--------- --------
Earnings before Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Changes..... 391.1 429.0
Income Taxes<Fc>................................................................................. 197.5 190.6
-------- --------
Earnings before Extraordinary Item and Cumulative Effect of Accounting Changes................... $ 193.6 $ 238.4
======== ========
Earnings per Share before Extraordinary Item and Cumulative Effect of Accounting Changes:
Primary<Fa>.................................................................................... $ 1.75 $ 2.12
Fully Diluted<Fa>.............................................................................. $ 1.71 $ 2.04
<FN>
- -----
<Fa> Excludes results of operations of Ralcorp.
<Fb> Reflects reduction of interest expense at an average rate of 3.9%
in 1994 and 4.1% in 1993 due to debt repayment of $370 by Ralston
from the proceeds of debt issued in connection with the spin-off.
<Fc> Reflects the applicable federal and state statutory tax rates for
the pro forma adjustments.
</TABLE>
32
<PAGE> 21
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Restructuring Activities
In the fourth quarter of 1994, the RPG Group recorded provisions for
restructuring of its world-wide carbon zinc battery production capacity
and certain administrative functions. Restructuring actions will result
in the closing of seven plants and severance of approximately 1,700
employees. Such actions are expected to be substantially completed by
1995 for five plants and 1996 for the remaining two plants. Such
provisions, together with additional provisions for previously recorded
restructurings, reduced 1994 earnings before income taxes, net earnings
and net earnings per primary share by $83.9, $72.8 and $.73,
respectively. Of the total pre-tax charge for restructuring, cash cost
includes termination benefits of $26.2, payment of guaranteed debt of
$4.3 and other exit costs of $7.0. Non-cash charges of $46.4 primarily
relate to anticipated losses on disposal of land, buildings and
machinery and equipment. As of September 30, 1994, no material actions
contemplated in the restructuring plan have taken place. Additional
charges associated with these plant closings of $40 to $50 million,
pre-tax, are expected in future periods. Two additional plant closings
are planned for 1997 with expected charges of $25 to $40 million, pre-
tax.
Provisions for restructuring international battery and agricultural
operations of $65.3, pre-tax, were recorded in 1992. These provisions,
offset by a pre-tax gain on the sale of assets of $41.5, reduced net
earnings and net earnings per common share by $24.5 and $.24,
respectively. The pre-tax restructuring charge consisted of $32.4 of
severance and employee related costs, $6.9 of costs to hold or sell
fixed assets, $3.7 of other cash costs and $22.3 of fixed asset
writedown on expected disposition losses. Restructuring activities
through September 30, 1994 related to the 1992 provisions included cash
exit costs incurred of $32.2, losses on disposal of fixed assets of
$.1, reductions due to translation of $8.7 and net provision increases
of $7.9. Activities related to the 1992 restructuring provisions are
expected to be completed in 1995.
Income Taxes
<TABLE>
The provisions for income taxes consisted of the following:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Currently payable
United States................................................................. $177.4 $156.5 $141.2
State......................................................................... 19.9 16.3 11.7
Foreign....................................................................... 51.5 37.6 34.0
------ ------ ------
Total current............................................................... 248.8 210.4 186.9
------ ------ ------
Deferred
United States................................................................. (13.0) (8.8) (4.2)
State......................................................................... (1.2) (1.0)
Foreign....................................................................... (14.4) 17.3 3.8
------- ------ ------
Total deferred.............................................................. (28.6) 7.5 (.4)
------- ------ -------
Income taxes before extraordinary item and cumulative effect of accounting
changes........................................................................ $220.2 $217.9 $186.5
====== ====== ======
</TABLE>
<TABLE>
The source of pre-tax earnings follows:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
United States................................................................... $427.6 $371.1 $414.6
Foreign......................................................................... 23.7 130.4 64.1
------ ------ ------
Pre-tax earnings before extraordinary item and cumulative effect of accounting
changes........................................................................ $451.3 $501.5 $478.7
====== ====== ======
</TABLE>
33
<PAGE> 22
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
A reconciliation of income taxes with the amounts computed at the
statutory federal rate follows:
<CAPTION>
1994 1993 1992
------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate........... $158.0 35.0% $174.3 34.7% $162.8 34.0%
State income taxes, net of federal tax benefit... 12.2 2.7 9.9 2.0 7.7 1.6
Foreign tax in excess of domestic rate........... 28.8 6.4 9.6 1.9 23.9 5.0
Taxes on repatriation of foreign earnings........ 20.5 4.6 22.4 4.5 6.0 1.3
Effect of after tax loss (income) from Retained
Interest in the CBG Group....................... 4.6 1.0 9.3 1.8 (7.1) (1.5)
Other, net....................................... (3.9) (.9) (7.6) (1.5) (6.8) (1.4)
------- ----- ------- ----- ------- -----
$220.2 48.8% $217.9 43.4% $186.5 39.0%
====== ==== ====== ==== ====== ====
</TABLE>
The tax benefit related to the extraordinary loss on early retirement
of debt was $5.1 in 1994, $6.3 in 1993 and $4.1 in 1992.
Effective October 1, 1992, the Company adopted FAS 109, which
required the Company to change its method of accounting for income
taxes from the deferred method to the liability method. FAS 109 was
adopted on a prospective basis and amounts presented for prior years
were not restated. The cumulative effect of the adoption as of October
1, 1992 was a $10.4 increase to prior years' net earnings. The effect
of the adoption on the 1993 income tax provision was an increase of
$7.6.
<TABLE>
The deferred tax assets and deferred tax liabilities recorded on the
balance sheet as of September 30 are as follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation and property basis differences.................................................... $ 170.6 $ 209.1
Pensions....................................................................................... 53.0 51.6
Other.......................................................................................... 39.4 63.7
------- -------
Gross deferred tax liabilities............................................................... 263.0 324.4
------- -------
Deferred Tax (Assets)
Postretirement benefits other than pensions.................................................... (129.7) (126.4)
Accrued liabilities............................................................................ (64.0) (48.4)
Tax loss carryforwards and tax credits......................................................... (62.3) (44.8)
Intangible assets.............................................................................. (25.2) (20.5)
Self-insurance reserves........................................................................ (2.1) (4.9)
Other.......................................................................................... (29.5) (42.6)
------- -------
Gross deferred tax (assets).................................................................. (312.8) (287.6)
------- -------
Valuation Allowance............................................................................ 65.6 44.6
------- -------
Net deferred tax liability..................................................................... $ 15.8 $ 81.4
======= =======
</TABLE>
Total net deferred tax liabilities shown above include current and
noncurrent elements.
Tax loss carryforwards and tax credits totaling $1.2 expired in 1994.
Future expiration of tax loss carryforwards, if not utilized, are as
follows: 1995, $4.0; 1996, $7.6; 1997, $18.2; 1998, $11.4; thereafter
or no expiration, $18.9. The valuation allowance is primarily
attributed to certain accrued liabilities, tax loss carryforwards and
tax credits outside the U.S. The valuation allowance increased in 1994
by $21.0.
At September 30, 1994, $147.0 of foreign subsidiary net earnings was
considered permanently invested in those businesses. Accordingly, U.S.
income taxes have not been provided for such earnings. It is not
practicable to determine the amount of unrecognized deferred tax
liabilities associated with such earnings.
34
<PAGE> 23
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Incentive Compensation
Certain officers and employees of the RPG Group participate in
incentive stock plans of the Company. These plans are discussed in the
Incentive Compensation note to the Company's consolidated financial
statements.
As a result of the distribution of the common stock of Ralcorp
Holdings, Inc. to all holders of RPG Stock on March 31, 1994, each
outstanding option to acquire shares of RPG Stock was adjusted pursuant
to existing antidilution provisions. Both the number of options and the
exercise price were adjusted based upon the ratio of the average
trading prices of the RPG Stock prior to and following the
distribution. Each outstanding restricted RPG Stock award received the
Ralcorp Stock distribution as a restricted dividend which will vest in
accordance with the terms of the original restricted stock award,
although for a limited number of restricted RPG Stock awards, the
Ralcorp Stock issued in the distribution was immediately distributed
without restrictions to the recipients.
<TABLE>
Changes in nonqualified stock options outstanding are summarized as
follows:
<CAPTION>
Shares
Under
Option
------
<S> <C>
RPG Stock
Outstanding beginning of year ($17.968 to 50.025 per share)............................... 3,754,602
Exercised ($37.25 to $39.996 per share)................................................... (73,513)
Cancelled................................................................................. (328,200)
---------
Outstanding March 31, 1994 ($17.968 to $50.025 per share) prior to Ralcorp spin-off....... 3,352,889
=========
Adjusted options at March 31, 1994 based on ratio of average trading prices ($15.296 to
$42.585 per share)....................................................................... 3,938,675
Exercised ($15.296 to $33.235 per share).................................................. (26,573)
Cancelled................................................................................. (275,411)
---------
Outstanding September 30, 1994 ($15.296 to $42.585 per share)............................. 3,636,691
=========
Exercisable at September 30, 1994......................................................... 775,479
=========
</TABLE>
At September 30, 1994 and 1993, there were 5,763,744 and 4,397,608
shares, respectively, of RPG Stock available for future awards. In
addition, at September 30, 1994 and 1993, there were 258,111 and
435,020 restricted shares, respectively, of RPG Stock outstanding.
Restrictions on shares of restricted stock issued to eligible employees
lapse over various periods, provided continued employment and, in
certain cases, minimum stock price requirements are met. Compensation
cost is recognized over this vesting period. Charges to the RPG Group's
earnings were $1.4 in 1994, $2.4 in 1993 and $7.7 in 1992.
Pension Plans
The RPG Group participates in the Company's noncontributory defined
benefit pension plans (Plans) covering substantially all full-time RPG
Group employees in the United States and certain employees in other
countries. The Plans provide retirement benefits based on years of
service and earnings. It is the Company's practice to fund pension
liabilities in accordance with the minimum and maximum limits imposed
by the Employee Retirement Income Security Act of 1974 (ERISA) and
federal income tax laws. The Company's pension cost attributed to the
RPG Group is actuarially determined based on the attributes of its plan
participants, the benefit formulas of the RPG Group and a proportionate
share of fund assets, which method management believes to be
reasonable.
Certain foreign pension arrangements, which include various
retirement and termination benefit plans, some of which are required by
local law or coordinated with government-sponsored plans, are not
material in the aggregate and are not included in these disclosures.
35
<PAGE> 24
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
Allocated pension cost and other retirement savings plan costs
included the following components:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Defined benefit plans
Service cost for benefits earned during the year.............................. $22.7 $ 24.0 $ 22.3
Interest cost on projected benefit obligation................................. 42.0 41.7 37.1
Return on plan assets......................................................... (25.1) (137.5) (56.9)
Net amortization and deferral................................................. (50.7) 63.7 (11.7)
------ ------- ------
Total defined benefit plans..................................................... (11.1) (8.1) (9.2)
Defined contribution plans...................................................... 25.9 26.7 24.8
----- ------- ------
Total....................................................................... $14.8 $ 18.6 $ 15.6
===== ======= ======
</TABLE>
<TABLE>
The following table presents the RPG Group's funded status based on a
proportionate share of fund assets as described above and amounts
recognized in the accompanying balance sheet at September 30. The
funded status of the Plans as determined under ERISA is discussed in
the Pension Plans note to the Company's consolidated financial
statements.
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefits................................................................................ $(399.3) $(416.9)
Nonvested benefits............................................................................. (26.2) (32.8)
------- -------
Accumulated benefit obligation................................................................. (425.5) (449.7)
Effect of future salary increases.............................................................. (117.7) (125.9)
------- -------
Projected benefit obligation................................................................... (543.2) (575.6)
Plan assets at fair value........................................................................ 774.5 846.1
------- -------
Plan assets in excess of projected benefit obligation............................................ 231.3 270.5
Unrecognized net gain............................................................................ (71.6) (114.6)
Unrecognized prior service cost.................................................................. 7.4 15.0
Unrecognized net asset at transition, net of amortization........................................ (27.3) (32.6)
------- -------
Prepaid pension cost included in Investments and Other Assets.................................... $ 139.8 $ 138.3
======= =======
</TABLE>
<TABLE>
The assumptions used in determining the information above, which
reflect weighted averages for the component plans, were as follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate.................................................................................... 7.8% 7.8%
Rate of increase of future compensation levels................................................... 5.4% 5.4%
Long-term rate of return on assets............................................................... 8.9% 9.4%
</TABLE>
Assets of the Company's plans, a portion of which has been allocated
to the RPG Group, consist primarily of listed common stocks and bonds,
including 1,700,866 shares of RPG Stock and 340,173 shares of CBG Stock
with a market value of $70.4 and $1.9, respectively, at September 30,
1994.
Substantially all of the RPG Group's full-time employees in the
United States are eligible to participate in the Company's leveraged
employee stock ownership plan (ESOP). The RPG Group makes a matching
contribution of up to 100% of the participant's contribution based on
specified limits of the participant's salary.
The cost of the ESOP attributed to the RPG Group is recognized as
incurred by the Company and was $22.8 for 1994, $25.8 for 1993 and
$23.8 for 1992. The RPG Group contributions include $3.4 in 1994, $4.4
in 1993 and $4.5 in 1992 of additional
36
<PAGE> 25
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
employer contributions necessary to meet the debt service requirements of
the ESOP's long-term debt as discussed in the Long-Term Debt note.
Postretirement Benefits Other Than Pensions
Effective October 1, 1992, the Company adopted FAS 106. This standard
requires that the estimated cost of postretirement benefits other than
pensions be accrued over the period such benefits are earned. The
Company elected to recognize the cumulative effect of this accounting
change in 1993. As a result, the RPG Group recorded a non-cash charge
of $204.2 ($130.7 after income taxes) which represents the excess of
the accumulated postretirement benefit obligation over accruals
recorded prior to the adoption of FAS 106 of $71.9. Annual pre-tax
postretirement benefit expense allocated to the RPG Group was
comparable in 1994 and 1993. However, in 1993 such expense increased
$11.8 as a result of the adoption of FAS 106. In addition, costs
associated with the deferred compensation plans were classified as
interest expense prior to the adoption of FAS 106. Effective October 1,
1992, such costs are reported in the same expense category as other
costs related to the covered employee. This change resulted in $13.8
less interest expense being reported in 1993 than 1992, with a
corresponding increase in operating expenses.
The Company currently provides health care and life insurance
benefits for certain groups of retired employees who meet specified age
and years of service requirements. The Company also sponsors plans
whereby certain management employees may defer compensation in exchange
for cash benefits after retirement. The RPG Group is allocated costs
associated with such benefits related to its employees and retirees,
plus an allocation of costs not directly attributable to the RPG Group
or the CBG Group. The costs related to health care and life insurance
were expensed as incurred before adoption of FAS 106. The cost of
deferred compensation benefits was accrued over the life of the
participant prior to adoption of FAS 106.
<TABLE>
The net periodic costs for postretirement benefits allocated to the
RPG Group includes the following components for the year ended
September 30:
<CAPTION>
1994 1993
---------------------- ----------------------
Medical Other Medical Other
------- ----- ------- -----
<S> <C> <C> <C> <C>
Service cost.................................................... $ 1.2 $ 4.1 $ 1.1 $ 6.8
Interest cost................................................... 10.4 12.4 9.7 11.4
----- ----- ----- -----
$11.6 $16.5 $10.8 $18.2
===== ===== ===== =====
</TABLE>
<TABLE>
The following table presents the status of the RPG Group's portion of
the Company's postretirement benefit plans at September 30:
<CAPTION>
1994 1993
---------------------- ----------------------
Medical Other Medical Other
------- ----- ------- -----
<S> <C> <C> <C> <C>
Accumulated benefit obligation
Retirees...................................................... $ 64.9 $102.6 $ 67.3 $ 86.9
Fully eligible plan participants.............................. 35.6 48.2 46.9 45.4
Other active plan participants................................ 16.6 27.3 22.7 28.2
------ ------ ------ ------
Accumulated benefit obligation.................................. 117.1 178.1 136.9 160.5
Fair value of plan assets....................................... 3.5 3.3
------ ------ ------ ------
Accumulated benefit obligation in excess of plan assets......... 113.6 178.1 133.6 160.5
Unrecognized experience gain (loss)............................. 7.8 (5.6) 1.7 1.2
Unrecognized prior service gain................................. 10.3
------ ------ ------ ------
Accrued postretirement benefit liability........................ 131.7 172.5 135.3 161.7
Current portion................................................. 3.4 6.9 3.4 6.5
------ ------ ------ ------
Non-current portion............................................. $128.3 $165.6 $131.9 $155.2
====== ====== ====== ======
</TABLE>
37
<PAGE> 26
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
The assumptions used in determining the information above were as
follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate.................................................................................... 7.9% 7.9%
Trend rate for health care costs
Prior to age 65-current year................................................................... 11% 12%
-ultimate rate (by 2000)........................................................ 6% 6%
After age 65-current year...................................................................... 8% 9%
-ultimate rate (by 1997)........................................................... 6% 6%
</TABLE>
If the assumed health care cost trend rate increased by 1 percentage
point, the accumulated benefit obligation as of September 30, 1994
would increase by approximately $13.3 and expense would increase by
$1.2 annually.
Coincident with the adoption of the ESOP, the Company is phasing out
its subsidy of medical benefits for future retirees. In addition,
retiree contributions are adjusted periodically and it is expected that
such adjustments will continue in the future.
Notes Payable
<TABLE>
The information below describes the RPG Group's notes payable,
consisting of foreign notes payable specifically attributed to the RPG
Group and a portion of the Company's centrally managed notes payable
attributed to the RPG Group for the three years ended September 30,
1994 (see Related Party Activities note).
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Notes Payable
Ending balance................................................................ $454.3 $393.9 $422.6
Weighted average interest rate.............................................. 9% 9% 10%
Outstanding during period<Fa>
Maximum..................................................................... $488.1 $565.0 $494.5
Average..................................................................... 433.6 435.7 270.7
Weighted average interest rate.............................................. 9% 10% 12%
Commercial Paper
Ending balance................................................................ $ 46.7
Weighted average interest rate.............................................. 4%
Outstanding during period<Fa>
Maximum..................................................................... $ 14.6 $ 77.7 $ 85.2
Average..................................................................... 2.2 17.7 31.3
Weighted average interest rate.............................................. 3% 4% 4%
<FN>
- -----
<Fa> Based on month-end balances.
</TABLE>
Notes payable include borrowings in highly inflationary economies
which are specifically attributed to the RPG Group. The real effective
cost of local currency borrowing in these economies is expected to be
substantially less due to devaluation of the applicable local
currencies against the U.S. dollar.
On September 30, 1994, the Company's total unused lines of credit
were $132.5.
38
<PAGE> 27
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Long-Term Debt
<TABLE>
The detail of long-term debt as of September 30 follows:
<CAPTION>
Consolidated
Ralston Purina
RPG Group CBG Group Company
----------------- ----------------- ----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Centrally managed debt of the Company:<Fa>
Debentures
9 1/2% due 2016 $ 86.4 $ 143.8
9 3/8% due 2016 46.7 112.0
9 1/4% due 2009 181.0 200.0
9.30% due 2021 Attributed in total 200.0 200.0
8 5/8% due 2022 but not with 250.0 250.0
8 1/8% due 2023 respect to specific 175.0 175.0
Other Debt issues for Group
Medium-term Notes, 7.75% to financial statements
10.18% 84.5 121.0
12 3/4% Swiss Franc Bonds due 1994<Fb> 50.1 50.1
11 3/4% Notes due 1995 123.3 132.3
9% Notes due 1996 200.0 200.0
12% Notes due 1996 38.8 38.8
Capitalized lease obligations, 4% to 11 1/8% 6.0 13.0
Industrial revenue bonds, 3 1/4% to 12 3/4% 49.5 68.8
Other 11.1
-------- --------
Subtotal-centrally managed debt $1,148.3 $1,452.1 $343.0 $263.8 1,491.3 1,715.9
-------- -------- ------ ------ -------- --------
Specifically attributed debt<Fc> 131.2 127.5 131.2 127.5
ESOP debt guarantee<Fd> 195.3 232.1 64.9 77.4 260.2 309.5
-------- -------- ------ ------ -------- --------
Subtotal 1,474.8 1,811.7 407.9 341.2 1,882.7 2,152.9
Less current portion (223.2) (80.1) (64.9) (18.3) (288.1) (98.4)
-------- -------- ------- ------- --------- --------
$1,251.6 $1,731.6 $343.0 $322.9 $1,594.6 $2,054.5
======== ======== ====== ====== ======== ========
<FN>
- -----
<Fa> Most long-term debt is managed on a centralized consolidated basis.
This debt is attributed to the RPG Group and the CBG Group (in
total, but not with respect to specific issues) in proportion to
the ratio of each Group's attributed Net Debt balance to the
Company's total Net Debt. (See Related Party Activities note.)
<Fb> Represents the equivalent principal amount and approximate
effective interest rate of the 5 3/8% Bonds under related currency
exchange arrangements.
<Fc> As described in the Related Party Activities note, certain
financial activities are directly attributable to the RPG Group.
<Fd> ESOP debt recorded by the Company, along with related unearned
compensation, has been attributed to the RPG Group and the CBG
Group in proportion to the estimated future contributions of their
employees, which method management believes to be reasonable.
39
<PAGE> 28
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Aggregate maturities on all long-term debt, exclusive of debentures
held in treasury, are $290.5, $58.5, $18.5 and $12.2 for the years
ending September 30, 1996 through 1999, respectively. These aggregate
maturities do not include the future maturities of the ESOP debt
guarantee.
To fund its purchase of the Company's preferred stock, the Trust for
the Company-sponsored ESOP borrowed $500.0 principal amount in ten-year
8.25% notes (ESOP loan). The ESOP loan is unconditionally guaranteed by
the Company and is included in the Company's consolidated balance sheet
as long-term debt, along with a corresponding unearned ESOP
compensation. Both the long-term debt and the unearned ESOP
compensation will be reduced as employee and employer contributions to
the ESOP are used to reduce the outstanding ESOP loan. During 1994 and
1993, the ESOP incurred $24.5 and $28.4, respectively, of interest
expense on the ESOP loan.
Fair Value of Financial Instruments
The RPG Group's financial instruments include cash and cash
equivalents, short- and long-term debt, foreign currency hedging
contracts, and interest rate swap agreements used to hedge fluctuations
in interest rates. As of September 30, 1994 and 1993, the fair value of
the Company's long-term debt (which includes the CBG Group's portion of
centrally managed debt) was $1,926.3 and $2,401.2, respectively,
compared to its carrying value of $1,882.7 and $2,152.9, respectively.
The fair value of the Company's long-term debt has been estimated using
quoted market prices and yields obtained through independent pricing
sources for the same or similar types of borrowing arrangements, taking
into consideration the underlying terms of the debt, such as the coupon
rate, term to maturity, tax impact to investors and imbedded call
options.
Due to the nature of cash equivalents and short-term borrowings,
including current notes payable, carrying amounts on the balance sheet
approximate fair value.
The fair value of foreign currency contracts and interest rate
management agreements is the amount that the Company would receive or
pay to terminate the specific agreements, considering first, quoted
market prices of comparable agreements, or in the absence of quoted
market prices, such factors as, interest rates, currency exchange rates
and remaining maturities. Based on these considerations, the calculated
fair values of foreign currency contracts and interest rate management
agreements outstanding at September 30, 1994 and 1993 were not
material.
Redeemable Preferred Stock
At September 30, 1994, the Company had 10,600,000 shares of $1 par
value preferred stock authorized, of which 4,600,000 shares were
authorized as Series A 6.75% Preferred Stock ("Preferred Stock").
Preferred Stock has a guaranteed minimum value of $110.83 per share and
is convertible into the Company's $.10 par value RPG Stock and $.10 par
value CBG Stock at the ratio of 2.255 shares of RPG Stock and .4 shares
of CBG Stock for each share of Preferred Stock. The shares have a
preference in liquidation and each share has one voting right.
Dividends are cumulative, compounded and payable semi-annually. In
accordance with financial reporting requirements of the Securities and
Exchange Commission, the Preferred Stock has been classified outside of
permanent equity as Redeemable Preferred Stock.
Coincident with the spin-off of Ralcorp, the Company redeemed 334,109
shares of its Preferred Stock at the guaranteed minimum value. The
shares were redeemed by the Company in connection with the cessation of
participation in the Company's Savings Investment Plan by plan
participants employed by Ralcorp following the spin-off. As of March
31, 1994, the terms of the Preferred Stock required adjustment of the
conversion ratio to that described above with respect to RPG Stock to
reflect the change in the market value of RPG Stock as a result of the
Ralcorp spin-off. All other terms and provisions of the Preferred Stock
remain unchanged. During the year, the Company also redeemed 28,224
shares of its Preferred Stock to meet ongoing share redemption
requirements of the ESOP. Following these redemptions, 4,237,667 shares
of Preferred Stock remained issued and outstanding and continued to be
held by the Company's ESOP at September 30, 1994.
Preferred Stock shares are held, on behalf of the ESOP, by the ESOP's
trustee and are allocated to individual participants' accounts based on
the amount of employee and employer matching contributions to the ESOP.
Dividends on unallocated Preferred Stock are used to fund the debt
service requirements of the ESOP. The trustee, as holder of
40
<PAGE> 29
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Preferred Stock, may convert its shares into Company common stock (both RPG
Stock and CBG Stock) at any time, or may require the Company to redeem the
Preferred Stock shares, under certain limited circumstances, at the
guaranteed minimum price, in cash or in shares of Company common stock.
The Company may elect to redeem the Preferred Stock, under limited
circumstances, in cash or in shares of Company common stock.
The Redeemable Preferred Stock has been attributed to the RPG Group
and CBG Group based on estimated relative market values of the
respective groups prior to the distribution of stock, which method
management believes to be reasonable.
RPG Group Equity
</TABLE>
<TABLE>
The following analyzes this account for the periods presented:
<CAPTION>
Year Ended September 30,
------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year.................................................... $ 436.4 $ 584.3 $ 693.8
Net earnings.................................................................... 223.2 153.4 285.8
RPG Group's portion of corporate equity transactions (prior to redesignation of
Ralston Purina Common Stock as RPG Stock)...................................... (131.3) (428.4)
RPG Stock purchases............................................................. (100.9) (59.5)
Dividends declared on RPG Stock................................................. (121.5) (61.6)
Preferred Stock dividends, net of taxes, accrued after redesignation of Ralston
Purina Common Stock as RPG Stock............................................... (18.4) (3.2)
Impact of Ralcorp spin-off...................................................... (93.8)
Impact of Retained Interest..................................................... (2.7) (38.3)
Change in cumulative translation adjustment..................................... 11.4 (89.4) 57.3
Other, net...................................................................... 3.7 46.4 14.1
------- ------- -------
Balance at end of year........................................................ $ 340.1 $ 436.4 $ 584.3
======= ======= =======
</TABLE>
Corporate equity transactions include primarily treasury stock
purchases and dividends.
The shareholders equity of the Company is discussed in the
Shareholders Equity note to the Company's financial statements on pages
105 through 107.
Grantor Trust
On September 15, 1994, the Company established the Ralston Purina
Company Grantor Trust (the Trust) to provide a source of funds to
assist the Company in meeting its obligations under various employee
benefit plans and programs. The Trust supports existing, previously
approved employee benefit plans and does not change those plans or the
amounts of stock expected to be issued for those plans. Basic benefits
under such plans have not changed, however, payment of such benefits
would be accelerated if minimum funding requirements of the Trust are
not met.
Among the assets used to initially fund the Trust were 4,033,347
shares of RPG Stock having a fair market value on the date of transfer
of $169.4. The RPG Stock transferred to the Trust was issued out of
treasury.
The Trust is consolidated with the Company for financial reporting
purposes. For RPG Group financial reporting, the RPG Stock held in the
Trust is reported as outstanding but is offset by a corresponding
reduction in RPG Group equity, leaving total RPG Group equity
unaffected. RPG Stock held in the Trust is not considered outstanding
in the computation of earnings per share. At September 30, 1994,
4,033,347 shares of RPG Stock at a fair market value of $166.9 were
held by the Trust.
The Trustee is responsible for voting the shares of RPG Stock held in
the Trust.
41
<PAGE> 30
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Commitments and Contingencies
Legal and Environmental Matters
The Company is a party to a number of legal proceedings in various
state, federal and foreign jurisdictions. These proceedings are in
varying stages and many may proceed for protracted periods of time.
Some proceedings involve highly complex questions of fact and law.
On January 4, 1993, the Company was served with the first of nine
substantively identical actions currently pending in the United States
District Court for the District of New Jersey. The suits have been
consolidated and styled In Re Baby Food Antitrust Litigation, No.
92-5495 (NHP). The consolidated proceeding is a certified class action
by and on behalf of all direct purchasers of baby foods (other than the
defendants and governmental entities), alleging that the Beech-Nut baby
food business (owned by the Company from November, 1989 until April,
1994, and now owned by Ralcorp Holdings, Inc.) and its predecessor
Nestle Holdings, Inc. together with Gerber Products Company and H.J.
Heinz Company, conspired to fix, maintain and stabilize the prices of
baby food during the period January 1, 1975 to August 31, 1992. The
suit seeks treble damages.
On January 19 and 21, 1993, the Company was served with two class
actions on behalf of indirect purchasers (consumers) of baby food in
California, which contain substantially identical charges. These
actions have been consolidated in the Superior Court for the County of
San Francisco and styled Bruce, et al. v. Gerber Products Company, et
al., No. 94-8857. On January 19, 1993, Ralston was served with a
similar action filed in Alabama state court on behalf of indirect
purchasers of baby food in Alabama, styled Johnson, et al. v. Gerber
Products Company, et al., No. 93-L-0333-NE. The California and Alabama
state actions allege violations of state antitrust laws seek treble
damages and are substantively identical to each other. Similar state
actions may be filed in states having laws permitting suits by indirect
purchasers. The Company and Ralcorp Holdings, Inc. have agreed that all
liability expenses related to the above antitrust matters will be
shared equally, except that the Company will be solely responsible for
any settlement or judgment exceeding a set amount.
On January 6, 1993, the Company was served with an action entitled
Sunshine Mills, Inc. v. Ralston Purina Co., CV-93-P-0024-W, which is
currently pending in the United States District Court for the Northern
District of Alabama. The suit charged the Company with attempted
monopolization, conspiracy in restraint of trade and unlawful price
discrimination, together with false advertising and tortious
interference with business relations, in connection with its marketing
activities in pet foods. The Company has filed counterclaims
challenging certain labeling and advertising activities of Sunshine.
Both parties moved for summary judgment on the other's case; and on
October 31, 1994, the trial court granted summary judgment for the
Company with respect to Sunshine's claims of attempted monopolization,
conspiracy in restraint of trade, unlawful price discrimination, and
tortious interference with business relations to the extent that such
claim was predicated on the same Company activities claimed to violate
federal antitrust law.
On April 26, 1993, the Company also received two letters of inquiry
from the Federal Trade Commission seeking information related to the
allegations in the Sunshine lawsuit. One of these inquiries has been
closed with no further action against the Company.
The operations of the RPG Group, like those of other companies
engaged in similar businesses, are subject to various federal, state,
and local laws and regulations intended to protect the public health
and the environment, including air and water quality, and waste
handling and disposal. The Company has received notices from the U.S.
Environmental Protection Agency, state agencies, and/or private parties
seeking contribution, that it has been identified as a "potentially
responsible party" (PRP), under the Comprehensive Environmental
Response, Compensation and Liability Act, and the RPG Group may be
required to share in the cost of cleanup with respect to approximately
16 "Superfund" sites. The RPG Group's ultimate liability in connection
with those sites may depend on many factors including the volume of
material contributed to the site, the number of other PRP's and their
financial viability, and the remediation methods and technology to be
used.
In the opinion of management, based on the information presently
known, the ultimate liability of the RPG Group, if any, arising from
all such matters, as well as from all other pending legal proceedings,
asserted legal claims and known potential legal claims which are
probable of assertion, taking into account established accruals of
$11.7 for estimated liabilities, should not be material to the
financial position of the RPG Group, but could be material to results
of operations or cash flows of a particular quarter or annual period.
42
<PAGE> 31
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Other Contingencies
The Company had outstanding, at September 30, 1994, interest rate
swap agreements effectively converting Belgium franc, French franc,
Hong Kong dollar, Australian dollar and Swiss franc variable rate debt
having an equivalent U.S. dollar value of $126.0 into fixed rate debt.
These agreements mature in fiscal 1995 and 1996 and result in a
weighted average fixed interest rate of 9.1%.
<TABLE>
The following represents open foreign exchange forward and option
contracts at September 30, 1994:
<CAPTION>
Forward Contracts:
<S> <C>
Australia...................................................$ 2.3
Belgium..................................................... 126.8<Fa>
Canada...................................................... 17.7
Italy....................................................... .8
Japan....................................................... 13.6
Mexico...................................................... 25.0
New Zealand................................................. 5.8
Philippines................................................. 1.3
Singapore................................................... 9.8
Switzerland................................................. 3.0
<CAPTION>
Option Contracts to Purchase:
<S> <C>
France......................................................$ 21.0
Switzerland................................................. 22.0
U.K......................................................... 9.0
<FN>
- -----
<Fa> The RPG Group has a Belgian Coordination Center which functions as
an intragroup bank. The exposures and hedges in Belgium result
primarily from funding in various European currencies as well as
U.S. dollars.
</TABLE>
Foreign exchange contracts are generally for one year or less. Risk
of currency positions and mark-to-market valuation of positions are
strictly monitored at all times.
The counterparties to interest rate swap agreements and foreign
currency contracts consist of a number of major international financial
institutions and are generally institutions with which the Company
maintains lines of credit. The Company does not enter into foreign
exchange contracts through brokers nor does it trade foreign exchange
contracts on any other exchange or over the counter markets. The
Company continually monitors its positions and the credit ratings of
its counterparties both internally and by using outside rating
agencies. The Company has implemented policies which limit the amount
of agreements it enters into with any one party. While nonperformance
by these counterparties exposes the RPG Group to potential credit
losses, such losses are not anticipated due to the control features
mentioned.
At September 30, 1994, the Company had third party guarantees
outstanding in the aggregate amount of approximately $45.4. These
guarantees relate to financial arrangements with customers, suppliers,
and other business relationships. In addition, the RPG Group had
various commitments outstanding at September 30, 1994, involving
primarily purchase obligations, whereby the RPG Group was committed to
expenditures of $10.5 in fiscal 1995.
At September 30, 1994, the RPG Group's primary concentration of
credit risk related to approximately $18.0 of trade accounts receivable
due from several highly leveraged customers. Consideration was given to
the financial position of these customers when determining the
appropriate allowance for doubtful accounts.
Lease Commitments
Future minimum rental commitments under noncancellable operating
leases in effect as of September 30, 1994 were: 1995-$13.4, 1996-$9.9,
1997-$7.1, 1998-$5.1, 1999-$4.6, thereafter-$29.5.
Total rental expense for all operating leases was $43.7 in 1994,
$43.4 in 1993 and $42.6 in 1992.
43
<PAGE> 32
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Subsequent Event
The Company signed a letter of intent on November 15, 1994 to sell
the RPG Group's international agribusiness operations to PM Holdings
Corporation, the parent company of Purina Mills, Inc. The transaction
is subject to approval by the Board of Directors of both companies,
necessary government approvals and the completion of a definitive sales
agreement.
Other Income and Expense
<TABLE>
Other (income)/expense, net consists of the following:
<CAPTION>
Year Ended September 30,
------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Translation and exchange loss................................................... $22.0 $ 26.6 $ 18.6
Investment income............................................................... (15.2) (12.3) (15.6)
Miscellaneous (income)/expense.................................................. 10.5 (6.0) (10.9)
----- ------ ------
$17.3 $ 8.3 $ (7.9)
===== ====== ======
</TABLE>
<TABLE>
Supplemental Earnings Statement Information
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs......................................................... $155.8 $152.9 $148.7
Research and development........................................................ 69.3 65.0 68.9
</TABLE>
<TABLE>
Supplemental Balance Sheet Information
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Receivables (current)-
Trade.......................................................................................... $663.4 $621.2
Notes and other................................................................................ 93.0 79.9
Allowance for doubtful accounts................................................................ (25.8) (27.9)
------- -------
$730.6 $673.2
====== ======
Inventories-
Raw materials and supplies..................................................................... $170.7 $185.7
Work in process................................................................................ 101.5 93.7
Finished products.............................................................................. 405.0 469.0
------ ------
$677.2 $748.4
====== ======
Other Current Assets-
Prepaid expenses............................................................................... $ 94.4 $ 85.2
Deferred income tax benefits................................................................... 47.8 57.0
------ ------
$142.2 $142.2
====== ======
Investments and Other Assets-
Goodwill (net of accumulated amortization: 1994-$55.2 and 1993-$41.6).......................... $325.6 $365.7
Other intangible assets (net of accumulated amortization: 1994-$255.0 and 1993-$227.4)......... 191.6 228.7
Investments in affiliated companies............................................................ 13.9 12.7
Deferred charges and other assets.............................................................. 284.6 295.5
------ ------
$815.7 $902.6
====== ======
44
<PAGE> 33
RALSTON PURINA GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<CAPTION>
Supplemental Balance Sheet Information
1994 1993
---- ----
<S> <C> <C>
Accounts Payable and Accrued Liabilities-
Trade accounts payable......................................................................... $368.3 $392.0
Incentive compensation, salaries and vacations................................................. 80.3 76.6
Accrued interest............................................................................... 43.7 51.9
Restructuring reserves......................................................................... 108.1 57.3
Other items.................................................................................... 172.0 255.3
------ ------
$772.4 $833.1
====== ======
Other Liabilities-
Postretirement medical benefits................................................................ $128.3 $131.9
Other postretirement benefits.................................................................. 165.6 155.2
Minority interests............................................................................. 14.1 14.6
Other.......................................................................................... 75.6 84.3
------ ------
$383.6 $386.0
====== ======
</TABLE>
<TABLE>
Supplemental Cash Flow Statement Information
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest paid................................................................... $186.2 $203.6 $194.5
Income taxes paid............................................................... 234.5 216.4 175.8
</TABLE>
<TABLE>
Analysis of Balance Sheet Changes
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Allowance for Doubtful Accounts-
Balance, beginning of year.................................................... $ 27.9 $ 23.0 $ 16.4
Provision charged to expense.................................................. 5.2 14.8 14.5
Writeoffs, less recoveries.................................................... (7.3) (9.9) (7.9)
-------- -------- --------
Balance, end of year............................................................ $ 25.8 $ 27.9 $ 23.0
======== ======== ========
Property at Cost-
Balance, beginning of year.................................................... $2,927.5 $2,823.2 $2,549.7
Additions..................................................................... 242.5 230.7 253.3
Acquisitions.................................................................. 24.6 60.7 50.2
Disposals..................................................................... (114.8) (90.6) (80.1)
Ralcorp spin-off.............................................................. (645.3)
Foreign translation........................................................... 21.8 (96.5) 50.1
-------- -------- --------
Balance, end of year............................................................ $2,456.3 $2,927.5 $2,823.2
======== ======== ========
Accumulated Depreciation-
Balance, beginning of year.................................................... $1,184.8 $1,089.8 $ 936.2
Depreciation provision........................................................ 189.5 191.7 186.9
Disposals..................................................................... (80.9) (60.3) (53.7)
Ralcorp spin-off.............................................................. (188.5)
Foreign translation........................................................... 8.1 (36.4) 20.4
Property writedowns associated with restructuring............................. 42.9
-------- -------- --------
Balance, end of year............................................................ $1,155.9 $1,184.8 $1,089.8
======== ======== ========
</TABLE>
45
<PAGE> 34
<TABLE>
RALSTON PURINA GROUP
QUARTERLY FINANCIAL INFORMATION
(unaudited)
(Dollars in millions except per share data)
<CAPTION>
Fiscal 1994 First Second Third<Fa> Fourth<Fa>
- ----------- ----- ------ --------- ----------
<S> <C> <C> <C> <C>
Net sales....................................................... $1,724.3 $1,507.4 $1,223.4 $1,304.2
Gross profit.................................................... 780.2 644.5 506.1 528.8
Earnings (loss) before extraordinary item....................... 133.4 73.3 50.9 (26.5)<Fb>
Net earnings (loss)............................................. 133.4 65.4 50.9 (26.5)<Fb>
Earnings per common share-
Primary
Earnings (loss) before extraordinary item................... 1.27 .68 .46 (.31)<Fb>
Net earnings (loss)......................................... 1.27 .60 .46 (.31)<Fb>
Fully diluted
Earnings (loss) before extraordinary item................... 1.18 .65 .45 (.31)<Fb>
Net earnings (loss)......................................... 1.18 .58 .45 (.31)<Fb>
Dividends paid per common share................................. .30 .30 .30 .30
Market price range of RPG Stock................................. 42 3/4- 46 3/8- 39 1/2- 42 1/4-
38 1/4 38 1/4 33 1/2 34 3/8
<CAPTION>
Fiscal 1993 First Second Third Fourth
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales....................................................... $1,691.2 $1,416.5 $1,359.7 $1,448.0
Gross profit.................................................... 766.4 614.5 581.0 600.5
Earnings before extraordinary item and cumulative effect of
accounting changes............................................. 90.7 78.5 55.9 58.5
Earnings before cumulative effect of accounting changes......... 85.0 78.5 55.9 54.3
Net earnings (loss)............................................. (35.3) 78.5 55.9 54.3
Pro forma earnings per common share (assuming two classes of
common stock)-
Primary
Earnings before extraordinary item and cumulative effect of
accounting changes......................................... .82 .71 .49 .52
Earnings before cumulative effect of accounting changes..... .77 .71 .49 .48
Net earnings (loss)......................................... (.39) .71 .49 .48
Fully diluted
Earnings before extraordinary item and cumulative effect of
accounting changes......................................... .78 .68 .48 .51
Earnings before cumulative effect of accounting changes..... .73 .68 .48 .47
Net earnings (loss)......................................... (.32) .68 .48 .47
Actual earnings per common share-
Primary
Earnings before extraordinary item.......................... .40<Fc>
Net earnings................................................ .36<Fc>
Fully diluted
Earnings before extraordinary item.......................... .38<Fc>
Net earnings................................................ .34<Fc>
Dividends paid per common share................................. .30
Market price range of RPG Stock................................. 40 3/4-
33 1/2<Fc>
<FN>
- -----
<Fa> Excludes results of operations of Ralcorp after spin-off on March
31, 1994.
<Fb> Earnings for the fourth quarter of 1994 were reduced by $72.8 or
$.73 per primary share of RPG Stock due to provisions for
restructuring expenses.
<Fc> Represents actual earnings per share and stock price range on the
redesignated RPG Stock for the period after July 30, 1993 through
September 30, 1993.
</TABLE>
46
<PAGE> 35
47
<PAGE> 36
48
<PAGE> 37
49
<PAGE> 38
<TABLE>
CONTINENTAL BAKING GROUP
Five Year Financial Summary
<CAPTION>
(In millions except per share and percentage data)
52 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
Sept. 24, Sept. 25, Sept. 26, Sept. 28, Sept. 29,
STATEMENT OF EARNINGS DATA 1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales............................................ $1,948.6 $1,997.0 $2,013.4 $1,962.3 $1,956.5
Depreciation and Amortization........................ 76.5 73.2 69.1 66.7 64.3
Earnings (Loss) before Income Taxes, Interest
Expense, Extraordinary Item and Cumulative Effect of
Accounting Changes.................................. (13.2) 79.6 115.0 139.0 152.1
As a Percent of Sales.............................. (.7)% 4.0% 5.7% 7.1% 7.8%
Earnings (Loss) before Income Taxes, Extraordinary
Item and Cumulative Effect of Accounting Changes.... $ (42.7) $ 52.2 $ 84.2 $ 109.0 $ 120.7
Income Taxes......................................... (16.9) 21.2 34.9 45.2 49.8
Earnings (Loss) before Extraordinary Item and
Cumulative Effect of Accounting Changes<Fa>......... (25.8) 31.0 49.3 63.8 70.9
As a Percent of Sales.............................. (1.3)% 1.6% 2.4% 3.3% 3.6%
Net Earnings (Loss)<Fb>.............................. $ (27.4) $ (57.5) $ 48.2 $ 63.8 $ 70.9
Earnings (Loss) after Preferred Stock Dividend....... (29.2) (59.4) 46.3 61.9 69.0
Earnings (Loss) after RPG Group's Retained
Interest<Fc>........................................ (16.1) (32.7) 25.5 34.0 38.0
<CAPTION>
Sept. 24, Sept. 25, Sept. 26, Sept. 28, Sept. 29,
BALANCE SHEET DATA 1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Working Capital Deficit.............................. $ (80.7) $ (62.8) $ (78.8) $ (38.3) $ (70.7)
Property at Cost, Net................................ 597.0 588.9 573.0 570.2 555.2
Additions (during the year)........................ 89.6 90.1 72.1 82.1 83.0
Depreciation (during the year)..................... 75.2 71.8 67.8 64.6 61.9
Total Assets......................................... 856.7 825.1 828.3 823.0 775.0
Long-Term Debt....................................... 343.0 322.9 358.7 385.5 386.4
Redeemable Preferred Stock........................... 42.3 45.9 45.9 45.8 45.3
CBG Group Equity..................................... 28.0 60.8 129.0 163.6 134.1
Per Share.......................................... .75 1.62
CBG Stock Outstanding................................ 20.6 20.7
- ------------------------------------------------------------------------
<CAPTION>
SHARE AND PER SHARE DATA
CBG Stock (Pro forma in 1993 and 1992 assuming 52 Weeks 52 Weeks 52 Weeks
two classes of common stock): Ended Ended Ended
Earnings (Loss) before Extraordinary Item and Sept. 24, Sept. 25 Sept. 26,
Cumulative Effect of Accounting Changes 1994 1993(d) 1992
-------- -------- ---------
<S> <C> <C> <C>
Primary.......................................... $ (.74) $ .77 $ 1.23
Fully Diluted.................................... (.74) .67 1.08
Net Earnings (Loss)
Primary.......................................... (.78) (1.58) 1.20
Fully Diluted.................................... (.78) (1.43) 1.05
Dividends Declared on CBG Stock...................... .16<Fe>
Average Shares Outstanding-CBG Stock............... 20.5 20.7 21.3
<FN>
- -----
<Fa> Before extraordinary charges for early retirement of debt of $1.6
in fiscal 1994, $1.9 in fiscal 1993 and $1.1 in fiscal 1992. Also,
before cumulative effect of accounting changes of $86.6 in fiscal
1993.
<Fb> After tax provisions for restructuring, and additionally for
environmental costs in 1991, reduced earnings by $9.6 in 1994, $8.4
in 1992 and $10.1 in 1991.
<Fc> Earnings (loss) after RPG Group's Retained Interest represents
earnings after preferred stock dividend multiplied by 55%, the CBG
Fraction. The balance of earnings after preferred stock dividend
represents the RPG Group's Retained Interest and is reflected in
the earnings of the RPG Group.
<Fd> Earnings before extraordinary item per share of CBG Stock for the
two months ended September 25, 1993 were $.21 and $.18 on a primary
and fully diluted basis, respectively. Net earnings per share for
the same period were $.19 and $.16.
<Fe> Represents dividends declared on newly issued CBG Stock from July
30, 1993 through September 25, 1993.
</TABLE>
50
<PAGE> 39
CONTINENTAL BAKING GROUP
FINANCIAL REVIEW
Effective July 30, 1993, the Company has two classes of common stock,
CBG Stock and RPG Stock. CBG Stock is intended to reflect the
performance of the CBG Group which consists of the operations of the
Company's Bakery Products segment.
The following discussion is a summary of the key factors management
considers necessary in reviewing the CBG Group's results of operations,
liquidity and capital resources. The discussion should be read in
conjunction with the combined financial statements of the CBG Group and
related notes.
Highlights and Outlook
The CBG Group had a net loss of $27.4 million in 1994 compared to
$57.5 million in 1993 and net earnings of $48.2 million in 1992. The
1994 loss includes a provision for restructuring of $9.6 million, after
taxes, and an extraordinary loss on the early retirement of debt of
$1.6 million, after taxes. The 1993 loss includes charges of $86.6
million, after taxes, for the cumulative effect of accounting changes
related to postretirement benefits other than pensions and income
taxes, and an extraordinary loss on the early retirement of debt of
$1.9 million, after taxes. The 1992 earnings include a restructuring
provision of $8.4 million, after taxes, and an extraordinary loss on
the early retirement of debt of $1.1 million, after taxes. Excluding
these items, earnings declined $47.2 million in 1994 and $26.7 million
in 1993.
The markets in which the CBG Group competes are mature and highly
competitive and are sensitive to pricing and promotion. Most of the
production and distribution workforce belong to organized labor unions.
Future performance of the CBG Group is dependent on arresting volume
declines, implementing cost reductions, the ability to raise prices,
maintaining competitive promotion and pricing practices and new product
introductions. Historically, the CBG Group has responded to these
market conditions by introducing new bread, snack cakes and breakfast
products, by consolidating and improving production and by improving
margins from pricing actions. However, performance has been hampered by
strong, low price competition, the growth of in-store bakeries, weak
market trends and the decline in convenience stores. Bread margins have
been impacted by a shift from branded to private label products during
recent years.
The impact of problems described above has thus far exceeded the
benefits of cost reduction programs underway. Management continues to
challenge the way it conducts business by looking for additional cost
savings, ways to strengthen volume and opportunities to improve bottom
line performance. The CBG Group has experienced resistance to aspects
of its cost reduction initiatives by some unions; however, the CBG
Group expects to continue aggressively pursuing these changes in
contract talks in order to implement its costs savings objectives.
Cost of products sold is somewhat dependent on commodity market
prices. Prices may fluctuate due to weather conditions, government
regulations, economic climate or other unforeseen circumstances. The
Company manages exposure to changes in the commodities markets as
considered necessary by hedging certain of its ingredient requirements
such as flour and sweetners. Commodity costs have represented 30 to 35%
of cost of products sold during the three year period ended September
24, 1994. Futures contracts were used to hedge approximately 10 to 25%
of such commodity purchases, or 4 to 8% of cost of products sold,
during that period.
Operating Results
Net sales decreased $48.4 million or 2.4% in 1994 on lower volume and
the continuing shift to lower margin products in bread, lower thrift
store volume and higher promotional sales discounts. Sales declined .8%
in 1993 on the shift to lower margin products in bread, lower thrift
store volume and higher promotional sales discounts, partially offset
by higher prices.
Gross profit decreased 5.4% in 1994 and 2.4% in 1993. Cost of
products sold as a percentage of sales was 50.6% in 1994 compared to
49.0% in 1993 and 48.2% in 1992. Lower sales combined with the high
fixed cost operating structure as well as higher ingredient costs
accounted for the higher cost percentage in the current year, more than
offsetting the impact of cost reductions.
Operating profit, before restructuring charges, declined 84% in 1994.
Lower sales combined with high fixed production and distribution costs
account for the majority of the decline. Price increases insufficient
to cover higher ingredient costs
51
<PAGE> 40
CONTINENTAL BAKING GROUP
FINANCIAL REVIEW (Continued)
and inflationary increases in other costs also contributed to the decline.
In 1993, operating profit, before restructuring charges, declined 36% as
bread products experienced a significant decline in operating profit as a
result of an unfavorable product mix, lower thrift store volume and higher
promotional sales discounts. Sweet baked goods operating profit
improved on cost reductions partially offset by lower thrift store
volume and higher promotional sales discounts.
The CBG Group experienced an operating loss in the fourth quarter of
1994 of $8.2 million compared to operating profit of $23.9 million in
the fourth quarter of 1993. Factors cited for the year and a $5.5
million pre-tax adjustment to prior years' workers compensation claims
accounted for the decline.
Selling, general and administrative expenses increased 2.9% in 1994
and 2.5% in 1993. The increases in 1994 and 1993 approximated inflation
rates. As a percent of sales, such costs were 45.2%, 42.9% and 41.5% in
1994, 1993 and 1992, respectively, reflecting declining sales combined
with the CBG Group's high fixed cost distribution structure. The
increases also reflect plant consolidation efforts and more centralized
production of new products.
Other income/expense, net, was unfavorable in 1994 by $4.2 million,
primarily on lower returns on other investments. The CBG Group recorded
tax benefits of 39.6% of pre-tax loss in 1994 compared to income tax
provisions of 40.6% in 1993 and 41.4% in 1992. Tax provisions generally
reflect statutory tax rates.
Liquidity and Capital Resources
Cash flow from operations was $42.7 million in 1994 compared to
$138.0 million in 1993 and $119.5 million in 1992. The decrease in 1994
cash flow from operations is primarily the result of lower cash
earnings. The CBG Group's working capital needs are minimal due to
daily production and distribution of fresh product and fast receivable
turnover. Current liabilities exceeded current assets by $80.7 million
at September 24, 1994 compared to $62.8 million at September 25, 1993.
Capital expenditures were $89.6 million, $90.1 million and $72.1
million in fiscal years 1994, 1993 and 1992, respectively. In 1995,
capital expenditures are projected to be approximately $80 million
which includes capital expenditures for cost reduction programs.
The Company manages most financial activities of the groups on a
centralized, consolidated basis. The liquidity and capital resources of
the Company provide financial and operating flexibility to each group.
The CBG Group's portion of centrally managed debt increased $70.0
million in 1994, decreased $47.8 million in 1993 and increased $21.1
million in 1992.
Subsequent to the issuance of CBG Stock, equity transactions are
imputed based on specific identification of treasury stock purchases,
dividends and other equity transactions to each class of stock and to
group financial statements. Cash dividends on CBG Stock of $1.6 million
were paid both in 1994 and in the two months subsequent to issuance of
CBG Stock in 1993. Coincident with the dividend payments, the CBG Group
paid $1.4 million in 1994 and in 1993 to the RPG Group related to its
45% retained interest in the CBG Group. The Company purchased CBG Stock
for $2.3 million in 1994 and attributed such purchases to the CBG
Group. Coincident with the stock purchases, the CBG Group paid $1.9
million to the RPG Group related to its 45% retained interest in the
CBG Group. Prior to the issuance of CBG Stock, each group was
attributed a portion of corporate equity transactions. The CBG Group
contributed $6.0 million and $85.0 million to fund the Company's equity
transactions for the ten months ended July 30, 1993 and for the year
ended 1992, respectively. As of November 21, 1994, 3,757,900 shares
remained under the Board of Directors' authorization for the purchase
of up to 4 million shares of CBG Stock.
Coincident with the spin-off of the Company's cereal, baby food,
cookies and crackers, ski resort and coupon redemption businesses
(Ralcorp) on March 31, 1994, the Company redeemed 334,109 shares of its
Series A 6.75% Preferred Stock at its guaranteed minimum value. The
shares were redeemed by the Company in connection with the cessation of
participation in the Company's Savings Investment Plan by plan
participants employed by Ralcorp following the spin-off. The CBG
Group's share of the preferred stock redemption was $3.3 million, which
was funded by the issuance of 161,582 shares of CBG Stock and $2.2
million of additional centrally managed debt.
The Board intends to declare and pay dividends on the CBG Stock based
primarily on earnings and cash flow capabilities and business
requirements of the CBG Group, although there is no requirement to do
so. Dividends that may be paid to holders of CBG Stock are limited to
the lesser of legally available funds of the Company and the Available CBG
52
<PAGE> 41
CONTINENTAL BAKING GROUP
FINANCIAL REVIEW (Continued)
Dividend as defined by the Company's Articles of Incorporation. As
of September 24, 1994, dividends available under this restriction were
at least $84.0 million. No dividends were declared on CBG Stock in
fiscal 1994.
Restructuring Activities
The 1994 restructuring provision of $16.0 million, pre-tax, covers
severance and related payroll costs for 435 headquarters and field
employees who have been or will be laid off as part of the CBG Group's
continuing cost reduction program. As of September 24, 1994, 205
employees have been laid off and have begun receiving benefits which
will total $9.5 million. As of September 24, 1994, $1.4 million of such
benefits had been paid. The CBG Group expects annualized cost
reductions of $20 million, pre-tax, as a result of these actions. Pre-
tax cost savings realized in the fourth quarter were $2.7 million.
<TABLE>
Provisions for restructuring in 1992 consisted of $6.7 million of
severance and employee related costs, $3.2 million of other cash costs
and $3.8 million of fixed asset writedown on expected disposition
losses. The following summarizes activities related to such reserves:
<CAPTION>
(in millions)
<S> <C>
1992 restructuring provision................................................................ $13.7
Cash exit costs incurred thru 9/30/94....................................................... (3.8)
Losses on disposal of fixed assets thru 9/30/94............................................. (2.6)
Provision reversal in 1993.................................................................. (2.6)
Provision reversal in 1994.................................................................. (.5)
------
Remaining reserve balance at 9/30/94........................................................ $ 4.2
=====
</TABLE>
Activities related to the 1992 restructuring provisions are expected
to be completed in 1995.
As a result of the restructuring actions covered by the 1992
provision, pre-tax cost savings have been approximately $6 million and
$5 million in 1994 and 1993, respectively. The ultimate annual
reduction is expected to be $6 million.
Environmental Matters
The operations of the CBG Group, like those of similar businesses,
are subject to various federal, state and local laws and regulations
intended to protect the public health and the environment, including
air and water quality, underground fuel storage tanks, and waste
handling and disposal. The CBG Group has approximately 300 underground
fuel storage tanks at various locations throughout the United States
which are subject to federal and state regulations establishing minimum
standards for such tanks and, where necessary, remediation of
associated contamination. The CBG Group is presently in the process of
testing and evaluating, and, if necessary, removing, replacing or
upgrading such tanks in order to comply with such laws. In addition,
the Company has received notices from the U.S. Environmental Protection
Agency, state agencies, and/or private parties seeking contribution,
that it has been identified as a "potentially responsible party" (PRP),
under the Comprehensive Environmental Response, Compensation and
Liability Act, and the CBG Group may be required to share in the cost
of cleanup with respect to approximately 3 "Superfund" sites. The CBG
Group's ultimate liability in connection with those sites may depend on
many factors, including the volume of material contributed to the site,
the number of other PRP's and their financial viability, and the
remediation methods and technology to be used. While it is difficult to
quantify the potential financial impact of actions involving
environmental matters, particularly remediation costs at waste disposal
sites and future capital expenditures for environmental control
equipment, in the opinion of management, the ultimate liability arising
from such environmental matters, taking into account established
accruals for estimated liabilities, should not be material to the
financial position of the CBG Group, but could be material to results
of operations or cash flows for a particular quarter or annual period.
53
<PAGE> 42
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The preparation and integrity of the financial statements of the CBG
Group are the responsibility of the Company's management. These
statements have been prepared in conformance with generally accepted
accounting principles and in the opinion of management fairly present
the CBG Group's financial position, results of operations and cash
flows.
The Company maintains accounting and internal control systems which
it believes are adequate to provide reasonable assurance that assets
are safeguarded against loss from unauthorized use or disposition and
that the financial records are reliable for preparing financial
statements. The selection and training of qualified personnel, the
establishment and communication of accounting and administrative
policies and procedures, and an extensive program of internal audits
are important elements of these control systems.
The report of Price Waterhouse LLP, independent accountants, on their
audits of the accompanying financial statements is shown below. This
report states that the audits were made in accordance with generally
accepted auditing standards. These standards include a study and
evaluation of internal control for the purpose of establishing a basis
for reliance thereon relative to the scope of their audits of the
financial statements.
The Board of Directors, through its Audit Committee consisting solely
of nonmanagement directors, meets periodically with management,
internal audit and the independent accountants to discuss audit and
financial reporting matters. To assure independence, Price Waterhouse
LLP has direct access to the Audit Committee.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Ralston Purina Company
In our opinion, the accompanying combined balance sheet and the
related combined statements of earnings and of cash flows present
fairly, in all material respects, the financial position of the
Continental Baking Group at September 24, 1994 and September 25, 1993,
and the results of their operations and their cash flows for each of
the three 52 week periods in the period ended September 24, 1994, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of Ralston Purina Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in the Summary of Accounting Policies note to the
financial statements, Ralston Purina Company changed its method of
accounting for postretirement benefits other than pensions and income
taxes in 1993.
The Continental Baking Group is a business group of Ralston Purina
Company (as described in the Basis of Presentation note to these
financial statements); accordingly, the combined financial statements
of the Continental Baking Group should be read in connection with the
consolidated financial statements of Ralston Purina Company.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
November 4, 1994
54
<PAGE> 43
<TABLE>
CONTINENTAL BAKING GROUP
COMBINED STATEMENT OF EARNINGS
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
Sept. 24, Sept. 25, Sept. 26,
(Dollars in millions except per share data) 1994 1993 1992
- ------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net Sales....................................................................... $1,948.6 $1,997.0 $2,013.4
Costs and Expenses
Cost of products sold......................................................... 985.4 979.2 971.0
Selling, general and administrative........................................... 881.0 856.5 835.3
Advertising and promotion..................................................... 77.1 83.6 79.9
Interest...................................................................... 29.5 27.4 30.8
Provisions for restructuring.................................................. 16.0 13.7
Other (income)/expense, net................................................... 2.3 (1.9) (1.5)
-------- --------- ---------
1,991.3 1,944.8 1,929.2
Earnings (Loss) before Income Taxes, Extraordinary Item and Cumulative Effect of
Accounting Changes............................................................. (42.7) 52.2 84.2
Income Taxes.................................................................... (16.9) 21.2 34.9
--------- -------- --------
Earnings (Loss) before Extraordinary Item and Cumulative Effect of Accounting
Changes........................................................................ (25.8) 31.0 49.3
Extraordinary Item-Loss on Early Retirement of Debt............................. (1.6) (1.9) (1.1)
--------- --------- ---------
Earnings (Loss) before Cumulative Effect of Accounting Changes.................. (27.4) 29.1 48.2
Cumulative Effect of Accounting Changes:
Postretirement benefits other than pensions................................... (41.2)
Income taxes.................................................................. (45.4)
-------- --------- --------
Net Earnings (Loss)............................................................. (27.4) (57.5) 48.2
Preferred Stock Dividend, Net of Taxes.......................................... 1.8 1.9 1.9
-------- -------- --------
Earnings (Loss) after Preferred Stock Dividend.................................. (29.2) (59.4) 46.3
Earnings (Loss) Applicable to the RPG Group's Retained Interest in the CBG Group. (13.1) (26.7) 20.8
--------- --------- --------
Earnings (Loss) after RPG Group's Retained Interest............................. $ (16.1) $ (32.7) $ 25.5
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Earnings (Loss) per Share of CBG Stock (Pro forma in 1993 and 1992 assuming two
classes of common stock, unaudited):
Primary
Earnings (Loss) before Extraordinary Item and Cumulative Effect of
Accounting Changes......................................................... $(.74) $ .77 $1.23
Extraordinary Item.......................................................... (.04) (.05) (.03)
Cumulative Effect of Accounting Changes..................................... (2.30)
----- ------ -----
Net Earnings (Loss)......................................................... $(.78) $(1.58) $1.20
===== ====== =====
Fully Diluted
Earnings (Loss) before Extraordinary Item and Cumulative Effect of
Accounting Changes......................................................... $(.74) $ .67 $1.08
Extraordinary Item.......................................................... (.04) (.05) (.03)
Cumulative Effect of Accounting Changes..................................... (2.05)
----- ------ -----
Net Earnings (Loss)......................................................... $(.78) $(1.43) $1.05
===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Primary Fully Diluted
------------------ ------------------
2 months ended 2 months ended
September 25, 1993 September 25, 1993
------------------ ------------------
<S> <C> <C>
Earnings per share of CBG Stock for the two months ended September 25, 1993:
Earnings before Extraordinary Item............................................ $ .21 $ .18
Extraordinary Item............................................................ (.02) (.02)
----- -----
Net Earnings.................................................................. $ .19 $ .16
===== =====
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
55
<PAGE> 44
<TABLE>
CONTINENTAL BAKING GROUP
COMBINED BALANCE SHEET
<CAPTION>
Sept. 24, Sept. 25,
(Dollars in millions) 1994 1993
- --------------------- --------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................................................... $ 13.6 $ .5
Receivables, less allowance for doubtful accounts.............................................. 98.5 91.3
Inventories.................................................................................... 52.7 55.3
Other current assets........................................................................... 32.0 29.0
-------- ------
Total Current Assets......................................................................... 196.8 176.1
-------- ------
Investments and Other Assets..................................................................... 62.9 60.1
-------- ------
Property at Cost
Land........................................................................................... 65.6 64.2
Buildings...................................................................................... 215.3 210.1
Machinery and equipment........................................................................ 765.1 702.1
Construction in progress....................................................................... 25.5 37.9
-------- ------
1,071.5 1,014.3
Accumulated depreciation..................................................................... 474.5 425.4
-------- ------
597.0 588.9
-------- ------
Total...................................................................................... $ 856.7 $825.1
======== ======
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt........................................................... $ 64.9 $ 18.3
Notes payable.................................................................................. 7.4
Accounts payable and accrued liabilities....................................................... 211.9 209.9
Dividends payable.............................................................................. .7 2.5
Income taxes................................................................................... .8
-------- ------
Total Current Liabilities.................................................................... 277.5 238.9
-------- ------
Long-Term Debt................................................................................... 343.0 322.9
-------- ------
Deferred Income Taxes............................................................................ 8.9 11.1
-------- ------
Other Liabilities................................................................................ 221.9 222.9
-------- ------
Commitments and Contingencies....................................................................
Redeemable Preferred Stock....................................................................... 42.3 45.9
-------- ------
Unearned ESOP Compensation....................................................................... (64.9) (77.4)
--------- -------
CBG Group Equity................................................................................. 28.0 60.8
-------- ------
Total...................................................................................... $ 856.7 $825.1
======== ======
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
56
<PAGE> 45
<TABLE>
CONTINENTAL BAKING GROUP
COMBINED STATEMENT OF CASH FLOWS
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
Sept. 24, Sept. 25, Sept. 26,
(Dollars in millions) 1994 1993 1992
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
Cash Flow from Operations
Net earnings (loss)........................................................... $(27.4) $ (57.5) $ 48.2
Adjustments to reconcile net earnings (loss) to net cash flow provided by
operations
Extraordinary item.......................................................... 1.6 1.9 1.1
Cumulative effect of accounting changes..................................... 86.6
Non-cash restructuring reserves............................................. 3.8
Depreciation and amortization............................................... 76.5 73.2 69.1
Deferred income taxes....................................................... (5.7) (1.4) (9.4)
Changes in assets and liabilities used in operations
(Increase) decrease in accounts receivable................................ (7.2) 2.1 (5.2)
(Increase) decrease in inventories........................................ 2.6 1.2 (2.3)
(Increase) decrease in other current assets............................... (2.2) 1.8 .5
Increase in accounts payable and accrued liabilities...................... 3.0 23.8
Increase (decrease) in other current liabilities.......................... 1.2 (4.7) (5.2)
Other, net.................................................................. .3 11.0 18.9
------ ------ ------
Net cash flow from operations............................................ 42.7 138.0 119.5
------ ------ ------
Cash Flow from Investing Activities
Property additions............................................................ (89.6) (90.1) (72.1)
Proceeds from the sale of property............................................ 6.3 2.4 1.5
Other, net.................................................................... (3.6) 6.5 (.3)
------ ------ -------
Net cash used by investing activities.................................... (86.9) (81.2) (70.9)
------ ------- -------
Cash Flow from Financing Activities
Net proceeds from (payments on) centrally managed debt........................ 70.0 (47.8) 21.1
Cash provided for corporate equity transactions prior to distribution of CBG
Stock........................................................................ (6.0) (85.0)
CBG Stock purchases........................................................... (2.3)
Dividends paid................................................................ (4.6) (1.6)
Payment attributed to Retained Interest....................................... (3.3) (1.4)
Other, net.................................................................... (2.5)
------ ------ ------
Net cash provided (used) by financing activities......................... 57.3 (56.8) (63.9)
------ ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents............................ 13.1 0.0 (15.3)
Cash and Cash Equivalents, Beginning of Period.................................. .5 .5 15.8
------ ------ ------
Cash and Cash Equivalents, End of Period........................................ $ 13.6 $ .5 $ .5
====== ====== ======
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
57
<PAGE> 46
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions except per share data)
Basis of Presentation
Effective July 30, 1993, the Company has two classes of common stock,
CBG Stock and RPG Stock. CBG Stock is intended to reflect the
performance of the Company's fresh bakery products business.
The financial statements of the CBG Group include the financial
position, results of operations and cash flows of the Bakery Products
segment and a portion of the Company's corporate assets and liabilities
and related transactions which are not separately identified with
operations of a specific segment. The CBG Group financial statements
are prepared using the amounts included in the Company's consolidated
financial statements. Corporate amounts reflected in these financial
statements are determined based upon methods which management believes
to be reasonable (see Related Party Activities note).
The Company provides to holders of CBG Stock separate financial
statements, financial review, descriptions of business and other
relevant information for the CBG Group. Notwithstanding the attribution
of assets and liabilities (including contingent liabilities) between
the CBG Group and RPG Group for the purpose of preparing their
respective financial statements, this attribution does not affect legal
title to such assets or responsibility for such liabilities of the
Company or any of its subsidiaries. Holders of CBG Stock are common
shareholders of the Company, which continues to be responsible for all
of its liabilities. Financial impacts arising from the RPG Group that
affect the consolidated results of operations or financial position of
the Company could affect the results of operations or financial
position of the CBG Group. Accordingly, the Company's consolidated
financial information should be read in connection with the CBG Group
financial information.
The Net Debt (see Related Party Activities note) and preferred stock
components of the capital structure attributed to the CBG Group and the
RPG Group as determined by the Board have been reflected in the
financial statements as of March 31, 1993. The Redeemable Preferred
Stock has been attributed to each Group based on estimated relative
market values of the respective groups prior to distribution of CBG
Stock.
The amount of Net Debt reflected in the financial statements has been
adjusted based upon the cash flow impacts of the debt and other cash
flows, including corporate transactions, occurring during those
periods. In attributing corporate equity transactions to each Group
prior to July 30, 1993, the Company has maintained the relationship of
each Group's debt to total capitalization to the Company's debt to
total capitalization. Subsequent to July 30, 1993, equity transactions
are imputed as a result of the specific attribution of the cash flow
impacts of treasury stock purchases, dividends and other equity
transactions to the respective group financial statements. Such
attribution impacts the attribution of Net Debt to the CBG Group.
Dividends paid to the holders of CBG Stock are limited to the lesser
of legally available funds of the Company and the Available CBG
Dividend Amount (see Available Dividends note). Subject to this
limitation, the Board intends to declare and pay dividends on the CBG
Stock based primarily on the earnings and cash flow capabilities and
business requirements of the CBG Group, although there is no
requirement to do so.
The accounting policies applicable to the preparation of the
financial statements of the CBG Group may be modified or rescinded at
the sole discretion of the Board without approval of shareholders,
although there is no current intention to do so.
Summary of Accounting Policies
The CBG Group's significant accounting policies, which conform to
generally accepted accounting principles and are applied on a
consistent basis among years, except as indicated, are described below:
Principles of Combination-These financial statements include the
combined accounts of the businesses comprising the CBG Group. All
significant transactions among those businesses are eliminated.
58
<PAGE> 47
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Financial Instruments-The Company enters into interest rate swap and
cap agreements in the management of interest rate exposure. The
differential to be paid or received is normally accrued as interest
rates change and is recognized over the life of the agreements.
Cash Equivalents for purposes of the statement of cash flows are
considered to be all highly liquid investments with a maturity of three
months or less when purchased. Cash flow from hedging transactions are
classified in the same category as the cash flow from the item being
hedged.
Inventories are valued generally at the lower of FIFO cost or market.
The Company hedges certain of its commodity purchases as considered
necessary to reduce the risk associated with market price fluctuations.
Gains and losses on hedges of future commodity purchases are recognized
in the same period as the related purchase transaction.
Property at Cost-Expenditures for new facilities and those which
substantially increase the useful lives of the property, including
interest during construction, are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and gains or losses on the dispositions
are reflected in earnings.
Depreciation is generally provided on the straight-line basis by
charges to costs or expenses at rates based on the estimated useful
lives of the properties. Estimated useful lives range from 3 to 20
years for machinery and equipment and 15 to 45 years for buildings.
Intangible Assets, which are included in Investments and Other
Assets, represent the excess of cost over the net tangible assets of
acquired businesses and are amortized over estimated periods of related
benefit ranging from 5 to 40 years. Intangible assets resulting from
acquisitions of businesses in the CBG Group have been attributed to the
CBG Group.
Subsequent to acquisition, the CBG Group continually evaluates
whether later events and circumstances have occurred that indicate the
remaining estimated useful life of an intangible asset may warrant
revision or that the remaining balance of an intangible asset may not
be recoverable. The measurement of possible impairment is based on the
ability to recover the balance of intangible assets from expected
future operating cash flows on an undiscounted basis. In the opinion of
management, no such impairment existed as of September 24, 1994 and
September 25, 1993.
Income Taxes-The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109) for the CBG
Group effective September 27, 1992. FAS 109 requires the liability
method of income tax accounting. The impact of the change is discussed
in the Income Taxes note to financial statements. The CBG Group is
included in the consolidated federal income tax return filed by the
Company. The Company's consolidated provision and actual cash payments
for income taxes have been allocated between the CBG Group and the RPG
Group in accordance with the Company's tax allocation policy for such
groups. In general, the consolidated tax provision and related tax
payments or refunds are allocated between the CBG Group and the RPG
Group, for group financial statement purposes, based principally upon
the financial income, taxable income, credits and other amounts
directly related to the respective group. Deferred income taxes are
recognized for the effect of temporary differences between financial
and tax reporting.
Postretirement Benefits Other Than Pensions-The Company adopted
Statement of Financial Accounting Standards No. 106 "Employer's
Accounting for Postretirement Benefits Other Than Pensions" (FAS 106)
for the CBG Group effective September 27, 1992. The impact of this
change is discussed in the Postretirement Benefits Other Than Pensions
note to financial statements.
Advertising Costs-The CBG Group expenses advertising costs as
incurred.
Earnings (Loss) Per Share-Earnings (loss) per share applicable to
outstanding CBG Stock are based on earnings (loss) after RPG Group's
Retained Interest for the period. Primary earnings per share are based
on the average number of shares of CBG Stock outstanding during the
period for which earnings per share are reported. The average number of
shares of CBG stock outstanding for the year ended September 24, 1994
was 20,542,000 and for the period after July 30,
59
<PAGE> 48
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
1993 through September 25, 1993 was 20,694,000. The pro forma earnings
(loss) per share are based on the assumption that the CBG Stock had been
outstanding as of the beginning of the periods presented. Primary pro
forma earnings (loss) per share are based on pro forma average number of
shares of CBG Stock outstanding of 20,709,000 in 1993 and 21,263,000 in
1992. The pro forma earnings (loss) per share are not necessarily
indicative of results that would have occurred if the CBG Stock had been
outstanding for the periods presented.
Fully diluted earnings per share and pro forma fully diluted earnings
per share assumes the conversion of the Company's Series A 6.75%
preferred stock (redeemable preferred stock) and other dilutive
securities into CBG Stock. For purposes of calculating fully diluted
earnings per share, net earnings have been adjusted for the CBG Group's
portion of additional contribution to the Company's employee stock
ownership plan and its related trust (ESOP) that would have been
required had the Redeemable Preferred Stock been converted as of the
beginning of the period.
RPG Group's Retained Interest in the CBG Group-The RPG Group has a
45% Retained Interest in the business, assets and liabilities of the
CBG Group. The RPG Group's Retained Interest in the CBG Group is
increased (decreased) for 45% of the earnings (loss) after preferred
stock dividends and decreased by 45% of the CBG Group's cash provided
for corporate equity transactions prior to the distribution of CBG
Stock and by equity transactions specifically attributed to the CBG
Group subsequent to the distribution of CBG Stock.
The Retained Interest is represented by a number of shares of CBG
Stock that the Company may issue for the account of the RPG Group. Such
shares deemed to represent the Retained Interest as of September 24,
1994 and September 25, 1993 were 16,715,758 and 16,931,823,
respectively. The number of shares representing 100% of the equity
value of the Company attributable to the CBG Group (issued and
outstanding shares of CBG Stock plus shares of CBG Stock deemed to
represent the Retained Interest) were 37,303,528 and 37,630,942 at
September 24, 1994 and September 25, 1993, respectively. The shares
deemed to represent the Retained Interest are not outstanding shares of
CBG Stock and cannot be voted by the RPG Group. As additional shares of
CBG Stock are issued, the Retained Interest will decrease. When a
dividend or other distribution is paid or distributed in respect to the
outstanding CBG Stock, or any amount paid to repurchase shares of CBG
Stock, the consideration for which is attributed to the CBG Group, the
RPG Group financial statements will be credited, and the CBG Group
financial statements charged with, an amount equal to the product of
the aggregate transaction amount times a fraction. The numerator of the
fraction is the number of unissued shares of CBG Stock then issuable
with respect to the Retained Interest and the denominator of which is
the number of shares of CBG Stock then outstanding.
Business Segment Information-The CBG Group manufactures and sells
fresh bakery products, which is a single business segment. No single
customer accounts for 10% or more of sales. Operations of the CBG Group
are based solely in the United States.
Reclassifications-Certain reclassifications have been made to the
1993 and 1992 financial statements to conform with the 1994
presentation.
Related Party Activities
Financial-As a matter of policy, the Company manages most financial
activities of the CBG Group and the RPG Group on a centralized
consolidated basis. Cash deposits from the CBG Group's bakeries are
transferred to the Company on a daily basis and the Company funds the
CBG Group's disbursement bank accounts as required. Other financial
activities include the investment of surplus cash, the issuance,
repayment and repurchase of short-term and long-term debt, the
issuance, repurchase and redemption of preferred stock, and the
issuance and repurchase of common stock.
The centrally managed financial balances, exclusive of preferred
stock, are reflected in each Group's financial statements through the
Net Debt attribution (as described in the Basis of Presentation note).
"Net Debt" is the aggregate of the Company's long-term debt (including
current maturities), notes payable, cash and cash equivalents, deferred
financing costs and other financing related balances except for (a)
foreign financial activities specifically identified with the RPG
Group, (b) certain asset-based borrowings and (c) the ESOP debt
guarantee. Each component included in the Company's total Net Debt is
attributed to the CBG Group and the RPG Group in proportion to the
ratio of each Group's attributed Net Debt balance to the Company's
total Net Debt.
60
<PAGE> 49
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
The CBG Group's portion of the Company's centrally managed financial
activities (other than amounts specifically attributed to the CBG
Group) is as follows:
<CAPTION>
CBG Group Consolidated
------------------------- -------------------------
Sept. 24, Sept. 25, Sept. 30, Sept. 30,
1994 1993 1994 1993
------------------------- -------------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents....................................... $ 13.6 $ .5 $ 59.2 $ 3.0
Investments and Other Assets.................................... 4.9 5.0 21.2 32.5
Current Maturities of Long-Term Debt............................ (51.6) (6.0) (224.3) (38.8)
Notes Payable................................................... (7.4) (48.1)
Accounts Payable and Accrued Liabilities........................ (21.6) (18.6) (93.8) (120.4)
Long-Term Debt.................................................. (291.4) (257.8) (1,267.0) (1,677.1)
------- ------- --------- ---------
Net Debt........................................................ $(346.1) $(284.3) $(1,504.7) $(1,848.9)
======= ======= ========= =========
Net Interest Expense............................................ $ 30.2 $ 27.4 $ 157.3 $ 174.3
======= ======= ========= =========
Effective Interest Rate......................................... 9.3% 8.9% 9.3% 8.9%
=== === === ===
</TABLE>
Shared Services-A portion of corporate general, administrative and
other shared services has been allocated between the CBG Group and the
RPG Group based upon utilization. Costs which the Company cannot
reasonably attribute to the CBG Group and the RPG Group based upon
utilization are attributed to each group in proportion to the simple
average of the ratios of each group's net sales and total operating
assets to the Company's net sales and total operating assets for the
period in which such costs are attributed, which method management
believes to be reasonable. These allocations were $12.9, $12.8 and
$13.2 in 1994, 1993 and 1992, respectively. In addition, the RPG Group
provides certain general and administrative services to the CBG Group
at negotiated rates. Charges for such services were $11.7, $14.2 and
$14.2 for 1994, 1993 and 1992, respectively.
<TABLE>
Sales to and Purchases from Related Parties-The CBG Group sells
certain of its products to the RPG Group for export and purchases
certain ingredients and goods for resale from the RPG Group. These
transactions are at negotiated prices. Included in the statement of
earnings are export sales to and purchases from the RPG Group as
follows:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net sales.............................................. $5.8 $5.6
==== ====
Purchases.............................................. $2.6 $4.4 $3.7
==== ==== ====
</TABLE>
Restructuring Activities
In the third quarter of 1994, the CBG Group recorded restructuring
provisions which reduced 1994 earnings before income taxes, net
earnings and net earnings per primary share by $16.0, $9.6 and $.26,
respectively. The charge covers severance and related payroll costs for
435 headquarters and field employees who have been or will be laid off
as part of the continuing bakery products cost reduction program. As of
September 24, 1994, 205 employees have been laid off and have begun
receiving benefits which will total $9.5. As of September 24, 1994,
$1.4 of such benefits had been paid.
Provisions for restructuring bakery operations of $13.7, pre-tax,
were recorded in 1992. These provisions reduced net earnings and net
earnings per primary share by $8.4 and $.22, respectively. The pre-tax
restructuring charge consisted of $6.7 of severance and employee
related costs, $3.2 of other cash costs and $3.8 of fixed asset
writedowns on expected disposition losses. Restructuring activities
through September 24, 1994 related to the 1992 provisions included cash
exit costs of $3.8, losses on disposal of fixed assets of $2.6 and
provision reversals of $3.1. Activities related to the 1992
restructuring provisions are expected to be completed in 1995.
61
<PAGE> 50
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Income Taxes
<TABLE>
The provisions (benefits) for income taxes consisted of the
following:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Currently payable
United States................................................................. $ (9.6) $17.3 $36.7
State......................................................................... (1.6) 5.3 7.6
------ ----- -----
Total current............................................................... (11.2) 22.6 44.3
------ ----- -----
Deferred
United States................................................................. (4.6) (1.1) (9.4)
State......................................................................... (1.1) (.3)
------ ------ -----
Total deferred.............................................................. (5.7) (1.4) (9.4)
------ ------ ------
Income taxes before extraordinary item and cumulative effect of accounting
changes........................................................................ $(16.9) $21.2 $34.9
====== ===== =====
</TABLE>
<TABLE>
A reconciliation of income taxes with the amounts computed at the
statutory federal rate follows:
<CAPTION>
1994 1993 1992
------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate........... $(14.9) 35.0% $18.1 34.7% $28.6 34.0%
State income taxes, net of federal tax benefit... (1.8) 4.2 3.3 6.3 5.0 5.9
Amortization of purchase price adjustments....... 1.8 2.1
Other, net....................................... (.2) .4 (.2) (.4) (.5) (.6)
------ ---- ------ ---- ------ ----
$(16.9) 39.6% $21.2 40.6% $34.9 41.4%
====== ==== ===== ==== ===== ====
</TABLE>
The tax benefit related to the extraordinary loss on early retirement
of debt was $1.0 in 1994, $1.3 in 1993 and $.6 in 1992.
Effective September 27, 1992, the CBG Group adopted FAS 109, which
required the Company to change its method of accounting for income
taxes from the deferred method to the liability method. FAS 109 was
adopted on a prospective basis and amounts presented for prior years
were not restated. The cumulative effect of the adoption as of
September 27, 1992 was a $45.4 decrease to prior years' net earnings.
The effect of the adoption on the 1993 income tax provision was a
decrease of $1.6.
62
<PAGE> 51
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
The deferred tax assets and deferred tax liabilities recorded on the
balance sheet as of September 24, 1994 and September 25, 1993 are as
follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation and property basis differences.................................................... $ 96.9 $ 99.8
Pension plans.................................................................................. .1
Other.......................................................................................... 2.0 1.5
------- -------
Gross deferred tax liabilities............................................................... 99.0 101.3
------- -------
Deferred Tax (Assets):
Self-insurance reserves........................................................................ (46.0) (45.7)
Postretirement benefits other than pensions.................................................... (41.1) (38.4)
Accrued liabilities............................................................................ (23.8) (20.6)
Pension plans.................................................................................. (2.1)
Other.......................................................................................... (3.1) (4.0)
------- -------
Gross deferred tax (assets).................................................................. (114.0) (110.8)
------- -------
Net deferred tax (assets)...................................................................... $ (15.0) $ (9.5)
======= =======
</TABLE>
Total net deferred tax assets shown above include current and
noncurrent elements.
Incentive Compensation
Certain officers and employees of the CBG Group participate in
incentive stock plans of the Company. These plans are discussed in the
Incentive Compensation note to the Company's consolidated financial
statements.
<TABLE>
Changes in nonqualified stock options outstanding are summarized as
follows:
<CAPTION>
Shares
Under
Option
------
<S> <C>
CBG Stock
Outstanding beginning of year ($4.221 to $11.751 per share)............................... 750,921
Granted ($8.875 per share)................................................................ 1,272,168
Exercised ($9.1710 per share)............................................................. (640)
Cancelled................................................................................. (89,897)
---------
Outstanding September 24, 1994 ($4.221 to $11.751 per share).............................. 1,932,552
=========
Exercisable at September 24, 1994......................................................... 223,633
=========
</TABLE>
At September 24, 1994 and September 25, 1993, there were 1,983,937
and 3,161,885 shares, respectively, of CBG Stock available for future
awards. In November 1993, certain employees of the CBG Group were
granted CBG Stock options for 1,087,168 shares in exchange for
cancellation or exercise of certain RPG Stock options held by such
employees prior to the new grant.
In addition, at September 24, 1994 and September 25, 1993, there were
32,811 and 87,004 restricted shares, respectively, of CBG Stock
outstanding. Restrictions on shares of restricted stock issued to
eligible employees lapse over various periods, provided continued
employment and, in certain cases, minimum stock price requirements are
met. Compensation cost is recognized over this vesting period. Charges
to the CBG Group's earnings were $.2 in 1994, $.8 in 1993 and $1.9 in
1992.
63
<PAGE> 52
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Pension Plans
The CBG Group participates in the Company's noncontributory defined
benefit pension plans (Plans) covering substantially all full-time
employees in the United States, who are not participating in a
multiemployer pension plan. The Plans provide retirement benefits based
on years of service and earnings. It is the Company's practice to fund
pension liabilities in accordance with the minimum and maximum limits
imposed by the Employee Retirement Income Security Act of 1974 (ERISA)
and the federal income tax laws. The Company's pension cost
attributable to the CBG Group is actuarially determined based on the
attributes of its plan participants, the benefit formulas of the CBG
Group and a proportionate share of fund assets based on plan assets at
the acquisition date of Continental Baking Company, which method
management believes to be reasonable. The CBG Group also contributes to
jointly administered multiemployer defined benefit pension plans
covering certain of its union employees. These contributions are
expensed currently.
<TABLE>
Allocated pension cost and other retirement savings plan costs
included the following components:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Defined benefit plans
Service cost for benefits earned during the year.............................. $ 8.7 $ 8.3 $ 8.4
Interest cost on projected benefit obligation................................. 22.5 21.2 20.8
Return on plan assets......................................................... (8.1) (46.9) (22.0)
Net amortization and deferral................................................. (18.0) 23.8 (2.6)
------ ------ ------
Total defined benefit plans..................................................... 5.1 6.4 4.6
Multiemployer plans............................................................. 56.1 59.8 55.6
Defined contribution plans...................................................... 8.4 8.7 8.7
------ ------ ------
Total....................................................................... $ 69.6 $ 74.9 $ 68.9
====== ====== ======
</TABLE>
<TABLE>
The following table presents the CBG Group's funded status based on a
proportionate share of fund assets as described above and amounts
recognized in the accompanying balance sheet at year end. The funded
status of the Plans as determined under ERISA is discussed in the
Pension Plans note to the Company's consolidated financial statements.
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefits................................................................................ $(232.8) $(222.2)
Nonvested benefits............................................................................. (13.7) (13.2)
------- -------
Accumulated benefit obligation................................................................. (246.5) (235.4)
Effect of future salary increases.............................................................. (56.7) (54.6)
------- -------
Projected benefit obligation................................................................... (303.2) (290.0)
Plan assets at fair value........................................................................ 309.5 308.7
------- -------
Plan assets in excess of projected benefit obligation............................................ 6.3 18.7
Unrecognized net gain............................................................................ (29.8) (47.6)
Unrecognized prior service cost.................................................................. 1.5 1.7
Unrecognized net liability at transition, net of amortization.................................... 5.8 6.2
------- -------
Accrued pension cost included in other liabilities............................................... $ (16.2) $ (21.0)
======= =======
</TABLE>
64
<PAGE> 53
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
The assumptions used in determining the information above, which
reflect weighted averages for the component plans, were as follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate.................................................................................... 7.9% 7.9%
Rate of increase of future compensation levels................................................... 5.5% 5.5%
Long-term rate of return on assets............................................................... 9.0% 9.5%
</TABLE>
Assets of the Company's plans, a portion of which has been allocated
to the CBG Group, consist primarily of listed common stocks and bonds,
including 1,700,866 shares of RPG Stock and 340,173 shares of CBG Stock
with a market value of $70.4 and $1.9 at September 30, 1994,
respectively.
Substantially all of the CBG Group's full-time administrative and
non-union production employees are eligible to participate in the
Company's leveraged employee stock ownership plan ("ESOP"). The CBG
Group makes a matching contribution of up to 100% of the participant's
contribution based on specified limits of the participant's salary.
The cost of the ESOP attributed to the CBG Group is recognized as
incurred and was $8.2 for 1994, $8.5 for 1993 and $8.4 for 1992. The
CBG Group contributions include additional employer contributions
necessary to meet the debt service requirements of the ESOP's long-term
debt as discussed in the Long-Term Debt note of $1.2 in 1994, $1.5 in
1993 and $1.6 in 1992.
Postretirement Benefits Other Than Pensions
Effective September 27, 1992, the CBG Group adopted FAS 106. This
standard requires that the estimated cost of postretirement benefits
other than pensions be accrued over the period such benefits are
earned. The Company elected to recognize the cumulative effect of this
accounting change in 1993. As a result, the CBG Group recorded a non-
cash charge of $68.6 ($41.2 after income taxes) which represents the
excess of the accumulated postretirement benefit obligation over
accruals recorded prior to the adoption of FAS 106 of $14.9. Annual
pre-tax postretirement benefit expense allocated to the CBG Group was
comparable in 1994 and 1993. However, in 1993 such expense increased
$2.7 as a result of the adoption of FAS 106. In addition, costs
associated with the deferred compensation plans were classified as
interest expense prior to the adoption of FAS 106. Effective September
27, 1992, such costs are reported in the same expense category as other
costs related to the covered employee. This change resulted in $2.6
less interest expense being reported in 1993 than 1992, with a
corresponding increase in operating expenses.
The Company currently provides health care and life insurance
benefits for certain groups of retired employees who meet specified age
and years of service requirements. The Company also sponsors plans
whereby certain management employees may defer compensation in exchange
for cash benefits after retirement. The CBG Group is allocated costs
associated with such benefits related to its employees and retirees,
plus an allocation of costs not directly attributable to the CBG Group
or the RPG Group. The costs related to health care and life insurance
were expensed as incurred before adoption of FAS 106. The cost of
deferred compensation benefits was accrued over the life of the
participant prior to adoption of FAS 106.
<TABLE>
The net periodic costs for postretirement benefits other than
pensions allocated to the CBG Group include the following components
for the years ended September 24, 1994 and September 25, 1993:
<CAPTION>
1994 1993
---------------------- ----------------------
Medical Other Medical Other
------- ----- ------- -----
<S> <C> <C> <C> <C>
Service cost.................................................... $1.2 $ .1 $2.2
Interest cost................................................... $4.6 2.4 4.2 2.0
---- ---- ---- ----
$4.6 $3.6 $4.3 $4.2
==== ==== ==== ====
</TABLE>
65
<PAGE> 54
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
The following table presents the status of the CBG Group's portion of
the Company's postretirement benefit plans at September 24, 1994 and
September 25, 1993:
<CAPTION>
1994 1993
---------------------- ----------------------
Medical Other Medical Other
------- ----- ------- -----
<S> <C> <C> <C> <C>
Accumulated benefit obligation
Retirees...................................................... $39.2 $12.2 $44.9 $10.1
Fully eligible plan participants.............................. 12.2 14.8 13.8 13.2
Other active plan participants................................ 1.5 8.4 1.0 7.2
----- ----- ----- -----
Accumulated benefit obligation.................................. 52.9 35.4 59.7 30.5
Fair value of plan assets....................................... 1.6 1.6
----- ----- ----- -----
Accumulated benefit obligation in excess of plan assets......... 51.3 35.4 58.1 30.5
Unrecognized experience gain (loss)............................. 1.7 (1.1) (2.0) .4
Unrecognized prior service gain................................. 4.7
----- ------ ------ -----
Accrued postretirement benefit liability........................ 57.7 34.3 56.1 30.9
Current portion................................................. 3.1 1.1 3.2 1.0
----- ----- ----- -----
Non-current portion............................................. $54.6 $33.2 $52.9 $29.9
===== ===== ===== =====
</TABLE>
<TABLE>
The assumptions used in determining the information above were as
follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate.................................................................................... 7.9% 7.9%
Trend rate for health care costs
Prior to age 65-current year................................................................... 11% 12%
-ultimate rate (by 2000)........................................................ 6% 6%
After age 65-current year...................................................................... 8% 9%
-ultimate rate (by 1997)........................................................... 6% 6%
</TABLE>
If the assumed health care cost trend rate increased by 1 percentage
point, the accumulated benefit obligation as of September 30, 1994
would increase by approximately $6.0 and expense would increase by $.5
annually.
Coincident with the adoption of the ESOP, the Company is phasing out
its subsidy of medical benefits for future retirees. In addition,
retiree contributions are adjusted periodically and it is expected that
such adjustments will continue in the future.
66
<PAGE> 55
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Notes Payable
<TABLE>
The information below describes the CBG Group's notes payable,
consisting of a portion of the Company's centrally managed notes
payable, for the 52 weeks ended September 24, 1994, September 25, 1993
and September 26, 1992 (see Related Party Activities note).
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Notes Payable
Ending balance.............................................................. $ 7.4 $30.0
Weighted average interest rate............................................ 3% 4%
Outstanding during period<Fa>
Maximum................................................................... $20.5 $42.0 $69.3
Average................................................................... 9.4 20.1 23.7
Weighted average interest rate............................................ 4% 4% 4%
Commercial Paper
Ending balance.............................................................. $ 8.8
Weighted average interest rate............................................ 4%
Outstanding during period<Fa>
Maximum................................................................... $ 4.4 $14.1 $16.0
Average................................................................... .6 3.2 5.8
Weighted average interest rate............................................ 3% 4% 4%
<FN>
- -----
<Fa> Based on month-end balances
</TABLE>
On September 30, 1994, the Company's total unused lines of credit
were $132.5.
67
<PAGE> 56
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Long-Term Debt
<TABLE>
The detail of long-term debt as of September 30 follows:
<CAPTION>
Consolidated
Ralston Purina
CBG Group RPG Group Company
----------------- ----------------- ----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Centrally managed debt of the Company:<Fa>
Debentures
9 1/2% due 2016 $ 86.4 $ 143.8
9 3/8% due 2016 46.7 112.0
9 1/4% due 2009 181.0 200.0
9.30% due 2021 Attributed in total 200.0 200.0
8 5/8% due 2022 but not with 250.0 250.0
8 1/8% due 2023 respect to specific 175.0 175.0
Other Debt issues for Group
Medium-term Notes, 7.75% to financial statements
10.18% 84.5 121.0
12 3/4% Swiss Franc Bonds due 1994<Fb> 50.1 50.1
11 3/4% Notes due 1995 123.3 132.3
9% Notes due 1996 200.0 200.0
12% Notes due 1996 38.8 38.8
Capitalized lease obligations, 4% to 11 1/8% 6.0 13.0
Industrial revenue bonds, 3 1/4% to 12 3/4% 49.5 68.8
Other 11.1
-------- --------
Subtotal-centrally managed debt $343.0 $263.8 $1,148.3 $1,452.1 1,491.3 1,715.9
------ ------ -------- -------- -------- --------
Specifically attributed debt<Fc> 131.2 127.5 131.2 127.5
ESOP debt guarantee<Fd> 64.9 77.4 195.3 232.1 260.2 309.5
------ ------ -------- -------- -------- --------
Subtotal 407.9 341.2 1,474.8 1,811.7 1,882.7 2,152.9
Less current portion (64.9) (18.3) (223.2) (80.1) (288.1) (98.4)
------- ------- --------- --------- --------- --------
$343.0 $322.9 $1,251.6 $1,731.6 $1,594.6 $2,054.5
====== ====== ======== ======== ======== ========
<FN>
- -----
<Fa> Most long-term debt is managed on a centralized consolidated basis.
This debt is attributed to the CBG Group and the RPG Group (in
total, but not with respect to specific issues) in proportion to
the ratio of each Group's attributed Net Debt balance to the
Company's total Net Debt. (See Related Party Activities note.)
<Fb> Represents the equivalent principal amount and approximate
effective interest rate of the 5 3/8% Bonds under related currency
exchange arrangements.
<Fc> As described in the Related Party Activities note, certain
financial activities are directly attributable to the RPG Group.
<Fd> ESOP debt recorded by the Company, along with related unearned
compensation, has been attributed to the CBG Group and the RPG
Group in proportion to the estimated future contributions of their
employees, which management believes to be reasonable.
</TABLE>
Aggregate maturities on all long-term debt, exclusive of debentures
held in treasury, are $290.5, $58.5, $18.5 and $12.2 for the years
ending September 30, 1996 through 1999, respectively. These aggregate
maturities do not include the future maturities of the ESOP debt
guarantee.
68
<PAGE> 57
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
To fund its purchase of the Company's preferred stock, the Trust for
the Company-sponsored ESOP borrowed $500.0 principal amount in ten-year
8.25% notes (ESOP loan). The ESOP loan is unconditionally guaranteed by
the Company and is included in the Company's consolidated balance sheet
as long-term debt, along with a corresponding unearned ESOP
compensation. Both the long-term debt and the unearned ESOP
compensation will be reduced as employee and employer contributions to
the ESOP are used to reduce the outstanding ESOP loan. During 1994 and
1993, the ESOP incurred $24.5 and $28.4, respectively, of interest
expense on the ESOP loan.
Fair Value of Financial Instruments
The CBG Group's financial instruments include its share of centrally
managed cash and cash equivalents and short and long-term debt. As of
September 30, 1994 and 1993, the fair value of the Company's centrally
managed debt (which includes the RPG Group's portion of such debt) was
$1,516.7 and $1,922.0, respectively, compared to its carrying value of
$1,491.3 and $1,715.9, respectively. In addition, the fair value of the
Company's outstanding ESOP debt guarantee (which includes the RPG
Group's portion of such guarantee) was $278.4 and $351.7 compared to
its carrying value of $260.2 and $309.5, respectively, at September 30,
1994 and 1993. The fair value of the Company's long-term debt and ESOP
debt guarantee has been estimated using quoted market prices and yields
obtained through independent pricing sources for the same or similar
types of borrowing arrangements, taking into consideration the
underlying terms of the debt, such as the coupon rate, term to
maturity, tax impact to investors and imbedded call options.
Due to the nature of cash equivalents and short-term borrowings,
including current notes payable, carrying amounts on the balance sheet
approximate fair value.
Redeemable Preferred Stock
At September 30, 1994, the Company had 10,600,000 shares of $1 par
value preferred stock authorized, of which 4,600,000 shares were
authorized as Series A 6.75% Preferred Stock ("Preferred Stock").
Preferred Stock has a guaranteed minimum value of $110.83 per share and
is convertible into the Company's $.10 par value RPG Stock and $.10 par
value CBG Stock at the ratio of 2.255 shares of RPG Stock and .4 shares
of CBG Stock for each share of Preferred Stock. The shares have a
preference in liquidation and each share has one voting right.
Dividends are cumulative, compounded and payable semi-annually. In
accordance with financial reporting requirements of the Securities and
Exchange Commission, the Preferred Stock has been classified outside of
permanent equity as Redeemable Preferred Stock.
Coincident with the spin-off of Ralcorp, the Company redeemed 334,109
shares of its Preferred Stock at the guaranteed minimum value. The
shares were redeemed by the Company in connection with the cessation of
participation in the Company's Savings Investment Plan by plan
participants employed by Ralcorp following the spin-off. As of March
31, 1994, the terms of the Preferred Stock required adjustment of the
conversion ratio to that described above with respect to RPG Stock to
reflect the change in the market value of RPG Stock as a result of the
Ralcorp spin-off. All other terms and provisions of the Preferred Stock
remain unchanged. During the year, the Company also redeemed 28,224
shares of its Preferred Stock to meet ongoing share redemption
requirements of the ESOP. Following these redemptions, 4,237,667 shares
of Preferred Stock remained issued and outstanding and continued to be
held by the Company's ESOP at September 30, 1994.
Preferred Stock shares are held, on behalf of the ESOP, by the ESOP's
trustee and are allocated to individual participants' accounts based on
the amount of employee and employer matching contributions to the ESOP.
Dividends on unallocated Preferred Stock are used to fund the debt
service requirements of the ESOP. The trustee, as holder of Preferred
Stock, may convert its shares into Company common stock (both RPG Stock
and CBG Stock) at any time, or may require the Company to redeem the
Preferred Stock shares, under certain limited circumstances, at the
guaranteed minimum price, in cash or in shares of Company common stock.
The Company may elect to redeem the Preferred Stock, under limited
circumstances, in cash or in shares of Company common stock.
69
<PAGE> 58
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
The Redeemable Preferred Stock has been attributed to the CBG Group
and RPG Group based on estimated relative market values of the
respective groups prior to the distribution of stock, which method
management believes to be reasonable.
CBG Group Equity
<TABLE>
The following analyzes this account for the periods presented:
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
Sept. 24, Sept. 25, Sept. 26,
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period.................................................. $ 60.8 $129.0 $163.6
Net earnings (loss)............................................................. (27.4) (57.5) 48.2
CBG Group's portion of corporate equity transactions (prior to distribution of
CBG Stock)..................................................................... (6.0) (85.0)
CBG Stock purchases............................................................. (2.3)
Dividends declared on CBG Stock................................................. (3.3)
Payment attributed to Retained Interest......................................... (1.9) (2.7)
Preferred Stock dividends, net of taxes, accrued after distribution of CBG Stock. (1.8) (.3)
Other........................................................................... .6 1.6 2.2
------ ------ ------
Balance at end of period........................................................ $ 28.0 $ 60.8 $129.0
====== ====== ======
</TABLE>
Corporate equity transactions include primarily treasury stock
purchases and dividends.
The shareholders equity of the Company is discussed in the
Shareholders Equity note to the Company's financial statements on pages
105 through 107.
Available Dividends
Dividends to be paid to holders of CBG Stock are limited to the
lesser of legally available funds of the Company and the Available CBG
Dividend Amount, an amount which is intended to be similar to the
amount which would be legally available for dividends if the CBG Group
were an independent corporation (excluding the effect of adopting FAS
106 and FAS 109). The Available CBG Dividend Amount at September 24,
1994 was at least $84.0. The legally available funds of the Company
exceeded such amount.
Commitments and Contingencies
Legal and Environmental Matters
The Company is a party to a number of legal proceedings in various
state, federal and foreign jurisdictions. These proceedings are in
varying stages and many may proceed for protracted periods of time.
Some proceedings involve highly complex questions of fact and law.
On September 27, 1994, the Company's wholly-owned subsidiary,
Continental Baking Company, was served with a subpoena by the Dallas,
Texas office of the Antitrust Division of the U.S. Department of
Justice requiring it to produce records to a Federal Grand Jury. The
subpoena seeks information regarding the sale of bread and bread
products (including snack cakes), principally in the State of Texas,
during the period from January 1, 1986 to the present.
The operations of the CBG Group, like those of other companies
engaged in similar businesses, are subject to various federal, state,
and local laws and regulations intended to protect the public health
and the environment, including air and water quality, underground fuel
storage tanks, and waste handling and disposal. The CBG Group has
approximately 300
70
<PAGE> 59
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
underground fuel storage tanks at various locations throughout the United
States which are subject to federal and state laws and regulations
establishing minimum standards for such tanks and, where necessary,
remediation of associated contamination. The CBG Group is presently in the
process of testing and evaluating, and, if necessary, removing, replacing
or upgrading such tanks in order to comply with such laws. In addition,
the Company has received notices from the U.S. Environmental Protection
Agency, state agencies, and/or private parties seeking contribution, that
it has been identified as a "potentially responsible party" (PRP), under
the Comprehensive Environmental Response, Compensation and Liability Act,
and may be required to share in the cost of cleanup with respect to
approximately 3 "Superfund" sites. The CBG Group's ultimate liability in
connection with those sites may depend on many factors including the
volume of material contributed to the site, the number of other PRP's and
their financial viability, and the remediation methods and technology to
be used.
In the opinion of management, based on the information presently
known, the ultimate liability of the CBG Group, if any, arising from
all such matters, as well as from all other pending legal proceedings,
asserted legal claims and known potential legal claims which are
probable of assertion, taking into account established accruals of $6.5
for estimated liabilities, should not be material to the financial
position of the CBG Group, but could be material to the results of
operations or cash flows for a particular quarter or annual period.
Other Contingencies
At September 24, 1994, the CBG Group's primary concentration of
credit risk related to approximately $9.9 of trade accounts receivable
due from several highly leveraged customers. Consideration was given to
the financial position of these customers when determining the
appropriate allowance for doubtful accounts.
Lease Commitments
Future minimum rental commitments under noncancellable operating
leases in effect as of September 24, 1994 were: 1995-$8.2, 1996-$7.7,
1997-$6.7, 1998-$3.6, 1999-$2.2, thereafter-$4.6.
Total rental expense for all operating leases was $28.7 in 1994,
$26.4 in 1993 and $27.5 in 1992.
Other Income and Expense
<TABLE>
Other (income)/expense, net consists of the following:
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
Sept. 24, Sept. 25, Sept. 26,
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Investment income............................................................... $(.2) $ (.1)
Miscellaneous (income)/expense.................................................. 2.5 (1.8) $ (1.5)
---- ------ -------
$2.3 $ (1.9) $ (1.5)
==== ====== ======
</TABLE>
<TABLE>
Supplemental Earnings Statement Information
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs......................................................... $60.8 $58.1 $57.8
Research and development........................................................ 5.6 7.3 8.5
</TABLE>
71
<PAGE> 60
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
Supplemental Balance Sheet Information
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Receivables (current)-
Trade.......................................................................................... $ 98.5 $ 90.9
Other.......................................................................................... 3.4 3.7
Allowance for doubtful accounts................................................................ (3.4) (3.3)
------- -------
$ 98.5 $ 91.3
====== ======
Inventories-
Raw materials and supplies..................................................................... $ 45.3 $ 46.9
Finished products.............................................................................. 7.4 8.4
------ ------
$ 52.7 $ 55.3
====== ======
Other Current Assets-
Deferred income tax benefits................................................................... $ 23.9 $ 20.6
Prepaid expenses............................................................................... 8.1 8.4
------ ------
$ 32.0 $ 29.0
====== ======
Investments and Other Assets-
Goodwill and other intangible assets (net of accumulated amortization: 1994-$13.3 and
1993-$11.9)................................................................................... $ 43.2 $ 41.3
Deferred charges and other assets.............................................................. 19.7 18.8
------ ------
$ 62.9 $ 60.1
====== ======
Accounts Payable and Accrued Liabilities-
Trade accounts payable......................................................................... $ 86.2 $105.3
Incentive compensation, salaries and vacations................................................. 44.5 39.7
Accrued interest............................................................................... 11.5 8.7
Restructuring reserves......................................................................... 18.2 7.8
Environmental reserves......................................................................... 6.5 6.8
Other items.................................................................................... 45.0 41.6
------ ------
$211.9 $209.9
====== ======
Other Liabilities-
Self-insurance reserves........................................................................ $114.9 $112.8
Postretirement medical benefits................................................................ 54.6 52.9
Other postretirement benefits.................................................................. 33.2 29.9
Other.......................................................................................... 19.2 27.3
------ ------
$221.9 $222.9
====== ======
</TABLE>
72
<PAGE> 61
CONTINENTAL BAKING GROUP
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
Supplemental Cash Flow Statement Information
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest paid................................................................... $31.0 $27.2 $29.9
Income taxes paid............................................................... 2.3 26.2 44.6
</TABLE>
<TABLE>
Analysis of Balance Sheet Changes
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Allowance for Doubtful Accounts-
Balance, beginning of year.................................................... $ 3.3 $ 3.2 $ 3.1
Provision charged to expense.................................................. .6 .7 .6
Writeoffs, less recoveries.................................................... (.5) (.6) (.5)
--------- --------- -------
Balance, end of year............................................................ $ 3.4 $ 3.3 $ 3.2
======== ======== ======
Property at Cost-
Balance, beginning of year.................................................... $1,014.3 $ 941.8 $892.8
Additions..................................................................... 89.6 90.1 72.1
Disposals..................................................................... (32.4) (17.6) (23.1)
--------- --------- -------
Balance, end of year............................................................ $1,071.5 $1,014.3 $941.8
======== ======== ======
Accumulated Depreciation-
Balance, beginning of year.................................................... $ 425.4 $ 368.8 $322.6
Depreciation provision........................................................ 75.2 71.8 67.8
Disposals..................................................................... (26.1) (15.2) (21.6)
--------- --------- -------
Balance, end of year............................................................ $ 474.5 $ 425.4 $368.8
======== ======== ======
</TABLE>
73
<PAGE> 62
<TABLE>
CONTINENTAL BAKING GROUP
QUARTERLY FINANCIAL INFORMATION
(unaudited)
(Dollars in millions except per share data)
<CAPTION>
Fiscal 1994 First Second Third Fourth
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales....................................................... $476.0 $491.4 $500.9 $480.3
Gross profit.................................................... 245.5 247.9 245.2 224.6
Earnings (loss) before extraordinary item....................... .2 (3.4) (11.4)<Fa> (11.2)
Net earnings (loss)............................................. .2 (5.0) (11.4)<Fa> (11.2)
Earnings per common share-
Primary
Loss before extraordinary item.............................. (.01) (.10) (.32)<Fa> (.31)
Net loss.................................................... (.01) (.14) (.32)<Fa> (.31)
Fully diluted
Loss before extraordinary item.............................. (.01) (.10) (.32)<Fa> (.31)
Net loss.................................................... (.01) (.14) (.32)<Fa> (.31)
Dividends paid per common share................................. .08
Market price range of CBG Stock................................. 10- 9 5/8- 6 7/8- 6-
7 1/2 6 3/8 4 1/2 4
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1993 First Second Third Fourth
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales....................................................... $488.9 $499.2 $517.4 $491.5
Gross profit.................................................... 244.3 255.5 269.1 248.9
Earnings before extraordinary item and cumulative effect of
accounting changes............................................. 3.5 7.0 11.4 9.1
Earnings before cumulative effect of accounting changes......... 2.4 7.0 11.4 8.3
Net earnings (loss)............................................. (84.2) 7.0 11.4 8.3
Pro Forma earnings per common share (assuming two classes of
common stock)-
Primary
Earnings before extraordinary item and cumulative effect of
accounting changes......................................... .08 .18 .29 .23
Earnings before cumulative effect of accounting changes..... .05 .18 .29 .21
Net earnings (loss)......................................... (2.25) .18 .29 .21
Fully diluted
Earnings before extraordinary item and cumulative effect of
accounting changes......................................... .07 .15 .25 .20
Earnings before cumulative effect of accounting changes..... .04 .15 .25 .18
Net earnings (loss)......................................... (2.04) .15 .25 .18
Actual earnings per common share-
Primary
Earnings before extraordinary item.......................... .21<Fb>
Net earnings................................................ .19<Fb>
Fully diluted
Earnings before extraordinary item.......................... .18<Fb>
Net earnings................................................ .16<Fb>
Dividends paid per common share................................. .08
Market price range of CBG Stock................................. 10 5/8-
8 1/2<Fb>
<FN>
- -----
<Fa> Earnings for the third quarter of 1994 were reduced by $9.6 or $.26
per primary share of CBG Stock due to provisions for restructuring
expenses.
<Fb> Represents actual earnings per share and stock price range on the
newly issued CBG Stock for the period after July 30, 1993 through
September 25, 1993.
</TABLE>
74
<PAGE> 63
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
Five Year Financial Summary
<CAPTION>
(In millions except per share and percentage data)
For the year ended September 30,
----------------------------------------------------------------
STATEMENT OF EARNINGS DATA 1994<Fa> 1993 1992 1991 1990
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales............................................ $7,705.3 $7,902.2 $7,752.4 $7,375.8 $7,101.4
Depreciation and Amortization........................ 309.4 309.7 292.4 259.7 236.4
Earnings before Income Taxes, Interest Expense,
Extraordinary Item and Cumulative Effect of
Accounting Changes.................................. 642.1 818.5 785.0 856.5 862.7
As a Percent of Sales.............................. 8.3% 10.4% 10.1% 11.6% 12.1%
Earnings before Income Taxes, Extraordinary Item and
Cumulative Effect of Accounting Changes............. $ 421.7 $ 580.4 $ 542.1 $ 647.8 $ 655.0
Income Taxes......................................... 203.3 239.1 221.4 255.9 258.7
Earnings before Extraordinary Item and Cumulative
Effect of Accounting Changes<Fb>.................... 218.4 341.3 320.7 391.9 396.3
As a Percent of Sales.............................. 2.8% 4.3% 4.1% 5.3% 5.6%
Net Earnings<Fc>..................................... $ 208.9 $ 122.6 $ 313.2 $ 391.9 $ 396.3
Earnings After Preferred Stock Dividends............. 188.7 101.6 292.2 371.2 375.8
<CAPTION>
September 30,
-------------------------------------------------------------------
BALANCE SHEET DATA 1994<Fa> 1993 1992 1991 1990
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital...................................... $ 61.7 $ 188.7 $ 35.0 $ 481.6 $ 246.3
Property at Cost, Net................................ 1,897.4 2,331.6 2,306.4 2,183.7 2,032.5
Additions (during the year)........................ 332.1 320.8 325.4 404.3 342.1
Depreciation (during the year)..................... 264.7 263.5 254.7 221.0 204.1
Total Assets......................................... 4,622.3 5,071.9 5,150.5 4,632.1 4,394.5
Long-Term Debt....................................... 1,594.6 2,054.5 2,111.3 2,071.3 1,960.8
Redeemable Preferred Stock........................... 469.7 509.8 509.8 508.4 503.0
Shareholders Equity.................................. 355.6 469.8 655.2 783.8 585.4
Common Stock Outstanding:
RPG Stock.......................................... 100.0<Fd> 101.8
CBG Stock.......................................... 20.6 20.7
Ralston Purina Company............................. 103.7 110.5 111.4
<FN>
- -----
<Fa> On March 31, 1994, the Company effected a spin-off of Ralcorp
Holdings, Inc., its private label and branded cereal, baby food,
crackers and cookie, ski resort and coupon redemption businesses.
The Company's earnings and cash flows reflect the operations of
those businesses through March 31, 1994. Pro forma results of
operations of the Company without the Ralcorp businesses appear on
page 97.
<Fb> Before extraordinary charges for early retirement of debt of $9.5
for 1994, $11.8 for 1993 and $7.5 for 1992. Also, before charges
for the cumulative effect of accounting changes of $206.9 in 1993.
<Fc> After tax provisions reduced earnings by $82.4 in 1994, $32.9 in
1992, $28.1 in 1991 and $12.9 in 1990. Provisions were for
restructuring in all years and also included gains on disposition
of property in 1992, environmental costs in 1991 and settlement of
litigation in 1990. Also, the incremental impact of adopting FAS
106 and FAS 109 resulted in a reduction of net earnings of $15.1 in
1993.
<Fd> Does not include 4.0 shares of RPG Stock held by the Company's
Grantor Trust.
</TABLE>
75
<PAGE> 64
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
Five Year Financial Summary (Continued)
<CAPTION>
(In millions except per share and percentage data)
For the year ended September 30,
------------------------------------------------------------------
SHARE AND PER SHARE DATA 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RPG Stock (Pro Forma in 1993 and 1992 assuming two
classes of common stock):
Earnings before Extraordinary Item and Cumulative
Effect of Accounting Changes
Primary.......................................... $ 2.12 $ 2.56 $ 2.57
Fully Diluted.................................... 2.05 2.44 2.44
Net Earnings
Primary.......................................... 2.04 1.30 2.51
Fully Diluted.................................... 1.98 1.29 2.39
CBG Stock (Pro Forma in 1993 and 1992 assuming two
classes of common stock):
Earnings (Loss) before Extraordinary Item and
Cumulative Effect of Accounting Changes
Primary.......................................... $ (.74) $ .77 $ 1.23
Fully Diluted.................................... (.74) .67 1.08
Net Earnings (Loss)
Primary.......................................... (.78) (1.58) 1.20
Fully Diluted.................................... (.78) (1.43) 1.05
Ralston Purina Company through July 30, 1993:
Earnings before Extraordinary Item and Cumulative
Effect of Accounting Changes......................
Primary........................................ <Fa> $ 2.82 $ 3.34 $ 3.23
Fully Diluted.................................. <Fa> 2.65 3.12 3.03
Net Earnings
Primary.......................................... <Fa> 2.75 3.34 3.23
Fully Diluted.................................... <Fa> 2.59 3.12 3.03
Dividends Declared:
RPG Stock.......................................... 1.20 .60<Fb>
CBG Stock.......................................... .16<Fb>
Ralston Purina Common Stock........................ .632<Fb> 1.20 1.075 .925
Common Shares Outstanding (average pro forma in 1993
assuming two classes of common stock):
RPG Stock.......................................... 100.5 103.3
CBG Stock.......................................... 20.5 20.7
Ralston Purina Common Stock........................ 106.3 111.2 116.3
<FN>
- -----
<Fa> Actual earnings per share for 1993 are segregated due to the
redesignation of Ralston Purina Company common stock to RPG Stock
and the issuance of CBG Stock, both occurring on July 30, 1993.
Earnings before extraordinary item and cumulative effect of
accounting changes per share of Ralston Purina Company common stock
through July 30, 1993 were $2.65 and $2.50 on a primary and fully
diluted basis, respectively. Net earnings per share of Ralston
Purina Company common stock through July 30, 1993 were $.59 and
$.63 on a primary and fully diluted basis, respectively. For the
two months ended September 30, 1993, earnings before extraordinary
item per share of RPG Stock were $.40 and $.38 on a primary and
fully diluted basis, respectively, and net earnings per share were
$.36 and $.34. For this same period, earnings before extraordinary
item per share of CBG Stock were $.21 and $.18 on a primary and
fully diluted basis, respectively, and net earnings per share were
$.19 and $.16.
<Fb> Represents dividends declared on redesignated RPG Stock and newly
issued CBG Stock from July 30, 1993 through September 30, 1993 and
dividends declared on Ralston Purina Company common stock from
October 1, 1993 through July 30, 1993.
</TABLE>
76
<PAGE> 65
RALSTON PURINA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW
The following discussion is a summary of the key factors management
considers necessary in reviewing the Company's results of operations,
liquidity, capital resources, and operating segment results. This
discussion should be read in conjunction with the Business Segment
Information and the Consolidated Financial Statements and related
notes.
Highlights and Outlook
Net earnings were $208.9 million for the year compared to $122.6
million in 1993. Included in net earnings in 1994 are extraordinary
losses on early retirement of debt of $9.5 million, after taxes,
restructuring charges in the Battery Products and Bakery Products
segments of $82.4 million, after taxes, and earnings related to spun-
off businesses of $37.5 million. Included in net earnings in 1993 are
extraordinary losses on early retirement of debt of $11.8 million,
after taxes, a charge for the cumulative effect of accounting change
related to postretirement benefits other than pensions of $171.9
million, after taxes, a charge for the cumulative effect of accounting
change related to income taxes of $35.0 million and earnings related to
spun-off businesses of $45.2 million. Excluding the effect of items
previously discussed, net earnings decreased $32.8 million in 1994 on
significant declines in the Bakery Products segment and lower returns
on other investments, partially offset by improved results in other
segments and lower interest expense.
In 1993, net earnings decreased $190.6 million, primarily on
accounting changes. In 1992, the Company recognized an extraordinary
loss on early retirement of debt of $7.5 million, after taxes, and
provisions for restructuring of international battery manufacturing,
agricultural and bakery operations, offset by a gain on sale of assets,
of $32.9 million, after taxes. Earnings in 1992 also included $30.3
million related to spun-off businesses. Excluding the effect of the
aforementioned items in 1993 and 1992, net earnings decreased in 1993
by $27.2 million primarily on lower operating profit for the Bakery
Products segment and higher expense related to accounting changes of
$15.1 million, after taxes, partially offset by improved results in the
Battery Products segment.
The fourth quarter of 1994 reflected a net loss of $32.5 million
compared to net earnings of $59.1 million in the 1993 fourth quarter.
Exclusive of restructuring provisions of $72.8 million, after taxes, in
the current year fourth quarter, and extraordinary loss of $5.0
million, after taxes, and results of spun-off operations of $6.3
million in 1993, earnings declined $17.5 million primarily on lower
Bakery Products results.
Operating Results
On March 31, 1994, the Company effected a spin-off of its private
label and branded cereal, baby food, crackers and cookies, ski resort
and coupon redemption businesses (Ralcorp). The Company's earnings and
cash flows reflect the operations of those businesses through March 31,
1994.
Included in the period under review are the following acquisitions
that affect comparability of operating results for the periods.
Fiscal 1993- The Company acquired ski and real estate assets in the
resort of Breckenridge, Colorado (which were spun-off
on March 31, 1994) and the assets of a nickel-based
rechargeable battery business, which have been
attributed to the RPG Group.
Fiscal 1992- The Company acquired two battery products businesses,
operating primarily in the United Kingdom, Spain and
Portugal, which have been attributed to the RPG Group.
Net Sales
Net sales decreased $196.9 million or 2.5% in 1994 due to the
exclusion of sales of spun-off businesses after March 31, 1994 and
lower bakery products sales, partially offset by increases in battery
products and pet foods. In 1993, net sales increased $149.8 million or
1.9%, primarily due to inclusion for the full year of battery
operations acquired in 1992 and alkaline battery volume growth, offset
by declines in the Bakery Products and Pet and Human Foods segments.
Comments on sales changes by business segment may be found in the
Business Segment section of this financial review.
Gross Profit
Gross profit decreased 4.4% in 1994 on the exclusion of spun-off
operations. Excluding such operations, gross profit was flat as
declines in the Bakery Products segment were offset by increases in all
other segments. In 1993, gross profit
77
<PAGE> 66
RALSTON PURINA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW (Continued)
increased 1.4%. Gross profit as a percentage of sales was 44.4% in 1994
compared to 45.3% in 1993 and 45.5% in 1992. Lower gross profit
percentages in the Bakery Products and Pet and Human Foods segments
unfavorably impacted comparisons in the current year. In addition, sales
growth in the Battery Products segment, which has generally lower margin
percentages, decreased consolidated gross profit percentages in both 1994
and 1993.
Cost of products sold in the Pet and Human Foods, Bakery Products,
Agricultural Products, and Soy Protein Products and Other segments are
somewhat dependent on commodity market prices. Prices may fluctuate due
to weather conditions, government regulations, economic climate or
other unforeseen circumstances. The Company manages exposure to changes
in the commodities markets as considered necessary by hedging certain
of its ingredient requirements such as soybean meal, corn or wheat.
Commodity costs have represented 30 to 35% of cost of products sold
during the three year period ended September 30, 1994. The Company used
futures contracts to hedge approximately 15 to 20% of such commodity
purchases or 5 to 7% of cost of products sold during that period. As of
September 30, 1994, the Company owned futures contracts with an
aggregate value of approximately $60 million.
Operating Expenses
Selling, general and administrative expenses decreased 1% in 1994 on
the exclusion of spun-off businesses, partially offset by higher
distribution costs in the Bakery Products segment. In 1993, selling,
general and administrative costs increased 5% on higher distribution
costs, the reclassification of certain costs related to postretirement
benefits other than pensions previously classified as interest expense
and the consolidation of acquired operations.
Interest Expense and Other Income/Expense
Interest expense decreased in 1994 to $220.4 million compared to
$238.1 million in 1993 and $242.9 million in 1992. The decrease in 1994
reflects the reduction of debt due to the spin-off of Ralcorp. The
decrease in 1993 occurred as expense of higher average borrowings was
more than offset by a change in the classification of certain costs
related to postretirement benefits other than pensions in 1993. These
costs are reflected as interest in 1992 and as cost of products sold
and selling, general and administrative expenses in 1994 and 1993. In
1994, other income/expense, net, increased $13.2 million on lower
returns on other investments, partially offset by lower translation and
exchange losses. In 1993, translation and exchange losses increased
$8.0 million while investment and miscellaneous income decreased $7.8
million.
Income Taxes
Income taxes, which include federal, state and foreign taxes, were
48.2% of pre-tax earnings before extraordinary item and cumulative
effect of accounting changes in 1994, 41.2% in 1993 and 40.8% in 1992.
The increased percentage in 1994 reflects pre-tax losses which did not
result in tax benefits due to tax loss situations or particular
statutes of a country. The provision for income taxes in 1993 was $6.0
million higher due to the change in the method of accounting for income
taxes. Income taxes in 1993 also increased $4.3 million as a result of
a change to the federal tax rate.
Liquidity and Capital Resources
Cash flow from operations is the Company's primary source of
liquidity. Management continues to have a strong orientation toward
cash flows and the effective use of excess cash flows. In addition, the
Company uses financial leverage to minimize the overall cost of capital
and maintain adequate operating and financial flexibility. Management
monitors leverage through its interest coverage ratio (defined as
earnings before interest expense, provisions for restructurings, income
taxes, extraordinary items and accounting changes divided by interest
expense), debt to internal funds ratio (defined as average debt divided
by cash earnings) and total debt as a percentage of total
capitalization.
<TABLE>
<CAPTION>
Dollars in millions 1994 1993 1992
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operations....................................................... $471.0 $692.0 $577.9
Interest Coverage............................................................... 3.4 3.4 3.6
Debt to Internal Funds.......................................................... 4.6 4.1 4.3
Total Debt as a Percent of Total Capitalization................................. 81% 79% 77%
</TABLE>
78
<PAGE> 67
RALSTON PURINA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW (Continued)
On a current equity market basis, total debt as a percentage of total
capitalization was 34% at September 30, 1994, compared to 37% at
September 30, 1993. For purposes of the debt ratios, the guarantee of
the ESOP debt is treated as debt and redeemable preferred stock and
related unearned compensation are treated as capital. The historical
cost basis ratio is significantly influenced by the large amount of
stock repurchased by the Company.
Cash flow from operations decreased in 1994 primarily as a result of
changes in working capital items, primarily accounts receivable. The
1993 increase was largely due to improvements in items other than
earnings. The debt to internal funds ratio increased in 1994 due to
lower cash flow from operations. The 1993 ratio decreased as a result
of higher cash flow from operations.
The Company's working capital requirements for inventories and
receivables are influenced by changes in raw materials costs, the
availability of raw materials and seasonality, and as a result, may
fluctuate widely. The Company has traditionally used short-term debt to
finance these seasonal and other working capital requirements and, from
time to time, to finance capital expenditures on a temporary basis. In
addition, the Company is currently using international short-term debt
to minimize its overall after-tax cost of debt. Bank lines of credit
provide future credit availability and support the sale of commercial
paper. Payment for lines of credit is effected primarily through fees.
At September 30, 1994 the Company's total unused lines of credit were
$132.5 million.
Working capital (current assets less current liabilities) was $61.7
at September 30, 1994 compared to $188.7 million at September 30, 1993
and $35.0 million at September 30, 1992. The decrease in 1994 is due to
higher current maturities of long-term debt and short-term debt,
partially offset by higher current assets. The increase in 1993 over
1992 is primarily due to lower short term borrowings.
Investing Activities
Capital expenditures were $332.1 million, $320.8 million and $325.4
million in fiscal years 1994, 1993, 1992, respectively. Projected
capital expenditures of $350 million in 1995 are expected to be
financed with funds generated from operations.
The acquisition of European battery operations in 1992 for
approximately $315 million represented significant investments.
Financing Activities
Long-term financings are arranged as necessary to meet the Company's
capital or other requirements, with the timing of issue, principal
amount and form depending on the prevailing securities markets and
general economic conditions. The Company received $37.7 million, $265.7
million and $250.0 million in proceeds from new debt issuances, offset
by payments on long-term debt of $233.8 million, $260.5 million and
$172.7 million in 1994, 1993 and 1992, respectively. The Company also
increased short-term obligations by $40.9 million in 1994, after
decreasing $46.8 million in 1993.
The Company returned a significant amount of cash to its common
shareholders during the three years ended September 30, 1994 through
common stock dividends and common stock repurchases. These outflows
totaled $103.2 million and $122.0 million for stock repurchases and
dividends, respectively, in 1994 compared to $69.8 million and $128.5
million in 1993 and $358.6 million and $123.3 million in 1992. As of
November 21, 1994, 1,883,900 shares of RPG Stock and 3,757,900 shares
of CBG Stock remained under the current Board of Directors'
authorization for the purchases of up to 3 million shares of RPG Stock
and 4 million shares of CBG Stock.
Coincident with the spin-off of Ralcorp on March 31, 1994, the
Company redeemed 334,109 shares of its Series A 6.75% Preferred Stock
at its guaranteed minimum value. The shares were redeemed by the
Company in connection with the cessation of participation in the
Company's Savings Investment Plan by plan participants employed by
Ralcorp following the spin-off. Issued in connection with the
redemption were 789,417 shares of RPG Stock and 161,582 shares of CBG
Stock.
Environmental Matters
The operations of the Company, like those of other companies engaged
in similar businesses, are subject to various federal, state, and local
laws and regulations intended to protect the public health and the
environment, including air and
79
<PAGE> 68
RALSTON PURINA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW (Continued)
water quality, underground fuel storage tanks, and waste handling and
disposal. The Company has approximately 300 underground fuel storage tanks
at various locations throughout the United States which are subject to
federal and state laws and regulations establishing minimum standards for
such tanks and, where necessary, remediation of associated contamination.
The Company is presently in the process of testing and evaluating, and, if
necessary, removing, replacing or upgrading such tanks in order to comply
with such laws. In addition, the Company has received notices from the
U.S. Environmental Protection Agency, state agencies, and/or private
parties seeking contribution, that it has been identified as a
"potentially responsible party" (PRP), under the Comprehensive
Environmental Response, Compensation and Liability Act, and may be
required to share in the cost of cleanup with respect to approximately 19
"Superfund" sites. The Company's ultimate liability in connection with
those sites may depend on many factors, including the volume of material
contributed to the site, the number of other PRP's and their financial
viability, and the remediation methods and technology to be used. While
it is difficult to quantify the potential financial impact of actions
involving environmental matters, particularly remediation costs at
waste disposal sites and future capital expenditures for environmental
control equipment, in the opinion of management, the ultimate liability
arising from such environmental matters, taking into account
established accruals for estimated liabilities, should not be material
to the financial position of the Company, but could be material to
results of operations or cash flows for a particular quarter or annual
period.
Inflation
Management recognizes that inflationary pressures may have an adverse
effect on the Company through higher asset replacement costs and
related depreciation and higher material costs. The Company tries to
minimize these effects through cost reductions and productivity
improvements as well as price increases to maintain reasonable profit
margins. It is management's view, however, that inflation has not had a
significant impact on operations in the three years ended September 30,
1994.
Foreign Exchange
The Company is engaged in the manufacture and sale of products in
over 160 countries on a global basis. The Company enters into foreign
exchange forward contracts and options to mitigate the Company's
economic exposure to changes in exchange rates. The Company views these
exposures as arising from three major areas: (a) non-U.S. dollar cash
flows to the U.S. from foreign subsidiaries expected within a year or
less, (b) cash flows to a foreign country in a currency other than the
subsidiary's functional currency, and (c) future cash flows at the
operating margin level. Contracts are entered into to offset exposures
on a net basis. The level of such actions is dependent on seasonality
of the Company's activities and on specific market conditions involving
various currencies. See Commitments and Contingencies note to financial
statements for additional information about foreign currency contracts.
<TABLE>
The Company generally views as long-term its investments in foreign
subsidiaries with a functional currency other than the U.S. dollar. As
a result, the company does not generally hedge these net investments.
However, the Company uses capital structuring techniques to manage net
investment in foreign currencies as considered necessary. Additionally,
the Company attempts to limit its U.S. dollar net monetary liabilities
in currencies of hyperinflationary countries primarily in South
America. Net foreign investments as of September 30, 1994 were:
<CAPTION> Net
Investment
Region (in millions)
------ -------------
<S> <C>
Europe...................................................................................... $528
Asia Pacific................................................................................ 123
Central and South America................................................................... 124
Other....................................................................................... 21
----
$796
====
</TABLE>
80
<PAGE> 69
RALSTON PURINA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW (Continued)
Restructuring Activities
In the fourth quarter of 1994, the Company recorded provisions for
restructuring of its world-wide carbon zinc battery production capacity
and certain administrative functions. Such provisions, together with
additional provisions for previously recorded restructurings, totaled
$83.9 million. Of the total pre-tax charge for restructuring, cash
costs include termination benefits of $26.2 million, payment of
guaranteed debt of $4.3 million and other exit costs of $7.0 million.
Non-cash charges of $46.4 million primarily relate to anticipated
losses on disposal of land, buildings and machinery and equipment. As
of September 30, 1994, no material actions contemplated in the
restructuring plan have taken place.
Restructuring actions will result in the closing of seven plants and
severance of approximately 1,700 employees. Such actions are expected
to be substantially completed by 1995 for five plants and 1996 for the
remaining two plants. Additional charges associated with these plant
closings of $40 to $50 million, pre-tax, are expected in future
periods. Two additional plant closings are planned for 1997 with
expected charges of $25 to $40 million, pre-tax. The Company expects to
fund the costs of the plan from internal sources and available
borrowing capacity.
As a result of the restructuring actions to be taken in 1995 and
1996, the Company expects lower pre-tax operating costs in 1995 of
approximately $10 million, increasing to $34 million on an annualized
basis by 1997. Savings from the planned actions will be used for profit
improvement and business-building initiatives.
In 1994, restructuring provisions of $16.0 million, pre-tax, were
recorded to cover severance and related payroll costs for 435 bakery
products headquarters and field employees who have been or will be laid
off as part of the continuing bakery products cost reduction program.
As of September 30, 1994, 205 employees have been laid off and have
begun receiving benefits which will total $9.5 million. As of September
30, 1994, $1.4 million of such benefits had been paid. The Company
expects annualized cost reductions of $20 million, pre-tax, as a result
of these actions. Pre-tax cost savings realized in the fourth quarter
of 1994 were $2.7 million.
<TABLE>
Provisions for restructuring international battery, agricultural and
bakery operations in 1992 consisted of $39.1 million of severance and
employee related costs, $7.0 million of costs to hold or sell fixed
assets, $6.8 million of other cash costs and $26.1 million of fixed
asset writedown on expected disposition losses. The following
summarizes activities related to such reserves:
<CAPTION>
(in millions)
<S> <C>
1992 restructuring provision................................................................ $ 79.0
Cash exit costs incurred through 9/30/94.................................................... (36.0)
Losses on disposal of fixed assets through 9/30/94.......................................... (2.7)
Reduction due to translation................................................................ (8.7)
Provision reversal in 1993.................................................................. (2.6)
Net provision increases in 1994............................................................. 7.4
------
Remaining reserve balance at 9/30/94........................................................ $ 36.4
======
</TABLE>
Activities related to the 1992 restructuring provisions are expected
to be completed in 1995.
<TABLE>
As a result of the restructuring actions covered by the 1992
provision, pre-tax cost savings have been or are expected to be as
follows:
<CAPTION>
(in millions)
Ultimate Annual
1993 1994 Reduction
---- ---- ----------------
<S> <C> <C> <C>
International battery products.................................................. $2 $16 $30
International agricultural products............................................. 8 11 13
Bakery products................................................................. 5 6 6
</TABLE>
81
<PAGE> 70
RALSTON PURINA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW (Continued)
Business Segment Information
Summarized financial information on a worldwide basis by business
segments for the three years ended September 30, 1994 is set forth
below. During these years the segments comprised the following:
Pet and Human Foods
Pet foods
Cereals-domestic (Spun-off March 31, 1994)
Baby food products (Spun-off March 31, 1994)
Other specialty grocery products, including crackers, cookies and
snacks (Spun-off March 31, 1994)
Cereal and other-international
Battery products
Alkaline, carbon zinc, lithium and rechargeable batteries,
miniatures, flashlights and other related products
Bakery Products
Bread and sweet baked goods
Agricultural Products-International
Animal feeds
Soy Protein Products and Other
Dietary soy protein, fiber food ingredients and polymer products
All seasons resort (Spun-off March 31, 1994)
Included in the period under review are the following items which
affect comparability of operating results for the periods.
Battery Products
Includes carbon zinc manufacturing and administrative restructuring
provisions of $80.5 million in 1994. Includes manufacturing
restructuring provisions of $53.3 million and gain on sale of assets of
$41.5 million in 1992.
Bakery Products
Includes headquarters and field restructuring provisions of $16.0
million in 1994. Includes bakery restructuring provisions of $13.7
million in 1992.
Agricultural Products
Includes $12.0 million restructuring provisions in 1992.
Comments, amounts and percentages in the remaining Business Segment
discussion exclude the effects of the items discussed above and spun-
off businesses.
Pet and Human Foods
Sales in the Pet and Human Foods segment increased 3.6% on higher
domestic and international dog and cat food volume. In 1993, sales
decreased 2.0% on lower domestic dry dog food volume, partially offset
by higher international pet food volume. Domestic pet food volume in
1993 was negatively impacted by the retail trade's rationalization of
inventories.
Operating profit for the Pet and Human Food segment increased 1.6% in
1994, as higher volume was partially offset by higher domestic
ingredient costs. Operating profit was flat in 1993 as higher
international volume was offset by lower domestic volume and an
unfavorable product mix.
Operating profit for the fourth quarter of 1994 declined as more
moderate volume increases than those experienced earlier in the year
were more than offset by higher ingredient costs and advertising and
promotion expense.
82
<PAGE> 71
RALSTON PURINA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW (Continued)
The pet foods industry is mature and non-cyclical with strong cash
flows. Competition is intense and volume growth depends on innovative
new product introductions and focused advertising and promotion
spending. Consolidation of the retail industry and growth of the mass
merchandiser segment has resulted, and will continue to result, in
significant changes in the product distribution pattern and trade
promoting and pricing practices of the Company. Increased profitability
depends on developing mutually beneficial relationships with the trade
(or customers).
Battery Products
Sales for the Battery Products segment increased 7% in 1994 on the
inclusion of rechargeable operations acquired in August 1993 and higher
alkaline volume in the North America and Asia Pacific Regions. In 1993,
sales increased 10% on higher international volume from European
battery operations acquired during 1992 and alkaline battery volume
growth in the North America, Asia Pacific and South America regions.
Battery Products' operating profit increased 7% in 1994 on volume
increases and acquired operations partially offset by substantial
European declines. European operations declined on unfavorable product
mix and significant declines in carbon zinc volume. European operations
were negatively impacted by the consolidation of the trade, poor
economic conditions and a strategic advertising investment to launch
the Energizer brand to supplant several existing alkaline brands.
Operating profit in 1993 increased 18% due to increased margins and
volume in domestic alkaline batteries, contribution of acquired
European operations and higher alkaline volume in the Asia Pacific and
South America region, partially offset by an unfavorable domestic
product mix.
Domestically, the battery products business continues to face intense
competition. While carbon zinc batteries dominate on a worldwide basis,
there is a rapid shift to alkaline batteries in more developed markets
such as the U.S., Canada, Europe and Japan.
In 1994 and 1992, the Company adopted restructuring plans for its
world-wide battery production capacity and certain administrative
functions. The Company continues to review its battery production
capacity and its business structure in light of pervasive global
trends, including the continuing shift from carbon zinc to alkaline
products and easing of trade restrictions in many regions. Future
periods will likely include further provisions for restructuring. (See
Restructuring Activities section of this financial review.)
Bakery Products
Sales in the Bakery Products segment decreased 2.1% in 1994 on lower
volume and the continuing shift to lower margin products in bread,
lower thrift store volume and higher promotional sales discounts. Sales
declined .8% in 1993 on the shift to lower margin products in bread,
lower thrift store volume, and higher promotional sales discounts,
partially offset by higher prices.
Operating profit for the Bakery Products segment declined 84% in
1994. Lower sales combined with high fixed production and distribution
costs account for the majority of the decline. Price increases
insufficient to cover higher ingredient costs and inflationary
increases in other costs also contributed to the decline. In 1993,
operating profit of the segment declined 36% as bread products
experienced a significant decline as a result of an unfavorable product
mix, lower thrift store volume, and higher promotional sales discounts.
Sweet baked goods operating profit improved on cost reductions
partially offset by lower thrift store volume and higher promotional
sales discounts.
The Bakery Products segment experienced an operating loss in the
fourth quarter of 1994 of $8.2 million compared to operating profit of
$23.9 million in the fourth quarter of 1993. Factors cited for the year
and a $5.5 million pre-tax adjustment to prior years' workers
compensation claims accounted for the decline.
The markets in which the Bakery Products segment competes are mature
and highly competitive and are sensitive to pricing and promotion. Most
of the production and distribution workforce belong to organized labor
unions.
Future performance of the Bakery Products segment is dependent on
arresting volume declines, implementing cost reductions, the ability to
raise prices, maintaining competitive promotion and pricing practices
and new product introductions. Historically, the Company has responded
to these market conditions by introducing new bread, snack cakes
83
<PAGE> 72
RALSTON PURINA COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW (Continued)
and breakfast products, by consolidating and improving production and by
improving margins from pricing actions. However, the segment's
performance has been hampered by strong, low price competition, growth
of in-store bakeries, weak market trends and the decline in convenience
stores. Bread margins have been impacted by a shift from branded to
private label products during recent years.
The impact of problems described above have thus far exceeded the
benefits of cost reduction programs underway. Management continues to
challenge the way it conducts business by looking for additional cost
savings, ways to strengthen volume and opportunities to improve bottom
line performance. The Company has experienced resistance to aspects of
its cost reduction initiatives by some unions; however, the Company
expects to continue aggressively pursuing these changes in contract
talks in order to implement its costs savings objectives.
Agricultural Products
Sales declined 1.4% on lower volume in Europe, partially offset by
increases in Asia and the Americas. Sales in the fourth quarter
increased 3.5% as European declines moderated. In 1993, sales declined
1.1% as slightly higher volume was more than offset by lower prices and
unfavorable exchange rates.
Operating profit declined 4.3% as European declines were partially
offset by improvements in most other areas of the world. Operating
profit increased 28% in 1993, primarily on cost reductions.
The Company signed a letter of intent on November 15, 1994 to sell
its international agribusiness operations to PM Holdings Corporation,
the parent company of Purina Mills, Inc. The transaction is subject to
approval by the Board of Directors of both companies, necessary
government approvals and the completion of a definitive sales
agreement.
Soy Protein Products and Other
Sales for the soy protein products business increased 10% in 1994 on
strong volume in food protein products. Sales increased 1.2% in 1993 on
higher volume. Operating profit increased 8.4% in 1994 as higher volume
was partially offset by higher raw material costs and unfavorable
foreign currency exchange rates. In 1993, operating profit increased
1.8% as higher volume and favorable cost of products sold were
partially offset by selling and new product development expenses.
84
<PAGE> 73
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
<CAPTION>
Dollars in millions 1994<Fa> 1993 1992
- ------------------- -------- ---- ----
<S> <C> <C> <C>
Sales by Product Lines and Segments
Pet and Human Foods
Pet Foods..................................................................... $1,753.0 $1,686.9 $1,733.7
Cereal and other-international................................................ 41.2 45.0 34.1
-------- -------- --------
Continuing businesses......................................................... 1,794.2 1,731.9 1,767.8
Cereal and other-domestic (spun-off March 31, 1994)........................... 419.7 802.9 782.8
-------- -------- --------
Subtotal.................................................................... 2,213.9 2,534.8 2,550.6
-------- -------- --------
Battery Products................................................................ 2,112.7 1,978.8 1,798.0
-------- -------- --------
Bakery Products................................................................. 1,948.6 1,991.2 2,007.7
-------- -------- --------
Agricultural Products........................................................... 1,007.2 1,022.0 1,033.0
-------- -------- --------
Soy Protein Products and Other
Soy protein products.......................................................... 320.7 291.5 288.1
All seasons resort (spun-off March 31, 1994).................................. 102.2 83.9 75.0
-------- -------- --------
Subtotal.................................................................... 422.9 375.4 363.1
-------- -------- --------
Total..................................................................... $7,705.3 $7,902.2 $7,752.4
======== ======== ========
Operating Profit
Pet and Human Foods
Continuing businesses......................................................... $ 333.2 $ 327.9 <Fd> $ 327.9
Cereal and other-domestic (spun-off March 31, 1994)........................... 34.0 85.4 <Fd> 59.8
-------- -------- --------
Subtotal.................................................................... 367.2 413.3 387.7
-------- -------- --------
Battery Products................................................................ 188.5<Fb> 250.9 <Fd> 200.2 <Ff>
-------- -------- --------
Bakery Products................................................................. (2.6)<Fc> 85.7 <Fd> 121.2 <Fg>
--------- -------- --------
Agricultural Products........................................................... 46.6 48.7 <Fd> 26.0 <Fh>
-------- -------- --------
Soy Protein Products and Other
Soy protein products.......................................................... 66.9 61.7 <Fd> 60.6
All seasons resort (spun-off March 31, 1994).................................. 33.9 2.5 3.8
-------- -------- --------
Subtotal.................................................................... 100.8 64.2 64.4
-------- -------- --------
Total..................................................................... 700.5 862.8 799.5
Unallocated Corporate and Miscellaneous Expenses.............................. (58.4) (44.3)<Fd> (14.5)
Interest Expense.............................................................. (220.4) (238.1)<Fe> (242.9)
-------- -------- --------
Earnings before Income Taxes, Extraordinary Item and Cumulative Effect of
Accounting Changes....................................................... $ 421.7 $ 580.4 $ 542.1
======== ======== ========
<FN>
- -----
<Fa> On March 31, 1994, the Company effected a spin-off of Ralcorp
Holdings, Inc., its private label and branded cereal, baby food,
crackers and cookies, ski resort and coupon redemption businesses.
The Company's earnings and cash flows through March 31, 1994
reflect the operations of those businesses. Pro forma results of
operations of the Company without the Ralcorp businesses appear on
page 97.
<Fb> Includes restructuring provisions of $80.5.
<Fc> Includes restructuring provisions of $16.0.
<Fd> Includes additional expense of change in accounting for
postretirement benefits other than pensions of $7.1 for Pet and
Human Foods-continuing businesses, $1.3 for Cereal and other, $5.0
for Battery Products, $3.5 for Bakery Products, $1.2 for
Agricultural Products, $1.6 for Soy Protein Products and Other and
$11.2 for unallocated corporate expenses.
<Fe> Excludes certain expenses related to postretirement benefits other
than pensions which were classified as interest expense in prior
years. Such expenses were $16.4 in 1993.
<Ff> Includes restructuring provisions of $53.3, offset by gain on sale
of property of $41.5.
<Fg> Includes restructuring provisions of $13.7.
<Fh> Includes restructuring provisions of $12.0.
</TABLE>
85
<PAGE> 74
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
<CAPTION>
Dollars in millions 1994 1993 1992
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Assets at Year End
Pet and Human Foods
Continuing businesses......................................................... $ 515.4 $ 481.2 $ 502.5
Cereal and other-domestic (spun-off March 31, 1994)........................... 392.7 374.7
-------- -------- --------
Subtotal.................................................................... 515.4 873.9 877.2
-------- -------- --------
Battery Products................................................................ 2,114.3 2,117.2 2,231.4
-------- -------- --------
Bakery Products................................................................. 797.5 782.8 773.4
-------- -------- --------
Agricultural Products........................................................... 318.9 305.9 345.0
-------- -------- --------
Soy Protein Products and Other
Soy protein products.......................................................... 324.1 313.8 316.0
All seasons resort (spun-off March 31, 1994).................................. 232.4 142.9
-------- -------- --------
Subtotal.................................................................... 324.1 546.2 458.9
-------- -------- --------
Subtotal.................................................................. 4,070.2 4,626.0 4,685.9
Corporate Assets.............................................................. 552.1 445.9 464.6
-------- -------- --------
Total..................................................................... $4,622.3 $5,071.9 $5,150.5
======== ======== ========
Depreciation Expense
Pet and Human Foods
Continuing businesses......................................................... $ 33.7 $ 30.5 $ 29.7
Cereal and other-domestic (spun-off March 31, 1994)........................... 13.8 24.5 21.0
-------- -------- --------
Subtotal.................................................................... 47.5 55.0 50.7
-------- -------- --------
Battery Products................................................................ 83.8 75.6 79.0
-------- -------- --------
Bakery Products................................................................. 75.2 71.8 67.8
-------- -------- --------
Agricultural Products........................................................... 15.7 15.2 16.3
-------- -------- --------
Soy Protein Products and Other
Soy protein products.......................................................... 20.6 18.9 16.6
All seasons resort (spun-off March 31, 1994).................................. 6.0 9.5 7.5
-------- -------- --------
Subtotal.................................................................... 26.6 28.4 24.1
-------- -------- --------
Property Additions
Pet and Human Foods
Continuing businesses......................................................... 49.3 32.3 34.8
Cereal and other-domestic (spun-off March 31, 1994)........................... 13.6 41.6 48.4
-------- -------- --------
Subtotal.................................................................... 62.9 73.9 83.2
-------- -------- --------
Battery Products................................................................ 114.6 96.9 82.2
-------- -------- --------
Bakery Products................................................................. 89.6 90.1 72.1
-------- -------- --------
Agricultural Products........................................................... 21.5 21.7 27.3
-------- -------- --------
Soy Protein Products and Other
Soy protein products.......................................................... 20.2 18.8 25.9
All seasons resort (spun-off March 31, 1994).................................. 6.2 9.4 17.2
-------- -------- --------
Subtotal.................................................................... 26.4 28.2 43.1
-------- -------- --------
</TABLE>
86
<PAGE> 75
RALSTON PURINA COMPANY AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
Export sales and sales between business segments were immaterial. No
single customer accounted for 10% or more of sales. Minority interests
in earnings of certain subsidiaries and the Company's equity in
earnings of unconsolidated 20% through 50% owned companies were not
significant and have been included in operating profit.
GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
Financial information by geographic location for the past three years
is set forth below.
<CAPTION>
Dollars in millions 1994<Fa> 1993 1992
- ------------------- -------- ---- ----
<S> <C> <C> <C>
Sales
United States................................................................. $5,112.8 $5,309.1 $5,340.0
Europe........................................................................ 949.6 1,050.4 964.1
South & Central America....................................................... 721.9 685.7 647.0
Asia Pacific.................................................................. 683.0 596.6 525.1
Other......................................................................... 238.0 260.4 276.2
-------- -------- --------
Total....................................................................... $7,705.3 $7,902.2 $7,752.4
======== ======== ========
Operating Profit
United States................................................................. $ 599.6<Fb> $ 669.6<Fg> $ 681.0
Europe........................................................................ .8<Fc> 66.2 (4.5)<Fh>
South & Central America....................................................... 26.2<Fd> 40.4 22.1 <Fi>
Asia Pacific.................................................................. 68.5<Fe> 73.4 97.8 <Fj>
Other......................................................................... 5.4<Ff> 13.2 3.1 <Fk>
-------- -------- --------
Total....................................................................... $ 700.5 $ 862.8 $ 799.5
======== ======== ========
Assets
United States................................................................. $2,465.0 $3,038.1 $2,895.7
Europe........................................................................ 834.2 842.5 1,061.0
South & Central America....................................................... 252.4 245.6 248.6
Asia Pacific.................................................................. 414.1 377.9 332.8
Other......................................................................... 104.5 121.9 147.8
-------- -------- --------
Total....................................................................... $4,070.2 $4,626.0 $4,685.9
======== ======== ========
<FN>
- -----
<Fa> On March 31, 1994, the Company effected a spin-off of Ralcorp
Holdings, Inc., its private label and branded cereal, baby food,
crackers and cookies, ski resort and coupon redemption businesses.
The Company's earnings and cash flows through March 31, 1994
reflect the operations of those businesses. Pro forma results of
operations of the Company without the Ralcorp businesses appear on
page 97.
<Fb> Includes restructuring provisions of $18.9.
<Fc> Includes restructuring provisions of $32.8.
<Fd> Includes restructuring provisions of $21.7.
<Fe> Includes restructuring provisions of $14.7.
<Ff> Includes restructuring provisions of $8.4.
<Fg> Includes additional expense of change in accounting for
postretirement benefits other than pensions of $30.9.
<Fh> Includes restructuring provisions of $53.6.
<Fi> Includes restructuring provisions of $11.7.
<Fj> Includes gain on sale of property of $41.5, and restructuring gains
of $9.5.
<Fk> Includes restructuring provisions of $9.5.
</TABLE>
87
<PAGE> 76
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The preparation and integrity of the financial statements of Ralston
Purina Company are the responsibility of its management. These
statements have been prepared in conformance with generally accepted
accounting principles and in the opinion of management fairly present
the Company's financial position, results of operations and cash flows.
The Company maintains accounting and internal control systems which
it believes are adequate to provide reasonable assurance that assets
are safeguarded against loss from unauthorized use or disposition and
that the financial records are reliable for preparing financial
statements. The selection and training of qualified personnel, the
establishment and communication of accounting and administrative
policies and procedures, and an extensive program of internal audits
are important elements of these control systems.
The report of Price Waterhouse LLP, independent accountants, on their
audits of the accompanying financial statements is shown below. This
report states that the audits were made in accordance with generally
accepted auditing standards. These standards include a study and
evaluation of internal control for the purpose of establishing a basis
for reliance thereon relative to the scope of their audits of the
financial statements.
The Board of Directors, through its Audit Committee consisting solely
of nonmanagement directors, meets periodically with management,
internal audit and the independent accountants to discuss audit and
financial reporting matters. To assure independence, Price Waterhouse
LLP has direct access to the Audit Committee.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Ralston Purina Company
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of earnings, of shareholders equity and
of cash flows present fairly, in all material respects, the financial
position of Ralston Purina Company and its subsidiaries at September
30, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended September 30,
1994, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in the Summary of Accounting Policies note to the
financial statements, Ralston Purina Company changed its method of
accounting for postretirement benefits other than pensions and income
taxes in 1993.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
November 4, 1994, except as to the
"Subsequent Event" note, which
is dated as of November 15, 1994
88
<PAGE> 77
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
Year ended September 30
<CAPTION>
(Dollars in millions except per share data) 1994 1993 1992
- ------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Sales....................................................................... $7,705.3 $7,902.2 $7,752.4
-------- -------- --------
Costs and Expenses
Cost of products sold......................................................... 4,282.5 4,322.0 4,223.1
Selling, general and administrative........................................... 1,861.3 1,879.8 1,784.9
Advertising and promotion..................................................... 799.9 875.5 931.3
Interest...................................................................... 220.4 238.1 242.9
Gain on sale of assets........................................................ (41.5)
Provisions for restructuring.................................................. 99.9 79.0
Other (income)/expense, net................................................... 19.6 6.4 (9.4)
-------- --------- ---------
7,283.6 7,321.8 7,210.3
-------- -------- --------
Earnings before Income Taxes, Extraordinary Item and Cumulative Effect of
Accounting Changes............................................................. 421.7 580.4 542.1
Income Taxes.................................................................... 203.3 239.1 221.4
-------- -------- --------
Earnings before Extraordinary Item and Cumulative Effect of Accounting Changes.. 218.4 341.3 320.7
Extraordinary Item-Loss on Early Retirement of Debt............................. (9.5) (11.8) (7.5)
--------- --------- --------
Earnings before Cumulative Effect of Accounting Changes......................... 208.9 329.5 313.2
Cumulative Effect of Accounting Changes:
Postretirement benefits other than pensions................................... (171.9)
Income taxes.................................................................. (35.0)
-------- -------- --------
Net Earnings.................................................................... 208.9 122.6 313.2
Preferred Stock Dividend, Net of Taxes.......................................... 20.2 21.0 21.0
-------- -------- --------
Earnings After Preferred Stock Dividend......................................... $ 188.7 $ 101.6 $ 292.2
======== ======== ========
</TABLE>
89
<PAGE> 78
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (Continued)
Year ended September 30
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Earnings per share of RPG Stock (Pro forma in 1993 and 1992 assuming two classes
of common stock, unaudited):
Primary
Earnings before Extraordinary Item and Cumulative Effect of Accounting
Changes.................................................................... $2.12 $ 2.56 $ 2.57
Extraordinary Item.......................................................... (.08) (.10) (.06)
Cumulative Effect of Accounting Changes..................................... (1.16)
----- ------ ------
Net Earnings................................................................ $2.04 $ 1.30 $ 2.51
===== ====== ======
Fully Diluted
Earnings before Extraordinary Item and Cumulative Effect of Accounting
Changes.................................................................... $2.05 $ 2.44 $ 2.44
Extraordinary Item.......................................................... (.07) (.09) (.05)
Cumulative Effect of Accounting Changes..................................... (1.06)
----- ------ ------
Net Earnings................................................................ $1.98 $ 1.29 $ 2.39
===== ====== ======
</TABLE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Earnings (Loss) per share of CBG Stock (Pro forma in 1993 and 1992 assuming two
classes of common stock, unaudited):
Primary
Earnings (Loss) before Extraordinary Item and Cumulative Effect of
Accounting Changes......................................................... $ (.74) $ .77 $ 1.23
Extraordinary Item.......................................................... (.04) (.05) (.03)
Cumulative Effect of Accounting Changes..................................... (2.30)
------ ------ ------
Net Earnings (Loss)......................................................... $ (.78) $(1.58) $ 1.20
====== ====== ======
Fully Diluted
Earnings (Loss) before Extraordinary Item and Cumulative Effect of
Accounting Changes......................................................... $ (.74) $ .67 $ 1.08
Extraordinary Item.......................................................... (.04) (.05) (.03)
Cumulative Effect of Accounting Changes..................................... (2.05)
------ ------ -----
Net Earnings (Loss)......................................................... $ (.78) $(1.43) $ 1.05
====== ====== ======
</TABLE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ralston Purina Company
------------------------
10 months
RPG Stock CBG Stock ended
--------- --------- July 30,
2 months ended 1993 1992
-------- ----
September 30, 1993
-------------------------
<S> <C> <C> <C> <C>
Earnings per Share:
Primary
Earnings before Extraordinary Item and Cumulative Effect of
Accounting Changes......................................... $ .40 $ .21 $ 2.65 $ 2.82
Extraordinary Item.......................................... (.04) (.02) (.06) (.07)
Cumulative Effect of Accounting Changes..................... (2.00)
------ ----- ------ ------
Net Earnings................................................ $ .36 $ .19 $ .59 $ 2.75
====== ===== ====== ======
Fully Diluted
Earnings before Extraordinary Item and Cumulative Effect of
Accounting Changes......................................... $ .38 $ .18 $ 2.50 $ 2.65
Extraordinary Item.......................................... (.04) (.02) (.06) (.06)
Cumulative Effect of Accounting Changes..................... (1.81)
------ ----- ------ ------
Net Earnings................................................ $ .34 $ .16 $ .63 $ 2.59
====== ===== ====== ======
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
90
<PAGE> 79
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30
<CAPTION>
(Dollars in millions except per share data) 1994 1993
- ------------------------------------------- ---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................................................... $ 126.0 $ 57.9
Receivables, less allowance for doubtful accounts.............................................. 829.1 763.2
Inventories.................................................................................... 729.9 803.7
Other current assets........................................................................... 174.2 171.2
-------- --------
Total Current Assets......................................................................... 1,859.2 1,796.0
-------- --------
Investments and Other Assets..................................................................... 865.7 944.3
-------- --------
Property at Cost
Land........................................................................................... 116.8 179.4
Buildings...................................................................................... 705.3 822.2
Machinery and equipment........................................................................ 2,581.8 2,790.4
Construction in progress....................................................................... 123.9 149.8
-------- --------
3,527.8 3,941.8
Accumulated depreciation..................................................................... 1,630.4 1,610.2
-------- --------
1,897.4 2,331.6
-------- --------
Total...................................................................................... $4,622.3 $5,071.9
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt........................................................... $ 288.1 $ 98.4
Notes payable.................................................................................. 454.3 401.3
Accounts payable and accrued liabilities....................................................... 984.3 1,041.7
Dividends payable.............................................................................. 39.1 40.8
Income taxes................................................................................... 31.7 25.1
-------- --------
Total Current Liabilities.................................................................... 1,797.5 1,607.3
-------- --------
Long-Term Debt................................................................................... 1,594.6 2,054.5
-------- --------
Deferred Income Taxes............................................................................ 72.5 149.5
-------- --------
Other Liabilities................................................................................ 592.6 590.5
-------- --------
Commitments and Contingencies....................................................................
Redeemable Preferred Stock-Series A 6.75%, $1 par value, issued 4,237,667 and 4,600,000 shares in
1994 and 1993, respectively..................................................................... 469.7 509.8
-------- --------
Unearned ESOP Compensation....................................................................... (260.2) (309.5)
-------- --------
Shareholders Equity
Preferred stock, $1 par value, None outstanding
Common stocks:
RPG Stock-$.10 par value, issued 114,685,117 and 114,679,403 shares in 1994 and 1993,
respectively................................................................................ 11.5 11.5
CBG Stock-$.10 par value, issued 20,857,799 and 20,694,484 shares in 1994 and 1993,
respectively................................................................................ 2.1 2.1
Capital in excess of par value................................................................. 108.7 115.2
Retained earnings.............................................................................. 1,043.2 1,159.3
Cumulative translation adjustment.............................................................. (58.7) (70.1)
Common stock in treasury, at cost:
RPG Stock-10,620,388 and 12,916,608 shares in 1994 and 1993, respectively.................... (577.4) (744.3)
CBG Stock-270,029 and 540 shares in 1994 and 1993, respectively.............................. (2.6)
Unearned portion of restricted stock........................................................... (4.3) (3.9)
Value of 4,033,347 shares of RPG Stock held in Grantor Trust................................... (166.9)
-------- --------
Total Shareholders Equity.................................................................... 355.6 469.8
-------- --------
Total...................................................................................... $4,622.3 $5,071.9
======== ========
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
91
<PAGE> 80
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended September 30
<CAPTION>
(Dollars in millions) 1994 1993 1992
- --------------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operations
Net earnings.................................................................. $ 208.9 $ 122.6 $ 313.2
Adjustments to reconcile net earnings to net cash flow provided by operations
Extraordinary item.......................................................... 9.5 11.8 7.5
Cumulative effect of accounting changes..................................... 206.9
Non-cash restructuring reserves............................................. 46.4 26.1
Depreciation and amortization............................................... 309.4 309.7 292.4
Deferred income taxes....................................................... (34.3) 3.1 (11.8)
Gain on sale of property.................................................... (41.5)
Changes in assets and liabilities used in operations
Increase in accounts receivable........................................... (137.4) (14.7) (113.4)
(Increase) decrease in inventories........................................ 1.0 (19.4) 26.1
(Increase) decrease in other current assets............................... (27.8) (.7) 8.0
Increase in accounts payable and accrued liabilities...................... 73.3 73.6 47.1
Increase (decrease) in other current liabilities.......................... 2.8 (11.6) 11.7
Other, net.................................................................. 19.2 10.7 12.5
------- ------- -------
Net cash flow from operations............................................ 471.0 692.0 577.9
------- ------- -------
Cash Flow from Investing Activities
Property additions............................................................ (332.1) (320.8) (325.4)
Proceeds from the sale of property............................................ 40.1 32.7 62.0
Acquisition of businesses..................................................... (39.2) (142.8) (315.2)
Other, net.................................................................... (6.6) 40.0 (30.2)
------- -------- -------
Net cash used by investing activities.................................... (337.8) (390.9) (608.8)
------- ------- -------
Cash Flow from Financing Activities
Proceeds from issuance of debt for spin-off................................... 370.0
Proceeds from sale of long-term debt.......................................... 37.7 265.7 250.0
Principal payments on long-term debt, including current maturities............ (233.8) (260.5) (172.7)
Net increase (decrease) in notes payable...................................... 40.9 (46.8) 399.2
Treasury stock purchases...................................................... (103.2) (69.8) (358.6)
Dividends paid................................................................ (155.8) (162.9) (157.7)
Other, net.................................................................... (.6) 3.4 2.9
------- ------- -------
Net cash used by financing activities.................................... (44.8) (270.9) (36.9)
------- ------- -------
Effect of Exchange Rate Changes on Cash......................................... (20.3) (31.8) (30.2)
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents............................ 68.1 (1.6) (98.0)
Cash and Cash Equivalents, Beginning of Year.................................... 57.9 59.5 157.5
------- ------- -------
Cash and Cash Equivalents, End of Year.......................................... $ 126.0 $ 57.9 $ 59.5
======= ======= =======
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
92
<PAGE> 81
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
Three years ended September 30, 1994
<CAPTION>
Number of Shares Amount
(In thousands) (Dollars in millions)
------------------------ ------------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Common Stocks:
Ralston-Ralston Purina Group Stock:
Balance at beginning of year.................................. 114,679 $ 11.5
Redesignation of Ralston Purina common stock................ 114,678 $ 11.5
Activity under stock plans.................................. 1
Common stock issued on conversion of debentures............. 6
------- -------- -------- --------
Balance at end of year........................................ 114,685 114,679 11.5 11.5
------- -------- -------- --------
Ralston-Continental Baking Group Stock:
Balance at beginning of year.................................. 20,694 2.1
Issuance of CBG stock....................................... 20,694 2.1
Shares issued in connection with preferred stock redemption. 162
Common stock issued on conversion of debentures............. 1
------- -------- -------- --------
Balance at end of year........................................ 20,857 20,694 2.1 2.1
------- -------- -------- --------
Ralston Purina Stock:
Balance at beginning of year.................................. 114,670 114,661 11.5 $ 47.8
Effect of change in par value............................... (36.3)
Common stock issued on conversion of debentures............. 2 9
Activity under stock plans.................................. 6
Redesignation of Ralston Purina common stock................ (114,678) (11.5)
-------- ------- -------- --------
Balance at end of year........................................ 0 114,670 0 11.5
-------- ------- -------- --------
Common Stocks in Treasury:
Ralston-Ralston Purina Group Stock:
Balance at beginning of year.................................. (12,917) (744.3)
Redesignation of Ralston Purina common stock................ (11,173) (684.7)
Activity under stock plans.................................. 100 (3) 7.5 (.1)
Treasury stock purchased.................................... (2,560) (1,741) (100.9) (59.5)
Shares issued in connection with preferred stock redemption. 789 43.9
Restricted Stock Award transfer in connection with Ralcorp
spin-off.................................................... (65) (2.9)
Establishment of grantor trust.............................. 4,033 219.3
------- -------- -------- --------
Balance at end of year........................................ (10,620) (12,917) (577.4) (744.3)
-------- -------- --------- --------
Ralston-Continental Baking Group Stock:
Balance at beginning of year.................................. (1)
Activity under stock plans.................................. (17) (1) (.2)
Treasury stock purchased.................................... (242) (2.3)
Restricted Stock Award transfer in connection with Ralcorp
spin-off.................................................... (10) (.1)
-------- -------- ---------
Balance at end of year........................................ (270) (1) (2.6)
-------- -------- ---------
Ralston Purina Stock:
Balance at beginning of year.................................. (10,931) (4,162) (676.1) (321.1)
Activity under stock plans.................................. (22) 9 1.7 3.6
Treasury stock purchased.................................... (220) (6,778) (10.3) (358.6)
Redesignation of Ralston Purina common stock................ 11,173 684.7
-------- ------- -------- --------
Balance at end of year........................................ 0 (10,931) 0 (676.1)
-------- -------- -------- --------
Grantor Trust:
Establishment of grantor trust.............................. (4,033) (169.4)
Market value adjustment..................................... 2.5
------- --------
Balance at end of year........................................ (4,033) (166.9)
-------- ---------
</TABLE>
93
<PAGE> 82
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (Continued)
Three years ended September 30, 1994
<CAPTION>
Amount
(Dollars in millions)
------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Capital in Excess of Par Value:
Balance at beginning of year.................................. $ 115.2 $ 117.4 $ 81.4
Issuance of CBG Stock....................................... (2.1)
Effect of change in par value............................... 36.3
Common stock issued on conversion of debentures............. .1
Activity under stock plans.................................. .6 .1 (.1)
Market value adjustment on restricted stock................. (.2) (.3)
Establishment of grantor trust.............................. (4.6)
Market value adjustment of grantor trust.................... (2.5)
-------- -------- --------
Balance at end of year........................................ 108.7 115.2 117.4
-------- -------- --------
Retained Earnings:
Balance at beginning of year.................................. 1,159.3 1,192.1 1,032.8
Activity under stock plans.................................. (4.4) (4.4) (7.1)
Net earnings................................................ 208.9 122.6 313.2
Dividends declared on preferred stock, net of taxes......... (20.2) (21.0) (21.0)
Dividends declared on Ralston Purina Group common stock..... (121.5) (61.6)
Dividends declared on Continental Baking Group common stock. (3.3)
Dividends declared on Ralston Purina common stock........... (65.1) (125.8)
Impact of Ralcorp spin-off.................................. (133.6)
Establishment of grantor trust.............................. (45.3)
-------- -------- --------
Balance at end of year........................................ 1,043.2 1,159.3 1,192.1
-------- -------- --------
Unearned Portion of Restricted Stock:
Balance at beginning of year.................................. (3.9) (9.0) (19.1)
Activity under stock plans.................................. (2.0) 1.7 .6
Market value adjustment on restricted stock................. .2 .3
Amortization of restricted stock............................ 1.6 3.2 9.2
-------- -------- --------
Balance at end of year........................................ (4.3) (3.9) (9.0)
-------- ------- -------
Cumulative Translation Adjustment:
Balance at beginning of year.................................. (70.1) 19.3 (38.0)
Translation adjustments..................................... 11.4 (89.4) 57.3
-------- ------- -------
Balance at end of year........................................ $ (58.7) $ (70.1) $ 19.3
======== ======== ========
The above financial statement should be read in conjunction with the
Notes to Financial Statements.
</TABLE>
94
<PAGE> 83
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions except per share data)
Summary of Accounting Policies
The Company's significant accounting policies, which conform to
generally accepted accounting principles and are applied on a
consistent basis among years, except as indicated, are described below:
Principles of Consolidation-The consolidated financial statements
include the accounts of the Company and its majority-owned
subsidiaries. All significant intercompany transactions are eliminated.
Investments in affiliated companies, 20% through 50%-owned, are carried
at equity.
Minority interests in earnings of consolidated subsidiaries and the
Company's share of the net earnings of unconsolidated companies carried
at equity are included in selling, general and administrative expenses.
Foreign Currency Translation-Foreign currency financial statements of
foreign operations where the local currency is the functional currency
are translated using exchange rates in effect at period end for assets
and liabilities and average exchange rates during the period for
results of operations. Related translation adjustments are reported as
a separate component of shareholders equity. For foreign operations
where the U.S. dollar is the functional currency and for countries
which are considered highly inflationary, translation practices differ
in that inventories, properties, accumulated depreciation and
depreciation accounts are translated at historical rates of exchange
and related translation adjustments are included in earnings. Gains and
losses from foreign currency transactions are generally included in
earnings.
Financial Instruments-The Company enters into interest rate swap and
cap agreements in the management of interest rate exposure. The
differential to be paid or received is normally accrued as interest
rates change and is recognized over the life of the agreements. In
addition, in order to hedge foreign currency exposures on firm
commitments, the Company regularly enters into forward foreign currency
contracts. Gains and losses resulting from these instruments are
recognized in the same period as the underlying hedged transaction.
Cash Equivalents for purposes of the statement of cash flows are
considered to be all highly liquid investments with a maturity of three
months or less when purchased. Cash flow from hedging transactions are
classified in the same category as the cash flow from the item being
hedged.
Inventories are valued generally at the lower of average cost or
market. The Company hedges certain of its grain and commodity purchases
as considered necessary to reduce the risk associated with market price
fluctuations. Gains and losses on hedges of future grain and commodity
purchases are recognized in the same period as the related purchase
transaction.
Property at Cost-Expenditures for new facilities and those which
substantially increase the useful lives of the property, including
interest during construction, are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and gains or losses on the dispositions
are reflected in earnings.
Depreciation is generally provided on the straight-line basis by
charges to costs or expenses at rates based on the estimated useful
lives of the properties. Estimated useful lives range from 3 to 25
years for machinery and equipment and 10 to 50 years for buildings.
Intangible Assets, which are included in Investments and Other
Assets, represent the excess of cost over the net tangible assets of
acquired businesses and are amortized over estimated periods of related
benefit ranging from 5 to 40 years.
Subsequent to acquisition, the Company continually evaluates whether
later events and circumstances have occurred that indicate the
remaining estimated useful life of an intangible asset may warrant
revision or that the remaining balance of an intangible asset may not
be recoverable. The measurement of possible impairment is based on the
ability to recover the balance of intangible assets from expected
future operating cash flows on an undiscounted basis. In the opinion of
management, no such impairment existed as of September 30, 1994 and
1993.
95
<PAGE> 84
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Income Taxes-The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109) effective
October 1, 1992. FAS 109 requires the liability method of accounting
for income taxes. The impact of this change is discussed in the Income
Taxes note to financial statements. Deferred income taxes are
recognized for the effect of temporary differences between financial
and tax reporting. No additional U.S. taxes have been provided on
earnings of foreign subsidiaries expected to be reinvested
indefinitely. Additional income taxes are provided, however, on planned
repatriations of foreign earnings after taking into account tax-exempt
earnings and applicable foreign tax credits.
Postretirement Benefits Other Than Pensions-The Company adopted
Statement of Financial Accounting Standards No. 106 "Employer's
Accounting for Postretirement Benefits Other Than Pensions" (FAS 106)
effective October 1, 1992. The impact of this change is discussed in
the Postretirement Benefits Other Than Pensions note to financial
statements.
Advertising Costs-The Company expenses advertising costs as incurred.
Earnings per Share-As discussed in the Shareholders Equity note to
financial statements, effective July 30, 1993, the Company has two
classes of common stock. Earnings per share are reported for the single
outstanding common stock through July 30, 1993 and for the separate
stocks, using the two-class method, after July 30, 1993. Primary
earnings per share are based on the average number of shares of each
respective class outstanding during the period for which earnings per
share are reported. The average number of shares of RPG Stock and CBG
Stock outstanding for the year ended September 30, 1994 was 100,547,000
and 20,542,000, respectively, and for the period after July 30, 1993
through September 30, 1993 was 102,199,000 and 20,694,000,
respectively. The average number of shares of Ralston Purina Company
Common Stock outstanding was 103,555,000 for the period October 1, 1992
through July 30, 1993 and 106,314,000 in 1992.
The 1993 and 1992 pro forma earnings (loss) per share are based on
the assumption that the RPG Stock and CBG Stock had been outstanding as
of the beginning of the periods presented. For RPG Stock, such shares
assumed outstanding were 103,329,000 in 1993 and 106,314,000 in 1992.
For CBG Stock, such shares assumed outstanding were 20,709,000 in 1993
and 21,263,000 in 1992. The pro forma earnings per share are not
necessarily indicative of the results that would have occurred if the
RPG Stock and CBG Stock had been outstanding during the periods
presented.
Fully diluted earnings per share assumes the conversion of the Series
A 6.75% Preferred Stock (Redeemable Preferred Stock) and other dilutive
securities into common stock. For purposes of calculating fully diluted
earnings per share, net earnings have been adjusted for the additional
contribution to the Company's employee stock ownership plans and their
related trust (ESOP) that would have been required had the Redeemable
Preferred Stock been converted as of the beginning of the period.
Reclassifications-Certain reclassifications have been made to the
1993 and 1992 financial statements to conform with the 1994
presentation.
Business Segment Information
The Business Segment Information and Geographic Segment Information
sections, appearing on pages 85 through 87 herein, are an integral part
of these financial statements.
Acquisitions
On November 19, 1993, the Company purchased the oats processing and
packaging and cereal making operations of the National Oats Company
division of Curtice Burns Foods, Inc., along with certain related
manufacturing assets, for approximately $39.
On August 27, 1993, the Company purchased the nickel-based
rechargeable battery business of Gates Energy Products, Inc. for
approximately $52. In May 1993, the Company purchased Victoria U.S.A.
Inc.'s ski assets and substantially all of its real estate in the
resort of Breckenridge, Colorado for approximately $90.
96
<PAGE> 85
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
On July 15, 1992, the Company completed the purchase of Ever Ready
Limited from Hanson, PLC, London for $245.2 in cash. On February 18,
1992, the Company acquired the consumer battery products business of
Sociedad Espanola Del Acumulador Tudor, a battery products manufacturer
based in Spain and Portugal, for $70.0 in cash.
These acquisitions were accounted for using the purchase method of
accounting, and accordingly, the results of operations are included in
the consolidated statement of earnings from the date of acquisition.
Assuming these acquisitions had occurred as of the beginning of their
respective fiscal years, they would not have had a material effect on
net sales or net earnings.
Divestitures
On March 31, 1994, the Company effected a spin-off of its private
label and branded cereal, baby food, crackers and cookies, ski resort
and coupon redemption businesses (the Distribution). One share of stock
of the new company, Ralcorp Holdings, Inc. (Ralcorp), was distributed
for each three shares of RPG Stock held by shareholders. The Company's
earnings and cash flows reflect the operations of those businesses
through March 31, 1994.
The following pro forma data reflect the results of operations for
the year ended September 30, 1994 and 1993 of the Company as if the
Distribution had occurred as of October 1, 1992. Such data have been
prepared by adjusting the historical statements for the effect of
costs, expenses, assets and liabilities and the recapitalization which
might have occurred had the Distribution been effected as of October 1,
1992. This pro forma data may not necessarily reflect the consolidated
results of operations that would have existed had the Distribution
occurred as of that date.
<TABLE>
Pro Forma Consolidated Statement of Earnings
(unaudited)
<CAPTION>
Year Ended
September 30,
--------------------
1994 1993
---- ----
<S> <C> <C>
Net Sales<Fa>.................................................................................... $7,183.4 $7,013.4
-------- --------
Cost and Expenses
Cost of products sold<Fa>...................................................................... 4,016.8 3,855.9
Selling, general and administrative<Fa>........................................................ 1,789.7 1,753.9
Advertising and promotion<Fa>.................................................................. 683.1 667.0
Interest<Fb>................................................................................... 213.0 222.9
Provision for restructuring.................................................................... 99.9
Other (income)/expense, net<Fa>................................................................ 19.4 5.8
-------- --------
6,821.9 6,505.5
-------- --------
Earnings before Income Taxes, Extraordinary Loss and Cumulative Effect of Accounting Changes..... 361.5 507.9
Income Taxes<Fc>................................................................................. 180.6 211.8
-------- --------
Earnings before Extraordinary Loss and Cumulative Effect of Accounting Changes................... $ 180.9 $ 296.1
======== ========
<FN>
- -----
<Fa> Excludes results of operations of Ralcorp.
<Fb> Reflects reduction of interest expense at an average rate of 3.9%
in 1994 and 4.1% in 1993 due to debt repayment of $370 by Ralston
from the proceeds of debt issued in connection with the spin-off.
<Fc> Reflects the applicable federal and state statuatory tax rates for
the pro forma adjustments.
</TABLE>
Restructuring Activities
In the fourth quarter of 1994, the Company recorded provisions for
restructuring of its world-wide carbon zinc battery production capacity
and certain administrative functions. Restructuring actions will result
in the closing of seven plants and
97
<PAGE> 86
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
severance of approximately 1,700 employees. Such actions are expected to
be substantially completed by 1995 for five plants and 1996 for the
remaining two plants. Such provisions, together with additional provisions
for previously recorded restructurings, reduced 1994 earnings before
income taxes and net earnings by $83.9 and $72.8, respectively. Of the
total pre-tax charge for restructuring, cash cost includes termination
benefits of $26.2, payment of guaranteed debt of $4.3 and other exit costs
of $7.0. Non-cash charges of $46.4 primarily relate to anticipated losses
on disposal of land, buildings and machinery and equipment. As of
September 30, 1994, no material actions contemplated in the
restructuring plan have taken place. Additional charges associated with
these plant closings of $40 to $50 million, pre-tax, are expected in
future periods. Two additional plant closings are planned for 1997 with
expected charges of $25 to $40 million, pre-tax.
In the third quarter of 1994, bakery products restructuring
provisions were recorded which reduced 1994 earnings before income
taxes and net earnings by $16.0 and $9.6, respectively. The charge
covers severance and related payroll costs for 435 headquarters and
field employees who have been or will be laid off as part of the
continuing bakery products cost reduction program. As of September 24,
1994, 205 employees have been laid off and have begun receiving
benefits which will total $9.5. As of September 24, 1994, $1.4 of such
benefits had been paid.
Provisions for restructuring international battery, agricultural and
bakery operations of $79.0, pre-tax, were recorded in 1992. These
provisions, offset by a pre-tax gain on the sale of assets of $41.5,
reduced net earnings by $32.9. The pre-tax restructuring charge
consisted of $39.1 of severance and employee related costs, $7.0 of
costs to hold or sell fixed assets, $6.8 of other cash costs and $26.1
of fixed asset writedown on expected disposition losses. Restructuring
activities through September 30, 1994 related to the 1992 provisions
included cash exit costs incurred of $36.0, losses on disposal of fixed
assets of $2.7, reductions due to translation of $8.7 and net provision
increases of $4.8. Activities related to the 1992 restructuring
provisions are expected to be completed in 1995.
Income Taxes
<TABLE>
The provisions for income taxes consisted of the following:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Currently payable
United States................................................................. $167.8 $173.8 $177.9
State......................................................................... 18.3 21.6 19.3
Foreign....................................................................... 51.5 37.6 34.0
------ ------ ------
Total current............................................................... 237.6 233.0 231.2
------ ------ ------
Deferred
United States................................................................. (17.6) (9.9) (13.6)
State......................................................................... (2.3) (1.3)
Foreign....................................................................... (14.4) 17.3 3.8
------- ------ ------
Total deferred.............................................................. (34.3) 6.1 (9.8)
------- ------ -------
Income taxes before extraordinary item and cumulative effect of accounting
changes........................................................................ $203.3 $239.1 $221.4
====== ====== ======
</TABLE>
<TABLE>
The source of pre-tax earnings follows:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
United States................................................................... $398.0 $450.0 $478.0
Foreign......................................................................... 23.7 130.4 64.1
------ ------ ------
Pre-tax earnings before extraordinary item and cumulative effect of accounting
changes........................................................................ $421.7 $580.4 $542.1
====== ====== ======
</TABLE>
98
<PAGE> 87
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
A reconciliation of income taxes with the amounts computed at the
statutory federal rate follows:
<CAPTION>
1994 1993 1992
------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate........... $147.6 35.0% $201.7 34.7% $184.3 34.0%
State income taxes, net of federal tax benefit... 10.4 2.5 13.2 2.3 12.7 2.3
Foreign tax in excess of domestic rate........... 28.8 6.8 9.6 1.7 23.9 4.4
Taxes on repatriation of foreign earnings........ 20.5 4.9 22.4 3.9 6.0 1.1
Other, net....................................... (4.0) (1.0) (7.8) (1.4) (5.5) (1.0)
------ ---- ------ ---- ------ ----
$203.3 48.2% $239.1 41.2% $221.4 40.8%
====== ==== ====== ==== ====== ====
</TABLE>
The tax benefit related to the extraordinary loss on early retirement
of debt was $6.1 in 1994, $7.6 in 1993 and $4.7 in 1992.
Effective October 1, 1992, the Company adopted FAS 109 which required
the Company to change its method of accounting for income taxes from
the deferred method to the liability method. FAS 109 was adopted on a
prospective basis and amounts presented for prior years were not
restated. The cumulative effect of the adoption as of October 1, 1992
was a $35.0 decrease in prior years' net earnings. The effect of the
adoption on the 1993 income tax provision was an increase of $6.0.
<TABLE>
The deferred tax assets and deferred tax liabilities recorded on the
balance sheet as of September 30, 1994 and 1993 are as follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation and property differences.......................................................... $ 267.5 $ 308.9
Pension plans.................................................................................. 53.1 49.5
Other.......................................................................................... 41.4 65.2
------- -------
Gross deferred tax liabilities............................................................... 362.0 423.6
------- -------
Deferred Tax (Assets):
Postretirement benefits other than pensions.................................................... (170.8) (164.8)
Accrued liabilities............................................................................ (87.8) (69.0)
Tax loss carryforwards and tax credits......................................................... (62.3) (44.8)
Self-insurance reserves........................................................................ (48.1) (50.6)
Intangible assets.............................................................................. (25.8) (20.5)
Other.......................................................................................... (32.0) (46.6)
------- -------
Gross deferred tax (assets).................................................................. (426.8) (396.3)
------- -------
Valuation Allowance............................................................................ 65.6 44.6
------- -------
Net deferred tax liabilities................................................................... $ .8 $ 71.9
======= ===========
</TABLE>
Total net deferred tax liabilities shown above include current and
noncurrent elements.
Tax loss carryforwards and tax credits totaling $1.2 expired in 1994.
Future expiration of tax loss carryforwards, if not utilized, are as
follows: 1995, $4.0; 1996, $7.6; 1997, $18.2; 1998, $11.4; thereafter
or no expiration, $18.9. The valuation allowance is primarily
attributed to certain accrued liabilities, tax loss carryforwards and
tax credits outside the U.S. The valuation allowance increased in 1994
by $21.0.
At September 30, 1994, $147.0 of foreign subsidiary net earnings was
considered permanently invested in those businesses. Accordingly, U.S.
income taxes have not been provided for such earnings. It is not
practicable to determine the amount of unrecognized deferred tax
liabilities associated with such earnings.
99
<PAGE> 88
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Incentive Compensation
The Company's 1988 Incentive Stock Plan (1988 Plan), adopted in
January 1988 and amended by shareholders in July 1993, replaces the
1982 Incentive Stock Plan (1982 Plan). No additional awards may be
granted under the 1982 Plan, which otherwise will continue in existence
until granted awards are exercised or terminated.
The 1988 Plan, as amended, provides that eligible employees may
receive stock option awards and other stock awards payable in whole or
part by the issuance of RPG Stock or CBG Stock. Stock option awards are
issued at an option price at least equal to the fair market value of
the appropriate stock at the date of grant. Since option prices are
equal to market value, no charge is made against earnings. Proceeds
from the exercise of RPG Stock or CBG Stock options are credited to the
appropriate group equity account.
As a result of the distribution of the common stock of Ralcorp
Holdings, Inc. to all holders of RPG Stock on March 31, 1994, each
outstanding option to acquire shares of RPG Stock was adjusted pursuant
to existing antidilution provisions. Both the number of options and the
exercise price were adjusted based upon the ratio of the average
trading prices of the RPG Stock prior to and following the
distribution. Each outstanding restricted RPG Stock award received the
Ralcorp Stock distribution as a restricted dividend which will vest in
accordance with the terms of the original restricted stock award,
although for a limited number of restricted RPG Stock awards, the
Ralcorp Stock issued in the distribution was immediately distributed
without restrictions to the recipients.
<TABLE>
Changes in nonqualified stock options outstanding are summarized as
follows:
<CAPTION>
Shares
Under
Option
------
<S> <C>
RPG Stock
Outstanding beginning of year ($17.968 to $50.025 per share).............................. 3,754,602
Exercised ($37.25 to $39.996 per share)................................................... (73,513)
Cancelled................................................................................. (328,200)
---------
Outstanding March 31, 1994 ($17.968 to $50.025 per share) prior to Ralcorp spin-off....... 3,352,889
=========
Adjusted options at March 31, 1994 based on ratio of average trading prices ($15.296 to
$42.585 per share)....................................................................... 3,938,675
Exercised ($15.296 to $33.235 per share).................................................. (26,573)
Cancelled................................................................................. (275,411)
---------
Outstanding September 30, 1994 ($15.296 to $42.585 per share)............................. 3,636,691
=========
Exercisable at September 30, 1994......................................................... 775,479
=========
CBG Stock
Outstanding beginning of year ($4.221 to $11.751 per share)............................... 750,921
Granted ($8.875 per share)................................................................ 1,272,168
Exercised ($9.1710 per share)............................................................. (640)
Cancelled................................................................................. (89,897)
---------
Outstanding September 30, 1994 ($4.221 to $11.751 per share).............................. 1,932,552
=========
Exercisable at September 30, 1994......................................................... 223,633
=========
</TABLE>
At September 30, 1994, there were 5,763,744 and 1,983,937 shares of
RPG Stock and CBG Stock, respectively, available for future awards. At
September 30, 1993, there were 4,397,608 and 3,161,885 shares of RPG
Stock and CBG Stock, respectively, available for future awards. In
November 1993, certain employees of the CBG Group were granted CBG
Stock options for 1,087,168 shares of CBG Stock in exchange for
cancellation or exercise of certain RPG Stock options held by such
employees prior to the new grant.
100
<PAGE> 89
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
In addition, at September 30, 1994, there were 258,111 and 32,811
restricted shares of RPG Stock and CBG Stock outstanding, respectively.
At September 30, 1993, there were 435,020 and 87,004 restricted shares
of RPG Stock and CBG Stock outstanding, respectively. Restrictions on
shares of restricted stock issued to eligible employees lapse over
various periods, provided continued employment and, in certain cases,
minimum stock price requirements are met. Compensation cost is
recognized over this vesting period. Charges to earnings were $1.6 in
1994, $3.2 in 1993 and $9.6 in 1992.
Pension Plans
The Company has several noncontributory defined benefit pension plans
covering substantially all full-time employees in the United States,
who are not participating in a multiemployer pension plan, and certain
employees in other countries. The plans provide retirement benefits
based on years of service and earnings. It is the Company's practice to
fund pension liabilities in accordance with the minimum and maximum
limits imposed by the Employee Retirement Income Security Act of 1974
(ERISA) and federal income tax laws. The Company also contributes to
jointly administered multiemployer defined benefit pension plans
covering certain of its union employees.
Certain foreign pension arrangements, which include various
retirement and termination benefit plans, some of which are required by
local law or coordinated with government-sponsored plans, are not
material in the aggregate and are not included in these disclosures.
<TABLE>
Pension cost and other retirement savings plan costs included the
following components:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Defined benefit plans
Service cost for benefits earned during the year.............................. $31.4 $ 32.3 $ 30.7
Interest cost on projected benefit obligation................................. 64.5 62.9 57.9
Return on plan assets......................................................... (33.2) (184.4) (78.9)
Net amortization and deferral................................................. (68.7) 87.5 (14.3)
----- ------- ------
Total defined benefit plans..................................................... (6.0) (1.7) (4.6)
Multiemployer plans............................................................. 56.1 59.8 55.6
Defined contribution plans...................................................... 34.3 35.4 33.5
----- ------- ------
Total....................................................................... $84.4 $ 93.5 $ 84.5
===== ======= ======
</TABLE>
<TABLE>
The following table presents the funded status of the Company's
principal defined benefit plans and amounts recognized in the balance
sheet at September 30:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefits................................................................................ $ (632.1) $ (639.1)
Nonvested benefits............................................................................. (39.9) (46.0)
--------- ---------
Accumulated benefit obligation................................................................. (672.0) (685.1)
Effect of future salary increases.............................................................. (174.4) (180.5)
--------- ---------
Projected benefit obligation................................................................... (846.4) (865.6)
Plan assets at fair value........................................................................ 1,084.0 1,154.8
-------- --------
Plan assets in excess of projected benefit obligation............................................ 237.6 289.2
Unrecognized net gain............................................................................ (101.4) (162.2)
Unrecognized prior service cost.................................................................. 8.9 16.7
Unrecognized net asset at transition, net of amortization........................................ (21.5) (26.4)
--------- ---------
Prepaid pension cost included in Investments and Other Assets.................................... $ 123.6 $ 117.3
======== ========
</TABLE>
101
<PAGE> 90
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
The assumptions used in determining the information above which
reflect weighted averages for the component plans, were as follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate.................................................................................... 7.8% 7.8%
Rate of increase of future compensation levels................................................... 5.5% 5.5%
Long-term rate of return on assets............................................................... 8.9% 9.4%
</TABLE>
Assets of the plans consist primarily of listed common stocks and
bonds, including 1,700,866 shares of RPG Stock and 340,173 shares of
CBG Stock with a market value of $70.4 and $1.9, respectively, at
September 30, 1994.
Substantially all full-time administrative and non-union production
employees in the United States are eligible to participate in the
Company-sponsored leveraged ESOP. The Company makes a matching
contribution of up to 100% of the participant's contribution based on
specified limits of the participant's salary.
The cost of the ESOP is recognized as incurred and was $31.0 for
1994, $34.3 for 1993 and $32.2 for 1992. Company contributions include
$4.6 in 1994, $5.9 in 1993 and $6.1 in 1992 of additional employer
contributions necessary to meet the debt service requirements of the
leveraged ESOP's long-term debt as discussed in the Long-Term Debt
note.
Postretirement Benefits Other Than Pensions
Effective October 1, 1992, the Company adopted FAS 106. This standard
requires that the estimated cost of postretirement benefits other than
pensions be accrued over the period such benefits are earned. The
Company elected to recognize the cumulative effect of this accounting
change by recording a non-cash charge of $272.8 ($171.9 after income
taxes) which represents the excess of the accumulated postretirement
benefit obligation over those accruals recorded prior to the adoption
of FAS 106 of $86.8. Annual pre-tax postretirement benefit expense was
comparable in 1994 and 1993. However, in 1993 such expense increased
$14.5 as a result of the adoption of FAS 106. In addition, costs
associated with the deferred compensation plans were classified as
interest expense prior to the adoption of FAS 106. Effective October 1,
1992, such costs are reported in the same expense category as other
costs related to the covered employee. This change resulted in $16.4
less interest expense being reported in 1993 than 1992, with a
corresponding increase in operating expenses.
The Company currently provides health care and life insurance
benefits for certain groups of retired employees who meet specified age
and years of service requirements. The cost of these benefits was
expensed as incurred before adoption of FAS 106. The Company also
sponsors plans whereby certain management employees may defer
compensation in exchange for cash benefits after retirement. The cost
of deferred compensation benefits was accrued over the life of the
participant prior to adoption of FAS 106.
<TABLE>
The net periodic costs for postretirement benefits includes the
following components for the year ended September 30:
<CAPTION>
1994 1993
---------------------- ----------------------
Medical Other Medical Other
------- ----- ------- -----
<S> <C> <C> <C> <C>
Service cost.................................................... $ 1.2 $ 5.3 $ 1.2 $ 9.0
Interest cost................................................... 15.0 14.8 13.9 13.4
----- ----- ----- -----
$16.2 $20.1 $15.1 $22.4
===== ===== ===== =====
</TABLE>
102
<PAGE> 91
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
The following table presents the status of the Company's
postretirement benefit plans at September 30:
<CAPTION>
1994 1993
---------------------- ----------------------
Medical Other Medical Other
------- ----- ------- -----
<S> <C> <C> <C> <C>
Accumulated benefit obligation
Retirees...................................................... $104.1 $114.8 $112.2 $ 97.0
Fully eligible plan participants.............................. 47.8 63.0 60.7 58.6
Other active plan participants................................ 18.1 35.7 23.7 35.4
------ ------ ------ ------
Accumulated benefit obligation.................................. 170.0 213.5 196.6 191.0
Fair value of plan assets....................................... 5.1 4.9
------ ------ ------ ------
Accumulated benefit obligation in excess of plan assets......... 164.9 213.5 191.7 191.0
Unrecognized experience gain (loss)............................. 9.5 (6.7) (.3) 1.6
Unrecognized prior service gain................................. 15.0
------ ------ ------ -----
Accrued postretirement benefit liability........................ 189.4 206.8 191.4 192.6
Current portion................................................. 6.5 8.0 6.6 7.5
------ ------ ------ ------
Non-current portion............................................. $182.9 $198.8 $184.8 $185.1
====== ====== ====== ======
</TABLE>
<TABLE>
The assumptions used in determining the information above were as
follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate.................................................................................... 7.9% 7.9%
Trend rate for health care costs
Prior to age 65-current year................................................................... 11% 12%
-ultimate rate (by 2000)........................................................ 6% 6%
After age 65-current year...................................................................... 8% 9%
-ultimate rate (by 1997)........................................................... 6% 6%
</TABLE>
If the assumed health care cost trend rate increased by 1 percentage
point, the accumulated benefit obligation as of September 30, 1994
would increase by approximately $19.3 and expense would increase by
$1.7 annually.
Coincident with the adoption of the ESOP, the Company is phasing out
its subsidy of medical benefits for future retirees. In addition,
retiree contributions are adjusted periodically and it is expected that
such adjustments will continue in the future.
Notes Payable
<TABLE>
Information relative to short-term debt borrowings for the three
years ended September 30, 1994 follows:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Notes Payable
Ending balance................................................................ $454.3 $401.3 $452.6
Weighted average interest rate.............................................. 9% 9% 9%
Outstanding during period<Fa>
Maximum..................................................................... $508.6 $607.0 $563.8
Average..................................................................... 443.0 455.8 294.4
Weighted average interest rate.............................................. 9% 9% 11%
Commercial Paper
Ending balance................................................................ $ 55.5
Weighted average interest rate.............................................. 4%
Outstanding during period<Fa>
Maximum..................................................................... $ 19.0 $ 91.8 $101.2
Average..................................................................... 2.8 20.9 37.1
Weighted average interest rate.............................................. 3% 4% 4%
<FN>
- -----
<Fa> Based on month-end balances.
</TABLE>
103
<PAGE> 92
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Notes payable include borrowings in highly inflationary economies.
The real effective cost of local currency borrowing in these economies
is expected to be substantially less due to devaluation of the
applicable local currencies against the U.S. dollar.
On September 30, 1994, total unused lines of credit were $132.5.
Long-Term Debt
<TABLE>
The detail of long-term debt as of September 30 follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Debentures
9 1/2% due 2016................................................................................ $ 86.4 $ 143.8
9 3/8% due 2016................................................................................ 46.7 112.0
9 1/4% due 2009................................................................................ 181.0 200.0
9.30% due 2021................................................................................. 200.0 200.0
8 5/8% due 2022................................................................................ 250.0 250.0
8 1/8% due 2023................................................................................ 175.0 175.0
Other Debt
ESOP debt guarantee............................................................................ 260.2 309.5
Medium-term Notes, 7.75% to 10.18%............................................................. 84.5 121.0
12 3/4% Swiss Franc Bonds due 1994<Fa>......................................................... 50.1 50.1
11 3/4% Notes due 1995......................................................................... 123.3 132.3
9% Notes due 1996.............................................................................. 200.0 200.0
12% Notes due 1996............................................................................. 38.8 38.8
Capitalized lease obligations, 4% to 11 1/8%................................................... 6.0 13.0
Industrial revenue bonds, 3 1/4% to 12 3/4%...................................................... 49.5 68.8
Other............................................................................................ 131.2 138.6
-------- --------
1,882.7 2,152.9
Less current portion........................................................................... (288.1) (98.4)
-------- --------
$1,594.6 $2,054.5
======== ========
<FN>
- -----
<Fa> Represents the equivalent principal amount and approximate
effective interest rate of the 5 3/8% Bonds under related currency
exchange arrangements.
</TABLE>
Aggregate maturities on all long-term debt, exclusive of debentures
held in treasury, are $290.5, $58.5, $18.5 and $12.2 for the years
ending September 30, 1996 through 1999, respectively. These aggregate
maturities do not include the future maturities of the ESOP debt
guarantee.
To fund its purchase of the Company's preferred stock, the Trust for
the Company-sponsored ESOP borrowed $500.0 principal amount in ten-year
8.25% notes (ESOP loan). The ESOP loan is unconditionally guaranteed by
the Company and is included in the Company's consolidated balance sheet
as long-term debt, along with a corresponding unearned ESOP
compensation. Both the long-term debt and the unearned ESOP
compensation will be reduced as employee and employer contributions to
the ESOP are used to reduce the outstanding ESOP loan. During 1994 and
1993, the ESOP incurred $24.5 and $28.4, respectively, of interest
expense on the ESOP loan.
104
<PAGE> 93
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash
equivalents, short- and long-term debt, foreign currency hedging
contracts, and interest rate swap agreements used to hedge fluctuations
in interest rates. As of September 30, 1994 and 1993, the fair value of
long-term debt was $1,926.3 and $2,401.2, respectively, compared to its
carrying value of $1,882.7 and $2,152.9, respectively. The fair value
of the Company's long-term debt has been estimated using quoted market
prices and yields obtained through independent pricing sources for the
same or similar types of borrowing arrangements, taking into
consideration the underlying terms of the debt, such as the coupon
rate, term to maturity, tax impact to investors and imbedded call
options.
Due to the nature of cash equivalents and short-term borrowings,
including current notes payable, carrying amounts on the balance sheet
approximate fair value.
The fair value of foreign currency contracts and interest rate
management agreements is the amount that the Company would receive or
pay to terminate the specific agreements, considering first, quoted
market prices of comparable agreements, or in the absence of quoted
market prices, such factors as, interest rates, currency exchange rates
and remaining maturities. Based on these considerations, the calculated
fair values of foreign currency contracts and interest rate management
agreements outstanding at September 30, 1994 and 1993 were not
material.
Redeemable Preferred Stock
At September 30, 1994, the Company had 10,600,000 shares of $1 par
value preferred stock authorized, of which 4,600,000 shares were
authorized as Series A 6.75% Preferred Stock ("Preferred Stock").
Preferred Stock has a guaranteed minimum value of $110.83 per share and
is convertible into the Company's $.10 par value RPG Stock and $.10 par
value CBG Stock at the ratio of 2.255 shares of RPG Stock and .4 shares
of CBG Stock for each share of Preferred Stock. The shares have a
preference in liquidation and each share has one voting right.
Dividends are cumulative, compounded and payable semi-annually. In
accordance with financial reporting requirements of the Securities and
Exchange Commission, the Preferred Stock has been classified outside of
permanent equity as Redeemable Preferred Stock.
Coincident with the spin-off of Ralcorp, the Company redeemed 334,109
shares of its Preferred Stock at the guaranteed minimum value. The
shares were redeemed by the Company in connection with the cessation of
participation in the Company's Savings Investment Plan by plan
participants employed by Ralcorp following the spin-off. As of March
31, 1994, the terms of the Preferred Stock required adjustment of the
conversion ratio to that described above with respect to RPG Stock to
reflect the change in the market value of RPG Stock as a result of the
Ralcorp spin-off. All other terms and provisions of the Preferred Stock
remain unchanged. During the year, the Company also redeemed 28,224
shares of its Preferred Stock to meet ongoing share redemption
requirements of the ESOP. Following these redemptions, 4,237,667 shares
of Preferred Stock remained issued and outstanding and continued to be
held by the Company's ESOP at September 30, 1994.
Preferred Stock shares are held, on behalf of the ESOP, by the ESOP's
trustee and are allocated to individual participants' accounts based on
the amount of employee and employer matching contributions to the ESOP.
Dividends on unallocated Preferred Stock are used to fund the debt
service requirements of the ESOP. The trustee, as holder of Preferred
Stock, may convert its shares into Company common stock (both RPG Stock
and CBG Stock) at any time, or may require the Company to redeem the
Preferred Stock shares, under certain limited circumstances, at the
guaranteed minimum price, in cash or in shares of Company common stock.
The Company may elect to redeem the Preferred Stock, under limited
circumstances, in cash or in shares of Company common stock.
Shareholders Equity
On July 30, 1993, the Company's shareholders approved amendments to
the Company's Articles of Incorporation which created a new class of
common stock-the CBG Stock-and which redesignated the Company's
existing common stock as RPG Stock. The amendments also increased the
number of authorized shares of the Company's common stock from 600
105
<PAGE> 94
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
million to 720 million, of which 600 million shares are designated as
RPG Stock and 120 million shares are designated as CBG Stock. The RPG
Stock is intended to reflect the performance of the RPG Group while the
CBG Stock is intended to reflect the performance of the CBG Group. The
RPG Group is deemed to have a 45% Retained Interest in the business,
assets and liabilities of the CBG Group. The remaining 55% interest in
such business, assets and liabilities is represented by the outstanding
shares of CBG Stock.
Each share of RPG Stock has one voting right while each share of CBG
Stock has a variable number of votes equal to the ratio of the market
values of one share of CBG Stock to one share of RPG Stock over a
period of time prior to any relevant record date. The approval of at
least two-thirds of the outstanding shares of RPG Stock is required to
approve a payment or distribution to the holders of the CBG Stock of
assets, or proceeds from the disposition of assets, of the RPG Group,
or to use such assets or proceeds in the CBG Group, other than pursuant
to certain permitted loans. Similarly, such approval is required from
the holders of CBG Stock for payments or distributions to the holders
of RPG Stock of assets, or proceeds from the disposition of assets, of
the CBG Group, or the use of such assets or proceeds in the RPG Group,
other than pursuant to certain permitted loans.
Dividends on both the RPG Stock and the CBG Stock may be paid at the
discretion of the Board of Directors of the Company out of legally
available funds and subject to the payment of dividends on the
Preferred Stock. In addition, dividends on the CBG Stock cannot exceed
the Available CBG Dividend Amount, an amount which is intended to be
similar to the amount which would be legally available for dividends if
the CBG Group were an independent corporation (excluding the effect of
adopting FAS 106 and FAS 109). The Available CBG Dividend Amount at
September 30, 1994 was at least $84.0.
Upon liquidation of the Company, holders of both classes of common
stock will share any funds remaining for distribution based upon the
relative market capitalizations of each class.
The Company may exchange the RPG Stock for all of the shares of a
wholly owned subsidiary to which all of the assets and liabilities of
the RPG Group may be transferred. The Company may also exchange the CBG
Stock for a percentage of the shares of a wholly owned subsidiary to
which all of the assets and liabilities of the CBG Group may be
transferred, such percentage being equal to the proportionate interest
of the holders of outstanding CBG Stock in the business, assets and
liabilities of the CBG Group. In addition, the Company may also at any
time exchange the outstanding CBG Stock for a number of shares of RPG
Stock equal to 115% of the ratio of the average market values of one
share of CBG Stock to one share of RPG Stock. Upon the sale of all or
substantially all of the properties and assets of the CBG Group, the
Company must either distribute to holders of CBG Stock an amount equal
to their proportionate interest in the net proceeds of such sale, or
exchange each share of CBG Stock for a number of shares of RPG Stock
equal to 110% of the ratio of the average market values of one share of
CBG Stock to one share of RPG Stock.
On January 17, 1986, the Board of Directors declared a dividend
distribution of one share purchase right ("Right") for each outstanding
share of the Company's common stock. The terms of the Rights were
subsequently amended on May 26, 1989 and, in connection with the
creation of CBG Stock and redesignation of RPG Stock, were amended
again as of July 30, 1993. The latest amendments authorized the
creation of CBG Stock share purchase rights ("CBG Rights") and the
redesignation of the existing Rights as RPG Stock share purchase rights
("RPG Rights"). Additional amendments to the terms as of that date were
effected to reflect the variable voting provisions of the CBG Stock. On
July 30, 1993, the Board also declared a dividend distribution of one
CBG Right for each outstanding share of CBG Stock.
Each RPG Right entitles a shareholder of RPG Stock to purchase an
additional share of RPG Stock at an exercise price of $63.46 per share
(a new exercise price reflecting the spin-off of Ralcorp Holdings,
Inc.), and each CBG Right entitles a shareholder of CBG Stock to
purchase an additional share of CBG Stock at an exercise price of
$16.46 per share, both of which prices are subject to antidilution
adjustments. Both RPG Rights and CBG Rights, however, only become
exercisable at the time a person or group acquires, or commences a
public tender offer for, shares of the Company's common stock
representing 20% or more of the total votes of the then outstanding
common stock. If an acquiring person or group acquires shares
representing 20% or more of the total votes of the common stock, the
exercise prices will be further adjusted so that a holder of a RPG
Right or a CBG Right, as the case may be, (other than the acquiring
person or group) may purchase a share of RPG Stock or CBG Stock,
respectively, at one-third of its then market price. In the event that
the Company merges
106
<PAGE> 95
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
with, or transfers 50% or more of its assets or earnings power to, any
person or group after the RPG Rights and CBG Rights become exercisable,
holders of such Rights may purchase, at the exercise price, common stock
of the acquiring entity having a value equal to twice the exercise price.
The RPG Rights can be redeemed by the Board of Directors at $.05 per
Right, and the CBG Rights can be redeemed at $.01 per Right, only up to
the date a person or group acquires shares representing 20% or more of the
total votes of the common stock. Also, following the acquisition by a
person or group of beneficial ownership of shares representing at least
20% but less than 50% of the total votes of the Company's common stock,
the Board may exchange each RPG Right for one share of RPG Stock and each
CBG Right for a share of CBG Stock. Both RPG Rights and CBG Rights expire
on January 27, 1996. At September 30, 1994, 124,188,219 shares of RPG
Stock and 26,241,115 shares of CBG Stock have been reserved for
issuance upon exercise of the RPG Rights and CBG Rights, respectively.
At September 30, 1994, there were 9,556,000 shares of RPG Stock and
1,696,000 shares of CBG Stock reserved for conversion of Redeemable
Preferred Stock, 22,868 shares of RPG Stock and 4,045 shares of CBG
Stock reserved for conversion of the 5 3/4% subordinated debentures and
10,544,622 shares of RPG Stock and 3,953,300 shares of CBG Stock
reserved under various employee incentive compensation and benefit
plans.
Grantor Trust
On September 15, 1994, the Company established the Ralston Purina
Company Grantor Trust (the Trust) to provide a source of funds to
assist the Company in meeting its obligations under various employee
benefit plans and programs. The Trust supports existing, previously
approved employee benefit plans and does not change those plans or the
amounts of stock expected to be issued for those plans. Basic benefits
under such plans have not changed, however, payment of such benefits
would be accelerated if minimum funding requirements of the Trust are
not met.
Among the assets used to initially fund the Trust were 4,033,347
shares of RPG Stock having a fair market value on the date of transfer
of $169.4. The RPG Stock transferred to the Trust was issued out of
treasury.
For financial reporting purposes, the Trust is consolidated with the
Company. The fair market value of the shares held by the Trust is shown
as a reduction to shareholders equity in the Company's consolidated
balance sheet. Any dividend transactions between the Company and the
Trust are eliminated, and the difference between the fair value of the
shares on the date of contribution to the Trust and the fair value of
the shares at September 30, 1994 is included in consolidated additional
paid-in capital. RPG Stock held in the Trust is not considered
outstanding in the computation of earnings per share. At September 30,
1994, 4,033,347 shares of RPG Stock at a fair market value of $166.9
were held by the Trust.
The Trustee is responsible for voting the shares of RPG Stock held in
the Trust.
Commitments and Contingencies
Legal and Environmental Matters
The Company is a party to a number of legal proceedings in various
state, federal and foreign jurisdictions. These proceedings are in
varying stages and many may proceed for protracted periods of time.
Some proceedings involve highly complex questions of fact and law.
On September 27, 1994, the Company's wholly-owned subsidiary,
Continental Baking Company, was served with a subpoena by the Dallas,
Texas office of the Antitrust Division of the U.S. Department of
Justice requiring it to produce records to a Federal Grand Jury. The
subpoena seeks information regarding the sale of bread and bread
products (including snack cakes), principally in the State of Texas,
during the period from January 1, 1986 to present.
On January 4, 1993, the Company was served with the first of nine
substantively identical actions currently pending in the United States
District Court for the District of New Jersey. The suits have been
consolidated and styled In Re Baby Food Antitrust Litigation, No.
92-5495 (NHP). The consolidated proceeding is a certified class action
by and on behalf of all direct purchasers of baby foods (other than the
defendants and governmental entities), alleging that the Beech-Nut baby
food business (owned by the Company from November, 1989 until April,
1994, and now owned by Ralcorp Holdings, Inc.)
107
<PAGE> 96
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
and its predecessor Nestle Holdings, Inc., together with Gerber Products
Company and H.J. Heinz Company, conspired to fix, maintain and stabilize
the prices of baby foods during the period January 1, 1975 to August
31,1992. The suit seeks treble damages.
On January 19 and 21, 1993, the Company was served with two class
actions on behalf of indirect purchasers (consumers) of baby food in
California, which contain substantially identical charges. These
actions have been consolidated in the Superior Court for the County of
San Francisco and styled Bruce, et al. v. Gerber Products Company, et
al., No. 94-8857. On January 19, 1993, Ralston was served with a
similar action filed in Alabama state court on behalf of indirect
purchasers of baby food in Alabama, styled Johnson, et al. v. Gerber
Products Company, et al., No. 93-L-0333-NE. The California and Alabama
state actions allege violations of state antitrust laws, seek treble
damages and are substantively identical to each other. Similar state
actions may be filed in states having laws permitting suits by indirect
purchasers. The Company and Ralcorp Holdings, Inc. have agreed that all
liability and expenses related to the above antitrust matters will be
shared equally, except that the Company will be solely responsible for
any settlement or judgment exceeding a certain set amount.
On January 6, 1993, the Company was served with an action entitled
Sunshine Mills, Inc. v. Ralston Purina Co., CV-93-P-0024-W, which is
currently pending in the United States District Court for the Northern
District of Alabama. The suit charged the Company with attempted
monopolization, conspiracy in restraint of trade and unlawful price
discrimination, together with false advertising and tortious
interference with business relations, in connection with its marketing
activities in pet foods. The Company has filed counterclaims
challenging certain labeling and advertising activities of Sunshine.
Both parties moved for summary judgment on the other's case, and on
October 31, 1994, the trial court granted summary judgment for the
Company with respect to Sunshine's claims of attempted monopolization,
conspiracy in restraint of trade, unlawful price discrimination, and
tortious interference with business relations to the extent that such
claim was predicated on the same Company activities claimed to violate
federal antitrust law.
On April 26, 1993, the Company also received two letters of inquiry
from the Federal Trade Commission seeking information related to the
allegations in the Sunshine lawsuit. One of these inquiries has been
closed with no further action against the Company.
The operations of the Company, like those of other companies engaged
in similar businesses, are subject to various federal, state, and local
laws and regulations intended to protect the public health and the
environment, including air and water quality, underground fuel storage
tanks, and waste handling and disposal. The Company has approximately
300 underground fuel storage tanks at various locations throughout the
United States which are subject to federal and state laws and
regulations establishing minimum standards for such tanks and, where
necessary, remediation of associated contamination. The Company is
presently in the process of testing and evaluating, and, if necessary,
removing, replacing or upgrading such tanks in order to comply with
such laws. In addition, the Company has received notices from the U.S.
Environmental Protection Agency, state agencies, and/or private parties
seeking contribution, that it has been identified as a "potentially
responsible party" (PRP), under the Comprehensive Environmental
Response, Compensation and Liability Act, and may be required to share
in the cost of cleanup with respect to approximately 19 "Superfund"
sites. The Company's ultimate liability in connection with those sites
may depend on many factors, including the volume of material
contributed to the site, the number of other PRP's and their financial
viability, and the remediation methods and technology to be used.
In the opinion of management, based on the information presently
known, the ultimate liability for all such matters, together with the
liability for all other pending legal proceedings, asserted legal
claims and known potential legal claims which are probable of
assertion, taking into account established accruals of $18.2 for
estimated liabilities, should not be material to the financial position
of the Company, but could be material to results of operations or cash
flows for a particular quarter or annual period.
Other Contingencies
The Company had outstanding, at September 30, 1994, interest rate
swap agreements effectively converting Belgium franc, French franc,
Hong Kong dollar, Australian dollar and Swiss franc variable rate debt
having an equivalent U.S. dollar value of $126.0 into fixed rate debt.
These agreements mature in fiscal 1995 and 1996 and result in a
weighted average fixed interest rate of 9.1%.
108
<PAGE> 97
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
The following represents open foreign exchange forward and option
contracts at September 30, 1994:
<S> <C>
Forward Contracts:
Australia...................................................$ 2.3
Belgium..................................................... 126.8<Fa>
Canada...................................................... 17.7
Italy....................................................... .8
Japan....................................................... 13.6
Mexico...................................................... 25.0
New Zealand................................................. 5.8
Philippines................................................. 1.3
Singapore................................................... 9.8
Switzerland................................................. 3.0
Option Contracts to Purchase:
France......................................................$ 21.0
Switzerland................................................. 22.0
U.K......................................................... 9.0
<FN>
- -----
<Fa> The Company has a Belgian Coordination Center which functions as an
intragroup bank. The exposures and hedges in Belgium result
primarily from funding in various European currencies as well as
U.S. dollars.
</TABLE>
Foreign exchange contracts are generally for one year or less. Risk
of currency positions and mark-to-market valuation of positions are
strictly monitored at all times.
The counterparties to interest rate swap agreements and foreign
currency contracts consist of a number of major international financial
institutions and are generally institutions with which the Company
maintains lines of credit. The Company does not enter into foreign
exchange contracts through brokers nor does it trade foreign exchange
contracts on any other exchange or over the counter markets. The
Company continually monitors its positions and the credit ratings of
its counterparties both internally and by using outside rating
agencies. The Company has implemented policies which limit the amount
of agreements it enters into with any one party. While nonperformance
by these counterparties exposes the Company to potential credit losses,
such losses are not anticipated due to the control features mentioned.
At September 30, 1994, the Company had third party guarantees
outstanding in the aggregate amount of approximately $45.4. These
guarantees relate to financial arrangements with customers, suppliers
and other business relationships. In addition, the Company had various
commitments outstanding at September 30, 1994, involving primarily
purchase obligations, whereby the Company was committed to expenditures
of $10.5 in fiscal 1995.
At September 30, 1994, the Company's primary concentration of credit
risk related to approximately $27.9 of trade accounts receivable due
from several highly leveraged customers. Consideration was given to the
financial position of these customers when determining the appropriate
allowance for doubtful accounts.
Lease Commitments
Future minimum rental commitments under noncancellable operating
leases in effect as of September 30, 1994 were: 1995-$21.6, 1996-$17.6,
1997-$13.8, 1998-$8.7, 1999-$6.8, thereafter-$34.1.
Total rental expense for all operating leases was $72.4 in 1994,
$69.8 in 1993 and $70.1 in 1992.
Subsequent Event
The Company signed a letter of intent on November 15, 1994 to sell
its international agribusiness operations to PM Holdings Corporation,
the parent company of Purina Mills, Inc. The transaction is subject to
approval by the Board of Directors of both companies, necessary
government approvals and the completion of a definitive sales
agreement.
109
<PAGE> 98
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
Other Income and Expense
<TABLE>
Other (income)/expense, net consists of the following:
<CAPTION>
Year Ended September 30,
------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Translation and exchange loss................................................... $22.0 $ 26.6 $ 18.6
Investment income............................................................... (15.4) (12.4) (15.6)
Miscellaneous (income)/expense.................................................. 13.0 (7.8) (12.4)
----- ------ ------
$19.6 $ 6.4 $ (9.4)
===== ====== ======
</TABLE>
<TABLE>
Supplemental Earnings Statement Information
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs......................................................... $216.6 $211.0 $206.5
Research and development........................................................ 74.9 72.3 77.4
</TABLE>
<TABLE>
Supplemental Balance Sheet Information
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Receivables (current)-
Trade.......................................................................................... $ 761.9 $ 712.1
Notes and other................................................................................ 96.4 82.3
Allowance for doubtful accounts................................................................ (29.2) (31.2)
-------- --------
$ 829.1 $ 763.2
======== ========
Inventories-
Raw materials and supplies..................................................................... $ 216.0 $ 232.6
Work in process................................................................................ 101.5 93.7
Finished products.............................................................................. 412.4 477.4
-------- --------
$ 729.9 $ 803.7
======== ========
Other Current Assets-
Prepaid expenses............................................................................... $ 102.5 $ 93.6
Deferred income tax benefits................................................................... 71.7 77.6
-------- --------
$ 174.2 $ 171.2
======== ========
Investments and Other Assets-
Goodwill (net of accumulated amortization: 1994-$68.2 and 1993-$53.3).......................... $365.9 $406.0
Other intangible assets (net of accumulated amortization: 1994-$255.3 and 1993-$227.6). 194.5 229.7
Investments in affiliated companies............................................................ 13.9 12.7
Deferred charges and other assets.............................................................. 291.4 295.9
-------- --------
$ 865.7 $ 944.3
======== ========
Accounts Payable and Accrued Liabilities-
Trade accounts payable......................................................................... $ 454.5 $ 497.3
Incentive compensation, salaries and vacations................................................. 124.8 116.3
Accrued interest............................................................................... 55.2 60.6
Restructuring reserves......................................................................... 126.3 65.1
Other items.................................................................................... 223.5 302.4
-------- --------
$ 984.3 $1,041.7
======== ========
Other Liabilities-
Self-insurance reserves........................................................................ $ 116.5 $ 118.3
Postretirement medical benefits................................................................ 182.9 184.8
Other postretirement benefits.................................................................. 198.8 185.1
Minority interests............................................................................. 14.1 14.6
Other.......................................................................................... 80.3 87.7
-------- --------
$ 592.6 $ 590.5
======== ========
</TABLE>
110
<PAGE> 99
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in millions except per share data)
<TABLE>
Supplemental Cash Flow Statement Information
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest paid................................................................... $217.2 $230.8 $224.4
Income taxes paid............................................................... 236.8 242.6 220.4
</TABLE>
<TABLE>
Analysis of Balance Sheet Changes
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Allowance for Doubtful Accounts-
Balance, beginning of year.................................................... $ 31.2 $ 26.2 $ 19.5
Provision charged to expense.................................................. 5.8 15.5 15.1
Writeoffs, less recoveries.................................................... (7.8) (10.5) (8.4)
-------- -------- --------
Balance, end of year............................................................ $ 29.2 $ 31.2 $ 26.2
======== ======== ========
Property at Cost-
Balance, beginning of year.................................................... $3,941.8 $3,765.0 $3,442.5
Additions..................................................................... 332.1 320.8 325.4
Acquisitions.................................................................. 24.6 60.7 50.2
Disposals..................................................................... (147.2) (108.2) (103.2)
Ralcorp spin-off.............................................................. (645.3)
Foreign translation........................................................... 21.8 (96.5) 50.1
-------- -------- --------
Balance, end of year............................................................ $3,527.8 $3,941.8 $3,765.0
======== ======== ========
Accumulated Depreciation-
Balance, beginning of year.................................................... $1,610.2 $1,458.6 $1,258.8
Depreciation provision........................................................ 264.7 263.5 254.7
Disposals..................................................................... (107.0) (75.5) (75.3)
Ralcorp spin-off.............................................................. (188.5)
Foreign translation........................................................... 8.1 (36.4) 20.4
Property writedowns associated with restructurings............................ 42.9
-------- -------- --------
Balance, end of year............................................................ $1,630.4 $1,610.2 $1,458.6
======== ======== ========
</TABLE>
111
<PAGE> 100
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
(Unaudited)
(Dollars in millions except per share data)
<CAPTION>
Fiscal 1994 First Second Third<Fa> Fourth<Fa>
- ----------- ----- ------ --------- ----------
<S> <C> <C> <C> <C>
Net sales....................................................... $2,199.3 $1,997.7 $1,724.1 $1,784.2
Gross profit.................................................... 1,025.7 892.4 751.3 753.4
Earnings (loss) before extraordinary item....................... 133.7 72.4 44.8 <Fb> (32.5)<Fc>
Net earnings (loss)............................................. 133.7 62.9 44.8 <Fb> (32.5)<Fc>
Earnings (loss) per common share-RPG Stock
Primary
Earnings (loss) before extraordinary item................... 1.27 .68 .46 (.31)<Fc>
Net earnings (loss)......................................... 1.27 .60 .46 (.31)<Fc>
Fully diluted
Earnings (loss) before extraordinary item................... 1.18 .65 .45 (.31)<Fc>
Net earnings (loss)......................................... 1.18 .58 .45 (.31)<Fc>
Loss per common share-CBG Stock
Primary
Loss before extraordinary item.............................. (.01) (.10) (.32)<Fb> (.31)
Net loss.................................................... (.01) (.14) (.32)<Fb> (.31)
Fully diluted
Loss before extraordinary item.............................. (.01) (.10) (.32)<Fb> (.31)
Net loss.................................................... (.01) (.14) (.32)<Fb> (.31)
Dividends paid per share:
RPG Stock..................................................... .30 .30 .30 .30
CBG Stock..................................................... .08 - - -
Market price range of RPG Stock................................. 42 3/4- 46 3/8- 39 1/2- 42 1/4-
38 1/4 38 1/4 33 1/2 34 3/8
Market price range of CBG Stock................................. 10- 9 5/8- 6 7/8- 6-
7 1/2 6 3/8 4 1/2 4
<FN>
- -----
<Fa> Excludes results of operations of Ralcorp after spin-off on March
31, 1994.
<Fb> Earnings for the third quarter of 1994 were reduced by $9.6 or $.26
per primary share of CBG Stock due to provisions for restructuring
expenses.
<Fc> Earnings for the fourth quarter of 1994 were reduced by $72.8 or
$.73 per primary share of RPG Stock due to provisions for
restructuring expenses.
</TABLE>
112
<PAGE> 101
<TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (Continued)
(Unaudited)
(Dollars in millions except per share data)
<CAPTION>
Fiscal 1993 First Second Third Fourth
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales....................................................... $2,177.5 $1,913.4 $1,874.4 $1,936.9
Gross profit.................................................... 1,010.7 870.0 850.1 849.4
Earnings before extraordinary item and cumulative effect of
accounting changes............................................. 132.3 82.6 62.3 64.1
Earnings before cumulative effect of accounting changes......... 125.5 82.6 62.3 59.1
Net earnings (loss)............................................. (81.4) 82.6 62.3 59.1
Earnings per common share-
Primary
Earnings before extraordinary item and cumulative effect of
accounting changes......................................... 1.22 .75 .55 .13<Fa>
Earnings before cumulative effect of accounting changes..... 1.17 .75 .55 .13<Fa>
Net earnings (loss)......................................... (.84) .75 .55 .13<Fa>
Fully diluted
Earnings before extraordinary item and cumulative effect of
accounting changes......................................... 1.13 .70 .53 .13<Fa>
Earnings before cumulative effect of accounting changes..... 1.07 .70 .53 .13<Fa>
Net earnings (loss)......................................... (.73) .70 .53 .13<Fa>
Earnings per common share-RPG Stock
Primary
Earnings before extraordinary item.......................... .40<Fb>
Net earnings................................................ .36<Fb>
Fully diluted
Earnings before extraordinary item.......................... .38<Fb>
Net earnings................................................ .34<Fb>
Earnings per common share-CBG Stock
Primary
Earnings before extraordinary item.......................... .21<Fb>
Net earnings................................................ .19<Fb>
Fully diluted
Earnings before extraordinary item.......................... .18<Fb>
Net earnings................................................ .16<Fb>
Dividends paid per share:
Ralston Purina common stock................................... .30 .316 .316
RPG Stock..................................................... .30
CBG Stock..................................................... .08
Market price range of Ralston Purina common stock............... 49 1/2- 52 1/8- 51- 46 7/8-
40 7/8 44 5/8 43 3/4 37 7/8<Fa>
Market price range of RPG Stock................................. 40 3/4-
33 1/2<Fb>
Market price range of CBG Stock................................. 10 5/8-
8 1/2<Fb>
<FN>
- -----
<Fa> Represents consolidated earnings per share and stock price range
through July 30, 1993.
<Fb> Represents actual earnings per share and stock price ranges on the
redesignated RPG Stock and newly issued CBG Stock for the period
after July 30, 1993 through September 30, 1993.
</TABLE>
113
<PAGE> 1
Exhibit 21
Subsidiaries of the Company
<TABLE>
The following is a list of the principal subsidiaries of the Registrant as of
September 30, 1994:
<CAPTION>
Jurisdiction
of
Name Incorporation Control
<S> <C> <C>
Benco Pet Foods, Inc. Illinois 100%
Continental Baking Company Delaware 100%
Energizer Rechargeable Products (UK) Ltd., United Kingdom 100%
Eveready Argentina S.A. Argentina 100%
Eveready Australia Pty. Limited Australia 100%
Eveready Battery Company, Inc. Delaware 100%
Eveready Battery Company (Malaysia) SDN.BHD. Malaysia 80%
Eveready Battery Company Philippines, Inc. Philippines 100%
Eveready De Colombia S.A. Colombia 99.9%
Eveready De Mexico S.A. de C.V. Mexico 100%
Eveready Do Brasil Industria E Comercio Ltda. Brazil 51.8%
Eveready Pil Sanayii Ve Ticaret, Anonim Sirketi Turkey 60%
Eveready Singapore Pte. Ltd. Singapore 99.9%
Ever Ready Limited (U.K.) United Kingdom 100%
Industrias Purina S.A., de C.V. Mexico 100%
Pilas Secas Tudor S.A. Spain 100%
PPA Investments, Inc. Delaware 100%
Protein Technologies International Holdings, Inc. Delaware 100%
Protein Technologies International, Inc. Delaware 100%
Protein Technologies International Manufacturing
Belgium N.V. Belgium 100%
Protein Technologies International Overseas B.V. Netherlands 100%
PT Eveready Battery Company Indonesia Indonesia 100%
Purina Colombiana S.A. Colombia 99.9%
Purina de Venezuela, C.A. Venezuela 100%
Purina-Hage Animal Feed and Trading Company
Limited Hungary 51%
Purina Italia, S.p.A. Italy 100%
Purina Japan K.K. Japan 100%
Purina Korea, Inc. Korea 100%
Purina Nutrimentos Ltda. Brazil 100%
Purina, S.A. de C.V. Mexico 100%
Ralston / Bateria Spol. Sr. O. The Czech Republic 66.6%
Ralston Energy Systems Deutschland GmbH Germany 100%
Ralston Energy Systems France S.A. France 100%
Ralston Energy Systems Italia S.P.A. Italy 100%
Ralston Energy Systems S.A. Switzerland 100%
<PAGE> 2
Page 2
Ralston Purina Canada, Inc. Canada 100%
Ralston Purina Holdings (U.K.) Company United Kingdom 100%
Ralston Purina International Holding Company, Inc. Delaware 100%
Ralston Purina Overseas Battery Company Delaware 100%
Ralston Purina France France 99.9%
Sonca Products Limited Hong Kong 100%
VCS Holding Company Delaware 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 2-96616, 33-677, 2-77778,
2-83297, 2-81753, 33-17875, 33-19911, 33-25396, 33-25674) and on
Form S-3 (No. 33-45213) of Ralston Purina Company (Company) and the
Prospectuses thereto, of our reports dated November 4, 1994, except
as to the "Subsequent Event" note, which is dated as of November
15, 1994 for Ralston Purina Company and Ralston Purina Group,
relating to the consolidated financial statements of the Company,
the combined financial statements of the Ralston Purina Group and
the combined financial statements of the Continental Baking Group
which appear on page 88, 24, and 54, respectively, of the Ralston
Purina Company 1994 Annual Report to Shareholders which is
incorporated by reference in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report on the
Financial Statement Schedules, which appears on page F-1 of this
Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
December 28, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
COMMON STOCK OF 13,600 REPRESENTS RPG STOCK OF 11,500 & CBG STOCK OF 2,100.
PRIMARY & FULLY DILUTED EPS FOR RPG ARE 2.04 & 1.98 PRIMARY & FULLY DILUTED
EPS FOR CBG ARE (.78) & (.78) THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE 9/30/94 RALSTON PURINA CO BALANCE SHEET & STMT
OF EARNINGS & IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STMTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 126,000
<SECURITIES> 0
<RECEIVABLES> 858,300
<ALLOWANCES> 29,200
<INVENTORY> 729,900
<CURRENT-ASSETS> 1,859,200
<PP&E> 3,527,800
<DEPRECIATION> 1,630,400
<TOTAL-ASSETS> 4,622,300
<CURRENT-LIABILITIES> 1,797,500
<BONDS> 1,594,600
<COMMON> 13,600
469,700
0
<OTHER-SE> 342,000
<TOTAL-LIABILITY-AND-EQUITY> 4,622,300
<SALES> 7,705,300
<TOTAL-REVENUES> 7,705,300
<CGS> 4,282,500
<TOTAL-COSTS> 4,282,500
<OTHER-EXPENSES> 2,774,900
<LOSS-PROVISION> 5,800
<INTEREST-EXPENSE> 220,400
<INCOME-PRETAX> 421,700
<INCOME-TAX> 203,300
<INCOME-CONTINUING> 218,400
<DISCONTINUED> 0
<EXTRAORDINARY> 9,500
<CHANGES> 0
<NET-INCOME> 208,900
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
