SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997
Commission File No. 1-4582
RALSTON PURINA COMPANY
----------------------
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-0470580
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(State of Incorporation) (I.R.S. Employer
Identification No.)
CHECKERBOARD SQUARE, ST. LOUIS MISSOURI 63164
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(Address of principal executive offices)
(Zip Code)
(314) 982-1000
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(Registrant's telephone number, including area code)
Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
YES: X NO: _____
-----
Number of shares of Ralston Purina common stock, $.10 par value, outstanding
as of the close of business on May 9, 1997:
<PAGE>
106,388,722
PART I - FINANCIAL INFORMATION
RALSTON PURINA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL INFORMATION
----------------------------------------------------------------
OPERATING RESULTS
Net earnings for the six months ended March 31, 1997 were $214.1 million
compared to $187.6 million for the same period in the prior year. Earnings
increased in the current year due to higher equity earnings from the Company's
investment in Interstate Bakeries Corporation and lower interest expense.
Earnings per share for the six months ended March 31, 1997 were $2.04 and
$1.92 on a primary and fully diluted basis, respectively, compared to $1.77
and $1.67 in the prior year.
For the quarter ended March 31, 1997, net earnings were $76.7 million compared
to $59.1 million for the same quarter in 1996. The earnings increase resulted
from improved performance in Battery Products, higher equity earnings and
lower interest expense, partially offset by lower Pet Products' earnings.
Primary and fully diluted earnings per share were $.72 and $.69, respectively,
in the current quarter compared to $.55 and $.52 a year ago.
BUSINESS SEGMENTS
Sales for the Pet Products segment increased 9.5% in the quarter and 8.5% in
the six months on higher volumes and pricing. However, operating profit
decreased for the quarter and six months as these gains were more than offset
by higher pet food ingredient costs and increased promotion support for new
and core brands.
Sales for the Battery Products segment were flat in the quarter and the six
months over the same periods in the prior year. During the quarter and six
months, worldwide branded alkaline volumes improved, particularly in North
America and the Asia Pacific region. In addition, increased domestic prices
had a positive effect. These positive factors were offset by lower alkaline
private label and Original Equipment Manufacturers (OEM) sales in North
America and Europe, decreased OEM rechargeable sales in the Asia Pacific
region due to competitive pricing pressures, and the continued decline in
carbon zinc sales.
Battery Products' operating profit increased significantly in the quarter and
also increased in the six months due primarily to a favorable product mix in
North America and the Asia Pacific region.
The Company continues to review its battery production capacity and its
business structure, particularly in Europe, in light of pervasive global
trends, including the continuing shift from carbon zinc to alkaline products
and easing of trade restrictions in many regions.
Sales for the Soy Protein Products segment increased 10.0% in the quarter and
8.4% in the six months on higher volume in food protein products and higher
prices. Operating profit decreased as higher raw material and business
development and management costs more than offset the sales increase.
Sales for International Agricultural Products increased 6.6% in the quarter
and 14.1% in the six months on increased volumes in the Asia Pacific region
and higher pricing, and also on prior year acquisitions in the six months.
These gains were partially offset by lower volumes in South and Central
America. Operating profit increased in the quarter and six months on the
sales increase and favorable unit margins in the Asia Pacific region,
partially offset by lower margins in South and Central America. Additionally,
results improved in France and Brazil reflecting the impact of prior year
restructuring.
During the six months ended March 31, 1997, one plant was closed,
approximately 320 employees were terminated and termination benefits and other
cash costs of $15.9 million were paid in connection with provisions for
restructuring, resulting in a reserve balance of $9.6 million at March 31,
1997. This activity is primarily associated with Battery Products'
restructuring.
RESULTS OF OPERATIONS
Gross profit as a percentage of sales was 40.3% in the six months compared to
41.0% in the prior year six months. The decreased percentage in the current
period reflects decreased percentages in Pet Products and Soy Protein Products
where margins were unfavorably impacted by higher raw material costs. Price
increases in these segments were insufficient to maintain historical margin
levels. Additionally, sales increases in the lower margin Agricultural
Products segment negatively impacted Company margins. Gross profit
percentages were 40.1% and 39.4% for the quarter ended March 31, 1997 and
1996, respectively. The increased percentage in the quarter reflects
improvements in Battery Products, Agricultural Products and Pet Products,
partially offset by a decreased percentage in Soy Protein Products as price
increases have not offset higher raw material costs.
Selling, general and administrative expenses increased 8.0% in the current six
months and 7.2% in the quarter due to increases in Pet Products and increased
business development and management costs in Soy Protein Products, and on
prior year acquisitions in the six months. Selling, general and
administrative expenses were 17.4% and 17.2% of sales in the current and prior
year six month periods, respectively, and 19.0% and 18.9% in the current and
prior year second quarters.
Advertising and promotion expense increased 9.3% in the current six months and
12.0% in the current quarter due to additional promotional spending in Pet
Products. As a percentage of sales, advertising and promotion expense was
10.6% and 10.7% in the current six months and second quarter, respectively,
compared to 10.4% and 10.2% in the same periods a year ago.
Other income/expense, net, was $15.3 million favorable for the six months
primarily due to prior year foreign currency translation and exchange losses,
particularly in Mexico and Venezuela.
Income taxes, which include federal, state and foreign taxes, were 37% of
pre-tax earnings before equity earnings for the current quarter and six months
compared to 38% in the prior year periods.
FINANCIAL CONDITION
The Company's primary source of liquidity is cash flow generated from
operations. For the six months ended March 31, 1997, cash flow from
operations was $326.8 million compared to $283.3 million in the six months
ended March 31, 1996. The increase in cash flow in the current six months is
due to increased cash earnings and changes in working capital.
Working capital was $97.4 million at March 31, 1997, while current liabilities
exceeded current assets by $22.1 million at September 30, 1996. The increase
in working capital is primarily due to decreased debt levels and accounts
payable balances, partially offset by reduced accounts receivable balances.
The increased cash used by investing activities was primarily due to a higher
level of capital expenditures related to the expansion of production capacity.
On October 2, 1995, the Company issued $175 million of 7-3/4% fixed rate
long-term debt.
As of April 30, 1997, approximately 1,130,000 shares remained under the Board
of Directors' authorization dated February 16, 1994 for the purchase of up to
3 million shares of RAL Stock.
As previously announced, the Company intends to separate its international
agricultural animal feeds business in a tax-free spin-off to shareholders.
Completion of the spin-off is expected in early 1998 and is contingent upon a
favorable tax ruling from the Internal Revenue Service and approval by the
Ralston Purina Board of Directors.
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
QUARTER ENDED MARCH 31,
-----------------------
SIX MONTHS ENDED MARCH 31,
------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $1,519.5 $1,432.1 $3,279.8 $3,071.4
--------- --------- --------- ---------
Costs and Expenses
Cost of products sold 909.7 867.5 1,956.7 1,812.1
Selling, general and administrative 289.3 269.9 571.8 529.4
Advertising and promotion 163.2 145.7 348.5 319.0
Interest expense 42.8 49.5 87.0 99.2
Other (income)/expense, net 3.5 6.4 (0.9) 14.4
1,408.5 1,339.0 2,963.1 2,774.1
--------- --------- --------- ---------
Earnings before Income Taxes and
Equity Earnings 111.0 93.1 316.7 297.3
Income Taxes (41.1) (35.4) (117.2) (113.0)
--------- --------- --------- ---------
Earnings before Equity Earnings 69.9 57.7 199.5 184.3
Equity Earnings, Net of Taxes 6.8 1.4 14.6 3.3
--------- --------- --------- ---------
Net Earnings 76.7 59.1 214.1 187.6
Preferred Stock Dividend, Net of Taxes (3.3) (3.6) (6.7) (7.2)
--------- --------- --------- ---------
Earnings Available to Common Shareholders $ 73.4 $ 55.5 $ 207.4 $ 180.4
========= ========= ========= =========
Cash Dividends Declared per Common Share $ 0.60 $ 0.60 $ 0.60 $ 0.60
========= ========= ========= =========
Earnings Per Share
Primary $ 0.72 $ 0.55 $ 2.04 $ 1.77
Fully Diluted $ 0.69 $ 0.52 $ 1.92 $ 1.67
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(CONDENSED)
(DOLLARS IN MILLIONS)
MARCH 31, SEPTEMBER 30,
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1997 1996
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ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 86.6 $ 62.3
Receivables, less allowance for doubtful accounts
of $38.1 and $35.9, respectively 779.1 845.6
Inventories
Raw materials and supplies 230.1 242.1
Work in process 125.2 123.6
Finished products 454.3 450.5
Other current assets 167.8 149.3
----------- ---------------
Total Current Assets 1,843.1 1,873.4
Investments and Other Assets 1,472.5 1,455.8
Property at Cost 2,888.7 2,797.3
Accumulated depreciation 1,392.6 1,341.4
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1,496.1 1,455.9
Total $ 4,811.7 $ 4,785.1
=========== ===============
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt $ 97.5 $ 98.0
Notes payable 791.8 881.9
Accounts payable 366.6 407.9
Other current liabilities 489.8 507.7
----------- ---------------
Total Current Liabilities 1,745.7 1,895.5
Long-Term Debt 1,448.7 1,437.0
Deferred Income Taxes 59.2 50.0
Other Liabilities 530.2 500.7
Redeemable Preferred Stock 314.3 323.5
Unearned ESOP Compensation (87.7) (110.6)
Shareholders Equity
Preferred stock - -
Common stock 11.5 11.5
Capital in excess of par value 268.3 217.3
Retained earnings 1,433.6 1,302.9
Cumulative translation adjustment (100.2) (66.6)
Common stock in treasury, at cost (474.0) (482.3)
Unearned portion of restricted stock (3.9) (4.2)
Value of common stock held in Grantor Trust (334.0) (289.6)
----------- ---------------
Total Shareholders Equity 801.3 689.0
Total $ 4,811.7 $ 4,785.1
=========== ===============
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONDENSED)
(DOLLARS IN MILLIONS)
SIX MONTHS ENDED MARCH 31,
--------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash Flow from Operations
Net earnings $ 214.1 $ 187.6
Non-cash items included in income 124.3 124.4
Changes in assets and liabilities used in operations (10.9) (40.0)
Other, net (0.7) 11.3
Net cash flow from operations 326.8 283.3
-------- --------
Cash Flow from Investing Activities
Acquisition of businesses - (25.1)
Property additions, net (165.4) (125.8)
Other, net (10.3) 1.2
Net cash used by investing activities (175.7) (149.7)
-------- --------
Cash Flow from Financing Activities
Net cash used by debt (35.2) (32.5)
Dividends paid (72.0) (72.8)
Other, net (16.7) (7.5)
Net cash used by financing activities (123.9) (112.8)
-------- --------
Effect of Exchange Rate Changes on Cash (2.9) (3.5)
-------- --------
Net Increase in Cash and Cash Equivalents 24.3 17.3
Cash and Cash Equivalents, Beginning of Period 62.3 44.3
Cash and Cash Equivalents, End of Period $ 86.6 $ 61.6
======== ========
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(Dollars in millions)
Note 1 - The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for any quarter are not necessarily indicative of the
results for any other quarter or for the full year. These statements should
be read in conjunction with the financial statements and notes thereto
included in the Ralston Purina Company (the Company) Annual Report to
Shareholders for the year ended September 30, 1996.
Note 2 - Primary earnings per share are based on the average number of shares
outstanding during the period, excluding 4,275,000 and 4,173,000 shares of
common stock held by the Company's Grantor Trust at March 31, 1997 and 1996,
respectively. Fully diluted earnings per share are based on the average
number of shares used for the primary earnings per share calculation, adjusted
for the dilutive effect of convertible preferred stock, stock options,
convertible debentures and compensation awards, when the effects of inclusion
of such securities does not result in anti-dilution. Primary and fully
diluted shares used in earnings per share computations were 102,025,000 and
110,843,000, respectively, for the quarter ended March 31, 1997 and
101,795,000 and 110,877,000 for the quarter ended March 31, 1996. For the six
months ended March 31, 1997, primary and fully diluted shares were 101,947,000
and 110,946,000, respectively, and were 101,763,000 and 110,807,000 for the
six months ended March 31, 1996.
Note 3 - At March 31, 1997, there were 102,035,000 shares of common stock
outstanding, exclusive of 8,380,000 shares held in treasury and 4,275,000
Grantor Trust shares. At September 30, 1996, there were 101,720,000 shares
of common stock outstanding, exclusive of 8,740,000 shares held in treasury
and 4,228,000 Grantor Trust shares.
<PAGE>
Note 4 - Other (income)/expense, net, for the six months consists of the
following:
<TABLE>
<CAPTION>
March 31,
1997 1996
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<S> <C> <C>
Net translation and exchange loss $ 7.3 $18.1
Investment income (4.4) (4.5)
Miscellaneous (income)/expense (3.8) 0.8
$ (.9) $14.4
====== ======
</TABLE>
Note 5 - Investments and Other Assets consists of the following:
<TABLE>
<CAPTION>
March 31, Sept. 30,
1997 1996
---------- ----------
<S> <C> <C>
Goodwill $ 490.0 $ 509.1
Other intangible assets 249.2 256.3
Investments in affiliated companies 320.1 301.6
Deferred charges and other assets 413.2 388.8
$ 1,472.5 $ 1,455.8
========== ==========
</TABLE>
Note 6 - Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", was issued in February 1997. The Company expects the impact of
adoption of this statement to be immaterial.
PART II - OTHER INFORMATION
------------------
There is no information required to be reported under any items except those
indicated below.
Item 6. Exhibits and Reports on Form 8-K
-------------------------------------
(a) Exhibits filed with this Report:
(11) Statement, re: Computation of Per Share Earnings.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RALSTON PURINA COMPANY
-----------------------------------------
Registrant
By:/s/____________________________
----
Anita M. Wray
Vice President and Controller
Date: May 15, 1997
<PAGE>
EXHIBIT INDEX
- -------------
Exhibits
- --------
EX-11 Computation of Earnings Per Share
EX-27 Financial data schedule for 2nd Quarter 1997
(provided electronically)
Exhibit 27
(Document prepared on Edgar)
i:\sec\10q\2qtr-97.doc
EXHIBIT 11
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY
COMPUTATION OF EARNINGS PER SHARE
(IN MILLIONS EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
MARCH 31,
---------
1997 1996
------- -------
Earnings Per Common Share Outstanding
<S> <C> <C> <C> <C>
Net earnings $214.1 $187.6
Dividend on Series A ESOP convertible
preferred stock, net of taxes (6.7) (7.2)
Earnings available to common shareholders $207.4 $180.4
======= =======
Weighted average shares - primary
earnings per share calculation 101.9 * 101.8 *
======= =====
Earnings per common share outstanding $ 2.04 $ 1.77
======= =======
EARNINGS PER SHARE ASSUMING FULL DILUTION
Net earnings $214.1 $187.6
Adjustments to net earnings to reflect assumed
ESOP preferred stock conversion (1.5) (2.2)
Net earnings for fully diluted earnings per share calculation $212.6 $185.4
======= =======
Weighted average number of common shares outstanding 101.9 * 101.8 *
Convertible preferred stock 6.6 6.9
Dilutive effect of stock options 2.0 1.8
Dilutive effect of deferred compensation awards 0.4 0.3
------- -------
Weighted average shares - fully diluted earnings
per share calculation 110.9 110.8
======= =======
Earnings per share assuming full dilution $ 1.92 $ 1.67
======= =======
</TABLE>
* Excludes 4,275,000 and 4,173,000 shares held in Grantor Trust at March 31,
1997 and
1996, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 3/31/97
RALSTON PURINA COMPANY BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMETNS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 86,600
<SECURITIES> 0
<RECEIVABLES> 817,200
<ALLOWANCES> 38,100
<INVENTORY> 809,600
<CURRENT-ASSETS> 1,843,100
<PP&E> 2,888,700
<DEPRECIATION> 1,392,600
<TOTAL-ASSETS> 4,811,700
<CURRENT-LIABILITIES> 1,745,700
<BONDS> 1,448,700
314,300
0
<COMMON> 11,500
<OTHER-SE> 789,800
<TOTAL-LIABILITY-AND-EQUITY> 4,811,700
<SALES> 3,279,800
<TOTAL-REVENUES> 3,279,800
<CGS> 1,956,700
<TOTAL-COSTS> 1,956,700
<OTHER-EXPENSES> 919,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,000
<INCOME-PRETAX> 316,700
<INCOME-TAX> 117,200
<INCOME-CONTINUING> 214,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,100
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 1.92<F1>
<FN>
<F1>LOSS-PROVISION INLCUDED IN OTHER-EXPENSE ABOVE.
</FN>
</TABLE>
