19
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, 1998 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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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
<S> <C>
Title of each class Name of each exchange on which registered
- ------------------------------------------ -----------------------------------------
RALSTON PURINA COMPANY NEW YORK STOCK EXCHANGE, INC.
COMMON STOCK, PAR VALUE $.10 PER SHARE CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE INCORPORATED
RALSTON PURINA COMPANY 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 1/4% DEBENTURES NEW YORK STOCK EXCHANGE, INC.
9.30% DEBENTURES NEW YORK STOCK EXCHANGE, INC.
8 5/8% DEBENTURES NEW YORK STOCK EXCHANGE, INC.
8 1/8% DEBENTURES NEW YORK STOCK EXCHANGE, INC.
7 7/8 % DEBENTURES NEW YORK STOCK EXCHANGE, INC.
7 3/4% DEBENTURES NEW YORK STOCK EXCHANGE, INC.
7% EXCHANGEABLE NOTES 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: X No:
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AS OF THE CLOSE OF BUSINESS ON NOVEMBER 2, 1998: $10,361,200,607.
(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 Purina Company Common Stock ("RAL Stock"), $.10 par
value, outstanding as of close of business on December 18, 1998: 312,789,226.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Ralston Purina Company 1998 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 11, 1998 (Part III of Form 10-K).
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 world's
largest manufacturer of dry cell battery products. The Company is also a major
producer of other pet products, including cat box filler. The Company has a
number of trademarks, such as PURINA, RALSTON, the CHECKERBOARD logo, CHOW, DOG
CHOW, CAT CHOW, GOLDEN CAT, TIDY CAT, 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 two Business Segments - Pet Products
and Battery Products.
The Pet Products Segment consists of Ralston Purina's worldwide Pet
Products operations. 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. Pet Products also produces and sells cat box filler and related
products under the GOLDEN CAT name, including TIDY CAT and other brands.
The Battery Products Segment consists of the Company's worldwide battery
products business. The battery products business 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.
On April 1, 1998, the Company distributed to its shareholders, in a
tax-free spin-off, all of the outstanding capital stock of Agribrands
International, Inc., a wholly-owned subsidiary engaged in the international
agricultural products business.
On December 3, 1997, the Company, in a series of mergers and exchanges, sold its
soy protein technologies business, the world's leading producer and marketer of
high-quality dietary isolated soy protein and fiber food ingredients and a
leading marketer of polymer products, to E.I. du Pont de Nemours and Company.
On December 5, 1997, the Company acquired Edward Baker Petfoods, a British
pet food manufacturer and a major supplier of branded and private label pet food
products to the European market.
On April 7, 1995, the Company acquired the assets of Golden Cat
Corporation, a manufacturer of cat box filler and related products.
On July 22, 1995, the Company sold all of the outstanding capital stock of
Continental Baking Company, its subsidiary engaged in the fresh bakery products
business, to Interstate Bakeries Corporation and its wholly owned subsidiary
Interstate Brands Corporation.
The principal raw materials used in the Pet Products Segment are grain and grain
products, protein ingredients, meat by-products and clay; in the Battery
Products Segment, the principal raw materials used are manganese dioxide, zinc,
acetylene black and potassium hydroxide. 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 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.
Pet products are marketed in the United States primarily through direct sales
forces and food brokers to grocery wholesalers, retail chains and other
customers. Battery products are marketed in the United States and
internationally primarily through direct sales forces.
Competition is intense in both of the Business Segments. In the Pet Products
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. 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.
During fiscal years 1996, 1997 and 1998, revenue from the Company's sales
of its products to Wal-Mart Stores, Inc. and its affiliated companies was 10.5%,
11.9%, and 14.3% respectively, of the Company's gross consolidated revenues.
Except for this relationship, the Company was not dependent upon any other
single customer or a few customers, the loss of any one or more of which would
have a material adverse effect on 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
regulations related to 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 13 "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.
There has been a shift within primary battery products from carbon zinc
batteries to alkaline batteries. As such, the Company has recorded provisions
related to restructuring its world-wide battery production capacity and certain
administrative functions in each of the last three years. Alkaline batteries
are now the dominant primary battery in all world areas with the exception of
Asia, Africa and Latin America. The Company continues to review its battery
production capacity and its business structure in light of pervasive global
trends, including the evolution of technology.
As of September 30, 1998 the Company, as a whole, employed 8,507 employees in
the United States and 13,928 in foreign jurisdictions. The descriptions of the
businesses of, and the summary of selected financial data regarding, the Company
appearing under "Ralston Purina Company-Financial Review-Highlights" on page 14,
"Ralston Purina Company-Financial Review-Liquidity and Capital Resources" on
page 15, "Ralston Purina Company-Financial Review-Business Segment Information"
on page 20, "Ralston Purina Company-Business Segment Information" on pages 22
through 24, and "Ralston Purina Company-Notes to Financial Statements-Summary of
Accounting Policies-Research and Development" on page 32 of the Ralston Purina
Company Annual Report to Shareholders 1998, are hereby incorporated by
reference.
ITEM 2. PROPERTIES.
A list of the Company's principal plants and facilities as of the date of
filing 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.PET PRODUCTS
PET PRODUCTS PLANTS
United States
Atlanta, GA
Clinton, IA (1R)
Davenport, IA
Denver, CO
Dunkirk, NY
Flagstaff, AZ
Mechanicsburg, PA
Oklahoma City, OK
Zanesville, OH
International
Chilton, United Kingdom
Cornard Mills, United Kingdom
Cuautitlan, Mexico
Encrucijada, Venezuela (5)
Innisfail, Alberta, Canada
Mississauga, Ontario, Canada
Monjos, Spain
Montfort-Sur-Risle, France
Portogruaro, Italy
Ribeirao Preto, Brazil
Santo Tome, Argentina
Veghel, The Netherlands
CAT LITTER PLANTS
United States
Bloomfield, MO
King William, VA
Maricopa, CA
PACKAGING FACILITIES
International
Caledonia, Ontario, Canada (6)
BATTERY PRODUCTS
BATTERY AND RELATED PRODUCTS PLANTS
United States
Asheboro, NC (2)
Bennington, VT
Gainesville, FL
Garretsville, OH
Marietta, OH
Maryville, MO
St. Albans, VT
International
Alexandria, Egypt
Bogang, Peoples Republic
of China
Caudebec Les Elbeuf, France (1)
Cebu, Philippines
Ekala, Sri Lanka
Jakarta, Indonesia
Johore Bahru, Malaysia
Juarez, Mexico
Jurong, Singapore (2)
La Chaux-de-Fonds, Switzerland
Manila, Philippines
Nakuru, Kenya (4)
Newcastle-under-Lyme, United
Kingdom
New Territories, Hong Kong
Slany, Czech Republic (6)
Tanfield Lea, United Kingdom
Tecamac, Mexico
Tianjin, People's Republic
of China
Walkerton, Ontario, Canada (6)
DAIRY FOOD SYSTEMS PLANT
Hager City, WI
OTHER PROPERTIES
RESEARCH FACILITIES
United States
Gray Summit, MO (3A)
St. Louis, MO (3A)
Westlake, OH (3B)
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 sales offices, regional offices, storage facilities,
distribution centers and terminals and related properties.
(1) Leased; (1R) Leased pursuant to industrial revenue bond financing
(2) Two plants
(3) Provides service for Pet Products (3A); Battery Products (3B)
(4) Less than 20% owned interest
(5) Also produces feed under a toll milling arrangement with Agribrands
(6) Bulk packaging and distribution
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.
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
regulations related to 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 13 "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 $12.6 million 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:
W. Patrick McGinnis, 51, co-Chief Executive Officer and co-President since
- ---------------------
October 1, 1997 and Corporate Officer since 1984; President and Chief Executive
Officer, Pet Products Group since 1992; 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, 25 years.
J. Patrick Mulcahy, 54, co-Chief Executive Officer and co-President since
- --------------------
October 1, 1997 and Corporate Officer since 1984; Chairman of the Board and
Chief Executive Officer, Eveready Battery Company, Inc., since 1987; 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, 29
years.
James R. Elsesser, 54, Vice President and Chief Financial Officer since 1985 and
- -----------------
Corporate Officer since 1985; Vice President, March-September, 1985; Treasurer,
February-September, 1985. Company service, 12 years.
Nancy E. Hamilton, 48, Secretary and Division Vice President since 1996; Senior
- ------------------
Counsel and Assistant Secretary, 1994 - 1996. Company service, 12 years.
Patrick C. Mannix, 53, Vice President; President, Eveready Battery Company, Inc.
- -----------------
since 1998, and President, Eveready Battery Company, Inc. - Specialty Businesses
since 1995; Executive Vice President, Eveready Battery Company, International
1991 - 1995 and Corporate Officer since 1992; Area Chairman, Asia Pacific
operations, Eveready Battery, 1985-91. Company service, 34 years, including 23
years with Eveready Battery Division of Union Carbide Corporation.
James M. Neville, 59, Vice President, General Counsel and Assistant Secretary
- ------------------
since 1996; Vice President, General Counsel and Secretary 1989 - 1996, and
Corporate Officer since 1983; Vice President and General Counsel 1984-89.
Company service, 13 years.
Ronald D. Winney, 56, Treasurer since 1985; Division Vice President and
- ------------------
Assistant Treasurer 1984-85; Assistant Treasurer 1977-85. Company service, 28
years.
Anita M. Wray, 44, Vice President and Controller since April 1994; Division Vice
- -------------
President and Director of Financial Accounting Services, 1985-1994. Company
service, 18 years.
(Ages and years of service as of December 31, 1998.)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's RAL 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,
1998, there were 20,763 shareholders of record of the Company's RAL Stock.
The following tables set forth dividends paid and range of market prices for the
RAL Stock (for the year ended September 30):
<TABLE>
<CAPTION>
DIVIDENDS PAID
<S> <C> <C>
1998 1997
----- -----
First Quarter $.10* $.10*
Second Quarter .10* .10*
Third Quarter .10* .10*
Fourth .10 .10*
</TABLE>
*Restated due to 3-for-1 Stock Split
<PAGE>
<TABLE>
<CAPTION>
MARKET PRICE RANGE
(Restated as necessary due to 3-for-1 Stock Split)
1998 1997
---- ----
RAL Stock RAL Stock
--------- ---------
<S> <C> <C>
First Quarter 32 19/64 - 27 51/64 $ 26 - 21 53/64
Second Quarter 35 5/8 - 28 1/2 29 1/8 - 23 45/64
Third Quarter 39 5/64 - 33 9/16 29 5/64 - 24 59/64
Fourth Quarter 38 7/8 - 26 31 7/16 - 26 11/16
</TABLE>
There have been no unregistered offerings of registrant's equity securities
during the period covered by this Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The summary of selected financial data regarding Ralston Purina Company
appearing on pages 12 through 13, of the Ralston Purina Company Annual Report to
Shareholders 1998, 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-Financial Review" on
pages 14 through 21 and the information appearing under "Ralston Purina
Company-Business Segment Information" on pages 22 through 24 of the Ralston
Purina Company Annual Report to Shareholders 1998, is hereby incorporated by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Information appearing under "Ralston Purina Company-Financial Review-Market
Risk Sensitive Instruments and Positions" on pages 18 and 19 of the Ralston
Purina Company Annual Report to Shareholders 1998 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 26 through 48, together with the report thereon of
PricewaterhouseCoopers LLP on page 25, and the supplementary data under "Ralston
Purina Company - Quarterly Financial Information" on pages 48 through 49 of the
Ralston Purina Company Annual Report to Shareholders 1998, 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 3 through 6, and information
appearing under "Compliance With Section 16(a) Reporting" on page 2, of the
Ralston Purina Company Notice of Annual Meeting and Proxy Statement dated
December 11, 1998 is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Executive Compensation" on pages 14 through
19, "Human Resources Committee Report on Executive Compensation" on pages 20
through 22, "Performance Graph" on page 23, "Common Stock Ownership Of Directors
and Executive Officers" on pages 12 through 13, and the remuneration information
under "Board Of Directors' - Committees" on page 5 and "Director Compensation"
on pages 5 and 6 of the Ralston Purina Company Notice of Annual Meeting and
Proxy Statement dated December 11, 1998 is hereby incorporated by reference.
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 Information" on page 11 and 'Common
Stock Ownership of Directors and Executive Officers" on pages 12 through 13 of
the Ralston Purina Company Notice of Annual Meeting and Proxy Statement dated
December 11, 1998 is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Certain Relationships and Related
Transactions" on page 6 of the Ralston Purina Company Notice of Annual Meeting
and Proxy Statement dated December 11, 1998, is hereby incorporated by
reference.
<PAGE>
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
herein.
- - Report of Independent Accountants.
- - Consolidated Statement of Earnings -- for years ended September 30, 1998, 1997
and 1996.
- - Consolidated Balance Sheet -- for years ended September 30, 1998 and 1997.
- - Consolidated Statement of Cash Flows -- for years ended September 30, 1998,
1997, and 1996.
- - Consolidated Statement of Shareholders Equity -- for years ended September 30,
1998, 1997 and 1996.
- - Notes to Financial Statements.
b. 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 as of February 1, 1996 are hereby incorporated by reference to the
Company's Form 10-Q for the quarter ended December 31, 1995.
(3ii) The By-Laws of Ralston Purina Company, as amended September 24, 1998.
(4) The Rights Agreement, effective as of March 28, 1996, is hereby
incorporated by reference to the Company's Form 8-A Registration Statement filed
on March 29, 1996.
(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.
(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.*
(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.*
(iii) 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.*
(iv) 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) Form of Agreements for Deferral of 1987 Annual and Special Cash
Bonuses.*
(c) Form of Agreements for Deferral of 1988 Annual and Special Cash
Bonuses.*
(d) Ralston Purina Company 1988 Incentive Stock Plan, as amended January 21
and March 25, 1988.*
(e) Personal Financial Planning Program, as amended July 21, 1988.*
(f) Executive Health Plan, as amended April 1, 1985, September 24, 1987 and
July 21 and November 17, 1988.*
(v) 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.*
(vi) 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) Form of Agreement for Deferral of 1985, 1986 and 1989 Annual and Special
Cash Bonuses.*
(d) Form of letter amending Restricted Stock Awards and Non- Qualified Stock
Options, as of September 27, 1990.*
(vii) 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.*
(viii) 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 Agreement for Deferral of 1991 Annual and Special Cash Bonuses.*
(c) Form of Agreement for Deferral of 1991 Annual Cash Bonus.*
(d) Form of 1991 Non-Qualified Stock Option.*
(e) Form of Indemnification Agreement with directors and corporate
officers.*
(ix) 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 letter amending Restricted Stock Awards, dated as of September
24, 1993.*
(x) The following material contracts are hereby incorporated by reference to
the Company's Form 10-K for the fiscal year ended September 30, 1994.
(a) 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.
(b) Trust Agreement between Ralston Purina Company and Wachovia Bank of
North Carolina, N.A., dated as of September 15, 1994.
(c) Leveraged Incentive Plan, adopted as of September 23, 1994.*
(xi) The following material contracts are hereby incorporated by reference
to the Company's Form 10-K for the fiscal year ended September 30, 1995.
(a) Deferred Compensation Plan for Non-Management Directors, as amended
September 25, 1987, July 22, 1988, May 25, 1990, October 27, 1992, July 30,
1993, November 18, 1993 and August 9, 1995.*
(b) Deferred Compensation Plan for Key Employees, as amended September 21,
1989, April 9, 1990, November 21, 1990, December 11, 1992, July 30, 1993,
November 18, 1993, and November 6, 1995.*
(c) Form of March 23, 1995 Non-Qualified Stock Option Contract.*
(d) Form of September 28, 1995 Non-Qualified Stock Option Contract.*
(e) Form of September 28, 1995 Non-Qualified Performance Stock Option
Contract.*
(f) Form of Agreement for Deferral of 1995 Annual Cash Bonus.*
(xii) The following material contracts are hereby incorporated by reference
to the Company's Form 10-K for the fiscal year ended September 30, 1996.
(a) Form of September 26, 1996 Non-Qualified Performance Stock Option
Agreement.*
(b) Form of September 26, 1996 Non-Qualified Stock Option Agreement.*
(c) Deferred Compensation Plan for Non-Management Directors, as amended
September 25, 1987, July 22, 1988, May 25, 1990, October 27, 1992, July 30,
1993, November 18, 1993, August 9, 1995, and September 26, 1996.*
(d) Deferred Compensation Plan for Key Employees, as amended September 21,
1989, April 9, 1990, November 21, 1990, December 11, 1992, July 30, 1993,
November 18, 1993, November 6, 1995, and September 26, 1996.*
(e) Form of Letter for Deferral of 1997 Bonus Award.*
(f) Form of Agreement for Deferral of 1996 Annual Cash Bonus*
(g) Form of Agreement for Deferral of 1996 Annual and Special Cash Bonus.*
(h) Deferral of Potential Fiscal 1997 Protein Sr. Management Incentive Award.*
(xiii) The following material contracts are hereby incorporated by reference
to the Company's Form 10-K for the fiscal year ended September 30, 1997.
(a) Form of November 20, 1997 Non-Qualified Stock Option.*
(b) Deferred Compensation Plan for Key Employees, as amended, September 21,
1989, April 9, 1990, November 21, 1990, December 11, 1992, July 30, 1993,
November 18, 1993, November 6, 1995, September 26, 1996, and November 13, 1997.*
(c) Form of Letter of Deferral of 1998 Bonus Award.*
(d) Form of Agreement for Deferral of 1997 Annual Cash Bonus.*
(e) Form of Agreement for Deferral of 1997 Annual and Special Cash Bonus.
(f) Form of Split Dollar Agreement.*
(g) 1996 Leveraged Incentive Plan, adopted as of September 26, 1996 and
amended September 25, 1997.*
(h) Resolution adopted September 26, 1996 amending Options granted September
28, 1995.*
(i) Agreement and Plan of Merger and Exchange by and among E.I. du Pont de
Nemours and Company, Ralston Purina Company, Protein Technologies International
Holdings, Inc. and Other Parties Named Therein, dated as of December 2, 1997.
(xiv) Form of September 24, 1998 Non-Qualified Stock Option*
(xv) Form of Letter of Deferral of 1999 Bonus Award*
(xvi) Form of Agreement for Deferral of 1998 Annual Cash Bonus*
(xvii) 1998 Leveraged Incentive Plan, adopted effective October 1, 1998*
(xvii) Form of Letter of Deferral of 1996 Leveraged Incentive Plan Award*
(xviii) Agreement and Plan of Reorganization dated as of April 1, 1998
between Ralston Purina Company and Agribrands International, Inc.
(xix) Form of Indemnification Agreement dated October 1, 1997 between
Ralston Purina Company and William P. Stiritz*
(xx) Resolution dated March 19, 1998 amending Fixed Benefit Option provision
of the Deferred Compensation Plan for Non-Management Directors*
(xxi) Resolution dated March 19, 1998 amending Fixed Benefit Option
provision of the Deferred Compensation Plan for Key Employees.*
(xxii) Ralston Purina Company Executive Health Plan as amended September 24,
1998*
(xxiii) Voluntary Enhanced Retirement Offer for Certain Corporate Employees
dated September 24, 1998*
(xxiv) Ralston Purina Company Executive Retiree Life Plan*
(xxv) Resolution dated May 28, 1998 regarding repayment of gain provisions
in outstanding non-qualified option awards held by Corporate Officers.
(13) Pages 12 to 49 of the Ralston Purina Company Annual Report to
Shareholders 1998, which are incorporated herein by reference, are filed
herewith.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule.
* Denotes a management contract or compensatory plan or arrangement.
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 not included have been omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
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: J.P. Mulcahy By: W.P. McGinnis
------------------- -----------------
J.P. Mulcahy W.P. McGinnis
co-Chief Executive Officer co-Chief Executive Officer
and co-President and co-President
Date: December 22, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on December 22, 1998, by the following persons on behalf
of the registrant in the capacities indicated.
SIGNATURE TITLE
- --------- -----
W. P. McGinnis
- ----------------------------- co-Chief Executive Officer and
W.P. McGinnis President
J. P. Mulcahy
- --------------------------- co-Chief Executive Officer and
J.P. Mulcahy President
James R. Elsesser
- ------------------------------- Vice President and Chief
James R. Elsesser Financial Officer
Anita M. Wray
- ------------------------------- Vice President and Controller
Anita M. Wray
William P. Stiritz
- ------------------------------- Chairman of the Board
William P. Stiritz of Directors
David R. Banks
- ------------------------------- Director
David R. Banks
John H. Biggs
- ------------------------------ Director
John H. Biggs
Donald Danforth, Jr.
- ------------------------------ Director
Donald Danforth, Jr.
<PAGE>
William H. Danforth
- ------------------------------- Director
William H. Danforth
David C. Farrell
- ------------------------------- Director
David C. Farrell
M. Darrell Ingram
- ------------------------------ Director
M. Darrell Ingram
Richard A. Liddy
- ------------------------------ Director
Richard A. Liddy
John F. McDonnell
- ------------------------------ Director
John F. McDonnell
Katherine D. Ortega
- ------------------------------ Director
Katherine D. Ortega
BYLAWS
------
OF
RALSTON PURINA COMPANY
----------------------
(AS AMENDED SEPTEMBER 24, 1998)
***
ARTICLE I - SHAREHOLDERS
------------------------
SECTION 1. ANNUAL MEETING: The annual meeting of shareholders shall be held
--------------------------
at the principal office of the Company, or at such other place either within or
without the State of Missouri as the Directors may from time to time determine,
at 2:00 P.M. on the third Thursday in January in each year, or such other time
as may be determined by the Chairman of the Board, or if said day be a legal
holiday then on the next succeeding business day, to elect Directors and
transact such other business as may properly come before the meeting.
SECTION 2. SPECIAL MEETINGS: Special meetings of shareholders may be called
----------------------------
by the Chairman of the Board, any President or the Secretary, or in any other
manner permitted by law; and each such meeting shall be held at such time, and
at such place either within or without the State of Missouri, as may be
specified in the notice thereof.
SECTION 3. NOTICE: Notice of each annual or special meeting of shareholders,
- --------------------
stating the time and place thereof, shall be served upon or mailed to each
shareholder of record entitled to vote at such meeting at least ten days but not
more than seventy days prior to the meeting. Such other or additional notice
shall be given as may be required by law.
SECTION 4. QUORUM: At any meeting of shareholders, the holders of a majority of
- -------------------
theoutstanding shares entitled to vote thereat and the holders of a majority of
the votes of the outstanding shares entitled to vote thereat, and present in
person or represented by proxy, shall constitute a quorum for all purposes. The
holders of a majority of the outstanding shares present and entitled to vote at
anymeeting and a majority of the votes of such shares may adjourn the same from
time to time to a specified date not more than ninety days after such
adjournment, without notice other than announcement at themeeting, and any
business may be transacted at such adjourned meeting as originally notified.
At any meeting of shareholders, only such business shall be conducted as
shall have been properly brought before the meeting. In addition to any other
requirements imposed by or pursuant to law, the Articles or these Bylaws, each
item of business to be properly brought before a meeting must (i) be specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board or the persons calling the meeting pursuant to these
Bylaws; (ii) be otherwise properly brought before the meeting by or at the
direction of the Board; or (iii) be otherwise properly brought before the
meeting by a shareholder. For business to be properly brought before a meeting
by a shareholder, the shareholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than forty-five days prior to the anniversary of the
date that the Company's proxy materials with respect to the prior year's annual
meeting of shareholders were mailed; provided, however, that with respect to
special meetings of shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the seventh day following
the day on which such notice of the date of the meeting was mailed or public
disclosure of such meeting was made. A shareholder's notice to the Secretary
shall set forth as to each matter he or she proposes to bring before the meeting
(i) a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii) the name and
address, as they appear in the Company's shareholder records, of the
shareholder(s) proposing such business, (iii) the class and number of shares of
the Company's capital stock which are beneficially owned by the proposing
shareholder(s), and (iv) any material interest of the proposing shareholder(s)
in such business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in this Section. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section, and if he or she should so determine, shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted. The Chairman of the meeting shall have absolute authority to decide
questions of compliance with the foregoing procedures, and his or her ruling
thereon shall be final and conclusive.
SECTION 5. ORGANIZATION: Each meeting of shareholders shall be convened by a
- --------------------------
President, Secretary or other officer or person calling the meeting by notice
given in accordance with these Bylaws. The Chief Executive Officers, or any
person appointed by a Chief Executive Officer prior to any meeting of
shareholders, shall act as Chairman of each meeting of shareholders. In the
absence of all Chief Executive Officers, or a person appointed by a Chief
Executive Officer to act as Chairman of the meeting, the shareholders present at
the meeting shall designate a shareholder present to act as Chairman of the
meeting. The Secretary of the Company, or a person designated by the Chairman,
shall act as Secretary of each meeting of shareholders. Whenever the Secretary
shall act as Chairman of the meeting, or shall be absent, the Chairman of the
meeting shall appoint a shareholder present to act as Secretary of the meeting.
ARTICLE II - BOARD OF DIRECTORS
-------------------------------
SECTION 1. ELECTION; TENURE; QUALLFLCATLONS: The Board of Directors shall
----------------------------------------------
consist of not less than nine nor more than eighteen members, such Directors to
be classified in respect of the time for which they shall severally hold office
by dividing them into three classes of approximately equal size, each class to
be elected for a term of three years; and the number of Directors shall be fixed
by a resolution of the Board of Directors adopted from time to time.
Directors shall be elected at each annual meeting of shareholders, to hold
office until the expiration of the term of their respective class, or until
their respective successors shall be elected and shall qualify.
Nominations of persons for election to the Board of Directors of the
Company may be made at a meeting of shareholders by or at the direction of the
Board or any committee thereof designated by the Board, or by any shareholder of
the Company entitled to vote for the election of Directors at the meeting who
complies with the procedures set forth herein. In order for persons nominated
to the Board, other than those persons nominated by or at the direction of the
Board, to be qualified to serve on the Board, such nominations shall be made
pursuant to timely notice in writing to the Secretary of the Company. To be
timely, a shareholder's notice shall be delivered to or mailed and received by
the Secretary of the Company not less than forty-five days prior to the
anniversary of the date that the Company's proxy materials with respect to the
prior year's annual meeting of shareholders were mailed; provided, however, that
with respect to special meetings of shareholders, notice by the shareholder to
be timely must be so received not later than the close of business on the
seventh day following the day on which such notice of the date of the special
meeting was mailed or public disclosure of such meeting was made. Such
shareholder's notice shall set forth (i) as to each person whom the shareholder
proposes to nominate for election or re-election as a Director, (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person for the previous five years, (C) the
class and number of shares of the Company's capital stock which are beneficially
owned by such person, (D) such person's written consent to being named as a
nominee and to serving as a Director if elected, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, and (ii) as to the shareholder(s) making the nomination (A) the name
and address, as they appear in the Company's shareholder records, of such
shareholder(s) and (b) the class and number of shares of the Company's capital
stock which are beneficially owned by such shareholder(s). No person shall be
qualified for election as a Director of the Company unless nominated in
accordance with the procedures set forth in this Section 1. The Chairman of a
meeting shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
Bylaws, and if he or she should so determine, shall so declare to the meeting,
and the defective nomination shall be disregarded. The Chairman of a meeting
shall have absolute authority to decide questions of compliance with the
foregoing procedures, and his or her ruling thereon shall be final and
conclusive.
SECTION 2. POWERS: The Board of Directors shall have power to manage and control
- ------------------
the property and affairs of the Company, and to do all such lawful acts and
things which, in their absolute judgment and discretion, they may deem necessary
and appropriate for the expedient conductand furtherance of the Company's
business.
SECTION 3. CHAIRMAN: The Directors shall elect one of their number to be
- ----------------------
Chairman of the Board. The Chairman shall preside at all meetings of the Board,
unless absent from such meeting, in which case, if there is a quorum, the
Directors present may elect another Director to preside at such meeting.
SECTION 4. MEETINGS: Regular meetings of the Board may be held without notice at
- --------------------
such time and place either within or without the State of Missouri as shall from
time to time be determined by the Chairman of the Board. Special meetings of
the Board may be held at any time and place upon the call of the Chairman of the
Board, a President, or Secretary of the Company.
SECTION 5. QUORUM: A majority of the full Board of Directors shall constitute a
- -------------------
quorum at all meetings of the Board, and the act of the majority of the
Directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors unless a greater number of Directors is required by
the Articles of Incorporation, the Bylaws or by law. At any meeting of
Directors, whether or not a quorum is present, the Directors present thereat may
adjourn the same from time to time without notice other than announcement at the
meeting.
SECTION 6. VACANCIES: Vacancies on the Board and newly created directorships
- -----------------------
resulting from any increase in the number of Directors to constitute the Board
of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by a sole remaining Director, until the next
election of Directors by the shareholders of the corporation.
SECTION 7. COMPENSATION OF DIRECTORS: The Board of Directors may, by resolution
- --------------------------------------
passed by a majority of the whole Board, fix the terms and amount of
compensation payable to any person for his services as Director, if he is not
otherwise compensated for services rendered as an officer or employee of the
Company; provided, however, that any Director may be reimbursed for reasonable
and necessary expenses of attending meetings of the Board, or otherwise incurred
for any Company purpose; and provided, further, that members of special or
standing committees may also be allowed compensation and expenses similarly
incurred.
SECTION 8. COMMITTEES OF THE BOARD OF DIRECTORS: The Board of Directors may, by
- -------------------------------------------------
resolution passed by a majority of the whole Board, designate two or more
Directors to constitute an Executive Committee of the Board which shall have and
exercise all of the authority of the Board of Directors in the management of the
Company, in the intervals between meetings of the Board of Directors. In
addition, the Board may appoint any other committee or committees, with such
members, functions, and powers as the Board may designate. The Board shall have
the power at any time to fill vacancies in, to change the size or membership of,
or to dissolve, any one or more of such committees. Each such committee shall
have such name as may be determined by the Board, and shall keep regular minutes
of its proceedings and report the same to the Board of Directors for approval as
required.
ARTICLE III - OFFICERS
-----------------------
SECTION 1. OFFICERS; ELECTION: The officers of the Company shall be a Chairman
- --------------------------------
of the Board, one or more Chief Executive Officers, one or more Presidents, and
a Secretary, and may be, as the Board may from time to time designate, one or
more Vice Chairmen of the Board, one or more Executive Vice Presidents, one or
more Senior Vice Presidents, one or more Group Vice Presidents, one or more Vice
Presidents, a General Counsel, a Treasurer, a Controller, and one or more
Assistant Secretaries, Assistant Treasurers, and Assistant Controllers. All
officers of the Company shall be elected by the Board of Directors, except that
Assistant Secretaries, Assistant Treasurers and Assistant Controllers may be
appointed by the Chairman of the Board or any Chief Executive Officer. Any two
or more offices may be held by the same person except the offices of Chairman of
the Board and Secretary.
SECTION 2. TERMS: COMPENSATION: All officers of the Company shall hold office
- ---------------------------------
at the pleasure of the Board of Directors. The compensation each officer is to
receive from the Company shall be determined in such manner as the Board of
Directors shall from time to time prescribe.
SECTION 3. POWERS: DUTIES: Each officer of the Company shall have such powers
- -----------------------------
and duties as may be prescribed by resolution of the Board of Directors or as
may be assigned by the Board of Directors or any Chief Executive Officer.
SECTION 4. REMOVAL: Any officer elected by the Board of Directors may be removed
- -------------------
by the Board of Directors whenever in its judgment the best interest of the
Company will be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the officer so removed. The Chairman of the
Board may suspend any officer until the Board of Directors shall next convene.
ARTICLE IV - CAPITAL STOCK
--------------------------
SECTION 1. STOCK CERTIFICATES: All certificates of stock of the Company shall be
- ------------------------------
signed by the Chairman of the Board or any President or a Vice President and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
of the Company, and shall bear the corporate seal of the Company. To the extent
permitted by law, the signatures of such officers, and the corporate seal,
appearing on certificates of stock, may be facsimile, engraved or printed. In
case any such officer who signed or whose facsimile signature appears on any
such certificate shall have ceased to be such officer before the certificate is
issued, such certificate may nevertheless be issued by the Company with the same
effect as if such officer had not ceased to be such officer at the date of its
issue.
The Company shall not issue a certificate for a fractional share; however, the
Board of Directors may issue, in lieu of any fractional share, scrip or other
evidence of ownership upon such terms and conditions as it may deem advisable.
All certificates of stock of each class and series shall be numbered
appropriately.
SECTION 2. RECORD OWNERSHIP: The corporation shall maintain a record of the name
- ----------------------------
and address of the holder of each certificate, the number of shares represented
thereby, and the date of issue and the number thereof. The Company shall be
entitled to treat the holder of record of any share of stock as the holder in
fact thereof, and accordingly it will not be bound to recognize any equitable or
other claim of interest in such share on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Missouri.
SECTION 3. TRANSFERS: Transfers of stock shall be made on the books of the
- -----------------------
Company only by direction of the person named in the certificate, or by an
attorney lawfully constituted in writing, and upon the surrender of the
certificate therefor.
SECTION 4. TRANSFER AGENTS; REGISTRARS: The Board of Directors shall, by
- -------------------------------------------
resolution, from time to time appoint one or more Transfer Agents, that may be
officers or employees of the Company, to make transfers of shares of stock of
the Company, and one or more Registrars to register shares of stock issued by or
on behalf of the Company. The Board of Directors may adopt such rules as it may
deem expedient concerning the issue, transfer and registration of stock
certificates of the Company.
SECTION 5. LOST CERTIFICATES: Each person whose certificate of stock has been
- --------------------------------
lost, stole nor destroyed shall be entitled to have a replacement certificate
issued in the same name and for the same number of shares as the original
certificate, provided that such person has first filed with such officers of
the Company, Transfer Agents and Registrars, as the Board of Directors may
designate, an affidavit stating that such certificate was lost, stolen or
destroyed and a bond of indemnity, each in the form and with such provisions as
such officers, Transfer Agents and Registrars may reasonably deem satisfactory.
SECTION 6. TRANSFER BOOKS; RECORD DATES: The Board of Directors shall have power
- ----------------------------------------
to close the stock transfer books of the Company as permitted by law; provided,
however, that in lieu of closing the said books, the Board of Directors may fix
in advance a date, not exceeding seventy days preceding the date of any meeting
of shareholders, or the date for the payment of any dividend, or the date for
the allotment of rights, or the date when any change or conversion or exchange
of shares shall go into effect, as a record date for the determination of the
shareholders entitled to notice of, and to vote at, any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment of rights or to exercise the rights in respect of any such
change, conversion or exchange of shares, and in such case such shareholders and
only such shareholders as shall be shareholders of record on the date of closing
the transfer books or on the record date so fixed shall be entitled to notice
of, and to vote at, such meeting, and any adjournment thereof, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any shares on
the books of the Company after such date of closing of the transfer books or
such record date fixed as aforesaid.
ARTICLE V - OFFICES, SEAL, BOOKS, FISCAL YEAR
----------------------------------------------
SECTION 1. OFFICES: The principal office of the Company shall be located at
- ---------------------
CheckerboardSquare, St. Louis, Missouri 63164.
SECTION 2. SEAL: The corporate seal of the Company shall be a circular seal; the
- ----------------
words "RALSTON PURINA COMPANY, ST. LOUIS, MO." shall be embossed in the outer
margin; a nine-square bordered design, and the symbol "SEAL 1894" shall be
embossed in the central circular field; an impression of the same is set forth
hereon.
SECTION 3. PLACE FOR KEEPING BOOKS AND SEAL: The books of the Company, and its
- ----------------------------------------------
corporate minutes and corporate seal, shall be kept in the custody of the
Secretary at the principal office of the Company, or at such other place or
places and in the custody of such other person or persons as the Board of
Directors may from time to time determine.
SECTION 4. FISCAL YEAR: The fiscal year of the Company shall commence with the
- -------------------------
first day of October in each year.
<PAGE> 1
R A L S T O N P U R I N A C O M P A N Y
- --------------------------------------------------------------------------------
FIVE YEAR FINANCIAL SUMMARY
- ---------------------------
(In millions except per share and percentage data)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1998 1997 1996 1995<Ff> 1994<Fh>
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Net Sales................................... $4,653.3 $4,486.8 $4,301.9 $5,645.4 $6,319.8
Depreciation and Amortization............... 194.7 189.0 193.8 249.4 268.3
Earnings from Continuing Operations before
Interest Expense, Income Taxes, Equity
Earnings and Extraordinary Item........... 660.5 559.2 638.0 599.4 546.5
As a Percent of Sales................... 14.2% 12.5% 14.8% 10.6% 8.6%
Earnings from Continuing Operations before
Income Taxes, Equity Earnings and
Extraordinary Item........................ $ 469.4 $ 384.9 $ 447.7 $ 399.6 $ 326.1
Income Taxes<Fa>............................ 117.5 70.0 162.9 167.8 162.6
Earnings from Continuing Operations before
Extraordinary Item<Fb><Fc>................ 390.6 348.9 296.4 232.7<Fg> 163.5
As a Percent of Sales................... 8.4% 7.8% 6.9% 4.1% 2.6%
Net Earnings<Fd><Fe>........................ $1,105.7 $ 423.7 $ 359.6 $ 296.4 $ 208.9
Earnings Available to Common Shareholders... 1,094.2 410.6 345.5 277.6 188.7
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1998 1997 1996 1995<Ff> 1994<Fh>
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working Capital............................. $ (54.5) $ 289.7 $ (230.3) $ (141.4) $ (60.1)
Property at Cost, Net....................... 1,116.0 1,113.7 1,050.9 989.7 1,536.5
Additions (during the year).......... 230.7 282.9 228.8 235.2 281.8
Depreciation (during the year)....... 145.9 142.5 139.5 198.5 222.8
Total Assets................................ 5,551.7 4,741.8 4,523.0 4,310.8 4,423.9
Long-Term Debt.............................. 1,794.8 1,860.4 1,437.0 1,602.1 1,594.6
Redeemable Preferred Stock.................. 256.1 304.9 323.5 348.7<Fk> 469.7
Shareholders Equity......................... 1,089.1 917.1 689.0 494.2 355.6
Common Shares Outstanding<Fi>:
RAL Stock<Fj>........................ 298.9 306.8 305.2 305.2 300.0
CBG Stock............................ 61.8
<FN>
- -----
<Fa> Includes capital loss tax benefits primarily related to past restructuring
actions of $44.8 in 1998 and $61.7 in 1997. Also includes a tax benefit of
$34.7 in 1997 related to tax refund claims for 1993 through 1996 as a
result of a change in the Company's method of computing foreign tax
credits.
<Fb> Includes after-tax restructuring provisions of $61.3 in 1998, $98.0 in
1997, $11.0 in 1996, $70.0 in 1995, and $82.4 in 1994.
<Fc> Includes after-tax gains on sales of shares of Interstate Bakeries
Corporation common stock of $13.0 in 1998 and $15.1 in 1997.
<Fd> Includes extraordinary charges for early retirement of debt of $2.1 in
1996, $3.7 in 1995, and $9.5 in 1994.
<Fe> Includes an after-tax gain on the sale of the Company's Soy Protein
Products business of $705.1 in 1998 and earnings from discontinued
operations of $10.0 in 1998, $74.8 in 1997, $65.3 in 1996, $67.4 in 1995,
and $54.9 in 1994. Discontinued operations consist primarily of the
Company's Soy Protein Products business sold in December 1997 and the
Agricultural Products business spun off to shareholders in April 1998.
<Ff> Effective July 22, 1995, the Company sold its Continental Baking Company
(CBC) subsidiary. The Company's earnings and cash flows reflect the
operations of CBC through July 22, 1995.
<Fg> Includes an after-tax gain on the sale of CBC of $42.0.
<Fh> On March 31, 1994, the Company effected a spin-off of Ralcorp Holdings,
Inc., (Ralcorp), its private label and branded cereal, baby food, crackers
and cookies, ski resort and coupon redemption businesses. The Company's
earnings and cash flows reflect the operations of those businesses through
March 31, 1994.
<Fi> Common shares outstanding for 1994 through 1997 have been restated to
reflect a three-for-one stock split, effected in the form of a 200% stock
dividend, declared by the Board of Directors on May 28, 1998. The dividend
was paid to shareholders of record at the close of business on June 22,
1998, and the additional shares were distributed on July 15, 1998.
<Fj> Does not include 13.5, 12.9, 12.7, 12.4, and 12.1 shares of RAL Stock held
by the Company's Grantor Trust in 1998, 1997, 1996, 1995 and 1994,
respectively. The number of shares held by Company's Grantor Trust for 1994
through 1997 have been restated for the three-for-one stock split discussed
above.
<Fk> Reflects conversion of 1.0 shares of Redeemable Preferred Stock in
connection with the sale of CBC.
</TABLE>
- -------------------------------------------------------------------------------
12
<PAGE> 2
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FIVE YEAR FINANCIAL SUMMARY
---------------------------
(In millions except per share data) (continued)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
RAL Stock (pro forma in 1995 and 1994 assuming one class
of common stock):
Earnings from Continuing Operations before
Extraordinary Item
Basic........................................... $ 1.24 $ 1.10 $ .92 $ .70 $ .47
Diluted......................................... 1.19 1.05 .88 .68 .46
Net Earnings
Basic........................................... 3.59 1.34 1.13 .91 .61
Diluted......................................... 3.38 1.27 1.07 .88 .60
Average Shares Outstanding.......................... 304.9 306.2 305.3 305.7 307.2
RAL Stock (based on RPG Group earnings through May 15,
1995 and consolidated Ralston earnings thereafter):
Earnings from Continuing Operations before
Extraordinary Item
Basic........................................... $ .74 $ .52
Diluted......................................... .72 .52
Net Earnings
Basic........................................... .95 .68
Diluted......................................... .91 .66
CBG Stock (through May 15, 1995):
Loss before Extraordinary Item
Basic........................................... $ (.15) $ (.25)
Diluted......................................... (.15) (.25)
Net Loss
Basic........................................... (.15) (.26)
Diluted......................................... (.15) (.26)
Average Shares Outstanding:
RAL Stock........................................... 302.1 301.5
CBG Stock (through May 15, 1995).................... 61.8 61.5
Dividends Declared:
RAL Stock........................................... $ .40 $ .40 $ .40 $ .40 $ .40
<FN>
- -------
All per share information for 1994 through 1997 has been restated to reflect a
three-for-one stock split, effected in the form of a 200% stock dividend,
declared by the Board of Directors on May 28, 1998.
</TABLE>
- -------------------------------------------------------------------------------
13
<PAGE> 3
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FINANCIAL REVIEW
- ----------------
(in millions except per share data)
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
- ----------
Net earnings were $1,105.7 for the year ended September 30, 1998 compared
to $423.7 in 1997. Earnings per share were $3.59 and $3.38 on a basic and
diluted basis, respectively, compared to earnings per basic and diluted share
of $1.34 and $1.27 in the prior year. Included in net earnings are earnings
from continuing operations of $390.6 and $348.9 in 1998 and 1997, respectively;
earnings from discontinued operations of $10.0 in 1998 and $74.8 in 1997; and
an after-tax gain of $705.1 on the December 3, 1997 sale of the Soy Protein
Products business to E.I. du Pont de Nemours and Company (DuPont) in 1998.
In 1998, earnings from continuing operations increased $41.7, or $.14 per
basic and diluted share. This earnings increase resulted from higher Pet
Products' operating earnings, higher income from the Company's investment in
DuPont and a lower tax rate, partially offset by higher interest expense.
Earnings from continuing operations included several unusual items in both 1998
and 1997. In 1998, unusual items decreased net earnings by $3.5, or $.01 per
basic and diluted share. In 1997, net earnings were increased by $13.5, or $.05
and $.04 per basic and diluted share, respectively, due to unusual items.
Earnings from continuing operations before unusual items increased $58.7 to
$394.1, compared to $335.4 in 1997. Earnings per share on this basis were $1.25
and $1.20 on a basic and diluted basis, respectively, in 1998 compared to $1.05
and $1.01 in the prior year.
The following unusual items, which decreased net earnings by $3.5, are
included in the current year results: an after-tax restructuring charge of
$61.3, or $.20 and $.19 per share on a basic and diluted basis, respectively;
capital loss tax benefits of $44.8, or $.15 and $.14 per basic and diluted
share, respectively, primarily associated with past restructuring actions; and
an after-tax gain of $13.0, or $.04 per basic and diluted share, on the sale of
shares of Interstate Bakeries Corporation (IBC) common stock.
Unusual items included in the 1997 results, which increased net earnings by
$13.5, are as follows: an after-tax restructuring charge of $98.0, or $.32 and
$.30 per basic and diluted share, primarily related to continued
rationalization of Battery Products' worldwide battery production capacity and
business structure; capital loss tax benefits of $61.7, or $.21 and $.19 per
basic and diluted share, respectively, associated with past restructuring
actions; a tax benefit of $34.7, or $.11 and $.10 per basic and diluted share,
respectively, related to tax refund claims for 1993 through 1996 as a result of
a change in the Company's method of computing foreign tax credits; and a $15.1,
or $.05 per basic and diluted share, after-tax gain on the sale of shares of
IBC stock.
In 1997, net earnings increased $64.1 and earnings per share increased $.21
and $.20 on a basic and diluted basis, respectively. Unusual items in 1996
included after-tax restructuring charges in the Pet Products and Battery
Products segments of $11.0 and an extraordinary loss on early debt retirement
of $2.1, after taxes. Net earnings in 1996 also included earnings from
discontinued operations of $65.3. Exclusive of unusual items in 1997 and 1996,
earnings from continuing operations increased in 1997 on higher IBC equity
earnings, lower interest expense, lower translation and exchange losses and
higher returns on other investments. Operating profit was flat in 1997.
Discontinued operations consist of the operating results of the Soy Protein
Products business, through the sale date, and the Agricultural Products
business, which was spun off to shareholders on April 1, 1998. Also included in
earnings from discontinued operations in 1998 is a gain on the settlement of a
claim related to a previously disposed business, partially offset by
transaction costs associated with the spin-off.
TRANSACTIONS AFFECTING COMPARABILITY OF RESULTS
- -----------------------------------------------
DISCONTINUED OPERATIONS
On December 3, 1997, the Company completed the sale of its Soy Protein
Products business to DuPont for $1,554.2, comprised of 22.5 million shares of
DuPont common stock (which stock was valued at $1,399.2 at the date of
the transaction) and the assumption of certain liabilities. The Company
recorded a pre-tax gain on the sale of $1.1 billion or $705.1, after-tax.
On April 1, 1998, the Company completed the tax-free spin-off to
shareholders of its Agricultural Products business.
The Soy Protein Products and Agricultural Products segments are accounted
for as discontinued operations, and accordingly, amounts in the financial
statements and related notes for all periods shown reflect discontinued
operations accounting. Summarized results of these businesses are shown
separately as Discontinued Operations in the accompanying consolidated
financial statements.
OTHER TRANSACTIONS AFFECTING COMPARABILITY
In December 1997, the Company acquired Edward Baker Petfoods, a United
Kingdom manufacturer of dry pet foods and a supplier of branded and private
label products to the European market, for $182.5. The acquisition has been
accounted for using the purchase method of accounting.
- -------------------------------------------------------------------------------
14
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- -------------------------------------------------------------------------------
FINANCIAL REVIEW
----------------------
(in millions except per share data)
(continued)
OPERATING RESULTS FROM CONTINUING OPERATIONS
--------------------------------------------
NET SALES
Net sales increased $166.5 or 3.7% in 1998 due to increases in Pet
Products, partially offset by decreases in Battery Products. In 1997, net sales
increased $184.9 or 4.3% due to increases in Pet Products. Comments on changes
in sales by Business Segment may be found on pages 20 and 21 of this report.
GROSS PROFIT
Gross profit increased 6.7% in 1998 and 5.2% in 1997 due to increases in
Pet Products. Gross profit as a percentage of sales was 50.6% in 1998 compared
to 49.1% in 1997 and 48.7% in 1996. The increased percentage in 1998 reflects
improved margins in both Battery Products and Pet Products, as well as
increased sales in the higher margin Pet Products segment. In 1997, the
percentage reflects slightly improved margins and increased sales in Pet
Products.
OPERATING EXPENSES
Selling, general and administrative expenses increased 2.4% in 1998
primarily due to increases in Pet Products, partially offset by lower
mark-to-market adjustments on liabilities denominated in share equivalents. In
addition, currency devaluations in the current year, particularly in Asia, had
a favorable impact on selling, general and administrative expenses. In 1997,
selling, general and administrative expenses increased 6.2% primarily due to
increases in Pet Products, start-up expenses related to capital projects and
incremental expense associated with options and mark-to-market adjustments on
liabilities denominated in share equivalents. Selling, general and
administrative expenses were 20.2%, 20.5% and 20.1% of sales in 1998, 1997 and
1996, respectively.
Advertising and promotion expense increased 7.7% in 1998 and 13.1% in 1997
due to increases in Pet Products. The 1998 increase was due primarily to
increased brand development spending while the 1997 increase was largely due to
additional promotional spending. Advertising and promotion expense was 15.0% of
sales in 1998 compared to 14.4% in 1997 and 13.3% in 1996.
INTEREST EXPENSE AND OTHER INCOME/EXPENSE
Interest expense increased in 1998 to $191.1 compared to $174.3 in 1997 and
$190.3 in 1996. The increase in 1998 resulted from higher average borrowings.
The 1997 decrease resulted from a lower average debt balance during the year
and lower interest rates in 1997 associated with the Company maintaining a
larger percentage of its total debt on a short-term basis during much of the
year. Other income/expense, net, was favorable by $12.7 in 1998 primarily due
to dividend income from the Company's investment in DuPont, partially offset by
higher translation and exchange losses. In 1997, other income/expense, net was
favorable by $16.8 as compared to 1996 due to lower foreign currency
translation and exchange losses and higher returns on other investments.
INCOME TAXES
Income taxes, which include federal, state and foreign taxes, were 25.0%,
18.2% and 36.4% of pre-tax earnings before equity earnings and extraordinary
item in 1998, 1997 and 1996, respectively. Income taxes include certain unusual
items in all years. Capital loss tax benefits of $44.8 and $61.7 were
recognized in 1998 and 1997, respectively, and were primarily related to prior
years' restructuring actions. These capital loss tax benefits will be used to
partially offset taxes due upon the disposition of IBC shares. Additionally in
1997, a tax benefit of $34.7 was recorded related to tax refund claims for 1993
through 1996 as a result of a change in the Company's method of computing
foreign tax credits. The income tax percentage in 1997 and in 1996 was
unfavorably impacted by pre-tax restructuring provisions which did not result
in tax benefits due to tax loss situations or particular statutes of a country.
Income tax percentages, excluding the impact of these unusual items in each
year, were 35.0%, 36.2% and 35.7% in 1998, 1997 and 1996, respectively. The
decrease in the tax rate is primarily due to the 70% exclusion on dividend
income received from DuPont and the realization of certain previously
unrecognized net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash flow from operations is the Company's primary source of liquidity.
Additional sources of liquidity include the Company's investments in DuPont and
IBC. Management continues to have a strong orientation toward cash flows and
the effective management of cash generated. 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, debt to internal funds ratio and total
debt as a percentage of total capitalization.
- -------------------------------------------------------------------------------
15
<PAGE> 5
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FINANCIAL REVIEW
- ----------------
(in millions except per share data)
(continued)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flow from Continuing Operations........................ $516.6 $451.1 $436.1
Interest Coverage<Fa>....................................... 4.0 3.7 3.4
Debt to Internal Funds<Fb>.................................. 4.8 5.2 5.5
Total Debt as a Percentage of Total Capitalization.......... 66% 67% 73%
<FN>
- -----
<Fa> Defined as earnings from continuing operations before income taxes,
extraordinary item, interest expense, provisions for restructuring and
gains on the sale of IBC stock divided by gross interest expense.
<Fb> Defined as average debt divided by cash flow from continuing operations.
</TABLE>
On a current equity market basis, total debt as a percentage of total
capitalization was 23% at September 30, 1998 compared to 20% at September 30,
1997 and 25% at September 30, 1996. 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 continuing operations increased 14.5% in 1998 as increased
cash earnings were partially offset by changes in working capital items,
particularly payables and accrued liabilities. Cash flow from continuing
operations increased 3.4% in 1997 as changes in cash earnings were largely
offset by changes in working capital items. The interest coverage ratio
improved in both 1998 and in 1997. The 1998 improvement resulted from higher
earnings, partially offset by higher interest expense. The 1997 ratio improved
on higher earnings and lower interest expense. The debt to internal funds ratio
improved in 1998 due to higher cash flows, partially offset by a higher average
debt balance. In 1997, the debt to internal funds ratio improved on higher cash
flows and a lower average debt balance.
The Company's working capital requirement for inventories and receivables
is influenced by seasonality, the availability of raw materials and changes in
raw materials costs, 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. 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, 1998, total unused lines of credit
were $226.3.
At September 30, 1998, current liabilities exceeded current assets by
$54.5. At September 30, 1997, working capital (current assets less current
liabilities) was $289.7. The decrease in working capital is primarily due to
increased short-term debt, partially offset by higher accounts receivable.
INVESTING ACTIVITIES
- --------------------
Cash flow used for investing activities by continuing operations was $370.5
in 1998 compared to $223.4 in 1997 and $213.8 in 1996. The 1998 increase was
primarily due to the December 1997 acquisition of Edward Baker Petfoods for
$182.5. In 1997, the increase in cash used for capital expenditures related to
the expansion of production capacity was largely offset by proceeds from the
sale of shares of IBC stock. In accordance with the Shareholder Agreement
signed upon the closing of the sale of Continental Baking Company to IBC in
July of 1995, the Company's investment in IBC must be reduced to no more than
14.9% of total outstanding shares of IBC by July 2000.
Capital expenditures related to continuing operations were $230.7, $282.9
and $228.8 in fiscal years 1998, 1997 and 1996, respectively. Anticipated
capital expenditures of approximately $225 in 1999 are expected to be financed
with funds generated from operations.
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 increased its total borrowings in 1998 through
increased short-term obligations due to market conditions and favorable
short-term rates.
In 1997, the Company reduced its short-term obligations and increased its
long-term debt primarily by issuing $480 of Stock Appreciation Income Linked
Securities (SAILS) consisting of 7% exchangeable notes due in 2000. At
maturity, the notes are mandatorily exchangeable into a number of shares of IBC
common stock owned by the Company, or cash, at the Company's option. The number
of shares of IBC common stock to be exchanged will depend upon the market price
of the IBC stock at maturity of the notes. See further discussion of SAILS in
Investment in Interstate Bakeries Corporation Note to Financial Statements.
This transaction effectively limits the amount of appreciation on part of the
Company's investment in IBC and establishes a minimum gain on these same shares
should the Company elect to settle the SAILS with IBC common stock. Net
proceeds from the SAILS transaction of $466 were used to pay down short-term
debt.
In 1996, the Company increased total debt obligations to fund operations
and capital additions.
The Company used cash during the three years ended September 30, 1998 for
common stock dividends and common stock repurchases. These outflows totaled
$121.7 and $416.1 in 1998 for dividends and stock repurchases, respectively,
compared to $122.4 and $55.1 in 1997 and $121.9 and $33.7 in 1996. On May 28,
1998, the
- -------------------------------------------------------------------------------
16
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- -------------------------------------------------------------------------------
FINANCIAL REVIEW
----------------
(in millions except per share data)
(continued)
Company's Board of Directors declared a 3-for-1 stock split, effected by means
of a stock dividend of two additional shares of the Company's $.10 par value
common stock for each outstanding share of common stock, to shareholders of
record at the close of business on June 22, 1998. As of November 9, 1998, after
giving effect to the stock split, 357,000 shares of RAL Stock remained under
the current Board of Directors' authorization for the purchase of RAL Stock.
YEAR 2000 COSTS
---------------
The Company uses both purchased and internally developed computer software.
Like many other organizations, certain programs within the Company's purchased
and internally developed software process dates based on two digits for the
year of a transaction rather than a full four digits. These programs are unable
to properly process dates in the year 2000. As such, incomplete or untimely
resolution of the Year 2000 issue by the Company or its critical suppliers and
customers or government agencies could have an adverse impact on the Company's
business, operations and financial condition.
The Company has plans and active projects in place targeted to achieve 100%
Year 2000 readiness in its key application systems software, computer hardware
and operating systems software, and various other systems containing embedded
chip technology (such as manufacturing equipment controllers and facility
controllers which include elevators, alarm systems and heating and cooling
systems) before the turn of the millennium.
The Company started its Year 2000 compliance efforts in 1995 when it began
replacing certain key financial systems with Year 2000 compliant packaged
applications. In 1996, a formal inventory and scoping effort was begun to
estimate remaining replacement, remediation, and package upgrade efforts. The
Company has substantially completed this effort.
STATE OF READINESS
The Company estimates that more than 70% of its application systems
software has been modified or replaced, which includes a higher level of
remediation in the United States than in other world areas. The remaining
application systems software is in the process of being modified or replaced
with completion, in all but a few cases, targeted for March 1999. Testing has
been completed on approximately 60% of the Company's modified or replaced
application systems software. The Company expects to complete its testing in
June 1999.
Approximately 80% of the Company's computer hardware and operating systems
software have been modified or replaced, of which 50% have been tested for Year
2000 readiness. Upgrade/replacement and Year 2000 readiness testing of all
computer hardware and operating systems software is targeted for June 1999.
Systems that contain embedded chip technology are in the process of being
inventoried and verified for Year 2000 readiness. Testing and
upgrade/replacement of all impacted systems containing embedded chip technology
is targeted for completion in June 1999.
COSTS
The estimated total cost for the Company to achieve Year 2000 readiness is
approximately $34 million, of which $20 million has been expended through
September 30, 1998. Costs include evaluation and remediation of existing
systems, acceleration of the installation of new systems and costs to
replace/upgrade systems containing embedded chip technology.
RISKS AND CONTINGENCY PLANS
The Company is taking steps to prevent major interruptions in its business
due to Year 2000 issues. The effect, if any, on the Company's results of
operations if the Company, its customers, or its suppliers are not fully
compliant is not reasonably estimable due to the inherent complexity of supply
chain dependencies. The Company has initiated a project to identify high risks
and dependencies associated with critical suppliers and customers. Currently,
all critical suppliers and customers have been identified and are in the
process of being evaluated for potential risks. The assessment of risks and
development of any required contingency plans is targeted for completion in
June 1999. The Company believes that its worldwide market presence and
manufacturing facilities help to mitigate the risk of a major business
interruption.
EURO
----
On January 1, 1999, certain member countries of the European Community are
scheduled to establish fixed conversion rates between their existing currencies
and the European Economic and Monetary Union's common currency (Euro). The
transition period for the introduction of the Euro will be between January 1,
1999 and July 1, 2002 at the latest. The Company will be prepared to transact
business on January 1, 1999 with those customers who choose the Euro for
billing and payment purposes. We are currently developing and implementing
plans to address other issues involved with the introduction of the Euro,
including the conversion of information technology systems, recalculating
currency risk, recalibrating derivatives and other financial instruments and
impacts on the processes for preparing taxation and accounting records. We
believe the Euro conversion will not have a material impact on the Company's
consolidated financial results.
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17
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- -------------------------------------------------------------------------------
FINANCIAL REVIEW
- ----------------------
(in millions except per share data)
(continued)
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. These
regulations primarily relate to, among other things, 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 13 "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, 1998.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
- -----------------------------------------------
The market risk inherent in the Company's financial instruments and
positions represents the potential loss arising from adverse changes in
interest rates, foreign currency exchange rates, commodity prices and
marketable equity security prices. The following risk management discussion and
the estimated amounts generated from the sensitivity analyses for continuing
operations are forward-looking statements of market risk assuming certain
adverse market conditions occur.
INTEREST RATES
At September 30, 1998 and 1997, the fair value of the Company's total debt
is estimated at $2,925.1 and $2,535.3, respectively, 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. Such fair value exceeded the carrying value of debt
at September 30, 1998 and 1997 by $320.8 and $228.4, respectively. Market risk
is estimated as the potential change in fair value resulting from a
hypothetical 10% adverse change in interest rates and amounted to $108.2 and
$112.1 at September 30, 1998 and 1997, respectively.
The Company had $839.6 and $472.0 variable rate debt outstanding at
September 30, 1998 and 1997, respectively. A hypothetical 10% adverse change in
interest rates would have had an annualized unfavorable impact of $5.9 and $3.4
on the Company's earnings and cash flows based upon these year-end debt levels.
The primary interest rate exposures on floating rate debt are with respect to
U.S. rates and short-term local currency rates in certain Asian and European
countries.
Although the Company's SAILS are subject to a change in fair market value
due to interest rate risk, equity risk presents the more significant risk as
the value of these instruments are tied to the stock price of IBC. However,
equity risk exists only to the extent the Company has previously recorded
unrealized settlement gains on the SAILS. As of September 30, 1998, no such
gains have been recorded. The effect of the interest rate risk is included in
the aforementioned discussion of the fair value of the Company's total debt.
See the discussion of these instruments in the Investment in Interstate
Bakeries Corporation and Long Term Debt notes to the financial statements.
FOREIGN CURRENCY EXCHANGE RATES
The Company employs a foreign currency hedging strategy to limit potential
losses in earnings or cash flows from adverse foreign currency exchange rate
movements. Foreign currency exposures arise from transactions, including firm
commitments and anticipated transactions, denominated in a currency other than
an entity's functional currency and from foreign denominated revenues and
profits translated into U.S. dollars. The primary currencies to which the
Company is exposed include the Swiss franc, British pound and other European
currencies; the Mexican peso, Brazilian real and other South American
currencies; and the Indonesian rupiah, Philippine Peso and other Asian
currencies. The Company is also exposed to other South American and Asian
currencies. Exposures are hedged with foreign currency forward contracts, put
and call options with maturity dates of generally less than one year. Company
policy allows foreign currency transactions only for identifiable foreign
currency exposures and, therefore, the Company does not enter into foreign
currency contracts for trading purposes where the objective is to generate
profits. The potential loss in fair value at September 30, 1998 and 1997 for
net currency positions of outstanding foreign currency contracts resulting from
a hypothetical 10% adverse change in all foreign currency exchange rates was
$4.0 and $6.6, respectively. These calculations exclude hedges of existing
balance sheet exposures because losses on these contracts would be fully offset
by exchange gains on the underlying net monetary exposures for which the
contracts are designated as hedges.
- -------------------------------------------------------------------------------
18
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- -------------------------------------------------------------------------------
FINANCIAL REVIEW
----------------
(in millions except per share data)
(continued)
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 its 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 Latin America. The net investment in
foreign subsidiaries and affiliates, translated into dollars using the year-end
exchange rates, was $735.1 and $615.0 at September 30, 1998 and 1997,
respectively. The potential loss in value of the Company's net investment in
foreign subsidiaries resulting from a hypothetical 10% adverse change in quoted
foreign currency exchange rates at September 30, 1998 and 1997 amounted to
$73.5 and $61.5.
COMMODITY PRICES
The availability and price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather conditions,
government regulations, economic climate or other unforeseen circumstances. To
reduce price risk caused by market fluctuations, the Company enters into
commodity futures contracts to buy commodities at fixed prices, thereby
minimizing the risk of decreased Company margins.
A sensitivity analysis has been prepared to estimate the Company's exposure
to market risk of its agricultural commodities positions, excluding inventory
on hand and fixed price contracts. The fair value of the Company's positions is
a summation of the fair values calculated for each commodity by valuing each
net position at quoted futures prices. Market risk is estimated as the
potential loss in fair value resulting from a hypothetical 10% adverse change
in such prices. The results of this analysis are as follows for fiscal years
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
FAIR MARKET FAIR MARKET
VALUE RISK VALUE RISK
----- ---- ----- ----
<S> <C> <C> <C> <C>
Highest long position.................... $127.1 $12.7 $118.5 $11.9
Average long position.................... 58.3 5.8 38.3 3.8
Lowest long position..................... 7.7 0.8 -- --
</TABLE>
MARKETABLE EQUITY SECURITY PRICES
Marketable equity securities at September 30, 1998, which are recorded at a
fair value of $1,281.2, have exposure to price risk. Market risk is estimated
as the potential loss in fair value resulting from a hypothetical 10% adverse
change in the securities' quoted market prices, and amounted to $128.1 at
September 30, 1998.
RESTRUCTURING ACTIVITIES
------------------------
In 1998, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per basic share by $96.4, $61.3 and $.20, respectively.
On a pre-tax basis, charges for restructuring consisted of termination benefits
of $31.4, other cash costs of $6.3 and non-cash charges of $58.7. The total
pre-tax charge and the non-cash component are net of an $11.9 reversal of prior
period restructuring charges.
Included in the total pre-tax charge are impairment write-downs totaling
$66.4, primarily representing a write-down of the Company's investment in
lithium-ion rechargeable battery manufacturing assets. Fair value of those
assets was primarily determined based upon estimates of recovery value for
unique manufacturing equipment. Due to rapid changes in the business
environment since the beginning of the lithium-ion project in 1996, it has
become more economical to source lithium-ion cells from other manufacturers.
The Company continues to assemble and package lithium-ion rechargeable
batteries.
The restructuring provision also includes charges of $21.8, pre-tax, for a
voluntary early retirement option offered to most U.S. Battery Products'
employees meeting certain age and service requirements and additional charges
related to the Company's European battery and international pet food
operations. These charges provide for the termination or early retirement of
approximately 700 employees in production, sales and administrative capacities.
During 1998, 350 employees were terminated or retired in connection with this
charge.
These restructuring actions are currently expected to generate pre-tax cost
savings of $15 in 1999 and ultimate annual savings of $17.
In 1997, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per basic share by $111.4, $98.0 and $.32, respectively.
These charges are primarily associated with the continued rationalization of
Battery Products' production capacity and business structure and provide for
the termination of 1,340 employees and the closing of 3 plants. The total
pre-tax charge for restructuring consisted of termination benefits of $50.5,
other cash exit costs of $11.0, and non-cash charges of $49.9, primarily
related to impairment losses on land, buildings and machinery and equipment. As
of September 30, 1998, 560 employees have been terminated and 1 plant closed in
connection with this charge.
Pre-tax cost savings from these restructuring actions have been or are
currently expected to be: 1998--$12; 1999--$20; and ultimate annual
reduction--$28.
In 1996, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per basic share by $12.4, $11.0 and $.04, respectively.
These charges are associated with the closing of the Company's European cereal
operations and additional Battery Products' restructuring. The total 1996
pre-tax charge for restructuring consisted of termination benefits of $5.2,
relating to the termination of approximately 170
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19
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- -------------------------------------------------------------------------------
FINANCIAL REVIEW
- ----------------
(in millions except per share data)
(continued)
employees, other cash exit costs of $1.8 and non-cash charges of $5.4,
primarily related to impairment losses on land, buildings and machinery and
equipment. As of September 30, 1997, substantially all actions associated with
this charge were completed.
Pre-tax cost savings from these restructuring actions have been or are
currently expected to be as follows: 1997--$4; and ultimate annual
reduction--$5.
Activity related to the restructuring provisions discussed above is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Reserve balance at beginning of year........................ $ 66.3 $ 22.4
Provision recorded, net of reversal of prior period reserves
of $11.9 in 1998.......................................... 96.4 111.4
Portion of current period provision classified as property
and other asset impairments, net of reversals............. (58.7) (49.9)
Termination benefits paid................................... (28.5) (15.0)
Other cash exit costs incurred.............................. (16.5) (3.9)
Increase (decrease) due to translation...................... (1.7) 1.3
------ ------
Reserve balance at September 30............................. $ 57.3 $ 66.3
====== ======
</TABLE>
Restructuring actions represented by the September 30, 1998 reserve balance
are expected to be substantially completed in 1999, and the Company expects to
fund these costs from internal sources and available borrowing capacity.
RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
See discussion in Summary of Accounting Policies in Notes to Financial
Statements.
FORWARD-LOOKING INFORMATION
- ---------------------------
In various places throughout the Financial Review and other sections of
this Annual Report to Shareholders, we discuss our expectations regarding
future performance of the Company. These "forward-looking" statements are based
on currently available competitive, financial, economic and systems data, as
well as our operating plans. Section 21E of the Securities Exchange Act of 1934
provides a safe harbor for such forward-looking statements. Such statements are
inherently uncertain; known and unknown risks, uncertainties and other factors
may cause actual results to differ materially from those expressed or implied
in the forward-looking statements. Such factors include, among other things:
the Year 2000 readiness of critical suppliers, customers and governmental
agencies, as well as the difficulty of evaluating and remediating certain
systems and technologies utilized in the operation of the Company's businesses,
and incremental costs associated with evaluation and remediation; economic
instability associated with the introduction of the Euro, and the inadequacy of
Company plans to address the impact of such introduction; adverse developments
in global financial markets, including adverse interest or exchange rate
fluctuations; the insufficiency of recorded provisions for restructuring, or
the Company's inability to realize cost reductions and tax or other benefits
anticipated from such restructuring; and unexpected litigation and
environmental claims and expenses or adverse developments in domestic or
foreign laws related to product liability, environmental or employment claims.
BUSINESS SEGMENT INFORMATION
- ----------------------------
Summarized financial information on a worldwide basis by continuing
business segment and for discontinued operations for the three years ended
September 30, 1998 is set forth below. Pet Products includes restructuring
provisions of $4.1 in 1998, $15.5 in 1997 and $8.4 in 1996. Battery Products
includes restructuring provisions of $92.3 in 1998, $95.9 in 1997 and $4.0 in
1996. Comments, amounts and percentages in the remaining Business Segment
discussion exclude the effects of restructuring provisions. The segments
comprise the following:
PET PRODUCTS -- pet foods and cat box filler
Pet Products is the world's largest producer of dry dog and dry and
soft-moist cat foods and a leading manufacturer of cat box filler in the
United States. Pet Products are marketed primarily through a direct sales
force to grocery, mass merchandisers, specialty retailers, wholesalers and
other customers.
BATTERY PRODUCTS -- alkaline, carbon zinc, miniatures, lithium and rechargeable
batteries, flashlights and other related products
Battery Products is the world's largest manufacturer of dry cell batteries
and flashlights. Battery Products brands are recognized around the world and are
marketed and sold in more than 160 countries. Battery Products are marketed
through a direct sales force to mass merchandisers, wholesalers and other
customers.
- -------------------------------------------------------------------------------
20
<PAGE> 10
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- -------------------------------------------------------------------------------
FINANCIAL REVIEW
----------------
(in millions except per share data)
(continued)
DISCONTINUED SEGMENTS
SOY PROTEIN PRODUCTS -- dietary soy protein, fiber food ingredients and polymer
products
AGRICULTURAL PRODUCTS (INTERNATIONAL) -- animal feeds
PET PRODUCTS
------------
Sales for the Pet Products segment increased 11.8% in 1998 and 9.0% in 1997
on higher domestic and international pet food volume and on higher pricing in
1997. The 1998 increase also reflects inclusion of sales from the Company's
December 1997 acquisition of Edward Baker Petfoods, based in the United
Kingdom.
Operating profit for the Pet Products segment increased significantly in
1998 as a result of the sales increase coupled with lower ingredient costs.
This increase was partially offset by increased brand development spending, an
unfavorable package size mix and, to a lesser extent, increased promotional
spending. Gross profit margins continued to improve in 1998, reflecting
favorable ingredient prices; however, the 1998 improvements were nearly offset
by an unfavorable package size mix. Pet Products' operating profit was flat in
1997 as increased sales were offset by higher ingredient costs, higher
promotion support and start-up expenses.
Cost of products sold in the Pet Products segment is somewhat dependent on
agricultural 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 corn and soy meal. Agricultural commodity costs of the Pet
Products segment have represented approximately 17% to 21% of cost of products
sold during the three year period ended September 30, 1998. See Market Risk
Sensitive Instruments and Positions section of this financial review for
further discussion of commodities.
The domestic pet food and cat box filler industry is well developed and
non-cyclical with strong cash flows. In addition, the international pet food
market presents opportunities for growth for Pet Products. The improvement in
pet ownership trends in recent years is supporting volume growth in the
industry. Consolidation of the retail industry, growth of the mass merchandiser
and category-dominant retailer segments, an increase in store-branded product
and a trend toward larger bags have resulted, and will continue to result, in
significant changes in the product distribution pattern and marketing practices
of the Company. Increased profitability depends on maintaining brand loyalty,
developing higher performance capabilities and on the successful development of
mutually beneficial trading relationships with our customers.
BATTERY PRODUCTS
----------------
Sales for the Battery Products segment decreased in 1998 primarily due to
currency devaluations, particularly in Asia, and lower rechargeable and carbon
zinc battery sales. These declines were mitigated by increased alkaline volumes
and improved product mix. Alkaline volumes increased in all world areas, except
in Asia Pacific where alkaline volumes declined only slightly despite overall
market contractions. However, market conditions in Asia resulted in a 10%
decline in carbon zinc volumes. Excluding the unfavorable impact of currency
devaluations worldwide, sales increased slightly for the year. Sales for the
Battery Products segment were flat in 1997 as worldwide branded alkaline
volumes increased, particularly in North America and Asia Pacific. These
increases were offset by volume declines and unfavorable exchange rates in
Europe and the continued decline in carbon zinc sales. The impact of the
consolidation of the retail trade and increased competitive pressures also
negatively impacted results for both years.
Battery Products' operating profit was flat in 1998 and in 1997. In 1998,
results in the Americas improved on higher alkaline volumes and improved
product mix. These gains were offset by lower earnings in Asia and Europe,
which included the impact of significant currency devaluations. Margin
improvements in 1998 were primarily attributable to the favorable product mix
in the Americas and price increases in the Asia Pacific region in response to
currency devaluations. In 1997, increased worldwide alkaline volumes and
improved results in the Asia Pacific region were offset by an unfavorable
package mix in the United States, decreased earnings in Europe, decreased
rechargeable sales to original equipment manufacturers in the Asia Pacific
region and start-up costs associated with the lithium-ion rechargeable battery.
Margins were flat in 1997.
The Battery Products business faces intense competition. There has been a
shift within primary battery products from carbon zinc batteries to alkaline
batteries. As such, the Company has recorded provisions related to
restructuring its worldwide battery production capacity and certain
administrative functions in each of the last three years. Alkaline batteries
are now the dominant primary battery in all world areas with the exception of
Asia and Africa. The rechargeable battery products business is experiencing
rapid technological evolution and significant pricing and competitive
pressures. The Company continues to review its battery production capacity and
its business structure in light of pervasive global trends, including the
evolution of technology. (See Restructuring Activities discussion in this
section.)
DISCONTINUED OPERATIONS
-----------------------
SOY PROTEIN PRODUCTS AND AGRICULTURAL PRODUCTS
Results of discontinued operations decreased for the year primarily due to
the December 1997 sale of the Soy Protein Products business and the April 1,
1998 spin-off to shareholders of the Agricultural Products business. Results of
discontinued operations increased 14.5% in 1997 as decreased operating profit
for Soy Protein Products and Agricultural Products was more than offset by
lower translation and exchange losses and lower taxes.
- -------------------------------------------------------------------------------
21
<PAGE> 11
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- -------------------------------------------------------------------------------
BUSINESS SEGMENT INFORMATION
- ----------------------------
Export sales and sales between geographic segments were immaterial. One
single mass merchandiser accounted for 14.3%, 11.9% and 10.5% of total sales in
fiscal years 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- ------------- ---- ---- ----
<S> <C> <C> <C>
SALES
Pet Products................................................ $2,582.1 $2,308.9 $2,118.4
Battery Products............................................ 2,071.2 2,177.9 2,183.5
-------- -------- --------
Total.......................................... $4,653.3 $4,486.8 $4,301.9
======== ======== ========
OPERATING PROFIT
Pet Products
Operating profit before amortization <Fa>............... $ 465.3 $ 384.2 $ 392.9
Amortization of goodwill and other intangibles.......... (14.6) (11.5) (11.8)
-------- -------- --------
450.7 372.7 381.1
-------- -------- --------
Battery Products
Operating profit before amortization <Fb>............... 236.4 244.3 347.5
Amortization of goodwill and other intangibles.......... (25.9) (32.8) (41.2)
-------- -------- --------
210.5 211.5 306.3
-------- -------- --------
Total.......................................... 661.2 584.2 687.4
Unallocated Corporate and Miscellaneous Expenses............ (20.8) (48.2) (49.4)
Interest Expense............................................ (191.1) (174.3) (190.3)
Gain on Sale of IBC Stock................................... 20.1 23.2 --
-------- -------- --------
Earnings from Continuing Operations before
Income Taxes, Equity Earnings and
Extraordinary Item........................... $ 469.4 $ 384.9 $ 447.7
======== ======== ========
<FN>
- -----
<Fa> Includes restructuring provisions of $4.1 in 1998, $15.5 in 1997 and $8.4
in 1996.
<Fb> Includes restructuring provisions of $92.3 in 1998, $95.9 in 1997 and $4.0
in 1996.
</TABLE>
- -------------------------------------------------------------------------------
22
<PAGE> 12
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- -------------------------------------------------------------------------------
BUSINESS SEGMENT INFORMATION
----------------------------
(continued)
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- ------------- ---- ---- ----
<S> <C> <C> <C>
ASSETS AT YEAR END
Pet Products................................................ $1,315.0 $1,077.2 $ 984.9
Battery Products............................................ 1,931.6 2,026.1 2,107.8
-------- -------- --------
Subtotal....................................... 3,246.6 3,103.3 3,092.7
Investment in Discontinued Operations<Fa>................... -- 592.3 587.1
Corporate................................................... 2,305.1 1,046.2 843.2
-------- -------- --------
Total.......................................... $5,551.7 $4,741.8 $4,523.0
======== ======== ========
DEPRECIATION AND AMORTIZATION EXPENSE
Pet Products................................................ $ 71.2 $ 58.9 $ 55.2
Battery Products............................................ 107.7 117.0 126.2
-------- -------- --------
Subtotal....................................... 178.9 175.9 181.4
Corporate................................................... 15.8 13.1 12.4
-------- -------- --------
Total.......................................... $ 194.7 $ 189.0 $ 193.8
======== ======== ========
PROPERTY ADDITIONS
Pet Products................................................ $ 109.1 $ 135.2 $ 73.2
Battery Products............................................ 116.5 141.9 150.2
-------- -------- --------
Subtotal....................................... 225.6 277.1 223.4
Corporate................................................... 5.1 5.8 5.4
-------- -------- --------
Total.......................................... $ 230.7 $ 282.9 $ 228.8
======== ======== ========
<FN>
- -----
<Fa> See Discontinued Operations in the Notes to Financial Statements.
</TABLE>
- -------------------------------------------------------------------------------
23
<PAGE> 13
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- -------------------------------------------------------------------------------
BUSINESS SEGMENT INFORMATION
- ----------------------------
(continued)
GEOGRAPHIC SEGMENT INFORMATION
- ------------------------------
Financial information by geographic location for the past three years is
set forth below.
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- ------------- ---- ---- ----
<S> <C> <C> <C>
SALES
United States....................................... $3,099.9 $2,950.8 $2,757.5
Europe.............................................. 572.9 519.4 572.5
South & Central America............................. 373.1 320.9 290.8
Asia Pacific........................................ 445.4 534.7 529.6
Other............................................... 162.0 161.0 151.5
-------- -------- --------
Total........................................... $4,653.3 $4,486.8 $4,301.9
======== ======== ========
OPERATING PROFIT<Fa>
United States....................................... $ 517.6 $ 531.1 $ 555.8
Europe.............................................. 5.9 (56.9) 7.5
South & Central America............................. 37.3 17.8 22.2
Asia Pacific........................................ 87.7 84.3 91.7
Other............................................... 12.7 7.9 10.2
-------- -------- --------
Total........................................... $ 661.2 $ 584.2 $ 687.4
======== ======== ========
ASSETS
United States....................................... $1,932.9 $1,936.4 $1,847.1
Europe.............................................. 756.0 563.8 666.0
South & Central America............................. 226.1 200.8 166.1
Asia Pacific........................................ 267.1 337.0 350.3
Other............................................... 64.5 65.3 63.2
-------- -------- --------
Total........................................... $3,246.6 $3,103.3 $3,092.7
======== ======== ========
<FN>
- -----
<Fa> Includes net restructuring provisions of:
<CAPTION>
AREA 1998 1997 1996
---- ----- ----- -----
<S> <C> <C> <C>
United States.............................................. $95.3 $25.1 $ 1.5
Europe..................................................... 1.8 63.0 12.6
South & Central America.................................... 0.6 3.5 --
Asia Pacific............................................... (1.3) 15.3 --
Other...................................................... -- 4.5 (1.7)
</TABLE>
- -------------------------------------------------------------------------------
24
<PAGE> 14
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
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 PricewaterhouseCoopers 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, PricewaterhouseCoopers 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1998, 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
October 30, 1998
- -------------------------------------------------------------------------------
25
<PAGE> 15
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF EARNINGS
- ----------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
(IN MILLIONS EXCEPT PER SHARE DATA) 1998 1997 1996
- ----------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Sales................................................... $4,653.3 $4,486.8 $4,301.9
-------- -------- --------
Costs and Expenses
Cost of products sold................................... 2,299.7 2,281.9 2,206.0
Selling, general and administrative..................... 940.8 918.6 864.8
Advertising and promotion............................... 696.4 646.6 571.6
Interest expense........................................ 191.1 174.3 190.3
Provisions for restructuring............................ 96.4 111.4 12.4
Gain on sale of IBC stock............................... (20.1) (23.2) --
Other (income)/expense, net............................. (20.4) (7.7) 9.1
-------- -------- --------
4,183.9 4,101.9 3,854.2
-------- -------- --------
Earnings from Continuing Operations before Income Taxes,
Equity Earnings and Extraordinary Item.................... 469.4 384.9 447.7
Income Taxes................................................ (117.5) (70.0) (162.9)
-------- -------- --------
Earnings from Continuing Operations before Equity Earnings
and Extraordinary Item.................................... 351.9 314.9 284.8
Equity Earnings, Net of Taxes............................... 38.7 34.0 11.6
-------- -------- --------
Earnings from Continuing Operations before Extraordinary
Item...................................................... 390.6 348.9 296.4
Earnings from Discontinued Operations....................... 10.0 74.8 65.3
Gain on Sale of Discontinued Operations..................... 705.1 -- --
-------- -------- --------
Earnings before Extraordinary Item.......................... 1,105.7 423.7 361.7
Extraordinary Item--Loss on Early Retirement of Debt........ -- -- (2.1)
-------- -------- --------
Net Earnings................................................ 1,105.7 423.7 359.6
Preferred Stock Dividend, Net of Taxes...................... (11.5) (13.1) (14.1)
-------- -------- --------
Earnings Available to Common Shareholders................... $1,094.2 $ 410.6 $ 345.5
======== ======== ========
Earnings Per Share of RAL Stock
Basic
Earnings from continuing operations................. $ 1.24 $ 1.10 $ 0.92
Earnings from discontinued operations............... 0.03 0.24 0.22
Gain on sale of discontinued operations............. 2.32 -- --
Extraordinary item.................................. -- -- (0.01)
-------- -------- --------
Net Earnings........................................ $ 3.59 $ 1.34 $ 1.13
======== ======== ========
Diluted
Earnings from continuing operations................. $ 1.19 $ 1.05 $ 0.88
Earnings from discontinued operations............... 0.03 0.22 0.20
Gain on sale of discontinued operations............. 2.16 -- --
Extraordinary item.................................. -- -- (0.01)
-------- -------- --------
Net Earnings........................................ $ 3.38 $ 1.27 $ 1.07
======== ======== ========
The above financial statement should be read in conjunction with the Notes
to Financial Statements.
</TABLE>
- -------------------------------------------------------------------------------
26
<PAGE> 16
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30
(IN MILLIONS EXCEPT SHARE DATA) 1998 1997
- ------------------------------- ---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................................... $ 89.8 $ 109.1
Receivables, less allowance for doubtful accounts........................... 717.2 675.2
Inventories................................................................. 600.4 604.8
Other current assets........................................................ 120.1 116.4
-------- --------
Total Current Assets.................................................... 1,527.5 1,505.5
Investments and Other Assets.................................................... 2,908.2 1,530.3
Investment in Discontinued Operations........................................... -- 592.3
Property at Cost
Land........................................................................ 35.3 38.6
Buildings................................................................... 413.5 371.6
Machinery and Equipment..................................................... 1,599.4 1,546.1
Construction in Progress.................................................... 164.7 204.3
-------- --------
2,212.9 2,160.6
Accumulated depreciation................................................ 1,096.9 1,046.9
-------- --------
1,116.0 1,113.7
-------- --------
Total.............................................................. $5,551.7 $4,741.8
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt........................................ $ 37.1 $ 106.2
Notes payable............................................................... 772.4 340.3
Accounts payable and accrued liabilities.................................... 714.8 705.0
Dividends payable........................................................... 34.2 35.8
Income taxes................................................................ 23.5 28.5
-------- --------
Total Current Liabilities............................................... 1,582.0 1,215.8
Long-Term Debt.................................................................. 1,794.8 1,860.4
Deferred Income Taxes........................................................... 309.3 --
Other Liabilities............................................................... 533.6 507.4
Redeemable Preferred Stock--Series A 6.75%, $1 par value, issued 2,310,634 and
2,750,636 shares in 1998 and 1997, respectively............................... 256.1 304.9
Unearned ESOP Compensation...................................................... (13.2) (63.8)
Shareholders Equity
Preferred stock, $1 par value, none outstanding
Common stock--$.10 par value, issued 326,303,467 and 114,694,666 shares in
1998 and 1997, respectively............................................... 32.6 11.5
Capital in excess of par value.............................................. 127.7 320.0
Retained earnings........................................................... 2,067.0 1,566.7
Cumulative translation adjustment........................................... (87.3) (129.8)
Common stock in treasury, at cost, 13,875,377 and 8,116,407 shares in 1998
and 1997, respectively.................................................... (766.3) (466.7)
Unearned portion of restricted stock........................................ (4.2) (3.4)
Value of 13,470,442 and 4,307,214 shares of common stock held in Grantor
Trust in 1998 and 1997, respectively...................................... (191.5) (381.2)
Net unrealized holding loss on available-for-sale securities................ (88.9) --
-------- --------
Total Shareholders Equity............................................... 1,089.1 917.1
-------- --------
Total.............................................................. $5,551.7 $4,741.8
======== ========
The above financial statement should be read in conjunction with the Notes
to Financial Statements.
</TABLE>
- -------------------------------------------------------------------------------
27
<PAGE> 17
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
(IN MILLIONS) 1998 1997 1996
- ------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operations
Net earnings.................................................... $1,105.7 $ 423.7 $ 359.6
Adjustments to reconcile net earnings to net cash flow provided
by operations
Earnings from discontinued operations....................... (10.0) (74.8) (65.3)
Extraordinary item.......................................... -- -- 2.1
Non-cash restructuring charges.............................. 58.7 49.9 5.4
Depreciation and amortization............................... 194.7 189.0 193.8
Deferred income tax provision............................... (47.0) (115.5) (1.8)
Gain on sale of discontinued operations..................... (705.1) -- --
Gain on sale of IBC stock................................... (20.1) (23.2) --
Changes in assets and liabilities used in operations
Increase in accounts receivable........................ (42.5) (39.9) (25.0)
Increase in inventories................................ (13.4) (9.0) (9.7)
(Increase) decrease in other current assets............ (8.8) 4.0 1.2
Increase (decrease) in accounts payable and accrued
liabilities.......................................... 4.1 63.8 (50.1)
Increase in other current liabilities.................. 29.6 15.3 25.6
Other, net.................................................. (29.3) (32.2) .3
-------- ------- -------
Cash flow from continuing operations................... 516.6 451.1 436.1
Cash flow (used by) from discontinued operations....... (29.5) 156.5 28.3
-------- ------- -------
Net cash flow from operations........................ 487.1 607.6 464.4
-------- ------- -------
Cash Flow from Investing Activities
Property additions.............................................. (230.7) (282.9) (228.8)
Proceeds from the sale of property.............................. 17.8 10.4 18.4
Proceeds from the sale of IBC stock............................. 41.3 60.1 --
Purchase of Edward Baker Petfoods............................... (182.5) -- --
Other, net...................................................... (16.4) (11.0) (3.4)
-------- ------- -------
Cash used by investing activities--continuing
operations........................................... (370.5) (223.4) (213.8)
Cash used by investing activities--discontinued
operations........................................... (223.6) (114.3) (93.7)
-------- ------- -------
Net cash used by investing activities................ (594.1) (337.7) (307.5)
-------- ------- -------
Cash Flow from Financing Activities
Issuance of long-term debt...................................... 17.3 541.1 199.7
Principal payments on long-term debt, including current
maturities.................................................... (73.1) (63.5) (355.3)
Net increase (decrease) in notes payable........................ 698.2 (508.7) 203.2
Treasury stock purchases........................................ (367.2) (24.7) (9.4)
Dividends paid.................................................. (141.2) (143.9) (145.0)
Stock repurchases in connection with the ESOP................... (48.9) (30.4) (24.3)
Other, net...................................................... 12.9 13.1 (3.8)
-------- ------- -------
Net cash from (used by) financing activities......... 98.0 (217.0) (134.9)
-------- ------- -------
Effect of Exchange Rate Changes on Cash............................. (10.3) (6.1) (4.0)
-------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents................ (19.3) 46.8 18.0
Cash and Cash Equivalents, Beginning of Period...................... 109.1 62.3 44.3
-------- ------- -------
Cash and Cash Equivalents, End of Period............................ $ 89.8 $ 109.1 $ 62.3
======== ======= =======
The above financial statement should be read in conjunction with the Notes
to Financial Statements.
</TABLE>
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28
<PAGE> 18
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- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
---------------------------------------------
<TABLE>
<CAPTION>
THREE YEARS ENDED SEPTEMBER 30, 1998
NUMBER OF SHARES AMOUNT
(IN THOUSANDS) (IN MILLIONS)
------------------------------ -----------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RAL Common Stock:
Balance at beginning of year.................... 114,695 114,688 114,687 $ 11.5 $ 11.5 $ 11.5
Common stock issued on conversion of
debentures................................ 2 7 1 -- -- --
------- ------- -------- ------- ------- -------
Subtotal................................ 114,697 114,695 114,688 11.5 11.5 11.5
Three-for-one split......................... 211,606 -- -- 21.1 -- --
------- ------- -------- ------- ------- -------
Balance at end of year.......................... 326,303 114,695 114,688 $ 32.6 $ 11.5 $ 11.5
======= ======= ======== ======= ======= =======
RAL Common Stock in Treasury:
Balance at beginning of year.................... (8,116) (8,740) (8,831) $(466.7) $(482.3) $(481.7)
Activity under stock plans.................. 870 932 237 41.7 49.1 11.7
Treasury stock purchased.................... (7,166) (308) (146) (367.2) (24.7) (9.4)
Shares issued in connection with preferred
stock redemption/conversion............... 1,246 386 391 74.8 21.7 21.4
Share repurchases in connection with the
ESOP...................................... (709) (386) (391) (48.9) (30.5) (24.3)
------- ------- -------- ------- ------- -------
Balance at end of year.......................... (13,875) (8,116) (8,740) $(766.3) $(466.7) $(482.3)
======= ======= ======== ======= ======= =======
Grantor Trust:
Balance at beginning of year.................... (4,307) (4,228) (4,135) $(381.2) $(289.6) $(239.3)
Shares purchased............................ (167) (79) (93) (18.4) (6.4) (6.0)
Market value adjustment..................... -- -- -- -- (85.2) (44.3)
Adjustment of grantor trust to cost......... -- -- -- 194.4 -- --
Other transactions.......................... -- -- -- 15.0 -- --
------- ------- -------- ------- ------- -------
Subtotal................................ (4,474) (4,307) (4,228) (190.2) (381.2) (289.6)
Three-for-one split......................... (8,949) -- -- -- -- --
Shares purchased............................ (47) -- -- (1.3) -- --
------- ------- -------- ------- ------- -------
Balance at end of year.......................... (13,470) (4,307) (4,228) $(191.5) $(381.2) $(289.6)
======= ======= ======== ======= ======= =======
</TABLE>
- -------------------------------------------------------------------------------
29
<PAGE> 19
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
- ---------------------------------------------
(continued)
<TABLE>
<CAPTION>
THREE YEARS ENDED SEPTEMBER 30, 1998
AMOUNT
(IN MILLIONS)
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Capital in Excess of Par Value:
Balance at beginning of year....................................... $ 320.0 $ 217.3 $ 169.6
Three-for-one stock split...................................... (21.1) -- --
Activity under stock plans..................................... 23.2 17.5 3.4
Adjustment of grantor trust to cost............................ (194.4) 85.2 44.3
-------- -------- --------
Balance at end of year............................................. $ 127.7 $ 320.0 $ 217.3
======== ======== ========
Retained Earnings:
Balance at beginning of year....................................... $1,566.7 $1,302.9 $1,089.7
Net earnings................................................... 1,105.7 423.7 359.6
Agricultural Products business spin-off dividend declared...... (419.4) -- --
Effect of preferred stock conversion........................... (26.0) (3.0) (2.5)
Activity under stock plans..................................... (27.6) (21.1) (7.7)
Dividends declared on preferred stock, net of taxes............ (11.5) (13.1) (14.1)
Dividends declared on RAL Stock................................ (120.9) (122.7) (122.1)
-------- -------- --------
Balance at end of year............................................. $2,067.0 $1,566.7 $1,302.9
======== ======== ========
Unearned Portion of Restricted Stock:
Balance at beginning of year....................................... $ (3.4) $ (4.2) $ (5.3)
Activity under stock plans..................................... (1.7) (.3) --
Amortization of restricted stock............................... .9 1.1 1.1
-------- -------- --------
Balance at end of year............................................. $ (4.2) $ (3.4) $ (4.2)
======== ======== ========
Cumulative Translation Adjustment:
Balance at beginning of year....................................... $ (129.8) $ (66.6) $ (50.3)
Translation adjustments........................................ (50.2) (63.2) (16.3)
Agricultural Products business spin-off........................ 86.3 -- --
Sale of Soy Protein Products business.......................... 6.4 -- --
-------- -------- --------
Balance at end of year............................................. $ (87.3) $ (129.8) $ (66.6)
======== ======== ========
Net Unrealized Holding Loss:
Balance at beginning of year....................................... $ -- -- --
Loss on available for sale securities, net of income taxes..... (88.9) -- --
-------- -------- --------
Balance at end of year............................................. $ (88.9) -- --
======== ======== ========
The above financial statement should be read in conjunction with the Notes
to Financial Statements.
</TABLE>
- -------------------------------------------------------------------------------
30
<PAGE> 20
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions except per share data)
SUMMARY OF ACCOUNTING POLICIES
------------------------------
Ralston Purina Company's (the Company) 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.
FOREIGN CURRENCY TRANSLATION -- 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 while
translation adjustments for other accounts are included in earnings. Gains and
losses from foreign currency transactions are generally included in earnings.
FINANCIAL INSTRUMENTS -- The Company uses financial and commodities derivatives
in the management of foreign currency, commodities pricing and interest rate
risks that are inherent to its business operations. Such instruments are not
held or issued for trading purposes.
The Company uses foreign exchange (F/X) instruments, including currency
forwards, futures and options, to reduce transaction and translation exposures
resulting from its foreign currency activities. F/X instruments used are
selected based on their risk reduction attributes and the related market
conditions. Such instruments are marked-to-market, and the terms generally do
not exceed twelve months. Realized and unrealized gains and losses from
instruments that hedge firm commitments are deferred as part of the cost basis
of the asset or liability being hedged and are recognized in the statement of
earnings in the same period as the underlying transaction. Realized and
unrealized gains or losses from F/X instruments used as hedges of existing
balance sheet exposures or anticipated transactions that are not firmly
committed are recognized currently in the statement of earnings. However, gains
and losses from F/X instruments that hedge existing balance sheet exposures are
offset by gains and losses recorded on these hedged exposures. Cash flows from
F/X instruments are classified in the same category in the statement of cash
flows as the underlying activities. F/X instruments are generally not disposed
of prior to the settlement date; however, if an F/X instrument and the
underlying hedged transaction were disposed of prior to the settlement date,
any gain or loss would be recognized immediately in the statement of earnings.
The Company uses commodities hedging instruments, including futures and
options, to reduce the risk of price fluctuations related to future raw
material requirements for commodities such as corn, wheat and soybean meal. The
terms of such instruments generally do not exceed twelve months, and depend on
the commodity and other market factors. The instruments are marked-to-market,
and the gains and losses are deferred. Deferred gains and losses are
subsequently recorded as cost of products sold in the statement of earnings
when the inventory is sold. If the inventory is not acquired and the hedge is
disposed of, the deferred gain or loss is recognized immediately in cost of
products sold.
The Company uses interest rate swap and cap agreements in the management of
interest rate exposure. The interest rate differential to be paid or received
is normally accrued as interest rates change, and is recognized as a component
of interest expense over the life of the agreements. If an agreement and the
underlying hedged transaction were terminated prior to the maturity date, any
accrued rate differential would be recognized immediately as interest expense
in the statement of earnings.
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.
INVENTORIES are valued generally at the lower of cost or market, with cost
being determined using average cost or the first-in, first-out (FIFO) method.
CAPITALIZED SOFTWARE COSTS -- In March 1998, the American Institute of
Certified Public Accountants (AICPA) issued Statement of Position (SOP) No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement requires that certain internal and external costs
associated with the purchase and/or development of internal use software be
capitalized rather than expensed. The Company adopted this statement as of the
beginning of fiscal year 1998.
Capitalized software costs are included in Investments and Other Assets.
These costs are amortized using the straight line method over periods of
related benefit ranging primarily from 3 to 7 years.
MARKETABLE EQUITY SECURITIES classified as available-for-sale are carried at
fair value, based on quoted market prices, and are included in Investments and
Other Assets. Net unrealized gains or losses on these securities are reported,
net of tax, as a separate component of shareholders equity.
- -------------------------------------------------------------------------------
31
<PAGE> 21
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(Dollars in millions except per share data) (continued)
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.
GOODWILL AND OTHER 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 7 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, 1998 and 1997.
STOCK APPRECIATION INCOME LINKED SECURITIES (SAILS) -- SAILS debt was initially
recorded on the balance sheet at the principal amount of the issuance. At each
subsequent balance sheet date, the SAILS are marked to the cash value of the
underlying Interstate Bakeries Corporation (IBC) shares for which the SAILS may
be exchanged. Any changes in value are recorded in earnings each period.
ADVERTISING COSTS are expensed as incurred.
RESEARCH AND DEVELOPMENT costs are expensed as incurred and were $80.0, $70.4
and $65.3 in 1998, 1997 and 1996, respectively.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES -- 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.
EARNINGS PER SHARE -- In February 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share". The Company adopted this statement at the beginning of
fiscal year 1998.
SFAS No. 128 replaces the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Basic earnings
per share is based on the average number of shares outstanding during the
period. This calculation is the same as the primary earnings per share
calculation previously reported by the Company.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share and is based on the average number of shares used
for the basic earnings per share calculation, adjusted for the dilutive effect
of convertible preferred stock, stock options, convertible debentures and
compensation awards. Average number of shares for diluted earnings per share
calculations assumes the conversion of Series A 6.75% Perferred Stock
(Redeemable Preferred Stock) and other dilutive securities into common stock.
For purposes of calculating diluted earnings per share, net earnings have been
adjusted for the additional contribution to the ESOP portion of the Company's
Savings Investment Plan and its related trust that would have been required had
the Redeemable Preferred Stock been converted as of the beginning of the
period.
All related per share information and average share data has been restated,
for all periods presented, to reflect the effects of the three-for-one stock
split, effected in the form of a 200% stock dividend, declared by the Board of
Directors on May 28, 1998. The dividend was paid to shareholders of record at
the close of business on June 22, 1998, and the additional shares were
distributed on July 15, 1998.
ACCOUNTING FOR STOCK-BASED COMPENSATION -- The Company accounts for stock
options using the intrinsic value method as prescribed by Accounting Principles
Board Opinion No. 25 (APB 25). Pro forma disclosures required under SFAS
No. 123, as if the Company had adopted the fair value based method of accounting
for stock options, are presented in the Notes to Financial Statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- The FASB issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" in June 1997; SFAS No. 132,
"Employers' Disclosures About Pension and Other Postretirement Benefits," in
February 1998; and SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" in June 1998.
- -------------------------------------------------------------------------------
32
<PAGE> 22
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions except per share data) (continued)
SFAS 130 establishes standards for the reporting and display of an entity's
components of comprehensive income in a full set of financial statements. SFAS
131 defines segments in terms of an entity's internal organization structure.
SFAS 132 revises employers' disclosures about pension and other postretirement
benefit plans. The Company will adopt these statements for fiscal year 1999.
The adoption of these statements will have no impact on the Company's operating
results, statement of financial position or cash flows, as SFAS 130, 131 and
132 provide standards on financial statement disclosure only.
SFAS 133 provides standards on accounting and disclosure for derivative
instruments, and requires that all derivatives be measured at fair value and
reported as either assets or liabilities in the statement of financial
position. The Company will be required to adopt this statement no later than
the beginning of fiscal year 2000. The Company has not completed its evaluation
to determine the impact of this statement on its consolidated financial
statements.
STOCK SPLIT
-----------
On May 28, 1998, the Company's Board of Directors declared a 3-for-1 stock
split, which was accomplished by means of a stock dividend of two additional
shares of RAL stock for each outstanding share of RAL stock. The dividend was
paid to shareholders of record at the close of business on June 22, 1998, and
the additional shares were distributed on July 15, 1998. Newly issued shares
were used for the split, therefore treasury shares were not affected. All
references to the number of shares and per share amounts have been restated to
reflect the split, except on the Consolidated Balance Sheet and the
Consolidated Statement of Shareholders Equity.
BUSINESS SEGMENT INFORMATION
----------------------------
The Business Segment Information and Geographic Segment Information
sections, appearing on pages 22 through 24 herein, are an integral part of
these financial statements.
DISCONTINUED OPERATIONS
-----------------------
On December 3, 1997, the Company completed the sale of its Soy Protein
Products business to E.I. du Pont de Nemours and Company (DuPont) for $1,554.2,
comprised of 22.5 million shares of DuPont common stock (which stock was valued
at $1,399.2 at the date of the transaction) and the assumption of certain
liabilities. A pre-tax gain of $1.1 billion, or $705.1 after tax, was recorded
on the sale during the first quarter of fiscal year 1998.
On April 1, 1998, the Company completed the tax-free spin-off to
shareholders of its Agricultural Products business. The spin-off resulted in a
reduction in equity of $333.1, recorded as a reduction of the Company's
retained earnings of $419.4 and a reduction of the Company's cumulative
translation adjustment of $86.3.
The Soy Protein Products and Agricultural Products businesses are accounted
for as discontinued operations in the accompanying consolidated financial
statements. Also included in discontinued operations in the current year is a
gain of $5.3, after taxes, on the settlement of a claim related to a previously
disposed business, partially offset by transaction costs associated with the
spin-off of the Company's Agricultural Products business. The Investment in
Discontinued Operations at September 30, 1997 is primarily comprised of accounts
receivable, inventory, fixed assets and accounts payable. Operating results for
the Soy Protein Products and Agricultural Products businesses are included in
the Consolidated Statement of Earnings through December 3, 1997 and April 1,
1998, respectively. Results for discontinued operations are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales....................................................................... $ 923.7 $1,983.8 $1,812.4
======== ======== ========
Earnings before income taxes.................................................... $ 32.1 $ 116.3 $ 114.6
Income taxes.................................................................... 22.1 41.5 49.3
-------- -------- --------
Earnings from discontinued operations........................................... $ 10.0 $ 74.8 $ 65.3
======== ======== ========
</TABLE>
- -------------------------------------------------------------------------------
33
<PAGE> 23
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(Dollars in millions except per share data) (continued)
ACQUISITIONS
- ------------
In December 1997, the Company acquired Edward Baker Petfoods, a United
Kingdom manufacturer of dry pet foods and a supplier of branded and private
label products to the European market, for $182.5. This acquisition was
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 this acquisition had occurred as of the
beginning of fiscal year 1998, it would not have had a material effect on net
sales, net earnings, or earnings per share of the Company for the year ended
September 30, 1998.
INVESTMENT IN INTERSTATE BAKERIES CORPORATION
- ---------------------------------------------
The Company's equity investments in affiliated companies includes a 42.1%
interest in IBC at September 30, 1998. The Company accounts for its investment
in IBC by the equity method of accounting. The carrying value of this
investment was $314.1 and $289.2 at September 30, 1998 and 1997, respectively.
The market value of the Company's investment in IBC was $940.7 and $1,096.7 at
September 30, 1998 and 1997, respectively. As of the July 1995 sale of
Continental Baking Company (CBC), the market value of the IBC shares received
exceeded the underlying net assets of IBC by $95.2. This excess is included in
the carrying value of the Company's investment in IBC, and is amortized over 30
years and adjusted for changes in the Company's equity ownership. Cash
dividends received from IBC were $8.8 and $9.1 in 1998 and 1997, respectively.
Terms of a shareholder agreement provide that, with certain limited
exceptions, the Company will not acquire any additional shares of IBC stock for
a period of six years from the July 1995 closing of the sale of CBC. The
agreement also provides that within five years of closing, the Company's
ownership of IBC stock will be reduced to no more than 14.9% of the total
outstanding shares. The Company has registration rights with respect to the IBC
stock, but the shareholder agreement provides that, with certain limited
exceptions, the Company may not sell any of the IBC stock without first
offering the securities to IBC. IBC also has the right, during the sixth year
following closing, to acquire any of the IBC stock then held by the Company at
a price equal to 110% of its then current market price. The shareholder
agreement provides that the Company will vote the shares of IBC stock in
accordance with the recommendation of IBC's Board of Directors with respect to
shareholder proposals and nominations to that Board, and with respect to other
proposals, in proportion to the votes of all other shareholders; provided,
however, that the Company may vote as it deems appropriate with respect to
proposals for the merger of IBC, the sale of all IBC assets, or the issuance of
any other class of voting stock of IBC. The Company has one representative on
the IBC Board.
In July 1997, the Company issued $480 million of SAILS consisting of 7%
exchangeable notes due August 1, 2000. At maturity, the notes are mandatorily
exchangeable into a number of shares of IBC common stock owned by the Company,
or cash, at the Company's option. The number of shares or the amount of cash
will be based on the average market price of IBC stock on the 20 trading days
prior to maturity on August 1, 2000 (the "IBC Maturity Price"). If the IBC
Maturity Price is greater than or equal to $37.7819, the SAILS will be
exchanged at maturity into 12.70 million shares of IBC stock. If the IBC
Maturity Price is $30.96875 or less, the SAILS will be exchangeable into 15.50
million shares of IBC stock. If the IBC Maturity Price is between $30.96875 and
$37.7819, the SAILS will be exchangeable into a number of shares of IBC stock
between 15.50 million and 12.70 million, respectively, based on an exchange
ratio. If the SAILS are redeemed for cash, the amount of cash will be equal to
the number of IBC shares exchangeable under the terms of the SAILS times the
IBC Maturity Price. This transaction effectively limits the amount of
appreciation on part of the Company's investment in IBC and locks in a minimum
gain at the issuance price of $30.96875.
Presented below is summary financial information of IBC:
<TABLE>
<CAPTION>
AUGUST 22, AUGUST 23,
1998 1997
---------- ----------
<S> <C> <C>
Current assets........................................................ $ 343.2 $ 328.1
Noncurrent assets..................................................... 1,304.2 1,157.0
-------- --------
Total assets...................................................... $1,647.4 $1,485.1
======== ========
Current liabilities................................................... $ 361.0 $ 356.4
Noncurrent liabilities................................................ 710.5 624.9
Stockholders equity................................................... 575.9 503.8
-------- --------
Total liabilities and stockholders equity......................... $1,647.4 $1,485.1
======== ========
</TABLE>
- -------------------------------------------------------------------------------
34
<PAGE> 24
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions except per share data) (continued)
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
AUGUST 22, AUGUST 23, AUGUST 24,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................................. $3,290.5 $3,222.5 $3,160.4
Cost of products sold................................................. 1,551.6 1,554.3 1,586.0
-------- -------- --------
Gross profit.......................................................... $1,738.9 $1,668.2 $1,574.4
======== ======== ========
Net income............................................................ $ 132.5 $ 108.4 $ 37.4
======== ======== ========
Company equity earnings, net of taxes................................. $ 38.7 $ 34.0 $ 11.6
======== ======== ========
</TABLE>
RESTRUCTURING ACTIVITIES
------------------------
In 1998, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per basic share by $96.4, $61.3 and $.20, respectively.
On a pre-tax basis, charges for restructuring consisted of termination benefits
of $31.4, other cash costs of $6.3 and non-cash charges of $58.7. The total
pre-tax charge and the non-cash component are net of an $11.9 reversal of prior
period restructuring charges.
Included in the total pre-tax charge are impairment write-downs totaling
$66.4, primarily representing a write-down of the Company's investment in
lithium-ion rechargeable battery manufacturing assets. Fair value of those
assets was primarily determined based upon estimates of recovery value for
unique manufacturing equipment. Due to rapid changes in the business
environment since the beginning of the lithium-ion project in 1996, it has
become more economical to source lithium-ion cells from other manufacturers.
The Company continues to assemble and package lithium-ion rechargeable
batteries.
The restructuring provision also includes charges of $21.8, pre-tax, for a
voluntary early retirement option offered to most U.S. Battery Products'
employees meeting certain age and service requirements and additional charges
related to the Company's European battery and international pet food
operations. These charges provide for the termination or early retirement of
approximately 700 employees in production, sales and administrative capacities.
During 1998, 350 employees were terminated or retired in connection with this
charge.
In 1997, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per basic share by $111.4, $98.0 and $.32, respectively.
These charges are primarily associated with the continued rationalization of
Battery Products' production capacity and business structure and provide for
the termination of 1,340 employees and the closing of 3 plants. The total
pre-tax charge for restructuring consisted of termination benefits of $50.5,
other cash exit costs of $11.0, and non-cash charges of $49.9, primarily
related to impairment losses on land, buildings and machinery and equipment. As
of September 30, 1998, 560 employees have been terminated and 1 plant closed in
connection with this charge.
In 1996, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per basic share by $12.4, $11.0 and $.04, respectively.
These charges are associated with the closing of the Company's European cereal
operations and additional Battery Products' restructuring. The total 1996
pre-tax charge for restructuring consisted of termination benefits of $5.2,
relating to the termination of approximately 170 employees, other cash exit
costs of $1.8 and non-cash charges of $5.4, primarily related to impairment
losses on land, buildings and machinery and equipment. As of September 30,
1997, substantially all actions associated with this charge were completed.
Activity related to the restructuring provisions discussed above is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Reserve balance at beginning of year....................................... $ 66.3 $ 22.4
Provision recorded, net of reversal of prior period reserves of $11.9 in
1998..................................................................... 96.4 111.4
Portion of current period provision classified as property and other asset
impairments, net of reversals............................................ (58.7) (49.9)
Termination benefits paid.................................................. (28.5) (15.0)
Other cash exit costs incurred............................................. (16.5) (3.9)
Increase (decrease) due to translation..................................... (1.7) 1.3
------ ------
Reserve balance at September 30............................................ $ 57.3 $ 66.3
====== ======
</TABLE>
Restructuring actions represented by the September 30, 1998 reserve balance
are expected to be substantially completed in 1999.
- -------------------------------------------------------------------------------
35
<PAGE> 25
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(Dollars in millions except per share data) (continued)
INCOME TAXES
- ------------
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
CONTINUING CONTINUING CONTINUING
OPERATIONS CONSOLIDATED OPERATIONS CONSOLIDATED OPERATIONS CONSOLIDATED
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Currently payable
United States......... $ 120.0 $ 140.9 $136.8 $151.1 $135.3 $153.5
State................. 14.9 15.4 12.2 14.5 10.1 12.2
Foreign............... 29.6 41.0 36.5 61.0 19.3 48.6
------- ------- ------ ------ ------ ------
Total current..... 164.5 197.3 185.5 226.6 164.7 214.3
------- ------- ------ ------ ------ ------
Deferred
United States......... (57.1) 345.1 (114.4) (100.7) (9.1) (5.2)
State................. (1.3) 9.6 (1.2) (1.2) -- --
Foreign............... 11.4 11.5 .1 1.1 7.3 4.4
------- ------- ------ ------ ------ ------
Total deferred.... (47.0) 366.2 (115.5) (100.8) (1.8) (.8)
------- ------- ------ ------ ------ ------
Income taxes.............. $ 117.5 $ 563.5 $ 70.0 $125.8 $162.9 $213.5
======= ======= ====== ====== ====== ======
</TABLE>
Components of consolidated income taxes:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Continuing operations....................................... $117.5 $ 70.0 $162.9
Discontinued operations..................................... 428.4 41.5 49.3
Equity earnings............................................. 17.6 14.3 2.6
Extraordinary item.......................................... -- -- (1.3)
------ ------ ------
$563.5 $125.8 $213.5
====== ====== ======
</TABLE>
The source of pre-tax earnings follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
CONTINUING CONTINUING CONTINUING
OPERATIONS CONSOLIDATED OPERATIONS CONSOLIDATED OPERATIONS CONSOLIDATED
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States............. $385.3 $1,561.4 $352.4 $464.3 $367.4 $453.0
Foreign................... 84.1 107.8 32.5 85.2 80.3 120.1
------ -------- ------ ------ ------ ------
Pre-tax earnings.......... $469.4 $1,669.2 $384.9 $549.5 $447.7 $573.1
====== ======== ====== ====== ====== ======
</TABLE>
A reconciliation of income taxes with the amounts computed at the statutory
federal rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate....... $164.3 35.0% $134.7 35.0% $156.7 35.0%
State income taxes, net of federal tax
benefit.................................... 8.8 1.9 7.1 1.8 6.6 1.5
Foreign tax in excess of (less than) domestic
rate....................................... 11.6 2.4 25.2 6.5 (1.5) (.3)
Taxes on repatriation of foreign earnings.... 9.0 1.9 13.1 3.4 21.6 4.8
Foreign tax credit refunds................... -- -- (34.7) (9.0) -- --
Recognition of capital losses related to
prior restructuring actions................ (44.8) (9.5) (61.7) (16.0) -- --
Non-taxable investment income................ (11.0) (2.3) (10.6) (2.7) (7.5) (1.7)
Other, net................................... (20.4) (4.4) (3.1) (.8) (13.0) (2.9)
------ ----- ------ ----- ------ ----
$117.5 25.0% $ 70.0 18.2% $162.9 36.4%
====== ===== ====== ===== ====== ====
</TABLE>
- -------------------------------------------------------------------------------
36
<PAGE> 26
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions except per share data) (continued)
The Company recognized capital loss benefits of $44.8 in 1998, and $61.7 in
1997 primarily related to past restructuring actions. These benefits will be
used to partially offset taxes due upon the disposition of IBC shares. In 1997,
the Company changed its method of computing foreign tax credits and recognized
tax benefits of $34.7 related to foreign tax credit refund claims for 1993
through 1996.
The effective rate for discontinued operations is higher than the federal
statutory rate due to foreign taxes in excess of the domestic rate, taxes on
repatriation of foreign earnings and non-deductible costs related to the
spin-off.
The deferred tax assets and deferred tax liabilities recorded on the
balance sheet as of September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred Tax Liabilities:
Investment in available-for-sale securities............. $(380.3) $ --
Depreciation and property differences................... (125.7) (114.0)
Pension plans........................................... (106.0) (84.9)
Equity investments in affiliated companies.............. (21.3) (6.7)
Other................................................... (58.9) (32.6)
------- -------
Gross deferred tax liabilities...................... (692.2) (238.2)
------- -------
Deferred Tax Assets:
Postretirement benefits other than pensions............. 207.4 201.3
Accrued liabilities..................................... 90.6 82.3
Tax loss carryforwards and tax credits.................. 54.4 46.9
Recognized capital losses............................... 91.7 58.5
Intangible assets....................................... 30.5 31.9
Other................................................... 43.3 25.0
------- -------
Gross deferred tax assets........................... 517.9 445.9
------- -------
Valuation allowance..................................... (74.6) (81.5)
------- -------
Net deferred tax (liabilities) assets................... $(248.9) $ 126.2
======= =======
</TABLE>
Total net deferred tax assets shown above include current and noncurrent
elements.
Tax loss carryforwards and tax credits totaling $7.5 expired in 1998.
Future expiration of tax loss carryforwards and credits, if not utilized, are
as follows: 1999, $2.1; 2000, $2.5; 2001, $4.1; 2002, $4.7; 2003, $2.0;
thereafter or no expiration, $39.0. The valuation allowance is primarily
attributed to certain accrued liabilities, tax loss carryforwards and tax
credits outside the U.S. The valuation allowance decreased in 1998 by $6.9,
primarily due to tax loss carryforwards and tax credits expiring in fiscal 1998
for which valuation allowance had been provided.
At September 30, 1998, $132 of foreign subsidiary net earnings were
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.
EARNINGS PER SHARE
------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS
No. 128 replaces the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share is
based on the average number of shares outstanding during the period. This
calculation is the same as the primary earnings per share calculation previously
reported by the Company.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share and is based on the average number of shares used
for the basic earnings per share calculation adjusted for the dilutive effect
of convertible preferred stock, stock options, convertible debentures and
compensation awards.
- -------------------------------------------------------------------------------
37
<PAGE> 27
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(Dollars in millions except per share data) (continued)
The following table sets forth the computation of basic and diluted
earnings per share in accordance with the provisions of SFAS 128. Previously
reported diluted earnings per share amounts have been restated, as necessary,
to conform to SFAS 128 requirements. In addition, number of shares and options,
per share amounts and option prices have been restated to reflect the effect of
the 3-for-1 stock split declared on May 28, 1998.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Earnings from continuing operations
before extraordinary item............................. $ 390.6 $ 348.9 $ 296.4
Preferred stock dividend, net of taxes.................. (11.5) (13.1) (14.1)
------- ------- -------
Numerator for basic earnings per share -
Earnings from continuing operations
available to common shareholders.................... 379.1 335.8 282.3
Effect of dilutive securities:
ESOP stock............................................ 9.8 10.0 9.7
------- ------- -------
Numerator for diluted earnings per share -
Earnings from continuing operations
available to common shareholders.................... $ 388.9 $ 345.8 $ 292.0
------- ------- -------
Earnings from discontinued operations................. $ 10.0 $ 74.8 $ 65.3
------- ------- -------
Gain on sale of discontinued operations............... $ 705.1 $ -- $ --
------- ------- -------
Extraordinary Item.................................... $ -- $ -- $ (2.1)
------- ------- -------
Denominator (shares in millions):
Denominator for basic earnings per share-
weighted-average shares<F*>........................... 304.9 306.2 305.3
Effect of dilutive securities:
ESOP stock............................................ 17.7 19.4 20.1
Stock options......................................... 4.2 4.5 5.4
Deferred Compensation................................. -- 0.6 1.0
------- ------- -------
Dilutive potential common shares........................ 21.9 24.5 26.5
------- ------- -------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions........................ 326.8 330.7 331.8
======= ======= =======
Basic earnings per share:
Earnings from continuing operations..................... $ 1.24 $ 1.10 $ 0.92
Earnings from discontinued operations................... 0.03 0.24 0.22
Gain on sale of discontinued operations................. 2.32 -- --
Extraordinary item...................................... -- -- (0.01)
------- ------- -------
Net Earnings............................................ $ 3.59 $ 1.34 $ 1.13
======= ======= =======
Diluted earnings per share:
Earnings from continuing operations..................... $ 1.19 $ 1.05 $ 0.88
Earnings from discontinued operations................... 0.03 0.22 0.20
Gain on sale of discontinued operations................. 2.16 -- --
Extraordinary item...................................... -- -- (0.01)
------- ------- -------
Net Earnings............................................ $ 3.38 $ 1.27 $ 1.07
======= ======= =======
<FN>
<F*>Weighted average shares used for the computation of basic earnings per
share excludes 13.5, 12.9 and 12.7 shares of common stock held by the Company's
Grantor Trust at September 30, 1998, 1997 and 1996, respectively.
</TABLE>
- -------------------------------------------------------------------------------
38
<PAGE> 28
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions except per share data) (continued)
STOCK-BASED COMPENSATION
------------------------
The Company's 1996 Incentive Stock Plan (1996 Plan) was adopted in February
1996, and replaced the 1988 Incentive Stock Plan (1988 Plan). Under these
plans, awards to purchase shares of the Company's common stock may be granted
to officers and key employees. No additional awards may be granted under the
1988 Incentive Stock Plan, which will continue in existence until granted
shares are exercised or terminated. A maximum of 15 million shares of RAL Stock
was approved to be issued under the 1996 Plan. At September 30, 1998, 1997 and
1996, respectively, there were 3.0 million, 8.7 million and 9.3 million shares
available for future awards.
Options under the 1996 and 1988 Plan generally consist of two types of
grants. The first type of option grant generally vests ratably over four or
five years. The second type has accelerated vesting provisions that are based
on stock price or peer group performance hurdles. If these hurdles are met,
options vest at various times between years three through eight. If the hurdles
are not achieved, options vest in year nine. Awards have a maximum term of 10
years. The exercise price of each new option grant is equal to the market price
of RAL Stock on the date of grant.
In fiscal year 1998, some options were modified for certain employees of
discontinued operations to extend the option exercise period. The modification
resulted in a new measurement date and a one-time charge to earnings from
discontinued operations in fiscal 1998. The effect of this modification is also
included in the pro forma disclosures below.
Restricted stock awards may also be issued under the 1996 Plan.
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. 64,000 and 12,000 restricted stock
shares were granted in 1998 and 1997, respectively. No shares were granted in
1996. The weighted-average fair value for restricted stock granted in 1998 and
1997 is $30.88 and $28.01, respectively.
The Company continues to apply APB 25 and related Interpretations in
accounting for its stock-based compensation. Accordingly, charges to earnings
for stock-based compensation were $20.5, $13.8, and $3.2 in 1998, 1997 and
1996, respectively. Had compensation cost for stock-based compensation been
determined based on the fair value method set forth under SFAS No. 123, the
Company's net earnings and earnings per share would have been reduced to the
pro forma amounts indicated in the table below. Since options in 1996 were
granted at the end of the year, pro forma impact for 1996 is immaterial. Pro
forma amounts are for disclosure purposes only, do not include options granted
prior to fiscal year 1996, and therefore may not be representative of future
calculations.
Under the terms of the 1996 and 1988 Plans, option shares and prices are
adjusted in conjunction with stock splits and spin-offs so that the option
holder is in the same economic position before and after these equity
transactions. Option shares and prices for each fiscal year presented have been
restated for the 3-for-1 stock split distributed July 15, 1998. The current
year has been restated for the effect of the spin-off of Agricultural Products
business effective April 1, 1998. The stock split and spin-off did not result
in additional compensation expense.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Earnings:
As reported........................................................ $1,105.7 $423.7
Pro forma.......................................................... $1,104.9 $417.9
Basic Earnings Per Share:
As reported........................................................ $ 3.59 $ 1.34
Pro forma.......................................................... $ 3.59 $ 1.32
Diluted Earnings Per Share:
As reported........................................................ $ 3.38 $ 1.27
Pro forma.......................................................... $ 3.38 $ 1.25
</TABLE>
The weighted average fair value for options granted in fiscal 1998, 1997
and 1996 was $8.80, $9.69 and $7.47, respectively.
This was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate.................................................... 5.6% 6.3% 6.7%
Expected life of option.................................................... 6 years 8 years 8 years
Expected volatility of RAL Stock........................................... 19.9% to 23.0% 20.0% 20.0%
Expected dividend yield on RAL Stock....................................... 1.3% 1.3% 1.8%
</TABLE>
- -------------------------------------------------------------------------------
39
<PAGE> 29
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(Dollars in millions except per share data) (continued)
A summary of nonqualified RAL Stock options outstanding is as follows
(shares in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding on October 1,......................... 16.95 $18.15 20.16 $17.16 15.75 $14.95
Granted........................................... 2.68 30.73 .06 27.63 5.79 22.42
Exercised......................................... (.87) 14.18 (3.09) 11.68 (1.14) 11.61
Cancelled......................................... (.08) 22.63 (.18) 21.36 (.24) 25.58
----- ----- -----
Outstanding prior to spin-off on March 31,........ 18.68 20.12
=====
Adjusted options at March 31, based on spin-off
ratio of average trading prices................. 19.27 19.50
Granted........................................... 2.21 30.88
Exercised......................................... (2.03) 14.14
Cancelled......................................... (.07) 27.65
-----
Outstanding on September 30,...................... 19.38 21.33 16.95 18.15 20.16 17.16
===== ===== =====
Exercisable on September 30,...................... 5.92 17.70 2.46 15.49 2.91 12.26
===== ===== =====
</TABLE>
Information about RAL Stock options at September 30, 1998 is summarized
below (shares in millions):
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
-------------------------------------------- -------------------------
WEIGHTED-AVERAGE
REMAINING
RANGE OF CONTRACTUAL LIFE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES SHARES (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- ------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$11.00-15.63........................... 5.02 3.6 $13.16 2.47 $13.19
$18.74-28.12........................... 9.22 7.6 20.69 3.26 20.12
$28.75-42.84........................... 5.14 9.3 30.47 .19 34.56
----- ----
$11.00-42.84........................... 19.38 7.0 21.33 5.92 17.70
===== ====
</TABLE>
PENSION PLANS
- -------------
The Company has several noncontributory defined benefit pension plans
covering substantially all regular 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 the United States in accordance with the minimum and maximum
limits imposed by the Employee Retirement Income Security Act of 1974 (ERISA)
and federal income tax laws.
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.
- -------------------------------------------------------------------------------
40
<PAGE> 30
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions except per share data) (continued)
Pension cost and other retirement savings plan costs, exclusive of plan
curtailment, included the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Defined benefit plans
Benefits earned by employees............................ $ 20.6 $ 21.6 $ 20.0
Interest cost on projected benefit obligation........... 71.4 65.8 63.1
Return on plan assets................................... (129.5) (351.9) (165.8)
Net amortization and deferral........................... (.3) 238.7 62.3
------- ------- -------
Total defined benefit plans................................. (37.8) (25.8) (20.4)
Early retirement enhancements............................... 6.1 -- --
Defined contribution plans.................................. 21.3 20.3 20.5
------- ------- -------
Total pension expense (income)...................... $ (10.4) $ (5.5) $ .1
======= ======= =======
</TABLE>
In 1998, the Company recognized a $6.9 curtailment gain related to the sale
of its Soy Protein Products business which is reflected in the gain on the
sale. The Company also initiated a voluntary early retirement option to certain
Battery Product employees that resulted in a charge of $6.1 for early
retirement pension enhancements.
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:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Actuarial present value of benefits for services rendered:
Vested.................................................. $ (889.5) $ (790.0)
Nonvested............................................... (39.1) (32.5)
-------- --------
Accumulated benefits based on salaries to date.......... (928.6) (822.5)
Additional benefits based on estimated future salary
levels................................................ (156.6) (118.1)
-------- --------
Projected benefit obligation............................ (1,085.2) (940.6)
Plan assets at fair value................................... 1,729.2 1,645.8
-------- --------
Plan assets in excess of projected benefit obligation....... 644.0 705.2
Unrecognized net gain....................................... (380.1) (481.3)
Unrecognized prior service cost............................. 4.3 5.0
Unrecognized net asset at transition, net of amortization... (4.5) (8.9)
-------- --------
Prepaid pension cost included in Investments and Other
Assets.................................................... $ 263.7 $ 220.0
======== ========
</TABLE>
The assumptions used in determining the information above, which reflect
weighted averages for the component plans, were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Discount rate............................................... 6.9% 7.8%
Rate of increase of future compensation levels.............. 5.4% 5.4%
Long-term rate of return on assets.......................... 8.9% 9.0%
</TABLE>
Assets of the plans consist primarily of listed common stocks and bonds,
including 5,193,015 shares of RAL Stock with a market value of $151.9 at
September 30, 1998.
Substantially all U.S. regular employees 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
$19.5 for 1998, $18.2 for 1997 and $18.3 for 1996.
- -------------------------------------------------------------------------------
41
<PAGE> 31
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(Dollars in millions except per share data) (continued)
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
- -------------------------------------------
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 net periodic costs for postretirement benefits, exclusive of the
effects of the sale of the Soy Protein Products business, included the
following components for the year ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
MEDICAL OTHER MEDICAL OTHER MEDICAL OTHER
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Benefits earned by employees.................... $ .4 $ 1.9 $ .5 $ 2.5 $ .6 $ 3.2
Interest cost................................... 8.1 20.0 8.5 18.5 8.1 17.4
Net amortization................................ (2.1) -- (1.6) -- (1.8) --
----- ----- ----- ----- ----- -----
$ 6.4 $21.9 $ 7.4 $21.0 $ 6.9 $20.6
===== ===== ===== ===== ===== =====
</TABLE>
The sale of the Company's Soy Protein Products business in 1998 resulted in
a settlement gain in the health care and life insurance plans of $.7, and a
curtailment loss of $.8 in the other benefit plans. These gains and losses were
recognized in the gain on the sale of this business.
The following table presents the status of the Company's postretirement
benefit plans at September 30:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
MEDICAL OTHER MEDICAL OTHER
------- ----- ------- -----
<S> <C> <C> <C> <C>
Actuarial present value of benefits for services rendered:
Retirees................................................ $ 84.7 $232.8 $ 68.1 $201.8
Fully eligible plan participants........................ 34.0 35.2 31.0 28.3
Other active plan participants.......................... 6.3 29.6 7.2 30.0
------ ------ ------ ------
Accumulated benefit obligation.............................. 125.0 297.6 106.3 260.1
Fair value of plan assets................................... 4.6 -- 5.1 --
------ ------ ------ ------
Accumulated benefit obligation in excess of plan assets..... 120.4 297.6 101.2 260.1
Unrecognized experience gain (loss)......................... 17.7 (53.1) 36.2 (23.1)
Unrecognized prior service gain............................. 8.0 -- 8.8 --
------ ------ ------ ------
Accrued postretirement benefit liability.................... 146.1 244.5 146.2 237.0
Less current portion........................................ (4.2) (15.9) (4.0) (13.9)
------ ------ ------ ------
Non-current portion included in Other Liabilities........... $141.9 $228.6 $142.2 $223.1
====== ====== ====== ======
</TABLE>
The discount rate used in determining the information above was 7.0% in
1998 and 7.9% in 1997. The assumed health care cost trend rate for participants
under age 65 is 7% for 1999, and declines to 6% in 2000 and thereafter. For
participants age 65 and over, the trend rate is 6% in 1999 and thereafter.
If the assumed health care cost trend rate increased by 1 percentage point,
the accumulated benefit obligation as of September 30, 1998 would increase by
approximately $11.9 and expense would increase by $1.3 annually.
Coincident with the adoption of the ESOP in January of 1989, the Company
began 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
- -------------
Notes payable at September 30, 1998 consisted of notes payable to financial
institutions of $657.3 and commercial paper borrowings of $115.1 and had a
weighted average interest rate of 7.2%. Notes payable at September 30, 1997
consisted of notes payable to financial institutions of $340.3 and had a
weighted average interest rate of 7%.
At September 30, 1998, total unused lines of credit were $226.3.
- -------------------------------------------------------------------------------
42
<PAGE> 32
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions except per share data) (continued)
LONG-TERM DEBT
--------------
The detail of long-term debt as of September 30 follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Debentures
9 1/4% due 2009......................................... $ 181.0 $ 181.0
7 3/4% due 2015......................................... 175.0 175.0
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
7 7/8% due 2025......................................... 225.0 225.0
Other Debt
ESOP loan guarantee (through 1998)...................... 13.2 63.8
Medium-term Notes, 8.52% to 10.18%, maturing
1999-2010............................................. 31.0 49.4
SAILS, 7%............................................... 480.0 480.0
LIBOR + 15 basis points, or 5.8375% at September 30,
1998.................................................. 50.0 50.0
Industrial revenue bonds, 4.5% to 8.125%, maturing
1999-2015................................................. 29.1 29.1
Other....................................................... 22.6 88.3
-------- --------
1,831.9 1,966.6
Less current portion.................................... (37.1) (106.2)
-------- --------
$1,794.8 $1,860.4
======== ========
</TABLE>
Aggregate maturities on all long-term debt, exclusive of debentures held in
treasury, are $544.0, $5.0, $2.9 and $3.2 for the years ending September 30,
2000 through 2003, respectively.
To fund its purchase of the Company's Redeemable 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 debt,
along with corresponding unearned ESOP compensation. Both the remaining 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 through
maturity on December 31, 1998. During 1998 and 1997, the ESOP incurred $4.2 and
$8.2, respectively, of interest expense on the ESOP loan.
In July 1997, the Company issued $480 of SAILS consisting of 7%
exchangeable notes due August 1, 2000. At maturity, the notes are mandatorily
exchangeable into a number of shares of IBC common stock owned by the Company,
or cash, at the Company's option. Approximately 7.7 million notes were issued.
Net proceeds of $466 from the transaction were primarily used to reduce
short-term debt. SAILS debt was initially recorded on the balance sheet at the
principal amount of the issuance. At each subsequent balance sheet date, the
SAILS are marked to the cash value of the underlying IBC shares for which the
SAILS may be exchanged. Any change in value is recorded in earnings each
period. At September 30, 1998, the Company's SAILS debt was $480, which
includes no change in the market value of the IBC common stock that is
exchangeable into SAILS. (See the "Investment in Interstate Bakeries
Corporation Note" for more information on SAILS.)
REDEEMABLE PREFERRED STOCK
--------------------------
The Company's Articles of Incorporation authorize the Company to issue up
to 10,600,000 shares of $1 par value preferred stock. The Company has issued
4,600,000 shares of preferred stock to the ESOP, which have been designated as
Series A 6.75% Preferred Stock (Redeemable Preferred Stock). Redeemable
Preferred Stock has a guaranteed redemption value of $110.83 per share and is
convertible, at the option of the ESOP fiduciaries, into the Company's $.10 par
value RAL Stock at the current ratio of 7.12 shares of RAL Stock for each share
of Redeemable Preferred Stock. The shares of Redeemable Preferred Stock have
preferential liquidation rights, and each share is entitled to one vote.
Dividends are cumulative, compounded and payable semi-annually. In accordance
with financial reporting requirements of the Securities and Exchange
Commission, the Redeemable Preferred Stock has been classified outside of
permanent equity.
The shares of Redeemable Preferred Stock 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 shares of Redeemable Preferred Stock are used to
fund the debt service requirements of the ESOP loan. The trustee, as holder of
the Redeemable Preferred Stock, may require the Company to redeem the shares,
under certain limited circumstances, at the guaranteed redemption value. The
Company may also, in certain limited circumstances, elect to redeem the
Redeemable Preferred Stock. Payment of
- -------------------------------------------------------------------------------
43
<PAGE> 33
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- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(Dollars in millions except per share data) (continued)
the redemption price may be made in cash or in shares of RAL Stock. The Trustee
may, prior to the time set for redemption, convert the Redeemable Preferred
Stock into shares of RAL Stock at the then-current ratio.
Approximately 440,002 shares of Redeemable Preferred Stock in 1998, 168,573
shares in 1997 and 227,000 shares in 1996 were redeemed or converted to meet
ongoing requirements of the ESOP. As of September 30, 1998, 2,310,634 shares of
Redeemable Preferred Stock remained issued and outstanding and continued to be
held by the ESOP. Of these shares, approximately 2,191,700 shares were
allocated to participant accounts as of that date.
All shares of Redeemable Preferred Stock will be allocated to participants'
accounts by December 31, 1998. The Company has given notice to the trustee that
it will exercise its right to redeem all of the outstanding shares of
Redeemable Preferred Stock following the final maturity of the ESOP loan on
December 31, 1998. At that time, the Company will either redeem the shares at
the guaranteed redemption value, or, at the option of the ESOP's trustee,
convert those shares into shares of RAL Stock at the conversion rate then in
effect. The proceeds of the redemption, or the shares of RAL Stock issued in
the conversion, will be invested in an RAL Stock Fund in the ESOP, but
participants will be able to diversify portions of that account into other
investment options in the Company's Savings Investment Plan.
SHAREHOLDERS EQUITY
- -------------------
On March 28, 1996, the Board of Directors declared a dividend of one share
purchase right ("Right") for each outstanding share of RAL Stock. Each Right
entitles a shareholder of RAL Stock to purchase an additional share of RAL
Stock at an exercise price of $64.27, which price is subject to antidilution
adjustments. Rights, however, may only be exercised if a person or group has
acquired, or commenced a public tender for, 20% or more of the outstanding RAL
Stock, unless the acquisition is pursuant to a tender or exchange offer for all
outstanding shares of RAL Stock and a majority of the Board of Directors
determines that the price and terms of the offer are adequate and in the best
interests of shareholders (a "Permitted Offer"). At the time that 20% or more
of the outstanding RAL Stock is actually acquired (other than in connection
with a Permitted Offer), the exercise price of each Right will be adjusted so
that the holder (other than the person or member of the group that made the
acquisition) may then purchase a share of RAL Stock at one-third of its
then-current market price. If the Company merges with any other person or group
after the Rights become exercisable, a holder of a Right may purchase, at the
exercise price, common stock of the surviving entity having a value equal to
twice the exercise price. If the Company transfers 50% or more of its assets or
earnings power to any other person or group after the Rights become
exercisable, a holder of a Right may purchase, at the exercise price, common
stock of the acquiring entity having a value equal to twice the exercise price.
The Company can redeem the Rights at a price of $.01 per Right at any time
prior to the time a person or group actually acquires 20% or more of the
outstanding RAL Stock (other than in connection with a Permitted Offer). In
addition, following the acquisition by a person or group of at least 20%, but
not more than 50%, of the outstanding RAL Stock (other than in connection with
a Permitted Offer), the Company may exchange each Right for one share of RAL
Stock. The Company's Board of Directors may amend the terms of the Rights at
any time prior to the time a person or group acquires 20% or more of the
outstanding RAL Stock (other than in connection with a Permitted Offer), and
may amend the terms to lower the threshold for exercise of the Rights. If the
threshold is reduced it cannot be lowered to a percentage which is less than
10%, or, if any shareholder holds 10% or more of the outstanding RAL Stock at
that time, the reduced threshold must be greater than the percentage held by
that shareholder. On May 28, 1998, the Board amended the terms of the Rights to
eliminate the obligation of the Company to reserve shares of RAL Stock which
would be issued upon exercise of the Rights. The Rights will expire on March
28, 2006.
At September 30, 1998, there were 600,000,000 shares of RAL Stock
authorized, 16,451,714 shares of RAL Stock reserved for conversion of
Redeemable Preferred Stock, 34,620 shares reserved for conversion of the 5 3/4%
subordinated debentures and 26,407,738 shares 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 certain employee benefit plans and does not change those plans
or the amounts of stock expected to be issued for those plans. However, payment
of certain benefits would be accelerated if minimum funding requirements of the
Trust are not met.
For financial reporting purposes, the Trust is consolidated with the
Company. In 1998, the Trust was adjusted through additional paid in capital
from fair market value to original cost basis based upon guidance issued by the
Emerging Issues Task Force of the Financial Accounting Standards Board. The
cost basis of the shares held by the Trust is shown as a reduction to
shareholders equity. Any dividend transactions between the Company and the
Trust are eliminated. RAL Stock held in the Trust is not considered outstanding
in the computation of earnings per share. The Trust held 13,470,442 shares of
RAL Stock at a cost basis of $191.5 at September 30, 1998; and held 12,921,642
shares of RAL stock at a fair market value of $381.2 at September 30, 1997.
- -------------------------------------------------------------------------------
44
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- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions except per share data) (continued)
The Trustee, a party not related to the Company, is responsible for voting
the shares of RAL 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.
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. These
regulations primarily relate to, among other things, 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 or similar state statutes, and may be
required to share in the cost of cleanup with respect to 13 "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 likely to be asserted, taking into account established
accruals of $12.6 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. Costs of
future expenditures for environmental remediation obligations are not
discounted to their present value.
OTHER COMMITMENTS -- At September 30, 1998, the Company had third party
guarantees outstanding in the aggregate amount of approximately $65.5. These
guarantees relate primarily to revenue bonds for various facilities and to
workers compensation claims associated with the disposition of CBC prior to the
sale. While IBC is primarily liable for the payment of these claims, the
Company remains secondarily liable for payment.
Future minimum rental commitments under noncancellable operating leases in
effect as of September 30, 1998 were: 1999--$8.5, 2000--$7.4, 2001--$5.7,
2002--$4.4, 2003--$3.8 and thereafter--$14.6.
Total rental expense for all operating leases was $41.9 in 1998, $36.7 in
1997 and $38.7 in 1996.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
-----------------------------------------
FOREIGN CURRENCY CONTRACTS -- 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, including anticipated intercompany
transactions. The level of such actions is dependent on seasonality of the
Company's activities and on specific market conditions involving various
currencies.
The tables below summarize by instrument and by major currency the
contractual amounts of the Company's forward exchange contracts and purchased
currency options in U.S. dollar equivalents at year end. These contractual
amounts represent transaction volume outstanding, and do not represent the
amount of the Company's exposure to credit or market loss. Foreign currency
contracts are generally for one year or less.
<TABLE>
<CAPTION>
1998 1997
INSTRUMENT ---- ----
<S> <C> <C>
Forwards............................................... $248.7 $330.4
Options................................................ 6.7 19.6
CURRENCY
Canadian dollar........................................ 19.5 1.2
French franc........................................... 74.7 101.3
Swiss franc............................................ 144.0 93.0
British pound.......................................... 6.7 55.3
Belgian franc.......................................... 1.5 26.1
German mark............................................ 1.2 21.8
Indonesian rupiah...................................... -- 13.5
Other currencies....................................... 7.8 37.8
</TABLE>
- -------------------------------------------------------------------------------
45
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- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(Dollars in millions except per share data) (continued)
INTEREST RATE SWAP AGREEMENTS -- The Company utilizes interest rate swap
agreements to reduce exposure to changes in interest rates and manage the mix
of fixed and variable rate debt. All of the Company's previously outstanding
interest rate swap agreements matured during fiscal year 1998.
The Company had $33.7 notional amount of interest rate swap agreements
outstanding at September 30, 1997. The underlying debt of these swaps was
included in Notes Payable in the Consolidated Balance Sheet at September 30,
1997. These agreements effectively converted Swiss franc variable rate debt
into fixed rate debt and had a weighted average pay rate of 4.2% in 1997.
CONCENTRATION OF CREDIT RISK -- The counterparties to foreign currency
contracts, interest rate swap agreements and repurchase agreements 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.
Risk of currency positions and mark-to-market valuation of positions are
strictly monitored at all times. The Company continually monitors 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.
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers, generally short payment terms and
their dispersion across geographic areas.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments
include cash and cash equivalents, marketable equity securities, short-term and
long-term debt, Redeemable Preferred Stock, foreign currency contracts and
interest rate swap agreements.
At September 30, 1998, the fair value and cost basis of the Company's
available-for-sale marketable equity securities was $1,281.2 and $1,420.1,
respectively, resulting in a gross unrealized holding loss of $138.9. This
loss, net of tax of $50.0, is shown as a separate component of shareholders
equity. The change in net unrealized holding loss for the year ended September
30, 1998, was $88.9. Marketable equity securities at September 30, 1998 consist
primarily of shares of DuPont common stock.
At September 30, 1998 and 1997, the fair value of debt was $2,925.1 and
$2,535.3, respectively, compared to its carrying value of $2,604.3 and
$2,306.9, 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.
Redeemable Preferred Stock had a fair value of $481.2 and $557.5 at
September 30, 1998 and 1997, respectively, compared to its carrying value of
$256.1 and $304.9, respectively. The fair value is based upon the greater of
the fair market value of RAL Stock into which the Redeemable Preferred Stock
may be converted or the guaranteed minimum value.
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, 1998 and 1997
were not material.
OTHER INCOME AND EXPENSE
- ------------------------
Other (income)/expense, net consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Translation and exchange loss............................... $ 16.9 $ 6.0 $ 12.4
Dividend income............................................. (22.9) -- --
Investment income........................................... (5.7) (4.3) (4.2)
Return on other investments................................. (9.1) (8.3) (1.7)
Miscellaneous (income)/expense.............................. .4 (1.1) 2.6
------ ------ ------
$(20.4) $ (7.7) $ 9.1
====== ====== ======
</TABLE>
- -------------------------------------------------------------------------------
46
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- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in millions except per share data) (continued)
SUPPLEMENTAL BALANCE SHEET INFORMATION
--------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1998 1997
-------- ----
<S> <C> <C>
Receivables (current)--
Trade................................................... $ 672.1 $ 635.8
Notes and other......................................... 69.6 64.2
Allowance for doubtful accounts......................... (24.5) (24.8)
-------- --------
$ 717.2 $ 675.2
======== ========
Inventories--
Raw materials and supplies.............................. $ 134.7 $ 119.7
Work in process......................................... 124.1 115.8
Finished products....................................... 341.6 369.3
-------- --------
$ 600.4 $ 604.8
======== ========
Other Current Assets--
Prepaid expenses........................................ $ 59.7 $ 54.7
Deferred income tax benefits............................ 60.4 61.7
-------- --------
$ 120.1 $ 116.4
======== ========
Investments and Other Assets--
Goodwill (net of accumulated amortization: 1998--$133.5
and 1997--$111.3)..................................... $ 545.9 $ 446.5
Other intangible assets (net of accumulated
amortization: 1998--$345.7 and 1997--$332.9).......... 231.2 236.4
Equity investments in affiliated companies.............. 319.3 299.9
Available for sale securities........................... 1,281.2 --
Deferred charges and other assets....................... 530.6 547.5
-------- --------
$2,908.2 $1,530.3
======== ========
Accounts Payable and Accrued Liabilities--
Trade accounts payable.................................. $ 286.2 $ 264.0
Incentive compensation, salaries and vacations.......... 76.2 63.3
Accrued interest........................................ 43.1 42.9
Restructuring reserves.................................. 57.3 66.3
Other................................................... 252.0 268.5
-------- --------
$ 714.8 $ 705.0
======== ========
Other Liabilities--
Postretirement medical benefits......................... $ 141.9 $ 142.2
Other postretirement benefits........................... 228.6 223.1
Minority interests...................................... 3.0 6.5
Other................................................... 160.1 135.6
-------- --------
$ 533.6 $ 507.4
======== ========
</TABLE>
SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
--------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Interest paid............................................... $175.7 $154.2 $166.7
Income taxes paid........................................... 146.4 166.7 168.9
</TABLE>
- -------------------------------------------------------------------------------
47
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- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(Dollars in millions except per share data) (continued)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- -------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year.................................. $24.8 $26.7 $ 25.5
Provision charged to expense................................ 3.9 3.1 6.2
Writeoffs, less recoveries.................................. (4.2) (5.0) (5.0)
----- ----- ------
Balance, end of year........................................ $24.5 $24.8 $ 26.7
===== ===== ======
</TABLE>
QUARTERLY FINANCIAL INFORMATION
- -------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
FISCAL 1998 FIRST SECOND<Fb> THIRD<Fb> FOURTH<Fb>
- ----------- ----- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net sales................................................. $1,317.1 $1,110.8 $1,072.9 $1,152.5
Gross profit.............................................. 668.9 561.9 543.9 578.9
Earnings from continuing operations....................... 139.7<Fa> 86.5 59.6 104.8
Earnings/(loss) from discontinued operations.............. 15.7 (6.6) 0.9 --
Gain on sale of discontinued operations................... 705.1 -- -- --
Net earnings.............................................. 860.5<Fa> 79.9 60.5 104.8
Earnings per share of RAL Stock
Basic
Earnings from continuing operations............... .44 .27 .19 .34
Earnings/(loss) from discontinued operations...... .05 (.02) -- --
Gain on sale of discontinued operations........... 2.30 -- -- --
Net earnings...................................... 2.79 .25 .19 .34
Diluted
Earnings from continuing operations............... .42 .26 .18 .33
Earnings/(loss) from discontinued operations...... .05 (.02) -- --
Gain on sale of discontinued operations........... 2.14 -- -- --
Net earnings...................................... 2.61 .24 .18 .33
Dividends paid per share.................................. .10 .10 .10 .10
Market price range of RAL Stock........................... 32 19/64- 35 5/8- 39 5/64- 38 7/8-26
27 51/64 28 1/2 33 9/16
<FN>
<Fa> Amounts have been restated due to the adoption of SOP No.
98-1. See "Capitalized Software Costs" in the Summary of
Accounting Policies.
<Fb> Earnings from continuing operations were reduced due to
provisions for restructuring and increased due to capital
loss tax benefits and a gain on the sale of IBC stock by the
following amounts:
<CAPTION>
EARNINGS FROM
CONTINUING BASIC DILUTED
OPERATIONS EPS EPS
------------- ----- -------
<S> <C> <C> <C>
Second Quarter
Restructuring............................ $(43.7) (.14) (.13)
Capital loss tax benefits................ 41.5 .13 .12
Gain on sale of IBC stock................ 9.5 .03 .03
Third Quarter
Restructuring............................ (17.6) (.05) (.05)
Fourth Quarter
Capital loss tax benefits................ 3.3 .01 .01
Gain on sale of IBC stock................ 3.5 .01 .01
</TABLE>
All per share and market price range information for the first and second
quarters as shown above has been restated to reflect a three-for-one stock
split, effected in the form of a 200% stock dividend, declared by the Board of
Directors on May 28, 1998.
- -------------------------------------------------------------------------------
48
<PAGE> 38
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION
-------------------------------
(continued)
<TABLE>
<CAPTION>
(UNAUDITED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
FISCAL 1997 FIRST SECOND<Fa> THIRD<Fa> FOURTH<Fa>
- ----------- ----- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net sales................................................. $1,260.5 $1,048.4 $1,041.8 $1,136.1
Gross profit.............................................. 615.1 518.0 518.1 553.7
Earnings from continuing operations....................... 114.3 59.0 80.2 95.4
Earnings from discontinued operations..................... 23.1 17.7 20.5 13.5
Net earnings.............................................. 137.4 76.7 100.7 108.9
Earnings per share of RAL Stock
Basic
Earnings from continuing operations............... .36 .18 .25 .30
Earnings from discontinued operations............. .08 .06 .07 .04
Net earnings...................................... .44 .24 .32 .34
Diluted
Earnings from continuing operations............... .34 .17 .24 .29
Earnings from discontinued operations............. .07 .06 .06 .04
Net earnings...................................... .41 .23 .30 .33
Dividends paid per share.................................. .10 .10 .10 .10
Market price range of RAL Stock........................... 26-21 53/64 29 1/8- 29 5/64- 31 7/16-
23 45/64 24 59/64 26 11/16
<FN>
<Fa> Earnings from continuing operations were reduced due to
provisions for restructuring and increased due to income tax
benefits and a gain on the sale of IBC stock by the
following amounts:
<CAPTION>
EARNINGS FROM
CONTINUING BASIC DILUTED
OPERATIONS EPS EPS
------------- ----- -------
<S> <C> <C> <C>
Third Quarter
Restructuring............................ $(90.8) (.29) (.28)
Capital loss tax benefits................ 61.7 .20 .19
Foreign tax credit refunds............... 34.7 .11 .11
Fourth Quarter
Restructuring............................ (7.2) (.02) (.02)
Gain on sale of IBC stock................ 15.1 .05 .05
All per share and market price range information above has been
restated to reflect a three-for-one stock split, effected in the
form of a 200% stock dividend, declared by the Board of Directors
on May 28, 1998.
</TABLE>
- -------------------------------------------------------------------------------
49
<TABLE>
<CAPTION>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<S> <C> <C>
Jurisdictions of
Subsidiary Name Incorporation Percentage of Control
- ------------------------------------------------- ---------------- ----------------------
Benco Pet Foods, Inc. Illinois 100%
Berec Components Limited UK 100%
Berec Overseas Investments Limited UK 100%
Checkerboard Holding Company, Inc. Delaware 100%
Checkerboard Insurance Company, Ltd. Bermuda 100%
Checkerboard Media Company, Inc. Missouri 100%
Checkerboard Properties, Inc. Delaware 100%
Compagnie Ralston Energy Systems France 100%
Corporate Insurance Services, Inc. Missouri 100%
EBC Batteries, Inc. Delaware 100%
EBC (India) Company Ltd. India 100%
Edward Baker Holdings, Ltd. UK 100%
Edward Baker, Ltd. UK 100%
Energizer (China) Co., Ltd. China 100%
Energizer Hellas A.E. Greece 100%
Energizer Hungary Trading Ltd. Hungary 100%
Energizer Iberia, Inc. Spain 100%
Energizer Korea, Ltd. Korea 100%
Energizer India Limited India 51%
Energizer Japan, Inc. Delaware 100%
Energizer Nordic A/S Denmark 100%
Energizer Polska Spolka zo.o Poland 100%
Energizer Rechargeable Products Asia Pacific Ltd. Hong Kong 100%
Energizer Rechargeable Products Nordic, A.B. Sweden 100%
Energizer Rechargeabe Products (UK) Ltd. UK 100%
Energizer Slovakia, Spol.Sr.O. Slovak Republic 100%
Energizer (South Africa) Ltd. Delaware 100%
Energizer (Thailand) Limited Thailand 100%
Energizer Company UK 100%
Ever Ready (Ireland) Limited Ireland 100%
Ever Ready Limited UK 100%
Eveready Australia Pty. Limited Australia 100%
Eveready Batteries Hong Kong Limited Hong Kong 100%
Eveready Batteries Kenya Ltd. Kenya 14%
Eveready Batteries Ltd. Delaware 100%
Eveready Battery Company Asia Pacific, Inc. Delaware 100%
Eveready Battery Company, Inc. Delaware 100%
Eveready Battery Company Lanka Limited Sri Lanka 60%
Eveready Battery Company (Malaysia) SDN.BHD. Malaysia 80%
Eveready Battery Company Philippines, Inc. Philippines 100%
Eveready Battery Distributing LLC Russia 100%
Eveready Battery International, Inc. Delaware 100%
Eveready de Chile S.A. Chile 100%
Eveready de Colombia, S.A. Colombia 100%
Eveready de Mexico S.A. de C.V. Mexico 100%
Eveready de Venezuela, C.A. Venezuela 100%
Eveready Ecuador C.A. Ecuador 100%
Eveready Egypt S.A.E. Egypt 51%
Eveready Energizer Miniatures Limited India 49%
Eveready Ghana Limited Ghana 66.6%
Eveready Hong Kong Company Hong Kong 100%
Eveready New Zealand Limited New Zealand 100%
Eveready Puerto Rico, Inc. Puerto Rico 100%
Eveready Singapore Pte. Ltd. Singapore 100%
Fundacio Purivada Purina Spain 100%
Gallina Blanca Purina, S.A. Spain 50%
LaSalle Park Redevelopment Corporation Missouri 100%
Paul's Ltd. UK 100%
Petfood Services, B.V. Netherlands 100%
Protein Technologies International Holdings, Inc. Delaware 100%
PT Eveready Battery Company Indonesia Indonesia 80%
PT Eveready Trading Company Indonesia 100%
Purina China, Inc. Delaware 100%
Purina Japan KK Japan 100%
Ralston Battery Systems Ges.m.b.H. Austria 100%
Ralston Energy Systems BeneLux, N.V. Belgium 100%
Ralston Energy Systems Deutschland G.m.b.H. Germany 100%
Ralston Energy Systems France S.A. France 100%
Ralston Energy Systems Iberica, S.A. Spain 100%
Ralston Energy Systems Italia, S.p.A. Italy 100%
Ralston Energy Systems S.A. Switzerland 100%
Ralston Energy Systems s.r.o. Czech Republic 100%
Ralston Energy Systems U.K. Limited UK 100%
Ralston Products, Inc. Delaware 100%
Ralston Purina Argentina S.A. Argentina 100%
Ralston Purina Americas, Inc. Delaware 100%
Ralston Purina Canada, Inc. Canada 100%
Ralston Purina Child Development Center, Inc. Missouri 100%
Ralston Purina Colombiana, S.A. Colombia 100%
Ralston Purina do Brasil Ltda. Brazil 100%
Ralston Purina Europe, S.A. Spain 100%
Ralston Purina Government Affairs, Inc. Delaware 100%
Ralston Purina Holdings Mexico, S.A. de C.V. Mexico 100%
Ralston Purina Italia, SpA Italy 100%
Ralston Purina Mexico, S.A. de C.V. Mexico 100%
Ralston Purina Overseas Battery Company Delaware 100%
Ralston Purina Pet Products France, S.A. France 99.6%
Ralston Purina Sales, Limited Barbados 100%
Ralston Trust, Ltd. UK 100%
Red & White, Inc. Delaware 100%
Sistemas de Baterias S.A. de C.V. Mexico 100%
Sonca Products Limited Hong Kong 100%
Technomene Pet Foods, Inc. Delaware 100%
Tower Enterprises, Inc. Missouri 100%
VCS Holding Company Delaware 100%
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 333-02033, 2-96616, 33-677, 2-83297, 2-81753,
33-17875, 33-19911, 33-25396, 33-25674 and 333-61073 of the Ralston Purina
Company and Prospectuses thereto, of our report dated October 30, 1998 appearing
on page 25 of the Ralston Purina Company 1998 Annual Report to Shareholders
which is incorporated by reference in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
December 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 9/30/98
RALSTON PURINA COMPANY BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 89,800
<SECURITIES> 0
<RECEIVABLES> 741,700
<ALLOWANCES> 24,500
<INVENTORY> 600,400
<CURRENT-ASSETS> 1,527,500
<PP&E> 2,212,900
<DEPRECIATION> 1,096,900
<TOTAL-ASSETS> 5,551,700
<CURRENT-LIABILITIES> 1,582,000
<BONDS> 1,794,800
256,100
0
<COMMON> 32,600
<OTHER-SE> 1,056,500
<TOTAL-LIABILITY-AND-EQUITY> 5,551,700
<SALES> 4,653,300
<TOTAL-REVENUES> 4,653,300
<CGS> 2,299,700
<TOTAL-COSTS> 2,299,700
<OTHER-EXPENSES> 1,689,200
<LOSS-PROVISION> 3,900
<INTEREST-EXPENSE> 191,100
<INCOME-PRETAX> 469,400
<INCOME-TAX> 117,500
<INCOME-CONTINUING> 390,600
<DISCONTINUED> 715,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,105,700
<EPS-PRIMARY> 3.59<F1>
<EPS-DILUTED> 3.38<F1>
<FN>
<F1>REFLECTS EFFECT OF 3-FOR-1 STOCK SPLIT DECLARED MAY 28, 1998. FINANCIAL
DATA SCHEDULES FOR PERIODS ENDED PRIOR TO 6-30-98 HAVE NOT BEEN RESTATED FOR
THIS STOCK SPLIT.
</FN>
</TABLE>
NON-QUALIFIED STOCK OPTION
--------------------------
RALSTON PURINA COMPANY (the "Company"), effective September 24, 1998,
grants this Non-Qualified Stock Option to ____________ ("Optionee") to purchase
a total of __________ shares of Common Stock of the Company ("Common Stock") at
a price of $30.875 per share pursuant to its 1996 Incentive Stock Plan (the
"Plan"). Subject to the provisions of the Plan and the following terms,
Optionee may exercise this Option from time to time by tendering to the Company
written notice of exercise together with the purchase price in cash, or in
shares of Common Stock at their Fair Market Value as determined by the Human
Resources Committee, or both.
1. Normal Exercise. This Option becomes exercisable at the rate of 25% of
---------------
the total shares on September 24 in each of the years 2000, 2001, 2002 and 2003.
This Option remains exercisable through September 23, 2008 unless Optionee is no
longer employed by the Company, in which case the Option is exercisable only in
accordance with the provisions of paragraph 3 below.
2. Acceleration. Notwithstanding the above, any shares not previously
------------
forfeited under this Option will become fully exercisable before the normal
exercise dates set forth in paragraph 1 hereof upon the occurrence of any of the
following events while Optionee is employed by the Company:
a. death of Optionee;
b. declaration, by the Committee, of Optionee's total and permanent
disability;
c. the voluntary termination of employment of Optionee (i) at or after
age 55 with 15 years of service with the Company or its Affiliates; or (ii) at
or after age 62;
d. a Change of Control; or
e. the involuntary termination of Optionee's employment with the
Company or an Affiliate, other than a termination for any of the following
reasons: Termination for Cause, Optionee's engaging in competition with the
Company or an Affiliate, or Optionee's engaging in any activity or conduct
contrary to the best interests of the Company or any Affiliate. For purposes of
this Option, involuntary termination shall include (i) Optionee's involuntary
termination of employment with the Company or an Affiliate which employs
Optionee; or (ii) the sale or other disposition of a majority of the stock or
assets of an Affiliate which employs Optionee. In no event shall transfers of
employment between the Company or any Affiliates and any of its other
Affiliates, or the creation of a class of stock of the Company which tracks the
performance of an Affiliate, be deemed to constitute an involuntary termination
of employment.
3. Exercise After Certain Events. Upon the occurrence of any of the events
-----------------------------
described below, any shares that are exercisable upon such occurrence shall
remain exercisable during the period stated below, but, in any event, not later
than September 23, 2008:
a. If Optionee's employment is terminated due to death, declaration of
total and permanent disability, voluntary termination at or after the time set
forth in paragraph 2(c)(i) or (ii), or involuntary termination of employment
(other than for events described in Sections IV.A.1, 3 or 4 of the Plan), such
shares that are exercisable shall remain exercisable for five years thereafter;
b. If Optionee's employment is terminated voluntarily prior to the time
set forth in paragraph 2(c)(i) or (ii), such shares that are exercisable shall
remain exercisable for six months after such voluntary termination;
c. When, prior to a Change of Control, there has been a declaration of
forfeiture pursuant to Section IV of the Plan because Optionee's employment is
Terminated for Cause, Optionee engages in competition with the Company or an
Affiliate, or Optionee engages in any activity or conduct contrary to the best
interests of the Company or any Affiliate, such shares that are then exercisable
shall remain exercisable for seven days after such declaration; or
d. After a Change of Control, if Optionee's employment is Terminated
for Cause, Optionee engages in competition with the Company or an Affiliate, or
Optionee engages in any activity or conduct contrary to the best interests of
the Company or any Affiliate, such shares that are then exercisable shall remain
exercisable for seven days after a declaration that any of such events has
occurred.
4. Forfeiture. Prior to a Change of Control, this Option is subject to
----------
forfeiture for the reasons set forth in Section IV.A.1, 3 or 4 of the Plan. If
there is a declaration of forfeiture, those shares that are exercisable at the
time of the declaration may be exercised as set forth in paragraph 3 hereof; all
other shares are forfeited.
5. Definitions. Unless otherwise defined in this Non-Qualified Stock
-----------
Option, defined terms used herein shall have the same meaning as set forth in
the Plan.
"Change of Control" shall occur when (i) a person, as defined under
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 of any successor to the Company.
6. Severability. The invalidity or unenforceability of any provision hereof
-------------
in any jurisdiction shall not affect the validity or enforceability of the
remainder hereof in that jurisdiction, or the validity or enforceability of this
Non-Qualified Stock Option, including that provision, in any other jurisdiction.
To the extent permitted by applicable law, the Company and Optionee each waive
any provision of law that renders any provision hereof invalid, prohibited or
unenforceable in any respect. If any provision of this Option is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
ACKNOWLEDGED AND ACCEPTED: RALSTON PURINA COMPANY
____________________________
Optionee
By:_________________________
____________________________ Co-Chief Executive Officer
Date
1999 ANNUAL BONUS DEFERRAL ELECTION
Please submit my request as follows with respect to any 1999 annual cash bonus
which may be awarded to me by Ralston Purina Company or its affiliates. I
understand that any decision regarding any 1999 annual bonus that may be paid to
me or deferred for future payment is at the discretion of management and the
Human Resources Committee. I further understand that an election to defer, once
made, is IRREVOCABLE.
-----------
DEFERRAL ELECTION PLEASE CHECK ONE BOX BELOW. YOU MUST DEFER AT LEAST $1,000
TO PARTICIPATE.
/ / NO DEFERRAL Check here if you do not wish to defer any portion of your
1999 annual bonus. Complete Acknowledgement section below.
/ / DEFERRAL I elect to defer _______ % or defer all up to $____________
or defer all in excess of $____________ of any 1999 annual
bonus. Complete Allocation, Distribution, and
Acknowledgement sections below.
ALLOCATION ELECTION PLEASE SELECT IN WHOLE PERCENTAGE INCREMENTS. TOTAL MUST
EQUAL 100%.
I elect to allocate my deferral to the following funds:
/ / Equity Option Account (25% Company Match) %
---------
/ / Variable Interest Account %
---------
DISTRIBUTION ELECTION CHECK APPROPRIATE BOXES MAKING SURE PERCENTAGES TOTAL
100%.
/ / I elect to receive ______% of my 1999 annual bonus deferral amount as a
short-term payout in January 2000 with interest calculated under the terms of
the Variable Interest Option. Payable in lump sum.
/ / I elect to receive ______% of my 1999 annual bonus deferral amount as an
intermediate-term payout in January, _______ (indicate any year beginning in
2003 or later). Payable in lump sum only.
/ / I elect to receive ______% of my 1999 annual bonus deferral amount as a
retirement/termination payment.
SELECT A PAYOUT DISTRIBUTION FORM BELOW. Note that distributions made before
termination at age 50 or older will be in lump-sump form only. This election
will apply to distributions of all Deferred Compensation Plan accounts except
---
for the Fixed Benefit Option. Because of IRS rules regarding the constructive
receipt of income, this payment form election can only apply to distributions
made on or after 1/1/2000. Distributions made in 1999 will be in lump-sum form
only regardless of your election of an installment payment.
/ / Lump-sum payment / / 5 Annual Installments / / 10 Annual Installments
ACKNOWLEDGEMENT
- ------------------------ ---------------------------------
Social Security Number Signature
- ------------------------ --------------------------------------------
Today's Date Name (Type or Print) Location/Floor #
- ----------------------- --------------------------------------------
Division/Business Unit Department
- -----------------------------------------------------------------------------
Home Street Address City State Zip
MAIL OR FAX TO CORPORATE COMPENSATION - 1A - ST. LOUIS - 314-982-2490
THIS FORM MUST BE RECEIVED BY CORPORATE COMPENSATION NO LATER THAN
--------
DECEMBER 31, 1998
AGREEMENT FOR DEFERRAL OF 1998 ANNUAL CASH BONUS
Ralston Purina Company ("Company") and ________________ agree that,
effective November 1, 1998, $ awarded to Participant under the 1998
---------
Annual Cash Bonus Award Program shall be deferred, as requested by Participant,
into the option or options available under the Deferred Compensation Plan for
Key Employees ("Plan"), which is attached hereto as Exhibit A and incorporated
by reference herein.
Pursuant to Participant's request, the following amounts have been deferred
for Participant in the manner set forth below:
(1) EQUITY OPTION -
-----------------
(a) $ in a Deferred Stock Equivalent Account in
---------
Participant's name under the Equity Option as set forth in Section 2.2 of the
Plan.
(b) $ in a Deferred Stock Equivalent Account in
---------
Participant's name representing Company Matching Deferral (25% of amount listed
in 1(a) above) as set forth in Section 2.2(b) of the Plan.
(2) SHORT-TERM VARIABLE INTEREST OPTION - $ in a Deferred Cash
----------------------------------- -------
Account in Participant's name under the Variable Interest Option as set forth in
Section 2.3 of the Plan; provided, however, that, notwithstanding any provision
to the contrary contained in the Plan, amounts attributable to deferrals into
the Short-Term Variable Interest Option shall be paid to Participant in January
1999.
(3) LONG-TERM VARIABLE INTEREST OPTION - $ in a Deferred Cash
---------------------------------- --------
Account in Participant's name under the Variable Interest Option as set forth in
Section 2.3 of the Plan.
Participant's deferral hereunder is pursuant to the Plan and is subject in
all respects to the terms and conditions of this Agreement and of the Plan. No
other communications or representations, written or oral, made prior or
subsequent to this Agreement shall be deemed to amend or modify the terms of
this deferral except by an agreement in writing executed by the parties
subsequent to the date of this Agreement, expressly consenting to such amendment
or modification. Participant hereby waives any rights, and releases Company
from any claim, based on any such prior communications or representations, if
any.
ACCEPTED: RALSTON PURINA COMPANY
- ------------------------------ By:
Participant --------------------------------
C. S. Sommer
Vice President and
Director, Administration
- ------------------------------
Date
1998 LEVERAGED INCENTIVE PLAN
-----------------------------
I. RECOMMENDATION
--------------
Management recommends implementation of a third flight of the Leveraged
Incentive Plan (L.I.P.). The first two such programs were approved in 1994 and
in 1996. They provide a 3-year duration cash incentive award for a select group
of key executives whose actions can positively and significantly impact
shareholder value. This plan would be known as the 1998 Leveraged Incentive
Plan (the "Plan").
II. BACKGROUND
----------
Our pay objective continues to position base pay below the median for comparable
executive positions at comparator companies while providing the opportunity to
achieve total compensation at the 75th percentile or above for exceptional
performance.
Hewitt has evaluated the Company's total pay in 1998 - a year in the average
range for Company performance. Twenty-six consumer packaged goods comparator
companies were benchmarked. Nineteen representative corporate and business unit
positions were compared. The four principal corporate officer positions were
reviewed as "Group 1"; the other positions from business unit Executive VP
through Plant Manager as "Group 2." Total cash compensation was below market
for all groups of executive positions measured. Long-term incentives (which for
Ralston included options and the L.I.P.) ranged from 6% above the 75th
percentile for Group 1 to 32% below for Group 2, attributed by Hewitt primarily
to the recent option awards. In fact, as Hewitt measured our L.I.P. in the
long-term incentive area, its values were characterized significantly below
market with only one measured position exception. This was attributed to the
majority of comparator companies making annual performance plan grants where
Ralston's grants have been biennial.
<TABLE>
<CAPTION>
F'98 Competitive Posture
Measured at the
75th Percentile*
----------------
<S> <C> <C> <C>
Group 1 Group 2 All Positions
-------- -------- --------------
Total Cash -3% -22% -14%
Long Term Incentive +6% -32% - 8%
NET TOTAL COMPENSATION -4% -32% -17%
</TABLE>
*(except cash measured against the 50th percentile)
Implementing a continuation of awards with an overlapping flight, the L.I.P.
will aim at appropriately balancing our long-term incentive pay component.
I. ELIGIBILITY
-----------
Eligibility for this plan would be limited to certain key executives nominated
by the co-Chief Executive Officers 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. Exceptions
would comprise cases of (1) termination of employment (other than for cause as
determined by the Committee) at or after age 50, (2) long-term disability, (3)
death, (4) sale of business or business unit or discharge related to sale of
unit, or (5) other involuntary termination (other than for cause). In these
situations pro rata payments would be made based on performance of the Company
and peer group to the termination date.
IV. PLAN DESCRIPTION
-----------------
A. PERFORMANCE MEASURES
---------------------
Average compound growth in Total Shareholder Return (stock price appreciation
plus dividends) and compound "controllable earnings" would be measured over a
three-year period beginning October 1, 1998 and ending September 30, 2001.
Adjustments deemed appropriate in the discretion of the Committee would be made
in the event of divestiture, acquisition, recapitalization, or other financial
restructuring. Corporate participants would be measured on Total Shareholder
Return ("TSR") only. Business unit participants would be measured half according
to TSR and half according to controllable earnings growth within their business
unit as determined by the Corporate Controller's Office. The co-CEOs would be
measured as "Corporate" participants.
The TSR measurement would be made in both absolute terms and in relation to a
group of peer companies (see next page). In calculating the beginning and
ending stock price under the Plan, the+ average of the closing price for the
previous ten trading days, including the first and last days of the Plan term,
would be used.
B. AWARD OPPORTUNITY - BASE AWARD
----------------------------------
A base cash award would be made at the end of the three-year period based on
the following schedule:
<TABLE>
<CAPTION>
PERFORMANCE FACTORS FOR: PERFORMANCE FACTORS FOR: THIS PLAN WOULD
CORPORATE OPERATING UNITS PAY ACCORDING TO
COMPOUND GROWTH WEIGHTED: DESIGNATED
PARTICIPATION
50% LEVELS THIS %
OF SALARY**
TOTAL SHAREHOLDER
RETURN (TSR) 50% CONTROLLABLE
COMPOUND GROWTH TSR+ EARNINGS* /2=SAMPLE FULL HALF QUARTER
OF UNIT OUTCOME
<S> <C> <C> <C> <C> <C>
18% or Higher 18% + 16% /2 = 17%> 100% 50.0% 25%
17% 17% + 15% /2 = 16% 90% 45.0% 22.5%
16% 16% + 14% /2 = 15% 80% 40.0% 20%
15% 15% + 13% /2 = 14% 70% 35.0% 17.5%
14% 14% + 12% /2 = 13% 60% 30.0% 15%
13% 13% + 11% /2 = 12% 50% 25.0% 12.5%
12% 12% + 10% /2 = 11% 45% 22.5% 11.25%
11% 11% + 9% /2 = 10% 40% 20.0% 10%
10% 10% + 8% /2 = 9% 35% 17.5% 8.75%
9% 9% + 7% /2 = 8% 30% 15.0% 7.5%
8% 8% + 6% /2 = 7% 25% 12.5% 6.25%
Less than 8% Less than 7% 0% 0% 0%
</TABLE>
* Controllable earnings before special items such as acquisitions or
divestitures
** Defined as aggregate salary over the 3-year period. Amounts in between
those shown above will be calculated using straight-line interpolation
C. AWARD OPPORTUNITY - PEER GROUP AWARD
-------------------------------------------
If Ralston Purina Company's 3-Year TSR meets or exceeds the 75th percentile of
its peer Competitor Group, an additional 50%, 25%, or 12 1/2%, of aggregate
salary, depending on one's participation level, would be deferred for all Plan
participants until retirement, termination, death, or long-term disability, in
Ralston Purina stock equivalents in an account established in the participants'
names. This peer-group payout would be made irrespective of the absolute level
of TSR. Attachment #1 provides a sample calculation for both a Corporate and a
business unit participant.
D. PERFORMANCE PEER GROUP
------------------------
Selected competitors included in the S&P's Foods, Cosmetics, Household
Products and Agricultural Products Indices -
Archer Daniels Midland H. J. Heinz
Campbell Soup Company Hershey Foods Corp.
The Clorox Company Kellogg Company
Colgate-Palmolive Company The Quaker Oats Company
ConAgra, Inc. Ralston Purina Company
Best Foods Sara Lee Company
General Mills Wm. Wrigley Jr. Company
Gillette
Companies must be in the sample for the entire 3 years to be counted
Dividend reinvestment assumed
Final calculations related to the Peer Group's performance will be
overseen by Hewitt Associates or another independent consulting firm.
E. FORM AND TIMING OF PAYMENT
------------------------------
The base award would be made after the close of the three-year performance
period in cash or might be deferred, if so elected by Plan participants,
approximately one year prior to the date the amount of award would be
determinable. In addition, deferral may be mandated by the Human Resources
Committee to assure compliance with the deductibility provisions of Section
162(m) of the Internal Revenue Code of 1986, as amended. If Ralston Purina
stock equivalents are elected for deferral, there would be no match. The peer
group payout would be deferred in Ralston Purina stock equivalents with no
transfer permitted to other accounts until a participant's retirement (including
"early" retirement), termination, death or long-term disability. Appropriate
amendments would be made, subject to final approval by C. S. Sommer, to the
Company's deferral plans. Pro rata payments as described under III would
include a peer group computation at the time of an individual's departure.
If Ralston Purina Company should cease to be a publicly-traded company, or in
those situations described as exceptions under Eligibility relating to
employment tenure throughout the 3-year Plan duration, 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.
The value of awards, to the extent permitted by applicable benefit plans, would
be included in annual benefit earnings.
V. VALUE/COST SUMMARY
-------------------
Assuming a constant dividend payout of 1.6%, a RAL stock price multiple
increasing from 22 to 28, and participant salary growth at 5% per year, the
following table indicates program costs in relation to value returned to the
shareholder. The illustrated favorable leverage for shareholders is significant
at all levels of performance.
LEVERAGED INCENTIVE PLAN SUMMARY
-----------------------------------
% Average Annual Total Annualized Projected
Shareholder Op. Unit 3 Year Value Cost of Award RAL Share
Return Weighted Return Returned If Earned Price
------ --------------- -------- --------- -----
8 7 $1.9 bil $1.4MM $36
13 12 $3.5 bil $2.8MM $41
18 17 $5.3 bil $5.6MM $47
If RAL's performance is in the top quartile of common stocks of peer companies
previously referenced, an additional payout of up to $6.1 million would occur --
irrespective of the level of total business unit growth and return to
shareholders. It is expected RAL's relative stock price would reflect this
superior performance.
VI. OTHER
-----
Attachment #2 lists the participants in the Plan and their recommended level of
participation.
Adjustments deemed appropriate in the discretion of the Committee would be made
in computing TSR in the event of any divestiture, acquisition, recapitalization,
or other financial restructuring of the Company. Were the Plan to be terminated
prior to September 30, 2001, appropriate pro-rata payments would be made or
deferred as in the manner previously described in III. and IV.E.
Management requests, in circumstances which warrant, that authority be delegated
to the co-Chief Executive Officers to add additional executive participants to
this 3-year Plan on a pro-rata basis up to, but not to exceed, cumulative
aggregate participants' salary additions of $1 million.
SAMPLE PAYMENT CALCULATION
1996 LEVERAGED INCENTIVE PLAN
-----------------------------
(Assumptions for 2 participants; 1 in Corporate and 1 in a Business Unit, each
at "half" participation level)
Corporate Participant Business Unit Participant
---------------------- -------------------------
Aggregate 3 year salary $300,000 $500,000
T.S.R. 14% 14%
Business Unit
Controllable Earnings Growth N/A 15%
Peer Group Ralston Purina's Total Shareholder Return over 3 years is
Performance in the top 75th percentile of its peer competitive group.
- -----------
COMPUTATION 3 Yr. Aggregate Half 3 Yr. Aggregate Half*
Salary Factor Salary Factor
----------- ------ ----------- ------
$300,000 x 30% = $90,000 $500,000 x 37.5% =
$187,500
peer group peer group
factor factor
------ ------
plus $300,000 x 25% = +75,000 plus $500,000 x 25% =
+125,000
- --------
TOTAL AWARD $165,000 $312,500
*(14% T.S.R. + 15% B.U. Controllable Earnings) 2 = 14.5% relates to
interpolated "Half" factor mid way between 40% and 35% or [(40% + 35%) 2 =
37.5%].
46
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
April 1, 1998, by and among Ralston Purina Company, a Missouri corporation
("Ralston") and Agribrands International, Inc. ("Agribrands"), a Missouri
corporation and wholly owned subsidiary of Ralston.
WITNESSETH:
WHEREAS, Ralston's businesses consist of the manufacture, distribution
and sale of battery products and pet products domestically and
internationally, and the manufacture, distribution and sale of agricultural
formula animal feeds and other agricultural animal nutrition products
primarily outside the United States; and
WHEREAS, the Board of Directors of Ralston (the "Ralston Board") has
determined that it is in the best interests of the Ralston shareholders to
separate Ralston's international agribusiness from its core pet products and
battery businesses, and to consolidate such agribusiness, which is currently
conducted by various subsidiaries and affiliates, into Agribrands, and to
distribute the $.01 par value Agribrands Stock ("Agribrands Stock") to
shareholders of its $.10 par value Ralston Purina Common Stock ("Ralston
Stock"); and
WHEREAS, in order to effect such separation, the Ralston Board has
determined that it is necessary and advisable to consolidate the international
agribusiness through various restructurings and to transfer to Agribrands the
direct stock ownership of those subsidiaries and other assets of Ralston that
are engaged in the operation of the agribusiness, as well as certain
trademarks and technology used in the international agribusiness, as more
fully set forth below; and
WHEREAS, in connection with such consolidation, Ralston formed Agribrands
by causing Tradico, Inc., a Delaware corporation and wholly owned subsidiary
of Ralston, to be merged into Tradico Missouri, Inc., a Missouri corporation
and wholly owned subsidiary of Ralston, and the surviving Missouri corporation
to be renamed Agribrands International, Inc., effective November 18, 1997; and
WHEREAS, in order to effect such distribution of the ownership of
Agribrands to the holders of Ralston Stock, the Ralston Board has determined
that it is necessary and desirable to distribute all outstanding shares of
Agribrands Stock on a pro rata basis to the holders of Ralston Stock, such
distribution being hereinafter referred to as the "Distribution"; and
WHEREAS, the mergers and liquidations of certain affected subsidiaries
are intended to qualify under Sections 368(a)(1)(A) and 332 of the Internal
Revenue Code of 1986, as amended (the "Code"), the transfer of assets are
intended to qualify under Code Section 368(a)(1)(D), and the distribution of
Agribrands Stock is intended to qualify under Code Section 355; and
WHEREAS, the parties hereto have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and to set forth other agreements that will govern certain
other matters prior to and following the Distribution;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound thereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.01 General. As used in this Agreement, the following terms shall
-------
have the following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
AAFCO: the Association of American Feed Control Officials.
-----
Action: any action, claim, suit, arbitration, inquiry, proceeding or
------
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any arbitration or other tribunal.
Affiliate: with respect to any specified Person, an "affiliate" as
---------
defined in Rule 405 promulgated pursuant to the Securities Act; provided,
however, that for purposes of this Agreement (i) Affiliates of Agribrands
shall not be deemed to include Ralston or any corporation which will be a
subsidiary or affiliate of Ralston following the Distribution; and (ii)
Affiliates of Ralston shall not be deemed to include Affiliates of Agribrands.
Agribrands Asset Purchase Price: Cash contributed to Agribrands or one
---------------------------------
of its Affiliates by Ralston or its Affiliates in connection with the purchase
by an Affiliate of Agribrands, as set forth in Section 2.01, of the
Agribusiness in Brazil from Ralston Purina do Brasil, LTDA. The Agribrands
Asset Purchase Price shall be the U.S. dollar equivalent of the actual
purchase price paid to Ralston Purina do Brasil, based on the foreign exchange
rate, published in the Wall Street Journal, with respect to the closing date
of such sale.
Agribrands Board: the Board of Directors of Agribrands International,
-----------------
Inc. and their duly elected or appointed successors.
Agribrands Cash Holdings: the Cash to be held by Agribrands and its
--------------------------
Affiliates as of the Distribution, as determined in accordance with Section
2.04(a) and as adjusted pursuant to Section 2.04(g).
Agribrands Deferred Compensation Plan: as defined in Section 7.09 of
----------------------------------------
this Agreement.
Agribrands Notes: the promissory notes issued by Agribrands or Agri
-----------------
International Holding Company, Inc. to Ralston in connection with the
contribution by Ralston to Agribrands or Agri International Holding Company
Inc. of the stock of certain foreign subsidiaries.
Agribrands Stock: Agribrands common stock, par value $.01 per share.
-----------------
Agribusiness: Ralston's direct or indirect ownership of (i) the
------------
international business of the manufacture, distribution and sale of feeds for
horses, commercial livestock, commercial poultry, laboratory animals, zoo
animals, wild birds and game, rabbits, animals raised for fur, and fish,
reptiles and shellfish raised in commercial aquaculture facilities, and the
operation of hatcheries; (ii) pet food manufacturing operations in Korea and
the sale and distribution of such products; (iii) pet food manufacturing
operations in Canada at Strathroy, Ontario, and the sale and distribution of
such products; and (iv) all joint ventures involving or associated with the
businesses described in (i) through (iii) above.
Agribusiness Assets: except to the extent provided in, and subject to
--------------------
the provisions of, any of the Ancillary Agreements, (i) all of the Assets used
or held by or on behalf of any member of the Agribusiness Group or the Ralston
Group immediately prior to the Distribution which are used or held for use
exclusively in the Agribusiness rather than the Ralston Business, including,
but not limited to, the Assets set forth on Schedule 1.01(a); and (ii) any
office equipment and furniture used immediately prior to the Distribution
exclusively by Agribusiness Employees.
Agribusiness Employee: any individual who (i) is on the Distribution
----------------------
Date, or immediately following the Distribution will be, an officer or
employee of any member of the Agribusiness Group, (ii) is employed by a member
of the Ralston Group but, pending transfer of employment to a member of the
Agribusiness Group, performs duties primarily for the Agribusiness; or (iii)
is on leave (including but not limited to leave for disability) or layoff from
active employment on the Distribution Date but who, immediately prior to
commencement of such leave or layoff, was primarily employed in the
Agribusiness. Notwithstanding the foregoing, an Agribusiness Employee shall
not include any individual who, as of the Distribution Date, (A) has been
determined to be disabled under the Purina Benefit Association Long Term
Disability Plan ("LTD Plan"), the Ralston Purina Company Group Life Insurance
Plan or the Retirement Plan; (B) is on leave during a waiting period prior to,
and who has made application for, a determination of disability under the LTD
Plan; or (C) is employed by a member of the Agribusiness Group but performs
duties primarily for a Ralston Business, pending subsequent transfer of
employment to a member of the Ralston Group or termination of employment.
Agribusiness Group: Agribrands and its Affiliates at the Distribution.
-------------------
Agribusiness Individual: any individual who is an Agribusiness Employee,
-----------------------
a Former Agribusiness Employee, or a beneficiary of an Agribusiness Employee
or of a Former Agribusiness Employee.
Agribusiness Obligations: as defined in Article X of this Agreement.
-------------------------
Agricultural Channel: as defined in Section 5.01(a) of this Agreement.
---------------------
Ancillary Agreements: the Tax Sharing Agreement, the Bridging Services
---------------------
Agreement, the Trademark Agreement, and the Technology Transfer and License
Agreement.
Asset: any and all assets and properties, tangible or intangible,
-----
including, but not limited to, the following: (i) cash, notes and trade
receivable accounts (whether current or non-current and including all rights
with respect thereto); (ii) certificates of deposit, bankers' acceptances,
stock, debentures, evidences of indebtedness, certificates of interest or
participation in profit-sharing agreements, collateral-trust certificates,
preorganization certificates, investment contracts, voting-trust certificates;
(iii) trade secrets, confidential information, registered and unregistered
trademarks, service marks, service names, trade styles and trade names and
associated goodwill; statutory, common law and registered copyrights;
applications for any of the foregoing, rights to use any of the foregoing and
other rights in, to and under any of the foregoing; (iv) rights under leases,
contracts, licenses, permits, and sales and purchase agreements; (v) real
estate and buildings and other improvements thereon and timber and mineral
rights of every kind; (vi) leasehold improvements, fixtures, trade fixtures,
machinery, equipment (including transportation and office equipment), tools,
dies and furniture; (vii) office supplies, production supplies, spare parts,
other miscellaneous supplies and other tangible property of any kind; (viii)
raw materials, work-in-process, finished goods, consigned goods and other
inventories; (ix) prepayments or prepaid expenses; (x) claims, causes of
action, choses in action, rights of recovery and rights of set-off of any
kind; (xi) the right to receive mail and other communications; (xii) lists of
advertisers, records pertaining to advertisers and accounts, lists and records
pertaining to suppliers and agents, and books, ledgers, files and business
records of every kind; (xiii) advertising materials and other recorded,
printed or written materials; (xiv) goodwill as a going concern and other
intangible properties; (xv) personnel records and employee contracts,
including any rights thereunder to restrict an employee from competing in
certain respects; and (xvi) licenses and authorizations issued by any
governmental authority.
Bridging Services Agreement: as defined in Section 5.04 of this
-----------------------------
Agreement.
Business: the Agribusiness or the Ralston Business.
--------
Business Day: any day other than a Saturday, a Sunday or a day on which
-------------
banking institutions located in the State of Missouri are obligated by law or
executive order to close.
Cash: cash, marketable securities, compensating balances used to secure
----
debt financing, amounts held in margin accounts, and such other items as have
been or would be classified as cash consistent with accounting practices
historically employed by Ralston.
CME: calculated metabolizable energy.
---
Code: the Internal Revenue Code of 1986, as amended, or any successor
----
legislation.
Committee: the Nominating and Compensation Committee of the Board of
---------
Directors of Agribrands.
Current Plan Year: the plan year or fiscal year, to the extent
-------------------
applicable with respect to any Plan, during which the Distribution Date
occurs.
Distribution: as defined in the recitals to this Agreement.
------------
Distribution Date: April 1, 1998.
------------------
DuPont Agreement: the agreement as defined in Section 5.01(a) of this
-----------------
Agreement.
Enterprise Purchase Agreement: as defined in Section 5.04 of this
-------------------------------
Agreement.
ERISA: the Employee Retirement Income Security Act of 1974, as amended,
-----
or any successor legislation.
ESOP Stock: Ralston Purina Company Series A ESOP Convertible Preferred
-----------
Stock, $1.00 par value.
Exchange Act: the Securities Exchange Act of 1934, as amended, together
--------------
with the rules and regulations promulgated thereunder.
Executive Life Plan: the Ralston Purina Executive Life Plan.
---------------------
Executive SIP: the Ralston Purina Executive Savings Investment Plan.
--------------
Form 10: as defined in Section 2.06 of this Agreement.
--------
Former Agribusinesses: all of the following international businesses and
---------------------
operations heretofore, but not currently, owned and conducted directly or
indirectly by Ralston: (i) former international businesses of producing and
distributing feeds for horses, commercial livestock and poultry and rations
for laboratory animals, zoo animals, wild birds and game, rabbits, animals
raised for fur, and fish, reptiles and shellfish raised in commercial
aquaculture facilities, and operation of hatcheries; (ii) former pet food
manufacturing operations in Korea, and the sale and distribution in Korea of
such pet foods; (iii) poultry processing; (iv) finished poultry products; (v)
manufacture and sale of silos; (vi) manufacture and distribution of livestock
and poultry health products; (vii) commercial egg production (fertile and
infertile); (viii) raising of laboratory rats; (ix) fishmeal processing; (x)
oilseed processing; (xi) sale and lease of breeding hogs; (xii) other
businesses managed or directed by employees of the Agribusiness, other than
cereal, baked goods, tuna processing and soy protein businesses; and (xiii)
all joint ventures involving or associated with the businesses described in
(i) through (xii) above or the Agribusiness.
Former Agribusiness Employee: an individual who was employed by a member
----------------------------
of the Agribusiness Group or a Former Agribusiness at the time of his or her
termination or retirement on or prior to the Distribution Date.
Former Businesses: The Former Ralston Businesses and the Former
------------------
Agribusinesses.
Former Ralston Businesses: all of the businesses and operations
---------------------------
heretofore, but not currently, directly or indirectly owned and conducted by
Ralston, other than a Former Agribusiness.
Former Ralston Employee: an individual who was employed by a member of
-------------------------
the Ralston Group or a Former Ralston Business at the time of his or her
termination or retirement.
Group: the Ralston Group or the Agribusiness Group.
-----
Indebtedness of Agribrands: external obligations in the form of money
----------------------------
that is borrowed from third party banks and/or financial institutions, to the
extent that such indebtedness (i) is incurred in connection with, or arising
out of the operations of, the Agribusiness and (ii) is or should be reflected
and booked on the balance sheet statements of the Agribusiness in accordance
with accounting practices historically employed by Ralston; and in no event
shall intercompany or intracompany accounts between the Agribusiness and the
Ralston Business be deemed to be Indebtedness of Agribrands.
Indemnifiable Loss: with respect to any claim by an Indemnitee for
-------------------
indemnification hereunder, any and all losses, liabilities, claims, damages,
obligations, payments, costs and expenses (including, without limitation, the
costs and expenses of any and all Actions, demands, claims and assessments,
and any and all judgments, settlements and compromises related thereto and
reasonable attorney's fees and expenses in connection therewith) incurred or
suffered by such Indemnitee with respect to such claim except as may arise in
connection with the performance of any of the Ancillary Agreements, which
shall, in each such case, be governed by the terms of such Ancillary
Agreement.
Indemnitee: as defined in Section 4.02 of this Agreement.
----------
Indemnitor: as defined in Section 4.02 of this Agreement.
----------
Information: as defined in Section 6.02 of this Agreement.
-----------
Information Statement: the information statement sent to holders of
----------------------
Ralston Stock in connection with the Distribution, which sets forth
appropriate disclosures concerning the Agribusiness, Agribrands, the
Distribution and other related matters.
IRS: the Internal Revenue Service.
---
ISP: the Ralston Purina 1988 and 1996 Incentive Stock Plans.
---
Liabilities: all claims, debts, liabilities, royalties, license fees,
-----------
losses, costs, expenses, deficiencies, litigation proceedings, taxes, levies,
imposts, duties, deficiencies, assessments, attorneys' fees, charges,
allegations, demands, damages, judgments, guaranties, indemnities, or
obligations, whether absolute or contingent, matured or unmatured, liquidated
or unliquidated, accrued or unaccrued, known or unknown and whether or not the
same would properly be reflected on a balance sheet, including all costs and
expenses relating thereto.
LIBOR: London Interbank Offer Rate.
-----
Notice of Claim: as defined in Section 4.02 of this Agreement.
-----------------
NYSE: the New York Stock Exchange.
----
Operating Agreement: An agreement as described in Sections 2.04(f) and
--------------------
5.04 in effect during a period of beneficial ownership of the Agribusiness
Assets or the Ralston Assets.
Person: an individual, a partnership, a joint venture, a corporation, a
------
trust or other entity, an unincorporated organization or a government or any
department or agency thereof.
Plan: any plan, policy, arrangement, contract or agreement providing
----
benefits (including salary, bonuses, deferred compensation, incentive
compensation, savings, stock purchases, pensions, profit sharing, welfare
benefits or retirement or other retiree benefits, including retiree medical
benefits) for any group of employees or former employees or individual
employee or former employee, or the beneficiary or beneficiaries of any such
employee or former employee, whether formal or informal or written or
unwritten and whether or not legally binding, and including any means, whether
or not legally required, pursuant to which any benefit is provided by an
employer to any employee or former employee or the beneficiary or
beneficiaries of any such employee or former employee.
Protected Agribrands Business: the business described in Section 5.01(a)
-----------------------------
of this Agreement.
Protected Ralston Business: the business described in Section 5.01(a) of
--------------------------
this Agreement.
Qualified Plan: a Plan which is an employee pension benefit plan (within
--------------
the meaning of Section 3(2) of ERISA) and which constitutes or is intended in
good faith to constitute a qualified plan under Section 401(a) of the Code.
Ralston: as defined in the recitals to this Agreement.
-------
Ralston Assets: subject to the provisions of any of the other agreements
--------------
referred to in this Agreement, all of the Assets, other than the Agribusiness
Assets, used or held immediately prior to the Distribution Date by or on
behalf of any member of either Group, including, but not limited to, the
Assets set forth on Schedule 1.01(b).
Ralston Board: the Board of Directors of Ralston Purina Company and
--------------
their duly elected or appointed successors.
Ralston Business: all of the businesses owned, directly or indirectly,
-----------------
by Ralston and conducted immediately prior to the Distribution Date, other
than the Agribusiness.
Ralston Deferred Compensation Plan: the Ralston Purina Deferred
-------------------------------------
Compensation Plan for Key Employees.
Ralston Employee: any individual who at any time is or was an officer or
----------------
employee of any member of either Group, other than an Agribusiness Employee,
including, but not limited to, individuals set forth on Schedule 1.01(c).
Ralston Group: Ralston and its Subsidiaries and Affiliates, other than
--------------
members of the Agribusiness Group.
Ralston Individual: any individual who (i) is a Ralston Employee, (ii)
-------------------
at any time prior to the Distribution Date is or was an officer or employee of
any Former Ralston Business or (iii) is a beneficiary of any individual
specified in clause (i) or (ii).
Ralston Option: the option defined in Section 7.08(b) of this Agreement.
--------------
Ralston Stock: Ralston Purina Company common stock, $.10 par value.
--------------
Ralston Stock and Asset Purchase Prices: Cash paid after the
---------------------------------------------
Distribution to Agribrands or its Affiliates by Ralston or its Affiliates, to
the extent necessary, to close the purchase by Ralston or its Affiliates, as
set forth in Section 2.01, of the stock of Purina Pet Foods France or, as
applicable, certain assets and liabilities of Purina de Guatemala, S.A.,
Purina Colombiana, S.A., Purina de Venezuela, C.A., and Purina Peru, S.A.
Record Date: the date to be determined by the Board of Directors of
------------
Ralston, or the Executive Committee thereof, as the record date for
determining shareholders of Ralston Stock entitled to receive the
Distribution.
Retirement Plan: the Ralston Purina Retirement Plan.
----------------
Rights: the rights to be issued by Agribrands pursuant to the Agribrands
------
Rights Agreement.
RPIHCI: Ralston Purina International Holding Company, Inc.
------
SEC: the Securities and Exchange Commission.
---
Securities Act: the Securities Act of 1933, as amended, together with
---------------
the rules and regulations promulgated thereunder.
Shared Liability: a Liability arising out of, or associated with, the
-----------------
ownership of both the Agribusiness Assets and the Ralston Assets; or the
operation of the Agribusiness or a Former Agribusiness, on the one hand, and
the Ralston Business or a Former Ralston Business, on the other hand, prior to
the Distribution.
SIP: a Savings Investment Plan.
---
Subsidiary: with respect to any specified Person, any corporation or
----------
other legal entity of which such Person or any of its Subsidiaries controls or
owns, directly or indirectly, 50% or more of the stock or other equity
interest entitled to vote on the election of members to the board of directors
or similar governing body of such corporation or other legal entity.
Tax Sharing Agreement: as defined in Section 5.04 of this Agreement.
-----------------------
Technology Transfer and License Agreement: as defined in Section 5.04 of
-----------------------------------------
this Agreement.
Third-Party Claim: any Action or claim by a third party against or
------------------
otherwise involving an Indemnitee for which indemnification may be sought
pursuant to Article IV hereof.
Toll-Milling Agreements: as defined in Section 5.04 of this Agreement.
------------------------
Trademark Agreement: as defined in Section 5.04 of this Agreement.
--------------------
Welfare Plan: any Plan which is not a Qualified Plan and which provides
-------------
medical, health, disability, accident, life insurance, death, dental or other
welfare benefits, including any post-employment benefits or retiree medical
benefits.
1.02 References to Time. All references to times of the day in this
------------------
Agreement shall refer to St. Louis, Missouri time unless otherwise
specifically indicated.
ARTICLE II
CERTAIN RESTRUCTURING TRANSACTIONS
2.01 Restructuring Transactions. Prior to, or as soon as practicable
--------------------------
following, the Distribution Date, the following shall have been or shall be
effected:
(a) Italian Demerger. Pursuant to Italian law, Purina Italia S.p.A.,
----------------
an Italian corporation, shall be divided into two corporations by transferring
all assets and liabilities of Purina Italia associated with the Ralston
Business to Ralston Purina Italia S.p.A. and thereafter by issuing the stock
of Ralston Purina Italia to RPIHCI (99.98% owner) and Ralston (.02% owner), in
proportion to their ownership of shares of Purina Italia. A pro rata portion
of the shares of Purina Italia, representing the net book value of the assets
of the Ralston Business in proportion to the entire net book value of assets
of Purina Italia, shall be canceled and new share certificates in Purina
Italia shall be issued to reflect the reduction in the number of shares
outstanding as a result of the demerger.
(b) Canadian Restructuring. Agribrands shall form a new wholly owned
----------------------
subsidiary, Agribrands Canada Inc. ("Agri Canada"). Agribrands shall cause
Agri Canada to purchase, pursuant to an Enterprise Purchase Agreement, all of
the assets exclusively used in connection with, and liabilities associated
with, the portion of the Agribusiness owned and conducted by Ralston Purina
Canada Inc. The purchase price shall be equal to the appraised fair market
value of such Agribusiness in Canada, including working capital deficiencies
as of March 31, 1998.
(c) Brazilian Restructuring. Agribrands shall form a new wholly
-----------------------
owned subsidiary, Agribrands Purina do Brasil, Ltda, ("Agri do Brasil") a
Brazilian corporation. Agribrands shall cause Agri do Brasil to purchase,
pursuant to an Enterprise Purchase Agreement, the assets and liabilities
associated with the centers of business of the Agribusiness owned and
conducted by Ralston Purina do Brasil, Ltda, a Brazilian corporationThe
purchase price shall be equal to the fair market value of such Brazilian
Agribusiness, which is the statutory net book value of such Business as of
March 31, 1998, determined in a manner consistent with the preparation of the
balance sheet dated February 28, 1998 set forth on Schedule 2.01(c).
(d) French Restructuring. Ralston Purina France, a French
---------------------
corporation, shall form a new wholly owned subsidiary, Purina Pet Foods France
("PPF France"), and shall contribute all of the assets and liabilities
associated with its ownership and operation of the Ralston Business in France
to PPF France. Ralston shall then cause Checkerboard Holding Company, Inc.
("Checkerboard Holding"), a Delaware corporation, to purchase from Ralston
Purina France, pursuant to an Enterprise Purchase Agreement, all of the stock
of PPF France for 27 million French francs, which amount is equal to its
appraised fair market value.
(e) Mexican Restructuring/Merger. PPA Investments Inc., a Delaware
----------------------------
corporation, shall purchase from Ralston Purina Holdings Mexico S.A. de C.V.,
a Mexican corporation, all of the capital stock of Industrias Purina, S.A. de
C.V., a Mexican corporation, owned by Ralston Purina Holdings Mexico, for 209
million Mexican pesos, which is equal to its appraised fair market value. PPA
Investments Inc. shall then adopt a plan of complete liquidation and merge
into RPIHCI, as a result of which Industrias Purina shall become a direct
subsidiary of RPIHCI.
(f) Guatemalan Restructuring. Ralston shall cause Checkerboard
-------------------------
Holding to form a new company, Ralston Purina Guatemala, a Guatemalan
corporation, and to cause such company to purchase from Purina de Guatemala,
S.A., a Guatemalan corporation, pursuant to an Enterprise Purchase Agreement,
the assets and liabilities associated with the Ralston Business in Guatemala
for cash in an amount equal to the fair market value of such Ralston Business,
which shall be the statutory net book value of such Business as of March 31,
1998, determined in a manner consistent with the preparation of the balance
sheet dated February 28, 1998 set forth on Schedule 2.01(f), except that
intangible assets shall be valued at 645,000 Guatemalan pesos.
(g) Colombian Restructuring. Ralston shall cause Checkerboard
------------------------
Holding to form a new wholly owned subsidiary, Ralston Purina Colombiana, and
shall cause Ralston Purina Colombiana to purchase from Purina Colombiana S.A,
a Colombian corporation, pursuant to an Enterprise Purchase Agreement, the
assets and liabilities associated with the Ralston Business in Colombia for
cash in an amount equal to the fair market value of such Business, which shall
be the statutory net book value of such business as of March 31, 1998,
determined in a manner consistent with the preparation of the balance sheet
dated February 28, 1998 set forth on Schedule 2.01(g), except that intangible
assets shall be valued at 697,000,000 Colombian pesos and real property shall
be valued at 471,800,000 Colombian pesos.
(h) Venezuelan Restructuring. Ralston shall cause Checkerboard
-------------------------
Holding to form a new wholly owned subsidiary, Ralston Purina Venezuela ("RP
Venezuela") a Venezuelan corporation, and shall cause RP Venezuela to purchase
from Purina de Venezuela, C.A., a Venezuelan corporation, pursuant to an
Enterprise Purchase Agreement, the assets and liabilities associated with the
Ralston Business in Venezuela for cash in an amount equal to the fair market
value of such Business, which shall be the statutory net book value of such
Business as of March 31, 1998, determined in a manner consistent with the
preparation of the balance sheet dated February 28, 1998 set forth on Schedule
2.01(h).
(i) Peruvian Restructuring. Ralston shall cause Ralston Purina
-----------------------
Colombiana to purchase from Purina Peru, S.A., a Peruvian corporation,
pursuant to an Enterprise Purchase Agreement, the assets and liabilities
associated with the Ralston Business in Peru for cash in an amount equal to
the fair market value of such Business, which shall be the statutory net book
value of such business as of March 31, 1998, determined in a manner consistent
with the preparation of the balance sheet dated February 28, 1998 set forth on
Schedule 2.01(i).
(j) Korean Restructuring. Prior to the merger of RPIHCI into
---------------------
Ralston, Ralston and Agribrands shall each purchase from RPIHCI 1,000 shares
of Purina Korea, Inc., a Korean corporation, for 19,717 Korean won per share.
After the merger of RPIHCI into Ralston as described in subsection (l) below,
Ralston shall contribute all of its stock ownership in Purina Korea, Inc. to
Agri International Holding Company, Inc., a Delaware corporation, in exchange
for which Agri International Holding Company shall issue 135 million new
shares of its capital stock and transfer such stock to Ralston, and shall
execute and deliver the Agribrands Note described below.
(k) Philippines Restructuring. After the merger of RPIHCI into
--------------------------
Ralston, Ralston shall contribute all of its ownership in Purina Philippines,
Inc., a Philippines corporation, to Agribrands as described in subsection (m)
below, in exchange for which Agribrands shall issue to Ralston 1,413,150 new
shares of its capital stock and shall execute and deliver the Agribrands Note
described below.
(l) Merger of RPIHCI into Ralston. Ralston and RPIHCI shall enter
-----------------------------
into an Agreement and Plan of Merger and Complete Liquidation pursuant to
which RPIHCI shall be merged with and into Ralston pursuant to the General and
Business Corporation Law of Missouri and Delaware General Corporation Law, and
in accordance with the terms and conditions of such merger agreement.
Following such merger, RPIHCI will cease to exist, and Ralston shall become
the direct owner of Agribrands and all other stock interests owned by RPIHCI
at the time of the merger. Intercompany debt owed by RPIHCI to Ralston at the
time of the merger will be paid through the liquidating distribution of
RPIHCI's assets to Ralston at such time.
(m) Contribution to Agribrands; Issuance of Notes Prior to the
----------------------------------------------
Distribution, Ralston shall contribute to Agribrands, as contributions to
capital, all of its stock ownership in the following:
(i) Latin American Agribusiness Development Corporation, a Panamanian
corporation;
(ii) Purina Italia S.p.A., an Italian corporation;
(iii Purina de Guatemala, S.A., a Guatemalan corporation;
(iv) Purina Colombiana S.A., a Colombian corporation;
(v) Purina de Venezuela, C.A., a Venezuelan corporation;
(vi) Purina Peru S.A., a Peruvian corporation;
(vii) Agri International Holding Company Inc., a Delaware corporation;
(viii) Industrias Purina, S.A. de C.V, a Mexican corporation;
(ix) Purina Espana, S.A., a Spanish corporation;
(x) Ralston Purina France, a French corporation;
(xi) Purina Besin Maddeleri Sanayi VE Ticaret A.S., a Turkish corporation;
(xii) AGX Services, Inc., a Delaware corporation;
(xiii) Purina Nanjing Feedmill Company Limited, a Chinese corporation;
(xiv) Purina Yantai Feedmill Company Ltd, a Chinese corporation;
(xv) Purina Fushun Feedmill Company, Ltd., a Chinese corporation;
(xvi) Agribrands Purina (Langfang) Feedmill Company, Ltd., a Chinese
corporation;
(xvii) Purina Philippines, Inc., a Philippines corporation;
(xviii) Purina Hungaria Animal Feed and Trading Company Limited, a Hungarian
corporation;
(xix) Purina Portugal Alimentacao e Sanidade Animal Lda., a Portuguese
corporation.
In partial consideration for the contribution by Ralston to Agribrands or Agri
International Holding Company, Inc. of the stock of each majority-owned
foreign subsidiary as set forth in Sections 2.01 (j) and (m), Agribrands or,
as applicable, Agri International Holding Company, Inc. shall issue to Ralston
a separate Agribrands Note with respect to such subsidiary. Each Agribrands
Note shall be in the principal amount of US$100, bear interest at the rate of
6% per annum and be payable in a lump sum on September 30, 1998. Ralston shall
thereafter transfer the Agribrands Notes to one or more members of the Ralston
Group as payment against outstanding indebtedness which is owed to such member
or members by Ralston and is reflected in interest-bearing intercompany
accounts.
2.02 Issuance of Stock. Prior to the Distribution Date, the parties
-----------------
hereto shall take all steps necessary so that immediately prior to the
Distribution Date, the number of shares of Agribrands Stock outstanding and
held by Ralston shall equal the number of shares necessary to effect the
Distribution. The Distribution shall be effected by distributing, on a pro
rata basis to every holder of Ralston Stock, one share of Agribrands Stock for
every ten (10) shares of Ralston Stock held as of the Record Date.
2.03 Share Purchase Rights Agreement; Articles of Incorporation;
-----------------------------------------------------------
Bylaws. Prior to the Distribution Date, Agribrands shall adopt an Agribrands
Rights Agreement in substantially the form filed with the SEC as an exhibit to
the Form 10, and the Board of Directors of Agribrands shall authorize a
distribution of one Right to every share of outstanding Agribrands Stock, such
distribution to occur prior to the Distribution. Ralston and Agribrands shall
take all action necessary so that, at the Distribution Date, the Articles of
Incorporation and Bylaws of Agribrands shall be substantially in the forms
filed with the SEC as exhibits to the Form 10.
2.04 Transfer of Assets; Assumption of Liabilities.
--------------------------------------------------
(a) Prior to the Distribution Date, the parties hereto shall also take
all action necessary to convey, assign and transfer to Agribrands, effective
as of the Distribution Date, all of the right, title and interest of Ralston
or its Affiliates in the Agribusiness Assets and to convey, assign and
transfer to Ralston or its Affiliates all of the right, title and interest of
any member of the Agribusiness Group to the Ralston Assets. Effective as of
the Distribution, Ralston shall contribute to Agribrands the capital stock of
the Subsidiaries of Agribrands listed in Section 2.01(m), and Agribrands shall
become the beneficial owner of all of the Agribusiness Assets. Ralston and
Agribrands shall cooperate in estimating the appropriate amount of Cash to be
transferred to Agribrands on or before March 31, 1998 to cause Agribrands and
its Affiliates to hold, as of the Distribution Date, Cash in an amount equal
to the Agribrands Cash Holdings, which shall be defined as: the sum of (i)
Cash in an amount equal to the outstanding Indebtedness of Agribrands as of
the Distribution, (ii) US$25 million, and (iii) the Agribrands Asset Purchase
Price; less (iv) the Ralston Stock and Asset Purchase Prices, (v) US$125,000,
representing the first year administration costs for the Agribrands credit
facility paid by Ralston prior to the Distribution, and (vi) any amounts
(valued in US dollars at the time Ralston satisfies any such obligation)
Ralston becomes obligated, on or prior to May 31, 1998, to pay to third
parties in connection with its guarantee of certain third-party indebtedness,
letters of credit and other credit supports of Purina Korea, Inc. Ralston
shall transfer such estimate of Cash to Agribrands no later than March 31,
1998. To the extent it is determined that Agribrands has, as of the
Distribution Date, inventory valued in excess of (or less than) US$20 million,
the Agribrands Cash Holdings target shall be reduced by an amount equal to
such excess (or be increased by an amount equal to the shortfall).
Effective as of the Distribution Date, Ralston and its Affiliates shall become
the beneficial owners of all of the Ralston Assets. The parties acknowledge
that formal actions to effect fully such transfers of Assets may not be
completed by the Distribution Date, but that the entire beneficial title and
interest in and to each Asset shall pass to Agribrands or to Ralston, as the
case may be, as of the Distribution Date. The parties shall take such action
as is necessary in their reasonable discretion, whether before or after the
Distribution Date, to complete the transfer of the Agribusiness Assets to
Agribrands and the Ralston Assets to Ralston, as the case may be, and each
party shall cooperate fully with the other in such regard.
(b) As of the Distribution Date, Agribrands and Ralston and, as
appropriate, other members of their respective Groups, shall assume or retain
all of the Liabilities, with respect to Agribrands, of the Agribusiness and
Former Agribusinesses and, with respect to Ralston, of the Ralston Business
and Former Ralston Businesses, of whatsoever type or nature, arising
exclusively out of or associated exclusively with the ownership of the Assets
of such Businesses or Former Businesses or the operation of such Businesses or
Former Businesses prior to the Distribution, whether such Liabilities become
known prior to or after, or are asserted prior to or after, the Distribution.
Agribrands and its Affiliates and Ralston and its Affiliates shall assume a
share of any Shared Liability in proportion, as applicable, to their
respective ownership of the applicable assets, control of affected operations
or employment of affected individuals. Notwithstanding the foregoing,
effective as of the Distribution Date, Agribrands or another member of the
Agribusiness Group shall assume Liabilities specifically described in any
other provision of this Agreement or any Ancillary Agreement, and Liabilities
described on Schedule 2.04(b)(1) to this Agreement. Ralston and members of
the Ralston Group shall, except as qualified hereinabove, retain or assume (i)
the Liabilities specifically described in this Agreement or any Ancillary
Agreement, and (ii) the Liabilities specifically described on Schedule
2.04(b)(2) to this Agreement.
(c) The parties agree and acknowledge that the assumption by Agribrands
or other members of the Agribusiness Group or Ralston or other members of the
Ralston Group, as the case may be, of all such Liabilities described herein is
part of a single plan to transfer the Agribusiness and the Agribusiness Assets
to Agribrands as of the Distribution Date. With regard to that plan, the
parties further agree that (i) the entire beneficial title and interest in and
to each and all of the Agribusiness Assets shall, regardless of when legal
title to any such asset is in fact transferred to Agribrands or its
Subsidiaries, remain in Ralston until the Distribution Date at which time all
beneficial title and interest in all of the Agribusiness Assets will pass to
Agribrands, and all title and interest in and to each and all of the Ralston
Assets which is owned by a member of the Agribusiness Group prior to the
Distribution Date shall, regardless of when legal title to any such asset is
in fact transferred to Ralston or its Subsidiaries after the Distribution
Date, be beneficially owned by Ralston; (ii) the economic burden of the
assumption by the members of the Agribusiness Group or the Ralston Group, as
the case may be, of each and all of the Liabilities described herein shall
pass to the Agribusiness Group or the Ralston Group, as the case may be, as of
the Distribution Date, regardless of when Agribrands or any other member of
the Agribusiness Group or Ralston or any other member of the Ralston Group, as
the case may be, in fact assumes or becomes legally obligated to the obligee
of any one or more of such Liabilities; and (iii) all operations of the
Agribusiness shall be for the account of Ralston through 12:01 a.m. on the
Distribution Date and shall be for the account of Agribrands thereafter.
(d) Ralston and Agribrands shall, and shall cause their Affiliates to,
execute prior to, or as soon as practicable following, the Distribution Date,
such additional agreements and arrangements as may be necessary or appropriate
(i) to effect the restructuring transactions set forth in Section 2.01; (ii)
to transfer to the appropriate member of the Agribusiness Group or Ralston
Group such local product registrations, franchises, licenses, and any other
governmental authorizations or other rights owned or held by Ralston,
Agribrands or their respective Groups that are necessary to the conduct of
their Businesses in such jurisdiction; (iii) to make all such further
assignments and do all such other acts as are necessary or desirable to carry
out the intent of the parties that each of the Businesses, as a going concern,
be fully vested in the appropriate party as of the Distribution Date and
operated for its benefit and burden as of 12:01 a.m.; and (iv) to provide for,
and negotiate in good faith, such other agreements and arrangements relating
to the foregoing as the parties deem appropriate, including but not limited to
any such agreements or arrangements relating to the treatment of employees,
benefit plans and taxes.
(e) If any Agribusiness Asset or Ralston Asset is not owned,
respectively, by a member of the Agribusiness Group or Ralston Group or leased
from a third party or governmental entity by a member of the appropriate
Group, as of the Distribution Date, Ralston and Agribrands shall use their
reasonable best efforts to transfer, assign and deliver such assets or leases
to the appropriate member of the other Group as soon as practicable
thereafter. Prior to such transfer or assignment, Ralston or Agribrands, as
the case may be, shall use its reasonable best efforts to give the benefits of
ownership of such Assets to the appropriate member of the other Group. The
entire economic beneficial interest in and to, and the risk of loss with
respect to, such Assets shall, regardless of when legal title thereto shall be
transferred to the appropriate member of the Agribusiness or Ralston Group,
pass to those entities as of the Distribution. Ralston and Agribrands shall,
or shall cause their Affiliates to, hold such Assets for the benefit and risk
of the other and shall cooperate with the other in any lawful and reasonable
arrangements designed to provide the benefits of ownership of the Assets to
it, including but not limited to properly recording evidence of such
beneficial ownership and risk of loss with appropriate governmental entities
as required by applicable law. In the event that the legal interest in such
Assets or any claim, right or benefit arising thereunder or resulting
therefrom, is not capable of being sold, assigned, transferred or conveyed
hereunder as a result of the failure to receive any consents or approvals
required for such transfer, then the legal interest in such Assets shall not
be sold, assigned, transferred or conveyed unless and until approval, consent
or waiver thereof is obtained. Ralston and Agribrands shall, or shall cause
their Affiliates, at their expense, to use reasonable best efforts to
cooperate in obtaining such consents or approvals as may be necessary to
complete such transfers and to obtain satisfaction of conditions to transfer
as soon as practicable. Nothing in this Agreement shall be construed as an
attempt to assign to a member of the Agribusiness Group or the Ralston Group
any legal interest in such Assets which, as a matter of law or by the terms of
any legally binding contract, engagement or commitment to which the legal
owner is subject, is not assignable without the consent of any other Person,
unless such consent shall have been given.
(f) After the Distribution Date, Ralston and Agribrands shall cause
such Assets (including the capital stock of any Affiliates) which are
beneficially owned by the other party to be managed at the direction of the
beneficial owner pursuant to one or more Operating Agreements until such
Assets are actually legally transferred and conveyed. Without limiting the
foregoing, all revenues, earnings and cash flows associated with the Assets
following the Distribution Date shall be for the account of the beneficial
owner but shall be retained by the respective legal owner until the transfers
are legally effected. Following the Distribution Date, neither Ralston nor
Agribrands shall be required to lend, advance, contribute or use any of its
own funds in connection with the operations of such Assets except to the
extent contemplated by the Operating Agreements.
(g) Ralston and Agribrands shall cooperate after the Distribution
Date in determining the actual Indebtedness of Agribrands and Cash held by
Agribrands and its Affiliates as of the Distribution in order to calculate the
Agribrands Cash Holdings and to determine any further transfers of Cash
required between the parties. For purposes of this determination, foreign
currency shall be valued in US dollars based on foreign exchange rates for
March 31, 1998 as published in the Wall Street Journal. Ralston shall have
the opportunity to review, to its satisfaction, the books and records of
Agribrands and its Affiliates, bank records, loan documentation and other
relevant materials in order to enable Ralston to verify any amounts to be
transferred, and Agribrands shall cooperate in Ralston's review. A
preliminary determination of the actual Cash and Indebtedness of Agribrands as
of the Distribution shall be made no later than 60 days after the Distribution
Date in order to make a preliminary adjustment of Cash from Ralston to
Agribrands or vice versa, as the findings warrant. Payment of such
preliminary adjustment shall be made within two (2) Business Days of such
determination. To the extent that it is determined for such preliminary
adjustment that, at the Distribution Date, Agribrands and its Affiliates held
Cash in excess of the Agribrands Cash Holdings amount, Agribrands shall remit
such excess to Ralston in US dollars; or, if Agribrands and its Affiliates
held Cash less than the Agribrands Cash Holdings amount, Ralston shall pay
such difference to Agribrands in US dollars. Such amounts shall be increased
by an amount equal to interest accrued on such unpaid excess (or shortfall, as
applicable) at LIBOR plus 25 basis points for the period from the Distribution
Date until the date such preliminary adjustment is paid to the party to which
it is owed; provided that, amounts that may be owed by Ralston to Agribrands
shall not be increased by such interest factor to the extent they relate to
Indebtedness of Agribrands arising out of third-party borrowings by Purina
Korea, Inc. that have been guaranteed by Ralston for a period up to 60 days
after the Distribution Date.
No later than July 31, 1998, upon final review and audit of the books and
records of Agribrands and its Affiliates, Ralston and Agribrands shall make,
if necessary, a second and final adjustment to the Cash held by Agribrands.
The final adjustment payment shall be increased by an amount equal to interest
accrued on such adjustment at the transferring party's average cost of debt
plus 200 basis points for the period from the date of the initial adjustment
payment until the date such final payment is made.
(h) Ralston shall pay to Agribrands in US dollars, at the time of
payment of each of the Ralston Stock and Asset Purchase Prices to Agribrands,
an additional lump sum equal to interest on such purchase price, denominated
in US dollars at the time of payment to Agribrands, accrued at the rate of
6-1/2% per annum, for the period beginning on the Distribution Date to the
date such purchase price is paid to Agribrands.
2.05 Conduct of Business Pending the Distribution Date. Prior to the
-------------------------------------------------
Distribution Date, the Agribusiness shall be operated for the sole benefit of
Ralston.
2.06 Registration and Listing. Prior to the Distribution Date:
-------------------------
(a) Ralston and Agribrands shall prepare, and Agribrands shall file with
the SEC, a Registration Statement on Form 10 pursuant to Section 12(b) of the
Exchange Act with respect to the Agribrands Stock and associated Rights.
Ralston and Agribrands shall use reasonable efforts to cause the Form 10 to
become effective under the Exchange Act, and, following such effectiveness,
Ralston shall mail the Information Statement to the holders of record of
Ralston Stock as of the close of business on the Record Date.
(b) The parties hereto shall take all such actions as may be necessary or
appropriate under state securities and Blue Sky laws in connection with the
Distribution.
(c) Ralston and Agribrands shall prepare, and Agribrands shall file and
seek to make effective, an application for the listing of the Agribrands Stock
and associated Rights on the NYSE.
ARTICLE III
THE DISTRIBUTION
3.01 Record Date and Distribution Date. Subject to the satisfaction
---------------------------------
of the conditions set forth in Section 12.01, the Ralston Board shall
establish the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution. The determination of record
holders of Ralston Stock on the Record Date shall be as of 12:01 a.m. on the
Distribution Date, and the Distribution shall also be effective as of 12:01
a.m. on the Distribution Date.
3.02 Distribution. Ralston shall distribute all of the outstanding
------------
shares of Agribrands Stock to holders of record of Ralston Stock on the Record
Date on the basis of one share of Agribrands Stock for each ten (10) shares of
Ralston Stock outstanding as of 12:01 a.m. on the Record Date, subject to the
treatment of fractional shares set forth in Section 3.03. All shares of
Agribrands Stock issued in the Distribution shall be duly authorized, validly
issued, fully paid and nonassessable.
3.03 Payment in Lieu of Fractional Shares. No fractional shares of
------------------------------------
Agribrands Stock shall be issued in the Distribution. In lieu thereof, a
distribution agent will aggregate fractional shares into whole shares and sell
them in the open market at then prevailing prices on behalf of holders who
otherwise would be entitled to receive fractional share interests, and such
distribution agent shall remit to each holder of Ralston Stock who would
otherwise be entitled to receive such fractional shares a cash payment equal
to such holder's pro rata share of the total gross sale proceeds (after making
appropriate deductions of the amount required for Federal tax withholding
purposes). Ralston shall bear the cost of commissions incurred in connection
with such sales.
ARTICLE IV
INDEMNIFICATION
4.01 Indemnification.
---------------
(a) From and after the Distribution Date, Ralston agrees to indemnify
and hold harmless Agribrands against and in respect of any and all Liabilities
assumed or retained by Ralston pursuant to Section 2.04(b) of this Agreement
or related to, arising from, or associated with:
(i) any breach or violation of any covenant made in this
Agreement or any Ancillary Agreement by Ralston or any of its Subsidiaries;
(ii) any Third-Party Claim relating to the actions of the
Ralston Board in authorizing the Distribution;
(iii) the ownership, use or possession of the Ralston Assets or
the operation of the Ralston Business or Former Ralston Businesses, whether
relating to or arising out of occurrences prior to or after the Distribution,
except to the extent liability therefor is assumed or retained by Agribrands
or another member of the Agribusiness Group pursuant to Section 2.04(b) of
this Agreement; and all operations conducted by Ralston, its successors and
their Affiliates following the Distribution.
(iv) with respect to employee benefit plans sponsored by
Ralston, Ralston's failure to comply with the provisions of ERISA or the Code;
(v) any violations of the Code, or of federal or state
securities laws, in connection with the Distribution, the Information
Statement and Form 10 or any filings made with governmental agencies with
respect thereto, except to the extent that such violations, or allegations of
violations, result from or are related to the disclosure to Ralston's
corporate staff of information, or failure to disclose information, by
officers, directors, employees, agents, consultants or representatives of the
Agribusiness.
Any indemnification provided for under this Section shall, to the extent
legally permissible, also be deemed to extend to other members of the
Agribusiness Group, Affiliates, Agribusiness Employees, directors, Plan
fiduciaries, shareholders, agents, consultants, representatives, successors,
transferees and assigns of Agribrands or members of the Agribusiness Group.
(b) From and after the Distribution Date, Agribrands agrees to indemnify
and hold harmless Ralston against and in respect of all Liabilities assumed or
retained by Agribrands or another member of the Agribusiness Group pursuant to
Section 2.04(b) of this Agreement or related to, arising from, or associated
with:
(i) any breach or violation of any covenant made in this
Agreement or any Ancillary Agreement by Agribrands or any of its Subsidiaries
or Affiliates;
(ii) the ownership, use or possession of the Agribusiness Assets
or the operation of the Agribusiness or Former Agribusinesses, whether
relating to or arising out of occurrences prior to or after the Distribution,
except to the extent liability therefor is assumed or retained by Ralston or
another member of the Ralston Group pursuant to Section 2.04(b) of this
Agreement; and all operations conducted by Agribrands, its successors and
their Affiliates following the Distribution.
(iii) with respect to employee benefit plans sponsored by
Agribrands, Agribrands' failure to comply with the provisions of the plan,
ERISA or the Code;
(iv) any violation or allegations of violations of federal or
state securities laws in connection with the Distribution, the Information
Statement and Form 10 or any filings made with governmental agencies with
respect thereto, to the extent that such violations, or allegations of
violations, result from or are related to, the disclosure to Ralston's
corporate staff of information, or failure to disclose information, by
officers, directors, employees, agents, consultants or representatives of the
Agribusiness; and
(v) any continuing guarantee by Ralston of any obligation of
Agribrands or its Affiliates.
Any indemnification provided for under this Section shall, to the extent
legally permissible, also be deemed to extend to other members of the Ralston
Group, Affiliates, Ralston Employees, directors, Plan fiduciaries,
shareholders, agents, consultants, representatives, successors, transferees
and assigns of Ralston or members of the Ralston Group.
Notwithstanding the foregoing, neither party shall have any obligation to
indemnify the other for a single Liability of less than US$10,000.
4.02 Actions and Claims Other Than Third-Party Claims; Notice and
------------------------------------------------------------
Payment. Upon obtaining knowledge of any Action, Liability or claim, other
than Third-Party Claims, which any Person entitled to indemnification (the
"Indemnitee") believes may give rise to any Indemnifiable Loss, the Indemnitee
shall promptly notify the party liable for such indemnification (the
"Indemnitor") in writing of such Action or claim (such written notice being
hereinafter referred to as a "Notice of Claim"); provided, however, that
failure of an Indemnitee timely to give a Notice of Claim to the Indemnitor
shall not release the Indemnitor from its indemnity obligations set forth in
this Article IV except to the extent that such failure increases the amount of
indemnification which the Indemnitor is obligated to pay hereunder, in which
event the amount of indemnification which the Indemnitee shall be entitled to
receive shall be reduced to an amount which the Indemnitee would have been
entitled to receive had such Notice of Claim been timely given. A Notice of
Claim shall specify in reasonable detail the nature and estimated amount of
any such Action, Liability or claim giving rise to a right of indemnification.
The Indemnitor shall have ninety (90) Business Days after receipt of a Notice
of Claim to notify the Indemnitee whether or not it disputes its liability to
the Indemnitee with respect to such Action, Liability or claim or the amount
thereof, and setting forth the basis for such objection. If the Indemnitor
fails to respond to the Indemnitee within such ninety (90) Business Day
period, the Indemnitor shall be deemed to have acknowledged its responsibility
for such Indemnifiable Loss. If such Indemnifiable Loss is not contested, the
Indemnitor shall pay and discharge any such Indemnifiable Loss within one
hundred twenty (120) Business Days after its receipt of a Notice of Claim.
4.03 Insurance and Third-Party Obligations. Any indemnification
-------------------------------------
otherwise payable pursuant to Section 4.01 shall be reduced by the amount of
any insurance or other amounts (net of deductibles and allocated paid loss
retro-premiums) that would be payable by any third party to the Indemnitee or
on the Indemnitee's behalf in the absence of this Agreement. It is expressly
agreed that no insurer or any other third party shall be (i) entitled to a
benefit it would not be entitled to receive in the absence of the foregoing
indemnification provisions, (ii) relieved of the responsibility to pay any
claims for which it is obligated, or (iii) entitled to any subrogation rights
with respect to any obligation hereunder.
4.04 Third-Party Claims; Notice, Defense and Payment. Promptly
------------------------------------------------
following the earlier of (i) receipt of notice of the commencement of a
Third-Party Claim or (ii) receipt of information from a third party alleging
the existence of a Third-Party Claim, any Indemnitee who believes that it is
or may be entitled to indemnification by any Indemnitor under Section 4.01
with respect to such Third-Party Claim shall deliver a Notice of Claim to the
Indemnitor. Failure of an Indemnitee timely to give a Notice of Claim to the
Indemnitor shall not release the Indemnitor from its indemnity obligations set
forth in this Section 4.04 except to the extent that such failure adversely
affects the ability of the Indemnitor to defend such Action, Liabilities or
claim or increases the amount of indemnification which the Indemnitor is
obligated to pay hereunder, in which event the amount of indemnification which
the Indemnitee shall be entitled to receive shall be reduced to an amount
which the Indemnitee would have been entitled to receive had such Notice of
Claim been timely given. Indemnitee shall not settle or compromise any
Third-Party Claim in an amount in excess of US$10,000 prior to giving a Notice
of Claim to Indemnitor at least twenty (20) Business Days in advance of such
settlement. In addition, if an Indemnitee settles or compromises any
Third-Party Claims prior to giving such Notice of Claim to an Indemnitor, the
Indemnitor shall be released from its indemnity obligations to the extent that
the Indemnitor can sustain the burden of proving that such settlement or
compromise was not made in good faith and was not commercially reasonable.
Within ninety (90) days after receipt of such Notice of Claim (or sooner if
the nature of such Third-Party Claim so requires), the Indemnitor may (A) by
giving written notice thereof to the Indemnitee, acknowledge liability for,
and at its option elect to assume, the defense of such Third-Party Claim at
its sole cost and expense or (B) object to the claim of indemnification set
forth in the Notice of Claim delivered by the Indemnitee; provided that if the
Indemnitor does not within the same ninety (90) day period give the Indemnitee
written notice either objecting to such claim and setting forth the grounds
therefor or electing to assume the defense, the Indemnitor shall be deemed to
have acknowledged its responsibility to accept the defense and its ultimate
liability, if any, for such Third-Party Claim. Any contest of a Third-Party
Claim as to which the Indemnitor has elected to assume the defense shall be
conducted by attorneys employed by the Indemnitor and reasonably satisfactory
to the Indemnitee; provided that the Indemnitee shall have the right to
participate in such proceedings and to be represented by attorneys of its own
choosing at the Indemnitee's sole cost and expense. If the Indemnitor assumes
the defense of a Third-Party Claim, the Indemnitor may settle or compromise
the Third-Party Claim without the prior written consent of Indemnitee;
provided that the Indemnitor may not agree to any such settlement pursuant to
which any such remedy or relief, other than monetary damages for which the
Indemnitor shall be responsible hereunder, shall be applied to or against the
Indemnitee, without the prior written consent of the Indemnitee, which consent
shall not be unreasonably withheld. If the Indemnitor does not assume the
defense of a Third-Party Claim for which it has acknowledged liability for
indemnification under Section 4.01, the Indemnitee may require the Indemnitor
to reimburse it on a current basis for its reasonable expenses of
investigation, reasonable attorney's fees and reasonable out-of-pocket
expenses incurred in defending against such Third-Party Claim and the
Indemnitor shall be bound by the result obtained with respect thereto by the
Indemnitee, provided that the Indemnitor shall not be liable for any
settlement effected without its consent, which consent shall not be
unreasonably withheld. The Indemnitor shall pay to the Indemnitee in cash the
amount for which the Indemnitee is entitled to be indemnified (if any) within
thirty (30) days after the final resolution of such Third-Party Claim (whether
by settlement, a final nonappealable judgment of a court of competent
jurisdiction or otherwise) or, in the case of any Third-Party Claim as to
which the Indemnitor has not acknowledged liability, within thirty (30) days
after such Indemnitor's objection has been resolved by settlement, compromise
or arbitration pursuant to the provisions of Article XI of this Agreement.
4.05 Remedies Cumulative; Survival of Indemnities. The remedies
--------------------------------------------
provided in this Article IV shall be cumulative and shall not preclude
assertion by any Indemnitee of any other rights or the seeking of any and all
other remedies against any Indemnitor. The obligations of each of the Ralston
Group and the Agribusiness Group under this Article IV shall survive the sale
or other transfer by it of any assets or businesses or the assignment by it of
any Liabilities, with respect to any claim of the other for any Indemnifiable
Losses related to such assets, businesses or Liabilities.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
5.01 Non-Competition. (a) In light of the extensive affiliation
---------------
among Ralston, Agribrands and their respective Affiliates, and in order to
secure the benefit of the good will previously associated with Ralston's
business, which is being transferred to Agribrands, and to maintain the good
will associated with those businesses being retained by Ralston, and to secure
the good will previously associated with that portion of Agribrands' business
which is being assumed by Ralston, all as provided in the terms of this
Agreement; and in light of the continuing relationship among the parties, as
provided in the Ancillary Agreements; the parties mutually agree that, except
as otherwise provided in this Section 5.01, for the period ending on the fifth
anniversary of the Distribution Date (except with respect to obligations under
the Agreement and Plan of Merger and Exchange dated as of December 2, 1997, by
and among E. I. du Pont de Nemours and Company, Ralston and certain of their
affiliates (the "DuPont Agreement"), which obligations shall continue for the
period specified in the DuPont Agreement):
(i) Neither Ralston, nor any of its Affiliates, nor any of their
successors or successive successors, shall, directly or indirectly, own,
operate, manage, participate as a partner or co-venturer in, or otherwise
engage in the business of the manufacture, distribution or sale of feeds for
horses, commercial livestock, commercial poultry, laboratory animals, zoo
animals, wild birds and game, rabbits, animals raised for fur, or fish,
reptiles and shellfish raised in commercial aquaculture facilities; or in the
business of providing services or facilities to the foregoing classes of
animals and fish (collectively, the foregoing are hereafter termed the
"Protected Agribrands Business").
(ii) Neither Agribrands, nor any of its Affiliates, nor any of
their successors or successive successors shall, directly or indirectly, own,
operate, manage, participate as a partner or co-venturer in, or otherwise
engage in the manufacture, distribution or sale of foods or feeds for pets,
pet products, pet supplies, pet accessories, litter or personal care products
for cats, dogs or other pets; provided that:
A. Agribrands and its Affiliates in Canada may manufacture and
sell, solely under trademarks authorized by the Trademark Agreement and solely
in Canada, those pet food products which they were manufacturing and selling
at the date of this Agreement (the commercial and nutritional characteristics
of which and their present composition being set forth on Schedule
5.01(a)(ii)(A) to this Agreement) and without the prior written consent of
Ralston, the commercial and nutritional characteristics of such products shall
not be changed, and the composition of such products shall not be changed
materially.
B. Agribrands and its Affiliates may distribute any pet food
purchased from Ralston, it being expressly agreed that Ralston may, in its
sole discretion, refuse to supply or limit the supply of such pet foods to
Agribrands or any of its Affiliates at any time and in any country; provided
that, should Ralston refuse to supply any of the following products to
Agribrands and its Affiliates in any country, then Agribrands and its
Affiliates may manufacture (and distribute only a product of its own
manufacture) in any such country--
1) not more than one (1) brand (which brand shall be owned solely
by Agribrands or its Affiliates) of dry dog food, which shall be formulated to
provide sufficient nutritional properties as are then deemed adequate to
maintain an adult dog under standards promulgated by AAFCO, which in no case
shall contain more than 18% protein and 8% fat (both as reflected in the
guaranteed analysis or average analysis), which shall be formulated so that
the top three (3) ingredients of the ration are not animal-, poultry-, or
fish-based protein ingredients, and which shall possess a CME of no more than
3500 kilocalories per kilogram ("KCal/Kg");
2) not more than one (1) brand (which brand shall be owned solely
by Agribrands or its Affiliates) of dry puppy food, which shall be formulated
to provide sufficient nutritional properties as are then deemed adequate for
the growth of puppies under standards promulgated by AAFCO, which shall in no
case contain more than 22% protein and 9% fat (as reflected on the same
basis), which shall be formulated so that the top three (3) ingredients of the
ration are not animal-, poultry-, or fish-based protein ingredients, and which
shall possess a CME of no more than 3700 KCal/Kg; and
3) not more than one (1) brand (which brand shall be owned solely by
Agribrands or its Affiliates) of dry cat food, which shall be formulated to
provide sufficient nutritional properties as are then deemed adequate to
maintain an adult cat under standards promulgated by AAFCO, which shall in no
case contain more than 28% protein and 10% fat (as reflected on the same
basis), which shall be formulated so that the top three ingredients of the
ration are not animal-, poultry- or fish-based protein ingredients, and which
shall possess a CME of no more than 3600 KCal/Kg.
C. With respect to all products described in sub-Section
5.01(ii)(B), Ralston shall be deemed to have "refused" to supply any such
products only if Ralston and Agribrands have failed, following good faith
negotiations which shall be conducted within sixty (60) days following written
notice from Agribrands to Ralston, to agree on mutually acceptable terms for
the supply of any such products to Agribrands or its Affiliates by Ralston.
D. Neither Agribrands, nor any of its Affiliates, nor any of
their successors nor successive successors, shall directly or indirectly
solicit, offer for sale, sell, distribute, encourage the sale, or be otherwise
involved in any distribution of any dog or cat food products to any Person
outside the "Agricultural Channel," which Channel shall consist exclusively
of:
1) Persons outside the United States principally (i.e., more than
one-half of the monthly gross sales of which are generated by) engaged in the
resale of formulated livestock and poultry feeds (exclusive of dog and cat
foods);
2) Persons outside the United States principally engaged in the
resale of farm supplies, farm equipment, and/or animal feeds other than dog or
cat foods, provided that no less than seventy-five per cent (75%) of the
monthly gross animal feed sales of any such Person consists of feeds for
animals other than dogs and/or cats; and
3) Persons outside the United States who are, at the date of this
Agreement, customers of Agribrands or any of its Affiliates (except that if
such customers purchase, prior to the Distribution Date, only products other
than dog or cat food from Agribrands or its Affiliates, then after the
Distribution Date, such customers shall not be considered customers of
Agribrands or its Affiliates under this subsection 3), provided that, should
any such Persons change either the location or the nature of their present
business activities, or experience a direct or indirect change of control by
any means, then in either case such Person shall be deemed removed from the
Agricultural Channel promptly upon written notice from Ralston to Agribrands.
E. Agribrands, its Affiliates, and their successors and
successive successors:
1) shall not solicit sales of any dog or cat food products in or
into the United States, or to any purchaser outside the Agricultural Channel;
2) shall not develop, encourage, assist or participate in any sales
of such products in or into the United States, or outside the Agricultural
Channel; and
3) shall use their best efforts, including but not limited to
ceasing to sell dog and cat foods to any Person, to deter any sales of such
products in or into the United States, or outside the Agricultural Channel, by
any such Person.
(iii) Neither Agribrands, nor any of its Affiliates, nor any or
their successors or successive successors, shall, directly or indirectly, own,
operate, manage, participate as a partner or co-venturer in, or otherwise
engage in:
A. the business of the manufacture, sale or distribution of
primary or rechargeable batteries, lighting products or devices; or
B. any activities which are proscribed as to Ralston or its
Affiliates under the terms of Section 6.10 of the DuPont Agreement, the terms
of which are hereby acknowledged as binding upon Agribrands and its
Affiliates, and their successors and successive successors.
The businesses defined in sub-paragraphs (ii) and (iii) of this Section 5.01
of this Reorganization Agreement, are hereafter termed the "Protected Ralston
Business."
(b) The proscriptions contained in sub-sections (i) and (ii) of
Section 5.01(a) of this Reorganization Agreement shall not be interpreted to
prevent:
(i) either Agribrands or Ralston, or any of their Affiliates, or
any of their successors or successive successors, respectively, from the
acquisition and ownership of no more than fifteen per cent (15%) of either a
voting or equity interest in a Person engaged in either the Protected Ralston
Business or the Protected Agribrands Business; or
(ii) either Agribrands or Ralston, or any of their Affiliates, or
any of their successors or successive successors, respectively, from the
acquisition or ownership of any interest in a Person engaged in either a
Protected Ralston Business or Protected Agribrands Business if no more than
ten per cent (10%) of such Person's gross sales (as reflected in its most
recent regularly prepared financial statements) are derived from either the
Protected Ralston Business or the Protected Agribrands Business, as the case
may be.
(c) If any Person who is not at the date of this Agreement an Affiliate
of Ralston or Agribrands, respectively, should acquire (by any means,
including but not limited to operation of law) a voting or equity interest of
twenty per cent (20%) or more in either Ralston or Agribrands, then the other
shall be relieved of its responsibilities under this Section 5.01, except that
Agribrands, its Affiliates, and their successors and successive successors
shall continue to observe and be bound by the terms of Section 6.10 of the
DuPont Agreement.
(d) Without limiting the remedies otherwise available to either party,
the parties expressly agree that (i) damages at law for breach of this
Agreement would be an inadequate remedy, and that either party would be
subjected to irreparable harm upon breach by the other, and is entitled to
injunctive or other equitable relief upon breach or threatened breach by the
other; and (ii) since equitable relief may not be available in the
jurisdiction in which such breach or threatened breach has occurred, the party
against whom such breach or threatened breach has occurred may cancel all or
any of the Ancillary Agreements upon such breach or threat thereof; provided,
however, that neither party shall be entitled to invoke any of the remedies
provided in this Section 5.01(d) unless it has given written notice of such
alleged breach or threat thereof to the other party, and the other party has
failed to cure such breach or threat thereof to the reasonable satisfaction of
the notifying party within sixty (60) days of its receipt of such notice.
(e) If any of the provisions of this Section 5.01 are held by a court or
governmental authority of competent jurisdiction to be unenforceable as
written, then any such provision shall be deemed automatically amended so that
it is enforceable to the maximum extent permissible under the laws and public
policy of the applicable jurisdiction or authority. The provisions of this
Section 5.01 are severable and this Section 5.01 shall be interpreted and
enforced as if all completely invalid or unenforceable provisions were not
contained in this Section 5.01, and partially valid or enforceable provisions
shall be enforceable to the extent they are valid or enforceable.
5.02 Further Assurances. Each party hereto shall cooperate with the
------------------
other parties, and execute and deliver, or use its best efforts to cause to be
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any governmental or regulatory
authority or any other Person under any permit, license, agreement, indenture
or other instrument, and take all such other actions as such party may
reasonably be requested to take by any other party hereto from time to time,
consistent with the terms of this Agreement, in order to effectuate the
provisions and purposes of this Agreement and the transfers of Assets and
Liabilities and the other transactions contemplated hereby or in any of the
Ancillary Agreements. If any such transfer of Assets or Liabilities is not
consummated prior to or on the Distribution Date, then the party hereto
retaining such Asset or Liability shall thereafter hold such Asset in trust
for the use and benefit of the party entitled thereto (at the expense of the
party entitled thereto), or shall retain such Liability for the account of the
party by whom such Liability is to be assumed pursuant hereto, as the case may
be, and shall take such other action as may be reasonably requested by the
party to whom such Asset is to be transferred, or by whom such Liability is to
be assumed, as the case may be, in order to place such party, insofar as
reasonably possible, in the same position as if such Asset or Liability had
been transferred as contemplated hereby. If and when any such Asset or
Liability becomes transferable, such transfer shall be effected forthwith.
The parties hereto agree that, as of the Distribution Date, each party hereto
shall be deemed to have acquired complete and sole beneficial ownership of all
of the Agribusiness Assets, or Ralston Assets, as the case may be, together
with all rights, powers and privileges incident thereto, and shall be deemed
to have assumed in accordance with the terms of this Agreement all of the
Liabilities, and all duties, obligations and responsibilities incident
thereto, that such party is entitled to acquire or required to assume pursuant
to the terms of this Agreement.
5.03 Agribrands Board. Prior to the Distribution Date, Agribrands
----------------
shall take such actions as are necessary so that its Board of Directors is
comprised of those individuals named as directors in the Form 10.
5.04 Contractual Arrangements.
-------------------------
(a) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into a tax sharing agreement, substantially in the form attached
to this Agreement as Exhibit A ("Tax Sharing Agreement").
(b) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into a bridging services agreement, substantially in the form
attached to this Agreement as Exhibit B ("Bridging Services Agreement").
(c) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into a trademark agreement, substantially in the form attached to
this Agreement as Exhibit C ("Trademark Agreement").
(d) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into a technology license agreement, substantially in the form
attached to this Agreement as Exhibit D ("Technology Transfer and License
Agreement").
(e) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into certain toll-milling agreements, substantially in the forms
attached to this Agreement as Exhibit E-1 and E-2 ("Toll-Milling Agreement").
(f) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into certain agreements for the purchase and sale of the assets
and liabilities or stock of an agribusiness or pet products enterprise,
substantially in the forms attached to this Agreement as Exhibits F-1 and F-2
("Enterprise Purchase Agreements").
(g) Effective as of the Distribution Date, Ralston and Agribrands
shall enter into certain operating agreements, substantially in the form
attached to this Agreement as Exhibit G ("Operating Agreement").
5.05 Cash Management and Intercompany Accounts.
----------------------------------------------
(a) Through and including 12:01 a.m. local time on the Distribution
Date, Ralston and Agribrands shall continue to employ cash management and
other business practices with respect to the Agribusiness that are consistent
with those practices historically employed.
(b) All bank accounts used exclusively in the Agribusiness, and the
balances therein existing as of 12:01 a.m. local time on the Distribution
Date, shall be transferred on the Distribution Date to Agribrands or its
Subsidiaries or Affiliates. All bank accounts used jointly by a member of the
Agribusiness Group and any member of the Ralston Group, and balances therein
existing as of the Distribution Date, shall remain with the Ralston Group.
Following the Distribution Date, each party shall promptly pay to the other
any amounts collected by it through any of its accounts to the extent any of
such amounts collected relate exclusively to the Business of the other party.
(c) All intercompany services provided by the Ralston Group to the
Agribusiness Group, and vice versa, shall terminate as of the Distribution
Date unless otherwise provided in the Bridging Agreement or any other
Ancillary Agreement. Effective as of the close of business on the
Distribution Date, all intercompany receivables or payables and loans then
existing between any member of one Group and any member of the other Group
shall be settled or forgiven as set forth on Schedule 5.05(c), except that,
unless otherwise provided on Schedule 5.05(c), trade receivables or payables
arising out of intercompany sales of inventories or other tangible goods shall
be settled in the normal course of business.
ARTICLE VI
ACCESS TO INFORMATION
6.01 Provision of Corporate Records. Subject to the terms of the
------------------------------
Ancillary Agreements, prior to, or as promptly as practicable after, the
Distribution Date, Ralston shall deliver to Agribrands all corporate books and
records of Agribrands and its Subsidiaries. Ralston shall also make available
for copying or, to the extent not detrimental, in Ralston's reasonable
opinion, to the interests of Ralston, originals of all books, records and data
reasonably related to the Agribusiness Assets, the Agribusiness, and the
Liabilities assumed or retained by Agribrands, including, but not limited to,
all books, records and data relating to the purchase of materials, supplies
and services, financial results, sale of products, records of the Agribusiness
Employees, commercial data, catalogues, brochures, training and other manuals,
sales literature, advertising and other sales and promotional materials,
maintenance records and drawings, all active agreements, active litigation
files and government filings. To the extent that originals of such books,
records and data are provided to Agribrands, Agribrands shall provide Ralston
copies thereof as reasonably requested in writing by Ralston. Notwithstanding
the above, Ralston shall provide copies of customer information, invoices and
credit information only to the extent reasonably requested in writing by
Agribrands, and Ralston shall provide such copies of all books, records and
data only to the extent that such action is not prohibited by the terms of any
agreements pertaining to such information or is not prohibited by law. From
and after the Distribution Date, all books, records and copies so delivered
shall be the property of Agribrands. Notwithstanding the above, Ralston shall
not be required to make copies, other than pursuant to Section 6.02 of this
Agreement, of any books, records and data which are more than seven years old
or which relate to events occurring more than seven (7) years prior to the
Distribution Date, or of any portion of any books, records or data to the
extent such portion relates exclusively to the Ralston Assets, the Ralston
Business or to Liabilities assumed or retained by Ralston.
6.02 Access to Information. From and after the Distribution Date,
---------------------
each of Ralston and Agribrands shall afford to the other and to the other's
agents, employees, accountants, counsel and other designated representatives,
reasonable access and duplicating rights during normal business hours to all
records, books, contracts, instruments, computer data and other data and
information ("Information") within such party's possession relating to such
other party's businesses, assets or liabilities, insofar as such access is
reasonably required by such other party. Without limiting the foregoing, such
Information may be requested under this Section 6.02 for audit, accounting,
claims, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations.
6.03 Retention of Records. Except as otherwise required by law or
--------------------
agreed in writing, or as otherwise provided in the Tax Sharing Agreement, each
of Ralston and Agribrands shall retain, for a period of at least seven years
following the Distribution Date, all significant Information in such party's
possession or under its control relating to the business, assets or
liabilities of the other party and, after the expiration of such seven-year
period, prior to destroying or disposing of any of such Information, (i) the
party proposing to dispose of or destroy any such Information shall provide no
less than 30 days' prior written notice to the other party, specifying the
Information proposed to be destroyed or disposed of, and (ii) if, prior to the
scheduled date for such destruction or disposal, the other party requests in
writing that any of the Information proposed to be destroyed or disposed of be
delivered to such other party, the party proposing to dispose of or destroy
such Information promptly shall arrange for the delivery of the requested
Information to a location specified by, and at the expense of, the requesting
party.
6.04 Confidentiality. From and after the Distribution Date, each
---------------
Group shall hold, in strict confidence, all Information obtained from the
other Group prior to the Distribution Date or furnished to it pursuant to this
Agreement or any other agreement referred to herein which relates to or
concerns the business conducted by such other Group, and such Information
shall not be used by it to the detriment of the other Group, or disclosed by
it or its agents, officers, employees or directors without the prior written
consent of such other Group unless and to the extent that (i) disclosure is
compelled by judicial or administrative process or, in the opinion of such
Group's counsel, by other requirements of law, or (ii) such Group can show
that such Information was (A) available to such Group on a nonconfidential
basis prior to its disclosure by the other Group, (B) in the public domain
through no fault of such Group, (C) lawfully acquired by such Group from other
sources after the time that it was furnished to such Group pursuant to this
Agreement or any other agreement referred to herein, or (D) independently
developed by such Group. Notwithstanding the foregoing, each Group shall be
deemed to have satisfied its obligations of confidentiality under this Section
6.04 with respect to any Information concerning or supplied by the other Group
if it exercises substantially the same care with regard to such Information as
it takes to preserve confidentiality for its own similar Information.
6.05 Reimbursement. Each member of any Group providing Information
-------------
pursuant to Sections 6.02 or 6.03 to any member of the other Group shall be
entitled to receive from the recipient, upon presentation of an invoice
therefor, payment in U. S. dollars of all out-of-pocket costs and expenses as
may reasonably be incurred in providing such Information.
ARTICLE VII
EMPLOYEE MATTERS
7.01 Employee Liabilities; Continuation of Employment.
-----------------------------------------------------
After the Distribution Date, except as otherwise specifically provided
for in this Agreement and Plan of Reorganization, the Agribusiness Group shall
be responsible for all employment and benefit liabilities related to the
Agribusiness Individuals and the Ralston Group shall be responsible for all
employment and benefit liabilities related to the Ralston Individuals, whether
arising before, coincident with or after the Distribution. Ralston and
Agribrands shall cause each member of their respective Groups to cooperate
with the members of the other's Group to effect, as soon as practicable in a
cost-effective manner, the transfer of employment, where applicable, of
Agribusiness Employees and Ralston Employees to the appropriate Affiliate of
either Group.
7.02 Ralston Purina Retirement Plan.
---------------------------------
Effective as of the Distribution Date, all Agribusiness Employees who are
participants in the Retirement Plan shall cease to accrue benefits under such
Plan. Ralston shall retain all assets and liabilities under the Plan
associated with such Employees and Former Agribusiness Employees.
Ralston shall cause the Retirement Plan to be amended, effective as of
the Distribution Date, to provide that Agribusiness Employees who are
participants in the Plan as of such date who are between 50 and 54 years of
age, or who have a combination of age and years of service for vesting
purposes greater than or equal to 65, will have the number of years necessary
to attain age 55 added for purposes of calculating their age (but not credited
service) in determining their accrued benefit under such Plan. Commencement
of payment of retirement benefits under the Plan shall be subject to the terms
of the Plan, without taking into account the deemed addition of years for
purposes of calculation of age.
7.03 International Retirement Plans.
--------------------------------
(a) Canadian Pensions. Effective as of the Distribution Date, the
Agribusiness Employees participating in the defined benefit pension plan
sponsored by Ralston Purina Canada Inc. (the "Ralston Canadian Pension Plan")
shall cease to accrue benefits under such Plan, and all liabilities for
benefits accrued by such individuals as of such Distribution Date shall be
transferred to a new pension plan (the "Agribrands Canadian Pension Plan")
established by Newco Canada, an Affiliate of Agribrands, the terms of which
are substantially the same as those of the Ralston Canadian Pension Plan. The
Agribrands Canadian Pension Plan shall give the Agribusiness Employees credit,
for purposes of eligibility, vesting and benefit accrual, for service with the
Ralston Group on or prior to the Distribution Date, to the extent such service
was recognized under the Ralston Canadian Pension Plan. For purposes of this
Section 7.03(a), an individual (i) who has been determined to be disabled but
who is not as of the Distribution Date receiving benefits from the Ralston
Canadian Pension Plan, or (ii) who is in the waiting period prior to a
determination of disability shall be deemed to be an Agribusiness Employee and
liabilities for benefits accrued by such employees shall be included in the
transfer of liabilities with respect to other Agribusiness Employees.
Benefits accrued by Former Agribusiness Employees under the Ralston Canadian
Pension Plan shall remain liabilities of the Ralston Canadian Pension Plan.
Ralston shall, as soon as practicable after the Distribution Date, cause
Ralston Purina Canada Inc. to transfer from the Ralston Canadian Pension Plan
to the Agribrands Canadian Pension Plan an amount (the "Transfer Amount")
equal to (i) the present value of benefits accrued by the Agribusiness
Employees as of the Distribution Date (determined on the greater of an ongoing
concern or solvency basis in accordance with plan documents, plan
interpretations specified therein and actuarial assumptions as used in the
last filed actuarial report adjusted as necessary to comply with legislation
and regulatory authorities), plus (ii) a proportionate share of the defined
benefit assets held in the Ralston Canadian Pension Plan in excess of the
present value of defined benefit liabilities for all participants in the plan
as of that date, plus (iii) interest based on the Ralston Canadian Pension
Plan rate of return on the Transfer Amount as at the Distribution Date
calculated from the Distribution Date to the actual transfer date, less (iv)
any expenses, less (v) an adjustment for the value of benefits for
Agribusiness Employees who terminate, die or retire after the Distribution
Date and prior to the actual transfer date. Such transfer shall be
conditioned upon receipt of, and subject to, all requisite governmental and
other approvals and consents and if a different Transfer Amount is required by
applicable regulatory authorities, an adjustment to the Transfer Amount will
be made. Upon completion of the transfer of such assets and liabilities, the
Ralston Canadian Pension Plan and the Ralston Group shall have no further
liability for pension benefits for the Agribusiness Employees.
(b) Other Foreign Funded Retirement Plans. With respect to other
foreign funded retirement plans in which Agribusiness Employees, Former
Agribusiness Employees, Ralston Employees and Former Ralston Employees
participate, Agribrands and Ralston shall cooperate in taking such actions as
are necessary or desirable to ensure that the assets and liabilities related
to the current and former employees, respectively, of the Agribusiness Group
and the Ralston Group are transferred to (or retained in, as the case may be)
the retirement plan applicable to each such Group's employees or former
employees. The amount to be transferred from one defined contribution plan to
another shall be equal to the account balances accrued as of the date of
transfer. The amount to be transferred from one defined benefit plan to
another shall be equal to the present value of benefits accrued by the
transferred employees as of the Distribution Date (determined in accordance
with plan documents, plan interpretations, actuarial assumptions specified
therein, and applicable law), plus a proportionate share of the funds held in
the plan in excess of the amount required to satisfy the accumulated benefit
obligation for all participants in the plan as of that date. If such defined
benefit plan lacks sufficient funds to satisfy the accumulated benefit
obligations of all participants in the plan prior to the transfer, then such
transfer shall be equal to a share of total assets proportionate to the share
of total liabilities being transferred. The transfers of assets and
liabilities shall be conditioned upon receipt of, and subject to, all
requisite governmental and other approvals and consents. Upon completion of
the transfer of such assets and liabilities, the transferring plan and the
Group which sponsors the transferring plan shall have no further
responsibility for pension benefits for the employees for whom such assets and
liabilities were transferred.
7.04 Savings Investment Plan.
-------------------------
(a) Agribrands shall take, or cause to be taken, all necessary and
appropriate actions to establish, effective as of the Distribution Date, and
administer a defined contribution Plan which will be a Qualified Plan and
which will also be subject to Section 401(k) of the Code ("Agribrands SIP"),
and to provide benefits thereunder for all Agribusiness Employees who,
immediately prior to the Distribution Date, were participants in the Ralston
Purina Company SIP ("Ralston SIP"). Agribrands agrees that each such
Agribusiness Employee shall be, to the extent applicable, entitled, for all
purposes under the Agribrands SIP, to be credited with the term of service and
any account balance credited to such Agribusiness Employee as of the
Distribution Date under the terms of the Ralston SIP as if such service had
been rendered to the Agribusiness Group and as if such account balance had
originally been credited to such Agribusiness Employee under the Agribrands
SIP. Ralston agrees to provide Agribrands, as soon as practicable after the
Distribution Date (with the cooperation of Agribrands to the extent that
relevant information is in the possession of the Agribusiness Group), with a
list of the Agribusiness Employees who were, to the best knowledge of Ralston,
participants in the Ralston SIP immediately prior to the Distribution Date,
together with a listing, if requested by Agribrands, of each such Agribusiness
Employee's term of service for eligibility and vesting purposes under such
Plan and a listing of each such Agribusiness Employee's account balance
thereunder. Ralston shall, as soon as practicable after the Distribution
Date, provide Agribrands with such additional information (in the possession
of the Ralston Group and not already in the possession of the Agribusiness
Group) as may be reasonably requested by Agribrands and necessary in order for
Agribrands to establish and administer effectively the Agribrands SIP. The
Agribrands SIP receiving transfers of accounts from the Ralston SIP shall
contain an "Agribrands Stock Fund", and Agribusiness Employees for whom a
portion of the account balances are to be transferred to the Agribrands SIP
from the Ralston SIP in the form of Agribrands Stock, as described below,
shall be permitted to elect to retain their investment of that portion of
their account in the Agribrands Stock Fund.
(b) Ralston shall amend the Ralston SIP to cause the Agribrands
Employees to be fully vested, as of the Distribution, in amounts credited to
their accounts in the Ralston SIP as of such date. Ralston further agrees, as
soon as practicable following the Distribution Date, to direct the trustees of
the Ralston Purina Company Savings Investment Trust to transfer to the trustee
of the Agribrands SIP in cash, securities or other property or a combination
thereof, as reasonably determined by Ralston, an amount equal to the account
balances credited as of the date of transfer to the participants and
beneficiaries in the Ralston SIP who are Agribusiness Employees. Such
transfer shall be adjusted, if and to the extent necessary, to comply with
Section 414(l) of the Code and the regulations promulgated thereunder. At the
time determined by the appropriate fiduciaries of the Ralston SIP, such
fiduciaries shall cause shares of ESOP Stock allocated to accounts of
Agribusiness Employees under the Ralston SIP to be converted into or redeemed
for shares of Ralston Stock, as provided by the terms of the ESOP Stock.
Shares of Ralston Stock received by the Ralston SIP upon such redemption or
conversion, as well as shares of such Stock otherwise held in the Plan with
respect to Agribusiness Employee participant accounts in the Ralston Stock
Fund, will be transferred directly to the trustee of the Agribrands SIP for
attribution to respective participant accounts in that Plan. Shares of
Agribrands Stock distributed with respect to shares of Ralston Stock held in
the Ralston SIP as of the Distribution, to the extent allocated to accounts of
Agribusiness Employees, shall be transferred to respective participant
accounts in the Agribrands Stock Fund of the Agribrands SIP.
(c) In connection with the transfers described in Section 7.04(b),
Ralston and Agribrands shall cooperate in making any and all appropriate
filings required under the Code or ERISA, and the regulations thereunder, and
any applicable securities laws and take all such action as may be necessary
and appropriate to cause such transfers to take place as soon as practicable
after the Distribution Date; provided, however, that each such transfer shall
not take place until as soon as practicable after the earlier of (A) the
receipt of a favorable IRS determination letter with respect to the
qualification of the Agribrands SIP under Section 401(a) of the Code or (B)
the receipt by Ralston of an opinion of counsel retained by Agribrands and
reasonably satisfactory in form and substance to Ralston to the effect that
such counsel believes the Agribrands SIP will be found by the IRS to be
qualified under Section 401(a) of the Code and that each trust established
thereunder is exempt from federal income tax under Section 501(a) of the Code.
Ralston and Agribrands agree to provide to such counsel such information in
the possession of the Ralston Group and the Agribusiness Group, respectively,
as may be reasonably requested by such counsel in connection with the issuance
of such opinion. Ralston agrees, during the period beginning on the
Distribution Date and ending with the date of final transfer of assets and
liabilities to the Agribrands SIP, to administer the Ralston SIP in accordance
with plan provisions, and, insofar as it is practical, in the ordinary course
as it was operated prior to the Distribution, except as otherwise set forth in
this Agreement.
(d) Except as specifically set forth in this Section 7.04, from and
after the Distribution Date, Ralston shall cease to have any liability or
obligation whatsoever with respect to Agribusiness Employees under the Ralston
SIP (other than the obligation to complete the transfer of assets and
liabilities to the Agribrands SIP described in (c) above) and Agribrands shall
assume and shall be solely responsible for all liabilities and obligations
whatsoever of either Ralston or Agribrands with respect to Agribusiness
Employees under the Ralston SIP and shall be solely responsible for all
liabilities and obligations whatsoever under the Agribrands SIP; provided,
however, that Ralston shall, in respect of Agribusiness Employees
participating in the Ralston SIP prior to the Distribution, either be
responsible for or make all required contributions, no later than the date
such contributions are legally required to be made, for all prior Plan years
and for the portion of the Current Plan Year ending on the Distribution Date,
to the extent not previously made.
7.05 U.S. Welfare Plans
--------------------
(a) Agribrands shall take, or cause to be taken, all actions
necessary and appropriate on behalf of itself and the Agribusiness Group to
adopt such Welfare Plans as necessary to provide welfare benefits, effective
as of the Distribution Date, to the Agribusiness Individuals. In connection
with the foregoing, Ralston agrees to provide Agribrands or its designated
representative with such information (in the possession of the Ralston Group
and not already in the possession of the Agribusiness Group) as may be
reasonably requested by Agribrands and necessary for the Agribusiness Group to
establish any such Welfare Plan.
(b) Except as otherwise noted in this Section 7.05, Agribrands shall
assume, or cause one or more members of the Agribusiness Group to assume, and
shall be solely responsible for, or cause its insurance carriers or agents to
be responsible for, all welfare benefit claims incurred by Agribusiness
Individuals under the Agribusiness Welfare Plans described above in which such
Agribusiness Individuals are eligible to, and elect to, participate on or
after 12:01 a.m. on the Distribution Date. Ralston shall retain liability for
welfare benefit claims incurred by Agribusiness Individuals under the Purina
Comprehensive Health and Well-Med Plan or other Ralston Welfare Plans before
12:01 a.m. on the Distribution Date. For purposes of this Section 7.05,
medical and dental services are incurred when the Agribusiness Individual is
provided with medical or dental care; death benefit claims are incurred at the
time of death of the insured notwithstanding any other provision of any
welfare benefit plan to the contrary. As of 12:01 a.m. on the Distribution
Date, Agribusiness Employees will cease participating in Welfare Plans
maintained by any member of the Ralston Group, except to the extent they elect
continued coverage under Ralston's health benefit plans pursuant to the
Consolidated Omnibus Budget Reconciliation Act.
(c) Ralston and the Ralston Group shall be responsible for any
retiree medical and life insurance benefits payable under any Welfare Plans of
Ralston and the Ralston Group on or after the Distribution Date with respect
to any employees working in the Agribusiness who have retired from the
Agribusiness Group or the Ralston Group prior to the Distribution Date and who
have met the eligibility requirements for such benefits at that time.
Agribusiness Employees who retire from the Agribusiness Group on or after the
Distribution Date shall not be entitled to retiree medical and life insurance
benefits from such Welfare Plans of Ralston and the Ralston Group, except as
set forth in Sections 7.05(d) and (e) below. For purposes of this subsection,
the distribution of ownership of the Agribusiness Group to shareholders of
Ralston Stock shall not be deemed a termination of employment of Agribusiness
Employees.
(d) Effective as of the Distribution Date, Ralston shall cause the
Purina Comprehensive Plan to be amended to provide a delayed enrollment
opportunity for retiree medical benefits under the Comprehensive Health Plan
for Agribrands Employees who (i) were participants in the Purina Comprehensive
Health Plan but not the Executive Health Plan immediately prior to the
Distribution, (ii) had met the age and service requirements for retiree
medical coverage under the Purina Comprehensive Health Plan prior to the
Distribution Date, and who (iii) did not retire from the Agribusiness Group or
Ralston Group prior to the Distribution. Such delayed enrollment opportunity
shall be subject to satisfaction of certain eligibility conditions set forth
in the Plan (including, but not limited to, maintaining continuous coverage
under one or more group health plans sponsored by Agribrands or its successors
after the Distribution and applying for delayed enrollment in the Plan within
30 days after termination of coverage under such other group health plans),
and payment of applicable premiums for such retiree coverage.
Effective as of the Distribution Date, Ralston shall cause the Ralston Purina
Executive Health Plan to be amended to provide a similar delayed enrollment
opportunity for retiree medical benefits under the Executive Health Plan for
Agribrands Employees who (i) had met the age and service requirements for
retiree medical coverage under the Purina Comprehensive Health Plan prior to
the Distribution Date, (ii) were participants in the Executive Health Plan and
the Purina Comprehensive Health Plan immediately prior to the Distribution,
and who (iii) did not retire from the Agribusiness Group or Ralston Group
prior to the Distribution. Such delayed enrollment opportunity shall be
subject to satisfaction of certain eligibility conditions set forth in the
Executive Plan (including, but not limited to, maintaining continuous coverage
under one or more group health plans after the Distribution and applying for
delayed enrollment in the Executive Plan within 30 days after termination of
coverage under such other group health plans). The retiree medical coverage
offered to such Agribrands Employees under the Executive Health Plan shall be
equivalent to that offered to retirees under the Purina Comprehensive Health
Plan and the Executive Health Plan, and shall be contingent upon payment of
premiums equal to those charged for retiree coverage under the Purina
Comprehensive Health Plan.
(e) Ralston shall retain liabilities for retiree life benefits under
the Executive Life Plan for Former Agribusiness Employees who are eligible for
retiree life coverage under the Plan. Ralston shall amend the terms of the
Executive Life Plan to provide that Agribusiness Employees who are
participants in the Plan and who have satisfied the age and service
requirements for retiree life coverage as of the Distribution Date shall
retain retiree life coverage under the Plan after the Distribution in the
amount in effect as of the Distribution Date, and that such amount shall not
be increased thereafter.
7.06 International Welfare Plans
-----------------------------
Ralston and Agribrands shall each retain all liabilities related to
international welfare plans in which only Ralston Individuals or Agribusiness
Individuals, respectively, are enrolled. With respect to welfare plans in
which both Ralston Individuals and Agribusiness Individuals are participants,
Ralston and Agribrands shall cause each member of their respective Groups to
cooperate with members of the other Group to establish additional welfare
plans as soon as practicable after the Distribution Date in order to enroll
the Employees and Former Employees of the Agribusiness and Ralston in separate
plans. Ralston and Agribrands, or their respective welfare plans as
applicable, shall share proportionately in any refunds of contributions or
stabilization reserves payable on account of experience prior to the
Distribution; provided that, with respect to refunds from international
insurance pools, Ralston shall be obligated to share such refunds
proportionately with Agribrands only if Agribrands' share exceeds US$10,000.
7.07 Internationalist Retirement Plan.
----------------------------------
As of the Distribution Date, Agribusiness Employees who participate in
the Internationalist Retirement Plan shall cease to accrue benefits under such
Plan. Effective as of the Distribution Date, Agribrands shall assume or
retain all liabilities in connection with benefits accrued under such Plan
with respect to Agribusiness Individuals, and Ralston shall have no further
liability therefor. Agribrands agrees to cause such benefits to be paid to
the Agribusiness Individuals in a manner and amount consistent with the terms
of such plan.
7.08 Stock Options and Restricted Stock; Stock Purchase Plan.
----------------------------------------------------------
(a) The stock options held by Agribusiness Employees as of the
Distribution Date shall be administered in accordance with the terms of such
agreements. For purposes of restricted stock awards and stock options under
the ISPs, the Distribution shall be deemed to constitute an involuntary
termination of employment of Agribusiness Employees.
(b) Effective immediately after the Distribution Date, the number of
shares of Ralston Stock subject to, and the exercise price of, each
non-qualified option to acquire Ralston Stock granted pursuant to the terms of
an ISP ("Ralston Option") which immediately prior to the Record Date is
outstanding and not exercised shall be adjusted by the Human Resources
Committee of the Ralston Board in order to reflect the difference in the fair
market value of the Ralston Stock attributable to the Distribution, in
accordance with the requirements of Section 424 of the Code and the
regulations promulgated thereunder, based upon (i) the average of the closing
prices on the NYSE Composite Index for the Ralston Stock, trading regular way
with due bills for the Agribrands Stock, for the 10 trading day period prior
to the Distribution Date and (ii) the average of the closing prices on the
NYSE Composite Index for the Ralston Stock, trading regular way, for the 10
trading day period following the Distribution Date.
(c) Ralston and Agribrands agree that Ralston, as sole shareholder of
the outstanding capital stock of Agribrands, will approve the adoption by the
Board of Agribrands of an ISP prior to the Distribution, such plan to be
administered by the Nominating and Compensation Committee of the Agribrands
Board (the "Committee"). The Committee shall have authority under such plan
to grant stock options, restricted stock awards and other awards payable in
Agribrands Stock, to directors of Agribrands and eligible Agribusiness
Employees, including executive officers.
(d) Effective as of the Distribution Date, Agribusiness Employees
shall cease to be eligible to participate in Ralston's Purina Stock Purchase
Plan. All benefit obligations arising under the Plan prior to such date shall
be paid in accordance with the terms of the Plan.
7.09 Unfunded Deferred Compensation Plans.
---------------------------------------
(a) Ralston shall retain liability for all unpaid benefits,
obligations and liabilities with respect to account balances of Agribusiness
Employees and Former Agribusiness Employees in the Fixed Benefit Option of the
Ralston Purina Company Deferred Compensation Plan for Key Employees ("Ralston
Deferred Compensation Plan").
(b) Prior to the Distribution Date, Agribrands will establish a
Deferred Compensation Plan, which shall be a non-qualified unfunded deferred
compensation plan ("Agribrands Deferred Compensation Plan"). Effective as of
the Distribution, Ralston shall (i) amend the Ralston Deferred Compensation
Plan to permit the transfer to the Agribrands Deferred Compensation Plan of
that portion of the Ralston Deferred Compensation Plan relating to the
benefits accrued as of the Distribution Date by the Agribusiness Employees in
the Equity Option and Variable Interest Option of such Plan; and in connection
therewith, Ralston shall assign to Agribrands all its right, title and
obligations under the deferred compensation agreements associated with such
accrued benefits; and (ii) amend the Executive SIP to permit the transfer to
the Agribrands Deferred Compensation Plan of that portion of the Executive SIP
relating to the benefits accrued as of the Distribution Date by the
Agribusiness Employees.
(c) After the Distribution Date, Agribrands shall be solely
responsible for the payment of all liabilities and obligations for benefits
with respect to Agribusiness Employees under the Agribrands Deferred
Compensation Plan, which shall include all liabilities and obligations
transferred pursuant to 7.09(b) above, and Ralston shall have no liability
with respect thereto.
7.10 Partnership Life Insurance Plan.
----------------------------------
Agribusiness Individuals who, immediately prior to the Distribution Date,
were participants in or otherwise entitled to benefits under the Ralston
Partnership Life Insurance Plan, will, as of the Distribution Date, be treated
as terminated employees for purposes of such Ralston Partnership Life
Insurance Plan, and will be afforded all rights and benefits to which all
terminated employees are entitled under the terms of such Plan. Ralston will
retain ownership of any individual life insurance contracts then insuring the
life of any Agribusiness Employee in accordance with the terms of the
Partnership Life Insurance Plan.
7.11 Vacation Pay/Paid Time Off. Agribrands and the Agribusiness
--------------------------
Group will assume (or, as applicable, retain) all liability for unpaid
vacation pay and other paid time off accrued by Agribusiness Employees prior
to the Distribution Date. After the Distribution Date, Ralston and the
Ralston Group will have no liability for vacation pay or other paid time off
for Agribusiness Employees. Ralston and the Ralston Group will retain (or, as
applicable, assume) all liability for unpaid vacation pay and other paid time
off accrued by Ralston Employees prior to the Distribution Date. After the
Distribution Date, Agribrands and the Agribusiness Group will have no
liability for vacation pay or other paid time off for Ralston Employees.
7.12 U. S. Severance Pay.
----------------------
(a) Ralston and Agribrands agree that, with respect to individuals
who, in connection with the Distribution, cease to be employees of the Ralston
Group and become employees of the Agribusiness Group, such cessation shall not
be deemed a severance of employment from either Group for purposes of any Plan
that provides for the payment of severance, salary continuation or similar
benefits and shall, in connection with the Distribution, if and to the extent
appropriate obtain waivers from individuals against any such assertion.
(b) The Ralston Group shall assume and be solely responsible for all
liabilities and obligations whatsoever in connection with claims made by or on
behalf of Ralston Individuals and the Agribusiness Group shall assume and be
solely responsible for all liabilities and obligations whatsoever in
connection with claims made by or on behalf of Agribusiness Individuals in
respect of severance pay, salary continuation and similar obligations relating
to the termination or alleged termination of any such person's employment
either before, to the extent unpaid, or on or after the Distribution Date.
7.13 International Severance Pay.
-----------------------------
(a) Ralston and Agribrands agree that, with respect to individuals
who, in connection with the Distribution, cease to be employees of the Ralston
Group and become employees of the Agribusiness Group or vice versa, such
cessation shall not be deemed a severance of employment from either Group
except to the extent so required by the terms of any benefit plan, labor
agreement, applicable law or governmental regulation that provides for the
payment of severance pay, salary continuation, termination indemnity or
similar benefits. The parties agree, if and to the extent appropriate, to
obtain waivers from individuals against any such assertion.
(b) To the extent severance pay, salary continuation or termination
indemnity is payable with respect to an Agribusiness Individual or Ralston
Individual, the respective Group shall assume and be solely responsible for
all liabilities and obligations whatsoever in connection with claims for such
benefits made by or on behalf of such Individuals relating to the termination
or alleged termination of any such person's employment either before, to the
extent unpaid, or on or after the Distribution Date.
Notwithstanding the foregoing, after the Distribution Date, employees of
Purina Colombiana, S.A. whose principal duties after the Distribution Date are
in connection with the manufacture of pet food pursuant to a Toll-Milling
Agreement shall be considered Ralston Employees for purposes of this Section
7.13, and the Ralston Group shall be solely responsible for payment of any
claims for severance benefits by such employees; and employees of Purina de
Venezuela, C.A. whose principal duties after the Distribution Date are in
connection with the manufacture of agricultural formula animal feeds pursuant
to a Toll-Milling Agreement shall be considered Agribusiness Employees for
purposes of this Section 7.13, and the Agribusiness Group shall be solely
responsible for payment of any claims for severance benefits by such
employees.
In the event that the individual to whom the benefits are due was an employee
of both the Agribusiness and the Ralston Business, then the termination
expenses shall be shared pro rata on the basis of service with each Group.
7.14 Bonus Plans. Agribrands and its Affiliates shall be responsible
-----------
for all liabilities with respect to Agribusiness Employees arising under bonus
plans, programs or policies applicable to such Employees, including
liabilities related to service prior to the Distribution Date.
Notwithstanding the foregoing, Ralston shall retain liability for amounts
payable to Agribusiness Employees who are participants in the 1996 Leveraged
Incentive Plan.
7.15 Other Balance Sheet Adjustments. To the extent not otherwise
-------------------------------
provided in this Agreement, Ralston and Agribrands shall take such action as
is necessary to effect an adjustment to the books of the members of the
Ralston Group and the Agribusiness Group so that, as of the Distribution Date,
the prepaid expense balances and accrued employee liabilities with respect to
any employee liability or obligation assumed or retained as of the
Distribution Date by the Ralston Group or the Agribusiness Group are
appropriately reflected on the consolidated balance sheets as of the
Distribution Date of Ralston and Agribrands, respectively.
7.16 Preservation of Rights to Amend or Terminate Plans. Subject to
--------------------------------------------------
the provisions of this Article VII, no provision of this Agreement, including
the agreement of Ralston or Agribrands that it, or any member of the Ralston
Group or the Agribusiness Group, will make a contribution or payment to or
under any Plan herein referred to for any period, shall be construed as a
limitation on the right of Ralston or Agribrands or any member of the Ralston
Group or the Agribusiness Group to amend such Plan or terminate its
participation therein which Ralston or Agribrands or any member of the Ralston
Group or the Agribusiness Group would otherwise have under the terms of such
Plan or otherwise, and no provision of this Agreement shall be construed to
create a right in any Ralston Individual or Agribusiness Individual under a
Plan which such Individual would not otherwise have under the terms of the
Plan itself.
7.17 Reimbursement; Indemnification. Each of the parties hereto
------------------------------
acknowledges that the Ralston Group, on the one hand, and the Agribusiness
Group, on the other hand, may incur costs and expenses (including
contributions to Plans and the payment of insurance premiums) arising from or
related to any of the Plans which are, as set forth in this Agreement, the
responsibility of the other party hereto. Ralston and Agribrands agree that
they, or the appropriate members of their respective Groups, shall reimburse
the appropriate members of the other's Group, as soon as practicable but in
any event within 30 days of receipt from the other party of appropriate
verification, for all such costs and expenses.
7.18 Further Transfers. For a period of six months following the
-----------------
Distribution Date, no member of either Group shall, directly or indirectly,
without the prior written consent of a corporate officer of the other Group,
solicit or attempt to solicit any employee or officer of such other Group for
the purpose of obtaining his or her services for hire, or otherwise causing
such employee to leave employment with such other Group, and no member of
either Group, without the prior written consent of a corporate officer of the
other Group, will, for such period of six months, hire such employee or
officer; provided, however, if the employment of any officer or employee of
one Group is terminated by that Group at any time following the Distribution,
a member of the other Group may employ such person without the consent of the
other Group
7.19 Other Liabilities. As of the Distribution Date, Agribrands and
-----------------
Ralston shall each assume and be solely responsible for all Liabilities
whatsoever of the other's Group with respect to claims made by, in the case of
Agribrands, Agribusiness Individuals and, in the case of Ralston, Ralston
Individuals, relating to any Liability not otherwise expressly provided for in
this Agreement, including, but not limited to, earned salaries, wages,
severance payments, bonus accruals or other compensation, regardless of
whether such Liability was incurred before or after the Distribution Date.
7.20 Compliance. Notwithstanding anything to the contrary in this
----------
Article VII, to the extent any actions of the parties contemplated in this
Article are determined prior to the Distribution to violate law or result in
unintended tax liability for Ralston Individuals or Agribusiness Individuals,
such action may be modified to avoid such violation of law or unintended tax
liability.
7.21 Agreement of Parties. Notwithstanding anything herein to the
--------------------
contrary, the agreements contained in this Article VII shall be binding only
as between the parties to this Agreement, no Ralston Individual or
Agribusiness Individual or other Person shall have any right with respect to
any such agreement, and no Person other than the parties to this Agreement
shall have any rights to enforce any provision hereof.
ARTICLE VIII
POST-DISTRIBUTION OBLIGATIONS
8.01 Agribrands' Post-Distribution Obligations. Agribrands shall, and
-----------------------------------------
shall cause each member of the Agribusiness Group to, comply with each
representation and statement made, or to be made, to the Internal Revenue
Service (the "IRS") in connection with any ruling obtained, or to be obtained,
by Ralston, from the IRS with respect to any transaction contemplated by this
Agreement. Neither Agribrands nor any member of the Agribusiness Group shall
for a period of three years following the Distribution Date engage in any of
the following transactions, unless, in the sole discretion of Ralston, either
(a) an opinion in form and substance satisfactory to Ralston is obtained from
counsel to Agribrands, the selection of which counsel is agreed to by Ralston
or (b) a supplemental ruling is obtained from the IRS, in either case to the
effect that such transactions would not adversely affect the tax consequences
of the contributions, transfers, assumptions, Merger and Distribution
described in Articles II and III of this Agreement to (1) Ralston or any
member of the Ralston Group, (2) Agribrands or any member of the Agribusiness
Group, or (3) the Ralston shareholders. The transactions subject to this
provision are: (i) making a material disposition (including transfers from one
member of the Agribusiness Group to another member of the Agribusiness Group),
by means of a sale or exchange of assets or capital stock, a distribution to
shareholders, or otherwise, of any of its assets (other than the transactions
contemplated by this Agreement) except in the ordinary course of business;
(ii) repurchasing any Agribrands capital stock, unless such repurchase
satisfies the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 or
any successor Revenue Procedure; (iii) issuing any Agribrands capital stock
that in the aggregate exceeds twenty percent (20%) of the issued and
outstanding stock of Agribrands immediately following the Distribution; (iv)
liquidating or merging with any other corporation (including a member of the
Agribusiness Group); or (v) ceasing to engage in the active conduct of a trade
or business within the meaning of Section 355(b)(2) of the Code. Agribrands
hereby represents that neither Agribrands nor any member of the Agribusiness
Group has any present intention to undertake any of the transactions set forth
in (i), (ii), (iii), (iv) or (v) above.
8.02 Ralston's Post-Distribution Obligations. For a period of three
---------------------------------------
years after the date of the Distribution, Ralston shall, and shall cause each
member of the Ralston Group, to refrain from taking any action which would
adversely impact any ruling obtained, or to be obtained, by Ralston from the
IRS with respect to any transaction contemplated by this Agreement.
8.03 Indemnification of Shareholders. In the event that Ralston or
-------------------------------
Agribrands breaches or violates any covenant made in this Article VIII, the
breaching party shall indemnify and hold harmless (i) all shareholders of
Ralston, and (ii) if the breaching party is Agribrands, Ralston as of the
Record Date against and in respect of any and all costs, expenses,
deficiencies, litigation, proceedings, taxes, levies, assessments, attorneys'
fees, damages or judgments of any kind or nature whatsoever, related to,
arising from, or associated with such breach or violation.
ARTICLE IX
NO REPRESENTATIONS OR WARRANTIES; EXCEPTIONS
Agribrands understands and agrees that, except as set forth in Article
VIII, no member of the Ralston Group is, in this Agreement or in any Ancillary
Agreement or other agreement or document, implicitly or explicitly
representing or warranting to Agribrands in any way as to the Agribusiness
Assets, the Agribusiness or the Liabilities of the Agribusiness Group or as to
any consents or approvals required in connection with the consummation of the
transactions contemplated by this Agreement, it being agreed and understood
that the Agribusiness Group shall take all of the Agribusiness Assets "as is,
where is" and that, except as provided in Section 2.04, the Agribusiness Group
shall bear the economic and legal risk that conveyances of the Agribusiness
Assets shall prove to be insufficient or that the title of any member of the
Agribusiness Group to any Agribusiness Assets shall be other than good and
marketable and free from encumbrances.
ARTICLE X
GUARANTEES AND SURETY BONDS OF RALSTON
Agribrands agrees that as soon as practicable following the Distribution
Date, it will substitute surety bonds obtained by it for each of the surety
bonds of any member of the Ralston Group, if any, relating to any Agribusiness
Asset, the Agribusiness or any Liability assumed by Agribrands or its
Subsidiaries of Affiliates hereunder. Agribrands agrees that it shall enter
indemnification agreements in its name with each provider of a surety bond
obtained with respect to the Agribusiness Assets, the Agribusiness or any
Liability assumed by Agribrands. Except as set forth on Schedule 10,
Agribrands shall use its best efforts to obtain the complete release and
discharge of any member of the Ralston Group from all obligations (including
any obligations upon any renewal or extension) related to the Agribusiness
Assets, the Agribusiness or any Liability assumed by Agribrands on which any
member of the Ralston Group is directly or contingently obligated as a
guarantor or assignor or otherwise contingently liable (including, without
limitation, any letter of credit) (the " Agribusiness Obligations"). In the
event that Agribrands is unable to obtain any such release, Agribrands agrees
that (i) it shall not extend the term or otherwise modify any such
Agribusiness Obligation in a manner which would expand Ralston's financial
exposure under such Agribusiness Obligation, (ii) it shall use its best
efforts to substitute itself or another member of the Agribusiness Group as
primary guarantor of such Agribusiness Obligations, and (iii) Agribrands or
any member of the Agribusiness Group shall not assign any such Agribusiness
Obligation or directly or indirectly transfer, sell or assign any assets
securing such Agribusiness Obligation or comprising all or any substantial
portion of a project, the financing of which gave rise to such Agribusiness
Obligation, including, but not limited to, the transfer, sale or assignment of
the capital stock of any Affiliate holding title to such assets, unless
Ralston or the appropriate member of the Ralston Group, as the case may be, is
released and discharged of all liabilities with respect to such Agribusiness
Obligation. Without limiting any other obligation of indemnification under
this Agreement or any agreement described herein, Agribrands shall defend,
indemnify and hold harmless each member of the Ralston Group and their
respective Affiliates, Subsidiaries, directors, officers and employees against
any and all Liabilities whatsoever incurred or suffered by any of them as a
result of any Agribusiness Obligation.
ARTICLE XI
NEGOTIATION
If any question shall arise in regard to (i) the interpretation of any
provision of this Agreement or, except to the extent provided otherwise
therein, any Ancillary Agreement, or (ii) the rights or obligations of either
Group hereunder or thereunder, each Group shall designate a senior executive
within its organization who shall, within thirty days after such question
arises, meet with the designated executive of the other Group to negotiate and
attempt to resolve such question in good faith. Such senior executives may,
if they so desire, consult outside advisors for assistance in arriving at such
a resolution. In the event that a resolution is not achieved within sixty
days following such initial meeting, then the parties may seek other legal
means of resolving such question, including but not limited to mediation or
binding or non-binding arbitration.
ARTICLE XII
MISCELLANEOUS
12.01 Conditions to the Distribution.
---------------------------------
(a) The obligation of Ralston to make the Distribution is subject to
the satisfaction of each of the following conditions:
(i) The transactions contemplated by Article II shall have been
consummated in all material respects;
(ii) Ralston shall have received rulings from the IRS, in form and
substance satisfactory to Ralston's tax counsel and independent auditors, that
the contributions, transfers, assumptions, mergers and Distribution described
in Articles II and III of this Agreement will not be subject to federal income
taxation at the corporate or shareholder level;
(iii) The Agribrands Stock and associated Rights shall have been
approved for listing on the NYSE, subject to official notice of issuance;
(iv) The Form 10 shall have been filed with the SEC and shall have
become effective, and no stop order with respect thereto shall be in effect;
(v) All authorizations, consents, approvals and clearances of all
federal, state, local and foreign governmental agencies required to permit the
valid consummation by the parties hereto of the transactions contemplated by
this Agreement shall have been obtained; and no such authorization, consent,
approval or clearance shall contain any conditions which would have a material
adverse effect on (A) the Ralston Business or the Agribusiness, (B) the
Assets, results of operations or financial condition of the Ralston Group or
the Agribusiness Group, in each case taken as a whole, or (C) the ability of
Ralston or Agribrands to perform its obligations under this Agreement; and all
statutory requirements for such valid consummation shall have been fulfilled;
(vi) Ralston shall have provided the NYSE with the prior written
notice of the Record Date required by Rule 10b-17 of the Exchange Act and the
rules and regulations of the NYSE;
(vii) No preliminary or permanent injunction or other order, decree
or ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission, and no statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, shall be in effect preventing the payment of the Distribution;
(viii) The Distribution shall be payable in accordance with
applicable law;
(ix) All necessary consents, waivers or amendments to each bank
credit agreement, debt security or other financing facility to which any
member of the Ralston Group or the Agribusiness Group is a party or by which
any such member is bound shall have been obtained, or each such agreement,
security or facility shall have been refinanced, in each case on terms
satisfactory to Ralston and Agribrands and to the extent necessary to permit
the Distribution to be consummated without any material breach of the terms of
such agreement, security or facility; and
(x) One or more members of the Agribusiness Group shall have been
substituted, as of the Distribution Date in respect of all Ralston Group debt
obligations assumed by Agribrands or another member of the Agribusiness Group
pursuant to this Agreement.
(b) Any determination made by the Ralston Board in good faith
concerning the satisfaction or waiver of any or all of the conditions set
forth in Section 12.01(a) shall be conclusive.
12.02 Survival of Agreements. All covenants and agreements of the
----------------------
parties hereto contained in this Agreement shall survive the Distribution
Date.
12.03 Entire Agreement. This Agreement, the Exhibits and Schedules
----------------
hereto and the Ancillary Agreements shall constitute the entire agreement
between the parties hereto with respect to the subject matter hereof
superseding all previous negotiations, commitments and writings with respect
to such subject matter. To the extent that the provisions of this Agreement
are inconsistent with the provisions of any Ancillary Agreement, the
provisions of such Ancillary Agreement shall prevail.
12.04 Expenses of the Distribution. Except as otherwise provided in
----------------------------
this Agreement and the other agreements referred to herein, Ralston shall pay
all of the costs and expenses (including attorneys' and accountants' fees,
legal costs and expenses) that were necessary to effect the Distribution and
to consummate the transactions contemplated by this Agreement. For purposes
of this Section 12.04, costs and expenses (including attorneys' and
accountants' fees, legal costs and expenses) incurred in connection with the
establishment of any credit facility or other financing arrangements by or on
behalf of Agribrands and its Affiliates shall not be deemed to be expenses
necessary to effect the Distribution. Notwithstanding the foregoing, Ralston
shall bear the cost of underwriting fees and expenses of ABN incurred in
connection with the closing of the syndicated financing agreement with
Agribrands, including legal expenses of Sidley & Austin as counsel to ABN
Amro, and legal fees of Bryan Cave in connection with such financing.
12.05 GOVERNING LAW; JURISDICTION AND VENUE. THIS AGREEMENT IS MADE
-------------------------------------
AND ENTERED INTO IN, AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF, THE STATE OF MISSOURI, UNITED STATES OF AMERICA,
WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES, AS TO ALL MATTERS,
INCLUDING MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES
UNDER THIS AGREEMENT. ALL MATTERS RELATING TO THIS AGREEMENT SHALL, SUBJECT
TO THE PROVISIONS OF ARTICLE XI OF THIS AGREEMENT, BE ADJUDICATED EXCLUSIVELY
IN THE COURTS OF THE STATE OF MISSOURI LOCATED IN ST. LOUIS, MISSOURI, OR
WITHIN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI;
AND EACH PARTY HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF SUCH
COURTS FOR ALL SUCH MATTERS.
12.06 Notices. All notices, requests, claims, demands and other
-------
communications hereunder (collectively, "Notices") shall be in writing and
shall be given (and shall be deemed to have been duly given upon receipt) by
delivery in person, by cable, telegram, telex, facsimile or other standard
form of telecommunications, or by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to a member of the Ralston Group:
Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Attention: General Counsel
If to a member of the Agribusiness Group:
Agribrands International, Inc.
9811 South Forty Drive
St. Louis, Missouri 63124
Attention: General Counsel
or to such other address as either Group may have furnished to the other Group
by a notice in writing in accordance with this Section 12.06.
12.07 Amendment and Modification; Non-Waiver. This Agreement may be
--------------------------------------
amended, modified or supplemented, or rights, powers or options hereunder
waived or impaired, only by a written agreement signed by a corporate officer
of Ralston and Agribrands and attested by their respective corporate
secretaries. Neither party shall be deemed to have waived or impaired any
right, power or option created or reserved by this Agreement (including
without limitation, each party's right to demand compliance with every term
herein, or to declare any breach a default and exercise its rights in
accordance with the terms hereof) by virtue of: (i) any custom or practice of
the parties at variance with the terms hereof; (ii) any failure, refusal or
neglect to exercise any right hereunder, or to insist upon compliance with any
term; (iii) any waiver, forbearance, delay, failure or omission to exercise
any right or option, whether of the same, similar or different natures, under
this Agreement or in any other circumstances; or (iv) the acceptance by either
party of any payment or other consideration from the other following any
breach of this Agreement. The rights and remedies set forth in this Agreement
are in addition to any other rights or remedies which may be granted by law.
12.08 Successors and Assigns; No Third-Party Beneficiaries. This
- ----- --------------------------------------------------------
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of each Group and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests and
obligations hereunder shall be assigned by either Group without the prior
written consent of the other Group (which consent shall not be unreasonably
withheld). Except for the provisions of Sections 4.02 and 4.03 relating to
Indemnities, which are also for the benefit of the Indemnitees, this Agreement
is solely for the benefit of each Group and is not intended to confer
upon any other Person any rights or remedies hereunder.
12.09 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Interpretation.
--------------
(a) The Article and Section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties hereto and shall not in any way affect the meaning or interpretation
of this Agreement.
(b) The parties hereto intend that, for federal income tax purposes,
the contributions, transfers, assumptions, Distribution and Merger
contemplated hereby shall qualify for non-recognition treatment under Sections
332, 336, 337, 355, 357(a), 361, 368(a)(1)(D) and 1032 of the Code.
12.11 Legal Enforceability. Any provision of this Agreement or any
--------------------
of the Ancillary Agreements which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. Each party acknowledges that money damages would be
an inadequate remedy for any breach of the provisions of this Agreement or any
of the Ancillary Agreements and agrees that the obligations of the parties
hereunder and thereunder shall be specifically enforceable.
12.12 References; Construction. References to any "Article",
-------------------------
"Exhibit", "Schedule" or "Section", without more, are to Articles, Exhibits,
Schedules and Sections to or of this Agreement. Unless otherwise expressly
stated, clauses beginning with the term "including" set forth examples only
and in no way limit the generality of the matters thus exemplified.
12.13 Termination. Notwithstanding any provision hereof, this
-----------
Agreement may be terminated and the Distribution abandoned at any time prior
to the Distribution Date by and in the sole discretion of the Ralston Board
without the approval of any other party hereto or of Ralston's shareholders.
In the event of such termination, no party hereto shall have any Liability to
any Person by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AGRIBRANDS INTERNATIONAL, INC. RALSTON PURINA COMPANY
By: /s/ David R. Wenzel By: /s/ James R. Elsesser
--------------------------------- -----------------------------
David R. Wenzel James R. Elsesser
Chief Financial Officer Chief Financial Officer
October 5, 1998
HIGHLY CONFIDENTIAL
- --------------------
Leveraged Incentive Plan Participants
DEFERRAL OF POTENTIAL 1996 LEVERAGED INCENTIVE PLAN AWARD
As a participant in the 1996 Leveraged Incentive Plan (LIP), you may defer, with
the approval of management, any 1996 LIP award which may be granted by Ralston
Purina Company or its affiliates at the end of fiscal year 1999.
Elections to defer must be made sufficiently in advance of the determination of
the amount of the LIP award in order to effect the deferral for Federal and
State income tax purposes. (Please note that deferred LIP awards will be
subject to Medicare HI taxes.) Deferrals of 1996 Leveraged Incentive Plan
awards can be made into either the Variable Interest or Equity Option accounts
available in the Deferred Compensation Plan for Key Employees. Attachment 1
details the provisions of those account options. Please also note in Attachment
2, Factors To Consider, that additional investment funds may be added in fiscal
1999.
If the peer group performance described in the plan is met and the Peer Group
Award becomes payable, the Peer Group Award will be mandatorily deferred for all
Plan participants in Ralston Purina stock equivalents in the Equity Option
account.
NO COMPANY MATCH WILL BE PROVIDED FOR ANY LIP AWARD DEFERRALS INTO EITHER THE
EQUITY OPTION OR THE VARIABLE INTEREST OPTION ACCOUNT.
In making your election, please carefully review the attached Deferred
Compensation Plan Prospectus and the Factors to Consider. Keep in mind that
YOUR ELECTION MAY NOT BE CHANGED even if circumstances, such as your personal
financial situation, interest rates, or the price of or dividends on Ralston
Common Stock change in the future.
REQUEST FOR DEFERRAL
- ----------------------
PLEASE RETURN ONE COPY OF THE ELECTION FORM (ATTACHMENT 3) BY OCTOBER 30, 1998
WHETHER OR NOT YOU WISH TO REQUEST A DEFERRAL. A duplicate form is attached for
--------------------------------------------
your records. Your election must be received by Corporate Compensation by
October 30, 1998 or you will not be eligible to defer any 1996 Leveraged
Incentive Plan award.
The deferral of the 1996 LIP Award is at the discretion of management and is
subject to its approval. Any amount you request to defer under this election
will be in addition to any required deferral of the 1996 LIP award which may be
mandated by the Human Resources Committee to assure deductibility of such award
when paid.
If you have any questions, please call me at extension 2325 or Pat Robbins at
extension 5889.
Ron Sheban
Attachments
October 5, 1998 FACTORS TO CONSIDER - REVISED Attachment 2
================================================================================
Under current Federal and state income tax laws, you will not be taxed on any
deferral amounts or any earnings on those deferral amounts until you actually
receive payments of cash or delivery of stock. At that time, amounts received
would be taxed as ordinary income in the year received. If you are subject to
the income tax laws of a foreign country, you should consult your personal tax
advisor regarding the proper tax treatment.
All wages, without limit, and whether or not deferred, are subject to the
Medicare Hospital Insurance (HI) Tax of 1.45% (a component of FICA). Since
deferred compensation is subject to the HI Tax, THE HI TAX ATTRIBUTABLE TO ANY
PORTION OF THE LIP AWARD YOU ELECT TO DEFER WILL BE WITHHELD FROM YOUR DECEMBER
1999 PAYCHECK.
The Purina Retirement Plan definition of "final average earnings" includes
deferred compensation. Therefore, under the terms of that plan, your pension
will be calculated to include deferred compensation, subject to the overall plan
compensation limit of $160,000. LIP awards that are not deferred will also be
included in the definition of "final average earnings". Both deferred and
nondeferred LIP awards are also included in the definition of "final average
earnings" for purposes of the Supplemental Retirement Plan, if you are eligible
to participate in that Plan.
If you are a participant in the Savings Investment Plan ("SIP"), amounts
deferred into the Equity Option or Variable Interest Option will not be included
---
in your compensation for purposes of computing your SIP contribution or the
Company matching contribution. Please note, however, that your SIP
contributions are deducted from the Short-Term Variable Interest cash payment
made in January to active participants. NOTE: It is anticipated that,
effective January 1, 1999, the design of the Executive SIP plan including the
Company match component will generally parallel that of the new qualified Saving
Investment Plan. See your Decision Points 1998 materials for additional
information on the qualified SIP.
In evaluating the Equity Option, consider the length of time your investment in
stock equivalents subjects your deferral to market risks. Also consider
long-range economic and political conditions, the prospects of the business
underlying the stock, and whether the Company will be willing and able to
declare and pay dividends to create dividend equivalents.
The Variable Interest Option will credit interest equivalents on your deferred
amounts annually based on the average of the daily close of business prime
rates. These equivalents may vary substantially from year to year depending on
changes in interest rates.
NOTE: The design of the Deferred Compensation Plan is also under review and
additional account options may be available during fiscal 1999. The additional
account options under consideration would mirror the returns of the five
Vanguard Equity funds currently offered in the qualified Savings Investment Plan
(SIP).
With the exception of any peer group awards which are mandatorily deferred,
transfers are available on amounts deferred for at least one year and are
currently limited to transfers between the Equity and (Long-Term) Variable
Interest Accounts. At the present time, transfers can be made twice a year, in
June and December, however, the frequency of such transfers and the available
account options for transfers are under review as mentioned above.
Benefits under The Deferred Compensation Plan for Key Employees are unfunded.
In considering the options, you should note that your right to receive
distributions from the Plan is that of a general creditor of Ralston Purina
Company.
Consider your deferral participation carefully and consult your personal advisor
if you have any questions. Please refer to the enclosed Deferred Compensation
Plan Prospectus and The Deferred Compensation Plan for Key Employees for more
details. YOUR ELECTION TO DEFER MAY NOT BE CHANGED FOR ANY REASON.
===================================================================
Note: Under the terms of the LIP Cash Incentive Award, if any part of the award
would be currently nondeductible if paid in fiscal 1999, due to I.R.S. imposed
$1 million compensation limits, the Human Resources Committee may, in its sole
discretion and without the consent of participants, defer payment or a portion
thereof until the fiscal year in which such compensation is deductible, such
deferrals may be in addition to any elective deferrals of the LIP award
contemplated by your election.
LEVERAGED INCENTIVE PLAN (LIP)
OCTOBER 5, 1998 DEFERRAL ELECTION ATTACHMENT 3
Please submit my request as follows with respect to the 1996 Leveraged Incentive
Plan (LIP) award which may be awarded to me by Ralston Purina Company or its
affiliates as of September 30, 1999:
CHECK ONE BOX BELOW:
/ / NO DEFERRAL Check here if you do not wish to defer any portion of any
1996 LIP cash incentive award.
Ignore items 1) and 2) and proceed to bottom section.
/ / DEFERRAL Check here if you wish to defer any portion of any 1996
LIP cash incentive award.
Complete items 1) and 2) and the bottom section.
1) FILL IN ONE BLANK ONLY:
Defer % OR
Defer all up to $ OR
Defer all in excess of $
2) PLEASE ALLOCATE THE AMOUNT INDICATED IN ITEM 1) ABOVE TO THE
FOLLOWING ACCOUNT(S):
______% To the EQUITY ACCOUNT
______% To the SHORT-TERM VARIABLE INTEREST ACCOUNT
(payable in January, 2000)
______% To the LONG-TERM VARIABLE INTEREST ACCOUNT
100% TOTAL
---
THERE IS NO COMPANY MATCH ON ANY LIP DEFERRAL
I UNDERSTAND THAT ANY DECISION REGARDING ANY 1996 LIP CASH INCENTIVE AWARD THAT
WILL BE PAID TO ME AS OF SEPTEMBER 30, 1999 OR DEFERRED FOR FUTURE PAYMENT IS
AT THE DISCRETION OF MANAGEMENT AND THE HUMAN RESOURCES COMMITTEE. I UNDERSTAND
THAT ANY AMOUNTS DEFERRED IN ACCORDANCE WITH THIS ELECTION WILL BE IN ADDITION
TO ANY AMOUNTS REQUIRED TO BE DEFERRED BY THE HUMAN RESOURCES COMMITTEE IN ORDER
TO ASSURE DEDUCTIBILITY OF THE AWARD. I FURTHER UNDERSTAND THAT AN ELECTION TO
DEFER, ONCE MADE, IS IRREVOCABLE.
- ---------------------------- ---------------------------------
Social Security Number Signature
- --------------------------- ---------------------------------
Today's Date Name (Type or Print)
- -------------------------- ---------------------------------
Division Department Location
- -------------------------------------------------------------------------------
Home Street Address City State Zip
RETURN TO CORPORATE COMPENSATION - 1A, ST. LOUIS, MO
NO LATER THAN OCTOBER 30, 1998
INDEMNIFICATION AGREEMENT
-------------------------
INDEMNIFICATION AGREEMENT (the "Agreement") made this ____ day of ________,
1997, between RALSTON PURINA COMPANY, a Missouri corporation (the "Company") and
WILLIAM P. STIRITZ ("Director").
WHEREAS, Director is a member of the Board of Directors of Company, and in
such capacity is performing a valuable service for Company; and
WHEREAS, the Company's Restated Articles of Incorporation (the "Articles")
permit the indemnification of directors, officers, employees and certain agents
of the Company, and indemnification is also authorized by Section 351.355 of the
Missouri Revised Statutes, as amended to date (the "Indemnification Statute");
and
WHEREAS, the Articles and the Indemnification Statute permit full
indemnification of directors absent knowingly fraudulent, deliberately dishonest
or willful misconduct; and
WHEREAS, in order to induce Director to serve as a member of the Board of
Directors of Company, Company has determined and agreed to enter into this
contract with Director;
NOW THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the Company and Director agree as follows:
1. Indemnity of Director. Company hereby agrees to hold harmless and
---------------------
indemnify Director to the full extent authorized or permitted by the provisions
of the Indemnification Statute, or by any amendment thereof, or any other
statutory provisions authorizing or permitting such indemnification which is
adopted after the date hereof.
2. Additional Indemnity. Subject to the exclusions set forth in
---------------------
Section 3 hereof, Company further agrees to hold harmless and indemnify Director
against any and all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by Director in
connection with any threatened, pending or completed action, claim, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the Company) to which Director is, was or at any
time becomes a party, or is threatened to be made a party, by reason of the fact
that Director is, was or at any time whether before or after the date of this
Agreement, becomes a director, officer, employee or agent of the Company, or is
or was serving or at any time serves at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
3. Limitations on Additional Indemnity. No indemnity pursuant to
------------------------------------
Section 2 hereof shall be paid by Company:
(a) Except to the extent the aggregate of losses to be indemnified
thereunder exceeds the amount of such losses for which the Director is
indemnified pursuant to Section 1 hereof or pursuant to any insurance policies
or other comparable policies purchased and maintained by the Company;
(b) In respect to remuneration paid to Director if it shall be
finally judicially adjudged that such remuneration was in violation of law;
(c) On account of any suit for an accounting of profits made from
the purchase or sale by Director of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
or similar provisions of any state or local statutory law;
(d) On account of Director's conduct which is finally judicially
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct;
(e) If a final decision by a Court having jurisdiction in the
matter (all appeals having been denied or none having been taken) shall
determine that such indemnification is not lawful.
4. Continuation of Indemnity. All agreements and obligations of
---------------------------
Company contained herein shall continue during the period Director is a member
of the Board of Directors of Company and shall continue thereafter so long as
Director shall be subject to any possible claim or threatened, pending or
completed action or claim, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that Director was a
director of the Company or was serving in any other capacity referred to herein.
5. Notification and Defense of Claim. Promptly after receipt by
-----------------------------------
Director of notice of the commencement of any action, claim, suit or proceeding
against him by reason of his status as a director, officer, employee or agent,
Director will notify Company of the commencement thereof; provided, however,
that the omission so to notify Company will not relieve Company from any
liability which it may have to Director under this Agreement unless and to the
extent that Company's rights are prejudiced by such failure. With respect to
any such action, claim, suit or proceeding as to which Director notifies Company
of the commencement thereof:
(a) Company will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, Company jointly with any other party will be entitled to assume the
defense thereof, with counsel satisfactory to Director. After notice from
Company to Director of its election so to assume the defense thereof, Company
will not be liable to Director under this Agreement for any legal or other
expenses subsequently incurred by Director in connection with the defense
thereof unless Director shall have reasonably concluded that there may be a
conflict of interest between Company and Director in the conduct of the defense
of such action, in which case, Company shall not be entitled to assume the
defense of any action, claim, suit or proceeding brought by or on behalf of
Company;
(c) Company shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. Company shall not settle any action or claim in
any manner which would impose any penalty or limitation on Director without
Director's written consent. Neither Company nor Director will unreasonably
withhold their consent to any proposed settlement.
<PAGE>
6. Advancement and Repayment of Expenses.
-----------------------------------------
(a) To the extent that the Company assumes the defense of any
action, claim, suit or proceeding against Director, Director agrees that he will
reimburse Company for all reasonable expenses paid by Company in defending any
civil or criminal action, claim, suit or proceeding against Director in the
event and only to the extent that it shall be ultimately judicially determined
that Director is not entitled to be indemnified by Company for such expenses
under the provisions of the Indemnification Statute, the Articles, this
Agreement or otherwise.
(b) To the extent that the Company does not assume the defense of
any action, claim, suit or proceeding against Director, Company shall advance to
Director all reasonable expenses, including all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with defending, preparing to defend or
investigating any civil or criminal action, suit or proceeding, within twenty
days after the receipt by Company of a statement or statements from Director
requesting such advance or advances, whether prior to or after final disposition
of such action, suit or proceeding. Such statement or statements shall
reasonably evidence the expenses incurred by Director and shall include or be
preceded or accompanied by an undertaking by or on behalf of Director to repay
all of such expenses advanced if it shall be ultimately judicially determined
that Director is not entitled to be indemnified against such expenses. Any
advances and undertakings to repay pursuant to this paragraph shall be unsecured
and interest free.
7. Enforcement.
-----------
(a) Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on Company hereby in order to
induce Director to serve as a director of Company, and acknowledges that
Director is relying upon this Agreement in serving in such capacity.
(b) In the event Director is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, Company shall reimburse Director for all of Director's
reasonable fees and expenses in bringing and pursuing such action.
8. Separability. Each of the provisions of this Agreement is a
------------
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
9. Governing Law; Binding Effect; Amendment and Termination.
--------------------------------------------------------------
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Missouri.
(b) This Agreement shall be binding upon Director and upon
Company, its successors and assigns, and shall inure to the benefit of Director,
his heirs, personal representatives and assigns, and to the benefit of Company,
its successors and assigns.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both parties
hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
RALSTON PURINA COMPANY
By:________________________________
W. P. McGinnis
co-Chief Executive Officer and
co-President
By:________________________________
J. P. Mulcahy
co-Chief Executive Officer and
co-President
DIRECTOR
By:________________________________
William P. Stiritz
RESOLVED, that effective March 19, 1998, the Fixed Benefit Option provisions of
the Deferred Compensation Plan for Key Employees be, and they hereby are,
amended to provide that, with respect to a participant with deferrals under that
Option who dies while employed by the Company after March 19, 1998, and who is
55 or older at the date of death, his or her beneficiary under the Plan shall
receive the greater of the 15-year certain Retirement Income Benefit or the
15-year certain Survivor Income Benefit under the Plan, and
FURTHER RESOLVED, that J. P. Mulcahy, W. P. McGinnis and C. S. Sommer, and
each of them, be, and they hereby are, authorized to do any and all acts and
execute any and all documents deemed necessary or desirable to effect the
foregoing amendment.
RESOLVED, that, contingent upon, and effective as of, the amendment of the 1988
and 1996 Incentive Stock Plans ("Incentive Stock Plans") to permit the transfer
of options, J. P. Mulcahy, W. P. McGinnis and C. S. Sommer be, and each of them
hereby is, authorized to amend, upon request of the optionee, non-qualified
option contracts of any Corporate Officer of the Company or W. P. Stiritz in
order to effect such a transfer, and to amend option contracts of such other
individuals as may from time to time be approved by a co-Chief Executive Officer
in his sole discretion; provided that such amendments shall be subject to the
following terms and conditions: (i) an option can be transferred only to a
member of the transferor's immediate family or to a family partnership or family
trust, as approved by Mr. McGinnis, Mr. Mulcahy or Mr. Sommer, to be exercised
by such transferee only after the effective date of final rules of the
Securities and Exchange Commission regarding the use of Form S-8 for the
exercise of stock options by family members of employee optionees and in
accordance with the terms of the option agreement; (ii) the transferor must
notify the Secretary of the Company at least 30 days in advance of any transfer
and provide the Company with relevant information regarding the transferee;
(iii) if requested by Mr. Mulcahy, Mr. McGinnis or Mr. Sommer, the transferor
must collateralize his or her income tax withholding obligation arising upon the
transferee's exercise of the option; (iv) an option must be transferred in
increments of a minimum of 10% of the original grant; (v) an option may be
transferred only once, other than pursuant to the laws of descent and
distribution if transferred to a family member directly; (vi) the transferee
must agree in writing (A) only to exercise the option in accordance with its
terms, (B) to comply with all federal and state securities laws relating to the
exercise of the option and the re-sale of shares received upon exercise, and (C)
to indemnify the Company for damages resulting from any failure to comply with
such laws; and (vii) Mr. Mulcahy, Mr. McGinnis or Mr. Sommer may impose such
other terms and conditions on the transfers as any of them, in their sole
discretion, deems necessary or desirable.
RESOLVED, that, effective as of May 28, 1998, all repayment of gain provisions
of outstanding non-qualified option awards be, and they hereby are, waived with
respect to all option awards for Corporate Officers that are outstanding as of
that date; and
FURTHER RESOLVED, that J. P. Mulcahy, W. P. McGinnis and C. S. Sommer be, and
each of hereby is, authorized to perform any and all acts and execute any and
all documents as they deem necessary or desirable to effectuate the foregoing
amendment.
EXECUTIVE HEALTH PLAN
The Executive Health Plan will provide you and your eligible family members with
nearly 100% medical and dental coverage. The Plan covers those expenses of a
medical nature, as listed in Section V on pages 2-3, that you or your covered
family members incur. Since a benefit program such as the Executive Health Plan
can be subject to abuse, Ralston Purina Company (the Company) relies on your
integrity to use this program judiciously.
I. DEFINITIONS
A. "Covered expenses" are expenses incurred for medical, dental, vision care
services and supplies. This includes usual and customary charges in conjunction
with diagnosis, cure, mitigation or treatment of a sickness, injury or
preventative treatment associated with an illness. (A usual and customary
allowance is the fee most frequently charged for a similar service or supply in
a geographic area. The fees are updated on a regular basis to adjust for
changes.)
B. "Covered Individual" is an employee or a dependent of an employee covered
under this Plan.
C. A "dependent" of an employee is eligible for coverage under this Plan and
is:
1. A person defined in the Purina Comprehensive Health Plan and Well-Med as
dependent of a covered employee. This includes your spouse and unmarried
children under 19 years of age. "Children" means your own children, children
who have been legally adopted by you or who have been placed with you for
adoption, foster children, or stepchildren living in your household, dependent
upon you for principal support, and
(a) related to you by blood or marriage,
(b) under your legal guardianship; or
(c) for whom you have a legal obligation for total or partial support.
2. A full-time, unmarried student who is a dependent of a covered employee
regardless of age, provided the student is enrolled in an accredited educational
institution, and receives primary support from the covered employee or from a
covered surviving spouse.
3. A former spouse of an employee provided the divorce decree became final
after April 1, 1977, and the former spouse was covered as a dependant under this
Plan prior to the divorce.
4. A surviving spouse and dependents of an employee who died on or after
July 21, 1988, and who at the time of death had a minimum of two years of
service with the Company.
D. "Family Unit" is the covered employee and covered dependents.
E. "Retired Employee" is a Corporate Officer of the Company who retired
between January 1, 1979, and July 31, 1980, and who at the time of retirement
was not eligible for coverage under the Plan as a retired employee, or an
employee covered under this Plan who retired or terminated after age 55 with at
least two years of continuous service, or who was terminated involuntarily after
attaining a combination of age and years of service totaling at least 80, or who
is designated by the Chief Executive Officer of Ralston Purina Company as
eligible to participate in this Plan as a retiree.
II. ELIGIBILITY
The class of employees eligible for coverage under this Plan consists of:
* Chairman of the Board, Chief Executive Officer, President, any corporate
Vice President, Secretary, Treasurer of Ralston;
* Chairman of the Board, Chief Executive Officer, President and any
corporate Vice President of EBC and any other affiliate designated by a Chief
Executive Officer of Ralston.
* Vice Presidents of administrative or operating divisions of Ralston
(appointed by a Chief Executive Officer of Ralston);
* Any other person designated by a Chief Executive Officer of Ralston;
* If presently employed by the Company or one of its controlled affiliates,
former Vice Presidents of administrative and operating divisions of the Company,
and former Chairmen of the Board, Chief Executive Officers, Presidents and
Corporate Vice Presidents of a participating controlled affiliate.
Actively employed executives who are eligible must participate in the Purina
Comprehensive Health Plan or Well-Med as a prerequisite for Executive Health
Plan participation. Individuals employed by a foreign affiliate of the Company
who are not U.S. citizens and who are designated as a participant in this Plan
must be covered by the available overseas health coverage or Purina
Comprehensive Plan or Well-Med as a prerequisite for Executive Health Plan
participation.
III. CONTRIBUTIONS
Active employees are not required to pay contributions for their Executive
Health Plan coverage or that of their dependents. However, they are required to
pay contributions for the Comprehensive and Well-Med coverage.
Retirees must contribute the rate being charged for high option retiree coverage
under the Purina Comprehensive Health Plan if they participate in the Executive
Health Plan but are ineligible to participate in the Purina Comprehensive Health
Plan. (Contact the Employee Benefits Department for current rates.)
The surviving spouse of an executive who dies prior to retirement must pay
premiums equal to those being charged to active employees participating in the
Purina Comprehensive Health Plan or Well-Med, until the date on which the
deceased executive would have been 65 years old. A surviving dependent child
who continues to meet the eligibility requirements for this Plan is also subject
to those same contribution requirements.
IV. EFFECTIVE DATE OF COVERAGE
The coverage of an employee and his/her eligible dependent(s) will become
effective on the employee's entry or re-entry date into an eligible class.
V. BENEFITS PAYABLE
The benefits payable under this Plan are the covered expenses incurred for
medical, dental and vision care expenses defined in Section 213(e) of the
Internal Revenue Code as amended and in Internal Revenue Service Regulation
1.213-1 as amended.
Examples of expenses which may be considered covered expenses are expenses
incurred for the following medical, dental or vision care, services and
supplies:
<TABLE>
<CAPTION>
<S> <C>
* Ambulance * Artificial limbs
* Chiropodists * Chiropractors
* Crutches * Diagnostic services
* Doctors * Hospital Care-room and board
* Laboratory services * Physicians
* Nurses services rendered by * Prescription drugs
a Registered Nurse,
Licenses Practical Nurse, or
a Practical Nurse if an RN
or LPN is not available
(including nurses' room and
board paid by the employee)
* Osteopaths * Psychiatrists
* Podiatrists * Surgeons
* Special medical equipment * Therapy
* Special food or beverages * X-ray services
prescribed for the treatment
of an illness
* Eye Care * Dental care
* Guide dogs for the blind and * Psychologists
deaf
* Transportation expenses for medical care
</TABLE>
Claims for expenses incurred in making a capital expenditure or improvement to
real estate must be approved by the Company in advance of such expenditure.
VI. MAXIMUM BENEFIT FOR AN ACTIVE EMPLOYEE'S FAMILY UNIT
A. The maximum calendar-year benefit payable to an active employee, his/her
spouse and his/her dependents from the Executive Health Plan is $35,000 for the
family unit as a whole.
B. A surviving spouse and/or dependents of an active executive who meet the
criteria under Section (I)(C)(4) will be entitled to coverage limits equal to
those provided in the Purina Comprehensive Health Plan or Well-Med, in addition
to the annual maximum coverage limits affected in this Plan.
VII. MAXIMUM BENEFIT FOR A RETIRED EMPLOYEE'S FAMILY UNIT
A. The maximum calendar-year benefit payable to a retired employee and
his/her surviving dependents is $35,000 for the family unit as a whole. This
maximum calendar-year benefit is in addition to the $750,000 lifetime maximum
from the underlying coverage of the Purina Comprehensive Health Plan or Well-Med
for retirees. Executives who are eligible for the Purina Comprehensive Health
Plan or Well-Med retiree coverage must participate in order to receive retiree
benefits from the Executive Health Plan. They may enroll in the High Option,
Low Option or HMO Option coverage.
B. A retiree who is ineligible for the Purina Comprehensive Health Plan but
who participates in this Plan, is eligible for the $750,000 lifetime benefit for
all covered medical expenses. However, such a retiree is not eligible for the
$35,000 calendar-year benefit after the $750,000 lifetime maximum has been
exhausted. A $35,000 maximum calendar-year benefit will be payable to his/her
divorced spouse(s) or dependent(s) other than a surviving spouse.
C. Individuals who retire from a foreign affiliate of the Company who are
not U.S. citizens are not eligible for retiree health under this Plan.
VIII. EXCEPTIONS
Benefits will not be payable under this Plan for expenses incurred for or in
connection with:
A. Medical care, services and supplies for which no charge is made or for
which the covered individual is not, in the absence of this coverage, legally
obligated to pay.
B. Medical care, services and supplies which are furnished by a hospital or
facility operated by or at the direction of the U.S. Government or any
authorized agency thereof, or furnished at the expense of such Government or
Agency, or by a doctor employed by such a hospital or facility, unless (1) the
treatment is of an emergency nature, and (2) the insured individual is not
entitled to such treatment without charge by reason of status as a veteran or
otherwise.
C. Medical care, services or supplies to the extent that they are paid for,
payable or furnished (1) pursuant to any plan or program administered by a
National Government or Agency thereof or with funds received from taxation or
contributions collected pursuant to legislation by a National Government, or (2)
pursuant to any State Cash Sickness law or laws of a similar character,
including any group insurance policy approved under such a law.
D. Blood or blood plasma for which the hospital or other supplier makes a
refund or allowance to or on behalf of the covered individual either as a result
of the operation of a group blood bank or otherwise, but only to the extent of
the refund or allowance.
E. Sickness covered by Workers' Compensation law, occupational disease law,
or laws of similar character; or injury arising out of or in the course of any
occupation or employment for compensation, profit or gain.
F. Charges resulting from an injury, sickness, or pregnancy for which a
covered individual received any medical care or services within the three month
period immediately before becoming covered under this Plan until the earlier of:
1. the end of a period of 12 consecutive months during which the covered
individual has not received in connection with such injury, sickness, or
condition any medical surgical, hospital or nursing services or treatment of any
kind or any drugs or medicine lawfully obtainable only upon prescription of a
doctor; or
2. the end of a period of 12 consecutive months during which the covered
individual has been continuously covered under this Plan.
The following charges shall not be subject to this exception F:
a. charges for professional services and supplies related to care and
treatment of teeth or nerves connected to teeth; and
b. charges incurred by an individual who was covered under the Purina
Comprehensive Plan or Well-Med Plan on the date immediately preceding the day
his/her Executive Health coverage became effective under this Plan, to the
extent that the requirements of exception F have been satisfied under the Purina
Comprehensive Health Plan or Well-Med Plan.
G. Medical care, services and supplies to the extent that they are paid for
or payable under the Purina Comprehensive Health Plan or Well-Med.
H. Use of a Christian Science Practitioner.
I. Insurance premiums for hospitalization, medical, dental or vision care;
or for pre-paid medical, dental or vision care. Included in this exclusion are
premiums paid for participation in the Purina Comprehensive Health Plan,
Well-Med, or HMO as either an active employee or retiree.
J. Expenses subject to the "At Risk" and "Under the Influence" copayment
provisions for the Executives who choose Well-Med.
IX. TERMINATION OF EMPLOYEE COVERAGE
The coverage of each employee will terminate on the earlier of the following
dates:
A. The date the employee causes to be eligible for coverage.
B. The date of termination of this Plan.
X. COVERAGE OF RETIRED EMPLOYEES
The coverage of each Retired Employee will continue upon payment of the required
premiums after the employee's termination if he or she is either:
A. age 55 with at least two years of service and leaves voluntarily or
involuntarily, or
B. has a combination of age and years of service totaling at least 80 and
leaves involuntarily, or
C. has CEO approval.
An employee shall not be eligible for retiree health coverage under this Plan if
he or she terminates from the Company or one of its affiliates by reason of a
divestiture, spinoff or other disposition of a subsidiary, division or other
business unit.
XI. TERMINATION OF DEPENDENT COVERAGE
The coverage of each dependent of an employee terminates on the earliest of the
following dates:
A. The date the employee's coverage terminates except as noted in subsection
C below for dependents of a deceased employee.
B. The date a dependent ceases to qualify as eligible as defined in this
Plan; provided that a covered unmarried child who (1) before the date he ceases
to be eligible due to attaining age 19, becomes incapable of self-sustaining
employment by reason of mental or physical handicap, and (2) is dependent upon
the employee for his principal support and maintenance, will not cease to
qualify the following: (1) the date a former spouse or surviving spouse
remarries or dies, or (2) the 65th birthday of the former spouse, or (3) the
date a former spouse becomes eligible for government-sponsored medical benefits.
If a surviving spouse dies while a child is covered under this Plan, the child
will remain eligible as long as he or she qualifies as a dependent.
C. With respect to the coverage of a former spouse of an employee, or a
surviving spouse, and surviving children of a deceased employee who at the time
of death had a minimum of two years of service, upon the earliest of the
following: (1) the date a former spouse or surviving spouse remarries or dies,
or (2) the 65th birthday of the former spouse, or (3) the date a former spouse
becomes eligible for government-sponsored medical benefits. If a surviving
spouse dies while a child is covered under this Plan, the child will remain
eligible as long as he or she qualifies as a dependent.
The insurance of a former spouse will not terminate upon termination of
insurance of the employee if at the time the divorce decree became final the
employee was age 55 or over and had 20 years or more of service.
D. With respect to a dependent who is a full-time, unmarried student, the
earlier of (1) the end of a ninety-day period immediately following the date the
dependent ceases to be enrolled as a student, or (2) the date the dependent
becomes eligible under any other group medical plan or program.
XII. CONTINUATION OF HEALTH COVERAGE
(As required by the Consolidated Omnibus Budget Reconciliation Act of 1985 -
COBRA.) Your Executive Health Plan will allow continued health coverage for you
and your eligible family members, under certain circumstances.
WHEN DOES THE CONTINUATION PROVISION APPLY?
The continuation provision applies when you or an eligible family member
experiences a situation - called a "qualifying event" - which would normally
result in your loss of health coverage under the health plan for you or the
covered family member. In such a situation you may elect to continue your
present coverage for a specified period. Qualifying events include:
1. the termination of your employment, either voluntary or involuntary
(unless you are discharged for gross misconduct);
2. a reduction in your work hours.
Also, your covered family members may continue their present coverage for a
specified period in the event of your:
1. death
2. termination of employment (for reasons other than your gross misconduct)
or reduction in work hours,
3. divorce,
4. entitlement to Medicare, or
5. dependent child's ceasing to meet the definition of an eligible dependent
under the health plan.
HOW MUCH DOES CONTINUED COVERAGE COST?
You are required to pay the Plan's full cost of continued coverage plus a 2%
charge to cover the cost of administration. You will be asked to pay for the
coverage in monthly installments and your first payment must begin no later than
45 days after the date that you elect continued coverage. The Employee Benefits
Department, St. Louis, can provide you with current cost information.
CAN I CONTINUE FULL HEALTH COVERAG?
If you choose continued coverage you and your covered dependents will be
entitled to the same coverage you had the day prior to your qualifying event,
and you or your covered dependents will not be asked to furnish a statement of
health. If you or your dependents do not choose continued coverage, Executive
Health coverage will end for the applicable participant on the day the
qualifying event occurred.
HOW LONG IS COVERAGE CONTINUED?
Coverage may be continued for 18 months after the date of the qualifying event
in the case of termination of employment or reduction of hours, and 29 or 36
months for all other events listed. If a covered family member becomes entitled
to continued coverage because of termination of your employment or reduction in
your hours and a covered family member then experiences another of the events
which would entitle such person to continued coverage, he or she may extend the
18-month continuation period to 36 months from the date of the event that first
made him or her eligible for continued coverage. At the end of the 18-month or
36-month continuation period, you will be given the option to enroll in an
individual conversion medical plan provided by General American Life Insurance
Company.
Coverage may be terminated earlier than the above dates for an individual:
(1) who becomes covered under another group health plan as an employee or
otherwise, unless a pre-existing condition is not covered by the new plan;
(2) who becomes eligible for Medicare;
(3) who fails to make a required premium payment; or
(4) whose Company ceases to provide a group health plan.
You must notify the Employee Benefits Department, St. Louis, upon the occurrence
of events (1) or (2) above.
WHAT IF I BECOME ENTITLED TO MEDICARE?
If you become entitled to Medicare, regardless of whether this results in loss
of your coverage under the Plan, your spouse and dependents who are entitled to
continued coverage are eligible for a continuation period of not shorter than 36
months from the date you become entitled to Medicare. This continuation period
is measured from the time you are entitled to Medicare, not from the time your
spouse and dependent loses coverage. The total continuation period for your
spouse and dependents may actually exceed 36 months, depending on when you
become entitled to Medicare.
ARE THERE ANY OTHER SITUATIONS THAT WOULD ALLOW FOR EXTENDED COVERAGE?
If you, your spouse or your dependents lose coverage because of termination of
your employment or reduction of hours and if you or a dependent as determined
under Title II or XVI of the Social Security Act to have been disabled at that
time, then the disabled person may extend the continued coverage period for 11
additional months, provided:
* A notice of a Social Security determination is given to the Plan
Administrator before the end of the initial 18-month period and within 60 days
after the date of such determination.
* The Plan may require payments of up to 150 percent of the applicable cost
for providing the coverage for these 11 additional months.
NOTE: The Plan provides for continued coverage for up to 29 months if a
- ----
participant becomes disabled, as defined in the Plan.
WHAT MUST I DO TO OBTAIN CONTINUED COVERAGE?
Both you and the Company have responsibilities when certain events occur which
qualify you for continued coverage.
You or your eligible family members must notify your local Benefits Coordinator
immediately in the event of:
* Divorce
* Cessation of dependent child coverage
The Employee Benefits Department will notify any eligible family members who are
affected by the event of their right to elect continued coverage.
You or your eligible family members will be notified of the right to elect
continued coverage within 14 days in the event of:
* Termination of employment
* Reduction in hours
* Your death
* Your entitlement to Medicare
You or your eligible family members will have a 60-day period during which
continued coverage may be elected. The 60-day period begins on the later of (1)
the date your coverage terminates by reason of the qualifying event, or (2) the
date you or your eligible family members were notified of the right to elect
continued coverage. Please note: You are not eligible for continuation of
coverage if you remain covered by another group health plan upon termination of
coverage in the Executive Health Plan.
ADDITIONAL INFORMATION
If you have any questions or need further information about the continued
coverage provision, please contact, COBRA Administrator, Employee Benefits - 1A,
Checkerboard Square, St. Louis, MO 63164.
Also, if you have changed marital status, or if you or your spouse has a change
of address, please notify your local Benefits Coordinator.
XIII. EXTENDED MEDICAL BENEFIT ON TERMINATION OF COVERAGE
If an individual is disabled on the date his/her coverage under the Plan is
terminated for any reason, benefits will be payable subject to the applicable
maximum and other provisions and exceptions of the Plan for covered expenses
incurred as a result of the injury or sickness causing such disability provided
that:
A. In no event shall benefits be payable for charges for health care,
services or supplies rendered or received more than 24 months after the date
such termination occurs.
B. He/she remains continuously disabled from the same cause until the date
the health care, service or supply is rendered or received.
C. He/she does not become covered under any other group policy or plan,
including any group basis service or prepayment plan, which entitles him/her to
receive benefits for the injury or sickness causing the disability.
XIV. TAX CONSEQUENCES
Benefits provided under this Plan are not taxable as ordinary income under
current tax laws.
Please note that the tax laws change frequently. You will be advised if a tax
law change has an effect on your Executive Health coverage.
XV. MODIFICATION, TERMINATION OF COVERAGE
The Company may amend the provisions or terminate the Plan at any time, subject
to the following restrictions:
A. The nature and scope of coverage for any actively employed executive
covered by this Plan will not be reduced or terminated unless coverage is
reduced or terminated for the entire class of covered executives.
B. The nature and scope of coverage for retired executives and their
dependents covered by this Plan will not be changed to their detriment unless
mandated by law.
C. The Company reserves the right to assign its rights and obligations under
this Plan to a third party.
XVI. FILING A CLAIM
A supply of claim forms for the Executive Health Plan is included for your
convenience. Submit one of these forms along with itemized bills to Employee
Benefits, St. Louis, 1A.
Please note that Employee Benefits will honor an assignment to the treating
physician, hospital, etc., of all benefits paid through the Purina Comprehensive
Health Plan or Well-Med, but all payments made through Executive Health will be
to the employee.
VOLUNTARY ENHANCED RETIREMENT OFFER
FOR CERTAIN CORPORATE EMPLOYEES OF RALSTON PURINA COMPANY
ELIGIBILITY
- -----------
The following are eligible to participate in the VERO, subject to any conditions
set forth below:
(a) Subject to the eligibility provisions below, individuals who were on the
Corporate payroll as regular employees as of May 31, 1998 (other than the
co-Chief Executive Officers of Ralston Purina Company), who will have attained
age fifty two (52) and will have completed ten (10) years of Company service
credit by September 30, 1999 ("Corporate Employees"). This shall include, but
not be limited to, individuals who retired after May 31, 1998, and met the age
and service criteria as of the date of their retirement, but such retirement
occurred before the date the program was officially announced to eligible
employees.
(b) Corporate Employees who have executed a separation agreement or who have
been offered a separation agreement that has not yet been executed are eligible
to accept the VERO only in lieu of, and not in addition to, the separation
agreement.
(c) Employees who were on long-term disability leave on May 31, 1998, who
meet the age and service criteria in (a) above, and who were on the Corporate
payroll as of their last day worked. For purposes of this definition, the
period of service shall include the period of disability.
(d) Any employee in the St. Louis general offices who is represented by one
of the following bargaining units to the extent that participation in the VERO
has been negotiated between the bargaining representative and Ralston Purina
Company:
Service Employees International Union, Local 50
International Brotherhood of Electrical Workers, Local No. 1
Painter Local Union 980
Carpenters District Council of St. Louis
Teamsters Union Local No. 610
International Union of Operating Engineers, Local No. 2
Notwithstanding the foregoing, the following employees shall be excluded from
the VERO:
(a) Employees of the CheckMark division as of May 31, 1998, and
(b) Employees of any other division, subsidiary or affiliate of Ralston Purina
Company who were placed on the Corporate payroll solely to effectuate the terms
of a separation agreement.
ELECTION AND WINDOW PERIODS
- ------------------------------
Eligible employees must elect to accept or decline the VERO no later than
forty-five (45) days from the date on which the VERO is made available to them,
or such additional time as is authorized by the Vice President, Administration.
Employees who elect VERO shall retire on or after January 4, 1999, but not later
than January 3, 2000. In no event shall an eligible employee retire under the
VERO prior to reaching age fifty two (52) and completing ten (10) years of
Company service. In exceptional circumstances, the retirement window period
may, at the discretion of management and in compliance with Internal Revenue
Service regulations, be extended a short period based upon the reasonable
business needs of the Company.
RETIREMENT PLAN ENHANCEMENT
- -----------------------------
The pension formulas applicable to VERO participants shall be enhanced by adding
the equivalent of three years to the Company service credit earned as of the
date the employee is terminated from the payroll, and three years to the
employee's age as follows:
- - Final Average Pay Formula: Final Average Earnings shall be determined
-------------------------
prior to adding the enhancement for credited service. In no event will Company
service credit, including the enhancement, be greater than forty (40) years.
Reduction factors used to determine the participant's benefit shall reflect the
additional years of age.
- - Account Option Formula: Final Average Earnings shall be determined prior
-----------------------
to adding the enhancement for credited service. There is no cap on service
credit under this formula. The resulting account balance shall then be
converted to an annuity calculated based on the enhanced age, which results in
increased monthly payments over a deemed shorter life expectancy. If the lump
sum is chosen by the participant, the resulting increased annuity is then
converted back to a lump sum, determined as though the annuity payments are paid
over a longer life expectancy based on actual age.
- - Career Average Formula: The employee's last full calendar year of
------------------------
earnings shall be used and shall be determined prior to adding the three years
-
of benefit accrual. There is no cap under this formula. Reduction factors used
to determine the participant's benefit shall reflect the additional years of
age.
Any eligible employees who retired after May 31, 1998 but prior to the program
announcement shall only be entitled to have their retirement benefits calculated
in accordance with the pension formula in effect at the date of their
retirement.
VERO participants will be permitted to begin receiving their benefit as early as
age fifty two (52). This change is necessary only for those subject to the
Final Average Pay and Career Average formulas since the Account Option allows
participants to take their benefit upon termination regardless of age.
VERO participants will receive an additional pension benefit, payable in such
form as permitted under the Retirement Plan, equal in value to a single life
annuity of $275 each month.
SEVERANCE PAY PLAN ENHANCEMENT
- ---------------------------------
Termination benefits will be paid equal to six (6) weeks' salary at the
employees' regular or hourly rate as of the date of the employees' scheduled
termination date.
RETIREE HEALTH
- ---------------
Eligible employees who retire under VERO prior to reaching age 55 may elect
retiree health coverage under the Purina Comprehensive Health Plan. The
Executive Health Plan shall be amended to offer retiree medical coverage to
those who participated in the Executive Plan as active employees, contingent
upon enrolling in, and paying applicable premiums for, retiree coverage under
the Comprehensive Health Plan.
The Company subsidy for retiree medical premiums shall be increased for each
VERO participant who was entitled to a subsidy as of January 1, 1989, by adding
to their service as of their termination date the lesser of:
a) three (3) years of service, or
b) the number of years necessary to reach a maximum of twenty-five (25) years of
service.
DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES
- -------------------------------------------------
The terms of the Fixed Benefit Option ("FBO") of the Deferred Compensation Plan
for Key Employees shall be amended to provide that participants who have not
attained age 55 as of their termination under the VERO shall be treated in the
same manner as an employee who is involuntarily terminated prior to age 55.
ANNUAL BONUS PLAN
- -------------------
A VERO participant who is bonus eligible and terminates prior to September 30,
1999, will be entitled to a pro-rata portion of his or her target bonus for
fiscal year 1999. A VERO participant who is bonus eligible and terminates
between September 30, 1999, and January 3, 2000, will be entitled to his or her
actual fiscal year 1999 bonus, as well as a pro-rata portion of his or her
target bonus for fiscal year 2000.
EXECUTIVE LIFE PLAN
At retirement, provided you are enrolled in the Partnership Life Plan, Ralston
Purina Company (the Company) will provide an Executive Life benefit.
Your participation in the Company's Partnership Life insurance program is
voluntary. However, to benefit from the Executive Life Plan you must
participate in Partnership Life Plan with coverage of at least one times
earnings at the time of your retirement from the Company.
I. ELIBIGILITY
The class of employees eligible for coverage under this Plan consists of:
* Chairman of the Board, Chief Executive Officer, President, any corporate
Vice President, Secretary, Treasurer of Ralston;
* Chairman of the Board, Chief Executive Officers, President and any
corporate Vice President of EBC and any other affiliate designated by a Chief
Executive Officer of Ralston;
* Vice Presidents of administrative or operating divisions of Ralston
(appointed by a Chief Executive Officer of Ralston);
* Any other person designated by a Chief Executive Officer of Ralston;
* Former Vice Presidents of administrative and operating divisions of the
Company, and former Chairmen of the Board, Chief Executive Officers, Presidents
and corporate Vice Presidents of a participating affiliate.
Additionally, you must be age 55 with at least two years of service and leave
voluntarily or involuntarily for coverage to continue, or you must have a
combination of age and years of service totaling at least 80 and leave
involuntarily. You will not be eligible for coverage under this Plan if you
terminate from the Company or one of its affiliates by reason of divestiture,
spinoff or other disposition of a subsidiary, division, or other business unit.
Individuals employed by a foreign affiliate of the Company who are not U.S.
citizens and, except at the discretion of the Vice president and Director of
Administration, U.S. citizens employed by a foreign affiliate of Ralston, are
ineligible for coverage under this Plan.
II. DEATH BENEFIT
At retirement, if you are enrolled in the Partnership Life Plan with coverage of
at least one times earnings, the Company will provide a death benefit to your
designated beneficiary equal to 50% of your previous calendar year's benefit
earnings at the time you retire.
The benefits payable under the Plan are taxable as ordinary income to the
beneficiary. However, the amount of actual payment will be increased to offset
the approximate tax consequences.
II. MODIFICATION, TERMINATION OF COVERAGE
The Company may amend the provisions or terminate the Plan at any time, subject
to the following restrictions:
A. The nature and scope of coverage for any actively employed executive
covered by this Plan will not be reduced or terminated unless coverage is
reduced or terminated for the entire class of covered executives.
B. The nature and scope of coverage for retired executives covered by this
Plan will not be changed to the detriment of the retired executives unless
mandated by law.
C. The Company reserves the right to assign its rights and obligations under
this Plan to a third party.
RESOLVED, that effective March 19, 1998, the Fixed Benefit Option provision of
the Deferred Compensation Plan for Non-Management Directors be amended to
provide that, with respect to any Director with deferrals under the Fixed
Benefit Option who dies after March 19, 1998 but prior to retirement from the
Board, his or her beneficiary under the Plan shall receive the greater of the
15-year certain Retirement Income Benefit or the 15-year certain Survivor Income
Benefit; and
FURTHER RESOLVED, that J. P. Mulcahy, W. P. McGinnis and C. S. Sommer, and each
of them, be, and they hereby are, authorized to do any and all acts and execute
any and all documents deemed necessary or desirable to effect the foregoing
amendment.
