SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998
Commission File No. 1-4582
RALSTON PURINA COMPANY
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(Exact name of registrant as specified in its charter)
MISSOURI 43-0470580
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(State of Incorporation) (I.R.S. Employer Identification No.)
CHECKERBOARD SQUARE, ST. LOUIS MISSOURI 63164
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(Address of principal executive offices) (Zip Code)
(314) 982-1000
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(Registrant's telephone number, including area code)
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: _____
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Number of shares of Ralston Purina common stock, $.10 par value, outstanding as
of the close of business on August 12, 1998:
312,217,512
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<PAGE>
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PART I - FINANCIAL INFORMATION
RALSTON PURINA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL INFORMATION
(in millions except share and per share data)
----------------------------------------------------------------
OPERATING RESULTS
Net earnings for the nine months ended June 30, 1998 were $1,000.9, or $3.24
and $3.04 per share on a basic and diluted basis, respectively. Included in
net earnings for the current nine months are several unusual items which
decreased net earnings by $10.3, or $.03 per basic and diluted share. Also
included is an after-tax gain of $705.1 (pre-tax gain of $1.1 billion) on the
December 3, 1997 sale of the Soy Protein Products business to E.I. Du Pont de
Nemours and Company (DuPont) and income from discontinued operations of $10.0.
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 on April 1, 1998. Also included in the current
year 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.
The following unusual items are included in the current nine month results: an
after-tax gain of $9.5, or $.03 per basic and diluted share, on the sale of
shares of Interstate Bakeries Corporation (IBC) common stock; a capital loss tax
benefit of $41.5, or $.14 and $.13 per basic and diluted share, respectively,
associated with past restructuring actions; and a restructuring charge of $61.3,
after-tax, or $.20 and $.19 per share on a basic and diluted basis,
respectively, which was primarily related to a write-down of the Company's
investment in lithium-ion rechargeable battery manufacturing assets. The
restructuring provision also includes charges for a voluntary early retirement
option offered to most U.S. Battery Products' employees meeting certain age and
service requirements and charges related to the Company's European battery and
international Pet food operations, reduced by the reversal of prior period
restructuring charges.
The fiscal 1997 nine month net earnings of $314.8, or $1.00 and $.94 per share
on a basic and diluted basis, respectively, include earnings from discontinued
operations of $61.3 and several unusual items which increased net earnings by
$5.6, or $.02 per basic and diluted share. The first unusual item was an
after-tax restructuring charge of $90.8, or $.29 and $.27 per basic and diluted
share, respectively, related to the continued rationalization of Battery
Products' worldwide production capacity. The second item is capital loss tax
benefits of $61.7, or $.20 and $.18 per basic and diluted share, respectively,
related to past restructuring actions. The third unusual item is a tax benefit
of $34.7, or $.11 per basic and diluted share, 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.
Earnings from continuing operations, before the unusual items described above,
increased $48.2 in the current nine months, or 19%, to $296.1 compared to $247.9
for the same period in the prior year. The earnings increase resulted from
higher operating earnings and higher income from investments in DuPont and IBC,
partially offset by higher interest expense. Earnings per share from continuing
operations, before unusual items, for the nine months ended June 30, 1998 were
$.94 and $.90 on a basic and diluted basis, respectively, compared to $.78 and
$.74 in the prior year.
For the quarter ended June 30, 1998, net earnings were $60.5, or $.19 and $.18
per basic and diluted share, respectively, compared to $100.7, or $.32 and $.30
per basic and diluted share, for the same quarter in 1997. Current quarter net
earnings include an after-tax restructuring provision of $17.6, or $.05 per
basic and diluted share, and earnings from discontinued operations of $.9. The
prior year third quarter includes the unusual items mentioned above for the
prior year nine month period and earnings from discontinued operations of $20.5.
Earnings from continuing operations, before unusual items, increased $2.6 to
$77.2, compared to $74.6 in the prior year third quarter, on higher Pet
Products' operating earnings and income on the Company's investment in DuPont,
partially offset by lower Battery Products' operating earnings and higher
interest expense. Basic and diluted earnings from continuing operations per
share, before unusual items, were $.24 and $.23, respectively, in the current
quarter compared to $.23 and $.22 a year ago.
RESULTS OF CONTINUING OPERATIONS
Net sales increased 4.5% in the nine months ended June 30, 1998 and 3.0% in the
quarter on increased Pet Products' sales, partially offset by decreased Battery
Products' sales. See the following section for comments on sales changes by
Business Segment.
Gross profit as a percentage of sales was 50.7% in the current year nine months
compared to 49.3% in the prior year nine months. The increased percentage in
the current period reflects improvements in both Battery Products and Pet
Products and increased sales in the higher margin Pet Products segment. Pet
Products' margins were unfavorably impacted in the prior year period by higher
grain prices as price increases were insufficient to maintain historical margin
levels. The current year improvement in Pet Products' margins is partially
offset by an unfavorable package size mix. The increased percentage in Battery
Products reflects a favorable product mix and price increases in the Asia
Pacific region in response to currency devaluations. Gross profit percentages
were 50.7% and 49.7% for the quarters ended June 30, 1998 and 1997,
respectively.
Selling, general and administrative expenses decreased to 20.2% of sales in the
current nine months from 20.4% in the prior year nine month period; however,
these expenses increased in the current quarter to 22.2% of sales compared to
21.5% in the prior year quarter. Selling, general and administrative expenses
increased 3.7% in the nine months and 6.1% in the quarter due to increases in
Pet Products and current quarter increases in Battery Products.
Advertising and promotion expense increased 7.8% in the current nine months and
7.6% in the current quarter due to additional brand advertising and, in the nine
months, additional trade promotional spending by Pet Products. As a percentage
of sales, advertising and promotion expense was 15.1% and 15.5% in the current
nine months and third quarter, respectively, compared to 14.6% and 14.8% in the
same periods a year ago.
Other income/expense, net, was $13.0 favorable for the nine months and $7.6
favorable in the quarter primarily due to dividend income from the Company's
investment in DuPont. In addition, the nine month period includes higher
returns on other investments which nearly offset higher exchange losses in the
Asia Pacific and South and Central American regions.
Income taxes, which include federal, state and foreign taxes, include certain
unusual items in the current and prior year quarter and nine month periods. The
prior year quarter includes the aforementioned recognition of capital loss tax
benefits of $61.7 and a foreign tax credit benefit of $34.7. Additionally, in
both the current and prior year quarter, the income tax percentage was
unfavorably impacted by pre-tax restructuring charges which did not result in
tax benefits due to tax loss situations or particular statutes of a country.
Excluding these items, income taxes were 34.2% and 34.5% of pre-tax earnings
before equity earnings for the current and prior year quarter, respectively.
The current nine month period includes a capital loss tax benefit of $41.5 and
the favorable impact of the reversal of prior period restructuring charges for
which no tax benefit had been recorded. Excluding these items and the unusual
items mentioned above for the quarter, income taxes were 35.2% and 36.5% of
pre-tax earnings before equity earnings for the current and prior nine month
periods, 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.
BUSINESS SEGMENTS
Sales for the Pet Products segment increased 12% in the nine months and in the
quarter on higher volumes and on the inclusion of sales from the Company's
December 1997 acquisition of Edward Baker Petfoods. Operating profit before
unusual items increased significantly in the quarter and nine months. The sales
increase and lower ingredient costs were positive factors, partially offset by
higher advertising expenditures and an unfavorable package size mix, and
additionally by higher promotion support in the nine months.
Sales for the Battery Products segment decreased 4% in the nine months and 8% in
the quarter. In the nine months, increased alkaline volumes and improved
product mix in North America resulted in sales increases. However, these
increases were more than offset by sales declines in Asia Pacific and Europe,
due primarily to currency devaluations. Excluding the impact of currency
devaluations, Battery Products' sales increased 2% in the nine months.
In the quarter, North American sales increased primarily as a result of a
favorable product mix. These gains were more than offset by sales declines in
Asia Pacific due to decreased volumes as a result of overall market contractions
and due to the strong dollar. Excluding the impact of currency devaluations in
Asia and other world areas, Battery Products' sales decreased 3% in the quarter.
In addition, rechargeable sales decreased significantly on lower volumes due to
competitive pressures and a softening market for rechargeable products.
Operating profit before unusual items for Battery Products increased slightly in
the nine months. The nine month period reflects improved results in the primary
battery business in North America due to alkaline volume increases and improved
product mix. In addition, earnings increased in the rechargeable business
reflecting cost reductions and higher nickel metal hydride volumes related to
new products. However, these gains were substantially offset by lower earnings
in Asia Pacific and Europe and substantial currency devaluations, particularly
in Asia.
In the quarter, operating profit decreased significantly. The strong dollar
continued to impact international results, particularly in Asia Pacific, where
results were off substantially, and also in Europe. In North America, improved
results were negatively impacted by increased advertising expense in support of
the Energizer Advanced Formula product launch. The rechargeable business was
negatively impacted by lower volumes due to competitive pressures and a
softening market for rechargeable products.
Results from discontinued operations decreased in the quarter and nine months
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.
MARKET RISKS
The recent economic crises in the Asia Pacific region, accompanied by various
currency devaluations, represent a material change in the market risks faced by
the Company in this region. The Company's Asia Pacific operations consist
primarily of the Battery Products segment. The Company has manufacturing
facilities in this region whose products are both sold locally and exported
outside the region. In addition, the Company sources its raw materials from
within and outside the region. Market risks include the risk of loss of value
in the Company's net investment in the Asia Pacific region as well as lower
dollar profits for the operations in that region, overall market contractions
and increased foreign exchange losses.
The depth and duration of the crises in the Asia Pacific region and its economic
effects on the Company are still uncertain. Management will continue to pursue
appropriate actions, as market conditions allow, to mitigate the impact of the
various Asian currency devaluations throughout fiscal 1998.
RESTRUCTURING ACTIVITIES
During the nine months ended June 30, 1998, the Company recorded provisions for
restructuring totaling $61.3, after tax. On a pre-tax basis, charges for
restructuring were $96.4 and 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 of $96.4 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 will continue to assemble and package lithium-ion rechargeable
batteries.
The current period 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 750 employees in production, sales and administrative capacities.
During the current nine months, approximately 560 employees were terminated and
cash exit costs of $25.5 were incurred in connection with current and prior year
restructuring accruals. Prior year restructuring provisions were primarily
related to the continued rationalization of Battery Products' production
capacity and business structure. Activities impacting the restructuring reserve
during the nine months ended June 30, 1998 were as follows:
Reserve balance at September 30, 1997 $66.3
Provision recorded, net of reversals of prior period reserves of $11.9 96.4
Portion of current period provision classified as property and
other asset impairments, net of reversals (58.7)
Cash exit costs incurred (26.1)
Decrease due to translation (.7)
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Reserve balance at June 30, 1998 $77.2
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FINANCIAL CONDITION
The Company's primary source of liquidity is cash flow generated from
operations. The Company's investments in DuPont and IBC provide additional
sources of liquidity. For the nine months ended June 30, 1998, cash flow from
continuing operations was $418.2 compared to $316.7 in the nine months ended
June 30, 1997. The increase in cash flow in the current nine months resulted
primarily from increased cash earnings.
Working capital was $63.6 at June 30, 1998 and $289.7 at September 30, 1997.
The decrease in working capital at June 30, 1998 is primarily due to an
increased level of notes payable, partially offset by decreased current
maturities of long-term debt.
Cash used by investing activities - continuing operations increased from $191.4
in the nine months ended June 30, 1997 to $319.2 in the current nine months.
This increase was primarily due to the December 1997 acquisition of Edward Baker
Petfoods for $182.5.
The Company repurchased approximately 1,968,000 shares of RAL Stock during the
nine months ended June 30, 1998. On May 28, 1998, the 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 $0.10 par value common stock for each
outstanding share of common stock, to shareholders of record at the close of
business on June 22, 1998. The Company repurchased 5,191,000 shares for $166.4
during the period July 1, 1998 through August 11, 1998. As of August 11, 1998,
after giving effect to the stock split, 357,000 shares of RAL Stock remained
under a current Board of Directors' authorization for the purchase of RAL Stock.
DIVESTED BUSINESSES
In December 1997, the Company sold 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 purchase date) and the assumption of certain
liabilities. This non-cash transaction resulted in an after-tax gain of $705.1.
The April 1, 1998 spin-off of the Agricultural Products business resulted in a
reduction in the Company's equity of $333.2, recorded as a reduction of the
Company's retained earnings of $419.4 and a reduction of the Company's
cumulative translation adjustment of $86.2.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement 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 yet completed its evaluations to
determine the impact of this statement on its consolidated financial statements.
FORWARD-LOOKING STATEMENTS
Statements in this document that are not historical are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made.
The Company advises readers that various risks and uncertainties could affect
its financial performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or projected. These
risks and uncertainties include, but are not limited to: the effect of general
economic conditions; fluctuations in supply and demand for the Company's
products; competition and competitive pricing pressures in the battery products
and pet products industries, both domestically and internationally; significant
increases in operating expenses, including the cost of raw materials;
fluctuations in the value of the Company's investments in DuPont and IBC common
stock; continued Asian market and currency turmoil and the possibility that
attempts to mitigate the impact of currency devaluations will not be successful;
changes in trade or monetary policies, rates of taxation or tariffs and
regulatory requirements of the United States and other nations, as well as
political, economic or social instability in certain regions of the world in
which the Company does business; and other risks detailed from time to time in
the Company's publicly-filed documents, including its Annual Report on Form 10-K
for the period ended September 30, 1997.
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
QUARTER ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net Sales $1,072.9 $1,041.8 $3,500.8 $3,350.7
--------- --------- --------- ---------
Costs and Expenses
Cost of products sold 529.0 523.7 1,726.1 1,699.5
Selling, general and administrative 237.7 224.1 707.1 682.1
Advertising and promotion 166.4 154.6 528.7 490.3
Interest expense 47.1 42.0 142.7 129.0
Provisions for restructuring 21.6 103.3 96.4 103.3
Gain on sale of IBC stock - - (14.7) -
Other (income)/expense, net (10.6) (3.0) (17.0) (4.0)
--------- --------- --------- ---------
991.2 1,044.7 3,169.3 3,100.2
--------- --------- --------- ---------
Earnings/(Loss) from Continuing Operations before
Income Taxes and Equity Earnings 81.7 (2.9) 331.5 250.5
Income Tax (Provision)/Benefit (31.3) 74.3 (73.3) (20.4)
Equity Earnings, Net of Taxes 9.2 8.8 27.6 23.4
--------- --------- --------- ---------
Earnings from Continuing Operations 59.6 80.2 285.8 253.5
Net Earnings from Discontinued Operations 0.9 20.5 10.0 61.3
Gain on Sale of Discontinued Operations - - 705.1 -
--------- --------- --------- ---------
Net Earnings 60.5 100.7 1,000.9 314.8
Preferred Stock Dividend, Net of Taxes (2.8) (3.2) (8.8) (9.9)
--------- --------- --------- ---------
Earnings Available to Common Shareholders $ 57.7 $ 97.5 $ 992.1 $ 304.9
========= ========= ========= =========
Cash Dividends Declared per Common Share $ 0.10 $ 0.10 $ 0.30 $ 0.30
========= ========= ========= =========
Earnings Per Share
Basic
Earnings from continuing operations $ 0.19 $ 0.25 $ 0.91 $ 0.80
Net earnings from discontinued operations - 0.07 0.03 0.20
Gain on sale of discontinued operations - - 2.30 -
--------- --------- --------- ---------
Net Earnings $ 0.19 $ 0.32 $ 3.24 $ 1.00
========= ========= ========= =========
Diluted
Earnings from continuing operations $ 0.18 $ 0.24 $ 0.87 $ 0.76
Net earnings from discontinued operations - 0.06 0.03 0.18
Gain on sale of discontinued operations - - 2.14 -
--------- --------- --------- ---------
Net Earnings $ 0.18 $ 0.30 $ 3.04 $ 0.94
========= ========= ========= =========
<FN>
See Accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(CONDENSED)
(DOLLARS IN MILLIONS)
JUNE 30, SEPTEMBER 30,
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1998 1997
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ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 80.6 $ 109.1
Receivables, less allowance for doubtful accounts
of $26.0 and $24.8, respectively 690.7 675.2
Inventories
Raw materials and supplies 135.9 119.7
Work in process 109.0 115.8
Finished products 390.0 369.3
Other current assets 117.4 116.4
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Total Current Assets 1,523.6 1,505.5
Investments and Other Assets 3,307.5 1,530.3
Investment in Discontinued Operations - 592.3
Property at Cost 2,233.1 2,160.6
Accumulated depreciation 1,114.5 1,046.9
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1,118.6 1,113.7
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Total $5,949.7 $4,741.8
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt $ 47.4 $ 106.2
Notes payable 603.6 340.3
Accounts payable 339.5 264.0
Other current liabilities 469.5 505.3
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Total Current Liabilities 1,460.0 1,215.8
Long-Term Debt 1,804.5 1,860.4
Deferred Income Taxes 439.5 -
Other Liabilities 552.9 507.4
Redeemable Preferred Stock 262.9 304.9
Unearned ESOP Compensation (26.4) (63.8)
Shareholders Equity
Preferred stock - -
Common stock 32.6 11.5
Capital in excess of par value 459.5 320.0
Retained earnings 2,018.6 1,566.7
Cumulative translation adjustment (89.8) (129.8)
Common stock in treasury, at cost (621.0) (466.7)
Unearned portion of restricted stock (2.4) (3.4)
Value of common stock held in Grantor Trust (522.7) (381.2)
Unrealized holding gain on available-for-sale securities 181.5 -
--------- ---------
Total Shareholders Equity 1,456.3 917.1
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Total $5,949.7 $4,741.8
========= =========
<FN>
See Accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONDENSED)
(DOLLARS IN MILLIONS)
NINE MONTHS ENDED JUNE 30,
--------------------------
1998 1997
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Cash Flow from Operations
<S> <C> <C>
Net earnings $1,000.9 $ 314.8
Gain on sale of discontinued operations (705.1) -
Gain on sale of IBC stock (14.7) -
Net earnings from discontinued operations (10.0) (61.3)
Non-cash items included in income 169.8 139.1
Changes in assets and liabilities used in operations (8.4) (21.1)
Other, net (14.3) (54.8)
--------- --------
Cash flow from continuing operations 418.2 316.7
Cash flow from discontinued operations (76.3) 92.7
--------- --------
Net cash flow from operations 341.9 409.4
--------- --------
Cash Flow from Investing Activities
Acquisition of business (182.5) -
Property additions, net (165.6) (189.0)
Proceeds from sale of IBC stock 27.1 -
Other, net 1.8 (2.4)
--------- --------
Cash used by investing activities - continuing operations (319.2) (191.4)
Cash used by investing activities - discontinued operations (195.1) (94.7)
--------- --------
Net cash used by investing activities (514.3) (286.1)
--------- --------
Cash Flow from Financing Activities
Net cash proceeds from debt 491.4 49.8
Dividends paid (111.2) (113.1)
Treasury stock purchases (200.6) (24.7)
Other, net (24.4) (2.5)
--------- --------
Net cash provided (used) by financing activities 155.2 (90.5)
--------- --------
Effect of Exchange Rate Changes on Cash (11.3) (3.7)
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (28.5) 29.1
Cash and Cash Equivalents, Beginning of Period 109.1 62.3
--------- --------
Cash and Cash Equivalents, End of Period $ 80.6 $ 91.4
========= ========
<FN>
See Accompanying Notes to Condensed Financial Statements.
</TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
(Dollars in millions except per share data)
Note 1 - The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for any quarter are not necessarily indicative of the results
for any other quarter or for the full year. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Ralston Purina Company (the Company) Annual Report to Shareholders for the year
ended September 30, 1997.
Note 2 - On May 28, 1998, the 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 $0.10 par value common stock for each outstanding share of common
stock, to shareholders of record at the close of business on June 22, 1998.
Additional shares of stock resulting from the split were distributed on July 15,
1998.
The stock split was accounted for as an increase to common stock and a reduction
of capital in excess of par of $21.1, as par value remained unchanged at $0.10
per common share. Shares of common stock in the Company's Grantor Trust were
split 3-for-1, but common stock shares in treasury were not split. The number
of shares outstanding and per share amounts for all periods presented in the
accompanying financial statements and the related notes reflect the effect of
this stock split.
Note 3 - During the quarter and nine months ended June 30, 1998, the Company
recorded after-tax provisions for restructuring of $17.6 and $61.3,
respectively. On a per share basis, these charges were $0.05 per basic and
diluted share for the quarter and $0.20 and $0.19 per basic and diluted share,
respectively, for the nine month period. On a pre-tax basis, charges for
restructuring were $21.6 and $96.4, respectively, for the quarter and nine
months ended June 30, 1998. Pre-tax charges for the nine month period consisted
of termination benefits of $31.4, other cash costs of $6.3 and non-cash charges
of $58.7. The pre-tax charge and non-cash component for the nine month period
are net of an $11.9 reversal of prior period restructuring charges.
The restructuring provision for the current quarter is primarily related to
additional charges for a voluntary early retirement option announced in the
second quarter which was offered to most U.S. Battery Products' employees
meeting certain age and service requirements. The provision also includes
charges primarily related to severance costs at the Company's European battery
and international pet food operations. These charges provide for the
termination or early retirement of approximately 750 employees in production,
sales and administrative capacities.
Restructuring charges for the current year nine month period also include
impairment write-downs totaling $66.4, primarily related to 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 will continue to assemble and package lithium-ion rechargeable
batteries.
During the quarter and nine months ended June 30, 1997, the Company recorded
after-tax restructuring provisions of $90.8, or $0.29 and $0.28 per basic and
diluted share, respectively, for the quarter and $0.29 and $0.27 per basic and
diluted share for the nine months. These charges were primarily related to the
continued rationalization of Battery Products' worldwide production capacity.
On a pre-tax basis, charges were $103.3 and consisted of termination benefits of
$44.4, other cash exit costs of $9.5 and non-cash charges of $49.4, primarily
related to impairment losses on land, buildings and machinery and equipment.
Note 4 - During the nine month period ended June 30, 1998, the Company
recognized capital loss tax benefits of $41.5, or $0.14 and $0.13 per basic and
diluted share, respectively. During the prior year quarter and nine month
period, the Company recognized capital loss tax benefits of $61.7, or $0.20 and
$0.19 per basic and diluted share, respectively, for the quarter and $0.20 and
$0.18 per basic and diluted share for the nine month period. These capital loss
tax benefits relate to past restructuring actions. Also in the prior year
quarter and nine month period, the Company recognized tax benefits of $34.7, or
$0.11 per basic and diluted share, 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.
Note 5 - During the nine month period ended June 30, 1998, the Company sold
shares of its investment in Interstate Bakeries Corporation (IBC) common stock
for $27.1 and recognized an after-tax gain of $9.5, or $0.03 per basic and
diluted share. On a pre-tax basis, the gain on the sale of the IBC stock was
$14.7.
Note 6 - On December 3, 1997, the Company completed the sale of the 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 purchase) and the assumption of certain liabilities.
During the nine months ended June 30, 1998, the Company recorded a pre-tax gain
on the sale of the Soy Protein Products business of $1.1 billion and an
after-tax gain of $705.1, or $2.30 and $2.14 per basic and diluted share,
respectively.
Note 7 - 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 $333.2, recorded as a reduction of the Company's retained
earnings of $419.4, and a reduction of the Company's cumulative translation
adjustment of $86.2.
Note 8 - Discontinued operations consist of the operating results of the
Company's Soy Protein Products business through the sale date (see Note 6) and
the Company's Agricultural Products business through the date of the spin-off
(see Note 7). 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. Amounts in the
financial statements and notes for all periods presented have been restated to
reflect discontinued operations accounting.
Note 9 - In December 1997, the Company acquired Edward Baker Petfoods, a United
Kingdom manufacturer of extruded complete 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. The acquisition
of Edward Baker is not expected to have a significant effect on the net sales,
net earnings or earnings per share of the Company for the year ended September
30, 1998.
Note 10 - In March 1998, the American Institute of Certified Public Accountants
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 implemented this statement as of the beginning of the current fiscal
year.
Capitalized software costs are included in deferred charges and other assets
within Investments and Other Assets (see Note 14) and are amortized using the
straight-line method over periods of related benefit ranging primarily from 3 to
7 years.
Note 11 - In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share.
Statement 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.
The following table sets forth the computation of basic and diluted earnings per
share in accordance with the provisions of Statement 128. Previously reported
diluted earnings per share amounts have been restated, as necessary, to conform
to Statement 128 requirements. In addition, number of shares and options, per
share amounts and option prices have been restated to reflect the effect of the
May 28, 1998, 3-for-1 stock split (see Note 2).
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
JUNE 30, JUNE 30,
-------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Numerator:
<S> <C> <C> <C> <C>
Earnings from continuing operations $ 59.6 $ 80.2 $285.8 $253.5
Preferred stock dividends (2.8) (3.2) (8.8) (9.9)
------- ------- ------- -------
Numerator for basic earnings per share -
Earnings from continuing operations
available to common shareholders $ 56.8 $ 77.0 $277.0 $243.6
Effect of dilutive securities:
ESOP stock 2.6 2.7 7.6 7.6
------- ------- ------- -------
Numerator for diluted earnings per share -
Earnings from continuing operations
available to common shareholders $ 59.4 $ 79.7 $284.6 $251.2
------- ------- ------- -------
Net earnings from discontinued operations $ 0.9 $ 20.5 $ 10.0 $ 61.3
------- ------- ------- -------
Gain on sale of discontinued operations $ - $ - $705.1 $ -
------- ------- ------- -------
Denominator:
Denominator for basic earnings per share -
weighted average shares * 304.4 306.3 306.6 306.0
Effect of dilutive securities:
ESOP stock 17.2 19.3 18.0 19.6
Stock options ** 5.3 3.3 4.6 4.8
Deferred Compensation - - - 0.8
------- ------- ------- -------
Dilutive potential common shares 22.5 22.6 22.6 25.2
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 326.9 328.9 329.2 331.2
======= ======= ======= =======
Basic earnings per share:
Earnings from continuing operations $ 0.19 $ 0.25 $ 0.91 $ 0.80
Net earnings from discontinued operations - 0.07 0.03 0.20
Gain on sale of discontinued operations - - 2.30 -
------- ------- ------- -------
Net earnings $ 0.19 $ 0.32 $ 3.24 $ 1.00
======= ======= ======= =======
Diluted earnings per share:
Earnings from continuing operations $ 0.18 $ 0.24 $ 0.87 $ 0.76
Net earnings from discontinued operations - 0.06 0.03 0.18
Gain on sale of discontinued operations - - 2.14 -
------- ------- ------- -------
Net earnings $ 0.18 $ 0.30 $ 3.04 $ 0.94
======= ======= ======= =======
<FN>
* Weighted average shares used for the computation of basic earnings per share
excludes 13,423,000 and 12,870,000 shares of common stock held by the Company's
Grantor Trust at June 30, 1998 and 1997, respectively.
** Options to purchase 40,575 shares of common stock at prices ranging from $39.47
to $42.84 per share, and 5,184,960 shares of common stock at prices ranging
from $18.47 to $42.84 per share outstanding during the quarter and nine months
ended June 30, 1998 and 1997, respectively, were not included in weighted average
shares used for the computation of diluted earnings per share because they were
antidilutive at period end. As a result of the spin-off of the Company's
Agricultural Products business, the number of options to acquire shares of
Ralston Purina Company (RAL) common stock and the related exercise prices were
adjusted based upon the ratio of the average trading prices of RAL common
stock prior to and following the spin-off.
</TABLE>
Note 12 - On June 30, 1998, after giving effect for the 3-for-1 stock split
(see Note 2), there were 303,986,000 shares of common stock outstanding,
exclusive of 8,895,000 shares held in treasury and 13,423,000 Grantor Trust
shares. At September 30, 1997, there were 306,813,000 shares of common stock
outstanding, exclusive of 8,116,000 shares held in treasury and 12,922,000
Grantor Trust shares.
Note 13 - Other (income)/expense, net, for the nine months ended June 30, 1998
and 1997, consists of the following:
June 30,
1998 1997
---- ----
Net translation and exchange loss $ 10.7 $ 5.4
Dividends on DuPont common stock (15.0) -
Other investment income (4.0) (2.5)
Return on other investments (8.4) (5.4)
Miscellaneous (income)/expense (0.3) (1.5)
--------- --------
$ (17.0) $ (4.0)
========= ========
Note 14 - Investments and Other Assets consist of the following:
June 30, Sept. 30,
1998 1997
---- ----
Goodwill $ 555.8 $ 446.5
Other intangible assets 232.4 236.4
Investments in affiliated companies 313.1 299.9
Available-for-sale securities 1,691.7 -
Deferred charges and other assets 514.5 547.5
---------- ----------
$ 3,307.5 $ 1,530.3
========== ==========
Note 15 - Available-for-sale securities consist primarily of shares of DuPont
common stock obtained in connection with the sale of the Company's Soy Protein
Products business (see Note 6). Available-for-sale securities are carried at
fair value, based on quoted market prices. The fair value and cost basis of
these securities at June 30, 1998, are $1,691.7 and $1,408.1, respectively,
resulting in a gross unrealized holding gain of $283.6. This gain, net of tax
of $102.1, is shown as a separate component of shareholders equity. The changes
in net unrealized holding gain for the three and nine months ended June 30, 1998
are $95.8 and $181.5, respectively.
Note 16 - During the first quarter of the current year, the Company adopted SOP
96-1, Environmental Remediation Liabilities, which was issued in October 1996
and provides guidance for the accrual of environmental remediation costs. The
adoption of SOP 96-1 did not have a material effect on the financial statements
of the Company for the nine months ended June 30, 1998. As a matter of policy,
costs of future expenditures for environmental remediation obligations are not
discounted to their present value.
Note 17 - In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement 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 evaluations to determine
the impact of this statement on its consolidated financial statements.
PART II - OTHER INFORMATION
------------------
There is no information required to be reported under any items except those
indicated below.
Item 5. Other Information
------------------
On July 15, 1998, Registrant effected a three-for-one stock split in the form of
a stock dividend to holders of its $.10 par value Common Stock on June 22, 1998.
Pursuant to Section 11(a) of the Rights Agreement dated March 28, 1996 between
the Registrant and Norwest Bank, N.A. as Rights Agent and Successor to Boatmen's
Trust Company, the Purchase Price for a share of Common Stock upon exercise of a
Right has been adjusted from $192.80 to $64.27. In addition, as a result of the
stock split, and pursuant to the terms of Section 9(a) of the Certificate of
Designation of the Registrant's Series A ESOP Convertible Preferred Stock (the
"ESOP Stock"), the Conversion Denominator with respect to the ESOP Stock was
adjusted from 46.72 to 15.57 and, consequently, each share of ESOP Stock is now
convertible, in accordance with the terms of the Certificate of Designation,
into 7.12 shares of the Registrant's Common Stock.
Item 6. Exhibits and Reports on Form 8-K
-------------------------------------
(a) Exhibits filed with this Report:
(27) Financial Data Schedule
(b) Reports on Form 8-K
Registrant filed its Current Report on Form 8-K dated May 28, 1998, to disclose
the declaration of the three-for-one stock split described in Item 5 above.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RALSTON PURINA COMPANY
-----------------------------------------
Registrant
By: /s/ James R. Elsesser
James R. Elsesser
Vice President and Chief
Financial Officer
Date: August 14, 1998
<PAGE>
EXHIBIT INDEX
- -------------
Exhibits
- --------
EX-27 Financial data schedule for 3rd Quarter 1998
(provided electronically)
Exhibit 27
(Document prepared on Edgar)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 6/30/98
RALSTON PURINA COMPANY BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 80,600
<SECURITIES> 0
<RECEIVABLES> 716,700
<ALLOWANCES> 26,000
<INVENTORY> 634,900
<CURRENT-ASSETS> 1,523,600
<PP&E> 2,233,100
<DEPRECIATION> 1,114,500
<TOTAL-ASSETS> 5,949,700
<CURRENT-LIABILITIES> 1,460,000
<BONDS> 1,804,500
262,900
0
<COMMON> 32,600
<OTHER-SE> 1,423,700
<TOTAL-LIABILITY-AND-EQUITY> 5,949,700
<SALES> 3,500,800
<TOTAL-REVENUES> 3,500,800
<CGS> 1,726,100
<TOTAL-COSTS> 1,726,100
<OTHER-EXPENSES> 1,300,500
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 142,700
<INCOME-PRETAX> 331,500
<INCOME-TAX> 73,300
<INCOME-CONTINUING> 285,800
<DISCONTINUED> 10,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,000,900
<EPS-PRIMARY> 3.24<F2>
<EPS-DILUTED> 3.04<F2>
<FN>
<F1>LOSS-PROVISION INCLUDED IN OTHER-EXPENSES ABOVE
<F2>REFLECTS EFFECT OF 3-FOR-1 STOCK SPLIT DECLARED ON MAY 28, 1998
</FN>
</TABLE>
