SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
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 May 7, 1999.
325,710,069
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<PAGE>
PART I - FINANCIAL INFORMATION
RALSTON PURINA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL INFORMATION
(Dollars in millions except per share data)
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OPERATING RESULTS
Net earnings for the six months ended March 31, 1999 were $284.0, or $.92 and
$.89 per share on a basic and diluted basis, respectively. Included in net
earnings for the current six months is an after-tax charge of $35.0, or $.11 per
basic and diluted share, associated with the write-down of fixed assets of the
Original Equipment Manufacturers' (OEM) rechargeable battery business. Also
included in the current six month net earnings is an unrealized after-tax gain
of $93.3, or $.30 and $.29 per basic and diluted share, respectively,
representing a market value adjustment of the Company's stock appreciation
income linked securities (SAILS) debt.
The fiscal 1998 six-month net earnings of $940.4, or $3.04 and $2.85 per basic
and diluted share, respectively, included several unusual items which increased
net earnings by $7.3, an after-tax gain on the sale of Soy Protein Products of
$705.1 (pre-tax gain of $1.1 billion) and income from discontinued operations of
$9.1. The Soy Protein Products business was sold to E.I. du Pont de Nemours and
Company (DuPont) on December 3, 1997. Discontinued operations consist of Soy
Protein Products through the sale date, Agricultural Products, which was spun
off on April 1, 1998, and transaction costs associated with the spin-off.
The following unusual items included in the prior year six-month results were
recorded in the prior year second quarter. First, the Company recorded an
after-tax gain of $9.5, or $.03 per basic and diluted share, on the sale of
shares of Interstate Bakeries Corporation (IBC) stock. Second, the Company
recorded a capital loss tax benefit of $41.5, or $.13 and $.12 per basic and
diluted share, respectively, associated with past restructuring actions. The
third unusual item is an after-tax restructuring charge of $43.7, or $.14 and
$.13 per share on a basic and diluted basis, respectively, which was primarily
related to the Company's rechargeable business but which also included charges
for a voluntary early retirement option offered to most U.S. Battery Products'
employees meeting certain age and service requirements, reduced by the reversal
of prior period restructuring charges.
Earnings from continuing operations before the unusual items described above
increased $6.8 in the current six months, or 3.1%, to $225.7 compared to $218.9
for the same period in the prior year. The increase in earnings is attributable
to higher Pet Products' operating earnings and an additional quarter's dividend
income from the Company's investment in DuPont common stock, partially offset by
lower Battery Products' operating earnings. Earnings also benefited from second
quarter mark-to-market adjustments on liabilities denominated in share
equivalents. Earnings per share from continuing operations, before unusual
items, for the six months ended March 31, 1999 were $.73 and $.71 on a basic and
diluted basis, respectively, compared to $.69 and $.66 in the prior year.
For the quarter ended March 31, 1999, net earnings were $107.2, or $.34 per
basic and diluted share, compared to $79.9, or $.25 and $.24 per basic and
diluted share, respectively, for the same quarter in 1998. Net earnings for the
current quarter include the aforementioned $35.0 after-tax fixed asset
write-down and an unrealized after-tax gain of $48.4 representing a market value
adjustment of the Company's SAILS debt. Net earnings for the prior year second
quarter include a loss from discontinued operations of $6.6 and the unusual
items recorded in the second quarter of 1998 as described above. Earnings from
continuing operations, before unusual items, increased $14.6, or 18.4%, for the
quarter to $93.8, compared to $79.2 in the prior year second quarter. Basic and
diluted earnings per share, before unusual items, were $.30 in the current
quarter compared to basic and diluted earnings per share from continuing
operations, before unusual items, of $.25 and $.24 a year ago.
The earnings increase in the quarter resulted primarily from higher Pet
Products' operating earnings, partially offset by lower Battery Products'
operating earnings, largely due to continued declines in the OEM rechargeable
battery business. Earnings also benefited from the mark-to-mark adjustments
recorded in the quarter.
RESULTS OF CONTINUING OPERATIONS
Net sales were flat in the six months ended March 31, 1999 and increased 1.8% in
the quarter on increased Pet Product sales, offset and partially offset,
respectively, by decreases in Battery Product sales. See the following section
for comments on sales changes by Business Segment.
Gross profit as a percentage of sales was 51.2% in the current year six months
compared to 50.7% a year ago. In the current quarter, the gross profit
percentage was also 51.2%, compared to 50.6% in the prior year second quarter.
The increased percentage in both current year periods reflects margin
improvements in Pet Products and increased sales in the higher margin Pet
Products segment, partially offset by decreased margins in Battery Products.
Selling, general and administrative expenses decreased 1.6% in the current six
months and 6.5% in the quarter due primarily to favorable mark-to-market
adjustments in the quarter on liabilities denominated in share equivalents.
Selling, general and administrative expenses decreased to 19.1% and 19.9% of
sales in the current six-month period and current quarter, respectively, from
19.3% and 21.6% in the same periods a year ago.
Advertising and promotion expense increased 2.4% in the current six months and
3.0% in the current quarter due to increased spending in Pet Products, partially
offset by lower spending in Battery Products. As a percentage of sales,
advertising and promotion expense was 15.3% and 15.7% in the current six months
and second quarter, respectively, compared to 14.9% and 15.5% in the same
periods a year ago.
Other income/expense, net, was $6.7 favorable for the six months. The favorable
variance for the six months was primarily due to an additional quarter's
dividend income from the Company's investment in DuPont common stock in the
current year.
Income taxes, which include federal, state and foreign taxes, were 35.7% and
35.2% of pre-tax earnings before equity earnings for the current six-month
period and current quarter, respectively. Income taxes for the prior year
periods include the recognition of a capital loss tax benefit of $41.5 related
to past restructuring actions. In addition, the income tax percentage was
favorably impacted in the prior year by the reversal of prior period
restructuring charges for which no tax benefit had been recorded. Excluding
these items, income taxes were 35.5% and 34.2% of pre-tax earnings before equity
earnings for the prior year six months and second quarter, respectively.
BUSINESS SEGMENTS
Sales for the Pet Products segment increased 5.9% in the six months and 4.0% in
the quarter primarily on higher volumes, and also on the inclusion of sales from
the Company's December 1997 acquisition of Edward Baker Petfoods, based in the
United Kingdom, in the six months. Operating profit increased significantly in
both periods due to the sales increase coupled with lower ingredient costs,
partially offset in the six months by an unfavorable package size mix.
Sales for the Battery Products segment decreased 7.2% in the six months and 1.6%
in the quarter over the same periods in the prior year. In the six months, a
strong second quarter volume increase in North America was offset by North
American volume declines in the first quarter, decreased international volumes,
particularly in the emerging markets of Asia and South America, and decreased
rechargeable battery sales, particularly to the OEM market. In the quarter,
significant volume increases and favorable product mix in alkaline and carbon
zinc batteries in North America were offset by volume declines in international
markets and decreased OEM rechargeable sales. Excluding sales of the OEM
rechargeable battery business and the unfavorable impact of foreign exchange
rates, sales declined 3.6% in the six months and were flat in the quarter.
Operating profit before unusual items for Battery Products decreased
substantially in the six months on declines in the OEM rechargeable battery
business, impacts of foreign exchange, primarily in the first quarter, and the
volume decline in the international markets. Operating profit decreased
significantly in the quarter, primarily attributable to the OEM rechargeable
business and the international sales decline. These declines were partially
offset by significant operating profit improvements in North America, reflecting
volume increases and product mix improvements.
Due to the continued decline in sales and earnings of the OEM rechargeable
battery business, the Company announced that it will exit this business by
fiscal year end. This exit will allow the Company to focus on its primary
battery business and the competitive challenges facing that business. The
Company has commenced an auction process for the business and has taken an
after-tax charge of $35.0 representing an impairment loss on the fixed assets of
this business. The Company expects to take additional after-tax charges related
to this exit in the range of $25 to $45 in the second half of this fiscal year.
The OEM rechargeable business contributed sales of $64.2 and $33.8 in the
current six months and quarter, respectively, compared to sales of $85.0 and
$36.0 in the comparable periods of last year. Pre-tax operating losses for this
business were $9.1 and $4.7 in the current quarter and six months, respectively,
compared to pre-tax operating earnings of $5.7 and $2.1 for the same periods
last year.
The Company expects to receive net after-tax cash proceeds of at least $65 from
the exit of this business.
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 six months ended March 31, 1999, cash flow from
operations was $345.1 compared to cash flow from continuing operations of $245.4
in the six months ended March 31, 1998. The increase in cash flow in the
current six months results from higher cash earnings and changes in working
capital items, primarily decreased accounts receivable and inventories.
Current liabilities exceeded current assets by $24.6 at March 31, 1999 and by
$54.5 at September 30, 1998. The slightly improved working capital position at
March 31, 1999 results from a decrease in notes payable, largely offset by
decreases in accounts receivable and inventories.
During the prior year six months, the Company used the proceeds from the
issuance of short-term debt primarily for the acquisition of Edward Baker
Petfoods for $182.5.
In December 1997, the Company sold its Soy Protein Products operations 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.
On February 3, 1999, the Company's Board of Directors authorized the purchase of
up to eight million shares of Ralston Purina Company common stock (RAL stock).
As of May 7, 1999, approximately 6,014,000 shares remained under this
authorization for the purchase of RAL stock. This authorization is in addition
to a continuing authorization permitting the Company to acquire from time to
time, at prevailing market prices, shares of RAL stock that may be offered for
sale by the trustee of the Company's Savings Investment Plan as a result of
investment directions from participants in the plan.
RESTRUCTURING ACTIVITIES
During the current quarter, the Company recorded an after-tax impairment
write-down of $35.0 related to the fixed assets of the OEM rechargeable battery
business. On a pre-tax basis, this charge was $56.7. In 1998 the Company
recorded an after-tax impairment write-down totaling $66.4, primarily related to
the Company's investment in lithium ion rechargeable battery manufacturing
assets. These assets of the rechargeable business, which are currently held for
sale, have a carrying value of $16.5 at March 31, 1999.
During the six months ended March 31, 1998, the Company recorded provisions for
restructuring totaling $43.7, after tax. On a pre-tax basis, charges for
restructuring were $74.8 and consisted of cash costs of $13.2 and non-cash
charges of $61.6. Included in the total pre-tax charge of $74.8 are impairment
write-downs totaling $66.4, as discussed above. This provision also included
charges of $9.9, pre-tax, for a voluntary early retirement option offered to
most U.S. Battery Products' employees meeting certain age and service
requirements. The total charge and the non-cash component are net of an $8.0
reversal of prior period restructuring charges.
During the current six months, approximately 200 employees were terminated in
connection with restructuring accruals established in prior years. These
provisions were primarily related to the voluntary early retirement option, the
continued rationalization of Battery Products' production capacity and business
structure and restructuring of the Company's international pet food operations.
Activities impacting the restructuring reserve during the six months ended March
31, 1999 were as follows:
Reserve balance at September 30, 1998 $57.3
Provision recorded 56.7
Portion of current period provision classified
as property write-downs (56.7)
Termination benefits paid (24.1)
Other cash exit costs incurred (3.5)
Decrease due to translation (0.1)
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Reserve balance at March 31, 1999 $ 29.6
=======
SAILS MARK-TO-MARKET ADJUSTMENT
Results for the current six months include an unrealized after-tax gain of
$93.3, or $.30 and $.29 per basic and diluted share, respectively, representing
a market value adjustment of the Company's stock appreciation income linked
securities (SAILS) debt. On a pre-tax basis, this gain was $145.8. This
unrealized gain represents the difference between the debt's value at issuance,
or $480, and the current cash settlement value of the debt based on 15.5 million
shares of Interstate Bakeries Corporation (IBC) common stock and an IBC stock
price of $21.5625 at March 31, 1999. For the current quarter, the unrealized
gain was $48.4, after-tax, or $.15 per basic and diluted share. On a pre-tax
basis, the current quarter gain was $75.6.
At maturity on August 1, 2000, the SAILS 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
(the IBC Maturity Price). If the IBC Maturity Price is greater than or equal to
$37.7819, the SAILS will be exchangeable 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.
For accounting purposes, terms of the SAILS require them to be marked to the
cash value of the underlying IBC common shares into which they may be exchanged.
Accordingly, a market value adjustment is required for the SAILS debt when the
IBC stock price is outside the range of $30.96875 and $37.7819. If the IBC
stock price is greater than $37.7819, the Company records an unrealized loss on
the SAILS debt, and if the IBC stock price is less than $30.96875, the Company
records an unrealized gain.
The Company's investment in IBC is included in Investments and Other Assets and
is accounted for using the equity method of accounting, which results in a
carrying value different from the current market value of the investment.
ESOP CONVERSION
At the end of December 1998, the Company converted all of the outstanding shares
of Series A 6.75% Preferred Stock (Redeemable Preferred Stock) into RAL stock in
accordance with terms of the Redeemable Preferred Stock. To effect this
conversion, the Company issued 13,505,609 shares held in Treasury and 2,209,192
authorized but previously unissued shares of RAL stock.
YEAR 2000 UPDATE
The Company is progressing with its plans and active projects 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 before the turn of the millennium.
The Company estimates that more than 90% 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. Testing has been completed on
approximately 80% of the Company's modified or replaced application systems
software. The remaining application systems software is in the process of being
modified or replaced and tested, with completion, in all but a few cases,
targeted for June 1999.
Approximately 93% of the Company's computer hardware and operating systems
software have been modified or replaced, of which 95% 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.
The inventory of systems that contain embedded chip technology is progressing as
planned, and these systems are in the process of being verified for Year 2000
readiness. Testing and upgrade/replacement of all impacted systems containing
embedded chip technology is targeted for completion in July 1999.
The estimated total cost for the Company to achieve Year 2000 readiness is
approximately $36, of which $29 has been expended through March 31, 1999.
The Company's Year 2000 contingency planning efforts are ongoing and will
continue to evolve as new information becomes available; however, a base plan is
targeted for completion in June 1999. Contingency plans to address specifically
identified Year 2000 risks may include increasing raw material, packaging
material and inventory levels in key manufacturing locations, securing alternate
sources of supply, distribution and warehousing, developing manual workarounds
and other appropriate measures. The Company's critical suppliers and major
customers have been contacted regarding Year 2000 issues. Because of the
uncertainties associated with assessing the ability of major suppliers and
customers to complete the remediation of their systems in time to prevent
operational difficulties, the Company will continue to contact and/or visit
these business partners to gain assurances that no significant adverse
consequences will result due to failure to complete remediation of their
systems.
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; cash
proceeds realized upon the exit of the OEM rechargeable business could be less
than anticipated, and charges related to the exit could be greater; fluctuations
in the value of the Company's investments in DuPont and IBC common stock; 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; 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, 1998, and its
current report on Form 8-K dated January 26, 1999.
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
QUARTER ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net Sales $1,130.2 $1,110.8 $2,422.0 $2,427.9
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Costs and Expenses
Cost of products sold 551.6 548.9 1,181.3 1,197.1
Selling, general and administrative 224.7 240.3 462.1 469.4
Advertising and promotion 177.0 171.9 371.1 362.3
Interest expense 45.2 49.3 94.9 95.6
Provisions for restructuring 56.7 74.8 56.7 74.8
Gain on sale of IBC stock - (14.7) - (14.7)
Unrealized gain on SAILS debt (75.6) - (145.8) -
Other (income)/expense, net (2.1) (6.2) (13.1) (6.4)
--------- --------- --------- ---------
977.5 1,064.3 2,007.2 2,178.1
--------- --------- --------- ---------
Earnings from Continuing Operations before
Income Taxes and Equity Earnings 152.7 46.5 414.8 249.8
Income Tax (Provision)/Benefit (53.7) 31.6 (148.0) (42.0)
Equity Earnings, Net of Taxes 8.2 8.4 17.2 18.4
--------- --------- --------- ---------
Earnings from Continuing Operations 107.2 86.5 284.0 226.2
Net Earnings/(Loss) from Discontinued Operations - (6.6) - 9.1
Gain on Sale of Discontinued Operations - - - 705.1
--------- --------- --------- ---------
Net Earnings 107.2 79.9 284.0 940.4
Preferred Stock Dividend, Net of Taxes - (2.9) (2.6) (6.0)
--------- --------- --------- ---------
Earnings Available to Common Shareholders $ 107.2 $ 77.0 $ 281.4 $ 934.4
========= ========= ========= =========
Cash Dividends Declared per Common Share $ 0.20 $ 0.20 $ 0.20 $ 0.20
========= ========= ========= =========
Earnings Per Share
Basic
Earnings from continuing operations $ 0.34 $ 0.27 $ 0.92 $ 0.71
Net earnings/(loss) from discontinued operations - (0.02) - 0.03
Gain on sale of discontinued operations - - - 2.30
--------- --------- --------- ---------
Net Earnings $ 0.34 $ 0.25 $ 0.92 $ 3.04
========= ========= ========= =========
Diluted
Earnings from continuing operations $ 0.34 $ 0.26 $ 0.89 $ 0.68
Net earnings/(loss) from discontinued operations - (0.02) - 0.03
Gain on sale of discontinued operations - - - 2.14
--------- --------- --------- ---------
Net Earnings $ 0.34 $ 0.24 $ 0.89 $ 2.85
========= ========= ========= =========
See Accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(CONDENSED AND UNAUDITED)
(DOLLARS IN MILLIONS)
MARCH 31, SEPTEMBER 30,
--------- -------------
1999 1998
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ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 75.6 $ 89.8
Receivables, less allowance for doubtful accounts
of $24.4 and $24.5, respectively 675.7 717.2
Inventories
Raw materials and supplies 122.5 134.7
Work in process 120.4 124.1
Finished products 317.3 341.6
Other current assets 112.8 120.1
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Total Current Assets 1,424.3 1,527.5
Investments and Other Assets 2,973.9 2,908.2
Property at Cost 2,195.9 2,212.9
Accumulated depreciation 1,136.7 1,096.9
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1,059.2 1,116.0
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Total $5,457.4 $5,551.7
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt $ 64.9 $ 37.1
Notes payable 654.6 772.4
Accounts payable 253.7 286.2
Other current liabilities 475.7 486.3
--------- ---------
Total Current Liabilities 1,448.9 1,582.0
Long-Term Debt 1,595.8 1,794.8
Deferred Income Taxes 372.0 309.3
Other Liabilities 539.3 533.6
Redeemable Preferred Stock - 256.1
Unearned ESOP Compensation - (13.2)
Shareholders Equity
Preferred stock - -
Common stock 32.9 32.6
Capital in excess of par value 165.5 127.7
Retained earnings 1,723.6 2,067.0
Common stock in treasury, at cost (59.3) (766.3)
Unearned portion of restricted stock (3.5) (4.2)
Value of common stock held in Grantor Trust (196.3) (191.5)
Cumulative translation adjustment (97.9) (87.3)
Net unrealized holding loss on available-for-sale securities (63.6) (88.9)
--------- ---------
Accumulated other comprehensive income (161.5) (176.2)
--------- ---------
Total Shareholders Equity 1,501.4 1,089.1
--------- ---------
Total $5,457.4 $5,551.7
========= =========
See Accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONDENSED AND UNAUDITED)
(DOLLARS IN MILLIONS)
SIX MONTHS ENDED
MARCH 31,
---------------
<S> <C> <C>
1999 1998
-------- --------
Cash Flow from Operations
Net earnings $ 284.0 $ 940.4
Unrealized gain on SAILS debt (145.8) -
Gain on sale of discontinued operations - (705.1)
Net earnings from discontinued operations - (9.1)
Gain on sale of IBC stock - (14.7)
Non-cash items included in income 204.7 117.4
Changes in assets and liabilities used in operations 53.5 (67.4)
Other, net (51.3) (16.1)
-------- --------
Cash flow from continuing operations 345.1 245.4
Cash flow from discontinued operations - (18.9)
-------- --------
Net cash flow from operations 345.1 226.5
-------- --------
Cash Flow from Investing Activities
Acquisition of business - (182.5)
Property additions, net (81.2) (116.1)
Proceeds from sale of IBC stock - 27.1
Other, net (5.9) (5.1)
-------- --------
Cash used by investing activities - continuing operations (87.1) (276.6)
Cash used by investing activities - discontinued operations - (107.5)
-------- --------
Net cash used by investing activities (87.1) (384.1)
-------- --------
Cash Flow from Financing Activities
Net cash proceeds from (payment of) debt (126.4) 354.7
Dividends paid (69.9) (71.8)
Treasury stock purchases (46.7) (70.0)
Stock repurchases in connection with ESOP (35.6) (16.7)
Other, net 6.5 10.0
-------- --------
Net cash provided (used) by financing activities (272.1) 206.2
-------- --------
Effect of Exchange Rate Changes on Cash (0.1) (11.4)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (14.2) 37.2
Cash and Cash Equivalents, Beginning of Period 89.8 109.1
-------- --------
Cash and Cash Equivalents, End of Period $ 75.6 $ 146.3
======== ========
See Accompanying Notes to Condensed Financial Statements.
</TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
(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, 1998.
Note 2 - During the quarter and six-month period ended March 31, 1999, the
Company recorded provisions for restructuring totaling $35.0, after tax, or $.11
per basic and diluted share. This charge represents a write-down of fixed
assets of the Company's Original Equipment Manufacturer (OEM) rechargeable
business. On a pre-tax basis, this charge was $56.7.
During the quarter and six-month period ended March 31, 1998, the Company
recorded after-tax provisions for restructuring of $43.7, or $.14 and $.13 per
basic and diluted share, respectively, primarily related to a write-down of the
Company's investment in lithium ion rechargeable battery manufacturing assets.
The provision also included charges for a voluntary early retirement option
offered to most U.S. Battery Products' employees meeting certain age and service
requirements, reduced by the reversal of prior period restructuring charges. On
a pre-tax basis, these charges were $74.8 and consisted of cash costs of $13.2
and non-cash charges of $61.6.
Note 3 - During the six months ended March 31, 1999, the Company recorded an
after-tax, unrealized gain of $93.3, or $0.30 and $0.29 per basic and diluted
share, respectively, representing a market value adjustment of the Company's
stock appreciation income linked securities (SAILS) debt. On a pre-tax basis,
this gain was $145.8. The unrealized gain of $145.8 represents the difference
between the debt's value at issuance, or $480, and the current cash settlement
value of the debt based on 15.5 million shares of Interstate Bakeries
Corporation (IBC) common stock and an IBC stock price of $21.5625 per share at
March 31, 1999. For the quarter ended March 31, 1999, the unrealized after-tax
gain was $48.4, or $.15 per basic and diluted share. On a pre-tax basis, the
gain for the quarter was $75.6.
At maturity on August 1, 2000, the SAILS 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
(the IBC Maturity Price). If the IBC Maturity Price is greater than or equal to
$37.7819 per share, the SAILS will be exchangeable at maturity into 12.70
million shares of IBC stock. If the IBC Maturity Price is $30.96875 per share
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 per share, 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.
For accounting purposes, terms of the SAILS require them to be marked to the
cash value of the underlying IBC common shares into which they may be exchanged.
Accordingly, a market value adjustment is required for the SAILS debt when the
IBC stock price is outside the range of $30.96875 and $37.7819 per share. If
the IBC stock price is greater than $37.7819 per share, the Company records an
unrealized loss on the SAILS debt, and if the IBC stock price is less than
$30.96875 per share, the Company records an unrealized gain.
The Company's investment in IBC is included in Investments and Other Assets and
is accounted for using the equity method of accounting, which results in a
carrying value different from the current market value of the investment.
Note 4 - During the quarter and six month period ended March 31, 1998, the
Company recognized a capital loss tax benefit of $41.5, or $.13 and $.12 per
basic and diluted share, respectively, for both the quarter and six-month
periods. This tax benefit was related to past restructuring actions.
Note 5 - During the quarter and six month period ended March 31, 1998, the
Company sold shares of its investment in IBC common stock for $27.1 and
recognized an after-tax gain of $9.5, or $.03 per basic and diluted share, for
both the quarter and six-month periods.
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 quarter ended December 31, 1997, 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 - Discontinued operations consist of the Company's Soy Protein Products
business through the sale date (see Note 6), the Agricultural Products business,
which was spun off on April 1, 1998, and transaction costs associated with the
spin-off.
<PAGE>
Note 8 - In the first quarter of the current year, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
Company has restated its balance sheet at September 30, 1998 to reflect
"Accumulated Other Comprehensive Income," in accordance with this statement.
The components of total comprehensive income for the quarter and six-month
periods ended March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
<S> <C> <C> <C> <C>
3/31/99 3/31/98 3/31/99 3/31/98
--------- --------- --------- ---------
Net Earnings $ 107.2 $ 79.9 $ 284.0 $ 940.4
Other Comprehensive Income, Net of Tax
Foreign currency translation adjustments (20.1) (37.4) (10.6) (50.1)
Unrealized gains on available-for-sale 71.7 116.3 25.3 85.7
Securities --------- --------- --------- ---------
Total Other Comprehensive Income 51.6 78.9 14.7 35.6
--------- --------- --------- ---------
Total Comprehensive Income $ 158.8 $ 158.8 $ 298.7 $ 976.0
========= ========= ========= =========
</TABLE>
Note 9 - The following table sets forth the computation of basic and diluted
earnings per share for the quarters and six-month periods ended March 31, 1999
and 1998.
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
(Dollars in millions except per share data)
Quarter Ended Six Months Ended
March 31, March 31,
-------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
<S> <C> <C> <C> <C>
Earnings from continuing operations $107.2 $ 86.5 $284.0 $226.2
Preferred stock dividends - (2.9) (2.6) (6.0)
------ ------- ------- -------
Numerator for basic earnings per share -
Earnings from continuing operations
available to common shareholders $107.2 $ 83.6 $281.4 $220.2
Effect of dilutive securities:
ESOP stock - 2.6 2.4 5.3
------ ------- ------- -------
Numerator for diluted earnings per share -
Earnings from continuing operations
available to common shareholders $107.2 $ 86.2 $283.8 $225.5
------ ------- ------- -------
Net earnings (loss) from discontinued operations $ - $ (6.6) $ - $ 9.1
------ ------- ------- -------
Gain on sale of discontinued operations $ - $ - $ - $705.1
------ ------- ------- -------
Denominator:
Denominator for basic earnings per share -
weighted average shares * 314.5 308.1 306.7 307.7
Effect of dilutive securities:
ESOP stock - 17.1 8.1 17.8
Stock options 3.0 4.6 3.5 4.2
------ ------- ------- -------
Dilutive potential common shares 3.0 21.7 11.6 22.0
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 317.5 329.8 318.3 329.7
====== ======= ======= =======
Basic earnings per share:
Earnings from continuing operations $ 0.34 $ 0.27 $ 0.92 $ 0.71
Net earnings (loss) from discontinued operations - (0.02) - 0.03
Gain on sale of discontinued operations - - - 2.30
------ ------- ------- -------
Net earnings $ 0.34 $ 0.25 $ 0.92 $ 3.04
====== ======= ======= =======
Diluted earnings per share:
Earnings from continuing operations $ 0.34 $ 0.26 $ 0.89 $ 0.68
Net earnings (loss) from discontinued operations - (0.02) - 0.03
Gain on sale of discontinued operations - - - 2.14
------ ------- ------- -------
Net earnings $ 0.34 $ 0.24 $ 0.89 $ 2.85
====== ======= ======= =======
</TABLE>
* Weighted average shares used for the computation of basic earnings per
share excludes 13,621,000 and 13,002,000 shares of common stock held by
the Company's Grantor Trust at March 31, 1999 and 1998, respectively.
Note 10 - Other (income)/expense, net, for the six months ended March 31, 1999
and 1998, consists of the following:
<TABLE>
<CAPTION>
March 31,
1999 1998
---- ----
<S> <C> <C>
Net translation and exchange loss $ 7.9 $ 8.8
Dividends on DuPont common stock (15.8) (7.1)
Other investment income (5.9) (8.3)
Miscellaneous (income)/expense 0.7 0.2
------- ------
$(13.1) $(6.4)
======= ======
</TABLE>
Note 11 - At the end of December 1998, the Company converted all of the
outstanding shares of Series A 6.75% Preferred Stock (Redeemable Preferred
Stock) into Ralston Purina Company common stock (RAL Stock), in accordance with
terms of the Redeemable Preferred Stock. To effect this conversion, the Company
issued 13,505,609 Treasury shares and 2,209,192 authorized but previously
unissued shares of RAL Stock.
Note 12 - 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.
Note 13 - On March 31, 1999, there were 312,758,000 shares of common stock
outstanding, exclusive of 2,174,000 shares held in treasury and 13,621,000
Grantor Trust shares. At September 30, 1998, there were 298,958,000 shares of
common stock outstanding, exclusive of 13,875,000 shares held in treasury and
13,470,000 Grantor Trust shares.
Note 14 - Investments and Other Assets consist of the following:
<TABLE>
<CAPTION>
Mar. 31, Sept. 30,
1999 1998
---- ----
<S> <C> <C>
Goodwill $ 522.4 $ 545.9
Other intangible assets 224.5 231.2
Investments in affiliated companies 339.2 319.3
Available-for-sale securities 1,322.7 1,281.2
Deferred charges and other assets 565.1 530.6
-------- --------
$2,973.9 $2,908.2
======== ========
</TABLE>
Note 15 - Available-for-sale securities at March 31, 1999 and September 30,
1998 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 difference between fair value and cost basis of these securities,
net of tax, is shown as a separate component within Accumulated Other
Comprehensive Income in the shareholders equity section of the Consolidated
Balance Sheet. The table below shows the aggregate fair value, gross unrealized
holding loss, tax benefit, and net unrealized holding loss for these securities
as of September 30, 1998 and March 31, 1999. The changes in net unrealized
holding loss, net of tax, for the quarters and six-month periods ended March 31,
1999 and 1998 are included as a component of Other Comprehensive Income as shown
in Note 8, above.
<TABLE>
<CAPTION>
Gross Net
Aggregate Unrealized Unrealized
Fair Value Holding Loss Tax Benefit Holding Loss
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
March 31, 1999 $1,322.7 ($99.4) $35.8 ($63.6)
September 30, 1998 $1,281.2 ($138.9) $50.0 ($88.9)
</TABLE>
PART II - OTHER INFORMATION
------------------
There is no information required to be reported under any items except those
indicated below.
Item 6. Exhibits and Reports on Form 8-K
-------------------------------------
(a) Exhibits filed with this Report:
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Current Report on Form 8-K which was filed on January 26, 1999,
was reported in the Company's Form 10Q for the period ending December 31, 1998.
<PAGE>
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: May 14, 1999
<PAGE>
EXHIBIT INDEX
- ----------------------
EX-27 Financial Data Schedule for Second Quarter 1999
(provided electronically)
Exhibit 27
(Document prepared on Edgar)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 3/31/99
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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 75,600
<SECURITIES> 0
<RECEIVABLES> 700,100
<ALLOWANCES> 24,400
<INVENTORY> 560,200
<CURRENT-ASSETS> 1,424,300
<PP&E> 2,195,900
<DEPRECIATION> 1,136,700
<TOTAL-ASSETS> 5,457,400
<CURRENT-LIABILITIES> 1,448,900
<BONDS> 1,595,800
0
0
<COMMON> 32,900
<OTHER-SE> 1,468,500
<TOTAL-LIABILITY-AND-EQUITY> 5,457,400
<SALES> 2,422,000
<TOTAL-REVENUES> 2,422,000
<CGS> 1,181,300
<TOTAL-COSTS> 1,181,300
<OTHER-EXPENSES> 731,000
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 94,900
<INCOME-PRETAX> 414,800
<INCOME-TAX> 148,000
<INCOME-CONTINUING> 284,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 284,000
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.89
<FN>
<F1>LOSS-PROVISION INCLUDED IN OTHER-EXPENSES ABOVE.
</FN>
</TABLE>
