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, 1999 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:
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<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 1, 1999: $9,308,865,661.
(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 13, 1999: 305,041,799.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Ralston Purina Company 1999 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 10, 1999 (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 four Business Segments - North
American Pet Foods, International Pet Foods, Golden Products and Battery
Products.
The North American Pet Foods (which includes Canadian operations) and
International Pet Foods Segments produce and market dry dog foods, dry and
soft-moist cat foods and pet treats under the PURINA name, including DOG CHOW,
CAT CHOW and numerous other dog and cat food brands. The Golden Products
Segment manufactures and markets cat box filler, and also markets related items
such as cat box liners and deodorizers, under the GOLDEN CAT name, including
TIDY CAT and other brands. Operations of the Golden Products Segment are
conducted primarily in the United States.
The Battery Products Segment consists of the Company's worldwide battery
products business. The battery products business manufactures and sells primary
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 Energizer International, Inc., respectively,
both wholly owned subsidiaries of the Company.
On June 10, 1999, the Company announced its intention to separate its
battery products business in a tax-free spinoff to shareholders. It is
contemplated that a newly formed subsidiary, Energizer Holdings, Inc., will
acquire direct or indirect ownership of the capital stock of Eveready Battery
Company, Inc., Energizer International, Inc. and other battery subsidiaries, and
then immediately afterwards, the capital stock of Energizer Holdings, Inc. will
be distributed to the Company's shareholders. Completion of the spinoff is
anticipated to occur in the spring of 2000, and is contingent upon a favorable
tax ruling from the Internal Revenue Service, effectiveness of a registration
statement relating to the spinoff, and final approval by the Company's Board of
Directors.
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 North American and International Pet
Food Segments are grain and grain products, protein ingredients and meat
by-products, and in the Golden Products Segment, clay. In the Battery Products
Segment, the principal raw materials used are electrolytic manganese dioxide,
zinc, acetylene black, graphite, steel cans, nylon, brass wire, separator paper
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.
Products of the North American and International Pet Food Segments and the
Golden Products Segment are marketed primarily through a direct sales forces to
groceries, mass merchandisers, specialty retailers, wholesalers and other
customers. Battery products are marketed in the United States and
internationally primarily through direct sales forces, and also through
distributors, to mass merchandisers, wholesalers and other customers.
Competition is intense in all of the Company's Business Segments. The principal
competitors in all Segments 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 1997, 1998 and 1999, revenue from the Company's sales
of its products to Wal-Mart Stores, Inc. and its affiliated companies was 11.9%,
14.3% and 16.6%, respectively, of the Company's 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, foreign and local
laws and regulations intended to protect the public health and the environment.
These regulations primarily relate to worker safety, 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 12 federal "Superfund" sites. It may also be
required to share in the cost of cleanup with respect to a state-designated
site. Of these 13 sites, the Company has reached negotiated agreement as to its
liability with respect to 4 of the sites. Negotiations with the U.S.
Environmental Protection Agency, the state agency that is involved on the
state-designated site, and other PRP's are at various stages with respect to the
remaining sites. Negotiations involve determinations of
- - the actual responsibility of the Company and the other PRP's at the site,
- - appropriate investigatory and/or remedial actions, and
- - allocation of the costs of such activities among the PRP's and other site
users.
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 and Africa. 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, 1999 the Company, as a whole, employed 8,521 employees in
the United States and 10,683 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 12,
"Ralston Purina Company-Financial Review-Liquidity and Capital Resources" on
pages 13 through 15, "Ralston Purina Company-Financial Review-Operating Segment
Information" on pages 18 through 20, "Ralston Purina Company-Segment
Information" on pages 21 through 22, and "Ralston Purina
Company-Notes to Financial Statements-Summary of Accounting Policies-Research
and Development" on page 30 of the Ralston Purina Company Annual Report to
Shareholders 1999, 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.
<PAGE>
NORTH AMERICAN PET FOOD PLANTS
United States
Atlanta, GA
Clinton, IA (1R)
Davenport, IA
Denver, CO
Dunkirk, NY
Flagstaff, AZ
Innisfail, Alberta, Canada
Mechanicsburg, PA
Mississauga, Ontario, Canada
Oklahoma City, OK
Zanesville, OH
Dairy Food Systems Plant
Hager City, WI
INTERNATIONAL PET FOOD PLANTS
Chilton, United Kingdom
Cornard Mills, United Kingdom
Cuautitlan, Mexico
Encrucijada, Venezuela (5)
Monjos, Spain
Montfort-Sur-Risle, France
Portogruaro, Italy
Ribeirao Preto, Brazil
Santo Tome, Argentina
Veghel, The Netherlands
GOLDEN PRODUCTS PLANTS
United States
Bloomfield, MO
King William, VA
Maricopa, CA
Packaging Facilities
Caledonia, Ontario, Canada (6)
BATTERY PRODUCTS PLANTS
United States
Asheboro, NC (2)
Bennington, VT
Garretsville, OH
Marietta, OH
Maryville, MO
St. Albans, VT
International
Alexandria, Egypt
Bogang, Peoples Republic
of China (1)
Caudebec Les Elbeuf, France (1)(6)
Mandaue Cebu, Philippines
Ekala, Sri Lanka
Cimanggis, Indonesia
Johor, Malaysia
Jurong, Singapore (2)(8)
La Chaux-de-Fonds, Switzerland
Nakuru, Kenya (4)
Slany, Czech Republic (1)
Tanfield Lea, United Kingdom (7)
Tecamac, Mexico
Tianjin, People's Republic
of China
Walkerton, Ontario, Canada (6)
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
<PAGE>
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 North American Pet Foods, International Pet Foods
and Golden 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
(7) To be divested
(8) One plant will be closed and the site returned to the Singapore govt. in
early 2000.
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, foreign and local laws and
regulations intended to protect the public health and the environment. These
regulations primarily relate to worker safety, 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 12 federal "Superfund" sites. It may also be
required to share in the cost of cleanup with respect to a state-designated
site. Of these 13 sites, the Company has reached negotiated agreement as to its
liability with respect to 4 of the sites. Negotiations with the U.S.
Environmental Protection Agency, the state agency that is involved on the
state-designated site, and other PRP's are at various stages with respect to the
remaining sites. Negotiations involve determinations of
- - the actual responsibility of the Company and the other PRP's at the site,
- - appropriate investigatory and/or remedial actions, and
- - allocation of the costs of such activities among the PRP's and other site
users.
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.
It is difficult to quantify with certainty the potential financial impact
of actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment. Nevertheless, based upon the information currently available, the
Company believes that its ultimate liability arising from such environmental
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 $9.6 million for estimated
liabilities, should not be material to its financial position. Such liability
could, however, 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.
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, 52, Chief Executive Officer and President since June, 1999
- --------------------
and Corporate Officer since 1984. Co-Chief Executive Officer and co-President
from October, 1997 to June, 1999; 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, 27 years.
J. Patrick Mulcahy, 55, Chairman of the Board and Chief Executive Officer,
- --------------------
Eveready Battery Company, Inc., since 1987 and Corporate Officer since 1984.
co-Chief Executive Officer and co-President of Ralston Purina Company from
October, 1997 to June, 1999; Vice President and Director, Corporate Strategic
Planning and Administration, Ralston Purina Company, 1984-86; Division Vice
President, Strategic Planning 1981-84; Division Vice President, Director of
Marketing, Grocery Products Group 1980-81. Company service, 32 years.
James R. Elsesser, 55, Vice President and Chief Financial Officer since 1985 and
- -----------------
Treasurer since 1999, and Corporate Officer since 1985; Vice President,
March-September, 1985; Treasurer, February-September, 1985. Company service, 14
years.
Nancy E. Hamilton, 49, Secretary and Division Vice President since 1996; Senior
- ------------------
Counsel and Assistant Secretary, 1994 - 1996. Company service, 14 years.
Patrick C. Mannix, 54, Vice President; President, Eveready Battery Company, Inc.
- -----------------
since 1998 and Corporate Officer since 1992. President, Eveready Battery
Company, Inc. - Specialty Businesses 1995 - 98; Executive Vice President,
Eveready Battery Company, International 1991 - 95; Area Chairman, Asia Pacific
operations, Eveready Battery, 1985 - 91. Company service, 36 years, including
24 years with Eveready Battery Division of Union Carbide Corporation.
James M. Neville, 60, Vice President, General Counsel and Assistant Secretary
- ------------------
since 1996; Vice President, General Counsel and Secretary 1989 - 96, and
Corporate Officer since 1983; Vice President and General Counsel 1984-89.
Company service, 16 years.
Anita M. Wray, 45, Vice President and Controller since April 1994; Division Vice
- -------------
President and Director of Financial Accounting Services, 1985 - 94. Company
service, 20 years.
(Ages and years of service as of September 30, 1999.)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock ("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, 1999, there were 24,129 shareholders of record of the RAL
Stock.
The following tables set forth dividends paid and range of market prices for the
RAL Stock (for the year ended September 30):
DIVIDENDS PAID
1999 1998
---- ----
First Quarter $.10 $.10*
Second Quarter .10 .10*
Third Quarter .10 .10*
Fourth .10 .10
*Restated due to 3-for-1 Stock Split
MARKET PRICE RANGE
(Restated as necessary due to 3-for-1 Stock Split)
1999 1998
---- ----
RAL Stock RAL Stock
--------- ---------
First Quarter $37 3/16 - 28 1/4 $32 19/64 - 27 51/64
Second Quarter 32 1/2 - 25 13/16 35 5/8 - 28 1/2
Third Quarter 33 - 25 5/8 39 5/64 - 33 9/16
Fourth Quarter 30 7/8 - 27 1/4 38 7/8 - 26
There have been no unregistered offerings of registrant's equity securities
during the period covered by this Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA.
The summary of selected financial data regarding Ralston Purina Company
appearing on pages 10 through 11, of the Ralston Purina Company Annual Report to
Shareholders 1999, 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 12 through 20 and the information appearing under "Ralston Purina
Company-Segment Information" on pages 21 through 22 of the Ralston Purina
Company Annual Report to Shareholders 1999, 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 16 through 17 of the Ralston
Purina Company Annual Report to Shareholders 1999 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 24 through 46, together with the report thereon of
PricewaterhouseCoopers LLP on page 23, and the supplementary data under "Ralston
Purina Company - Quarterly Financial Information" on pages 47 through 48 of the
Ralston Purina Company Annual Report to Shareholders 1999, 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 7, and information
appearing under "Compliance With Section 16(a) Reporting" on page 3, of the
Ralston Purina Company Notice of Annual Meeting and Proxy Statement dated
December 10, 1999 is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Executive Compensation" on pages 14 through
15, "Human Resources Committee Report on Executive Compensation" on pages 22
through 25, "Performance Graph" on page 26, "Common Stock Ownership Of Directors
and Executive Officers" on pages 12 through 13, and the remuneration information
under "Board Of Directors Standing Committees" on page 6 and "Director
Compensation" on page 7 of the Ralston Purina Company Notice of Annual Meeting
and Proxy Statement dated December 10, 1999 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 10, 1999 is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Certain Relationships and Related
Transactions" on page 7 of the Ralston Purina Company Notice of Annual Meeting
and Proxy Statement dated December 10, 1999, 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, 1999, 1998
and 1997.
- - Consolidated Balance Sheet -- for years ended September 30, 1999 and 1998.
- - Consolidated Statement of Cash Flows -- for years ended September 30, 1999,
1998, and 1997.
- - Consolidated Statement of Shareholders Equity -- for years ended September 30,
1999, 1998 and 1997.
- - 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 23, 1999.
(3ii) The By-Laws of Ralston Purina Company, as amended September 24, 1998,
are hereby incorporated by reference to the Company's Form 10-K for the fiscal
year ended September 30, 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) 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) The following material contracts are hereby incorporated by reference
to the Company's Form 10-K for the fiscal year ended September 30, 1998.
(a) Form of September 24, 1998 Non-Qualified Stock Option*
(b) Form of Letter of Deferral of 1999 Bonus Award*
(c) Form of Agreement for Deferral of 1998 Annual Cash Bonus*
(d) 1998 Leveraged Incentive Plan, adopted effective October 1, 1998*
(e) Form of Letter of Deferral of 1996 Leveraged Incentive Plan Award*
(f) Agreement and Plan of Reorganization dated as of April 1, 1998 between
Ralston Purina Company and Agribrands International, Inc.
(g) Form of Indemnification Agreement dated October 1, 1997 between Ralston
Purina Company and William P. Stiritz*
(h) Resolution dated March 19, 1998 amending Fixed Benefit Option provision
of the Deferred Compensation Plan for Non-Management Directors*
(i) Resolution dated March 19, 1998 amending Fixed Benefit Option provision
of the Deferred Compensation Plan for Key Employees.*
(j) Ralston Purina Company Executive Health Plan as amended September 24,
1998*
(k) Voluntary Enhanced Retirement Offer for Certain Corporate Employees
dated September 24, 1998*
(l) Ralston Purina Company Executive Retiree Life Plan*
(m) Resolution dated May 28, 1998 regarding repayment of gain provisions in
outstanding non-qualified option awards held by Corporate Officers.
(xv) The following material contracts are hereby incorporated by
reference to the Company's Form 10-Q for the quarter ended June 30, 1999.
(a) Form of Management Continuity Agreement with Chief Executive Officer*
(b) Form of Management Continuity Agreement with Corporate Officer*
(c) Form of Management Continuity Agreement with Corporate Vice President*
(d) Form of Management Continuity Agreement with Corporate Officer*.
(xvi) Form of September 23, 1999 Non-Qualified Stock Option*
(xvii) Form of Letter of Deferral of 2000 Bonus Award*
(xviii) Form of Agreement for Deferral of 1999 Annual Cash Bonus*
(xix) Form of September 23, 1999 Non-Qualified Stock Option granted to
non-management Directors*
(xx) Forms for Deferral Elections under the Deferred Compensation Plan
for Non-Management Directors*
(xxi) Resolution Adopted November 18, 1999, Amending the Deferred
Compensation Plan for Non-Management Directors*
(xxii) Excerpt of March 25, 1999 Human Resources Committee meeting minutes*
(xxiii) Resolution dated February 15, 1999 to amend Outstanding Option
Awards to add Reload Feature*
(xxiv) Amendment to Executive Long Term Disability Plan dated June 23, 1999
(xxv) Amendment to Deferred Compensation Plan for Key Employees effective
July, 1999*
(13) Pages 10 to 48 of the Ralston Purina Company Annual Report to
Shareholders 1999, which are incorporated herein by reference, are filed
herewith.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule.
27.i Restated Financial Data Schedule for 1997 Annual Period
27.ii Restated Financial Data Schedule for 1998 Quarterly and Annual Periods
27.iii Restated Financial Data Schedule for 1999 Quarterly Periods
27.iv Financial Data Schedule for 1999 Annual Period
* 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: /s/ W. P. McGinnis
-------------------------------
W. P. McGinnis
Chief Executive Officer
and President
Date: December 15, 1999
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on December 15, 1999, by the following persons on behalf
of the registrant in the capacities indicated.
SIGNATURE TITLE
- --------- -----
W. P. McGinnis
- ----------------------------- Chief Executive Officer and
W.P. McGinnis President
James R. Elsesser
- ------------------------------- Vice President, Chief Financial
James R. Elsesser Officer and Treasurer
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.
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
J. Patrick Mulcahy
- ---------------------------- Director
J. Patrick Mulcahy
Ronald L. Thompson
- ---------------------------- Director
Ronald L. Thompson
Katherine D. Ortega
- ------------------------------ Director
Katherine D. Ortega
RESTATED ARTICLES OF INCORPORATION
OF
RALSTON PURINA COMPANY
* * *
The original Articles of Incorporation were filed with the Secretary of
State of the State of Missouri on January 8, 1894. The initial shareholders
were William O. Andrews, William H. Danforth and George R. Robinson, Jr., each
of whom resided in the City of St. Louis, Missouri, and each of whom initially
subscribed to 40 shares. The Restated Articles of Incorporation, as amended,
are hereby restated pursuant to Section 351.106 of the General and Business
Corporation Law of Missouri.
ARTICLE ONE - NAME
The name of the corporation is Ralston Purina Company.
ARTICLE TWO - OFFICE
The registered office of the corporation is located at 222 E. Dunklin
Street, Jefferson City, Missouri 65101, and the name of its registered agent at
such address is Prentice Hall Corporation System.
ARTICLE THREE - AUTHORIZED SHARES
A. CLASSES AND NUMBER OF SHARES
The aggregate number of shares of capital stock which the corporation is
authorized to issue is 610,600,000 shares, consisting of:
(a) 600,000,000 shares of Common Stock, par value $.10 per share
("Common Stock"); and
(b) 10,600,000 shares of Preferred Stock, par value $1.00 per share
("Preferred Stock").
B. NO PREEMPTIVE RIGHTS
No shareholder of any class of stock of the corporation shall have any
preemptive right to acquire any additional shares of any class.
<PAGE>
C. TERMS OF PREFERRED STOCK
The terms of the shares of each series of Preferred Stock shall be as
stated and expressed in these Restated Articles of Incorporation or any
amendment hereto, or in the resolution or resolutions providing for the issuance
of such series of Preferred Stock adopted by the Board of Directors. Subject to
the requirements of The General and Business Corporation Law of Missouri
("GBCL") and the provisions of these Restated Articles of Incorporation, the
Board of Directors is expressly authorized to cause any number of the authorized
and undesignated shares of Preferred Stock to be issued from time to time in one
or more series of Preferred Stock with such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, if any, as the Board of Directors may fix by resolution
or resolutions, prior to the issuance of any shares of such series of Preferred
Stock, each of which series may differ from any and all other series, including,
without limiting the generality of the foregoing, the following:
(i) The number of shares constituting such series of Preferred Stock
and the designation thereof;
(ii) The dividend rate, if any, on the shares of such series of
Preferred Stock, whether and the extent to which any such dividends shall be
cumulative or non-cumulative, the relative rights of priority, if any, of
payments of any dividends, and the time at which, and the terms and conditions
on which, any dividends shall be paid;
(iii) The right, if any, of the holders of shares of such series of
Preferred Stock to vote and the manner of voting, except as may otherwise be
provided by the GBCL and the provisions of these Restated Articles of
Incorporation;
(iv) The right, if any, of the holders of shares of such series of
Preferred Stock to convert the same into, or the right, if any, of the
corporation to exchange the same for, another class or series of capital stock
of the corporation and the terms and conditions, including any provision for
future adjustment in the conversion or exchange rate, under which said shares
may be converted or exchanged;
(v) The redemption or purchase price or prices of the shares of such
series of Preferred Stock, if any, and the times at which, and the terms and
conditions of which, the shares of such series of Preferred Stock may be
redeemed or purchased;
(vi) The terms of the sinking fund, if any, to be provided for such
series of Preferred Stock, and the terms and amount of any such sinking fund;
<PAGE>
(vii) The rights of the holders of shares of such series of Preferred
Stock in the event of a voluntary or involuntary liquidation, dissolution or
winding up of the corporation and the relative rights of priority, if any, of
such holders with respect thereto; and
(viii) Any other relative powers, preferences and rights, and any
qualifications, limitations or restrictions, of such series of Preferred Stock.
If there be a default in the payment to the holders of the ESOP Preferred
Stock of the equivalent of six quarterly dividends, all such holders, voting as
a class, shall be entitled to elect two directors and their successors, to serve
until such time as the cumulative dividends on the ESOP Preferred Stock shall be
paid in full. In such event, the President or the Secretary of the corporation
may, and upon the written request of the holders of 10% or more of the ESOP
Preferred Stock outstanding shall promptly, call a special meeting of the
holders of the ESOP Preferred Stock to be held within 90 days after the call;
however, if any such request shall be made within 120 days preceding the date
fixed for any annual meeting of shareholders, such special meeting shall be held
within 120 days after the call. All other directors of the corporation shall
continue to be elected by the holders of all the outstanding capital stock
entitled to vote thereon.
D. TERMS OF COMMON STOCK
1. Voting Rights. On all matters to be voted on by the holders of
shares of Common Stock, each outstanding share of Common Stock shall have one
vote.
2. Dividend Rights. Subject to the express terms of any outstanding
series of Preferred Stock, dividends may be declared and paid upon the Common
Stock out of funds of the corporation legally available therefor, in such
amounts and at such times as the Board of Directors may determine. Funds
otherwise legally available for the payment of dividends on the Common Stock
shall not be restricted or reduced by reason of there being any excess of the
aggregate preferential amount of any series of Preferred Stock outstanding over
the aggregate par value thereof. Before any dividend, other than a dividend
payable in Common Stock of the corporation, may be declared and paid with
respect to any class of Common Stock outstanding, all cumulative dividends for
past quarters and the dividend for the current quarter with respect to the ESOP
Preferred Stock outstanding must be declared and paid, or declared and set apart
for payment.
ARTICLE FOUR - DIRECTORS
Number and Classification
The Board of Directors of the corporation shall consist of twelve members,
or such other number as may be fixed by, or in the manner provided in, the
Bylaws of the corporation, but not less than nine nor more than eighteen, and
any changes in the number of Directors shall be reported to the Secretary of
State within thirty calendar days of such change. The time of service and mode
of classification of the Directors shall be provided for by the Bylaws of the
corporation; provided, however, that the Board of Directors shall be classified
into three classes as nearly equal in size as possible, with successive annual
elections of the classes, each class to be elected for a term of three years.
Removal of Directors
At a meeting called expressly for that purpose, Directors may be removed in
the manner provided in this Article. One or more members of the Board of
Directors may be removed, with or without cause, by a vote of not less than
two-thirds of the aggregate voting power of the outstanding Common Stock and
Preferred Stock entitled to vote thereon at such meeting, and by such other vote
as may be required by the GBCL. Whenever the holders of the shares of any class
are entitled to elect one or more Directors, the provisions of this Article
shall apply, in respect of the removal of a Director or Directors so elected, to
the vote of the holders of the outstanding shares of that class and not to the
vote of the holders of the outstanding shares as a whole.
Amendment
This Article may be amended or repealed only upon the affirmative vote of
not less than two-thirds of the aggregate voting power of the outstanding Common
Stock and Preferred Stock entitled to vote thereon at a meeting called for such
purpose, and by such other vote as may be required by the GBCL; provided,
however, that whenever the holders of shares of any class are entitled to elect
one or more Directors, such amendment shall also require the affirmative vote of
not less than two-thirds of the voting power of the outstanding shares of each
such class entitled to vote at such meeting, and by such other vote as may be
required by the GBCL.
ARTICLE FIVE - TERM OF EXISTENCE
The corporation shall have a perpetual existence.
ARTICLE SIX - PURPOSES
The purposes of the corporation are to engage in the food and feed business
and to carry on any other lawful business for profit which is authorized by the
Directors and which is proper for a corporation organized under the General and
Business Corporation Law of Missouri, and to enter into any transactions or
perform any acts necessary or incidental to any of the foregoing.
<PAGE>
ARTICLE SEVEN - BYLAWS
The right to make, alter, amend or repeal the Bylaws of the corporation
shall be vested in the Board of Directors of the corporation.
ARTICLE EIGHT - CERTAIN BUSINESS COMBINATIONS
Approval
The approval of any Business Combination shall, in addition to any
affirmative vote required by the GBCL, require the affirmative vote of the
holders of not less than two-thirds of the aggregate voting power of the
outstanding shares of Common Stock and Preferred Stock entitled to vote at a
meeting of shareholders called for such purpose and of a majority of the voting
power of all such shares of which a Substantial Shareholder is not the
Beneficial Owner; provided, however, that any such Business Combination may be
approved on any affirmative vote required by the GBCL if:
(a) there are one or more Continuing Directors and the Business
Combination shall have been approved by a majority of them; or
(b) the cash, or Fair Market Value of the property, securities or other
consideration to be received per share by the shareholders of each class of
stock of this corporation in the Business Combination is not less than the
higher of:
(i) the highest per share price paid by the Substantial
Shareholder for the acquisition of any shares of such class, with appropriate
adjustments for stock splits, stock dividends and like distributions, or
(ii) the Fair Market Value of such shares, on the date the
Business Combination is approved by the Board of Directors.
Definitions
(a) For purposes of this Article Eight, the term "Business Combination"
shall mean:
(i) any merger or consolidation of the corporation or any
subsidiary of the corporation with (a) any Substantial Shareholder or (b) any
other corporation which, after such merger or consolidation, would be a
Substantial Shareholder, regardless of which entity survives;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Substantial Shareholder, of any assets of the corporation or any subsidiary
of the corporation, or both, that have an aggregate Fair Market Value of more
than twenty percent of the book value of the total assets of the corporation as
shown on its consolidated balance sheet as of the end of the calendar quarter
immediately preceding any such transaction;
(iii) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by or on behalf of a Substantial
Shareholder; or
(iv) any transaction involving the corporation or any of its
subsidiaries, including the issuance or transfer of any securities of, any
reclassification of securities of, or any recapitalization of, the corporation
or any of its subsidiaries, or any merger or consolidation of the corporation
with any of its subsidiaries (whether or not involving a Substantial
Shareholder), if the transaction would have the effect, directly or indirectly,
of increasing the proportionate share of the outstanding shares of any class of
equity or convertible securities of the corporation or any subsidiary, of which
a Substantial Shareholder is the Beneficial Owner.
(b) The term "Continuing Director" shall mean any member of the Board
of Directors of the corporation who is not an Affiliate of the Substantial
Shareholder and who was a member of the Board of Directors prior to the time
that the Substantial Shareholder became a Substantial Shareholder, and any
successor of a Continuing Director if the successor is not an Affiliate of the
Substantial Shareholder and is recommended or elected to succeed a Continuing
Director by a majority of Continuing Directors.
(c) The term "Substantial Shareholder" shall mean and include any
individual, corporation, partnership or other person or entity which, together
with its Affiliates and Associates, is the Beneficial Owner in the aggregate of
more than twenty percent of the voting power of the outstanding Common Stock and
Preferred Stock entitled to vote in an election of Directors; and any Affiliate
or Associate of any such individual, corporation, partnership or other person or
entity.
(d) The term "Fair Market Value" shall mean:
(i) in the case of stock, the highest closing sale price per share
of a share of such stock during the 30-day period immediately preceding the
approval of the Business Combination by the Board of Directors as reported by
any United States Securities Exchange registered under the Securities Exchange
Act on which such shares are listed, or, if such shares are not listed on any
such Exchange, then the highest closing bid quotation for any of such shares as
reported on the National Association of Securities Dealers, Inc. Automated
Quotations System or any such system then in use, or if no such closing sales
price or bid quotation is reported, the Fair Market Value as determined on the
date in question by a majority of Continuing Directors; or
(ii) in the case of property or securities other than cash or
stock, the Fair Market Value of said property or securities on the date in
question as determined by a majority of the Continuing Directors.
(e) The following terms shall be defined by reference to the Securities
Exchange Act of 1934 and the Rules in effect thereunder on November 30, 1983:
(i) "Affiliate" under Rule 12b-2;
(ii) "Associate" under Rule 12b-2; and
(iii) "Beneficial Owner" under Rule 13d-3.
Amendment
In addition to such other vote or consent as shall then be required by the
GBCL, this Article may be amended or repealed only upon the affirmative vote of
not less than two-thirds of the aggregate voting power of the outstanding Common
Stock and Preferred Stock entitled to vote at a meeting called for such purpose
and of a majority of the voting power of all such shares of which a Substantial
Shareholder is not the Beneficial Owner, and by such other vote as may be
required by the GBCL; provided, however, that this Article may be amended upon
any affirmative vote required by the GBCL, if such amendment has been approved
by a majority of the Board of Directors, if there is not a Substantial
Shareholder, or if there is a Substantial Shareholder, by a majority of the
Continuing Directors.
ARTICLE NINE - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Right to Indemnification
The Company shall indemnify any person who is or was a director, officer,
or employee of the Company, or is or was serving at the request of the Company
as director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any and all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with any civil, criminal,
administrative or investigative action, proceeding or claim (including an action
by or in the right of the Company) by reason of the fact that he is or was
serving in such capacity, provided that such person's conduct is not finally
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct.
<PAGE>
Rights Not Exclusive
The indemnification and other rights provided by this Article shall not be
deemed exclusive of any other rights to which a director, officer or employee
may be entitled under any agreement, vote of shareholders or disinterested
directors or otherwise, and the Company is hereby specifically authorized to
provide such indemnification and other rights by any agreement, vote of
shareholders or disinterested directors or otherwise.
Enforceability; Amendment
Each person who was or is a director, officer or employee of the Company
and the heirs, executors, administrator and estate of such person, is a third
party beneficiary of this Article and shall be entitled to enforce against the
Company all indemnification and other rights granted to such person by this
Article.
This Article may be hereafter amended or repealed; provided, however, that
no amendment or repeal shall reduce, terminate or otherwise adversely affect the
right of a person who was or is a director, officer or employee to obtain
indemnification with respect to an action, suit or proceeding that pertains to
or arises out of actions or omissions that occur prior to the effective date of
such amendment or repeal.
ARTICLE TEN - NO CUMULATIVE VOTING
Shareholders shall not have the right to vote cumulatively in electing
directors.
RALSTON PURINA COMPANY
By: /s/ J. M. Neville
_____________________________
J. M. Neville
Vice President and
General Counsel
By: /s/ N. E. Hamilton
______________________________
N. E. Hamilton
Secretary
Dated February 23, 1999
<PAGE>
STATE OF MISSOURI )
) ss.
CITY OF ST. LOUIS )
I, J. M. Neville, being duly sworn, on my oath, state that I am Vice
President and General Counsel of Ralston Purina Company; that in such capacity
I signed the foregoing Restated Articles of Incorporation of Ralston Purina
Company; that said restatement was duly approved by the Board of Directors of
Ralston Purina Company on February 3, 1999; that said Restated Articles of
Incorporation correctly set forth without substantive change the corresponding
provisions of the original Articles of Incorporation of Ralston Purina Company
as theretofore amended; and that said Restated Articles of Incorporation
supersede the said original Articles of Incorporation and all the amendments
thereto.
_____________________________________
J. M. Neville
Vice President and General Counsel
STATE OF MISSOURI )
) ss.
CITY OF ST. LOUIS )
I, _______________________, a Notary Public, do hereby certify that on the
____ day of _______________, personally appeared before me, J. M. Neville, who
being by me first duly sworn, declared that he is the person who signed the
foregoing document as Vice President and General Counsel of Ralston Purina
Company, and that the statements therein contained are true.
(NOTARIAL SEAL)
_________________________________
Notary Public
NON-QUALIFIED STOCK OPTION
--------------------------
RALSTON PURINA COMPANY (the "Company"), effective September 23, 1999, 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 $ per share pursuant to its 1999 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 23 in each of the years 2001, 2002, 2003 and 2004.
This Option remains exercisable through September 22, 2009 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 employment of Optionee, 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 and any of its
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 22, 2009:
a. If Optionee's employment is terminated due to 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 due to death, such shares
that are exercisable shall remain exercisable for three years thereafter;
c. 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;
d. 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
e. 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.
"Eligible Optionee" shall mean an Optionee who is actively at work at, or
on an approved leave of absence from, the Company or an Affiliate at the time of
exercise of an Eligible Option.
"Eligible Option" shall mean an outstanding Option, held by an Eligible
Optionee, which has a remaining term of at least one year.
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.
7. Grants of Restoration Options. If Optionee exercises this Option by
--------------------------------
tendering shares of Common Stock that have been held for at least six months,
and if Optionee is an Eligible Optionee and the Option qualifies as an Eligible
Option at the time of such exercise, then Optionee shall be entitled to a grant
of a Restoration Option to purchase a number of shares of Common Stock equal to
the number of shares so tendered. Such Restoration Option shall permit the
Optionee to purchase shares of Common Stock of the Company at an exercise price
equal to the New York Stock Exchange - Composite Transactions closing price on
the date of grant, and shall be subject to such other terms and conditions as
the Human Resources Committee of the Board shall determine.
ACKNOWLEDGED AND ACCEPTED: RALSTON PURINA COMPANY
____________________________
Optionee
By:_________________________
____________________________ W. P. McGinnis,
Date Chief Executive Officer
December 2, 1999
PERSONAL AND CONFIDENTIAL
To Eligible Fiscal 2000 Bonus Plan Participants
DEFERRAL OF FISCAL 2000 BONUS AND CALENDAR-YEAR 2000 BASE SALARY
The Deferred Compensation Plan for Key Employees provides you with the
opportunity to DEFER ALL OR A PORTION OF YOUR 2000 BONUS AND/OR BASE SALARY. In
general, deferring compensation has the advantage of POSTPONING PAYMENT OF TAX
and of allowing any earnings on the deferred amount to ACCUMULATE FREE OF TAX
until distributed. It is now time to
X DECIDE WHETHER TO DEFER all or part of your calendar-year 2000 base salary
- ---- and/or any cash bonus you might receive, and
X Promptly return the enclosed election form. YOUR ELECTION FORM MUST BE
- ---- POSTMARKED OR FAXED BY DECEMBER 31, 1999, or you will not be able to defer
any 2000 base salary or bonus.
Last year, we communicated A NUMBER OF ENHANCEMENTS to Ralston Purina's Deferred
Compensation Plan for Key Employees. These enhancements include:
The ability to DEFER UP TO 75% OF YOUR BASE SALARY
INTERMEDIATE-TERM DEFERRAL OPTIONS that allow you to defer compensation for
periods as short as three years to help meet shorter-term financial needs such
as funding a child's college education or financing a future home purchase
Payment distribution options that provide 5 and 10 year ANNUAL INSTALLMENT
PAYMENTS if you are at least 50 years of age at termination of employment
Opportunity to transfer existing account balances, except for Company match
accounts, to NINE INVESTMENTS FUNDS which mirror the returns of the Vanguard
mutual funds that are available in the Savings Investment Plan plus the Prime
Rate Fund, and the Ralston Purina Equity Fund which continues to offer a 25%
COMPANY MATCH ON BONUS DEFERRALS INTO THAT FUND.
Transaction flexibility including DAILY INVESTMENT REALLOCATIONS,
interactive voice response system, Internet access to account balance
information, and quarterly account statements.
New Plan Administrator, Compensation Resource Group (CRG)
<PAGE>
Deferral of 2000 Base Salary and Bonus
December 2, 1999
Page Two
Please review the enclosed information carefully. Then, using the pre-addressed
envelope which is provided, return one copy of the 2000 Annual Salary and Bonus
Deferral Election form to Compensation Resource Group (CRG), WHETHER OR NOT YOU
WISH TO REQUEST A DEFERRAL. YOUR ELECTION FORM MUST BE POSTMARKED OR FAXED TO
CRG NO LATER THAN DECEMBER 31, 1999. A duplicate form is enclosed for your
records. Keep in mind that your election to defer may not be changed after that
date.
If you have any questions concerning this information, please contact
Compensation Resource Group at 1-800-405-0911 or Pat Robbins at 314-982-5889.
Ron Sheban
Ralston Purina Company
Compensation and Benefits Planning
Telephone 314-982-2325
Enclosures
Note to Energizer Associates:
Because of the planned spinoff of Eveready Battery Company, Energizer
associates' salary and bonus deferral elections will apply ONLY TO BONUS AND
SALARY EARNED DURING THE FIRST 6 MONTHS OF THE 2000 FISCAL YEAR. That is, your
deferral elections will affect only salary and bonus you earn through March 31,
2000. Early in calendar 2000, you will be given an opportunity to defer salary
and bonus you earn in the second six months of the fiscal year. Those deferrals
will be governed by a new Energizer deferred compensation plan.
Upon spinoff, current deferred compensation account balances will be credited to
the new Energizer plan. More details will be provided when available.
<PAGE>
HOW DO I ENROLL?
1. FILL OUT THE ENCLOSED DEFERRAL ELECTION FORM.
First, in the DEFERRAL ELECTION section, indicate HOW MUCH, if any, of your
annual base salary and/or bonus YOU WOULD LIKE TO DEFER into the Plan for 2000.
Then, make your DEFERRAL TERM election by indicating whether you want your 2000
deferrals to be paid out 1) in January of 2001, 2) at some future date while you
are still employed by the Company, or 3) at retirement or termination of
employment.
Next, under FUND ALLOCATION, select the fund(s) to which you would like to
direct your deferrals. NOTE: IF YOU ELECT TO DEFER 100% OF YOUR ELIGIBLE
COMPENSATION TO JANUARY 2001, DO NOT COMPLETE THE FUND ALLOCATION SECTION WHICH
ONLY APPLIES TO INTERMEDIATE AND LONG-TERM DEFERRALS. Short-term deferrals will
be allocated to the Prime Rate Fund.
If you would like to initially elect or change the form of distribution for your
deferred compensation account balances, complete the PAYMENT FORM section
indicating if you want a lump-sum or installment payments over 5 or 10 years.
This election will apply to your entire deferred compensation account balance
(except for the Fixed Benefit Option) and will only apply to distributions made
at least one year following the date this form is completed. You must be at
least 50 years of age at the time payment begins to receive an installment
payment. IF YOU DO NOT WISH TO CHANGE YOUR CURRENT FORM OF DISTRIBUTION, YOU DO
NOT NEED TO COMPLETE THIS SECTION. If you do not have an "aged" election on
file, your account balance will be paid in lump-sum.
Finally, complete the ACKNOWLEDGEMENT section of the form.
If you would like to change your current beneficiary designation, you should
contact Compensation Resource Group (CRG) at 1-800-405-0911 to request a
beneficiary form indicating who should receive your benefits in the event you
die before your account is paid.
2. SIGN AND DATE THE DEFERRAL ELECTION FORM.
3. RETURN THE COMPLETED ELECTION FORM IN THE PRE-ADDRESSED, POSTAGE-PAID
ENVELOPE TO COMPENSATION RESOURCE GROUP (CRG). Retain a copy for your records.
Note that YOUR ELECTION FORM MUST BE POSTMARKED NO LATER THAN DECEMBER 31, 1999.
While facsimile copies of the election form will be accepted through the
deadline, a signed copy must also be mailed to CRG at the following address:
----
COMPENSATION RESOURCE GROUP
633 W. 5TH STREET
52ND FLOOR
LOS ANGELES, CA 90071
FAX NUMBER: 213-438-6600
<PAGE>
There are eleven fund options available under the Deferred Compensation Plan:
nine Vanguard funds, the Prime Rate Fund and the Ralston Purina Equity Fund. An
abbreviated capsule description of each fund and its historical returns are
outlined below. Before deciding which fund(s) to select, you should read the
fund prospectuses which provide additional details. NOTE THAT, UNDER THE TERMS
OF THE DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES, THESE FUNDS ARE USED FOR
MEASUREMENT PURPOSES ONLY. YOUR ACCOUNT WILL BE CREDITED WITH INVESTMENT
RETURNS BASED ON THESE FUNDS BUT WILL BE REFLECTED AS A BOOKKEEPING ENTRY ONLY
AND WILL NOT REPRESENT AN ACTUAL INVESTMENT MADE ON YOUR BEHALF.
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED RETURNS AS OF SEPTEMBER 30, 1999
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
RALSTON PURINA EQUITY FUND
Common stock of Ralston Purina Company.
-3.37 17.78 10.90
PRIME RATE FUND
Interest based on the average prime rates established by Morgan Guaranty
Trust Company of New York.
7.88 8.28 7.96
VANGUARD WELLINGTON FUND
The fund's assets are divided between common stocks and bonds, with an
average of 65% of assets in stocks and 35% in bonds. The fund invests in
dividend-paying large- and mid-capitalization stocks of well-established
companies whose prospects are improving but whose values have yet to be
recognized in the marketplace.. . . . . . . . . . . . . . . . . . . . . . . . . . 9.46 16.47 12.46
VANGUARD 500 INDEX FUND
The fund holds all of the 500 stocks that make up the Standard & Poor's 500
Index in proportion to their weighting in the index. The fund attempts to match
the performance of the index, a widely recognized benchmark of U.S. stock
market performance, and it remains fully invested in stocks at all times.
Though the fund seeks to match the index, its performance typically can be
expected to fall short by a small percentage representing operating costs.. . . . 27.84 24.95 16.67
VANGUARD WINDSOR II FUND
The fund invests in a diversified group of out-of-favor stocks of large-
capitalization companies. The stocks are, as a group, selling at prices below
the overall market average compared to their dividend income and future
return potential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.33 20.10 13.94
VANGUARD SMALL-CAP INDEX FUND
The fund attempts to match the performance of the Russell 2000 Index, an
unmanaged index of small companies. The fund invests in a large sampling of
stocks that matches certain characteristics of the index (such as industry
weightings, market capitalization, and dividend yield). Though the fund seeks
to match the index, its performance typically can be expected to fall short by a
small percentage representing operating costs.. . . . . . . . . . . . . . . . . . 21.08 13.47 11.53
VANGUARD INTERNATIONAL GROWTH FUND
The fund invests in stocks of high-quality, seasoned companies based outside
the United States. It invests 60% to 70% of its assets in companies with
sustainable competitive advantages and strong prospects for long-term growth. . . 22.12 10.13 8.26
VANGUARD LIFESTRATEGY INCOME FUND
This fund seeks a high level of income. It invests its net assets in a
combination of four different Vanguard funds: a stock fund, two bond funds,
and an asset allocation fund. . . . . . . . . . . . . . . . . . . . . . . . . . . 5.50 11.53(1) N/A
VANGUARD LIFESTRATEGY CONSERVATIVE GROWTH FUND
This fund seeks a high level of income and moderate long-term growth of
capital and income. It invests its net assets in a combination of five different
Vanguard funds: a domestic stock fund, an international stock fund, two bond
funds, and an asset allocation fund.. . . . . . . . . . . . . . . . . . . . . . . 10.93 13.63(1) N/A
VANGUARD LIFESTRATEGY MODERATE GROWTH FUND
This fund seeks a reasonable level of income and long-term growth of capital
and income. It invests its net assets in a combination of four different
Vanguard funds: a bond fund, a domestic stock fund, an international stock
fund, a bond fund, and an asset allocation fund.. . . . . . . . . . . . . . . . . 16.03 15.94(1) N/A
VANGUARD LIFESTRATEGY GROWTH FUND
This fund seeks long-term growth of capital and income. It invests its net
assets in a combination of four different Vanguard funds: a bond fund, a
domestic stock fund, an international stock fund, a bond fund and an asset
allocation fund.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.92 18.11(1) N/A
- --------------------------------------------------------------------------------- ----- -------- -----
</TABLE>
(1) Four-year returns. (LifeStrategy Funds started September 30, 1994.)
EXECUTIVE SUMMARY
This executive summary is qualified in its entirety by the more detailed
information set forth in the Questions and Answers and the Plan Prospectus and
Plan Document.
INTRODUCTION
Ralston Purina Company (the "Company") and its subsidiaries are pleased to offer
you this opportunity to participate in the Ralston Purina Deferred Compensation
Plan for Key Employees (the "Plan"). Deferring compensation provides an
opportunity for pre-tax savings to help you accumulate assets for planned events
during your working life and retirement.
HIGHLIGHTS
During this year's annual enrollment period for the Plan, you will have the
opportunity to:
Defer pre-tax compensation
Minimum deferral of $1,000
Up to 100% of your 2000 bonus
Up to 75% of your 2000 calendar year base salary
Elect to receive your 2000 bonus and salary deferrals as
a short-term lump-sum payout in January 2001,
an intermediate-term lump-sum payout at some fixed date which is at
least 3 years after deferral, or
a long-term payout at retirement or termination
Select five or ten-year annual installment payments if you defer long-term
and leave the Company after age 50
Transfer existing deferred compensation account balances among the eleven
available investment funds
THE SPECIFIC LEGAL DETAILS OF THE PLAN ARE ALL INCLUDED
IN THE PLAN DOCUMENT
The Plan Document will govern in all cases. If there is a discrepancy
between the information in this material and the Plan Document,
the Plan Document will prevail.
<PAGE>
7
WHY DEFER COMPENSATION?
SAVING FOR RETIREMENT
When it comes to retirement planning, your qualified Pension Plan and 401(k)
Savings Investment Plan (SIP) are just a part of the story. Current federal
income tax limits restrict your yearly SIP savings. Internal Revenue Code
discrimination testing may result in further reductions to your pre-tax saving
opportunity in the SIP.
Your Pension, SIP and Social Security benefits may not provide sufficient funds
to maintain your desired lifestyle during your retirement years.
PRE-TAX SAVINGS
With a nonqualified deferred compensation plan such as the Deferred Compensation
Plan for Key Employees, you can defer and invest a substantial portion of your
income BEFORE Federal and state income and local TAXES are deducted, and
compound that pre-tax income tax-free until the money is paid to you.
FOR EXAMPLE:
If you are in a 40% tax bracket and defer $10,000 into the Plan, you have an
immediate tax savings of $4,000 in the year you defer. In addition, you have
$4,000 in your deferred compensation account on which tax-deferred earnings
accumulate.
TAX-DEFERRED EARNINGS
WHAT IS A DEFERRED COMPENSATION PLAN?
A deferred compensation plan allows you to defer a portion of your current
income on a pre-tax basis. This reduces your current taxable income. Unlike a
40l(k) plan, you are not subject to government limitations on how much you can
defer.
Your deferred compensation account is also credited with earnings on a
tax-deferred basis. Because your account balance is based on your pre-tax
deferral amount plus pre-tax earnings, your account balance grows faster than if
you invested your after-tax income in similar investments outside of the Plan.
The advantage to investing your money before taxes using a deferred compensation
plan may result in investment earnings much larger than similar after-tax
investment alternatives.
NOT JUST FOR RETIREMENT
With the new features of the Deferred Compensation Plan for Key Employees, you
are not limited to pay outs only at termination of employment.
Intermediate-term pay outs are available to help you meet shorter-term financial
needs, such as helping to fund a child's college education, financing a new home
purchase, or meeting other foreseeable financial obligations.
<PAGE>
QUESTIONS AND ANSWERS
These Questions and Answers are qualified in their entirety by the more detailed
information set forth in the Prospectus and Plan Document. You are encouraged
to read the Prospectus in its entirety and to ask any questions you may have.
If any discrepancy arises between these Questions and Answers and the Prospectus
or Plan Document, the terms of the Plan Document will govern.
PLAN OBJECTIVES
Q What is the purpose of the Plan?
A The Plan is designed to allow participants to defer a portion of their annual
compensation on a pre-tax basis and receive a tax-deferred return on these
deferrals.
DEFERRALS
Q When do I make my deferral election?
A To participate in the Plan during the 2000 plan year, you must enroll in the
Plan and make your irrevocable election by December 31, 1999. Enrollment forms
received after the deadline cannot be accepted.
Q Can I change the amount I am deferring or stop my deferrals during a plan
year?
A No. IRS rules and regulations require that an irrevocable election be made
sufficiently in advance of the period during which the compensation is earned.
Therefore, changing or stopping an elected annual deferral amount while
remaining a participant is not permitted, except in very limited circumstances
set forth in the Plan (e.g., unforeseeable emergency creating serious and
immediate financial hardship).
Q If I defer salary, how will the deferrals be handled?
A If you elect to defer base salary, beginning in January 2000, an equal
percentage of your salary will be deferred each month during calendar year 2000.
The next opportunity to elect to defer salary will be in December 2000 for
salary earned in 2001.
COMPANY MATCH
Q Will the Company match my deferrals to the Ralston Purina Equity Fund?
A Bonus deferrals to the Ralston Purina Equity Fund are credited with a 25%
Company match, provided those elective deferrals remain in the Ralston Purina
Equity Fund for at least twelve months from the date of deferral. Salary
deferrals are not matched.
--------
Q When do I become vested in the Company matching amounts?
A You become fully vested in the Company matching deferrals upon termination of
employment if 1) you have attained age 50 or 2) you are involuntarily terminated
at any age, other than for cause.
<PAGE>
COMPANY MATCH (CONT)
Q Under what circumstances would I forfeit Company matching deferrals?
A Matching deferrals are forfeited if you 1) are terminated for cause at any
age, 2) voluntarily terminate prior to age 50, or 3) engage in competition with
the Company within two (2) years after termination prior to age 50.
CREDITING RATE
Q How will the returns on the deferred amounts be calculated?
A When you make your deferral election, you will select any or all of the
following "measurement" funds. You must allocate your deferral to each fund in
whole percentage point increments, and the total must equal 100%. Deferred
bonuses will be credited to your account(s) effective November 1. Deferred
salary will be credited to your account(s) effective on the date it would
otherwise have been paid to you. You will not receive any earnings until your
deferral is credited to your account(s).
- - Prime Rate Fund
- - Ralston Purina Equity Fund
- - Vanguard Wellington Fund
- - Vanguard 500 Index Fund
- - Vanguard Windsor II Fund
- - Vanguard Small-Cap Index Fund
- - Vanguard International Growth Fund
- - Vanguard LifeStrategy Income Fund
- - Vanguard LifeStrategy Conservative Growth Fund
- - Vanguard LifeStrategy Moderate Growth Fund
- - Vanguard LifeStrategy Growth Fund
For the Vanguard measurement funds, deferred amounts will earn returns (which
may be positive or negative) as if they had been invested at the net asset value
(net of investment advisory fees) of the measurement funds.
NOTE THAT UNDER THE TERMS OF THE DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES,
THESE FUNDS ARE USED FOR MEASUREMENT PURPOSES ONLY. YOUR ACCOUNT WILL BE
CREDITED WITH INVESTMENT RETURNS BASED ON THESE FUNDS BUT WILL BE REFLECTED AS A
BOOKKEEPING ENTRY ONLY AND WILL NOT REPRESENT AN ACTUAL INVESTMENT MADE ON YOUR
BEHALF.
<PAGE>
CREDITING RATE (CONT)
Q Will I own shares or units of the measurement funds I select?
A No. IRS rules require that the deferred compensation accounts remain
"unfunded"; therefore you do not own shares or units of the measurement funds
you select as a means for measuring the return on your deferred compensation.
As long as you have an account balance in this Plan, you will be an unsecured
general creditor of Ralston Purina Company for the amount of your account
balance.
Q Where can I get more information about the measurement funds?
A In selecting your measurement funds, you should consider the effect your
selections will have on your overall asset portfolio. To help you in this
process, you should read prospectuses for the Vanguard measurement funds.
Prospectuses for the Vanguard Funds can be requested by contacting Vanguard
Participant Services at 1-800-523-1188.
Q After selecting my measurement funds, may I change them in the future?
A Yes. You may change your selections daily among any of the available
measurement funds. You may reallocate in any whole percentage point increments
among the measurement funds. Remember that bonus deferrals into the Ralston
Purina Equity Fund cannot be reallocated until they have been deferred for one
year. Dollars credited to the Company Match account cannot be allocated among
other measurement funds.
Q How will fund balances be valued?
A With the exception of the Ralston Purina Equity Fund and Prime Rate Fund,
all account balances will be valued daily based on the performance of the
measurement funds as of the close of business day on the valuation date, at the
closing price quoted on the New York Stock Exchange. The Prime Rate Fund will
be valued based on the average of the daily close of business prime rates as
establishing by the Morgan Guaranty Trust Company of New York. The Ralston
Purina Equity Fund will be valued based on the average of the closing price of
Ralston Purina's common stock as reported by the New York Stock Exchange -
Composite Transactions - DURING THE TEN (10) TRADING DAYS IMMEDIATELY PRECEDING
THE VALUATION DATE.
<PAGE>
DISTRIBUTIONS
Q Under what circumstances can I receive a distribution of all or part of my
account balance?
A There are several ways you can elect to receive a distribution of all or a
portion of your account balance:
Short-term deferrals allow you to defer your salary or bonus until January
---------------------
of the calendar year following the year in which the salary or bonus is earned.
Interest is credited at the prime rate under the terms of the Prime Rate Fund.
Intermediate-term deferrals provide you with access to all or a portion of
----------------------------
your annual deferral amount, plus earnings, at any point in the future but no
earlier than three (3) years from the date the payment is deferred.
Long-term deferrals until retirement or termination of employment. If you
-------------------------------------------------------------------
leave the Company prior to age 50, you will receive a lump-sum benefit equal to
your account balance. If you leave the Company at age 50 or older, you can
elect to receive an amount equal to your account balance payable in annual
installments over 5 or 10 years, if such an election is in place for one year
prior to payment. If no such installment election has been made, you will
receive your distribution in lump sum.
If you die while actively employed but prior to reaching age 50, your
beneficiary will receive a lump-sum payment equal to your account balance. If
you die after age 50, your beneficiary will be paid your account balance in a
lump sum, unless an installment election has been in place for one year at the
time of your death.
Q If I elect a distribution payment form at this time, what deferrals are
affected and can I change the distribution payment form at some later date?
A For long-term deferrals, you may select a pay out option lump sum or 5 or
10-year annual installments. That pay out option will apply to all current
deferred compensation account balances with the exception of the Fixed Benefit
Option (FBO). You may modify the pay out option election at any time, but your
election will only be effective if in place at least one year prior to your
retirement or termination. Remember that installment pay outs are only
available if you retire or terminate employment at age 50 or older.
<PAGE>
DISTRIBUTIONS (CONT)
Q When will I decide how, when, and in what form to receive a distribution from
the Plan?
A For each Plan year, you will be asked to choose whether you want to begin
receiving your annual deferral amount (salary and bonus) earned in that Plan
year, plus the earnings credited, as a short-term, intermediate-term, or
long-term pay out.
An election for a short-term pay out will be paid in a lump sum in January of
the year following deferral.
An election for an intermediate-term pay out cannot be received earlier than
three (3) years from the date on which the payment would have been made.
Payment is in lump-sum form only.
An election for a long-term pay out is payable at retirement or termination.
Payment is also in a lump-sum form, unless your election to receive your benefit
in a 5-year or 10-year installment has been in place for one year prior to
payment.
Q Can you tell me more about intermediate-term deferrals?
A Intermediate-term deferrals are available to help you meet shorter-term
financial needs such as helping to fund a child's college education, financing a
future home purchase, or meeting other foreseeable financial obligations.
This option allows you to elect to receive a distribution of an annual deferral
amount, plus earnings, from the Plan in any designated year that is at least
three years after the end of the Plan year with respect to which the deferred
compensation is earned. For example, an intermediate-term payout elected for
the 2000 Plan year can be paid no earlier than January 1, 2004. Your payment
would be in a lump sum.
The intermediate-term deferral is an annual election. Each year when you make
your election to defer, you may elect either to receive a future
intermediate-term pay out of that year's annual deferral amount, delay the
distribution until retirement or termination, or defer the pay out until January
of the year following deferral.
<PAGE>
DISTRIBUTIONS (CONT)
Q What are my distribution options when I retire or terminate employment?
A If you leave the Company after age 50, you can receive a benefit from the Plan
in a lump sum or in annual installments over a period of 5 or 10 years if the
election of installment payments was in place for at least one year prior to
your retirement or termination. If installments are elected, the unpaid balance
will continue to accrue earnings based on your investment selections.
Distributions will begin no later than 60 days following the date of your
retirement or termination.
If you terminate employment prior to age 50, you will receive a lump-sum payment
of your account balance.
Q Who can I name as beneficiary?
A You can name any individual or entity you wish.
Q Can I assign or dispose of my earnings in the Plan?
A No. You cannot in any way sell, assign, hypothecate, alienate, encumber or in
any way transfer or convey in advance of receipt, any of your rights under the
Plan.
Q Can I take a loan from my account balance?
A No, loans are not available.
TAXES
Q What is the income tax effect of electing to defer income?
A Amounts you defer under the Plan will not be taxed for Federal income tax
purposes in the year they are earned and would have otherwise been paid to you.
However, FICA (Social Security up to taxable wage base and Medicare HI) tax is
withheld. In addition, earnings credited in accordance with the Plan will not
be taxed for Federal income tax purposes in the year they are credited to your
account balance. Rather, these amounts will be taxed when they are paid to you.
Earnings on the deferred amounts are not subject to FICA taxes.
<PAGE>
TAXES (CONT)
Q If my deferrals are considered before-tax deferrals, why is FICA currently
withheld?
A IRS rules require that your deferral amounts are considered wages at the time
that they ARE EARNED, regardless of when paid, for the purpose of calculating
FICA taxes (Social Security and Medicare HI tax components). Thus, FICA taxes
must be withheld at the time your deferrals are earned and credited to your
account balance. If, at the time of deferral, your wages for the year have
exceeded the taxable wage base for Social Security at the time of your deferral
($76,200 for 2000) the Social Security portion of FICA (6.2%) will not apply to
your deferred bonus or deferred salary. If the taxable wage base for Social
Security has not been met at the time of deferral, FICA will be withheld from
any cash compensation with respect to your deferred amounts. In addition,
salary deferral may be limited to allow for cash payments of FICA and other
benefit deductions. Since no taxable wage base limit applies to the Medicare HI
component, your deferred compensation will be subject to Medicare HI withholding
tax of 1.45%. The vested Ralston Purina Equity Fund Company match amount, if
any, will also be subject to FICA in the year it vests.
Q If I receive a distribution from the Plan, can I roll the money over into
another plan to avoid taxes?
A No. The Plan is a nonqualified plan and IRS rules do not allow distributions
from a nonqualified plan to be rolled over into a tax-qualified retirement plan
or IRA.
Q How are my annual deferral amounts taxed when they are distributed to me?
A Your annual deferral amounts and earnings accrued on such amounts are taxed as
current income for Federal, state income and local tax purposes, as applicable,
when they are distributed to you. Special income tax averaging is not
available. All FICA should have been withheld at the time of deferral or
vesting of Company match and no additional FICA should be due. Please note that
under Federal law, installment payments made over 10 years may not be subject to
state income taxes, if paid to you when you are residing in a state that imposes
no income tax; however, lump sum payments, in such case, may be subject to taxes
imposed by the state in which you were employed when such deferred compensation
was earned. This issue should be discussed with your tax advisor.
<PAGE>
TAXES (CONT)
Q Will the distributions from the Plan affect my Social Security benefits after
I retire?
A Yes and no. Distributions made from the Plan will not affect your Social
Security benefits themselves. For purposes of Social Security, these
distributions are considered "earned" when they are credited to your account;
therefore, they do not constitute earned income under the earnings test when
they are distributed to you. However, because the distributions will be
considered gross income for Federal income tax purposes, they may have the
effect of subjecting your Social Security benefits to Federal income taxation.
These issues should be discussed with your tax advisor.
PLAN ADMINISTRATION
Q How frequently will I receive a statement of my Account Balance?
A You will receive an account statement quarterly as soon as practicable
following the close of each calendar quarter. Compensation Resource Group, Inc.
("CRG"), is assisting the Company with the administration of the Plan and will
prepare the statements.
Q Will I be able to access my account balance via the Internet or over the
phone?
A Yes. CRG provides both Internet and Interactive Voice Response (IVR) systems
so that you can access your account 24 hours a day from either your computer or
your telephone. Both systems allow you to access your current balance and make
certain changes, such as allocating your account balance to different funds. The
toll-free IVR number is 888-333-1653. CRG's Internet address is CRGWORLD.COM.
Q Where can I get more information about the Plan and its administrators?
A The Plan Prospectus is included with this mailing. We encourage you to read
it. If you still have questions after reading the information in this packet,
you may call Compensation Resource Group (CRG) at (800) 405-0911 or Pat Robbins
at (314) 982-5889.
GENERAL
Q What effect does deferring compensation have on my pension benefits?
A The Ralston Purina Retirement Plan definition of "final average earnings"
includes deferred compensation. Therefore, under the terms of that Plan, your
pension benefit will be calculated including deferred bonuses and/or salary, as
long as their inclusion does not violate IRS nondiscrimination rules governing
qualified plans or other IRS limits. Deferred bonus and salary will be included
in benefit earnings for purposes of the Retirement Plan in the year in which
they are earned.
GENERAL (CONT)
Q What effect does deferring compensation have on my Savings Investment Plan
(SIP) participation?
A If you are a participant in the Savings Investment Plan, any bonus or salary
deferred under the Deferred Compensation Plan will not be included in your
--------
compensation for purposes of computing your SIP contribution or the Company
matching SIP contribution. Please note, however, that your SIP contributions
are deducted from the cash payments of Short-Term Deferrals (BUT NOT FROM
PAYMENTS OF INTERMEDIATE DEFERRALS) if you are an active employee at the time of
payment.
SECURITY
Q Will the Company guarantee the payment of my account balance under all
circumstances?
A Benefits under the Deferred Compensation Plan for Key Employees are unfunded.
In considering participation, you should note that your right to receive
distributions from the Plan is that of an unsecured general creditor of Ralston
Purina Company. The Company has set aside funds in a grantor trust to help it
meet its benefit obligations under this Plan and certain other plans. This
trust is also subject to the claims of creditors. If the Company fails to meet
its funding commitments to the trust, an event not presently anticipated to
occur, employees will, unless they elect otherwise, be entitled to be paid by
the Company the present value of all amounts deferred under the Plan at that
time. This provision in no way is intended to alter the status of the Plan as
an unfunded plan of deferred compensation.
These questions and answers provide a summary description of the Plan. For a
more complete description of Plan provisions and benefits, please refer to the
Plan Prospectus. If any conflicts arise between this summary description and
the Prospectus or Plan Document, the Plan Document will prevail.
<PAGE>
NOTE TO ENERGIZER EMPLOYEES:
Because of the planned spinoff of Eveready Battery Company, Energizer
associates' salary and bonus deferral elections will apply ONLY TO BONUS AND
SALARY EARNED DURING THE FIRST 6 MONTHS OF THE 2000 FISCAL YEAR. That is, your
deferral elections will affect only salary and bonus you earn through March 31,
2000. Early in calendar 2000, you will be given an opportunity to defer salary
and bonus you earn in the second six months of the fiscal year. Those deferrals
will be governed by a new Energizer deferred compensation plan.
Upon spinoff, current deferred compensation account balances will be credited to
the new Energizer plan. More details will be provided when available.
<PAGE>
2000 ANNUAL SALARY AND BONUS DEFERRAL ELECTION
Please submit my request as follows with respect to any 2000 base salary or
fiscal 2000 bonus that I may earn from Ralston Purina Company or its affiliates.
I understand that an election to defer, once made, is IRREVOCABLE, and subject
-----------
to Human Resources Committee approval.
PLEASE CHECK BOX BELOW IF YOU WISH TO DEFER A PORTION OF YOUR BASE SALARY
OR BONUS.
DEFERRAL ELECTION YOU MUST DEFER AT LEAST $1,000 TO PARTICIPATE.
- ------------------ -----------------------------------------------------
NO SALARY DEFERRAL I do not wish to defer any portion of my calendar 2000
base salary.
SALARY DEFERRAL I elect to defer ________ % (maximum of 75%) of my
- -------------------
calendar 2000 base salary.
- ------
NO BONUS DEFERRAL I do not wish to defer any portion of my 2000 bonus.
BONUS DEFERRAL I elect to defer ________% OR all up to $______________,
- ------------------ ------------------------------
OR defer all in excess of $____________ of any 2000 bonus.
- --
DEFERRAL TERM THIS ELECTION GOVERNS BOTH YOUR 2000 SALARY AND BONUS
DEFERRALS. PERCENTAGES MUST TOTAL 100%.
I elect to receive ________% of my 2000 base salary and/or bonus deferral
amounts as a short-term payout in January, 2001 with interest calculated under
the terms of the Prime Rate Fund, payable in lump sum. IF YOU CHOOSE TO DEFER
----------------------
100% OF YOUR ELIGIBLE SALARY/BONUS SHORT TERM, DO NOT COMPLETE THE FUND
- --------------------------------------------------------------------------------
ALLOCATION SECTION BELOW.
- --------------------------
I elect to receive ________% of my 2000 base salary and/or bonus deferral
amounts as an intermediate-term payout in January, _________ (indicate any year
beginning in 2004 or later), payable in lump sum only.
I elect to receive ________% of my 2000 base salary and/or bonus deferral
- --------------------------------------------------------------------------------
amounts as a retirement payment.
- ------------------------------------
FUND ALLOCATION PLEASE SELECT IN WHOLE PERCENTAGE INCREMENTS. TOTAL MUST
- ---------------- -----------------------------------------------------------
EQUAL 100%. THIS SECTION APPLIES ONLY TO INTERMEDIATE AND LONG-TERM DEFERRALS.
- -------------------------------------------------------------------------------
ALL SHORT-TERM DEFERRALS ARE CREDITED WITH INTEREST UNDER THE TERMS OF THE PRIME
RATE FUND.
I elect to allocate my salary and bonus deferrals to the following funds. Bonus
deferrals to the Ralston Purina Equity fund receive a 25% Company match. Salary
deferrals are not matched.
Ralston Purina Equity Fund _______ % Vanguard International Growth
Fund ________ %
Prime Rate Fund _______ % Vanguard LifeStrategy Income Fund
________ %
Vanguard Wellington Fund _______ % Vanguard LifeStrategy
Conservative Growth Fund ________ %
Vanguard 500 Index Fund _______ % Vanguard LifeStrategy Moderate
Growth Fund ________ %
Vanguard Windsor II Fund _______ % Vanguard LifeStrategy Growth
Fund ________ %
Vanguard Small-Cap Index Fund _______ %
PAYMENT FORM CHECK ONE BOX BELOW TO SELECT A PAYMENT OPTION. IF YOU HAVE A
DISTRIBUTION ELECTION FORM ON FILE, AND YOU DO NOT WANT TO CHANGE YOUR CURRENT
DISTRIBUTION FORM, THIS SECTION DOES NOT HAVE TO BE COMPLETED; RATHER THAT
ELECTION FORM WILL CONTINUE TO APPLY.
Distributions made before age 50 will be in lump-sum form only. This election
will apply to all Deferred Compensation Plan distributions, except for the Fixed
---
Benefit Option. This payment form election will apply only to distributions
--------------------------------------------------------------
made one year following the date this form is completed.
-------------------------------------------------------------
CHECK ONE: 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 COMPENSATION RESOURCE GROUP, INC. (CRG)
633 W. 5TH STREET 52ND FLOOR LOS ANGELES, CA 90071-2086 FAX NUMBER:
213-438-6600
THIS FORM MUST BE POSTMARKED OR FAXED NO LATER THAN DECEMBER 31, 1999
---------------------------------------------------------------------
AGREEMENT FOR DEFERRAL OF 1999 ANNUAL CASH BONUS
Ralston Purina Company ("Company") and NAME agree that, effective November
-----
1, 1999, $ DEFERRAL awarded to Participant under the 1999 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"), the Prospectus for 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) RALSTON PURINA EQUITY OPTION -
----------------------------------
(a) $ EQUITY in a deferred Stock Equivalent account in Participant's name
---------
under the Ralston Purina Equity Option as set forth in the Prospectus.
(b) $ MATCH 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 the Prospectus.
(2) SHORT-TERM PRIME RATE OPTION - $ SHORTTERM in a deferred Cash
------------------------------- ------------
account in Participant's name under the Prime Rate Option as set forth in the
Prospectus; provided, however, that, notwithstanding any provision to the
contrary contained in the Plan, amounts attributable to deferrals into the Prime
Rate Option shall be paid to Participant in January 2000.
(3) PRIME RATE OPTION - $ PRIMERATE in an unfunded account in the
------------------- ------------
Participant's name as set forth in the Prospectus.
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
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
RALSTON PURINA COMPANY (the "Company"), effective September 23, 1999,
grants this Non-Qualified Performance Stock Option to ______("Optionee") to
purchase a total of 2,500 shares of Common Stock of the Company ("Stock") at a
price of $____ per share pursuant to its 1999 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
Stock which have been held by Optionee at least six months, at their Fair Market
Value as determined by the Board, or both.
1. Normal Exercise. This Option becomes exercisable on September 23, 2001
----------------
and remains exercisable through September 22, 2009, unless Optionee is no longer
serving as a Director of 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 date set forth in paragraph 1 hereof upon the occurrence of any of the
following events while Optionee is serving on the Board:
a. Death of Optionee;
b. Declaration of Optionee's total and permanent disability;
c. Retirement, resignation or other termination from the Board of Directors
of the Company; or
d. Change of Control of the Company.
3. Exercise After Certain Events. Upon the occurrence of any of the events
------------------------------
described below, any shares that are exercisable on the date of such occurrence
shall remain exercisable during the period stated below, but, in any event, not
later than September 22, 2009:
a. Upon Optionee's retirement, resignation or other termination from the
Board of Directors, declaration of total and permanent disability or death, such
shares that are exercisable shall remain exercisable for five years after such
event;
b. When, prior to a Change of Control, there has been a declaration of
forfeiture pursuant to Section IV of the Plan because 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
c. After a Change of Control, if 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. 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; and
all other shares are forfeited.
5. Definitions. Unless otherwise defined in this Non-Qualified Stock Option
-----------
Agreement, 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 the
securities laws of the United States, acquires beneficial ownership of more than
50% of the outstanding voting securities of the Company; or (ii) the directors
of the Company immediately before a business combination between the Company and
another entity, or a proxy contest for the election of directors, shall, as a
result thereof, cease to constitute a majority of the Board of Directors of the
Company or any successor to the Company.
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
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
By: By:
------------------------------- --------------------------------------
Date: Date:
---------------------------- ------------------------------------
DATE SENSITIVE
RESPONSE REQUIRED
DATE
NAME
ADDRESS
ADDRESS
Dear ________:
I am enclosing for your review three election forms related to your director
compensation and benefits. Each is date sensitive, with the first item having
the earliest deadline. A brief explanation of each follows.
FIXED BENEFIT OPTION ELECTION. RESPONSE DUE 12/17/99.
-----------------------
At the November Board meeting, an amendment to the Deferred Compensation Plan
for Non-Management Directors was approved which, under certain circumstances,
permits benefits under the Fixed Benefit Option to be paid in a lump sum rather
than in the form of an annuity. To recap that amendment, the lump sum:
- - must be elected no later than 12/17/99 to be effective with respect to a
change in control and retirement within the next year; elections after that date
will not be effective unless submitted at least one year prior to a change in
control and termination from the Board;
- - is available only upon your retirement after a change in control of
-----
Ralston Purina;
- - will be computed using a discount rate equal to the thirty-year U.S.
Treasury bond yield published on (or, if applicable, first published after) the
date of the change in control; and
- - for those directors who are under age 70 at the time of retirement, will
be calculated with no actuarial reduction in benefit.
<PAGE>
November 30, 1999
Page 2
Additional details are included in the election form attached to this letter.
CALENDAR YEAR 2000 DEFERRALS. RESPONSE DUE 12/31/99.
------------------------
Under the Company's Deferred Compensation Plan for Non-Management Directors, you
may defer all or any part of the fees and retainer you will earn in 2000 into
the Equity Option and/or Variable Interest Options. Your request for deferral
must be received by the Company on or before December 31, 1999.
Accordingly, enclosed are two copies of an Election Form relating to any fees
and retainer which would be paid from January 1, 2000, through December 31,
2000. Please complete and return one copy to me. You may retain the other copy
for your files. If you do not wish to defer, please mark the box indicating no
deferral. Your earnings will then be paid in cash at the end of each month.
TRANSFERS OF PREVIOUS DEFERRALS. RESPONSE DUE 1/31/00.
-----------------------
You may elect to transfer amounts previously deferred in the Equity and/or
Variable Interest accounts, in accordance with Section 2.1(a) of the Plan.
These transfers are available only with respect to amounts deferred for at least
one year; are limited to transfers between the Equity Account and the Variable
Interest Account; and do not apply to Company Matching Deferrals or to the Fixed
Benefit Option. Your election to transfer will be effective February 1, 2000.
You may transfer deferrals among currently established accounts or from an
established account to a new account. Subject to the limits described in the
preceding paragraph, you may effect a transfer in the following manner: 1)
transfer a specific dollar amount; 2) transfer a specific number of share
equivalents; or 3) transfer a specific percentage of the account (5% to 100% of
transferable amounts).
If you decide to transfer previous deferrals to or from an Equity Account, the
market value of the stock on the date of transfer will be used. "Market Value"
means the average of the closing prices of such stock as reported to the New
York Stock Exchange-Composite Transactions during the ten trading days preceding
the transfer date. Variable Interest Accounts earn interest based on the
average daily prime rates as established by Morgan Guaranty Trust Company of New
York. The current prime rate is 8.50%.
<PAGE>
November 30, 1999
Page 3
If you would like to direct a transfer between your account(s), please complete
and return one copy of the enclosed Deferral Transfer Form. You may retain the
other copy for your files. Please note that only one transfer may be made per
form. If you need additional forms, please call me.
Please fax the completed form(s) to (314) 982-1288, then mail the original in
the enclosed self-addressed, stamped envelope. Please feel free to call me if
you have any questions.
Very truly yours,
Enclosures
<PAGE>
DATE SENSITIVE
RESPONSE REQUIRED
DATE
NAME
ADDRESS
ADDRESS
Dear _________:
I am enclosing for your review two election forms related to your director
compensation and benefits. Each is date sensitive, with the first item having
the earlier deadline. A brief explanation of each follows.
CALENDAR YEAR 2000 DEFERRALS. RESPONSE DUE 12/31/99.
------------------------
Under the Company's Deferred Compensation Plan for Non-Management Directors, you
may defer all or any part of the fees and retainer you will earn in 2000 into
the Equity Option and/or Variable Interest Options. Your request for deferral
must be received by the Company on or before December 31, 1999.
Accordingly, enclosed are two copies of an Election Form relating to any fees
and retainer which would be paid from January 1, 2000, through December 31,
2000. Please complete and return one copy to me. You may retain the other copy
for your files. If you do not wish to defer, please mark the box indicating no
deferral. Your earnings will then be paid in cash at the end of each month.
TRANSFERS OF PREVIOUS DEFERRALS. RESPONSE DUE 1/31/00.
-----------------------
You may elect to transfer amounts previously deferred in the Equity and/or
Variable Interest accounts, in accordance with Section 2.1(a) of the Plan.
These transfers are available only with respect to amounts deferred for at least
one year; are limited to transfers between the Equity Account and the Variable
Interest Account; and do not apply to Company Matching Deferrals or to the Fixed
Benefit Option. Your election to transfer will be effective February 1, 2000.
You may transfer deferrals among currently established accounts or from an
established account to a new account. Subject to the limits described in the
preceding paragraph, you may effect a transfer in the following manner: 1)
transfer a specific dollar amount; 2) transfer a specific number of share
equivalents; or 3) transfer a specific percentage of the account (5% to 100% of
transferable amounts).
<PAGE>
November 30, 1999
Page 2
If you decide to transfer previous deferrals to or from an Equity Account, the
market value of the stock on the date of transfer will be used. "Market Value"
means the average of the closing prices of such stock as reported to the New
York Stock Exchange-Composite Transactions during the ten trading days preceding
the transfer date. Variable Interest Accounts earn interest based on the
average daily prime rates as established by Morgan Guaranty Trust Company of New
York. The current prime rate is 8.50%.
If you would like to direct a transfer between your account(s), please complete
and return one copy of the enclosed Deferral Transfer Form. You may retain the
other copy for your files. Please note that only one transfer may be made per
form. If you need additional forms, please call me.
Please fax the completed form(s) to (314) 982-1288, then mail the original in
the enclosed self-addressed, stamped envelope. Please feel free to call me if
you have any questions.
Very truly yours,
Enclosures
<PAGE>
TO: SECRETARY
RALSTON PURINA COMPANY
CHECKERBOARD SQUARE - 9T
ST. LOUIS, MO 63164
ELECTION FORM
Regarding the Ralston Purina Company Deferred Compensation Plan for
Non-Management Directors, please execute my request as follows with respect to
any Director fees and retainer which may be payable to me through December 31,
2000:
[ ] DEFERRAL OF FEES AND RETAINER PAYABLE THROUGH DECEMBER 31, 2000.
-----------------------------------------------------------------------
(All or a portion may be deferred. Any part not deferred will be paid in cash.)
As to any such fees and retainer payable (Fill in one blank only.):
Defer _____%; OR
Defer all up to $__________; OR
Defer all in excess of $__________; OR
Defer _____% in excess of $__________.
As to the amount deferred, allocate:
(100% may go to any Account or be divided as follows.)
To the EQUITY OPTION _____%
To the VARIABLE INTEREST OPTION _____%
[ ] NO DEFERRAL.
-------------
(Please check here only if you are not requesting any deferral above and wish to
be paid in cash after the end of each month.)
DATE SIGNED SIGNATURE
PLEASE RETURN THIS FORM NO LATER THAN DECEMBER 31, 1999.
<PAGE>
TO: SECRETARY
RALSTON PURINA COMPANY
CHECKERBOARD SQUARE - 9T
ST. LOUIS, MO 63164
DEFERRAL TRANSFER FORM
Please submit my request as follows with respect to amounts which are available
for transfer in accordance with the Deferred Compensation Plan for
Non-Management Directors.
CHECK ONE ITEM EACH BELOW:
- ------------------------------
TRANSFER:
- ---------
______ FROM *EQUITY ACCOUNT TO VARIABLE INTEREST ACCOUNT.
*Excludes Company Matching Deferrals and amounts deferred less
than one year
______ FROM VARIABLE INTEREST ACCOUNT TO EQUITY ACCOUNT
AMOUNT TO TRANSFER:
- ---------------------
($) Dollars
Share Equivalents
% of Account (5% to 100%)
TRANSFERS ARE EFFECTIVE FEBRUARY 1, 2000.
NO CHANGES MAY BE MADE AFTER JANUARY 31, 2000.
DATE SIGNED SIGNATURE
PLEASE RETURN THIS FORM NO LATER THAN JANUARY 31, 2000.
<PAGE>
DEFERRED COMPENSATION PLAN FOR
------------------------------
NON-MANAGEMENT DIRECTORS
------------------------
FIXED BENEFIT OPTION ("FBO") ELECTION FORM
------------------------------------------
PARTICIPANT NAME (PLEASE PRINT) SOCIAL SECURITY NUMBER
SINGLE MARRIED
ADDRESS MARITAL STATUS
CITY DATE
PARTICIPANT SIGNATURE
This election option form allows you to elect to receive your FBO benefits
under the Deferred Compensation Plan for Non-Management Directors in a lump sum
distribution IN THE EVENT OF A CHANGE IN CONTROL OF THE COMPANY AND TERMINATION
FROM THE BOARD OF DIRECTORS. Because of IRS rules, an election for a lump-sum
distribution will be effective ONLY if: (i) SUCH ELECTION IS MADE BY DECEMBER
17, 1999 OR (ii) A LUMP SUM PAYMENT IS MADE AT LEAST ONE YEAR AFTER SUCH
ELECTION IS IN PLACE. If neither of these requirements is satisfied, your FBO
benefit will be paid in equal monthly installments over your lifetime, with a
guarantee of 180 monthly installment payments. If you should die before your
benefits start and before the occurrence of a Change in Control and termination
from the Board, and an effective lump sum election is in place, your beneficiary
will be entitled to a lump sum payment ONLY if a Change of Control occurs within
60 days of your death.
AN ELECTION FOR A LUMP SUM MAY BE CHANGED AT ANY TIME, BUT WILL NOT BE
EFFECTIVE IF MADE LESS THAN ONE YEAR PRIOR TO A CHANGE IN CONTROL.
<PAGE>
1. I elect to receive my FBO benefits in the form of a lump sum payment
upon the occurrence of a Change in Control and my termination from the Board of
Directors. I UNDERSTAND THAT THE LUMP SUM PAYMENT OF MY FBO BENEFITS WILL BE
COMPUTED USING A RATE EQUAL TO THE 30 YEAR TREASURY BOND YIELD IN EFFECT ON THE
DATE OF THE CHANGE OF CONTROL. A lump-sum distribution can be made only if this
form is returned by December 17, 1999 OR submitted at least one year prior to
the occurrence of a Change in Control and termination from the Board.
2. I do not elect to receive my FBO benefits in the form of a lump sum
payment upon the occurrence of a Change in Control and my termination from the
Board of Directors.
THIS FORM APPLIES ONLY TO YOUR FBO BENEFITS UNDER THE RALSTON PURINA DEFERRED
COMPENSATION PLAN FOR NON-MANAGEMENT DIRECTORSTHE DEFERRED COMPENSATION PLAN
FOR NON-MANAGEMENT DIRECTORS IS A 'NON-QUALIFIED' PLAN AND THEREFORE BENEFIT
PAYMENTS ARE NOT SUBJECT TO CERTAIN FAVORABLE TAX TREATMENT PROVIDED TO
QUALIFIED PLAN PAYMENTS. PLEASE CONSULT YOUR TAX ADVISOR BEFORE COMPLETING.
RESOLUTION ADOPTED NOVEMBER 18, 1999,
AMENDING THE DEFERRED COMPENSATION PLAN
FOR NON-MANAGEMENT DIRECTORS
RESOLVED, that the Deferred Compensation Plan for Non-Management Directors be,
and it hereby is, amended, to provide that each Director be given the
opportunity to timely elect to receive his or her deferred benefits under the
Fixed Benefit Option in a lump sum payment upon a change in control and
termination from the Board, such election to be subject to the terms and
conditions necessary to avoid treatment of the deferred amounts as
constructively received for income tax purposes;
FURTHER RESOLVED, that the Plan be, and it hereby is, amended to provide that
lump sum payments of the Fixed Benefit Option to all participants electing such
payment option be computed using a rate equal to the thirty-year (30-year) U.S.
Treasury bond yield published on (or, if applicable, first published after) the
date of the change of control, and be payable within sixty (60) days thereafter;
and
FURTHER RESOLVED, that the Plan be, and it hereby is, amended to provide that
following a change of control and a Director's termination prior to age seventy
(70), the mandated pre-seventy (70) actuarial reduction be waived with respect
to Plan benefits, as applicable, regardless of the payment option form available
with respect to such benefits.
EXCERPT OF MARCH 25, 1999
HUMAN RESOURCES COMMITTEE MEETING
PROPOSED ACCELERATION WITH RESPECT TO
MAY 24, 1990 STOCK OPTION AWARD
Mr. Sommer next referred the Committee to the report, previously furnished,
which recommended the acceleration of the last two legs of non-qualified stock
option awards granted to certain executives on May 24, 1990. The acceleration
would provide those optionees an opportunity to exercise the remaining legs of
such options with shares of previously owned Company stock in order to receive a
restoration option which would become exercisable before it expired in May,
2000. After discussion, and upon motion duly made and seconded, the Committee
approved the proposal as presented.
RESOLUTION DATED FEBRUARY 15, 1999
TO AMEND OUTSTANDING OPTION AWARDS
TO ADD RELOAD FEATURE
RESOLVED, that, effective March 1, 1999, certain outstanding non-qualified
options be, and they hereby are, amended to add the right to receive restoration
options substantially in accordance with the terms and conditions set forth on
Exhibit #2; provided that, in the case of optionees whose option awards are
subject to foreign law ("Foreign Options"), the co-Chief Executive Officers and
C. S. Sommer, and each of them, be, and they hereby are, authorized (i) to amend
such Foreign Options to add the right to receive restoration options effective
on such date or dates on or after March 1, 1999 that they have determined, in
their sole discretion, that such amendment would not be detrimental to the
Company or to the optionee; and (ii) to impose such other terms and conditions
on the right to receive restoration options as they, in their sole discretion,
deem necessary or advisable with respect to such Foreign Options, provided that
such other terms and conditions do not change the number of options granted nor
enlarge the scope of the terms of any award; and
FURTHER RESOLVED, that the co-Chief Executive Officers and C. S. Sommer, and
each of them, is authorized to do any and all acts, and execute any and all
documents, as they or any of them deem necessary or desirable to effectuate the
foregoing.
AMENDMENT TO EXECUTIVE LONG TERM DISABILITY PLAN
------------------------------------------------
DATED JUNE 23, 1999
-------------------
Under authority delegated to it, Management elects to modify the Executive Long
Term Disability Plan to increase the benefit from 60% of benefit earnings to 66
2/3% of benefit earnings, effective January 1, 1999, to be consistent with the
disability benefit offered under the Purina Benefit Association Long Term
Disability Plan.
___________________
W. P. McGinnis
Date:_______________
AMENDMENT TO DEFERRED COMPENSATION PLAN
FOR KEY EMPLOYEES EFFECTIVE JULY, 1999
The Company's Deferred Compensation Plan for Key Employees was amended effective
July, 1999, to incorporate the following features:
The ability to defer up to 75% of base salary in addition to annual bonus awards
The Plan permits the following alternate deferral periods:
- - Year following deferral
- - At least 3 years following deferral at a fixed future date
- - At retirement
Available investment funds expanded to include the funds mirroring the returns
realized on the investment funds offered by Vanguard in the qualified Savings
Investment Plan. The Equity Option was renamed the "Ralston Purina Equity Fund"
and the Variable Interest Account became the "Prime Rate Fund."
Unrestricted account balances can be transferred daily through the Internet or
Interactive Voice Response (I.V.R.) using the Company's outside record keeper.
(Company equity match balances are frozen until retirement.)
Payment options expanded to permit 5 or 10-year annual installment payments in
addition to the former lump-sum payment alternative.
The acceleration of payment provisions, that apply when there is a failure to
cure a default in the Company's obligation to fund the Grantor trust, will only
apply to amounts deferred under the Ralston Purina Equity Fund, the Prime Rate
Fund and the Measurement Fund Options.
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,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995<Fd>
STATEMENT OF EARNINGS DATA ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net Sales............................ $4,720.5 $4,653.3 $4,486.8 $4,301.9 $5,645.4
Depreciation and Amortization........ 192.6 194.7 189.0 193.8 249.4
Earnings from Continuing Operations
before Interest Expense, Income
Taxes, Equity Earnings and
Extraordinary Item................. 899.2 659.5 557.9 637.0 598.4
As a Percent of Sales............ 19.0% 14.2% 12.4% 14.8% 10.6%
Earnings from Continuing Operations
before Income Taxes, Equity
Earnings and Extraordinary Item.... $ 715.8 $ 469.4 $ 384.9 $ 447.7 $ 399.6
Income Taxes......................... 246.6 117.5 70.0 162.9 167.8
Earnings from Continuing Operations
before Extraordinary Item<Fa>...... 505.1 390.6 348.9 296.4 232.7
As a Percent of Sales............ 10.7% 8.4% 7.8% 6.9% 4.1%
Net Earnings<Fb><Fc>................. $ 505.1 $1,105.7 $ 423.7 $ 359.6 $ 296.4
Earnings Available to Common
Shareholders....................... 502.5 1,094.2 410.6 345.5 277.6
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995<Fd>
BALANCE SHEET DATA ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Working Capital...................... $ (440.6) $ (54.5) $ 289.7 $ (230.3) $ (141.4)
Property at Cost, Net................ 1,063.7 1,116.0 1,113.7 1,050.9 989.7
Additions (during the year)..... 171.9 230.7 282.9 228.8 235.2
Depreciation (during the
year)......................... 144.9 145.9 142.5 139.5 198.5
Total Assets......................... 5,360.8 5,551.7 4,741.8 4,523.0 4,310.8
Long-Term Debt....................... 1,251.8 1,794.8 1,860.4 1,437.0 1,602.1
Redeemable Preferred Stock........... --<Fe> 256.1 304.9 323.5 348.7
Shareholders Equity.................. 1,257.0 1,089.1 917.1 689.0 494.2
Common Shares Outstanding<Ff>........ 297.7 298.9 306.8 305.2 305.2
<FN>
- -----
<Fa> Earnings from continuing operations before extraordinary item were
(reduced)/increased due to the following unusual items:
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Restructuring provisions.................. ($61.4) ($61.3) ($98.0) ($11.0) ($70.0)
Capital loss tax benefits................. 10.0 44.8 61.7 -- --
Foreign tax credit refunds................ -- -- 34.7 -- --
Gain on sale of shares of IBC stock....... -- 13.0 15.1 -- --
Gain on sale of shares of DuPont stock.... 22.8 -- -- -- --
Gain on conversion of DuPont stock........ 32.2 -- -- -- --
Unrealized gain on SAILS debt............. 79.0 -- -- -- --
Gain on the sale of CBC................... -- -- -- -- 42.0
----- ----- ----- ----- -----
Total............................. $82.6 ($3.5) $13.5 ($11.0) ($28.0)
===== ===== ===== ===== =====
<Fb> Includes extraordinary charges for early retirement of debt
of $2.1 in 1996 and $3.7 in 1995.
<Fc> Includes an after-tax gain on the sale of the Company's Soy
Protein Products business of $705.1 in 1998 and net earnings
from discontinued operations of $10.0 in 1998, $74.8 in
1997, $65.3 in 1996 and $67.4 in 1995. Discontinued
operations consist primarily of the Company's Soy Protein
Products business sold in December 1997 and the Agricultural
Products business which was spun off to shareholders in
April 1998.
<Fd> 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.
<Fe> At the end of December, 1998, the Company converted all of
the outstanding shares of Redeemable Preferred Stock into
RAL Stock, in accordance with the terms of the Redeemable
Preferred Stock. See the Notes to Financial Statements for
further information.
<Ff> Does not include 13.7, 13.5, 12.9, 12.7 and 12.4 shares of
RAL Stock held by the Company's Grantor Trust in 1999-1995,
respectively.
</TABLE>
- --------------------------------------------------------------------------------
10
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FIVE YEAR FINANCIAL SUMMARY (continued)
(In millions except per share data)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------
1999 1998 1997 1996 1995
PER SHARE DATA ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RAL Stock (pro forma in 1995 assuming one class of
common stock)<Fa>:
Earnings from Continuing Operations before
Extraordinary Item
Basic........................................... $ 1.63 $ 1.24 $ 1.10 $ .92 $ .70
Diluted......................................... 1.60 1.19 1.05 .88 .68
Net Earnings
Basic........................................... 1.63 3.59 1.34 1.13 .91
Diluted......................................... 1.60 3.38 1.27 1.07 .88
Average Shares Outstanding.......................... 307.8 304.9 306.2 305.3 305.7
Dividends Declared:
RAL Stock........................................... $ .40 $ .40 $ .40 $ .40 $ .40
<FN>
- -----
<Fa> In 1995, earnings from continuing operations before extraordinary item per
share for RAL Stock, based on RPG Group earnings through May 15, 1995 and
consolidated Ralston earnings through September 30, 1995, was $.74 and $.72
on a basic and diluted basis, respectively. Net earnings per share of RAL
Stock was $.95 and $.91 on a basic and diluted basis, respectively. These
per share amounts were based on an average number of shares outstanding of
302.1.
Loss before extraordinary item per share and net loss per share for CBG
Stock, based on CBG Group earnings through May 15, 1995, was $(.15) on both
a basic and diluted basis for 1995. These per share amounts were based on
an average number of shares outstanding of 61.8.
</TABLE>
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11
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 Segment Information and the Consolidated
Financial Statements and related notes.
HIGHLIGHTS
Net earnings were $505.1 for the year ended September 30, 1999 compared to
$1,105.7 in 1998. Earnings per share were $1.63 and $1.60 on a basic and
diluted basis, respectively, compared to earnings per basic and diluted share
of $3.59 and $3.38 in the prior year. Included in prior year net earnings are
earnings from continuing operations of $390.6, net earnings from discontinued
operations of $10.0 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).
Earnings from continuing operations increased $114.5, or $.39 and $.41 per
basic and diluted share, respectively, in 1999. This increase resulted
primarily from higher earnings from North American Pet Foods and earnings from
unusual items. Higher International Pet Foods and Golden Products earnings also
contributed to the increase. These increases were partially offset by lower
Battery Products earnings. Unusual items, which are detailed below, increased
earnings from continuing operations by $82.6, or $.27 and $.26 per basic and
diluted share, respectively, in 1999 and decreased earnings by $3.5, or $.01
per basic and diluted share, in 1998.
Earnings from continuing operations before unusual items increased $28.4,
or 7.2%, to $422.5 compared to $394.1 in 1998. Earnings per share on this basis
were $1.36 and $1.34 per basic and diluted share, respectively, in 1999
compared to $1.25 and $1.20 in the prior year.
The following unusual items increased earnings in the current year by
$82.6: net after-tax charges of $61.4 primarily related to the exit from the
Original Equipment Manufacturers' (OEM) rechargeable battery business; an
unrealized after-tax gain of $79.0 representing a market value adjustment of
the Company's Stock Appreciation Income Linked Securities (SAILS); an after-tax
gain of $22.8 on the sale of a portion of the Company's investment in DuPont
common stock; a $32.2 after-tax gain on the conversion of a portion of the
Company's investment in DuPont common stock to Conoco Inc. (Conoco) B common
stock; and capital loss tax benefits totaling $10.0 primarily associated with
past restructuring actions.
Unusual items included in the 1998 results that decreased earnings by $3.5
are as follows: after-tax restructuring charges of $61.3 primarily representing
a write-down of the Company's investment in lithium ion rechargeable battery
assets and charges related to a voluntary early retirement option offered to
most U.S. Battery Products' employees meeting certain age and service
requirements; capital loss tax benefits of $44.8 primarily associated with past
restructuring actions; and an after-tax gain of $13.0 on the sale of shares of
Interstate Bakeries Corporation (IBC) common stock.
Net earnings in 1997 were $423.7, or $1.34 and $1.27 per basic and diluted
share, respectively. Included in net earnings are earnings from continuing
operations of $348.9 and net earnings from discontinued operations of $74.8. In
1998, earnings from continuing operations increased $41.7, or $.14 per basic
and diluted share. Unusual items in 1997 increased earnings from continuing
operations by $13.5, or $.05 and $.04 per basic and diluted share,
respectively.
Earnings from continuing operations before unusual items increased $58.7,
or 17.5%, in 1998 to $394.1 compared to $335.4 in 1997. This earnings increase
resulted from higher North American Pet Foods, International Pet Foods and
Golden Products operating earnings, dividend income from the Company's
investment in DuPont and a lower tax rate, partially offset by lower Battery
Products operating earnings and higher interest expense.
Unusual items in 1997 included: an after-tax restructuring charge of $98.0
primarily related to continued rationalization of Battery Products' worldwide
battery production capacity and business structure; capital loss tax benefits
of $61.7 associated with past restructuring actions; a tax benefit of $34.7
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 after-tax
gain on the sale of shares of IBC common stock.
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 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
On December 3, 1997, the Company sold its Soy Protein Products business to
DuPont for shares of DuPont common stock and the assumption of certain
liabilities.
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 in the financial statements and related notes.
Summarized results of these businesses are shown separately as Discontinued
Operations in the accompanying consolidated financial statements.
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. The acquisition was accounted for using
the purchase method of accounting.
- -------------------------------------------------------------------------------
12
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FINANCIAL REVIEW (continued)
(in millions except per share data)
OPERATING RESULTS FROM CONTINUING OPERATIONS
NET SALES
Net sales increased $67.2 or 1.4% in 1999 and $166.5 or 3.7% in 1998 due to
increases in North American Pet Foods, International Pet Foods and Golden
Products (Pet-related segments), partially offset by decreases in Battery
Products. Comments on changes in sales by operating segment may be found on
pages 19 and 20 of this report.
GROSS PROFIT
Gross profit increased 3.9% in 1999 and 6.7% in 1998 due primarily to
increases in North American Pet Foods, partially offset in 1999 by decreases in
Battery Products. Gross profit as a percentage of sales was 51.9% in 1999
compared to 50.7% in 1998 and 49.3% in 1997. The increased percentage in 1999
reflects improved margins for Pet-related segments, partially offset by lower
margin percentages for Battery Products. In addition, sales increased in the
higher margin North American Pet Foods and Golden Products segments, while
sales decreased in the lower margin Battery Products. In 1998, improved margins
in North American Pet Foods and Battery Products, as well as increased sales in
North American Pet Foods and Golden Products, led to the increase.
OPERATING EXPENSES
Selling, general and administrative expenses were flat in 1999 as increases
in operating segments were offset by lower corporate expenses and favorable
mark-to-market adjustments on liabilities denominated in share equivalents. In
1998, selling, general and administrative expenses increased 2.2% primarily due
to increases in North American Pet Foods and in International Pet Foods, due
primarily to the acquisition of Edward Baker. These increases were partially
offset by favorable mark-to-market adjustments on liabilities denominated in
share equivalents. In addition, currency devaluations in 1998, particularly in
Asia, had a favorable impact on selling, general and administrative expenses.
Selling, general and administrative expenses were 20.1%, 20.3% and 20.6% of
sales in 1999, 1998 and 1997, respectively.
Advertising and promotion expense increased 6.4% in 1999 and 7.7% in 1998.
The increase in 1999 was due primarily to increased brand development and
promotional spending by Pet-related segments, partially offset by decreased
spending by Battery Products. The 1998 increase was due primarily to increased
brand development spending by North American Pet Foods and increased spending
by International Pet Foods due primarily to the addition of Edward Baker.
Advertising and promotion expense was 15.7% of sales in 1999 compared to 15.0%
in 1998 and 14.4% in 1997.
INTEREST EXPENSE AND OTHER INCOME/EXPENSE
Interest expense decreased in 1999 to $183.4 compared to $190.1 in 1998.
The decrease in 1999 was attributable to lower average borrowings. Interest
expense totaled $173.0 in 1997. The increase in 1998 resulted from higher
average borrowings.
Other income/expense, net, was favorable by $1.9 in 1999 and by $12.7 in
1998. The favorable variance in 1998 was primarily due to the addition of
dividend income from the Company's investment in DuPont, partially offset by
higher translation and exchange losses.
INCOME TAXES
Income taxes, which include federal, state and foreign taxes, were 34.5%,
25.0% and 18.2% of pre-tax earnings before equity earnings in 1999, 1998 and
1997, respectively. Income taxes include certain unusual items in all years.
Capital loss tax benefits of $10.0, $44.8 and $61.7 were recognized in 1999,
1998 and 1997, respectively, and were primarily related to prior years'
restructuring actions. 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 was unfavorably impacted by pre-tax restructuring provisions
that did not result in tax benefits due to tax loss situations or particular
statutes of a country. Income tax percentages, excluding the impact of unusual
items in each year, were 35.7%, 35.0% and 36.2% of pre-tax earnings before
equity earnings in 1999, 1998 and 1997, respectively. The decrease in the tax
rate from 1997 is partially due to the 70% exclusion on dividend income
received from DuPont.
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,
IBC and Conoco. 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.
- -------------------------------------------------------------------------------
13
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FINANCIAL REVIEW (continued)
(in millions except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Flow from Continuing Operations........................ $679.2 $516.6 $451.1
Interest Coverage <Fa>...................................... 4.4 4.0 3.7
Debt to Internal Funds <Fb>................................. 3.6 4.8 5.2
Total Debt as a Percentage of Total Capitalization.......... 65% 66% 67%
<FN>
- -----
<Fa> Defined as earnings from continuing operations before income taxes,
interest expense, provisions for restructuring, gains on the sale or
conversion of IBC and DuPont stock and unrealized gain on SAILS debt
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 22% at September 30, 1999 compared to 23% at September 30,
1998 and 20% at September 30, 1997. For purposes of the 1998 and 1997 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 31.5% in 1999 due to higher
cash earnings and favorable changes in working capital items. Inventory
decreases and increases in accounts payable and accrued liabilities were the
primary contributors to the working capital change. In 1998, cash flow from
continuing operations increased 14.5% as increased cash earnings were partially
offset by changes in working capital items, particularly payables and accrued
liabilities. The interest coverage ratio improved in both 1999 and 1998. The
1999 ratio improved on higher earnings and lower interest expense. The 1998
improvement resulted from higher earnings, partially offset by higher interest
expense. The debt to internal funds ratio improved in 1999 on higher cash
flows. In 1998, the debt to internal funds ratio improved due to higher cash
flows, partially offset by a higher 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, 1999, total unused lines of credit
were $372.9.
At September 30, 1999 and 1998, current liabilities exceeded current assets
by $440.6 and $54.5, respectively. The decrease in working capital is primarily
due to increased current maturities of long-term debt and other current
liabilities and decreased inventories, partially offset by decreased notes
payable. Included in current maturities of long-term debt at September 30, 1999
is SAILS debt of $356.5. The Company can settle this obligation with shares of
IBC common stock or cash, at its option, upon maturity of the notes.
INVESTING ACTIVITIES
Cash flow provided by investing activities was $119.4 in 1999 compared to
cash flow used for investing activities by continuing operations of $370.5 in
1998 and $223.4 in 1997. In 1999, in addition to reduced capital spending, the
Company recognized proceeds from the sale of DuPont common stock of $284.4. The
1998 increase in cash flow used for investing activities was primarily due to
the December 1997 acquisition of Edward Baker Petfoods for $182.5, which was
funded primarily by the issuance of short-term debt.
Capital expenditures related to continuing operations were $171.9, $230.7
and $282.9 in fiscal years 1999, 1998 and 1997, respectively. Anticipated
capital expenditures of approximately $220 in 2000 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
structure depending on the prevailing securities markets and general economic
conditions. In 1999, the Company reduced its total borrowings through principal
payments on long-term debt and decreased short-term borrowings. 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 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 or the amount of cash will be based on
the average market price of the IBC stock on the 20 trading days prior to
maturity of the notes. See further discussion of SAILS in the 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.
- -------------------------------------------------------------------------------
14
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FINANCIAL REVIEW (continued)
(in millions except per share data)
The Company used cash during the three years ended September 30, 1999 for
common stock dividends and common stock repurchases. These outflows totaled
$123.5 and $552.9 in 1999 for dividends and stock repurchases, respectively,
compared to $121.7 and $416.1 in 1998 and $122.4 and $55.1 in 1997. As of
November 12, 1999, approximately 738,000 shares of RAL Stock remained under the
current Board of Directors' 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.
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 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 could have an adverse impact on the Company's business, operations
and financial condition.
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 plans and active projects in place targeted to achieve Year 2000
readiness in its 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
year 2000.
STATE OF READINESS
The Company estimates that approximately 98% of its application systems
software has been modified or replaced and tested for Year 2000 readiness. More
than 98% of the Company's computer hardware and operating systems software has
been remediated and tested for Year 2000 readiness. Systems that contain
embedded chip technology have been inventoried and the process of verifying
these systems for Year 2000 readiness is nearing completion.
COSTS
The estimated total cost for the Company to achieve Year 2000 readiness is
approximately $37 million, of which $36 million has been expended through
September 30, 1999. Costs include 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 has developed a base contingency plan to address Year 2000
risks; however, contingency planning efforts are ongoing and will continue to
evolve as new information becomes available. Contingency plans to address
specifically identified Year 2000 risks 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.
ENVIRONMENTAL MATTERS
The operations of the Company, like those of other companies engaged in
similar businesses, are subject to various federal, state, foreign and local
laws and regulations intended to protect the public health and the environment.
These regulations primarily relate to worker safety, 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 12 federal
"Superfund" sites. It may also be required to share in the cost of cleanup with
respect to a state-designated site. Of these 13 sites, the Company has reached
negotiated agreement as to its liability with respect to 4 of the sites.
Negotiations with the U.S. Environmental Protection Agency, the state agency
that is involved on the state-designated site, and other PRP's are at various
stages with respect to the remaining sites. Negotiations involve determinations
of the
- -------------------------------------------------------------------------------
15
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FINANCIAL REVIEW (continued)
(in millions except per share data)
actual responsibility of the Company and the other PRP's at the site,
appropriate investigatory and/or remedial actions, and allocation of the costs
of such activities among the PRP's and other site users.
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.
It is difficult to quantify with certainty the potential financial impact
of actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment. Nevertheless, based upon the information currently available, the
Company believes that its ultimate liability arising from such environmental
matters, taking into account established accruals for estimated liabilities,
should not be material to its financial position. Such liability could,
however, 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, 1999.
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, 1999 and 1998, the fair value of the Company's total debt
is estimated at $2,374.6 and $2,925.1, 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, 1999 and 1998 by $61.0 and $320.8, 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 $104.2 and
$108.2 at September 30, 1999 and 1998, respectively.
The Company had $694.7 and $839.6 variable rate debt outstanding at
September 30, 1999 and 1998, respectively. A hypothetical 10% adverse change in
interest rates would have had an annualized unfavorable impact of $4.2 and $5.9
on the Company's earnings and cash flows based upon these year-end debt levels.
The primary interest rate exposures on variable rate debt are with respect to
U.S. rates and short-term local currency rates in certain European and Asian
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 is tied to the stock price of IBC. Market equity
risk exists to the extent the Company has recorded unrealized settlement gains
on the SAILS. As of September 30, 1999, the Company had recorded a cumulative
pre-tax unrealized gain on the SAILS of $123.5, based on an IBC stock price of
$23.00 at that date. Market equity risk for the SAILS represents the amount of
cumulative unrealized gain that would be lost given a hypothetical 10% increase
in the IBC stock price at September 30, 1999. Accordingly, market equity risk
of the SAILS at September 30, 1999 amounted to $35.6. There were no cumulative
unrealized gains on the SAILS at September 30, 1998. The effect of the interest
rate risk of the SAILS 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, and assets and liabilities
denominated in a currency other than an entity's functional currency. The
primary currencies to which the Company's foreign affiliates are exposed
include the U.S. dollar, the euro and the British pound, while domestic
affiliates are primarily exposed to the Swiss franc and the euro.
The Company's hedging strategy involves the use of natural hedging
techniques, where possible, such as the offsetting or netting of like currency
cash flows. Where natural hedging techniques are not possible, foreign currency
derivatives with durations of generally one year or less may be used, including
forward foreign currency contracts and put and call options. 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.
Market risk of foreign currency derivatives is the potential loss in fair
value of net currency positions for outstanding foreign currency contracts at
year end resulting from a hypothetical 10% adverse change in all foreign
currency exchange rates. Market risk does not include foreign currency
derivatives that hedge existing balance sheet
- -------------------------------------------------------------------------------
16
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FINANCIAL REVIEW (continued)
(in millions except per share data)
exposures, as any losses on these contracts would be fully offset by exchange
gains on the underlying exposures for which the contracts are designated as
hedges. Accordingly, market risk of the Company's foreign currency derivatives
at September 30, 1999 and 1998 amounted to $1.5 and $4.0, respectively.
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 inflationary
countries. In terms of foreign currency translation risk, the Company is
exposed to the Swiss franc, British pound and other European currencies; the
Mexican peso and other Latin American currencies; and the Singapore dollar,
Chinese yuan, Australian and Hong Kong dollars, and other Asian currencies. The
Company's net foreign currency investment in foreign subsidiaries and
affiliates translated into U.S. dollars using year-end exchange rates was
$736.2 and $785.5 at September 30, 1999 and 1998, respectively. The potential
loss in value of the Company's net foreign currency investment in foreign
subsidiaries resulting from a hypothetical 10% adverse change in quoted foreign
currency exchange rates at September 30, 1999 and 1998 amounted to $73.6 and
$78.6.
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
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
FAIR MARKET FAIR MARKET
VALUE RISK VALUE RISK
----- ---- ----- ----
<S> <C> <C> <C> <C>
Highest long position....................................... $149.9 $15.0 $127.1 $12.7
Average long position....................................... 98.3 9.8 58.3 5.8
Lowest long position........................................ 52.8 5.3 7.7 0.8
</TABLE>
MARKETABLE EQUITY SECURITY PRICES
Marketable equity securities at September 30, 1999 and 1998, which were
recorded at a fair value of $1,185.5 and $1,281.2, respectively, 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 $118.6 and $128.1 at September 30, 1999 and
1998, respectively.
RESTRUCTURING ACTIVITIES
During 1999, the Company recorded after-tax provisions for restructuring of
$61.4, or $.20 and $.19 per basic and diluted share, respectively. On a pre-tax
basis, before reversals of prior years' charges, these charges were $103.9 and
consisted of termination benefits of $3.3 and non-cash charges of $100.6. The
total pre-tax charge and non-cash component were reduced to net amounts of
$95.2 and $91.9, respectively, due to reversals of prior period restructuring
charges of $8.7.
Included in the total pre-tax charge are impairment write-downs totaling
$56.7 related to fixed assets of the Company's OEM rechargeable battery
business and a loss of $38.9 on the sale of this business on November 1, 1999.
The fair value of the impaired assets was primarily determined based upon
estimates of recovery value for unique manufacturing equipment. The remaining
1999 pre-tax charges are related to additional rationalization of Battery
Products' production capacity, which provide for the termination of
approximately 210 production and administrative employees and the closure of
one plant. As of September 30, 1999, approximately 160 employees have been
severed and the plant was closed in connection with these charges.
These restructuring actions are expected to generate annual pre-tax cost
savings of $1.4 beginning in 2001.
During 1998, the Company recorded after-tax provisions for restructuring of
$61.3, or $.20 and $.19 per basic and diluted share, respectively. On a pre-tax
basis, before reversals of prior years' charges, these charges were $108.3 and
consisted of termination benefits of $31.4, other cash costs of $6.3 and
non-cash charges of $70.6. The total pre-tax charge and non-cash component were
reduced to net amounts of $96.4 and $58.7, respectively, due to reversals of
prior period restructuring charges of $11.9.
Included in the 1998 pre-tax charge were impairment write-downs of $66.4,
primarily representing a write-down of lithium ion rechargeable battery assets
of the OEM rechargeable battery business. The pre-tax charge also included
$21.8 related to a voluntary early retirement option offered to most U.S.
Battery Products' employees and additional charges related to the Company's
European battery and international pet food operations. These provisions
provided for the termination or early retirement of
- -------------------------------------------------------------------------------
17
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R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FINANCIAL REVIEW (continued)
(in millions except per share data)
approximately 700 employees in production, sales and administrative capacities.
As of September 30, 1999, approximately 650 employees have been terminated or
retired in connection with these charges.
Pre-tax cost savings from these restructuring actions have been or are
expected to be as follows: 1999 - $15; and ultimate annual reduction - $16.
During 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 and diluted share by $111.4, $98.0, $.32
and $.30, respectively. These charges are primarily associated with the
continued rationalization of Battery Products' production capacity and business
structure and provided for the termination of approximately 1,340 employees in
production, sales and administrative capacities and the closing of three
plants. The total pre-tax charge consisted of termination benefits of $50.5,
other cash costs of $11.0 and non-cash charges of $49.9, primarily related to
impairment losses on land, buildings, machinery and equipment. A portion of
Battery Products' 1997 restructuring plan was subsequently revised due to a
change in business operations. As a result, 200 of the 1,340 employees are
being retained, and termination costs associated with these employees are being
used to provide for other cash costs associated with the 1997 restructuring
provisions. As of September 30, 1999, approximately 990 employees have been
terminated and all plants were closed in connection with these charges.
Pre-tax cost savings from these restructuring actions have been or are
currently expected to be as follows: 1998 - $12; 1999 - $24; 2000 - $30; and
ultimate annual reduction - $31.
Activity related to the restructuring provisions discussed above is
summarized as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
1999 1998
---- ----
<S> <C> <C>
Reserve balance at beginning of year........................ $ 57.3 $ 66.3
Gross provision recorded before reversals................... 103.9 108.3
Portion of current period provision classified as asset
impairments and loss on sale of business.................. (100.6) (70.6)
Termination benefits paid................................... (38.8) (28.5)
Other cash exit costs incurred.............................. (6.5) (16.5)
Decrease due to translation................................. (1.7) (1.7)
------- -------
Reserve balance at September 30............................. $ 13.6 $ 57.3
======= =======
</TABLE>
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 and 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 effect of general economic conditions; fluctuations in
supply and demand for the Company's products; competition and competitive
pricing pressures in the industries in which the Company competes, 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, Conoco 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; unexpected litigation and
environmental claims and expenses or adverse developments in domestic or
foreign laws related to product liability, environmental or employment claims;
and other risks detailed from time to time in the Company's publicly-filed
documents, including its current report on Form 8-K dated January 26, 1999.
OPERATING SEGMENT INFORMATION
In the current year, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This Statement requires the reporting of segment information
consistent with the way management organizes segments for making operating
decisions and assessing performance. The adoption of this statement did not
have an effect on the Company's financial position or results of operations.
Prior year information has been restated to conform to the current year's
presentation.
- -------------------------------------------------------------------------------
18
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- -------------------------------------------------------------------------------
FINANCIAL REVIEW (continued)
(in millions except per share data)
The Company manufactures and markets pet products and battery products
throughout the world. The Company's chief operating decision maker evaluates
Company performance based on results of operations for four operating segments
- -- North American Pet Foods, including Canada, International Pet Foods, Golden
Products and Battery Products. This structure is the basis for the Company's
reportable operating segment information presented below.
The North American Pet Foods and International Pet Foods segments produce
and market dry dog foods, dry and soft-moist cat foods and pet treats. The
Golden Products segment manufactures and markets cat box filler and also
markets related items, such as cat box liners and deodorizers, primarily in the
United States. These products are marketed primarily through a direct sales
force to grocery, mass merchandisers, specialty retailers, wholesalers and
other customers. The Battery Products segment manufactures and markets dry cell
batteries, including alkaline, carbon zinc and miniatures, and flashlights and
other lighting products throughout the world. Its products are marketed
primarily through a direct sales force, and also through distributors, to mass
merchandisers, wholesalers and other customers.
Segment performance is evaluated based on operating profit, exclusive of
general corporate income and expenses, amortization of goodwill and other
intangible assets and unusual items. Financial items, such as interest income
and expense, are managed on a global basis at the corporate level.
Sales between segments were immaterial for all years presented. Sales to
one single mass merchandiser accounted for 16.6%, 14.3% and 11.9% of total net
sales in 1999, 1998 and 1997, respectively, across all segments.
NORTH AMERICAN PET FOODS
Sales for North American Pet Foods increased 5.0% in 1999 and 7.1% in 1998
on higher volumes. Segment profitability increased 16.4% in 1999 and 8.0% in
1998. In both years, the profitability increase resulted from higher sales
coupled with lower ingredient costs. These positive factors were partially
offset by increased promotional spending and advertising support and an
unfavorable package size mix. Gross profit margins continued to improve in 1999
reflecting favorable ingredient prices.
Cost of products sold in the North American Pet Foods 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 or soy meal. Agricultural commodity costs
of North American Pet Foods segment have represented approximately 19% to 23%
of cost of products sold during the three-year period ended September 30, 1999.
See Market Risk Sensitive Instruments and Positions section of this financial
review for further discussion of commodities.
The North American Pet Foods' industry is well developed and non-cyclical
with strong cash flows. 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 this segment. Increased
profitability depends on maintaining brand loyalty, developing higher
performance capabilities and on the successful development of mutually
beneficial trading relationships with our customers.
INTERNATIONAL PET FOODS
Sales for International Pet Foods increased 5.9% in 1999 and 46.4% in 1998.
These increases resulted primarily from the inclusion of sales from the
December 1997 acquisition of Edward Baker Petfoods, based in the United
Kingdom.
Segment profitability increased 36.7% in 1999 as a result of the sales
increase, partially offset by increased advertising and promotion expense. The
profitability improvement was primarily attributable to increases in Europe,
including an additional quarter's results from Edward Baker Petfoods, and
improved results in Asia largely as a result of the elimination of losses in
Japan following withdrawal from the Japanese market during 1998. Results in the
Americas were flat as increases in Mexico and Argentina were offset by declines
in Brazil. Profitability increased significantly in 1998 due primarily to the
acquisition of Edward Baker. Additionally, results in Argentina were strong and
losses in Japan decreased due to the withdrawal process.
GOLDEN PRODUCTS
Sales for Golden Products increased 8.4% in 1999 and 9.4% in 1998 on
increased volumes. In 1999, volumes of both conventional litter and the
higher-priced scooping litter were up over the prior year. The volume increase
in 1998 was primarily in scooping litter.
Segment profitability increased 18.7% in 1999 and 26.7% in 1998. The
increase in 1999 was attributable to the sales increase and improved margins
due to production efficiencies achieved with the 1998 start-up of a new
production facility. These increases were partially offset by increased
advertising and higher promotional spending. The profitability increase in 1998
resulted from the sales increase.
- -------------------------------------------------------------------------------
19
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
FINANCIAL REVIEW (continued)
(in millions except per share data)
BATTERY PRODUCTS
Sales for Battery Products decreased 3.4% in 1999. Sales improved in North
America on higher alkaline volumes, partially offset by lower carbon zinc
sales. The increase in North American sales was more than offset by
international volume declines, lower European selling prices and decreased
rechargeable battery sales, particularly to the Original Equipment
Manufacturers' (OEM) market. Excluding sales of the OEM rechargeable battery
business and the unfavorable impact of foreign exchange rates, sales were flat
for the year.
Sales for Battery Products decreased 4.9% 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 sales of the OEM rechargeable battery
business and the unfavorable impact of currency devaluations worldwide, sales
increased 1.4% for the year.
The impact of the consolidation of the retail trade and increased
competitive pressures also negatively impacted sales for both years.
Segment profitability decreased 14.9% in 1999 and 5.4% in 1998. In 1999,
profitability declined as a result of the poor performance of the OEM
rechargeable battery business, impacts of foreign exchange, primarily in the
first quarter, and decreased volumes in the international markets. North
American results improved on strong fourth quarter improvements in alkaline
volumes, partially offset by unfavorable net pricing and carbon zinc volume
declines.
In 1998, results in the Americas improved on higher alkaline volumes and
improved product mix. These gains were more than 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.
The Company sold its worldwide OEM rechargeable battery business on
November 1, 1999. The OEM rechargeable battery business contributed sales of
$127.7, $149.4 and $172.1 in 1999, 1998 and 1997, respectively. Pre-tax
operating losses for this business, excluding unusual charges, were $21.6, $2.3
and $3.6 in 1999, 1998 and 1997, respectively.
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. These actions were
necessary to maintain the Company's competitiveness. Alkaline batteries are now
the dominant primary battery in all world areas with the exception of Asia and
Africa. 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.)
On June 10, 1999, the Company announced its intention to separate its
Battery Products business in a tax-free spin-off to shareholders. Completion of
the spin-off is expected to occur in April 2000 and is contingent upon a
favorable tax ruling from the Internal Revenue Service, effectiveness of a
registration statement relating to the spin-off and final approval by the
Ralston Purina Company Board of Directors.
DISCONTINUED OPERATIONS
SOY PROTEIN PRODUCTS AND AGRICULTURAL PRODUCTS
Results of discontinued operations decreased in 1998 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.
- -------------------------------------------------------------------------------
20
<PAGE>
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- -------------------------------------------------------------------------------
SEGMENT INFORMATION
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ------------- ---- ---- ----
<S> <C> <C> <C>
NET SALES
North American Pet Foods.................................... $2,092.3 $1,993.6 $1,860.8
International Pet Foods..................................... 411.9 389.0 265.8
Golden Products............................................. 216.3 199.5 182.3
Battery Products............................................ 2,000.0 2,071.2 2,177.9
-------- -------- --------
Total........................................... $4,720.5 $4,653.3 $4,486.8
======== ======== ========
PROFITABILITY
North American Pet Foods.................................... $ 438.9 $ 377.2 $ 349.1
International Pet Foods..................................... 36.9 27.0 6.0
Golden Products............................................. 49.6 41.8 33.0
Battery Products............................................ 275.2 323.5 341.9
-------- -------- --------
TOTAL SEGMENT PROFITABILITY..................... 800.6 769.5 730.0
General corporate income/(expense) <Fa>..................... 25.8 6.8 (39.6)
Amortization of goodwill and other intangible assets........ (41.5) (40.5) (44.3)
Unusual items <Fb>.......................................... 114.3 (76.3) (88.2)
Interest expense............................................ (183.4) (190.1) (173.0)
-------- -------- --------
Earnings from Continuing Operations before
Income Taxes and Equity Earnings.............. $ 715.8 $ 469.4 $ 384.9
======== ======== ========
TOTAL ASSETS AT YEAR END
North American Pet Foods.................................... $ 621.6 $ 599.7 $ 533.2
International Pet Foods..................................... 196.1 202.8 148.1
Golden Products............................................. 77.0 74.8 78.9
Battery Products............................................ 1,495.0 1,590.9 1,658.5
-------- -------- --------
Subtotal........................................ 2,389.7 2,468.2 2,418.7
Goodwill and other intangible assets........................ 715.2 777.1 682.9
Investment in discontinued operations<Fc>................... -- -- 592.3
Corporate................................................... 2,255.9 2,306.4 1,047.9
-------- -------- --------
Total........................................... $5,360.8 $5,551.7 $4,741.8
======== ======== ========
<FN>
- -----
<Fa> Primarily includes general corporate expenses, net unallocated pension
income and investment income.
<Fb> Includes provisions for restructuring, gains on the sale of IBC and DuPont
stock, gain on the conversion of DuPont common stock to Conoco B common
stock and an unrealized gain on SAILS debt.
<Fc> See Discontinued Operations in the Notes to Financial Statements.
</TABLE>
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21
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R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ------------- ---- ---- ----
<S> <C> <C> <C>
CAPITAL EXPENDITURES
North American Pet Foods.................................... $ 64.2 $ 85.2 $ 85.0
International Pet Foods..................................... 21.9 16.4 28.5
Golden Products............................................. 5.4 7.5 21.7
Battery Products............................................ 72.7 116.5 141.9
-------- -------- --------
Subtotal........................................ 164.2 225.6 277.1
Corporate................................................... 7.7 5.1 5.8
-------- -------- --------
Total Capital Expenditures...................... $ 171.9 $ 230.7 $ 282.9
======== ======== ========
DEPRECIATION EXPENSE
North American Pet Foods.................................... $ 45.6 $ 41.3 $ 39.1
International Pet Foods..................................... 11.0 9.7 4.6
Golden Products............................................. 4.1 4.7 3.4
Battery Products............................................ 75.7 80.4 84.5
-------- -------- --------
Subtotal........................................ 136.4 136.1 131.6
Corporate................................................... 8.5 9.8 10.9
-------- -------- --------
Total Depreciation Expense...................... $ 144.9 $ 145.9 $ 142.5
======== ======== ========
GEOGRAPHIC SEGMENT INFORMATION
SALES
United States........................................... $3,275.9 $3,099.9 $2,950.8
International........................................... 1,444.6 1,553.4 1,536.0
-------- -------- --------
Total............................................... $4,720.5 $4,653.3 $4,486.8
======== ======== ========
LONG-LIVED ASSETS
United States........................................... $1,685.6 $1,741.4 $1,736.2
International........................................... 659.6 687.6 551.1
-------- -------- --------
Total............................................... $2,345.2 $2,429.0 $2,287.3
======== ======== ========
</TABLE>
Supplemental product information is presented below for revenues from
external customers.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NET SALES
Pet foods................................................... $2,504.2 $2,382.6 $2,126.6
Litter products............................................. 216.3 199.5 182.3
Alkaline batteries.......................................... 1,211.0 1,189.4 1,185.4
Carbon zinc batteries....................................... 358.8 419.7 500.4
Other....................................................... 430.2 462.1 492.1
-------- -------- --------
$4,720.5 $4,653.3 $4,486.8
======== ======== ========
</TABLE>
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22
<PAGE>
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 sheets 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1999, 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
St. Louis, Missouri
November 2, 1999
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23
<PAGE>
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- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
(IN MILLIONS EXCEPT PER SHARE DATA) 1999 1998 1997
- ----------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Sales................................................... $4,720.5 $4,653.3 $4,486.8
-------- -------- --------
Costs and Expenses
Cost of products sold................................... 2,269.8 2,295.1 2,276.4
Selling, general and administrative..................... 947.3 946.6 925.8
Advertising and promotion............................... 740.8 696.2 646.2
Interest expense........................................ 183.4 190.1 173.0
Provisions for restructuring............................ 95.2 96.4 111.4
Unrealized gain on SAILS debt........................... (123.5) -- --
Gain on sale of DuPont stock............................ (35.7) -- --
Gain on conversion of DuPont stock...................... (50.3) -- --
Gain on sale of IBC stock............................... -- (20.1) (23.2)
Other (income)/expense, net............................. (22.3) (20.4) (7.7)
-------- -------- --------
4,004.7 4,183.9 4,101.9
-------- -------- --------
Earnings from Continuing Operations before Income Taxes and
Equity Earnings........................................... 715.8 469.4 384.9
Income Taxes................................................ (246.6) (117.5) (70.0)
-------- -------- --------
Earnings from Continuing Operations before Equity
Earnings.................................................. 469.2 351.9 314.9
Equity Earnings, Net of Taxes............................... 35.9 38.7 34.0
-------- -------- --------
Earnings from Continuing Operations......................... 505.1 390.6 348.9
Net Earnings from Discontinued Operations................... -- 10.0 74.8
Gain on Sale of Discontinued Operations..................... -- 705.1 --
-------- -------- --------
Net Earnings................................................ 505.1 1,105.7 423.7
Preferred Stock Dividend, Net of Taxes...................... (2.6) (11.5) (13.1)
-------- -------- --------
Earnings Available to Common Shareholders................... $ 502.5 $1,094.2 $ 410.6
======== ======== ========
Earnings Per Share
Basic
Earnings from continuing operations................. $ 1.63 $ 1.24 $ 1.10
Net earnings from discontinued operations........... -- 0.03 0.24
Gain on sale of discontinued operations............. -- 2.32 --
-------- -------- --------
Net Earnings........................................ $ 1.63 $ 3.59 $ 1.34
======== ======== ========
Diluted
Earnings from continuing operations................. $ 1.60 $ 1.19 $ 1.05
Net earnings from discontinued operations........... -- 0.03 0.22
Gain on sale of discontinued operations............. -- 2.16 --
-------- -------- --------
Net Earnings........................................ $ 1.60 $ 3.38 $ 1.27
======== ======== ========
</TABLE>
The above financial statement should be read in conjunction with the Notes
to Financial Statements.
- -------------------------------------------------------------------------------
24
<PAGE>
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) 1999 1998
- ------------------------------- ---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................................... $ 84.7 $ 89.8
Receivables, less allowance for doubtful accounts........................... 715.8 717.2
Inventories................................................................. 549.0 600.4
Other current assets........................................................ 123.0 120.1
-------- --------
Total Current Assets.................................................... 1,472.5 1,527.5
Investments and Other Assets.................................................... 2,824.6 2,908.2
Property at Cost
Land........................................................................ 36.1 35.3
Buildings................................................................... 439.4 413.5
Machinery and Equipment..................................................... 1,593.2 1,599.4
Construction in Progress.................................................... 126.1 164.7
-------- --------
2,194.8 2,212.9
Accumulated depreciation................................................ 1,131.1 1,096.9
-------- --------
1,063.7 1,116.0
-------- --------
Total............................................................... $5,360.8 $5,551.7
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt........................................ $ 371.3 $ 37.1
Notes payable............................................................... 690.5 772.4
Accounts payable and accrued liabilities.................................... 789.4 714.8
Dividends payable........................................................... 29.8 34.2
Income taxes................................................................ 32.1 23.5
-------- --------
Total Current Liabilities............................................... 1,913.1 1,582.0
Long-Term Debt.................................................................. 1,251.8 1,794.8
Deferred Income Taxes........................................................... 397.4 309.3
Other Liabilities............................................................... 541.5 533.6
Redeemable Preferred Stock--Series A 6.75%, $1 par value, issued 2,310,634
shares in 1998................................................................ -- 256.1
Unearned ESOP Compensation...................................................... -- (13.2)
Shareholders Equity
Preferred stock, $1 par value, none outstanding
Common stock--$.10 par value, issued 328,554,994 and 326,303,467 shares in
1999 and 1998, respectively............................................... 32.9 32.6
Capital in excess of par value.............................................. 172.8 127.7
Retained earnings........................................................... 1,871.7 2,067.0
Common stock in treasury, at cost, 17,148,841 and 13,875,377 shares in 1999
and 1998, respectively.................................................... (493.7) (766.3)
Unearned portion of restricted stock........................................ (2.9) (4.2)
Value of 13,733,142 and 13,470,442 shares of common stock held in Grantor
Trust in 1999 and 1998, respectively...................................... (199.6) (191.5)
Accumulated other comprehensive income...................................... (124.2) (176.2)
-------- --------
Total Shareholders Equity............................................... 1,257.0 1,089.1
-------- --------
Total............................................................... $5,360.8 $5,551.7
======== ========
</TABLE>
The above financial statement should be read in conjunction with the Notes
to Financial Statements.
- -------------------------------------------------------------------------------
25
<PAGE>
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) 1999 1998 1997
- ------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operations
Net earnings........................................................... $ 505.1 $1,105.7 $ 423.7
Adjustments to reconcile net earnings to net cash flow from operations
Net earnings from discontinued operations.......................... -- (10.0) (74.8)
Non-cash restructuring charges..................................... 91.9 58.7 49.9
Depreciation and amortization...................................... 192.6 194.7 189.0
Deferred income tax provision (benefit)............................ 32.0 (47.0) (115.5)
Unrealized gain on SAILS debt...................................... (123.5) -- --
Gain on sale of investments in common stock........................ (35.7) (20.1) (23.2)
Non-cash gain on conversion of DuPont stock........................ (50.3) -- --
Gain on sale of discontinued operations............................ -- (705.1) --
Changes in assets and liabilities used in operations
Increase in accounts receivable................................ (8.0) (42.5) (39.9)
(Increase) decrease in inventories............................. 49.6 (13.4) (9.0)
(Increase) decrease in other current assets.................... 8.3 (8.8) 4.0
Increase in accounts payable and accrued liabilities........... 47.3 8.6 65.8
Increase in other current liabilities.......................... 13.6 29.6 15.3
Other, net......................................................... (43.7) (33.8) (34.2)
------- -------- -------
Cash flow from continuing operations........................... 679.2 516.6 451.1
Cash flow (used by) from discontinued operations............... -- (29.5) 156.5
------- -------- -------
Net cash flow from operations................................ 679.2 487.1 607.6
------- -------- -------
Cash Flow from Investing Activities
Property additions..................................................... (171.9) (230.7) (282.9)
Purchase of Edward Baker Petfoods...................................... -- (182.5) --
Proceeds from the sale of property..................................... 12.4 17.8 10.4
Proceeds from the sale of investments in common stock.................. 284.4 41.3 60.1
Other, net............................................................. (5.5) (16.4) (11.0)
------- -------- -------
Cash from (used by) investing activities--continuing
operations................................................... 119.4 (370.5) (223.4)
Cash used by investing activities--discontinued operations..... -- (223.6) (114.3)
------- -------- -------
Net cash flow from (used by) investing activities............ 119.4 (594.1) (337.7)
------- -------- -------
Cash Flow from Financing Activities
Issuance of long-term debt............................................. 1.0 17.3 541.1
Principal payments on long-term debt, including current maturities..... (72.9) (73.1) (63.5)
Net increase (decrease) in notes payable............................... (77.7) 698.2 (508.7)
Treasury stock purchases............................................... (552.9) (416.1) (55.1)
Dividends paid......................................................... (132.1) (141.2) (143.9)
Other, net............................................................. 30.0 12.9 13.1
------- -------- -------
Net cash flow from (used by) financing activities............ (804.6) 98.0 (217.0)
------- -------- -------
Effect of Exchange Rate Changes on Cash.................................... 0.9 (10.3) (6.1)
------- -------- -------
Net Increase (Decrease) in Cash and Cash Equivalents....................... (5.1) (19.3) 46.8
Cash and Cash Equivalents, Beginning of Period............................. 89.8 109.1 62.3
------- -------- -------
Cash and Cash Equivalents, End of Period................................... $ 84.7 $ 89.8 $ 109.1
======= ======== =======
</TABLE>
The above financial statement should be read in conjunction with the Notes
to Financial Statements.
- -------------------------------------------------------------------------------
26
<PAGE>
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
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
NUMBER OF SHARES AMOUNT
(IN THOUSANDS) (IN MILLIONS)
----------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Balance at beginning of year.................. 326,303 114,695 114,688 $ 32.6 $ 11.5 $ 11.5
Shares issued on conversion of
debentures.............................. 3 2 7 -- -- --
Shares issued for activity under stock
plans................................... 40 -- -- -- -- --
Shares issued in connection with preferred
stock conversion........................ 2,209 -- -- 0.3 -- --
------- ------- ------- -------- -------- --------
Subtotal.............................. 328,555 114,697 114,695 32.9 11.5 11.5
Three-for-one split....................... -- 211,606 -- -- 21.1 --
------- ------- ------- -------- -------- --------
Balance at end of year........................ 328,555 326,303 114,695 $ 32.9 $ 32.6 $ 11.5
======= ======= ======= -------- -------- --------
Common Stock in Treasury:
Balance at beginning of year.................. (13,875) (8,116) (8,740) $ (766.3) $ (466.7) $ (482.3)
Treasury stock purchased.................. (17,501) (7,166) (308) (502.1) (367.2) (24.7)
Activity in connection with stock and
benefit plans........................... 721 1,407 932 47.3 67.6 40.3
Shares issued in connection with preferred
stock conversion........................ 13,506 -- -- 727.4 -- --
------- ------- ------- -------- -------- --------
Balance at end of year........................ (17,149) (13,875) (8,116) $ (493.7) $ (766.3) $ (466.7)
======= ======= ======= -------- -------- --------
Grantor Trust:
Balance at beginning of year.................. (13,470) (4,307) (4,228) $ (191.5) $ (381.2) $ (289.6)
Shares purchased.......................... (263) (167) (79) (8.1) (18.4) (6.4)
Market value adjustment................... -- -- -- -- -- (85.2)
Adjustment of grantor trust to cost....... -- -- -- -- 194.4 --
Other transactions........................ -- -- -- -- 15.0 --
------- ------- ------- -------- -------- --------
Subtotal.............................. (13,733) (4,474) (4,307) (199.6) (190.2) (381.2)
Three-for-one split....................... -- (8,949) -- -- -- --
Shares purchased.......................... -- (47) -- -- (1.3) --
------- ------- ------- -------- -------- --------
Balance at end of year........................ (13,733) (13,470) (4,307) $ (199.6) $ (191.5) $ (381.2)
======= ======= ======= -------- -------- --------
Capital in Excess of Par Value:
Balance at beginning of year.................................................. $ 127.7 $ 320.0 $ 217.3
Three-for-one stock split................................................. -- (21.1) --
Activity under stock plans................................................ 10.9 23.2 17.5
Adjustment of grantor trust to cost....................................... -- (194.4) 85.2
Effect of preferred stock conversion...................................... 34.2 -- --
-------- -------- --------
Balance at end of year........................................................ $ 172.8 $ 127.7 $ 320.0
-------- -------- --------
Retained Earnings:
Balance at beginning of year.................................................. $2,067.0 $1,566.7 $1,302.9
Net earnings.............................................................. 505.1 1,105.7 423.7
Agricultural Products business spin-off dividend declared................. -- (419.4) --
Effect of preferred stock conversion...................................... (517.1) -- --
Activity under stock and benefit plans.................................... (57.3) (53.6) (24.1)
Dividends declared on preferred stock, net of taxes....................... (2.6) (11.5) (13.1)
Dividends declared........................................................ (123.4) (120.9) (122.7)
-------- -------- --------
Balance at end of year........................................................ $1,871.7 $2,067.0 $1,566.7
-------- -------- --------
</TABLE>
The above financial statement should be read in conjunction with the Notes
to Financial Statements.
- -------------------------------------------------------------------------------
27
<PAGE>
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>
YEAR ENDED SEPTEMBER 30
AMOUNT
(IN MILLIONS)
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unearned Portion of Restricted Stock:
Balance at beginning of year....................................... $ (4.2) $ (3.4) $ (4.2)
Activity under stock plans..................................... 0.2 (1.7) (.3)
Amortization of restricted stock............................... 1.1 0.9 1.1
-------- -------- --------
Balance at end of year............................................. $ (2.9) $ (4.2) $ (3.4)
-------- -------- --------
Accumulated Other Comprehensive Income:
Cumulative translation adjustments:
Balance at beginning of year................................... $ (87.3) $ (129.8) $ (66.6)
Translation and reclassification adjustments................... (11.1) 42.5 (63.2)
-------- -------- --------
Balance at end of year......................................... $ (98.4) $ (87.3) $ (129.8)
Net unrealized holding loss on available-for-sale securities:
Balance at beginning of year................................... $ (88.9) $ -- $ --
Net unrealized holding gains/(losses) and reclassification
adjustments.................................................. 64.4 (88.9) --
-------- -------- --------
Balance at end of year......................................... $ (24.5) $ (88.9) $ --
Minimum pension liability:
Balance at beginning of year................................... $ -- $ -- $ --
Adjustment..................................................... (1.3) -- --
-------- -------- --------
Balance at end of year......................................... $ (1.3) $ -- $ --
-------- -------- --------
Accumulated Other Comprehensive Income................................. $ (124.2) $ (176.2) $ (129.8)
-------- -------- --------
Total Shareholders Equity.................................................. $1,257.0 $1,089.1 $ 917.1
======== ======== ========
Comprehensive Income:
Net Earnings....................................................... $ 505.1 $1,105.7 $ 423.7
-------- -------- --------
Other Comprehensive Income, net of tax:
Cumulative translation adjustments:
Translation adjustments........................................ (6.6) (50.2) (63.2)
Reclassification adjustment due to disposal of businesses...... -- 92.7 --
Other reclassification adjustments............................. (4.5) -- --
Net unrealized holding gain/(loss) on available-for-sale
securities:
Unrealized holding gains/(losses), net of tax of $(60.1) and
$50.0 in 1999 and 1998, respectively......................... 106.9 (88.9) --
Reclassification adjustment due to sale and conversion of
available-for-sale securities, net of tax of $23.9........... (42.5) -- --
Minimum pension liability adjustment, net of tax of $0.7........... (1.3) -- --
-------- -------- --------
Total Other Comprehensive Income, net of tax............... 52.0 (46.4) (63.2)
-------- -------- --------
Total Comprehensive Income................................................. $ 557.1 $1,059.3 $ 360.5
======== ======== ========
</TABLE>
The above financial statement should be read in conjunction with the Notes
to Financial Statements.
- -------------------------------------------------------------------------------
28
<PAGE>
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:
NATURE OF OPERATIONS -- The Company manufactures and markets pet products and
battery products throughout the world. Pet products include dry dog foods, dry
and soft-moist cat foods, pet treats and pet litter products. These products
are marketed primarily through a direct sales force to grocery, mass
merchandisers, specialty retailers, wholesalers and other customers. Battery
products include dry cell batteries, including alkaline, carbon zinc and
miniatures, and flashlights and other lighting products. These products are
marketed primarily through a direct sales force, and also through distributors,
to mass merchandisers, wholesalers and other customers.
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.
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.
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 within Accumulated Other
Comprehensive Income in the shareholders equity section of the Consolidated
Balance Sheet. 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 price 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. 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.
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 within Accumulated Other Comprehensive
Income in the shareholders equity section of the Consolidated Balance Sheet.
- -------------------------------------------------------------------------------
29
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
PROPERTY AT COST -- Expenditures for new facilities and expenditures 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 -- Amortization of goodwill, representing
the excess of cost over the net tangible assets of acquired businesses, is
recorded on a straight-line basis primarily over a period of 25 years, with
some amounts being amortized over 40 years. The cost to purchase or develop
other intangible assets, which consist primarily of patents, tradenames and
trademarks, is amortized on a straight-line basis over estimated periods of
related benefit ranging from 7 to 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS -- The Company reviews long-lived assets,
including goodwill and other intangible assets, for impairment whenever events
or changes in business circumstances indicate that the remaining useful life
may warrant revision or that the carrying amount of the long-lived asset may
not be fully recoverable. The Company performs undiscounted cash flow analyses
to determine if an impairment exists. If an impairment is determined to exist,
any related impairment loss is calculated based on fair value. Impairment
losses on assets to be disposed of, if any, are based on the estimated proceeds
to be received, less costs of disposal.
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.
REVENUE RECOGNITION -- Revenue is recognized upon shipment of product to
customers. Sales discounts, returns and allowances are included in net sales,
and the provision for doubtful accounts is included in selling, general and
administrative expenses in the Consolidated Statement of Earnings.
ADVERTISING AND PROMOTION COSTS -- The Company advertises and promotes its
products through national and regional media. Products are also advertised and
promoted through cooperative programs with retailers. The Company expenses
advertising and promotion costs as incurred, although costs incurred during
interim periods are generally expensed ratably in relation to revenues.
RESEARCH AND DEVELOPMENT costs are expensed as incurred and were $86.7, $79.9
and $70.2 in 1999, 1998 and 1997, respectively.
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 -- Basic earnings per share is based on the average number
of shares outstanding during the period. Diluted earnings per share 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. 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.
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 Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," as if the Company had adopted the fair value based method of
accounting for stock options, are presented in the "Stock-Based Compensation"
Note.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS No.
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 Company's Consolidated Balance Sheet. In
accordance with the issuance of SFAS No. 137, the Company will be required to
adopt the provisions of SFAS No. 133 no later than the beginning of fiscal year
2001. The Company has not completed its evaluation to determine the impact of
SFAS No. 133 on its Consolidated Financial Statements.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1998 and
1997 Consolidated Financial Statements to conform with the 1999 presentation.
- -------------------------------------------------------------------------------
30
<PAGE>
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- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
STOCK SPLIT
On May 28, 1998, the Company's Board of Directors declared a three-for-one
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.
Previously unissued shares were used for the split; therefore, treasury shares
were not affected. All references to number of shares and per share amounts in
the Consolidated Financial Statements and Notes to Financial Statements reflect
this split, except on the Consolidated Statement of Shareholders Equity.
SEGMENT INFORMATION
The Operating Segment Information discussion appearing on pages 18 and 19
and the Segment Information appearing on pages 21 and 22 herein are an integral
part of these financial statements.
SUBSEQUENT EVENTS
On November 1, 1999, the Company completed the sale of its Energizer Power
Systems Original Equipment Manufacturers' (OEM) rechargeable battery business
to Moltech Corporation for approximately $20.
Also on November 1, 1999, the Company purchased the assets of Canbrands
International, Ltd., a manufacturer of pet litter products in Canada and the
United States.
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 1998 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. 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
---- ----
<S> <C> <C>
Net sales....................................................................... $ 923.7 $1,983.8
======== ========
Earnings before income taxes.................................................... $ 32.1 $ 116.3
Income taxes.................................................................... 22.1 41.5
-------- --------
Net earnings from discontinued operations....................................... $ 10.0 $ 74.8
======== ========
</TABLE>
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.
MARKETABLE EQUITY SECURITIES
Marketable equity securities at September 30, 1999 consist primarily of
shares of DuPont common stock and Conoco, Inc. (Conoco) B common stock. Shares
of Conoco were obtained in the current year in conjunction with DuPont's
spin-off of Conoco, whereby the Company chose to tender some of its shares of
DuPont common stock in a non-taxable exchange for Conoco B common stock. This
exchange resulted in an after-tax gain of $32.2, or $.11 and $.10 per basic and
diluted share, respectively, during 1999. On a pre-tax basis, this gain was
$50.3, calculated as the difference between the average cost of the DuPont
common shares tendered and the market value of the Conoco B common shares
received.
- -------------------------------------------------------------------------------
31
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
During 1999, the Company sold DuPont common stock shares for $284.4 and
recorded an after-tax gain on this sale of $22.8, or $.07 per basic and diluted
share. On a pre-tax basis, this gain was $35.7. The cost basis of these shares
was determined using the average cost method.
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, 1999 and 1998. The change in net unrealized holding loss of $64.4
and $88.9 for the years ended September 30, 1999 and 1998, respectively, are
included in Other Comprehensive Income, as shown in the Consolidated Statement
of Shareholders Equity.
<TABLE>
<CAPTION>
GROSS NET
UNREALIZED UNREALIZED
AGGREGATE HOLDING TAX HOLDING
FAIR VALUE LOSS BENEFIT LOSS
---------- ---------- ------- ----------
<S> <C> <C> <C> <C>
September 30, 1999............ $1,185.5 $ (38.3) $ 13.8 $(24.5)
September 30, 1998............ $1,281.2 $ (138.9) $ 50.0 $(88.9)
</TABLE>
INVESTMENT IN INTERSTATE BAKERIES CORPORATION
The Company's equity investments in affiliated companies includes a 43.3%
interest in IBC at September 30, 1999. The Company accounts for its investment
in IBC by the equity method of accounting. The carrying value of this
investment was $357.6 and $314.1 at September 30, 1999 and 1998, respectively.
The market value of the Company's investment in IBC was $698.0 and $940.7 at
September 30, 1999 and 1998, 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 $8.5 and $8.8 in fiscal years 1999 and 1998,
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.
In July 1997, the Company issued $480 million of SAILS consisting of 7%
exchangeable notes due August 1, 2000. At maturity, 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 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
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. 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. (See the "Long-Term Debt" Note for
additional information on the SAILS debt for the current year.)
- -------------------------------------------------------------------------------
32
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
Presented below is summary financial information of IBC:
<TABLE>
<CAPTION>
AUGUST 21, AUGUST 22,
1999 1998
---------- ----------
<S> <C> <C>
Current assets........................................................ $ 333.7 $ 343.2
Noncurrent assets..................................................... 1,321.1 1,304.2
-------- --------
Total assets...................................................... $1,654.8 $1,647.4
======== ========
Current liabilities................................................... $ 365.5 $ 361.0
Noncurrent liabilities................................................ 660.7 710.5
Stockholders equity................................................... 628.6 575.9
-------- --------
Total liabilities and stockholders equity......................... $1,654.8 $1,647.4
======== ========
</TABLE>
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
AUGUST 21, AUGUST 22, AUGUST 23,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................................. $3,480.4 $3,290.5 $3,222.5
Cost of products sold................................................. 1,644.3 1,551.6 1,554.3
-------- -------- --------
Gross profit.......................................................... $1,836.1 $1,738.9 $1,668.2
======== ======== ========
Net income............................................................ $ 124.9 $ 132.5 $ 108.4
======== ======== ========
Company equity earnings, net of taxes................................. $ 35.9 $ 38.7 $ 34.0
======== ======== ========
</TABLE>
RESTRUCTURING ACTIVITIES
During 1999, the Company recorded after-tax provisions for restructuring of
$61.4, or $.20 and $.19 per basic and diluted share, respectively. On a pre-tax
basis, before reversals of prior years' charges, these charges were $103.9 and
consisted of termination benefits of $3.3 and non-cash charges of $100.6. The
total pre-tax charge and non-cash component were reduced to net amounts of
$95.2 and $91.9, respectively, due to reversals of prior period restructuring
charges of $8.7.
Included in the total pre-tax charge are impairment write-downs totaling
$56.7 related to fixed assets of the Company's OEM rechargeable battery
business and a loss of $38.9 on the sale of this business on November 1, 1999.
The fair value of the impaired assets was primarily determined based upon
estimates of recovery value for unique manufacturing equipment. The remaining
1999 pre-tax charges are related to additional rationalization of Battery
Products' production capacity, which provide for the termination of
approximately 210 production and administrative employees and the closure of
one plant. As of September 30, 1999, approximately 160 employees have been
severed and the plant was closed in connection with these charges.
During 1998, the Company recorded after-tax provisions for restructuring of
$61.3, or $.20 and $.19 per basic and diluted share, respectively. On a pre-tax
basis, before reversals of prior years' charges, these charges were $108.3 and
consisted of termination benefits of $31.4, other cash costs of $6.3 and
non-cash charges of $70.6. The total pre-tax charge and non-cash component were
reduced to net amounts of $96.4 and $58.7, respectively, due to reversals of
prior period restructuring charges of $11.9.
Included in the 1998 pre-tax charge were impairment write-downs of $66.4,
primarily representing a write-down of lithium ion rechargeable battery assets
of the OEM rechargeable battery business. The pre-tax charge also included
$21.8 related to a voluntary early retirement option offered to most U.S.
Battery Products' employees and additional charges related to the Company's
European battery and international pet food operations. These provisions
provided for the termination or early retirement of approximately 700 employees
in production, sales and administrative capacities. As of September 30, 1999,
approximately 650 employees have been terminated or retired in connection with
these charges.
During 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 and diluted share by $111.4, $98.0, $.32
and $.30, respectively. These charges are primarily associated with the
continued rationalization of Battery Products' production capacity and business
structure and provided for the termination of approximately 1,340 employees in
production, sales and administrative capacities and the closing of three
plants. The total pre-tax charge consisted of termination benefits of $50.5,
other cash costs of $11.0 and non-cash charges of $49.9, primarily related to
impairment losses on land, buildings, machinery and equipment. A portion of
Battery Products' 1997 restructuring plan was subsequently revised due to a
change in business operations. As a result, 200 of the 1,340 employees are
being retained, and termination costs associated with these employees are being
used to provide for other cash costs associated with the 1997 restructuring
provisions. As of September 30, 1999, approximately 990 employees have been
terminated and all plants were closed in connection with these charges.
- -------------------------------------------------------------------------------
33
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
Activity related to the restructuring provisions discussed above is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Reserve balance at beginning of year....................................... $ 57.3 $ 66.3
Gross provision recorded before reversals.................................. 103.9 108.3
Portion of current period provision classified as asset impairments and
loss on sale of business............................................... (100.6) (70.6)
Termination benefits paid.................................................. (38.8) (28.5)
Other cash exit costs incurred............................................. (6.5) (16.5)
Decrease due to translation................................................ (1.7) (1.7)
------- ------
Reserve balance at September 30............................................ $ 13.6 $ 57.3
======= ======
</TABLE>
Restructuring actions represented by the September 30, 1999 reserve balance
are expected to be substantially completed in 2000.
INCOME TAXES
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
CONTINUING OPERATIONS BEFORE
EQUITY EARNINGS CONSOLIDATED
------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Currently payable
United States............. $156.2 $120.0 $ 136.8 $156.7 $ 140.9 $ 151.1
State..................... 19.1 14.9 12.2 19.2 15.4 14.5
Foreign................... 39.3 29.6 36.5 39.3 41.0 61.0
------ ------ ------- ------ -------- -------
Total current......... 214.6 164.5 185.5 215.2 197.3 226.6
------ ------ ------- ------ -------- -------
Deferred
United States............. 37.8 (57.1) (114.4) 52.7 345.1 (100.7)
State..................... (6.0) (1.3) (1.2) (5.4) 9.6 (1.2)
Foreign................... 0.2 11.4 0.1 0.2 11.5 1.1
------ ------ ------- ------ -------- -------
Total deferred........ 32.0 (47.0) (115.5) 47.5 366.2 (100.8)
------ ------ ------- ------ -------- -------
Income taxes.................. $246.6 $117.5 $ 70.0 $262.7 $ 563.5 $ 125.8
====== ====== ======= ====== ======== =======
</TABLE>
Components of consolidated income taxes:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Continuing operations before equity earnings....................... $246.6 $ 117.5 $ 70.0
Equity earnings.................................................... 16.1 17.6 14.3
Discontinued operations............................................ -- 428.4 41.5
------ -------- -------
$262.7 $ 563.5 $ 125.8
====== ======== =======
</TABLE>
The source of pre-tax earnings follows:
<TABLE>
<CAPTION>
CONTINUING OPERATIONS BEFORE
INCOME TAXES AND EQUITY EARNINGS CONSOLIDATED
-------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United States................. $623.5 $385.3 $ 352.4 $675.5 $1,561.4 $ 464.3
Foreign....................... 92.3 84.1 32.5 92.3 107.8 85.2
------ ------ ------- ------ -------- -------
Pre-tax earnings.............. $715.8 $469.4 $ 384.9 $767.8 $1,669.2 $ 549.5
====== ====== ======= ====== ======== =======
</TABLE>
- -------------------------------------------------------------------------------
34
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
A reconciliation of income taxes with the amounts computed at the statutory
federal rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate....... $250.5 35.0% $164.3 35.0% $134.7 35.0%
State income taxes, net of federal tax
benefit.................................... 10.6 1.5 8.8 1.9 7.1 1.8
Foreign tax in excess of domestic rate....... 7.2 1.0 11.6 2.4 25.2 6.5
Taxes on repatriation of foreign earnings.... 9.6 1.4 9.0 1.9 13.1 3.4
Foreign tax credit refunds................... -- -- -- -- (34.7) (9.0)
Recognition of capital losses related to
prior years' restructuring actions......... (10.0) (1.4) (44.8) (9.5) (61.7) (16.0)
Investment income............................ (11.5) (1.6) (16.6) (3.5) (10.6) (2.7)
Other, net................................... (9.8) (1.4) (14.8) (3.2) (3.1) (.8)
------ ---- ------ ---- ------ -----
$246.6 34.5% $117.5 25.0% $ 70.0 18.2%
====== ==== ====== ==== ====== =====
</TABLE>
The Company recognized capital loss benefits of $10.0 in 1999, $44.8 in
1998 and $61.7 in 1997 primarily related to past restructuring actions. 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 in 1998 and 1997 due to foreign taxes in excess of the domestic
rate, taxes on repatriation of foreign earnings and non-deductible costs
related to the Agricultural Products business spin-off.
The deferred tax assets and liabilities recorded on the balance sheet,
which include current and noncurrent elements, as of September 30, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred Tax Liabilities:
Investment in available-for-sale securities............. $(359.4) $(380.3)
Depreciation and property differences................... (75.9) (100.8)
Pension plans........................................... (117.3) (106.0)
Equity investments in affiliated companies.............. (36.7) (21.3)
SAILS debt.............................................. (44.5) --
Other................................................... (55.9) (58.9)
------- -------
Gross deferred tax liabilities...................... (689.7) (667.3)
------- -------
Deferred Tax Assets:
Postretirement benefits other than pensions............. 216.5 207.4
Accrued liabilities..................................... 77.2 65.7
Tax loss carryforwards and tax credits.................. 55.0 54.4
Recognized capital losses............................... 0.5 91.7
Intangible assets....................................... 20.6 30.5
Other................................................... 69.9 43.3
------- -------
Gross deferred tax assets........................... 439.7 493.0
------- -------
Valuation allowance..................................... (78.3) (74.6)
------- -------
Net deferred tax liability.............................. $(328.3) $(248.9)
======= =======
</TABLE>
Tax loss carryforwards and tax credits totaling $2.0 expired in 1999.
Future expiration of tax loss carryforwards and credits, if not utilized, are
as follows: 2000, $3.0; 2001, $3.0; 2002, $4.4; 2003, $3.0; 2004, $2.9;
thereafter or no expiration, $38.7. The valuation allowance is primarily
attributed to certain accrued liabilities, tax loss carryforwards and tax
credits outside the U.S. The valuation allowance increased in 1999 by $3.7,
primarily due to losses in certain foreign subsidiaries for which no tax
benefit is expected to be realized.
At September 30, 1999, $148 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.
- -------------------------------------------------------------------------------
35
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
EARNINGS PER SHARE
Basic earnings per share is based on the average number of shares
outstanding during the period. Diluted earnings per share 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.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator:
Earnings from continuing operations..................... $505.1 $390.6 $348.9
Preferred stock dividend, net of taxes.................. (2.6) (11.5) (13.1)
------ ------ ------
Numerator for basic earnings per share -
Earnings from continuing operations
available to common shareholders.................... 502.5 379.1 335.8
Effect of dilutive securities:
ESOP stock............................................ 2.5 9.8 10.0
------ ------ ------
Numerator for diluted earnings per share -
Earnings from continuing operations
available to common shareholders.................... $505.0 $388.9 $345.8
------ ------ ------
Net earnings from discontinued operations............. $ -- $ 10.0 $ 74.8
------ ------ ------
Gain on sale of discontinued operations............... $ -- $705.1 $ --
------ ------ ------
Denominator (shares in millions):
Denominator for basic earnings per share -
weighted average shares<F*>........................... 307.8 304.9 306.2
Effect of dilutive securities:
ESOP stock............................................ 4.1 17.7 19.4
Stock options......................................... 3.0 4.2 4.5
Deferred compensation................................. -- -- 0.6
------ ------ ------
Dilutive potential common shares........................ 7.1 21.9 24.5
------ ------ ------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions........................ 314.9 326.8 330.7
====== ====== ======
Basic earnings per share:
Earnings from continuing operations..................... $ 1.63 $ 1.24 $ 1.10
Net earnings from discontinued operations............... -- 0.03 0.24
Gain on sale of discontinued operations................. -- 2.32 --
------ ------ ------
Net Earnings............................................ $ 1.63 $ 3.59 $ 1.34
====== ====== ======
Diluted earnings per share:
Earnings from continuing operations..................... $ 1.60 $ 1.19 $ 1.05
Net earnings from discontinued operations............... -- 0.03 0.22
Gain on sale of discontinued operations................. -- 2.16 --
------ ------ ------
Net Earnings............................................ $ 1.60 $ 3.38 $ 1.27
====== ====== ======
<FN>
<F*>Weighted average shares excludes 13.7, 13.5 and 12.9 shares of common stock
held by the Company's Grantor Trust at September 30, 1999, 1998 and 1997,
respectively.
</TABLE>
- -------------------------------------------------------------------------------
36
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
STOCK-BASED COMPENSATION
The Company's 1999 Incentive Stock Plan (1999 Plan) was adopted in February
1999, and replaced the 1996 Incentive Stock Plan (1996 Plan). Under these
plans, awards to purchase shares of the Company's common stock may be granted
to directors, officers and key employees. No additional awards may be granted
under the 1996 Plan, which will continue in existence until granted shares are
exercised or terminated. A maximum of 19.0 million shares of RAL Stock was
approved to be issued under the 1999 Plan. At September 30, 1999, 1998 and
1997, respectively, there were 17.1 million, 3.0 million and 8.7 million shares
available for future awards.
Options under the 1999 and 1996 Plans generally consist of two types of
grants, all of which are granted at the market price on the grant date. 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.
In fiscal 1999, a restoration option feature was added to substantially all
outstanding option grants for employees. A restoration option may be received
equal to the number of shares surrendered upon a stock-for-stock exercise. The
shares tendered must have been held for a minimum of six months. Restoration
option grants are non-dilutive, as they do not increase the combined number of
shares of RAL Stock and options held by an employee before exercise. The new
options have an exercise price equal to the market price of RAL Stock on the
grant date, a maximum term equal to the remainder of the original option's
term, and are subject to a one-year vesting period.
In fiscal 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.
Phantom options may also be granted to certain executives currently located
outside of the United States. Each unit, upon exercise, allows the holder to
receive cash equal to the excess of the market price of RAL Stock over the
grant price. The grant price of each phantom option is equal to the market
price of RAL Stock on the grant date. During 1998, 32,750 units were granted.
The weighted-average fair value for phantom options granted in 1998 was
$30.875. No units were granted in 1999 or 1997.
Restricted stock awards may also be issued under the 1999 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. Restricted stock shares granted in
1999, 1998 and 1997 were 2,000, 64,000 and 12,000, respectively. The
weighted-average fair value for restricted stock granted in 1999, 1998 and 1997
was $28.00, $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 $3.6, $20.5 and $13.8 in 1999, 1998 and 1997,
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. Pro forma amounts are for
disclosure purposes only and do not include options granted prior to fiscal
year 1996; therefore, these amounts may not be representative of future
calculations.
Under the terms of the 1999 and 1996 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. Fiscal 1998 and 1997 shares and prices reflect the three-for-one
stock split distributed on July 15, 1998. Fiscal 1998 information also reflects
the effect of the spin-off of the Agricultural Products business effective
April 1, 1998. The stock split and spin-off did not result in additional
compensation expense.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Earnings:
As reported........................................................ $505.1 $1,105.7 $423.7
Pro forma.......................................................... $492.9 $1,104.9 $417.9
Basic Earnings Per Share:
As reported........................................................ $ 1.63 $ 3.59 $ 1.34
Pro forma.......................................................... $ 1.59 $ 3.59 $ 1.32
Diluted Earnings Per Share:
As reported........................................................ $ 1.60 $ 3.38 $ 1.27
Pro forma.......................................................... $ 1.56 $ 3.38 $ 1.25
</TABLE>
- -------------------------------------------------------------------------------
37
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
The weighted average fair value for options granted in fiscal 1999, 1998
and 1997 was $7.60, $8.80 and $9.69, respectively. This was estimated at the
grant date using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate.................................................... 5.7% 5.6% 6.3%
Expected life of option.................................................... 1.1 to 4.5 years 6 years 8 years
Expected volatility of RAL Stock........................................... 24.9% to 38.9% 19.9% to 23.0% 20.0%
Expected dividend yield on RAL Stock....................................... 1.4% 1.3% 1.3%
</TABLE>
A summary of nonqualified RAL Stock options outstanding is as follows
(shares in millions):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
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,......................... 19.38 $21.33 16.95 $18.15 20.16 $17.16
Granted........................................... 1.92 28.58 2.68 30.73 .06 27.63
Exercised......................................... (1.98) 18.29 (.87) 14.18 (3.09) 11.68
Cancelled......................................... (.08) 24.30 (.08) 22.63 (.18) 21.36
----- ----- -----
Outstanding prior to spin-off
on April 1,..................................... -- -- 18.68 20.12 -- --
=====
Adjusted options at April 1,
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,...................... 19.24 22.36 19.38 21.33 16.95 18.15
===== ===== =====
Exercisable on September 30,...................... 7.34 17.41 5.92 17.70 2.46 15.49
===== ===== =====
</TABLE>
Information about RAL Stock options at September 30, 1999 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............................ 4.43 2.6 $13.18 3.69 $13.04
$18.74-28.13............................ 7.86 6.6 20.79 3.28 20.57
$28.50-42.84............................ 6.95 8.7 29.98 .37 32.77
----- ----
$11.00-42.84............................ 19.24 6.4 22.36 7.34 17.41
===== ====
</TABLE>
- -------------------------------------------------------------------------------
38
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In the current year, the Company adopted SFAS No. 132, " Employers'
Disclosures about Pensions and Other Postretirement Benefits." This Statement
standarizes the disclosure requirements for pensions and other postretirement
benefits into a combined format, requires additional information on changes in
benefit obligations and fair value of plan assets and eliminates certain
requirements from other accounting standards no longer deemed useful. The
Statement does not change the measurement or recognition of these benefits in
the financial statements. The following pension and other postretirement
benefit information is presented in accordance with SFAS No. 132. Prior year
amounts have been restated to conform to the current year's presentation.
The Company has several defined benefit pension plans covering
substantially all of its employees in the U.S. and certain employees in other
countries. The aggregate benefit obligation of these foreign pension plans is
not significant to the total benefit obligation.
The Company currently provides other postretirement benefits, consisting of
health care and life insurance benefits for certain groups of retired employees
and plans whereby certain management employees may defer compensation in
exchange for cash benefits after retirement. Retiree contributions for health
care benefits are adjusted periodically, and it is expected that such
adjustments will continue into the future.
In fiscal 1999, the Company amended the qualified U.S. Pension Plan to
allow employees to make an irrevocable election effective January 1, 1999
between two pension benefit formulas. Prior to this time, one benefit formula
was used. Also effective January 1, 1999, assets of the Plan provide employee
benefits in addition to normal retirement benefits. The additional benefit is
equal to a 300 percent match on participants' after-tax contributions of 1 or
1.75 percent to the Savings Investment Plan.
The following tables present the benefit obligation and funded status of
the plan:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------
PENSION POSTRETIREMENT
---------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year................. $1,088.8 $ 974.7 $ 422.6 $ 366.4
Service cost............................................ 36.7 21.1 2.2 2.3
Interest cost........................................... 72.9 72.3 28.9 28.1
Plan participants' contributions........................ 0.8 1.0 3.7 3.7
Actuarial (gain) loss................................... (8.0) 102.8 16.4 46.0
Benefits paid........................................... (82.6) (60.5) (26.0) (23.1)
Foreign currency exchange rate changes.................. (1.6) (1.7) -- --
Disposal of businesses.................................. -- (34.8) -- (0.8)
Amendments.............................................. (8.1) 0.6 -- --
Special termination benefits............................ -- 8.9 -- --
Curtailment............................................. 1.8 4.4 -- --
-------- -------- ------- -------
Benefit obligation at end of year....................... $1,100.7 $1,088.8 $ 447.8 $ 422.6
======== ======== ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year.......... $1,729.2 $1,682.2 $ 4.6 $ 5.1
Actual return on plan assets............................ 150.6 137.8 0.2 (0.5)
Company contributions................................... 3.5 3.3 22.3 21.0
Plan participants' contributions........................ 0.8 1.0 3.7 3.7
Benefits paid........................................... (82.6) (60.5) (26.0) (23.1)
Foreign currency exchange rate changes.................. (2.5) (0.9) -- --
Disposal of businesses.................................. (3.6) (33.7) -- (1.6)
-------- -------- ------- -------
Fair value of plan assets at end of year................ $1,795.4 $1,729.2 $ 4.8 $ 4.6
======== ======== ======= =======
</TABLE>
- -------------------------------------------------------------------------------
39
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------
PENSION POSTRETIREMENT
---------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
FUNDED STATUS:
Funded status of the plan............................... $ 694.7 $ 640.4 $(443.0) $(418.0)
Unrecognized net loss (gain)............................ (396.1) (380.1) 50.6 35.4
Unrecognized prior service cost......................... (4.2) 4.3 (7.4) (8.0)
Unrecognized net transition asset....................... (0.2) (4.5) -- --
-------- -------- ------- -------
Prepaid (accrued) benefit cost.......................... $ 294.2 $ 260.1 $(399.8) $(390.6)
======== ======== ======= =======
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET:
Prepaid benefit cost.................................... $ 314.8 $ 279.3 $ -- $ --
Accrued benefit liability............................... (23.7) (19.2) (399.8) (390.6)
Intangible asset........................................ 1.1 -- -- --
Accumulated other comprehensive income.................. 2.0 -- -- --
-------- -------- ------- -------
Net amount recognized................................... $ 294.2 $ 260.1 $(399.8) $(390.6)
======== ======== ======= =======
</TABLE>
For pension plans with accumulated benefit obligations in excess of plan
assets, the projected benefit obligation was $29.0 and $29.7 at September 30,
1999 and 1998, respectively, and the accumulated benefit obligation was $23.7
and $19.2. There are no plan assets for these non-qualified plans as of
September 30, 1999 and 1998.
Pension assets consist primarily of listed common stocks and bonds. The
U.S. plan held approximately 5.2 million shares of RAL Stock at September 30,
1999 and 1998, with market values of $146.1 and $151.9, respectively. The plan
received dividends on RAL Stock during 1999 and 1998 of $2.1 per year.
Of the postretirement liabilities, $22.7 and $20.1 are classified as
current liabilities at September 30, 1999 and 1998, respectively, and the
remainder is classified as long-term liabilities.
The following table presents pension and postretirement expense:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
PENSION POSTRETIREMENT
------------------------------ ---------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost........................................... $ 36.7 $ 21.1 $ 23.9 $ 2.2 $ 2.3 $ 3.0
Interest cost.......................................... 72.9 72.3 68.5 28.9 28.1 27.0
Expected return on plan assets......................... (133.5) (121.9) (110.1) -- -- --
Amortization of unrecognized prior service cost........ 0.4 0.9 1.0 (0.6) (0.6) (0.6)
Amortization of unrecognized transition asset.......... (4.6) (4.6) (4.6) -- -- --
Recognized net actuarial (gain) loss................... (3.1) (6.8) (2.7) 1.1 (1.5) (1.0)
Early retirement enhancement........................... -- 9.7 1.6 -- -- --
Curtailment loss....................................... -- 7.2 -- -- 0.1 --
------ ------ ------ ----- ----- -----
Net periodic benefit cost/(income)..................... $(31.2) $(22.1) $(22.4) $31.6 $28.4 $28.4
====== ====== ====== ===== ===== =====
DISTRIBUTION OF NET PERIODIC BENEFIT COST:
Continuing operations.................................. $(31.2) $(31.7) $(24.2) $31.6 $27.6 $25.9
Discontinued operations................................ -- 9.6 1.8 -- 0.8 2.5
------ ------ ------ ----- ----- -----
Net periodic benefit cost/(income)..................... $(31.2) $(22.1) $(22.4) $31.6 $28.4 $28.4
====== ====== ====== ===== ===== =====
</TABLE>
The following table presents assumptions, which reflect weighted averages
for the component plans, used in determining the above information.
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
----------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate............................................... 6.9% 6.9% 7.0% 7.0%
Expected return on plan assets.............................. 8.9% 8.9% -- --
Compensation increase rate.................................. 5.4% 5.4% -- --
</TABLE>
- -------------------------------------------------------------------------------
40
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
Assumed health care cost trend rates have been used in the valuation of
postretirement health insurance benefits. The trend rate is 7 percent in 1999
declining to 6 percent in 2000 and thereafter for retirees under age 65. For
retirees age 65 and older, the trend rate is 6 percent in 1999 and thereafter.
A one percentage point increase in health care cost trend rates in each year
would increase the accumulated postretirement benefit obligation as of
September 30, 1999 by $13.5 and the net periodic postretirement benefit cost by
$1.0. A one percentage point decrease in the health care cost trend rates in
each year would decrease the accumulated postretirement benefit obligation as
of September 30, 1999 by $12.0 and the net periodic postretirement benefit cost
for 1999 by $0.9.
DEFINED CONTRIBUTION PLAN
The Company sponsors employee savings plans which cover substantially all
U.S. employees. In fiscal 1999, the Company amended the contribution structure
of the plans. Prior to January 1, 1999, the Company generally matched 100% of
participants' before-tax contributions up to 6 percent of compensation for
employees hired prior to July 1, 1993. For employees hired on or after July 1,
1993, the Company matched before-tax participant contributions in increasing 20
percent increments for each year of service. On January 1, 1999 and thereafter,
the Company matches 25 percent of participants' before-tax contributions up to
4 percent of compensation. In addition, participants can make after-tax
contributions of 1 percent or 1.75 percent of compensation into the savings
plan. This participant after-tax contribution is matched within the pension
plan at 300 percent. Amounts charged to expense during 1999, 1998, and 1997
were $8.8, $21.3 and $20.3, respectively. The 1999 decrease in defined
contribution expense, and related increase in defined benefit service cost,
reflects the aforementioned plan change.
NOTES PAYABLE
Notes payable at September 30, 1999 consisted of notes payable to financial
institutions of $640.7 and commercial paper borrowings of $49.8 and had a
weighted average interest rate of 6.1%. 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%.
At September 30, 1999, total unused lines of credit were $372.9.
LONG-TERM DEBT
The detail of long-term debt at September 30 follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<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
SAILS, 7%, net of unrealized gain....................... 356.5 480.0
ESOP loan guarantee (through 12-31-98).................. -- 13.2
Medium-term Notes, 9.74% to 10.18%, maturing
2000-2010............................................. 24.0 31.0
LIBOR + 15 basis points, or 5.8375% at September 30,
1998.................................................. -- 50.0
Industrial revenue bonds, 4.25% to 8.0%, maturing
2000-2015................................................. 26.9 29.1
Other....................................................... 9.7 22.6
-------- --------
1,623.1 1,831.9
Less current portion.................................... (371.3) (37.1)
-------- --------
$1,251.8 $1,794.8
======== ========
</TABLE>
Aggregate maturities on all long-term debt, exclusive of debentures held in
treasury, are $6.2, $2.9, $3.2 and $0.2 for the years ending September 30, 2001
through 2004, respectively.
In July 1997, the Company issued $480 of SAILS consisting of 7%
exchangeable notes due August 1, 2000. At maturity, 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. Approximately 7.7 million notes were issued.
Net proceeds of $466 from the transaction were primarily used to reduce
short-term debt.
- -------------------------------------------------------------------------------
41
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
The SAILS debt was initially recorded on the balance sheet at the principal
amount at issuance. 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. 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 a cumulative
unrealized loss on the SAILS debt, and if the IBC stock price is less than
$30.96875, the Company records a cumulative unrealized gain. At September 30,
1999, the IBC stock price was $23.00. Accordingly, the Company recorded a
cumulative, unrealized pre-tax gain of $123.5 during fiscal year 1999. This
gain was calculated as the difference between the carrying value of the SAILS
at September 30, 1998, or $480.0, and the carrying value of the SAILS at
September 30, 1999, based on 15.5 million shares of IBC common stock into which
the SAILS may be exchanged. On an after-tax basis, this gain was $79.0, or $.26
and $.25 per basic and diluted share, respectively. (See the Investment in
Interstate Bakeries Corporation Note for more information on SAILS.)
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). During 1999, 1998 and 1997, the ESOP incurred $0.5,
$4.2 and $8.2, respectively, of interest expense on the ESOP loan.
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. As of September 30, 1999,
there were no shares of preferred stock outstanding.
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 the 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. The shares of
RAL Stock issued in the conversion were issued to the ESOP, where they were
held in the ESOP Common Stock Fund of the Company's Savings Investment Plan.
Since the conversion, participants in the ESOP have been able to diversify
their account balances in that Fund into other investment options in the
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, 1999, there were 600,000,000 shares of RAL Stock
authorized, of which 32,286 shares were reserved for conversion of the 5 3/4%
subordinated debentures and 43,376,578 shares were 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 FASB. The cost basis of the shares held by
the Trust is shown as a reduction of
- -------------------------------------------------------------------------------
42
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
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 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 worker safety, 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 12 federal
"Superfund" sites. It may also be required to share in the cost of cleanup with
respect to a state-designated site. Of these 13 sites, the Company has reached
negotiated agreement as to its liability with respect to 4 of the sites.
Negotiations with the U.S. Environmental Protection Agency, the state agency
that is involved on the state-designated site, and other PRP's are at various
stages with respect to the remaining sites. Negotiations involve determinations
of the actual responsibility of the Company and the other PRP's at the site,
appropriate investigatory and/or remedial actions, and allocation of the costs
of such activities among the PRP's and other site users. 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 addition, the Company has undertaken certain programs to reduce or
eliminate the environmental contamination at the rechargeable battery facility
in Gainesville, Florida. This business was sold on November 1, 1999. In the
event that the buyer would become unable to continue such programs, the Company
would be required to bear financial responsibility for such programs as well as
for other known and unknown environmental conditions at the site.
It is difficult to quantify with certainty the potential financial impact
of actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment. Nevertheless, based upon the information currently available, the
Company believes that its ultimate liability arising from such environmental
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 $9.6 for estimated
liabilities, should not be material to its financial position. Such liability
could, however, 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, 1999 and 1998, the Company had third
party guarantees outstanding in the aggregate amount of approximately $56.6 and
$65.5, respectively. 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, 1999 are: 2000--$7.5, 2001--$6.6, 2002--$4.8,
2003--$4.0, 2004--$2.6 and thereafter--$9.5.
Total rental expense for all operating leases was $35.6 in 1999, $37.0 in
1998 and $36.7 in 1997.
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.
- -------------------------------------------------------------------------------
43
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
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>
1999 1998
INSTRUMENT ---- ----
<S> <C> <C>
Forwards............................................... $133.4 $248.7
Options................................................ 17.7 6.7
CURRENCY
Canadian dollar........................................ 17.7 19.5
French franc........................................... -- 74.7
Swiss franc............................................ 124.2 144.0
Other currencies....................................... 9.2 17.2
</TABLE>
CONCENTRATION OF CREDIT RISK -- The counterparties to foreign currency
contracts 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, foreign currency contracts and, in 1998, Redeemable Preferred
Stock.
At September 30, 1999 and 1998, the fair value of the Company's
available-for-sale marketable equity securities was $1,185.5 and $1,281.2,
respectively. See the "Marketable Equity Securities" Note for additional
information about the Company's available-for-sale securities at September 30,
1999 and 1998.
At September 30, 1999 and 1998, the fair value of debt was $2,374.6 and
$2,925.1, respectively, compared to its carrying value of $2,313.6 and
$2,604.3, respectively. The fair value of the Company's long-term debt has been
estimated using quoted market prices and yields obtained through independent
pricing sources for the same or similar types of borrowing arrangements, taking
into consideration the underlying terms of the debt, such as the coupon rate,
term to maturity, tax impact to investors and imbedded call options.
Due to the nature of cash equivalents and short-term borrowings, including
notes payable, carrying amounts on the balance sheet approximate fair value.
The fair value of foreign currency contracts is the amount that the Company
would receive or pay to terminate the contracts, 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 outstanding at September 30, 1999 and 1998 were not
material.
During fiscal year 1999, all shares of Redeemable Preferred Stock were
converted into RAL Stock. See the "Redeemable Preferred Stock" Note for
additional information. At September 30, 1998, Redeemable Preferred Stock had a
fair value and carrying value of $481.2 and $256.1, respectively. The fair
value was based upon the greater of the fair market value of the RAL Stock into
which the Redeemable Preferred Stock may have been converted or the guaranteed
redemption value.
- -------------------------------------------------------------------------------
44
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
OTHER INCOME AND EXPENSE
Other (income)/expense, net consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1999 1998 1997
------ ---- ----
<S> <C> <C> <C>
Translation and exchange losses............................. $ 10.5 $ 16.9 $ 6.0
Dividend income............................................. (30.3) (22.9) --
Investment income........................................... (5.5) (5.7) (4.3)
Return on other investments................................. 0.1 (9.1) (8.3)
Miscellaneous (income)/expense.............................. 2.9 .4 (1.1)
------ ------ ------
$(22.3) $(20.4) $ (7.7)
====== ====== ======
</TABLE>
<TABLE>
SUPPLEMENTAL BALANCE SHEET INFORMATION
<CAPTION>
SEPTEMBER 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Receivables (current)--
Trade................................................... $ 674.8 $ 672.1
Notes and other......................................... 65.5 69.6
Allowance for doubtful accounts......................... (24.5) (24.5)
-------- --------
$ 715.8 $ 717.2
======== ========
Inventories--
Raw materials and supplies.............................. $ 128.5 $ 134.7
Work in process......................................... 111.1 124.1
Finished products....................................... 309.4 341.6
-------- --------
$ 549.0 $ 600.4
======== ========
Other Current Assets--
Prepaid expenses........................................ $ 53.9 $ 59.7
Deferred income tax benefits............................ 69.1 60.4
-------- --------
$ 123.0 $ 120.1
======== ========
Investments and Other Assets--
Goodwill (net of accumulated amortization: 1999--$164.6
and 1998--$133.5)..................................... $ 499.9 $ 545.9
Other intangible assets (net of accumulated
amortization: 1999--$363.3 and 1998--$345.7).......... 215.3 231.2
Equity investments in affiliated companies.............. 363.7 319.3
Available-for-sale securities........................... 1,185.5 1,281.2
Deferred charges and other assets....................... 560.2 530.6
-------- --------
$2,824.6 $2,908.2
======== ========
Accounts Payable and Accrued Liabilities--
Trade accounts payable.................................. $ 316.0 $ 286.2
Accrued advertising, promotion and allowances........... 125.6 101.4
Incentive compensation, salaries and vacations.......... 83.5 76.2
Accrued interest........................................ 41.3 43.1
Restructuring reserves.................................. 13.6 57.3
Other................................................... 209.4 150.6
-------- --------
$ 789.4 $ 714.8
======== ========
Other Liabilities--
Postretirement medical benefits......................... $ 144.6 $ 141.9
Other postretirement benefits........................... 232.5 228.6
Minority interests...................................... 2.7 3.0
Other................................................... 161.7 160.1
-------- --------
$ 541.5 $ 533.6
======== ========
</TABLE>
- -------------------------------------------------------------------------------
45
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(Dollars in millions except per share data)
<TABLE>
SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest paid............................................... $179.1 $175.7 $154.2
Income taxes paid........................................... 201.4 146.4 166.7
</TABLE>
<TABLE>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year.................................. $24.5 $24.8 $ 26.7
Provision charged to expense................................ 8.3 3.9 3.1
Writeoffs, less recoveries.................................. (8.3) (4.2) (5.0)
----- ----- ------
Balance, end of year........................................ $24.5 $24.5 $ 24.8
===== ===== ======
</TABLE>
- -------------------------------------------------------------------------------
46
<PAGE>
R A L S T O N P U R I N A C O M P A N Y
- -------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(UNAUDITED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
FISCAL 1999 FIRST SECOND THIRD FOURTH
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales.............................................. $1,291.8 $1,130.2 $1,088.5 $1,210.0
Gross profit<Fa>....................................... 663.4 579.9 565.3 642.1
Net earnings<Fb>....................................... 176.8 107.2 57.2 163.9
Earnings per share of RAL Stock
Basic
Net earnings................................... .58 .34 .18 .54
Diluted
Net earnings................................... .55 .34 .18 .53
Dividends paid per share............................... .10 .10 .10 .10
Market price range of RAL Stock........................ 37 3/16- 32 1/2- 33- 30 7/8-
28 1/4 25 13/16 25 5/8 27 1/4
<FN>
<Fa> Amounts published in previous quarters have been restated
due to certain reclassifications made between cost of
products sold and selling, general and administrative
expenses, to conform to year-end presentation.
<Fb> Earnings from continuing operations were (reduced)/increased
for the following unusual items:
</TABLE>
<TABLE>
<CAPTION>
EARNINGS FROM
CONTINUING BASIC DILUTED
OPERATIONS EPS EPS
------------- ----- -------
<S> <C> <C> <C>
First Quarter
Unrealized gain on SAILS debt............ $ 44.9 $ .15 $ .14
Second Quarter
Restructuring provisions................. $(35.0) $(.11) $(.11)
Unrealized gain on SAILS debt............ 48.4 .15 .15
------ ----- -----
$ 13.4 $ .04 $ .04
------ ----- -----
Third Quarter
Restructuring provisions................. $(26.8) $(.09) $(.09)
Unrealized loss on SAILS debt............ (8.7) (.03) (.03)
Gain on sale of DuPont stock............. 8.4 .03 .03
------ ----- -----
$(27.1) $(.09) $(.09)
------ ----- -----
Fourth Quarter
Restructuring reversals.................. $ 0.4 $ -- $ --
Unrealized loss on SAILS debt............ (5.6) (.02) (.02)
Gain on sale of DuPont stock............. 14.4 .05 .05
Gain on conversion of DuPont stock....... 32.2 .11 .11
Capital loss tax benefits................ 10.0 .03 .03
------ ----- -----
$ 51.4 $ .17 $ .17
------ ----- -----
</TABLE>
- -------------------------------------------------------------------------------
47
<PAGE>
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 1998 FIRST SECOND THIRD FOURTH
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales.............................................. $1,317.1 $1,110.8 $1,072.9 $1,152.5
Gross profit<Fa>....................................... 670.1 563.1 545.1 579.9
Earnings from continuing operations<Fb>................ 139.7 86.5 59.6 104.8
Net earnings/(loss) from discontinued operations....... 15.7 (6.6) 0.9 --
Gain on sale of discontinued operations................ 705.1 -- -- --
Net earnings........................................... 860.5 79.9 60.5 104.8
Earnings per share of RAL Stock
Basic
Earnings from continuing operations............ .44 .27 .19 .34
Net 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
Net 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-
27 51/64 28 1/2 33 9/16 26
<FN>
<Fa> Amounts have been restated due to certain reclassifications
made between cost of products sold and selling, general and
administrative expenses, to conform to the current year's
presentation.
<Fb> Earnings from continuing operations were (reduced)/increased
for the following unusual items:
</TABLE>
<TABLE>
<CAPTION>
EARNINGS FROM
CONTINUING BASIC DILUTED
OPERATIONS EPS EPS
------------- ----- -------
<S> <C> <C> <C>
Second Quarter
Restructuring provisions................. $(43.7) $(.14) $(.13)
Capital loss tax benefits................ 41.5 .13 .12
Gain on sale of IBC stock................ 9.5 .03 .03
------ ----- -----
$ 7.3 $ .02 $ .02
------ ----- -----
Third Quarter
Restructuring provisions................. $(17.6) $(.05) $(.05)
Fourth Quarter
Capital loss tax benefits................ $ 3.3 $ .01 $ .01
Gain on sale of IBC stock................ 3.5 .01 .01
------ ----- -----
$ 6.8 $ .02 $ .02
------ ----- -----
</TABLE>
- -------------------------------------------------------------------------------
48
<TABLE>
<CAPTION>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<S> <C> <C>
Jurisdictions of Percentage of
Subsidiary Name. . . . . . . . . . . . . . . . . . Incorporation 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%
Corporate Insurance Services, Inc. . . . . . . . . Missouri 100%
EBC Batteries, Inc.. . . . . . . . . . . . . . . . Delaware 100%
EBC (India) Company Ltd. . . . . . . . . . . . . . India 100%
EBC Uruguay, S. A. . . . . . . . . . . . . . . . . Uruguay 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 Holdings, Inc. . . . . . . . . . . . . . MO 100%
Energizer Hungary Trading Ltd. . . . . . . . . . . Hungary 100%
Energizer Iberia, Inc. . . . . . . . . . . . . . . Spain 100%
Energizer Korea, Ltd.. . . . . . . . . . . . . . . Korea 100%
Energizer India Limited. . . . . . . . . . . . . . India 51%
Energizer International, Inc.. . . . . . . . . . . Delaware 100%
Energizer Japan, Inc.. . . . . . . . . . . . . . . Delaware 100%
Energizer Nordic A/S . . . . . . . . . . . . . . . Denmark 100%
Energizer LLC. . . . . . . . . . . . . . . . . . . Russia 100%
Energizer Middle East and Africa Limited . . . . . Delaware 100%
Energizer Polska Spolka zo.o . . . . . . . . . . . Poland 100%
Energizer Rechargeable Products Asia Pacific Ltd.. Hong Kong 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 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 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%
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 Australia Pty. Ltd. . . . . . . . . Australia 100%
Ralston Purina Canada, Inc.. . . . . . . . . . . . Canada 100%
Ralston Purina Child Development Center, Inc.. . . Missouri 100%
Ralston Purina Colombiana, S.A.. . . . . . . . . . Colombia 100%
Ralston Purina de Centroamerica, S.A. (Guatemala). Guatemala 100%
Ralston Purina de Venezuela, C.A.. . . . . . . . . Venezuela 100%
Ralston Purina do Brasil Ltda. . . . . . . . . . . Brazil 100%
Ralston Purina Deutschland GmbH. . . . . . . . . . Germany 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 Pet Products France, S.A. . . . . . France 99.6%
Ralston Purina Peru, S.A.
Ralston Purina Sales, Limited. . . . . . . . . . . Barbados 100%
Ralston Trust, Ltd.. . . . . . . . . . . . . . . . UK 100%
Rechargeable Products Nordic, A.B. . . . . . . . . Sweden 100%
Rechargeabe Products (UK) Ltd. . . . . . . . . . . UK 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%
Tower Holding Company, Inc.. . . . . . . . . . . . Delaware 100%
VCS Holding Company. . . . . . . . . . . . . . . . Delaware 100%
</TABLE>
EXHIBIT 23
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, 333-73205 and 333-92141) of the Ralston
Purina Company of our report dated November 2, 1999 relating to the financial
statements, which appears in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
December 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL IFNORMATION EXTRACTED FROM THE 9/30/97
RALSTON PURINA CO. BALANCE SHEET AND RESTATED 9/30/97 RALSTON PURINA CO.
STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 109,100
<SECURITIES> 0
<RECEIVABLES> 700,000
<ALLOWANCES> 24,800
<INVENTORY> 604,800
<CURRENT-ASSETS> 1,505,500
<PP&E> 2,160,600
<DEPRECIATION> 1,046,900
<TOTAL-ASSETS> 4,741,800
<CURRENT-LIABILITIES> 1,215,800
<BONDS> 1,860,400
304,900
0
<COMMON> 11,500
<OTHER-SE> 905,600
<TOTAL-LIABILITY-AND-EQUITY> 4,741,800
<SALES> 4,486,800
<TOTAL-REVENUES> 4,486,800
<CGS> 2,276,400<F1>
<TOTAL-COSTS> 2,276,400<F1>
<OTHER-EXPENSES> 1,649,400<F1>
<LOSS-PROVISION> 3,100
<INTEREST-EXPENSE> 173,000<F1>
<INCOME-PRETAX> 384,900
<INCOME-TAX> 70,000
<INCOME-CONTINUING> 348,900
<DISCONTINUED> 74,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 423,700
<EPS-BASIC> 1.34
<EPS-DILUTED> 1.27
<FN>
<F1> AMOUNT HAS BEEN RESTATED TO CONFORM TO THE FISCAL YEAR END 1999
PRESENTATION.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 9/30/98,
6/30/98, 3/31/98 AND 12/31/97 RALSTON PURINA CO. BALANCE SHEETS AND FROM THE
RESTATED 9/30/98, 6/30/98, 3/31/98 AND 12/31/97 RALSTON PURINA CO. STATEMENTS OF
EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1998 SEP-30-1998 SEP-30-1998
<PERIOD-END> SEP-30-1998 JUN-30-1998 MAR-31-1998 DEC-31-1997
<CASH> 89,800 80,600 146,300 113,700
<SECURITIES> 0 0 0 0
<RECEIVABLES> 741,700 716,700 721,800 922,700
<ALLOWANCES> 24,500 26,000 26,700 25,000
<INVENTORY> 600,400 634,900 589,200 558,500
<CURRENT-ASSETS> 1,527,500 1,523,600 1,573,400 1,690,800
<PP&E> 2,212,900 2,233,100 2,210,700 2,224,800
<DEPRECIATION> 1,096,900 1,114,500 1,101,200 1,064,100
<TOTAL-ASSETS> 5,551,700 5,949,700 6,112,300 6,075,500
<CURRENT-LIABILITIES> 1,582,000 1,460,000 1,327,200 1,374,000
<BONDS> 1,794,800 1,804,500 1,820,600 1,825,700
256,100 262,900 270,300 277,200
0 0 0 0
<COMMON> 32,600 32,600 11,500 11,500
<OTHER-SE> 1,056,500 1,423,700 1,776,500 1,745,900
<TOTAL-LIABILITY-AND-EQUITY> 5,551,700 5,949,700 6,112,300 6,075,500
<SALES> 4,653,300 3,500,800 2,427,900 1,317,100
<TOTAL-REVENUES> 4,653,300 3,500,800 2,427,900 1,317,100
<CGS> 2,295,100<F1> 1,722,500<F1> 1,194,700<F1> 647,000<F1>
<TOTAL-COSTS> 2,295,100<F1> 1,722,500<F1> 1,194,700<F1> 647,000<F1>
<OTHER-EXPENSES> 1,694,800<F1> 1,304,500<F1> 888,400<F1> 420,700<F1>
<LOSS-PROVISION> 3,900 0<F3> 0<F3> 0<F3>
<INTEREST-EXPENSE> 190,100<F1> 142,300<F1> 95,000<F1> 46,100<F1>
<INCOME-PRETAX> 469,400 331,500 249,800 203,300
<INCOME-TAX> 117,500 73,300 42,000 73,600
<INCOME-CONTINUING> 390,600 285,800 226,200 139,700
<DISCONTINUED> 715,100<F2> 715,100<F2> 714,200<F2> 720,800<F2>
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,105,700 1,000,900 940,400 860,500
<EPS-BASIC> 3.59 3.24 9.11 8.37
<EPS-DILUTED> 3.38 3.04 8.55 7.83
<FN>
<F1>AMOUNT HAS BEEN RESTATED TO CONFORM TO THE FISCAL YEAR END 1999 PRESENTATION.
<F2>INCLUDES A 705,100 AFTER-TAX GAIN ON THE SALE OF DISCONTINUED OPERATIONS.
<F3>LOSS PROVISION INCLUDED IN OTHER-EXPENSES, ABOVE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 6/30/99,
3/31/99 AND 12/31/98 RALSTON PURINA CO. BALANCE SHEETS AND FROM THE RESTATED
6/30/99, 3/31/99 AND 12/31/98 RALSTON PURINA CO. STATEMENTS OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999 SEP-30-1999
<PERIOD-END> JUN-30-1999 MAR-31-1999 DEC-31-1998
<CASH> 90,600 75,600 70,000
<SECURITIES> 0 0 0
<RECEIVABLES> 688,600 700,100 893,600
<ALLOWANCES> 24,600 24,400 26,000
<INVENTORY> 560,400 560,200 577,400
<CURRENT-ASSETS> 1,441,000 1,424,300 1,632,700
<PP&E> 2,187,400 2,195,900 2,246,400
<DEPRECIATION> 1,132,200 1,136,700 1,125,700
<TOTAL-ASSETS> 5,568,700 5,457,400 5,621,700
<CURRENT-LIABILITIES> 1,310,900 1,448,900 1,562,700
<BONDS> 1,599,700 1,595,800 1,725,500
0 0 0
0 0 0
<COMMON> 32,900 32,900 32,900
<OTHER-SE> 1,631,000 1,468,500 1,432,500
<TOTAL-LIABILITY-AND-EQUITY> 5,568,700 5,457,400 5,621,700
<SALES> 3,510,500 2,422,000 1,291,800
<TOTAL-REVENUES> 3,510,500 2,422,000 1,291,800
<CGS> 1,701,900<F1> 1,178,700<F1> 628,400<F1>
<TOTAL-COSTS> 1,701,900<F1> 1,178,700<F1> 628,400<F1>
<OTHER-EXPENSES> 1,182,100<F1> 734,200<F1> 351,900<F1>
<LOSS-PROVISION> 0<F2> 0<F2> 0<F2>
<INTEREST-EXPENSE> 139,500<F1> 94,300<F1> 49,400<F1>
<INCOME-PRETAX> 487,000 414,800 262,100
<INCOME-TAX> 171,600 148,000 94,300
<INCOME-CONTINUING> 341,200 284,000 176,800
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 341,200 284,000 176,800
<EPS-BASIC> 1.10 0.92 0.58
<EPS-DILUTED> 1.08 0.89 0.55
<FN>
<F1>AMOUNT HAS BEEN RESTATED TO CONFORM TO THE FISCAL YEAR END 1999 PRESENTATION.
<F2>LOSS PROVISION INCLUDED IN OTHER-EXPENSES, ABOVE.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 9/30/99
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> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 84,700
<SECURITIES> 0
<RECEIVABLES> 740,300
<ALLOWANCES> 24,500
<INVENTORY> 549,000
<CURRENT-ASSETS> 1,472,500
<PP&E> 2,194,800
<DEPRECIATION> 1,131,100
<TOTAL-ASSETS> 5,360,800
<CURRENT-LIABILITIES> 1,913,100
<BONDS> 1,251,800
0
0
<COMMON> 32,900
<OTHER-SE> 1,224,100
<TOTAL-LIABILITY-AND-EQUITY> 5,360,800
<SALES> 4,720,500
<TOTAL-REVENUES> 4,720,500
<CGS> 2,269,800
<TOTAL-COSTS> 2,269,800
<OTHER-EXPENSES> 1,543,200
<LOSS-PROVISION> 8,300
<INTEREST-EXPENSE> 183,400
<INCOME-PRETAX> 715,800
<INCOME-TAX> 246,600
<INCOME-CONTINUING> 505,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 505,100
<EPS-BASIC> 1.63
<EPS-DILUTED> 1.60
</TABLE>
