SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000
Commission File No. 1-4582
RALSTON PURINA COMPANY
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(Exact name of registrant as specified in its charter)
MISSOURI 43-0470580
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(State of Incorporation) (I.R.S. Employer Identification No.)
CHECKERBOARD SQUARE, ST. LOUIS MISSOURI 63164
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(Address of principal executive offices) (Zip Code)
(314) 982-1000
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(Registrant's telephone number, including area code)
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: _____
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Number of shares of Ralston Purina common stock, $.10 par value, outstanding as
of the close of business on August 9, 2000: 306,968,656
<PAGE>
PART I - FINANCIAL INFORMATION
RALSTON PURINA COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL INFORMATION
(dollars in millions except per share data)
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OPERATING RESULTS
Net earnings for the nine months ended June 30, 2000 were $446.9, or $1.55 and
$1.53 per share on a basic and diluted basis, respectively, compared to $341.2,
or $1.10 and $1.08 per basic and diluted share, in the prior year. Included in
net earnings for the current nine months are earnings from continuing operations
of $353.0, or $1.22 and $1.21 per basic and diluted share, respectively, and net
earnings from discontinued operations of $93.9, or $.33 and $.32 per basic and
diluted share. For the prior year nine months, net earnings included earnings
from continuing operations of $297.6, or $.96 and $.94 per basic and diluted
share, respectively, and net earnings from discontinued operations of $43.6, or
$.14 per basic and diluted share. Net earnings from discontinued operations for
both periods represent results of the Battery Products business (Energizer),
which was spun off to shareholders on April 1, 2000 in a tax free transaction.
Pro forma comparisons are presented below to reflect the impact of the spin-off.
(See pro forma earnings from continuing operations in Note 19.)
Pro forma earnings from continuing operations for the current nine months were
$360.7 and include a net pro forma adjustment of $7.7 and several unusual items,
which increased net earnings by $127.5. The net pro forma adjustment represents
a reduction in interest expense due to the change in debt structure associated
with the spin-off of Energizer, net of an adjustment to income taxes to reflect
the Company's post-spin-off tax rate. Unusual items included in the period are
as follows: an unrealized after-tax gain of $89.3, or $.31 per basic and
diluted share, representing a market value adjustment of the Company's stock
appreciation income linked securities (SAILS) debt; an after-tax gain of $7.1,
or $.02 per basic and diluted share, on the sale of shares of E.I. du Pont de
Nemours and Company (DuPont) common stock; and capital loss tax benefits
totaling $31.1, or $.11 per basic and diluted share.
Pro forma earnings from continuing operations for the prior year nine-month
period were $310.1, which included a net pro forma adjustment of $12.5, for
reduced interest expense and an adjustment of income taxes, and several unusual
items which increased net earnings by $96.2, as follows: an unrealized
after-tax gain of $84.6, or $.27 per basic and diluted share, representing a
SAILS market value adjustment; an after-tax gain of $8.4, or $.03 and $.02 per
basic and diluted share, respectively, on the sale of DuPont common stock; and
an after-tax reversal of a prior year's restructuring charge of $3.2, or $.01
per basic and diluted share.
Pro forma earnings from continuing operations before unusual items for the nine
months ended June 30, 2000 were $233.2, or $.81 and $.80 per basic and diluted
share, respectively, compared to $213.9, or $.69 and $.68 per basic and diluted
share in the prior year. The $19.3 increase, or 9.0%, was primarily
attributable to higher operating earnings from each of the Company's operating
segments, partially offset by lower equity earnings from the Company's
investment in Interstate Bakeries Corporation (IBC).
For the quarter ended June 30, 2000, net earnings were $61.1, or $.21 per basic
and diluted share, compared to $57.2, or $.18 per basic and diluted share, for
the same quarter in 1999. Net earnings for the current quarter include earnings
from continuing operations of $66.8, or $.23 per basic and diluted share, and a
net loss from discontinued operations of $5.7, or $.02 per basic and diluted
share. Net earnings for the prior year quarter included earnings from
continuing operations of $61.4, or $.19 per basic and diluted share, and a net
loss from discontinued operations of $4.2, or $.01 per basic and diluted share.
Earnings from continuing operations of $66.8 for the current quarter include an
unrealized after-tax gain on SAILS debt of $2.5, or $.01 per basic and diluted
share. Prior year third quarter pro forma earnings from continuing operations
were $66.1 and included a net pro forma adjustment of $4.7, for reduced interest
expense and an adjustment of income taxes, and several unusual items which
increased net earnings by $2.9. These unusual items included the aforementioned
after-tax gain on the sale of DuPont stock of $8.4, or $.03 per basic and
diluted share; the aforementioned after-tax restructuring reversal of $3.2, or
$.01 per basic and diluted share; and an unrealized after-tax loss of $8.7, or
$.03 per basic and diluted share, representing a SAILS market value adjustment.
Earnings from continuing operations before unusual items were $64.3 for the
current quarter compared to pro forma earnings from continuing operations before
unusual items of $63.2 for the prior year quarter. The earnings increase was
attributable to higher segment profitability, largely offset by lower equity
earnings from the Company's investment in IBC.
During its fourth quarter ended June 3, 2000, IBC reported that one-time events
for work stoppage, worker's compensation and start-up costs reduced its
operating income by $23.6, or $.22 per diluted share. The Company's share of
these one-time charges included in equity earnings for the current quarter and
nine months was approximately $4.3.
Earnings from continuing operations before unusual items were $.22 per basic and
diluted share for the current quarter compared to $.20 in the prior year, an
increase of 10.0%. A reduced number of shares outstanding in the current year
quarter favorably impacted earnings per share.
RESULTS OF CONTINUING OPERATIONS
Net sales increased 4.0% and 2.8% in the nine months and quarter ended June 30,
2000, respectively. In the nine months, sales increased on higher sales in each
of the Company's operating segments. In the quarter, sales increased for
International Pet Foods and Golden Products, while sales were flat for North
American Pet Foods. See the following section for comments on sales changes by
operating segment.
Gross profit increased $114.6, or 10.1%, in the current nine months and $20.8,
or 5.6%, in the current quarter due to increases in all operating segments. As
a percentage of sales, gross profit was 59.7% in the current year nine months
compared to 56.3% a year ago. In the current quarter, the gross profit
percentage was 58.9% compared to 57.4% in the prior year third quarter. The
increased percentage in both current year periods reflects margin improvements
in North American Pet Foods, and International Pet Foods for the nine months,
partially offset by decreased margins in Golden Products.
Selling, general and administrative expenses increased 3.8% in the current nine
months and 1.4% in the quarter. The increase for the nine months is primarily
attributable to increases in North American Pet Foods and International Pet
Foods. Selling, general and administrative expenses were 17.7% of sales in the
current and prior year nine-month periods. For the current year third quarter,
these expenses were 19.0% of sales compared to 19.2% a year ago.
Advertising and promotion expense increased 13.4% in the current nine months due
to increases in all operating segments. In the quarter, advertising and
promotion expense increased 4.9% due to increases in International Pet Foods and
Golden Products. As a percentage of sales, advertising and promotion expense
was 21.7% and 21.0% in the current nine months and third quarter, respectively,
compared to 19.9% and 20.6% in the same periods a year ago.
Income taxes include federal, state and foreign taxes. Pro forma income taxes
excluding the aforementioned unusual items in each period were 34.4% and 33.5%
of pre-tax pro forma earnings before equity earnings for the current and prior
year nine months, respectively. Income taxes before unusual items for the
current quarter were 34.0% of pre-tax earnings before equity earnings compared
to pro forma income taxes before unusual items in the prior year third quarter
of 33.4%.
OPERATING SEGMENTS
See Note 3 of the Notes to Condensed Financial Statements for a table of segment
sales and profitability for the quarters and nine-month periods ended June 30,
2000 and 1999.
Sales for North American Pet Foods increased 1.9% in the nine months and were
flat in the quarter. The sales increase for the nine months was attributable to
branded pet food volume increases and a favorable product mix, partially offset
by the discontinuance of lower margin products. In the third quarter, slightly
lower volumes, primarily driven by the continued elimination of lower margin
products, were offset by a favorable product mix. This segment's super premium
pet food business continued to report sales and volume increases in the quarter
and nine months.
Profitability for North American Pet Foods increased 9.1% in the nine months and
6.8% in the quarter. The nine-month profitability increase resulted from the
sales increase and lower ingredient costs, partially offset by increased
advertising and promotion expense. The increased profitability in the quarter
was a result of lower ingredient costs.
International Pet Foods' sales increased 7.2% in the nine months and 11.4% in
the quarter. These increases are the result of volume increases in all
regions, partially offset by unfavorable foreign exchange and an unfavorable
product mix in certain South American markets.
Profitability for this segment increased 17.4% in the nine months and 36.4% in
the quarter. These increases are due to the sales increases, increased margins
for the nine months, and a one-time adjustment related to foreign value-added
taxes in the prior year quarter. These favorable effects were partially offset
by increased advertising and promotion expenses, and selling, general and
administrative expenses, as well as expenses associated with expansion into the
Asian market.
Sales for Golden Products increased 18.4% in the nine months and 16.0% in the
quarter due to significant volume increases in scooping litter, as well as
increased conventional litter volumes, and new product introductions in the
third quarter. During the quarter, the Company introduced secondnatureTM brand
dog litter and Tidy Cat CrystalsTM, a synthetic cat litter.
Profitability for Golden Products increased 14.0% in the nine months due to the
sales increase, partially offset by increased product costs and increased
advertising and promotion expenses. In the quarter, profitability decreased
4.2% as increased sales were more than offset by increased product costs and
higher advertising and promotion expenses, primarily related to the new product
introductions.
FINANCIAL CONDITION
The Company's primary source of liquidity is cash flow generated from continuing
operations. The Company's investments in DuPont, IBC and Conoco, Inc. B common
stock provide additional sources of liquidity. For the nine months ended June
30, 2000, cash flow from continuing operations was $191.0 compared to $281.0 in
the nine months ended June 30, 1999. The decrease in cash flow in the current
nine months results from changes in working capital items, primarily increased
accounts receivable and decreased current liabilities.
Current liabilities, which includes $217.0 of SAILS debt, exceeded current
assets by $309.2 at June 30, 2000. (For further information on the SAILS, refer
to SAILS Maturity below.) Current liabilities exceeded current assets by $967.4
at September 30, 1999. The improved working capital position at June 30, 2000
results primarily from a decrease in notes payable and current maturities of
long-term debt.
In connection with the spin-off of Energizer on April 1, 2000, the Company
received $478 from new borrowings during the second quarter ended March 31,
2000, and then assigned this debt to Energizer. The majority of the proceeds
from the borrowings were used by the Company to pay down its short-term debt.
During the third quarter ended June 30, 2000, the Company made a payment of
$19.5 to Energizer, representing a post-spin-off adjustment required in
connection with the spin-off agreement.
The Company used cash of $398.0 during the nine months ended June 30, 2000 for
share repurchases. As of August 9, 2000, approximately 762,000 shares remained
under the Board of Directors' authorization dated December 20, 1999 for the
purchase of 8,000,000 shares of RAL Stock. A new authorization for the purchase
of 8,000,000 additional shares of RAL stock was approved by the Board of
Directors on May 25, 2000. These authorizations are in addition to a continuing
authorization permitting the Company to acquire, from time to time and 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.
SAILS MARK-TO-MARKET ADJUSTMENT
Results for the current nine months and quarter include an unrealized after-tax
gain of $89.3 and $2.5, respectively, or $139.5 and $3.9 pre-tax, representing a
market value adjustment of the Company's stock appreciation income linked
securities (SAILS) debt. On a per share basis, this gain was $.31 per basic and
diluted share for the nine months and $.01 per basic and diluted share for the
quarter. During the prior year nine-month period, the Company recorded an
unrealized gain on the SAILS debt of $84.6 and $132.2 on an after-tax and
pre-tax basis, respectively, or $.27 per basic and diluted share. For the prior
year quarter, there was an unrealized after-tax loss of $8.7, or $.03 per basic
and diluted share.
At June 30, 2000, the cumulative unrealized pre-tax gain since the debt issuance
is $263.0, representing the difference between the debt's value at issuance of
$480 and the current cash settlement value of the debt, based on 15,498,000
shares of IBC common stock and an IBC stock price of $14.00 per share at June
30, 2000.
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.
The Company's investment in IBC is included in Investments and Other Assets and
is accounted for using the equity method of accounting, which results in a
carrying value different from the current market value of the investment.
SAILS MATURITY
At maturity on August 1, 2000, the SAILS (Ralston Purina Company 7% Exchangeable
Notes) were settled in cash for $243.0, pursuant to the provisions of the SAILS
and the Trust Indenture. Those provisions provided that the amount of cash for
settlement be based on 15,498,000 shares of IBC stock and an average closing
price on the New York Stock Exchange of IBC stock on the 20 trading days prior
to maturity. The settlement amount reflects a final market loss adjustment of
$26.0 pre-tax, or $16.7 after-tax, recorded in the Company's fourth quarter.
IBC COMMON STOCK
On August 1, 2000, the Company sold 2,551,020 shares of IBC stock to IBC for
$40.0. Pursuant to a share purchase agreement with IBC, the Company will
sell an additional 12,946,980 shares of IBC stock to IBC for approximately
$204.0 by September 1, 2000. These transactions will result in an after-
tax gain of approximately $25.0.
Upon completion of the sale to IBC on September 1, 2000, the Company will own
14,848,154 shares of IBC stock. Under the shareholder agreement with IBC, the
Company is required to reduce its stake in IBC to no more than 15% as of August
1, 2004 and to no more than 10% as of August 1, 2005. During the 12 month
period following August 1, 2005, IBC has a call to purchase any IBC shares owned
by the Company at 110% of the market value, as defined in the agreement.
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.
MARKET RISK
The market risk inherent in the Company's net foreign currency investment in
foreign subsidiaries and affiliates translated into U.S. dollars decreased
significantly as a result of the spin-off of the Battery Products business on
April 1, 2000. Using exchange rates at the end of the current year third
quarter, this net foreign currency investment was approximately $167, compared
to $736 at the end of fiscal year 1999.
RECENTLY ISSUED ACCOUNTING RULE
On May 18, 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board (EITF) reached a consensus on Issue No. 00-14, "Accounting for
Coupons, Rebates and Discounts." This issue addresses the accounting and income
statement classification for rebates and other discounts. The consensus is
effective for the Company's fourth quarter of fiscal year 2001. The Company has
not completed its evaluation to determine the impact of EITF No. 00-14 on its
financial statements.
FORWARD-LOOKING STATEMENTS
Statements in this document that are not historical are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made.
The Company advises readers that various risks and uncertainties could affect
its financial performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or projected. These
risks and uncertainties include those detailed from time to time in the
Company's publicly-filed documents, including its Annual Report on Form 10-K for
the period ended September 30, 1999.
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
QUARTER ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net Sales $668.3 $650.1 $2,087.4 $2,006.8
---------- -------- --------- -----------
Costs and Expenses
Cost of products sold 274.5 277.1 842.0 876.0
Selling, general and administrative 126.8 125.1 369.4 356.0
Advertising and promotion 140.2 133.7 452.4 399.1
Interest expense 39.7 43.9 131.1 136.8
Restructuring reversals - (3.2) - (3.2)
Unrealized (gain)/loss on SAILS debt (3.9) 13.6 (139.5) (132.2)
Gain on sale of DuPont stock - (13.1) (11.1) (13.1)
Other (income)/expense, net (6.8) (5.4) (23.7) (25.3)
---------- --------- ----------- -----------
570.5 571.7 1,620.6 1,594.1
---------- --------- ----------- -----------
Earnings from Continuing Operations
before Income Taxes and Equity Earnings 97.8 78.4 466.8 412.7
Income Tax Provision (33.3) (25.6) (129.9) (140.9)
Equity Earnings, Net of Taxes 2.3 8.6 16.1 25.8
---------- --------- ----------- -----------
Earnings from Continuing Operations 66.8 61.4 353.0 297.6
Net Earnings/(Loss) from Discontinued Operations (5.7) (4.2) 93.9 43.6
---------- --------- ----------- -----------
Net Earnings 61.1 57.2 446.9 341.2
Preferred Stock Dividend, Net of Taxes - - - (2.6)
---------- --------- ----------- -----------
Earnings Available to Common Shareholders $61.1 $57.2 $446.9 $338.6
========== ========= ============ ===========
Cash Dividends Declared per Common Share $ - $0.10 $0.17 $0.30
========== ========= ============ ===========
Earnings Per Share
Basic
Earnings from continuing operations $0.23 $0.19 $1.22 $0.96
Net earnings/(loss) from discontinued operations (0.02) (0.01) 0.33 0.14
---------- -------- --------- ---------
Net Earnings $0.21 $0.18 $1.55 $1.10
========== ========= ============ ===========
Diluted
Earnings from continuing operations $0.23 $0.19 $1.21 $0.94
Net earnings/(loss) from discontinued operations (0.02) (0.01) 0.32 0.14
---------- -------- --------- ---------
Net Earnings $0.21 $0.18 $1.53 $1.08
========== ========= ========= =========
See Accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(CONDENSED AND UNAUDITED)
(DOLLARS IN MILLIONS)
JUNE 30, SEPTEMBER 30,
------------ ---------------
2000 1999
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<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $53.7 $56.6
Receivables, less allowance for doubtful accounts
of $4.7 and $4.7, respectively 216.7 203.6
Inventories
Raw materials and supplies 48.3 45.2
Finished products 81.3 74.0
Other current assets 29.7 38.8
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Total Current Assets 429.7 418.2
Investments and Other Assets 2,097.7 2,403.8
Investment in Discontinued Operations - 1,323.7
Property at Cost 1,210.4 1,164.2
Accumulated depreciation 600.8 574.7
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609.6 589.5
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Total $3,137.0 $4,735.2
========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt $222.0 $370.1
Notes payable 158.2 572.0
Accounts payable 127.4 177.2
Other current liabilities 231.3 266.3
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Total Current Liabilities 738.9 1,385.6
Long-Term Debt 1,251.7 1,249.9
Deferred Income Taxes 340.1 435.2
Other Liabilities 418.5 407.5
Shareholders Equity
Common stock 32.9 32.9
Capital in excess of par value 183.0 172.8
Retained earnings 1,265.4 1,871.7
Common stock in treasury, at cost (508.8) (493.7)
Unearned portion of restricted stock (0.7) (2.9)
Value of common stock held in Grantor Trust (370.5) (199.6)
Cumulative translation adjustment (18.4) (98.4)
Net unrealized holding loss on available-for-sale securities (193.8) (24.5)
Minimum pension liability (1.3) (1.3)
--------- ---------
Accumulated other comprehensive income (213.5) (124.2)
--------- ---------
Total Shareholders Equity 387.8 1,257.0
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Total $3,137.0 $4,735.2
========== ==========
See Accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
RALSTON PURINA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONDENSED AND UNAUDITED)
(DOLLARS IN MILLIONS)
NINE MONTHS ENDED JUNE 30,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flow from Operations
Net earnings $446.9 $341.2
Unrealized gain on SAILS debt (139.5) (132.2)
Net earnings from discontinued operations (93.9) (43.6)
Gain on sale of DuPont stock (11.1) (13.1)
Non-cash items included in income 101.9 137.8
Changes in assets and liabilities used in operations (78.8) 30.4
Other, net (34.5) (39.5)
-------- --------
Cash flow from continuing operations 191.0 281.0
Cash flow from discontinued operations 214.4 200.6
-------- --------
Net cash flow from operations 405.4 481.6
-------- --------
Cash Flow from Investing Activities
Property additions, net (78.2) (71.0)
Proceeds from the sale of DuPont stock 88.6 124.5
Other, net (25.0) (2.8)
-------- --------
Cash from (used by) investing activities - continuing operations (14.6) 50.7
Cash used by investing activities - discontinued operations (1.6) (35.6)
-------- --------
Net cash from (used by) investing activities (16.2) 15.1
-------- --------
Cash Flow from Financing Activities
Net cash payment of debt (411.6) (285.9)
Dividends paid (77.8) (101.1)
Treasury stock purchases (398.0) (115.6)
Other, net 18.6 28.6
-------- --------
Cash used by financing activities - continuing operations (868.8) (474.0)
Cash from (used by) financing activities - discontinued operations 478.1 (4.5)
-------- --------
Net cash used by financing activities (390.7) (478.5)
-------- --------
Effect of Exchange Rate Changes on Cash (1.4) (1.4)
-------- --------
Net Increase/(Decrease) in Cash and Cash Equivalents (2.9) 16.8
Cash and Cash Equivalents, Beginning of Period 56.6 40.5
-------- --------
Cash and Cash Equivalents, End of Period $53.7 $57.3
======== ========
See Accompanying Notes to Condensed Financial Statements.
</TABLE>
RALSTON PURINA COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
(Dollars in millions except per share data)
NOTE 1 - The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for any quarter are not necessarily indicative of the results
for any other quarter or for the full year. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Ralston Purina Company (the Company) Annual Report to Shareholders for the year
ended September 30, 1999.
NOTE 2 - On April 1, 2000, the Company completed the tax-free spin-off to
shareholders of its Battery Products business (Energizer). This segment is
accounted for as a discontinued operation in the financial statements and
related notes for all periods presented.
NOTE 3 - Segment sales and profitability for the quarters and nine months ended
June 30, 2000 and 1999 are as follows.
<TABLE>
<CAPTION>
Quarter ended June 30, Nine Months ended June 30,
------------------------ ----------------------------
<S> <C> <C> <C> <C>
NET SALES 2000 1999 2000 1999
------- ------- ------- -------
North American Pet Foods $493.4 $495.3 $1,570.7 $1,540.9
International Pet Foods 113.9 102.2 332.6 310.4
Golden Products 61.0 52.6 184.1 155.5
------- ------- ---------- ----------
TOTAL $668.3 $650.1 $2,087.4 $2,006.8
======= ======= ========= ==========
PROFITABILITY
North American Pet Foods $109.5 $102.5 $356.5 $326.8
International Pet Foods 10.5 7.7 35.0 29.8
Golden Products 11.4 11.9 41.6 36.5
------- -------- ---------- ----------
TOTAL SEGMENT PROFITABILITY 131.4 122.1 433.1 393.1
General corporate income/(expenses) (a) 6.6 1.8 27.4 20.3
Amortization of goodwill and other intangible assets (4.4) (4.3) (13.2) (12.4)
Unusual items (b) 3.9 2.7 150.6 148.5
Interest expense (39.7) (43.9) (131.1) (136.8)
EARNINGS FROM CONTINUING OPERATIONS BEFORE ------- -------- ---------- ----------
INCOME TAXES AND
EQUITY EARNINGS $97.8 $78.4 $466.8 $412.7
======== ======= ======== ========
(a) Primarily includes general corporate expenses, mark-to-market
adjustments on liabilities denominated in share equivalents, net unallocated
pension income and investment income.
(b) Includes unrealized gains/losses on SAILS debt for all periods; a gain
on the sale of DuPont stock for the nine months ended June 30, 2000 and 1999 and
for the quarter ended June 30, 1999; and restructuring reversals for the quarter
and nine months ended June 30, 1999.
</TABLE>
NOTE 4 - During the nine months and quarter ended June 30, 2000, the Company
recorded an unrealized after-tax gain of $89.3 and $2.5, respectively, or $139.5
and $3.9 pre-tax, representing a market value adjustment of the Company's stock
appreciation income linked securities (SAILS) debt. On a per share basis, this
gain was $.31 per basic and diluted share for the nine months and $.01 per basic
and diluted share for the quarter. For the prior year nine months, the
unrealized after-tax gain was $84.6, or $.27 per basic and diluted share. For
the prior year quarter, there was an unrealized after-tax loss of $8.7, or $.03
per basic and diluted share. The prior year nine-month pre-tax gain was $132.2,
and the prior year quarter pre-tax loss was $13.6.
At June 30, 2000, the cumulative unrealized pre-tax gain since the debt issuance
is $263.0, representing the difference between the debt's value at issuance of
$480 and the current cash settlement value of the debt, based on 15,498,000
shares of Interstate Bakeries Corporation (IBC) common stock and an IBC stock
price of $14.00 per share at June 30, 2000.
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.
The Company's investment in IBC is included in Investments and Other Assets and
is accounted for using the equity method of accounting, which results in a
carrying value different from the current market value of the investment.
NOTE 5 - At maturity on August 1, 2000, the Company's SAILS debt (see Note 4
above) was settled in cash for $243.0, pursuant to the provisions of the SAILS
and the Trust Indenture. Those provisions provided that the amount of cash
for settlement be based on 15,498,000 shares of IBC stock and an average
closing price on the New York Stock Exchange of IBC stock on the 20 trading days
prior to maturity. The settlement amount reflects a final market loss adjust-
ment of $26.0 pre-tax, or $16.7 after-tax, recorded in the Company's fourth
quarter.
On August 1, 2000, the Company sold 2,551,020 shares of IBC stock to IBC for
$40.0. Pursuant to a share purchase agreement with IBC, the Company
will sell an additional 12,946,980 shares of IBC stock to IBC for
approximately $204.0 by September 1, 2000. These transactions will result
in an after-tax gain of approximately $25.0.
Upon completion of the sale to IBC on September 1, 2000, the Company will own
14,848,154 shares of IBC stock. Under the shareholder agreement with IBC, the
Company is required to reduce its stake in IBC to no more than 15% as of August
1, 2004 and to no more than 10% as of August 1, 2005. During the 12 month
period following August 1, 2005, IBC has a call to purchase any IBC shares owned
by the Company at 110% of the market value, as defined in the agreement.
NOTE 6 - During the nine months ended June 30, 2000, the Company sold shares of
its investment in E.I. du Pont de Nemours and Company (DuPont) common stock for
$88.6 and recorded an $11.1, pre-tax, or $7.1, after-tax, gain on this sale.
The cost basis of these shares was determined using the average cost method. On
a per share basis, this gain was $.02 per basic and diluted share. During the
quarter and nine months ended June 30, 1999, the Company sold shares of DuPont
common stock for $124.5 and recorded pre-tax and after-tax gains of $13.1 and
$8.4, respectively. On a per share basis, this gain was $.03 per basic and
diluted share for the quarter and $.03 and $.02 per basic and diluted share,
respectively, for the nine months.
NOTE 7 - During the nine months ended June 30, 2000, the Company recorded
capital loss tax benefits totaling $31.1, or $.11 per basic and diluted share,
related to the sale and reorganization of two of the Company's subsidiaries.
NOTE 8 - During the quarter and nine months ended June 30, 1999, the Company
recorded a $3.2 pre-tax and after-tax reversal of restructuring charges recorded
in a prior year. On a per share basis, this reversal was $.01 per basic and
diluted share.
NOTE 9 - Sales and advertising and promotion expense for the prior year quarter
and nine months have been restated to conform to the current year presentation.
NOTE 10 - The components of total comprehensive income for the quarter and
nine-month periods ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------- -----------------
<S> <C> <C> <C> <C>
6/30/00 6/30/99 6/30/00 6/30/99
--------- --------- --------- ---------
Net Earnings $61.1 $57.2 $446.9 $341.2
Other Comprehensive Income, Net of Tax
Foreign currency translation adjustments (2.2) 1.4 (4.6) (9.2)
Effect of Energizer spin-off on cumulative
translation adjustment 84.6 - 84.6 -
Unrealized gains/(losses) on available-for-
sale securities (95.4) 149.3 (162.2) 174.6
Reclassification adjustment - (8.4) (7.1) (8.4)
------- -------- --------- --------
Total Other Comprehensive Income (13.0) 142.3 (89.3) 157.0
------- ------ -------- --------
Total Comprehensive Income $48.1 $199.5 $357.6 $498.2
========= ========= ========= ========
</TABLE>
NOTE 11 - Other (income)/expense, net, for the nine months ended June 30, 2000
and 1999, consists of the following:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
-----------------------------
<S> <C> <C>
2000 1999
------ -----
Net translation and exchange loss/(gain) $2.7 $(0.2)
Dividends on available-for-sale securities (20.2) (23.2)
Return on other investments (3.2) (0.8)
Miscellaneous (income)/expense (3.0) (1.1)
------- -------
$(23.7) $(25.3)
======== ========
</TABLE>
NOTE 12 - At the end of December 1998, the Company converted all of the
outstanding shares of Series A 6.75% Preferred Stock (Redeemable Preferred
Stock) into Ralston Purina Company common stock (RAL Stock), in accordance with
terms of the Redeemable Preferred Stock. To effect this conversion, the Company
issued 13,505,609 Treasury shares and 2,209,192 authorized but previously
unissued shares of RAL Stock.
NOTE 13 - The following table sets forth the computation of basic and diluted
earnings per share for the quarters and nine-month periods ended June 30, 2000
and 1999.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
June 30, June 30,
--------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Earnings from continuing operations $66.8 $61.4 $353.0 $297.6
Preferred stock dividends - - - (2.6)
-------- --------- -------- --------
Numerator for basic earnings per share -
Earnings from continuing operations
available to common shareholders $66.8 $61.4 $353.0 $295.0
Effect of dilutive securities:
ESOP stock - - - 2.4
------- --------- -------- --------
Numerator for diluted earnings per share -
Earnings from continuing operations
available to common shareholders $66.8 $61.4 $353.0 $297.4
------- --------- -------- --------
Net earnings/(loss) from discontinued
operations $(5.7) $(4.2) $93.9 $43.6
------- --------- -------- --------
Denominator:
Denominator for basic earnings per share -
weighted average shares * 285.9 312.3 288.7 308.6
Effect of dilutive securities:
ESOP stock - - - 5.4
Stock options 2.3 2.9 3.1 3.1
-------- ------- -------- --------
Dilutive potential common shares 2.3 2.9 3.1 8.5
Denominator for diluted earnings per
share - adjusted weighted average ------- --------- -------- --------
shares and assumed conversions 288.2 315.2 291.8 317.1
---------- ------- -------- --------
Basic earnings per share:
Earnings from continuing operations $0.23 $0.19 $1.22 $0.96
Net earnings/(loss) from discontinued operations (0.02) (0.01) 0.33 0.14
-------- -------- -------- --------
Net earnings $0.21 $0.18 $1.55 $1.10
======= ======= ======= =======
Diluted earnings per share:
Earnings from continuing operations $0.23 $0.19 $1.21 $0.94
Net earnings/(loss) from discontinued operations (0.02) (0.01) 0.32 0.14
-------- ------- -------- ----------
Net earnings $0.21 $0.18 $1.53 $1.08
======= ======= ======= ========
* Weighted average shares used for the computation of basic earnings per share
exclude 21,694,000 and 13,683,000 shares of common stock held by the
Company's Grantor Trust at June 30, 2000 and 1999, respectively.
</TABLE>
NOTE 14 - At June 30, 2000, there were 285,061,000 shares of common stock
outstanding, exclusive of 21,825,000 shares held in treasury and 21,694,000
Grantor Trust shares. At September 30, 1999, there were 297,673,000 shares of
common stock outstanding, exclusive of 17,149,000 shares held in treasury and
13,733,000 Grantor Trust shares. On March 30, 2000, the Company exchanged its
commercial paper with a maturity of approximately 30 days for the RAL common
shares then held by the Grantor Trust. Upon maturity of the commercial paper,
the Company exchanged with the Grantor Trust the commercial paper for 21,535,675
RAL common shares with a value of $367.5.
NOTE 15 - Investments and Other Assets consist of the following:
<TABLE>
<CAPTION>
June 30, Sept. 30,
2000 1999
-------- --------
<S> <C> <C>
Goodwill $281.3 $294.9
Other intangible assets 131.8 120.9
Investments in affiliated companies 379.0 363.7
Available-for-sale securities 843.4 1,185.5
Deferred charges and other assets 462.2 438.8
-------- --------
$2,097.7 $2,403.8
======== =========
</TABLE>
NOTE 16 - Available-for-sale securities at June 30, 2000 and September 30, 1999
consist primarily of shares of DuPont common stock and Conoco, Inc. (Conoco) B
common stock. Available-for-sale securities are carried at fair value, based on
quoted market prices. The difference between fair value and cost basis of these
securities, net of tax, is shown as a separate component within Accumulated
Other Comprehensive Income in the shareholders equity section of the
Consolidated Balance Sheet. The table below shows the aggregate fair value,
gross unrealized holding loss, tax benefit, and net unrealized holding loss for
these securities as of June 30, 2000 and September 30, 1999. The changes in net
unrealized holding loss, net of tax, for the quarters and nine-month periods
ended June 30, 2000 and 1999 are included as a component of Other Comprehensive
Income as shown in Note 10, above.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Net Unrealized
Fair Value Holding Loss Tax Benefit Holding Loss
----------- ---------------- ------------ --------------
June 30, 2000 $843.4 ($302.8) $109.0 ($193.8)
September 30, 1999 $1,185.5 ($38.3) $13.8 ($24.5)
</TABLE>
NOTE 17 - In fiscal year 1997, the Company changed its method of
computing foreign tax credits and, as a result, the Company recognized tax
benefits of approximately $24 related to a foreign tax credit refund claim
for the years 1993 through 1995. The Internal Revenue Service has denied
this refund claim. On July 3, 2000, the Company filed a petition in the United
States Tax Court in order to pursue its refund claim. The Company believes
that its claim is meritorious. While it is difficult to quantify with
certainty the potential impact of this claim, based upon the information
currently available, the Company believes that the ultimate resolution of this
claim, if adverse to the Company, should not be material to its financial
position. An unfavorable resolution of this claim could, however, be
material to results of operations or cash flows for a particular period.
NOTE 18 - On May 18, 2000, the Emerging Issues Task Force of the Financial
Accounting Standards Board (EITF) reached a consensus on Issue No. 00-14,
"Accounting for Coupons, Rebates and Discounts." This issue addresses the
accounting and income statement classification for rebates and other
discounts. The consensus is effective for the Company's fourth quarter of
fiscal year 2001. The Company has not completed its evaluation to determine
the impact of EITF No. 00-14 on its financial statements.
NOTE 19 - The table below presents pro forma results from continuing operations
for the nine months ended June 30, 2000 and 1999 and the quarter ended June 30,
1999. These pro forma results reflect a reduction in interest expense due to
the change in the debt structure associated with the spin-off of the Battery
Products business, and an adjustment to income taxes to reflect the Company's
post-spin-off tax rate.
The pro forma consolidated statements of earnings present the Company's results
as if the distribution had occurred as of the beginning of the periods
presented. Pro forma financial statements may not necessarily reflect the
consolidated results of operations that would have existed had the distribution
been effected on the dates specified nor are they indicative of future results.
<TABLE>
<CAPTION>
PRO FORMA EARNINGS FROM CONTINUING OPERATIONS
NINE MONTHS QUARTER ENDED
ENDED JUNE 30, JUNE 30,
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Net Sales $2,087.4 $2,006.8 $650.1
Costs and Expenses
Cost of products sold 842.0 876.0 277.1
Selling, general and administrative 369.4 356.0 125.1
Advertising and promotion 452.4 399.1 133.7
Interest expense 116.6 118.1 37.6
Restructuring reversals - (3.2) (3.2)
Unrealized (gain)/loss on SAILS debt (139.5) (132.2) 13.6
Gain on sale of DuPont stock (11.1) (13.1) (13.1)
Other (income)/expense, net (23.7) (25.3) (5.4)
-------- ---------- ---------
1,606.1 1,575.4 565.4
Earnings from Continuing Operations
before Income Taxes and Equity Earnings 481.3 431.4 84.7
Income Tax Provision (136.7) (147.1) (27.2)
Equity Earnings, Net of Taxes 16.1 25.8 8.6
-------- ---------- ---------
Earnings from Continuing Operations $360.7 $310.1 $66.1
======== ========== ========
Earnings Per Share from Continuing Operations
Basic $1.25 $1.00 $0.21
Diluted $1.24 $0.98 $0.21
</TABLE>
The pro forma results presented above reflect the following after-tax unusual
items:
<TABLE>
<CAPTION>
NINE MONTHS ENDED QUARTER ENDED
JUNE 30, JUNE 30,
2000 1999 1999
---- ----- ----
<S> <C> <C> <C>
Unrealized gain/(loss) on SAILS debt $89.3 $84.6 $(8.7)
Gain on the sale of DuPont stock 7.1 8.4 8.4
Capital loss tax benefits 31.1 - -
Restructuring reversals - 3.2 3.2
------ ----- ------
$127.5 $96.2 $2.9
======= ====== ======
Earnings Per Share for Total Unusuals
Basic $0.44 $0.31 $0.01
Diluted $0.44 $0.30 $0.01
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
There is no other information required to be reported under any items except
those indicated below.
Item 1. Legal Proceedings
------------------
In fiscal year 1997, the Company changed its method of computing foreign tax
credits and, as a result, the Company recognized tax benefits of approximately
$24 million related to a foreign tax credit refund claim for the years 1993
through 1995. The Internal Revenue Service has denied this refund claim. On
July 3, 2000, the Company filed a petition in the United States Tax Court in
order to pursue its refund claim. The Company believes that its claim is
meritorious. While it is difficult to quantify with certainty the potential
impact of this claim, based upon the information currently available, the
Company believes that the ultimate resolution of this claim, if adverse to the
Company, should not be material to its financial position. An unfavorable
resolution of this claim could, however, be material to results of operations or
cash flows for a particular period.
Item 6. Exhibits and Reports on Form 8-K.
-------------------------------------
(a) Exhibits filed with this Report:
(2) Aircraft Joint Ownership Agreement dated April 1, 2000
between Ralston Purina Company, Eveready Battery Company and
Agribrands International, Inc. (Exhibit D to the Agreement
and Plan of Reorganization between Ralston Purina
Company and Energizer Holdings, Inc. filed as an exhibit
to the Company's 8K dated April 1, 2000)*
(27).(i) Financial Data Schedule for the nine month period
ended June 30, 2000
(27).(ii) Restated Financial Data Schedule for the nine
month period ended June 30, 1999
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated April 1, 2000 was
reported in the Company's Form 10Q for the quarter
ended March 31, 2000.
A Current Report on Form 8-K dated July 24, 2000 was filed by
the Company to announce its decision to exchange for
cash its 7% Exchangeable Notes ("SAILS") due
August 1, 2000, pursuant to the provisions of the
SAILS. The Report also disclosed an amendment to the
Shareholder Agreement with Interstate Bakeries Corporation
("IBC") and a Share Purchase Agreement with IBC
regarding the sale by the Company of a certain amount
of shares of IBC Common Stock to IBC.
* The Company agrees to furnish a copy of any omitted schedules with respect
to this agreement upon request by the Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RALSTON PURINA COMPANY
------------------------------------------
Registrant
By: \s\ James R. Elsesser
---------------------------------------
James R. Elsesser
Vice President, Chief Financial Officer
and Treasurer
Date: August 11, 2000
<PAGE>
EXHIBIT INDEX
---------------------
Exhibits
----------
EX-2 Aircraft Joint Ownership Agreement dated April 1, 2000
between Ralston Purina Company, Eveready Battery Company
and Agribrands International, Inc.
EX-27 Financial Data Schedules
(27).(i) Financial Data Schedule for the nine month
period ended June 30, 2000 (provided electronically)
(27).(ii) Restated Financial Data Schedule for the nine
month period ended June 30, 1999 (provided electronically)
Exhibit 27.(i)
27.(ii)
(Documents prepared on Edgar)
