SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO __________.
Commission file number: 1-12619
RALCORP HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Missouri 43-1766315
(State of Incorporation) (I.R.S. Employer
Identification No.)
800 Market Street, Suite 2900
St. Louis, MO 63101
(Address of principal (Zip Code)
executive offices)
(314) 877-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (x) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding Shares at
par value $.01 per share February 12, 2001
29,859,907
RALCORP HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Statement of Earnings 1
Condensed Consolidated Balance Sheet 2
Condensed Consolidated Statement of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
(i)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Dollars in millions except per share data, shares in thousands)
Three Months Ended
December 31,
------------------
2000 1999
-------- --------
Net Sales $ 277.3 $ 204.9
-------- --------
Costs and Expenses
Cost of products sold 216.2 155.5
Selling, general and administrative 34.1 25.6
Advertising and promotion 8.3 6.2
Interest expense, net 4.6 1.1
Merger termination fee, net of
related expenses (4.2) -
-------- --------
Total Costs and Expenses 259.0 188.4
-------- --------
Earnings before Income Taxes
and Equity Earnings 18.3 16.5
Income Taxes 6.9 6.0
-------- --------
Earnings before Equity Earnings 11.4 10.5
Equity in Loss of Vail Resorts, Inc.,
Net of Related Deferred Income Taxes (2.7) (2.9)
-------- --------
Net Earnings $ 8.7 $ 7.6
======== ========
Basic Earnings per Share $ 0.29 $ 0.25
======== ========
Diluted Earnings per Share $ 0.29 $ 0.24
======== ========
Weighted Average Shares for
Basic Earnings per Share 29,860 30,537
Dilutive effect of:
Stock options 119 453
Deferred compensation awards - 194
-------- --------
Weighted Average Shares for
Diluted Earnings per Share 29,979 31,184
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
1
RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
Dec. 31, Sept. 30,
2000 2000
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 4.5 $ 4.1
Receivables, net 101.7 102.4
Inventories -
Raw materials and supplies 57.4 57.8
Finished products 77.9 92.3
Prepaid expenses 2.5 3.5
Other current assets 6.7 6.7
-------- --------
Total Current Assets 250.7 266.8
Investment in Vail Resorts, Inc. 71.8 75.9
Intangible Assets, Net 182.6 186.1
Property, Net 269.5 271.9
Other Assets 6.4 4.0
-------- --------
Total Assets $ 781.0 $ 804.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 66.0 $ 78.5
Other current liabilities 49.6 39.4
-------- --------
Total Current Liabilities 115.6 117.9
Long-term Debt 234.6 264.4
Deferred Income Taxes 35.2 36.6
Other Liabilities 36.5 35.5
Commitments and Contingencies - -
-------- --------
Total Liabilities 421.9 454.4
-------- --------
Shareholders' Equity
Common stock .3 .3
Capital in excess of par value 110.0 110.0
Retained earnings 301.4 292.7
Common stock in treasury, at cost (52.7) (52.7)
Accumulated other comprehensive income .1 -
-------- --------
Total Shareholders' Equity 359.1 350.3
-------- --------
Total Liabilities and
Shareholders' Equity $ 781.0 $ 804.7
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
2
RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Three Months Ended
December 31,
-------------------
2000 1999
-------- --------
Cash Flows from Operations
Net earnings $ 8.7 $ 7.6
Non-cash items included in net earnings 12.5 11.4
Changes in current assets and liabilities,
net of effects of acquisitions 14.2 (2.1)
Other, net (1.1) 2.1
-------- --------
Net cash provided by operations 34.3 19.0
-------- --------
Cash Flows from Investing Activities
Business acquisitions, net of cash acquired .6 (37.7)
Additions to property and intangible assets (5.2) (6.4)
Proceeds from sale of property .5 -
-------- --------
Net cash used by investing activities (4.1) (44.1)
-------- --------
Cash Flows from Financing Activities
Net (repayments) borrowings under credit arrangements (29.8) 27.0
-------- --------
Net cash (used) provided by financing activities (29.8) 27.0
-------- --------
Net Increase in Cash and Cash Equivalents .4 1.9
Cash and Cash Equivalents, Beginning of Period 4.1 1.9
-------- --------
Cash and Cash Equivalents, End of Period $ 4.5 $ 3.8
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
3
RALCORP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Unaudited)
(Dollars in millions)
NOTE 1 - PRESENTATION OF CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited historical financial statements of the Company 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, consisting only of normal recurring 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. Certain prior year amounts have been
reclassified to conform with the current year's presentation. These statements
should be read in connection with the financial statements and notes included in
the Company's Annual Report to Shareholders for the year ended September 30,
2000.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS
On October 1, 2000, the Company implemented, on a prospective basis, Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138
(collectively, the Statement). This Statement requires all derivatives to be
recognized in the balance sheet at fair value, with changes in that fair value
to be recorded in current earnings or deferred in other comprehensive income,
depending on whether the derivative instrument qualifies as a hedge and, if so,
the nature of the hedging activity. The Company's transition adjustment upon
adoption of the Statement was immaterial. In the ordinary course of business,
the Company is exposed to commodity price risks relating to the acquisition of
raw materials and supplies and interest rate risks relating to debt. Authorized
individuals within the Company may utilize derivative financial instruments,
including (but not limited to) futures contracts, option contracts, forward
contracts and swaps, to manage certain of these exposures by hedging when it is
practical to do so. The terms of these instruments generally do not exceed
twelve months. The Company is not permitted to engage in speculative or
leveraged transactions and will not hold or issue financial instruments for
trading purposes. Hedge accounting is only applied when the derivative is
deemed to be highly effective at offsetting changes in fair values or
anticipated cash flows of the hedged item or transaction. Earnings impacts for
all designated hedges are recorded in the Consolidated Statement of Earnings
generally on the same line item as the gain or loss on the item being hedged.
For a fair value hedge of a recognized asset or liability or unrecognized firm
commitment, the entire change in fair value of the derivative is recorded in
earnings as incurred. For a cash flow hedge of an anticipated transaction, the
ineffective portion of the change in fair value of the derivative is recorded in
earnings as incurred, whereas the effective portion is deferred in accumulated
other comprehensive income in the Consolidated Balance Sheet until the
transaction is realized, at which time any deferred hedging gains or losses are
recorded in earnings. During the quarter ended December 31, 2000, hedging
activities were immaterial, consisting of only cash flow hedges of ingredient
purchases. See Note 4 for the related effect on comprehensive income.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." SAB 101
provides guidance on recognition, presentation and disclosure of revenue in
financial statements. In addition, the Emerging Issues Task Force (EITF) issued
EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," which states
that amounts billed, if any, for shipping and handling should be included in
revenue and amounts incurred for shipping and handling should not be netted
against revenue, and EITF 00-14, "Accounting for Certain Sales Incentives",
which provides guidance on accounting for discounts, coupons, rebates and free
product. Ralcorp will be required to adopt SAB 101 (as amended by SAB 101B),
4
EITF 00-10 and EITF 00-14 no later than the fourth quarter of fiscal year 2001.
Management is still evaluating the impact of this new guidance but does not
expect the Company's adoption to have a material effect on its results of
operations. Current estimates indicate that including freight costs in "Cost of
products sold" instead of netting them with sales (in accordance with EITF
00-10) will result in an increase in reported cost of products sold of
approximately 10% and an increase in reported net sales of approximately 7.5%.
NOTE 3 - MERGER TERMINATION FEE
Agribrands International, Inc. terminated a merger agreement with Ralcorp on
December 1, 2000. In accordance with the agreement, Ralcorp received a payment
of $5.0 as a termination fee, which was recorded in the first quarter of fiscal
2001 net of related expenses. The after-tax effect of this nonrecurring income
item was $2.6, or $.09 per diluted share.
NOTE 4 - COMPREHENSIVE INCOME
Three Months Ended
December 31,
------------------
2000 1999
------ ------
Net earnings $ 8.7 $ 7.6
Other comprehensive income -
Deferred gain on cash flow
hedging instruments .1 -
------ ------
Comprehensive income $ 8.8 $ 7.6
====== ======
NOTE 5 - RECEIVABLES, NET consisted of the following:
Dec. 31, Sep. 30,
2000 2000
--------- ---------
Receivables $ 103.3 $ 104.0
Allowance for doubtful accounts (1.6) (1.6)
--------- ---------
$ 101.7 $ 102.4
========= =========
NOTE 6 - INTANGIBLE ASSETS, NET consisted of the following:
Dec. 31, Sep. 30,
2000 2000
--------- ---------
Intangible assets at cost $ 205.1 $ 205.8
Accumulated amortization (22.5) (19.7)
--------- ---------
$ 182.6 $ 186.1
========= =========
5
NOTE 7 - PROPERTY, NET consisted of the following:
Dec. 31, Sep. 30,
2000 2000
--------- ---------
Property at cost $ 413.6 $ 411.6
Accumulated depreciation (144.1) (139.7)
--------- ---------
$ 269.5 $ 271.9
========= =========
NOTE 8 - RESTRUCTURING CHARGES
Other current liabilities include restructuring reserves as follows:
Sep. 30, Amount Dec. 31,
2000 Utilized 2000
-------- -------- --------
Severance, benefits and outplacement expenses $ 2.1 $ (.8) $ 1.3
Asset write-down .6 - .6
------- ------- -------
$ 2.7 $ (.8) $ 1.9
======= ======= =======
NOTE 9 - LONG-TERM DEBT consisted of the following:
December 31, 2000 September 30, 2000
------------------ ------------------
Balance Rate Balance Rate
--------- ------- --------- -------
Credit Agreement A $ 125.0 7.480% $ 125.0 7.375%
Credit Agreement B 80.0 7.625% 100.0 7.625%
Uncommitted credit arrangements 23.6 7.333% 33.3 7.474%
Industrial Development Revenue Bond 5.6 4.860% 5.6 5.575%
Other .4 Various .5 Various
--------- ---------
$ 234.6 $ 264.4
========= =========
6
NOTE 10 - SEGMENT INFORMATION
The tables below present information about the Company's reportable segments:
Three Months Ended
December 31,
-------------------
2000 1999
-------- --------
Net Sales
Cereals $ 73.4 $ 73.8
Crackers & Cookies 61.4 60.1
Snack Nuts & Candy 58.0 54.6
Dressings, Syrups, Jellies & Sauces 84.5 16.4
-------- --------
Total $ 277.3 $ 204.9
======== ========
Profit Contribution
Cereals, Crackers & Cookies $ 16.2 $ 16.2
Snack Nuts & Candy 5.6 3.9
Dressings, Syrups, Jellies & Sauces .3 .6
-------- --------
Total segment profit contribution 22.1 20.7
Interest expense (4.6) (1.1)
Merger termination fee, net of
related expenses 4.2 -
Unallocated corporate expenses (3.4) (3.1)
-------- --------
Earnings before income taxes
and equity earnings $ 18.3 $ 16.5
======== ========
Dec. 31, Sep. 30,
2000 2000
-------- --------
Total Assets
Cereals, Crackers & Cookies $ 335.4 $ 348.1
Snack Nuts & Candy 126.3 132.0
Dressings, Syrups, Jellies & Sauces 227.2 225.8
Corporate 92.1 98.8
-------- --------
Total $ 781.0 $ 804.7
======== ========
NOTE 11 - SUBSEQUENT EVENT
On January 31, 2001, the Company completed the purchase of the wet products
portion of The Torbitt & Castleman Company, LLC, located in Buckner, Kentucky.
Acquired product lines include private label syrups, Mexican sauces, jams and
jellies, barbecue sauces, flavored syrups and other specialty sauces and total
approximately $80 in annual sales. The acquired business will be operated as
part of the Dressings, Syrups, Jellies & Sauces segment.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion summarizes the significant factors affecting the
consolidated operating results, financial condition, liquidity and capital
resources of Ralcorp Holdings, Inc. (Company). This discussion should be read
in conjunction with the financial statements under Item 1, especially Note 10 -
Segment Information.
RESULTS OF OPERATIONS
CEREALS, CRACKERS & COOKIES
First quarter net sales for the Cereals, Crackers & Cookies segment were up
$.9 million from last year, with the Bremner cracker and cookie division
reporting a $1.3 million increase and the Ralston Foods cereal division showing
a $.4 million decline.
Bremner benefited from incremental revenue from Cascade Cookie Company,
acquired on January 28, 2000. This increase was partially offset by lower sales
in the pre-existing cracker and cookie businesses. Cracker volumes declined 4
percent from a year ago, reversing a portion of the 8 percent increase recorded
for the quarter ended December 31, 1999, when a number of large cracker
customers requested additional shipments in light of Y2K concerns. Cookie
volumes declined 9.5 percent due to the timing of shipments under
comanufacturing agreements and less promotional activity, partially offset by
sales to new customers.
Ralston Foods reported lower net sales principally due to the December 31,
1999 termination of a ready-to-eat (RTE) cereal comanufacturing agreement. This
loss of business was partially offset by new comanufacturing agreements in both
RTE and hot cereals. In addition, Ralston Foods' base store brand RTE cereal
volume increased more than 4 percent from last year's first quarter, despite an
industry decline in the overall RTE cereal category, due to increased
distribution with existing customers. Net sales of private label hot cereals
increased 3 percent from the prior year as a favorable product mix more than
offset a 3 percent decline in volume.
Profit contribution for the Cereals, Crackers & Cookies segment was
unchanged from the prior year's first quarter as an increase at Bremner was
offset by a decrease at Ralston Foods. The improvement at Bremner was again due
to incremental profit from Cascade, net of a reduction in profit from the
pre-existing businesses. Those profits were hurt not only by the lower sales
level but also by higher energy and packaging costs. These negative effects
were significantly offset by lower ingredient prices, improved yields and
increased productivity. Profits at Ralston Foods declined primarily as a result
of the aforementioned reduction in comanufacturing business as well as higher
energy and packaging costs.
SNACK NUTS & CANDY
First quarter net sales for the Snack Nuts & Candy segment, also known as
Nutcracker, increased 6 percent, reflecting incremental candy business from the
Linette acquisition, partially offset by slightly lower snack nut volumes and
net sales. Linette, a chocolate candy manufacturer, was acquired on May 1,
2000. The decrease in snack nut sales was primarily due to product mix and the
timing of shipments to a large customer.
First quarter segment profit contribution increased $1.7 million from the
corresponding period last year. This improvement was due not only to the
addition of Linette, but also to more favorable raw material costs, primarily
cashews, in the pre-existing snack nut businesses. Last year, cashew costs were
inflated because of a worldwide shortage. In addition, segment profit
contribution was helped by the closure of the Fitzgerald, GA plant in April
2000. Savings from the plant closure are estimated at $.8 million to $1.0
million on an annual basis, of which $.2 million is noncash savings.
8
DRESSINGS, SYRUPS, JELLIES & SAUCES
The Company's Dressings, Syrups, Jellies & Sauces segment, also known as
Carriage House, comprises the operations of Martin Gillet & Co., Inc., acquired
in 1999, and The Red Wing Company, Inc., acquired on July 14, 2000. The closing
of the Baltimore facility and the moving of production and equipment to other
facilities were completed in January 2001. The Company recorded a $2.5 million
pre-tax restructuring charge related to this move in the fourth quarter of
fiscal 2000.
The segment's net sales for the quarter ended December 31, 2000 reflect a
significant increase from last year's first quarter due to the timing of the Red
Wing acquisition, but are much lower than pro forma net sales of $106.2 million
for the three months ended December 31, 1999. This sales decline is the result
of reduced volume to retail accounts, a significant decline in syrup volumes
under a comanufacturing agreement, and lower sales of industrial tomato paste.
Profits were hurt by the lower sales level as well as manufacturing
inefficiencies related to the relocation of equipment from the Baltimore
facility.
CONSOLIDATED
NET SALES Net sales grew from $204.9 million in the first quarter of
fiscal 2000 to $277.3 million in the first quarter of fiscal 2001. The 35
percent increase was due primarily to business acquisitions. Refer to the
segment discussions above for specific factors affecting these historical
results.
OPERATING EXPENSES The following table shows operating expenses as a
percentage of net sales.
Three Months Ended
December 31,
-------------------
2000 1999
------ ------
Net Sales 100.0% 100.0%
Cost of products sold 78.0% 75.9%
Selling, general and administrative (SG&A) 12.3% 12.5%
Advertising and promotion (A&P) 3.0% 3.0%
------ ------
Earnings before Interest, Termination Fee,
Income Taxes and Equity Earnings 6.7% 8.6%
====== ======
The acquisition of Red Wing in July 2000 significantly changed the Company's
business mix. Consequently, the cost of products sold percentage has changed,
reflecting the lower gross margin of the Dressings, Syrups, Jellies & Sauces
business. Refer to the segment discussions above for other factors affecting
operating expenses.
INTEREST EXPENSE, NET Interest expense increased to $4.6 million for the
three months ended December 31, 2000, compared to $1.1 million in the first
quarter of the prior year, primarily due to higher debt levels resulting from
the Cascade, Linette and Red Wing acquisitions. However, debt levels were
reduced by almost $30 million from September 30 to December 31, 2000. Since
nearly all of the Company's debt incurs interest at floating rates, changes in
short-term interest rates impact interest expense. On a weighted-average basis,
interest rates on the Company's debt increased compared to last year's first
quarter, but are expected to reflect the recent rate cuts in the coming quarter.
9
MERGER TERMINATION FEE Agribrands International, Inc. terminated a merger
agreement with Ralcorp on December 1, 2000. In accordance with the agreement,
Ralcorp received a payment of $5.0 million as a termination fee, which was
recorded in the first quarter of fiscal 2001 net of related expenses. The
after-tax effect of this nonrecurring income item was $2.6, or $.09 per diluted
share.
INCOME TAXES Income tax provisions generally reflect statutory tax rates
for each of the fiscal years. The effective rate was affected by recent
acquisitions, whose higher state tax rates and nondeductible goodwill
amortization increased the Company's overall tax rate.
EQUITY IN EARNINGS OF VAIL RESORTS, INC. Ralcorp continues to hold an
approximate 21.6 percent equity ownership interest in Vail Resorts, Inc. Vail
Resorts operates on a fiscal year ending July 31; therefore, Ralcorp reports its
portion of Vail Resorts' operating results on a two-month time lag. Vail
Resorts' operations are highly seasonal, typically yielding more than the entire
year's equity income during the Company's second and third fiscal quarter. For
the first quarter ended December 31, 2000, this investment resulted in a
non-cash pre-tax loss of $4.1 million ($2.7 million after taxes), compared to a
$4.4 million loss ($2.9 million after taxes) for last year's first quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's businesses have historically focused on generating positive
cash flows through operations. Management believes that the Company will
continue to generate operating cash flows through its mix of businesses and
expects that short-term and long-term liquidity requirements will be met through
a combination of operating cash flows and strategic use of borrowings under
committed and uncommitted credit arrangements. Capital resources remained
strong at December 31, 2000 with a net worth of $359.1 million and a long-term
debt to total capital ratio of 39.5 percent, improving upon the corresponding
figures for September 30, 2000 of $350.3 million and 43 percent.
Cash flows from operations increased from $19.0 million for the three
months ended December 31, 1999 to $34.3 million for the quarter ended December
31, 2000. This increase is primarily due to a $14 million decrease in working
capital during this year's first quarter compared to a $2 million increase in
working capital during last year's first quarter. Working capital, excluding
cash and cash equivalents, was $130.8 million at December 31, 2000 compared to
$144.8 million at September 30, 2000. Much of this decrease was due to the
timing of a normal seasonal inventory build up during the quarter ended
September 30 at Red Wing's tomato paste production facility, acquired in July
2000. In addition, the Snack Nuts & Candy segment built additional inventory in
September 2000 in anticipation of increased holiday sales during this year's
first quarter, returning to normal levels by December 31, 2000.
Cash flows from operations for the first quarter of fiscal 2001 includes
the $5 million merger termination fee received from Agribrands.
Cash flows related to business acquisitions resulted in a $.6 million net
inflow during the first quarter of fiscal 2001 and a $37.7 net outflow during
the first quarter last year. Last year's outflow related to the acquisition of
Ripon Foods, Inc. on October 4, 1999. This year's inflow was due to a purchase
price adjustment related to the acquisition of Red Wing, net of some related
acquisition costs.
Capital expenditures were $5.2 million and $6.4 million in the quarters
ended December 31, 2000 and 1999, respectively. Despite the low capital
spending level in the first quarter, capital expenditures for fiscal 2001 are
expected to total approximately $30 million.
10
During the quarter ended December 31, 1999, long-term debt increased $27
million as a result of borrowings to help fund the acquisition of Ripon Foods.
During the quarter ended December 31, 2000, the Company made no new acquisitions
and was able to reduce its debt by nearly $30 million as a result of substantial
operating cash flows.
OUTLOOK
CEREALS, CRACKERS & COOKIES
The level of competition in the cereal category continues to be intense.
Competition comes from branded box cereal manufacturers, branded bagged cereal
producers and other private label cereal providers. For the last several years,
the overall category has not recorded any meaningful growth, which has only
added to the competitive nature. When the competition focuses on
price/promotion, the environment for private label producers becomes more
challenging. Ralston Foods must maintain an effective price gap between its
quality private label cereal products and those of branded cereal producers,
thereby providing the best value alternative for the consumer. Increased
distribution, including new co-manufacturing opportunities, new product
emulations and aggressive cost containment remain important goals of the
organization.
The Company's cracker and cookie operation, Bremner, also conducts business
in a highly competitive category. Major branded competitors continue to
aggressively market and promote their offerings and many smaller, regional
participants provide additional competitive pressures. During fiscal 2000, two
large branded competitors announced that they had been acquired by even larger
organizations, which may add to the competitive environment. Bremner's ability
to successfully respond to changing market conditions and to realize improved
operating efficiencies from recent acquisitions will be important to its results
of operations. In addition, Bremner will continue to focus on cost containment,
new products and volume growth of existing products in order to improve
operating results.
SNACK NUTS & CANDY
The outlook for the Snack Nuts & Candy segment remains favorable, as the
snack nut category leader continues to drive growth in this snack food segment.
Cashew costs are trending down from significant highs and the Company has
completed its consolidation of three snack nut operations down to two plants,
which should improve the segment's profitability. The addition of chocolate
candy capability through the acquisition of Linette has increased the scope of
products offered by the segment. From an operation perspective, the segment
will continue to focus on fully leveraging the combined strengths of all of its
operations, growing its customer base and maintaining the quality of its
products.
DRESSINGS, SYRUPS, JELLIES & SAUCES
The Dressings, Syrups, Jellies & Sauces segment is undergoing major
operational changes in the beginning of fiscal 2001.
The consolidation of its Baltimore operation into the Dunkirk facility was
completed in January 2001. On January 23, 2001, the Company announced that its
plant in San Jose, CA would be closed, transferring production to other Carriage
House facilities, by June 2001. The associated costs will be recorded as a
liability assumed in the purchase of Red Wing; accordingly, Ralcorp expects that
these costs will have no significant impact on the reported earnings of the
Company. The closure of the Baltimore and San Jose plants are part of the
ongoing effort to rationalize the segment's production capacity and improve
operating efficiencies. The Company expects that these cost reduction efforts
will improve the profit contribution of Carriage House beginning in the second
half of the year, with estimated annual cost savings of $5 million to $6
million, of which $.8 million is noncash savings.
11
On January 31, 2001, the Company completed the purchase of the wet products
portion of The Torbitt & Castleman Company, LLC. Acquired product lines include
private label syrups, Mexican sauces, jams and jellies, barbecue sauces,
flavored syrups and other specialty sauces and total approximately $80 million
in annual sales. The acquired business will be operated as part of Ralcorp's
Carriage House division.
Carriage House plans to improve performance by increasing sales to new and
existing customers by expanding product offerings and further integrating the
sales efforts of the former Martin Gillet, Red Wing and Torbitt & Castleman
businesses. Cost containment and the capturing of additional synergies of the
three organizations will also be critical objectives.
OVERALL
The Company's management believes that the opportunities in the private
label and value brand areas are favorable for long-term growth. The Company has
taken significant steps to reshape the Company and lessen its reliance on any
one business segment and to achieve sufficient scale in the categories in which
it operates. Management expects to continue to improve its business mix through
volume and profit growth of existing businesses, as well as through key
acquisitions or alliances. Management will continue to explore those
acquisition opportunities that strategically fit with the Company's intentions
of being the premier provider of private label, or value-oriented, food
products.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Report. These
forward-looking statements are sometimes identified by their use of terms and
phrases such as "believes," "should," "expects," "anticipates," "intends,"
"plans," "will" or similar expressions elsewhere in this Report. The Company's
results of operations and financial condition may differ materially from those
in the forward-looking statements. Such statements are based on management's
current views and assumptions, and involve risks and uncertainties that could
affect expected results. For example, any of the following factors cumulatively
or individually may impact expected results:
(i) If the Company is unable to maintain a meaningful price gap between its
private label products and the branded products of its competitors, successfully
introduce new products or successfully manage costs across all parts of the
Company, the Company's private label businesses could incur operating losses;
(ii) Consolidation among members of the grocery trade may lead to increased
wholesale price pressure from larger grocery trade customers and could result in
the loss of key accounts if the surviving entities are not customers of the
Company;
(iii) Significant increases in the cost of certain raw materials (e.g., wheat,
soybean oil, various nuts) or energy used to manufacture the Company's products,
to the extent not reflected in the price of the Company's products, could
adversely impact the Company's results;
(iv) In light of its significant ownership in Vail Resorts, Inc., the Company's
non-cash earnings can be adversely affected by Vail Resorts' unfavorable
performance;
(v) The Company is currently generating profit from certain co-manufacturing
contract arrangements with other manufacturers within its competitive
categories. The termination or expiration of these contracts, and the inability
of the Company to replace this level of business could negatively affect the
Company's operating results;
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(vi) The Company's businesses compete in mature segments with competitors
having large percentages of segment sales;
(vii) The Company has realized increases to sales and earnings through the
acquisitions of businesses, but the ability to undertake future acquisitions
depends on many factors that the Company does not control, such as identifying
acquisition candidates and negotiating satisfactory terms upon which to purchase
such candidates; and
(viii) Several of the Company's key competitors have been or are being sold.
Such changes in ownership could lead to the competitors adopting different
marketing and sales strategies that could negatively impact the Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 2 in Item 1 for a discussion regarding recently issued accounting
standards, including FAS 133, SAB 101, and EITF 00-10 and 00-14.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the ordinary course of business, the Company is exposed to commodity
price risks relating to the acquisition of raw materials. The Company utilizes
derivative financial instruments, including futures contracts and options, to
manage certain of these exposures when it is practical to do so. Management
believes there have been no material changes in the Company's commodity price
risk during the three months ended December 31, 2000. For additional
information, refer to Item 7(A) of the Company's Annual Report on Form 10-K for
the year ended September 30, 2000.
As a result of its debt, essentially all of which incurs interest at
floating rates, the Company is exposed to interest rate risk. Refer to Note 9
in Item 1 herein.
PART II. OTHER INFORMATION
There is no information required to be reported under any items except those
indicated below.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 23, 2001, the Registrant announced that its Carriage House Companies,
Inc. plant in San Jose, California would be closed.
On January 30, 2001, the Registrant announced its earnings for the first quarter
ended December 31, 2001.
On January 31, 2001, the Registrant announced completion of the acquisition of
the wet products portion of the Torbitt & Castleman Company, LLC.
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.
RALCORP HOLDINGS, INC.
By: /s/ T. G. Granneman
-------------------
T. G. Granneman
Duly Authorized Signatory and
February 14, 2001 Chief Accounting Officer
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EXHIBIT INDEX
Exhibit
Number Description
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27 Financial Data Schedule