form10q020410.htm
UNITED STATES
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, 2009.
   
(  )
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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes (  )   No (  )

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company..  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer (X)
Accelerated filer (  )
Non-accelerated filer (  )
Smaller reporting company (  )

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes (  )   No (X)

Number of shares of Common Stock, $.01 par value, outstanding as of February 3, 2010:  54,744,703
 
 

 
 
 
 

RALCORP HOLDINGS, INC.

INDEX

   
PAGE
PART I.
FINANCIAL INFORMATION
  
     
Item 1.
Financial Statements
1
     
 
Condensed Consolidated Statements of Earnings
1
     
 
Condensed Consolidated Statements of Comprehensive Income
1
     
 
Condensed Consolidated Balance Sheets
2
     
 
Condensed Consolidated Statements 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
17
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
22
     
Item 4.
Controls and Procedures
22
     
PART II.
OTHER INFORMATION
  
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
23
     
Item 4.
Submission of Matters to a Vote of Security Holders
23
     
Item 6.
Exhibits
24
     
SIGNATURES
24
 
 
 
(i)
 
 
 
 
 
PART I.  FINANCIAL INFORMATION
 
Item 1.
Financial Statements.

RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Dollars in millions except per share data)
 
 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
         
Net Sales
 $     991.9
  
 $     968.2
  
Cost of products sold
       (719.1
 )
       (721.9
 )
Gross Profit
        272.8
  
        246.3
  
Selling, general and administrative expenses
       (140.0
 )
       (147.4
 )
Interest expense, net
         (26.5)
 )
         (26.3
 )
Gain on forward sale contracts
                -
  
          22.5
  
Gain on sale of securities
                -
  
          15.8
  
Restructuring charges
             (.7
 )
             (.1
 )
Earnings before Income Taxes
        
  and Equity Loss
        105.6
  
        110.8
  
Income taxes
         (38.4
 )
         (41.2
 )
Earnings before Equity Loss
          67.2
  
          69.6
  
Equity in loss of Vail Resorts, Inc.,
        
  net of related deferred income taxes
                -
  
           (4.1
 )
Net Earnings
 $       67.2
  
 $       65.5
  
         
Earnings per Share
        
  Basic
 $       1.20
  
 $       1.17
  
  Diluted
 $       1.19
  
 $       1.15
  
 
See accompanying Notes to Condensed Consolidated Financial Statements.



RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in millions)

 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
         
Net Earnings
 $       67.2
  
 $       65.5
  
Other comprehensive income (loss)
          13.1
  
         (44.9
 )
Comprehensive Income
 $       80.3
  
 $       20.6
  
         
See accompanying Notes to Condensed Consolidated Financial Statements.




 
1
 

RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in millions)
 
 
Dec. 31,
  
Sept. 30,
  
 
2009
  
2009
  
         
Assets
        
Current Assets
        
  Cash and cash equivalents
 $     151.8
  
 $     282.8
    
  Marketable securities
          10.0
  
          12.0
  
  Investment in Ralcorp Receivables Corporation
        126.5
  
        134.4
  
  Receivables, net
        105.3
  
        135.9
  
  Inventories
        358.7
  
        365.9
  
  Deferred income taxes
            5.2
  
          10.6
  
  Prepaid expenses and other current assets
          18.8
  
          12.6
  
    Total Current Assets
        776.3
  
        954.2
  
Property, Net
        906.8
  
        913.1
  
Goodwill
     2,386.8
  
     2,386.6
  
Other Intangible Assets, Net
     1,162.9
  
     1,172.2
  
Other Assets
          27.7
  
          26.1
  
    Total Assets
 $  5,260.5
  
 $  5,452.2
  
         
Liabilities and Shareholders' Equity
        
Current Liabilities
        
  Accounts and notes payable
 $     182.9
  
 $     240.4
  
  Due to Kraft Foods Inc.
            9.2
  
          13.6
  
  Other current liabilities
        219.5
  
        225.0
  
    Total Current Liabilities
        411.6
  
        479.0
  
Long-term Debt
     1,521.7
  
     1,611.4
  
Deferred Income Taxes
        455.2
  
        464.6
  
Other Liabilities
        196.2
  
        191.6
  
    Total Liabilities
     2,584.7
  
     2,746.6
  
Shareholders' Equity
        
  Common stock
              .6
  
              .6
  
  Additional paid-in capital
     1,933.4
  
     1,931.4
  
  Common stock in treasury, at cost
       (356.9
 )
       (244.8
 ) 
  Retained earnings
     1,126.5
  
     1,059.3
  
  Accumulated other comprehensive income
         (27.8
 ) 
         (40.9
 ) 
    Total Shareholders' Equity
     2,675.8
  
     2,705.6
  
    Total Liabilities and Shareholders' Equity
 $  5,260.5
  
 $  5,452.2
  
         
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 
 

 
2
 

RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in millions)

 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
         
Cash Flows from Operating Activities
        
Net earnings
 $       67.2
  
 $       65.5
  
Adjustments to reconcile net earnings to net
        
  cash flow provided by operating activities:
        
  Depreciation and amortization
          38.4
  
          37.3
  
  Stock-based compensation expense
            5.0
  
            4.1
  
  Gain on forward sale contracts
                -
  
         (22.5
 ) 
  Gain on sale of securities
                -
  
         (15.8
 ) 
  Equity in loss of Vail Resorts, Inc.
                -
  
            6.4
  
  Deferred income taxes
           (9.5
 )  
             (.5
 ) 
  Sale of receivables, net
                -
  
          25.0
  
  Other, net
          19.8
  
          22.3
  
    Net Cash Provided by Operating Activities
        120.9
  
        121.8
  
         
Cash Flows from Investing Activities
        
Additions to property and intangible assets
         (22.5
 ) 
         (17.3
 ) 
Proceeds from sale of property
              .3
  
                -
  
Purchases of securities
         (12.8
 )  
             (.7
 ) 
Proceeds from sale or maturity of securities
          14.8
  
            7.4
  
    Net Cash Used by Investing Activities
         (20.2
 ) 
         (10.6
 ) 
         
Cash Flows from Financing Activities
        
Repayments of long-term debt
         (89.7
 ) 
       (142.2
 ) 
Net borrowings under credit arrangements
                -
  
          39.6
  
Purchases of treasury stock
       (115.5
 ) 
                -
  
Proceeds and tax benefits from exercise of stock awards
              .7
  
          10.1
  
Changes in book cash overdrafts
         (27.6
 ) 
         (12.0
 ) 
Other, net
                -
  
           (1.1
 ) 
    Net Cash Used by Financing Activities
       (232.1
 ) 
       (105.6
 ) 
         
Effect of Exchange Rate Changes on Cash
              .4
  
             (.8
 ) 
         
Net (Decrease) Increase in Cash and Cash Equivalents
       (131.0
 ) 
            4.8
  
Cash and Cash Equivalents, Beginning of Period
        282.8
  
          14.1
  
Cash and Cash Equivalents, End of Period
 $     151.8
  
 $       18.9
  
         
See accompanying Notes to Condensed Consolidated Financial Statements.

 
 

 
3
 

RALCORP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions except per share data)


NOTE 1 – PRESENTATION OF CONDENSED FINANCIAL STATEMENTS

The accompanying unaudited historical financial statements of Ralcorp Holdings, Inc. (“Ralcorp” or 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.  These interim financial statements reflect all adjustments which are, in the opinion of management, necessary to fairly state the results for the periods presented.  All such adjustments are of a normal recurring nature.  Certain amounts for prior periods have been reclassified to conform to the current period’s presentation, including segment information.  Operating results for the periods presented are not necessarily indicative of the results for the full year.  These statements should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 2009, filed on November 30, 2009.  The significant accounting policies for the accompanying financial statements are the same as disclosed in that Annual Report.  The Company has evaluated subsequent events through February 4, 2010, the date on which the financial statements presented herein were issued as part of its Quarterly Report on Form 10-Q for the period ended December 31, 2009.

NOTE 2 – ACQUISITION

On March 20, 2009, the Company acquired Harvest Manor Farms, LLC, a leading manufacturer of high quality private label and Hoody's branded snack nuts reported in Ralcorp’s Snacks, Sauces & Spreads segment.  Ralcorp’s consolidated financial statements include the results of operations for this acquisition since its acquisition date.  The following pro forma information shows Ralcorp’s results of operations as though this business combination had been completed as of October 1, 2008.  These pro forma results do not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations.
 

 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
Net sales
 $     991.9
  
 $  1,022.7
  
Net earnings
          67.2
  
          66.0
  
Basic earnings per share
          1.20
  
          1.17
  
Diluted earnings per share
          1.19
  
          1.16
  
         

 
 
 
 
4
 

NOTE 3 – PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors qualified and supplemental noncontributory defined benefit pension plans and other postretirement benefit plans for certain of its employees.  The following table provides the components of net periodic benefit cost for the plans.

 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
Pension Benefits
        
  Service cost
 $         1.7
  
 $         1.2
  
  Interest cost
            3.3
  
            3.1
  
  Expected return on plan assets
           (4.0
 ) 
           (3.8
 ) 
  Amortization of prior service cost
              .1
  
              .1
  
  Amortization of net loss
              .9
  
                -
  
  Net periodic benefit cost
 $         2.0
  
 $           .6
  
         
Other Benefits
        
  Service cost
 $           .7
  
 $           .7
  
  Interest cost
            1.3
  
            1.5
  
  Amortization of net loss
             (.3
 ) 
                -
  
  Net periodic benefit cost
 $         1.7
  
 $         2.2
  
         

NOTE 4 – FORWARD SALE CONTRACTS

Between December 31, 2005 and December 31, 2006, Ralcorp entered into three forward sale contracts relating to 4.95 million shares of its Vail common stock.  As of June 4, 2009, all of the contracts were settled.  Ralcorp received cash under the discounted advance payment feature of the contracts, and amortization of the discounts (which totaled $2.1 for the three months ended December 31, 2008) was included in “Interest expense, net” on the statement of earnings.  In addition to the unrealized non-cash gains or losses, the $22.5 reported gains on these contracts included charges (paid monthly) for any related stock borrow costs incurred by the counterparty in excess of a contractual limit.  During the three months ended December 31, 2008, excess stock borrow costs (and payments) totaled $1.2.

NOTE 5 – RESTRUCTURING CHARGES

Restructuring charges for the three months ended December 31, 2009 and 2008 included residual costs related to the closure of the Frozen Bakery Products plant in Blue Island, IL, which was substantially completed in fiscal 2007.  The charges in the three months ended December 31, 2009 included a related asset impairment charge of $.6.
 
 
 
 
 
 
5
 
 
NOTE 6 – EARNINGS PER SHARE

The weighted-average shares outstanding for basic and diluted earnings per share were as follows (in thousands):

 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
         
Weighted Average Shares
        
  for Basic Earnings per Share
      55,924
  
      56,048
  
  Dilutive effect of:
        
    Stock options
           346
  
           543
  
    Stock appreciation rights
           142
  
           155
  
    Restricted stock awards
           150
  
           146
  
Weighted Average Shares
        
  for Diluted Earnings per Share
      56,562
  
      56,892
  
         

The following schedule shows stock appreciation rights (SARs) which were outstanding and could potentially dilute basic earnings per share in the future but which were not included in the computation of diluted earnings per share for the periods indicated because to do so would have been antidilutive (in thousands).

 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
SARs at $56.56 per share
           405
  
           435
  
SARs at $66.07 per share
           504
  
           538
  
SARs at $65.45 per share
             25
  
                -
  
SARs at $58.79 per share
               8
  
                -
  
SARs at $56.27 per share
           390
  
                -
  
SARs at $57.14 per share
             13
  
                -
  
         

NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

In the ordinary course of business, the Company is exposed to commodity price risks relating to the acquisition of raw materials and supplies, interest rate risks relating to debt, and foreign currency exchange rate risks relating to its Canadian subsidiaries.  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 eighteen months for commodities, five years for interest rates, and two years for foreign currency.  The Company is not permitted to engage in speculative or leveraged transactions and will not hold or issue financial instruments for trading purposes.
 
As of December 31, 2009, the Company’s derivative instruments consisted of commodity contracts (options, futures, and swaps) used as cash flow or fair value hedges on ingredient purchases and foreign currency forward contracts used as cash flow hedges on receipts of foreign currency-denominated accounts receivable.  The Company has hedged approximately 65% to 90% of its needs related to oats, wheat, corn, soy oil, natural gas, and diesel fuel and 40% to 80% of its corrugate packaging needs over a six to twelve month period.  At December 31, 2009, the Company held foreign currency forward contracts with a total notional amount of $36.0.  During the past several years, the Company was party to interest rate contracts used as cash flow hedges of variable interest payments, as well as forward sale contracts relating to shares of Vail Resorts, Inc. common stock which were not designated as hedging instruments (see Note 4).
 
 
 
 

 
6
 

The following table shows the fair value and balance sheet location of the Company’s derivative instruments as of December 31, 2009, all of which were designated as hedging instruments under ASC Topic 815.

       
Fair Value
       
Dec. 31,
  
Sept. 30,
   
Balance Sheet Location
  
2009
  
2009
Asset Derivatives:
          
 
Foreign exchange contracts
Prepaid expenses and other current assets
  
 $     6.9
  
 $      7.8
 
Commodity contracts
Prepaid expenses and other current assets
  
        5.1
  
           .2
       
 $   12.0
  
 $      8.0
             
Liability Derivatives:
          
 
Commodity contracts
Other current liabilities
  
 $       .8
  
 $      7.8
 
Interest rate contracts
Other current liabilities
  
           -
  
           .4
       
 $       .8
  
 $      8.2
             

The following tables illustrate the effect of the Company’s derivative instruments on the statement of earnings and other comprehensive income (OCI) for the three months ended December 31, 2009 and 2008.
 
   
Amount of Gain
              
Location and Amount of
  
   
(Loss) Recognized
  
Location and Amount of
  
Gain (Loss) Recognized in Earnings
  
Derivatives in
  
in OCI
  
   Gain (Loss) Reclassified from Accumulated
[Ineffective Portion and Amount
  
  ASC Topic 815 Cash Flow
[Effective Portion]
  
OCI into Earnings [Effective Portion]
  
Excluded from Effectiveness Testing]
  
Hedging Relationships
  
2009
  
2008
  
Location
  
2009
  
2008
  
Location
  
2009
  
2008
  
Commodity contracts
  
 $       9.4
  
 $   (27.1
 ) 
Cost of products sold
  
 $   (5.5
 ) 
 $   (3.3
 ) 
Cost of products sold
 $     (.2
 ) 
 $     (.7
 ) 
Foreign exchange contracts
            .7
  
        (4.5
 ) 
SG&A
  
       2.1
  
      (2.0
 ) 
SG&A
  
           -
  
           -
  
Interest rate contracts
  
             -
  
        (1.8
 ) 
Interest expense, net
  
      (1.0
 ) 
        (.3
 ) 
Interest expense, net
  
           -
  
         .1
  
   
 $     10.1
  
 $   (33.4
 )     
 $   (4.4
 ) 
 $   (5.6
 )     
 $     (.2
 ) 
 $     (.6
 ) 
                                   
 
      Derivatives Not Designated
    
Amount of Gain (Loss)
as Hedging Instruments
  
Location of Gain (Loss)
  
Recognized in Earnings
Under ASC Topic 815
  
Recognized in Earnings
  
2009
  
2008
Equity contracts
  
Gain on forward sale contracts
  
 $             -
  
 $       22.5
 
Approximately $5.6 of the net cash flow hedge gains reported in accumulated OCI at December 31, 2009 is expected to be reclassified into earnings within the next twelve months.  For gains or losses associated with commodity contracts, the reclassification will occur when the products produced with hedged materials are sold.  For gains or losses associated with foreign exchange contracts, the reclassification will occur as hedged foreign currency-denominated accounts receivable are received.  For gains or losses associated with interest rate swaps, the reclassification will occur on a straight-line basis over the term of the related debt.
 
Certain of the Company’s derivative instruments contain provisions that require the Company to post collateral when the derivatives in liability positions exceed a specified threshold.  The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on December 31, 2009 was $.8, and the related collateral required was $10.0.
 
 
 
 

 
7
 
 
NOTE 8 – FAIR VALUE MEASUREMENTS

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis and the basis for that measurement according to the levels in the fair value hierarchy in ASC Topic 820:

   
December 31, 2009
  
September 30, 2009
   
Total
  
Level 1
  
Level 2
  
Total
  
Level 1
  
Level 2
Assets
                      
 
Marketable securities
 $ 10.0
  
 $  10.0
  
 $       -
  
 $ 12.0
  
 $  12.0
  
 $       -
 
Derivative assets
    12.0
  
          -
  
     12.0
  
      8.0
  
          -
  
       8.0
 
Deferred compensation investment
    21.7
  
     21.7
  
          -
  
    19.9
  
     19.9
  
          -
   
 $ 43.7
  
 $  31.7
  
 $  12.0
  
 $ 39.9
  
 $  31.9
  
 $    8.0
Liabilities
                      
 
Derivative liabilities
 $     .8
  
 $       -
  
 $      .8
  
 $   8.2
  
 $       -
  
 $    8.2
 
Deferred compensation liabilities
    31.5
  
          -
  
     31.5
  
    29.6
  
          -
  
     29.6
   
 $ 32.3
  
 $       -
  
 $  32.3
  
 $ 37.8
  
 $       -
  
 $  37.8
                         
 

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable.  Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.  The fair value hierarchy consists of three levels:
Level 1 –
Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 –
Inputs are quoted prices of similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 –
Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The Company’s marketable securities consist of U.S. Treasury Bills.  Fair value for marketable securities is measured using the market approach based on quoted prices.  The Company utilizes the income approach to measure fair value for its derivative assets and liabilities (which include commodity options and swaps, an interest rate swap, and foreign currency forward contracts).  The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates, and forward prices.  The fair value of the deferred compensation investment is invested primarily in mutual funds and is measured using the market approach.  This investment is in the same funds and purchased in substantially the same amounts as the participants’ selected investment options (excluding Ralcorp common stock equivalents), which represent the underlying liabilities to participants in the Company’s deferred compensation plans.  Deferred compensation liabilities are recorded at amounts due to participants in cash, based on the fair value of participants’ selected investment options (excluding certain Ralcorp common stock equivalents to be distributed in shares) using the market approach.
 
The carrying amounts reported on the consolidated balance sheets for cash and cash equivalents, receivables and accounts payable approximate fair value because of the short maturities of these financial instruments.  The carrying amount of the Company’s variable rate long-term debt (Note 14) approximates fair value because the interest rates are adjusted to market frequently.  Based on the discounted amount of future cash flows, using Ralcorp’s incremental rate of borrowing for similar debt, the Company’s fixed rate debt (which had a carrying amount of $1,541.4 as of December 31, 2009 and $1,581.1 as of September 30, 2009) had an estimated fair value of $1,741.7 as of December 31, 2009 and $1,800.3 as of September 30, 2009.
 
 
 
 

 
8
 

NOTE 9 – SALE OF RECEIVABLES

The Company has an agreement to sell, on an ongoing basis, all of the trade accounts receivable of certain of its subsidiaries to a wholly owned, bankruptcy-remote subsidiary named Ralcorp Receivables Corporation (RRC).  As of December 31, 2009, the accounts receivable of the Harvest Manor Farms, Post Foods, Bloomfield Bakers, Cottage Bakery, Western Waffles, and Medallion businesses had not been incorporated into the agreement and were not being sold to RRC.  RRC can in turn sell up to $75.0 of ownership interests in qualifying receivables to a bank commercial paper conduit.  Ralcorp continues to service the receivables (with no significant servicing assets or liabilities) and remits collections to RRC, who remits the appropriate portion to the conduit as part of a monthly net settlement including the sale of an additional month of receivables.
 
RRC is a qualifying special purpose entity under ASC Topic 860, and the sale of Ralcorp receivables to RRC is considered a true sale for accounting, tax, and legal purposes.  Therefore, the trade receivables sold and the related commercial paper borrowings are not recorded on Ralcorp’s consolidated balance sheets.  However, the Company’s consolidated balance sheets reflect an investment in RRC that in substance represents a subordinated retained interest in the trade receivables sold.  RRC maintains the risk of credit losses up to the amount of its retained interest.  The investment in RRC is stated at carrying value, which approximates fair value.
 
As of December 31, 2009 and September 30, 2009, the outstanding balance of receivables sold to RRC (net of an allowance for doubtful accounts based on historical losses and the economic status of customers) was $126.5 and $134.4, respectively, and the Company elected not to sell any to the conduit, resulting in a retained interest of $126.5 and $134.4, respectively, reflected on the Company’s consolidated balance sheet as an “Investment in Ralcorp Receivables Corporation.”  Discounts related to the sale of receivables (based on contractual rates) totaled zero and $.4 in the three months ended December 31, 2009 and 2008, respectively, and are included on the statement of earnings in selling, general and administrative expenses.  Cash received from or paid to the conduit is included in net cash flows from operating activities.

NOTE 10 – INVENTORIES consisted of:

 
Dec. 31,
  
Sept. 30,
  
 
2009
  
2009
  
Raw materials and supplies
 $        153.9
  
 $        152.4
  
Finished products
           209.0
  
           217.0
  
 
           362.9
  
           369.4
  
Allowance for obsolete inventory
             (4.2
 ) 
             (3.5
 ) 
 
 $        358.7
  
 $        365.9
  
         

NOTE 11 – PROPERTY, NET consisted of:

 
Dec. 31,
  
Sept. 30,
  
 
2009
  
2009
  
Property at cost
 $     1,479.1
  
 $     1,458.8
  
Accumulated depreciation
         (572.3
 ) 
         (545.7
 ) 
 
 $        906.8
  
 $        913.1
  
         



 
9
 
 
NOTE 12 – OTHER INTANGIBLE ASSETS, NET consisted of:
 
Dec. 31,
  
Sept. 30,
  
 
2009
  
2009
  
Computer software
 $          54.5
  
 $          52.8
  
Customer relationships
           421.7
  
           421.2
  
Trademarks/brands
           816.0
  
           816.0
  
Other
             13.1
  
             13.1
  
 
        1,305.3
  
        1,303.1
  
Accumulated amortization
         (142.4
 ) 
         (130.9
 ) 
 
 $     1,162.9
  
 $     1,172.2
  
         

Amortization expense related to intangible assets was:

 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
Computer software
 $         1.9
  
 $         1.1
  
Customer relationships
            7.2
  
            7.1
  
Trademarks/brands
            1.7
  
            1.5
  
Other
              .5
  
              .4
  
 
 $       11.3
  
 $       10.1
  
         
 
NOTE 13 – CONTINGENCIES

In May 2009, a customer notified the Company that it was seeking to recover out-of-pocket costs and damages associated with the customer’s recall of certain peanut butter-based products.  The customer recalled those products in January 2009 because they allegedly included ingredients that had the potential to be contaminated with salmonella.  The customer’s recall stemmed from the U.S. Food and Drug Administration and other authorities’ investigation of Peanut Corporation of America, which supplied the Company with peanut paste and other ingredients.  In accordance with the Company’s contractual arrangements with the customer, the parties have submitted these claims to mediation, which remains ongoing.  At the present time, the amount of liability, if any, associated with this issue cannot be determined with any certainty.  However, based upon present information, the Company does not believe that its ultimate liability, if any, arising from this claim will be material to the Company’s annual earnings, cash flows, or financial position.
 
 
 
 
 
 
10
 
 
NOTE 14 – LONG-TERM DEBT consisted of:
 
 
December 31, 2009
  
September 30, 2009
 
Balance
  
Rate
  
Balance
  
Rate
Fixed Rate Senior Notes, Series B
 $       29.0
  
4.24%
  
 $       58.0
  
4.24%
Fixed Rate Senior Notes, Series C
          50.0
  
5.43%
  
          50.0
  
5.43%
Fixed Rate Senior Notes, Series D
          42.9
  
4.76%
  
          53.6
  
4.76%
Fixed Rate Senior Notes, Series E
        100.0
  
5.57%
  
        100.0
  
5.57%
Fixed Rate Senior Notes, Series F
          75.0
  
5.43%
  
          75.0
  
5.43%
Floating Rate Senior Notes, Series G
                -
  
n/a
  
          50.0
  
0.86%
Fixed Rate Senior Notes, Series I-1
          75.0
  
5.56%
  
          75.0
  
5.56%
Fixed Rate Senior Notes, Series I-2
          25.0
  
5.58%
  
          25.0
  
5.58%
Fixed Rate Senior Notes, Series J
        100.0
  
5.93%
  
        100.0
  
5.93%
Fixed Rate Senior Notes maturing 2018
        577.5
  
7.29%
  
        577.5
  
7.29%
Floating Rate Senior Notes maturing 2018
          20.0
  
2.81%
  
          20.0
  
2.98%
Fixed Rate Senior Notes maturing 2020
          67.0
  
7.39%
  
          67.0
  
7.39%
Fixed Rate Senior Notes maturing 2039
        300.0
  
6.63%
  
        300.0
  
6.63%
Fixed Rate Senior Notes, Series 2009A
          50.0
  
7.45%
  
          50.0
  
7.45%
Fixed Rate Senior Notes, Series 2009B
          50.0
  
7.60%
  
          50.0
  
7.60%
Industrial Development Revenue Bond
            5.6
  
0.70%
  
            5.6
  
1.00%
$400 Revolving Credit Agreement
                -
  
n/a
  
                -
  
n/a
Other
              .3
  
Various
  
              .3
  
Various
 
     1,567.3
      
     1,657.0
    
Less: Current portion
         (45.6
 )    
         (45.6
 )   
 
 $  1,521.7
      
 $  1,611.4
    
               


NOTE 15 – SHAREHOLDERS’ EQUITY

During the three months ended December 31, 2009, the Company repurchased 2,000,000 shares of its common stock at a total cost of $115.5.  As of December 31, 2009, there were 8,746,479 shares in treasury and 54,730,156 shares outstanding.  As of September 30, 2009, there were 6,840,231 shares in treasury and 56,636,404 shares outstanding.
 
Accumulated other comprehensive income increased $13.1 during the three months ended December 31, 2009 as a result of a $14.7 net gain from cash flow hedging activities and a $3.8 increase in the foreign currency translation adjustment, offset by $5.4 of related income tax adjustments.
 
 
 
 

 
11
 

NOTE 16 – SEGMENT INFORMATION

Effective October 1, 2009, the Company reorganized its management reporting to combine the businesses formerly included in separate Snacks and Sauces & Spreads segments into a single operating segment named Snacks, Sauces & Spreads.   Management evaluates each segment’s performance based on its profit contribution, which is profit or loss from operations before income taxes, interest, costs related to restructuring activities, and other unallocated corporate income and expenses.  The following tables present information about the Company’s reportable segments, including corresponding amounts for the prior year.
 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
Net Sales
        
  Cereals
 $     440.8
  
 $     449.3
  
  Snacks, Sauces & Spreads
        369.3
  
        327.8
  
  Frozen Bakery Products
        181.8
  
        191.1
  
    Total
 $     991.9
  
 $     968.2
  
         
Profit Contribution
        
  Cereals
 $       73.3
  
 $       74.1
  
  Snacks, Sauces & Spreads
          47.5
  
          29.7
  
  Frozen Bakery Products
          26.4
  
          15.0
  
    Total segment profit contribution
        147.2
  
        118.8
  
  Interest expense, net
         (26.5
 ) 
         (26.3
 ) 
  Gain on forward sale contracts
                -
  
          22.5
  
  Gain on sale of securities
                -
  
          15.8
  
  Restructuring charges
             (.7
 ) 
             (.1
 ) 
  Stock-based compensation expense
           (5.0
 ) 
           (4.1
 ) 
  Post Foods transition and integration costs
             (.6
 ) 
           (7.1
 )
  Other unallocated corporate expenses
           (8.8
 ) 
           (8.7
 )
    Earnings before income taxes
        
      and equity loss
 $     105.6
  
 $     110.8
  
         
Depreciation and Amortization
        
  Cereals
 $       18.8
  
 $       20.0
  
  Snacks, Sauces & Spreads
            8.5
  
            7.1
  
  Frozen Bakery Products
            8.7
  
            8.8
  
  Corporate
            2.4
  
            1.4
  
    Total
 $       38.4
  
 $       37.3
  

 
Dec. 31,
  
Sept. 30,
  
 
2009
  
2009
  
Assets
        
  Cereals
 $  3,569.7
  
 $  3,621.2
  
  Snacks, Sauces & Spreads
        610.9
  
        604.0
  
  Frozen Bakery Products
        717.5
  
        723.9
  
    Total segment assets
     4,898.1
  
     4,949.1
  
  Cash and cash equivalents
        151.8
  
        282.8
  
  Investment in Ralcorp Receivables Corporation
        126.5
  
        134.4
  
  Other unallocated corporate assets
          84.1
  
          85.9
  
    Total
 $  5,260.5
  
 $  5,452.2
  
         
 
 
 
 

 
12
 

NOTE 17 – CONDENSED FINANCIAL STATEMENTS OF GUARANTORS
 
On August 14, 2009, the Company issued $300.0 of 6.625% Senior Notes maturing 2039.  The notes are fully and unconditionally guaranteed on a joint and several basis by most of Ralcorp’s domestic subsidiaries (Guarantor Subsidiaries), each of which is wholly owned, directly or indirectly, by Ralcorp Holdings, Inc. (Parent Company).  In addition, such securities are collateralized by 65% of the stock of Ralcorp’s indirectly wholly owned foreign operating subsidiaries.  The notes are not guaranteed by the foreign subsidiaries and a few of Ralcorp’s wholly owned domestic subsidiaries (Non-Guarantor Subsidiaries).
 
Set forth below are condensed consolidating financial statements presenting the results of operations, financial position, and cash flows of the Parent Company, the Guarantor Subsidiaries on a combined basis, and the Non-Guarantor Subsidiaries on a combined basis, along with the eliminations necessary to arrive at the information for Ralcorp Holdings, Inc. on a consolidated basis.  Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among the Parent Company, the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries.  For this presentation, investments in subsidiaries are accounted for using the equity method of accounting.
 
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 
         
Three Months Ended December 31, 2009
  
         
Parent
  
Guarantor
  
  Non-Guarantor
        
         
Company
  
Subsidiaries
  
Subsidiaries
  
Eliminations
  
Consolidated
  
                             
Net Sales
  
 $      135.6
  
 $          841.4
  
 $                  48.2
  
 $            (33.3
 )
 $            991.9
  
Other intercompany revenues
  
               .5
  
                   .5
  
                       8.6
  
                 (9.6
 )
                       -
  
Cost of products sold
  
         (98.8
 )
            (611.1
 )
                   (42.5
 ) 
                 33.3
  
             (719.1
 )
Gross Profit
  
           37.3
  
             230.8
  
                     14.3
  
                 (9.6
 )
               272.8
  
Selling, general and administrative expenses
  
         (34.9
 )
            (108.1
 )
                     (6.6
 )
                   9.6
  
             (140.0
 )
Interest (expense) income, net
  
         (26.9
 )
                  (.2
 )
                         .6
  
                       -
  
               (26.5
 )
Restructuring charges
  
             (.7
 )
                     -
  
                           -
  
                       -
  
                   (.7
 )
(Loss) Earnings before Income Taxes and Equity Earnings
         (25.2
 )
             122.5
  
                       8.3
  
                       -
  
               105.6
  
Income taxes
  
             9.3
  
              (45.4
 )
                     (2.4
 )
                       -
  
               (38.4
 )
(Loss) Earnings before Equity Earnings
  
         (15.9
 )
               77.1
  
                       5.9
  
                       -
  
                 67.2
  
Equity in earnings of subsidiaries
  
           83.1
  
                 2.7
  
                           -
  
               (85.8
 )
                       -
  
Net Earnings
  
 $        67.2
  
 $            79.9
  
 $                    5.9
  
 $            (85.8
 )
 $              67.2
  
                             
                             
         
Three Months Ended December 31, 2008
  
         
Parent
  
Guarantor
  
Non-Guarantor
          
         
Company
  
Subsidiaries
  
Subsidiaries
  
Eliminations
  
Consolidated
  
                             
Net Sales
  
 $      136.7
  
 $          807.5
  
 $                  48.5
  
 $            (24.5
 )
 $            968.2
  
Other intercompany revenues
  
               .5
  
                   .5
  
                       8.5
  
                 (9.5
 )
                       -
  
Cost of products sold
  
       (103.2
 )
            (606.2
 )
                   (37.0
 )
                 24.5
  
             (721.9
 )
Gross Profit
  
           34.0
  
             201.8
  
                     20.0
  
                 (9.5
 )
               246.3
  
Selling, general and administrative expenses
  
         (36.8
 )
            (105.6
 )
                   (14.5
 )
                   9.5
  
             (147.4
 )
Interest (expense) income, net
  
         (27.1
 )
                  (.2
 )
                       1.0
  
                       -
  
               (26.3
 )
Gain on forward sale contracts
  
                 -
  
               22.5
  
                           -
  
                       -
  
                 22.5
  
Gain on sale of securities
  
                 -
  
               15.8
  
                           -
  
                       -
  
                 15.8
  
Restructuring charges
  
             (.1
 )
                     -
  
                           -
  
                       -
  
                   (.1
 )
(Loss) Earnings before Income Taxes and Equity Earnings
         (30.0
 )
             134.3
  
                       6.5
  
                       -
  
               110.8
  
Income taxes
  
           11.1
  
              (50.6
 )
                     (1.7
 )
                       -
  
               (41.2
 )
(Loss) Earnings before Equity Earnings
  
         (18.9
 )
               83.7
  
                       4.8
  
                       -
  
                 69.6
  
Equity in earnings of subsidiaries
  
           84.4
  
                 1.8
  
                           -
  
               (86.2
 )
                       -
  
Equity in loss of Vail Resorts, Inc.,
                      
 
net of related deferred income taxes
  
                 -
  
                (4.1
 )
                           -
  
                       -
  
                 (4.1
 )
Net Earnings
  
 $        65.5
  
 $            81.4
  
 $                    4.8
  
 $            (86.2
 )
 $              65.5
  
                             
 
 
 
 

 
13
 
 
CONDENSED CONSOLIDATING BALANCE SHEETS
 

         
December 31, 2009
  
         
Parent
  
Guarantor
  
Non-Guarantor
          
         
Company
  
Subsidiaries
  
Subsidiaries
  
Eliminations
  
Consolidated
  
                             
Assets
                      
Current Assets
                      
 
Cash and cash equivalents
  
 $     136.9
  
 $                  -
  
 $                   14.9
  
 $                   -
  
 $           151.8
  
 
Marketable securities
  
          10.0
  
                     -
  
                            -
  
                      -
  
                10.0
  
 
Investment in Ralcorp Receivables Corporation
        165.0
  
                     -
  
                            -
  
               (38.5
 ) 
              126.5
  
 
Receivables, net
  
            2.0
  
               88.5
  
                    143.3
  
             (128.5
 ) 
              105.3
  
 
Inventories
  
          71.4
  
             277.3
  
                      10.0
  
                      -
  
              358.7
  
 
Deferred income taxes
  
             (.8
 ) 
                 6.2
  
                        (.2
 ) 
                      -
  
                  5.2
  
 
Prepaid expenses and other current assets
  
            9.7
  
                 1.9
  
                        7.2
  
                      -
  
                18.8
  
   
Total Current Assets
  
        394.2
  
             373.9
  
                    175.2
  
             (167.0
 ) 
              776.3
  
Intercompany Notes and Interest
  
                -
  
                     -
  
                      79.8
  
               (79.8
 ) 
                     -
  
Investment in Subsidiaries
  
     4,074.0
  
             189.0
  
                            -
  
          (4,263.0
 ) 
                     -
  
Property
  
        230.7
  
          1,127.0
  
                    121.4
  
                      -
  
           1,479.1
  
Accumulated Depreciation
  
       (159.2
 ) 
            (387.3
 ) 
                    (25.8
 ) 
                      -
  
            (572.3
 ) 
Goodwill
  
                -
  
          2,342.5
  
                      44.3
  
                      -
  
           2,386.8
  
Other Intangible Assets
  
          52.6
  
          1,225.4
  
                      27.3
  
                      -
  
           1,305.3
  
Accumulated Amortization
  
         (30.5
 ) 
            (104.4
 ) 
                      (7.5
 ) 
                      -
  
            (142.4
 ) 
Other Assets
  
            5.3
  
               22.3
  
                          .1
  
                      -
  
                27.7
  
   
Total Assets
  
 $  4,567.1
  
 $       4,788.4
  
 $                 414.8
  
 $       (4,509.8
 ) 
 $        5,260.5
  
                             
Liabilities and Shareholders' Equity
                      
Current Liabilities
                      
 
Accounts and notes payable
  
 $       53.1
  
 $          122.5
  
 $                     9.3
  
 $              (2.0
 ) 
 $           182.9
  
 
Due to Kraft Foods Inc.
  
                -
  
                 8.9
  
                          .3
  
                      -
  
                  9.2
  
 
Other current liabilities
  
        138.5
  
               75.3
  
                        5.7
  
                      -
  
              219.5
  
   
Total Current Liabilities
  
        191.6
  
             206.7
  
                      15.3
  
                 (2.0
 ) 
              411.6
  
Intercompany Notes and Interest
  
          62.0
  
               17.8
  
                            -
  
               (79.8
 ) 
                     -
  
Long-term Debt
  
     1,521.7
  
                     -
  
                            -
  
                      -
  
           1,521.7
  
Deferred Income Taxes
  
         (52.9
 ) 
             511.2
  
                      (3.1
 ) 
                      -
  
              455.2
  
Other Liabilities
  
        169.2
  
               20.0
  
                        7.0
  
                      -
  
              196.2
  
   
Total Liabilities
  
     1,891.6
  
             755.7
  
                      19.2
  
               (81.8
 ) 
           2,584.7
  
Shareholders' Equity
                      
 
Common stock
  
              .6
  
                     -
  
                            -
  
                      -
  
                    .6
  
 
Other shareholders' equity
  
     2,674.9
  
          4,032.7
  
                    395.6
  
          (4,428.3
 ) 
           2,674.9
  
   
Total Shareholders' Equity
  
     2,675.5
  
          4,032.7
  
                    395.6
  
          (4,428.3
 ) 
           2,675.5
  
   
Total Liabilities and Shareholders' Equity
  
 $  4,567.1
  
 $       4,788.4
  
 $                 414.8
  
 $       (4,510.1
 ) 
 $        5,260.2
  
                             

 
 

 
14
 
 
         
September 30, 2009
  
         
Parent
  
Guarantor
  
Non-Guarantor
          
         
Company
  
Subsidiaries
  
Subsidiaries
  
Eliminations
  
Consolidated
  
                             
Assets
                      
Current Assets
                      
 
Cash and cash equivalents
  
 $     263.5
  
 $                .2
  
 $                   19.1
  
 $                   -
  
 $           282.8
  
 
Marketable securities
  
          12.0
  
                     -
  
                            -
  
                      -
  
                12.0
  
 
Investment in Ralcorp Receivables Corporation
        159.7
  
                     -
  
                            -
  
               (25.3
 ) 
              134.4
  
 
Receivables, net
  
            7.5
  
             114.2
  
                    151.2
  
             (137.0
 ) 
              135.9
  
 
Inventories
  
          69.0
  
             287.6
  
                        9.3
  
                      -
  
              365.9
  
 
Deferred income taxes
  
            4.6
  
                 6.2
  
                        (.2
 ) 
                      -
  
                10.6
  
 
Prepaid expenses and other current assets
  
            2.3
  
                 2.0
  
                        8.3
  
                      -
  
                12.6
  
   
Total Current Assets
  
        518.6
  
             410.2
  
                    187.7
  
             (162.3
 ) 
              954.2
  
Intercompany Notes and Interest
  
                -
  
                     -
  
                      66.1
  
               (66.1
 ) 
                     -
  
Investment in Subsidiaries
  
     4,053.7
  
             183.4
  
                            -
  
          (4,237.1
 ) 
                     -
  
Property
  
        229.1
  
          1,113.1
  
                    116.6
  
                      -
  
           1,458.8
  
Accumulated Depreciation
  
       (156.5
 ) 
            (366.2
 ) 
                    (23.0
 ) 
                      -
  
            (545.7
 ) 
Goodwill
  
                -
  
          2,342.5
  
                      44.1
  
                      -
  
           2,386.6
  
Other Intangible Assets
  
          50.9
  
          1,225.4
  
                      26.8
  
                      -
  
           1,303.1
  
Accumulated Amortization
  
         (28.6
 ) 
              (95.4
 ) 
                      (6.9
 ) 
                      -
  
            (130.9
 ) 
Other Assets
  
            5.7
  
               20.3
  
                          .1
  
                      -
  
                26.1
  
   
Total Assets
  
 $  4,672.9
  
 $       4,833.3
  
 $                 411.5
  
 $       (4,465.5
 ) 
 $        5,452.2
  
                             
Liabilities and Shareholders' Equity
                      
Current Liabilities
                      
 
Accounts and notes payable
  
 $       69.8
  
 $          157.6
  
 $                   15.6
  
 $              (2.6
 ) 
 $           240.4
  
 
Due to Kraft Foods Inc.
  
                -
  
               13.3
  
                          .3
  
                      -
  
                13.6
  
 
Other current liabilities
  
        115.4
  
             101.9
  
                        7.7
  
                      -
  
              225.0
  
   
Total Current Liabilities
  
        185.2
  
             272.8
  
                      23.6
  
                 (2.6
 ) 
              479.0
  
Intercompany Notes and Interest
  
          48.5
  
               17.6
  
                            -
  
               (66.1
 ) 
                     -
  
Long-term Debt
  
     1,611.4
  
                     -
  
                            -
  
                      -
  
           1,611.4
  
Deferred Income Taxes
  
         (43.5
 ) 
             511.2
  
                      (3.1
 ) 
                      -
  
              464.6
  
Other Liabilities
  
        165.7
  
               18.8
  
                        7.1
  
                      -
  
              191.6
  
   
Total Liabilities
  
     1,967.3
  
             820.4
  
                      27.6
  
               (68.7
 ) 
           2,746.6
  
Shareholders' Equity
                      
 
Common stock
  
              .6
  
                     -
  
                            -
  
                      -
  
                    .6
  
 
Other shareholders' equity
  
     2,705.0
  
          4,012.9
  
                    383.9
  
          (4,396.8
 ) 
           2,705.0
  
   
Total Shareholders' Equity
  
     2,705.6
  
          4,012.9
  
                    383.9
  
          (4,396.8
 ) 
           2,705.6
  
   
Total Liabilities and Shareholders' Equity
  
 $  4,672.9
  
 $       4,833.3
  
 $                 411.5
  
 $       (4,465.5
 ) 
 $        5,452.2
  
                             
 
 
15
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
         
Three Months Ended December 31, 2009
  
         
Parent
  
Guarantor
  
 Non-Guarantor
    
         
Company
  
Subsidiaries
  
Subsidiaries
  
Consolidated
  
                         
Net Cash Provided (Used) by Operating Activities
  
 $    25.7
  
 $         97.7
  
 $            (2.5
 ) 
 $        120.9
  
                         
Cash Flows from Investing Activities
                  
Additions to property and intangible assets
  
       (3.4
 ) 
           (16.4
 ) 
               (2.7
 ) 
           (22.5
 ) 
Proceeds from sale of property
  
            -
  
                .2
  
                   .1
  
                 .3
  
Purchases of securities
  
     (12.8
 ) 
                  -
  
                     -
  
           (12.8
 ) 
Proceeds from sale or maturity of securities
  
       14.8
  
                  -
  
                     -
  
             14.8
  
Intercompany investments and advances
  
       65.2
  
           (64.5
 ) 
                 (.7
 ) 
                   -
  
   
Net Cash Provided (Used) by Investing Activities
       63.8
  
           (80.7
 ) 
               (3.3
 ) 
           (20.2
 ) 
                         
Cash Flows from Financing Activities
                  
Repayments of long-term debt
  
     (89.7
 ) 
                  -
  
                     -
  
           (89.7
 ) 
Purchases of treasury stock
  
   (115.5
 ) 
                  -
  
                     -
  
         (115.5
 ) 
Proceeds and tax benefits from exercise of stock awards
           .7
  
                  -
  
                     -
  
                 .7
  
Changes in book cash overdrafts
  
     (11.6
 ) 
           (17.2
 ) 
                 1.2
  
           (27.6
 ) 
   
Net Cash (Used) Provided by Financing Activities
   (216.1
 ) 
           (17.2
 ) 
                 1.2
  
         (232.1
 ) 
                         
Effect of Exchange Rate Changes on Cash
  
            -
  
                  -
  
                   .4
  
                 .4
  
                         
Net Decrease in Cash and Cash Equivalents
  
   (126.6
 ) 
               (.2
 ) 
               (4.2
 ) 
         (131.0
 ) 
Cash and Cash Equivalents, Beginning of Period
  
     263.5
  
                .2
  
               19.1
  
           282.8
  
Cash and Cash Equivalents, End of Period
  
 $  136.9
  
 $               -
  
 $            14.9
  
 $        151.8
  
 
         
Three Months Ended December 31, 2008
  
         
Parent
  
Guarantor
  
 Non-Guarantor
    
         
Company
  
Subsidiaries
  
Subsidiaries
  
Consolidated
  
                         
Net Cash Provided by Operating Activities
  
 $    13.3
  
 $         94.7
  
 $            13.8
  
 $        121.8
  
                         
Cash Flows from Investing Activities
                  
Additions to property and intangible assets
  
       (7.0
 ) 
             (9.4
 ) 
                 (.9
 ) 
           (17.3
 ) 
Proceeds from sale of property
  
            -
  
               (.9
 ) 
                   .9
  
                   -
  
Purchases of securities
  
         (.7
 ) 
                  -
  
                     -
  
               (.7
 ) 
Proceeds from sale or maturity of securities
  
         7.3
  
                .1
  
                     -
  
               7.4
  
Intercompany investments and advances
  
       82.0
  
           (77.1
 ) 
               (4.9
 ) 
                   -
  
   
Net Cash Provided (Used) by Investing Activities
       81.6
  
           (87.3
 ) 
               (4.9
 ) 
           (10.6
 ) 
                         
Cash Flows from Financing Activities
                  
Repayments of long-term debt
  
   (142.2
 ) 
                  -
  
                     -
  
         (142.2
 ) 
Net borrowings under credit arrangements
  
       39.5
  
                .1
  
                     -
  
             39.6
  
Proceeds and tax benefits from exercise of stock awards
         8.8
  
              1.3
  
                     -
  
             10.1
  
Changes in book cash overdrafts
  
           .2
  
           (11.9
 ) 
                 (.3
 ) 
           (12.0
 ) 
Other, net
  
       (1.0
 ) 
               (.1
 ) 
                     -
  
             (1.1
 ) 
   
Net Cash Used by Financing Activities
  
     (94.7
 ) 
           (10.6
 ) 
                 (.3
 ) 
         (105.6
 ) 
                         
Effect of Exchange Rate Changes on Cash
  
            -
  
                  -
  
                 (.8
 ) 
               (.8
 ) 
                         
Net Increase (Decrease) in Cash and Cash Equivalents
           .2
  
             (3.2
 ) 
                 7.8
  
               4.8
  
Cash and Cash Equivalents, Beginning of Period
  
         6.0
  
                .9
  
                 7.2
  
             14.1
  
Cash and Cash Equivalents, End of Period
  
 $      6.2
  
 $          (2.3
 ) 
 $            15.0
  
 $          18.9
  
                         
 
 
16
 
 
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.  This discussion should be read in conjunction with the financial statements under Item 1 and the CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS under this Item 2.  The terms “our,” “we,” “Company,” and “Ralcorp” as used herein refer to Ralcorp Holdings, Inc. and its consolidated subsidiaries.  The terms “base business” and “base businesses” as used herein refer to businesses that were owned by Ralcorp (and therefore included in our operating results) for the entire duration of each of the periods presented (i.e., excluding businesses acquired since the beginning of the comparative period of the prior fiscal year).  We have included financial measures for our base businesses (such as sales growth excluding acquisitions) because they provide useful and comparable trend information regarding the results of those businesses without the effects of incremental results from recent acquisitions.


RESULTS OF OPERATIONS
 
Consolidated
 
The following table summarizes key data (in millions of dollars, except for percentage data as indicated) that we believe is important for you to note as you read the consolidated results analysis discussions below.  In addition, please refer to Note 16 to the financial statements under Item 1 for data regarding net sales and profit contribution by segment.
 
 
Three Months Ended
  
 
December 31,
  
 
2009
  
2008
  
Net earnings
        67.2
  
        65.5
  
Net sales
      991.9
  
      968.2
  
Cost of products sold as % of net sales
72.5
 % 
74.6
 % 
SG&A as % of net sales
14.1
 % 
15.2
 % 
Interest expense, net
      (26.5
 ) 
      (26.3
 ) 
Gain on forward sale contracts (Vail)
              -
  
        22.5
  
Gain on sale of securities (Vail)
              -
  
        15.8
  
Post Foods transition and integration costs
          (.6
 ) 
        (7.1
 ) 
Effective income tax rate
36.4
 % 
37.2
 % 
Equity in loss of Vail Resorts, Inc.
              -
  
        (6.4
 ) 
         
 

                Net earnings for the quarter ended December 31, 2009 have been positively impacted by lower raw material costs and the acquisition of Harvest Manor Farms in March 2009, but negatively impacted by unfavorable pricing variances.  Earnings in the prior year included net gains related to our investment in Vail Resorts, Inc.  As of September 30, 2009, all interests in Vail Resorts had been liquidated.  More detailed discussion and analysis of these and other factors follows.
Net sales for the first quarter grew 2% from a year ago, largely due to $53.8 million from Harvest Manor Farms.  Excluding sales from this acquisition, our base business net sales decreased 3% from the prior year level.  Base business sale volume was down 1%, and selling prices were reduced in several product categories as a result of contract terms or competitive pressures.  Overall, pricing variances reduced net sales by approximately $15 million for the quarter.  Note the net sales comparisons by segment in Note 16 under Item 1, and refer to the segment discussions below for more detailed information about factors affecting net sales.
Cost of products sold decreased as a percentage of net sales, primarily due to lower input costs in the first quarter compared to prior year.  Compared to the corresponding period last year, changes in unit costs lowered overall ingredient and packaging costs, net of the impacts of our hedging and forward purchase strategies, by approximately $38 million for the first quarter of fiscal 2010.  For the first quarter of fiscal 2009, these costs had been unfavorable by approximately $50 million.  Refer to the segment discussions below for more information.
Selling, general and administrative expenses (“SG&A”) decreased as a percentage of net sales.  The decrease is largely due to the reduction in Post Foods transition and integration costs and a favorable impact from foreign currency exchange contracts.
 
 
 
 

 
17
 
 
               Interest expense increased slightly as a result of higher interest rates partially offset by lower debt levels.  The weighted average interest rate on all of the Company’s outstanding debt was 6.4% and 6.0% in the first quarter of fiscal 2010 and 2009, respectively.
Gain on forward sale contracts – Net earnings during the three months ended December 31, 2008 were affected by non-cash gains on forward sale contracts related to some of our shares of Vail Resorts, Inc.  As discussed further below, all contracts were settled during fiscal 2009.  The contracts included a collar on the Vail stock price and the prepayment of proceeds at a discount (whereby Ralcorp received a total of $140.0 million).  Gains or losses on the contracts were immediately recognized in earnings.  For more information on these contracts, see Note 4 under Item 1.
Gain on sale of securities – Results for the quarter ended December 31, 2008 included a gain on the sale of 891,600 shares of Vail Resorts, Inc., including 890,000 shares delivered in settlement of forward sale contracts, as discussed above.  The gain represents the difference between the $15.0 million book value of the shares and the $30.8 million net proceeds (primarily received on a discounted basis at the inception of the related forward sale contracts).
Post Foods transition and integration costs – As planned, Ralcorp has continued to incur costs related to transitioning Post Foods into Ralcorp’s operations, albeit at a much lower level than in the prior year.  Costs relate to integration projects including decoupling the cereal assets of Post Foods from those of  Kraft Foods Inc. (the former owner), developing stand-alone Post Foods information systems, developing independent sales, logistics and purchasing functions for Post Foods, and other significant integration undertakings.  While a portion of those costs are capitalized, the expense portion totaled $.6 million and $7.1 million in the three months ended December 31, 2009 and 2008, respectively.
Income taxes – The timing of certain tax adjustments last year increased our effective tax rate slightly in the quarter ended December 31, 2008.
Equity in loss of Vail Resorts, Inc. – Until June of 2009, Ralcorp accounted for its former investment in Vail Resorts, Inc. (NYSE: MTN) using the equity method.  Vail Resorts operates on a fiscal year ending July 31; therefore, we reported our portion of Vail Resorts’ operating results on a two-month time lag.  Vail Resorts’ operations are highly seasonal, typically yielding income for the second and third fiscal quarters and losses for the first and fourth fiscal quarters.  Related deferred taxes were provided at approximately 36%.

Cereals
 
Net sales in the Cereals segment were down 2% for the first quarter.  The decrease was driven by volume declines and lower net selling prices, partially offset by the effects of product mix.  The following table shows year-over-year sales volume changes by product category.
 
Branded ready-to-eat (RTE) cereal
  
-2%
Private label ready-to-eat cereal
  
0%
Hot cereal
  
-7%
Nutritional bars
  
4%
Co-manufacturing
  
-65%
Other minor categories
  
9%
Total
  
-4%

Although branded RTE volume declined as a result of continued competitive promotional activity in the category, the amount of the decline was less than experienced in the second half of fiscal 2009.  In co-manufacturing (volume produced for branded companies), the prior year’s first quarter included significant hot cereal volume which was not recurring, driving most of the noted volume decline.  In addition, other co-manufacturing volume decreased as a result of the end or decline of several production contracts.  The total co-manufacturing volume change resulted in a sales dollar decline of $8.5 million for the quarter.  The decrease in hot cereal volume was primarily due to the loss of lower margin business a year ago in a competitive bid.
The segment’s profit contribution decreased slightly compared to the prior year first quarter as a result of the sales volume declines and higher promotional costs, largely offset by lower raw material and freight costs.  The most notable raw material cost decreases occurred in grain products (wheat, oats, and corn), fruits, and nuts.
 
 
 
 

 
18
 

Snacks, Sauces & Spreads