Edgar Filing: RALCORP HOLDINGS INC /MO

form10q033110.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 MARCH 31, 2010.

( )	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 May 5, 2010: 54,893,554

RALCORP HOLDINGS, INC.

INDEX

		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	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	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 6.	Exhibits	26

SIGNATURES		26

(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						Six Months Ended
	March 31,						March 31,
	2010			2009			2010			2009

Net Sales	$	965.0		$	946.5		$	1,956.9		$	1,914.7
Cost of products sold		(698.6	)		(687.1	)		(1,417.7	)		(1,409.0	)
Gross Profit		266.4			259.4			539.2			505.7
Selling, general and administrative expenses		(148.1	)		(156.7	)		(288.1	)		(304.1	)
Interest expense, net		(23.9	)		(23.6	)		(50.4	)		(49.9	)
Restructuring charges		(.1	)		(.2	)		(.8	)		(.3	)
Goodwill impairment loss		(20.5	)		-			(20.5	)		-
Gain on forward sale contracts		-			19.6			-			42.1
Gain on sale of securities		-			-			-			15.8
Earnings before Income Taxes
and Equity Earnings		73.8			98.5			179.4			209.3
Income taxes		(27.1	)		(35.3	)		(65.5	)		(76.5	)
Earnings before Equity Earnings		46.7			63.2			113.9			132.8
Equity in earnings of Vail Resorts, Inc.,
net of related deferred income taxes		-			7.0			-			2.9
Net Earnings	$	46.7		$	70.2		$	113.9		$	135.7

Earnings per Share
Basic	$	.85		$	1.25		$	2.06		$	2.41
Diluted	$	.84		$	1.23		$	2.03		$	2.38

See accompanying Notes to Condensed Consolidated Financial Statements.

RALCORP HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in millions)

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2010		2009		2010		2009

Net Earnings	$	46.7	$	70.2	$	113.9	$	135.7
Other comprehensive income (loss)		1.3		3.6		14.4		(41.3	)
Comprehensive Income	$	48.0	$	73.8	$	128.3	$	94.4

See accompanying Notes to Condensed Consolidated Financial Statements.

RALCORP HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in millions)

	March 31,			Sept. 30,
	2010			2009

Assets
Current Assets
Cash and cash equivalents	$	163.1		$	282.8
Marketable securities		10.0			12.0
Investment in Ralcorp Receivables Corporation		125.3			134.4
Receivables, net		148.9			135.9
Inventories		345.8			365.9
Deferred income taxes		8.9			10.6
Prepaid expenses and other current assets		16.2			12.6
Total Current Assets		818.2			954.2
Property, Net		911.6			911.9
Goodwill		2,367.8			2,386.6
Other Intangible Assets, Net		1,155.0			1173.4
Other Assets		28.2			26.1
Total Assets	$	5,280.8		$	5,452.2

Liabilities and Shareholders' Equity
Current Liabilities
Accounts and notes payable	$	200.5		$	240.4
Due to Kraft Foods Inc.		-			13.6
Other current liabilities		179.6			225.0
Total Current Liabilities		380.1			479.0
Long-term Debt		1,521.7			1,611.4
Deferred Income Taxes		445.9			464.6
Other Liabilities		199.7			191.6
Total Liabilities		2,547.4			2,746.6
Shareholders' Equity
Common stock		.6			.6
Additional paid-in capital		1,936.4			1,931.4
Common stock in treasury, at cost		(350.3	)		(244.8	)
Retained earnings		1,173.2			1,059.3
Accumulated other comprehensive income		(26.5	)		(40.9	)
Total Shareholders' Equity		2,733.4			2,705.6
Total Liabilities and Shareholders' Equity	$	5,280.8		$	5,452.2

See accompanying Notes to Condensed Consolidated Financial Statements.

RALCORP HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in millions)

	Six Months Ended
	March 31,
	2010			2009

Cash Flows from Operating Activities
Net earnings	$	113.9		$	135.7
Adjustments to reconcile net earnings to net
cash flow provided by operating activities:
Depreciation and amortization		77.4			74.1
Stock-based compensation expense		9.5			7.0
Goodwill impairment loss		20.5			-
Gain on forward sale contracts		-			(42.1	)
Gain on sale of securities		-			(15.8	)
Equity in loss of Vail Resorts, Inc.		-			(4.5	)
Deferred income taxes		(19.8	)		.5
Sale of receivables, net		-			25.0
Other, net		(41.0	)		(22.8	)
Net Cash Provided by Operating Activities		160.5			157.1

Cash Flows from Investing Activities
Business acquisitions, net of cash acquired		-			(54.7	)
Additions to property and intangible assets		(57.2	)		(46.6	)
Proceeds from sale of property		.5			-
Purchases of securities		(12.8	)		(3.8	)
Proceeds from sale or maturity of securities		14.8			10.0
Net Cash Used by Investing Activities		(54.7	)		(95.1	)

Cash Flows from Financing Activities
Repayments of long-term debt		(95.3	)		(144.7	)
Net borrowings under credit arrangements		-			107.5
Purchases of treasury stock		(115.5	)		(1.0	)
Proceeds and tax benefits from exercise of stock awards		7.8			11.6
Changes in book cash overdrafts		(23.4	)		(20.4	)
Other, net		(.1	)		(.1	)
Net Cash Used by Financing Activities		(226.5	)		(47.1	)

Effect of Exchange Rate Changes on Cash		1.0			(1.1	)

Net (Decrease) Increase in Cash and Cash Equivalents		(119.7	)		13.8
Cash and Cash Equivalents, Beginning of Period		282.8			14.1
Cash and Cash Equivalents, End of Period	$	163.1		$	27.9

See accompanying Notes to Condensed Consolidated Financial Statements.

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 for the year ended September 30, 2009 included in Exhibit 99.1 of the Company's Current Report on Form 8-K filed on April 7, 2010. The significant accounting policies for the accompanying financial statements are the same as disclosed in Note 1 in that Exhibit.

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				Six Months Ended
	March 31,				March 31,
	2010		2009		2010		2009
Net sales	$	965.0	$	978.7	$	1,956.9	$	2,001.4
Net earnings		46.7		70.8		113.9		138.7
Basic earnings per share		.85		1.26		2.06		2.47
Diluted earnings per share		.84		1.24		2.03		2.43

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						Six Months Ended
	March 31,						March 31,
	2010			2009			2010			2009
Pension Benefits
Service cost	$	1.6		$	1.2		$	3.3		$	2.4
Interest cost		3.3			3.1			6.6			6.2
Expected return on plan assets		(4.0	)		(3.8	)		(8.0	)		(7.6	)
Amortization of prior service cost		.1			.1			.2			.2
Amortization of net loss		1.0			.1			1.9			.1
Net periodic benefit cost	$	2.0		$	.7		$	4.0		$	1.3

Other Benefits
Service cost	$	.8		$	.8		$	1.5		$	1.5
Interest cost		1.3			1.4			2.6			2.9
Amortization of prior service cost		(.4	)		-			(.7	)		-
Net periodic benefit cost	$	1.7		$	2.2		$	3.4		$	4.4

NOTE 4 – RESTRUCTURING CHARGES

Restructuring charges for the three and six months ended March 31, 2010 and 2009 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 six months ended March 31, 2010 included a related asset impairment charge of $.6.

NOTE 5 – GOODWILL IMPAIRMENT LOSS

The Company’s reporting units are tested for impairment in the fourth fiscal quarter, after the annual forecasting process. These tests are updated quarterly as needed. In March 2010, a goodwill impairment loss of $20.5 ($12.9 after taxes, or $.23 per diluted share) was recognized in the Snacks, Sauces & Spreads segment related to the Linette chocolate reporting unit, resulting in an adjusted goodwill balance of zero for this reporting unit. Factors culminating in the impairment included reduced sales to a major customer, the inability to quickly replace the lost volume, and changes in anticipated ingredient cost trends, leading to shortfalls in EBITDA (earnings before interest, income taxes, depreciation and amortization) relative to forecasts. Estimated fair values of the reporting segment and its identifiable net assets were determined based on the best information available, including the results of valuation techniques such as EBITDA multiples (using 6 times) and expected present value of future cash flows based on revised forecasts (using discount rates of 10.5% to 12%). These fair value measurements fell within Level 3 of the fair value hierarchy as described in Note 9.

NOTE 6 – 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 $1.8 and $3.9 for the three and six months ended March 31, 2009) was included in “Interest expense, net” on the statement of earnings. In addition to the unrealized non-cash gains or losses, the reported gains on these contracts of $19.6 and $42.1 for the three and six months ended March 31, 2009, respectively, included charges (paid monthly) for certain related stock borrow costs incurred by the counterparty totaling $1.9 and $3.1, respectively.

NOTE 7 – EARNINGS PER SHARE

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

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2010		2009		2010		2009

Weighted Average Shares
for Basic Earnings per Share		54,541		56,108		55,232		56,078
Dilutive effect of:
Stock options		333		416		340		479
Stock appreciation rights		439		134		291		145
Restricted stock awards		184		266		167		206
Weighted Average Shares
for Diluted Earnings per Share		55,497		56,924		56,030		56,908

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).

	Six Months Ended				Six Months Ended
	March 31, 2010				March 31, 2009
	First		Second		First		Second
	Quarter		Quarter		Quarter		Quarter
SARs at $56.56 per share		405		-		435		435
SARs at $66.07 per share		504		504		538		538
SARs at $65.45 per share		25		-		25		25
SARs at $58.79 per share		8		8		-		-
SARs at $56.27 per share		390		-		-		-
SARs at $57.14 per share		13		-		-		-

NOTE 8 – 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 March 31, 2010, 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 60% to 90% of its needs related to oats, wheat, corn, soy oil, natural gas, diesel fuel, and corrugated packaging over a six to twelve month period and approximately 25% of its corrugated packaging needs for the following year. At March 31, 2010, the Company held foreign currency forward contracts with a total notional amount of $24.0. 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 6).

The following table shows the fair value and balance sheet location of the Company’s derivative instruments as of March 31, 2010, all of which were designated as hedging instruments under ASC Topic 815.

		Fair Value
		March 31,		Sept. 30,
	Balance Sheet Location	2010		2009
Asset Derivatives
Foreign exchange contracts	Prepaid expenses and other current assets		$ 5.3		$ 7.8
Commodity contracts	Prepaid expenses and other current assets		2.1		.2
			$ 7.4		$ 8.0

Liability Derivatives
Commodity contracts	Other current liabilities		$ 3.6		$ 7.8
Interest rate contracts	Other current liabilities		-		.4
			$ 3.6		$ 8.2

The following table illustrates the effect of the Company’s derivatives in ASC Topic 815 cash flow hedging relationships on the statement of earnings and other comprehensive income (OCI) for the three months ended March 31, 2010 and 2009.

	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	2010			2009			Location	2010			2009			Location	2010		2009
Commodity contracts	$	(9.1	)	$	(10.2	)	Cost of products sold	$	(2.7	)	$	(17.0	)	Cost of products sold	$	-	$	(.2	)
Foreign exchange contracts	.2			(2.0		)	SG&A	1.9			(1.9		)	SG&A	-		-
Interest rate contracts	-			-			Interest expense, net	-			(.5		)	Interest expense, net	-		-
	$	(8.9	)	$	(12.2	)		$	(.8	)	$	(19.4	)		$	-	$	(.2	)

	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	2010		2009			Location	2010			2009			Location	2010			2009
Commodity contracts	$	.4	$	(37.3	)	Cost of products sold	$	(8.2	)	$	(20.3	)	Cost of products sold	$	(.2	)	$	(.9	)
Foreign exchange contracts	.9		(6.5		)	SG&A	4.0			(3.9		)	SG&A	-			-
Interest rate contracts	-		(1.8		)	Interest expense, net	(1.0		)	(.8		)	Interest expense, net	-			.1
	$	1.3	$	(45.6	)		$	(5.2	)	$	(25.0	)		$	(.2	)	$	(.8	)

The following table shows the effect of the Company’s derivatives not designated as hedging instruments under ASC Topic 815 on the statement of earnings for the three and six months ended March 31, 2009. There were no such derivatives as of March 31, 2010.

Derivatives Not Designated		Amount of Gain (Loss)
as Hedging Instruments	Location of Gain (Loss)	Recognized in Earnings
Under ASC Topic 815	Recognized in Earnings	Three Months		Six Months
Equity contracts	Gain on forward sale contracts		$ 19.6		$ 42.1

Approximately $2.7 of the net cash flow hedge losses reported in accumulated OCI at March 31, 2010 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, and others require collateral even when the derivatives are in asset positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on March 31, 2010 was $3.4, and the related collateral required was $10.0.

NOTE 9 – 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:

	March 31, 2010						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		7.4		-		7.4		8.0		-		8.0
Deferred compensation investment		22.9		22.9		-		19.9		19.9		-
	$	40.3	$	32.9	$	7.4	$	39.9	$	31.9	$	8.0
Liabilities
Derivative liabilities	$	3.6	$	-	$	3.6	$	8.2	$	-	$	8.2
Deferred compensation liabilities		32.4		-		32.4		29.6		-		29.6
	$	36.0	$	-	$	36.0	$	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 15) 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 March 31, 2010 and $1,581.1 as of September 30, 2009) had an estimated fair value of $1,736.4 as of March 31, 2010 and $1,800.3 as of September 30, 2009.

NOTE 10 – 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 March 31, 2010, 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 March 31, 2010 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 $125.3 and $134.4, respectively, and the Company elected not to sell any to the conduit, resulting in a retained interest of $125.3 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 $.1 in the three months ended March 31, 2010 and 2009, respectively (zero and $.5 for the corresponding six month periods), 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 11 – INVENTORIES consisted of:

	March 31,			Sept. 30,
	2010			2009
Raw materials and supplies	$	144.1		$	152.4
Finished products		205.1			217.0
		349.2			369.4
Allowance for obsolete inventory		(3.4	)		(3.5	)
	$	345.8		$	365.9

NOTE 12 – PROPERTY, NET consisted of:

	March 31,			Sept. 30,
	2010			2009
Property at cost	$	1,507.6		$	1,456.4
Accumulated depreciation		(596.0	)		(544.5	)
	$	911.6		$	911.9

NOTE 13 – OTHER INTANGIBLE ASSETS, NET consisted of:

	March 31,			Sept. 30,
	2010			2009
Computer software	$	58.5		$	55.2
Customer relationships		422.7			421.2
Trademarks/brands		816.0			816.0
Other		13.1			13.1
		1,310.3			1,305.5
Accumulated amortization		(155.3	)		(132.1	)
	$	1,155.0		$	1,173.4

Amortization expense related to intangible assets was:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2010		2009		2010		2009
Computer software	$	2.0	$	1.2	$	4.0	$	2.4
Customer relationships		7.2		5.0		14.4		10.5
Trademarks/brands		1.6		3.2		3.3		6.3
Other		.5		.5		1.0		.9
	$	11.3	$	9.9	$	22.7	$	20.1

NOTE 14 – 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.

NOTE 15 – LONG-TERM DEBT consisted of:

	March 31, 2010						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			2.79	%		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		-			n/a			5.6			1.00	%
$400 Revolving Credit Agreement		-			n/a			-			n/a
Other		.2			Various			.3			Various
		1,561.6						1,657.0
Less: Current portion		(39.9	)					(45.6	)
	$	1,521.7					$	1,611.4

NOTE 16 – SHAREHOLDERS’ EQUITY

During the six months ended March 31, 2010, the Company repurchased 2,000,000 shares of its common stock at a total cost of $115.5. As of March 31, 2010, there were 8,583,970 shares in treasury and 54,892,665 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 $14.4 during the six months ended March 31, 2010 as a result of a $10.4 increase in the foreign currency translation adjustment and a $6.5 net gain from cash flow hedging activities, offset by $2.5 of related income tax adjustments.

NOTE 17 – 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. In addition, the Company now provides separate information for Branded Cereal Products and Other Cereal Products (formerly combined as Cereals). 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 operating segments, which are also its reportable segments, including corresponding amounts for the prior year which have been revised to reflect the new segment structure.

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2010			2009			2010			2009
Net Sales
Branded Cereal Products	$	260.6		$	279.4		$	506.5		$	535.7
Other Cereal Products		193.3			194.4			388.2			387.4
Snacks, Sauces & Spreads		338.2			295.9			707.5			623.7
Frozen Bakery Products		172.9			176.8			354.7			367.9
Total	$	965.0		$	946.5		$	1,956.9		$	1,914.7

Profit Contribution
Branded Cereal Products	$	55.0		$	56.5		$	104.1		$	108.7
Other Cereal Products		22.0			21.6			46.2			43.5
Snacks, Sauces & Spreads		40.5			24.3			88.0			54.0
Frozen Bakery Products		18.2			15.4			44.6			30.4
Total segment profit contribution		135.7			117.8			282.9			236.6
Interest expense, net		(23.9	)		(23.6	)		(50.4	)		(49.9	)
Restructuring charges		(.1	)		(.2	)		(.8	)		(.3	)
Goodwill impairment loss		(20.5	)		-			(20.5	)		-
Gain on forward sale contracts		-			19.6			-			42.1
Gain on sale of securities		-			-			-			15.8
Stock-based compensation expense		(4.5	)		(2.9	)		(9.5	)		(7.0	)
Post Foods transition and integration costs		(4.2	)		(7.8	)		(4.8	)		(14.9	)
Other unallocated corporate expenses		(8.7	)		(4.4	)		(17.5	)		(13.1	)
Earnings before income taxes
and equity earnings	$	73.8		$	98.5		$	179.4		$	209.3

Depreciation and Amortization
Branded Cereal Products	$	13.8		$	14.2		$	27.4		$	29.1
Other Cereal Products		5.3			5.1			10.5			10.2
Snacks, Sauces & Spreads		8.4			7.4			16.9			14.5
Frozen Bakery Products		9.0			8.8			17.7			17.6
Corporate		2.5			1.3			4.9			2.7
Total	$	39.0		$	36.8		$	77.4		$	74.1

	March 31,		Sept. 30,
	2010		2009
Assets
Branded Cereal Products	$	3,311.2	$	3,351.7
Other Cereal Products		265.5		269.5
Snacks, Sauces & Spreads		587.9		604.0
Frozen Bakery Products		714.3		723.9
Total segment assets		4,878.9		4,949.1
Cash and cash equivalents		163.1		282.8
Investment in Ralcorp Receivables Corporation		125.3		134.4
Other unallocated corporate assets		113.5		85.9
Total	$	5,280.8	$	5,452.2

NOTE 18 – 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 March 31, 2010
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net Sales	$	127.8		$	824.9		$	43.4		$	(31.1	)	$	965.0
Other intercompany revenues		.4			2.5			30.9			(33.8	)		-
Cost of products sold		(91.5	)		(598.2	)		(40.0	)		31.1			(698.6	)
Gross Profit		36.7			229.2			34.3			(33.8	)		266.4
Selling, general and administrative expenses		(40.1	)		(118.0	)		(23.8	)		33.8			(148.1	)
Interest (expense) income, net		(24.5	)		.2			.4			-			(23.9	)
Restructuring charges		(.1	)		-			-			-			(.1	)
Goodwill impairment loss		-			(20.5	)		-			-			(20.5	)
(Loss) Earnings before Income Taxes and Equity Earnings		(28.0	)		90.9			10.9			-			73.8
Income taxes		10.4			(32.8	)		(4.7	)		-			(27.1	)
(Loss) Earnings before Equity Earnings		(17.6	)		58.1			6.2			-			46.7
Equity in earnings of subsidiaries		64.3			1.4			-			(65.7	)		-
Net Earnings	$	46.7		$	59.5		$	6.2		$	(65.7	)	$	46.7


	Three Months Ended March 31, 2009
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations				Consolidated

Net Sales	$	133.4		$	792.7		$	49.2		$	28.8		$	946.5
Other intercompany revenues		.4			2.6			8.3			(11.3	)		-
Cost of products sold		(101.4	)		(574.6	)		(39.9	)		(28.8	)		(687.1	)
Gross Profit		32.4			220.7			17.6			(11.3	)		259.4
Selling, general and administrative expenses		(33.6	)		(123.5	)		(10.9	)		11.3			(156.7	)
Interest (expense) income, net		(24.3	)		(.4	)		1.1			-			(23.6	)
Restructuring charges		(.2	)		-			-			-			(.2	)
Gain on forward sale contracts		-			19.6			-			-			19.6
(Loss) Earnings before Income Taxes and Equity Earnings		(25.7	)		116.4			7.8			-			98.5
Income taxes		9.5			(41.4	)		(3.4	)		-			(35.3	)
(Loss) Earnings before Equity Earnings		(16.2	)		75.0			4.4			-			63.2
Equity in earnings of subsidiaries		86.4			(.7	)		-			(85.7	)		-
Equity in earnings of Vail Resorts, Inc.,
net of related deferred income taxes		-			7.0			-			-			7.0
Net Earnings	$	70.2		$	81.3		$	4.4		$	(85.7	)	$	70.2

	Six Months Ended March 31, 2010
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations				Consolidated

Net Sales	$	263.4		$	1,666.3		$	91.6		$	(64.4	)	$	1,956.9
Other intercompany revenues		.9			3.0			39.5			(43.4	)		-
Cost of products sold		(190.3	)		(1,209.3	)		(82.5	)		64.4			(1,417.7	)
Gross Profit		74.0			460.0			48.6			(43.4	)		539.2
Selling, general and administrative expenses		(75.0	)		(226.1	)		(30.4	)		43.4			(288.1	)
Interest (expense) income, net		(51.4	)		-			1.0			-			(50.4	)
Restructuring charges		(.8	)		-			-			-			(.8	)
Goodwill impairment loss		-			(20.5	)		-			-			(20.5	)
(Loss) Earnings before Income Taxes and Equity Earnings		(53.2	)		213.4			19.2			-			179.4
Income taxes		19.7			(78.1	)		(7.1	)		-			(65.5	)
(Loss) Earnings before Equity Earnings		(33.5	)		135.3			12.1			-			113.9
Equity in earnings of subsidiaries		147.4			4.1			-			(151.5	)		-
Net Earnings	$	113.9		$	139.4		$	12.1		$	(151.5	)	$	113.9


	Six Months Ended March 31, 2009
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations				Consolidated

Net Sales	$	270.1		$	1,600.2		$	97.7		$	(53.3	)	$	1,914.7
Other intercompany revenues		.9			3.1			16.8			(20.8	)		-
Cost of products sold		(204.6	)		(1,180.8	)		(76.9	)		53.3			(1,409.0	)
Gross Profit		66.4			422.5			37.6			(20.8	)		505.7
Selling, general and administrative expenses		(70.4	)		(229.1	)		(25.4	)		20.8			(304.1	)
Interest (expense) income, net		(51.4	)		(.6	)		2.1			-			(49.9	)
Restructuring charges		(.3	)		-			-			-			(.3	)
Gain on forward sale contracts		-			42.1			-			-			42.1
Gain on sale of securities		-			15.8			-			-			15.8
(Loss) Earnings before Income Taxes and Equity Earnings		(55.7	)		250.7			14.3			-			209.3
Income taxes		20.6			(92.0	)		(5.1	)		-			(76.5	)
(Loss) Earnings before Equity Earnings		(35.1	)		158.7			9.2			-			132.8
Equity in earnings of subsidiaries		170.8			1.1			-			(171.9	)		-
Equity in earnings of Vail Resorts, Inc.,
net of related deferred income taxes		-			2.9			-			-			2.9
Net Earnings	$	135.7		$	162.7		$	9.2		$	(171.9	)	$	135.7

CONDENSED CONSOLIDATING BALANCE SHEETS

March 31, 2010

Parent

Guarantor

Non-Guarantor

Company

Subsidiaries

Eliminations

Consolidated

Assets

Current Assets