10-Q
Table of Contents

 

 

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, 2012.

 

¨ 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 Executive offices)   (Zip Code)

(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  ¨    No  x

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  x

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 September 10, 2012: 55,032,538

 

 

 


Table of Contents

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      2   
  Condensed Consolidated Balance Sheets      3   
  Condensed Consolidated Statements of Cash Flows      4   
  Condensed Consolidated Statement of Shareholders’ Equity      5   
  Notes to Condensed Consolidated Financial Statements      6   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      30   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      43   
Item 4.   Controls and Procedures      43   
PART II.   OTHER INFORMATION   
Item 1.   Legal Proceedings      45   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      46   
Item 4.   Mine Safety Disclosures      46   
Item 6.   Exhibits      46   
SIGNATURES      46   

 

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Table of Contents

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,  
     2012     2011     2012     2011  

Net Sales

   $ 1,062.2      $ 917.3      $ 2,228.7      $ 1,869.0   

Cost of goods sold

     (845.1     (702.3     (1,773.3     (1,445.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     217.1        215.0        455.4        423.2   

Selling, general and administrative expenses

     (116.5     (94.5     (227.6     (189.7

Amortization of intangible assets

     (20.1     (16.3     (40.9     (32.6

Other operating expenses, net

     (10.1     (.7     (13.5     (3.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Profit

     70.4        103.5        173.4        197.4   

Interest expense, net

     (32.0     (33.8     (66.4     (69.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations before Income Taxes

     38.4        69.7        107.0        127.9   

Income taxes

     (9.0     (25.2     (33.4     (46.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     29.4        44.5        73.6        81.8   

(Loss) earnings from discontinued operations, net of income taxes

     (6.9     38.8        14.2        72.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings

   $ 22.5      $ 83.3      $ 87.8      $ 154.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic Earnings per Share

        

Earnings from continuing operations

   $ .54      $ .81      $ 1.33      $ 1.49   

(Loss) earnings from discontinued operations

     (.13     .71        .26        1.33   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

   $ .41      $ 1.52      $ 1.59      $ 2.82   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Earnings per Share

        

Earnings from continuing operations

   $ .53      $ .80      $ 1.30      $ 1.47   

(Loss) earnings from discontinued operations

     (.13     .70        .26        1.31   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

   $ .40      $ 1.50      $ 1.56      $ 2.78   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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RALCORP HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in millions)

 

     Three Months Ended     Six Months Ended  
     March 31,     March 31,  
     2012     2011     2012     2011  

Net Earnings

   $ 22.5      $ 83.3      $ 87.8      $ 154.6   

Unrealized loss on securities

     (21.9     —          (21.9     —     

Benefit plan adjustment, net of tax

     16.6        —          16.6        —     

Cash flow hedging adjustments, net of tax

     4.1        (.8     4.9        12.9   

Foreign currency translation adjustment

     6.5        10.9        12.4        21.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 27.8      $ 93.4      $ 99.8      $ 188.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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RALCORP HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in millions)

 

     Mar. 31,     Sept. 30,  
     2012     2011  
           (Restated)  

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 131.4      $ 50.0   

Marketable securities

     .8        8.2   

Investment in Post Holdings, Inc.

     223.1        —     

Receivables, net

     345.1        349.6   

Inventories

     448.6        424.1   

Deferred income taxes

     14.2        15.7   

Prepaid expenses and other current assets

     19.2        11.8   

Current assets of discontinued operations

     —          135.3   
  

 

 

   

 

 

 

Total Current Assets

     1,182.4        994.7   

Property, Net

     847.4        783.2   

Goodwill

     1,391.4        1,160.9   

Other Intangible Assets, Net

     992.0        767.9   

Other Assets

     39.5        35.8   

Noncurrent Assets of Discontinued Operations

     —          2,536.7   
  

 

 

   

 

 

 

Total Assets

   $ 4,452.7      $ 6,279.2   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current Liabilities

    

Accounts payable

   $ 244.1      $ 284.4   

Notes payable to banks

     —          105.0   

Current portion of long-term debt

     85.7        30.7   

Other current liabilities

     160.9        192.1   

Current liabilities of discontinued operations

     —          59.7   
  

 

 

   

 

 

 

Total Current Liabilities

     490.7        671.9   

Long-term Debt

     1,895.5        2,172.5   

Deferred Income Taxes

     269.7        281.0   

Other Liabilities

     117.5        129.1   

Noncurrent Liabilities of Discontinued Operations

     —          459.5   
  

 

 

   

 

 

 

Total Liabilities

     2,773.4        3,714.0   
  

 

 

   

 

 

 

Commitments and Contingencies

    

Shareholders’ Equity

    

Common stock

     .6        .6   

Additional paid-in capital

     1,962.1        1,957.3   

Common stock in treasury, at cost

     (327.7     (338.9

Retained earnings

     101.9        1,026.9   

Accumulated other comprehensive loss

     (57.6     (80.7
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,679.3        2,565.2   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 4,452.7      $ 6,279.2   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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RALCORP HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in millions)

 

     Six Months Ended  
     March 31,  
     2012     2011  

Cash Flows from Operating Activities

    

Net earnings

   $ 87.8      $ 154.6   

Earnings from discontinued operations, net of income taxes

     (14.2     (72.8
  

 

 

   

 

 

 

Earnings from continuing operations

     73.6        81.8   

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:

    

Depreciation and amortization

     98.2        83.9   

Stock-based compensation expense

     8.2        6.7   

Deferred income taxes

     (29.9     (19.3

Other, net

     (26.1     (9.4
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities—Continuing Operations

     124.0        143.7   

Net Cash Provided by Operating Activities—Discontinued Operations

     38.4        83.1   
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     162.4        226.8   
  

 

 

   

 

 

 

Cash Flows from Investing Activities

    

Business acquisitions, net of cash acquired

     (567.9     —     

Additions to property and intangible assets

     (69.2     (44.8

Proceeds from sale of property

     —          .1   

Purchases of securities

     (.8     (10.0

Proceeds from sale or maturity of securities

     8.2        10.0   
  

 

 

   

 

 

 

Net Cash Used by Investing Activities—Continuing Operations

     (629.7     (44.7

Net Cash Used by Investing Activities—Discontinued Operations

     (13.9     (7.0
  

 

 

   

 

 

 

Net Cash Used by Investing Activities

     (643.6     (51.7
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Proceeds from issuance of long-term debt

     550.0        —     

Repayments of long-term debt

     (753.2     (44.7

Net repayments under credit arrangements

     (124.9     (116.8

Purchases of treasury stock

     (.6     (.6

Proceeds and tax benefits from exercise of stock awards

     10.7        4.9   

Changes in book cash overdrafts

     (20.4     (7.0

Other, net

     —          (.1
  

 

 

   

 

 

 

Net Cash Used by Financing Activities—Continuing Operations

     (338.4     (164.3

Net Cash Provided by Financing Activities—Discontinued Operations

     900.0        —     
  

 

 

   

 

 

 

Net Cash Provided (Used) by Financing Activities

     561.6        (164.3
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash

     1.0        1.3   
  

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     81.4        12.1   

Cash and Cash Equivalents, Beginning of Period

     50.0        29.3   
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 131.4      $ 41.4   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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RALCORP HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in millions, shares in thousands)

 

                              Accum. Other        
            Additional     Common           Compre -        
     Common      Paid-In     Stock in     Retained     hensive        
     Stock      Capital     Treasury     Earnings     Loss     Total  

Balance, September 30, 2011 (Restated)

   $ .6       $ 1,957.3      $ (338.9   $ 1,026.9      $ (80.7   $ 2,565.2   

Net earnings

            87.8          87.8   

Unrealized loss on securities

              (21.9     (21.9

Benefit plan adjustment, net of $10.1 tax expense

              16.6        16.6   

Cash flow hedging adjustments, net of $2.3 tax expense

              4.9        4.9   

Foreign currency translation adjustment

              12.4        12.4   
             

 

 

 

Comprehensive income

                99.8   

Purchases of treasury stock (8 shares)

          (.6         (.6

Activity under stock and deferred compensation plans (289 shares)

        (3.1     11.8            8.7   

Stock-based compensation expense

        7.9              7.9   

Spin-off of Post cereals business

            (1,012.8     11.1        (1,001.7
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

   $ .6       $ 1,962.1      $ (327.7   $ 101.9      $ (57.6   $ 1,679.3   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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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. 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/A for the year ended September 30, 2011, filed on September 12, 2012. The significant accounting policies for the accompanying financial statements are the same as disclosed in Note 1 in that Annual Report.

Effective February 3, 2012, Ralcorp completed the spin-off of the Post cereals business (formerly, the Branded Cereal Products segment), which is reported as discontinued operations in the accompanying financial statements. All amounts related to discontinued operations are excluded from the notes to consolidated financial statements unless otherwise indicated. See Note 4 for additional information about discontinued operations.

The segment previously referred to as Other Cereal Products, which includes private-brand and value-brand ready-to-eat cereals and the Bloomfield Bakers products (which includes nutritional bars and natural and organic specialty cookies, crackers and cereals), has been renamed the Cereal Products segment.

During the fourth quarter of fiscal 2012 and in advance of filing a Form 10-Q for the periods ended March 31 and June 30, 2012, the Company identified immaterial errors in its second quarter fiscal 2012 and 2011 financial statements included in a Form 8-K filed June 13, 2012. The errors related primarily to the finalization of accounting for the spin-off of the Post cereals business and the resulting recasting of the Company’s financial statements to reflect the Post cereals business as discontinued operations. In addition, the amounts of gains and losses on economic hedges included in the statements of earnings for the three and six months ended March 31, 2012 were incorrect by $5.7. The effect of the correction of these errors on income was to increase comprehensive income by $.9 and to decrease net earnings and earnings from continuing operations by $3.7 for the three and six months ended March 31, 2012 ($.06 and $.07 per share, respectively). The effect of the corrections on the balance sheet was to reduce total assets by $2.0, reduce total liabilities by $9.5, and increase shareholders’ equity by $7.5 as of March 31, 2012. There was no effect on total cash flows from operating, investing, or financing activities in any period, but the corrections decreased cash flows from operating activities for continuing operations by $4.7 and $2.9 for the six months ended March 31, 2011 and 2012, respectively (with offsetting changes in cash flows from operating activities for discontinued operations). These amounts have been revised since the Form 8-K filing on June 13, 2012 in presenting the accompanying financial statements for the three and six months ended March 31, 2012.

Certain amounts for prior periods have been reclassified to conform to the current period’s presentation. As discussed above, certain amounts for prior periods have been recast to separate amounts related to discontinued operations from amounts related to continuing operations.

NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This update establishes common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRS”). The amendments in this update were effective for Ralcorp’s financial statements for the quarter ended March 31, 2012. The adoption of this update did not have an effect on the Company’s financial position, results of operations, or cash flows.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” The objective of this update is to improve the comparability, consistency, and transparency of financial reporting to increase the prominence of items reported in other comprehensive income. This update requires that all nonowner changes in shareholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (i.e., Ralcorp’s financial statements for the quarter ending December 31, 2012), except for those deferred by ASU No. 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” issued in December 2011. The adoption of this update is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In September 2011, the FASB issued ASU No. 2011-9, “Compensation—Retirement Benefits—Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan,” which provides new requirements for the disclosures that an employer should provide related to its participation in multiemployer pension plans. Plans of this type are commonly used by employers to provide benefits to union employees that may work for multiple employers during their working life and thereby accrue benefits in one plan for their retirement. The revised disclosures will provide users of financial statements with additional information about the plans in which an employer participates, the level of an employer’s participation in the plans, and financial health of significant plans. The amendments in this update are effective for Ralcorp’s annual financial statements for the year ending September 30, 2012. The adoption of this update is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

 

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NOTE 3—RESTATEMENTS

In the fourth quarter of fiscal 2011 the Company recorded non-cash impairment charges totaling $471.4 related to intangible assets in the Branded Cereal Products segment (included in discontinued operations). These charges consisted of a goodwill impairment of $364.8 and trademark impairment charges of $106.6 (primarily related to the Honey Bunches of Oats, Post Selects, and Post trademarks). In May of 2012, the Company determined that the goodwill impairment calculation performed in the fourth quarter of fiscal 2011 resulting in the $364.8 non-cash impairment charge excluded certain deferred taxes when determining the fair value of the net assets of the Branded Cereal Products segment. The exclusion of certain deferred taxes from the impairment computation resulted in the fourth quarter impairment charge being understated by $54.0. The impairment charge is not deductible for tax purposes and therefore, it does not impact income tax expense. The Company has restated its consolidated financial statements as of and for the year ended September 30, 2011 and its condensed consolidated financial statements as of December 31, 2011 to reflect an additional non-cash goodwill impairment charge of $54.0 during the fourth quarter of fiscal 2011 and corresponding reduction in goodwill for its former Branded Cereal Products segment. The effects of the restatement adjustment on the September 30, 2011 consolidated balance sheet as previously reported and the impact of recasting the restated amounts for discontinued operations (see Note 4) are listed in the following table. Amounts affected by the restatement adjustment have been labeled as restated in the accompanying financial statements and notes.

 

     September 30, 2011  
     Previously
Reported
     Restatement
Adjustment
    Corrected      Recast
Adjustment
    Currently
Reported
 

Consolidated Balance Sheet

            

Goodwill

   $ 2,590.1       $ (54.0   $ 2,536.1       $ (1,375.2   $ 1,160.9   

Total assets

     6,333.2         (54.0     6,279.2         —          6,279.2   

Retained earnings

     1,080.9         (54.0     1,026.9         —          1,026.9   

Total shareholders’ equity

     2,619.2         (54.0     2,565.2         —          2,565.2   

Total liability and shareholders’ equity

     6,333.2         (54.0     6,279.2         —          6,279.2   

In connection with the preparation of the restated financial statements, the Company identified additional errors in the footnotes to the financial statements related to the condensed financial statements of guarantors included in Note 17 of the originally filed March 31, 2011 Quarterly Report on Form 10-Q. These errors do not impact the Company’s consolidated balances and amounts. See Note 19 for additional information on the impact of these errors and the restatement of the condensed financial statements of guarantors.

NOTE 4—DISCONTINUED OPERATIONS

On February 3, 2012, the Company separated its Post cereals business (formerly, the Branded Cereal Products segment) into a new, publicly traded company (Spin-Off) called Post Holdings, Inc. (Post). The Spin-Off was completed by a pro rata distribution of approximately 80.3% of the outstanding shares of Post common stock to holders of Ralcorp common stock. Each Ralcorp shareholder received one share of Post common stock for every two shares of Ralcorp common stock held on January 30, 2012, the record date for the distribution. For U.S. federal income tax purposes, the distribution of shares of Post common stock in the Spin-Off is tax-free to Ralcorp and its shareholders, except with respect to cash received by Ralcorp shareholders in lieu of a fractional share, and the Company received a ruling from the Internal Revenue Service regarding the tax-free nature of the Spin-Off. Ralcorp received a total of $900 in cash in the Spin-Off transactions, as described in Note 17.

The Company retained approximately 19.7% of the Post common stock outstanding at February 3, 2012, reported as “Investment in Post Holdings, Inc.” and classified as available for sale. The Company’s investment does not provide the Company the ability to influence the operating or financial policies of Post and accordingly does not constitute significant continuing involvement. Furthermore, while the Company is a party to a separation agreement and various other agreements relating to the separation, including a transition services agreement (“TSA”), a tax matters agreement, an employee matters agreement and certain other commercial agreements, the Company has determined that the continuing cash flows generated by these agreements, which are expected to be eliminated within two years, and its investment in Post common stock do not constitute significant continuing involvement in

 

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the operations of Post. Accordingly, the net assets, operating results, and cash flows of Ralcorp’s Post cereals business are presented separately as discontinued operations for all periods presented through the date of the Spin-Off. No gain or loss was recognized in connection with the Spin-Off, but subsequent unrealized gains or losses on the Company’s investment in Post common stock are recognized in other comprehensive income (see Note 10). No related deferred tax impact has been recorded because the Company intends to dispose of the Post common stock in a tax-free transaction within one year.

Post is now a stand-alone public company which separately reports its financial results. Due to differences between the basis of presentation for discontinued operations and the basis of presentation as a stand-alone company, the financial results of the Post cereals business included within discontinued operations for the Company may not be indicative of actual financial results of Post as a stand-alone company.

The results of the Post cereals business included in discontinued operations for the three and six months ended March 31, 2012 and 2011 are summarized in the following table. Post separation costs are primarily professional services fees directly related to the Spin-Off transactions.

 

     Three Months Ended
March 31,
    Six Months Ended
March 31,
 
     2012     2011     2012     2011  

Net sales

   $ 86.6      $ 255.3      $ 301.0      $ 476.9   

Post separation costs

     (12.3     —          (15.0     —     

Operating (loss) profit

     (1.1     60.6        31.6        113.8   

(Loss) earnings before income taxes

     (1.1     60.6        31.6        113.8   

Income taxes

     (5.8     (21.8     (17.4     (41.0

(Loss) earnings from discontinued operations, net of income taxes

     (6.9     38.8        14.2        72.8   

Ralcorp continues to purchase and sell certain products from or to Post. The amounts of the intercompany revenues and costs associated with such activities before the Spin-Off were as follows:

 

     Three Months Ended
March 31,
    Six Months Ended
March 31,
 
     2012     2011     2012     2011  

Intercompany net sales

   $ .3      $ —        $ 1.0      $ —     

Intercompany costs and expenses

     (1.3     (3.7     (6.1     (5.6

During the second quarter, following the Spin-Off, Ralcorp recognized billings to Post of approximately $2.2 related to the TSA, which were included in “Other operating expenses, net” in the statement of earnings. Under the TSA, Ralcorp also collects and disburses cash on Post’s behalf. As of March 31, 2012, Ralcorp’s accounts payable include a net amount due to Post of $7.6.

 

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At September 30, 2011, the major components of assets and liabilities of discontinued operations were as follows:

 

Current Assets

  

Receivables, net

   $ 60.8   

Inventories

     66.6   

Deferred income taxes

     3.9   

Prepaid expenses and other current assets

     4.0   
  

 

 

 

Total Current Assets

     135.3   

Property, Net

     412.1   

Goodwill (Restated)

     1,375.2   

Other Intangible Assets, Net

     748.6   

Other Assets

     .8   
  

 

 

 

Total Assets

   $ 2,672.0   
  

 

 

 

Current Liabilities

  

Accounts payable

   $ 28.8   

Other current liabilities

     30.9   
  

 

 

 

Total Current Liabilities

     59.7   

Deferred Income Taxes

     354.6   

Other Liabilities

     104.9   
  

 

 

 

Total Liabilities

   $ 519.2   
  

 

 

 

NOTE 5—BUSINESS COMBINATIONS

On October 3, 2011, Ralcorp completed the acquisition of the North American private-brand refrigerated dough business of Sara Lee Corporation (“Refrigerated Dough”). Refrigerated Dough business is a leading manufacturer and distributor of a full range of private-brand refrigerated dough products in the U.S. To fund the transaction, Ralcorp entered into a credit agreement consisting of a $550 term loan (see Note 16) that was repaid with a portion of the proceeds generated in connection with the separation of its Post cereals business (see Note 4). Refrigerated Dough, included in the Frozen Bakery Products segment, employs approximately 700 people and has manufacturing and distribution facilities in Carrollton, Texas and Forest Park, Georgia. The assigned goodwill is deductible for tax purposes. The purchase price allocation included $259.6 of customer relationships, trademarks, and other intangibles subject to amortization over a weighted average amortization period of approximately 15 years. Net sales and operating profit included in the statement of earnings related to this acquisition were $79.5 and $10.6, respectively, for the three months ended March 31, 2012 and $180.5 and $25.8, respectively, for the six months ended March 31, 2012.

On December 28, 2011, Ralcorp completed the acquisition of Pastificio Annoni S.p.A. (“Annoni”), a pasta manufacturer located in Bergamo, Italy. Annoni operates as a part of the Pasta segment. The assigned goodwill is not deductible for tax purposes. The purchase price allocation included $4.6 of customer relationships subject to amortization over a weighted average amortization period of 10 years. Net sales and operating profit included in the statement of earnings related to this acquisition for both the three and six months ended March 31, 2012 were $2.9 and $.1, respectively.

 

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Each of the acquisitions was accounted for using the purchase method of accounting, whereby the results of operations of each of the following acquisitions are included in the statements of earnings from the date of acquisition. The purchase price was allocated to acquired assets and liabilities based on their estimated fair values at the date of acquisition, and any excess was allocated to goodwill, as shown in the following table. For each acquisition, the goodwill is attributable to the assembled workforce of the acquired business and the significant synergies and opportunities expected from the combination of the acquired business with the existing Ralcorp businesses. Certain estimated values are not yet finalized (primarily deferred tax assets and liabilities and other intangible assets for Annoni) and are subject to change once additional information is obtained (but no later than one year from the applicable acquisition date).

 

     Refrigerated
Dough
    Annoni  

Cash

   $ —        $ .9   

Receivables

     14.6        8.2   

Inventories

     23.1        .5   

Other current assets

     .1        —     

Property

     62.6        3.6   

Goodwill

     218.4        7.2   

Other intangible assets

     259.6        4.6   
  

 

 

   

 

 

 

Total assets acquired

     578.4        25.0   
  

 

 

   

 

 

 

Accounts payable

     (14.1     (3.8

Other current liabilities

     (8.4     (1.3

Other liabilities

     (3.9     (3.1
  

 

 

   

 

 

 

Total liabilities assumed

     (26.4     (8.2
  

 

 

   

 

 

 

Net assets acquired

   $ 552.0      $ 16.8   
  

 

 

   

 

 

 

Supplemental Pro Forma Information

The following unaudited pro forma information shows Ralcorp’s results of operations as if the fiscal 2012 business combinations had been completed on October 1, 2010. The acquirees’ pre-acquisition results have been added to Ralcorp’s historical results, and the totals have been adjusted for the pro forma effects of amortization of intangible assets recognized as part of the business combination, inventory and property valuation adjustments, interest expense related to the financing of the business combinations, and related income taxes. These pro forma results may 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
March 31,
     Six Months Ended
March 31,
 
     2012      2011      2012      2011  

Net sales

   $ 1,062.2       $ 997.4       $ 2,233.3       $ 2,048.5   

Earnings from continuing operations

     29.4         45.3         73.9         88.3   

Basic earnings per share from continuing operations

     .53         .82         1.34         1.61   

Diluted earnings per share from continuing operations

     .52         .81         1.31         1.59   

NOTE 6—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.

 

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Table of Contents
     Three Months Ended
March 31,
    Six Months Ended
March 31,
 
     2012     2011     2012     2011  

Pension Benefits

        

Service cost

   $ .6      $ .4      $ 1.3      $ .9   

Interest cost

     3.0        2.7        5.9        5.5   

Expected return on plan assets

     (4.6     (4.2     (9.3     (8.5

Amortization of net loss

     1.6        1.1        3.2        2.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ .6      $ —        $ 1.1      $ .1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Postretirement Benefits

        

Service cost

   $ .1      $ (.1   $ .1      $ (.1

Interest cost

     .4        .4        .9        .8   

Amortization of net loss

     .1        .1        .2        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ .6      $ .4      $ 1.2      $ .7   
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 7—AMOUNTS RELATED TO PLANT CLOSURES

During the quarter ended March 31, 2012, the leased manufacturing facility of the Bloomfield business in Los Alamitos, California was closed after relinquishing co-manufacturing business that did not meet minimum margin requirements. The Company has moved all remaining production to, and is rescaling its co-manufacturing operations at, a nearby facility within the Cereal Products segment. The project is expected to be substantially completed by June 30, 2012.

Also, during the quarter ended March 31, 2012, management finalized a plan to close the Poteau, Oklahoma manufacturing facility of the Snacks, Sauces & Spreads segment. The plant’s production of crackers and cookies will be transferred to the Company’s cracker and cookie plant in Princeton, Kentucky to realize cost savings through capacity rationalization. The closure is expected to occur in June 2012 and to be substantially completed by September 30, 2012, pending the sale of the property.

Property associated with plants in Billerica, Massachusetts and Blue Island, Illinois (closed in fiscal 2008 and 2007, respectively) has not yet been sold, and the Company continues to incur impairment losses resulting from declines in the real estate market, as well as continuing costs of ownership.

Amounts related to plant closures are shown in the following table. Costs are recognized in “Other operating expenses” in the statements of operations, and are not included in the measure of segment performance for any segment. There were no significant liability balances related to plant closure activities at March 31, 2012 or September 30, 2011.

 

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Table of Contents
     Three Months Ended      Six Months Ended      Cumulative      Total  
     March 31,      March 31,      as of      Expected to  
     2012      2011      2012      2011      March 31, 2012      be Incurred  

Los Alamitos:

                 

Employee termination benefits

   $ .5       $ —         $ .5       $ —         $ .5       $ .5   

Losses on property

     .4         —           .4         —           .4         .4   

Other associated costs

     .2         —           .2         —           .2         .4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Los Alamitos

     1.1         —           1.1         —           1.1         1.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Poteau:

                 

Employee termination benefits

     —           —           —           —           —           2.3   

Losses on property

     4.9         —           4.9         —           4.9         4.9   

Other associated costs

     —           —           —           —           —           2.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Poteau

     4.9         —           4.9         —           4.9         9.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Billerica and Blue Island

     .7         .2         .8         .4         10.5         10.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 6.7       $ .2       $ 6.8       $ .4       $ 16.5       $ 21.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 8—EARNINGS PER SHARE

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

 

     Three Months Ended
March 31,
     Six Months Ended
March 31,
 
     2012      2011      2012      2011  

Weighted Average Shares for Basic Earnings per Share

     55,168         54,769         55,091         54,736   

Dilutive effect of:

           

Stock options

     152         244         178         255   

Stock appreciation rights

     731         246         666         234   

Restricted stock awards

     212         249         207         239   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted Average Shares for Diluted Earnings per Share

     56,263         55,508         56,142         55,464   
  

 

 

    

 

 

    

 

 

    

 

 

 

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
March 31, 2012
     Six Months Ended
March 31, 2011
 
     First
Quarter
     Second
Quarter
     First
Quarter
     Second
Quarter
 

SARs at $66.07 per share

     —           —           504         497   

SARs at $58.79 per share

     —           —           8         —     

SARs at $56.27 per share

     —           —           372         —     

SARs at $57.14 per share

     —           —           13         13   

SARs at $57.45 per share

     —           —           536         536   

SARs at $61.98 per share

     —           —           6         6   

SARs at $62.03 per share

     —           —           —           3   

SARs at $61.95 per share

     —           —           —           6   

SARs at $74.65 per share

     —           491         —           —     

 

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Table of Contents

NOTE 9—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 foreign 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, ten 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.

The Post cereals business participated in Ralcorp’s hedging program before the Spin-Off (see Note 4). The fair value of the derivative instruments has not been reflected as assets or liabilities of discontinued operations as of September 30, 2011 because Post was not legally a party to the underlying derivative instruments and because there are no significant instruments that were allocable only to Post. As of September 30, 2011, the amount of Ralcorp’s net derivative liability that was related to Post was $10.3. The amounts of derivative effects of hedging allocated to Post (and included in earnings from discontinued operations on the statements of operations) was a gain of $.2 and a loss of $2.0 for the three and six months ended March 31, 2012, respectively, and a loss of $.7 and a gain of $.1 for the three and six months ended March 31, 2011, respectively. Amounts related to Post are included in the amounts disclosed in the rest of this note. As of the Spin-Off date, Post no longer participated in the Ralcorp derivative instrument program and no net derivative liability or asset was outstanding.

For the six months ended March 31, 2012, the Company’s derivative instruments consisted of commodity contracts (options, futures, and swaps) used as cash flow or economic hedges on purchases of raw materials (ingredients and packaging) and energy (fuel), and foreign currency forward contracts used as cash flow hedges on receipts of foreign currency-denominated accounts receivable. Certain commodity-related derivatives do not meet the criteria for cash flow hedge accounting or simply are not designated as hedging instruments; nonetheless, they are economic hedges used to manage the future cost of raw materials. The following table shows the notional amounts of derivative instruments held.

 

     Mar. 31,      Dec. 31,      Sept. 30,  
     2012      2011      2011  

Raw materials (thousands of pounds)

     33,080         124,900         1,395,470   

Natural gas (thousands of MMBTUs)

     1,164         1,990         3,885   

Other fuel (thousands of gallons)

     4,757         10,627         12,966   

Currency (thousands of dollars)

     35,250         59,000         83,250   

The following table shows the fair value and balance sheet location of the Company’s derivative instruments as of March 31, 2012 and September 30, 2011, all of which were designated as hedging instruments under ASC Topic 815 except $12.8 and $34.3, respectively, of commodity contracts in a net liability position.

 

     Fair Value       
     Mar. 31      Sept. 30,       
     2012      2011     

Balance Sheet Location

Liability Derivatives

        

Commodity contracts

   $ 24.7       $ 49.0       Other current liabilities

Foreign exchange contracts

     —           4.1       Other liabilities
  

 

 

    

 

 

    
   $ 24.7       $ 53.1      
  

 

 

    

 

 

    

Asset Derivatives

        

Commodity contracts

   $ 1.3       $ .3       Prepaid expenses and other current assets

Foreign exchange contracts

     .2         —         Prepaid expenses and other current assets
  

 

 

    

 

 

    
   $ 1.5       $ .3      
  

 

 

    

 

 

    

 

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Table of Contents

The following tables illustrate the effects of the Company’s derivative instruments on the statements of earnings and other comprehensive income or loss (“OCI”) for the three months ended March 31, 2012 and 2011.

 

Derivatives in

ASC Topic 815 Cash Flow

   Amount of Gain
(Loss) Recognized
in OCI
[Effective Portion]
     Gain (Loss)
Reclassified from
Accumulated OCI
into Earnings
[Effective Portion]
    Gain (Loss)
Recognized in
Earnings [Ineffective
Portion and Amount
Excluded from
Effectiveness Testing]
      

Hedging Relationships

   2012     2011      2012     2011     2012      2011     

Location in Earnings

Commodity contracts

   $ (.5   $ 8.4       $ (5.6   $ 8.8      $ .1       $ .1       Cost of goods sold

Foreign exchange contracts

     1.1        .7         .3        1.4        —           —         SG&A expenses

Interest rate contracts

     —          —           (.3     (.4     —           —         Interest expense, net
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    
   $ .6      $ 9.1       $ (5.6   $ 9.8      $ .1       $ .1      
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

Derivatives Not Designated

as Hedging Instruments

   Amount of Gain (Loss)
Recognized in Earnings
     Location of Gain (Loss)

Under ASC Topic 815

   2012     2011     

Recognized in Earnings

Commodity contracts

   $ (2.6   $ 6.0       Cost of goods sold

The following tables illustrate the effects of the Company’s derivative instruments on the statements of earnings and OCI for the six months ended March 31, 2012 and 2011.

 

Derivatives in    Amount of Gain
(Loss) Recognized
in OCI
     Gain (Loss)
Reclassified from
Accumulated OCI
into Earnings
    Gain (Loss) Recognized
in Earnings [Ineffective
Portion and Amount
Excluded from
      
ASC Topic 815 Cash Flow    [Effective Portion]      [Effective Portion]     Effectiveness Testing]       

Hedging Relationships

   2012     2011      2012     2011     2012      2011     

Location in Earnings

Commodity contracts

   $ (1.3   $ 27.6       $ (3.9   $ 9.1      $ .5       $ —         Cost of goods sold

Foreign exchange contracts

     3.5        2.5         (.4     2.1        —           —         SG&A expenses

Interest rate contracts

     —          —           (.7     (.8     —           —         Interest expense, net
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    
   $ 2.2      $ 30.1       $ (5.0   $ 10.4      $ .5       $ —        
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

Derivatives in    Amount of Gain (Loss)      
ASC Topic 815 Fair Value    Recognized in Earnings     Location of Gain (Loss)

Hedging Relationships

   2012      2011    

Recognized in Earnings

Commodity contracts

   $ —         $ (.1   Cost of goods sold

 

Derivatives Not Designated    Amount of Gain (Loss)       
as Hedging Instruments    Recognized in Earnings      Location of Gain (Loss)

Under ASC Topic 815

   2012     2011     

Recognized in Earnings

Commodity contracts

   $ (8.4   $ 10.8       Cost of goods sold

Accumulated OCI included a $26.5 net loss on cash flow hedging instruments before taxes ($16.4 after taxes) at March 31, 2012, compared to a $33.7 net loss before taxes ($21.3 after taxes) at September 30, 2011. Approximately $9.5 of net cash flow hedge gains included in accumulated OCI at March 31, 2012 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 occurs on a straight-line basis over the term of the related debt.

 

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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, 2012 and September 30, 2011 was $9.9 and $3.9, respectively, and the related collateral required was $.7 and $8.2 at March 31, 2012 and September 30, 2011, respectively.

NOTE 10—FAIR VALUE MEASUREMENTS

The following table presents 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, 2012      September 30, 2011  
     Total      Level 1      Level 2      Total      Level 1      Level 2  

Assets

                 

Marketable securities

   $ .8       $ .8       $ —         $ 8.2       $ 8.2       $ —     

Investment in Post Holdings, Inc.

     223.1         223.1            —           —           —     

Derivative assets

     1.5         —           1.5         .3         —           .3   

Deferred compensation investment

     25.0         25.0         —           22.9         22.9         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 250.4       $ 248.9       $ 1.5       $ 31.4       $ 31.1       $ .3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

                 

Derivative liabilities

   $ 24.7       $ —         $ 24.7       $ 53.1       $ —         $ 53.1   

Deferred compensation liabilities

     30.3         —           30.3         36.5         —           36.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 55.0       $ —         $ 55.0       $ 89.6       $ —         $ 89.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 and the Company’s investment in Post stock is measured using the market approach based on quoted prices in active markets. As of March 31, 2012, the Post stock had a fair value of $223.1 and a cost basis of $245.0, with $21.9 of net losses in accumulated other comprehensive income.

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 deferred compensation investment is invested primarily in mutual funds and its fair value 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 and Post Holdings, Inc. 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.

 

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Table of Contents

The carrying amounts reported on the consolidated balance sheets for cash and cash equivalents, receivables, and accounts and notes payable approximate fair value because of the short maturities of these financial instruments (Level 2). The carrying amount of the Company’s variable rate long-term debt (see Note 17) approximates fair value because the interest rates are adjusted to market frequently (Level 2). 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 $1,940.9 as of March 31, 2012 and $1,951.6 as of September 30, 2011) had an estimated (Level 2) fair value of $2,247.2 as of March 31, 2012 and $2,070.1 as of September 30, 2011.

NOTE 11—INVENTORIES

The reported value of inventories consisted of:

 

     Mar. 31,
2012
     Sept. 30,
2011
 

Raw materials and supplies

   $ 185.4       $ 184.7   

Finished products

     263.2         239.4   
  

 

 

    

 

 

 
   $ 448.6       $ 424.1   
  

 

 

    

 

 

 

NOTE 12—PROPERTY, NET

The reported value of property, net, consisted of:

 

     Mar. 31,
2012
    Sept. 30,
2011
 

Property at cost

   $ 1,539.6      $ 1,424.3   

Accumulated depreciation

     (692.2     (641.1
  

 

 

   

 

 

 
   $ 847.4      $ 783.2   
  

 

 

   

 

 

 

NOTE 13—GOODWILL

The changes in the carrying amount of goodwill by reportable segment (see Note 18) were as follows:

 

     Cereal
Products
     Snacks,
Sauces &
Spreads
    Frozen
Bakery
Products
     Pasta      Total  

Balance, September 30, 2011

             

Goodwill (gross)

   $ 47.2       $ 292.8      $ 366.3       $ 534.1       $ 1,240.4   

Accumulated impairment losses

     —           (79.5     —           —           (79.5
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Goodwill (net)

   $ 47.2       $ 213.3      $ 366.3       $ 534.1       $ 1,160.9   

Goodwill acquired

     —           —          218.4         7.2         225.6   

Currency translation adjustment

     —           2.1        2.7         .1         4.9   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Balance, March 31, 2012

             

Goodwill (gross)

   $ 47.2       $ 294.9      $ 587.4       $ 541.4       $ 1,470.9   

Accumulated impairment losses

     —           (79.5     —           —           (79.5
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Goodwill (net)

   $ 47.2       $ 215.4      $ 587.4       $ 541.4       $ 1,391.4   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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Table of Contents

NOTE 14—OTHER INTANGIBLE ASSETS, NET

The reported value of other intangible assets, net, consisted of:

 

      Mar. 31,
2012
    Sept. 30,
2011
 

Subject to amortization:

    

Computer software

   $ 64.2      $ 75.3   

Customer relationships

     901.3        683.0   

Trademarks/brands

     36.0        35.5   

Other

     61.9        13.1   
  

 

 

   

 

 

 
     1,063.4        806.9   

Accumulated amortization

     (252.2     (219.8
  

 

 

   

 

 

 
   $ 811.2      $ 587.1   

Not subject to amortization:

    

Trademarks/brands

     180.8        180.8   
  

 

 

   

 

 

 
   $ 992.0      $ 767.9   
  

 

 

   

 

 

 

Amortization expense related to intangible assets was:

 

      Three Months Ended
March 31,
     Six Months Ended
March 31,
 
      2012      2011      2012      2011  

Computer software

   $ 1.2       $ 1.8       $ 3.2       $ 3.6   

Customer relationships

     17.8         13.4         35.5         26.9   

Trademarks/brands

     .6         .6         1.2         1.1   

Other

     .5         .5         1.0         1.0   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 20.1       $ 16.3       $ 40.9       $ 32.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the intangible assets recorded as of March 31, 2012, total amortization expense of $81.7, $73.3, $69.5, $65.9, and $63.3 is scheduled for fiscal 2012, 2013, 2014, 2015, and 2016, respectively.

NOTE 15—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 submitted these claims to mediation. In January 2011, the Company resolved all pending contractual and other claims, resulting in a payment by the Company of $5.0 and an obligation to pay an additional $5.0, subject to the customer’s completion of certain contractual obligations through February 2013. The Company accrued $7.5 in the fiscal year ended September 30, 2010 based on early estimates of the settlement amount, and accrued an additional $2.5 in the quarter ended December 31, 2010.

 

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Table of Contents

Two subsidiaries of the Company are subject to three lawsuits brought by former employees currently pending in separate California state courts alleging, among other things, that employees did not receive statutorily mandated meal breaks resulting in incorrect payment of wages, inaccurate wage statements, unpaid overtime and incorrect payments to terminated employees. Each of these suits was filed as a class action and seeks to include in the class certain current and former employees of the respective subsidiary involved. In each case, the plaintiffs are seeking unpaid wages, interest, attorneys’ fees, compensatory and other monetary damages, statutory penalties, and injunctive relief. No determination has been made by any court regarding class certification. In April 2012, the Company, plaintiffs and a third party staffing agency formerly used by the Company agreed to the terms of a proposed settlement with respect to these suits. Under the terms of the proposed settlement, the Company has agreed to pay $4.4 in order to resolve these claims. The Company accrued $4.4 related to the proposed settlement during the quarter ended March 31, 2012. Under the terms of the proposed settlement, however, it is possible that up to $1.5 could be returned to the Company depending upon the number of current and former employees who participate in the settlement. The proposed settlement requires court approval which the Company expects will occur during the fourth quarter of fiscal 2012.

From time to time, the Company is a party to various other legal proceedings. In the opinion of management, based upon the information presently known, the ultimate liability, if any, arising from the pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are likely to be asserted, taking into account established accruals for estimated liabilities (if any), are not expected to be material, individually or in the aggregate, to the Company’s consolidated financial position, results of operations or cash flows. In addition, while it is difficult to estimate the potential financial impact of actions regarding expenditures for compliance with regulatory matters, in the opinion of management, based upon the information currently available, the ultimate liability arising from such compliance matters is not expected to be material, individually or in the aggregate, to the Company’s consolidated financial position, results of operations or cash flows.

NOTE 16—SHORT-TERM FINANCING ARRANGEMENTS

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, 2012, the accounts receivable of the American Italian Pasta Company, Bloomfield Bakers, Medallion Foods, and foreign subsidiaries had not been incorporated into the agreement and were not being sold to RRC. RRC can in turn sell up to $110.0 of ownership interests in qualifying receivables to bank commercial paper conduits. 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 conduits as part of a monthly net settlement including the sale of an additional month of receivables. Interest incurred on the funding received from the conduits totaled zero and $.3, respectively, in the three and six months ended March 31, 2012 and $.4 and $.7, respectively, in the three and six months ended March 31, 2011.

In December 2010, the Company entered into uncommitted credit arrangements with banks totaling $150.0. The arrangements expired in December 2011.

On October 3, 2011, the Company entered into a credit agreement (“2011 Credit Agreement”) consisting of a $550 term loan. Borrowings under the agreement incurred interest at the Company’s choice of either (1) LIBOR plus the applicable margin rate (currently 1.50%) or (2) the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate, (c) the “Adjusted LIBOR Rate” plus 1%. As described in Note 17, Ralcorp repaid these borrowings and terminated this agreement on January 20, 2012.

As of March 31, 2012, funding from the receivables securitization was zero. As of September 30, 2011, funding from the receivables securitization was $105.0 at a weighted average interest rate of 1.22%, and borrowings under the uncommitted credit arrangements were zero. These amounts are reflected on the Company’s consolidated balance sheet in “Notes payable to banks.”

 

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Table of Contents

NOTE 17—LONG-TERM DEBT

The reported value of long-term debt consisted of:

 

     March 31, 2012     September 30, 2011  
     Balance     Rate     Balance     Rate  

Fixed Rate Senior Notes, Series C

   $ 50.0        5.43   $ 50.0        5.43

Fixed Rate Senior Notes, Series D

     21.4        4.76     32.1        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

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        3.04     20.0        2.80

Fixed Rate Senior Notes maturing 2020

     67.0        7.39     67.0        7.39

4.95% Senior Notes maturing 2020

     300.0        4.95     300.0        4.95

Fixed Rate Senior Notes maturing 2039

     450.0        6.63     450.0        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

2010 Revolving Credit Agreement

     —          n/a        19.9        2.62

2010 Term Loan

     —          n/a        190.0        2.75
  

 

 

     

 

 

   
     1,960.9          2,181.5     

Plus: Unamortized premium (discount), net

     3.1          3.1     

Plus: Unamortized adjustment related to interest rate fair value hedge

     17.2          18.6     

Less: Current portion

     (85.7       (30.7  
  

 

 

     

 

 

   
   $ 1,895.5        $ 2,172.5     
  

 

 

     

 

 

   

On January 17, 2012, Ralcorp amended its indenture associated with its notes dated as of August 4, 2008 (“Indenture”). In addition, the holders consented to certain matters in connection with the separation of the Post cereals business, discussed in Note 4. As amended:

 

 

The Indenture contains covenants that limit Ralcorp’s ability and the ability of Ralcorp’s subsidiaries to, among other things: cause Ralcorp’s leverage ratio to exceed 3.5 to 1 at the end of any fiscal quarter, without paying additional interest, or cause Ralcorp’s leverage ratio to exceed 3.75 to 1, at the end of any fiscal quarter, or 3.5 to 1, for the two successive fiscal quarters immediately following a period during which it exceeded 3.5 to 1, in any case; cause Ralcorp’s consolidated adjusted net worth to fall below a specified amount; incur priority debt in an amount exceeding 20% of Ralcorp’s consolidated adjusted net worth; sell assets, including the stock of its subsidiaries; create certain liens; engage in transactions with affiliates; merge or consolidate with other entities; change the nature of its business or violate foreign assets control regulations. These covenants are subject to important exceptions and qualifications set forth in the Indenture.

 

 

The Indenture provides for the payment of additional interest in the amount of 1.00% in the event that the Company’s 6.625% Senior Notes due August 15, 2039 fail to have an investment grade rating from at least two of the rating agencies.

On January 17, 2012, Ralcorp also entered into amendments with respect to the Note Purchase Agreement dated as of May 22, 2003, as amended (the “2003 Note Purchase Agreement”), and the Note Purchase Agreement dated as of May 28, 2009 (the “2009 Note Purchase Agreement”). The amendments to the 2003 Note Purchase Agreement and the 2009 Note Purchase Agreement amend certain covenants so that those covenants are substantially similar to those set forth in the Indenture and consented to certain matters in connection with the separation of Post. These covenants and consents are subject to important exceptions and qualifications set forth in the 2003 Note Purchase Agreement and the 2009 Note Purchase Agreement.

 

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Table of Contents

On January 20, 2012, the Company entered into a credit agreement with banks (“Term Loan Banks”) under which it borrowed $775 as a term loan (“$775 Term Loan”). The proceeds of the $775 Term Loan were used by Ralcorp for general corporate purposes, including the repayment of Ralcorp’s or its subsidiaries’ outstanding indebtedness. Ralcorp repaid all $550 outstanding under, and terminated, the 2011 Credit Agreement, with no material early termination penalties incurred. Ralcorp also repaid all amounts outstanding under its receivables securitization program and the 2010 Revolving Credit Facility, and partially repaid amounts outstanding under the 2010 Term Loan.

On January 27, 2012, the Company entered into an exchange agreement with the Term Loan Banks or their affiliates. Pursuant to the terms of the exchange agreement, on February 3, 2012, Ralcorp delivered $775 in aggregate principal amount of 7.375% senior notes due 2022 (an obligation of Post Holdings, Inc.) in full satisfaction of the $775 Term Loan. Post initially issued the notes to Ralcorp on February 3, 2012 in connection with an internal reorganization as part of the separation. Post transferred $125 to Ralcorp immediately prior to the separation, partially to purchase certain Post assets from a separate Canadian subsidiary. Ralcorp used a portion of these proceeds to repay all remaining amounts outstanding under the 2010 Term Loan.

NOTE 18—SEGMENT INFORMATION

Management evaluates each segment’s performance based on its segment operating profit, which is its operating profit before impairments of intangible assets, costs related to plant closures, and other unallocated corporate income and expenses. Effective in the second fiscal quarter of fiscal 2012, the segment previously referred to as Other Cereal Products, which includes private-brand and value-brand ready-to-eat cereals and the Bloomfield Bakers products (which includes nutritional bars and natural and organic specialty cookies, crackers and cereals), has been renamed Cereal Products. The following tables present information about the Company’s operating segments, which are also its reportable segments, including corresponding amounts for the prior year.

 

20


Table of Contents
     Three Months Ended
March 31,
    Six Months Ended
March 31,
 
     2012     2011     2012     2011  

Net Sales

        

Cereal Products

   $ 219.9      $ 198.9      $ 446.1      $ 403.6   

Snacks, Sauces & Spreads

     407.7        382.2        881.3        799.6   

Frozen Bakery Products

     275.3        192.7        583.3        386.4   

Pasta

     159.3        143.5        318.0        279.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,062.2      $ 917.3      $ 2,228.7      $ 1,869.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment Operating Profit

        

Cereal Products

   $ 20.3      $ 22.5      $ 49.1      $ 45.0   

Snacks, Sauces & Spreads

     32.8        33.3        73.9        70.7   

Frozen Bakery Products

     26.7        22.9        60.7        45.9   

Pasta

     25.5        36.6        52.2        64.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total segment operating profit

     105.3        115.3        235.9        226.4   

Interest expense, net

     (32.0     (33.8     (66.4     (69.5

Adjustments for economic hedges

     (2.8     4.9        (8.0     8.8   

Merger and integration costs

     (1.8     (.1     (7.4     (.3

Accelerated amortization of intangible assets

     (1.2     (1.2     (2.5     (2.5

Provision for legal settlement

     (4.4     —          (4.4     (2.5

Amounts related to plant closures

     (6.7     (.2     (6.8     (.4

Stock-based compensation expense

     (5.5     (3.4     (8.2     (6.7

Systems upgrade and conversion costs

     (1.6     (1.5     (3.2     (3.9

Other unallocated corporate expenses

     (10.9     (10.3     (22.0     (21.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations before Income Taxes

   $ 38.4      $ 69.7      $ 107.0      $ 127.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and Amortization

        

Cereal Products

   $ 5.0      $ 5.4      $ 10.3      $ 10.9   

Snacks, Sauces & Spreads

     10.8        10.2        21.4        20.5   

Frozen Bakery Products

     17.3        9.7        34.2        19.7   

Pasta

     13.0        13.1        25.7        26.3   

Corporate

     2.7        3.3        6.6        6.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 48.8      $ 41.7      $ 98.2      $ 83.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

      Mar. 31,
2012
     Sept. 30,
2011
 

Assets

        (Restated)   

Cereal Products

   $ 261.4       $ 263.4   

Snacks, Sauces & Spreads

     807.5         799.0   

Frozen Bakery Products

     1,266.1         712.9   

Pasta

     1,464.5         1,463.0   
  

 

 

    

 

 

 

Total segment assets

     3,799.5         3,238.3   

Cash and cash equivalents

     131.4         50.0   

Assets of discontinued operations

     —           2,672.0   

Investment in Post Holdings, Inc.

     223.1         —     

Other unallocated corporate assets

     298.7         318.9   
  

 

 

    

 

 

 

Total

   $ 4,452.7       $ 6,279.2   
  

 

 

    

 

 

 

 

21


Table of Contents

NOTE 19—CONDENSED FINANCIAL STATEMENTS OF GUARANTORS

In August 2009 and July 2010, the Company issued a total of $750.0 of Senior Notes which are publicly tradable. 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”). The guarantees are subject to release in limited circumstances (only upon the occurrence of certain customary conditions). 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”).

In May of 2012, the Company identified errors in the condensed financial statements of guarantors included in the previously filed Quarterly Report on Form 10-Q for the quarter ended March 31, 2011. The Company has restated its condensed financial statements of guarantors as of September 30, 2011 and for the quarter and six months ended March 31, 2011. The effect of the restatement adjustments on the condensed consolidated financial statements of guarantors as previously reported for these periods is disclosed in the following tables (which do not reflect recasting for discontinued operations). The errors are described in the legend following the tables.

Condensed Consolidating Statements of Earnings

 

     Three Months Ended March 31, 2011  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  
     Previously
Reported
    Restated     Previously
Reported
    Restated     Previously
Reported
    Restated     Previously
Reported
    Restated     Previously
Reported
    Restated  

Other intercompany revenues4

   $ .4      $ .4      $ 2.9      $ 2.9      $ 12.2      $ 15.7      $ (15.5   $ (19.0   $ —        $ —     

Gross Profit

     40.6        40.6        293.0        293.0        21.9        25.4        (15.5     (19.0     340.0        340.0   

Selling, general and administrative expenses3,4

     (30.6     (30.6     (122.8     (127.4     (17.9     (16.8     15.5        19.0        (155.8     (155.8

Operating Profit

     8.3        8.3        153.2        148.6        2.6        7.2        —          —          164.1        164.1   

Interest (expense) income, net3

     (34.2     (34.2     .9        .2        1.3        .2        —          —          (33.8     (33.8

Earnings before Income Taxes and Equity Earnings

     (25.9     (25.9     152.3        148.8        3.9        7.4        —          —          130.3        130.3   

Income taxes3

     9.3        9.3        (55.0     (53.7     (1.3     (2.6     —          —          (47.0     (47.0

Earnings before Equity Earnings

     (16.6     (16.6     97.3        95.1        2.6        4.8        —          —          83.3        83.3   

Net Earnings

     83.3        83.3        96.3        94.1        2.6        4.8        (98.9     (98.9     83.3        83.3   

 

     Six Months Ended March 31, 2011  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  
     Previously
Reported
    Restated     Previously
Reported
    Restated     Previously
Reported
    Restated     Previously
Reported
    Restated     Previously
Reported
    Restated  

Other intercompany revenues4

   $ .9      $ .9      $ 5.6      $ 5.6      $ 24.5      $ 31.8      $ (31.0   $ (38.3   $ —        $ —     

Gross Profit

     79.6        79.6        559.7        559.7        49.7        57.0        (31.0     (38.3     658.0        658.0   

Selling, general and administrative expenses3,4

     (62.1     (62.1     (236.2     (244.6     (36.0     (34.9     31.0        38.3        (303.3     (303.3

Operating Profit

     14.1        14.1        286.4        278.0        10.7        19.1        —          —          311.2        311.2   

Interest (expense) income, net3

     (70.3     (70.3     (.7     .4        1.5        .4        —          —          (69.5     (69.5

Earnings before Income Taxes and Equity Earnings

     (56.2     (56.2     285.7        278.4        12.2        19.5        —          —          241.7        241.7   

Income taxes3

     20.2        20.2        (102.9     (100.2     (4.4     (7.1     —          —          (87.1     (87.1

Earnings before Equity Earnings

     (36.0     (36.0     182.8        178.2        7.8        12.4        —          —          154.6        154.6   

Net Earnings

     154.6        154.6        183.4        178.8        7.8        12.4        (191.2     (191.2     154.6        154.6   

 

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Table of Contents

Condensed Consolidating Balance Sheets

 

     September 30, 2011  
     Parent
Company
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  
     Previously
Reported
     Restated      Previously
Reported
     Restated      Previously
Reported
     Restated      Previously
Reported
    Restated     Previously
Reported
     Restated  

Receivables, net2,3,4

   $ 57.5       $ 55.7       $ 70.0       $ 49.4       $ 284.7       $ 310.8       $ (1.8   $ (5.5   $ 410.4       $ 410.4   

Total Current Assets

     151.2         149.4         480.4         459.8         368.2         394.3         (5.1     (8.8     994.7         994.7   

Intercompany Notes and Interest3,4

     —           —           88.8         88.8         130.7         106.8         (219.5     (195.6     —           —     

Investment in Subsidiaries1,2,3,4

     4,921.9         4,873.5         267.7         271.4         —           —           (5,189.6     (5,144.9     —           —     

Deferred Income Taxes2

     141.0         85.4         —           —           —           —           (141.0     (85.4     —           —     

Goodwill1

     —           —           2,491.0         2,437.0         99.1         99.1         —          —          2,590.1         2,536.1   

Other Assets3

     11.5         35.3         24.9         1.1         .2         .2         —          —          36.6         36.6   

Total Assets

     5,326.5         5,244.5         5,735.7         5,641.0         826.2         828.4         (5,555.2     (5,434.7     6,333.2         6,279.2   

Accounts payable3

     74.7         74.7         201.8         205.5         41.8         41.8         (5.1     (8.8     313.2         313.2   

Other current liabilities2

     120.2         116.1         84.5         88.6         18.3         18.3         —          —          223.0         223.0   

Total Current Liabilities

     225.6         221.5         286.3         294.1         165.1         165.1         (5.1     (8.8     671.9         671.9   

Intercompany Notes and Interest3,4

     115.6         91.7         15.1         15.1         88.8         88.8         (219.5     (195.6     —           —     

Deferred Income Taxes2

     —           —           765.5         709.9         11.1         11.1         (141.0     (85.4     635.6         635.6   

Total Liabilities

     2,707.3         2,679.3         1,070.1         1,022.3         302.2         302.2         (365.6     (289.8     3,714.0         3,714.0   

Other shareholders’ equity1,2,3,4

     2,618.6         2,564.6         4,665.6         4,618.7         524.0         526.2         (5,189.6     (5,144.9     2,618.6         2,564.6   

Total Shareholders’ Equity

     2,619.2         2,565.2         4,665.6         4,618.7         524.0         526.2         (5,189.6     (5,144.9     2,619.2         2,565.2   

Total Liabilities and Shareholders’ Equity

     5,326.5         5,244.5         5,735.7         5,641.0         826.2         828.4         (5,555.2     (5,434.7     6,333.2         6,279.2   

Condensed Consolidating Statements of Cash Flows

 

     Six Months Ended March 31, 2011  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  
     Previously
Reported
    Restated     Previously
Reported
    Restated     Previously
Reported
    Restated     Previously
Reported
     Restated     Previously
Reported
    Restated  

Net Cash Provided (Used) by Operating Activities2,3,4,5

   $ 370.3      $ 184.0      $ (56.1   $ 314.1      $ (87.4   $ (98.7   $ —         $ (172.6   $ 226.8      $ 226.8   

Intercompany investments and advances2,3,4,5

     (97.5     —          117.2        —          (19.7     —          —           —          —          —     

Payments for equity contributions5

     —          (9.8     —          —          —          —          —           9.8        —          —     

Proceeds from equity distributions5

     —          80.3        —          —          —          —          —           (80.3     —          —     

Payments for intercompany lending5

     —          —          —          —          —          (66.8     —           66.8        —          —     

Receipt of intercompany loan repayments5

     —          —          —          —          —          48.5        —           (48.5     —          —     

Net Cash Provided (Used) by Investing Activities

     (102.9     65.1        72.3        (44.9     (21.1     (19.7     —           (52.2     (51.7     (51.7

Changes in book cash overdrafts3

     8.6        8.6        (15.6     (18.5     —          2.9        —           —          (7.0     (7.0

Proceeds from equity contributions5

     —          —          —          .9        —          8.9        —           (9.8     —          —     

Payments for equity distributions5

     —          —          —          (251.0     —          (1.9     —           252.9        —          —     

Proceeds from intercompany borrowing5

     —          66.8        —          —          —          —          —           (66.8     —          —     

Repayments of intercompany loans5

     —          (48.5     —          —          —          —          —           48.5        —          —     

Net Cash (Used) Provided by Financing Activities

     (267.6     (249.3     (15.7     (268.7     119.0        128.9        —           224.8        (164.3     (164.3

 

1 

The calculated amount of impairment of intangible assets was incorrect as discussed in Note 3.

2 

Transactions were not recorded in the correct legal entity, and the amounts were not properly reclassified to the correct column.

3 

Clerical errors led to misclassifications between columns and between line items.

4 

Intercompany amounts related to the receivables securitization program discussed in Note 16 were not correctly calculated or reported.

5 

Cash flows related to intercompany loans and investments were all included in a single line in cash flows from investing activities instead of separately identified and classified by transaction type in cash flows from operating, investing, and financing activities.

 

23


Table of Contents

Set forth below are condensed consolidating financial statements presenting the results of operations, financial position, and cash flows of the Parent Company (“Parent”), the Guarantor Subsidiaries (“Guarantor”) on a combined basis, and the Non-Guarantor Subsidiaries (“Non-Guarantor”) 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 Parent, Guarantor, and Non-Guarantor. For this presentation, investments in subsidiaries are accounted for using the equity method of accounting. These condensed consolidating financial statements have been restated to correct for certain errors (as disclosed above) and recasted to show discontinued operations (as described in Note 4). Effective with the Spin-Off, Post Foods LLC is no longer a guarantor, and all related amounts for Post have been reclassified to Non-Guarantor Subsidiaries to conform with the current presentation.

Condensed Consolidating Statements of Earnings

 

     Three Months Ended March 31, 2012  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net Sales

   $ 138.1      $ 892.6      $ 74.8      $ (43.3   $ 1,062.2   

Other intercompany revenues

     .5        1.7        13.8        (16.0     —     

Cost of goods sold

     (105.7     (718.7     (64.0     43.3        (845.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     32.9        175.6        24.6        (16.0     217.1   

Selling, general and administrative expenses

     (41.2     (73.7     (17.6     16.0        (116.5

Amortization of intangible assets

     (.7     (17.9     (1.5     —          (20.1

Other operating expenses, net

     1.7        (11.8     —          —          (10.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Profit

     (7.3     72.2        5.5        —          70.4   

Interest (expense) income, net

     (32.7     .4        .3        —          (32.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) Earnings from Continuing Operations before Income Taxes and Equity Earnings

     (40.0     72.6        5.8        —          38.4   

Income taxes

     14.1        (19.4     (3.7     —          (9.0

Equity in earnings of subsidiaries

     55.9        (2.1     —          (53.8     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     30.0        51.1        2.1        (53.8     29.4   

(Loss) earnings from discontinued operations, net of income taxes

     (7.5     —          .6        —          (6.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings

   $ 22.5      $ 51.1      $ 2.7      $ (53.8   $ 22.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three Months Ended March 31, 2011  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  
           (Restated)     (Restated)              

Net Sales

   $ 126.5      $ 749.4      $ 73.4      $ (32.0   $ 917.3   

Other intercompany revenues

     .4        1.8        16.8        (19.0     —     

Cost of goods sold

     (87.4     (581.1     (65.8     32.0        (702.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     39.5        170.1        24.4        (19.0     215.0   

Selling, general and administrative expenses

     (33.2     (65.6     (14.7     19.0        (94.5

Amortization of intangible assets

     (1.4     (13.5     (1.4     —          (16.3

Other operating expenses, net

     (.3     (.4     —          —          (.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Profit

     4.6        90.6        8.3        —          103.5   

Interest (expense) income, net

     (34.2     .2        .2        —          (33.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) Earnings from Continuing Operations before Income Taxes and Equity Earnings

     (29.6     90.8        8.5        —          69.7   

Income taxes

     10.6        (31.5     (4.3     —          (25.2

Equity in earnings of subsidiaries

     99.9        (1.0     —          (98.9     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     80.9        58.3        4.2        (98.9     44.5   

Earnings from discontinued operations, net of income taxes

     2.4        —          36.4        —          38.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings

   $ 83.3      $ 58.3      $ 40.6      $ (98.9   $ 83.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents
     Six Months Ended March 31, 2012  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net Sales

   $ 283.5      $ 1,870.0      $ 157.0      $ (81.8   $ 2,228.7   

Other intercompany revenues

     1.0        3.9        31.6        (36.5     —     

Cost of goods sold

     (216.8     (1,507.2     (131.1     81.8        (1,773.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     67.7        366.7        57.5        (36.5     455.4   

Selling, general and administrative expenses

     (77.2     (156.8     (30.1     36.5        (227.6

Amortization of intangible assets

     (2.3     (35.6     (3.0     —          (40.9

Other operating expenses, net

     (1.0     (12.4     (.1     —          (13.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Profit

     (12.8     161.9        24.3        —          173.4   

Interest (expense) income, net

     (66.8     .8        (.4     —          (66.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) Earnings from Continuing Operations before Income Taxes and Equity Earnings

     (79.6     162.7        23.9        —          107.0   

Income taxes

     28.1        (52.6     (8.9     —          (33.4

Equity in earnings of subsidiaries

     148.2        3.7        —          (151.9     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     96.7        113.8        15.0        (151.9     73.6   

(Loss) earnings from discontinued operations, net of income taxes

     (8.9     —          23.1        —          14.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings

   $ 87.8      $ 113.8      $ 38.1      $ (151.9   $ 87.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended March 31, 2011  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  
           (Restated)    

(Restated)

    (Restated)        

Net Sales

   $ 262.3      $ 1,509.2      $ 157.8      $ (60.3   $ 1,869.0   

Other intercompany revenues

     .9        3.7        33.7        (38.3     —     

Cost of goods sold

     (185.5     (1,182.0     (138.6     60.3        (1,445.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     77.7        330.9        52.9        (38.3     423.2   

Selling, general and administrative expenses

     (67.4     (129.9     (30.7     38.3        (189.7

Amortization of intangible assets

     (2.7     (26.9     (3.0     —          (32.6

Other operating expenses, net

     (.7     (2.8     —          —          (3.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Profit

     6.9        171.3        19.2        —          197.4   

Interest (expense) income, net

     (70.3     .4        .4        —          (69.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) Earnings from Continuing Operations before Income Taxes and Equity Earnings

     (63.4     171.7        19.6        —          127.9   

Income taxes

     22.8        (59.5     (9.4     —          (46.1

Equity in earnings of subsidiaries

     190.6        .6        —          (191.2     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     150.0        112.8        10.2        (191.2     81.8   

Earnings from discontinued operations, net of income taxes

     4.6        —          68.2        —          72.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings

   $ 154.6      $ 112.8      $ 78.4      $ (191.2   $ 154.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

Condensed Consolidating Balance Sheets

 

     March 31, 2012  
     Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Assets

          

Current Assets

          

Cash and cash equivalents

   $ 69.3      $ —        $ 67.1      $ (5.0   $ 131.4   

Marketable securities

     .8        —          —          —          .8   

Investment in Post Holdings, Inc.

     223.1        —          —          —          223.1   

Receivables, net

     56.3        69.4        222.6        (3.2     345.1   

Inventories

     72.4        352.7        23.5        —          448.6   

Deferred income taxes

     14.4        —          .2        (.4     14.2   

Prepaid expenses and other current assets

     8.7        9.1        1.4        —          19.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

     445.0        431.2        314.8        (8.6     1,182.4   

Intercompany Notes and Interest

     —          41.0        92.0        (133.0     —     

Investment in Subsidiaries

     3,350.4        309.8        —          (3,660.2     —     

Deferred Income Taxes

     46.5        —          —          (46.5     —     

Property

     255.4        1,114.2