10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 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 or Other Jurisdiction of

Incorporation)

 

(IRS Employer

Identification Number)

800 Market Street

St. Louis, Missouri 63101

(Address, including Zip Code, of Principal Executive Offices)

Registrant’s telephone number, including area code: (314) 877-7000

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

  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      1   
   Condensed Consolidated Balance Sheets      2   
   Condensed Consolidated Statements of Cash Flows      3   
   Condensed Consolidated Statement of Shareholders’ Equity      4   
   Notes to Condensed Consolidated Financial Statements      5   

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      45   

Item 1

   Legal Proceedings      45   

Item 2

   Unregistered Sales of Equity Securities and Use of Proceeds      45   

Item 4

   Mine Safety Disclosures      46   

Item 6

   Exhibits      46   

Signatures

        47   

 

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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     Nine Months Ended  
     June 30,     June 30,  
     2012     2011     2012     2011  

Net Sales

   $ 1,026.2      $ 927.8      $ 3,254.9      $ 2,796.8   

Cost of goods sold

     (822.2     (752.1     (2,595.5     (2,197.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     204.0        175.7        659.4        598.9   

Selling, general and administrative expenses

     (103.2     (97.5     (330.8     (287.2

Amortization of intangible assets

     (20.3     (16.5     (61.2     (49.1

Other operating expenses, net

     (3.4     (5.0     (16.9     (8.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Profit

     77.1        56.7        250.5        254.1   

Interest expense, net

     (30.4     (33.0     (96.8     (102.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations before Income Taxes

     46.7        23.7        153.7        151.6   

Income taxes

     (16.4     (7.9     (49.8     (54.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     30.3        15.8        103.9        97.6   

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

     (.5     12.5        13.7        85.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings

   $ 29.8      $ 28.3      $ 117.6      $ 182.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic Earnings per Share

        

Earnings from continuing operations

   $ .55      $ .29      $ 1.88      $ 1.78   

(Loss) earnings from discontinued operations

     (.01     .22        .25        1.55   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

   $ .54      $ .51      $ 2.13      $ 3.33   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Earnings per Share

        

Earnings from continuing operations

   $ .54      $ .28      $ 1.85      $ 1.75   

(Loss) earnings from discontinued operations

     (.01     .22        .24        1.53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

   $ .53      $ .50      $ 2.09      $ 3.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

RALCORP HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in millions)

 

     Three Months Ended     Nine Months Ended  
     June 30,     June 30,  
     2012     2011     2012     2011  

Net Earnings

   $ 29.8      $ 28.3      $ 117.6      $ 182.9   

Unrealized loss on securities

     (14.8     —          (36.7     —     

Benefit plan adjustment, net of tax

     —          —          16.6        —     

Cash flow hedging adjustments, net of tax

     2.1        (12.4     7.0        .5   

Foreign currency translation adjustment

     (9.8     6.5        2.6        27.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 7.3      $ 22.4      $ 107.1      $ 211.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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RALCORP HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in millions)

 

     June 30,     Sept. 30,  
     2012     2011  
           (Restated)  

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 98.0      $ 50.0   

Marketable securities

     4.7        8.2   

Investment in Post Holdings, Inc.

     208.3        —     

Receivables, net

     346.4        349.6   

Inventories

     431.0        424.1   

Deferred income taxes

     13.0        15.7   

Prepaid expenses and other current assets

     22.3        11.8   

Current assets of discontinued operations

     —          135.3   
  

 

 

   

 

 

 

Total Current Assets

     1,123.7        994.7   

Property, Net

     868.3        783.2   

Goodwill

     1,448.0        1,160.9   

Other Intangible Assets, Net

     1,019.2        767.9   

Other Assets

     37.3        35.8   

Noncurrent Assets of Discontinued Operations

     —          2,536.7   
  

 

 

   

 

 

 

Total Assets

   $ 4,496.5      $ 6,279.2   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current Liabilities

    

Accounts payable

   $ 260.2      $ 284.4   

Notes payable to banks

     —          105.0   

Current portion of long-term debt

     85.7        30.7   

Other current liabilities

     177.7        192.1   

Current liabilities of discontinued operations

     —          59.7   
  

 

 

   

 

 

 

Total Current Liabilities

     523.6        671.9   

Long-term Debt

     1,894.8        2,172.5   

Deferred Income Taxes

     274.8        281.0   

Other Liabilities

     115.6        129.1   

Noncurrent Liabilities of Discontinued Operations

     —          459.5   
  

 

 

   

 

 

 

Total Liabilities

     2,808.8        3,714.0   
  

 

 

   

 

 

 

Commitments and Contingencies

    

Shareholders’ Equity

    

Common stock

     .6        .6   

Additional paid-in capital

     1,962.7        1,957.3   

Common stock in treasury, at cost

     (327.2     (338.9

Retained earnings

     131.7        1,026.9   

Accumulated other comprehensive loss

     (80.1     (80.7
  

 

 

   

 

 

 

Total Shareholders’ Equity

     1,687.7        2,565.2   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 4,496.5      $ 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)

 

     Nine Months Ended  
     June 30,  
     2012     2011  

Cash Flows from Operating Activities

    

Net earnings

   $ 117.6      $ 182.9   

Earnings from discontinued operations, net of income taxes

     (13.7     (85.3
  

 

 

   

 

 

 

Earnings from continuing operations

     103.9        97.6   

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

    

Depreciation and amortization

     147.8        125.7   

Stock-based compensation expense

     13.0        10.7   

Deferred income taxes

     (27.5     (26.8

Other, net

     16.9        49.2   
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities—Continuing Operations

     254.1        256.4   

Net Cash Provided by Operating Activities—Discontinued Operations

     37.9        111.4   
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     292.0        367.8   
  

 

 

   

 

 

 

Cash Flows from Investing Activities

    

Business acquisitions, net of cash acquired

     (699.0     —     

Additions to property and intangible assets

     (106.2     (79.2

Proceeds from sale of property

     1.0        .5   

Purchases of securities

     (.7     (20.6

Proceeds from sale or maturity of securities

     8.1        19.9   
  

 

 

   

 

 

 

Net Cash Used by Investing Activities—Continuing Operations

     (796.8     (79.4

Net Cash Used by Investing Activities—Discontinued Operations

     (13.9     (9.7
  

 

 

   

 

 

 

Net Cash Used by Investing Activities

     (810.7     (89.1
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Proceeds from issuance of long-term debt

     550.0        —     

Repayments of long-term debt

     (753.2     (47.2

Net repayments under credit arrangements

     (124.9     (204.7

Purchases of treasury stock

     (.6     (.6

Proceeds and tax benefits from exercise of stock awards

     14.4        9.8   

Changes in book cash overdrafts

     (18.6     (19.4

Other, net

     —          (.1
  

 

 

   

 

 

 

Net Cash Used by Financing Activities—Continuing Operations

     (332.9     (262.2

Net Cash Provided by Financing Activities—Discontinued Operations

     900.0        —     
  

 

 

   

 

 

 

Net Cash Provided (Used) by Financing Activities

     567.1        (262.2
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash

     (.4     1.4   
  

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     48.0        17.9   

Cash and Cash Equivalents, Beginning of Period

     50.0        29.3   
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 98.0      $ 47.2   
  

 

 

   

 

 

 

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

            117.6          117.6   

Unrealized loss on securities

              (36.7     (36.7

Benefit plan adjustment, net of $10.1 tax expense

              16.6        16.6   

Cash flow hedging adjustments, net of $3.7 tax expense

              7.0        7.0   

Foreign currency translation adjustment

              2.6        2.6   
             

 

 

 

Comprehensive income

                107.1   

Purchases of treasury stock (8 shares)

          (.6         (.6

Activity under stock and deferred compensation plans (303 shares)

        (6.0     12.3            6.3   

Stock-based compensation expense

        11.4              11.4   

Spin-off of Post cereals business

            (1,012.8     11.1        (1,001.7
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

   $ .6       $ 1,962.7      $ (327.2   $ 131.7      $ (80.1   $ 1,687.7   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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.

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 IFRS.” 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

 

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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.

In July 2012, the FASB issued ASU No. 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment,” which is intended to simplify how an entity tests other intangible assets for impairment by allowing companies to perform a qualitative assessment to test their indefinite-lived intangible assets for impairment. The amendments in this ASU will allow an entity the option to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50%) that an indefinite-lived intangible asset is impaired. If an entity determines that it is more likely than not that the fair value of such an asset exceeds its carrying amount, it would not need to calculate the fair value of the asset in that year. However, if an entity concludes otherwise, it must calculate the fair value of the asset, compare that value with its carrying amount and record an impairment charge, if any. The guidance also includes examples of the types of factors to consider in conducting the qualitative assessment. The qualitative assessment for an indefinite-lived asset focuses on the events and circumstances that, individually or in the aggregate, could affect the significant inputs used in the fair value measurement of the asset. Both negative and positive evidence should be evaluated to determine whether it is more likely than not that the asset is impaired. Prior to this ASU, entities were required to test indefinite-lived intangible assets for impairment, on at least an annual basis, by first comparing the fair value of an asset to its carrying amount. If the carrying amount of the intangible asset exceeded its fair value, an impairment loss was recognized for the amount of the excess. The amendments must be adopted for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012; however, the Company plans to adopt this ASU on September 30, 2012, as permitted by the standard. 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.

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      Restatement            Recast     Currently  
     Reported      Adjustment     Corrected      Adjustment     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   

 

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In connection with the preparation of the restated financial statements, the Company identified additional errors in the footnotes to the financial statement statements related to the condensed consolidating financial statements of guarantors included in Note 17 of the originally filed June 30, 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 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 nine months ended June 30, 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     Nine Months Ended  
     June 30,     June 30,  
     2012     2011     2012     2011  

Net sales

   $ —        $ 244.1      $ 301.0      $ 721.0   

Post separation costs

     —          —          (15.0     —     

Impairment of intangible assets

     —          (32.1     —          (32.1

Operating (loss) profit

     (.8     18.9        30.8        132.7   

(Loss) earnings before income taxes

     (.8     18.9        30.8        132.7   

Income taxes

     .3        (6.4     (17.1     (47.4

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

     (.5     12.5        13.7        85.3   

 

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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     Nine Months Ended  
     June 30,     June 30,  
     2012      2011     2012     2011  

Intercompany net sales

   $ —         $ —        $ 1.0      $ —     

Intercompany costs and expenses

     —           (3.3     (6.1     (8.9

Following the Spin-Off, Ralcorp recognized billings to Post of approximately $3.2 and $5.4 for the three and nine months ended June 30, 2012 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 June 30, 2012, Ralcorp’s accounts payable include a net amount due to Post of $4.5.

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   
  

 

 

 

In June 2011, a trademark impairment loss of $32.1 was recognized in the Branded Cereal Products segment related to the Post Shredded Wheat and Grape-Nuts trademarks based on reassessments triggered by the announced separation of Post Foods from Ralcorp. The trademark impairment was due to reductions in anticipated future sales as a result of competition and a reallocation of advertising and promotion expenditures to higher-return brands.

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 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 $62.4 and $4.1, respectively, for the three months ended June 30, 2012 and $242.9 and $29.9, respectively, for the nine months ended June 30, 2012.

 

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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 were $3.0 and zero, respectively, for the three months ended June 30, 2012 and $5.9 and $.1, respectively, for the nine months ended June 30, 2012.

On May 22, 2012, Ralcorp completed the acquisition of Petri Baking Products, Inc. (“Petri”), a leading producer of private-brand wire-cut cookies located in Silver Creek, New York. Petri operates as a part of the Snacks, Sauces and Spreads segment. The assigned goodwill is deductible for tax purposes. The purchase price allocation included $27.6 of customer relationships subject to amortization over a weighted average amortization period of 12 years. Net sales and operating profit included in the statement of earnings related to this acquisition for both the three and nine months ended June 30, 2012 were $8.5 and $1.6, respectively.

On June 17, 2012, Ralcorp completed the acquisition of Gelit S.r.l. (“Gelit”), a leading producer of private-brand, frozen ready meals, located in Cisterna di Latina, Italy. Gelit operates as a part of the Pasta segment. The assigned goodwill is deductible for tax purposes. The purchase price allocation included $17.0 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 nine months ended June 30, 2012 were $1.6 and $.2, respectively.

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, fixed assets, and other intangible assets for Petri and Gelit) and are subject to change once additional information is obtained (but no later than one year from the applicable acquisition date).

 

     Refrigerated                    
     Dough     Annoni     Petri     Gelit  

Cash

   $ —        $ .9      $ .9      $ 4.8   

Receivables

     14.8        7.8        5.2        11.4   

Inventories

     22.8        .5        2.5        5.6   

Other current assets

     .1        —          .2        .4   

Property

     62.6        3.6        9.9        11.3   

Goodwill

     218.6        7.1        41.3        18.6   

Other intangible assets

     259.6        4.6        27.6        17.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets acquired

     578.5        24.5        87.6        69.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable

     (14.2     (3.8     (2.5     (8.5

Other current liabilities

     (8.4     (.7     (.5     (6.2

Other liabilities

     (3.9     (3.1     (.5     (2.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities assumed

     (26.5     (7.6     (3.5     (16.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Net assets acquired

   $ 552.0      $ 16.9      $ 84.1      $ 52.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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      Nine Months Ended  
     June 30,      June 30,  
     2012      2011      2012      2011  

Net sales

   $ 1,043.3       $ 1,019.1       $ 3,327.7       $ 3,110.0   

Earnings from continuing operations

     30.0         10.0         103.8         96.3   

Basic earnings per share from continuing operations

     .54         .18         1.88         1.75   

Diluted earnings per share from continuing operations

     .53         .18         1.84         1.73   

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.

 

     Three Months Ended     Nine Months Ended  
     June 30,     June 30,  
     2012     2011     2012     2011  

Pension Benefits

        

Service cost

   $ .7      $ .4      $ 2.0      $ 1.3   

Interest cost

     2.9        2.7        8.8        8.2   

Expected return on plan assets

     (4.6     (4.2     (13.9     (12.7

Amortization of prior service cost

     —          —          —          —     

Amortization of net loss

     1.5        1.1        4.7        3.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ .5      $ —        $ 1.6      $ .1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Postretirement Benefits

        

Service cost

   $ —        $ —        $ .1      $ (.1

Interest cost

     .4        .3        1.3        1.1   

Amortization of prior service cost

     .1        —          .1        —     

Amortization of net loss

     .1        —          .3        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ .6      $ .3      $ 1.8      $ 1.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 was substantially completed as of 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 occurred in June 2012 and is expected to be substantially completed by September 30, 2012, pending the sale of the property.

 

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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.

During the quarter ended June 30, 2011, the Richmond Hill, Ontario manufacturing facility of the Frozen Bakery Products segment was closed to realize cost savings through capacity rationalization. The closure was substantially completed by September 30, 2011.

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 June 30, 2012 or September 30, 2011.

 

     Three Months Ended      Nine Months Ended      Cumulative      Total  
     June 30,      June 30,      as of      Expected to  
     2012      2011      2012      2011      June 30, 2012      be Incurred  

Los Alamitos:

                 

Employee termination benefits

   $ .1       $ —         $ .6       $ —         $ .6       $ .8   

Losses on property

     1.2         —           1.6         —           1.6         1.6   

Other associated costs

     1.2         —           1.4         —           1.4         1.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Los Alamitos

     2.5         —           3.6         —           3.6         3.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Poteau:

                 

Employee termination benefits

     1.7         —           1.7         —           1.7         2.3   

Losses on property

     —           —           4.9         —           4.9         4.9   

Other associated costs

     .2         —           .2         —           .2         2.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Poteau

     1.9         —           6.8         —           6.8         9.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Richmond Hill:

                 

Employee termination benefits

     —           .8         —           .8         .8         .8   

Losses on property

     —           .3         —           .3         .3         .3   

Other associated costs

     —           1.0         —           1.0         1.0         1.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Richmond Hill

     —           2.1         —           2.1         2.1         2.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Billerica and Blue Island

     .3         .3         1.1         .7         10.8         11.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4.7       $ 2.4       $ 11.5       $ 2.8       $ 23.3       $ 26.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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      Nine Months Ended  
     June 30,      June 30,  
     2012      2011      2012      2011  

Weighted Average Shares for Basic Earnings per Share

     55,302         54,851         55,161         54,774   

Dilutive effect of:

           

Stock options

     111         250         156         253   

Stock appreciation rights

     681         550         671         339   

Restricted stock awards

     221         267         212         249   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted Average Shares for Diluted Earnings per Share

     56,315         55,918         56,200         55,615   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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).

 

     Nine Months Ended      Nine Months Ended  
     June 30, 2012      June 30, 2011  
     First      Second      Third      First      Second      Third  
     Quarter      Quarter      Quarter      Quarter      Quarter      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         484         —           —           —     

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 zero and a loss of $2.0 for the three and nine months ended June 30, 2012, respectively, and losses of $8.4 and $8.3 for the three and nine months ended June 30, 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 nine months ended June 30, 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.

 

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

Raw materials (thousands of pounds)

     6,400         33,080         124,900         1,395,470   

Natural gas (thousands of MMBTUs)

     576         1,164         1,990         3,885   

Other fuel (thousands of gallons)

     9,275         4,757         10,627         12,966   

Currency (thousands of dollars)

     33,250         35,250         59,000         83,250   

 

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Table of Contents

The following table shows the fair value and balance sheet location of the Company’s derivative instruments as of June 30, 2012 and September 30, 2011, all of which were designated as hedging instruments under ASC Topic 815 except $9.1 and $34.3, respectively, of commodity contracts in a net liability position.

 

     Fair Value       
     Jun. 30,      Sept. 30,       
     2012      2011     

Balance Sheet Location

Liability Derivatives

        

Commodity contracts

   $ 13.0       $ 49.0       Other current liabilities

Foreign exchange contracts

     .3         4.1       Other liabilities
  

 

 

    

 

 

    
   $ 13.3       $ 53.1      
  

 

 

    

 

 

    

Asset Derivatives

        

Commodity contracts

   $ —         $ .3       Prepaid expenses and other current assets
  

 

 

    

 

 

    
   $ —         $ .3      
  

 

 

    

 

 

    

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 June 30, 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

   $ (.8   $ (2.0   $ (4.5   $ 16.0      $ —         $ 1.6       Cost of goods sold

Foreign exchange contracts

     (.3     .2        .1        1.4        —           —         SG&A expenses

Interest rate contracts

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    
   $ (1.1   $ (1.8   $ (4.8   $ 17.1      $ —         $ 1.6      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

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

   $ 3.1       $ (21.2     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 nine months ended June 30, 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

   $ (2.1   $ 25.6       $ (8.3   $ 25.1      $ .5       $ 1.7       Cost of goods sold

Foreign exchange contracts

     3.2        2.7         (.3     3.5        —           —         SG&A expenses

Interest rate contracts

     —          —           (1.1     (1.1     —           —         Interest expense, net
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    
   $ 1.1      $ 28.3       $ (9.7   $ 27.5      $ .5       $ 1.7      
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

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   

 

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Table of Contents
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

   $ (5.3   $ (10.4   Cost of goods sold

Accumulated OCI included a $23.0 net loss on cash flow hedging instruments before taxes ($14.3 after taxes) at June 30, 2012, compared to a $33.7 net loss before taxes ($21.3 after taxes) at September 30, 2011. Approximately $6.3 of net cash flow hedge gains reported in accumulated OCI at June 30, 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.

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 June 30, 2012 and September 30, 2011 was $10.3 and $3.9, respectively, and the related collateral required was $.7 and $8.2 at June 30, 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:

 

     June 30, 2012      September 30, 2011  
     Total      Level 1      Level 2      Total      Level 1      Level 2  

Assets

                 

Marketable securities

   $ 4.7       $ 4.7       $ —         $ 8.2       $ 8.2       $ —     

Investment in Post Holdings, Inc.

     208.3         208.3         —           —           —           —     

Derivative assets

     —           —           —           .3         —           .3   

Deferred compensation investment

     22.8         22.8         —           22.9         22.9         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 235.8       $ 235.8       $ —         $ 31.4       $ 31.1       $ .3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

                 

Derivative liabilities

   $ 13.3       $ —         $ 13.3       $ 53.1       $ —         $ 53.1   

Deferred compensation liabilities

     28.0         —           28.0         36.5         —           36.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 41.3       $ —         $ 41.3       $ 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 June 30, 2012, the Post stock had a fair value of $208.3 and a cost basis of $245.0, with $36.7 of net losses in accumulated other comprehensive income.

 

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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.

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 June 30, 2012 and $1,951.6 as of September 30, 2011) had an estimated (Level 2) fair value of $2,290.9 as of June 30, 2012 and $2,070.1 as of September 30, 2011.

NOTE 11 – INVENTORIES

The reported value of inventories consisted of:

 

     June 30,      Sept. 30,  
     2012      2011  

Raw materials and supplies

   $ 176.4       $ 184.7   

Finished products

     254.6         239.4   
  

 

 

    

 

 

 
   $ 431.0       $ 424.1   
  

 

 

    

 

 

 

NOTE 12 – PROPERTY, NET

The reported value of property, net, consisted of:

 

     June 30,     Sept. 30,  
     2012     2011  

Property at cost

   $ 1,580.5      $ 1,424.3   

Accumulated depreciation

     (712.2     (641.1
  

 

 

   

 

 

 
   $ 868.3      $ 783.2   
  

 

 

   

 

 

 

 

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Table of Contents

NOTE 13 – GOODWILL

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

 

            Snacks,     Frozen               
     Cereal      Sauces     Bakery               
     Products      & Spreads     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

     —           41.3        218.6         25.7        285.6   

Currency translation adjustment

     —           .8        1.2         (.5     1.5   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, June 30, 2012

            

Goodwill (gross)

   $ 47.2       $ 334.9      $ 586.1       $ 559.3      $ 1,527.5   

Accumulated impairment losses

     —           (79.5     —           —          (79.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Goodwill (net)

   $ 47.2       $ 255.4      $ 586.1       $ 559.3      $ 1,448.0   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

NOTE 14 – OTHER INTANGIBLE ASSETS, NET

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

 

     June 30,     Sept. 30,  
     2012     2011  

Subject to amortization:

    

Computer software

   $ 68.2      $ 75.3   

Customer relationships

     943.6        683.0   

Trademarks/brands

     36.0        35.5   

Other

     61.9        13.1   
  

 

 

   

 

 

 
     1,109.7        806.9   

Accumulated amortization

     (271.3     (219.8
  

 

 

   

 

 

 
   $ 838.4      $ 587.1   

Not subject to amortization:

    

Trademarks/brands

     180.8        180.8   
  

 

 

   

 

 

 
   $ 1,019.2      $ 767.9   
  

 

 

   

 

 

 

Amortization expense related to intangible assets was:

 

     Three Months Ended      Nine Months Ended  
     June 30,      June 30,  
     2012      2011      2012      2011  

Computer software

   $ 1.5       $ 1.9       $ 4.7       $ 5.5   

Customer relationships

     17.7         13.5         53.2         40.3   

Trademarks/brands

     .6         .7         1.8         1.9   

Other

     .5         .4         1.5         1.4   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 20.3       $ 16.5       $ 61.2       $ 49.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the intangible assets recorded as of June 30, 2012, total amortization expense of $82.8, $77.2, $73.4, $69.8, and $67.2 is scheduled for fiscal 2012, 2013, 2014, 2015, and 2016, respectively.

 

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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.

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.

 

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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 June 30, 2012, the accounts receivable of the American Italian Pasta Company, Bloomfield Bakers, Medallion Foods, Petri Baking Products, 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 nine months ended June 30, 2012 and $.4 and $1.1, respectively, in the three and nine months ended June 30, 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 $550.0 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 June 30, 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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NOTE 17 – LONG-TERM DEBT

The reported value of long-term debt consisted of:

 

     June 30, 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        3.01     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

     —            19.9        2.62

2010 Term Loan

     —            190.0        2.75
  

 

 

     

 

 

   
     1,960.9          2,181.5     

Plus: Unamortized premium (discount), net

     3.0          3.1     

Plus: Unamortized adjustment related to interest rate fair value hedge

     16.6          18.6     

Less: Current portion

     (85.7       (30.7  
  

 

 

     

 

 

   
   $ 1,894.8        $ 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.

On May 1, 2012, the Company amended and restated its $300 revolving credit facility dated as of July 27, 2010 to provide for a new revolving credit facility (“2012 Credit Facility”) of the same amount. Borrowings under the 2012 Credit Facility bear interest at LIBOR or, at Ralcorp’s option, an Alternate Base Rate (as defined in the 2012 Credit Facility), plus a margin, ranging from 1.125% to 1.75% for LIBOR-based loans and from 0.125% to 0.75% for Alternate Base Rate-based loans, depending upon Ralcorp’s leverage ratio. Such borrowings are unconditionally guaranteed by each of its existing and subsequently acquired or organized domestic subsidiaries. The 2012 Credit Facility is secured by the pledge of 65% of the equity interests of Ralcorp’s first-tier material foreign subsidiaries and will mature on May 1, 2017. It calls for a commitment fee calculated as a percentage (ranging from .15% to .275%) of the unused portion, and contains certain representations, warranties, covenants, and conditions customary to credit facilities of this nature. The covenants include requirements that “EBIT” be at least three times “Consolidated Interest Expense” and that “Total Debt” not exceed 3.75 times “Adjusted EBITDA” (each term as defined in the agreement).

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. 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.

 

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Table of Contents
     Three Months Ended     Nine Months Ended  
     June 30,     June 30,  
     2012     2011     2012     2011  

Net Sales

        

Cereal Products

   $ 195.4      $ 217.1      $ 641.5      $ 620.7   

Snacks, Sauces & Spreads

     427.0        383.0        1,308.3        1,182.6   

Frozen Bakery Products

     253.7        187.3        837.0        573.7   

Pasta

     150.1        140.4        468.1        419.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,026.2      $ 927.8      $ 3,254.9      $ 2,796.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment Operating Profit

        

Cereal Products

   $ 14.8      $ 23.2      $ 63.9      $ 68.2   

Snacks, Sauces & Spreads

     32.9        26.0        106.8        96.7   

Frozen Bakery Products

     21.5        21.5        82.2        67.4   

Pasta

     25.7        27.1        77.9        91.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total segment operating profit

     94.9        97.8        330.8        324.2   

Interest expense, net

     (30.4     (33.0     (96.8     (102.5

Adjustments for economic hedges

     3.1        (15.7     (4.9     (6.9

Merger and integration costs

     (2.4     (1.2     (9.8     (1.5

Accelerated amortization of intangible assets

     (1.3     (1.3     (3.8     (3.8

Provision for legal settlement

     —          —          (4.4     (2.5

Amounts related to plant closures

     (4.7     (2.4     (11.5     (2.8

Stock-based compensation expense

     (4.8     (3.8     (13.0     (10.7

Systems upgrade and conversion costs

     (1.6     (1.5     (4.8     (5.4

Other unallocated corporate expenses

     (6.1     (15.2     (28.1     (36.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations before Income Taxes

   $ 46.7      $ 23.7      $ 153.7      $ 151.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and Amortization

        

Cereal Products

   $ 4.9      $ 5.1      $ 15.2      $ 16.0   

Snacks, Sauces & Spreads

     11.3        10.0        32.7        30.5   

Frozen Bakery Products

     17.5        10.1        51.7        29.8   

Pasta

     13.3        13.1        39.0        39.4   

Corporate

     2.6        3.5        9.2        10.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 49.6      $ 41.8      $ 147.8      $ 125.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     June 30,      Sept. 30,  
     2012      2011  
            (Restated)  

Assets

     

Cereal Products

   $ 255.0       $ 263.4   

Snacks, Sauces & Spreads

     879.1         799.0   

Frozen Bakery Products

     1,237.9         712.9   

Pasta

     1,522.0         1,463.0   
  

 

 

    

 

 

 

Total segment assets

     3,894.0         3,238.3   

Cash and cash equivalents

     98.0         50.0   

Assets of discontinued operations

     —           2,672.0   

Investment in Post Holdings, Inc.

     208.3         —     

Other unallocated corporate assets

     296.2         318.9   
  

 

 

    

 

 

 

Total

   $ 4,496.5       $ 6,279.2   
  

 

 

    

 

 

 

 

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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 2012, the Company identified errors in the condensed financial statements of guarantors included in the Annual Report on Form 10-K for the year ended September 30, 2011 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2011. The Company has restated its condensed financial statements of guarantors as of September 30, 2011 and for the periods ended June 30, 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 June 30, 2011  
     Parent     Guarantor     Non-Guarantor              
     Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     Previously     Restated     Previously     Restated     Previously     Restated     Previously     Restated     Previously     Restated  
     Reported           Reported           Reported           Reported           Reported        

Net Sales3

   $ 129.9      $ 129.9      $ 993.2      $ 993.5      $ 85.2      $ 85.2      $ (36.7   $ (36.7   $ 1,171.9      $ 1,171.9   

Other intercompany revenues4

     .4        .4        2.6        2.6        10.7        14.5        (13.7     (17.5     —          —     

Cost of goods sold3

     (117.1     (117.1     (728.0     (728.3     (73.5     (73.5     36.7        36.7        (882.2     (882.2

Gross Profit

     13.2        13.2        267.8        267.8        22.4        26.2        (13.7     (17.5     289.7        289.7   

Selling, general and administrative expenses4

     (34.6     (34.6     (121.9     (125.3     (14.6     (15.0     13.7        17.5        (157.4     (157.4

Other operating expenses, net3

     (1.0     (1.0     (1.5     (.9     (2.5     (3.1     —          —          (5.0     (5.0

Operating (Loss) Profit

     (23.8     (23.8     95.7        92.9        3.7        6.5        —          —          75.6        75.6   

Interest (expense) income, net3

     (33.7     (33.7     1.3        .2        (.6     .5        —          —          (33.0     (33.0

(Loss) Earnings before Income Taxes and Equity Earnings

     (57.5     (57.5     97.0        93.1        3.1        7.0        —          —          42.6        42.6   

Income taxes3,4

     20.7        20.7        (33.9     (32.5     (1.1     (2.5     —          —          (14.3     (14.3

(Loss) Earnings before Equity Earnings

     (36.8     (36.8     63.1        60.6        2.0        4.5        —          —          28.3        28.3   

Net Earnings

     28.3        28.3        62.0        59.5        2.0        4.5        (64.0     (64.0     28.3        28.3   
     Nine Months Ended June 30, 2011  
     Parent     Guarantor     Non-Guarantor              
     Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
     Previously     Restated     Previously     Restated     Previously     Restated     Previously     Restated     Previously     Restated  
     Reported           Reported           Reported           Reported           Reported        

Net Sales3

   $ 388.3      $ 388.3      $ 2,961.3      $ 2,961.6      $ 264.9      $ 264.9      $ (97.0   $ (97.0   $ 3,517.8      $ 3,517.8   

Other intercompany revenues4

     1.3        1.3        8.2        8.2        35.2        46.3        (44.7     (55.8     —          —     

Gross Profit

     92.8        92.8        827.5        827.5        72.1        83.2        (44.7     (55.8     947.7        947.7   

Selling, general and administrative expenses4

     (96.7     (96.7     (358.1     (369.9     (50.6     (49.9     44.7        55.8        (460.7     (460.7

Other operating expenses, net3

     (1.7     (1.7     (5.4     (4.8     (2.5     (3.1     —          —          (9.6     (9.6

Operating (Loss) Profit

     (9.7     (9.7     382.1        370.9        14.4        25.6        —          —          386.8        386.8   

(Loss) Earnings before Income Taxes and Equity Earnings

     (113.7     (113.7     382.7        371.5        15.3        26.5        —          —          284.3        284.3   

Income taxes3,4

     40.9        40.9        (136.8     (132.7     (5.5     (9.6     —          —          (101.4     (101.4

(Loss) Earnings before Equity Earnings

     (72.8     (72.8     245.9        238.8        9.8        16.9        —          —          182.9        182.9   

Net Earnings

     182.9        182.9        245.4        238.3        9.8        16.9        (255.2     (255.2     182.9        182.9   

 

22


Table of Contents

Condensed Consolidating Balance Sheets

 

     September 30, 2011  
     Parent     Guarantor     Non-Guarantor              
     Company     Subsidiaries     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 Interest4

     —          —          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 payable2

     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 Interest4

     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     
     Nine Months Ended June 30, 2011  
     Parent     Guarantor     Non-Guarantor              
     Company     Subsidiaries     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

   $ 300.8      $ 264.3      $ 75.0      $ 411.9      $ (8.0   $ (71.5   $ —        $ (236.9   $ 367.8      $ 367.8   

Intercompany investments and advances2,3,4,5

     88.6        —          17.6        —          (106.2     —          —          —          —          —     

Payments for equity contributions5

     —          (14.7     —          —          —          —          —          14.7        —          —     

Proceeds from equity distributions5

     —          89.1        —          —          —          —          —          (89.1     —          —     

Payments for intercompany lending5

     —          —          —          —          —          (106.4     —          106.4        —          —     

Receipt of intercompany loan repayments5

     —          —          —          —          —          53.4        —          (53.4     —          —     

Net Cash Provided (Used) by Investing Activities

     77.1        62.9        (56.8     (74.4     (109.4     (56.2     —          (21.4     (89.1     (89.1

Changes in book cash overdrafts3

     (2.1     (2.1     (17.3     (18.0     —          .7        —          —          (19.4     (19.4

Proceeds from equity contributions5

     —          —          —          2.3        —          12.4        —          (14.7     —          —     

Payments for equity distributions5

     —          —          —          (322.0     —          (2.8     —          324.8        —          —     

Proceeds from intercompany borrowing5

     —          106.4        —          —          —          —          —          (106.4     —          —     

Repayments of intercompany loans5

     —          (53.4     —          —          —          —          —          53.4        —          —     

Net Cash (Used) Provided by Financing Activities

     (379.8     (326.8     (17.4     (337.8     135.0        145.3        —          257.1        (262.2     (262.2

Net Increase (Decrease) in Cash and Cash Equivalents

     (1.9     .4        .8        (.3     19.0        19.0        —          (1.2     17.9        17.9   

Cash and Cash Equivalents, End of Period

     (1.3     1.0        1.1        —          47.4        47.4        —          (1.2     47.2        47.2   

 

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.

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.

 

23


Table of Contents

Condensed Consolidating Statements of Earnings

 

     Three Months Ended June 30, 2012  
     Parent     Guarantor     Non-Guarantor              
     Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Net Sales

   $ 139.6      $ 836.2      $ 74.1      $ (23.7   $ 1,026.2   

Other intercompany revenues

     .4        2.5        13.3        (16.2     —     

Cost of goods sold

     (102.5     (678.8     (64.6     23.7        (822.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     37.5        159.9        22.8        (16.2     204.0   

Selling, general and administrative expenses

     (34.0     (72.6     (12.8     16.2        (103.2

Amortization of intangible assets

     (.7     (17.8     (1.8     —          (20.3

Other operating expenses, net

     2.4        (5.8     —          —          (3.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Profit

     5.2        63.7        8.2        —          77.1   

Interest (expense) income, net

     (31.3     .3        .6        —          (30.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (26.1     64.0        8.8        —          46.7   

Income taxes

     9.2        (22.0     (3.6     —          (16.4

Equity in earnings of subsidiaries

     47.2        2.6        —          (49.8     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     30.3        44.6        5.2        (49.8     30.3   

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

     (.5     —          —          —          (.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings

   $ 29.8      $ 44.6      $ 5.2      $ (49.8   $ 29.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three Months Ended June 30, 2011  
     Parent     Guarantor     Non-Guarantor              
     Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
           (Restated)     (Restated)              

Net Sales

   $ 132.9      $ 759.8      $ 66.9      $ (31.8   $ 927.8   

Other intercompany revenues

     .4        1.7        15.4        (17.5     —     

Cost of goods sold

     (114.6     (609.1     (60.2     31.8        (752.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     18.7        152.4        22.1        (17.5     175.7   

Selling, general and administrative expenses

     (37.1     (64.2     (13.7     17.5        (97.5

Amortization of intangible assets

     (1.4     (13.5     (1.6     —          (16.5

Other operating expenses, net

     (1.0     (.9     (3.1     —          (5.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (Loss) Profit

     (20.8     73.8        3.7        —          56.7   

Interest (expense) income, net

     (33.7     .2        .5        —          (33.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (54.5     74.0        4.2        —          23.7   

Income taxes

     19.7        (24.8     (2.8     —          (7.9

Equity in earnings (loss) of subsidiaries

     65.1        (1.1     —          (64.0     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     30.3        48.1        1.4        (64.0     15.8   

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

     (2.0     —          14.5        —          12.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings

   $ 28.3      $ 48.1      $ 15.9      $ (64.0   $ 28.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents
     Nine Months Ended June 30, 2012  
     Parent     Guarantor     Non-Guarantor              
     Company     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Net Sales

   $ 423.1      $ 2,706.2      $ 231.1      $ (105.5   $ 3,254.9   

Other intercompany revenues

     1.4        6.4        44.9        (52.7     —     

Cost of goods sold

     (319.3     (2,186.0     (195.7     105.5        (2,595.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     105.2        526.6        80.3        (52.7     659.4   

Selling, general and administrative expenses

     (111.2     (229.4     (42.9     52.7        (330.8

Amortization of intangible assets

     (3.0     (53.4     (4.8     —          (61.2

Other operating expenses, net

     1.4        (18.2     (.1     —          (16.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (Loss) Profit

     (7.6     225.6        32.5        —          250.5   

Interest (expense) income, net

     (98.1     1.1        .2        —          (96.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (105.7     226.7        32.7