-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NWLkqGq/Jj3vZPGAF5vSLcbzQvh74+HXsksNDPk+JLujKE9z+BBbqy2Bgl4mPYTj 00BjPsxeYDgnV7+bCjtcnw== 0001029506-02-000010.txt : 20020414 0001029506-02-000010.hdr.sgml : 20020414 ACCESSION NUMBER: 0001029506-02-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RALCORP HOLDINGS INC /MO CENTRAL INDEX KEY: 0001029506 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 431766315 STATE OF INCORPORATION: MO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12619 FILM NUMBER: 02545731 BUSINESS ADDRESS: STREET 1: 800 MARKET STREET STREET 2: SUITE 2900 CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3148777000 MAIL ADDRESS: STREET 1: 800 MARKET STREET STREET 2: SUITE 2900 CITY: ST LOUIS STATE: MO ZIP: 63101 FORMER COMPANY: FORMER CONFORMED NAME: NEW RALCORP HOLDINGS INC DATE OF NAME CHANGE: 19961223 10-Q 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001. ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO __________. Commission file number: 1-12619 RALCORP HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Missouri 43-1766315 (State of Incorporation) (I.R.S. Employer Identification No.) 800 Market Street, Suite 2900 St. Louis, MO 63101 (Address of principal (Zip Code) executive offices) (314) 877-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (x) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock Outstanding Shares at par value $.01 per share February 12 2001 29,933,230 RALCORP HOLDINGS, INC. INDEX PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Statement of Earnings 1 Condensed Consolidated Balance Sheet 2 Condensed Consolidated Statement of Cash Flows 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 13 (i) PART I. FINANCIAL INFORMATION Item 1. Financial Statements.
RALCORP HOLDINGS, INC. CONSOLIDATED STATEMENT OF EARNINGS (Unaudited) (Dollars in millions except per share data, shares in thousands) Three Months Ended December 31, ------------------ 2001 2000 -------- -------- Net Sales $ 325.1 $ 287.4 -------- -------- Costs and Expenses Cost of products sold 259.2 232.4 Selling, general and administrative 39.2 35.8 Interest expense, net 1.9 4.6 Plant closure and relocation costs - .5 Merger termination fee, net of related expenses - (4.2) -------- -------- Total Costs and Expenses 300.3 269.1 -------- -------- Earnings before Income Taxes and Equity Earnings 24.8 18.3 Income Taxes 8.9 6.9 -------- -------- Earnings before Equity Earnings 15.9 11.4 Equity in Loss of Vail Resorts, Inc., Net of Related Deferred Income Taxes (3.1) (2.7) -------- -------- Net Earnings $ 12.8 $ 8.7 ======== ======== Basic Earnings per Share $ 0.43 $ 0.29 ======== ======== Diluted Earnings per Share $ 0.42 $ 0.29 ======== ======== Weighted Average Shares for Basic Earnings per Share 29,912 29,860 Dilutive effect of stock options 333 119 -------- -------- Weighted Average Shares for Diluted Earnings per Share 30,245 29,979 ======== ======== See accompanying Notes to Condensed Consolidated Financial Statements.
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RALCORP HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (Dollars in millions) Dec. 31, Sept. 30, 2001 2001 -------- -------- ASSETS Current Assets Cash and cash equivalents $ 1.1 $ 3.9 Receivables, net 8.5 9.0 Investment in Ralcorp Receivables Corp. 35.1 41.0 Inventories 152.9 164.1 Deferred income taxes 3.4 3.7 Other current assets 4.2 3.0 -------- -------- Total Current Assets 205.2 224.7 Investment in Vail Resorts, Inc. 77.1 81.9 Property, Net 283.9 287.4 Goodwill 209.5 209.5 Other Intangible Assets, Net 7.2 8.1 Other Assets 8.1 6.3 -------- -------- Total Assets $ 791.0 $ 817.9 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 54.2 $ 86.2 Other current liabilities 48.5 39.0 -------- -------- Total Current Liabilities 102.7 125.2 Long-term Debt 204.0 223.1 Deferred Income Taxes 38.4 39.9 Other Liabilities 42.7 40.3 -------- -------- Total Liabilities 387.8 428.5 -------- -------- Shareholders' Equity Common stock .3 .3 Capital in excess of par value 109.9 109.9 Retained earnings 345.4 332.6 Common stock in treasury, at cost (51.7) (51.9) Accumulated other comprehensive loss (.7) (1.5) -------- -------- Total Shareholders' Equity 403.2 389.4 -------- -------- Total Liabilities and Shareholders' Equity $ 791.0 $ 817.9 ======== ======== See accompanying Notes to Condensed Consolidated Financial Statements.
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RALCORP HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in millions) Three Months Ended December 31, ------------------- 2001 2000 -------- -------- Cash Flows from Operating Activities Net earnings $ 12.8 $ 8.7 Adjustments to reconcile net earnings to net Cash flow provided by operating activities: Depreciation and amortization 8.2 9.8 Equity in loss of Vail Resorts, Inc. 4.8 4.1 Deferred income taxes (.8) (1.4) Changes in operating assets and liabilities (5.3) 13.1 -------- -------- Net cash provided by operating activities 19.7 34.3 -------- -------- Cash Flows from Investing Activities Business acquisitions, net of cash acquired - .6 Additions to property and intangible assets (5.2) (5.2) Proceeds from sale of property 1.6 .5 -------- -------- Net cash used by investing activities (3.6) (4.1) -------- -------- Cash Flows from Financing Activities Net repayments under credit arrangements (19.1) (29.8) Proceeds from exercise of stock options .2 - -------- -------- Net cash used by financing activities (18.9) (29.8) -------- -------- Net (Decrease) Increase in Cash and Cash Equivalents (2.8) .4 Cash and Cash Equivalents, Beginning of Period 3.9 4.1 -------- -------- Cash and Cash Equivalents, End of Period $ 1.1 $ 4.5 ======== ======== See accompanying Notes to Condensed Consolidated Financial Statements.
3 RALCORP HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 (Unaudited) (Dollars in millions) NOTE 1 - PRESENTATION OF CONDENSED FINANCIAL STATEMENTS The accompanying unaudited historical financial statements of the Company have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year. Certain prior year amounts have been reclassified to conform with the current year's presentation. These statements should be read in connection with the financial statements and notes included in the Company's Annual Report to Shareholders for the year ended September 30, 2001. NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS During the fourth quarter of fiscal 2001, the Company implemented accounting reclassifications as a result of EITF 00-10, 00-14, and 00-25. These reclassifications had no impact on net earnings or earnings per share but did affect reported net sales, cost of products sold, and selling, general and administrative expenses. Both periods presented reflect these reclassifications. On October 1, 2001, the Company adopted FAS 142, "Goodwill and Other Intangible Assets," which stops the amortization of goodwill and requires a goodwill impairment test at least annually. The first step of the Company's transitional goodwill impairment test, which will indicate whether or not a potential impairment exists, will be completed by the end of the second fiscal quarter. At both September 31 and December 31, 2001, the carrying amount of goodwill was as follows: Cereals, Crackers & Cookies - $56.0; Dressings, Syrups, Jellies & Sauces - $99.1; and Snack Nuts & Candy - $54.4. The following schedules show net earnings and earnings per share adjusted to exclude Ralcorp's goodwill amortization expense (net of tax effects) and to adjust Ralcorp's equity in the loss of Vail (net of tax effects) to exclude Vail's goodwill amortization expense.
Three Months Ended December 31, ------------------ 2001 2000 ------ ------ Reported net earnings $ 12.8 $ 8.7 Add back: Goodwill amortization - 1.4 Adjust: Equity in loss of Vail - .2 ------ ------ Adjusted net earnings $ 12.8 $ 10.3 ====== ====== Basic earnings per share: Reported net earnings $ .43 $ .29 Add back: Goodwill amortization - .05 Adjust: Equity in loss of Vail - .01 ------ ------ Adjusted net earnings $ .43 $ .35 ====== ====== Diluted earnings per share: Reported net earnings $ .42 $ .29 Add back: Goodwill amortization - .05 Adjust: Equity in loss of Vail - .01 ------ ------ Adjusted net earnings $ .42 $ .35 ====== ======
4 NOTE 3 - PLANT CLOSURE AND RELOCATION COSTS AND RESERVES During fiscal 2001, the Company closed plants in Baltimore, MD and San Jose, CA, moving production to its other facilities. In the quarter ended December 31, 2000, costs related to the Baltimore closure totaling $.5 are included on the Statement of Earnings as "Plant closure and relocation costs." Other current liabilities include reserves as follows:
Sep. 30, Amount Dec. 31, 2001 Utilized 2001 -------- -------- -------- San Jose severance costs $ .2 $ .1 $ .1 Other San Jose closure and relocation costs .4 .4 - ------- ------- ------- $ .6 $ .5 $ .1 ======= ======= =======
NOTE 4 - MERGER TERMINATION FEE Agribrands International, Inc. terminated a merger agreement with Ralcorp on December 1, 2000. In accordance with the agreement, Ralcorp received a payment of $5.0 as a termination fee, which was recorded in the first quarter of fiscal 2001 net of related expenses. The after-tax effect of this nonrecurring income item was $2.6, or $.09 per diluted share. NOTE 5 - COMPREHENSIVE INCOME
Three Months Ended December 31, ------------------ 2001 2000 ------ ------ Net earnings $ 12.8 $ 8.7 Other comprehensive income - Deferred gain on cash flow hedging instruments, net .8 .1 ------ ------ Comprehensive income $ 13.6 $ 8.8 ====== ======
NOTE 6 - SALE OF RECEIVABLES On September 23, 2001, the Company entered into a three-year agreement to sell, on an ongoing basis, all of its trade accounts receivable to a wholly owned, bankruptcy-remote subsidiary called Ralcorp Receivables Corporation (RRC), which in turn sells the receivables to a bank commercial paper conduit. RRC is a qualifying special purpose entity under FAS 140 and the sale of Ralcorp receivables to RRC is considered a true sale for accounting, tax and legal purposes. As of December 30, 2001, the outstanding balance of receivables (net of an allowance for doubtful accounts) sold to RRC was $96.1 and proceeds received were $61.0, resulting in a subordinated retained interest of $35.1 reflected on the Company's consolidated balance sheet as an "Investment in Ralcorp Receivables Corp." Discounts related to the sale of receivables totaled $.4 in the three months ended December 31, 2001 and are included on the statement of earnings in "Selling, general and administrative" expenses. 5 NOTE 7 - INVENTORIES consisted of the following:
Dec. 31, Sep. 30, 2001 2001 --------- --------- Raw materials and supplies $ 63.3 $ 63.6 Finished products 89.6 100.5 --------- --------- $ 152.9 $ 164.1 ========= =========
NOTE 8 - PROPERTY, NET consisted of the following:
Dec. 31, Sep. 30, 2001 2001 --------- --------- Property at cost $ 453.5 $ 450.2 Accumulated depreciation (169.6) (162.8) --------- --------- $ 283.9 $ 287.4 ========= =========
NOTE 9 - OTHER INTANGIBLE ASSETS, NET consisted of the following:
Dec. 31, Sep. 30, 2001 2001 --------- --------- Software $ 21.4 $ 21.4 Accumulated amortization (14.2) (13.3) --------- --------- $ 7.2 $ 8.1 ========= =========
Amortization expense related to these assets was $.9 and $1.1 during the three months ended December 31, 2001 and 2000, respectively, with $3.5, $3.3, $1.2 and $.1 scheduled for the years ended September 30, 2002, 2003, 2004, and 2005, respectively. NOTE 10 - LONG-TERM DEBT On October 16, 2001, the Company entered into a $275 revolving credit agreement. Borrowings under the credit agreement incur interest at the Company's choice of either (1) LIBOR plus the applicable margin rate (currently 1.00%) or (2) the maximum of the federal funds rate plus 0.50% or the prime rate. Such borrowings are unsecured and mature on October 16, 2004 unless such date is extended. The credit agreement calls for an unused fee of 0.225%, payable quarterly in arrears, and contains certain representations, warranties, covenants and conditions customary to credit facilities of this nature. Also on October 16, 2001, the Company repaid and terminated its $125 revolving credit agreement (Credit Agreement A) and its term loan (Credit Agreement B), and the total amount available under uncommitted credit arrangements was reduced from $50.5 to $35.0. Outstanding long-term debt consisted of the following: 6
December 31, 2001 September 30, 2001 ------------------ ------------------ Balance Rate Balance Rate --------- ------- --------- ------- $275 Revolving Credit Agreement $ 190.0 2.987% $ - n/a Credit Agreement A - n/a 40.0 3.531% Credit Agreement B - n/a 160.0 4.611% Uncommitted credit arrangements 7.8 2.450% 16.9 4.108% Industrial Development Revenue Bond 5.6 1.560% 5.6 2.280% Other .6 Various .6 Various --------- --------- $ 204.0 $ 223.1 ========= =========
NOTE 11 - SEGMENT INFORMATION The tables below present information about the Company's reportable segments:
Three Months Ended December 31, ------------------- 2001 2000 -------- -------- Net Sales Cereals $ 80.2 $ 76.2 Crackers & Cookies 70.8 66.0 Dressings, Syrups, Jellies & Sauces 112.4 84.8 Snack Nuts & Candy 61.7 60.4 -------- -------- Total $ 325.1 $ 287.4 ======== ======== Profit Contribution Cereals, Crackers & Cookies $ 19.0 $ 16.2 Dressings, Syrups, Jellies & Sauces 3.4 .3 Snack Nuts & Candy 7.8 5.6 -------- -------- Total segment profit contribution 30.2 22.1 Interest expense, net (1.9) (4.6) Plant closure and relocation costs - (.5) Merger termination fee, net of related expenses - 4.2 Other unallocated corporate expenses (3.5) (2.9) -------- -------- Earnings before income taxes and equity earnings $ 24.8 $ 18.3 ======== ======== Dec. 31, Sep. 30, 2001 2001 -------- -------- Total Assets Cereals, Crackers & Cookies $ 290.1 $ 295.2 Dressings, Syrups, Jellies & Sauces 271.2 273.8 Snack Nuts & Candy 96.1 104.0 Investment in Ralcorp Receivables Corporation 35.1 41.0 Investment in Vail Resorts, Inc. 77.1 81.9 Other unallocated corporate assets 21.4 22.0 -------- -------- Total $ 791.0 $ 817.9 ======== ========
7 NOTE 12 - SUBSEQUENT EVENT On January 30, 2002, the Company completed the purchase of Lofthouse Foods Incorporated, headquartered in Clearfield, Utah with plants in Clearfield and Ogden, Utah. Lofthouse is a producer of high quality cookies that are sold to the in-store bakeries of major U.S. grocers and mass merchandisers. The acquired business, with approximately $70 in annual sales, will be operated as part of the Cereals, Crackers and Cookies segment. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of Ralcorp Holdings, Inc. (Company). This discussion should be read in conjunction with the financial statements under Item 1. RESULTS OF OPERATIONS CONSOLIDATED NET SALES Net sales grew from $287.4 million in the first quarter of fiscal 2001 to $325.1 million in the first quarter of fiscal 2002. A little more than half of the 13 percent increase was due to The Torbitt & Castleman Company, LLC acquisition on January 31, 2001, which contributes approximately $80 million of sales annually. Refer to the segment discussions below for specific factors affecting results. OPERATING EXPENSES For the three months ended December 31, 2001 and 2000, cost of products sold was 79.7% and 80.9% of net sales, respectively, while selling, general, and administrative expenses were 12.1% and 12.5% of net sales, respectively. These improvements are mainly attributable to certain favorable raw material costs, cost reduction programs, and the adoption of FAS 142, as noted in the segment discussions below. INTEREST EXPENSE, NET Interest expense was $1.9 million for the three months ended December 31, 2001, compared to $4.6 million in the first quarter of the prior year. One cause of this decrease was lower interest rates. For the first quarter of fiscal 2002, the weighted average interest rate on the Company's debt, practically all of which incurs interest at variable rates, was less than half of last year's first quarter average. Another reason for the decreased interest expense was lower debt levels in the current year. Despite additional borrowings to fund the Torbitt & Castleman acquisition in January 2001, Ralcorp reduced its outstanding debt from $234.6 million at December 31, 2000 to $204.0 million at December 31, 2001 with $61.0 million of proceeds from the sale of its trade accounts receivable and with operating cash flows. On September 24, 2001, the Company entered into a three-year agreement to sell its trade accounts receivable on an ongoing basis. Discounts related to this agreement totaled $.4 million in the first quarter of fiscal 2002 and are included on the Consolidated Statement of Earnings in selling, general and administrative expenses. PLANT CLOSURE AND RELOCATION COSTS During fiscal 2001, the Company closed plants in Baltimore, MD and San Jose, CA, moving production to its other facilities. For the quarter ended December 31, 2000, costs related to the Baltimore closure totaling $.5 are included on the Statement of Earnings as "Plant closure and relocation costs." No material plant closure charges have been incurred in fiscal 2002. For information about reserves relating to the San Jose closure, see Note 3 to the financial statements in Item 1 herein. 8 MERGER TERMINATION FEE Earnings of the previous year's first quarter were favorably impacted when Agribrands International, Inc. terminated a merger agreement with Ralcorp on December 1, 2000. In accordance with the agreement, Ralcorp received a payment of $5.0 million as a termination fee, which was recorded in the first quarter of fiscal 2001 net of $.8 million of related expenses. The after-tax effect of this $4.2 million nonrecurring income item was $2.6 million, or $.09 per diluted share. INCOME TAXES Income tax provisions generally reflect statutory tax rates, adjusted by the effects of non-deductible goodwill amortization expense. The effective rate for fiscal 2002 is lower because the Company has not recorded goodwill amortization expense since its adoption of FAS 142 on October 1, 2001. EQUITY IN EARNINGS OF VAIL RESORTS, INC. Ralcorp continues to hold an approximate 21.5 percent equity ownership interest in Vail Resorts, Inc. Vail Resorts operates on a fiscal year ending July 31; therefore, Ralcorp reports its portion of Vail Resorts' operating results on a two-month time lag. Vail Resorts' operations are highly seasonal, typically yielding more than the entire year's equity income during the Company's second and third fiscal quarter. For the first quarter ended December 31, 2001, this investment resulted in a non-cash pre-tax loss of $4.8 million ($3.1 million after taxes), compared to a $4.1 million loss ($2.7 million after taxes) for last year's first quarter. CEREALS, CRACKERS & COOKIES First quarter net sales for the Cereals, Crackers & Cookies segment were up $8.8 million (6 percent) from last year, with the Ralston Foods cereal division and the Bremner cracker and cookie division reporting increases of $4.0 million and $4.8 million, respectively. Ralston Foods' ready-to-eat and hot cereal volume each improved 4 percent, outperforming overall category trends, through incremental sales to continuing customers driven by several recent product introductions and additional distribution of established items. In addition, net sales in the cereal division benefited from a favorable product mix. Bremner's cookie volumes for the quarter were 33 percent higher than last year's first quarter, boosted by sales to new customers. Cracker volumes were off 6 percent, primarily because of lower demand for saltines. The segment's first quarter profit improved $2.8 million (17 percent) as a result of the increased sales and a favorable product mix. In addition, last year's first quarter profit was reduced by $.6 million of goodwill amortization expense. Since the Company adopted FAS 142, "Goodwill and Other Intangible Assets," on October 1, 2001, no goodwill amortization expense has been recorded in fiscal 2002. DRESSINGS, SYRUPS, JELLIES & SAUCES Net sales of the Company's Dressings, Syrups, Jellies & Sauces segment, also known as Carriage House, increased by $27.6 million, or nearly a third of last year's first quarter sales. This year's results include sales from The Torbitt & Castleman Company, LLC, acquired January 31, 2001, which are about $80 million annually. The addition of new customers and increased business with major continuing customers also contributed to the significant sales growth. The segment's first quarter profit also increased significantly from the prior year, improving from $.3 million to $3.4 million. While Torbitt & Castleman contributed to profit in the current year, more than half of the improvement was the result of the continuing cost reduction efforts begun during fiscal 2001, including two plant closures. In addition, last year's first quarter profit was reduced by $.5 million of goodwill amortization expense. 9 SNACK NUTS & CANDY First quarter net sales for the Snack Nuts & Candy segment, also known as Nutcracker Brands, increased 2 percent from last year. The $1.3 million improvement in net sales is attributable to additional snack nut sales to customers acquired during the past year, partially offset by lower candy sales. Largely due to the timing of orders from a major customer, candy sales in the first quarter of fiscal 2002 were less than in the prior year's first quarter. First quarter segment profit increased $2.2 million from the corresponding period last year. This improvement was due primarily to favorable raw material costs, which have continued to fall throughout the past year. In addition, last year's first quarter profit was reduced by $.6 million of goodwill amortization expense. LIQUIDITY AND CAPITAL RESOURCES The Company focuses on generating positive cash flows through operations. Management believes the Company will continue to generate operating cash flows through its mix of businesses and expects that short-term and long-term liquidity requirements will be met through a combination of operating cash flows and strategic use of borrowings under committed and uncommitted credit arrangements. Capital resources remained strong at December 31, 2001 with a net worth of $403.2 million and a long-term debt to total capital ratio of 34 percent, compared to corresponding figures for September 30, 2001 of $389.4 million and 36 percent. Working capital, excluding cash and cash equivalents, was up to $101.4 million at December 31, 2001 from $95.6 million at September 30, 2001. Although net earnings for the three months ended December 31, 2001 were $4.1 million higher than in the first quarter of the prior year, cash flows from operating activities were lower. The most significant differences in reconciling items between the two periods were noncash goodwill amortization and changes in accounts payable. As noted previously, the quarter ended December 31, 2000 included $1.7 million of goodwill amortization expense while this year's first quarter had none. Accounts payable dropped $32.0 million in the current year quarter, from a relatively high $86.2 million to an unusually low $54.2 million, but only fell $12.5 million in the comparative quarter. There were no business acquisitions in the first quarter of fiscal 2002. Cash flows for the second quarter will reflect payment for Lofthouse Foods, acquired January 30, 2002 (see Note 12 in Item 1). Capital expenditures for fiscal 2002 are still expected to total approximately $35 million. As discussed below, Ralcorp has adequate capacity under current borrowing arrangements to meet these cash needs. During the three months ended December 31, 2001, the Company used $19.1 million of cash provided by operations to reduce its long-term debt. On October 16, 2001, the Company entered into a $275 million revolving credit agreement. Concurrently, the Company repaid and terminated its $125 million revolving credit agreement (Credit Agreement A) and its term loan (Credit Agreement B), and the total amount available under uncommitted credit arrangements was reduced from $50.5 million to $35.0 million. Total remaining availability at December 31, 2001 was $112.2 million. OUTLOOK CEREALS, CRACKERS & COOKIES The level of competition in the cereal category continues to be intense. Competition comes from branded box cereal manufacturers, branded bagged cereal producers and other private label cereal providers. For the last several years, the overall category has not grown, which has added to its competitive nature. When the competition focuses on price/promotion, the environment for private 10 label producers becomes more challenging. Ralston Foods must maintain an effective price gap between its quality private label cereal products and those of branded cereal producers, thereby providing the best value alternative for the consumer. Increased distribution, including new co-manufacturing opportunities, new product emulations and aggressive cost containment remain important goals of the organization. The Company's cracker and cookie operation, Bremner, also conducts business in a highly competitive category. Major branded competitors continue to market and promote their offerings aggressively. To a lesser extent, many smaller, regional branded and private label manufacturers provide additional competitive pressures. Bremner's ability to maintain a sufficient price gap between products of branded producers and Bremner's private label emulations and its ability to realize improved operating efficiencies from recent acquisitions will be important to its results of operations. In addition, Bremner will continue to focus on cost containment, new products and volume growth of existing products in order to improve operating results. DRESSINGS, SYRUPS, JELLIES & SAUCES The Dressings, Syrups, Jellies & Sauces operation started fiscal 2002 in transition. The consolidation of its Baltimore operation into the Dunkirk facility was completed in January 2001. A second plant closure, in San Jose, CA, was recently completed and all related production has been moved to other Carriage House facilities. As evidenced by first quarter results, the Company expects that these measures will improve the profit contribution of Carriage House, with estimated annual cost savings of $5 million to $6 million, of which $.8 million is noncash savings. The acquisition of the wet products portion of Torbitt & Castleman on January 31, 2001 has provided Carriage House with additional scale and manufacturing flexibility. Carriage House plans to improve performance by continuing to increase sales to new and existing customers by integrating product offerings and sales efforts of the combined organization. In addition, capacity rationalization, further cost reductions, and the capturing of additional synergies of the organizations will continue to be critical objectives. Carriage House currently sells product to a branded company under several co-manufacturing agreements, the last of which expires in November 2002. This customer plans to self-manufacture in the future and has recently notified Carriage House that it does not intend to renew these contracts upon their expiration. Although the loss of this business, if not replaced, will have a sizable impact on reported net sales, the impact upon operating profit is not expected to be material. SNACK NUTS & CANDY The outlook for the Snack Nuts & Candy segment remains favorable, as the snack nut category continues to grow. Cashew costs have trended down from the significant highs in fiscal 2000 and the Company completed its consolidation of three snack nut operations down to two plants, which has improved the segment's profitability. The addition of chocolate candy capability through the acquisition of Linette in fiscal 2000 has increased the scope of products offered by the segment. Presently, the segment faces significant competition from branded manufacturers as well as smaller private label and regional producers. From an operational perspective, the segment will continue to focus on fully leveraging the combined strengths of all of its operations, growing its customer base and maintaining the quality of its products. OVERALL The Company's management believes that the opportunities in the private label and value brand areas are favorable for long-term growth. The Company has taken significant steps to reshape the Company and lessen its reliance on any one business segment and to achieve sufficient scale in the categories in which 11 it operates. Management expects to continue to improve its business mix through volume and profit growth of existing businesses, as well as through key acquisitions or alliances. Management will continue to explore those acquisition opportunities that strategically fit with the Company's intentions of being the premier provider of private label, or value-oriented, food products. CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Report. These forward-looking statements are sometimes identified by their use of terms and phrases such as "believes," "should," "expects," "anticipates," "intends," "plans," "will" or similar expressions elsewhere in this Report. The Company's results of operations and financial condition may differ materially from those in the forward-looking statements. Such statements are based on management's current views and assumptions, and involve risks and uncertainties that could affect expected results. For example, any of the following factors cumulatively or individually may impact expected results: (i) If the Company is unable to maintain a meaningful price gap between its private label products and the branded products of its competitors, successfully introduce new products or successfully manage costs across all parts of the Company, the Company's private label businesses could incur operating losses; (ii) Consolidation among members of the grocery trade may lead to increased wholesale price pressure from larger grocery trade customers and could result in the loss of key accounts if the surviving entities are not customers of the Company; (iii) Significant increases in the cost of certain raw materials (e.g., wheat, soybean oil, various nuts, corn syrup) or energy used to manufacture the Company's products, to the extent not reflected in the price of the Company's products, could adversely impact the Company's results; (iv) In light of its significant ownership in Vail Resorts, Inc., the Company's non-cash earnings can be adversely affected by Vail Resorts' unfavorable performance; (v) The Company is currently generating profit from certain co-manufacturing contract arrangements with other manufacturers within its competitive categories. The termination or expiration of these contracts and the inability of the Company to replace this level of business could negatively affect the Company's operating results; (vi) The Company's businesses compete in mature segments with competitors having large percentages of segment sales; (vii) The Company has realized increases to sales and earnings through the acquisitions of businesses, but the ability to undertake future acquisitions depends on many factors that the Company does not control, such as identifying available acquisition candidates and negotiating satisfactory terms upon which to purchase such candidates; and (viii) Presently, all of the interest on the Company's indebtedness is set on a short-term basis. Consequently, increases in interest rates will increase the Company's interest expense. RECENTLY ISSUED ACCOUNTING STANDARDS See Note 2 in Item 1 for a discussion regarding recently issued accounting standards, including FAS 142 and EITF 00-10, 00-14, and 00-25. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Management believes there have been no material changes in the reported market risks faced by the Company during the three months ended December 31, 2001. For additional information, refer to Item 7A of the Company's Annual Report on Form 10-K for the year ended September 30, 2001. 12 PART II. OTHER INFORMATION There is no information required to be reported under any items except those indicated below. Item 4. Submission of Matters to a Vote of Security Holders. On January 31, 2002, the Registrant held its Annual Meeting of Shareholders at which the following three directors were elected Directors of the Registrant, for a term of three years expiring at the Annual Meeting of Shareholders to be held in 2005, or when their successors are elected: Votes For Votes Against/Withheld ---------- ----------------------- David R. Banks 26,199,581 536,921 M. Darrell Ingram 26,189,606 546,896 David W. Kemper 25,879,441 857,061 In addition, the following Directors continued in their terms of office after the meeting: Jack W. Goodall; Richard A. Liddy; Joe R. Micheletto; and William P. Stiritz At the same Annual Meeting two other items were voted upon: 1. A proposal to approve the Registrant's 2002 Incentive Stock Plan passed with the following votes: Votes For Votes Against Votes Abstaining Non-Votes ---------- -------------- ----------------- -------------- 22,506,541 2,066,650 113,821 2,049,490 2. A Stockholder proposal regarding classification of the Registrant's Board of Directors was not approved. The Proposal received the following votes: Votes For Votes Against Votes Abstaining Non-Votes ---------- -------------- ----------------- -------------- 12,338,791 12,130,613 217,608 2,049,490 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K On October 17, 2001, the Registrant announced it entered into a new $275 million three-year Credit Agreement. On November 1, 2001, the Registrant announced its fourth quarter and fiscal year 2001 earnings. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RALCORP HOLDINGS, INC. By: /s/ T. G. Granneman -------------------------------- T. G. Granneman Duly Authorized Signatory and February 14, 2002 Chief Accounting Officer 13 -----END PRIVACY-ENHANCED MESSAGE-----