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 MARCH 31, 2003. ( ) 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 May 12, 2002 28,896,101 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 Condensed Consolidated Statement of Comprehensive Income 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Item 4. Controls and Procedures 18 PART II. OTHER INFORMATION Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 (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 Six Months Ended March 31, March 31, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Net Sales $ 314.4 $ 313.5 $ 662.7 $ 638.6 -------- -------- -------- -------- Costs and Expenses Cost of products sold 253.9 253.1 533.7 512.3 Selling, general and administrative 42.6 41.5 82.8 80.7 Interest expense, net .7 1.6 1.8 3.5 Restructuring and impairment charges 4.0 - 11.2 - Litigation settlement income, net (8.9) - (14.6) - -------- -------- -------- -------- Total Costs and Expenses 292.3 296.2 614.9 596.5 -------- -------- -------- -------- Earnings before Income Taxes and Equity Earnings 22.1 17.3 47.8 42.1 Income Taxes 8.0 6.2 17.2 15.1 -------- -------- -------- -------- Earnings before Equity Earnings 14.1 11.1 30.6 27.0 Equity in Earnings (Loss) of Vail Resorts, Inc., Net of Related Deferred Income Taxes 2.7 3.5 (.5) .4 -------- -------- -------- -------- Net Earnings $ 16.8 $ 14.6 $ 30.1 $ 27.4 ======== ======== ======== ======== Basic Earnings per Share $ .58 $ .49 $ 1.02 $ .91 ======== ======== ======== ======== Diluted Earnings per Share $ .57 $ .48 $ 1.01 $ .90 ======== ======== ======== ======== Weighted Average Shares for Basic Earnings per Share 28,884 29,931 29,358 29,921 Dilutive effect of assumed conversion: Stock options 489 509 439 421 Restricted stock awards 2 1 1 1 Deferred compensation awards 133 - 120 - -------- -------- -------- -------- Weighted Average Shares for Diluted Earnings per Share 29,508 30,441 29,918 30,343 ======== ======== ======== ======== See accompanying Notes to Condensed Consolidated Financial Statements.
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RALCORP HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (Dollars in millions) March 31, Sept. 30, 2003 2002 -------- -------- ASSETS Current Assets Cash and cash equivalents $ 9.0 $ 3.2 Investment in Ralcorp Receivables Corp. 12.9 29.7 Miscellaneous receivables 10.5 6.2 Inventories 135.9 161.6 Deferred income taxes 5.7 5.1 Other current assets 4.3 2.8 -------- -------- Total Current Assets 178.3 208.6 Investment in Vail Resorts, Inc. 80.0 80.8 Property, Net 267.2 282.6 Goodwill 236.6 238.0 Other Intangible Assets, Net 14.6 13.9 Other Assets 9.6 8.6 -------- -------- Total Assets $ 786.3 $ 832.5 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 69.2 $ 75.2 Other current liabilities 42.5 44.8 -------- -------- Total Current Liabilities 111.7 120.0 Long-term Debt 136.2 179.0 Deferred Income Taxes 36.3 36.3 Other Liabilities 61.7 61.1 -------- -------- Total Liabilities 345.9 396.4 -------- -------- Shareholders' Equity Common stock .3 .3 Capital in excess of par value 113.2 110.0 Retained earnings 416.5 386.4 Common stock in treasury, at cost (77.8) (49.9) Unearned portion of restricted stock (.1) (.1) Accumulated other comprehensive loss (11.7) (10.6) -------- -------- Total Shareholders' Equity 440.4 436.1 -------- -------- Total Liabilities and Shareholders' Equity $ 786.3 $ 832.5 ======== ======== 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) Six Months Ended March 31, ------------------- 2003 2002 -------- -------- Cash Flows from Operating Activities Net earnings $ 30.1 $ 27.4 Adjustments to reconcile net earnings to net cash flow provided by operating activities: Depreciation and amortization 20.2 16.8 Impairment and loss on sale of business 8.5 - Equity in loss (earnings) of Vail Resorts, Inc. .8 (.6) Deferred income taxes (.6) 1.7 Sale of receivables, net 2.6 (2.2) Changes in current assets and liabilities 25.2 3.0 Other, net 1.3 2.6 -------- -------- Net cash provided by operating activities 88.1 48.7 -------- -------- Cash Flows from Investing Activities Business acquisitions, net of cash acquired - (52.4) Additions to property and intangible assets (16.9) (12.2) Proceeds from sale of property 2.4 11.6 Proceeds from sale of business 3.0 - -------- -------- Net cash used by investing activities (11.5) (53.0) -------- -------- Cash Flows from Financing Activities Net (repayments) borrowings under credit arrangements (42.8) .3 Proceeds from the exercise of stock options .6 .5 Purchase of treasury stock (28.6) - -------- -------- Net cash (used) provided by financing activities (70.8) .8 -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents 5.8 (3.5) Cash and Cash Equivalents, Beginning of Period 3.2 3.9 -------- -------- Cash and Cash Equivalents, End of Period $ 9.0 $ .4 ======== ======== See accompanying Notes to Condensed Consolidated Financial Statements.
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RALCORP HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) (Dollars in millions) Three Months Ended Six Months Ended March 31, March 31, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Net Earnings $ 16.8 $ 14.6 $ 30.1 $ 27.4 Other Comprehensive Income - Deferred (loss) gain on cash flow hedging instruments, net (.4) .1 (1.1) .9 -------- -------- -------- -------- Comprehensive Income $ 16.4 $ 14.7 $ 29.0 $ 28.3 ======== ======== ======== ========
4 RALCORP HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 (Unaudited) (Dollars in millions except per share data) 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, 2002. NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards (FAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was adopted by the Company for its financial statements issued for fiscal year 2003, including interim periods. FAS 144 supersedes FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," but retains the requirements to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. The adoption of FAS 144 did not have a material impact on the Company's financial position, earnings, or cash flows. FAS 145, "Rescission of FASB Statements No. 4, 55, and 64, Amendment of FASB Statement No. 13, and Technical Corrections," was generally effective for the Company for fiscal year 2003. The adoption of FAS 145 did not have a material impact on the Company's financial position, earnings, or cash flows. FAS 146, "Accounting for Costs Associated with Exit or Disposal Activities," addresses financial accounting and reporting costs associated with exit or disposal activities and nullifies EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than at the date of an entity's commitment to an exit plan. Costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. As required, the Company adopted FAS 146 prospectively for exit or disposal activities initiated after December 31, 2002. The adoption has not had a material impact on the Company's financial position, earnings, or cash flows. FAS 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," amends FAS 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company currently has no plans to change to the fair value based method from the intrinsic value method currently used. In addition, FAS 148 amends the disclosure requirement of FAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. These amended disclosure requirements are effective for financial statements for interim periods beginning after December 15, 2002, but the Company adopted them for its financial statements for the three months ended December 31, 2002. Accordingly, the following table shows the effect on net income and earnings per share if the Company had applied the fair value recognition provisions. 5
Three Months Ended Six Months Ended March 31, March 31, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Net earnings, as reported $ 16.8 $ 14.6 $ 30.1 $ 27.4 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (.6) (.6) (1.2) (1.2) -------- -------- -------- -------- Pro forma net earnings $ 16.2 $ 14.0 $ 28.9 $ 26.2 ======== ======== ======== ======== Earnings per share: Basic - as reported $ .58 $ .49 $ 1.02 $ .91 Basic - pro forma $ .56 $ .47 $ .98 $ .87 Diluted - as reported $ .57 $ .48 $ 1.01 $ .90 Diluted - pro forma $ .55 $ .46 $ .97 $ .86
FASB Interpretation No. (FIN) 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that, in certain cases, a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective for interim periods ending after December 15, 2002 and the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The Company currently has no obligations from guarantees which would require disclosure or the recognition of a liability, except as disclosed in Note 14 to its consolidated financial statements for the year ended September 30, 2002, and except for $9.9 in letters of credit and surety bonds outstanding with various financial institutions, principally related to self-insurance requirements and the Industrial Development Revenue Bond. FIN 46, "Consolidation of Variable Interest Entities, an interpretation of ARB 51," was issued January 13, 2003. The Company currently has no involvement with variable interest entities as defined by FIN 46. FIN 46 specifically states that qualifying special-purpose entities, such as Ralcorp Receivables Corporation (RRC) discussed in Note 5, shall not be consolidated unless the holder has the unilateral ability to cause the entity to liquidate or to change the entity so that it no longer meets certain conditions described in Statement 140. Because RRC's Board of Directors must include an independent director, the Company does not have such unilateral ability. Emerging Issues Task Force (EITF) Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables," is effective for certain revenue arrangements entered into in fiscal periods beginning after June 15, 2003, but the Company does not expect its adoption to have a material impact on its financial position, earnings, or cash flows. EITF Issue No. 02-16, "Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor" was generally effective for the second quarter of the Company's fiscal year 2003, but its adoption did not have a material impact on its financial position, earnings, or cash flows. EITF Issue No. 02-17, "Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination" clarifies certain recognition requirements in FAS 141, "Business Combinations." The guidance in this Issue is to be applied to business combinations consummated and goodwill impairment tests performed after October 25, 2002. The Company does not expect its application to have a material impact on its financial position, earnings, or cash flows. 6 NOTE 3 - RESTRUCTURING AND IMPAIRMENT CHARGES AND RESERVES In the quarter ended December 31, 2002, the Company finalized its plans to reduce operations at its Streator, IL facility and transfer production of all product lines except peanut butter to other Dressings, Syrups, Jellies & Sauces locations. By March 31, 2003, termination benefits totaling $.9 had been paid (123 employees), and the Company had reserved for an additional $.3 to be paid in the quarter ending June 30, 2003 (22 employees). Also, equipment with a net book value of $.1 was written off. For the three and six months ended March 31, 2003, these costs totaled $.4 and $1.3, respectively, and are included in "Restructuring and impairment charges" on the statement of earnings. All other costs associated with this project have been charged to operating expenses as incurred or capitalized, as appropriate. Also in the quarter ended December 31, 2002, the Company sold its ketchup business, including certain equipment and inventory, and recorded a net loss of $1.3. That loss included writing off or reducing the valuation of related inventories of packaging, ingredients, and finished products, as well as a $.4 reserve for other exit costs to be incurred. Further, management determined that the resulting reduced cash flows from its tomato paste business, which had supplied the Company's ketchup production, was less than the carrying value of its paste production facility located near Williams, CA. Accordingly, the fair value of the related fixed assets as of December 31, 2002 was assessed based on a market quote, resulting in an impairment charge of $5.0. On February 4, 2003, the Company sold its tomato paste business, including the Williams, CA facility. The sale resulted in an additional loss of $3.5, including the write-off of $1.4 of goodwill associated with that business. These costs, all of which related to the Dressings, Syrups, Jellies & Sauces segment, are also included in "Restructuring and impairment charges" on the statement of earnings. On February 20, 2003, Ralcorp announced its plans to close its in-store bakery facility in Kent, WA, part of the Cereals, Crackers & Cookies segment, and transfer production to an in-store bakery facility located in Utah. In the second quarter, the Company recorded $.1 million of expenses related to Kent employee termination benefits (68 employees) in accordance with FAS 146. That amount is included in "Restructuring and impairment charges" on the statement of earnings as well. All other costs associated with this project will be charged to operating expenses as incurred or capitalized, as appropriate. At March 31, 2003, "Other current liabilities" on the balance sheet included restructuring reserves as follows: Amounts Amounts Ending Added Utilized Reserve -------- -------- -------- Streator termination benefits $ 1.2 $ (.9) $ .3 Ketchup business exit costs .4 (.3) .1 Kent termination benefits .1 - .1 -------- -------- -------- $ 1.7 $ (1.2) $ .5 ======== ======== ========
NOTE 4 - LITIGATION SETTLEMENT INCOME During the six months ended March 31, 2003, the Company received payments in partial settlement of its claims related to ongoing vitamin antitrust litigation. These payments are shown net of related expenses as "Litigation settlement income, net" on the statement of earnings. 7 NOTE 5 - SALE OF RECEIVABLES On September 24, 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 named 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 March 31, 2003, the outstanding balance of receivables (net of an allowance for doubtful accounts) sold to RRC was $72.1 and proceeds received were $59.2, resulting in a subordinated retained interest of $12.9 reflected on the Company's consolidated balance sheet as an "Investment in Ralcorp Receivables Corp." Discounts related to the sale of receivables totaled $.5 and $.7 in the six months ended March 31, 2003 and 2002, respectively, ($.3 in the three months ended March 31 of both years) and are included on the statement of earnings in "Selling, general and administrative" expenses. NOTE 6 - INVENTORIES, net of related valuation reserves, consisted of:
Mar. 31, Sep. 30, 2003 2002 -------- -------- Raw materials and supplies $ 57.4 $ 59.3 Finished products 78.5 102.3 -------- -------- $ 135.9 $ 161.6 ======== ========
NOTE 7 - PROPERTY, NET consisted of:
Mar. 31, Sep. 30, 2003 2002 -------- -------- Property at cost $ 473.2 $ 475.6 Accumulated depreciation (206.0) (193.0) -------- -------- $ 267.2 $ 282.6 ======== ========
NOTE 8 - OTHER INTANGIBLE ASSETS, NET consisted of:
Mar. 31, Sep. 30, 2003 2002 -------- -------- Computer software $ 24.0 $ 21.6 Trademark 9.0 9.0 Accumulated amortization (18.4) (16.7) -------- -------- $ 14.6 $ 13.9 ======== ========
Amortization expense related to these assets was $1.7 and $1.8 during the six months ended March 31, 2003 and 2002, respectively. 8 NOTE 9 - LONG-TERM DEBT consisted of: March 31, 2003 September 30, 2002 ------------------ ------------------ Balance Rate Balance Rate --------- ------- --------- ------- $275 Revolving Credit Agreement $ 110.0 2.224% $ 165.0 2.754% Uncommitted credit arrangements 20.3 2.200% 8.0 2.700% Industrial Development Revenue Bond 5.6 1.140% 5.6 1.540% Other .3 Various .4 Various --------- --------- $ 136.2 $ 179.0 ========= =========
NOTE 10 - TREASURY STOCK On December 11, 2002, the Company purchased 1.15 million shares of its common stock at a purchase price of $24.00 per share. NOTE 11 - SEGMENT INFORMATION The following tables present information about the Company's reportable segments. Management evaluates each segment's performance based on its profit contribution, which is profit or loss from operations before income taxes, interest, costs related to restructuring activities, and unallocated corporate income and expenses.
Three Months Ended Six Months Ended March 31, March 31, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Net Sales Cereals $ 76.0 $ 78.8 $ 159.9 $ 159.0 Crackers & Cookies 98.5 86.3 200.1 157.1 Dressings, Syrups, Jellies & Sauces 105.0 116.5 208.5 228.9 Snack Nuts & Candy 34.9 31.9 94.2 93.6 -------- -------- -------- -------- Total $ 314.4 $ 313.5 $ 662.7 $ 638.6 ======== ======== ======== ======== Profit Contribution Cereals, Crackers & Cookies $ 16.5 $ 17.7 $ 39.6 $ 36.7 Dressings, Syrups, Jellies & Sauces 1.4 2.9 2.3 6.3 Snack Nuts & Candy 4.0 2.9 13.6 10.7 -------- -------- -------- -------- Total segment profit contribution 21.9 23.5 55.5 53.7 Interest expense, net (.7) (1.6) (1.8) (3.5) Restructuring and impairment charges (4.0) - (11.2) - Litigation settlement income, net 8.9 - 14.6 - Other unallocated corporate expenses (4.0) (4.6) (9.3) (8.1) -------- -------- -------- -------- Earnings before income taxes and equity earnings $ 22.1 $ 17.3 $ 47.8 $ 42.1 ======== ======== ======== ========
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Mar. 31, Sep. 30, 2003 2002 -------- -------- Total Assets Cereals, Crackers & Cookies $ 330.3 $ 337.1 Dressings, Syrups, Jellies & Sauces 230.9 261.2 Snack Nuts & Candy 93.3 98.1 Investment in Ralcorp Receivables Corporation 12.9 29.7 Investment in Vail Resorts, Inc. 80.0 80.8 Other unallocated corporate assets 38.9 25.6 -------- -------- Total $ 786.3 $ 832.5 ======== ========
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of Ralcorp Holdings, Inc. This discussion should be read in conjunction with the financial statements under Item 1. The terms "our," "we," "Company," and "Ralcorp" as used herein refer to Ralcorp Holdings, Inc. and its consolidated subsidiaries. RESULTS OF OPERATIONS CONSOLIDATED NET SALES Second quarter net sales grew only slightly from $313.5 million in fiscal 2002 to $314.4 million in fiscal 2003, while net sales for the first half grew 4 percent from the prior year. Incremental sales from the Lofthouse cookie business acquired on January 30, 2002 were offset by sales declines in some of our other lines of business, especially in the second quarter. Refer to the segment discussions below for specific factors affecting results. OPERATING EXPENSES Although several factors impacted operating expenses in the current year periods relative to the prior year, operating expenses were very similar as a percentage of net sales. For the three months ended March 31, 2003 and 2002, cost of products sold was 80.8% and 80.7% of net sales, respectively, while selling, general, and administrative (SG&A) expenses were 13.5% and 13.2% of net sales, respectively. Through the first six months of fiscal 2003 and 2002, cost of products sold was 80.5% and 80.2% of net sales, respectively, while selling, general, and administrative (SG&A) expenses were 12.5% and 12.6% of net sales, respectively. Again, refer to the segment discussions below for specific factors affecting results. INTEREST EXPENSE, NET Interest expense dropped to $.7 million and $1.8 million, respectively, for the three and six months ended March 31, 2003, from $1.6 million and $3.5 million in the corresponding periods of the prior year. The decrease is attributable to both lower interest rates and lower debt levels in the current year. For the second quarter and first half of fiscal 2003, the weighted average interest rate on our debt, nearly all of which incurs interest at variable rates, was 2.3 percent and 2.5 percent, respectively, compared to 2.9 percent and 3.2 percent a year ago. Despite additional borrowings to fund the repurchase of 1.15 million shares of Ralcorp common stock in December 2002, we reduced our outstanding long-term debt from $223.4 million at March 31, 2002 to $136.2 million at March 31, 2003 with operating cash flows. An important component of those significant cash inflows was a $39.7 million (41 percent) reduction in net working capital during the past twelve months. 10 On September 24, 2001, we entered into a three-year agreement to sell our trade accounts receivable on an ongoing basis. Discounts related to this agreement totaled $.5 million and $.7 million in the first half of fiscal 2003 and 2002, respectively, and are included on the statement of earnings in selling, general and administrative expenses. RESTRUCTURING AND IMPAIRMENT CHARGES In the quarter ended December 31, 2002, we finalized our plans to reduce operations at our Streator, IL facility and transfer production of all product lines except peanut butter to other locations. By March 31, 2003, termination benefits totaling $.9 million had been paid (123 employees), and we had reserved for an additional $.3 million to be paid in the quarter ending June 30, 2003 (22 employees). Also in March, equipment with a net book value of $.1 million was written off. For the three and six months ended March 31, 2003, these costs totaled $.4 million and $1.3 million, respectively. All other costs associated with this project have been charged to operating expenses as incurred or capitalized, as appropriate. Also in the quarter ended December 31, 2002, we sold our ketchup business, including certain equipment and inventory, and recorded a net loss of $1.3 million. That loss included writing off or reducing the valuation of related inventories of packaging, ingredients, and finished products, as well as a $.4 million reserve for other exit costs. Further, we determined that the resulting reduced cash flows from our tomato paste business, which had supplied the Company's ketchup production, was less than the carrying value of our paste production facility located near Williams, CA. Accordingly, the fair value of the related fixed assets as of December 31, 2002 was assessed based on a market quote, resulting in an impairment charge of $5.0 million. On February 4, 2003, we sold our tomato paste business, including the Williams, CA facility. The sale resulted in an additional loss of $3.5 million, including the write-off of $1.4 million of goodwill associated with that business. On February 20, 2003, we announced our plans to close our in-store bakery facility in Kent, WA and transfer production to an in-store bakery facility located in Utah. In the second quarter, we recorded $.1 million of expenses related to Kent employee termination benefits (68 employees) in accordance with FAS 146, and expect to record another $.1 million in the third quarter. Also in the third quarter, we expect to record a lease termination charge which could be as much as $2.3 million, but the amount cannot be determined at this time. All other costs associated with this project will be charged to operating expenses as incurred or capitalized, as appropriate. The after-tax effect of the restructuring and impairment charges was $2.6 million ($.09 per diluted share) for the second quarter of fiscal 2003 and $7.2 million ($.24 per diluted share) for the first half of this fiscal year. No material restructuring or impairment charges were incurred in fiscal 2002. LITIGATION SETTLEMENT INCOME During the six months ended March 31, 2003, we received payments in partial settlement of our claims related to vitamin antitrust litigation. These payments are shown net of related expenses as "Litigation settlement income, net" on the statement of earnings. The after-tax effect of this $14.6 million income item was $9.3 million, or $.31 per diluted share. Smaller payments had resulted in pre-tax income of $.5 million and $1.1 million recorded in the third and fourth quarters of fiscal 2002, respectively. While it is possible that we may receive further amounts related to this litigation, we do not expect any such amounts to be significant. INCOME TAXES Income tax provisions for fiscal 2003 and 2002 generally reflect statutory tax rates. 11 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, we report our 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 second and third fiscal quarters. For the second quarter ended March 31, 2003, this investment resulted in non-cash pre-tax earnings of $4.1 million ($2.7 million after taxes), compared to $5.4 million ($3.5 million after taxes) for last year's second quarter. Through six months, the after-tax equity impact was $.5 million loss and $.4 million earnings for fiscal 2003 and 2002, respectively. CEREALS, CRACKERS & COOKIES Second quarter net sales for the Cereals, Crackers & Cookies segment were up 6 percent from last year, as a $12.2 million improvement in sales at the Bremner cracker and cookie division was offset by a $2.8 million decrease at the Ralston Foods cereal division. While approximately 60 percent ($7.3 million) of Bremner's net sales growth came from the acquired Lofthouse business, its other businesses continue to grow as well. Specifically, cracker sales volumes grew 16 percent from last year. Cookie sales volumes increased 4 percent, as incremental Lofthouse business in the current quarter was largely offset by a reduction in co-manufacturing business relative to last year's levels. At Ralston Foods, second quarter sales volumes of store brand ready-to-eat cereals were off 8 percent from last year as branded competitors increased their new product introductions and product promotional support. Foodservice sales were also down. Those declines were significantly offset by an increase in co-manufacturing volumes and 10 percent growth in hot cereal volumes. Through the first six months of fiscal 2003, net sales for the segment were up 14 percent from a year ago, with Bremner and Ralston Foods contributing increases of $43.0 million and $.9 million, respectively. Again, about two-thirds of the Bremner growth is attributable to the additional four months of Lofthouse sales, while the remainder came through ongoing expansion with existing customers. Cracker volumes were up 17 percent from last year's first half. Excluding Lofthouse sales, cookie volumes were nearly flat. For Ralston Foods, increases in co-manufacturing and hot cereal sales outweighed declines in store brand ready-to-eat cereal and foodservice products for the six-month period. The segment's profit contribution was down $1.2 million (7 percent) for the second quarter but up $2.9 million (8 percent) for the first six months due to a stronger first quarter. The second quarter shortfall is attributable to the decreased Ralston Foods sales, unfavorable costs of ingredients such as wheat flour, soybean oil, honey, and cocoa, and the inclusion of an initial $1.0 million reserve recorded within selling, general and administrative expenses to cover estimated costs related to the recall of a product produced by Ralston Foods for a co-manufacturing customer. DRESSINGS, SYRUPS, JELLIES & SAUCES Carriage House's net sales for the three and six months ended March 31, 2003 decreased nearly 10 percent compared to the corresponding periods last year. These declines are attributable primarily to the loss of a major co-manufacturing customer at the beginning of fiscal 2003, but also to the sale of the honey business in June of 2002, the sale of the ketchup business in November 2002, and continued pricing pressures. These sales reductions were partially offset by increased business with continuing customers. 12 The segment's second quarter profit decreased along with net sales, falling by $1.5 million for the second quarter and $4.0 for the first half. Commodity cost increases in soy oil and other ingredients were largely offset by decreases in peanut costs. Production costs increased because of inefficiencies related to the lower volumes and restructuring initiatives, discussed further below. Finally, Fleming, a major Carriage House customer, filed for bankruptcy protection on April 1, 2003, and Carriage House recorded a second quarter charge of $.7 million to cover expected losses related to accounts receivable. SNACK NUTS & CANDY Second quarter net sales for the Snack Nuts & Candy segment, also known as Nutcracker Brands, grew 9 percent from a year ago despite the loss of a few major customers in competitive bidding last year. This growth was generated primarily through increased snack nuts volume with other customers, slightly offset by a decline in candy volume. For the six months ended March 31, 2003, net sales were only 1 percent higher than in the first half of fiscal 2002 as a result of a significant reduction in first quarter holiday orders from a continuing major customer. Second quarter and six-month Snack Nuts & Candy profit increased $1.1 million (38 percent) and $2.9 million (27 percent), respectively, from the corresponding periods last year. These improvements were due primarily to certain favorable ingredient costs. LIQUIDITY AND CAPITAL RESOURCES Historically, we have funded operating needs by generating positive cash flows through operations. We expect to continue generating operating cash flows through our mix of businesses and expect 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 March 31, 2003 with a net worth of $440.4 million and a long-term debt to total capital ratio of 24 percent, compared to corresponding figures for September 30, 2002 of $436.1 million and 29 percent. Working capital, excluding cash and cash equivalents, was down to $57.6 million at March 31, 2003 from $85.4 million at September 30, 2002 as a result of seasonal changes as well as continuing reduction efforts. Although net earnings for the six months ended March 31, 2003 were only $2.7 million higher than in the first half of the prior year, cash flows from operating activities were considerably higher. In the current year, the impairment and loss on sale of the tomato paste business, which totaled $8.5 million, were added back to net earnings in the calculation of operating cash flows. However, the most significant factor was a $25.7 million decrease in inventories from September 30, 2002 to March 31, 2003. Although some seasonal inventory reduction is normal during this period of the year, the relative impact on cash flows from operations was much greater in fiscal 2003 than in fiscal 2002 as a result of recent working capital reduction efforts and the fact that last year's inventory reduction was offset by a large decrease in accounts payable. Planned capital expenditures for fiscal 2003 will require approximately $40 million, of which $16.9 million was spent during the first half. In addition to the amounts to be capitalized, a pilot project to upgrade our information systems is expected to result in incremental SG&A expenses totaling between $3 and $4 million during the term of the project, which is scheduled to be completed by the end of fiscal 2003. As discussed below, we have adequate capacity under current borrowing arrangements to meet these cash needs. On December 11, 2002, we purchased 1.15 million shares of treasury stock at a purchase price of $24.00 per share through a modified "Dutch Auction" tender offer. We made the offer to buy back our shares because we believed that our shares were undervalued in the public market and that the offer was consistent 13 with our long-term goal of increasing shareholder value. We believe that this purchase was a prudent use of our financial resources, given our ability to generate reliable cash flow from operations and the market price of our common stock. We also believe that investing in our own shares is an attractive use of capital and an efficient means to provide value to our shareholders. During the six months ended March 31, 2003, we used $42.8 million of cash provided by operations to reduce our long-term debt. As of March 31, 2003, total remaining availability under our $275 million revolving credit agreement and our $35 million uncommitted credit arrangements was $179.7 million. OUTLOOK We believe the opportunities in the private label and value brand areas are favorable for long-term growth. In the past few years, we have taken significant steps to reshape the Company, reducing our reliance on any one business segment while achieving sufficient scale in the categories in which we operate. We expect to continue to improve our business mix through volume and profit growth of existing businesses, as well as through acquisitions or alliances. We will continue to explore those acquisition opportunities that strategically fit with our intention to be the premier provider of private label, or value-oriented, food products. Our segments each operate in categories where competition from both branded and other private label suppliers is intense. In addition, ingredient price increases, previously mentioned customer losses, and start up costs associated with restructuring activities are having a significant negative impact upon our operating results. We are also facing reduced sales and potential inventory and packaging exposure caused by Fleming's bankruptcy, as well as potential additional costs associated with the previously mentioned product recall. Based upon the anticipated magnitude of the effects of these issues on our base business, we expect that combined segment profit contribution for the third fiscal quarter will likely fall below amounts reported for the same quarter of fiscal 2002 by approximately 20-30%. We currently expect combined segment profit contribution for the fourth quarter to improve somewhat to an amount comparable to the fourth quarter of fiscal 2002. However, we caution that these estimates are highly variable based upon the outcome of the uncertainties mentioned previously, especially the recovery of sales volumes to Fleming, as well as other operational uncertainties which could impact results either positively or negatively. The following sections contain discussions of the specific factors affecting the outlook for the fiscal year and beyond for each of our reportable segments. CEREALS, CRACKERS & COOKIES The level of competition in the cereal category continues to be intense for our Ralston Foods division. Competition comes from branded box cereal manufacturers, branded bagged cereal producers and other private label cereal providers. On December 3, 2002, Quaker Foods & Beverages sold its U.S. bagged cereal business to the Malt-O-Meal Company, which may affect the competitive environment. For the last several years, category growth in ready-to-eat and hot cereals has been minimal, which has exacerbated its competitive nature. When branded competitors focus on price/promotion, the environment for private label producers becomes more challenging. We must maintain an effective price gap between our quality private label cereal products and those of branded cereal producers, thereby providing the best value alternative for the consumer. Importantly, pricing and volume agreements with customers are generally determined by the customers' periodic requests for competitive category reviews in each of our divisions. Ralston Foods anticipates an increased number of these category review requests to occur throughout the remainder of fiscal 2003. Further, Ralston Foods is being negatively impacted by the bankruptcy of Fleming, including reduced sales and potential inventory and packaging losses. 14 Cost increases, including recent increases in ingredient costs, contribute to margin pressures. On an enterprise-wide basis, we manage these cost increases by selected forward purchasing and hedging of certain ingredients. Increased employee health care and other benefit costs are likely to continue into the foreseeable future. Accordingly, aggressive cost containment remains an important goal of the organization. In addition, increased distribution is required to remain competitive whether through new and improved product emulations or new co-manufacturing opportunities. Our cracker and cookie operation, Bremner, also conducts business in a highly competitive category and is affected by many of the same cost and pricing challenges. Major branded competitors continue to market and promote their offerings aggressively and 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 quality private label emulations and its ability to realize improved operating efficiencies from recent acquisitions will be important to its results of operations. The division continues its effort to maximize synergies through the combination of Lofthouse with Cascade, which has given Bremner a significant presence in the in-store bakery cookie category. As previously mentioned, we plan to close our in-store bakery facility in Kent, WA and transfer production to an in-store bakery facility located in Utah. 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 Carriage House's competitors, both large and small, continue to be aggressive on pricing. In addition, the division continues to be negatively affected by certain ingredient cost increases as well as increased employee health care and benefit costs. Wherever possible, we will continue to implement slight price increases to help offset these rising costs. Encouragingly, the cost of peanuts, a major ingredient for Carriage House (peanut butter), has been favorably impacted by the Farm Act of 2002. Although we expect the segment to benefit from lower peanut costs in fiscal 2003, such benefit will likely be more than offset by the aforementioned cost increases and pricing pressures. Carriage House sold product to a branded company under several co-manufacturing agreements, the last of which expired in November 2002. These contracts accounted for approximately 5 percent of the segment's fiscal 2002 net sales and a greater percentage of its operating profit. However, we expect that the effect of these lost sales on net earnings will not be material to Ralcorp as a whole. We have undertaken an aggressive plan to improve performance by selling unprofitable businesses and continuing to rationalize production capacity. In June 2002, we sold our honey operations. In September, we announced our intention to significantly reduce operations at the Streator, IL facility and transfer production of all product lines except peanut butter to other facilities. As a result of this restructuring, we ultimately expect to realize annual savings in cost of products sold of $2.5 million to $3.0 million (approximately $1.0 million of which is non-cash) beginning in fiscal 2004. In November, we sold our ketchup operations, although production continued through the end of the first quarter, and on February 4, 2003, we sold our industrial tomato paste processing facility. While net sales from the honey, ketchup, and paste businesses totaled approximately $30 million in fiscal 2002, related operating profit was immaterial, so we were able to reduce our capital investment without reducing returns. These complicated initiatives have resulted in production inefficiencies, which we believe are temporary but which are likely to continue to present operational challenges through the second half of the year. 15 Although Carriage House, along with our other divisions, continues to make sales to Fleming at a reduced rate, the impact of this bankruptcy and related developments on Carriage House's ability to obtain future business from Fleming cannot be determined at this time. An inability to make future sales or a significant reduction in sales volume relating to Fleming could have a significant adverse effect on Carriage House profits in the future if those sales cannot be replaced by additional sales to existing or new customers. Because of the weak operating performance in recent periods and the potentially significant impact of reduced or lost sales to Fleming, we are undertaking an interim goodwill impairment test for the Carriage House reporting unit, in accordance with FAS 142. This review, which requires an assessment of Carriage House's fair value, will be completed during the third fiscal quarter. If the fair value of the unit is less than its carrying value, Carriage House goodwill (which was $97.8 million at March 31, 2003) would likely be impaired to some degree, in which case an appropriate impairment loss would be recorded as a charge against earnings in the third quarter. On January 22, 2003, we announced a restructuring of the management of Carriage House and our other operations "in order to improve management efficiencies in a business environment when control of costs, short response times and superior quality and service are paramount." The implementation of that management restructuring has been given the highest priority and is continuing. SNACK NUTS & CANDY Snack nuts and candy continue to be very competitive categories. This segment of Ralcorp faces significant competition from branded manufacturers as well as private label and regional producers. During fiscal 2002, competitive bids for store brand customer business resulted in either loss of margins or loss of customers to competitors. We expect this margin pressure to continue into the foreseeable future. The segment will continue to focus on maintaining its customer base and the high quality of its products and on developing new products. In addition, Snack Nuts & Candy segment sales have been, and may continue to be, negatively impacted by the bankruptcy of Fleming. The segment has recently benefited from lower raw material costs on some ingredients. The cost of cashews, a major ingredient, has trended down from significant highs in fiscal 2000 but now appears to have stabilized. As discussed above, 2002 legislation has resulted in lower peanut costs and may have a favorable effect on profitability. While some benefits of reduced peanut costs were realized in the first half of fiscal 2003, the future effect cannot be quantified at this time and is expected to be somewhat offset by continued pricing pressures and increasing costs of other ingredients, healthcare, and other employee benefits. 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," "expects," "anticipates," "intends," "plans," "will," "should," "may" or similar expressions. Our results of operations and financial condition may differ materially from those in the forward-looking statements. Such statements are based on our 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 we are unable to maintain a meaningful price gap between our private label products and the branded products of our competitors, successfully introduce new products, or successfully manage costs across all parts of the Company, our private label businesses could incur operating losses; 16 (ii) Consolidation among members of the grocery trade may lead to increased wholesale price pressure from larger grocery trade customers and could result in significant profit pressure, or in some cases, the loss of key accounts, if the surviving entities are not our customers; (iii) Significant increases in the cost of certain raw materials (e.g., wheat, soybean oil, various nuts, corn syrup, cocoa) or energy used to manufacture our products, to the extent not reflected in the price of our products, could adversely impact our results; (iv) In light of our significant ownership in Vail Resorts, Inc., our non-cash earnings can be adversely affected by unfavorable results from Vail Resorts; (v) We are currently generating profit from certain co-manufacturing contract arrangements with other manufacturers within our competitive categories - the termination or expiration of these contracts and our potential inability to replace this level of business could negatively affect our operating results; (vi) Our businesses compete in mature segments with competitors having large percentages of segment sales; (vii) We have realized increases to sales and earnings through the acquisitions of businesses, but the ability to undertake future acquisitions depends on many factors that we do not control, such as identifying available acquisition candidates and negotiating satisfactory terms upon which to purchase such candidates; (viii) Presently, all of the interest on our indebtedness is set on a short-term basis, such that increases in interest rates will increase our interest expense; (ix) If actual or forecasted cash flows of any reporting unit deteriorate such that its fair value falls below its carrying value, goodwill would likely be impaired and an impairment loss would be recorded immediately as a charge against earnings; (x) We may not be able to achieve anticipated cost savings from the transfer of production between Carriage House facilities; (xi) Our results could be negatively impacted if we do not regain lost sales to Fleming through an improvement in Fleming's financial condition or through increased sales to existing or new customers; and (xii) Other uncertainties, all of which are difficult to predict and many of which are beyond our control, may impact our financial position, including those risks detailed from time to time in our publicly filed documents. The list of factors above is illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. RECENTLY ISSUED ACCOUNTING STANDARDS See Note 2 in Item 1 for a discussion regarding recently issued accounting standards, including FAS 144, 145, 146, and 148; FIN 45 and 46; and EITF 00-21, 02-16, and 02-17. 17 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. We believe there have been no material changes in the reported market risks faced by the Company during the six months ended March 31, 2003. For additional information, refer to Item 7A of our Annual Report on Form 10-K for the year ended September 30, 2002. ITEM 4. Controls and Procedures. We maintain systems of internal controls with respect to gathering, analyzing and disclosing all information required to be disclosed in this report. Within the ninety days preceding the filing of this report, we completed an evaluation, under the supervision and with the participation of our Chief Executive Officer and President and Corporate Vice President and Controller of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the review, such officers concluded that the design and operation of disclosure controls effectively alerted management to material information regarding the Company and required to be filed in this report. There have been no significant changes in our internal controls or other factors that could significantly affect those controls since their review of our disclosure controls was completed. PART II. OTHER INFORMATION There is no information required to be reported under any items except those indicated below. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 99.1 Certification pursuant to 18 U.S.C. Section 1350 of Joe R. Micheletto. 99.2 Certification pursuant to 18 U.S.C. Section 1350 of Thomas G. Granneman. (b) Reports on Form 8-K On February 4, 2003 the Company announced the sale of its industrial tomato paste processing facility in Williams, California. On February 14, 2003 the Company provided certifications to the Form 10-Q from its Chief Executive Officer and Controller. On February 21, 2003 the Registrant announced the closing of its in-store bakery facility at Kent, Washington. 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 Chief Accounting Officer May 14, 2003 18 CERTIFICATIONS -------------- I, Joe R. Micheletto, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ralcorp Holdings, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ J. R. Micheletto ------------------ --------------------------- J. R. Micheletto Chief Executive Officer and President CERTIFICATIONS -------------- I, Thomas G. Granneman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ralcorp Holdings, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ T. G. Granneman ---------------- -------------------------------- T. G. Granneman Corporate Vice President and Controller EXHIBIT INDEX Exhibit Description ------- ----------- Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350 of Joe R. Micheletto dated May 14, 2003. Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350 of Thomas G. Granneman dated May 14, 2003.