NOTE 19 – STOCK-BASED COMPENSATION PLANS

On February 8, 2007, the Company's shareholders adopted the 2007 Incentive Stock Plan. Effective October 1, 2008, it was amended and restated to reflect requirements of Section 409A. The 2007 Incentive Stock Plan became the Amended and Restated 2007 Incentive Stock Plan (Plan), which reserves shares to be used for various stock-based compensation awards and replaces the 2002 Incentive Stock Plan. The Plan provides that eligible employees may receive stock option awards, stock appreciation rights and other stock awards payable in whole or part by the issuance of stock. At September 30, 2011, 2,457,679 shares were available for future awards under the Plan, excluding the potential reduction due to future exercises of stock appreciation rights, grants of restricted stock units, or future distributions from deferred compensation plans (discussed herein). The Company uses treasury shares for restricted stock grants and to settle stock-settled stock appreciation rights and stock options exercised. The Company paid $1.0, $1.6, and zero for stock-based liabilities in the years ended September 30, 2011, 2010, and 2009, respectively.

Total compensation cost for stock-based compensation awards recognized in the years ended September 30, 2011, 2010, and 2009 was $16.4, $17.9, and $13.4, respectively, and the related recognized deferred tax benefit for each of those years was $5.9, $7.0, and $5.3, respectively. As of September 30, 2011, the total compensation cost related to nonvested awards not yet recognized was $19.4, which is expected to be recognized over a weighted average period of 2.3 years.

Stock Appreciation Rights

Information about the Company's stock-settled stock appreciation rights (SARs) is summarized in the following table. Upon exercise of each right, the holder of stock-settled SARs will receive the number of shares of Ralcorp common stock equal in value to the difference between the exercise price and the fair market value at the date of exercise, less all applicable taxes. The total intrinsic value of SARs exercised was $3.0, $.3, and $.2 in fiscal 2011, 2010, and 2009, respectively.


				Weighted	Weighted
	Stock-Settled			Average	Average
	Stock			Exercise	Remaining		Aggregate
	Appreciation			Price	Contractual		Intrinsic
	Rights			Per Share	Term		Value
Outstanding at September 30, 2010	2,737,553		$	55.58
Granted	35,000			62.41
Exercised	(128,206	)		51.85
Forfeited	(53,001	)		59.85
Outstanding at September 30, 2011	2,591,346			55.77	7.0 years	$	54.3
Vested and expected to vest
as of September 30, 2011	2,559,441			55.72	7.0 years		53.7
Exercisable at September 30, 2011	1,172,833			51.81	5.5 years		29.2

In September 2010, the Company granted cash-settled SARs for the first time. Upon exercise of each right, the holder of cash-settled SARs will receive cash equal in value to the difference between the exercise price and the fair market value at the date of exercise, less all applicable taxes. Information about the Company's cash-settled SARs is summarized in the following table.


				Weighted	Weighted
	Cash-Settled			Average	Average
	Stock			Exercise	Remaining		Aggregate
	Appreciation			Price	Contractual		Intrinsic
	Rights			Per Share	Term		Value
Outstanding at September 30, 2010	51,000		$	57.45
Granted	-			-
Exercised	(1,500	)		57.45
Forfeited	(2,000	)		57.45
Outstanding at September 30, 2011	47,500			57.45	8.6 years	$	914.9
Vested and expected to vest
as of September 30, 2011	44,965			57.45	8.6 years		866.0
Exercisable at September 30, 2011	2,000			57.45	0.2 years		38.5

The fair value of each SAR was estimated on the date of grant using the Black-Scholes valuation model, which uses assumptions of expected option life (term), expected stock price volatility, risk-free interest rate, and expected dividends. The expected option life, or expected term, is estimated based on the award's vesting period and contractual term, along with historical exercise behavior on similar awards. Expected volatilities are based on historical volatility trends and other factors. The risk-free rate is the interpolated grant date U.S. Treasury rate for a term equal to the expected option life. Cash-settled SARs are liability-classified awards that must be remeasured at fair value at the end of each reporting period, and cumulative compensation cost recognized to date must be trued up each reporting period for changes in fair value prorated for the portion of the requisite service period rendered. The corresponding weighted average assumptions and fair values were as follows:


		Stock-Settled SARs Granted									Cash-Settled SARs Outstanding
		[Fair Value at Grant Date]									[Fair Value at Year End]
		2011			2010			2009			2011			2010		2009
Expected term		6.0 years			6.1 years			7.0 years			5.0 years			6.0 years		n/a
Expected stock price volatility		30.0	%		30.4	%		30.5	%		30.0	%		30.0	%	n/a
Risk-free interest rate		1.74	%		2.07	%		2.70	%		0.96	%		1.58	%	n/a
Expected dividends		0	%		0	%		0	%		0	%		0	%	n/a
Fair value (per right)	$	20.26		$	19.19		$	22.68		$	30.27		$	19.16		n/a

Stock Options

Changes in nonqualified stock options outstanding are summarized in the following table. Most of the options were exercisable beginning from three to six years after date of grant and have a maximum term of ten years. All of the outstanding options were vested and exercisable as of September 30, 2011.


				Weighted	Weighted
				Average	Average
	Shares			Exercise	Remaining		Aggregate
	Under			Price	Contractual		Intrinsic
	Option			Per Share	Term		Value
Outstanding at September 30, 2010	743,526		$	29.62
Granted	-			-
Exercised	(268,902	)		28.52
Forfeited	-			-
Outstanding at September 30, 2011	474,624			30.24	2.0 years	$	22.1

The fair value of each option was estimated on the date of grant using the Black-Scholes valuation model, as described under the heading "Stock Appreciation Rights" above. The total intrinsic value of stock options exercised was $12.9, $9.9, and $17.0, in fiscal 2011, 2010, and 2009, respectively.

Restricted Stock Awards

Information about the Company's restricted stock awards (nonvested shares and stock units) is summarized in the following table. Of the awards nonvested at September 30, 2011, 100,000 are restricted stock units which entitle awardees to receive the same number of shares upon vesting. The rest of the restricted stock awards are nonvested shares of stock. Approximately 114,755, 41,255, 156,833, 13,833, and 13,834 shares/units are scheduled to vest in fiscal 2012, 2013, 2014, 2015, and 2016, respectively, but would vest immediately in the event of a qualifying retirement or involuntary termination (other than for cause). The grant date fair value of each award is initially recorded as a reduction of shareholders' equity and amortized on a straight-line basis over the expected vesting period. The total vest date fair value of restricted stock awards that vested during fiscal 2011, 2010, and 2009 was $5.8, $.4, and $.9, respectively.


				Weighted
				Average
				Grant Date
				Fair Value
	Number			Per Share
Nonvested at September 30, 2010	436,765		$	53.25
Granted	766			65.23
Vested	(84,521	)		49.88
Forfeited	(12,500	)		56.27
Nonvested at September 30, 2011	340,510			54.00

Other Stock-Based Compensation Awards

On August 4, 2008, the Company granted a restricted incentive award to certain Post Foods employees. The award, which was paid in cash on August 4, 2011, was equal to the value of 10,800 shares of the Company's stock at the payment date. In the fourth quarter of fiscal 2010, the Company granted similar awards to certain AIPC and Post Foods employees, which will be paid in cash in the fourth quarter of fiscal 2013 (based on 40,553 shares for awards outstanding as of September 30, 2011). On September 21, 2011, the Company granted similar awards based on a total of 12,500 shares to a corporate officer, which will be paid in cash in the third quarter of fiscal 2012. For each grant, the estimated fair value of the payout is accrued on a straight-line basis over the period from the grant date to the payout date. Related expense recorded for fiscal 2011, 2010, and 2009 was $2.3, $.2, and $.3, respectively.

On September 25, 2008, the Board of Directors approved a long-term cash incentive award for the corporate officers, which was tied to stock price improvements. The estimated fair value of the payout (based upon the Company's periodic assessments of the likelihood of the achievement of stock price targets) was being accrued on a straight-line basis over the period from September 25, 2008 to December 30, 2010. The stock price targets were not achieved, so all previously recorded accruals were ultimately reversed. Related expense recorded for fiscal 2011, 2010, and 2009 was zero, $(1.0), and $1.0, respectively.

Deferred Compensation

The Plan provides for deferred compensation plans for non-management directors and key employees, as well as an Executive Savings Investment Plan.

Under the Deferred Compensation Plan for Non-Management Directors, any non-management director may elect to defer, within certain limitations, his retainer and fees until retirement or other termination of his directorship. Deferrals may be made in Ralcorp common stock equivalents (Equity Option) or in cash under a number of funds operated by The Vanguard Group Inc. with a variety of investment strategies and objectives (Vanguard Funds). Deferrals in the Equity Option receive a 33 1/3% Company matching contribution that is fully vested. All distributions under this plan are paid in cash.

Under the Deferred Compensation Plan for Key Employees, eligible employees may elect to defer payment of all or a portion of their bonus until some later date. Deferrals may be made in the Equity Option or in the Vanguard Funds. Under this plan, deferrals into the Equity Option are distributed in Ralcorp stock, while deferrals into the Vanguard Funds are distributed in cash.

The Executive Savings Investment Plan generally allows eligible employees to defer up to 44% of their cash compensation. However, once they have reached the legislated maximum annual pre-tax contribution to the Company's Savings Investment Plan [401(k)] or their compensation exceeds the legislated maximum compensation that can be recognized under that plan, they are eligible to defer an additional 2% to 6% of their cash compensation, a portion of which receives a Company matching contribution that vests at a rate of 25% for each year of Company service. Deferrals may be made in the Equity Option or in the Vanguard Funds. Under this plan, deferrals into the Equity Option are distributed in Ralcorp stock, while deferrals into the Vanguard Funds are distributed in cash.

Matching contributions related to these deferred compensation plans resulted in additional compensation expense of approximately $.5 annually for fiscal 2011, 2010, and 2009. Market adjustments to the liability and investment related to these plans resulted in pretax expense of $2.7 for fiscal 2011, a pretax gain of $.1 for fiscal 2010, and a pretax gain of $1.3 for fiscal 2009.