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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.
1
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.
2
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.
3
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
======== ======== ======== ========
9
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.