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 and the “Cautionary Statement On Forward-Looking Statements” under this Item 2. The terms “our,” “we,” “Company,” and “Ralcorp” as used herein refer to Ralcorp Holdings, Inc. and its consolidated subsidiaries.

 

 

Net Earnings  For the three and nine months ended June 30, 2004, net earnings were up $8.6 million (54%) and $6.5 million (14%), respectively, from the corresponding periods of fiscal 2003. Gross profit increased $18.2 million (29%) and $40.1 million (21%), respectively. This improvement was partially offset by higher selling, general and administrative expenses and interest expense. Special items (litigation settlement income, net of restructuring charges) were slightly favorable for the current three-month period, but slightly unfavorable through nine months. The third quarter of fiscal 2004 was also helped by favorable results from our investment in Vail Resorts, Inc. More detailed discussion and analysis of these factors follows.

Net Sales Net sales for the third quarter and first nine months of fiscal 2004 were up 24% and 16%, respectively. About 70 percent of these improvements were due to results from the Bakery Chef and Concept 2 Bakers (C2B) businesses since their respective acquisition dates of December 3, 2003, and February 27, 2004. Bakery Chef is reported as the Frozen Pancakes, Biscuits & Breads segment, and C2B is operated and reported as part of Bremner’s in-store bakery group in the Cereals, Crackers & Cookies segment. Refer to the segment discussions below for other factors affecting results.

Operating Expenses For the three months ended June 30, 2004 and 2003, cost of products sold was 79.1% and 79.9% of net sales, respectively, while selling, general, and administrative (SG&A) expenses were 13.5% and 13.7% of net sales, respectively. Through the first nine months of fiscal 2004 and 2003, cost of products sold was 79.5% and 80.3%, and SG&A expenses were 13.0% and 12.9%. The cost of sales percentage was favorably impacted by production efficiencies due to increased volumes, product mix, and (for the nine-month period) lower accelerated depreciation related to restructuring projects ($.8 million in fiscal 2004 compared to $2.7 million last year). Although the prices of several ingredients (notably soybean oil, eggs, rice, wheat flour, macadamias, and almonds) were higher than in the prior year, much of the effects were mitigated through hedging, forward purchase contracts, and selling price adjustments. The significant inc rease in sales reduced the SG&A percentage in the third quarter, since many SG&A expenses are fixed costs. However, the nine-month SG&A percentage grew due to increased costs associated with large-scale information systems upgrades and conversions ($3.7 million in fiscal 2004 compared to $1.5 million a year ago). In addition, SG&A expenses were reduced by an $.8 million gain on sale of some Keystone resort property in the first quarter of fiscal 2003. Again, refer to the segment discussions below for other factors affecting results.

Interest Expense, Net Interest expense was $3.7 million and $9.2 million, respectively, for the three and nine months ended June 30, 2004, compared to $.8 million and $2.6 million in the corresponding periods of the prior year. The increase is attributable primarily to additional borrowings to fund the Bakery Chef acquisition. Initially, cash for the acquisition was borrowed under our $275 million revolving credit agreement, but on December 22, 2003, we completed a $270 million private placement of Fixed Rate Senior Notes in three tranches, as described in Note 13 in Item 1, with a weighted average interest rate of 4.6%. For the third quarter and first nine months of fiscal 2004, the weighted average interest rate on all of our outstanding debt was 3.6% and 3.3%, respectively, compared to 2.1% and 2.4% a year ago.

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 $.3 million and $.6 million in the first nine months of fiscal 2004 and 2003, respectively, and are included on the statement of earnings in selling, general and administrative expenses. The accounts receivable of the newly acquired Bakery Chef and C2B businesses are not currently being sold.

Restructuring Charges In the third quarter of fiscal 2004, Ralcorp completed the consolidation of its ISB cookie production facilities into a new facility located in Ogden, UT. Annual cost savings are expected to be $3.0 to $3.6 million. In June of 2004, the Company finalized a plan to close its Kansas City plant and move production to other facilities within the Carriage House division, and $.2 million of severance costs were incurred. Restructuring charges related to this project, which is scheduled to be completed during the fourth quarter, are expected to total $.7 million. In addition, accelerated depreciation of certain Kansas City assets is expected to total $1.3 million (including $.5 million recorded in the third quarter). Annual savings from this plant closure are expected to be $1.2 million.

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Litigation Settlement Income We received payments in partial settlement of legal claims, primarily related to vitamin antitrust litigation. These payments are shown net of related expenses as “Litigation settlement income” on the statement of earnings.

Income Taxes Income tax provisions generally reflect statutory tax rates for the periods presented.

Equity in Earnings of Vail Resorts, Inc. Ralcorp continues to hold an approximate 21 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 income for the second and third fiscal quarters and losses for the first and fourth fiscal quarters. However, in the second quarter of fiscal 2004, Vail Resorts recorded a charge related to debt refinancing, resulting in a reported net loss. For the third quarter ended June 30, 2004, our investment in Vail Resorts resulted in non-cash pre-tax earnings of $13.8 million ($8.9 million after taxes), compared to $8.1 million ($5.3 million after taxes) for last year’s third quarter, a change of $.12 per diluted share. Through nine months, Ralcorp’s after-tax equity earnings were $5.1 millio n and $4.8 million for fiscal 2004 and 2003, respectively.

 

Third quarter net sales for the Cereals, Crackers & Cookies segment increased $23.9 million (14%) from last year, with the Bremner cracker and cookie division growing $16.9 million and the Ralston Foods cereal division adding $7.0 million. About half of Bremner’s net sales growth was the result of the acquired C2B business, while the rest came from incremental sales to customers of an insolvent competitor and increased sales to existing private label customers. Bake-Line Group, LLC filed a Chapter 7 bankruptcy petition and ceased operations on January 12, 2004. Since then, Bremner has begun supplying products to several former Bake-Line customers. Base cookie and cracker volumes were up 11%. ISB cookie sales volume, excluding C2B sales, was 2% above last year’s volume. At Ralston Foods, sales volume of private label ready-to-eat (RTE) cereal grew more than 12% from last year’s third quarter. That growth was driven by significant expansion with ex isting customers and new product introductions, partially offset by the loss of sales to Fleming Companies, Inc., as a result of its bankruptcy. The RTE sales volume increase was partially offset by volume declines in smaller product lines: 14% in foodservice, 2% in hot cereal, and 9% in co-manufacturing. Despite the lower co-manufacturing volume, co-manufacturing sales dollars improved as a result of a favorable product mix.

Through the first nine months of fiscal 2004, net sales for the segment were up $43.8 million (8%) from a year ago, with Bremner and Ralston Foods contributing increases of $28.0 million and $15.8 million, respectively. Excluding C2B sales, which were the source of almost half of Bremner’s growth, base cracker and cookie volumes were up about 3.5%, and ISB volume was up 1%. For Ralston Foods, the strength of 9% growth in RTE cereal sales volume was partially offset by a decline in co-manufacturing volume (though co-manufacturing sales dollars were flat) and a 5% decline in hot cereal volume.

The segment’s profit contribution improved 12% for the third quarter and 10% for the first nine months. Although the higher volumes resulted in production efficiencies on several lines, the benefits were partially offset by higher costs of ingredients derived from rice, corn, wheat, and soybean oil, as well as by increased freight and energy costs. Other factors which curbed the third quarter profit margins included higher storage costs and additional label design costs for former Bake-Line customers.

 

Carriage House’s net sales for the three and nine months ended June 30, 2004 decreased 3 percent and 5 percent, respectively, compared to the corresponding periods last year. These declines are attributable primarily to the exit from the industrial tomato paste and ketchup businesses during fiscal 2003. Sales were also reduced as a result of the Fleming bankruptcy and competitive pricing pressures on some product lines. These sales reductions were partially offset by increased business with several customers and price increases on some product lines in an attempt to mitigate escalating costs of certain ingredients.

The segment’s third quarter profit improved to $3.6 million in fiscal 2004 from $2.5 million in fiscal 2003. Through nine months, Carriage House has more than doubled its profit contribution, from $4.8 million last year to $10.6 million this year. Production labor costs were favorable in the current year as a result of recent restructuring and process improvement projects, while fiscal 2003 profit had been hurt by production inefficiencies associated with the partial shutdown of the plant in Streator, IL, and by Fleming receivables losses. Current year cost decreases in peanuts were offset by related selling price declines due to competitive pressures. Costs of other commodities, such as soybean oil, continued to be unfavorable but were partially offset by strategic hedging activity and price increases on some products. The segment has also been negatively impacted by higher freight costs.

 

 

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Third quarter net sales for the Snack Nuts & Candy segment, also known as Nutcracker Brands, grew 23% from last year. Through nine months, the segment’s net sales were up 24%. This growth came primarily from increased orders from existing top customers for both continuing and new private label items, as well as from a new customer.

Despite higher sales, the segment’s third quarter profit was unchanged and nine-month profit fell $4.9 million (26%) from the corresponding periods last year. The profit comparisons were made more difficult by significantly reduced peanut costs last year, followed by competitive pricing pressures that reduced peanut margins this year. Higher commodity costs, especially tree nuts such as macadamias, almonds, and pecans, accounted for most of the nine-month profit decline. In addition, profit was reduced by higher energy costs and information systems costs.

 

On December 3, 2003, we completed the purchase of Bakery Chef, Inc., a leading manufacturer of frozen griddle products (pancakes, waffles, and French toast) and pre-baked biscuits and breads. Ralcorp paid a total of $289.3 million in cash to acquire Bakery Chef, which had net sales of $165 million for the year ended December 31, 2002 and $99.0 million since acquisition. Bakery Chef has contributed $13.2 million of profit since acquisition, including $6.5 million during our third quarter, net of $2.8 million and $1.6 million (respectively) of amortization expense related to intangibles recorded in purchase accounting. The profit contribution has been reduced by unfavorable ingredient costs (specifically eggs and soybean oil), partially offset by price increases.

 

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 June 30, 2004, with a net worth of $469.0 million and a long-term debt to total capital ratio of 48%, compared to corresponding figures for September 30, 2003, of $412.7 million and 27%. Refer to the discussion below of our new fixed rate notes issued to fund the acquisition of Bakery Chef. Working capital, excluding cash and cash equivalents, was up to $114.7 million at June 30, 2004, from $84.2 million at September 30, 2003, primarily as a result of the addition of the Bakery Chef and C2B businesses and an increase in our investment in Ralcorp Receivables Corporation.

Cash flows from operating activities were $60.6 million and $92.6 million for the nine months ended June 30, 2004 and 2003, respectively. The decline was caused primarily by inventory fluctuations (due to changes in both quantity and cost), with an increase of $16.6 million this year versus a decrease of $24.6 million last year, partially offset by smaller fluctuations in other components of working capital.

On December 3, 2003, we acquired the Bakery Chef business. We paid a total of $289.2 million related to this acquisition, including purchase price, investment advisory fees, legal fees, and other related costs, and net of $.1 million of cash acquired. On February 27, 2004, we acquired the C2B business for $23.9 million. Ralcorp’s planned capital expenditures for fiscal 2004 will require approximately $50 million, of which $34.9 million was spent during the first nine months. As discussed below, we have adequate capacity under current borrowing arrangements to meet these cash needs.

Initially, cash for the Bakery Chef acquisition was borrowed under our revolving credit agreement and uncommitted credit arrangements, but on December 22, 2003, we completed a $270 million private placement of long-term fixed rate senior notes yielding a weighted average interest rate of 4.6%. Details about these notes are included in Note 13 in Item 1. As of June 30, 2004, total remaining availability under our $275 million revolving credit agreement and our $35 million uncommitted credit arrangements was $305.6 million, subject to certain covenant restrictions. Currently, the most restrictive covenant is a maximum Total Debt to Adjusted EBITDA (each term as defined in the credit agreement) ratio of 3.5:1. As of June 30, 2004, Ralcorp was in compliance with all covenants, with a Total Debt to Adjusted EBITDA ratio of 2.55:1. Another source of liquidity is our investment in receivables sold to Ralcorp Receivables Corporation (see Note 9 in Item 1). In addition, our June 30, 2004, balance sheet included $21.2 million of cash and cash equivalents.

The agreements governing the sale of receivables expire in September 2004, but we are planning to renew them for another three years. The revolving credit agreement expires on October 16, 2004. Before that time, we intend to extend it or replace it with a similar agreement, possibly with a lesser borrowing capacity. Our $5.6 million Industrial Development Revenue Bond matures on April 1, 2005, but we are exploring the possibility of extending it.

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We believe the opportunities in the private label, value brand, and food service areas are favorable for long-term growth. In the past few years, we have taken substantial 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 value-oriented food products.

Food producers have introduced product lines deemed to have “low” or “reduced” carbohydrates to meet the demands of consumers who are following the “Atkins,” “South Beach,” or other dietary plans. Many of our product lines contain significant amounts of carbohydrates. Changes in consumers’ preferences and the potential popularity of new low-carbohydrate products could adversely affect our businesses, but the impact, if any, cannot be determined at this time.

Freight costs have been increasing and are expected to remain at elevated levels at least through the fourth quarter, thereby reducing profit margins. These cost increases are primarily the result of rising fuel prices. Further, a shortage of available common carriers in some areas is putting additional upward pressure on freight rates.

In July 2003, the Food and Drug Administration issued a final rule amending its regulations on nutrition labeling to require that trans fat be declared in the nutrition label of conventional foods and dietary supplements on a separate line immediately under the line for the declaration of saturated fat. The new rule will be effective January 1, 2006. Because of this regulatory change, we may incur costs related to packaging modifications. Furthermore, given the increased focus on trans fat content and the related health risks indicated by recently published scientific studies, we may incur additional costs to research and implement formulation changes on certain products. The ultimate impact of this regulation upon our businesses cannot be determined at this time.

The following sections contain discussions of the specific factors affecting the outlook for each of our reportable segments.

 

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. For the last several years, category growth in ready-to-eat and hot cereals has been minimal or has declined, 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.

Pricing and volume agreements with customers are generally determined by the customers’ periodic requests for competitive category reviews in each of our divisions. During the first nine months of fiscal 2004, Ralston Foods participated in several of these category reviews and was able to maintain or grow volumes, albeit at reduced margin levels. Ralston Foods anticipates additional category review requests to occur during the remainder of the year. In this environment, it is imperative that volume gains substantially offset the continued pricing pressures.

Cost increases, including recent increases in ingredient, packaging, and energy costs, contribute to margin pressures. On an enterprise-wide basis, we manage these cost increases by selected forward purchasing and hedging. During long periods of rising commodity costs, such as we have experienced in fiscal 2004, these mitigation efforts can become less effective as favorable contracts expire. Further, increases in employee health care, other benefit costs, and freight are expected 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. Recently, there has been minimal growth in the cookie and cracker categories, intensifying the competition. 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.

 

 

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The division has completed the consolidation of Lofthouse and Cascade into a single operating facility in Ogden, UT, with expected annual cost savings of approximately $3.0 to $3.6 million beginning in the fourth quarter. The February 2004 addition of C2B, a producer of par-baked frozen breads, provides the division’s ISB operations with an expanded product line. In addition, Bremner will continue to focus on cost containment, new products and volume growth of existing products in order to improve operating results.

On January 12, 2004, Bake-Line Group, LLC, a producer of cookies and crackers, filed a Chapter 7 bankruptcy petition in Delaware and ceased operations. Since then, Bremner has begun supplying products to several of Bake-Line’s former customers. We expect sales to continue to increase in the fourth quarter of fiscal 2004 as additional products are finalized for former Bake-Line customers, but the effects may be partially offset by declining co-manufacturing sales.

 

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 (including soybean oil and eggs) as well as increased employee health care, benefits, and freight costs. As warranted, we will continue to seek price increases to help offset these rising costs. If ingredient costs remain at elevated levels, profit margins will be negatively impacted as favorable hedges and forward purchase contracts expire in the fourth quarter.

The segment’s operating performance has improved from prior periods as a result of recent restructuring, including the sales of underperforming operations and related plant rationalizations, and ongoing process improvement and overhead reduction projects. Most recently, in June of 2004, Carriage House finalized a plan to close its plant in Kansas City, Kansas, and move production to other facilities. Restructuring charges and accelerated depreciation related to this project, which is scheduled to be completed during the fourth quarter of fiscal 2004, are expected to total about $2 million. Annual savings from this plant closure are expected to be $1.2 million beginning in fiscal 2005. In addition, Carriage House recently initiated administrative staffing reductions in a number of facilities, with estimated annual cost savings of $2.0 million. Costs associated with these reductions, including severance pay and outplacement services, are estimated at $.8 million , most of which will be recognized during the fourth quarter of fiscal 2004.

In June 2004, a major customer began purchasing pourable salad dressings from one of our competitors in order to achieve lower prices. The resulting loss of profit is expected to be partially offset by the aforementioned actions taken to reduce overhead costs. In addition, management is continuing its effort to replace the lost volume through additional sales to new and existing customers.

 

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, and we expect the current pricing pressure to continue into the foreseeable future. The majority of the cost of products sold relates to commodities including peanuts, cashews, and tree nuts such as macadamias, pecans, and almonds. The cost of these commodities fluctuate, sometimes drastically, based upon worldwide supply and demand. These commodity fluctuations, when not accompanied by pricing changes due to competition, can result in short-term changes in the profitability of the segment. We currently have committed contracts for a large portion of our commodity needs for the remainder of fiscal 2004. During that period, we expect peanut and cashew costs to remain relatively constant while tree nuts are expected to increase slightly from current levels; however, tree nut costs will be considerably higher than in the corresponding period of fiscal 2003. Whenever possible, we will continue to implement price increases to help offset these rising costs.

Higher sales volumes and the implementation of a new information system at two locations during the first quarter of 2004 resulted in temporary production inefficiencies and higher inventory storage costs, but these issues have been addressed and should not have a continuing impact going forward. The segment has recently initiated staffing reductions at several locations, with expected annual cost savings of $.7 million. Costs associated with these reductions, including severance pay and outplacement services, are estimated at $.4 million, which will be recognized in the fourth quarter. In addition, the segment will continue to focus on maintaining its customer base and the high quality of its products and on developing new products.

 

 

 

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Bakery Chef produces frozen pancakes, waffles, French toast, biscuits, and breads, as well as dry mixes, and competes primarily in the foodservice channel. The foodservice channel is comprised of three major categories: national restaurant chains; distributors who provide products to restaurants; and management firms who manage food operations within schools, offices, and other institutions. Bakery Chef’s major customers include restaurant chains, foodservice operators, and retailers. Competition consists of other producers of similar products for foodservice customers, as well as branded and store brand suppliers to retailers. It is critical for Bakery Chef to provide high quality products, excellent customer service, superior product innovation, and competitive pricing to its customers. New product offerings, new foodservice and retail customers, and growth of existing customers will all be important to the future success of Bakery Chef.

For fiscal 2004, Bakery Chef’s profit contribution has been reduced by unfavorable ingredient costs (specifically eggs and soybean oil), partially offset by selling price increases. These ingredient cost increases have abated somewhat in the past 60 days, but costs remain high compared to the prior year. Nonetheless, management still anticipates the acquisition will add $.25 to $.35 to diluted earnings per share on an annual basis ($.20 to $.25 for fiscal 2004).

 

 

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;

(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 or recurring increases in the cost of certain raw materials (e.g., grain products, soybean oil, various nuts, corn syrup, cocoa, eggs), packaging materials, or the energy used to manufacture our products, to the extent not reflected in the price of our products, and freight costs, could adversely impact our results;

(iv) Increases in expenses associated with insurance or employee benefits could adversely impact our results;

(v) Interruptions or difficulties in the manufacture or distribution of our products due to work stoppages or labor strikes; mechanical, operational, or transportation difficulties; and similar interruptions or difficulties within our supply chain or markets;

(vi) Our non-cash earnings can be adversely affected by unfavorable results from Vail Resorts, Inc., because of our approximate twenty-one percent equity ownership interest;

(vii) The termination or expiration of, or the fluctuation in product volume pursuant to, certain co-manufacturing arrangements with other manufacturers within our competitive categories, and our potential inability to replace a previously existing level of business thereunder could negatively affect our operating results;

(viii) Our businesses compete in mature segments with competitors having large percentages of segment sales that could limit both segment growth potential and our sales opportunities;

(ix) 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;

(x) The increases to sales and earnings that we expect to achieve from the businesses we acquire may be temporary or may not be fully realized;

(xi) A significant portion of the interest on our indebtedness is set on a short-term basis, such that increases in interest rates will increase our interest expense;

 

 

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(xii) 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;

(xiii) We may not be able to achieve anticipated cost savings from restructuring and cost reduction projects;

(xiv) The systematic conversion of multiple and varied facility and operating division information systems, and the implementation of new, integrated, Company-wide information systems software which began in February 2003, with conversions beginning in September 2003 and expected to continue at least through February 2006, could cause delays, disruptions, or other inefficiencies to our business operations;

(xv) Changes in consumer tastes and product preferences, as well as market demand for new and existing products, including, but not limited to, those deemed to have “low” or “reduced” carbohydrate content;

(xvi) Changes in the laws and regulations, or in the interpretation or enforcement of the laws and regulations, that affect our businesses or aspects thereof including, but not limited to, nutrition and ingredient content and labeling, or income, sales and franchise taxation; and

(xvii) 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. These and other factors are discussed in our Securities and Exchange Commission filings.

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.

 

See Note 2 in Item 1 for a discussion regarding recently issued accounting standards, including FAS 132 (revised 2003), EITF 03-6, and FSP 106-2.

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 nine months ended June 30, 2004. For additional information, refer to Item 7A of our Annual Report on Form 10-K for the year ended September 30, 2003.

 

We maintain systems of internal controls with respect to gathering, analyzing and disclosing all information required to be disclosed in this report. As of the end of the period covered by this report, we completed an evaluation, under the supervision and with the participation of the Co-Chief Executive Officers and Presidents and the 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 during the period covered by this report.

 

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Item 2.

Changes in Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 – April 30, 2004	0	0	0	See total
May 1 – May 31, 2004	0	0	0	See total
June 1 – June 30, 2004	0	0	0	See total
Total	0	0	0	1,665,300

Item 5.	Other Information.
	None.

Item 6.

Exhibits and Reports on Form 8-K.