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EX-32.2 - 906 CERTIFICATION - Post Holdings, Inc.post2018331ex321.htm
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EX-31.1 - CERTIFICATION OF CFO - Post Holdings, Inc.post2018331ex311.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
o 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: 1-35305
postlogoa06.gif
Post Holdings, Inc.
(Exact name of registrant as specified in its charter)
Missouri
 
45-3355106
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
2503 S. Hanley Road
St. Louis, Missouri 63144
(Address of principal executive offices) (Zip Code)
(314) 644-7600
(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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common stock, $0.01 Par Value – 67,288,535 shares as of April 30, 2018
 



POST HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

 
 
Page
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 


i


PART I.     FINANCIAL INFORMATION.
ITEM 1.    FINANCIAL STATEMENTS.
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share data)
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Net Sales
$
1,586.1

 
$
1,255.4

 
$
3,019.2

 
$
2,505.2

Cost of goods sold
1,110.4

 
891.3

 
2,091.8

 
1,761.9

Gross Profit
475.7

 
364.1

 
927.4

 
743.3

Selling, general and administrative expenses
264.3

 
187.3

 
510.0

 
451.4

Amortization of intangible assets
46.4

 
39.0

 
87.9

 
77.9

Other operating expenses, net
0.7

 
0.3

 
0.7

 
0.3

Operating Profit
164.3

 
137.5

 
328.8

 
213.7

Interest expense, net
98.8

 
80.2

 
189.3

 
153.1

Loss on extinguishment of debt, net
0.3

 
62.5

 
37.6

 
62.5

Other income, net
(50.5
)
 
(1.0
)
 
(53.2
)
 
(145.5
)
Earnings (Loss) before Income Taxes
115.7

 
(4.2
)
 
155.1

 
143.6

Income tax expense (benefit)
23.9

 
(2.1
)
 
(231.9
)
 
43.9

Net Earnings (Loss) Including Noncontrolling Interest   
91.8

 
(2.1
)
 
387.0

 
99.7

Less: Net earnings attributable to noncontrolling interest
0.3

 

 
0.6

 

Net Earnings (Loss)
91.5

 
(2.1
)
 
386.4

 
99.7

Preferred stock dividends
(2.6
)
 
(3.4
)
 
(6.0
)
 
(6.8
)
Net Earnings (Loss) Available to Common Shareholders
$
88.9

 
$
(5.5
)
 
$
380.4

 
$
92.9

 
 
 
 
 
 
 
 
Earnings (Loss) per Common Share:
 
 
 
 
 
 
 
Basic
$
1.33

 
$
(0.08
)
 
$
5.73

 
$
1.35

Diluted
$
1.20

 
$
(0.08
)
 
$
5.04

 
$
1.25

 
 
 
 
 
 
 
 
Weighted-Average Common Shares Outstanding:
 
 
 
 
 
 
 
Basic
66.8

 
68.2

 
66.4

 
68.7

Diluted
76.0

 
68.2

 
76.6

 
79.9

 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
 



1



POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)


 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Net Earnings (Loss) Including Noncontrolling Interest
$
91.8

 
$
(2.1
)
 
$
387.0

 
$
99.7

Pension and postretirement benefits adjustments:
 
 
 
 
 
 
 
Reclassifications to net earnings
(0.8
)
 
(0.6
)
 
(1.6
)
 
(1.2
)
Hedging adjustments:
 
 
 
 
 
 
 
Unrealized net gain on derivatives
5.4

 

 
3.9

 

Reclassifications to net earnings
(1.8
)
 

 
(1.5
)
 

Other reclassifications
(0.5
)
 

 
(0.5
)
 

Foreign currency translation adjustments:
 
 
 
 
 
 
 
Unrealized foreign currency translation adjustments
69.4

 
0.6

 
83.3

 
(1.3
)
Tax benefit (expense) on other comprehensive income (loss):
 
 
 
 
 
 
 
Pension and postretirement benefits
1.2

 
0.3

 
1.4

 
0.5

Hedging
(3.1
)
 

 
(2.8
)
 

Total Other Comprehensive Income (Loss)
69.8

 
0.3

 
82.2

 
(2.0
)
Less: Comprehensive income attributable to noncontrolling interest
0.9

 

 
1.2

 

Total Comprehensive Income (Loss)
$
160.7

 
$
(1.8
)
 
$
468.0

 
$
97.7



See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).



2



POST HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)  
 
March 31, 2018
 
September 30, 2017
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
309.2

 
$
1,525.9

Restricted cash
2.3

 
4.2

Receivables, net
569.0

 
480.6

Inventories
591.4

 
573.5

Prepaid expenses and other current assets
79.6

 
31.7

Total Current Assets
1,551.5

 
2,615.9

Property, net
1,848.8

 
1,690.7

Goodwill
4,979.9

 
4,032.0

Other intangible assets, net
4,067.8

 
3,353.9

Other assets
225.2

 
184.3

Total Assets
$
12,673.2

 
$
11,876.8

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
 
 
 
Current portion of long-term debt
$
25.1

 
$
22.1

Accounts payable
323.2

 
336.0

Other current liabilities
345.0

 
346.3

Total Current Liabilities
693.3

 
704.4

Long-term debt
7,392.6

 
7,149.1

Deferred income taxes
860.5

 
905.8

Other liabilities
597.1

 
327.8

Total Liabilities
9,543.5

 
9,087.1

 
 
 
 
Shareholders’ Equity
 
 
 
Preferred stock

 

Common stock
0.8

 
0.7

Additional paid-in capital
3,574.0

 
3,566.5

Retained earnings (accumulated deficit)
11.8

 
(376.0
)
Accumulated other comprehensive income (loss)
42.8

 
(40.0
)
Treasury stock, at cost
(510.0
)
 
(371.2
)
Total Shareholders’ Equity Excluding Noncontrolling Interest
3,119.4

 
2,780.0

Noncontrolling interest
10.3

 
9.7

Total Shareholders’ Equity
3,129.7

 
2,789.7

Total Liabilities and Shareholders’ Equity
$
12,673.2

 
$
11,876.8


 See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

3


POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
 
Six Months Ended
March 31,
 
2018
 
2017
Cash Flows from Operating Activities
 
 
 
Net Earnings Including Noncontrolling Interest 
$
387.0

 
$
99.7

Adjustments to reconcile net earnings to net cash flow provided by (used in) operating activities:
 
 
 
Depreciation and amortization
195.1

 
155.1

Unrealized gain on interest rate swaps
(54.0
)
 
(146.6
)
Loss on extinguishment of debt, net
37.6

 
62.5

Non-cash stock-based compensation expense
15.8

 
11.4

Deferred income taxes
(246.1
)
 
68.8

Other, net
(6.2
)
 
(1.0
)
Other changes in current assets and liabilities, net of business acquisitions:
 
 
 
Increase in receivables, net
(30.8
)
 
(85.5
)
Decrease (increase) in inventories
10.6

 
(8.1
)
Increase in prepaid expenses and other current assets
(9.5
)
 
(3.9
)
Decrease in accounts payable and other current liabilities
(39.0
)
 
(179.1
)
Increase in non-current liabilities
3.1

 
5.0

Net Cash Provided by (Used in) Operating Activities
263.6

 
(21.7
)
 
 
 
 
Cash Flows from Investing Activities
 
 
 
Business acquisitions, net of cash acquired
(1,454.0
)
 
(90.2
)
Additions to property
(86.1
)
 
(63.9
)
Restricted cash
1.9

 
2.2

Proceeds from sale of property and assets held for sale
0.2

 
10.3

Other, net
(1.2
)
 

Net Cash Used in Investing Activities
(1,539.2
)
 
(141.6
)
 
 
 
 
Cash Flows from Financing Activities
 
 
 
Proceeds from issuance of long-term debt
1,000.0

 
1,750.0

Repayments of long-term debt
(751.7
)
 
(1,015.9
)
Purchases of treasury stock
(138.8
)
 
(133.1
)
Payments of preferred stock dividends
(6.8
)
 
(6.8
)
Payments of debt issuance costs and deferred financing fees
(10.5
)
 
(27.6
)
Payments of debt extinguishment costs
(33.5
)
 
(67.9
)
Proceeds from exercise of stock awards
4.0

 
9.4

Other, net
(5.8
)
 
(3.1
)
Net Cash Provided by Financing Activities
56.9

 
505.0

Effect of Exchange Rate Changes on Cash and Cash Equivalents
2.0

 
(0.4
)
Net (Decrease) Increase in Cash and Cash Equivalents
(1,216.7
)
 
341.3

Cash and Cash Equivalents, Beginning of Year
1,525.9

 
1,143.6

Cash and Cash Equivalents, End of Period
$
309.2

 
$
1,484.9

    
 See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited). 

4


POST HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in millions, except per share information and where indicated otherwise)
NOTE 1 — BASIS OF PRESENTATION
These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), under the rules and regulations of the United States Securities and Exchange Commission (the “SEC”), and on a basis substantially consistent with the audited consolidated financial statements of Post Holdings, Inc. (herein referred to as “Post,” “the Company,” “us,” “our” or “we”) as of and for the fiscal year ended September 30, 2017. These unaudited condensed consolidated financial statements should be read in conjunction with such audited consolidated financial statements which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017, filed with the SEC on November 17, 2017.
These unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair statement of the Company’s results of operations, comprehensive income, financial position and cash flows for the interim periods presented. Interim results are not necessarily indicative of the results for any other interim period or for the entire fiscal year.
Certain prior year amounts have been reclassified to conform with the current year presentation. Reclassifications related to the fiscal 2017 adoption of Accounting Standards Update (“ASU”) 2016-09 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” were made for the three and six months ended March 31, 2017. For the three months ended March 31, 2017, the reclassifications resulted in an increase in income tax benefit of $1.9, and corresponding decreases in net loss of $1.9 and in both basic and diluted loss per common share of three cents, as reported on the Condensed Consolidated Statement of Operations. For the six months ended March 31, 2017, the reclassifications resulted in a decrease in income tax expense of $6.1, and corresponding increases in net earnings of $6.1, in basic earnings per common share of nine cents and in diluted earnings per common share of seven cents, as reported on the Condensed Consolidated Statement of Operations. In addition, for the six months ended March 31, 2017, the reclassifications resulted in a decrease in cash used in operating activities and a decrease in cash provided by financing activities of $4.8, as reported on the Condensed Consolidated Statement of Cash Flows.
NOTE 2 — RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS
Recently Issued
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842).” This standards update requires a company to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for lessees, lessors and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods therein (i.e., Post’s financial statements for the year ending September 30, 2020), with early adoption permitted. At adoption, this standard will be applied using a modified retrospective approach. The Company is currently evaluating the impact and timing of adopting this standard, however, an increase in both assets and liabilities is expected.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which will supersede all existing revenue recognition guidance under GAAP. This ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2017 (i.e., Post’s financial statements for the year ending September 30, 2019). The Company is assessing the impact that this standard will have on its accounting policies, processes, system requirements, internal controls and disclosures. Internal resources have been assigned to this assessment, and the Company has engaged a third party to assist in the assessment and implementation. The Company has established a project plan, identified key revenue streams, completed an initial review of its customer contracts and is considering impacted policies and processes. The Company will adopt this standard on October 1, 2018 and expects to use the modified retrospective transition method of adoption.  The Company continues to evaluate the effect that this standard will have on the Company’s condensed consolidated financial statements and related disclosures.
Recently Adopted
In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” which codifies the SEC’s interpretive guidance released on December 22, 2017, when

5


the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. See Note 7 for additional information regarding the adoption of this standard.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU amends Accounting Standards Codification (“ASC”) 220, to allow a reclassification from accumulated other comprehensive income (“OCI”) to retained earnings for stranded tax effects resulting from the Tax Act. In accordance with this standard, the Company early adopted this ASU during the second quarter of fiscal 2018. The adoption resulted in an adjustment to retained earnings and accumulated OCI of $1.4.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This standard requires most inventory to be measured at the lower of cost and net realizable value (“NRV”), thereby simplifying the previous guidance under which an entity must measure inventory at the lower of cost or market. Market is defined as replacement cost, NRV or NRV less a normal profit margin. This ASU does not apply to inventory that is measured using either the last-in, first-out method or the retail inventory method. The Company adopted this ASU during the first quarter of fiscal 2018. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
NOTE 3 — BUSINESS COMBINATIONS
The Company accounts for business combinations using the acquisition method of accounting, whereby the results of operations are included in the financial statements from the date of acquisition. The purchase price is allocated to acquired assets and assumed liabilities based on their estimated fair values at the date of acquisition, and any excess is allocated to goodwill. Goodwill represents the value the Company expects to achieve through the implementation of operational synergies and the expansion of the business into new or growing segments of the industry.
On January 12, 2018, the Company completed its acquisition of Bob Evans Farms, Inc. (“Bob Evans”), resulting in the Company owning all of the outstanding shares of Bob Evans common stock. The Company paid each holder of shares of Bob Evans common stock, other than holders who demanded appraisal of their shares under Delaware law and had not withdrawn their demands as of the closing date, $77.00 per share, resulting in a payment at closing of $1,381.2 (which, in addition to the amounts paid to Bob Evans stockholders, includes amounts paid to retire certain debt and other obligations of Bob Evans). Any shares of Bob Evans common stock subject to appraisal as of the closing date were canceled and no longer outstanding after closing. The closing payment did not include any amounts due to former holders of approximately 4.35 shares of Bob Evans common stock who demanded appraisal under Delaware law and had not withdrawn their demands as of the closing date. The Company estimates additional payments of $342.0 will be made subsequent to the closing date, which includes payments to former holders of shares of Bob Evans common stock who had exercised appraisal rights, payments in connection with Bob Evans deferred compensation plans and payments to compensate Bob Evans employees due to the cancellation of their outstanding employee stock awards. At March 31, 2018, the former holders of 3.3 shares of Bob Evans common stock had not withdrawn their appraisal demands and had not been paid for their shares of Bob Evans common stock. Related to these shares, the Company accrued $257.4 at March 31, 2018, which is the number of shares of Bob Evans common stock for which former Bob Evans stockholders have demanded appraisal and not withdrawn their demands multiplied by the $77.00 per share merger consideration plus accrued interest at the Federal Reserve Discount Rate plus a spread of 5.00%. The liability is reported in “Other liabilities” on the Condensed Consolidated Balance Sheet. Bob Evans is a producer of refrigerated potato, pasta and vegetable-based side dishes, pork sausage and a variety of refrigerated and frozen convenience food items, and is reported in Post’s Refrigerated Food segment (see Note 18). Based upon the preliminary purchase price allocation, the Company recorded $376.0 of customer relationships to be amortized over a weighted-average period of 18 years, $6.0 of definite-lived trademarks to be amortized over a weighted-average period of 10 years and $400.0 of indefinite-lived trademarks. For the three and six months ended March 31, 2018, net sales and operating loss for Bob Evans were $107.6 and $0.9, respectively.
On July 3, 2017, the Company completed its acquisition of Latimer Newco 2 Limited, a company registered in England and Wales (“Latimer”), and all of Latimer’s direct and indirect subsidiaries at the time of acquisition, including Weetabix Limited (collectively the “Weetabix Group”) for a purchase price of approximately £1,400.0 with a payment at closing of £1,454.1, excluding £48.0 of cash acquired (approximately $1,887.2, excluding $62.2 of cash acquired). The Weetabix Group is a packaged food company that primarily produces branded and private label ready-to-eat (“RTE”) cereal and muesli products. The Weetabix Group is reported in two reportable segments. The results of the Weetabix Group’s operations outside of North America (“Weetabix”) are reported as the Weetabix segment, and the Weetabix Group’s North American operations (“Weetabix NA”) are reported in the Post Consumer Brands segment (see Note 18). Based on the preliminary purchase price allocation of the Weetabix Group, the Company recorded $172.8 of customer relationships to be amortized over a weighted-average period of approximately 20 years, $29.5 of definite-lived trademarks and brands to be amortized over a weighted-average period of 16 years and $385.1 of indefinite-lived trademarks. Based on the preliminary purchase price allocation of Weetabix NA, the Company recorded $13.6 of customer relationships to be amortized over a weighted-average period of 21 years.

6


On October 3, 2016, the Company completed its acquisition of National Pasteurized Eggs, Inc. (“NPE”) for $93.5, subject to net working capital and other adjustments, resulting in a payment of $97.0. In February 2017, a final settlement of net working capital was reached, resulting in an amount back to the Company of $1.2. NPE is a producer of pasteurized shell eggs, including cage-free eggs, and is reported in Post’s Refrigerated Food segment (see Note 18). Based upon the purchase price allocation, the Company recorded $43.9 of customer relationships to be amortized over a weighted-average period of 16 years and $7.5 of trademarks and brands to be amortized over a weighted-average period of 20 years.
Certain preliminary values of the Bob Evans and the Weetabix Group acquisitions, including receivables, inventory, property, goodwill, other intangible assets, other current liabilities, deferred taxes and other liabilities, are not yet finalized pending the final purchase price allocation and are subject to change once additional information is obtained. Additionally, the total acquisition cost of Bob Evans is subject to change based on the actual consideration that will be paid to the former holders of 3.3 shares of Bob Evans common stock who had not withdrawn their appraisal demands and had not been paid for their shares of Bob Evans common stock at March 31, 2018. The goodwill generated by the Company’s acquisition of Bob Evans will not be deductible for U.S. income tax purposes, however, certain goodwill generated by business combinations completed by Bob Evans in periods prior to its acquisition transferred to Post and is expected to be tax deductible. The Company does not expect the final fair value of goodwill related to the acquisition of the Weetabix Group to be deductible for U.S. income tax purposes.
The following table provides the preliminary allocation of the purchase price related to the fiscal 2018 acquisition of Bob Evans based upon the fair value of assets and liabilities assumed, including the provisional amounts recognized related to the acquisition, as of March 31, 2018.
Cash and cash equivalents
$
15.6

Receivables
58.3

Inventories
27.7

Prepaid expenses and other current assets
34.2

Property
184.6

Goodwill
894.5

Other intangible assets
782.0

Other assets
0.4

Accounts payable
(18.2
)
Other current liabilities
(56.4
)
Deferred tax liability - long-term
(194.5
)
Other liabilities
(5.0
)
Total acquisition cost
$
1,723.2


7


The following table provides the preliminary allocation of the purchase price related to the fiscal 2017 acquisition of the Weetabix Group based upon the fair value of assets and liabilities assumed, including the provisional amounts recognized related to the acquisition as of September 30, 2017, as well as measurement period adjustments made during the six months ended March 31, 2018.
 
Acquisition Date Amounts Recognized as of September 30, 2017 (a)
 
Adjustments During the Six Months Ended March 31, 2018
 
Acquisition Date Amounts Recognized (as Adjusted)
Cash and cash equivalents
$
62.2

 
$

 
$
62.2

Receivables (c)
39.7

 
(1.9
)
 
37.8

Inventories (b)
63.4

 
(0.6
)
 
62.8

Prepaid expenses and other current assets
1.2

 

 
1.2

Property (b)
283.9

 
(3.0
)
 
280.9

Goodwill (d)
969.3

 
11.4

 
980.7

Other intangible assets (b)
608.4

 
(7.4
)
 
601.0

Other assets
112.0

 

 
112.0

Accounts payable
(66.3
)
 

 
(66.3
)
Other current liabilities (c)
(28.4
)
 
(0.1
)
 
(28.5
)
Deferred tax liability - long-term (c)
(137.6
)
 
1.6

 
(136.0
)
Other liabilities
(10.9
)
 

 
(10.9
)
Noncontrolling interest
(9.7
)
 

 
(9.7
)
Total acquisition cost
$
1,887.2

 
$

 
$
1,887.2

(a) As previously reported in Post’s Annual Report on Form 10-K filed with the SEC on November 17, 2017.
(b) Adjustments reflect updated ASC 805 valuation of tangible and intangible assets.
(c) Adjustments reflect other Weetabix Group purchase accounting adjustments.
(d) Adjustment reflects the change in goodwill as a result of the adjustments described in (b) and (c).
Transaction-related Expenses
The Company incurs transaction-related expenses in connection with both completed and contemplated acquisitions, divestitures and mergers. These expenses generally include third party costs for due diligence, advisory services and transaction success fees. Transaction-related expenses of $20.9 and $24.0 were incurred during the three and six months ended March 31, 2018, respectively, and $2.8 and $3.5 during the three and six months ended March 31, 2017, respectively, and are recorded as “Selling, general and administrative expenses.”
Pro Forma Information
The following unaudited pro forma information presents a summary of the results of operations of the Company combined with the results of Bob Evans and the Weetabix Group for the periods presented as if the fiscal 2018 acquisition of Bob Evans had occurred on October 1, 2016 and the fiscal 2017 acquisition of the Weetabix Group had occurred on October 1, 2015, along with certain pro forma adjustments. These pro forma adjustments give effect to the amortization of certain definite-lived intangible assets, adjusted depreciation based upon fair value of assets acquired, interest expense related to the financing of the business combinations, transaction costs, adjustments to convert the Weetabix Group’s historical financial information from International Financial Reporting Standards (“IFRS”) to GAAP and related income taxes. The following unaudited pro forma information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor is it necessarily an indication of future operating results.  
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Pro forma net sales
$
1,601.6

 
$
1,468.5

 
$
3,185.8

 
$
2,971.7

Pro forma net earnings available to common shareholders
$
108.6

 
$
0.2

 
$
409.0

 
$
112.9

Pro forma basic earnings per common share
$
1.63

 
$

 
$
6.16

 
$
1.64

Pro forma diluted earnings per common share
$
1.46

 
$

 
$
5.42

 
$
1.50


8


NOTE 4 — RESTRUCTURING
In February 2018, the Company announced its plan to close its cereal manufacturing facility in Clinton, Massachusetts, which manufactures certain Weetabix Group products distributed in North America. The transfer of production capabilities to other Post Consumer Brands facilities and the closure of the facility is expected to be completed by September 2019.
Amounts related to this restructuring event are shown in the following table. No restructuring costs were incurred in the three and six months ended March 31, 2017. Employee-related costs are included in “Selling, general and administrative expenses” and accelerated depreciation expense is included in “Cost of goods sold” in the Consolidated Statements of Operations. These expenses are not included in the measure of segment performance for any segment (see Note 18).
 
Employee-Related Costs
 
Accelerated Depreciation
 
Total
Balance, September 30, 2017
$

 
$

 
$

Charge to expense
1.5

 
0.3

 
1.8

Cash payments

 

 

Non-cash charges

 
(0.3
)
 
(0.3
)
Balance, March 31, 2018
$
1.5

 
$

 
$
1.5

 
 
 
 
 
 
Total expected restructuring charge
$
5.2

 
$
6.5

 
$
11.7

Cumulative restructuring charges incurred to date
1.5

 
0.3

 
1.8

Remaining expected restructuring charge
$
3.7

 
$
6.2

 
$
9.9

NOTE 5 — GOODWILL
The changes in the carrying amount of goodwill by segment are noted in the following table.
 
Post Consumer Brands
 
Weetabix
 
Refrigerated Food
 
Active Nutrition
 
Private Brands
 
Total
Balance, September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Goodwill (gross)
$
1,999.6

 
$
926.9

 
$
1,231.6

 
$
180.7

 
$
417.1

 
$
4,755.9

Accumulated impairment losses
(609.1
)
 

 

 
(114.8
)
 

 
(723.9
)
Goodwill (net)
$
1,390.5

 
$
926.9

 
$
1,231.6

 
$
65.9

 
$
417.1

 
$
4,032.0

Goodwill acquired

 

 
894.5

 

 

 
894.5

Acquisition related adjustment
13.0

 
(1.6
)
 

 

 

 
11.4

Currency translation adjustment
(0.3
)
 
42.3

 

 

 

 
42.0

Balance, March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Goodwill (gross)
$
2,012.3

 
$
967.6

 
$
2,126.1

 
$
180.7

 
$
417.1

 
$
5,703.8

Accumulated impairment losses
(609.1
)
 

 

 
(114.8
)
 

 
(723.9
)
Goodwill (net)
$
1,403.2

 
$
967.6

 
$
2,126.1

 
$
65.9

 
$
417.1

 
$
4,979.9

NOTE 6 — EQUITY INTERESTS
In connection with its acquisition of the Weetabix Group in July 2017 (see Note 3), the Company acquired an equity interest in two legal entities, Alpen Food Company South Africa (Proprietary) Limited (“Alpen”) and Weetabix East Africa Limited (“Weetabix East Africa”). Results of both entities are reported in the Weetabix segment (see Note 18).
Alpen is a South African-based company that produces RTE cereal and muesli. The Company owns 50% of Alpen’s common stock with no other indicators of control and, accordingly, the Company accounts for its investment in Alpen using the equity method. The investment in Alpen was $6.3 and $4.5 at March 31, 2018 and September 30, 2017, respectively, and was included in “Other assets” on the Condensed Consolidated Balance Sheets. In the three and six months ended March 31, 2018, equity method losses of $0.3 and $0.2, respectively, were included in “Other operating expenses, net” in the Condensed Consolidated Statements of Operations. The Company had a note receivable balance with Alpen of $1.1 and $1.0 at March 31, 2018 and September 30, 2017, respectively, which was included in “Other assets” on the Condensed Consolidated Balance Sheets.

9


Weetabix East Africa is a Kenyan-based company that produces RTE cereal and muesli. The Company owns 50.1% of Weetabix East Africa and holds a controlling voting and financial interest through its appointment of management and representation on Weetabix East Africa’s Board of Directors. Accordingly, Weetabix East Africa is fully consolidated into the Company’s financial statements. Weetabix East Africa had long-term payables with Pioneer Food Group Limited, the owner of the remaining 49.9% of the business of $0.5 at September 30, 2017, which was included in “Other liabilities” on the Condensed Consolidated Balance Sheet. No such payable existed at March 31, 2018.
NOTE 7 — INCOME TAXES
The effective income tax rate was 20.7% and (149.5)% for the three and six months ended March 31, 2018, respectively, and 50.0% and 30.6% for the three and six months ended March 31, 2017, respectively.
In the six months ended March 31, 2018, the effective tax rate was impacted by the Tax Act, which was enacted on December 22, 2017. The SEC issued interpretive guidance regarding the Tax Act which was codified by ASU 2018-05 in March 2018. The Tax Act resulted in significant impacts to the Company’s accounting for income taxes with the most significant of these impacts relating to the reduction of the U.S. federal corporate income tax rate, a one-time transition tax on unrepatriated foreign earnings and full expensing of certain qualified depreciable assets placed in service after September 27, 2017, and before January 1, 2023. The Tax Act enacts a new U.S. federal corporate income tax rate of 21% that will fully go into effect for the Company’s fiscal 2019 tax year and is prorated with the pre-December 22, 2017 U.S. federal corporate income tax rate of 35% for the Company’s current tax year. This proration results in a blended rate of 24.5% for fiscal 2018. At the time these financial statements were issued, the Company had not completed the accounting for the tax effects related to the enactment of the Tax Act. However, provisional estimates were made in the following instances: (i) the Company remeasured its existing deferred tax assets and liabilities considering both the current fiscal year blended rate and the 21% rate for future periods and recorded a provisional tax benefit of $272.4 and (ii) the Company calculated the one-time transition tax and recorded provisional tax expense of $7.1. Full expensing of certain depreciable assets will result in a temporary difference and will be analyzed throughout the year as assets are placed in service. Included in (i) above is a tax benefit adjustment of $1.7 recorded in the three months ended March 31, 2018, to further refine the remeasurement estimate made in the first quarter of fiscal 2018 of the Company’s existing deferred tax assets and liabilities considering both the current fiscal year blended rate and the 21% rate for future periods.
The changes included in the Tax Act are broad and complex, and as such, the final transition impacts of the Tax Act may differ from the above estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in current accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts, including impacts resulting from changes to current year earnings estimates and foreign exchange rates. ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company currently anticipates finalizing and recording any resulting adjustments by September 30, 2018.
In the three months ended March 31, 2017, the effective income tax rate differed significantly from the statutory rate as a result of the expectation that the Domestic Production Activities Deduction under the Internal Revenue Code (“DPAD”) would have a favorable impact on the effective income tax rate, and that certain valuation allowances would have an unfavorable impact on the effective income tax rate. Additionally, the effective income tax rate was impacted by the retrospective reclassifications of $1.9 and $6.1 of income tax benefits to “Income tax expense (benefit)” in the Condensed Consolidated Statements of Operations in the three and six months ended March 31, 2017, respectively, related to the adoption of ASU 2016-09 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (see Note 1).

10


NOTE 8 — INTANGIBLE ASSETS, NET
Total intangible assets are as follows:
 
March 31, 2018
 
September 30, 2017
 
Carrying
Amount
 
Accumulated Amortization
 
Net
Amount
 
Carrying
Amount
 
Accumulated Amortization
 
Net
Amount
Subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
2,632.8

 
$
(481.7
)
 
$
2,151.1

 
$
2,249.3

 
$
(416.7
)
 
$
1,832.6

Trademarks and brands
840.4

 
(184.9
)
 
655.5

 
834.1

 
(162.9
)
 
671.2

Other intangible assets
21.7

 
(10.9
)
 
10.8

 
21.7

 
(9.8
)
 
11.9

 
3,494.9

 
(677.5
)
 
2,817.4

 
3,105.1

 
(589.4
)
 
2,515.7

Not subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
Trademarks and brands
1,250.4

 

 
1,250.4

 
838.2

 

 
838.2

 
$
4,745.3

 
$
(677.5
)
 
$
4,067.8

 
$
3,943.3

 
$
(589.4
)
 
$
3,353.9

NOTE 9 EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is based on the average number of common shares outstanding during the period. Diluted earnings (loss) per share is based on the average number of shares used for the basic earnings (loss) per share calculation, adjusted for the dilutive effect of stock options, stock appreciation rights and restricted stock equivalents using the “treasury stock” method. The impact of potentially dilutive convertible preferred stock is calculated using the “if-converted” method. For the periods outstanding, the Company’s tangible equity units (“TEUs”) were assumed to be settled at the minimum settlement amount of 1.7114 shares per TEU for weighted-average shares for basic earnings per share. For diluted earnings (loss) per share, the shares, to the extent dilutive, were assumed to be settled at a conversion factor based on the daily volume-weighted-average price per share of the Company’s common stock not to exceed 2.0964 shares per TEU. All TEU purchase contracts were settled as of June 1, 2017. In the second quarter of fiscal 2018, the Company completed the redemption of its 3.75% Series B Cumulative Perpetual Convertible Preferred Stock (“Series B Preferred”). Substantially all of the 1.5 shares of Series B Preferred outstanding as of January 10, 2018, the date the redemption was announced, were converted into 3.1 shares of the Company’s common stock pursuant to the conversion rights applicable to the Series B Preferred and the remaining shares of Series B Preferred were redeemed (see Note 17).
The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended March 31, 2018 and 2017, respectively.
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Net earnings (loss) for basic earnings per share
$
88.9

 
$
(5.5
)
 
$
380.4

 
$
92.9

Dilutive preferred stock dividends
2.6

 

 
6.0

 
6.8

Net earnings (loss) for diluted earnings per share
$
91.5

 
$
(5.5
)
 
$
386.4

 
$
99.7

 
 
 
 
 
 
 
 
Weighted-average shares outstanding
66.8

 
64.4

 
66.4

 
64.5

Effect of TEUs on weighted-average shares for basic earnings (loss) per share

 
3.8

 

 
4.2

Weighted-average shares for basic earnings (loss) per share
66.8

 
68.2

 
66.4

 
68.7

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
1.7

 

 
1.7

 
1.8

Stock appreciation rights
0.1

 

 
0.1

 
0.1

Restricted stock awards
0.2

 

 
0.3

 
0.2

Preferred shares conversion to common
7.2

 

 
8.1

 
9.1

Total dilutive securities
9.2

 

 
10.2

 
11.2

Weighted-average shares for diluted earnings (loss) per share
76.0

 
68.2

 
76.6

 
79.9

 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
1.33

 
$
(0.08
)
 
$
5.73

 
$
1.35

Diluted earnings (loss) per common share
$
1.20

 
$
(0.08
)
 
$
5.04

 
$
1.25


11


The following table details the securities that have been excluded from the calculation of weighted-average shares for diluted earnings (loss) per share as they were anti-dilutive.
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Stock options
0.6

 
4.2

 
0.6

 
0.3

Stock appreciation rights

 
0.1

 

 

Restricted stock awards

 
0.7

 

 

Preferred shares conversion to common

 
9.1

 

 

NOTE 10 — INVENTORIES
 
March 31, 2018
 
September 30, 2017
Raw materials and supplies
$
144.6

 
$
129.8

Work in process
18.3

 
16.9

Finished products
397.2

 
395.6

Flocks
31.3

 
31.2

 
$
591.4

 
$
573.5

NOTE 11 — PROPERTY, NET
 
March 31, 2018
 
September 30, 2017
Property, at cost
$
2,656.6

 
$
2,394.1

Accumulated depreciation
(807.8
)
 
(703.4
)
 
$
1,848.8

 
$
1,690.7

NOTE 12 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
In the ordinary course of business, the Company is exposed to commodity price risks relating to the acquisition of raw materials and supplies, interest rate risks relating to floating rate debt and foreign currency exchange rate risks. The Company utilizes derivative financial instruments, including (but not limited to) futures contracts, option contracts, forward contracts and swaps, to manage certain of these exposures by hedging when it is practical to do so. The Company does not hold or issue financial instruments for speculative or trading purposes.
At March 31, 2018, the Company’s derivative instruments consisted of:
Not designated as hedging instruments under ASC Topic 815
Commodity and energy futures and option contracts which relate to inputs that generally will be utilized within the next year;
foreign currency forward contracts maturing within the next year that have the effect of hedging currency fluctuations between the Euro and the U.S. Dollar and between the Canadian Dollar and the U.S. Dollar;
a pay-fixed, receive-variable interest rate swap maturing in May 2021 that requires monthly settlements and has the effect of hedging interest payments on debt expected to be issued but not yet priced; and
rate-lock interest rate swaps that require five lump sum settlements with the first settlement occurring in July 2018 and the last in July 2021 and have the effect of hedging interest payments on debt expected to be issued but not yet priced.
Designated as hedging instruments under ASC Topic 815
Pay-fixed, receive-fixed cross-currency swaps with maturities in January 2021 and July 2022 that require quarterly cash settlements and are used as net investment hedges of the Company’s investment in the Weetabix Group, which is denominated in Pounds Sterling; and
a pay-fixed, receive-variable interest rate swap maturing in May 2024 that requires monthly settlements and is used as a cash flow hedge of forecasted interest payments on the Company’s variable rate term loan (see Note 15).

12


As of January 1, 2018, the Company changed the designation of its foreign currency forward contracts from a cash flow hedge to a non-designated hedging instrument. In connection with the new designation, the Company reclassified gains previously recorded in accumulated OCI of $1.8, of which $1.3 was reclassified to “Selling, general and administrative expenses” in the Condensed Consolidated Statement of Operations for the three and six months ended March 31, 2018 and $0.5 was reclassified to “Property, net” on the Condensed Consolidated Balance Sheet as of March 31, 2018.
The following table shows the notional amounts of derivative instruments held.
 
 
March 31, 2018
 
September 30, 2017
Not designated as hedging instruments under ASC Topic 815:
 
 
 
 
Commodity contracts
 
$
37.6

 
$
53.8

Energy contracts
 
18.5

 
25.6

Foreign exchange contracts - Forward contracts
 
17.2

 
20.9

Interest rate swap
 
75.4

 
76.1

Interest rate swaps - Rate-lock swaps
 
1,649.3

 
1,649.3

Designated as hedging instruments under ASC Topic 815:
 
 
 
 
Foreign exchange contracts - Cross-currency swaps
 
662.9

 
448.7

Interest rate swap
 
1,000.0

 
1,000.0

The following table presents the balance sheet location and fair value of the Company’s derivative instruments as of March 31, 2018 and September 30, 2017, along with the portion designated as hedging instruments under ASC Topic 815. The Company does not offset derivative assets and liabilities within the Condensed Consolidated Balance Sheets.
 
 
 
 
Fair Value
 
Portion Designated as Hedging Instruments
 
 
Balance Sheet Location
 
March 31,
2018
 
September 30,
2017
 
March 31,
2018
 
September 30,
2017
Asset Derivatives:
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
Prepaid expenses and other current assets
 
$
4.5

 
$
0.5

 
$

 
$

Energy contracts
 
Prepaid expenses and other current assets
 
4.5

 
3.8

 

 

Commodity contracts
 
Other assets
 
2.4

 

 

 

Energy contracts
 
Other assets
 
1.0

 

 

 

Foreign exchange contracts
 
Prepaid expenses and other current assets
 
1.3

 
1.3

 

 
1.1

Foreign exchange contracts
 
Other assets
 

 
0.3

 

 
0.3

Interest rate swaps
 
Prepaid expenses and other current assets
 
3.9

 

 
3.9

 

Interest rate swaps
 
Other assets
 
20.6

 

 
20.6

 

 
 
 
 
$
38.2

 
$
5.9

 
$
24.5

 
$
1.4

 
 
 
 
 
 
 
 
 
 
 
Liability Derivatives:
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
Other current liabilities
 
$
0.2

 
$
1.9

 
$

 
$

Energy contracts
 
Other current liabilities
 
0.4

 
0.3

 

 

Foreign exchange contracts
 
Other current liabilities
 
3.1

 
1.5

 
3.1

 
1.5

Foreign exchange contracts
 
Other liabilities
 
49.4

 
23.6

 
49.4

 
23.6

Interest rate swaps
 
Other current liabilities
 
9.8

 
50.9

 

 
0.7

Interest rate swaps
 
Other liabilities
 
147.5

 
165.3

 

 
4.2

 
 
 
 
$
210.4

 
$
243.5

 
$
52.5

 
$
30.0


13


The following tables present the effects of the Company’s derivative instruments on the Company’s Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017.
Derivatives Not Designated as Hedging Instruments
 
Statement of Operations Location
 
(Gain) Loss Recognized in Statement of Operations
 
 
2018
 
2017
Commodity contracts
 
Cost of goods sold
 
$
(5.1
)
 
$
(1.1
)
Energy contracts
 
Cost of goods sold
 
(0.7
)
 
3.5

Foreign exchange contracts
 
Selling, general and administrative expenses
 

 
0.1

Interest rate swaps
 
Other income, net
 
(50.5
)
 
(1.0
)
Derivatives Designated as Hedging Instruments
 
(Gain) Loss Recognized in OCI
 
Gain Reclassified from Accumulated OCI into Earnings
 
Statement of Operations Location
 
2018
 
2017
 
2018
 
2017
 
Foreign exchange contracts
 
$

 
$

 
$
1.3

 
$

 
Selling, general and administrative expenses
Interest rate swaps
 
(20.6
)
 

 
0.5

 

 
Interest expense, net
Cross-currency swaps
 
15.2

 

 

 

 
Other income, net
The following tables present the effects of the Company’s derivative instruments on the Company’s Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income for the six months ended March 31, 2018 and 2017.
Derivatives Not Designated as Hedging Instruments
 
Statement of Operations Location
 
(Gain) Loss Recognized in Statement of Operations
 
 
2018
 
2017
Commodity contracts
 
Cost of goods sold
 
$
(4.7
)
 
$
3.4

Energy contracts
 
Cost of goods sold
 
(2.9
)
 
0.3

Foreign exchange contracts
 
Selling, general and administrative expenses
 
0.2

 
0.1

Interest rate swaps
 
Other income, net
 
(53.2
)
 
(145.5
)
Derivatives Designated as Hedging Instruments
 
(Gain) Loss Recognized in OCI
 
Gain Reclassified from Accumulated OCI into Earnings
 
Statement of Operations Location
 
2018
 
2017
 
2018
 
2017
 
Foreign exchange contracts
 
$
(0.2
)
 
$

 
$
1.3

 
$

 
Selling, general and administrative expenses
Interest rate swaps
 
(29.6
)
 

 
0.2

 

 
Interest expense, net
Cross-currency swaps
 
25.9

 

 

 

 
Other income, net
Accumulated OCI included a $16.2 net loss on hedging instruments before taxes ($12.1 after taxes) at March 31, 2018, compared to a $18.1 net loss before taxes ($11.2 after taxes) at September 30, 2017. Approximately $3.9 of the net hedging gains reported in accumulated OCI at March 31, 2018, is expected to be reclassified into earnings within the next 12 months. For gains or losses associated with interest rate swaps, the reclassification will occur over the term of the related debt. Reclassification of gains and losses reported in accumulated OCI related to the cross-currency swaps will only occur in the event all United Kingdom-based operations are liquidated.
At March 31, 2018 and September 30, 2017, the Company had pledged collateral of $1.0 and $2.9, respectively, related to its commodity and energy contracts. These amounts are classified as “Restricted cash” on the Condensed Consolidated Balance Sheets.
NOTE 13 — FAIR VALUE MEASUREMENTS
The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis and the basis for that measurement according to the levels in the fair value hierarchy in ASC Topic 820.

14


 
March 31, 2018
 
September 30, 2017
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation investment
$
43.4

 
$
43.4

 
$

 
$
15.4

 
$
15.4

 
$

Derivative assets
38.2

 

 
38.2

 
5.9

 

 
5.9

 
$
81.6

 
$
43.4

 
$
38.2

 
$
21.3

 
$
15.4

 
$
5.9

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation liabilities
$
50.1

 
$

 
$
50.1

 
$
22.5

 
$

 
$
22.5

Derivative liabilities
210.4

 

 
210.4

 
243.5

 

 
243.5

 
$
260.5

 
$

 
$
260.5

 
$
266.0

 
$

 
$
266.0

The deferred compensation investment is primarily invested in mutual funds and its fair value is measured using the market approach. This investment is in the same funds or funds that employ a similar investment strategy and purchased in substantially the same amounts as the participants’ selected investment options (excluding Post common stock equivalents), which represent the underlying liabilities to participants in the Company’s deferred compensation plans. Deferred compensation liabilities are recorded at amounts due to participants in cash, based on the fair value of participants’ selected investment options (excluding certain Post common stock equivalents to be distributed in shares) using the market approach. In connection with the acquisition of Bob Evans, the Company expects to pay $26.8 related to the termination of Bob Evans’ deferred compensation plans within the next 12 months.
The Company utilizes the income approach to measure fair value for its commodity and energy derivatives. The income approach uses pricing models that rely on market observable inputs such as yield curves and forward prices. Foreign exchange contracts are valued using the spot rate less the forward rate multiplied by the notional amount. The Company’s calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve. Refer to Note 12 for the classification of changes in fair value of derivative assets and liabilities measured at fair value on a recurring basis within the Condensed Consolidated Statements of Operations.
The Company’s financial assets and liabilities also include cash and cash equivalents, receivables and accounts payable for which the carrying value approximates fair value due to their short maturities (less than 12 months). The Company does not record its current portion of long-term debt and long-term debt at fair value on the Condensed Consolidated Balance Sheets. Based on current market rates, the fair value of the Company’s debt (Level 2) was $7,308.2 and $7,343.4 as of March 31, 2018 and September 30, 2017, respectively.
Certain assets and liabilities, including long-lived assets, goodwill and indefinite-lived intangibles, are measured at fair value on a non-recurring basis.
NOTE 14 — COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Antitrust claims
In late 2008 and early 2009, some 22 class action lawsuits were filed in various federal courts against Michael Foods, Inc. (“Michael Foods”), a wholly owned subsidiary of the Company, and some 20 other defendants (producers of shell eggs and egg products, and egg industry organizations), alleging violations of federal and state antitrust laws in connection with the production and sale of shell eggs and egg products, and seeking unspecified damages. All cases were transferred to the Eastern District of Pennsylvania for coordinated and/or consolidated pretrial proceedings.
The case involved three types of plaintiffs: (1) a nationwide class of direct purchasers of shell eggs (“direct purchaser class”); (2) individual companies (primarily large grocery chains and food companies that purchase considerable quantities of eggs) that opted out of various settlements and filed their own complaints related to their purchases of shell eggs and egg products (“opt-out plaintiffs”); and (3) indirect purchasers of shell eggs.
Resolution of claims: (1) In December 2016, Michael Foods settled all claims asserted against it by the direct purchaser class for a payment of $75.0, which was approved by the district court on December 21, 2017; (2) Michael Foods settled all claims asserted against it by opt-out plaintiffs related to shell egg purchases on confidential terms on January 19, 2017; and (3) the district court has twice denied motions to certify any classes of indirect purchaser plaintiffs and thus there are no class claims currently pending by indirect purchasers. Michael Foods has at all times denied liability in this matter, and no settlement contains any admission of liability by Michael Foods.
Remaining portions of the case: Michael Foods remains a defendant only with respect to (a) claims that seek damages based on purchases of egg products by opt-out plaintiffs and (b) the claims of individual named indirect purchaser plaintiffs who were

15


previously denied class relief. The district court had granted summary judgment precluding any claims for egg products purchases by opt-out plaintiffs, but the Third Circuit Court of Appeals reversed and remanded these claims for further pre-trial proceedings. Defendants have sought leave to file a motion for summary judgment dismissing these claims and a decision is pending.
Although the likelihood of a material adverse outcome in the egg antitrust litigation has been significantly reduced as a result of the Michael Foods settlements described above, the remaining portions of the case could still result in a material adverse outcome. At this time, however, the Company does not believe it is possible to estimate any loss in connection with these remaining portions of the egg antitrust litigation. Accordingly, the Company cannot predict what impact, if any, these remaining matters and any results from such matters could have on the Company’s future results of operations or cash flows.
The Company expensed $2.0 in the three and six months ended March 31, 2018 and $74.5 in the six months ended March 31, 2017, included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations, related to these settlements. At March 31, 2018, the Company had accrued $2.0 for these matters that was included in “Other current liabilities” on the Condensed Consolidated Balance Sheet. There were no accruals for these matters at September 30, 2017. Under current law, any settlement paid, including the settlement with the direct purchaser plaintiffs and the settlement with the opt-out plaintiffs, is deductible for federal income tax purposes.
Bob Evans Appraisal Proceedings
Prior to completion of the Company’s acquisition of Bob Evans on January 12, 2018, Bob Evans received demands from certain stockholders demanding appraisal of their shares of Bob Evans common stock. After the completion of the acquisition, several such former stockholders filed petitions in the Delaware Court of Chancery (Arbitrage Fund v. Bob Evans Farms, Inc. filed on January 23, 2018; Blue Mountain Credit Alternatives Master Fund L.P., et al. v. Bob Evans Farms, Inc. filed on April 30, 2018; and 2017 Clarendon LLC, et al. v. Bob Evans Farms, Inc. filed on April 30, 2018) seeking appraisal of their shares of Bob Evans common stock pursuant to Section 262 of the Delaware General Corporation Law (“Section 262”). The lawsuits seek appraisal for such shares, plus statutory interest, as well as the costs of the proceedings and such other relief as appropriate. Under Section 262, persons who were stockholders at the time of the closing are entitled to have their shares appraised by the Delaware Court of Chancery and receive payment of the “fair value” of such shares (plus statutory interest) as determined by the Delaware Court of Chancery so long as such persons comply with applicable procedural requirements. By virtue of these lawsuits, approximately 3.3 shares of Bob Evans common stock (which were held by such former stockholders) are before the court for appraisal. As of completion of the acquisition, former Bob Evans stockholders can no longer submit new demands for appraisal. All other former stockholders have been paid for their shares at the $77.00 per share merger consideration amount. The Company intends to vigorously defend the cases.
At March 31, 2018, the Company had an accrual of $257.4 included in “Other liabilities” on the Condensed Consolidated Balance Sheet for these matters, which is the number of shares of Bob Evans common stock for which former Bob Evans stockholders have demanded appraisal and have not withdrawn their demands multiplied by the $77.00 per share merger consideration, plus statutory interest (see Note 3). There were no accruals for these matters at September 30, 2017. While the Company believes its accrual for these matters is appropriate, the final amounts required to resolve such matters could differ materially and the Company’s results of operations and cash flows could be materially affected. Accordingly, the Company cannot predict what impact, if any, these matters and any results from such matters could have on the future results of operations or cash flows.
Other
The Company is subject to various other legal proceedings and actions arising in the normal course of business. In the opinion of management, based upon the information presently known, the ultimate liability, if any, arising from such pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are likely to be asserted, taking into account established accruals for estimated liabilities (if any), are not expected to be material individually or in the aggregate to the consolidated financial position, results of operations or cash flows of the Company. In addition, although it is difficult to estimate the potential financial impact of actions regarding expenditures for compliance with regulatory matters, in the opinion of management, based upon the information currently available, the ultimate liability arising from such compliance matters is not expected to be material to the consolidated financial position, results of operations or cash flows of the Company.
Leases
Historically, Bob Evans guaranteed certain payment and performance obligations associated with the leases for 143 properties (the "Guarantee") leased by the restaurant business formerly owned by Bob Evans (the “Bob Evans Restaurant Business”). The Guarantee remained in effect following the Company’s acquisition of Bob Evans. In the event the Bob Evans Restaurant Business fails to meet its payment and performance obligations under these leases, the Company may be required to make rent and other payments to the landlord under the requirements of the Guarantee. Should the Company, as guarantor of the lease obligations, be required to make all lease payments due for the remaining term of the leases subsequent to March 31, 2018, the maximum amount the Company may be required to pay is equal to the annual rent amount, for the remainder of the lease terms. The current annual

16


rent on these leases is $13.3 and will increase up to 1.5% annually based on indexed inflation. The lease terms extend for approximately 18 years from March 31, 2018, and the Guarantee would remain in effect in the event the leases are extended for a renewal period. In the event the Company is obligated to make payments under the Guarantee, the Company believes its exposure is limited due to protections and recourse available in the leases associated with the leased properties, including a requirement of the landlord to mitigate damages by re-letting the properties in default. The Bob Evans Restaurant Business continues to meet its obligations under these leases and there have been no events that would indicate the obligations will not continue to be met.  As such, the Company believes the fair value of the Guarantee is immaterial as of March 31, 2018.
NOTE 15 — LONG-TERM DEBT
Long-term debt as of the dates indicated consists of the following:
 
March 31, 2018
 
September 30, 2017
5.625% Senior Notes maturing January 2028
$
1,000.0

 
$

5.50% Senior Notes maturing March 2025
1,000.0

 
1,000.0

5.75% Senior Notes maturing March 2027
1,402.0

 
1,500.0

5.00% Senior Notes maturing August 2026
1,750.0

 
1,750.0

8.00% Senior Notes maturing July 2025
123.5

 
137.5

6.00% Senior Notes maturing December 2022

 
630.0

Term Loan
2,183.5

 
2,194.5

Capital leases
0.2

 
0.2

 
$
7,459.2

 
$
7,212.2

Less: Current portion of long-term debt
(25.1
)
 
(22.1
)
Debt issuance costs, net
(77.9
)
 
(81.8
)
Plus: Unamortized premium
36.4

 
40.8

Total long-term debt
$
7,392.6

 
$
7,149.1

Senior Notes
On December 1, 2017, the Company issued $1,000.0 principal value of 5.625% senior notes due in January 2028. The 5.625% senior notes were issued at par and the Company received $990.6 after paying investment banking and other fees of $9.4, which will be deferred and amortized to interest expense over the term of the notes. Interest payments on the 5.625% senior notes are due semi-annually each January 15 and July 15. With the net proceeds received from this issuance, the Company repaid the $630.0 principal value of the 6.00% senior notes due in December 2022. In connection with the early repayment of these notes, the Company recorded expense of $37.3 in the first quarter of fiscal 2018, which is included in “Loss on extinguishment of debt, net” in the Condensed Consolidated Statement of Operations. This loss included a premium of $30.8 and debt issuance costs write-offs of $6.5. The remaining proceeds were used to fund a portion of the consideration paid for the Bob Evans acquisition which was completed on January 12, 2018 (see Note 3). 
During the three and six months ended March 31, 2018, the Company repurchased and retired $112.0 total principal value of the 5.75% senior notes due in March 2027 and the 8.00% senior notes due in July 2025. In connection with the early repurchase and retirement of these notes, the Company recorded a net gain of $1.0 in the three and six months ended March 31, 2018, which is included in “Loss on extinguishment of debt, net” in the Condensed Consolidated Statements of Operations. The net gain included a write-off of unamortized debt premium of $2.7 and gains realized on debt repurchased at a discount of $1.3, partially offset by premiums paid of $1.8 and debt issuance costs write-offs of $1.2. The repurchase of an additional $3.0 principal value of the 5.75% senior notes due in March 2027 was initiated in March 2018 but was not settled until April 2018, and as such, the amount was reclassified to “Current portion of long-term debt” on the Condensed Consolidated Balance Sheet at March 31, 2018.
Credit Agreement
On March 28, 2017, the Company entered into an amended and restated credit agreement (as further amended, the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility in an aggregate principal amount of $800.0 (the “Revolving Credit Facility”), with the commitments thereunder to be made available to the Company in U.S. Dollars, Canadian Dollars, Euros and Pounds Sterling. The issuance of letters of credit is available under the Credit Agreement in an aggregate amount of up to $50.0. The Revolving Credit Facility has outstanding letters of credit of $15.6 which reduced the available borrowing capacity under the Credit Agreement to $784.4 at March 31, 2018.

17


The Credit Agreement also provides for potential incremental revolving and term facilities at the request of the Company and at the discretion of the lenders, in each case on terms to be determined, and also permits the Company, subject to certain conditions, to incur incremental equivalent debt, in an aggregate maximum amount (for incremental revolving and term facilities and incremental equivalent debt combined) not to exceed the greater of (1) $700.0 and (2) the maximum amount at which (A) the Company’s pro forma consolidated leverage ratio (as defined in the Credit Agreement) would not exceed 6.50 to 1.00 and (B) the Company’s pro forma senior secured leverage ratio (as defined in the Credit Agreement) would not exceed 3.00 to 1.00 as of the date such indebtedness is incurred. The outstanding amounts under the Revolving Credit Facility must be repaid on or before March 28, 2022.
Borrowings under the Revolving Credit Facility will bear interest, at the option of the Company, at an annual rate equal to either the Base Rate, Eurodollar Rate or CDOR Rate (as such terms are defined in the Credit Agreement) plus an applicable margin ranging from 1.75% to 2.25% for Eurodollar Rate-based loans and CDOR Rate-based loans and from 0.75% to 1.25% for Base Rate-based loans, depending in each case on the Company’s senior secured leverage ratio. Commitment fees on the daily unused amount of commitments under the Revolving Credit Facility will accrue at rates ranging from 0.250% to 0.375%, also depending on the Company’s senior secured leverage ratio.
The Credit Agreement contains a financial covenant requiring the Company to maintain a senior secured leverage ratio (as defined in the Credit Agreement) not to exceed 4.25 to 1.00, measured as of the last day of any fiscal quarter if, as of the last day of such fiscal quarter, the aggregate outstanding amount of all revolving credit loans, swing line loans and letter of credit obligations (subject to certain exceptions specified in the Credit Agreement) exceeds 30% of the Company’s revolving credit commitments. As of March 31, 2018, the Company was not required to comply with such financial covenant as the aggregate amount of the aforementioned obligations did not exceed 30%.
The Credit Agreement provides for customary events of default, including material breach of representations and warranties, failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, indebtedness in excess of $75.0, certain events of bankruptcy and insolvency, inability to pay debts, the occurrence of one or more unstayed or undischarged judgments in excess of $75.0, attachments issued against a material part of the Company’s property, change in control, the invalidity of any loan document, the failure of the collateral documents to create a valid and perfected first priority lien and certain Employee Retirement Income Security Act of 1974 (“ERISA”) events. Upon the occurrence of an event of default, the maturity of the loans under the Credit Agreement may be accelerated and the agent and lenders under the Credit Agreement may exercise other rights and remedies available at law or under the loan documents, including with respect to the collateral and guarantees for the Company’s obligations under the Credit Agreement.
The Credit Agreement also permits the Company to incur additional unsecured debt if, among other conditions, the pro forma consolidated interest coverage ratio (as defined in the Credit Agreement) would be greater than or equal to 2.00 to 1.00 after giving effect to such new debt. As of March 31, 2018, the pro forma consolidated interest coverage ratio exceeded this threshold.
Term Loan
On May 24, 2017, the Company entered into a Joinder Agreement No. 1 to the Credit Agreement (“Joinder No. 1”).  Joinder No.1 provided for an incremental term loan of $1,200.0 (the “Joinder No. 1 Term Loan”) under the Credit Agreement. On June 29, 2017, the Company entered into a Joinder Agreement No. 2 to the Credit Agreement (“Joinder No. 2”). Joinder No. 2 provided for an incremental term loan of $1,000.0 (the “Joinder No. 2 Term Loan”) under the Credit Agreement. The Joinder No. 2 Term Loan was combined with the outstanding amounts under the Joinder No.1 Term Loan (collectively the “Term Loan”). On March 8, 2018, the Company entered into a second amendment to the Credit Agreement (the “Second Amendment”). Under the Second Amendment, the interest rate margin for the Term Loan was reduced by 25 basis points such that a Eurodollar Rate Loan accrues interest at the Eurodollar Rate plus 2.00% per annum, and a Base Rate Loan accrues interest at the Base Rate plus 1.00% per annum (as such terms are defined in the Credit Agreement). The maturity date for the Term Loan remains May 24, 2024, and all other material provisions of the Credit Agreement remain unchanged. In connection with the Second Amendment, the Company recorded a write-off of debt issuance costs and other expenses of $1.3, which is included in “Loss on extinguishment of debt, net” in the Condensed Consolidated Statement of Operations in the three and six months ended March 31, 2018.
NOTE 16 — PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company maintains qualified defined benefit plans in the United States, the United Kingdom and Canada for certain employees primarily within its Post Consumer Brands and Weetabix segments. Certain of the Company’s employees are eligible to participate in the Company’s postretirement benefit plans (partially subsidized retiree health and life insurance). Amounts for the Canadian plans are included in the North America disclosures and are not disclosed separately because they do not constitute a significant portion of the combined amounts.
The following tables provide the components of net periodic benefit cost (gain) for the pension plans.

18


 
North America
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Components of net periodic benefit cost (gain)
 
 
 
 
 
 
 
Service cost
$
1.0

 
$
1.0

 
$
2.1

 
$
2.0

Interest cost
0.9

 
0.5

 
1.8

 
1.1

Expected return on plan assets
(1.1
)
 
(0.8
)
 
(2.2
)
 
(1.5
)
Recognized net actuarial loss
0.3

 
0.4

 
0.6

 
0.8

Recognized prior service cost

 
0.1

 

 
0.1

Net periodic benefit cost
$
1.1

 
$
1.2

 
$
2.3

 
$
2.5

 
Other International
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Components of net periodic benefit cost (gain)
 
 
 
 
 
 
 
Service cost
$
1.7

 
$

 
$
3.4

 
$

Interest cost
5.1

 

 
9.9

 

Expected return on plan assets
(8.2
)
 

 
(16.0
)
 

Net periodic benefit gain
$
(1.4
)
 
$

 
$
(2.7
)
 
$


The following table provides the components of net periodic benefit cost (gain) for the North American other postretirement benefit plans.
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
2017
 
2018
 
2017
Components of net periodic benefit cost (gain)
 
 
 
 
 
 
 
Service cost
$
0.1

 
$
0.2

 
$
0.3

 
$
0.3

Interest cost
0.5

 
0.5

 
1.0

 
1.0

Recognized net actuarial loss

 
0.1

 
0.1

 
0.3

Recognized prior service credit
(1.1
)
 
(1.2
)
 
(2.3
)
 
(2.4
)
Net periodic benefit gain
$
(0.5
)
 
$
(0.4
)
 
$
(0.9
)
 
$
(0.8
)
NOTE 17 — SHAREHOLDERS’ EQUITY
Stock Repurchases
In the three months ended March 31, 2018, the Company repurchased 1.1 shares of its common stock at an average share price of $74.03 for a total cost of $82.8, including broker’s commissions. In the six months ended March 31, 2018, the Company repurchased 1.8 shares of its common stock at an average share price of $75.59 for a total cost of $138.8, including broker’s commissions. During the six months ended March 31, 2017, the Company repurchased 1.7 shares of its common stock at an average share price of $76.32 for a total cost of $133.1, including broker’s commissions. The repurchases were recorded as “Treasury stock, at cost” on the Condensed Consolidated Balance Sheets.
 3.75% Series B Cumulative Perpetual Convertible Preferred Stock Conversion and Redemption
In the second quarter of fiscal 2018, the Company completed the redemption of its Series B Preferred. Substantially all of the 1.5 shares of Series B Preferred outstanding as of January 10, 2018, the date the redemption was announced, were converted into 3.1 shares of the Company’s common stock pursuant to the conversion rights applicable to the Series B Preferred. The remaining shares of Series B Preferred were redeemed.

19


NOTE 18 — SEGMENTS
During the second quarter of fiscal 2018, the Company reorganized its reportable segments in accordance with ASC Topic 280, “Segment Reporting.” At March 31, 2018, the Company’s reportable segments were as follows:
Post Consumer Brands: North American RTE cereal business;
Weetabix: RTE cereal and the branded muesli business sold and distributed primarily outside of North America;
Refrigerated Food: refrigerated foodservice, primarily egg and potato, and refrigerated retail, inclusive of side dishes, egg, cheese and sausage;
Active Nutrition: protein shakes, bars and powders and nutritional supplements; and
Private Brands: peanut and other nut butters, dried fruit and nut products, granola and pasta.
All fiscal 2018 and 2017 segment results reported herein have been reclassified to conform with the March 31, 2018 presentation.
Management evaluates each segment’s performance based on its segment profit, which is its operating profit before impairment of property and intangible assets, facility closure related costs, restructuring expenses, (gains)/losses on assets held for sale, (gains)/losses on sale of facilities and other unallocated corporate income and expenses. The following tables present information about the Company’s reportable segments, including corresponding amounts for the prior year.

20


 
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
 
2018
 
2017
 
2018
 
2017
Net Sales
 
 
 
 
 
 
 
 
Post Consumer Brands
$
462.3

 
$
431.1

 
$
894.3

 
$
851.7

 
Weetabix
109.0

 

 
208.7

 

 
Refrigerated Food
600.0

 
454.6

 
1,110.6

 
931.3

 
Active Nutrition
205.2

 
177.3

 
391.2

 
331.2

 
Private Brands
212.6

 
193.6

 
419.0

 
393.6

 
Eliminations
(3.0
)
 
(1.2
)
 
(4.6
)
 
(2.6
)
 
Total
$
1,586.1

 
$
1,255.4

 
$
3,019.2

 
$
2,505.2

Segment Profit
 
 
 
 
 
 
 
 
Post Consumer Brands
$
91.1

 
$
90.1

 
$
161.3

 
$
171.7

 
Weetabix
15.7

 

 
32.5

 

 
Refrigerated Food
62.7

 
37.1

 
131.8

 
14.1

 
Active Nutrition
26.1

 
21.2

 
45.9

 
46.1

 
Private Brands
14.2

 
15.1

 
31.1

 
28.1

 
Total segment profit
209.8

 
163.5

 
402.6

 
260.0

General corporate expenses and other
45.5

 
26.0

 
73.8

 
46.3

Interest expense, net
98.8

 
80.2

 
189.3

 
153.1

Loss on extinguishment of debt, net
0.3

 
62.5

 
37.6

 
62.5

Other income, net
(50.5
)
 
(1.0
)
 
(53.2
)
 
(145.5
)
Earnings (loss) before income taxes
$
115.7

 
$
(4.2
)
 
$
155.1

 
$
143.6

Depreciation and amortization
 
 
 
 
 
 
 
 
Post Consumer Brands
$
30.9

 
$
27.3

 
$
61.8

 
$
54.1

 
Weetabix
12.7

 

 
19.8

 

 
Refrigerated Food
41.3

 
31.5

 
72.7

 
62.5

 
Active Nutrition
6.4

 
6.3

 
12.9

 
12.5

 
Private Brands
11.7

 
12.0

 
25.1

 
24.2

 
 
Total segment depreciation and amortization
103.0

 
77.1

 
192.3

 
153.3

 
Corporate
1.6

 
0.9

 
2.8

 
1.8

 
Total
$
104.6

 
$
78.0

 
$
195.1

 
$
155.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Assets
 
 
 
 
March 31,
2018
 
September 30,
2017
 
Post Consumer Brands
 
 
 
 
$
3,418.7

 
$
3,440.5

 
Weetabix
 
 
 
 
2,153.1

 
2,048.9

 
Refrigerated Food