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Ralcorp Holdings Announces Results for the Fourth Quarter of Fiscal 2003
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11/14/2003 ST. LOUIS, Nov. 14 /PRNewswire-FirstCall/ -- Ralcorp Holdings, Inc.
(NYSE: RAH) today reported net sales for its fourth quarter and fiscal year
ended September 30, 2003 of $329.4 million and $1,303.6 million, respectively.
Those figures reflect top-line growth of 1 percent and 2 percent,
respectively, from $326.8 and $1,280.3 in the corresponding periods of fiscal
2002. The Company recorded a $59.0 million non-cash goodwill impairment loss
in the fourth quarter of fiscal 2003 ($45.5 million after a $13.5 million
deferred tax benefit, or about $1.53 per share) related to its Carriage House
reporting unit. The charge resulted in a net loss of $38.7 million for the
quarter and net earnings of $7.4 million for the year. Fourth quarter diluted
loss per share was $1.34 and fiscal 2003 diluted earnings per share were $.25.
For more information about the goodwill impairment, see the section below
titled "Goodwill Impairment Loss."
Other items included in fiscal year 2003 but not in fiscal year 2002 were:
-- October through January results from the Lofthouse cookie business
acquired on January 30, 2002 (including approximately $30 million of
net sales);
-- $14.3 million of restructuring charges, related to business changes in
the Dressings, Syrups, Jellies & Sauces segment and the in-store bakery
(ISB) division of the Cereals, Crackers & Cookies segment [$.31 per
diluted share] (details discussed under "Restructuring Charges" below);
-- $13.0 million ($14.6 million in fiscal 2003 compared to $1.6 million in
fiscal 2002) income received in settlement of substantially all claims
related to vitamin antitrust litigation, net of related legal costs
[$.28 per diluted share];
-- $3.0 million (including $.3 million in the fourth quarter) of
accelerated depreciation expense caused by changes in the remaining
useful life of certain assets of the Streator facility, the ketchup
business, and the ISB division, related to restructuring initiatives
[$.06 per diluted share];
-- $2.5 million (including $1.0 million in the fourth quarter) of
incremental expenses associated with a pilot project to upgrade
information systems [$.05 per diluted share];
-- $1.5 million (including $.1 million in the fourth quarter) related to
accounts receivable losses from Fleming, which filed for bankruptcy on
April 1, 2003, as well as provisions totaling $.6 million for excess
Fleming packaging and finished goods inventories [$.05 per diluted
share]; and
-- $1.2 million recorded to cover estimated costs related to the recall of
a product produced by Ralston Foods for a co-manufacturing customer
[$.03 per diluted share].
Net Sales by Segment Three Months Ended Year Ended
(in millions) September 30, September 30,
2003 2002 2003 2002
Cereals $80.1 $77.0 $316.7 $312.5
Crackers & Cookies 104.3 99.2 397.6 343.5
Cereals, Crackers & Cookies 184.4 176.2 714.3 656.0
Dressings, Syrups, Jellies & Sauces 96.3 108.2 405.8 451.5
Snack Nuts & Candy 48.7 42.4 183.5 172.8
Total Net Sales $329.4 $326.8 $1,303.6 $1,280.3
Profit Contribution by Segment
(in millions)
Three Months Ended Year Ended
September 30, September 30,
2003 2002 2003 2002
Cereals, Crackers & Cookies $20.3 $15.9 $76.9 $ 70.1
Dressings, Syrups, Jellies & Sauces 3.2 3.1 8.0 13.5
Snack Nuts & Candy 4.2 5.9 22.8 20.6
Total Segment Profit Contribution 27.7 24.9 107.7 104.2
Interest expense, net (.7) (1.2) (3.3) (5.9)
Restructuring charges (.9) - (14.3) -
Accelerated depreciation (.3) - (3.0) -
Goodwill impairment loss (59.0) - (59.0) -
Litigation settlement income, net - 1.0 14.6 1.6
Other unallocated corporate expenses (6.7) (2.4) (18.0) (14.6)
Earnings before Income Taxes
and Equity Earnings $(39.9) $22.3 $24.7 $85.3
Cereals, Crackers & Cookies
Fourth quarter net sales for the Cereals, Crackers & Cookies segment were
up 5 percent from last year, as the Bremner cracker and cookie division
contributed a $5.1 million improvement in sales and the Ralston Foods cereal
division added a $3.1 million increase. Cracker sales volume and sales dollars
grew more than 10 percent from last year. Base cookie sales volume (which
excludes ISB sales) fell 11 percent as a result of reduced co-manufacturing
business in the current quarter relative to last year's levels; however, base
cookie sales dollars improved 1 percent as a result of favorable mix. ISB
sales volume increased 4 percent from last year's fourth quarter. Fourth
quarter sales volume of store brand ready-to-eat (RTE) cereals was off 5
percent from last year, primarily due to reduced sales to Fleming. Hot cereal
volume was up almost 6 percent. Overall, Ralston Foods' sales volume was flat,
and the relative increase in fourth quarter sales dollars was largely due to
the amount and timing of promotional discount programs.
For the year ended September 30, 2003, net sales for the segment were up 9
percent from a year ago, with Bremner and Ralston Foods contributing increases
of $54.1 million and $4.2 million, respectively. About $30 million of the
Bremner growth is attributable to an additional four months of Lofthouse sales
in the current year, while the remainder came through ongoing expansion with
existing customers. Cracker volume was up 14 percent from last year, and base
cookie volume was down 5 percent. Excluding Lofthouse sales for the first four
months, ISB volume was up 4 percent year-over-year. For Ralston Foods, an
increase in co-manufactured RTE sales offset a decline in store brand RTE
cereal for the year, so combined RTE volume was flat. Hot cereal volume was up
5 percent. Again, most of the relative sales dollar improvement at Ralston
Foods was due to the amount and timing of promotional discounts.
The segment's profit contribution was up $4.4 million (28 percent) for the
fourth quarter and $6.8 million (10 percent) for the year. Fourth quarter
profit benefited from the increased sales, the reduced promotional activity in
the current year, reduced expenses related to capital projects, lower freight
costs, and favorable product mix. Those benefits were partially offset by
rising costs of insurance, employee benefits, and ingredients such as wheat
flour, soybean oil, honey, cocoa, and sugar.
Dressings, Syrups, Jellies & Sauces
In the Dressings, Syrups, Jellies & Sauces segment, also known as Carriage
House, net sales for the three and twelve months ended September 30, 2003
decreased 11 percent and 10 percent, respectively, compared to the
corresponding periods last year. Those declines are attributable primarily to
the loss of a major co-manufacturing customer at the beginning of fiscal 2003,
as well as to the sale of the ketchup business in November 2002, reduced sales
to Fleming, and continued pricing pressures. These sales reductions were
partially offset by increased business with continuing customers.
Despite the significant decline in sales dollars, the segment's fourth
quarter profit improved slightly, primarily because the ketchup business
generated a loss in last year's fourth quarter. In addition, segment profit
was helped by administrative cost reductions, favorable freight costs, and
favorable peanut costs, partially offset by continuing cost increases in soy
oil, eggs, sweeteners, and cocoa. For the year, profit contribution was $5.5
million lower than last year as a result of increased production costs due to
inefficiencies related to the lower volumes and restructuring initiatives, as
well as charges related to the Fleming bankruptcy.
Carriage House has conducted an accelerated program to rationalize
production capacity and now seeks to improve production processes and
efficiencies, thereby reducing costs in order to remain competitive in the
current environment. As part of this program, Carriage House has fully or
partially closed several plants, divested certain product categories, and
relocated production equipment. These complicated initiatives have resulted in
production inefficiencies, which the Company believes are transitional and
temporary. In fact, while production costs were still slightly higher than
last year, fourth quarter production performance was improved over the earlier
part of the year.
Snack Nuts & Candy
Fourth quarter net sales for the Snack Nuts & Candy segment, also known as
Nutcracker Brands, grew 15 percent from a year ago. This growth was generated
primarily through increased volume with several existing customers, partially
offset by continued competitive pricing pressures and an unfavorable product
mix. Fourth quarter profit fell $1.7 million from last year because variable
and fixed costs were comparable while the average selling price declined.
For the full year, the segment's net sales were 6 percent higher than in
fiscal 2002 and profit contribution improved by 11 percent. The sales growth
factors were the same as described for the fourth quarter, but were further
offset by a significant reduction in first quarter holiday orders from a major
customer. The year's profit was boosted by favorable costs on some ingredients
for much of the year.
Interest Expense
Interest expense dropped to $.7 million and $3.3 million, respectively,
for the three and twelve months ended September 30, 2003, from $1.2 million
and $5.9 million in the corresponding periods of the prior year. The decrease
is attributable to both lower interest rates and lower debt levels in the
current year. The weighted average interest rate on the Company's debt, nearly
all of which incurs interest at variable rates, was 2.1 percent for the
quarter and 2.4 percent for the year, compared to 2.8 percent and 3.1 percent,
respectively, for fiscal 2002. Despite additional borrowings of approximately
$28 million to fund the repurchase of over a million shares of its common
stock in December 2002, Ralcorp reduced its outstanding long-term debt from
$179.0 million at September 30, 2002 to $155.9 million at September 30, 2003.
On September 24, 2001, the Company entered into a three-year agreement to
sell its trade accounts receivable on an ongoing basis. Discounts related to
this agreement totaled $.7 million and $1.2 million in fiscal 2003 and 2002,
respectively, and are included on the Consolidated Statement of Earnings in
selling, general and administrative expenses.
Restructuring Charges
In fiscal 2003, Ralcorp recorded restructuring charges totaling $14.3
million ($9.2 after taxes, or $.31 per diluted share), related to business
changes in its Dressings, Syrups, Jellies & Sauces segment and its Crackers &
Cookies division. First, management reduced operations at the Streator, IL,
facility, transferring production of all product lines except peanut butter to
other locations and incurring $1.4 million of expenses related to employee
termination benefits and asset disposal. Second, the ketchup business,
including certain equipment, was sold with a net loss of $1.4 million. Costs
included writing off or reducing the valuation of related inventories of
packaging, ingredients, and finished products. Third, the tomato paste
business, including a production facility located near Williams, CA, was
impaired by $5.0 million and then sold with an additional loss of $3.6
million. Finally, Ralcorp's cracker and cookie division, Bremner, is in the
process of closing three facilities of its in-store bakery (ISB) division and
consolidating its ISB operations at a new plant in Ogden, UT. The ISB facility
in Kent, WA, was closed in June. The other two ISB facilities, which are
located near the new plant, are being relocated in stages beginning in June of
2003 and ending in March or April of 2004. The Company recorded $2.9 million
(including $.9 million in the fourth quarter) of expenses related to the fair
value of Kent lease obligations, employee termination benefits, and other
shutdown and relocation costs.
Goodwill Impairment Loss
In accordance with FAS 142, "Goodwill and Other Intangible Assets,"
Ralcorp completed its annual goodwill impairment test of each of its reporting
units during the fourth quarter. In the first step of the test, the fair value
of each reporting unit was compared with its carrying amount. Based on that
indicator, only the Carriage House reporting unit (i.e., the Dressings,
Syrups, Jellies & Sauces segment) had a potential impairment, and the second
step of the test was conducted for that unit to determine the amount of
impairment loss by comparing the implied fair value of goodwill to its
carrying value. The implied fair value of goodwill is the excess of the fair
value of the reporting unit over the fair value of its identifiable net
assets. Estimated fair values were determined based on the best information
available, including independent appraisals and the results of valuation
techniques such as EBITDA multiples and discounted future cash flows. The
implied fair value of goodwill was calculated to be $38.8 million, compared to
the carrying value of $97.8 million, so the goodwill impairment loss was
determined to be $59.0 million. A portion of Carriage House's goodwill is not
deductible for tax purposes, so the deferred tax benefit of the loss was only
$13.5 million. Factors leading to the impairment included the bankruptcy of
Fleming (a major Carriage House customer), the inability to quickly replace
lost co- manufacturing business, the increasing competitive pricing pressures
in the private label food industry, and the near-term production
inefficiencies arising from the Carriage House restructuring initiatives
discussed above. As discussed previously, management is committed to improving
the operations of Carriage House.
Equity Interest in Vail Resorts, Inc.
Ralcorp continues to hold an approximate 21.5 percent equity ownership
interest in Vail Resorts, Inc. (NYSE: MTN) Vail Resorts operates on a fiscal
year ending July 31; therefore, Ralcorp reports its 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. For the fourth quarter
ended September 30, 2003, this investment resulted in a non-cash pre-tax loss
of $8.0 million ($5.2 million after taxes), compared to $9.2 million ($6.0
million after taxes) for last year's fourth quarter. For fiscal 2003, Ralcorp
recorded an after-tax equity loss of $.4 million, compared to an after-tax
loss of $.8 million for fiscal 2002. The recorded amounts include adjustments
to reflect the cumulative effect of Vail Resorts' earnings restatements for
prior periods. Because the effects on Ralcorp's earnings were immaterial for
any single reporting period and in total, the Company chose to reflect the
full impact in the period the restatements were reported by Vail Resorts
rather than restate its previously reported financial statements. The
adjustments had no effect on Ralcorp's earnings before equity earnings.
Additional Information
See the attached schedules for additional information regarding the
Company's results and financial position.
Certain aspects of the Company's operations, especially in the Snack Nuts
& Candy segment, are somewhat seasonal with a higher percentage of sales and
profits expected to be recorded in the first and fourth fiscal quarters. It is
important to note that operating results for any quarter are not necessarily
indicative of the results for any other quarter or for the full year.
Ralcorp produces a variety of store brand foods that are sold under the
individual labels of various grocery, mass merchandise and drug store
retailers. Ralcorp's diversified product mix includes: ready-to-eat and hot
cereals, crackers and cookies, snack nuts, chocolate candy, salad dressings,
mayonnaise, peanut butter, jams and jellies, syrups, and various sauces. In
addition, Ralcorp holds a 21.5 percent interest in Vail Resorts, Inc., the
premier mountain resort operator in North America.
NOTE: Information in this press release that includes information other
than historical data contains forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. These statements are
sometimes identified by their use of terms and phrases such as "should,"
"will," "can," "believes," "could," "likely," "anticipates," "intends,"
"plans," "expects," or similar expressions. Any such forward-looking
statements are made based on information currently known and are subject to
various risks and uncertainties and are therefore qualified by the Company's
cautionary statements contained in its filings with the Securities and
Exchange Commission.
RALCORP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(In millions except per share data)
Three Months Ended Year Ended
September 30, September 30,
2003 2002 2003 2002
Net Sales $ 329.4 $ 326.8 $ 1,303.6 $ 1,280.3
Costs and Expenses
Cost of products sold 262.9 263.8 1,045.6 1,027.6
Selling, general and
administrative 45.8 40.5 171.3 163.1
Interest expense, net .7 1.2 3.3 5.9
Restructuring charges .9 - 14.3 -
Goodwill impairment loss 59.0 - 59.0 -
Litigation settlement
income, net - (1.0) (14.6) (1.6)
Total Costs and Expenses 369.3 304.5 1,278.9 1,195.0
Earnings before Income Taxes
and Equity Earnings (39.9) 22.3 24.7 85.3
Income Taxes (6.4) 8.0 16.9 30.7
Earnings before Equity Earnings (33.5) 14.3 7.8 54.6
Equity in Earnings (Loss)
of Vail Resorts, Inc.,
Net of Related Deferred
Income Taxes (5.2) (6.0) (.4) (.8)
Net Earnings $ (38.7) $ 8.3 $ 7.4 $ 53.8
Earnings per Share
Basic $ (1.34) $ .28 $ .25 $ 1.79
Diluted $ (1.34) $ .25 $ .25 $ 1.77
Weighted Average Shares Outstanding
Basic 28.9 30.0 29.1 30.0
Diluted 28.9 30.6 29.7 30.4
Notes:
Earnings per share amounts are computed independently for each period
presented; therefore, the sum of the amounts for each of the quarters
within a year may not equal the amount for the year. For the three months
ended September 30, 2002, $.6 representing income from a fair value
adjustment of the liability related to one of the Company's deferred
compensation plans was deducted from net earnings in the calculation of
diluted earnings per share.
RALCORP HOLDINGS, INC.
DEPRECIATION AND AMORTIZATION BY SEGMENT
(In millions)
Three Months Ended Year Ended
September 30, September 30,
2003 2002 2003 2002
Cereals, Crackers & Cookies $ 6.1 $ 6.2 $ 24.3 $ 24.0
Dressings, Syrups, Jellies & Sauces 2.1 3.0 8.5 8.7
Snack Nuts & Candy .6 .6 2.3 2.3
Corporate .6 .3 3.6 .8
Total $ 9.4 $ 10.1 $ 38.7 $ 35.8
RALCORP HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
Sept. 30, 2003 Sept. 30, 2002
Current Assets $ 243.9 $ 208.6
Noncurrent Assets 550.4 623.9
Total Assets $ 794.3 $ 832.5
Current Liabilities $ 130.7 $ 120.0
Long-term Debt 155.9 179.0
Other Noncurrent Liabilities 95.0 97.4
Shareholders' Equity 412.7 436.1
Total Liabilities and
Shareholders' Equity $ 794.3 $ 832.5
SOURCE Ralcorp Holdings, Inc. 11/14/2003
CONTACT: Scott Monette of Ralcorp Holdings, Inc., +1-314-877-7113
(RAH)
CO: Ralcorp Holdings, Inc.
ST: Missouri
IN: FOD
SU: ERN