SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Amendment No. 1)
For the fiscal year ended September 30, 2012
For the transition period from to .
Commission file number: 1-12619
Ralcorp Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
800 Market Street
St. Louis, Missouri 63101
(Address, including Zip Code, of Principal Executive Offices)
Registrants telephone number, including area code: (314) 877-7000
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate 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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x
On March 31, 2012, the aggregate market value of the common stock held by non-affiliates of registrant was $4,089,622,561. This figure excludes the common stock held by registrants directors and corporate officers, who are the only persons known to registrant who may be considered to be its affiliates as defined under Rule 12b-2.
Number of shares of Common Stock, $.01 par value, outstanding as of January 14, 2013: 55,733,873.
This Amendment is being filed to include the information required by Part III. Except for Part III, no other information included in the original report on Form 10-K is amended by this Form 10-K/A.
Composition of the Board of Directors
Our board of directors is currently comprised of ten members and is divided into three classes. Each class has a three-year term, and the term of one class expires each year. Vacancies on the board of directors may be filled by a majority of the remaining directors. A director elected to fill a vacancy, or a new directorship created by an increase in the size of the board of directors, serves for the remainder of the full term of the class of directors in which the vacancy or newly created directorship occurred. As a matter of policy, our board of directors will submit the nomination of a director elected to fill a vacancy to the vote of our shareholders at the next annual meeting.
Each of our directors is required to demonstrate independence, integrity, experience and sound judgment in areas relevant to our business, a proven record of accomplishment, a willingness to commit sufficient time to the board and an appreciation for the long-term interests of our shareholders. We expect our directors to possess a background in business, accounting, finance, marketing or strategy and relevant business experience. As part of each directors biography, we identify and describe key experiences, qualifications and skills that the director contributes to the board. While each director comes from a unique background, the overall composition of the board includes broad experience in a number of important areas, including:
Leadership. We believe that directors who have served as chief executive officers or senior executives are in a position to contribute practical insight into issues of business strategy and operations. They also have access to important sources of market intelligence, analysis and relationships that benefit the company.
Industry and operational experience. As a private brand food manufacturing company, we seek directors who are familiar with the consumer packaged goods industry, who have an appreciation for the competitive dynamics of the retail grocery and foodservice businesses and who have strong operational backgrounds.
Financial expertise. We believe that a strong understanding of finance and financial reporting processes is important for our directors. Our directors have significant capital markets experience, corporate finance expertise and financial reporting backgrounds. Each of our audit committee members is financially literate and qualifies as an audit committee financial expert.
Our board of directors focuses on diversity of skills, business and professional experience and personal backgrounds to ensure a broad range of perspectives. Our corporate governance and compensation committee considers each of these areas of focus in conjunction with its director search process. Final approval of director nominees is determined by the full board, based on the recommendation of the corporate governance and compensation committee.
Benjamin Ola Akande
Director since 2010
Benjamin Ola Akande, age 50, serves as professor of Economics and Dean of the School of Business and Technology at Webster University in St. Louis, Missouri.
As a scholar and educator, Mr. Akande brings to the board strategy, leadership, corporate responsibility and business expertise. Mr. Akande has been actively engaged in the expansion of Webster Universitys School of Business and Technology across the United States and throughout the world. Mr. Akande leads faculty and staff throughout the United States, Europe and southeast Asia and is regularly sought out as a commentator and advisor on a multitude of economic and business matters. He currently serves on our corporate governance and compensation committee.
Bill G. Armstrong
Director since 2004
Bill G. Armstrong, age 64, served as Executive Vice President and Chief Operating Officer of Cargill Animal Nutrition, a part of Cargill Inc., from 2001 until his retirement in 2004. Mr. Armstrong served as Chief Operating Officer of Agribrands International Inc., an international agricultural products business, from 1998 to 2001. Prior to that, Mr. Armstrong served as Executive Vice President of Operations of the international agricultural products business of Ralston Purina Company. From 1995 to 1997, Mr. Armstrong served as Regional Chief Executive Officer of South Asia for Ralston Purina Company and, from 1992 to 1995, he served as Managing Director of Ralston Purina Companys international agricultural products Philippine operations. Mr. Armstrong is a director of Energizer Holdings, Inc.
Mr. Armstrong brings business leadership skills and international and operational experience to the board. He provides valuable insights into global commodity markets, international management and risk management from his executive roles in the agriculture and food industries at Cargill, Agribrands and Ralston Purina Company. Mr. Armstrong also provides expertise in the areas of corporate governance and executive compensation. He is currently chair of our corporate governance and compensation committee.
Jonathan E. Baum
Director since 2010
Jonathan E. Baum, age 52, has been Chairman and Chief Executive Officer of George K. Baum & Company, an investment banking firm, since 1994. Prior to joining George K. Baum & Company in 1991 as Vice President of its Investment Banking division, Mr. Baum was Vice President in the mergers and acquisitions department at Salomon Brothers, Inc.
Mr. Baums finance and accounting skills and investment banking background are valuable assets to the board and the audit committee. Mr. Baum provides broad perspectives on financial markets, financial services, corporate finance and accounting. Mr. Baum also provides unique insights into the pasta industry based on his service on the board of directors of American Italian Pasta Company from 1994 to July 2010, when it was acquired by the Company. Mr. Baum currently serves on our audit committee and is an audit committee financial expert.
Barry H. Beracha
Director since 2012
Barry H. Beracha, age 70, served as Executive Vice President of Sara Lee Corp. and Chief Executive Officer of the Sara Lee Bakery Group until his retirement in 2003. Mr. Beracha served as Chairman and Chief Executive Officer of The Earthgrains Company from 1996 until it was acquired by Sara Lee Corp. in 2001. Mr. Beracha joined Anheuser Busch Companies, Inc. in 1967 and held various management positions of increasing responsibility including Vice President and Group Executive of Anheuser Busch Companies, Inc. Mr. Beracha served on the board of Pepsi Bottling Group from 1999 to 2010 and the board of McCormick & Co. from 2000 to 2007. Mr. Beracha is a director of Hertz Global Holdings, Inc.
As a former executive at Sara Lee Corp. and Anheuser Busch Companies, Inc., Mr. Beracha brings leadership, strategic planning, merger and acquisitions and operating experience from a number of large, diversified companies. Mr. Beracha provides valuable insights into consumer products, brand management, and the food and beverage industries, particularly with respect to baked goods and refrigerated and frozen doughs. Mr. Beracha currently serves on our corporate governance and compensation committee.
Kevin J. Hunt
Director since 2004
Kevin J. Hunt, age 61, has been Chief Executive Officer and President since January 2012, prior to which he served as co-Chief Executive Officer and President since 2003. Mr. Hunt served as Corporate Vice President from 1995 to 2003.
Mr. Hunts long dedication to the Company and its predecessor, wide-ranging familiarity with our business and the private brand food industry, and experience with the strategies that drive growth have positioned him well to serve as our chief executive officer and president. Prior to his current role, Mr. Hunt served in a number of key marketing and operational roles within the Company and its predecessor, Ralston Purina Company. Mr. Hunt currently serves on our strategy and financial oversight committee.
David W. Kemper
Director since 1994
David W. Kemper, age 62, has been the President of Commerce Bancshares Inc. since 1982, Chief Executive Officer since 1986 and Chairman of the Board since 1991. Mr. Kemper serves as the Chief Executive Officer and President of Commerce Bank, N.A. He joined Commerce Bank in 1978 as Vice President in charge of commercial lending. He served as the Chief Executive Officer of Commerce Bank, St. Louis, from 1986 to 1997. Mr. Kemper is a director of Tower Properties Company.
Mr. Kemper brings leadership, strategic planning and banking and financial services expertise to the board. In addition, Mr. Kemper provides significant insights into global finance and investments, financial planning and risk management based on his extensive background with Commerce Bancshares, Inc. Mr. Kemper currently serves on our audit and strategy and financial oversight committees and is an audit committee financial expert.
Keith A. Meister
Director since 2012
Keith A. Meister, age 39, has served as Managing Partner of Corvex Management LP since December 2010. From August 2003 until August 2010, Mr. Meister served as Vice Chairman of the Board of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P. From August 2003 through March 2006, Mr. Meister also served as Chief Executive Officer of Icahn Enterprises G.P. Inc. and from March 2006 until August 2010, Mr. Meister served as Principal Executive Officer of Icahn Enterprises G.P. Inc. From November 2004 until August 2010, Mr. Meister was also a Senior Managing Director of Icahn Capital LP. From 2002 until August 2010, Mr. Meister served as senior investment analyst of High River Limited Partnership, an entity primarily engaged in the business of holding and investing in securities.
Mr. Meister was appointed to our board of directors pursuant to an agreement dated as of October 3, 2012, between the Company, Mr. Meister and an investment fund managed by Mr. Meister. Mr. Meister serves on our board of directors as a designee of that investment fund.
Mr. Meisters experience and financial expertise are valuable assets to the board and the strategy and financial oversight committee. Mr. Meister provides broad perspectives on a wide range of strategic opportunities. Mr. Meister also provides unique insights on the broader investment community and our shareholder community more particularly. Mr. Meister currently serves on our strategy and financial oversight committee.
Patrick J. Moore
Director since 2012
Patrick J. Moore, age 58, has served as President and Chief Executive Officer of PJM Advisors, LLC, an investment and advisory firm, since June 2011. Mr. Moore served as Chief Executive Officer of Smurfit-Stone Container Corporation, a producer of containerboard and corrugated packaging and one of the worlds largest paper recyclers, from June 2010 until May 2011 and as Chairman and Chief Executive Officer from 2002 until June 2010. During his 24-year tenure at Smurfit-Stone, Mr. Moore also served as chief financial officer, vice president and general manager of the industrial packaging division, and treasurer. Smurfit-Stone Container Corporation filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in January 2009. Mr. Moore is a director of Archer-Daniels-Midland Company.
Based on his experience with Smurfit Stone, Mr. Moore provides leadership and governance expertise and a strong understanding of the global packaging industry to the board. As former Chief Financial Officer at Smurfit-Stone, Mr. Moore brings significant audit, financial reporting, corporate finance and risk management experience to the board, including broad experience overseeing audit, tax, treasury and other finance functions. Mr. Moore currently serves on our audit committee and is an audit committee financial expert.
J. Patrick Mulcahy
Director since 2007
J. Patrick Mulcahy, age 68, has served as Chairman of the Board of Energizer Holdings, Inc. since 2007. Mr. Mulcahy served as Vice Chairman of the Board of Energizer Holdings, Inc. from January 2005 to January 2007, and prior to that time served as Chief Executive Officer of Energizer Holdings, Inc. from 2000 to 2005. Mr. Mulcahy served as Chairman of the Board and Chief Executive Officer of Eveready Battery Company, Inc. from 1987 until his retirement in 2005. Mr. Mulcahy is a director of Hanesbrands, Inc.
Mr. Mulcahy provides over forty years of experience in consumer products industries to the board. Mr. Mulcahy brings to the board strong leadership, strategic planning capabilities and financial expertise from his time at Energizer Holdings, Inc. As our chairman, he draws on his management and boardroom experiences to foster active discussion and collaboration among all directors on the board. Mr. Mulcahy currently serves on our corporate governance and compensation committee and is chair of our strategy and financial oversight committee.
David R. Wenzel
Director since 2007
David R. Wenzel, age 49, has served as Director, Revenue and International of Edward Jones since September 2009. Mr. Wenzel served as Vice President Global Finance of Covidien Imaging Solutions from July 2008 to September 2009, Chief Operating Officer of EFR Group from 2005 to 2008, and Chairman of Manna-Pro Corporation from 2004 to 2006. Mr. Wenzel served as Chief Financial Officer of Agribrands International Inc. from 1998 to 2001. Mr. Wenzel served as Chief Financial Officer of the international agricultural products business of Ralston Purina Company from 1996 to 1998. He joined Ralston Purina Companys Protein Technologies subsidiary as Director of Strategic Planning in 1993 and, in 1994, became Director of Strategic Planning for Ralston Purina Company. Prior to joining Ralston Purina Company, Mr. Wenzel served as Manager of Tax Services for Price Waterhouse LLP.
Mr. Wenzels financial expertise, risk management skills and international business background are valuable assets to the board and the audit committee. Mr. Wenzel brings significant audit, tax, finance and financial reporting experience to the board, including experience overseeing tax, treasury and other finance functions.
Information regarding our executive officers is set forth in Item 1 of the original report.
Board Committees and Their Functions
The board of directors has the following three committees: Audit, Corporate Governance and Compensation, and Strategy and Financial Oversight. The corporate governance and compensation committee reviews committee and committee chair assignments annually and recommends committee rosters to the full board after considering factors such as the directors business and corporate governance experience, their preferences, criteria for specific committee service, the directors other responsibilities and scheduling flexibility. The table below contains information concerning the membership of each of the committees.
Number of meetings in fiscal 2012: 12
The audit committees primary responsibilities are to monitor and oversee the following:
The board of directors has unanimously determined that each of the audit committee members is financially literate under the NYSE listing standards and qualifies as an audit committee financial expert within the meaning of SEC regulations and has accounting or related financial management expertise as required by the NYSE listing standards. Each member also meets the independence standards for audit committee membership under the rules of the SEC.
A copy of the audit committee charter may be found on our website at www.ralcorp.com in the Corporate Governance section.
Corporate Governance and Compensation Committee
Number of meetings in fiscal 2012: 6
The corporate governance and compensation committee is responsible for the following:
A copy of the corporate governance and compensation committee charter may be found on our website at www.ralcorp.com in the Corporate Governance section.
Strategy and Financial Oversight Committee
Number of meetings in fiscal 2012: 6
The strategy and financial oversight committee periodically reviews financial and strategic matters with management during periods between board meetings. The strategy and financial oversight committee may also exercise all board authority in the intervals between board meetings, to the extent such authority is in compliance with our corporate governance guidelines and does not infringe upon the duties and responsibilities of other board committees.
Directors are expected to attend all board and committee meetings. Our corporate governance guidelines do not require the directors to attend the annual meeting. All of the directors who were on the board of directors at the time attended the 2012 annual meeting of shareholders. During fiscal 2012, the board of directors met 14 times and various committees of the board met a total of 25 times. All directors attended at least 75% of the total meetings of the board and board committees on which they served during fiscal 2012.
Code of Conduct
We have adopted a code of conduct applicable to all employees, including our corporate officers. A copy of the code of conduct is available on our website at www.ralcorp.com. We intend to post on our website any amendments to our code of conduct and any waivers from our code of conduct for principal officers. These materials may also be requested in print free of charge by writing to our Investor Relations Department at Ralcorp Holdings, Inc., 800 Market Street, Investor Relations, St. Louis, Missouri, 63101.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of reports filed with the SEC by our directors and corporate officers regarding their ownership and transactions in our common stock and written representations from those directors and corporate officers, we believe that each director and corporate officer has filed timely reports under Section 16(a) of the Securities Exchange Act of 1934 during fiscal 2012.
We structure director compensation to attract and retain qualified non-employee directors and to further align the interests of our directors with the interests of our shareholders. The corporate governance and compensation committee periodically reviews surveys of non-employee director compensation trends and a competitive analysis of peer company practices prepared by our human resources department and reviewed by Towers Watson, our independent compensation consultant. The corporate governance and compensation committee makes recommendations to the board of directors on compensation for our non-employee directors, including their retainers and annual equity awards. Each component of director compensation is described below.
Annual retainer. Non-employee directors each receive an annual retainer of $55,000. Our chairman receives an additional $15,000. The chairs of our audit committee and corporate governance and compensation committee receive an additional $10,000. In addition, each non-employee director receives $2,000 for each board or committee meeting attended. We pay annual retainers and meeting fees in monthly installments. Directors can elect to have their retainers and meeting fees paid in cash or deferred under a deferred compensation plan.
Stock appreciation rights. Annually, our chairman receives 10,000 stock appreciation rights, and all other non-employee directors receive 3,000 stock appreciation rights. In addition, each new director receives 10,000 stock appreciation rights upon his or her election to the board. The exercise price of the stock appreciation rights is equal to the closing price of our common stock on the New York Stock Exchange on the date of grant. The stock appreciation rights become exercisable three years after the date of grant.
Stock ownership guidelines. A substantial portion of director compensation is linked to our stock performance. We have established stock ownership guidelines that require directors to own shares equal in market value to at least five times their annual retainer.
Deferred compensation. Non-employee directors may defer their retainers and meeting fees. We credit any deferred retainers and meeting fees with earnings based on a directors selection from a group of funds offered to employees participating in our deferred compensation plan. One of these funds tracks the return on our common stock. Deferrals into the common stock fund receive a 33 1/3% matching contribution. Matching contributions do not vest for five years or until the directors retirement from the board. Deferrals are paid in cash upon leaving the board of directors.
Other benefits. We pay the premiums on directors and officers liability and travel accident insurance policies insuring directors. We reimburse directors for their expenses incurred in connection with board meetings. On occasion, we provide directors with ski resort accommodations that we own in Colorado.
The following table sets forth the compensation paid to non-management directors for fiscal year 2012, other than reimbursement for travel expenses.
The Boards Role in Risk Oversight
The board of directors is responsible for the oversight of risk, while management is responsible for the day-to-day management of risk. The board of directors, directly and through its committees, carries out its oversight role by regularly reviewing and discussing with management the risks inherent in the operation of our business and applicable risk mitigation efforts. Management meets regularly to discuss our business strategies, challenges, risks and opportunities and reviews those items with the board of directors at regularly scheduled meetings.
We do not believe that our compensation policies and practices encourage excessive and unnecessary risk-taking. The design of our compensation policies and practices encourages employees to remain focused on both short- and long-term financial and operational goals. For example, annual cash incentive awards measure our short-term performance against a variety of factors. Equity awards typically vest over a number of years, which we believe encourages our key employees to focus on sustained stock price appreciation over an extended period of time.
Compensation Committee Report
The corporate governance and compensation committee has reviewed and discussed the section entitled Compensation Discussion and Analysis with management and, based on such review and discussions, the corporate governance and compensation committee recommended to the board that the section entitled Compensation Discussion and Analysis be included in this report.
B.G. Armstrong, Chairman
Compensation Discussion and Analysis
The corporate governance and compensation committee and board of directors, with advice from their compensation consultant, Towers Watson, took the following actions in fiscal 2012:
Base salaries increased, but are still conservative relative to our peer group. In October 2011, base salaries for the corporate officers named in this report were adjusted to reflect the scope and size of the Company following the separation of the Post brand cereal business and, for certain corporate officers including Messrs. Hunt, Monette and Huber, to recognize the increased scope of the officers responsibilities. Even with these adjustments, the base salaries of our corporate officers are positioned below the market median for our peer group.
Performance-based compensation was lower than last year. Annual cash bonuses for fiscal 2012 reflected our overall financial performance and the financial performance of our business units relative to targeted performance levels established at the beginning of fiscal 2012 and approved by our board of directors. A portion of the annual cash bonuses for fiscal 2012 reflected the individual contributions of our corporate officers to the achievement of certain key strategic initiatives completed during fiscal 2012, including the completion of four acquisitions, the separation of the Post brand cereals business and certain strategic restructuring initiatives.
Stock appreciation rights were granted to incent long-term stock price appreciation. In February 2012, the corporate officers named in this report received stock appreciation rights intended to promote long-term stock price improvement. We have historically granted stock appreciation rights annually to our corporate officers; however, no such awards were granted during fiscal 2011. As a result, the number of stock appreciation rights granted to our corporate officers in fiscal 2012 was, on average, higher than comparable awards granted in prior years.
Restricted stock unit awards were granted in order to provide a retention incentive. From time to time, we have granted restricted stock or restricted stock units to our corporate officers in order to provide a retention incentive to those key leaders. At the end of fiscal 2011, restricted stock awards granted in fiscal 2004 and 2009 began to vest. In order to strengthen the retention incentive for our corporate officers following the separation of the Post brand cereals business, we again granted restricted stock units to the corporate officers named in this report in February 2012. These awards are intended to ensure continuity in the management team tasked with executing the Companys long-term strategy following the separation of the Post brand cereals business.
Long-term cash incentive awards were granted to drive superior financial results. In February 2012 following the separation of the Post brand cereals business, we granted long-term cash incentive awards in order to drive superior financial results. These awards provide for potential payouts in excess of comparable payouts at peer group companies in the event that we achieve earnings per share growth over a three-year period significantly in excess of our peer group. These awards were intended to reward our corporate officers for the attainment of certain stretch goals established by our board of directors.
Compensation Philosophy and Principles
Our philosophy is to maintain a compensation program that will attract, motivate, reward and retain leaders who are able to generate significant shareholder value. Our corporate governance and compensation committee bases its compensation decisions on the following core principles:
Compensation should be competitive. Competition for management talent in the food and consumer packaged goods industries is significant. To ensure that our executive compensation remains competitive, the
committee, with the assistance of management and Towers Watson, the compensation consultant, monitors the compensation practices of our peer group as well as those of a broader group of food and consumer packaged goods companies. The composition and characteristics of our peer group are described below.
Compensation should vary with performance. Executive compensation should be linked with the Companys performance. As our key leaders assume greater responsibility, a larger portion of their total compensation becomes dependent on Company, business unit and individual performance. Annual and long-term incentive awards are designed to allow the corporate officers to earn compensation that, when combined with their base salaries, could generate total compensation at or higher than (depending on improvements in our share price) the median levels and would reflect our long-term stock price performance.
Compensation should align the interests of our corporate officers with those of our shareholders. Our compensation program is designed to encourage our corporate officers to take actions that enhance shareholder value by linking a substantial portion of their compensation to the performance of our stock price.
Compensation should provide a retention incentive. Executive compensation should provide a retention incentive to promote continuity in the management team tasked with executing the Companys long-term strategy following the separation of the Post brand cereals business.
The corporate governance and compensation committee, with the assistance of management and the independent compensation consultant, benchmarks our performance and compensation against an industry peer group. In selecting our peer group, the corporate governance and compensation committee considered our food and consumer packaged goods industry competitors, a group of comparable mid-cap companies with median annual revenue of approximately $4.2 billion, companies with similar business dynamics and challenges and other competitors for executive talent.
The corporate governance and compensation committee annually reviews the composition of this industry peer group to assure it is the most relevant set of companies to use for comparison purposes. The following companies comprise the peer group used by our corporate governance and compensation committee for purposes of assessing executive compensation:
The peer group review conducted for fiscal 2012 confirmed that the salaries of our corporate officers were generally below the median of the salaries paid to executives within the peer group performing similar functions. However, the variable elements of compensation (cash bonuses, restricted awards and stock appreciation rights) allow the corporate officers to earn compensation that, when combined with their base salaries, could generate total compensation at or higher than (depending on increases in our share price) the median levels and would reflect our long-term stock price performance.
Elements of Our Fiscal 2012 Executive Compensation Program
During fiscal 2012, our executive compensation program consisted of base salary, annual incentive, long-term incentive, broad-based benefits and certain limited perquisites. The following table outlines the main objectives of the various elements of our executive compensation program:
Changes to our Executive Compensation Program for Fiscal 2013
Our corporate governance and compensation committee regularly reviews our executive compensation program to ensure that it is successfully achieving our compensation objectives. The committee also considers the extent to which our compensation program is designed to achieve our long-term financial and operating goals. At the end of fiscal 2012, the committee concluded that certain changes to our executive compensation program were appropriate. As a result, our board of directors, upon the recommendation of the corporate governance and compensation committee and our compensation consultant, approved certain salary adjustments for our corporate officers intended to align them to the 40th percentile of the salaries paid to executives within the peer group performing similar functions. Additionally, in order to provide our corporate officers the opportunity to earn greater compensation based on the achievement of financial results, our board of directors increased the bonus targets for our corporate officers to 80% of base salary (120% for our chief executive officer).
On November 26, 2012, concurrently with our execution of an Agreement and Plan of Merger with ConAgra Foods, Inc., pursuant to which ConAgra Foods has agreed to acquire Ralcorp subject to the terms and conditions set forth in the Agreement and Plan of Merger, the corporate officers named in this report were, as part of a larger retention program for our employees, granted long-term incentive cash retention awards, which they received in lieu of equity and equity-based compensation awards that would have been granted to them in November 2012 in the ordinary course had we not entered into the Agreement and Plan of Merger with ConAgra Foods. The retention award amount for each corporate officer named in this report is as follows: Kevin J. Hunt $2,500,000; Scott Monette $1,000,000; Richard R. Koulouris $900,000; and Charles G. Huber, Jr. $900,000. These retention awards generally will vest and be paid one-third upon the completion of the merger, one-third six months after the completion of the merger and one-third one year after the completion of the merger. The retention awards are subject to continued employment through the applicable vesting date, except if the corporate officers employment is terminated at any time without cause (as defined in the severance plan in which the officer is a participant) or, upon or after a change of control, the officer resigns for good reason, prior to payment of any portion of the retention award, he shall, subject to a release of employment-related claims, be entitled to receive any unpaid installments of the award generally within 30 days after the date of termination.
For purposes of the retention awards, good reason means a resignation following one or more events, circumstances or conditions which constitute an involuntary termination under the applicable management continuity agreement, except that the officer must provide us a written notice of the existence of one or more of the events, circumstances or conditions described above within 90 days after the occurrence of such event, circumstance or condition, and we will have 30 days after receipt of such notice to remedy the event, circumstance or condition.
Components of our Incentive Program
Annual Incentive Awards. Historically, we have provided the corporate officers the opportunity to earn additional cash compensation through an annual cash bonus. Our corporate governance and compensation committee has exercised its judgment and discretion in determining whether to pay or award a cash bonus to a corporate officer. In determining the amount of each bonus, the committee has evaluated a variety of factors, including the financial performance of the corporate officers business unit relative to the business plan (including such measures as sales volume, revenues, costs, cash flow and operating profit); our overall financial performance (including the quality of strategic plans, organizational and management development, participation in evaluations of potential acquisitions and similar manifestations of individual performance); the corporate officers total compensation package; and the business environment for the corporate officers business unit. For fiscal 2012, the bonus target for our chief executive officer was equal to 100% of his base salary, and for each of the other officers named in this report the bonus target was equal to 60% of his base salary.
At the beginning of fiscal 2013, we adopted a program that provides our corporate officers with an opportunity to earn an annual incentive award that is paid in cash. For our chief executive officer, the annual incentive award target is equal to 120% of his base salary, and for each of the other officers named in this report the annual incentive award target is equal to 80% of his base salary. Potential payouts under the program range from 50% to 150% of the targeted awards depending upon the achievement of certain performance conditions. The annual incentive awards contain a threshold performance equal to 90% of targeted performance and a maximum performance equal to 110% of targeted performance. The committee has determined that the payout ranges and threshold and maximum performance levels are relatively consistent with a majority of the companies within our peer group and appropriately align our performance expectations with potential payouts.
Long-Term Incentive Awards and Special Awards. A significant portion of the pay opportunity for our corporate officers is provided through long-term incentive awards granted under our 2007 Amended and Restated Stock Incentive Plan. Typically, awards for each year are granted annually in November just after our fiscal year end. In fiscal 2012, however, we delayed the grant of long-term incentive awards until February 2012, following the separation of the Post brand cereals business.
Historically, our long-term incentive awards have consisted of stock appreciation rights. These awards generally vest ratably over a three-year period beginning on the third anniversary of the date of grant. The exercise price per right equals the closing price of our common stock on the New York Stock Exchange on the grant date. The rights include the right to pay the exercise price in cash or previously acquired common stock and the right to have shares withheld by the Company to pay withholding tax obligations due upon exercise.
From time to time, we have granted restricted stock or restricted stock units to our corporate officers for retention purposes. At vesting, these awards are settled in stock. These awards earn dividend equivalents equal to dividends paid on our common stock, which are distributed only to the extent the underlying restricted stock or restricted stock units vest. At the end of fiscal 2011, restricted stock awards granted in fiscal 2004 and 2009 began to vest. In order to strengthen the retention incentive for our corporate officers following the separation of the Post brand cereals business, we again granted restricted stock units to the corporate officers named in this report in February 2012. These awards generally vest five years after the grant date.
From time to time, we have also granted other performance awards which are intended to incentivize superior results. In February 2012 following the separation of the Post brand cereals business, we granted long-term cash incentive awards to the corporate officers named in this report in order to drive superior financial results. These awards provide for potential payouts in excess of comparable payouts at peer group companies in the event that we achieve a compound annual growth rate in adjusted diluted earnings per share equal to 10% over a three-year period. These awards are intended to reward our corporate officers for the attainment of performance significantly in excess of the historical performance of our peer group.
Perquisites. We provide corporate officers with limited perquisites and other personal benefits that we believe are reasonable and consistent with our overall compensation philosophy. These benefits help retain and attract superior employees for key positions. The committee reviews the levels of perquisites and other benefits periodically.
In the event of death of a retired corporate officer, eligible beneficiaries will be provided a death benefit in an amount equal to 50% of the earnings recognized under our benefit plans for the officer during the last full year of employment. This benefit is not presently insured or funded. The long-term disability plan is available to certain regular employees and imposes a limit of $10,000 per month (60% of a maximum annual salary of $200,000) on the amount paid to a disabled employee. In addition, the executive long-term disability plan provides additional benefits to the corporate officers in the event they become disabled. The executive long-term disability plan will provide a supplemental benefit equal to 60% of the difference between the corporate officers previous years earnings recognized under our benefit plans and $200,000, with appropriate taxes withheld. The supplemental benefit is grossed up for income taxes.
Our executive health plan provides eligible employees and their eligible dependents with supplemental health insurance coverage. The executive health plan provides reimbursement for up to $10,000 per illness annually, for covered out-of-pocket expenses not reimbursed by our sponsored health plan. The committee believes this encourages the corporate officers to proactively address health issues. We also pay for our corporate officers to receive an annual physical exam.
Our corporate officers are entitled to receive reimbursement for eligible financial planning, tax and estate planning. The first years allowance is $7,500 ($10,000 for our chief executive officer) with subsequent annual allowances of $5,000 ($6,000 for our chief executive officer). The benefit is provided for the officers given our belief that good financial planning and tax preparation by a professional reduces the time and attention the officer would otherwise spend on their personal financial affairs and affords them more time to focus on their job responsibilities.
Occasionally, the corporate officers use condominiums in Colorado owned by us for personal use. All income taxes for such use are paid for by the officer. In addition, we have fractional ownership in several corporate aircraft in which spouses and immediate family members may travel with the corporate officers for business related trips. Travel by family members is subject to tax gross-ups and discussed in the Summary Compensation Table where applicable. Our officers do not use the corporate aircraft for personal use.
CEO Performance and Compensation
Based on a review of our peer group and other compensation data provided by our human resources department, Mr. Hunts base salary for fiscal 2012 was positioned between the 30th and 40th percentiles of chief executive officer compensation for our peer group companies. In October 2011, Mr. Hunts base salary was increased by approximately 30% to $850,000 in order to reflect the level of additional responsibility associated with his role as sole chief executive officer. No other changes were made to his compensation opportunity for 2012.
In assessing Mr. Hunts individual performance for fiscal 2012, the committee solicited feedback from all non-employee directors and subsequently discussed the consolidated input with all non-employee directors meeting in executive session. The criteria used to measure Mr. Hunts performance included our financial and operational performance for fiscal 2012, his overall level of leadership and his continued ability to develop and implement strategies, including acquisition opportunities, to enhance shareholder value.
At the beginning of fiscal 2013, based on the assessment of his performance, the committee recommended, and the board of directors approved, a 3% increase in base salary to $875,000, effective December 1, 2012 and a bonus payout for fiscal 2012 of $425,000.
Stock Ownership Requirements
We have maintained stock ownership guidelines applicable to all non-employee directors and all corporate officers since 2010. Minimum ownership requirements remain at five times annual retainer for non-employee
directors, five times salary for the chief executive officer and two times base salary for all other corporate officers. Newly-appointed directors or corporate officers are given five years to attain the ownership target. For purposes of our stock ownership requirements, we include direct and family owned shares of stock, indirect interests in shares of our common stock held under deferred compensation plans and stock units held in our stock incentive plan.
Deductibility of Certain Executive Compensation
A feature of the Omnibus Budget Reconciliation Act of 1993 sets a limit on deductible compensation of $1,000,000 per person, per year for the chief executive officer and the next three highest-paid executives (excluding the chief financial officer). However, the limit does not apply if the compensation is strictly performance based. While it is the general intention of the committee to meet the requirements for deductibility, the committee may, in the exercise of its judgment, approve payment of compensation from time to time that may not be fully deductible. The committee believes this flexibility will enable it to respond to changing business conditions, or to an officers exceptional individual performance. The committee will continue to review and monitor its policy with respect to the deductibility of compensation.
Consideration of Say on Pay Vote
At our 2012 annual meeting, we presented our shareholders with an advisory vote to approve the compensation of our named executive officers as described in the proxy statement for that meeting. The corporate governance and compensation committee was pleased that approximately 91% of the votes cast on this item (excluding abstentions) were cast in favor of our executive compensation program as structured. The corporate governance and compensation committee considered the results of this vote as support for maintaining and continuing similar practices and philosophies in determining our executive compensation for the 2012 fiscal year.
Summary Compensation Table
The following table shows information about the compensation of our chief executive officer, our chief financial officer, individuals who served as our chief executive officer and chief accounting officer during fiscal 2012 and the three most highly compensated officers who were serving as corporate officers at September 30, 2012. Certain columns have been omitted where inapplicable.
The incremental cost of use of our aircraft is calculated based on the variable costs, including fuel costs, mileage, trip-related maintenance, universal weather-monitoring costs, on-board catering, landing/ramp fees and other miscellaneous variable costs. Fixed costs which do not change based on usage, such as allocated pilot salaries and the cost of maintenance not related to trips are excluded.
In the case of Mr. Wilkinson, the amount reported also includes a special retirement bonus equal to $2,612,715, which became payable upon his retirement on September 30, 2012 (as disclosed in to our Current Report on Form 8-K filed on July 6, 2012). Effective upon his retirement, Mr. Wilkinson forfeited certain long-term incentive awards in accordance with their terms (as disclosed in our Current Report on Form 8-K filed on July 6, 2012), including awards granted in February 2012, the grant date fair value of which is included in the summary compensation table above even though such amounts were forfeited upon his retirement.
Grants of Plan-Based Awards for Fiscal 2012
The following table sets forth information on grants of certain awards to the corporate officers named in this report during the fiscal year ended September 30, 2012.
Outstanding Equity Awards at September 30, 2012
The following table sets forth information with respect to exercisable and unexercisable options and unvested stock awards held by the corporate officers named in this proxy statement on September 30, 2012. The market value of shares or units that have not vested as of September 30, 2012 is based on a per-share stock price of $73.00, the adjusted closing price of a share of common stock of Ralcorp on September 28, 2012, the last trading day prior to September 30, 2012.
Option Exercises and Stock Vested for Fiscal 2012
The following table provides information on an aggregate basis, about stock options that were exercised and stock awards that vested during the fiscal year ended September 30, 2012 for each of the corporate officers named in this report.
Our retirement plan may provide pension benefits in the future to certain corporate officers. Corporate officers (and other eligible employees) become vested after five years of service. In December 2003, we froze the level of vested pension benefits for administrative employees, including corporate officers. Consequently, they no longer accrue defined pension benefits. Therefore, accruals under the plan have ceased but employees hired before 2003 will receive benefits upon retiring to the extent accrued prior to December 2003. The retirement age for purposes of the plan is 65.
Annual benefits are computed by multiplying the participants final average earnings (average of the participants five highest consecutive annual earnings during ten years prior to retirement or earlier termination) by the product of 1.5% times the participants years of service (to a maximum of 40 years) and by subtracting from that amount up to one-half of the participants primary social security benefit at retirement (with the actual amount of offset determined by age and years of service at retirement). To the extent an officers frozen annual retirement income benefit under the plan exceeds limits imposed by the Internal Revenue Code, the amount in excess will be payable under our non-qualified, unfunded, non-contributory supplemental retirement plan. The formula used is the same formula described above. See the table below for amounts payable upon retirement to the corporate officers named in this report. Credited service includes service with Ralston Purina Company, our former parent corporation.
The following table shows the estimated annual retirement benefits that would be payable from the retirement plan to salaried employees, including the corporate officers named in this report, assuming age 65 retirement and five-year certain payment option. To the extent an employees compensation or benefits exceed certain limits imposed by the Internal Revenue Code of 1986, as amended, the table also includes benefits payable from an unfunded supplemental retirement plan. The table reflects benefits prior to the subtraction of social security benefits as described above.
Non-Qualified Deferred Compensation
We maintain a non-qualified compensation plan which allows our corporate officers and certain other key employees to defer all or part of the employees bonus and up to 50% of their annual salary. We also maintain an executive savings investment plan. Once eligible employees reached the legislated maximum annual pre-tax contribution to our savings investment plan or their compensation exceeds the legislated maximum compensation that can be recognized under that plan, they are eligible to defer an additional 2% to 6% of their cash compensation, a portion of which receives a company matching contribution that vests at a rate of 25% for each year of service with us. Deferrals may be made into common stock equivalents or in the Vanguard funds. Under this plan, deferrals into common stock equivalents are distributed in shares of our common stock, while deferrals into the Vanguard funds are distributed in cash.
We will match up to 100% of the first 6% of pay that is contributed to the savings investment plan and the deferred compensation plan. Generally, contributing to the deferred compensation plan begins when tax code limits are met under the savings investment plan. A number of investment funds are available as benchmark investment options. Amounts contributed continue to grow on a tax-deferred basis until distributed. We do not guarantee the rate of return of any fund. As with any deferred compensation plan, there are restrictions on deferral and distribution elections as well as potential financial exposure to changes in our financial health. These plans allow corporate officers to accumulate funds for retirement.
The following table summarizes certain information related to the participation in our deferred compensation plan of the corporate officers named in this report:
Potential Payments Upon Termination of Employment or Change in Control
We have management continuity agreements with our corporate officers. As discussed in the Compensation Discussion and Analysis section of this proxy statement, these agreements are meant to promote the stability and continuity of senior management in the event of an actual or anticipated change in control.
The agreements provide severance compensation to each corporate officer in the event of the officers voluntary or involuntary termination after a change in control. A change in control occurs upon (i) the acquisition by any person, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, of beneficial ownership of (x) 50% or more of the aggregate voting power of the then outstanding shares of our common stock, other than acquisitions by us or any of our subsidiaries or any of our employee benefit plans or any entity holding stock for or pursuant to the terms of any such plan, or (y) all, or substantially all, of our assets, taken as a whole; or (ii) individuals who would have qualified as continuing directors shall have ceased for any reason to constitute at least a majority of our board of directors. A change in control does not include a transaction pursuant to which a third party acquires one or more of our businesses by acquiring all of our common stock while leaving our remaining businesses in a separate public company, commonly known as a Morris Trust transaction, unless the businesses so acquired constitute all or substantially all of our businesses.
In the event of a change in control, the compensation provided would be in the form of a lump sum payment equal to the present value of continuing the officers salary and bonus for a specified period following the officers termination of employment, and the continuation of other executive benefits for the same period. The applicable payment periods are determined as follows:
Each corporate officer would also be eligible to receive the following severance benefits: (i) continuation during the applicable period of the officers participation in each life, health, accident and disability plan in which the officer was entitled to participate immediately prior to the change in control, (ii) payment in lump sum in cash of the present value of the benefits under our retirement plan and supplemental executive retirement plan, (iii) payment of any actual costs and expenses of litigation incurred by the officer and (iv) payment of up to $20,000 of costs or expenses incurred for outplacement assistance.
Payments will be delayed for a period of six months in the event the officer is determined to be a specified employee for purposes of Section 409A of the Internal Revenue Code. No payments would be made if the officers termination is due to death, disability or normal retirement, or is for cause, defined as (i) the continued failure by the officer to devote reasonable time and effort to the performance of his duties (other than a failure resulting from his incapacity due to physical or mental illness); (ii) the officers willfully engaging in misconduct which is materially injurious to us; or (iii) the officers conviction of a felony or a crime involving moral turpitude.
In addition, no payments would continue beyond the officers normal retirement date. Contracts governing stock options, stock appreciation rights and restricted stock provide that upon a change in control, any unexercised, unvested, unearned restricted or unpaid shares become 100% vested. The management continuity agreements provide that executives shall be indemnified from any tax under Section 4999 and Section 280G of the Internal Revenue Code that is attributable to a parachute payment under the Internal Revenue Code and any tax upon the payment of such amounts. In addition, vesting of stock-based incentive compensation awards accelerate upon a change of control and all nonqualified deferred compensation earned by the executive will be subject to payment upon termination.
The agreements also contain provisions relating to non-competition, non-solicitation of our employees and protection of our confidential information which become effective once the officer becomes eligible for payments under these agreements.
The table below sets forth estimates of the amounts to which each named executive officer would be entitled, other than accrued but unpaid base salary and benefits payable under broad-based employee benefit plans and programs in the event of the involuntary termination of the officers employment due to a change in control occurring on September 30, 2012. We have assumed the maximum applicable payment period of three years.
In the event a corporate officer retires at or after age 62 (or age 64, depending on the age of the officer on the date of the grant) or is involuntarily terminated (other than for a termination for cause) all stock awards will immediately vest. Stock options and stock appreciation rights will remain exercisable thereafter until the earlier of the following to occur: three years from the date of normal retirement or involuntary termination; or the expiration of the award under its terms. See the above table for the value of stock and option awards at termination. Upon voluntary termination, involuntary termination or retirement, each corporate officer receives his vested retirement benefits (pension payments, 401(k) balances and deferred compensation balances) described in previous sections.
Ownership of Common Stock by Directors, Officers and Certain Beneficial Owners
The following table shows the amount of our common stock beneficially owned by each director, each corporate officer named in this report, all directors and corporate officers as a group and each person or group owning more than 5% of our outstanding shares as of December 6, 2012. Except as noted, all such persons possess sole voting and dispositive powers with respect to the shares listed. An asterisk in the column listing the percentage of shares outstanding indicates that the person owns less than 1% of the common stock outstanding.
Equity Compensation Plan Information
The following table provides certain information as of September 30, 2012 with respect to our equity compensation plans:
Our board believes that a significant majority of its members should be independent, non-employee directors. The board has established guidelines consistent with the current listing standards of the NYSE for determining director independence. You can find these guidelines in our corporate governance guidelines, which are posted in the Corporate Governance section of our website at www.ralcorp.com.
Director affiliations and transactions are regularly reviewed to ensure that there are no conflicts or relationships that might impair a directors independence from the Company, senior management or our independent registered public accounting firm. The board has reviewed transactions between the Company and each of our non-employee directors, their immediate family members and affiliated entities within the last three fiscal years. The board determined that each of these transactions was conducted in the ordinary course of our business and did not create a material relationship between the Company and any of the directors involved, according to our independence guidelines. Based on this review, the board has affirmatively determined that all of our non-employee directors are independent under our guidelines and as defined in the NYSE listing standards.
Certain Relationships and Related Transactions
Pursuant to our conflict of interest policy, standards of business conduct for officers and employees and code of conduct for directors, each director and corporate officer has an obligation not to engage in any transaction that could be deemed a conflict of interest. Our directors may not engage in any transaction that could impact their independence on the board of directors.
Our audit committee is responsible for approving and ratifying transactions in which one or more directors may have an interest. The audit committee reviews the material facts of all interested transactions that require the audit committees approval and either approves or disapproves of the entry into the interested transaction. In the event that management, in the normal course of reviewing payable records, determines an interested transaction exists which was not approved by the audit committee, management will present the transaction to the audit committee for consideration.
The audit committee has adopted standing pre-approval of certain transactions in which an officer or director may have an interest, including (i) transactions involving competitive bids, (ii) certain charitable contributions, and (iii) certain banking related services. The audit committee believes these transactions are immaterial to us and to any director or officer. No director may participate in the approval of an interested transaction for which he is a related party. If an interested transaction will be ongoing, the audit committee may establish guidelines for our management to follow in its ongoing dealings with the related party.
Mr. Kemper is Chairman, President and Chief Executive Officer of Commerce Bancshares, Inc., which is one of seventeen banks that participated in our committed credit facility and term loan dated July 27, 2010, one of fifteen banks that participated in our committed term loan dated October 3, 2011, and one of sixteen banks that participate in our committed credit facility dated May 1, 2012. Commerce Bancshares lending commitment under the 2010 facility was limited to $6 million out of a total syndicate commitment of $300 million and its commitment under the 2010 term loan was limited to $4 million out of a total syndicate commitment of $200 million, its lending commitment under the 2011 facility was limited to $15 million out of a total syndicate commitment of $550 million, and its lending commitment under the 2012 facility is limited to $7.5 million out of a total syndicate commitment of $300 million. During the fiscal year, we paid approximately $116,000 in interest and $17,000 in fees to Commerce Bancshares, Inc. The board of directors and the audit committee do not believe Mr. Kemper has a material interest in the transactions between us and Commerce Bancshares, Inc.
Mr. Moore is a director of Archer-Daniels-Midland, Inc., which is a supplier of grain, flour and other ingredients that we use in our businesses. During the fiscal year, we purchased approximately $105.6 million of ingredients from Archer-Daniels-Midland, Inc. The board of directors and the audit committee do not believe Mr. Moore has a material interest in the transactions between us and Archer-Daniels-Midland, Inc.
The following table sets forth the fees paid for audit services during the fiscal years ended September 30, 2012 and 2011 and for other services during those fiscal years:
With regard to the fees listed above, the Audit Committee has considered whether the provision by PricewaterhouseCoopers LLP of services other than audit services is compatible with its ability to maintain its independence. Regardless of the size or nature of the other services, if any, to be provided, it is the Audit Committees policy and practice to approve any services not under the heading Audit fees before any such other services are undertaken. Our audit was staffed primarily by full-time, permanent employees of PricewaterhouseCoopers LLP.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.