The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, and capital resources of Post Holdings, Inc. This discussion should be read in conjunction with the financial statements under Item 8, and the "Cautionary Statement on Forward-Looking Statements" on page 1.
Overview
We are a leading manufacturer, marketer and distributor of branded ready-to-eat cereals in the United States and Canada. We are the third largest seller of ready-to-eat cereals in the United States with 10.4% market share (based on retail dollar sales in xAOC) for the 52-week period ended September 29, 2012, according to Nielsen. Our products are manufactured through a flexible production platform consisting of four owned primary facilities and sold through a variety of channels such as grocery stores, mass merchandisers, club stores, drug stores, convenience stores and foodservice establishments. Our portfolio of brands includes diverse offerings such as Honey Bunches of Oats, Shredded Wheat, Grape-Nuts, Shreddies, Raisin Bran, Good Morenings, Golden Crisp, Alpha-Bits, Honeycomb, Pebbles, and Great Grains. We have leveraged the strength of our brands, category expertise, leadership, and over a century of institutional knowledge to create a diverse portfolio of cereals that enhance the lives of consumers.
From 1925 to 1929, our predecessor, Postum Cereal Company, acquired over a dozen companies and expanded its product line to more than 60 products. The company changed its name to General Foods Corporation and over several decades introduced household names such as Post Raisin Bran (1942), Honeycomb (1965), Pebbles (1971) and Honey Bunches of Oats (1989). General Foods Corporation was acquired by Philip Morris Companies in 1985, and subsequently merged with Kraft in 1989. In 2008, the Post cereals business was split off from Kraft and acquired by Ralcorp Holdings, Inc.
On July 14, 2011, Ralcorp's Board of Directors announced that they had unanimously agreed in principle to separate the Post cereals business from Ralcorp in a tax-free spin-off to Ralcorp shareholders. On February 3, 2012, Post legally separated from Ralcorp in which each shareholder of Ralcorp as of January 30, 2012, the record date for the distribution, received one share of Post common stock for every two shares of Ralcorp common stock held; additionally, Ralcorp retained approximately 6.8 million unregistered shares of Post common stock. On September 28, 2012, Ralcorp sold all of its interest in Post; in connection with this transaction Post repurchased 1.75 million of these common shares for approximately $53.4 million. Business Drivers and Measures
In operating our business and monitoring its performance, we consider a number of performance measures and operational factors as well as factors affecting the ready-to-eat cereal industry as whole as further discussed below.
• Our business is characterized by intense competition among large manufacturers of branded, private label and value brand ready-to-eat cereals. In recent years, the dollar revenue in the ready-to-eat cereal category has been flat, and in some years has declined, which has tended to intensify this competition. We expect this strong competitive environment to continue in the future. During our fiscal year 2012, we experienced a 3% decline in volume compared to fiscal year 2011 as well as a 0.4 share point decline in our market share based on dollar consumption. We believe the volume decline was primarily the result of overall declines in the ready-to-eat cereal category combined with the challenges of stabilizing the level and effectiveness of our trade and advertising and consumer spending. During fiscal 2012, we instituted programs which aimed to stabilize and reverse market share declines experienced in prior years by improving the value proposition of our products through new pricing strategies, improved marketing programs, a focus on product quality and expanding the distribution of our products into currently underrepresented sales channels.

• The primary components of our costs of goods sold include raw materials (agricultural commodities including wheat, corn, oats, sugar, fruit and tree nuts), packaging (linerboard cartons, corrugated boxes, plastic containers, and carton board) and freight and distribution (a combination of common carriers and inter-modal rail). In 2012, we experienced increases in our raw material commodity costs and we expect certain of our commodity prices to continue to increase into fiscal 2013.

• Our selling, general and administrative costs consist primarily of advertising and promotion, marketing, general office and research and development costs. During 2012, these costs increased primarily as a result of increased advertising and promotion spending, incremental costs for a direct sales force, higher bonus costs, and costs to establish and operate Post as a stand-alone public company.

Seasonality
Demand for ready-to-eat cereal has generally been level throughout the year,
although demand for certain promotional products may be influenced by holidays,
changes in seasons, or other events.
Results of Operations
The following discussion compares our summarized operating results for the
fiscal years ended September 30, 2012, 2011 and 2010.
The following table summarizes operational results for the periods indicated
(dollars in millions).
                              Year Ended September 30,
                            2012          2011        2010

Net Sales               $   958.9       $ 968.2     $ 996.7
Operating Profit (Loss)     139.1        (368.6 )     190.8
Net Earnings (Loss)          49.9        (424.3 )      92.0

Net Sales
Percentage volume changes for the fiscal years ended September 30, 2012 and 2011
relative to comparable amounts for the prior year period were as follows:
                           Year Ended September 30,
                           2012              2011
Honey Bunches of Oats      (2 )%              (6 )%
Pebbles                    (6 )%              (2 )%
Other                      (3 )%             (14 )%
Total                      (3 )%              (9 )%

Fiscal 2012 compared to 2011
Net sales for the year ended September 30, 2012 decreased $9.3 million or 1% compared to prior year primarily driven by a 3% decline in overall volumes which was only partially offset by higher average gross and net selling prices. For the fiscal year, Honey Bunches of Oats and Pebbles volumes were down 2% and 6%, respectively, versus prior year, however, Great Grains experienced a year over year volume increase of 10%.
Fiscal 2011 compared to 2010
Net sales decreased $28.5 million or 3% in fiscal 2011, as the impact of a 9% decline in overall volumes was partially offset by higher average net selling prices which was driven primarily by an 18% reduction in trade spending. Volumes were down across most of the Post brand portfolio driven by lower trade spending compared to the trade spending levels a year ago and competitive promotional activity. Other factors impacting net sales included a 12% volume increase for Great Grains, driven by a national advertising campaign to support the brand.

Margins
                                                       Year Ended September 30,
                                                     2012          2011       2010
                                                           (% of net sales)
Gross Profit                                         44.7 %        46.6  %   44.4 %
Selling, general and administrative expenses         28.6 %        24.7  %   22.0 %
Amortization of intangible assets                     1.3 %         1.3  %    1.3 %
Impairment of goodwill and other intangible assets      - %        58.5  %    1.9 %

Fiscal 2012 compared to 2011
Gross profit margins decreased by 1.9 percentage points in 2012 compared to 2011. Gross profit margin declines were driven by $26.5 million of higher raw material costs (primarily grains and sugar) and $7.4 million of unfavorable other manufacturing costs primarily driven by unfavorable fixed cost absorption due to lower production volumes and $3.3 million of higher freight costs. Selling, general and administrative expenses ("SG&A") as a percentage of net sales increased by 3.9 percentage points. SG&A was negatively impacted by $12.5 million of costs incurred to effect the separation of Post from Ralcorp and to begin transitioning Post to stand-alone processes and procedures during the fiscal year 2012. Excluding the effect of these costs, SG&A as a percentage of net sales increased from 24.7% in 2011 to 27.3% in 2012. This increase was driven by $9.1 million of increased advertising and promotion costs to provide advertising support for our overall brand portfolio in line with our strategy to stabilize our market share in the RTE cereal category. The remaining increase was driven by incremental holding company costs, and higher operating company overhead for the new direct sales force and higher bonus costs partially offset by lower warehousing and broker expense.
Operating profit as a percentage of net sales increased to 14.5% from negative 38.1%. Excluding the impact of the prior year impairment charge of $566.5 million, operating profit margin decreased from 20.4% to 14.5%, see Notes 2 and 4 in the "Notes to Consolidated Financial Statements" for further information regarding the impairment charge. This decrease was primarily driven by lower sales and margin compression in the current year and due to increases in SG&A as previously described.
Fiscal 2011 compared to 2010
Gross profit margins improved by 2.2 percentage points to 46.6% in 2011 compared to 2010. Gross profit margins were negatively impacted by $7.1 million of mark-to-market losses on commodity derivatives that did not qualify for hedge accounting (economic hedges) in fiscal 2011 and $1.3 million of transition and integration costs in fiscal 2010. Excluding the effect of these items, gross profit margins were 47.4% in fiscal 2011, up from 44.6% for fiscal 2010. Gross profit margins benefitted significantly from the aforementioned 18% reduction in trade spending, thereby increasing average net selling prices. This benefit was partially offset by unfavorable manufacturing costs due to unfavorable fixed cost absorption from lower production volumes and higher raw material costs (primarily sugar, nuts, wheat, corn and packaging costs).
SG&A as a percentage of net sales were negatively impacted by $6.4 million of transition and integration costs in 2010 and by $2.8 million of Post separation costs in 2011. Excluding the effect of these items, SG&A as a percentage of net sales increased from 21.3% in 2010 to 24.4% in 2011, driven primarily by higher advertising costs. The $28.7 million increase in advertising costs was primarily due to the national advertising campaign to support the Great Grains brand re-launch as well as modest increases behind Pebbles and Honey Bunches of Oats. Operating profit margin was negatively impacted primarily by the $566.5 million impairment charge related to our goodwill and other intangible assets. Excluding the effect of impairment charges of $566.5 million in 2011 and $19.4 million in 2010, our operating profit margin was 20.4% in 2011 compared to 21.1% in 2010, primarily driven by factors previously discussed above. Interest Expense
Interest expense was $60.3 million and $51.5 million for the fiscal years ended September 30, 2012 and 2011, respectively. The increase is driven primarily by the increase in outstanding debt through the issuance of $775.0 million of Senior Notes and a $175.0 million term loan in connection with our separation from Ralcorp. Prior year interest expense and current year interest expense up to the date of separation from Ralcorp was related to debt obligations of Ralcorp which were assumed from Kraft in the August 2008 acquisition of Post. Interest expense was $51.5 million for the fiscal years ended September 30, 2011 and 2010 as average long-term intercompany debt levels remained virtually unchanged during these time periods. At the time of the separation of Post from Ralcorp, all intercompany debt and related intercompany accrued interest was settled. In connection with the separation, we incurred significant new third party indebtedness. See Notes 12 and 13 in the "Notes to Consolidated Financial Statements" and below in "Liquidity and Capital Resources" for further discussion of our indebtedness and related interest expense. Income Taxes
Income tax expense was $30.5 million, which represents an effective income tax rate of 37.9%, for the year ended September 30, 2012, compared to a benefit of $6.3 million and an effective income tax rate of 1.5% (negative), for the year ended September 30, 2011. The current year effective tax rate was unfavorably impacted by tax expense related to an uncertain tax position of $2.7 which we expect to take on our short period tax return for the period starting with the separation from Ralcorp and ending on September 30, 2012. The year to date effective income tax rate was also

unfavorably impacted by $4.6 million of non-deductible outside service expenses incurred to effect the Company's separation from Ralcorp, which resulted in incremental income tax expense of approximately $1.8 million. The prior year annual effective tax rate was significantly impacted by the nondeductible goodwill impairment expense incurred during the fourth quarter of fiscal 2011. Excluding the effect of these items, our effective tax rate for the year ended September 30, 2012 would have been approximately 32.3%.
Income taxes were a benefit of $6.3 million for the fiscal year ended September 30, 2011 compared to an expense of $49.5 million in the prior fiscal year, driven primarily by lower earnings before taxes. The effective income tax rate was approximately 1.5% (negative) for fiscal year 2011, down from 35.0% in the prior year. The effective tax rate for 2011 was significantly affected by the $427.8 million non-deductible goodwill impairment loss discussed above. Excluding the goodwill impairment charge and the effect of the Domestic Production Activities Deduction (DPAD) discussed below, the effective tax rate for 2011 would have been 28.6%.
For both 2011 and 2010, the effective tax rate was favorably impacted by the effects of the DPAD, and also impacted by minor effects of shifts between the relative amounts of domestic and foreign income. The DPAD is a U.S. federal deduction of a percentage of taxable income from domestic manufacturing. Taxable income is affected by not only pre-tax book income, but also temporary differences in the timing and amounts of certain tax deductions, including significant amounts related to impairments of trademark intangible assets, depreciation of property, and postretirement benefits. In addition, for fiscal 2011, the DPAD percentage was increased from 6% to 9% of qualifying taxable income.
Liquidity and Capital Resources
As part of the separation, we incurred $950 million of indebtedness, which consisted of $175 million aggregate principal amount of borrowings under a senior secured term loan facility and $775 million in aggregate principal amount of senior notes. We did not receive any proceeds from the senior notes, which we initially issued to Ralcorp in connection with the separation. Approximately $125 million of the proceeds from the term loan facilities were transferred to Ralcorp in connection with the separation. Of the remaining $50 million in proceeds, we retained approximately $32 million after payment of fees and expenses relating to the financing transactions. We also have a $175 million revolving credit facility that was unfunded at the time of the separation and remained unfunded through September 30, 2012. See Note 13 of "Notes to Consolidated Financial Statements" for additional information. Effective as of the distribution date, Ralcorp transferred to Post certain defined benefit pension and other postretirement benefit plans. For more information about defined benefit pension and postretirement benefit plans, see Note 15 of "Notes to Consolidated Financial Statements." Historically, we have generated and expect to continue to generate positive cash flows from operations, supported by favorable operating income margins. We believe our cash flows from operations and our current and future credit facilities will be sufficient to satisfy our future working capital, research and development activities, capital expenditures, pension contributions and other financing requirements for the foreseeable future. Our ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures and other business and risk factors described elsewhere in this prospectus. If we are unable to generate sufficient cash flows from operations, or otherwise to comply with the terms of our credit facilities, we may be required to seek additional financing alternatives.
Short-term financing needs primarily consist of working capital requirements, interest payments and required repayments of the term loan facility. Long-term financing needs will depend largely on potential growth opportunities, including acquisition activity.
The following tables show recent cash flow data, which is discussed below.

                                                          Year Ended September 30,
                                                        2012        2011        2010
                                                               (In millions)
Cash provided by operating activities                $  144.0     $ 143.8     $ 135.6
Cash used by investing activities                       (30.9 )     (14.9 )     (24.3 )
Cash used by financing activities                       (57.1 )    (132.1 )    (112.4 )
Effect of exchange rate changes on cash                   0.5         0.1         0.2
Net increase (decrease) in cash and cash equivalents $   56.5     $  (3.1 )   $  (0.9 )

Operating Activities
Fiscal 2012 compared to 2011
Cash provided by operating activities for the fiscal year ended September 30, 2012 increased by $0.2 million compared to the fiscal year ended September 30, 2011 primarily driven by lower gross profit and increased selling, general and administrative costs which were offset by $16.3 million of favorable working capital changes when compared to working capital changes in fiscal 2011, primarily driven by the timing of payment on increased advertising and promotional activity in fiscal 2012.
Fiscal 2011 compared to 2010
Cash provided by operating activities for fiscal 2011 increased $8.2 million when compared to fiscal 2010. The increase is due to favorable changes in working capital, payment of $13.6 million to Kraft in fiscal 2010 related to the transition services agreement ("TSA"), a $2.0 million distribution to Post Canada from RAH Limited Partnership (see Note 19 in "Notes to Consolidated Financial Statements"), partially offset by lower net earnings (excluding the impact of the non-cash impairment of goodwill and other intangible assets and deferred income taxes). Changes in working capital were primarily driven by a prior year decrease in levels of accrued obligations related to trade spending, the payment to Kraft in 2010 as noted above and a larger reduction in inventory in 2010 compared to the current year.
Investing Activities
Fiscal 2012 compared to 2011
Cash used in investing activities for fiscal 2012 increased by $16.0 million compared to fiscal 2011. The increase was driven primarily by the purchase of a corporate office building and related furniture and fixtures in the first half of 2012 and an increase in general plant maintenance and upgrades. Fiscal 2011 compared to 2010
Net cash used for investing activities was $14.9 million for fiscal 2011, down $9.4 million from the prior fiscal year due to a reduction in the amount of capital spending.
Financing Activities
Fiscal 2012 compared to 2011
Cash used by financing activities was $57.1 million for fiscal 2012. In connection with our separation from Ralcorp, we issued $950.0 million in debt of which $900.0 million was remitted to Ralcorp and approximately $17.7 million was paid as debt issuance costs, with the remaining $32.3 million in proceeds retained by the Company. The components of change in net investment of Ralcorp include cash deposits from Post to Ralcorp and cash borrowings received from Ralcorp used to fund operations or capital expenditures and allocation for Ralcorp's corporate expenses prior to our separation from Ralcorp. On September 28, 2012, we repurchased 1.75 million shares of our common stock for $53.4 million. Additionally, during fiscal 2012, we made $4.4 million in scheduled repayments on our term loan facility.
Fiscal 2011 compared to Fiscal 2010
Changes in cash used in financing activities for the years ended September 30, 2011 and 2010 are primarily due to changes in the net investment of Ralcorp. The components of net investment of Ralcorp include cash deposits from Post to Ralcorp and cash borrowings received from Ralcorp used to fund operations or capital expenditures and allocations of Ralcorp's corporate expenses (see Note 17 of "Notes to Consolidated Financial Statements"). On September 28, 2011, Post entered into a promissory note payable to Ralcorp in the principal amount of $68.0 million.
Contractual Obligations
In the normal course of business, we enter into contracts and commitments which obligate us to make payments in the future. The table below sets forth our significant future obligations by time period as of September 30, 2012. For consideration of the table below, "Less Than 1 Year" refers to obligations due between October 1, 2012 and September 30, 2013, "1-3 Years" refers to obligations due between October 1, 2013 and September 30, 2015, "3-5 Years" refers to obligations due between October 1, 2015 and September 30, 2017, and "More Than 5 Years" refer to any obligations due after September 30, 2017.

                                                    Less Than                                       More Than
                                        Total         1 Year        1-3 Years       3-5 Years        5 Years
                                                                   (In millions)
Debt(a)                              $   945.6     $     15.3     $      56.9     $      98.4     $     775.0
Interest on long-term debt (a)           555.1           60.8           120.2           116.9           257.2
Operating lease obligations(b)            10.3            3.5             5.6             1.2               -
Purchase obligations(c)                  125.1           98.8            12.4             9.7             4.2
Deferred compensation obligations(d)       8.6            0.1             7.0             0.3             1.2
Benefit obligations(e)                   118.0            2.4             6.0             7.9           101.7
Unrecognized tax benefits (f)              2.7              -               -               -             2.7
Total                                $ 1,765.4     $    180.9     $     208.1     $     234.4     $   1,142.0


_________

(b) Operating lease obligations consist of minimum rental payments under noncancelable operating leases, as shown in Note 14 of "Notes to Consolidated Financial Statements."

(c) Purchase obligations are legally binding agreements to purchase goods or services that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

(d) Deferred compensation obligations have been allocated to time periods based on existing payment plans for terminated employees and the estimated timing of distributions to current employees based on age.

(e) Benefit obligations consist of future payments related to pension and other postretirement benefits as estimated by an actuarial valuation and shown in Note 15 of "Notes to Consolidated Financial Statements."

(f) Represents our total liability for unrecognized tax benefits. Due to the inherent uncertainty of the underlying tax positions, we are unable to reasonably estimate in which future periods the unrecognized tax benefits will be settled.

Inflation
Inflationary pressures have had an adverse effect on Post through higher raw material and fuel costs. We believe that inflation has not had a material adverse impact on our operations for the years ended September 30, 2012, 2011 and 2010, but could have a material impact in the future if inflation rates were to significantly exceed our ability to achieve price increases. Currency
Certain sales and costs of our Canadian operations were denominated in Canadian dollars. Consequently, profits from this business can be impacted by fluctuations in the value of the Canadian dollars relative to U.S. dollars. Off Balance Sheet Arrangements
As of September 30, 2012, we did not have any material off balance sheet arrangements that would be reasonably likely to have a material impact on our financial position or results of operations. At the time of the separation, we entered into an agreement to indemnify Ralcorp from various exposures, including any tax liability that may arise as a result of the separation. See "Risks Related to the Separation from Ralcorp and Recent Financing Transactions" earlier in this document for further discussion. Critical Accounting Policies and Estimates The following discussion is presented pursuant to the United States Securities and Exchange Commission's Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies." The policies below are both important to the representation of Post's financial condition and results and require management's most difficult, subjective or complex judgments. Under generally accepted accounting principles in the United States, we make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues, and expenses as well as the disclosure of contingent liabilities. We base estimates on past experience and on various other assumptions that are believed to be reasonable under the circumstances.

Those estimates form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. . . .