Ralcorp Holdings (RAH)

Interest Rate Risk

The Company has interest rate risk related to its debt. Changes in interest rates impact fixed and variable rate debt differently. For fixed rate debt, a change in interest rates will only impact the fair value of the debt, whereas a change in the interest rates on variable rate debt will impact interest expense and cash flows. At September 30, 2008, Ralcorp’s financing arrangements included $1,220.8 million of fixed rate debt and $448.0 million of variable rate debt. However, in December 2004, $100 million of the variable rate debt was effectively fixed at 4.76% through December 2009 with an interest rate swap contract.

As of September 30, 2008 and 2007, the fair value of the Company’s fixed rate debt was approximately $1,122.6 million and $608.9 million, respectively, based on the discounted amount of future cash flows using Ralcorp’s incremental rate of borrowing for similar debt. A hypothetical 10% decrease in interest rates would increase the fair value of the fixed rate debt by approximately $56.8 million.

With respect to variable rate debt, including the effect of the interest rate swap, a hypothetical 10% change in interest rates would not have had a material impact on the Company’s reported net earnings or cash flows in fiscal 2008 or 2007.

The fair value of the interest rate swap contract was a negative $1.0 million at September 30, 2008. A hypothetical 10% decrease in expected future interest rates would reduce that fair value by $1.1 million.

For more information, see Note 1, Note 12, and Note 13 to the financial statements included in Item 8.

30

Table of Contents

Interest Rate Risk

ALIGN="justify">The Company has interest rate risk related to its debt. Changes in interest rates impact fixed and variable rate debt differently. For fixed rate debt, a change in interest rates will only impact
the fair value of the debt, whereas a change in the interest rates on variable rate debt will impact interest expense and cash flows. At September 30, 2008, Ralcorp’s financing arrangements included $1,220.8 million of fixed rate debt and
$448.0 million of variable rate debt. However, in December 2004, $100 million of the variable rate debt was effectively fixed at 4.76% through December 2009 with an interest rate swap contract.

Interest Rate Risk

The Company has interest rate risk related to its debt. Changes in interest rates impact fixed and variable rate debt differently. For fixed rate debt, a change in interest rates will only impact the fair value of the debt, whereas a change in the interest rates on variable rate debt will impact interest expense and cash flows. At September 30, 2008, Ralcorp’s financing arrangements included $1,220.8 million of fixed rate debt and $448.0 million of variable rate debt. However, in December 2004, $100 million of the variable rate debt was effectively fixed at 4.76% through December 2009 with an interest rate swap contract.

As of September 30, 2008 and 2007, the fair value of the Company’s fixed rate debt was approximately $1,122.6 million and $608.9 million, respectively, based on the discounted amount of future cash flows using Ralcorp’s incremental rate of borrowing for similar debt. A hypothetical 10% decrease in interest rates would increase the fair value of the fixed rate debt by approximately $56.8 million.

With respect to variable rate debt, including the effect of the interest rate swap, a hypothetical 10% change in interest rates would not have had a material impact on the Company’s reported net earnings or cash flows in fiscal 2008 or 2007.

The fair value of the interest rate swap contract was a negative $1.0 million at September 30, 2008. A hypothetical 10% decrease in expected future interest rates would reduce that fair value by $1.1 million.

For more information, see Note 1, Note 12, and Note 13 to the financial statements included in Item 8.

30

Table of Contents

Interest Rate Risk

ALIGN="justify">The Company has interest rate risk related to its debt. Changes in interest rates impact fixed and variable rate debt differently. For fixed rate debt, a change in interest rates will only impact
the fair value of the debt, whereas a change in the interest rates on variable rate debt will impact interest expense and cash flows. At September 30, 2008, Ralcorp’s financing arrangements included $1,220.8 million of fixed rate debt and
$448.0 million of variable rate debt. However, in December 2004, $100 million of the variable rate debt was effectively fixed at 4.76% through December 2009 with an interest rate swap contract.