<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-27818
DOANE PRODUCTS COMPANY
State of Incorporation--Delaware IRS Employer Identification No. 43-1350515
West 20th Street and Stateline Road
Joplin, Missouri 64801
(417) 624-6166
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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
Common Stock outstanding June 30, 1996 - 1,000 shares
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DOANE PRODUCTS COMPANY
INDEX
Page
------
PART I - Financial Information
Item 1:
Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995 2
Consolidated Statements of Operations - three and
six months ended June 30, 1996 and June 30, 1995 3
Consolidated Statements of Cash Flows - six months
ended June 30, 1996 and June 30, 1995 4
Notes to Consolidated Financial Statements 5-8
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II - Other Information
Item 1:
Legal Proceedings 12
Item 6:
Exhibits and Reports on Form 8-K
Signature 13
<PAGE> 3
DOANE PRODUCTS COMPANY
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 287 $ 1,550
Accounts receivable, net 44,191 46,558
Inventories 26,832 27,595
Prepaid expenses and other 2,326 2,298
----- -----
Total current assets 73,636 78,001
Investments - cash value of life insurance 1,487 1,470
Property, net of accumulated depreciation $4,721 as of
June 30, 1996, and $1,557 as of December 31, 1995 92,624 91,832
Goodwill, net of amortization 127,183 129,105
Other assets 9,686 9,176
----- -----
$ 304,616 $ 309,584
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 9,880 $ 5,505
Accounts payable 17,321 18,883
Accrued expenses
Salaries and commissions 3,436 2,944
Other 7,203 11,775
----- ------
Total current liabilities 37,840 39,107
Deferred compensation 3,694 4,846
Long-term debt 199,858 204,233
Deferred income taxes 4,542 1,103
Deferred credit 2,043 1,770
Senior exchangeable preferred stock 21,167 18,414
Stockholder's equity:
Common stock, par value $.01;
authorized and issued 1,000 shares - -
Additional paid in capital 40,425 40,425
Retained earnings (4,953) (314)
------- -----
35,472 40,111
------ ------
$ 304,616 $ 309,584
======= =======
</TABLE>
See accompanying notes to financial statements.
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DOANE PRODUCTS COMPANY
STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
(unaudited)
Three Month Period Ended Six Month Period Ended
June 30 June 30
1996 1995 1996 1995
(Successor) (Predecessor) (Successor) (Predecessor)
<S> <C> <C>
Net sales $ 112,881 $ 99,148 $ 231,285 $ 202,786
Cost of goods sold 99,956 82,425 202,932 169,325
-------- -------- --------- ---------
Gross profit 12,925 16,723 28,353 33,461
Operating expenses:
Selling 3,470 3,124 6,791 6,255
General and administrative 4,050 3,007 8,173 5,752
-------- -------- -------- --------
Total operating expenses 7,520 6,131 14,964 12,007
-------- -------- ------- --------
Income from operations 5,405 10,592 13,389 21,454
Other income (expense):
Interest income 63 26 145 67
Interest expense (5,693) (1,294) (11,572) (2,766)
Non-recurring financing fees - - (4,815) -
Miscellaneous 8 9 7 (21)
---------- -------- --------- ----------
Total other income (expense) (5,622) (1,259) (16,235) (2,720)
Income (loss) before income taxes (217) 9,333 (2,846) 18,734
Provision(benefit) for income taxes 19 97 (960) 195
---------- --------- ---------- ---------
Net income (loss) $ (236) $ 9,236 $ (1,886) $ 18,539
========== ======== ========== =========
Net income (loss) $ (236) $ 9,236 $ (1,886) $ 18,539
Accretion of preferred stock 269 - 538 -
Preferred stock dividend 1,146 - 2,215 -
--------- ---------- --------- -------
Net loss applicable to common stock $ (1,651) - $ (4,639) -
---------- ---------- ---------- -------
Net loss per common share available
to common stockholder (1,651) - (4,639) -
--------- ---------- --------- ------
Weighted average shares outstanding 1,000 - 1,000 -
-------- ---------- -------- ------
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 5
DOANE PRODUCTS COMPANY
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six month Six month
period ended period ended
June 30, 1996 June 30, 1995
Successor Predecessor
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,886) $ 18,539
Items not requiring (providing) cash:
Depreciation and amortization 4,876 2,420
Non-recurring financing fees expensed 4,815 -
Amortization of deferred debt issuance costs 390 -
Accrued deferred compensation 54 (2,485)
(Gain) loss on sale property and equipment 7 35
Deferred income taxes 3,439
Change in deferred credit 273 -
Changes in working capital components (2,307) (2,616)
------- -------
Net cash provided by operating activities $ 9,661 $ 15,893
------- ------
Cash flows from investing activities:
Proceeds from sale of property and equipment 19 4
Purchase of property and equipment (4,009) (3,071)
Increase in debt issuance costs (5,403) -
(Increase) decrease in other assets (1,531) 121
--------- -------
Net cash used in investing activities (10,924) (2,946)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 170,000 2,250
Principal payments on long-term debt (170,000) (5,675)
Cash dividends - (11,077)
------------ --------
Net cash provided (used) in financing activities - 0- (14,502)
------------ --------
Decrease in cash and cash equivalents (1,263) (1,555)
Cash and cash equivalents, beginning of period 1,550 2,843
------ -----
Cash and cash equivalents, end of period $ 287 $ 1,288
======= =====
</TABLE>
See accompanying notes to financial statements.
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DOANE PRODUCTS COMPANY
Notes To Consolidated Financial Statements
for the six months ended June 30, 1996
(dollars in thousands, except per share amounts)
(Unaudited)
1. Accounting policies
The unaudited interim financial information included herein reflects the
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the results of
operations, financial position, and cash flows for the periods presented. Such
interim information should be read in conjunction with the financial statements
and notes thereto contained in the Company's Registration Statement on Form S-1
(File No. 33-98110) relating to the issuance of $160,000 principal amount Senior
Notes due 2006 (the "Senior Notes"). The accounting policies used in preparing
these financial statements are the same as those summarized in the Company's
1995 financial statements included in the Form S-1 Registration Statement.
The results of operations for the six months ended June 30, 1996 and June 30,
1995 are not necessarily indicative of the results to be expected for other
interim periods or the full year.
2. Acquisition
On October 5, 1995 the Company was acquired (the "Acquisition") through the
merger (the "Merger") of DPC Subsidiary Acquisition Corp. with and into the
Company's predecessor (the "Predecessor") with the Company being the surviving
entity ("Successor"). DPC Subsidiary Acquisition Corp. was a newly organized
Delaware corporation formed for the sole purpose of effecting the Acquisition.
The Company is a wholly-owned subsidiary of DPC Acquisition Corp. ("DPCAC"). The
purchase price was $249,100 including existing indebtedness. The Acquisition was
financed with a senior credit facility which provides term loan borrowings of
$90,000 and revolving loan borrowings of up to $25,000, $120,000 of senior
subordinated increasing rate notes (the"Bridge Notes"), and $30,000 of 14.25%
Senior Exchangeable Preferred Stock. The Bridge Notes and $40,000 of term loan
borrowings were refinanced on March 4, 1996 with the proceeds of $160,000
principal amount of the Company's 10 5/8% Senior Notes due 2006 (the "Senior
Notes"). The cost of the Acquisition has been allocated on the basis of the
estimated fair value of the assets acquired and liabilities assumed. The
allocation resulted in goodwill of approximately $129,000. The goodwill is being
amortized over 40 years on a straight-line basis.
For financial statement purposes, the Acquisition and Merger were accounted for
as a purchase acquisition effective October 1, 1995. The effects of the
Acquisition have been reflected in the Company's assets and liabilities at that
date. As a result, the Company's financial statements for the periods subsequent
to September 30, 1995 are presented on the Successor's new basis of accounting,
while financial statements for September 30, 1995 and prior periods are
presented on the Predecessor's historical cost basis of accounting.
3. Long-term debt
Long-term Debt consisted of the following:
June 30, 1996 December 31, 1995
Senior Credit Facility
Term Loan 46,158 86,158
Industrial Revenue Bonds 3,580 3,580
Senior Notes 160,000 -
Bridge Note - 120,000
--------- -------
Total Long-term debt $ 209,738 $ 209,738
--------- ---------
Less Current Maturities 9,880 5,505
$ 199,858 $204,233
========= ========
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<PAGE> 7
Senior Credit Facility
In connection with the Acquisition, the Company entered into a senior credit
facility effective October 5, 1995 (the "Senior Credit Facility") with several
lending institutions. The Senior Credit Facility provided for an aggregate
principal amount of loans of up to $115,000 consisting of $90,000 in aggregate
principal amount of term loans (the "Term Loan Facility"), of which $40,000 has
been prepaid, and a $25,000 revolving credit facility (the "Revolving Credit
Facility").
The Term Loan Facility matures on September 30, 2000 and is due in quarterly
installments in increasing amounts, ranging from $2,083 to $4,792, commencing
September 30, 1996. The Revolving Credit Facility matures on September 30, 2000.
The Company is required to reduce borrowings under the Revolving Credit Facility
to $10,000 or less for 30 consecutive days during the fiscal years ended
September 30, 1996 and 1997, and to $7,500 or less for 30 consecutive days
during each fiscal year ended September 30 thereafter.
Indebtedness under the Senior Credit Facility bears interest at a rate based, at
the Company's option, upon (i) the Base Rate plus 1.50% with respect to Base
Rate Loans and (ii) the LIBOR Rate for one, two, three or six months plus 2.75%
with respect to LIBOR Rate Loans; provided, however, the interest rates are
subject to reductions in the event the Company meets certain performance
targets. The Term Loan Facility bore interest at an average rate of 7.95% for
the period from April 1, 1996 to June 30, 1996.
The Senior Credit Facility is secured by substantially all of the assets of the
Company and a pledge of all of the Company's common stock held by DPCAC.
The Senior Credit Facility requires the Company to meet certain financial tests,
including minimum cash flow, minimum cash flow coverage ratio and maximum
leverage ratios. The Senior Credit Facility also contains covenants which, among
other things, limit the incurrence of additional indebtedness, the nature of the
business of the Company and its subsidiaries, investments, leases of assets,
ownership of subsidiaries, dividends, transaction with affiliates, asset sales,
acquisitions, mergers and consolidations, liens and encumbrances and other
matters customarily restricted in such agreements.
Senior Notes
The Senior Notes bear interest at the rate of 10 5/8% per annum, payable
semiannually on March 1 and September 1 of each year, commencing on September 1,
1996. The Senior Notes are redeemable, at the Company's option, in whole or in
part, from time to time, on or after March 1, 2001, initially at 105.313% of
their principal amount and thereafter at prices declined to 100% at March 1,
2004 until maturity, in each case together with accrued and unpaid interest to
the redemption date. In addition, at any time on or prior to March 1, 1999, the
Company may redeem up to 35% of the aggregate principal amount of the Senior
Notes originally issued with the net cash proceeds of one or more public equity
offerings, at 109.625% of their principal amount, together with accrued and
unpaid interest, if any, to the redemption date; provided that at least $104,000
in principal amount of Senior Notes remain outstanding immediately after any
such redemption. The Senior Notes are general senior unsecured obligations of
the Company, ranking senior to all subordinated indebtedness of the Company and
ranking pari passu in right of payment to all other senior indebtedness of the
Company. Lenders under the Senior Credit Facility have claims with respect to
the assets constituting collateral for such indebtedness that are effectively
senior and right of payment to the claims of holders of the Senior Notes. The
Senior Notes were issued pursuant to an indenture which contains covenants
restricting or limiting the ability of the Company and its subsidiaries to pay
dividends or make other restricted payments, incur additional indebtedness and
issue preferred stock, create liens, incur dividends and other payment
restrictions affecting subsidiaries, enter into mergers or consolidations, make
asset sales, enter into transactions with affiliates, and engage in other lines
of business. Under certain circumstances, the Company is required to offer to
purchase all outstanding Senior Notes at a purchase price in cash equal to 100%
of their principal amount, plus accrued and unpaid interest to the date of
repurchase, with the proceeds of certain asset sales. Upon a Change of Control
(as defined in the indenture relating to the Senior Notes) each holder of Senior
Notes will have the right to require the Company to repurchase all or any part
of such holder's Senior Notes at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest to the date of
purchase.
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<PAGE> 8
The Senior Credit Facility prohibits the Company from repurchasing any Senior
Notes upon a Change of Control.
Industrial Development Revenue Bonds
The Industrial Development Bonds with The County of Pueblo, Colorado (the
"Pueblo IDRBs") were issued on October 1, 1991 in the aggregate principal amount
of $4,500. The Pueblo IDRBs bear interest at a rate of 6.3% to 7.15% per annum.
Principal repayments are due annually through October, 2001. The Pueblo IDRBs
are secured by real estate and other property and equipment at the Pueblo,
Colorado manufacturing facility.
4. Senior Exchangeable Preferred Stock
The Company has authorized 3,000 shares of Senior Exchangeable Preferred Stock
of which the Company issued 1,200 shares in connection with the financing of the
Acquisition.
The Senior Exchangeable Preferred Stock has an initial liquidation preference of
$25.00 per share (aggregate initial liquidation preference is $30,000). The
Senior Exchangeable Preferred Stock was recorded at the net proceeds of $17,075
after deducting $12,925 paid to DPCAC for warrants of DPCAC which were issued in
conjunction with the Senior Exchangeable Preferred Stock. The excess of the
liquidation preference over the carrying value is being accreted quarterly over
a twelve year period ended September 30, 2007 by a direct reduction to retained
earnings.
Dividends on the Senior Exchangeable Preferred Stock are payable quarterly at
the rate of 14.25% per annum per share. Dividends on the Senior Exchangeable
Preferred Stock accrete to the liquidation value of the Senior Exchangeable
Preferred Stock and, at the option of the holders of a majority of the shares of
Senior Exchangeable Preferred Stock, may be paid through the issuance of
additional shares of Senior Exchangeable Preferred Stock on each dividend
payment date through September 30, 2000. The Company does not expect to pay
dividends on the Senior Exchangeable Preferred Stock in cash for any period
prior to September 30, 2000. Cumulative dividends on Senior Exchangeable
Preferred Stock that have not been paid at June 30, 1996 and December 31, 1995
are included in the carrying amount of the Senior Exchangeable Preferred Stock.
The Senior Exchangeable Preferred Stock will be exchangeable, in whole or in
part, at the option of the Company on any dividend payment date for 14.25%
Junior Subordinated Exchange Debentures.
The terms of the Senior Exchangeable Preferred Stock prohibit (i) the payment of
dividends on securities ranking on a parity with or junior to the Senior
Exchangeable Preferred Stock and (ii) redemption, repurchase or acquisition of
any Junior Securities with certain exception, in each case, unless full
cumulative dividends have been paid on the Senior Exchangeable Preferred Stock.
5. Income (Loss) Per Common Share
Income (loss) per common share is computed based upon the weighted average
number of common shares outstanding during each period. The loss is increased by
preferred stock dividends and the accretion of preferred stock in calculating
net loss attributable to the common shareholder.
6. Inventories
The composition of inventories at the balance sheet dates was as follows:
June 30, 1996 December 31, 1995
Raw materials $ 5,706 $ 8,401
Packaging materials 9,045 9,480
Finished goods $ 12,081 9,714
-------- -----
$ 26,832 $ 27,595
======== ========
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<PAGE> 9
7. Commitments and Contingencies
Except as described below, the Company is not a party to any material pending
legal proceedings other than ordinary routine litigation incidental to its
business, that management believes would have a material adverse affect on its
financial condition or results of operations.
The Company was named as a defendant in a case styled Harvey v. Doane Products
Company, which was filed in the US District Court for the Northern District of
Alabama on June 7, 1995. The plaintiff alleged that the Company negligently
loaded a common carrier which resulted in the death of the driver of the truck
and his wife. The Company has been awarded a summary judgement for this claim on
April 15, 1996 and the case was dismissed.
The Company has also been named as a defendant in a wrongful death action on
behalf of the wife of the driver of the truck. The plaintiff is claiming $1,250
plus costs. The Company believes it is adequately insured for any damages that
may result from such actions, however, due to the early stages of discovery in
this case, a reasonable estimate of any loss cannot be made at this time and
therefore no provision for loss has been made in the accompanying financial
statements.
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<PAGE> 10
DOANE PRODUCTS COMPANY
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Acquisition. On October 5, 1995 the Company was acquired by DPC
Acquisition Corp. (the "Acquisition"). In connection with the Acquisition, the
Company entered into a credit facility (the "Senior Credit Facility") with a
syndicate of lenders providing for bank term loan borrowings of $90 million and
revolving loan borrowings of up to $25 million. Additional financing for the
Acquisition was provided by a bridge loan (the "Bridge Loan") in the amount of
$120 million. On March 4, 1996 the Company issued $160 million 10 5/8% Senior
Notes due 2006 (the "Senior Notes") and used the proceeds to repay the $120
million Bridge Loan and prepay $40 million of the term loan borrowings.
The Acquisition has been accounted for using the purchase method of accounting.
The total purchase price of $249.1 million, including existing indebtedness
(exclusive of fees and expenses of approximately $13.0 million), has been
allocated to the assets and liabilities acquired based upon their respective
fair values. As a result, beginning October 1, 1995, the Company recorded
expenses for depreciation and amortization that are significantly in excess of
historical levels. In addition, the results of operations of the Company have
been significantly affected by the impact of the financing of the Acquisition,
including interest expense on the indebtedness incurred under the Senior Credit
Facility, the Senior Notes, and the Bridge Loan. The financial statements for
periods after October 1, 1995 are presented on the Company's new basis of
accounting, while the financial statements for September 30, 1995 are presented
on the Company's predecessor's historical cost basis of accounting.
Prior to the Acquisition, the Company was organized as a subchapter S
corporation. Consequently, the Company did not pay federal, state or local
income taxes except in those states that did not recognize subchapter S status
or that required payment of franchise taxes.
Results of Operations
Net Sales. Doane Products Company derives substantially all of its revenue
from the sale of private label pet food products. Net sales in the three month
period ended June 30, 1996 increased 13.9% to $112.9 million from $99.1 million
for the same period ended in 1995. Pet food net sales increased 18.7% to $106.4
million in the three month period ended June 30, 1996 from $89.6 million in the
same period of 1995. This increase was primarily due to a 8.1% increase in pet
food tons sold and price increases implemented in response to higher raw
material costs. Net sales of non-manufactured products decreased 41.7% in the
three month period ended June 30, 1996 due to the discontinuation of selected
products. Engineering net sales increased 7.2% in the three month period ended
June 30, 1996 to $2.0 million. Net sales in the six month period ended June 30,
1996 increased 14.0% to $231.3 million from $202.8 million during the same
period ended in 1995 for the same reasons.
Gross Profit. Gross profit for the three month period ended June 30, 1996
decreased 22.7% to $12.9 million from $16.7 million for the same period in 1995.
Gross profit for the three month period ended June 30, 1996 was negatively
impacted by an increase in the costs of certain raw materials, primarily grains.
The cost increases were partially offset by an increase in tons of pet food sold
and price increases implemented throughout the quarter. Gross profit for the
three month period ended June 30, 1996 was also negatively impacted by $.3
million due to increased depreciation resulting from the write up of assets in
connection with the Acquisition. Gross profit as a percent of net sales for the
three month periods declined to 11.5% from 16.9%. Gross profit for six month
period ended June 30, 1996 decreased 15.3% to $28.4 million from $33.5 million
during the same period in 1995 for the same reasons.
Operating Expenses. Operating expenses increased to $7.5 million in the
three month period ended June 30, 1996 from $6.1 million for the same period
of 1995. Selling expenses increased to $3.5 million from $3.1
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<PAGE> 11
million in 1995. This increase was primarily attributable to increases in
promotions, volume incentive discounts and brokerage resulting from increased
pet food tons sold. General and administrative expenses increased to $4.0
million in the three month period ended June 30, 1996 from $3.0 million in 1995
primarily due to an increase in depreciation and amortization expenses of $.9
million in the three month period ended June 30, 1996 as a result of the
Acquisition. Operating expenses as a percent of net sales for the three month
periods increased to 6.7% from 6.2% in 1995. Operating expenses increased to
$15.0 million in the six month period ended June 30, 1996 from $12.0 million for
the same period in 1995 for the same reasons.
Income From Operations. Income from operations decreased 49.0% or $5.2 million,
to $5.4 million in the three month period ended June 30, 1996 from $10.6 million
in the second quarter of 1995. This decrease was primarily due to increased
depreciation and amortization expenses in the amount of $1.2 million as a result
of the Acquisition in October 1995 and the negative effect of increased costs
for certain raw materials. Income from operations decreased 37.6% or $8.1
million, to $13.4 million in the six month period ended June 30, 1996 from $21.5
million in the same period in 1995 for the same reasons.
Interest Expense. Interest expense increased to $5.7 million in the three month
period ended June 30, 1996 from $1.3 million in 1995 due to interest expense on
debt incurred to finance the Acquisition, and amortization costs of $.2 million
related to deferred costs associated with the new debt. Interest expenses
increased to $11.6 million in the six month period ended June 30, 1996 from $2.8
million for the same period in 1995 for the same reasons.
Income Taxes. Income taxes decreased to $.02 million for the three month period
ended June 30, 1996 from $.1 million for the second quarter of 1995. The tax
benefit for the six months ended June 30, 1996 was $1.0 million as compared to a
tax provision of $.2 million for the same period in 1995. Prior to the
Acquisition, the Company was organized as a sub-chapter S corporation and
consequently the Company did not pay federal, state or local income taxes except
in those states that did not recognize sub-chapter S status or that required
payment of franchise taxes.
Liquidity and Capital Resources
The Company had working capital of $35.8 million at June 30, 1996. Net cash
provided by operating activities was $9.7 million down from $15.9 million for
the same period during 1995, primarily due to lower gross profit for the two
quarters of 1996, additional interest expense and non-recurring financing fees
resulting from the Acquisition.
As part of the Senior Credit Facility the Company maintains a $25.0 million
revolving credit facility with banks which provides adequate liquidity to meet
the Company's operational needs. At June 30, 1996 the Company had borrowing
capacity in the amount of $23.7 million under the Senior Credit facility which
is net of $1.3 million for outstanding letters of credit.
Long term debt outstanding at June 30, 1996 consisted primarily of $160.0
million Senior Notes and bank term notes in the amount of $46.0 million.
The Company is highly leveraged and has significantly increased cash
requirements for debt service relating to the Senior Notes. The Company's
ability to borrow is limited by the Senior Credit Facility and the limitations
on the incurrence of the indebtedness under the indenture entered into by the
Company in connection with the Senior Notes. The Company anticipates that its
operating cash flow, together with amounts available to it under the Senior
Credit Facility, will be sufficient to finance working capital requirements,
debt service requirements and anticipated capital expenditures.
Market prices for certain commodity grains and food stocks used in the Company's
production process continued to increase significantly during the second quarter
of 1996. While the Company implemented price increases for its products
throughout the six month period ended June 30, 1996, such price increases were
not
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<PAGE> 12
sufficient to offset fully the increases in raw materials costs. Accordingly,
the Company's profit margins for the first two quarters of 1996 were adversely
affected. Subsequent to June 30, 1996, the Company continued to implement price
increases to its customers.
In the event of further increases in raw material costs, the Company would be
required to further increase sales prices for its products in order to avoid
margin deterioration. There can be no assurance that any future sales price
increases could be successfully implemented by the Company or as to whether any
price increases implemented by the Company may affect the volume of future
shipments.
Capital expenditures for the six months ended June 30, 1996 were $4.0 million
compared to $3.1 million for the same period in 1996.
It is expected that existing manufacturing facilities will not be sufficient to
meet the Company's anticipated volume growth for the next several years.
Accordingly, it is anticipated that capital expenditures will be required to
construct or acquire additional manufacturing capacity. The Company's capital
expenditure budget for the remainder of 1996 is approximately $6.6 million,
which includes $5.5 million to increase manufacturing and warehouse capacity. In
addition, future increases in demand may require the Company to construct or
acquire new manufacturing facilities.
The Company expects to finance additional manufacturing facilities with cash
flow from operations and the revolving credit facility. No assurance can be
given that cash flow from operations will be sufficient to finance such
expansion.
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<PAGE> 13
DOANE PRODUCTS COMPANY
PART II
Item 1. Legal Proceedings
Except as described below, the Company is not a party to any material pending
legal proceedings other than ordinary routine litigation incidental to its
business, that management believes would have a material adverse affect on its
financial condition or results of operations.
The Company was named as a defendant in a case styled Harvey v. Doane Products
Company, which was filed in the US District Court for the Northern District of
Alabama on June 7, 1995. The plaintiff alleged that the Company negligently
loaded a common carrier which resulted in the death of the driver of the truck
and his wife. The Company has been awarded a summary judgement for this claim on
April 15, 1996 and the case was dismissed.
The Company has also been named as a defendant in a wrongful death action on
behalf of the wife of the driver of the truck. The plaintiff is claiming $1.3
million plus costs. The Company believes it is adequately insured for any
damages that may result from such actions, however, due to the early stages of
discovery in this case, a reasonable estimate of any loss can not be made at
this time and therefore no provision for loss has been made in the accompanying
financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE> 14
DOANE PRODUCTS COMPANY
SIGNATURES
Pursuant to the requirements 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.
DOANE PRODUCTS COMPANY
August 14, 1996 /s/ ROY E. HESS
--------------------------------
Roy E. Hess
Vice President - Finance
(Principal Financial Officer and
Duly Authorized Officer)
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<PAGE> 15
INDEX TO EXHIBITS
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Doane
Products Company's financial statements for the three months ended June 30, 1996
and is qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 287
<SECURITIES> 0
<RECEIVABLES> 44,191
<ALLOWANCES> 0
<INVENTORY> 26,832
<CURRENT-ASSETS> 73,636
<PP&E> 92,624
<DEPRECIATION> 3,190
<TOTAL-ASSETS> 304,616
<CURRENT-LIABILITIES> 37,840
<BONDS> 160,000
0
0
<COMMON> 21,167
<OTHER-SE> 40,425
<TOTAL-LIABILITY-AND-EQUITY> 304,616
<SALES> 231,285
<TOTAL-REVENUES> 231,285
<CGS> 202,932
<TOTAL-COSTS> 202,932
<OTHER-EXPENSES> 14,964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,572
<INCOME-PRETAX> (2,846)
<INCOME-TAX> (960)
<INCOME-CONTINUING> (1,886)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,886)
<EPS-PRIMARY> (4,639)
<EPS-DILUTED> 0
</TABLE>
