<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
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 33-30261
WINDY HILL PET FOOD COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 41-0323270
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
Highwoods Plaza II
103 Powell Court, Suite 200
Brentwood, TN 37027
(Address of Principal Executive Office)
(615) 373-7774
(Registrant's Telephone Number, Including Area Code)
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 and Exchange Act of 1934
during the preceeding 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 No X
---- ----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
Shares Outstanding
September 27, 1997
Common stock, no par value 100
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WINDY HILL PET FOOD COMPANY, INC.
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 27, December 28,
1997 1996
-------------- -------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,803 $ 570
Accounts receivable,
net of allowance of $73 and $48, respectively 14,721 8,224
Accounts receivable - other 483 19
Inventories (Note 3) 12,327 5,141
Prepaid expenses 884 811
Current deferred tax asset - 30
Net assets held for sale 1,641 -
------- ------
Total current assets 32,859 14,795
Property, plant and equipment, net 60,930 22,484
Goodwill and other intangible assets, 100,559 51,515
net
Investments in joint ventures 2,788 -
Notes receivable 290 -
Other assets 11,538 3,431
------- ------
Total assets $ 208,964 $ 92,225
======= ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of term debt $ 938 $ 5,800
Senior secured revolving debt facility - 2,000
Accounts payable 17,699 9,816
Accrued liabilities 9,841 2,699
Income taxes payable 2,363 -
------- ------
Total current liabilities 30,841 20,315
Senior secured term debt 14,062 35,750
Senior subordinated notes 120,000 7,551
Other liabilities 1,435 325
Deferred tax liability - non-current 9,901 2,252
------- ------
Total liabilities 176,239 66,193
------- ------
Stockholder's equity:
Common stock, no par value - -
Paid in capital 35,461 25,681
Retained earnings (accumulated deficit) (2,736) 351
------- ------
Total stockholder's equity 32,725 26,032
------- ------
Total liabilities and stockholder's equity $ 208,964 $ 92,225
======= ======
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Company Old Windy Hill
-----------------------------------------------------
Three Months Ended,
-----------------------------------------------------
September 27, 1997 September 28, 1996
-----------------------------------------------------
<S> <C> <C>
Net sales $ 48,887 $ 25,595
Cost of goods sold 34,224 17,191
--------- ---------
Gross profit 14,663 8,404
--------- ---------
Selling, distribution and marketing
expenses:
Selling and distribution 3,955 2,287
Trade promotions 3,275 2,540
Consumer marketing 573 38
--------- ---------
Total selling, distribution and marketing expenses 7,803 4,865
--------- ---------
Amortization of goodwill and other intangibles 1,030 371
General and administrative expenses 1,733 956
Equity in earnings of joint ventures (213) -
Transition related costs (Note 4) 1,251 -
--------- ---------
Total operating expenses 11,604 6,192
--------- ---------
Operating income 3,059 2,212
Interest income (93) (32)
Interest expense 3,336 1,286
Amortization of deferred financing expense 229 97
Other bank and financing expenses 29 13
--------- ---------
(Loss) income before income tax (442) 848
Income tax provision 61 339
--------- ---------
Net (loss) income $ (503) $ 509
========= =========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Company Old Windy Hill
---------------------------------------
Nine Months Ended,
---------------------------------------
September 27, 1997 September 28, 1996
---------------------------------------
<S> <C> <C>
Net sales $ 109,210 $ 54,724
Cost of goods sold 73,553 36,892
------- ------
Gross profit 35,657 17,832
------- ------
Selling, distribution and marketing expenses:
Selling and distribution 9,587 5,450
Trade promotions 10,724 5,386
Consumer marketing 1,074 97
------- ------
Total selling, distribution and marketing expenses 21,385 10,933
------- ------
Amortization of goodwill and other intangibles 2,156 799
General and administrative expenses 4,777 2,627
Equity in earnings of joint ventures (242) -
Transition related costs (Note 4) 1,359 -
------- ------
Total operating expenses 29,435 14,359
------- ------
Operating income 6,222 3,473
Interest income (121) (48)
Interest expense 6,726 2,601
Amortization of deferred financing expense 479 765
Other bank and financing expenses 59 27
------- ------
(Loss) before income tax (921) 128
Income tax (benefit) provision (128) 448
------- ------
(Loss) before extraordinary item (793) (320)
Early extinguishment of debt, net of tax 2,294 -
------- ------
Net (loss) $ (3,087) $ (320)
======= ======
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
Operating Period December 29, 1996 through September 27, 1997
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Paid in (Accumulated
Shares Capital Deficit) Total
------ ----------- ------------ -------
<S> <C> <C> <C> <C>
Balance at December 28, 1996 100 $25,681 $ 351 $26,032
Capital contribution - 10,000 - 10,000
Equity offering costs - (220) - (220)
Net (loss) - - (3,087) (3,087)
--- ------- ------- -------
Balance at September 27, 1997 100 $35,461 $(2,736) $32,725
=== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Company Old Windy Hill
---------------------------------------
Nine Months Ended,
---------------------------------------
September 27, 1997 September 28, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (3,087) $ (320)
Early extinguishment of debt, net of tax 2,294 -
Adjustments to reconcile net (loss) to cash provided by operating
activities:
Depreciation and amortization 4,501 2,301
Deferred income taxes 1,553 448
Change in assets and liabilities, net of effects of businesses acquired:
Decrease (increase) in accounts receivable 1,155 (2,657)
(Increase) in inventories (1,047) (1,135)
Decrease (increase) in prepaid expenses 55 (368)
(Decrease) increase in accounts payable (2,166) 5,184
Increase in accrued liabilities 5,900 684
--------- --------
Net cash provided by operating activities 9,158 4,137
--------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (2,415) (933)
Additions to other assets (809) 176
Payments and advances for joint ventures 1,376 -
Payment for acquisition of business (136,440) (54,831)
Proceeds from sale of business 50,017 -
Income taxes payable from sale of business 2,363 -
--------- --------
Net cash used in investing activities (85,908) (55,588)
--------- --------
Cash flows from financing activities:
Proceeds from long term borrowings 189,500 55,000
Payment of borrowings (109,952) (18,500)
Capital contributions from Holdings 10,000 19,000
Debt issuance and equity offering costs (10,565) (3,183)
--------- --------
Net cash provided by financing activities 78,983 52,317
--------- --------
Increase in cash and cash equivalents 2,233 866
Cash and cash equivalents, beginning of period 570 515
--------- --------
Cash and cash equivalents, end of period $ 2,803 $ 1,381
========= ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Basis of Presentation
The interim financial statements of Windy Hill Pet Food Company, Inc. (the
"Company"), included herein, have not been audited by independent accountants.
The statements include all adjustments, such as normal recurring accruals, which
management considers necessary for a fair presentation of the financial position
and operating results of the Company for the periods presented. Operating
results for the prior year periods include certain reclassifications to conform
with the current year presentation. The statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosure normally
included in financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The operating results for interim periods are not necessarily
indicative of results to be expected for an entire year.
For further information, reference should be made to the financial statements
for the fiscal year ended December 28, 1996 and the notes thereto included in
the Company's Registration Statement on Form S-4 on file at the Securities
and Exchange Commission.
NOTE 2 - ACQUISITIONS
On May 21, 1997, Windy Hill Pet Food Acquisition Co., a newly formed indirect
subsidiary of Windy Hill Pet Food Holdings, Inc. ("Holdings"), merged with and
into Hubbard Milling Company ("Hubbard") and Windy Hill Pet Food Company, Inc.
("Old Windy Hill"), a wholly-owned subsidiary of Holdings, purchased all of the
capital stock of Armour Corporation, a holding company which owned 16% of the
capital stock of Hubbard. Concurrently, Hubbard, the surviving corporation in
the merger, was renamed Windy Hill Pet Food Company, Inc. (the "Company"), and
Holdings transferred all the operating assets and liabilities, including $27.0
million of equity and $51.0 million of indebtedness (the "Existing
Indebtedness") of Old Windy Hill to the Company. The net purchase price of
Hubbard was approximately $133.4 million (net of cash acquired). For financial
reporting purposes, these transactions were accounted for as a purchase of
Hubbard by Old Windy Hill. The allocation of the purchase price has not been
finalized; however, any changes are not expected to be material. The merger was
financed with (i) a $10.0 million capital contribution from Holdings, (ii) term
debt of $20.0 million and revolving debt of $45.0 million under a $65.0 million
senior secured debt facility, and (iii) proceeds from the issuance of $120.0
million of senior subordinated notes. Simultaneously with the merger, the
Company sold its animal feed business to Feed-Rite (US) Animal Feeds, Inc., a
subsidiary of the Ridley Group. The net after tax proceeds, subject to certain
adjustments, were approximately $50.0 million. The proceeds were used to repay
senior secured debt.
6
<PAGE>
The acquisition has been accounted for using the purchase method and
accordingly, the results of operations are included in the Statements of
Operations from the date of acquisition. Assets acquired and liabilities
assumed were recorded at their estimated fair market value and the excess costs
over net tangible assets are being amortized over the estimated useful lives of
the related intangible assets.
Had the acquisition taken place January 1, 1996, the unaudited pro forma net
sales and income before income taxes for the quarter ended September 30, 1996
would have been $54,273,000 and $51,000, respectively. The unaudited pro forma
net sales and income (loss) before income taxes for the nine months ended
September 27, 1997 would have been $153,005,000 and $960,000, respectively, and
for the nine months ended September 30, 1996 would have been $147,244,000 and
$(2,488,000), respectively.
NOTE 3 - INVENTORIES
Inventories are stated at the lower of cost (determined by the first-in, first-
out method) or market. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 27, 1997 December 28, 1996
------------------ -----------------
<S> <C> <C>
Raw materials $ 3,494 $1,253
Packaging 6,970 2,339
Finished goods 1,863 1,549
------- ------
$12,327 $5,141
======= ======
</TABLE>
NOTE 4 - TRANSITION RELATED COSTS
Transition related expenses represent one-time costs incurred to integrate the
Hubbard acquisition. These expenses include transitional employee compensation,
relocation expenses, recruiting fees, training costs, systems conversion costs,
and other unique transitional expenses.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to Notes to Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations presented in the
Registrant's Registration Statement on the Form S-4 for the period ended
December 28, 1996.
A. The following tables set forth, for the periods indicated, the percentage
which the items in the Statement of Operations bear to net sales and the
percentage change of such items compared to the indicated prior period.
8
<PAGE>
COMPARATIVE RESULTS: THREE MONTHS ENDED SEPTEMBER 27, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Company Old Windy Hill
-------------------------------------------------- Period to
Three Months Ended, Period
-------------------------------------------------- Increase
September 27, 1997 September 28, 1996 (Decrease)
------------------- ------------------- --------
($000) ($000)
<S> <C> <C> <C> <C> <C>
Net sales $ 48,887 100.0% $ 25,595 100.0% 91.0%
Cost of goods sold 34,224 70.0 17,191 67.2 99.1
------ ----- ------ -----
Gross profit 14,663 30.0 8,404 32.8 74.5
------ ----- ------ -----
Selling, distribution and
marketing expenses:
Selling and distribution 3,955 8.1 2,287 8.9 72.9
Trade promotions 3,275 6.7 2,540 9.9 28.9
Consumer marketing 573 1.2 38 0.2 1,407.9
------ ----- ------ -----
Total selling, distribution
and marketing expenses 7,803 16.0 4,865 19.0 60.4
------ ----- ------ -----
Amortization of goodwill
and other intangibles 1,030 2.1 371 1.5 177.6
General and administrative
expenses 1,733 3.5 956 3.7 81.3
Equity in earnings
of joint ventures (213) (0.4) - 0.0 0.0
Transition related costs 1,251 2.5 - 0.0 0.0
------ ----- ------ -----
Total operating expenses 11,604 23.7 6,192 24.2 87.4
------ ----- ------ -----
Operating income 3,059 6.3 2,212 8.6 38.3
Interest income (93) (0.2) (32) (0.1) 190.6
Interest expense 3,336 6.8 1,286 5.0 159.4
Amortization of deferred
financing expense 229 0.5 97 0.4 136.1
Other bank and financing
expenses 29 0.1 13 0.0 123.1
------ ----- ------ -----
(Loss) income before
income taxes (442) (0.9) 848 3.3 (152.1)
Income tax provision 61 0.1 339 1.3 (82.0)
------ ----- ------ -----
Net (loss) income $ (503) (1.0)% $ 509 2.0% (198.8)%
====== ===== ====== =====
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 27, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
28, 1996
Net Sales. Net sales for the 1997 quarter were $48.9 million which were $23.3
million, or 91%, higher than the comparable 1996 quarter. The increase was due
primarily to the inclusion of $26.3 million of sales attributable to the
acquisition of Hubbard in May 1997, which was partially offset by a $3.0 million
decline in sales of Old Windy Hill as compared to the third quarter of 1996.
The decline in sales at Old Windy Hill was the result of a $2.3 million decline
in co-pack sales and a $1.7 million shortfall in economy branded dog and cat
food products which was mitigated by a $1.0 million increase in sales of private
label dog food products.
Gross Profit. Gross profit for the three months ended September 27, 1997 was
$14.7 million, or 30.0% of net sales, as compared to $8.4 million, or 32.8% of
net sales, for the same period in 1996. The decrease as a percentage of net
sales was due to the inclusion of Hubbard's sales which are primarily private
label pet food products and have a lower gross margin than the Old Windy Hill
branded products.
Selling, Distribution and Marketing Expenses. Selling, distribution and
marketing expenses decreased as a percentage of net sales to 16.0% for the three
months ended September 27, 1997 from 19.0% for the comparable period in 1996.
The decrease was due to private label pet food products, which do not require
the same level of trade promotions as branded products, accounting for a higher
percentage of the Company's sales mix in the third quarter of 1997. In
addition, the Company experienced distribution efficiencies as a result of the
Hubbard acquisition.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles increased as a result of the acquisition of Hubbard in May
1997.
General and Administrative Expenses. General and administrative expenses
increased to $1.7 million for the three months ended September 27, 1997, up
81.3% over the comparable three months in 1996. However, general and
administrative expenses decreased as a percentage of net sales to 3.5% for the
third quarter of 1997 from 3.7% for the third quarter of 1996. The dollars
increased due to additional staffing and infrastructure required as a result of
the Hubbard acquisition; however, they decreased as a percentage of net sales
due to efficiencies resulting from putting the companies together.
10
<PAGE>
Equity in Earnings of Joint Ventures. As part of the Hubbard acquisition, the
Company became a 50% equity partner in four joint ventures engaged in the
business of manufacturing pet food products. The $0.2 million of earnings
represents the Company's share in the net profits of the joint ventures.
Transition Related Costs. Management believes that transition related expenses
represent one-time costs incurred to integrate the Hubbard acquisition. These
expenses include transitional employee compensation, relocation expenses,
recruiting fees, training costs, systems conversion costs, and other unique
transitional expenses.
Operating Income. Operating income increased to $3.1 million for the three
months ended September 27, 1997, which was 38.3% above the $2.2 million for the
comparable three months in 1996. Operating income decreased as a percentage of
net sales to 6.3% for the three months ended September 27, 1997 compared to 8.6%
for 1996. However, if one-time transition related costs are added back,
operating income as a percentage of net sales would have increased to 8.8%. The
improvement was attributable to the acquisition of Hubbard and the efficiencies
resulting from putting Old Windy Hill and Hubbard together.
Interest Expense and Amortization of Deferred Financing Expense. The aggregate
interest expense and amortization of deferred financing expense totaled $3.6
million for the three months ended September 27, 1997 compared to $1.4 million
for the comparable period in 1996. The increase was due to the incremental debt
incurred to finance the Hubbard acquisition.
Provision for Income Taxes. The Company's income tax provision was the
computational result of an adjustment to the income tax benefit recorded for the
nine months ended September 27, 1997.
11
<PAGE>
COMPARATIVE RESULTS: NINE MONTHS ENDED SEPTEMBER 27, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Company Old Windy Hill
------------------------------------------------ Period to
Nine Months Ended, Period
------------------------------------------------ Increase
September 27, 1997 September 28, 1996 (Decrease)
------------------ ------------------ ----------
($000) ($000)
<S> <C> <C> <C> <C> <C>
Net sales $109,210 100.0% $54,724 100.0% 99.6%
Cost of goods sold 73,553 67.3 36,892 67.4 99.4
-------- ----- ------- -----
Gross profit 35,657 32.7 17,832 32.6 100.0
-------- ----- ------- -----
Selling, distribution and
marketing expenses:
Selling and distribution 9,587 8.8 5,450 10.0 75.9
Trade promotions 10,724 9.8 5,386 9.8 99.1
Consumer marketing 1,074 1.0 97 0.2 1,007.2
-------- ----- ------- -----
Total selling, distribution
and marketing expenses 21,385 19.6 10,933 20.0 95.6
-------- ----- ------- -----
Amortization of goodwill
and other intangibles 2,156 2.0 799 1.4 169.8
General and administrative
expenses 4,777 4.4 2,627 4.8 81.8
Equity in earnings
of joint ventures (242) (0.2) - 0.0 0.0
Transition related costs 1,359 1.2 - 0.0 0.0
-------- ----- ------- -----
Total operating expenses 29,435 27.0 14,359 26.2 105.0
-------- ----- ------- -----
Operating income 6,222 5.7 3,473 6.4 79.2
Interest income (121) (0.1) (48) (0.1) 152.1
Interest expense 6,726 6.2 2,601 4.8 158.6
Amortization of deferred
financing expense 479 0.4 765 1.4 (37.4)
Other bank and financing
expenses 59 0.0 27 0.1 118.6
-------- ----- ------- -----
(Loss) income before
income taxes (921) (0.8) 128 0.2 (819.5)
Income tax (benefit) provision (128) (0.1) 448 0.8 (128.6)
-------- ----- ------- -----
(Loss) before
extraordinary item (793) (0.7) (320) (0.6) 147.8
Early extinguishment of
debt, net of tax 2,294 2.1 - 0.0 0.0
-------- ----- ------- -----
Net (loss) $ (3,087) (2.8)% $ (320) (0.6)% (864.7)%
======== ===== ======= =====
</TABLE>
12
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 27, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 28,
1996
Net Sales. Net sales for the nine months ended September 27, 1997 were $109.2
million which were $54.5 million, or 99.6%, higher than the comparable 1996
period. The increase was due to the following factors: (i) the inclusion of
$37.1 million of sales attributable to the acquisition of Hubbard, (ii) a full
nine months of sales of the pet food business of Heinz Pet Products ("HPP")
acquired in April 1996 versus five months of sales in the prior year's
comparable period, which added $9.9 million of sales, and (iii) a $7.5 million
sales increase of Old Windy Hill pet food products in principally the private
label and branded dog food product lines.
Gross Profit. Gross profit for the nine months ended September 27, 1997 was
$35.7 million, or 32.7% of net sales, as compared to $17.8 million, or 32.6% of
net sales, for the same period in 1996. The lower gross margin generated by the
inclusion of Hubbard sales was offset by the higher margin produced by the
branded product lines acquired from HPP and the inclusion of such branded
product lines for nine months of 1997 versus five months in 1996.
Selling, Distribution and Marketing Expenses. Selling, distribution and
marketing expenses decreased as a percentage of net sales to 19.6% for the nine
months ended September 27, 1997 from 20.0% for the comparable nine month period
in 1996. Lower selling and distribution expenses as a percentage of sales
accounted for most of the decrease as the Company has achieved distribution
efficiences from both the HPP and Hubbard acquisitions.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles increased as a result of the acquisition of the HPP pet food
brands in April 1996 and Hubbard in May 1997.
General and Administrative Expenses. General and administrative expenses
increased to $4.8 million for the nine months ended September 27, 1997, up 81.8%
over the comparable nine months in 1996. However, general and administrative
expenses decreased as a percentage of net sales to 4.4% for the first nine
months of 1997 from 4.8% for the comparable period in 1996. The dollars
increased due to additional staffing and infrastructure required as a result of
the acquisition of brands from HPP and the Hubbard acquisition; however, general
and administrative expenses decreased as a percentage of net sales due to
efficiencies resulting from putting the companies together.
13
<PAGE>
Equity in Earnings of Joint Ventures. As part of the Hubbard acquisition, the
Company became a 50% equity partner in four joint ventures engaged in the
business of manufacturing pet food products. The $0.2 million of earnings
represents the Company's share in the net profits of the joint ventures.
Transition Related Costs. Management believes that transition related expenses
represent one-time costs incurred to integrate the Hubbard acquisition. These
expenses include transitional employee compensation, relocation expenses,
recruiting fees, training costs, systems conversion costs, and other unique
transitional expenses.
Operating Income. Operating income increased to $6.2 million for the nine
months ended September 27, 1997 which was 79.2% higher than the $3.5 million for
the comparable nine months in 1996. Operating income decreased as a percentage
of net sales to 5.7% for the nine months ended September 27, 1997 compared to
6.4% for 1996. However, if one-time transition related costs are added back,
operating income as a percentage of net sales would have increased to 6.9%. The
improvement was attributable to the acquisition of the brands from HPP and the
Hubbard acquisition and the efficiencies resulting from putting Old Windy Hill
and Hubbard together.
Interest Expense and Amortization of Deferred Financing Expense. The aggregate
interest expense and amortization of financing expense totaled $7.2 million for
the nine months ended September 27, 1997 compared to $3.4 million for the
comparable period in 1996. The increase was due to the incremental debt
incurred to finance the HPP acquisition in April 1996 and the Hubbard
acquisition in May 1997.
Provision for Income Taxes. The income tax benefit as a percentage of loss
before taxes for the current period was less than the expected benefit computed
by applying the expected tax rate due to the non-deductible goodwill
amortization associated with the stock purchase of Hubbard.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On May 21, 1997, the Company incurred additional debt and raised additional
equity to fund the acquisition and the concurrent merger of Hubbard, as more
fully described in Note 2 to the financial statements. Simultaneously with the
merger, the Company sold its animal feed division (also described in Note 2) and
received net proceeds of approximately $50.0 million. After the merger and sale,
the Company's capital structure was as follows: (i) senior secured term debt of
$15.0 million, (ii) senior subordinated notes issued in the amount of $120.0
million, and (iii) capital contributed from Holdings in the amount of $35.5
million, of which $10.0 million was contributed at the time of the Hubbard
acquisition. The Company also has a $45.0 million senior secured acquisition
debt facility and a $20.0 million senior secured working capital debt facility.
For the nine months ended September 27, 1997, cash provided by operations was
$11.5 million. Net income before non-cash charges provided $5.3 million of cash.
The non-cash charges included a write off of loan acquisition costs in the
amount of $2.3 million associated with the early extinguishment of Existing
Indebtedness (as defined in Note 2). Net working capital provided $3.9 million
of cash. The Company's current assets and current liabilities have increased
substantially from the balances at December 31, 1996 as a result of the Hubbard
acquisition.
During the nine month period, the Company spent $2.4 million on capital
expenditures, primarily machinery and equipment to maintain its plants. The
Company plans to spend approximately $5.0 million on capital expenditures during
fiscal 1997. During the nine month period, the Company received $1.4 million in
cash from its joint venture partnerships. On August 31, 1997, the Company
acquired the remaining 50% interest in one of its joint ventures located in
Maumee, Illinois for a purchase price of $1.0 million.
As of September 27, 1997, the Company had $2.8 million of cash and cash
equivalents. The Company's primary sources of liquidity are cash from
operations and borrowings under its $20.0 million working capital debt facility.
Based on current estimates of cash flow and operating expenses, the Company
believes that the available borrowing capacity combined with cash provided by
operations will provide the Company with sufficient cash to fund operations as
well as meet existing obligations.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<C> <S>
2.1 Merger Agreement, dated as of March 21, 1997, by and among Hubbard Milling
Company, Windy Hill Pet Food Company, Inc. and Windy Hill Pet Food Acquisition
Co. (the "Merger Agreement") (incorporated by reference to Exhibit 2.1 to the
Company's Form S-4 on September 29, 1997 (the "S-4")).
2.2 Amendment to Merger Agreement dated as of March 31, 1997 (incorporated by
reference to Exhibit 2.2 to the S-4).
2.3 Articles of Merger dated May 21, 1997, of Windy Hill Pet Food Acquisition Co.
into Hubbard Milling Company (incorporated by reference to Exhibit 2.3 of the
S-4).
2.4 Stock Purchase Agreement, dated as of April 22, 1997, by and between Windy
Hill Pet Food Company, Inc. and the shareholders of Armour Corporation
(incorporated by reference to Exhibit 2.4 to the S-4).
2.6 Asset Purchase Agreement, dated as of April 25, 1997, by and among Windy Hill
Pet Food Company, Inc., Windy Hill Acquisition Co. and Feed-Rite (US)
Animal Feeds, Inc. (incorporated by reference to Exhibit 2.6 to the S-4).
2.7 Asset Purchase Agreement, dated as of April 17, 1996, among Heinz Pet Products
Company, a division of Star-Kist Foods, Inc., H.J. Heinz Company, Perk Foods
Co., Incorporated, ProMark International, Inc., Windy Hill Pet Food Holdings,
Inc. and Windy Hill Pet Food Company, Inc. (incorporated by reference to Exhibit
2.7 to the S-4).
2.8 Amendment to Asset Purchase Agreement, dated as of April 26, 1996, among
Heinz Pet Products Company, a division of Star-Kist Foods, Inc., Perk Foods Co.,
Incorporated, ProMark International, Inc., H.J. Heinz Company, Windy Hill Pet
Food Holdings, Inc. and Windy Hill Pet Food Company, Inc. (incorporated by reference
to Exhibit 2.8 to the S-4).
3.1 Certificate of Amended and Restated Articles of Incorporation of Windy Hill Pet
Food Company, Inc. (incorporated by reference to Exhibit 3.1 to the S-4).
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
----- -------
<C> <S>
3.2 By-Laws of Windy Hill Pet Food Company, Inc. (incorporated by reference to
Exhibit 3.2 to S-4).
4.1 Indenture, dated as of May 21, 1997, between Windy Hill
Pet Food Company, Inc. and Wilmington Trust Company
(incorporated by reference to Exhibit 4.1 to S-4).
4.2 Form of Exchange Note (incorporated by reference to Exhibit
4.2 to S-4).
4.3 Registration Rights Agreement, dated May 21, 1997, between
Windy Hill Pet Food Company, Inc., Chase Securities Inc.,
and Credit Suisse First Boston Corporation (incorporated by
reference to Exhibit 4.3 to S-4).
4.4 Global Note, dated May 21, 1997, issued by Windy Hill Pet
Food Company, Inc. to the Depository Trust Company and
registered in the name of Cede & Co. in the principal
amount of $120,000,000 (incorporated by reference to
Exhibit 4.4 to S-4).
10.1 Distribution Agreement, dated May 21, 1997, by and between
Windy Hill Pet Food Company, Inc. and Feed-Rite (US) Animal
Feeds, Inc. (incorporated by reference to Exhibit 10.1 to
S-4).
10.2 License Agreement, dated May 21, 1997, by and between Feed-
Rite (US) Animal Feeds, Inc. and Windy Hill Pet Food
Company, Inc. (incorporated by reference to Exhibit 10.2 to
S-4).
10.3 Guaranty Agreement, dated April 25, 1997 among Feed-Rite
Ltd., Windy Hill Pet Food Acquisition Co. and Windy Hill
Pet Food Company, Inc. (incorporated by reference to
Exhibit 10.3 to S-4).
10.4 Memorandum of Agreement, dated as of May 21, 1997, among
Windy Hill Pet Food Company, Inc., Windy Hill Pet Food
Acquisition Co. and Feed-Rite (US) Animal Feeds, Inc.
(incorporated by reference to Exhibit 10.4 to S-4).
10.5 Assignment of Trademarks, dated May 21, 1997, by Windy
Hill Pet Food Company, Inc. to Feed-Rite (US) Animal
Feeds, Inc. (incorporated by reference to Exhibit 10.5 to
S-4).
10.6 Employee Benefits Agreement, dated May 21, 1997, by and
between Windy Hill Pet Food Company, Inc. and Feed-Rite
(US) Animal Feeds, Inc. (incorporated by reference to
Exhibit 10.6 to S-4).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- --------------- ----------------------------
<C> <S>
10.7 Disbursing Agreement, dated as of May 21, 1997, by and
among Hubbard Milling Company, Richard P. Confer, Windy
Hill Pet Food Company, Inc. and Norwest Bank of Minnesota,
N.A. (incorporated by reference to Exhibit 10.7 to S-4).
10.8 Term Note, dated May 21, 1997, issued by Windy Hill Pet
Food Company, Inc. to BankBoston, N.A. in the principal
amount of $1,505,882.35 (incorporated by reference to
Exhibit 10.8 to S-4).
10.9 Term Note, dated May 21, 1997, issued by Windy Hill Pet
Food Company, Inc. to SouthTrust Bank of Alabama, National
Association in the principal amount of $1,505,882.35
(incorporated by reference to Exhibit 10.9 to S-4).
10.10 Term Note, dated May 21, 1997, issued by Windy Hill Pet
Food Company, Inc. to First Source Financial LLP in the
principal amount of $1,505,882.35 (incorporated by
reference to Exhibit 10.10 to S-4).
10.11 Term Note, dated May 21, 1997, issued by Windy Hill Pet
Food Company, Inc. to NationsBank of Tennessee, N.A. in the
principal amount of $1,505,882.35 (incorporated by
reference to Exhibit 10.11 to S-4).
10.12 Acquisition Note, dated May 21, 1997, issued by Windy Hill
Pet Food Company, Inc. to BankBoston, N.A. in the principal
amount of $3,388,235.30 (incorporated by reference to
Exhibit 10.12 to S-4).
10.13 Acquisition Note, dated May 21, 1997, issued by Windy Hill
Pet Food Company, Inc. to First Source Financial LLP in the
principal amount of $3,388,235.30 (incorporated by
reference to Exhibit 10.13 to S-4).
10.14 Acquisition Note, dated May 21, 1997, issued by Windy Hill
Pet Food Company, Inc. to SouthTrust Bank of Alabama,
National Association in the principal amount of
$3,388,235.30 (incorporated by reference to Exhibit 10.14
to S-4).
10.15 Acquisition Note, dated May 21, 1997, issued by Windy Hill
Pet Food Company, Inc. to NationsBank of Tennessee, N.A. in
the principal amount of $3,388,235.30 (incorporated by
reference to Exhibit 10.15 to S-4).
10.16 Credit Agreement, dated as of May 21, 1997, among Windy
Hill Pet Food Acquisition Co., the several banks and other
financial institutions from time to time parties thereto,
Credit Suisse First Boston, as Administration Agent, and
The Chase Manhattan Bank, as Documentation Agent
(incorporated by reference to Exhibit 10.16 to S-4).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- -------------- ---------------------
<C> <S>
10.17 Guarantee and Collateral Agreement, dated as of May 21,
1997, made by Windy Hill Pet Food Holdings, Inc., WHPF
Inc., Armour Corporation, Windy Hill Pet Food Company,
Inc., each of these signatories thereto in favor of Credit
Suisse First Boston, as Administrative Agent for the banks
and other financial institutions, and the Chase Manhattan
Bank, as Documentation Agent (incorporated by reference to
Exhibit 10.17 to S-4).
10.18 Consent and Release of Lenders, dated May 19, 1997, related
to the credit facility, dated as of April 29, 1996, by and
among Windy Hill Pet Food Company, Inc., Windy Hill Pet
Food Holdings, Inc. and their subsidiaries, NationsBank of
Tennessee, N.A. as Administrative Agent and PNC Bank,
National Association, as Documentation Agent (incorporated
by reference to Exhibit 10.18 to S-4).
10.19 Consent and Release of PNC Capital Corp., dated May 20,
1997, related to the Note Purchase Agreement dated as of
April 29, 1996 between Windy Hill Pet Food Company, Inc.
and PNC Capital Corp. (incorporated by reference to Exhibit
10.19 to S-4).
10.20 Statement of Understanding regarding Pet Food Joint
Venture, dated June 1, 1984, between the Andersons and
Hubbard Milling Company (incorporated by reference to
Exhibit 10.20 to S-4).
10.21 Supplement No. 1 to Statement of Understanding regarding
Pet Food Joint Venture, dated as of May 31, 1989, between
The Andersons and Hubbard Milling Company (incorporated by
reference to Exhibit 10.21 to S-4).
10.22 Supplement No. 2 to Statement of Understanding regarding
Pet Food Joint Venture, dated as of November 27, 1990,
between the Andersons and Hubbard Milling Company
(incorporated by reference to Exhibit 10.22 to S-4).
10.23 Supplement No. 3 to Statement of Understanding regarding
Pet Food Joint Venture, dated as of November 18, 1992,
between the Andersons and Hubbard Milling Company
(incorporated by reference to Exhibit 10.23 to S-4).
10.24 Supplement No. 4 to Statement of Understanding regarding
Pet Food Joint Venture, dated as of November 9, 1994,
between the Andersons and Hubbard Milling Company
(incorporated by reference to Exhibit 10.24 to S-4).
10.25 Supplement No. 5 to Statement of Understanding regarding
Pet Food Joint Venture, dated as of January 16, 1997,
between the Andersons and Hubbard Milling Company
(incorporated by reference to Exhibit 10.25 to S-4).
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ---------------- ----------------------
<C> <S>
10.26 Statement of Understanding regarding Pet Food Joint
Venture, dated as of January 28, 1988, between the Merrick
Pet Foods and Hubbard Milling Company (incorporated by
reference to Exhibit 10.26 to S-4).
10.27 Joint Venture Agreement, dated as of January 9, 1992,
between MFA, Inc. and Hubbard Milling Company (incorporated
by reference to Exhibit 10.27 to S-4).
10.28 Joint Venture Agreement, dated as of July 28, 1993, between
J.R. Simplot Company and Hubbard Milling Company
(incorporated by reference to Exhibit 10.28 to S-4).
10.29 Joint Venture Agreement, dated as of April 7, 1995, between
Flint River Mills, Inc. and Hubbard Milling Company
(incorporated by reference to Exhibit 10.29 to S-4).
10.30 Statement of Understanding regarding Pet Food Venture,
dated as of August 10, 1993, between Phelps Industries,
Inc. and Hubbard Milling Company (incorporated by reference
to Exhibit 10.30 to S-4).
10.31 Purchase Agreement, dated May 16, 1997, among the Windy
Hill Acquisition Co., and Chase Securities Inc., and Credit
Suisse First Boston Corporation (incorporated by reference
to Exhibit 10.31 to S-4).
10.32 Trademark License and Option Agreement, dated April 29,
1996, among Windy Hill Pet Food Company, Inc., ProMark
International, Inc., Heinz Pet Products Company, a division
of Star-Kist Foods, Inc. and H.J. Heinz Company
(incorporated by reference to Exhibit 10.32 to S-4).
10.33 Trademark License Agreement, dated April 1996, between Windy
Hill Pet Food Company, Inc. and Heinz Pet Products Company,
a division of Star-Kist, Inc. (incorporated by reference to
Exhibit 10.33 to S-4).
10.34 License Agreement, dated April 29, 1996, between Park Foods
Co., Incorporated and Windy Hill Pet Food Company, Inc.
(incorporated by reference to Exhibit 10.34 to S-4).
10.35 Transition Storage Agreement, dated as of April 29, 1996,
between Heinz Pet Products Company, a division of Star-Kist
Foods, Inc. and Windy Hill Pet Food Company, Inc.
(incorporated by reference to Exhibit 10.35 to S-4).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- --------------- -------------------------
<C> <S>
10.36 Transition Services Agreement, dated as of April 29, 1996,
among Heinz Pet Products Company, a division of Star-Kist
Foods, Inc., H.J. Heinz Company of Canada Ltd., and Windy
Hill Pet Food Company, Inc. (incorporated by reference to
Exhibit 10.36 to S-4).
10.37 Lease Agreement, dated as of May 16, 1997, between W. Fred
Williams, Trustee for the Benefit of Highwoods/Tennessee
Holdings, L.P., as Lessor and Windy Hill Pet Food Company,
Inc. as Lessee (incorporated by reference to Exhibit 10.37
to S-4).
10.38 Lease Agreement, dated as of February 25, 1995, between
Eastpark, L.P., as Lessor and Windy Hill Pet Food Company,
Inc. as Successor in interest to P.F.B. Partnership, as
Lessee (incorporated by reference to Exhibit 10.38 to S-4).
10.39 Software License Agreement, dated April 29, 1996, between
Agri-Data System, Inc. and Windy Hill Pet Food Company,
Inc. (incorporated by reference to Exhibit 10.39 to S-4).
10.40 Employment Agreement, dated April 29, 1996, by and between
Windy Hill Pet Food Company, Inc. and Robert V. Dale
(incorporated by reference to Exhibit 10.40 to S-4).
10.41 Employment Agreement, dated April 29, 1996, by and between
Windy Hill Pet Food Company, Inc. and Donald L. Gadd
(incorporated by reference to Exhibit 10.41 to S-4).
10.42 Employment Agreement, dated April 29, 1996, by and between
Windy Hill Pet Food Company, Inc. and F. Donald Cowan, Jr.
(incorporated by reference to Exhibit 10.42 to S-4).
10.43 Employment Agreement, dated April 29, 1996, by and between
Windy Hill Pet Food Company, Inc. and Vaughn R. Oakley
(incorporated by reference to Exhibit 10.43 to S-4).
10.44 Amended and Restated Management Services Agreement, dated
as of May 2, 1997, between Windy Hill Pet Food Company,
Inc. and Dartford Partnership L.L.C. (incorporated by
reference to Exhibit 10.44 to S-4).
10.45 Letter Agreement, dated April 29, 1996, between Windy Hill
Pet Food Company, Inc. and Bruckmann, Rosser, Sherrill &
Co., Inc. (incorporated by reference to Exhibit 10.45 to S-
4).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ----------------- -----------------------
<C> <S>
10.46 Letter Agreement, dated May 21, 1997, among WHPF, Inc.,
Windy Hill Pet Food Company, Inc. and Bruckmann, Rosser,
Sherrill & Co., Inc. (incorporated by reference to Exhibit
10.46 to S-4).
27.1 Financial Data Schedule for the period ended September 27,
1997, submitted to the Securities and Exchange Commission in
electronic format.
99.1 Form of Exchange Agent Agreement to be entered into Windy
Hill Pet Food Company, Inc. and Wilmington Trust Company
(incorporated by reference to Exhibit 99.1 to S-4).
99.2 Form of Letter of Transmittal (incorporated by reference to
Exhibit 99.2 to S-4).
99.3 Form of Notice of Guarantee Delivery (incorporated by
reference to Exhibit 99.3 to S-4).
</TABLE>
(b) Reports on Form 8-K
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINDY HILL PET FOOD COMPANY, INC.
Dated November 11, 1997 By: /s/ Charles Dunleavy
------------------ --------------------------------
Charles Dunleavy
Chief Financial Officer and
Vice President, Finance
and duly authorized officer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WINDY HILL PET FOOD COMPANY, INC. AS OF AND FOR THE
PERIOD ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> SEP-27-1997
<CASH> 2,803
<SECURITIES> 0
<RECEIVABLES> 14,794
<ALLOWANCES> 73
<INVENTORY> 12,327
<CURRENT-ASSETS> 32,859
<PP&E> 64,378
<DEPRECIATION> 3,448
<TOTAL-ASSETS> 208,964
<CURRENT-LIABILITIES> 30,841
<BONDS> 134,062
0
0
<COMMON> 0
<OTHER-SE> 32,725
<TOTAL-LIABILITY-AND-EQUITY> 208,964
<SALES> 109,210
<TOTAL-REVENUES> 109,210
<CGS> 73,553
<TOTAL-COSTS> 94,938
<OTHER-EXPENSES> 8,467
<LOSS-PROVISION> 73
<INTEREST-EXPENSE> 6,726
<INCOME-PRETAX> (921)
<INCOME-TAX> (128)
<INCOME-CONTINUING> (793)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,294
<CHANGES> 0
<NET-INCOME> (3,087)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
