<PAGE>
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UNITED STATES
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 MARCH 28, 1998
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)
<TABLE>
<CAPTION>
<S> <C>
MINNESOTA 41-0323270
--------- ----------
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
</TABLE>
Highwoods Plaza II
103 Powell Court, Suite 200
Brentwood, TN 37027
(Address of Principal Executive Office, Including Zip Code)
(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 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 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
May 8, 1998
100
Common stock, $0.01 par value
- --------------------------------------------------------------------------------
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1
<PAGE>
PART I
------
FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
See pages 2 through 8
1
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 28, December 27,
1998 1997
----------------- -----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,702 $ 731
Accounts receivable (net of $386 and $372 allowance, respectively) 17,843 19,252
Accounts receivable - other 545 709
Inventories (Note 3) 15,484 13,312
Prepaid expenses 1,324 990
Current deferred tax asset 2,360 2,335
----------------- -----------------
Total current assets 39,258 37,329
Property, plant and equipment, net 72,097 60,774
Investments in joint ventures 2,462 3,527
Goodwill and other intangible assets, net 97,846 98,465
Other assets, net 14,132 13,612
----------------- -----------------
Total assets $ 225,795 $ 213,707
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 1,500 $ 1,312
Senior secured revolving debt facility - 2,000
Accounts payable 15,091 20,178
Accrued liabilities 11,164 8,154
----------------- -----------------
Total current liabilities 27,755 31,644
Deferred tax liability 13,059 12,390
Senior secured debt 25,812 13,688
Senior subordinated notes 120,000 120,000
Other liabilities 5,684 3,257
----------------- -----------------
Total liabilities 192,310 180,979
----------------- -----------------
Stockholder's equity:
Common stock, $0.01 par value; 10,000 shares authorized,
100 shares issued and outstanding - -
Paid-in capital 35,458 35,458
Accumulated deficit (1,973) (2,730)
----------------- -----------------
Total stockholder's equity 33,485 32,728
----------------- -----------------
Total liabilities and stockholder's equity $ 225,795 $ 213,707
================= =================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Company Old Windy Hill
---------------------------------------------------
Three Months Ended
---------------------------------------------------
March 28, March 29,
1998 1997
----------------------- ------------------------
Net sales $ 61,769 $ 25,937
Cost of goods sold 44,737 16,061
----------------------- ------------------------
Gross profit 17,032 9,876
----------------------- ------------------------
Selling, distribution and marketing expenses:
Selling and distribution 4,385 2,441
Trade promotions 3,562 3,335
Consumer marketing 71 184
----------------------- ------------------------
Total selling, distribution and
marketing expenses 8,018 5,960
Amortization of goodwill and other intangibles 973 463
General and administrative expenses 3,020 1,287
Equity in earnings of joint ventures (266) -
Transition related costs (Note 4) 160 -
----------------------- ------------------------
Total operating expenses 11,905 7,710
----------------------- ------------------------
Operating income 5,127 2,166
Interest income - (13)
Interest expense 3,457 1,207
Amortization of debt issuance costs 241 98
Other bank and financing expenses 29 13
----------------------- ------------------------
Income before income taxes 1,400 861
Income tax provision 643 344
----------------------- ------------------------
Net income $ 757 $ 517
======================= ========================
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Additional
Stock Paid-in Accumulated
Shares Capital Deficit Total
--------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance at December 27, 1997 100 $ 35,458 $ (2,730) $ 32,728
Net income - - 757 757
--------- -------------- -------------- ---------------
Balance at March 28, 1998 100 $ 35,458 $ (1,973) $ 33,485
========= ============== ============== ===============
See accompanying notes to financial statements.
</TABLE>
4
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Company Old Windy Hill
-------------------------------------------
Three Months Ended
-------------------------------------------
March 28, March 29,
1998 1997
-------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 757 $ 517
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 2,337 953
Deferred income taxes 643 345
Equity in earnings of joint ventures (266) -
Operating advances from joint ventures 358 -
Deferred revenue 3,000 -
Change in assets and liabilities, net of effects of businesses
acquired:
Decrease in accounts receivable 2,310 1,272
Decrease in inventories 1,390 81
Increase in prepaid expenses (263) (3)
Decrease in accounts payable (5,654) (238)
Increase (decrease) in accrued liabilities 1,780 (1,421)
-------------------- ------------------
Net cash provided by operating activities 6,392 1,506
-------------------- ------------------
Cash flows from investing activities:
Additions to property, plant and equipment (1,362) (287)
Change to other non-current assets and liabilities (375) (234)
Payment for acquisition of businesses,
net of cash acquired (13,972) -
-------------------- ------------------
Net cash used in investing activities (15,709) (521)
-------------------- ------------------
Cash flows from financing activities:
Proceeds from senior secured and revolving debt 12,500 2,000
Repayment of borrowings (2,188) (3,450)
Debt issuance costs (24) -
-------------------- ------------------
Net cash provided by (used in) financing activities 10,288 (1,450)
-------------------- ------------------
Increase in cash and cash equivalents 971 (465)
Cash and cash equivalents, beginning of period 731 570
-------------------- ------------------
Cash and cash equivalents, end of period $ 1,702 $ 105
==================== ==================
See accompanying notes to financial statements
</TABLE>
5
<PAGE>
WINDY HILL PET FOOD COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - 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. 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 27, 1997 and the notes thereto included in
the Company's Annual Report and Form 10-K on file at the Securities and Exchange
Commission.
NOTE 2 - BUSINESS 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 prior to the
closing of the transaction owned 5% of the capital stock of Hubbard and after
the consummation of the transaction owned 39% of the capital stock of Hubbard.
Concurrently, Hubbard, the surviving corporation in the merger, was renamed
Windy Hill Pet Food Company, Inc., 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. For
financial reporting purposes, these transactions were accounted for as a
purchase of Hubbard by Old Windy Hill and the results of operations of Hubbard
have been included since the date of acquisition. The net combined purchase
price of Hubbard was approximately $131.1 million (net of cash acquired).
The acquisition and the repayment of Existing Indebtedness was financed with (i)
a $9.8 million net 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. Immediately following 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 net proceeds were used to repay $5.0 million
of the senior secured term debt and $45.0 million of net senior secured
revolving debt facility.
On February 23, 1998, the Company acquired all the assets of the pet food
division of Consolidated Nutrition, L.C. (the "AGP Business"). The assets
acquired by the Company include four
6
<PAGE>
manufacturing facilities located in the states of Alabama, Kansas, Missouri and
Nebraska. The Company intends to use the acquired assets to produce its current
products. The purchase price was approximately $12.4 million. The acquisition
was accounted for using the purchase method of accounting. The Company financed
the acquisition of the AGP Business and related costs with a $12.5 million
borrowing under the terms of its senior secured acquisition debt facility.
On February 28, 1998, the Company terminated its joint venture located in
Cartersville, GA ("Cartersville"), with Flint River Mills, Inc. ("Flint
River"). Subsequent to the dissolution of the joint venture, the Company
purchased Flint River's interest in Cartersville for $1.3 million.
The purchase price of the acquisitions have been allocated to tangible and
intangible assets as follows (in thousands):
<TABLE>
<CAPTION>
AGP
Hubbard Business
---------------- ----------------
<S> <C> <C>
Cash paid to acquire business, net of cash acquired $ 131,052 $ 12,436
Other acquisition costs 5,438 251
---------------- ----------------
136,490 12,687
Cost assigned to net tangible assets and assets held for sale (86,305) (12,436)
---------------- ----------------
Cost assigned to intangible assets $ 50,185 $ 251
================ ================
</TABLE>
Had the acquisitions taken place January 1, 1997, the unaudited pro forma net
sales, income before income taxes, and net income for the three months ended
March 28, 1998 and March 29, 1997, respectively, would have been as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 28, March 29,
1998 1997
---------------- ----------------
<S> <C> <C>
Net sales $ 69,525 $ 66,813
================ ================
Income before income taxes $ 1,373 $ 994
================ ================
Net income $ 745 $ 602
================ ================
</TABLE>
7
<PAGE>
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>
March 28, December 27,
1998 1997
------------------ ------------------
<S> <C> <C>
Raw materials $ 3,392 $ 3,004
Packaging 7,036 5,536
Finished goods 5,056 4,772
------------------ ------------------
$ 15,484 $ 13,312
================== ==================
</TABLE>
NOTE 4 - TRANSITION RELATED COSTS
- --------------------------------
Transition related expenses represent one-time costs incurred to integrate the
business acquisitions. These costs include relocation expenses, systems
conversion costs and other unique transition expenses.
8
<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 1997 Form 10-K for the period ended December 27, 1997.
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the historical
financial information included in the Financial Statements and notes to the
financial statements. Unless otherwise noted, years (1998 and 1997) in this
discussion refer to the Company's March-ending quarters.
The following tables set forth, for the periods indicated, the percentage, which
the items in the Statements of Operations bear to net sales. A summary of the
period to period increases (decreases) in the components of operations is shown
on the pages that follow.
9
<PAGE>
COMPARATIVE RESULTS: THREE MONTHS ENDED MARCH 28, 1998
AND MARCH 29, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Period to
Company Old Windy Hill Period
-----------------------------------------------------------------------
Three Months Ended Increase
-----------------------------------------------------------------------
(dollars in thousands) March 28, 1998 March 29, 1997 (Decrease)
------------------------------ ------------------------------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 61,769 100.0% $ 25,937 100.0% 138.2%
Cost of goods sold 44,737 72.4 16,061 61.9 178.5
----------------- --------- -------------------- ------------ ----------
Gross profit 17,032 27.6 9,876 38.1 72.5
----------------- --------- -------------------- ------------ ----------
Selling, distribution and
marketing expenses:
Selling and distribution 4,385 7.1 2,441 9.4 79.6
Trade promotions 3,562 5.8 3,335 12.9 6.8
Consumer marketing 71 0.1 184 0.7 (61.4)
----------------- --------- -------------------- ------------ ----------
Total selling, distribution
and marketing expenses 8,018 13.0 5,960 23.0 34.5
----------------- --------- -------------------- ------------ ----------
Amortization of goodwill
and other intangibles 973 1.6 463 1.8 110.2
General and administrative
expenses 3,020 4.9 1,287 4.9 134.7
Equity in earnings of
joint ventures (266) (0.4) - 0.0 0.0
Transition related costs 160 0.2 - 0.0 0.0
----------------- --------- -------------------- ------------ ----------
Total operating expenses 11,905 19.3 7,710 29.7 54.4
----------------- --------- -------------------- ------------ ----------
Operating income 5,127 8.3 2,166 8.4 136.7
Interest income - 0.0 (13) (0.0) 0.0
Interest expense 3,457 5.6 1,207 4.7 186.4
Amortization of debt
issuance costs 241 0.4 98 0.4 145.9
Other bank and financing
expenses 29 0.0 13 0.0 123.1
----------------- --------- -------------------- ------------ ----------
Income before
income taxes 1,400 2.3 861 3.3 62.6
Income tax provision 643 1.0 344 1.3 86.9
----------------- --------- -------------------- ------------ ----------
Net income $ 757 1.3% $ 517 2.0% 46.4%
================= ========= ==================== ============ ==========
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 28, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 29,
1997
Net Sales. Net sales for the three months ended March 28, 1998 were $61.8
million, which was an increase of $35.9 million over sales of $25.9 million in
the same period in 1997. The increase was primarily due to the inclusion of
$29.7 million of sales attributable to the acquisition of Hubbard in May 1997
and $3.9 million of sales attributable to the acquisition of the AGP Business in
February 1998. In addition, the Company increased sales by $2.2 million
attributable mainly to higher co-pack sales.
Gross Profit. Gross profit for the three months ended March 28, 1998 was $17.0
million, or 27.6% of net sales, as compared to $9.9 million, or 38.1% of net
sales, for the same period in 1997. The lower gross margin was the result of
the inclusion of Hubbard private label product sales, which generally have lower
gross margins than the Company's branded products.
Selling, Distribution and Marketing Expenses. Selling, distribution and
marketing expenses decreased as a percentage of net sales to 13.0% for the three
months ended March 28, 1998 from 23.0% for the comparable period in 1997. The
decrease was attributable to lower selling and distribution expenses as a
percentage of net sales resulting from realized distribution efficiencies from
the increased size of the Company. In addition, trade promotions were lower as
a percentage of net sales due to the inclusion of Hubbard private label product
sales and higher co-pack sales, both of which generally require lower trade
promotional activity.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles increased as a result of the Hubbard acquisition in May 1997.
General and Administrative Expenses. General and administrative expenses
increased to $3.0 million for the three months ended March 28, 1998, as compared
to $1.3 million for the comparable period in 1997 but remained flat as a
percentage of net sales at 4.9%. The increase of $1.7 million was due to
additional staffing and infrastructure required as a result of the Hubbard
acquisition.
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 $0.3 million of earnings
represents the Company's share in the operating profits of the joint ventures.
Transition Related Costs. Transition related costs represent one-time costs
incurred to integrate the business acquisitions. These costs include relocation
expenses, systems conversion costs and other unique transition expenses.
Operating Income. Operating income for the three months ended March 28, 1998
was $5.1 million, which was $2.9 million higher than operating income of $2.2
million for the comparable period in 1997. Operating income decreased as a
percentage of net sales to 8.3% for 1998 compared to 8.4% for 1997. Operating
income as a percentage of net sales, excluding one-time transition related
costs, was 8.6% for 1998. The increase from the comparable period in 1997 was
attributable to higher sales volumes and efficiencies resulting from the growth
of the Company.
11
<PAGE>
Interest Expense and Amortization of Debt Issuance Costs. The aggregate net
interest expense and amortization of debt issuance costs in the first quarter of
1998 was $3.7 million compared to $1.3 million for the comparable period in
1997. The increase was due primarily to the incremental debt incurred to finance
the Hubbard acquisition.
Income Tax Provision. The effective federal and state tax rate for the quarter
ended March 28, 1998 was approximately 45.9% as compared to 40.0% for the same
period in 1997. The increase in the effective rate was due to the inclusion of
non-deductible goodwill amortization associated with the stock purchase of
Hubbard.
Net Income. Net income for the quarter ended March 28, 1998 was $0.8 million,
which was $0.2 million greater than net income in the comparable period in 1997.
The increase in net income was principally due to higher operating income versus
the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended March 28, 1998, cash provided by operating activities was
$6.4 million. The first quarter net income after adjusting for $2.7 million of
non-cash charges, provided $3.5 million of cash.
Net cash used for investing activities was $15.7 million. The acquisition of
the AGP Business and Cartersville used $12.5 million and $1.3 million of cash,
respectively. The Company also expended $1.4 million on capital expenditures
primarily for machinery and equipment to upgrade the Company's manufacturing
facilities. The Company expects to spend approximately $8.0 million in fiscal
1998. The Company anticipates that these expenditures will be funded from
internal sources and available borrowing capacity.
During the first quarter of 1998, net cash provided by financing activities was
$10.3 million. On February 23, 1998, the Company incurred $12.5 million in
additional debt under its $45.0 million senior secured acquisition debt facility
to fund the acquisition of the AGP Business. During the quarter, the Company
repaid $0.2 million of principal on its senior secured term debt and $2.0
million of revolving debt under its $20.0 million working capital debt facility.
As of March 28, 1998, the Company had $1.7 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. At March 28,
1998, the Company had no outstanding balance under its working capital debt
facility. Management believes the available borrowing capacity combined with
cash provided by operations will provide the Company with sufficient cash to
fund operations as well as to meet existing obligations.
Year 2000 Compliance The Company is currently in the process of modifying or
replacing its computer systems for Year 2000 Compliance. The process is expected
to be completed in early 1999 and, based on current cost estimates, is not
expected to have a material impact on the financial position or results of
operations of the Company.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
Not applicable.
13
<PAGE>
PART II
-------
OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
Exhibit
Number Exhibit
- ------ -------
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 Company's Form S-4 filed on September 9, 1997 (the "S-4")).
3.2 By-Laws of Windy Hill Pet Food Company, Inc. (incorporated by
reference to Exhibit 3.2 to the 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 the S-4).
10.1 Termination and Dissolution Agreement, dated March 25, 1998, by and
between Flint River Mills, Inc. and Windy Hill Pet Food Company, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WINDY HILL PET FOOD COMPANY, INC.
Dated: May 12, 1998 By: /s/ Charles Dunleavy
----------------
Charles Dunleavy
Vice President - Finance
(Duly Authorized Officer,
Principal Financial Officer and
Principal Accounting Officer)
15
<PAGE>
EXHIBIT 10.1
TERMINATION AND DISSOLUTION AGREEMENT
This Agreement, dated as of the 25th day of March, 1998, is entered into
by and among FRM/Hubbard Pet Food Venture, a Georgia general partnership (the
"VENTURE"),Flint River Mills, Inc., a Georgia corporation ("FLINT RIVER"), and
Windy Hill Pet Food Company, Inc., a Minnesota corporation ("WINDY HILL").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the parties have engaged in business as a joint venture known as
FRM/Hubbard Pet Food Venture pursuant to the Joint Venture Agreement, dated as
of April 7, 1995, between Flint River and Windy Hill (the "JOINT VENTURE
AGREEMENT"); and
WHEREAS, the parties desire to dissolve and terminate the Venture and the
Joint Venture Agreement.
NOW, THEREFORE, for good and valuable consideration the sufficiency of
which is hereby acknowledged, the parties hereto, intending to be bound hereby,
agree as follows:
1. Dissolution.
-----------
(a) Pursuant to Section 16(a) of the Joint Venture Agreement, the Venture,
Windy Hill and Flint River hereby agree to wind up liquidate the affairs and
assets of the Venture effective as of February 28, 1998 (the "TERMINATION
DATE").
(b) Pursuant to Section 16(b) of the Joint Venture Agreement, Windy Hill
hereby elects to purchase the assets of the Venture at a price equal to the book
value as of the Termination Date, net of accumulated depreciation (the "NET BOOK
VALUE") determined in accordance with Section 2 hereof; provided, however, that
the terms of the Joint Venture Agreement requiring Windy Hill to pay the entire
price to the Venture will be modified as follows:
(i) In lieu of paying the price equal to the Net Book Value to the
Venture, Windy Hill hereby agrees to pay $1,229,660 to Flint River (the
"INITIAL PRICE"), on account of Flint River's right to receive one-half of
the net assets of the Venture upon dissolution of the Venture in accordance
with Section 16(e)(iv) of the Joint Venture Agreement plus $17,500 in full
payment of Flint River's one-half of the Bruno's Packaging (as defined
below). The Initial Purchase Price represents Windy Hill's good faith
estimate of one-half of the Net Book Value.
<PAGE>
(ii) Upon the final determination of Net Book Value (as provided in
Section 2 below, (x) if the Initial Price is greater than such final
determination, Flint River shall pay the difference thereof to Windy Hill
within ten days of such final determination, and (y) if the Initial Price
is less than such final determination, Windy Hill shall pay the difference
thereof to Flint River within ten days of the delivery of such final
determination.
(iii) The Initial Purchase Price shall be paid to Flint River
simultaneously with the execution and delivery of this Agreement. At the
time the Initial Purchase Price is paid, Windy Hill shall also pay to Flint
River the sum of $41,777 which Flint River and Windy Hill agree constitute
full payment for certain unamortized packaging development costs incurred
by Flint River for the Venture's behalf and not reimbursed by the Venture
to Flint River.
2. Determination of Net Book Value. Windy Hill shall make an unaudited
-------------------------------
determination of Net Book Value ("INITIAL DETERMINATION "). In determining the
Net Book Value, no value shall be attributed to the accounts receivable owing to
the Venture by Bruno's (the "BRUNO'S A/R's") or to the Bruno's packaging
included in the Venture's inventory (the "BRUNO'S PACKAGING"). Flint River shall
have 30 days from delivery of the Initial Determination to object thereto and
unless Flint River gives written notice to Windy Hill of such objection within
such 30-day period, the Initial Determination shall be final and binding upon
the parties hereto. Both Flint River and Windy Hill shall have access to the
Venture's books and records and work papers in connection with their
preparation and review of Initial Determination. In the event that Flint River
gives such written notice of objection, and if the dispute cannot be resolved by
negotiations between the parties, the dispute shall be arbitrated as provided in
Section 22 of the Joint Venture Agreement.
3. Future Claims, Liabilities and Recoveries. Windy Hill shall be
-----------------------------------------
entitled to all of the Venture's assets and shall be subject to those
liabilities reflected or reserved against in the calculation of Net Book Value
as provided in Section 2. For clarification, if a liability is reflected at $100
in the Net Book Value calculation and later turns out to cost $95 or $105, Windy
Hill shall obtain the benefit (in case the liability is $95) or absorb the
detriment (in case the liability is $105). Similarly, if an asset, such as a
receivable that has been written off, is subsequently collected, Windy Hill
shall be entitled to such asset. Liabilities that were not reflected in the
calculation of Net Book Value because they would not have been required to have
been reflected on a balance sheet prepared in accordance with the accounting
practices used by the Venture shall continue to be shared on an equal basis by
Flint River and Windy Hill after the Termination Date. For clarification, if a
litigation exists or is commenced after the Termination Date. For clarification,
if a litigation exists or is commenced after the Termination Date for which no
accrual was made in the calculation of Net Book Value, Flint River and Windy
Hill shall share the costs of such litigation equally. No adjustments shall be
made with respect to the Bruno's Packaging or the Bruno's A/R's.
-2-
<PAGE>
4. Deliveries. On the date hereof and from time to time hereafter as may
----------
be reasonably requested by Windy Hill, Flint River and Windy Hill shall each
execute and deliver, in their own names and/or in the name of the Venture, such
other documents, assignments and instruments as are reasonably necessary to
convey all of the Venture's assets to Windy Hill including, but not limited to,
(a) an executed Bill of Sale transferring the assets of the Venture from
the Venture to Windy Hill;
(b) an Assignment of Trademarks, transferring all trademarks from the
Venture to Windy Hill;
(c) an executed Warranty Deed, conveying the Facility (as defined in the
Joint Venture Agreement) from the Venture to Windy Hill.
5. Payment of Debts. The Venture books will be closed as of the Termination
----------------
Date. All debts of the Venture, including all tax liabilities payable by the
Venture, will be paid or accrued pursuant to Section 3 hereof.
6. Name. Windy Hill and Flint River agree that neither party has acquired
----
any rights to use the other party's name in connection with that party's
business activities because of the Venture relationship.
7. Claims. If either of the parties hereto shall hereafter be held
------
individually liable for a Venture debt or obligation of the Venture not paid or
provided for under this Agreement including, but not limited to, any
environmental claims, such party shall have a claim over, against the other
party for one-half of all amounts paid by that party including any reasonable
attorney fees. Each party shall promptly give the other party notice of said
claim. Both parties agree to cooperate on resolution of such claims.
8. Indemnification. Effective as of the Termination Date. Windy Hill shall
---------------
indemnify and hold Flint River harmless against and from any and all claims,
demands, fines, suits, actions, proceedings, orders, decrees and judgments of
any kind or nature by anyone whomsoever and against and from any and all costs,
damages and expenses, including attorney's fees, in connection with or resulting
from loss of life, bodily or personal injury, property damage or environmental
damage of any nature, clean-up costs or fines arising directly or indirectly
from Windy Hill's actions or its agents', successors', or assigns' actions that
occur on or after the Termination Date.
Furthermore, effective as of the Termination Date, Flint River shall
indemnify and hold Windy Hill harmless against and from any and all claims,
demands, fines, suits, actions, proceedings, orders, decrees and judgments of
any kind or nature by anyone
-3-
<PAGE>
whomsoever and against and from any and all costs, damages and expenses,
including attorney's fees, in connection with or resulting from loss of life,
bodily or personal injury, property damage or environmental damage of any
nature, clean-up costs or fines arising directly or indirectly from Flint
River's actions or its agents', successors', or assigns' actions that occur on
or after the Termination Date.
9. Books. Each party shall retain those Venture books which they were
-----
responsible for maintaining for a period of six years. Each party shall have
reasonable access to these books during normal business hours during such 6-year
period.
10. Tax Returns. The final federal income tax return for the Venture
-----------
required by applicable law shall be prepared and filed by Windy Hill after being
reviewed and accepted by Flint River. The final State of Georgia and City of
Cartersville income tax return for the Venture required by applicable law shall
be prepared and filed by Windy Hill. Windy Hill will be responsible for filing
before the applicable due date, including any extensions thereof, as determined
by the Termination Date. Each party shall bear one-half of the cost of preparing
such returns.
11. Purchase of Products Following Termination. Until March 31, 2003,
------------------------------------------
Flint River Mills and Windy Hill will use its best efforts to sell feed products
using Windy Hill's Country Prime label to the grocery trade. Windy Hill will
invoice customers at prices set by Flint River Mills on a monthly basis. Windy
Hill will reimburse Flint River Mills the invoice price less costs absorbed by
Windy Hill (brokerage, swill, cash discounts and freight) less agreed upon
margins. Should either Flint River Mills or Windy Hill no longer wish to
continue the sale of feed products to the grocery trade, any unused Country
Prime packaging inventory costs will be shared equally by Flint River Mills and
Windy Hill.
12. Notice of Dissolution. The parties shall execute, file and publish all
---------------------
certificates and notices as may be required by law.
13. Arbitration. Any unresolved disputes or controversies relating to this
-----------
Agreement or the Joint Venture Agreement shall be determined and settled by
arbitration as provided in Section 22 of the Joint Venture Agreement.
14. Further Assurances. In addition to the actions, documents and
------------------
instruments specifically required to be taken or delivered by this Agreement,
and without further consideration, each party hereto shall take such other
actions, and execute and deliver such other documents and instruments, as the
other parties hereto or their counsel may reasonably request in order to
effectuate and perfect the transactions contemplated by this Agreement.
15. Benefit. This Agreement shall benefit and be binding upon the
-------
respective successors and assigns of the parties hereto.
-4-
<PAGE>
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
FRM/HUBBARD PET FOOD
VENTURE
By: FLINT RIVER MILLS, INC.,
a general partner
By /s/ Henry Metcalf
--------------------------
Name: Henry Metcalf
Title: Vice President
and
By: Windy Hill Pet Food Company, Inc.,
a general partner
By /s/ Robert V. Dale
--------------------------
Name: Robert V. Dale
Title: President
WINDY HILL PET FOOD COMPANY,
INC.
By /s/ Robert V. Dale
--------------------------
Name: Robert V. Dale
Title: President
FLINT RIVER MILLS, INC.
By /s/ Henry Metcalf
--------------------------
Name: Henry Metcalf
Title: Vice President
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted form balance
sheets and statements of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-26-1998 DEC-27-1997
<PERIOD-START> DEC-28-1997 DEC-29-1996
<PERIOD-END> MAR-28-1998 MAR-29-1997
<CASH> 1,702 105
<SECURITIES> 0 0
<RECEIVABLES> 18,774 7,023
<ALLOWANCES> 386 51
<INVENTORY> 15,484 5,060
<CURRENT-ASSETS> 39,258 13,673
<PP&E> 77,453 24,118
<DEPRECIATION> 5,356 1,712
<TOTAL-ASSETS> 225,795 90,696
<CURRENT-LIABILITIES> 27,755 18,656
<BONDS> 120,000 7,572
35,458 25,681
0 0
<COMMON> 0 0
<OTHER-SE> (1,973) 352
<TOTAL-LIABILITY-AND-EQUITY> 225,795 90,696
<SALES> 61,769 25,937
<TOTAL-REVENUES> 61,769 25,937
<CGS> 44,737 16,061
<TOTAL-COSTS> 52,755 22,021
<OTHER-EXPENSES> 4,145 1,843
<LOSS-PROVISION> 12 5
<INTEREST-EXPENSE> 3,457 1,207
<INCOME-PRETAX> 1,400 861
<INCOME-TAX> 643 344
<INCOME-CONTINUING> 757 517
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 757 517
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
