UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1994
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 0-7803
D O S K O C I L C O M P A N I E S I N C O R P O R A T E D
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2535513
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2601 NW Expressway, Suite 1000W, Oklahoma City, Oklahoma 73112
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (405)879-5500
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 X NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES X NO
On November 10, 1994, the number of shares outstanding of the
registrant's common stock, $.01 par value, was 12,452,039.
<PAGE>
DOSKOCIL COMPANIES INCORPORATED
_________________________
TABLE OF CONTENTS
FORM 10-Q
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet at
October 1, 1994 (Unaudited) and
January 1, 1994 . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of
Operations - Unaudited, Three Months and Nine
Months Ended October 1, 1994 and
October 2, 1993 . . . . . . . . . . . . . . . . . 4-5
Condensed Consolidated Statement of Cash
Flows - Unaudited, Nine Months Ended
October 1, 1994 and October 2, 1993 . . . . . . . 6
Notes to the Condensed Consolidated
Financial Statements - Unaudited . . . . . . . . 7-10
Report of Independent Accountants . . . . . . . . 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . 12-18
PART II. OTHER INFORMATION
Item 2. Changes in Securities. . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 19
Signatures . . . . . . . . . . . . . . . . . . . 20
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
DOSKOCIL COMPANIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands, except par value)
<CAPTION>
October 1, January 1,
ASSETS 1994 1994
___________ __________
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 10,066 $ 6,203
Receivables 36,933 36,283
Inventories 70,551 39,984
Other current assets 3,364 2,101
________ ________
Total current assets 120,914 84,571
Property, plant and equipment, net of
accumulated depreciation and amortization
of $28,908 and $20,046 123,511 77,678
Intangible assets, net of accumulated
amortization of $4,422 and $2,837 93,987 22,163
Deferred charges and other assets 44,657 44,907
Reorganization value in excess of amounts
allocable to identifiable assets, net of
accumulated amortization of $14,790 and
and $11,090 83,862 87,562
________ ________
$466,931 $316,881
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt
(Note 5) $ 3,211 $ 2,330
Accounts payable 16,266 10,357
Accrued liabilities 39,872 40,732
________ ________
Total current liabilities 59,349 53,419
Long-term debt (Note 5) 278,072 127,906
Other long-term liabilities 79,271 79,987
Stockholders' equity:
Common stock, $.01 par value, 20,000,000
shares authorized, 7,940,170 shares
issued and outstanding (7,918,343
shares at January 1, 1994) 79 79
Capital in excess of par value 112,465 112,315
Retained earnings (deficit) (60,681) (54,910)
Minimum pension liability adjustment (1,575) (1,575)
________ ________
50,288 55,909
Unearned compensation (49) (340)
________ ________
Total stockholders' equity 50,239 55,569
________ ________
$466,931 $316,881
======== ========
<FN>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DOSKOCIL COMPANIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
(Dollar amounts in thousands, except per share figures)
<CAPTION>
Three Months Ended Nine Months Ended
__________________ _________________
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1994 1993 1994 1993
________ ________ ________ ________
<S> <C> <C> <C> <C>
Net sales $205,355 $168,701 $528,280 $471,322
Cost of sales 163,417 140,641 428,935 393,327
________ ________ ________ ________
Gross profit 41,938 28,060 99,345 77,995
Operating expenses:
Selling 26,284 14,659 61,115 43,088
General and administrative 7,589 5,885 20,970 19,153
Amortization of intangible
assets 2,041 1,545 5,285 4,637
________ ________ ________ ________
Total 35,914 22,089 87,370 66,878
________ ________ ________ ________
Operating income 6,024 5,971 11,975 11,117
Other income (expense):
Interest and financing
costs (6,284) (3,669) (14,346) (9,956)
Other, net (175) 61 (487) 250
________ ________ ________ ________
Total (6,459) (3,608) (14,833) (9,706)
________ ________ ________ ________
Income (loss) before
income taxes (435) 2,363 (2,858) 1,411
Income tax (provision)
(Note 6) (1,658) (1,550) (494) (1,081)
________ ________ ________ ________
Income (loss) before extra-
ordinary item and cumulative
effect of a change in
accounting principle (2,093) 813 (3,352) 330
Extraordinary loss on early
extinguishment of debt, net
of income tax benefit
(Note 5) (1,433) - (2,419) -
Cumulative effect of a change
in accounting for post-
retirement benefits other
than pensions - - - (34,426)
________ ________ ________ ________
Net income (loss) $ (3,526) $ 813 $ (5,771) $(34,096)
======== ======== ======== ========
</TABLE>
Continued
<PAGE>
<TABLE>
DOSKOCIL COMPANIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
(Dollar amounts in thousands, except per share figures)
<CAPTION>
Three Months Ended Nine Months Ended
___________________ _________________
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1994 1993 1994 1993
________ _______ _______ ________
<S> <C> <C> <C> <C>
Earnings (loss) per share-
primary and fully diluted:
Income (loss) before extra-
ordinary item and
cumulative effect of a
change in accounting
principle $(0.26) $0.10 $(0.42) $ 0.05
Extraordinary loss on
early extinguishment of
debt, net of tax benefit (0.18) - (0.31) -
Cumulative effect of a
change in accounting for
postretirement benefits
other than pensions - - - (4.74)
______ _____ ______ ______
Net income (loss) $(0.44) $0.10 $(0.73) $(4.69)
====== ===== ====== ======
Weighted average number
of common and common
equivalent shares
outstanding -
primary 7,921 7,952 7,921 7,270
fully diluted - 7,961 - -
<FN>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DOSKOCIL COMPANIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
<CAPTION>
Nine Months Ended
____________________
Oct. 1, Oct. 2,
1994 1993
_________ ________
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5,771) $(34,096)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization 15,331 11,870
Income taxes - 849
Postretirement medical benefits 600 937
Deferred compensation 565 445
Loss on early extinguishment of debt, net
of income taxes 2,419 -
Cumulative effect of a change in accounting
for postretirement benefits other
than pensions - 34,426
Changes in:
Receivables 8,685 (292)
Inventories (8,809) (12,079)
Other current assets (876) 893
Deferred charges and other assets (158) (300)
Accounts payable and accrued liabilities (6,956) (2,869)
Noncurrent liabilities (36) 16
Other 12 82
________ ________
Net cash provided (used) by operating
activities 5,006 (118)
________ ________
Cash flows from investing activities:
Purchase of property, plant and equipment (8,380) (13,491)
Acquisition of International Multifoods
Foodservice Corp., net of cash acquired (137,442) -
Payments received on notes receivable 539 445
Proceeds from sale of facilities 430 500
Net cash used by assets held for sale - (9,045)
________ ________
Net cash provided (used) by investing
activities (144,853) (21,591)
________ ________
Cash flows from financing activities:
Proceeds from debt obligations, net of
issuance costs 141,154 105,965
Borrowings under revolving working capital
facility 181,000 80,431
Payments on revolving working capital
facility (177,500) (121,011)
Proceeds from other debt obligations 2,155 -
Payments on capital lease and debt
obligations (2,011) (75,548)
Issuance of common stock - 26,883
Payment on early extinguishment of debt (1,088) -
________ ________
Net cash provided (used) by financing
activities 143,710 16,720
________ ________
Increase (decrease) in cash and cash
equivalents 3,863 (4,989)
Cash and cash equivalents at beginning of
period 6,203 9,312
________ ________
Cash and cash equivalents at end of period $ 10,066 $ 4,323
======== ========
<FN>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<PAGE>
DOSKOCIL COMPANIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE 1 GENERAL
The accompanying condensed consolidated financial
statements include the accounts of Doskocil Companies
Incorporated ("Doskocil") and all majority-owned subsidiaries
(collectively, the "Company") and have been prepared without
audit. The Balance Sheet at January 1, 1994, has been derived
from financial statements which have been audited by Coopers &
Lybrand L.L.P., independent accountants.
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (adjustments are of a normal, recurring nature except
for entries to record the cumulative effect on years prior to
January 3, 1993 of a change in accounting for postretirement
benefits other than pensions) necessary for a fair presentation
of the financial position as of October 1, 1994 and January 1,
1994, and the results of operations for the three months and nine
months ended October 1, 1994 and October 2, 1993 and cash flows
for the nine months ended October 1, 1994 and October 2, 1993.
Results for the three months and nine months ended October 1,
1994 are not necessarily indicative of the results which will be
realized for the year ending December 31, 1994. The financial
statements should be read in conjunction with the Company's
Annual Report on Form 10-K, as amended, for the year ended
January 1, 1994.
NOTE 2 RECEIVABLES
Included in receivables of $36.9 million is a note
receivable from a former officer due within one year without
interest in the approximate amount of $0.2 million.
NOTE 3 INVENTORIES
Inventories at October 1, 1994 and January 1, 1994 are
summarized as follows (in thousands):
Oct. 1, January 1,
1994 1994
_______ _______
Raw materials and supplies $22,464 $ 8,176
Work in process 5,154 6,254
Finished goods 42,933 25,554
_______ _______
$70,551 $39,984
======= =======
NOTE 4 ACQUISITION
On June 1, 1994, the Company purchased all of the
outstanding stock of International Multifoods Foodservice Corp.,
a division of International Multifoods Corporation, for
approximately $137.4 million, including other costs of the
acquisition. The business, which has been renamed Doskocil
Specialty Brands Company ("Specialty Brands"), operates as the
fourth operating division of Doskocil. Specialty Brands
manufactures frozen food products, including ethnic foods in the
Mexican and Italian segments, as well as appetizers, entrees and
portioned meats. The acquisition has been accounted for by the
purchase method of accounting. The excess of the aggregate
purchase price over fair value of net assets acquired of
approximately $63.7 million and trademarks at a fair value of
$9.7 million were recognized as intangible assets and are being
amortized over 40 and 25 years, respectively.
The operating results of Specialty Brands are included in
the Company's consolidated results of operations from the date of
acquisition. The following pro forma financial information
assumes the acquisition occurred at the beginning of 1993. These
results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the
acquisition been made at the beginning of 1993, or of the results
which may occur in the future.
Nine Months Ended
____________________
Oct. 1, Oct. 2,
1994 1993
________ ________
Net sales $607,194 $607,597
Operating income $ 16,226 $ 19,435
Income (loss) before extraordinary
item and cumulative effect of a
change in accounting principle $ (3,056) $ 1,556
Net income (loss) $ (5,475) $(32,870)
Earnings (loss) per share -
primary and fully diluted:
Income (loss) before extraordinary
item and cumulative effect of a
change in accounting principle $ (0.39) $ 0.21
Net income (loss) $ (0.69) $ (4.52)
NOTE 5 LONG-TERM DEBT
On May 25, 1994, the Company consummated a $146.0 million
term loan (the "1994 Term Loan") and a $40.0 million revolving
credit loan (the "1994 Revolving Credit Loan") provided by a bank
group. The proceeds of these transactions were net of $4.8
million of debt issuance costs. The 1994 Term Loan was used to
finance the purchase of Specialty Brands including all fees and
expenses associated with the acquisition, to repay amounts
outstanding under the credit agreement dated April 28, 1993 (the
"1993 Credit Agreement") and to terminate the related interest
rate swap agreement. The proceeds of the 1994 Revolving Credit
Loan were used to repay additional amounts outstanding under the
1993 Credit Agreement. The 1994 Revolving Credit Loan includes a
$5.0 million subfacility for standby and commercial letters of
credit. The 1994 Term Loan and the 1994 Revolving Credit Loan
rank senior to all existing indebtedness and are collateralized
by essentially all the assets of the Company including accounts
receivable, inventory, general intangibles and mortgaged
properties.
Borrowings under the 1994 Term Loan and the 1994 Revolving
Credit Loan bear interest at an annual rate equal to, at the
Company's option, either (i) Chemical Bank's Base Rate (as
defined in the agreement) plus 1 1/2% or (ii) the LIBOR Option
Rate (as defined in the agreement) plus 2 1/2%. On October 1,
1994, the weighted average interest rate on the borrowings was
7.65%. Interest on the borrowings is payable periodically in
arrears. Repayment of the 1994 Term Loan was scheduled to begin
December 1994 with payments at six-month intervals through
December 1999. As discussed in Note 7, Subsequent Events, the
Company used $35.0 million of the proceeds from the sale of
common stock to reduce its outstanding borrowings under its Term
Loan. Accordingly, current maturities of long-term debt of $17.0
million have been reclassified to long-term as of October 1,
1994. As a result of this prepayment, no payments will be
required under the Term Loan prior to June 1996. The 1994
Revolving Credit Loan is due January 15, 2000. On October 1,
1994, the balance outstanding on the 1994 Revolving Credit Loan
was $11.5 million.
In connection with the extinguishment of the 1993 Credit
Agreement and termination of the above mentioned interest rate
swap agreement, the Company incurred an extraordinary loss in the
amount of $2.5 million before income tax benefit of $0.1 million.
NOTE 6 INCOME TAXES
<TABLE>
The provision for income taxes consists of the following
components (in thousands):
<CAPTION>
Three Months Ended Nine Months Ended
__________________ __________________
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1994 1993 1994 1993
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Current:
Federal $ 33 $1,428 $ 44 $ 884
State 150 122 450 197
______ ______ _____ ______
$ 183 $1,550 $ 494 $1,081
====== ====== ===== ======
Deferred:
Federal $1,244 $ - $ - $ -
State 231 - - -
______ ______ _____ ______
$1,475 $ - $ - $ -
====== ====== ===== ======
</TABLE>
The deferred tax benefits recognized in the first half of 1994,
which were based on the Company's projected realization of the
benefit in the current year, have been reversed in the third
quarter of 1994 as current projections indicate that the benefits
will not currently be realized. The effective tax rate differs
from the statutory rate due primarily to amortization of certain
intangible assets which are not deductible for tax purposes. The
effective tax rate was calculated based on the projected taxable
income for the full fiscal year and the anticipated changes for
fiscal 1994 in the deferred tax assets and related valuation
allowance and the deferred tax liabilities.
NOTE 7 SUBSEQUENT EVENT
On October 25, 1994, the Company announced the completion
of a stock rights offering. The rights offering provided current
shareholders the ability to purchase 0.68 shares for each share
currently owned. The offering also provided an over-subscription
privilege for those who exercised more rights. As a result of
the offering, 4,511,867 rights were exercised at $9.00 per share
for gross proceeds of $40.6 million. Net proceeds, after
expenses, were $39.8 million. The Company used $35.0 million of
the proceeds to reduce bank debt.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Doskocil Companies Incorporated
We have reviewed the condensed consolidated balance sheet
of Doskocil Companies Incorporated and subsidiaries as of October
1, 1994, and the related condensed consolidated statements of
operations for the three month and nine month periods ended
October 1, 1994, and October 2, 1993, and the condensed
consolidated statements of cash flows for the nine month periods
ended October 1, 1994 and October 2, 1993. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet as of
January 1, 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period
ended January 1, 1994 (not presented herein), and in our report
dated March 1, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of January 1, 1994, is fairly stated in all
material respects in relation to the consolidated balance sheet
from which it has been derived.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
November 2, 1994
<PAGE>
DOSKOCIL COMPANIES INCORPORATED
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Comparability of Periods. Due to the recent acquisition of
Doskocil Specialty Brands Company ("Specialty Brands"), the
financial statements for the three months and nine months ended
October 1, 1994, include approximately 13 and 17 weeks,
respectively, of operating results of the Specialty Brands
Division. Net sales, gross profit and operating income of the
Company attributable to Specialty Brands for this 17 week period
were $60.6 million, $17.5 million and $3.8 million, respectively,
of which $48.5 million, $14.4 million and $3.7 million,
respectively, relate to third quarter 1994 operations.
Three Months ended October 1, 1994 compared with Three Months
Ended October 2, 1993. The Company's net sales for the third
quarter of 1994 increased $36.7 million, or 21.7%, over sales of
$168.7 million for the same quarter of 1993. Net sales of $205.4
million for the third quarter of 1994 includes sales volume
increases in both the Food Service and the Deli Divisions and the
addition of the Specialty Brands Division. These increases were
partially offset by decreases in raw material cost which resulted
in decreases in sales dollars per pound and decreased volume in
the Retail Division. Retail Division volume declined due to the
elimination of commodity type products and as a result of the
recall of certain products.
In the third quarter of 1994, gross profit increased $13.9
million, or 49.5%, to $41.9 million from $28.0 million for the
third quarter of 1993. Of this total increase, $14.4 million
relates to the addition of Specialty Brands. Increases were also
provided by improved product mix and production efficiencies and
increased sales in the Food Service and Deli Divisions. The
offsetting decline reflects the negative impact of the product
recall and production inefficiencies at the Company's new Forrest
City, Arkansas facility.
During the third quarter of 1994, the Company's selling
expenses increased $11.6 million, or 79.3%, over the 1993 period
amount of $14.7 million as a result of the marketing costs
associated with Specialty Brands of $9.2 million and increases in
marketing and brokerage costs in the other divisions, primarily
the Retail Division. Retail Division marketing efforts were
intensified in an effort to mitigate sales volume decreases.
During the 1994 period, general and administrative expenses
increased $1.7 million from the 1993 amount of $5.9 million. Of
this increase, $1.2 million relates to the general and
administrative costs associated with Specialty Brands.
Amortization of intangible assets, which is a noncash
element of operating expenses, increased approximately $0.5
million in the third quarter of 1994 over 1993 due to the
Specialty Brands acquisition.
Interest and financing costs for the third quarter of 1994
increased $2.6 million, or 71.3%, over the 1993 period's amount
of $3.7 million. The increase is due to increased interest costs
of $2.4 million and increased amortization of debt issue costs of
$0.2 million on additional bank debt. Long-term debt at October
1, 1994, was approximately $131.4 million higher than long-term
debt at October 2, 1993. Amortization included in interest
expense for the quarters ended October 1, 1994, and October 2,
1993, was $0.5 million and $0.3 million, respectfully.
For the third quarter of 1994, the Company recorded an
income tax expense of $1.7 million to reverse previously recorded
benefits that the Company has determined will not be utilized in
the current year based on current levels of operation.
During 1994, the Company incurred an extraordinary loss on
the early extinguishment of debt of $2.5 million. This loss
related to the write off of remaining unamortized deferred loan
costs and the termination of the related interest rate swap
agreement. This extraordinary loss had been reported net of
income tax benefit of $1.5 million. Of the income tax benefit of
$1.5 million recorded in the second quarter, $1.4 million has
been reversed in the third quarter as it has been determined that
the majority of the benefit will not be realized in the current
year.
Nine Months ended October 1, 1994 compared with Nine Months ended
October 2, 1993. Net sales for the first nine months of 1994
increased 12.1% to $528.3 million compared to $471.3 million for
the same period in the prior year. Sales volume and dollars
increased in both the Food Service and Deli Divisions. These
increases plus the addition of Specialty Brands sales were
partially offset by decreases in sales dollars in the Retail
Division due to decreased raw material costs per pound and
decreased volume in the Retail Division due to the elimination of
commodity type products and as a result of the recall of certain
products.
In the first nine months of 1994, gross profit increased
$21.3 million, or 27.4%, to $99.3 million from $78.0 million in
the first nine months of 1993. Of this total increase, $17.5
million relates to the addition of Specialty Brands. The
remaining $3.8 million relates to improved product mix and
production efficiencies and increased sales in the Food Service
and Deli Divisions, partially offset by the negative impact of
the product recall and production inefficiencies at the Company's
new Forrest City, Arkansas facility.
During the first nine months of 1994, the Company's selling
expenses increased $18.0 million, or 41.8%, over the 1993
period's amount of $43.1 million. This increase is primarily a
result of the selling expenses associated with Specialty Brands
of $11.5 million and increases in marketing, brokerage costs and
sales incentives in the other divisions, particularly Retail.
Retail Division marketing efforts were intensified in an effort
to mitigate sales volume decreases.
During the 1994 period, general and administrative expenses
increased $1.8 million. Included in general and administrative
expense was $1.6 million in expenses relating to the addition of
Specialty Brands and a one time charge of $0.3 million for
severance relating to the Company's cost reduction efforts.
Amortization of intangible assets, which is a noncash
element of operating expenses, was approximately $5.3 million in
1994 and $4.6 million in 1993. The $0.7 million increase is due
to amortization relating to the Specialty Brands acquisition.
Interest and financing costs for the first nine months of
1994 increased $4.4 million, or 44.1%, over the comparable period
in 1993. The increase is due to increased interest costs of $3.7
million and increased amortization of debt issue costs of $0.7
million. Both increases are factors of increased long-term debt
in 1994.
Income tax expense for the nine months ended October 1,
1994, of $0.5 million is $0.6 million, or 54.3%, less than the
same period in 1993. The decrease is representative of the
different effective tax rates of each period based on the
reported earnings of that period.
Liquidity and Capital Resources
On May 25, 1994, the Company consummated a $146.0 million
term loan (the "1994 Term Loan") and a $40.0 million revolving
credit loan (the "1994 Revolving Credit Loan"). The proceeds of
these transactions were net of $4.8 million of debt issuance
costs. The 1994 Term Loan was used to finance the purchase of
Specialty Brands including all fees and expenses associated with
the acquisition, to repay amounts outstanding under the credit
agreement dated April 28, 1993 (the "1993 Credit Agreement") and
to terminate the related interest rate swap agreement. The
proceeds of the 1994 Revolving Credit Loan were used to repay
additional amounts outstanding under the 1993 Credit Agreement.
The 1994 Revolving Credit Loan includes a $5.0 million
subfacility for standby and commercial letters of credit. The
1994 Term Loan and the 1994 Revolving Credit Loan rank senior to
all existing indebtedness and are secured by essentially all the
assets of the Company including accounts receivable, inventory,
general intangibles and mortgaged properties.
Borrowings under the 1994 Term Loan and the 1994 Revolving
Credit Loan bear interest at an annual rate equal to, at the
Company's option, either (i) Chemical Bank's Base Rate (as
defined in the agreement) plus 1 1/2% or (ii) the LIBOR Option
Rate (as defined in the agreement) plus 2 1/2%. On October 1,
1994, the weighted average interest rate on the borrowings was
7.65%. Interest on the borrowings is payable periodically in
arrears. Repayment of the 1994 Term Loan was scheduled to begin
December 1994 with payments at six-month intervals through
December 1999. As a result of the bank debt reduction discussed
below, no payments will be required under the Term Loan prior to
June 1996. The 1994 Revolving Credit Loan is due January 15,
2000. At October 1, 1994, the balance outstanding on the 1994
Revolving Credit Loan was $11.5 million and $28.5 million was
available for borrowing at that date.
Management believes that cash flow from operations combined
with the borrowing capacity available under the Company's 1994
Revolving Credit Loan and the completion of the stock rights
offering discussed below will be sufficient to meet the Company's
operating and debt service cash requirements for the foreseeable
future.
On October 25, 1994, the Company announced completion of a
stock rights offering. The rights offering provided current
shareholders the ability to purchase 0.68 shares for each share
currently owned. The offering also provided an over-subscription
privilege for those who exercised more rights. As a result of
the offering, 4,511,867 rights were exercised at $9.00 per share
for gross proceeds of $40.6 million. Net proceeds, after
expenses, were $39.8 million. The Company used $35.0 million of
the proceeds to reduce bank debt.
Historically, the Company's business has been seasonal.
Such seasonality results in significantly different operating
capital needs during the year to finance varying levels of
inventory and accounts receivable. Such requirements are largest
when sales are highest which usually occurs around a holiday
period. Additional requirements also occur prior to such
seasonal sales peaks to finance a build up of inventory and for
inventory hedging programs more fully described below.
The Company's primary raw materials are fresh and frozen
pork, poultry and beef. Severe price swings in such raw
materials, and the resultant impact on the price the Company
charges for its products at times had, and may in the future
have, material adverse effects on the demand for the Company's
products and its profits. The Company utilizes several
techniques for reducing the risk of future raw materials price
increases. These techniques include purchasing and freezing raw
materials during seasonally low periods of the year and
periodically entering into futures contracts. Such techniques
are generally employed prior to an expected seasonal price
increase to hedge the cost of raw materials for both firm and
forecasted sales commitments that will occur during a seasonal
sales peak. Historically, such techniques have been used to
offset firm sales commitments and a portion of anticipated sales
commitments during seasonal sales peaks.
The futures contracts described above are accounted for as
hedges. Accordingly, resulting gains or losses are deferred and
recognized as part of the product cost. The end of the Company's
third quarter is typically a seasonal high point in hedging
activities and net deferred losses at October 1, 1994, were $0.6
million. Net deferred gains at October 2, 1993, were less than
$0.1 million.
Based upon a preliminary assessment, the Company believes
that the integration of the newly acquired Specialty Brands
operations may result in certain realignment and/or restructuring
of its existing operations. In connection with such integration
and realignment and/or restructuring of existing operations, the
Company may incur certain restructuring charges that may result
in an impairment of the "Reorganization value in excess of
amounts allocable to identifiable assets" and/or the goodwill
related to the acquired operations. Because the Company is in
the process of developing the plan of integration, it is not
possible to quantify a restructuring or impairment provision, if
any, which may ultimately be required.
Cash Flows and Capital Expenditures
The following table summarizes selected cash flow and
capital expenditure data and has been prepared based on the
historical financial statements of the Company.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
__________________ _________________
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1994 1993 1994 1993
_______ _______ _______ _______
Cash Flow and Capital Expenditures Data (in thousands):
<S> <C> <C> <C> <C>
Depreciation $3,453 $2,287 $8,945 $6,834
Amortization of intangibles 2,041 1,545 5,285 4,637
Amortization included in interest expense 510 255 1,101 399
Capital expenditures 2,469 5,781 8,380 13,491
Net cash provided (used) by operating
activities 6,311 2,028 5,006 (118)
</TABLE>
First nine months of 1994. On June 1, 1994, the Company
purchased all of the outstanding stock of International
Multifoods Foodservice Corp., a division of International
Multifoods Corporation. The business, which has been renamed
Doskocil Specialty Brands Company, operates as the fourth
operating division of Doskocil. Acquisition costs of $137.4
million included net accounts receivable of $9.2 million,
inventory of $21.7 million, other current assets of $0.4 million,
intangible assets of $73.4 million and plant, property and
equipment of $43.2 million. The Company also assumed liabilities
of $10.5 million.
For the first nine months of 1994, net cash provided by
operating activities was approximately $5.0 million. The cash
provided by the results of operations (net income) during the
period, after adding back noncash items of depreciation and
amortization, post retirement medical benefits, deferred
compensation and the extraordinary loss on early extinguishment
of debt, was $13.1 million. Decreases in cash resulted primarily
from an increase during the period in inventory and other assets
and decreases in accounts payable and accrued liabilities offset
partially by a decrease in accounts receivable.
Cash expenditures for additions to property, plant and
equipment were approximately $8.4 million during the first nine
months of 1994. Of this total, approximately $3.0 million of
these expenditures were primarily attributable to construction of
additional capacity and the remainder for replacements and
modifications to existing facilities. The source of the funds
for these expenditures was from cash generated from operations,
the receipt of escrowed funds related to construction in progress
and increased borrowings under first the 1993 Credit Agreement
and later the 1994 Revolving Credit Loan.
First Nine Months of 1993. For the first nine months of
1993, net cash used by operating activities was approximately
$0.1 million. Decreases in cash resulted primarily from
increases during the period in net working capital employed,
including an increase in receivables and inventories of $12.4
million and decreases in accounts payable and accrued liabilities
of $2.9 million. These decreases were partially offset by cash
provided by operations of $14.4 million (after adding back
noncash items of depreciation and amortization, income taxes,
post-retirement medical benefits, deferred compensation and the
provision for postretirement benefits other than pensions) and
decreases in other assets, $0.6 million.
Expenditures for additions to property, plant and equipment
were approximately $13.5 million during the first nine months of
1993. These expenditures were primarily attributable to (i) the
construction of a new production facility in Forrest City,
Arkansas and (ii) the construction of additional drying rooms at
the Company's South Hutchinson production facility to support
growth of the Food Service Division. In addition, expenditures
of approximately $4.5 million were for replacement of and
modifications to existing systems and production lines.
In 1993, certain of the Company's operations were accounted
for as Assets Held for Sale. The net cash flows relating to
these Assets Held for Sale consisted primarily of the cash
payments required to fund the results of operations and interest
payments made during the period for such operations.
In March of 1993, the Company issued two million shares of
common stock to JLL at $15 per share. In April of 1993, the
Company issued the 9 3/4% Senior Subordinated Redeemable Notes
due 2000 (the "Notes") and executed the 1993 Credit Agreement.
The proceeds from these transactions (net of associated equity
offering and debt issuance costs) were used to repay all amounts
outstanding under the 1991 Credit Agreement. As a result, the
Company decreased net borrowings under its long-term financing
facilities and the Notes by $8.1 million, after debt issuance
costs of $5.5 million, during the first nine months of 1993. The
Company also made repayments during the first nine months of 1993
of $2.1 million on other long-term debt, including capital lease
obligations. The resulting net increase in cash from these
financing activities totaled $16.7 million.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On October 25, 1994, the Company announced that it had
completed a rights offering in which it issued an additional
4,511,867 shares of common stock, $0.01 par value, upon exercise
of that number of rights. The Company issued 0.68 transferable
rights per share of common stock entitling the shareholders to
purchase one share of common stock per right at an exercise price
of $9.00 per share with a record date of September 19, 1994 and
an expiration date of October 19, 1994. Of the net proceeds of
$39.8 million, $35.0 million were used to reduce bank debt.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (the following exhibits are listed and numbered
in accordance with Item 601 of Regulation S-K as of the
date of this filing)
Exhibit Number Description
11.1 Calculation of Earnings
per Share
15.1 Letter re: Unaudited
Interim Financial
Information
(b) Reports on Form 8-K
Current Report on Form 8-K, dated August 15, 1994, of
Doskocil Companies Incorporated was filed with the SEC
on August 17, 1994, with respect to the employment of R.
Randolph Devening, as Chairman of the Board and Chief
Executive Officer of the Company, under Item 5 (other
events).
Current Report on Form 8-K, dated June 1, 1994, of
Doskocil Companies Incorporated was filed with the SEC
on August 18, 1994, with respect to the Company's
consummation of the acquisition of the stock of
International Multifoods Foodservice Corp. under Item 7
(financial statements, pro forma financial information
and exhibits).
<PAGE>
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.
DOSKOCIL COMPANIES INCORPORATED
Dated: November 14, 1994 By:/s/ William L. Brady
William L. Brady
Vice President and Controller
EXHIBIT 11.1
<TABLE>
DOSKOCIL COMPANIES INCORPORATED AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE - UNAUDITED
(Dollar amounts in thousands, except per share figures)
<CAPTION>
Three Months Ended Nine Months Ended
__________________ _________________
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1994 1993 1994 1993
________ _______ ________ _______
<S> <C> <C> <C> <C>
Income (loss) before cumulative
effect of a change in accounting
principal $(2,093) $ 813 $(3,352) $ 330
Extraordinary loss on early
extinguishment of debt, net of tax (1,433) - (2,419) -
Cumulative effect of a change in
accounting for postretirement
benefits other than pensions - - - (34,426)
_______ ______ _______ ________
Net income (loss) $(3,526) $ 813 $(5,771) $(34,096)
======= ====== ======= ========
Primary earnings per share:
Weighted average number of
common shares outstanding 7,921 7,857 7,921 7,270
Common stock equivalents:
Dilutive options and warrants - 95 - -
______ _____ ______ ______
Weighted average number of
common and common equivalent
shares outstanding 7,921 7,952 7,921 7,270
====== ===== ====== ======
Income (loss) before cumulative
effect of a change in
accounting principal $(0.26) $0.10 $(0.42) $ 0.05
Extraordinary loss on early
extinguishment of debt, net of
tax (0.18) - (0.31) -
Cumulative effect of a change in
accounting for postretirement
benefits other than pensions - - - (4.74)
______ _____ ______ ______
Net income (loss) per share $(0.44) $0.10 $(0.73) $(4.69)
====== ===== ====== ======
Fully diluted earnings per share:
Weighted average number of
common shares outstanding 7,921 7,857 7,921 7,270
Common stock equivalents:
Dilutive options and warrants - 104 - -
______ _____ ______ ______
Weighted average number of
common and common equivalent
shares outstanding 7,921 7,961 7,921 7,270
====== ===== ====== ======
Income (loss) before cumulative
effect of a change in
accounting principal $(0.26) $0.10 $(0.42) $ 0.05
Extraordinary loss on early
extinguishment of debt, net of
tax (0.18) - (0.31) -
Cumulative effect of a change in
accounting for postretirement
benefits other than pensions - - - (4.74)
______ _____ ______ ______
Net income (loss) per share $(0.44) $0.10 $(0.73) $(4.69)
====== ===== ====== ======
</TABLE>
EXHIBIT 15.1
November 7, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Doskocil Companies Incorporated
Registration on Form S-8
We are aware that our report dated November 2, 1994 on our review
of interim financial information of Doskocil Companies
Incorporated for the periods ended October 1, 1994, and October
2, 1993, and included in the Company's quarterly report on Form
10-Q for the quarter ended October 1, 1994, is incorporated by
reference in the Registration Statement on Form S-8 (File
No. 33-45974) of Doskocil Companies Incorporated. Pursuant to
Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the Registration Statement prepared
or certified by us within the meaning of Sections 7 and 11 of
that Act.
COOPERS & LYBRAND L.L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER 1994 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> OCT-01-1994
<CASH> 10,066
<SECURITIES> 0
<RECEIVABLES> 36,933
<ALLOWANCES> 0
<INVENTORY> 70,551
<CURRENT-ASSETS> 120,914
<PP&E> 152,419
<DEPRECIATION> 28,908
<TOTAL-ASSETS> 466,931
<CURRENT-LIABILITIES> 59,349
<BONDS> 278,072
<COMMON> 79
0
0
<OTHER-SE> 50,160
<TOTAL-LIABILITY-AND-EQUITY> 466,931
<SALES> 528,280
<TOTAL-REVENUES> 528,280
<CGS> 428,935
<TOTAL-COSTS> 428,935
<OTHER-EXPENSES> 87,370
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,346
<INCOME-PRETAX> (2,858)
<INCOME-TAX> 494
<INCOME-CONTINUING> (3,352)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,419)
<CHANGES> 0
<NET-INCOME> (5,771)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
