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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ------to------
Commission File No. 33-66606
PM Holdings Corporation
(Exact name of registrant as specified in its charter)
Delaware 76-0407288
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
1401 S. Hanley Road
St. Louis, Missouri 63144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 768-4100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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........
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ].
As of March 15, 1997 the number of shares of common stock, par value $.01
per share, outstanding was 453,801. As of such date, the aggregate market value
of the voting stock held by non-affiliates of the registrant was
approximately $121,000,000.
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TABLE OF CONTENTS
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Page
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PART I
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Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 52
PART III
Item 10. Directors and Executive Officers of the Registrant 52
Item 11. Executive Compensation 56
Item 12. Security Ownership of Certain Beneficial Owners
and Management 61
Item 13. Certain Relationships and Related Transactions 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 63
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PART I
ITEM 1. BUSINESS
General
PM Holdings Corporation ("Holdings") was formed in July 1993 by an investor
group led by The Sterling Group, Inc. ("Sterling"), a private financial
organization, to acquire Purina Mills, Inc. ("Purina Mills" or the
"Company"). In September 1993, PMI Acquisition Corporation ("PMI"), a wholly
owned subsidiary of Holdings, acquired all of the outstanding capital stock
of the Company (the "Acquisition") and was merged into the Company. Unless
the context otherwise requires, the term "Holdings" refers to PM Holdings
Corporation and its subsidiaries and the term "Company" refers to Purina
Mills, Inc. and its subsidiaries . Holdings has no direct subsidiaries other
than the Company and conducts no business other than that of the Company.
On March 15, 1995, the Company acquired all of the outstanding capital stock
of Golden Sun Acquisition Company which was subsequently merged into Purina
Mills. Golden Sun Acquisition Company's operations were conducted through
subsidiary corporations, primarily Golden Sun Feeds, Inc. ("Golden Sun").
Golden Sun manufactures and markets feed primarily in the Midwest.
Consideration, including applicable fees, consisted of $62.0 million in cash;
15,000 shares of Holdings common stock, and additional payments to be made
during the five years following closing based on the volume of feed sales
under a feed supply agreement with a customer. See Note 5 of Notes to
Consolidated Financial Statements. Additional payments made or due as of
December 31, 1996 total $.7 million. All funds required to consummate the
transaction were borrowed under the Company's credit facilities.
Portions of this report include forward looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. Although
the Company believes that the expectations reflected in such forward looking
statements are based upon reasonable assumptions, it can give no assurance
that its expectations will be achieved. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in conjunction with the forward looking statements included herein
("Cautionary Disclosures"). Subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Disclosures.
The Company
Purina Mills is the market leader in the United States in developing,
manufacturing and marketing animal nutrition products for dairy cattle, beef
cattle, hogs and horses. The Company also develops, manufactures and sells
poultry feeds and specialty feeds for rabbits, zoo animals, birds, fish and
pets. The Company's products are generally
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marketed under the widely recognized brand names Purina(R) and Chow(R), and
the "Checkerboard" Nine Square Logo(R) and other trademarks pursuant to an
exclusive, perpetual, royalty-free license from Ralston Purina Company.
Golden Sun products are marketed under the Golden Sun brand and related
trademarks. The Company's products are sold as complete feeds or concentrates
which are mixed with the customer's base ingredients. Over the past 100
years, the Company has built and maintained its industry leadership by
consistently providing high-quality, innovative products and dedicated
customer service.
The Company develops differentiable feed products, programs and information
through research and development efforts utilizing its extensive knowledge
of the nutritional requirements of animals, the nutritional content of
various ingredients, and process technology. This knowledge enables the
Company to develop high-performance, value-added products that can be
differentiated from other feed alternatives. The Company's products are
designed to provide the balance of nutrients that meets the needs of a
particular species of animal at each phase of its life cycle. The Company
believes that the continued market leadership of its various products and
programs will depend, in part, upon maintaining a cost-effective balance
between weight gain, feed efficiency, yield, animal health and price.
For the commercial animal business, the Company develops and sells its
products as part of a package that includes nutrition and management
programs. The Company's nutrition programs include information and services
regarding the care of the animals and their facilities, as well as
nutritional, genetic and breeding counseling. The Company's approximately
470 sales representatives and technical services staff, including
approximately 40 field-based consultants with Ph.D. degrees, work closely
with dealers and customers to help ensure that the Company's feed products,
programs and services are matched with the animal producer's facilities and
overall management practices, as well as the genetic potential of the
specific animal species. To support increasingly sophisticated customers,
the Company has changed its mix of salespeople in recent years from
predominantly "generalists" to approximately 75% "specialists" who focus on
individual species or distribution channels.
The demand for particular products is affected by a number of factors,
including the price of grains and the price of the end-products of animal
producers. When the price of grains has been relatively high, more of the
Company's customers have tended to purchase complete rations and the
Company's tonnage has been correspondingly higher. During periods when
commodity prices (particularly for corn) have been relatively low, animal
producers have tended to provide their own grains (resulting in decreased
volume) and have purchased concentrated, nutritional additives, which have
higher per unit margins. Historically, the effect on profitability of lower
volume during periods of low commodity prices has tended to be offset to a
large degree by an increase in overall unit margin.
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One of the fastest growing areas for the Company is the retail specialty area
(horses, rabbits and other companion animals) which depends on a different
set of criteria to be successful. A differentiated line of products and
programs are important but a strong distribution system and aggressive
marketing support are also required. The Company has been able to energize
our 4,500 retail outlets through the implementation of new products and
innovative marketing programs. The Company intends to continue to invest in
resources that will help develop new dealers and encourage continued growth.
Source and Availability of Raw Materials
The basic feed manufacturing process consists of grinding various grains and
protein sources into a meal form and then mixing it with nutritional
additives, such as vitamins, minerals and synthetic amino acids, and, in some
cases, medications. The resulting products are sold in a variety of forms,
including meal, pellets, blocks and liquids. The Company's feed formulas are
based upon the nutrient content as determined through proprietary scientific
research. When the price of certain raw ingredients increases, the Company
can generally adjust its feed formulas by substituting lower-cost alternative
ingredients to produce feed with equivalent nutritional value.
The Company manufactures its feed products from raw ingredients ranging from
widely-traded commodities, such as corn, milo, meat meal, soybean meal and
wheat middlings, to more specialized ingredients such as vitamins, minerals,
medications and synthetic amino acids. The Company purchases most of its
corn, milo, meat meal and other locally available ingredients through its
purchasing agents based at the Company's field locations. Other ingredients,
such as soybean meal, wheat middlings, vitamins, minerals, medications and
synthetic amino acids, are generally purchased by the Company's central
purchasing operation in St. Louis so that the Company may take advantage of
volume purchase discounts.
The raw materials used by the Company are generally available from a number
of different sources. The Company has not experienced any significant
interruption in availability of raw materials. The Company does not
typically enter into long-term contracts for purchase of ingredients.
However, the prices of many of the Company's raw materials can be volatile.
Although the Company generally passes on price changes to its customers, it
uses the futures markets, options and other risk management tools to protect
its margins on firm purchase price sales contracts with customers and to lock
in prices to support promotions on various products. Management has
extensive experience in purchasing ingredients in the commodity markets.
From time to time, the Company takes positions in various ingredients to
assure supply and to protect profits on anticipated sales volume. Although
the Company uses these risk management tools to hedge its risks, it does not
speculate in the commodity market and the Company maintains a relatively low
dollar level of risk related to open positions in the market. See Note 2 of
Notes to Consolidated Financial Statements.
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In the feed industry potential manufacturing economies of scale are generally
not sufficient to offset the cost of shipping products significant distances
as raw materials, which make up a large percentage of finished products, are
often available locally. As a result, the Company operates nationally with a
network of manufacturing facilities with sufficient capacity to meet the
demands of the local market in which the facility is located.
Seasonality
The Company's business is seasonal, with a higher percentage of the feed
volume sold and earnings being generated during the first and fourth quarters
of the year. This seasonality is driven largely by weather conditions
affecting the Company's cattle product lines. If the weather is particularly
cold and wet during the winter, sales of feed for cattle increase as compared
with normal seasonal patterns because the cattle are unable to graze under
those conditions and have higher nutritional requirements. If the weather is
relatively warm during the winter, sales of feed for cattle may decrease as
compared with normal seasonal patterns because the cattle may be better able
to graze under those conditions. Other product lines are affected
marginally by seasonal conditions but these conditions do not materially
affect the Company's quarter-by-quarter results of operations.
Working Capital
The Company operates with a relatively low working capital level because a
majority of its sales (approximately 63% in the year ended December 31, 1996)
are made on terms whereby customers receive a 3% discount if payment is
received immediately upon shipment of feed products. Raw ingredients are
normally purchased shortly prior to manufacturing and shipment. In addition,
the Company provides programs whereby customers who are cash basis taxpayers
may take advantage of favorable tax treatment and prepay feed purchases for
the following year. The total of these prepayments was $17.5 million at
December 31, 1996 and $11.1 million at December 31, 1995.
Competition
The Company believes that its market share is approximately 4-5% of the total
primary feed produced in the United States, and approximately 9-10% of the
estimated available potential market. The Company considers the "available
potential market" for its products in any one species to be the total volume
of feed produced, except that used by producers that have integrated feed
operations or alignments with other feed manufacturers.
The industry, which has substantial excess capacity in certain areas of the
country, is highly competitive. Both the feed production and animal
production industries are consolidating, and this trend is expected to
continue. To date, the Company has been
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successful at generating business directly with some large producers of
animals. However, as producers of animals get larger, they historically have
tended to integrate their business by acquiring or constructing feed
production facilities to meet some or all of their requirements and,
consequently, have relied less on outside suppliers of feed. As the
consolidation of animal producers continues, the available market for
commercial feeds may shrink if producers integrate into feed production and,
if so, competition may increase. Management expects consolidation in the
commercial feed industry itself, and acquisitions and other business
combinations in recent years indicate that this consolidation is occurring.
Only one competitor's commercial business approaches the scope of the
Company's national distribution network. The industry is highly fragmented,
with the bulk of the industry consisting of regional competitors (including
cooperatives) with several manufacturing facilities and a large number of
small, local manufacturers, many of which operate only one feed mill. The
Company believes that it distinguishes itself from its competitors through a
competitive strategy of differentiation using its high-performance,
value-added products, which it develops and sells on a national basis.
Although the strength of competitors varies by geographic area and product
line, the Company believes that no other competitor produces and markets the
breadth of products that the Company provides.
Much of the competition in the industry centers around price due to the
commodity-like aspects of the basic product lines. However, the Company
focuses its efforts on high-performance, value-added products which are
designed to be cost effective on the basis of weight gain, feed efficiency,
yield, animal health and price. The Company's extensive expertise in animal
nutrition requirements and the nutritional content of various ingredients,
developed through research and combined with its manufacturing expertise and
ingredient purchasing capabilities, allow the Company to use lower-cost
ingredients, as well as alternative ingredients, to a greater extent than
many of its competitors.
The Company also competes on the basis of service by providing training
programs for dealers, using species specialists with advance technical
qualifications to consult with customers, developing and manufacturing
customized products for customers, and offering various financing assistance
programs to attract and retain dealers and direct customers. In some areas
of the United States, feed companies have increased the use of contracting
for livestock production to generate and control feed volume. The Company
does not offer these arrangements but does enter into joint ventures for
animal production and marketing arrangements (such as market price risk
sharing arrangements) on a limited basis.
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Research and Development
The Company owns and operates a 1,188 acre Research Center at Gray Summit,
Missouri, where the Company's research staff develops new products, product
enhancements and technologies. The Company conducts extensive animal
research to develop value-added products and programs designed to optimize
the genetic performance potential of animals. The research facility is
operated by approximately 70 employees. Basic research is conducted by Ph.D.
scientists and technical staff who are dedicated to each specie served by the
Company's products. The Company's researchers have gained extensive
knowledge of the nutritional composition and values of the primary
ingredients used in feed and the full range of acceptable substitute
ingredients. The Company believes that the scope of its research and
development activities and the synergies created from conducting research
across various product lines and species provide it with a significant
competitive advantage. The Company's research and development expenditures
(net of proceeds from sales of animals and animal products of approximately
$1.0 million in each year presented) were approximately $7.0 million, $6.7
million and $6.3 million in 1996, 1995, and 1994, respectively.
Regulation
The Company is subject to regulation by the U.S. Food and Drug Administration
("FDA") and the United States Department of Agriculture ("USDA"). The FDA
regulates all ingredients that are part of animal feed (feed additives) or
that contact animal feed (feed contact additives). It also regulates animal
drugs that come in dosage form for administration to animals, or that are
added through water or feed. The Company's production facilities are subject
to inspection at least once every two years by the FDA.
The USDA is responsible for assuring that products derived from animals are
wholesome, which includes inspection for any drug residues that the animal
might contain. The USDA monitors residues and when violations occur, the
USDA works in conjunction with FDA to investigate and assign responsibility.
Similar to this federal regime, each state's Department of Agriculture also
regulates feed production facilities and feed products.
Environmental
The Company has an environmental policy designed to ensure that it operates
in material compliance with applicable environmental regulations. The
Company also has undertaken a compliance audit program that addresses
environmental and other regulatory compliance. The Company makes
expenditures that it believes are necessary to comply with its environmental
compliance practices. Capital expenditures for environmental control
facilities to maintain compliance with environmental regulations are included
in the Company's overall capital budget and were less than $1 million in
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1996. Such expenditures are not expected to increase significantly in the
foreseeable future.
Employees
The Company had approximately 2,600 full-time employees as of December 31,
1996.
Industry Overview
According to the 1996 Feedstuffs Reference Issue, the total animal feed
industry in the United States produced approximately 116.6 million tons of
primary feed in 1995. Animal producers and processors purchased
approximately $23.6 billion of animal nutrition products in 1995. Animal
feed typically represents 50-70% of the total cost of producing meat, milk
and eggs at the farm level. The magnitude of costs represented by animal
feed make the effective management of feed cost one of the most important
economic components of animal raising. Although some customers buy feed on
the basis of price alone, many customers consider the performance
characteristics of the feed they purchase and appreciate the cost
effectiveness and yields produced by the Company's value-added products.
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Product Lines
The following table sets forth, by major product line, the sales volume and
gross sales for each of the last three years:
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(In Thousands)
Year Ended Year Ended Year Ended
December 31, 1994 December 31, 1995 December 31, 1996
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Total tons sold 5,024 5,080 4,984
Total gross sales $ 1,030,760 $ 1,058,456 $ 1,249,184
Product Lines:
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Dairy Cattle
Tons sold 1,321 1,265 1,267
Gross sales $ 256,934 $ 246,542 $ 301,260
Beef Cattle
Tons sold 1,377 1,467 1,363
Gross sales $ 224,851 $ 241,253 $ 261,693
Hog
Tons sold 1,010 1,058 1,071
Gross sales $ 241,899 $ 250,316 $ 306,441
Horse
Tons sold 308 346 370
Gross sales $ 69,216 $ 81,257 $ 103,513
Poultry
Tons sold 548 418 417
Gross sales $ 94,981 $ 74,296 $ 90,265
Specialty and Other
Tons sold 460 526 496
Gross sales $ 142,879 $ 164,792 $ 186,012
</TABLE>
Set forth below is a description of each major product line. The Company's
estimates of its market share referred to are based on the Company's
estimates of its "available potential market" (total volume of feed produced,
except that used by producers who have integrated feed operations or
alignments with other feed manufacturers).
Dairy Cattle. The Company markets dairy cattle products ranging from economy
to high performance. The Company estimates that its 1996 volume of 1.3
million tons, or approximately 25% of the Company's total feed tons,
represented 9-10% share of the available U.S. market. The Company regards
dairy cattle products as an attractive growth market.
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Milk production per cow has increased approximately 32% from 1983 to 1996,
largely driven by improved genetics and feeding programs based on enhanced
knowledge of cows' nutritional requirements. Further increases in production
per cow will be achieved through improved genetics, biotechnology and feeding
programs, which include high-performance products such as the Company's
Ultimate EXT(R) product line. These products have produced average increases
of approximately five pounds of milk per cow per day in high producing herds,
a 5% to 7.5% increase, due primarily to a proprietary extruded component in
the product that delivers nutrients more effectively than traditional
products. Extrusion is a relatively high cost process not normally used in
commercial animal feed production. In addition, improvements in the
efficiency of milk production are key to the profitability of dairy
operations. The introduction of the patented Proteus(R) product line by
Purina Mills enhances the efficiency of feed protein utilization by lactating
dairy cows. The result is a lowering of feed costs while maintaining the
level of milk production and milk component yield. An additional benefit of
Proteus(R) technology is reduced urinary nitrogen excretion by dairy cows
resulting in an environmentally favorable nutritional program.
The dairy industry is continuing to experience gradual consolidation.
According to a February 1996 report by the United States Department of
Agriculture, the number of dairy operations decreased by approximately 23%
from 1991 to 1996; average dairy herd size increased from approximately 55
head in 1991 to approximately 67 head in 1996, while the average number of
dairy cows was approximately 5% lower in 1996 than in 1991. Many large
dairies require specialized products, programs and services from their
suppliers. The Company believes the success of its dairy cattle product line
is largely due to its value-added products and the development of a field
staff of Ph.D. nutritionists who work with dealers and directly with
customers to develop specialized products, programs and services to meet
their individual needs.
Beef Cattle. The Company offers a complete line of feed products for beef
cattle, ranging from economy to high performance. The Company estimates that
its 1996 volume of approximately 1.4 million tons, or approximately 27% of
the Company's total feed tons, represented 13-14% share of the available U.S.
market.
Beef cattle operations can be broadly viewed as consisting of cow-calf,
farmer-feeder and feedlot operations. The feedlot market is highly
concentrated. Slightly over 600 feedlots account for 74% of beef production
and the 20 largest feedlots account for almost 15% of U.S. beef production.
Such consolidation has not occurred in cow-calf operations, which produce
calves for growing and finishing, and is not expected to occur in that part
of the market.
Historically, dry feedlot products have not been as profitable as hog and
dairy cattle products because there has been less product differentiation.
However, the Company does offer proprietary, premium performance products in
liquid form primarily for feedlots and the farmer-feeder and in block form
for cow-calf operations. In addition,
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recent research efforts have resulted in a new feeding management program,
ImpactTM which is designed to significantly improve feed efficiency and cost
per pound gain, while maintaining average daily gain. This feeding program is
being used in major feedlot markets and has recently been introduced for
farmer-feeder operations.
Hogs. The Company offers a complete line of feed products for hogs, ranging
from economy to high performance. The Company estimates that its 1996 volume
of 1.1 million tons, or approximately 21% of the Company's total feed tons,
represented 9-10% share of the available U.S. market.
In early 1991 the Company introduced its Lean Generation(R) line of products
and feeding programs, which match a hog's genetic potential and life stage
with nutrient requirements designed to increase its daily lean weight gain.
Lean Generation(R) programs have been demonstrated to lower feed costs by
improving feed efficiency and reducing the average number of days to market,
in addition to providing a higher composition of lean meat. As consumers
demand lower-fat meat products and the hog packing industry moves further
toward establishing prices for live animals based on lean content rather than
weight, hog producers can improve both their product and their profitability
under these programs. The Lean Generation(R) line of products offers clear
differentiation from competitive products. As a result, the line became the
Company's largest volume product within eight months of its introduction.
The Company has historically been successful in selling to medium-size
producers in the hog industry through its traditional dealer distribution
channel. The Company has also been successful in generating business
directly with hog producers. As consolidation in the hog production industry
continues, the Company expects to have opportunities for strategic business
alliances with producers, or to provide technology sharing or consulting
services. Nevertheless, consolidation and integration in hog production over
the last 20 years has been significant, with a continuing trend toward fewer
but larger operations. According to the December 29, 1995 USDA Hogs and Pigs
Report there were approximately 184,000 hog production operations in November
1994, compared with approximately 870,000 in 1970. This number is expected
to drop to approximately 150,000 by the year 2000. Management anticipates a
gradual decline in volumes and margins in this product line. However, the
Company believes that larger hog producers are better able to measure animal
performance and, as a result, better appreciate the Company's premium
products and more sophisticated feeding and management programs.
Horse. The Company estimates that its 1996 volume of 370,000 tons, or
approximately 7% of the Company's total feed tons, represented 16% share of
the available U.S. market.
Volume in this product line increased each of the past five years. Following
changes in distribution strategy, sales focus and pricing policies, volume
increased in 1992 for the
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first time since 1982. Unlike cattle and hogs, most horses are kept for
pleasure or work. Horse owners, therefore, do not generally have a
commercial or economic measure of the value of the Company's products. Since
1992, the Company has restricted its efforts in the price-driven commodity
portion of the business to instead focus on the quality-oriented end of the
market for horse feed, where the Company believes the value of its Omolene(R)
and other premium brands are more likely to be recognized. The Company also
introduced a series of pelleted and extruded products that it believes will
appeal to a wide range of feeders, including its Equine SeniorTM feed, which
is designed to meet the nutritional needs of older horses. Aggressive
marketing programs have been implemented to continue the recent growth in this
market.
Poultry (Laying Chickens and Meatbird). The Company's 1996 volume of 417,000
tons represented approximately 8% of the Company's total feed volume. The
egg production industry is highly concentrated. Because the nutritional
requirements of poultry are relatively simple and widely known compared to
those of beef or dairy cattle or hogs (and thus comparatively little value
can be added through feed) and significant numbers of birds can be located in
concentrated areas, these producers generally have sufficient scale and
nutritional knowledge to manufacture their own feed. Accordingly, the
available market for feed sales is small relative to the amount of feed
consumed in the poultry industry.
The meatbird (broiler chickens, turkeys, ducks, etc.) production industry is
also highly concentrated with a relatively small number of very large
producers that generally manufacture their own feed, again due to the
relative simplicity of the diet and large scale of operations in this market.
Because there is no significant opportunity for product differentiation in
either part of the poultry market, the Company is pursuing this market less
aggressively and expects continuing gradual decline as evidenced by its
significant 1995 decrease in volume.
Specialty and Other. In addition to its core commercial feed lines, the
Company develops, manufactures and markets mineral supplements for livestock
and a wide variety of feed products for other animals ranging from rabbits,
birds, commercial fish, dogs and cats to zoo and other exotic animals. This
group includes the expanding Mazuri(R) brand line of feeds, which is widely
recognized in the domestic and international zoological community, as well as
the PMI Nutrition(TM) line of dog and cat foods, which was introduced during
1992 and expanded in 1993 and 1994.
Many products within this group can be manufactured at most of the Company's
feed mills. Others are highly specialized and incorporate unique ingredients
designed to address particular nutritional needs, or otherwise require
manufacturing process technology, including extrusion, not available at
standard feed plants. Those specialty items are manufactured at the
Company's Richmond, Indiana specialty plant.
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The specialty and other product group has the highest overall unit margins of
all the Company's product groups. The Company's 1996 volume of specialty
feeds aggregated 496,000 tons, representing approximately 10% of total
volume. The Company believes that these products have significant potential
for continued growth to volume and profit contributions.
Sales and Marketing
The Company distributes its products through dealers and directly to
end-users. During 1996, approximately 61% of the Company's sales were made
through its dealer network and 39% were made directly to animal producers.
To support increasingly sophisticated customers, the Company has changed its
mix of salespeople over the last several years from predominantly
"generalists" to approximately 75% "specialists" who focus on individual
species or distribution channels. Although sales volume through the
Company's dealer network has always been substantially higher than the
Company's direct sales volume, direct sales to customers have accounted for
an increasing proportion of the Company's sales volume over the past 10 years
and the Company expects this trend to continue. This trend results from
increasing consolidation in the animal production and processing industries.
The Company believes that consolidation among its customers generally results
in a more sophisticated market for its products and that these purchasers
better appreciate the advantages of high-performance nutrition products and
nutritional programs.
As of December 31, 1996, the Company's dealer network consisted of over 4,500
independent dealers located in 48 states, with approximately 600 dealers
representing 54% of total dealer volume and 33% of total Company volume in
1996. The number of direct customers in 1996 was in excess of 4,900.
During 1996, the Company's top 50 customers represented approximately 17% of
its total volume and its largest customer accounted for approximately 1.4% of
the Company's total sales volume.
ITEM 2. PROPERTIES
The only significant asset of Holdings is the stock of the Company, which is
pledged to secure Holdings' guaranty of the Company's indebtedness under the
Credit Agreement between the Company and its lending banks (the "Credit
Agreement"). The Company owns its corporate headquarters in St. Louis and
its Research Center in Gray Summit, Missouri. At December 31, 1996, the
Company operated 58 feed manufacturing plants located in 24 states; two of
those plants are leased. In addition to on-site storage at each of its
manufacturing plants, the Company also stores, or has on consignment, its
products in 41 warehouses in 16 states. Ten of these warehouses are owned.
The Company considers its facilities adequate for its operating activities.
Substantially all of the Company's assets are pledged to secure indebtedness
under the Credit Agreement between the Company and a group of commercial
banks (the "Credit Agreement").
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ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business, including
product liability claims. The Company believes that it is not presently a
party to any litigation, the outcome of which would have a material adverse
effect on its business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no existing trading market for Holdings common stock. All holders
of the outstanding common stock of Holdings are subject to significant
restrictions on transfers as set forth in stockholder agreements.
As of December 31, 1996 there were approximately 280 holders of Holdings
common stock, including the Company's Employee Stock Ownership Plan ("ESOP")
and Savings and Investment Plan.
Holdings has never declared or paid cash dividends on its common stock. It
is Holdings' present intention to retain all future earnings for use in its
business and, therefore, it does not expect to pay cash dividends on the
common stock in the foreseeable future. The declaration and payment of
dividends on the common stock is restricted by the terms of Holdings'
guaranty of the Company's indebtedness under the Credit Agreement and the
Indenture (the "Debenture Indenture") pursuant to which Holdings has issued
its 11 1/2% Series B Discount Debentures due 2005 (the "Discount
Debentures"). See Note 6 of Notes to Consolidated Financial Statements.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the year ended December 31, 1992 and for the
eight months ended August 31, 1993 are derived from the consolidated
financial statements of the Company, which have been audited by Ernst & Young
LLP, independent auditors. The data for the four months ended December 31,
1993 and for each of the three years in the period ended December 31, 1996
are derived from the consolidated financial statements of Holdings, which
have been audited by Deloitte & Touche LLP, independent auditors. The data
should be read in conjunction with the consolidated financial statements and
related notes, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and other financial information included herein.
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts)
Predecessor Company Consolidated Holdings
-----------------------------------------------------------------------------------------------
Eight Months Four Months
Year Ended Ended Ended Year Ended Year Ended Year Ended
December 31, August 31, December 31, December 31, December 31, December 31,
1992 1993 1993 1994 1995 1996
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 936.4 $ 594.9 $ 368.7 $ 1,016.4 $ 1,047.2 $ 1,212.2
Income (loss)
from continuing
operations be-
fore cumulative
effect of changes
in accounting
principles $ 17.0 $ 14.8 $ 5.2 $ 2.0 $ (3.3) $ (10.0)
Income (loss)
from continuing
operations be-
fore cumulative
effect of changes
in accounting
principles --
per share N/A N/A $ 14.36 $ (5.24) $ (28.37) $ (25.11)
Total assets $ 562.9 $ 494.6 $ 594.6 $ 568.9 $ 637.7 $ 613.4
Long-term debt,
excluding cur-
rent maturities $ 167.6 $ 117.6 $ 366.0 $ 337.3 $ 371.3 $ 364.3
</TABLE>
No cash dividends were declared or paid in any of the periods.
The consolidated financial statements for periods prior to September 1, 1993
have been prepared on the historical cost basis. The amounts shown for total
assets at December 31, 1993, 1994, 1995 and 1996 reflect the allocation of
the purchase price in the Acquisition to the assets acquired and thus is not
comparable with amounts for prior periods. Income from continuing operations
before cumulative effect of changes in
16
<PAGE> 17
accounting principles for the four months ended December 31, 1993 and the
years ended December 31, 1994, 1995 and 1996 is comparable to amounts for
prior periods except for the effects of depreciation expense, amortization of
intangible assets and interest expense.
The Company adopted new accounting standards SFAS 106 and 109 on January 1,
1993. SFAS 106 had a cumulative effect of reducing income by $16.9 million,
net of $8.7 million income tax benefit. SFAS 109 had a cumulative effect of
increasing income by $8.0 million. The cumulative effect of adopting these
new accounting standards is not reflected in the selected financial data
presented above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The feed industry generally prices products on the basis of aggregate
ingredient cost plus a dollar amount margin, rather than a gross margin
percentage. As ingredient prices fluctuate, the changes are generally passed
on to customers through weekly changes in the Company's price lists. Feed
tonnage, total income over ingredient cost ("IOIC"), which is net sales minus
cost of ingredients, and gross profit (IOIC less manufacturing costs), rather
than sales dollars, are the key indicators of performance because of the
distortions in sales dollars caused by changes in commodity prices and
product mix between complete feed and concentrate products, to which
customers add their own base ingredients such as corn and other grains. When
the price of grains has been relatively high, more of the Company's customers
have tended to purchase complete rations and the Company's sales volume has
been higher. When the price of grains has been relatively low, more of the
Company's customers have tended to use their own grains and mix them with
the Company's concentrate products, resulting in lower sales tonnage volume
but higher overall unit margins. While the mix of complete and concentrate
product sales varies each period depending on grain prices, the offsetting
impacts of volume and unit margins have tended to stabilize total IOIC and
gross profit generated.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
During 1996 the Company experienced extreme volatility in commodity prices
with some prices breaking all time record highs before declining again later
in the year. As a result 1996 net sales increased even though volume
decreased 1.9% from the 1995 level to just under 5.0 million tons. Gross
profit equaled $176.3 million in 1996, a decrease of 4.1% from the 1995
amount of $183.9 million. Overall average IOIC per ton was $60.23, a modest
.4% increase over the comparable 1995 amount. The high
17
<PAGE> 18
commodity prices and low market price of cattle resulted in reduced animal
numbers, margin pressures and declines in feeding rates in 1996 as compared to
1995.
Beef cattle tons decreased 7.1% from the 1995 amount due primarily to the
reduced animal numbers which severely impacted third and fourth quarter 1996
volume. Hog volume increased 1.2% over 1995 due primarily to the product mix
shift toward complete products. Dairy cattle and poultry tons remained
constant as reduced feeding rates were offset by the switch to more complete
products. Horse volume continued its recent growth trend with a 6.9%
increase, the fifth consecutive year of increase and a new record high in
volume. Specialty and other volume decreased 5.7% from 1995 due to reduced
animal numbers and feeding rates.
Cost of products sold increased 20.0% reflecting the dramatic increase in
commodity prices in 1996. Manufacturing costs decreased 2.1% from the 1995
amount primarily due to the decreased volume. Marketing costs increased $.9
million due to the inclusion of the Golden Sun sales force for the entire
twelve months in 1996. General and administrative expenses increased $1.2
million as the $2.8 million increase in bad debt and severance expense more
than offset the other overall reduction in administrative costs.
The increase in amortization of intangibles for 1996 reflects a full year of
expense attributable to the intangible assets recorded in the allocation of
the purchase price associated with the Golden Sun acquisition versus only
nine and one-half months in 1995. Research and development costs increased
slightly as the Company continued its emphasis in this area for development
or enhancement of products.
The Company regularly reviews the performance of its facilities to insure
optimization of overall capacity and maximization of profits. As a result,
in 1996 the Company made a decision to discontinue all manufacturing
operations at seven facilities and recorded a loss provision for plant
closings of $14.0 million. See Note 4 of Notes to Consolidated Financial
Statements for a further discussion of the plant closings.
Other (income) expense - net for 1996 reflects the $3.2 million increase in
income over 1995 related to service fees for swine and dairy management,
marketing arrangements and the profit or loss on the production of eggs, hogs
and turkeys. The increase is attributable to higher prices for the livestock
and eggs plus expansion of the Company's service business. It also reflects
the 35.1% increase in profitability in the Company's equity in earnings of
two joint venture feed manufacturing operations. Finally, the 1996 amount
reflects the profit on the sale of the Company's bromethaline inventory,
trademark and other rights and the proceeds received in settlement of a claim
for excess charges on raw material purchases in prior years.
Interest expense for 1996 decreased as the Company repaid $27.0 million in
Term Loans. Additionally, the average interest rate on the Company's
outstanding debt decreased .6% in 1996 as compared to 1995.
18
<PAGE> 19
The Company's effective income tax rate exceeded the statutory rate in both
1996 and 1995 due to the amortization of goodwill not being deductible for
tax purposes and the loss of state tax benefits attributable to the interest
expense deduction for the accretion of discount on the Discount Debentures
and the 1995 write-off of costs associated with the attempted acquisition of
the international agribusiness from Ralston Purina Company. The deferred tax
assets are fully realizable and no valuation allowance is deemed necessary
based on the Company's analysis and its history of significant operating
profits.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
As previously noted, the Company acquired the operations of Golden Sun on
March 15, 1995. Operating results for 1995 thus include the income and
expenses of Golden Sun subsequent to such date. The sale of Golden Sun
products totaled 4.2% of the Company's 1995 volume.
Gross profit increased 6.6% to $183.9 million, on overall feed volume of 5.1
million tons, a 1.1% increase over 1994. Volume increases in beef cattle,
hog, horse and other products offset volume declines in poultry and dairy
cattle products. Overall average IOIC per ton was $60.00, a 6.5% increase
that was largely due to a shift in product mix to a relatively higher volume
of concentrate products, which carry higher unit margins, and the addition of
Golden Sun, whose products also carry higher unit margins.
Beef cattle tons increased 6.5% over the 1994 amount, due primarily to of the
additional Golden Sun business. Hog volume also increased 4.8% over 1994 due
to the Golden Sun acquisition. 1995 sales of Golden Sun hog products equaled
11.4% of the Company's 1995 volume. Thus, excluding Golden Sun, hog volume
declined 5.9% compared to 1994 due to a product mix shift toward concentrate
products and the effect of consolidation within the hog industry. Dairy
cattle tons decreased 4.2% as a result of product mix shift toward
concentrates. Poultry volume decreased 23.8% reflecting the Company's
decision to less aggressively pursue this lower-margin business and the
termination of a plant lease in the Southeast with the subsequent lease of
this plant by a former poultry feed customer. Horse volume increased for the
fourth straight year with the 1995 increase of 12.3% over the 1994 amount
reflecting the Company's aggressive promotion of these products. Specialty
and other volume increased 9.6% over 1994 and now approximate 10% of the
Company's total volume The most significant increase in volume of specialty
was the sale of laboratory, zoo and aquaculture products which increased
37.5% over 1994.
Costs of products sold increased 2.3% as the result of operating additional
facilities in 1995. Manufacturing costs increased 8.4% while ingredient
costs per ton remained constant. Marketing, distribution and advertising
costs increased $9.7 million due primarily to the addition of such Golden Sun
costs plus a 3.5% increase in the Company's sales force. Overall general and
administrative costs increased $1.0
19
<PAGE> 20
million, with the increase attributable to Golden Sun being substantially
offset by decreases in the remainder of the Company's operations.
Amortization of intangibles in 1995 reflects the additional expense
attributable to the intangible assets recorded in the allocation of the
purchase price associated with the Golden Sun acquisition. The increase in
research and development costs reflects the Company's continued emphasis in
this area for the development or enhancement of new products.
Other (income) expense--net for 1995 includes $2.7 million of expense related
to the write-off of costs incurred in connection with the unsuccessful
attempt to acquire Ralston Purina's international agribusiness and $1.8
million related to a corporate reorganization. Under the reorganization the
Company is decentralizing its operations to better support the growth of the
business and moving appropriate decision-making authority closer to the
customers. Management believes that this decentralized approach will result
in a quicker response by the Company to its customers' needs. Such costs are
primarily for employee relocation and severance expenses. These 1995 costs
were offset by $1.7 million of other miscellaneous income, including $1.0
million equity in earnings of two joint venture feed manufacturing
operations. In 1994 the Company incurred a loss of $2.8 million from
marketing arrangements and the profit or loss on production of eggs, hogs and
turkeys. Such loss was reduced to $.9 million in 1995 due to an increase in
egg prices and the Company's decision to terminate several joint venture
poultry operations. In 1994 the Company also had $2.1 million of
miscellaneous income including $1.1 million equity in earnings of the two
joint venture feed manufacturing operations.
Interest expense for 1995 increased due to the additional $60 million in
borrowings associated with the Golden Sun acquisition and an approximate 1.1%
increase in the interest rate on the Senior Term Loan over 1994.
The Company's effective income tax rate exceeds the statutory rate in both
periods due to the amortization of goodwill not being allowed as a tax
deduction and the loss of state tax benefits attributable to the write-off of
costs associated with the attempted acquisition of Ralston Purina Company's
international agribusiness and the interest expense deduction for the
accretion of discount on the Discount Debentures. The deferred tax assets
are fully realizable and no valuation allowance is deemed necessary based on
the Company's analysis.
Liquidity and Capital Resources
For the year 1996, net cash provided by operations before the effects of
changes in operating assets and liabilities was $60.5 million, compared to
$58.8 million in 1995 and $58.1 million in 1994.
20
<PAGE> 21
Net cash used in investing activities, excluding cash paid for acquired
businesses was $22.1 million in 1996, $25.8 million in 1995 and $22.1 million
in 1994. These amounts consisted primarily of purchases of property, plant
and equipment, which totaled $23.9 million in 1996, $25.5 million in 1995 and
$21.7 million in 1994. The 1996 decrease from the 1995 amount reflects the
decision to close seven facilities thereby reducing replacement capital. The
1995 increase over 1994 relates to costs incurred in connection with the
construction of a new manufacturing facility in Statesville, N.C.
Net cash used in financing in 1996 includes the repayment of $27.0 million in
Term Loans and $6.0 million under the Revolving Credit Facility.
Additionally, the Company loaned $6.3 million to the ESOP for the purchase of
common stock from existing shareholders. The Company also received proceeds
of $8.3 million from the sale of industrial revenue bonds to finance the
construction of a new manufacturing facility in Hagerstown, MD. The 1995 net
cash provided by financing included additional borrowings of $45.0 million in
Senior Term Loans and $15.0 million under the Revolving Credit Facility to
finance a portion of the Golden Sun acquisition. Additionally, the Company
received proceeds of $9.1 million from the sale of industrial revenue bonds
to finance construction of the new manufacturing facility in Statesville, NC.
In 1995 the Company also loaned the ESOP $4.0 million to purchase its common
stock and repaid $.9 million of the additional borrowings under the Revolving
Credit Facility. The 1994 net cash used in financing activities primarily
represents the repayment of $28.2 million under the Credit Agreement. At
December 31, 1996, the Company had $25.5 million in cash and cash equivalents
on hand, and approximately $41.4 million (after giving effect to borrowing
base limitations) was available for borrowing under the Revolving Credit
Facility.
The Company's cash flow increases at year-end due to seasonally higher volume
and programs whereby certain customers prepay feed purchases for the
following year. The total of these prepayments was $17.5 million and $11.1
million at December 31, 1996 and 1995, respectively. The Company operates
with a relatively low working capital level because a majority of its sales
(approximately 63% in the year ended December 31, 1996) are made on terms
whereby customers receive a 3% discount if payment is received immediately
upon shipment of feed products. Raw ingredients are normally purchased
shortly prior to manufacturing and shipment.
Since the Acquisition, liquidity needs have been and will continue to be met
through internally generated funds and, to the extent necessary, borrowings
under the Revolving Credit Facility and the proceeds from issuance of
industrial revenue bonds. Holdings' and the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, and general corporate purposes, should they need to do so, may
be affected by cash requirements for debt service. The Credit Agreement and
the Indenture related to the Notes (the "Notes Indenture") contain numerous
financial and operating covenants, including, but not limited to,
restrictions on the Company's ability to incur indebtedness, pay dividends,
create liens, sell assets,
21
<PAGE> 22
engage in mergers and acquisitions, and refinance existing indebtedness. The
Debenture Indenture and Holdings' guaranty of the Credit Agreement have
covenants binding Holdings which restrict similar types of matters. The
Company's ability to comply with the terms of the Credit Agreement and the
Notes Indenture (including its ability to comply with such covenants), to make
cash payments with respect to the Notes and to satisfy its other debt
obligations will depend on the future performance of the Company. Similarly,
since Holdings' only material asset is the stock of the Company (which is
pledged under the Credit Agreement), Holdings' ability to comply with the
terms of the Debenture Indenture and to satisfy its obligations will similarly
depend on the future performance of the Company. The Credit Agreement requires
that half of Excess Cash Flow (as defined) generated be used to repay the Term
Loans, with the remaining Excess Cash Flow available for use for additional
capital expenditures, acquisitions, or for other purposes. The first
mandatory supplemental repayment of Excess Cash Flow for the period from
September 1, 1993 to December 31, 1994 was due April 30, 1995. The Company
has the option to prepay such amount and in March 1994 the Company made such a
prepayment in the amount of $12.0 million with the additional supplemental
repayment of $5.9 million being paid in 1995. Based on Excess Cash Flow for
1995, another supplemental repayment of $9.8 million was paid in 1996. The
supplemental repayment for 1996 of approximately $9.8 million will be paid in
April 1997. See Note 6 of Notes to Consolidated Financial Statements.
The Credit Agreement also contains covenants that require the Company to
limit capital expenditures to $20.0 million per year, exclusive of any
additional amount available from the Excess Cash Flow. These expenditures
are permitted subject to compliance with certain financial covenants and may
be increased under certain conditions. In compliance with the foregoing, the
Company anticipates spending approximately $26.0 million for capital
expenditures in 1997. The major projects are completing the Hagerstown, MD
facility, commencing construction of a new facility in Lubbock, TX and
commencing work on replacing its management information system. The Company
plans to fund such capital expenditures by using internally generated funds
and, if necessary, borrowing capacity under the Revolving Credit Facility or
proceeds from the issuance of industrial revenue bonds.
The Credit Agreement, the Notes Indenture and the Indenture related to the
Discount Debentures contain provisions which restrict the payment of
advances, loans and dividends from the Company to Holdings. As of December
31, 1996, the Company was allowed to pay a dividend to Holdings of an amount
not to exceed $6.0 million. However, Holdings is prohibited from currently
paying cash dividends. Holdings conducts no business other than its
ownership of the Company's common stock. Holdings has no direct funded debt
obligations other than the Discount Debentures. As those Debentures do not
require any cash payments of debt service prior to 2001, the restrictive
covenants described above should not limit Holdings' ability to meet its
obligations. The accretion of principal on those Debentures is charged to
interest expense.
22
<PAGE> 23
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 24
Consolidated Balance Sheets--December 31, 1995 and 1996 25
Consolidated Statements of Operations--Years ended
December 31, 1994, 1995 and 1996 27
Consolidated Statements of Stockholders' Equity--Years
ended December 31, 1994, 1995 and 1996 28
Consolidated Statements of Cash Flows--Years ended
December 31, 1994, 1995 and 1996 29
Notes to Consolidated Financial Statements 31
</TABLE>
23
<PAGE> 24
Independent Auditors' Report
Board of Directors and Stockholders
PM Holdings Corporation
We have audited the accompanying consolidated balance sheets of PM Holdings
Corporation and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the consolidated financial statement schedules listed in
the Index at Item 14(a). These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of PM Holdings Corporation and
Subsidiaries at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, such consolidated financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri
February 14, 1997
24
<PAGE> 25
<TABLE>
PM HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets
See Note 1
(Dollars in Thousands, Except Share Amounts)
<CAPTION>
ASSETS December 31, 1995 December 31, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21,479 $ 25,462
Accounts receivable - trade, net of allowances
for doubtful accounts of $7,595 and $7,871
at December 31, 1995 and 1996, respectively 55,499 55,816
Inventories 61,437 61,364
Prepaid expenses, deferred and other assets 8,603 10,983
Deferred income taxes 7,485 8,563
.........................................................................................................
TOTAL CURRENT ASSETS 154,503 162,188
Property, plant and equipment, net 266,769 250,600
Intangible assets, net 160,439 138,129
Deferred income taxes 7,193 15,444
Notes receivable 11,630 10,957
Deferred financing costs, net 18,106 14,689
Other assets 19,025 21,439
.........................................................................................................
TOTAL ASSETS $637,665 $613,446
- ---------------------------------------------------------------------------------------------------------
25
<PAGE> 26
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 1995 December 31, 1996
- ---------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 75,152 $ 70,913
Customer advance payments 11,136 17,474
Accrued expenses 24,336 23,328
Bank borrowings under Revolving Credit Facility 6,000 --
Interest payable 8,006 8,038
Current portion of long-term debt 27,717 23,136
.........................................................................................................
TOTAL CURRENT LIABILITIES 152,347 142,889
Retirement obligations 23,552 26,457
Accrued post retirement benefit costs 35,537 36,643
Long-term debt 371,306 364,349
Other liabilities 1,249 641
Commitments and contingencies (Notes 12 and 13)
Common stock held by ESOP 31,000 36,895
Less unearned ESOP compensation (1,483) (2,141)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 200,000 shares
authorized, none issued or outstanding -- --
Common stock, $0.01 par value; 800,000 shares
authorized, 452,951 shares and 453,801 shares
issued and outstanding at December 31, 1995 and
1996, respectively 5 5
Additional paid-in capital 38,769 35,205
Retained earnings (deficit) (14,617) (26,256)
Adjustment for minimum supplemental retirement liabilities -- (1,241)
.........................................................................................................
TOTAL STOCKHOLDERS' EQUITY 24,157 7,713
.........................................................................................................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $637,665 $613,446
- ---------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
26
<PAGE> 27
<TABLE>
PM HOLDINGS CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------
Consolidated Statements of Operations
See Note 1
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts)
Year Ended December 31,
----------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
NET SALES $1,016,392 $1,047,169 $1,212,197
COSTS AND EXPENSES:
Cost of products sold 843,869 863,223 1,035,855
Marketing, distribution and advertising 74,189 83,840 84,751
General and administrative 29,171 30,151 31,391
Amortization of intangibles 17,131 18,551 19,487
Research and development 6,290 6,744 6,982
Provision for plant closings -- -- 14,042
Other (income) expense -- net 757 2,818 (10,517)
............................................................................................
971,407 1,005,327 1,181,991
............................................................................................
OPERATING INCOME 44,985 41,842 30,206
Interest expense 40,307 44,588 43,647
............................................................................................
Income (loss) before income taxes 4,678 (2,746) (13,441)
Provision (benefit) for income taxes 2,685 571 (3,415)
............................................................................................
NET INCOME (LOSS) $ 1,993 $ (3,317) $ (10,026)
............................................................................................
NET LOSS PER COMMON SHARE $ (5.24) $ (28.37) $ (25.11)
- --------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
27
<PAGE> 28
<TABLE>
PM HOLDINGS CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
See Note 1
<CAPTION>
(Dollars in Thousands) Adjustment For
Minimum
Additional Retained Supplemental
Common Paid-In Earnings Retirement
Stock Capital (Deficit) Liabilities Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 4 $ 35,674 $ 5,181 $ -- $40,859
Released ESOP shares -- 1,190 -- -- 1,190
Appreciation in value of earned
ESOP shares -- -- (6,203) -- (6,203)
Net income -- -- 1,993 -- 1,993
...................................................................................................................
Balance, December 31, 1994 4 36,864 971 -- 37,839
Issuance of 15,000 shares of
common stock in acquistion 1 3,750 -- -- 3,751
Issuance of common stock -- 55 -- -- 55
Released ESOP shares -- 2,100 -- -- 2,100
Appreciation in value of earned
ESOP shares -- -- (12,271) -- (12,271)
Purchase of shares by the ESOP -- (4,000) -- -- (4,000)
Net loss -- -- (3,317) -- (3,317)
...................................................................................................................
Balance, December 31, 1995 5 38,769 (14,617) -- 24,157
Released ESOP shares -- 320 -- -- 320
Appreciation in value of earned
ESOP shares -- -- (1,613) -- (1,613)
Purchase of shares for the ESOP,
net -- (5,261) -- -- (5,261)
Activity under stock plans -- 1,377 -- -- 1,377
Adjustment for minimum
supplemental retirement
liabilities -- -- -- (1,241) (1,241)
Net loss -- -- (10,026) -- (10,026)
...................................................................................................................
Balance, December 31, 1996 $ 5 $ 35,205 $ (26,256) $ (1,241) $ 7,713
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
28
<PAGE> 29
<TABLE>
PM HOLDINGS CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
See Note 1
<CAPTION>
(Dollars in Thousands)
Year Ended December 31,
-----------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,993 $ (3,317) $ (10,026)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 44,601 48,356 50,578
Accretion of discount on Discount Debentures 6,027 6,845 7,715
Compensation under ESOP 7,152 8,156 5,726
Provision for deferred income taxes (3,010) (3,186) (8,527)
Loss on disposal of property, plant and equipment 1,384 1,992 999
Provision for loss on disposal of assets -- -- 14,042
Net changes in continuing operating assets and liabilities:
Accounts receivable -- trade (1,150) (6,068) (317)
Inventories (2,109) (2,792) 73
Prepaid expenses and other assets (3,041) (10,235) (4,794)
Accounts payable and other liabilities (12,514) 10,324 2,844
...............................................................................................................
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 39,333 $ 50,075 $ 58,313
</TABLE>
29
<PAGE> 30
<TABLE>
PM HOLDINGS CORPORATION AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
See Note 1
<CAPTION>
(Dollars in Thousands)
Year Ended December 31,
-------------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Cash paid for Golden Sun Acquisition Company $ -- $ (57,049) $ --
Purchase of property, plant and equipment (21,715) (25,463) (23,915)
Proceeds from sale of property, plant and equipment 96 547 1,097
Net change in notes receivable (480) (892) 673
................................................................................................................
Net cash used in investing activities (22,099) (82,857) (22,145)
FINANCING ACTIVITIES
Proceeds from Term Loans -- 45,000 --
Proceeds (repayment) of Revolving Credit
Facility, net -- 6,000 (6,000)
Proceeds from Industrial Revenue Bonds -- 9,100 8,300
Loan to ESOP -- (4,000) (6,318)
Payment of financing costs (524) (1,280) (105)
Repayment of Term Loans (28,166) (23,208) (26,962)
Other -- 52 (1,100)
................................................................................................................
Net cash provided by (used in) financing activities (28,690) 31,664 (32,185)
................................................................................................................
Increase (decrease) in cash and cash equivalents (11,456) (1,118) 3,983
Cash and cash equivalents at beginning of period 34,053 22,597 21,479
................................................................................................................
Cash and cash equivalents at end of period $ 22,597 $ 21,479 $ 25,462
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW STATEMENT
INFORMATION
Interest paid $29,695 $33,650 $32,417
Income taxes paid 10,760 5,664 5,429
See accompanying notes.
</TABLE>
30
<PAGE> 31
PM HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
PM Holdings Corporation ("Holdings") was formed in July 1993 by an investor
group led by The Sterling Group, Inc., a private financial organization, to
acquire Purina Mills, Inc. ("Purina Mills" or the "Company"). In September
1993, PMI Acquisition Corporation ("PMI"), a wholly owned subsidiary of
Holdings, acquired all of the outstanding capital stock of the Company (the
"Acquisition") and was merged into the Company. Unless the context otherwise
requires, the term "Holdings" refers to PM Holdings Corporation and its
subsidiaries and the term "Company" refers to Purina Mills, Inc. and its
subsidiaries. Holdings has no direct subsidiaries other than the Company and
conducts no business other than that of the Company.
Purina Mills develops, manufactures and markets animal nutrition products for
dairy cattle, beef cattle, hogs and horses. The Company also develops,
manufactures and sells poultry feeds and specialty feeds for rabbits, zoo
animals, birds, fish and pets. The Company's products are sold as complete
feeds or as concentrates that are mixed with the customer's base ingredients.
The Company distributes its products through two primary distribution
channels, dealers and directly to end-users. The Company's dealer network
consists of over 4,500 independent dealers located in 48 states. The number
of direct customers is in excess of 4,900. The Company operates 58 feed
manufacturing plants located in 24 states.
On March 15, 1995 the Company acquired all of the outstanding capital stock
of Golden Sun Acquisition Company ("Golden Sun"). Golden Sun is the parent
company of Golden Sun Feeds, Inc. and its wholly owned subsidiaries.
Consideration, including applicable fees, consisted of $62.0 million in cash;
15,000 shares of Holdings common stock; and additional payments to be made to
the Golden Sun shareholders during the five years following closing. The
additional payments will be recorded as goodwill and are based on the volume
of sales, up to a specified cumulative maximum amount, made pursuant to a
supply agreement with a customer (see Note 5) and per-unit amounts that
decline during the five-year period. Payments made or due as of December
31, 1996 total $.7 million. All funds required to consummate the transaction
were borrowed under the Company's existing credit arrangements.
The Golden Sun acquisition has been accounted for as a purchase transaction
in accordance with Accounting Principles Board Opinion No. 16. The purchase
price was allocated to tangible and intangible assets acquired and
liabilities assumed based on
31
<PAGE> 32
their estimated fair values as of March 15, 1995. The allocation, excluding
additional contingent payments, is summarized as follows (in millions of
dollars):
<TABLE>
<S> <C>
Current assets (including $3.9 million cash) $ 12.3
Property, plant and equipment 15.2
Intangible assets 61.0
Other noncurrent assets 1.9
Liabilities assumed (24.6)
...................
Total $ 65.8
-------------------
</TABLE>
The accompanying consolidated statements of operations reflect the operating
results of Golden Sun since March 15, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of Holdings and its majority owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated.
Investments in affiliated companies, 20% through 50% owned, are carried at
equity.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories: Inventories are valued at the lower of average cost or market.
The Company hedges certain of its grain and commodity purchases as considered
necessary to reduce the risk associated with market price fluctuation. Gains
and losses on futures contracts used to hedge grain and commodity purchases
are recognized in the same period as the related inventory is sold. Open
futures contracts for purchases and sales of grains and commodities are
stated at market value, with gains or losses on the hedging transaction being
deferred.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Expenditures for new facilities and those which substantially increase
the useful lives of property are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When properties are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from
the accounts and gains or losses on the
32
<PAGE> 33
dispositions are reflected in earnings. Depreciation is generally provided
on the straight-line basis by charges to costs or expenses at rates based
upon the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 15 to 30 years
Machinery and equipment 5 to 15 years
Office furniture and equipment 3 to 15 years
</TABLE>
Intangible Assets (including Goodwill): Intangible assets represent the
excess of cost over the net tangible assets of the business at the time of
acquisition and are amortized over their estimated period of related benefit.
Intangible assets other than goodwill are amortized over 1 to 20 years.
Goodwill is amortized on a straight-line basis over 40 years.
Management periodically reviews the value of its intangible assets to
determine if an impairment has occurred or whether changes have occurred that
would require a revision to the remaining useful life. In making such
determination, management evaluates the performance, on an undiscounted
basis, of the underlying operations or assets which give rise to such amount.
Based on this review, management does not believe that any such impairment
has occurred, except as noted in Note 4.
Deferred Financing Costs: Deferred financing costs are stated at cost and
amortized over the life of the related debt using the effective interest
method. Amortization of deferred financing costs is included in interest
expense.
Net Loss per Common Share: Net loss per common share for the years ended
December 31, 1994, 1995 and 1996 is computed based on the weighted average
number of common shares outstanding during the period. Such number of shares
represents the average outstanding shares, net of the shares held by the
Employee Stock Ownership Plan (the "ESOP") and not allocated to employees
(the "Unreleased Shares"). Common stock equivalents, which consist of stock
options and stock rights units, are not included in the computation as the
results are anti-dilutive.
For purposes of computing net loss per common share, net income (loss) has
been reduced by an amount equal to the fair market value of Released Shares
(as hereinafter defined) at the end of the period, minus the sum of the
amount previously recognized as compensation expense with respect to Released
Shares and the amount of appreciation in value of Released Shares in prior
periods. This reduction results from the Company being required, under
certain circumstances, to purchase for cash common stock distributed to
participants by the ESOP. "Released Shares" are shares
33
<PAGE> 34
held by the ESOP but allocated to employees. The weighted average number of
outstanding shares and computation of the net loss per common share is as
follows:
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts)
Year Ended December 31,
------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net income (loss) per consolidated statements of
operations $ 1,993 $ (3,317) $ (10,026)
Less appreciation in value of Released Shares
during the period in excess of amounts
recognized as compensation expense (4,043) (8,815) (1,087)
.............................................
Net loss for purposes of computing net loss
per share $ (2,050) $ (12,132) $ (11,113)
---------------------------------------------
Net loss per common share $ (5.24) $ (28.37) $ (25.11)
---------------------------------------------
Average outstanding shares 390,882 427,612 442,503
---------------------------------------------
</TABLE>
Income Taxes: Deferred income taxes are recognized for the effect of
temporary differences between the financial report-ing basis and the tax
basis of the assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
Cash Equivalents: For purposes of the consolidated statements of cash flows,
Holdings considers all highly liquid investments with a maturity of three
months or less to be cash equivalents. Cash in-cludes currency on hand and
demand deposits with financial institutions. The carrying amount reported in
the consolidated balance sheets for cash and cash equivalents approximates
their fair value.
Fair Value of Financial Instruments: The carrying amounts of cash and cash
equivalents, short-term investments and short-term borrowings approximate
fair value because of the short-term maturity of these instruments. Notes
receivable carry current market interest rates, so that discounted future
cash flows approximate their carrying value. As of December 31, 1995 and
1996, the fair value of debt, including current maturities, was $400.6
million and $391.7 million, respectively, compared to its carrying value of
$399.0 million and $387.5 million, respectively. The fair value of debt
instruments as of December 31, 1995 and 1996 was determined based on quoted
market prices and management's estimate for instruments without quoted market
prices.
Reclassifications: Certain reclassifications have been made to the prior
period consolidated financial statements to conform to the consolidated
financial statement presentation at December 31, 1996 and the year then
ended.
34
<PAGE> 35
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
------ ------
<S> <C> <C>
Finished goods $19,867 $19,969
Raw materials 41,570 41,395
................................
$61,437 $61,364
--------------------------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1996
------ ------
<S> <C> <C>
Land $13,168 $12,931
Buildings 66,217 68,865
Machinery and equipment 230,257 235,792
Construction in progress 11,509 12,677
................................
321,151 330,265
Accumulated depreciation (54,382) (79,665)
................................
$266,769 $250,600
--------------------------------
</TABLE>
Total depreciation expense was $23.1 million, $25.9 million and $27.6 million
for the years ended December 31, 1994, 1995 and 1996, respectively.
During 1996 the Company made the decision to discontinue all manufacturing
operations at seven of its facilities. Products for distribution to
customers of the closed facilities are being manufactured at the Company's
other facilities. In connection with these plant closures, the Company has
recorded a loss of $9.3 million on manufacturing assets, representing the
amount by which the book value exceeds the estimated net realizable value.
The value of the assets awaiting disposition is based on estimates of Company
management. Demolition costs of $.8 million and a write-off of $3.9 million
for related goodwill was also recorded.
35
<PAGE> 36
5. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1996
------ ------
<S> <C> <C>
Distribution network $45,300 $45,300
Product specifications 23,600 23,600
Technology 19,110 19,110
Covenant not to compete 25,000 25,000
Feed supply agreement 15,000 15,000
Goodwill 60,449 56,844
Other intangibles 15,025 15,597
................................
203,484 200,451
Accumulated amortization (43,045) (62,322)
................................
$160,439 $138,129
--------------------------------
</TABLE>
The Company has filed a breach of contract suit against a former customer for
lack of performance under a feed supply agreement executed by the customer
for future feed purchases. The feed supply agreement was entered into in
conjunction with the Golden Sun acquisition. The ultimate outcome with
respect to such proceedings cannot be determined at this time. The Company
is of the opinion that the outcome of this matter will not have a material
impact on its financial position or re-sults of operations.
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1996
<S> <C> <C>
The Company:
Senior Term Loan $125,958 $100,996
ESOP Term Loan 2,000 --
Notes 200,000 200,000
IRB Loan 9,100 17,400
Other 1,287 696
Holdings:
Discount Debentures 60,678 68,393
................................
399,023 387,485
Less current portion (27,717) (23,136)
................................
Consolidated total $371,306 $364,349
--------------------------------
</TABLE>
36
<PAGE> 37
The annual amortization of the Senior Term Loan (defined below), including
the 1997 estimated $9.8 million supplemental repayment (described below) is
$22.9 million in 1997, $17.9 million in 1998, $22.9 million in 1999, and
$37.4 million 2000. The Notes (defined below) are due in their entirety in
2003. The Discount Debentures (defined below) are due in 2005 at their
then-principal balance of $109.4 million.
Credit Facility: In September 1993, the Company entered into a Credit
Agreement (the "Credit Agreement"), which provides for secured borrowings
from a syndicate of lenders consisting of (i) a seven-year revolving credit
facility providing for up to $65.0 million in revolving loans (subject to
borrowing base limitations), $25.0 million of which may be used for letters
of credit (the "Revolving Credit Facility"), and (ii) a term loan facility
providing for up to $138.0 million in term loans, consisting of a $130.0
million seven-year term loan (the "Senior Term Loan") and a $8.0 million
three-year term loan to the ESOP (the "ESOP Term Loan") (collectively, the
"Term Loans"). On March 15, 1995 the Company borrowed an additional $45.0
million under its Senior Term Loan and $15.0 million under its Revolving
Credit Facility to finance the purchase of Golden Sun. At December 31, 1996,
no balance was outstanding under the Revolving Credit Facility and
approximately $41.4 million was available for future borrowings after giving
effect to borrowing base limitations. The Company is charged an annual fee
of .5% for amounts available but unused under the Revolving Credit Facility.
Loans under the Credit Agreement bear interest at floating rates, which are,
at the Company's option, based either upon bank prime or Eurodollar rates.
Rates on outstanding borrowings averaged 7.5% at December 31, 1995 and 1996.
The Company is required to make annual supplemental repayments under its
Senior Term Loan in amounts equal to 50% of Excess Cash Flow (as defined in
the Credit Agreement). Supplemental repayments of $5.9 million and $9.8
million were paid in 1995 and 1996. Based on Excess Cash Flow for 1996,
another payment of approximately $9.8 million is due on April 30, 1997.
Notes: The Company sold $200.0 million aggregate principal amount of its 10
1/4% Senior Subordinated Notes due 2003 (the "Notes") generating gross
proceeds of $200.0 million. The Notes are senior subordinated, unsecured
obligations of the Company.
The Notes are not redeemable at the Company's option prior to September 1,
1998. The Company may be obligated, however, to purchase at the holders'
option all or a portion of the Notes upon a change of control or asset sale,
as defined in the Notes Indenture. From and after September 1, 1998, the
Notes will be subject to redemption at the option of the Company, in whole or
in part, at various redemption prices, declining from 104.556% of the
principal amount to par on and after September 1, 2002. The Credit Agreement
currently prohibits the Company from purchasing any of the Notes.
Units: Holdings sold Units in a private placement generating gross proceeds
of approximately $50.0 million. The Units consisted of approximately $109.4
million
37
<PAGE> 38
principal amount at maturity of Holdings' 11 1/2% Series A Subordinated
Discount Debentures due 2005 and 36,782 shares of common stock of Holdings,
$.01 par value per share. In January 1994, Holdings exchanged its 11 1/2%
Series B Subordi-nated Discount Debentures due 2005 for all outstanding Series
A Discount Debentures. The form and terms of the Series B Discount Debentures
are substantially the same as the form and terms of the Series A Discount
Debentures except that the Series B Discount Debentures (the "Discount
Debentures") have been registered under the Securities Act of 1933. There will
be no periodic payments of interest on the Discount Debentures prior to 2001.
The original issue discount will be paid with the maturity of the Discount
Debentures in 2005. The Discount Debentures are senior subordinated,
unsecured obligations of Holdings and bear an effective interest rate of
approximately 12.6%.
The Discount Debentures are not redeemable at Holdings' option prior to
September 1, 1998. However, Holdings may be obligated to purchase at the
holders' option all or a portion of the Dis-count Debentures upon a change of
control or asset sale, as defined in the Debenture Indenture. From and after
September 1, 1998, the Discount Debentures will be subject to redemption at
the option of Holdings in whole or in part, at various redemption prices,
declining from 106.273% of the principal amount to par on and after September
1, 2004. The Credit Agreement currently prohibits the Company from
purchasing any of the Discount Debentures.
IRBs: In July 1995 and October 1996, the Company entered into two loan
agreements to finance the construction of two new manufacturing facilities in
conjunction with the sale of $17.4 million in industrial revenue bonds (IRBs)
by local government units. Proceeds of the IRBs were deposited in
construction funds and released as the Company incurs the costs to construct
and equip the facilities. At December 31, 1995 and 1996, $4.1 million and
$13.3 million, respectively, had been released. Unreleased funds of $5.0
million and $4.1 million are shown as an other asset on the December 31, 1995
and 1996, respectively, consolidated balance sheets. The IRBs mature in 2020
and 2022 and may be retired in whole or in part at any time. The IRBs carry
variable interest rates with a maximum of 15% per annum. The weighted
average rate at December 31, 1995 and 1996 was 5.1% and 4.3%, respectively.
Covenants: The Credit Agreement, the Indenture related to the Discount
Debentures (the "Debenture Inden-ture") and the Indenture related to the
Notes (the "Notes Indenture") contain restrictive covenants that, among other
things and under certain conditions, limit the ability of Holdings and the
Com-pany to incur additional indebtedness or issue preferred stock, to
acquire (including a limitation on capital expenditures) or dispose of assets
or operations and to pay dividends or redeem shares of capital stock. The
most restrictive of the covenants related to dividends precludes Holdings
from paying annual divi-dends in excess of 15% of net income before
depreciation and amortization expense. The Term Loans and Revolving Credit
Facility also require the Company to satisfy certain financial covenants and
tests. The Credit
38
<PAGE> 39
Agreement, the Notes Indenture and the Debenture Indenture contain cross
default provisions.
Holdings has guaranteed the Notes and the Term Loans. Borrowings under the
Credit Agreement are also secured by a first priority lien on the capital
stock of the Company and its subsidiaries and substantially all assets of the
Company and its subsidiaries.
The Credit Agreement, the Notes Indenture and the Debenture Indenture contain
provisions which restrict the payment of advances, loans and dividends from
the Company to Holdings. As of December 31, 1996, the Company was allowed to
pay a dividend to Holdings of an amount not to exceed $6.0 million.
Restricted net assets of the Company were approximately $68.6 million at
December 31, 1996. Holdings conducts no business other than its ownership of
the Company's common stock. Holdings has no direct funded debt other than
the Discount Debentures. As the Discount Debentures do not require any cash
payments of debt service prior to 2001, the restrictive covenants described
above should not limit Holdings' ability to meet its obligations.
7. STOCKHOLDERS' EQUITY
Common stock held by the ESOP (100,000 shares at December 31, 1995 and
115,296 shares at December 31, 1996) and valued at its fair market value has
been classified outside of permanent equity as, under certain conditions,
participants may require the Company to purchase for cash common stock
distributed to them by the ESOP. The Company engages an independent
valuation firm to value the Holdings stock held by the ESOP each year end.
Such valuation was $310 and $320 per share at December 31, 1995 and 1996,
respectively. The unearned compensation, being the fair market value of
Unreleased Shares of approximately $1.5 million and $2.1 million at December
31, 1995 and 1996, respectively, is presented in the consolidated balance
sheet as a reduction to common stock held by the ESOP.
8. STOCK OPTION PLANS
The Company currently has three stock option plans: the 1993 Stock Option
Plan ("1993 Plan"), the PM Holdings Corporation Omnibus Stock and Incentive
Plan ("1995 Plan"), and the PM Holdings Corporation Non-Employee Directors
Stock Option Plan ("Directors Plan"). The 1993 Plan provides for the
issuance of both incentive stock options and non-qualified options. Under
the plan, a maximum of 20,000 shares may be granted at prices not less than
100% and 85% of the fair market value of a share of common stock on the date
the option is granted, for incentive stock options and non-qualified options,
respectively. The terms of all options granted may not exceed ten years from
the date of grant. This plan was replaced by the 1995 Plan and no additional
awards will be granted under the 1993 Plan which will continue in existence
until granted awards are exercised or terminated. The 1995 Plan provides for
the issuance of stock options, stock rights units, stock appreciation rights,
restricted
39
<PAGE> 40
stock and common stock to key employees of the Company. Under the plan the
13,500 shares not previously granted under the 1993 Plan plus an additional
26,000 shares may be granted. Upon the exercise of a stock rights unit, a
participant receives the equivalent number of shares of common stock. The
Directors Plan provides for each non-employee director to receive an option to
purchase 500 shares at fair market value on the date of grant. Under the plan
a maximum of 15,000 shares may be granted. All options and rights granted
under the three plans vest over a three-year period and have a term of ten
years.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." The new standard establishes a fair value based
method of accounting for the issuance of stock options and similar equity
instruments to employees. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and
is recognized over the service period, which is usually the vesting period.
SFAS 123 allows companies to elect fair value based accounting for stock
compensation or continue using the intrinsic value method of accounting as
required by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). The Company has elected to continue to apply
APB 25 in its consolidated financial statements. Under APB 25, no
compensation cost has been recognized for stock options granted under the
Company's three plans. Compensation expense is recognized over the
three-year vesting period for the fair market value of the stock rights units
at the date of grant.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options and stock rights under the fair value based method.
The estimated fair value of options and rights granted during 1995 and 1996
is as follows (per share):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1995 1996
------ ------
<S> <C> <C>
Stock Options $ 102.05 $ 143.30
Stock Rights Units $ 200.00 $ 310.00
</TABLE>
The fair value for the options and rights was estimated at the date of grant
under the minimum value method. The minimum value was estimated to be the
excess of the fair market value of the stock at the date of grant over the
present value of the exercise price, discounted at the risk-free rate, over
the expected exercise life of the options, with the following
weighted-average assumptions for 1995 and 1996, respectively; risk-free
interest rates of 7.4% and 6.4%, no dividend yield, and a weighted-average
expected life of ten years.
40
<PAGE> 41
For purposes of pro forma disclosures, the estimated fair value of the
options and rights is amortized to expense over the options vesting period.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts)
Year Ended December 31,
---------------------------------
1995 1996
------ ------
<S> <C> <C>
Net loss per Consolidated Statements of
Operations:
As reported $ (3,317) $ (10,026)
Pro forma $ (3,498) $ (10,372)
-------------------------------
Net loss per common share
As reported $ (28.37) $ (25.11)
Pro forma $ (28.79) $ (25.90)
-------------------------------
</TABLE>
A summary of the status of stock options as of December 31, 1994, 1995 and
1996 and activity during the years then ended is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------------- ---------------------- -----------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Exer. Price Shares Exer. Price Shares Exer. Price
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at be-
ginning of year 3,000 $100 6,500 $113 15,250 $163
Granted 3,500 125 9,000 200 6,385 310
Exercised -- -- -- -- 100 108
Forfeited -- -- 250 200 600 186
.........................................................................................
Outstanding at end
of year 6,500 $113 15,250 $163 20,935 $208
-----------------------------------------------------------------------------------------
Options exercisable
at year end 1,000 $100 4,485 $136 9,758 $153
-----------------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding at December 31, 1996 ranged from $100
to $310 per share. The weighted-average remaining contractual life of those
options is 8.4 years.
As of December 31, 1995 and 1996, there were 4,750 and 7,385 stock rights
units outstanding, respectively, under the 1995 Plan. Such stock rights
units are exercisable over a three-year period and 1,320 units were
exercisable at December 31, 1996.
41
<PAGE> 42
9. EMPLOYEE BENEFIT PLANS
The Company has established an ESOP covering substantially all employees
exclusive of those covered by a collective bargaining agreement. Since the
Acquisition the Company has made contributions to the ESOP in an amount equal
to 50% of employee contributions to the Company's 401(k) plan, up to a
maximum of 4% of an individual employee's compensation. These contributions
to the ESOP are allocated to each participant based on their contributions
to the 401(k) plan. The Company may make additional discretionary
contributions to the ESOP as determined by the Board of Directors.
Participants vest in matching contributions at the time they are made while
they vest in discretionary contributions at the rate of 20 percent per year.
Contributions received by the ESOP are used to pay principal and interest on
the loan from the Company.
Shares held by the ESOP are released and allocated to specific accounts as
the principal on the loan to the ESOP is repaid. Based on the estimated fair
market value per share at the date of release, compensation expense is
recognized. As of December 31, 1995 and 1996, approximately 95,200 shares
and 108,700 shares, respectively, have been released. The remaining 6,600
shares held by the ESOP at December 31, 1996 were unallocated.
Contributions to the ESOP and compensation expense attributable to released
shares for the years ended December 31, 1994, 1995 and 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Matching contributions $ 2,305 $ 2,385 $ 2,546
Discretionary contributions 2,686 2,454 2,654
............................................
Total $ 4,991 $ 4,839 $ 5,200
--------------------------------------------
Compensation expense $ 7,152 $ 8,156 $ 5,726
--------------------------------------------
</TABLE>
In the event of retirement, death or disability, the entire balance of a
participant's ESOP account will become distributable without regard to the
ordinary vesting schedule. In the event of termination of employment for
any other reason, the vested portion of a participant's ESOP account will
become distributable. If Holdings common stock is distributed to a
participant, the participant may, within two, sixty-day periods, require the
Company to purchase all or a portion of such common stock at the fair market
value of the common stock as determined under the ESOP as of the immediate
preceding December 31.
42
<PAGE> 43
The Company also maintains two defined benefit plans which currently cover
only employees whose employment is governed by the terms of a collective
bargaining agreement. Benefits for all other employees previously covered
under these plans have been frozen. The Company makes annual contributions
to these plans which at least equal the amounts required by law.
Contribution amounts are determined by independent actuaries using an
actuarial cost method that has an objective of providing an adequate fund to
meet pension obligations as they mature over the long-term future. At
December 31, 1995 and 1996, the assets of the plans were held in equity and
fixed income securities.
The following table sets forth the funded status of these plans at December
31, 1995 and 1996, and the amounts recognized in the Company's consolidated
balance sheets at those dates (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
------ ------
<S> <C> <C>
Actuarial present value of vested benefit
obligation $ 19,391 $ 20,441
------------------------------
Actuarial present value of accumulated
benefit obligation $ 20,913 $ 21,978
------------------------------
Plan assets at fair value $ 18,858 $ 20,652
Actuarial present value of projected benefit
obligation 21,302 22,075
..............................
Projected benefit obligation in excess of
plan assets 2,444 1,423
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions 2,210 3,513
..............................
Accrued pension cost $ 4,654 $ 4,936
------------------------------
</TABLE>
The projected benefit obligation is based on a weighted average discount rate
of 7.5 percent in 1994 and 7.0 percent in both 1995 and 1996, and a projected
long-term compensation growth rate of 4.0 percent in all years. The expected
long-term rate of return on plan assets is 8.5 percent in 1994 and 8.0
percent in both 1995 and 1996.
43
<PAGE> 44
The components of net periodic pension costs related to the above plans for
the years ended December 31, 1994, 1995 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the year $ 353 $ 280 $ 308
Interest cost on projected benefit obligation 1,361 1,417 1,455
Actual return on plan assets (1,283) (1,482) (1,441)
Net amortization and deferral -- (120) --
..........................................
$ 431 $ 95 $ 322
------------------------------------------
</TABLE>
The Company sponsors a voluntary defined contribution 401(k) plan which is
available to substantially all employees. After the Acquisition, Company
contributions to the 401(k) plan have ceased and are now being contributed to
the ESOP as discussed above.
The Company has a nonqualified, unfunded supplemental executive retirement
plan for executives whose benefits under a prior salaried retirement plan
sponsored by the former owner were reduced because of compensation under
deferral elections or limitations under federal tax laws. In conjunction
with the Acquisition, all benefit accruals under the supplemental employee
retirement plan ceased subsequent to August 31, 1993. The Company has
retained sponsorship of this plan, as well as the responsibility for all
benefit payments thereunder.
The Company also has a nonqualified, unfunded capital accumulation plan for
which it has purchased life insurance on the lives of the participants. A
grantor trust is the sole owner and beneficiary of such policies. The
amount of coverage is designed to provide sufficient revenues to recover all
costs of the plan if assumptions made as to mortality experience, policy
earnings and other factors are realized.
44
<PAGE> 45
The following table sets forth the status of the non-qualified plans at
December 31, 1995 and 1996, and the amounts recognized in the Company's
consolidated balance sheets at those dates (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
------ ------
<S> <C> <C>
Actuarial present value of vested benefit
obligation $ 13,822 $ 15,133
------------------------------
Actuarial present value of accumulated
benefit obligation $ 19,965 $ 21,521
------------------------------
Plan assets at fair value $ -- $ --
Actuarial present value of projected benefit
obligation 19,965 21,521
..............................
Projected benefit obligation in excess of
plan assets 19,965 21,521
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions (1,068) (2,043)
Minimum liability adjustment -- 2,043
..............................
Accrued pension cost $ 18,897 $ 21,521
------------------------------
</TABLE>
The projected benefit obligation is based on a weighted average discount rate
of 7.5 percent in 1994 and 7.0 percent in both 1995 and 1996. Expenses
related to the non-qualified plans for the years ended December 31, 1994,
1995 and 1996 were $1.1 million, $1.3 million and $1.4 million, respectively.
The minimum liability adjustment, net of tax benefit, is reflected as a
reduction of stockholders' equity.
10. POSTRETIREMENT BENEFITS OTHER THAN
PENSIONS/POSTEMPLOYMENT BENEFITS
The Company provides certain health care and life insurance benefits to
retired employees who meet specified age and years of service requirements.
The life insurance plan provides a $5,000 benefit and is available on a
noncontributory basis. The health care plans pay a stated percentage of most
medical expenses reduced for any deductible and co-payment, payments made by
government programs and other group coverage. The cost of providing these
health care benefits is shared with retirees. All plans are unfunded.
45
<PAGE> 46
The following table sets forth the accrued postretirement benefit cost
recognized in the Company's balance sheet at December 31, 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
December 31
-----------------------
1995 1996
------ ------
<S> <C> <C>
Retirees $ 7,568 $ 6,927
Fully eligible active plan participants 10,173 8,239
Other active plan participants 16,683 13,131
...............................
Projected benefit obligation 34,424 28,297
Unrecognized net gain from past experience
different from that assumed and effects
of changes in assumptions 118 7,469
Unrecognized prior service credit 995 877
...............................
Accrued postretirement benefit cost $ 35,537 $ 36,643
-------------------------------
</TABLE>
Net periodic postretirement benefit cost for the years ended December 31,
1994, 1995, and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Service cost of benefits earned $ 883 $ 1,050 $ 1,182
Interest cost on accumulated postretirement
benefit obligation 1,599 2,227 2,353
Net amortization and deferral (117) (111) (111)
............................................
$ 2,365 $ 3,166 $ 3,424
--------------------------------------------
</TABLE>
Actuarial assumptions used for the Company's retiree health care and life
insurance plans were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Projected health care cost trend rate 11% 10% 7%
Ultimate trend rate 5% 4.5% 4.5%
Year ultimate trend rate is achieved 2001 2002 2001
Effect of a 1% increase in the health care
cost trend rate on the APBO $ 4,412 $ 5,803 $ 3,202
Effect of a 1% increase in the health care
cost trend rate on the aggregate of service
and interest cost $ 196 $ 669 $ 398
Discount rate 7.5% 7.0% 7.0%
</TABLE>
46
<PAGE> 47
11. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $ 5,279 $ 2,520 $ 5,108
State 416 1,237 4
Deferred:
Federal (3,709) (3,514) (7,640)
State 699 328 (887)
............................................
$ 2,685 $ 571 $ (3,415)
--------------------------------------------
</TABLE>
The provision for income taxes is different from the amounts computed by
applying the U.S. federal statutory income tax rate. The reasons for these
differences are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Income taxes at statutory rate $ 1,637 $ (961) $ (4,704)
State income taxes, net of federal benefit 725 1,017 (574)
Amortization of intangible assets 419 502 1,917
Meals and entertainment disallowance 335 310 306
Life insurance expense, net (97) (80) (54)
Research tax credit (90) (249) (81)
Other, net (244) 32 (225)
.............................................
$ 2,685 $ 571 $ (3,415)
---------------------------------------------
</TABLE>
47
<PAGE> 48
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Temporary
differences which gave rise to deferred tax assets and liabilities at
December 31, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
---------------------
1995 1996
------ ------
<S> <C> <C>
Deferred Tax Assets:
Accrued postretirement benefits $ 13,939 $ 14,373
Accrued supplemental retirement benefits 10,665 11,247
Reserve for loss on asset disposals 823 5,244
Accrued vacation expense 2,526 2,575
Other accruals not currently deductible for tax 3,673 4,699
Accrued interest on Debentures 4,961 7,628
Alternative minimum tax credit 7,911 8,295
Bad debt reserve 1,336 2,185
...........................
Total deferred tax assets 45,834 56,246
Deferred Tax Liabilities:
Book over tax basis of assets acquired 3,682 3,327
Tax over book depreciation 16,330 18,640
Book over tax basis of intangible assets 11,048 10,184
Other 96 88
...........................
Total deferred tax liabilities 31,156 32,239
...........................
Net Deferred Tax Assets $ 14,678 $ 24,007
---------------------------
</TABLE>
Management has reviewed the realization of the deferred tax assets and
believes it is more likely than not that they will be realized through future
taxable earnings.
12. LOAN GUARANTEES AND CONCENTRATION OF CREDIT RISK
Loan Guarantees: The Company has agreed to provide a guarantee of up to $7.5
million to a new entity formed in 1995 to provide funding for the growth,
consolidation and expansion of the Company's network of independently-owned
dealers and producers. All dealers or producers who are members of the
entity must have
48
<PAGE> 49
arrangements with the Company for some purchase of its products. At December
31, 1995 and 1996, the amount subject to such guarantee was $4.0 million and
$5.8 million, respectively. The guarantee is expected to remain outstanding
for over five years. The Company is not a member of this non-stock membership
corporation and thus does not have an equity interest in the new entity;
however, the Company did make a loan of $2.0 million to the entity to provide
funding for its growth.
Loan guarantees are also made to banks to assist the Company's customers in
obtaining bank loans for working capital, lines of credit, and additions to
property, plant and equipment. The guarantee arrangements essentially have
the same credit risk as that involved in extending loans to customers and are
subject to the Company's normal credit policies. Collateral (e.g., farm
animals, property, personal guarantees) is usually obtained based on
management's assessment of the specific customer's credit risk. The Company
had guarantees of approximately $15.8 million and $12.8 million at December
31, 1995 and 1996, respectively, under these type of arrangements. The
maturities of these guarantees extend through December 2010 with most
significant maturities, excluding the $5.8 million discussed above, occurring
prior to 2001.
Concentration of Credit Risk: Financial instruments which potentially
subject the Company to concentration of credit risk consist principally of
trade receivables. Substantially all of the Company's accounts receivable
are due from companies in agriculture-related businesses located throughout
the United States.
13. COMMITMENTS AND CONTINGENCIES
Operating Leases: The Company rents certain transportation vehicles,
warehouses and operating facilities under various operating leases, many of
which contain renewal or purchase options. Rent expense for all operating
leases was $2.8 million, $3.1 million and $3.3 million for the years ended
December 31, 1994, 1995 and 1996, respectively.
49
<PAGE> 50
Future minimum lease payments for all noncancelable operating leases having a
remaining term in excess of one year consist of the following at December 31,
1996 (in thousands):
<TABLE>
<CAPTION>
Operating
Leases
----------------
<S> <C>
1997 $ 2,797
1998 2,595
1999 2,117
2000 1,467
2001 1,055
Thereafter 2,274
................
Total minimum lease payments $ 12,305
................
</TABLE>
Litigation: The Company, in the ordinary course of business, is engaged in
various litigation and other proceedings principally relating to product
claims. The ultimate liability with respect to such litigation and
proceedings cannot be determined at this time. The Company is of the opinion
that the aggregate amount of any such liabilities will not have a material
impact on its financial position or results of operations.
50
<PAGE> 51
14. CONDENSED FINANCIAL INFORMATI0N OF PURINA MILLS, INC.
AND SUBSIDIARIES
<TABLE>
Balance Sheet
<CAPTION>
(Dollars in Thousands)
December 31
--------------------
1995 1996
------ ------
<S> <C> <C>
Current assets $156,568 $164,064
Noncurrent assets 475,675 442,011
Current liabilities 152,549 142,961
Noncurrent liabilities 400,483 394,451
</TABLE>
<TABLE>
Statements of Operations
<CAPTION>
(Dollars in Thousands)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1994 1995 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,016,392 $1,047,169 $1,212,197
Operating income 45,006 44,531 30,264
Net income (loss) 6,085 3,062 (4,793)
</TABLE>
51
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the directors
and executive officers of both the Company and Holdings. All directors have
been appointed to serve for the ensuing year and until their successors have
been duly elected and qualified or their prior removal or resignation. All
officers have been appointed to serve until their retirement, removal or
resignation.
<TABLE>
<CAPTION>
Years with
Name Age Position Purina Mills
----- ----- ---------- --------------
<S> <C> <C> <C>
Paul F. Cornelsen 73 Chairman of the Board <F1> --
David L. Abbott 45 Director, President and Chief
Executive Officer <F1> 23
Ian R. Alexander 50 Executive Vice President and
Chief Financial Officer 7
Rick L. Bowen 44 Vice President and General Manager,
Western Region <F4> 12
Duncan M. Highmark 48 Vice President, Research and
Marketing <F4> 26
Perry L. Mooneyham 54 Vice President and General Manager,
Southern Region <F4> 33
August F. Ottinger 55 Vice President, General Counsel and
Secretary 27
Nile D. Ramsbottom 52 Vice President, Purchasing,
Transportation and Formulation <F4> 30
Arnie E. Sumner 48 Vice President and General Manager,
Central Region <F4> 25
John T. Zerbe 57 Vice President and General Manager,
Eastern Region <F4> 30
Allan R. Dragone 70 Director <F3> --
Frank J. Hevrdejs 51 Director <F1> <F2> <F3> --
William C. Oehmig 47 Director <F1> <F3> --
Jo Ann Smith 57 Director <F2> --
Gene G. Stoever 58 Director <F2> --
- --------------------------------------------------------------------------------------------------------
<FN>
<F1> Member of the Executive Committee of the Board of Directors (Mr.
Cornelsen as Chairman of the Committee)
<F2> Member of the Audit Committee of the Board of Directors (Mr. Stoever as
Chairman of the Committee)
<F3> Member of the Executive Compensation Committee of the Board of
Directors (Mr. Oehmig as Chairman of the Committee)
<F4> Not an officer of Holdings, only an officer of the Company
</TABLE>
52
<PAGE> 53
Mr. Cornelsen became a member of the Board in 1993 and Chairman in October
1995. He currently is self-employed as a principal of Cornelsen Associates,
a consulting firm. From June 1982 to January 1993, when he retired, he was
Chairman and Chief Executive Officer of MiTek, Inc., an international company
specializing in structural fasteners and engineering designs for
pre-fabricated residential and commercial buildups. Prior to MiTek, he was
Vice Chairman and Chief Operating Officer of Ralston Purina Company. He
currently serves as a Director of Color Art, Inc. and Public Safety Equipment,
Inc.
Mr. Abbott has been President and Chief Executive Officer of the Company
since March 1996. He joined the Company in 1973 and has served in various
positions, including Executive Vice President and Chief Operating Officer
from 1990 to 1996, Vice President, Central Region from 1989 to 1990, and Vice
President and General Sales Manager from 1988 to 1989.
Mr. Alexander has been Vice President and Chief Financial Officer of the
Company since 1990 when he joined the Company. Prior to joining the Company,
he was employed in various capacities since 1972 by The British Petroleum
Company p.l.c. or its subsidiaries, including Director of Information Systems
for BP Oil Company from 1987 to 1989.
Mr. Bowen has been Vice President and General Manager, Western Region of the
Company since October 1995. He joined the Company in 1984 and has served in
various positions including Manager Financial Services, District Manager,
Division Sales Manager, Region Director of Pricing and Area General Manager.
Prior to joining the Company he was employed in various capacities with the
Farm Credit System.
Mr. Highmark has been Vice President, Research and Marketing of the Company
since March 1993. He joined the Company in 1970 and has served in various
management positions, including Business Group Director, Dairy and Beef,
Regional Sales Manager, Regional Pricing Director and Division Sales Manager.
Mr. Mooneyham has been Vice President and General Manager, Southern Region of
the Company since October 1995. He joined the Company in 1964 and has served
in various positions including Director of Operations at three locations and
Area General Manager.
Mr. Ottinger has been Vice President, General Counsel and Secretary of the
Company since October 1994. He joined the Company in 1969 as an attorney in
the Agri Products Division.
53
<PAGE> 54
Mr. Ramsbottom has been Vice President, Purchasing, Transportation and
Formulation of the Company since 1986. He joined the Company in 1966 and has
served in various positions, including Region Purchasing Manager, Director of
Soybean Operations, Director of Chow Operations, and Region Vice President.
Mr. Sumner has been Vice President and General Manager, Central Region of the
Company since October 1995. He joined the Company in 1971 and has served in
various positions, including Area Controller, Regional Pricing Manager,
Director of Operations, Eastern Regional Vice President, Western Regional
Vice President, Vice President, Control and Vice President, National Region.
Mr. Zerbe has been Vice President and General Manager, Eastern Region of the
Company since October 1995. He joined the Company in 1966 and has served in
various positions including District Manager, Division Sales Manager, Vice
President Central Region and Vice President and General Sales Manager.
Mr. Dragone was elected a director and Chairman of the Board of Directors of
Arcadian Corporation in November 1989. He resigned as Chairman effective
July 30, 1990. From September 1986 until December 1989, Mr. Dragone served
as the President and Chief Executive Officer of Akzo America, Inc. an
international chemical company. He also served as Chairman of Fiber
Industries, Inc. from 1987 until its acquisition by Wellman, Inc. in 1989.
From January 1990 through September 1995, Mr. Dragone served as Chairman of
the New York Racing Association. He currently serves as a director of
Arcadian Corporation, Wellman, Inc. and Sterling Chemicals, Inc.
Mr. Hevrdejs founded The Sterling Group, Inc., a major management buyout
company in 1982. Mr. Hevrdejs is a principal and President of Sterling.
Additionally, he is Chairman of First Sterling Ventures, Corp., Enduro
Holdings, Inc. and Fiberglass Holdings, Inc. He is also a board member of
Eagle U.S.A., Sterling Chemicals, Inc. and Mail-Well, Inc.
Mr. Oehmig served as Chairman from the Acquisition to October 1995. He
currently is a principal of The Sterling Group, Inc. which he joined in 1985.
From 1978 to 1985, he represented foreign investors in purchasing and
managing U.S. companies in the oil field service, manufacturing,
distribution, heavy equipment and real estate industries. As a principal at
Sterling, in addition to other Sterling transactions, Mr. Oehmig was
involved in the formation of Arcadian Corporation, a manufacturer of nitrogen
fertilizer, in 1989 and Royster-Clark, Inc., a distributor and wholesaler of
agricultural fertilizers, in 1992. He has served as a director for Rives
Carlberg, Atlantic Coast Airlines, Inc., Walter International, Inc. and as
Chairman of Royster-Clark and currently serves on the boards of Sterling
Diagnostic Imaging, Inc. and the Vanderbilt University Alumni Association.
54
<PAGE> 55
Ms. Smith is President of Smith Associates, an agricultural marketing and
governmental policy consulting firm, founded in 1994. From 1993 to 1994 she
served as Executive Director of the Pecan Marketing Board. From 1989 to
1993, she served as the Assistant Secretary for Marketing and Inspection
Services for the USDA in Washington, D.C., setting policy direction for the
agricultural, animal and plant agencies under its jurisdiction. From 1986 to
1988, she served as Chairman of the Cattlemen's Beef Board a promotion and
research arm of the Beef industry serving the domestic and international
arenas. In 1985 she served as president of the National Cattlemen's
Association. She currently serves as a Director to Iowa Beef Processors,
Inc.
Mr. Stoever was a partner at KPMG Peat Marwick from July 1969 until July
1993, when he retired. While at KPMG Peat Marwick, he served principally oil
and gas, manufacturing and distribution, and multinational audit clients. He
currently serves as a Director of Sterling Diagnostic Imaging, Inc. and its
parent, SDI Holding Corp.
There are no family relationships between any of the above named executive
officers and directors.
Compensation of Directors
Directors of Holdings who are not employees of the Company receive a total
annual retainer of $20,000, plus $1,000 for each meeting of the Board
attended and $500 for each Committee meeting attended; Directors who are also
employees of the Company do not receive any compensation for Board or Board
Committee service.
55
<PAGE> 56
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid for the years ended
December 31, 1994, 1995, and 1996 to the Chief Executive Officer and the four
most highly compensated executive officers of Holdings and the Company (the
"Named Executive Officers") for the services rendered to Holdings and the
Company.
<TABLE>
Summary Compensation Table <F1>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------------------------------------------------------
Other Securities All Other
Name and Annual Underlying Compen-
Principal Position Salary Bonus Compensation Options/SARs sation <F2>
Year ($) ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D. L. Abbott 1996 285,000 71,700 485 9,124
President and Chief 1995 214,225 69,219 500 9,743
Executive Officer 1994 206,000 95,755 -- 6,666
E. L. McMillan 1996 145,630 -- 232,500 -- 1,104,708<F3>
Former President and Chief 1995 299,520 139,080 750
Executive Officer 1994 259,560 147,065 -- 9,743
6,666
I. R. Alexander 1996 196,900 27,500 175 9,124
Executive Vice President 1995 187,475 52,041 275 9,743
and Chief Financial 1994 189,000 70,088 -- 6,292
Officer
A. E. Sumner 1996 158,800 39,520 160 9,124
Vice President and General 1995 148,950 48,545 250 9,743
Manager, Central Region 1994 137,250 40,311 -- 6,416
N. D. Ramsbottom 1996 138,700 20,000 130 9,124
Vice President, 1995 133,725 40,242 200 9,743
Purchasing, 1994 129,800 37,916 -- 6,181
Transportation and
Formulation
D. M. Highmark 1996 132,300 28,981 160 9,124
Vice President 1995 126,000 45,914 250 8,955
Research & Marketing 1994 124,800 40,856 -- 8,813
- ------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Although the Named Executive Officers received limited perquisites,
such as reimbursement of deductible and co-payment amounts under the
Company's health plans and costs of annual physical examinations, the
value of such perquisites received by any of the Named Executive
Officers does not exceed the lesser of $50,000 or 10% of the salary
and bonus reported.
<F2> All Other Compensation, for all individuals except Mr. McMillan,
represents matching payments made by the Company under the Company's
401(k) Savings Investment Plan plus discretionary contributions to
the ESOP and allocated to the participants during the year.
<F3> Mr. McMillan's All Other Compensation represents matching payments made
by the Company under the Company's 401(k) Savings Investment Plan
plus discretionary contributions to the ESOP and allocated to the
participants during the year plus all severance payments paid or
payable in connection with his resignation in March 1996.
</TABLE>
56
<PAGE> 57
In January 1995 the PM Holdings Corporation Omnibus Stock and Incentive Plan
was adopted. The plan provides for the issuance of stock options or other
incentive awards with a maximum of 39,500 shares of common stock available
for grant. The following table summarizes the options granted during the
year ended December 31, 1996 to the Named Executive Officers for the services
rendered to Holdings and the Company.
<TABLE>
Options/SAR Grants in Last Fiscal Year
<CAPTION>
Potential Realized Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
- -------------------------------------------------------------------------------------------------------------------------
% of Total
Number of Options/
Securities SARs
Underlying Granted to
Options/ Employees Exercise of
SARs in Fiscal Base Price Expiration
Name Granted Year ($/Sh) Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D. L. Abbott 485 7.6 310 3/24/06 94,556 239,619
E. L. McMillan -- -- -- -- -- --
I. R. Alexander 175 2.7 310 3/24/06 34,118 86,460
A. E. Sumner 160 2.5 310 3/24/06 31,194 79,050
N. D. Ramsbottom 130 2.0 310 3/24/06 25,345 64,228
D. M. Highmark 160 2.5 310 3/24/06 31,194 79,050
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above options were granted on March 25, 1996 in tandem with an equal
number of stock rights. Both the options and the rights are exercisable over
a three-year period. Upon the exercise of a stock right, the participant
receives the number of shares or cash equal to such value, or a combination
thereof, with respect to which such right is exercised as outlined in the
plan.
57
<PAGE> 58
The following table summarizes the value of the outstanding options held by
the Named Executive Officers as of December 31, 1996.
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<CAPTION>
Number of Value of
Securities Under- Unexercised
lying Unexercised In-the-Money
Options/SARs at Options/SARs at
December 31, 1996 December 31, 1996
(#) ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
D. L. Abbott -- -- 165/985 19,800/45,050
E. L. McMillan -- -- 750/0 90,000/0
I. R. Alexander -- -- 91/450 10,920/23,830
A. E. Sumner -- -- 83/410 9,960/21,640
N. D. Ramsbottom -- -- 66/330 7,920/17,380
D. M. Highmark -- -- 83/410 9,960/21,640
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The value of in-the-money options at December 31, 1996 was computed assuming
a per share value of $320, the latest valuation of shares held by the ESOP.
58
<PAGE> 59
Pension Plans
Prior to the Acquisition, the Company maintained a noncontributory, qualified
Defined Benefit Pension Plan in which generally all salaried employees of the
Company participated. The Company also maintains a nonqualified, unfunded
supplemental executive retirement plan that provides highly paid employees
with the portion of their retirement benefits not permitted to be paid from
the Defined Benefit Pension Plan due to limitations imposed by the Internal
Revenue Code of 1986 and compensation deferral elections. The following
table sets forth the estimated annual retirement benefits payable under the
Defined Benefit Pension Plan and the related supplemental executive
retirement plan (collectively, the "Pension Plans") in the specified final
average pay and years of service classifications.
<TABLE>
Pension Plan Table
Years of Service
<CAPTION>
Final
Average
Pay 15 20 25 30 35
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$100,000 $ 19,728 $ 26,305 $ 32,881 $ 39,457 $ 46,033
150,000 30,228 40,305 50,381 60,457 70,533
200,000 40,728 54,305 67,881 81,457 95,033
250,000 51,228 68,305 85,381 102,457 119,533
300,000 61,728 82,305 102,881 123,457 144,033
350,000 72,228 96,305 120,381 144,457 168,533
400,000 82,728 110,305 137,881 165,457 193,033
</TABLE>
Final average pay is an average of a participant's highest five consecutive
years of compensation earned during the last 10 years covered by the Pension
Plans. Compensation covered by the Pension Plans consists of base salary and
bonuses. Covered compensation for the Named Executive Officers is generally
the same as that shown in the "annual compensation" columns of the Summary
Compensation Table. The estimated credited years of service for each of the
Named Executive Officers under the Pension Plans is as follows: Mr. Abbott,
20 years; Mr. McMillan, 24 years; Mr. Alexander, 3 years; Mr. Ramsbottom, 26
years; Mr. Sumner, 21 years; and Mr. Highmark, 23 years.
Benefits are computed on the basis of a five-year certain and life annuity
and reflect deductions for social security and other offset amounts.
All benefit accruals under the Pension Plans described above ceased upon
completion of the Acquisition. The Company has no further liability in
connection with the funding of the Defined Benefit Pension Plan. The
previous owner has retained sponsorship of the Defined Benefit Pension Plan
and the responsibility to pay all benefits that become due thereunder. The
Company sponsors the supplemental executive retirement plan and the
responsibility to pay all benefits that become due thereunder.
59
<PAGE> 60
Capital Accumulation Plan. The Company has maintained a Capital Accumulation
Plan (the "CAP") for key employees. Whether the CAP was offered in any given
year was decided annually. If it was determined to offer the CAP, an
employee relations committee chose those employees eligible to participate in
the CAP. Each selected key employee could elect to defer all or a portion of
the annual bonus that participant was entitled to receive. The minimum
amount of a participant's deferral was $2,000, and the maximum amount was the
participant's annual bonus. The benefits payable under the CAP are
comprised of termination, death and retirement benefits. All benefits are
unfunded and the Company has purchased life insurance on the lives of the
participants. See Note 9 of Notes to Consolidated Financial Statements.
The deferral option under the CAP has not been offered since the Acquisition.
However, the Company has retained the CAP and the responsibility to pay all
benefits due thereunder. The amount of a participant's "Annual Retirement
Income Benefit" under the CAP is dependent upon the amount of the
participant's deferral, the participant's age on the effective date of the
deferral and the participant's age at the time of termination of employment.
The estimated annual benefits payable under the CAP to the Named Executive
Officers upon retirement at the normal retirement age of 65 are as follows:
Mr. Abbott, $211,047; Mr. McMillan, $155,560; Mr. Alexander, $16,082; Mr.
Ramsbottom, $111,092; Mr. Sumner, $124,247 and Mr. Highmark, $72,772.
60
<PAGE> 61
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of December 31, 1996,
with respect to (1) each person known to Holdings to be a beneficial owner
(as such term is used in section 13(d)(3) of the Securities Exchange Act of
1934, as amended) of more than 5% of the outstanding shares of common stock,
(2) each director of Holdings, (3) each of the Named Executive Officers, and
(4) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Directors, Executive Officers Number Percentage
and 5% Beneficial Owners <F1> of Shares Ownership
----------------------------- --------- ----------
<S> <C> <C>
Purina Mills, Inc. Employee
Stock Ownership Plan 115,296 25.4%
c/o Bank One, Texas, N.A. as Trustee
910 Travis
Houston, Texas 77002 <F2>
Purina Mills, Inc.
PM Holdings Common Stock Fund Trust Created
Pursuant to the Purina Mills Savings Investment Plan 47,065 10.4%
c/o Bank One, Texas, N.A. as Trustee
910 Travis
Houston, Texas 77002 <F2>
David L. Abbott <F3> 4,743 1.0%
Edward L. McMillan <F4> 6,346 1.4%
Ian R. Alexander <F5> 3,860 <F*>
Duncan M. Highmark <F6> 976 <F*>
Nile D. Ramsbottom <F7> 1,249 <F*>
Arnie E. Sumner <F8> 918 <F*>
William C. Oehmig <F9> 27,380 6.0%
Paul F. Cornelsen 564 <F*>
Allan F. Dragone 2,500 <F*>
Frank J. Hevrdejs 22,000 4.8%
Jo Ann Smith 100 <F*>
Gene G. Stoever 1,000 <F*>
Directors and executive officers as a group (16 persons) <F10> 74,874 16.5%
<FN>
- -----------
<F*> Less than 1%
61
<PAGE> 62
<F1> Unless otherwise noted, each stockholder has direct ownership and sole
voting and investment power with respect to the indicated shares of
common stock.
<F2> The Trustee will vote all shares of common stock held by the Employee
Stock Ownership Plan (the "ESOP") or the Purina Mills, Inc. PM
Holdings Common Stock Fund Trust (the "Holdings Trust"), as the case
may be, pursuant to the direction of the Board of Directors in the
case of the ESOP, and the Employee Relations Committee, in the case
of the Holdings Trust, except that participants are entitled to
direct the Trustee to vote the shares of common stock allocated to
their accounts with respect to the approval or disapproval of any
corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all
assets of a trade or business, or such similar transaction as may be
prescribed in the regulations under the Code.
<F3> Includes 379 shares of common stock held in the Savings Plan and 214
vested shares held in the ESOP.
<F4> Includes 218 shares of common stock held in the Savings Plan and 178
vested shares held in the ESOP.
<F5> Includes 210 vested shares of common stock held in the ESOP.
<F6> Includes 276 shares of common stock held in the Savings Plan and 200
vested shares held in the ESOP.
<F7> Includes 388 shares of common stock held in the Savings Plan and 211
vested shares held in the ESOP.
<F8> Includes 207 shares of common stock held in the Savings Plan and 211
vested shares held in the ESOP.
<F9> These shares are held jointly by Mr. Oehmig and his wife.
<F10> Includes an aggregate of 2,674 shares of common stock held in the
Savings Plan and 1,956 vested shares held in the ESOP.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Interests in the Acquisition
In connection with the acquisition of Golden Sun, the Company entered into an
agreement pursuant to which Sterling provided consulting services and
received a fee of $.6 million. Sterling is a private investment firm in
which Mr. Hevrdejs and Mr. Oehmig, each of whom is a Director of Holdings,
are principals.
As a matter of policy, the foregoing agreement between the Company and
Sterling was, and all future transactions between the Company and Holdings
and their respective directors, officers and affiliates will be, on terms no
less favorable to the Company or Holdings than those available from
unaffiliated third parties. All such future transactions will be approved by
a majority of the disinterested members of the Board of Directors of the
Company or Holdings, as the case may be. Both the Notes Indenture and the
Debenture Indenture also restrict transactions between the Company and its
affiliates. See Note 6 of Notes to Consolidated Financial Statements.
62
<PAGE> 63
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Financial statements: Item 8 of this report lists certain
consolidated financial statements of Holdings.
(2) Financial statement schedules:
<TABLE>
<CAPTION>
Schedule Page
Number Description Number
- -------------------------------------------------------------------------
<C> <S> <C>
I Condensed Financial Information of Registrant 71
II Condensed Valuation and Qualifying Accounts 74
</TABLE>
63
<PAGE> 64
Schedules other than those listed above have been omitted either because the
required information is contained in notes to the consolidated financial
statements or because such schedules are not required or are not applicable.
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
2<F#> Stock Purchase Agreement by and among Purina Mills,
Inc. and the Stockholders of Golden Sun Acquisition
Company, dated March 15, 1995
3.1 Restated Certificate of Incorporation of Holdings
(filed as Exhibit 3.1 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration
No. 33-66606, and incorporated herein by
reference)
3.2 Bylaws of Holdings (filed as Exhibit 3.3 to the
Registration Statement on Form S-1 of Holdings
and PMI, Registration No. 33-66606, and incor-
porated herein by reference)
4.1 Indenture dated as of September 27, 1993 by and between
Holdings and NationsBank of Texas, National Association,
as Trustee, with respect to the 11 1/2% Series A and Series
B Subordinated Discount Debentures due 2005, including the
form of Series A and Series B Discount Debentures (filed
as Exhibit 4.1 to the Registration Statement on Form S-1
of Holdings, Registration No. 33-70920, and incorporated
herein by reference)
4.2 Indenture dated as of September 27, 1993 by and between
the Company and IBJ Schroder Bank & Trust Company,
as Trustee, with respect to the 10 1/4% Senior Subordinated
Notes due 2003, including the form of Note and guaranty
of Holdings (filed as Exhibit 4.1 to the Current Report on
Form 8-K of Holdings dated September 27, 1993, and
incorporated herein by reference)
4.3 Stockholders Agreement among Holdings and certain holders
of Holdings Common Stock effective as of September 27,
1993 (filed as Exhibit 4.4 to the Current Report on Form 8-K
of Holdings dated September 27, 1993, and incorporated
herein by reference)
64
<PAGE> 65
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
4.4 Employee Stockholders Agreement among Holdings and
certain holders of Holdings Common Stock effective as of
September 27, 1993 (filed as Exhibit 4.5 to the Current
Report on Form 8-K of Holdings dated September 27, 1993,
and incorporated herein by reference)
4.5 Registration Rights Agreement among Holdings and certain
holders of Holdings Common Stock effective as of September
27, 1993 (filed as Exhibit 4.6 to the Current Report on Form
8-K of Holdings dated September 27, 1993, and incorporated
herein by reference)
4.6 Registration Rights Agreement among Holdings and the holders
of Holdings Common Stock issued as a part of the Units effect-
ive as of September 27, 1993 (filed as Exhibit 4.8 to the Current
Report on Form 8-K of Holdings dated September 27, 1993,
and incorporated herein by reference)
10.1 Stock Purchase Agreement dated June 22, 1993, as amended,
by and among BPA, BP Nutrition, Standard and PMI (filed as
Exhibit 2.1 to the Current Report on Form 8-K of Holdings
dated September 27, 1993, and incorporated herein by reference)
10.2 Credit Agreement dated as of September 27, 1993 (the "Credit
Agreement") among the Company, the banks named therein
and Texas Commerce Bank National Association, as administra-
tive and syndication agent, and The CIT Group/Business Credit,
Inc., as collateral agent (collectively, the "Agents")(filed as
Exhibit 99.1 to the Current Report on Form 8-K of Holdings
dated September 27, 1993, and incorporated herein by reference)
10.3 Guaranty Agreement dated as of September 27, 1993 by and
among Holdings and the Agents (filed as Exhibit 99.2 to the
Current Report on Form 8-K of Holdings dated September 27,
1993, and incorporated herein by reference)
10.4 License Agreement dated October 1, 1986 between Ralston
Purina Company and Purina Mills (filed as Exhibit 10.4 to the
Registration Statement on Form S-1 of Holdings and PMI,
Registration No. 33-66606, and incorporated herein by reference)
65
<PAGE> 66
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.5 Purina Mills, Inc. Retirement Plan and Trust Agreement
for Sales, Administrative and Clerical Employees (filed as Exhibit
10.5 to the Registration Statement on Form S-1 of Holdings and
PMI, Registration No. 33-66606, and incorporated herein by
reference)
10.6<F**> Purina Mills, Inc. Restated Supplemental Executive Retirement
Plan (filed as Exhibit 10.6 to the Registration Statement on Form
S-1 of Holdings, Registration No. 33-70920, and incorporated
herein by reference)
10.7<F**> Purina Mills, Inc. Discretionary [1992] Capital Accumulation
Plan for Key Employees (filed as Exhibit 10.7 to the Registration
Statement of Holdings and PMI, Registration No. 33-66606, and
incorporated herein by reference)
10.8<F**> Purina Mills, Inc. Savings Investment Plan (Restated as of
September 27, 1993) (filed as Exhibit 99.3 to the Current Report
on Form 8-K of Holdings dated September 27, 1993, and incor-
porated herein by reference)
10.9<F**> PMI Employee Stock Ownership Plan effective as of September
27, 1993 and related Purina Mills, Inc. Employee Stock Owner-
ship Plan Trust Agreement effective as of September 23, 1993
(filed as Exhibit 99.4 to the Current Report on Form 8-K of
Holdings dated September 27, 1993, and incorporated herein by
reference)
10.10 Letter Agreement between PMI and Sterling relating to com-
pensation payable by PMI to Sterling for services performed in
connection with the Acquisition and the financing thereof (filed
as Exhibit 10.10 to the Registration Statement on Form S-1 of
Holdings and PMI, Registration No. 33-66606, and incorporated
herein by reference)
10.11 Letter Agreement by and between Sterling and Messrs.
McMillan, Abbott and Alexander relating to compensation
payable by PMI to Messrs. McMillan, Abbott and Alexander for
their services in connection with the Acquisition and financing
thereof (filed as Exhibit 10.11 to the Registration Statement on
Form S-1 of Holdings and PMI, Registration No. 33-66606, and
incorporated herein by reference)
66
<PAGE> 67
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.12 Form of Purchase Agreement by and between Holdings and
certain qualified institutional buyers relating to the Units (filed
as Exhibit 10.21 to the Registration Statement on Form S-1 of
Holdings and PMI, Registration No. 33-66606, and incorporated
herein by reference)
10.13 Form of Indemnity Agreements between each of Holdings and
the Company and their respective Directors and Officers (filed as
Exhibit 10.22 to the Registration Statement on Form S-1 of Hold-
ings and PMI, Registration No. 33-66606, and incorporated here-
in by reference)
10.14 Tax Sharing Agreement by and between Holdings and the
Company (filed as Exhibit 10.23 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No. 33-66606,
and incorporated herein by reference)
10.15 First Amendment to Credit Agreement (filed as Exhibit 10.25
to the Registration Statement on Form S-1 of Holdings, Registration
No. 33-70920, and incorporated herein by reference)
10.16<F**> PM Holdings Corporation 1993 Stock Option Plan (filed as
Exhibit 10.24 to the Annual Report on Form 10-K of Holdings
dated December 31, 1993, and incorporated herein by reference)
10.17 Second and Third Amendments to Credit Agreement (filed as
Exhibit 10.25 to the Annual Report on Form 10-K of Holdings
dated December 31, 1994, and incorporated herein by reference)
10.18 Fourth Amendment to Credit Agreement (filed as Exhibit 10.26
to the Annual Report on Form 10-K of Holdings dated December
31, 1994, and incorporated herein by reference)
10.19 Fifth, Sixth, and Seventh Amendments to Credit Agreement
(filed as Exhibit 10.27 to the Annual Report on Form 10-K of
Holdings dated December 31, 1994, and incorporated herein by
reference)
10.20<F**> PM Holdings Corporation Omnibus Stock And Incentive Plan
(filed as Exhibit 10.28 to the Annual Report on Form 10-K of
Holdings dated December 31, 1994, and incorporated herein by
reference)
67
<PAGE> 68
<CAPTION>
Exhibit Number Description
- -------------- ------------
<S> <C>
10.21<F**> 1995 PM Holdings Corporation Non-Employee Directors' Stock
Option Plan (filed as Exhibit 10.21 to the Annual Report on
Form 10-K of Holdings dated December 31, 1995, and
incorporated herein by reference)
10.22 Eighth Amendment dated as of May 31, 1995 to Credit
Agreement dated as of September 27, 1993 (the "Credit
Agreement") among the banks named therein and Texas
Commerce Bank National Association, as administrative and
syndication agent, and The CIT Group/Business Credit, Inc., as
collateral agent (collectively, the "Agents") (filed as Exhibit 10.22
to the Annual Report on Form 10-K of Holdings dated December
31, 1995, and incorporated herein by reference)
10.23<F*> Ninth Amendment dated as of March 22, 1996 to Credit
Agreement dated as of September 27, 1993 (the "Credit
Agreement") among the Company, the banks named therein and
Texas Commerce Bank National Association, as administrative
and syndication agent, and the CIT Group/Business Credit, Inc.,
as collateral agent (collectively, the "Agents")
10.24<F*> Tenth Amendment dated as of June 28, 1996 to Credit
Agreement dated as of September 27, 1993 (the "Credit
Agreement") among the Company, the banks named therein and
Texas Commerce Bank National Association, as administrative
and syndication agent, and the CIT Group/Business Credit, Inc.,
as collateral agent (collectively, the "Agents")
12<F*> Statement re computation of ratio of earnings to fixed charges
21<F*> Subsidiaries of the registrant
27.1<F*> Financial Data Schedule
<FN>
- ------------------
<F*> Filed herewith
<F**> Compensatory Plan or Management Agreement
<F#> Confidential Treatment has been requested for portions of this Exhibit
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
68
<PAGE> 69
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.
PM Holdings Corporation
Date: March 17, 1997 By: /s/ Ian R. Alexander
---------------------------------------
Ian R. Alexander
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Date Position
--------- ---- --------
<S> <C> <C>
/s/ Paul F. Cornelsen March 17, 1997 Chairman of the Board and Director
- --------------------------------
Paul F. Cornelsen
/s/ David L. Abbott March 17, 1997 President, Chief Executive Officer
- -------------------------------- and Director
David L. Abbott
/s/ Ian R. Alexander March 17, 1997 Executive Vice President and Chief
- -------------------------------- Financial Officer (principal
Ian R. Alexander accounting officer)
/s/ Allan R. Dragone March 17, 1997 Director
- --------------------------------
Allan R. Dragone
69
<PAGE> 70
<CAPTION>
Signature Date Position
--------- ---- --------
<S> <C> <C>
/s/ Frank J. Hevrdejs March 17, 1997 Director
- --------------------------------
Frank J. Hevrdejs
/s/ William C. Oehmig March 17, 1997 Director
- --------------------------------
William C. Oehmig
/s/ Jo Ann Smith March 17, 1997 Director
- --------------------------------
Jo Ann Smith
/s/ Gene G. Stoever March 17, 1997 Director
- --------------------------------
Gene G. Stoever
</TABLE>
70
<PAGE> 71
<TABLE>
SCHEDULE I
PM HOLDINGS CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Dollars in Thousands)
<CAPTION>
December 31, 1995 December 31, 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Balance Sheet
Assets
Investment in subsidiary 108,550 102,566
Deferred financing costs, net 2,224 1,996
Prepaid and deferred income taxes 5,634 8,175
Other assets 10 8
........................................
Total assets $ 116,418 $ 112,745
----------------------------------------
Liabilities and stockholders' equity
Accounts payable -- affiliate $ 2,066 $ 1,884
Long-term debt 60,678 68,394
Common stock held by ESOP 31,000 36,895
Less unearned ESOP compensation (1,483) (2,141)
Common stock 5 5
Additional paid-in capital 38,769 33,964
Retained earnings (14,617) (26,256)
........................................
Total stockholders' equity 24,157 7,713
........................................
Total liabilities and stockholders' equity $ 116,418 $ 112,745
----------------------------------------
</TABLE>
71
<PAGE> 72
<TABLE>
SCHEDULE I
PM HOLDINGS CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED
(Dollars in Thousands)
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1994 1995 1996
-------------------------------------------------------------
<S> <C> <C> <C>
Statements of Operations
Equity in earnings (loss) of subsidiary $ 6,085 $ 3,062 $ (4,793)
General and administrative expenses 21 38 59
Other (income) expense, net -- 2,652 --
Interest expense 6,266 7,073 7,943
.............................................................
Income (loss) before income taxes (202) (6,701) (12,795)
Income tax benefit (2,195) (3,384) (2,769)
.............................................................
Net income (loss) $ 1,993 $ (3,317) $ (10,026)
-------------------------------------------------------------
Statement of Cash Flows
Operating activities:
Net income (loss) $ 1,993 $ (3,317) $ (10,026)
Undistributed equity in (earnings) loss of
subsidiary (6,085) (3,062) 4,793
Accretion of discount on Discount
Debentures 6,027 6,845 7,715
Amortization of financing costs 239 228 228
Deferred income tax benefit (2,139) (2,800) (2,672)
Other (35) 2,051 (38)
.............................................................
Net cash used in operating activities -- (55) --
Financing activities:
Proceeds from sale of common stock -- 55 --
.............................................................
Net cash provided by financing activities -- 55 --
.............................................................
Increase (decrease) in cash -- -- --
Cash at beginning of period -- -- --
.............................................................
Cash at end of period $ -- $ -- $ --
-------------------------------------------------------------
</TABLE>
72
<PAGE> 73
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT - PM HOLDINGS CORPORATION (CONTINUED)
Notes to Condensed Financial Statements
1. BASIS OF PRESENTATION
PM Holdings Corporation ("Holdings") was formed in July 1993 by an investor
group led by The Sterling Group, Inc., a private financial organization, to
acquire Purina Mills, Inc. (the "Company"). In September 1993, PMI
Acquisition Corporation ("PMI"), a wholly owned subsidiary of Holdings,
acquired all of the outstanding capital stock of the Company (the
"Acquisition") and was merged into the Company. Holdings has no direct
subsidiaries other than the Company and conducts no business other than that
of the Company.
In the parent company-only financial statements, Holdings' investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The parent company-only
financial statements should be read in conjunction with Holdings'
consolidated financial statements.
73
<PAGE> 74
<TABLE>
SCHEDULE II
PM HOLDINGS CORPORATION
(PREDECESSOR COMPANY - PURINA MILLS, INC. AND SUBSIDIARIES)
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<CAPTION>
Additions
Charges to
Beginning Costs and Ending
Classification Date Expenses Deductions Balance
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 8,662 $ 1,310 $ 2,133 <F1> $ 7,839
----------------------------------------------------------------------------
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 8,060 <F2> $ 2,176 $ 2,641 <F1> $ 7,595
----------------------------------------------------------------------------
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $ 7,595 $ 2,542 $ 2,266 <F1> $ 7,871
- --------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Uncollectible accounts written off, net of recoveries.
<F2> Amount includes $221 reserve established at the time of the acquisition
of the accounts receivable of Golden Sun Acquisition Company.
</TABLE>
74
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2<F#> Stock Purchase Agreement by and among
Purina Mills, Inc. and the Stockholders
of Golden Sun Acquisition Company, dated
March 15, 1995. Filed as Exhibit 2.1 to the Annual Report on
Form 10-K of Holdings dated December 31, 1994 and
incorporated herein by reference
3.1 Restated Certificate of Incorporation
of Holdings Filed as Exhibit 3.1 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
3.2 Bylaws of Holdings Filed as Exhibit 3.3 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
4.1 Indenture dated as of September 27, 1993
by and between Holdings and NationsBank
of Texas, National Association, as
Trustee, with respect to the 11 1/2%
Series A and Series B Subordinated
Discount Debentures due 2005, including
the form of Series A and Series B
Discount Debentures Filed as Exhibit 4.1 to the Registration Statement
on Form S-1 of Holdings, Registration No. 33-70920
and incorporated herein by reference
4.2 Indenture dated as of September 27, 1993
by and between the Company and IBJ
Schroder Bank & Trust Company, as
Trustee, with respect to the 10 1/4%
Senior Subordinated Notes due 2003,
including the form of Note and Filed as Exhibit 4.1 to the Current Report on Form
guaranty of Holdings 8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
4.3 Stockholders Agreement among Holdings
and certain holders of Holdings Common
Stock effective as of September 27, 1993 Filed as Exhibit 4.4 to the Current Report on Form
8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
4.4 Employee Stockholders' Agreement among
Holdings and certain holders of Holdings
Common Stock effective as of September
27, 1993 Filed as Exhibit 4.5 to the Current Report on Form
8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
4.5 Registration Rights Agreement among
Holdings and certain holders of Holdings
Common Stock effective as of September
27, 1993 Filed as Exhibit 4.6 to the Current Report on Form
8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
4.6 Registration Rights Agreement among
Holdings and the holders of Holdings
Common Stock issued as a part of the
Units effective as of September 27, 1993 Filed as Exhibit 4.8 to the Current Report on Form
8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
75
<PAGE> 76
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.1 Stock Purchase Agreement dated June 22,
1993, as amended, by and among BPA, BP
Nutrition, Standard and PMI Filed as Exhibit 2.1 to the Current Report on Form
8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
10.2 Credit Agreement dated as of September
27, 1993 (the "Credit Agreement") among
the Company, the banks names therein and
Texas Commerce Bank National Association,
as administrative and syndication agent,
and the CIT Group/Business Credit, Inc.,
as collateral agent (collectively, the
"Agents") Filed as Exhibit 99.1 to the Current Report on Form
8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
10.3 Guaranty Agreement dated as of September
27, 1993 by and among Holdings and the
Agents Filed as Exhibit 99.2 to the Current Report on Form
8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
10.4 License Agreement dated October 1, 1986
between Ralston Purina Company and
Purina Mills, Inc. Filed as Exhibit 10.4 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
10.5 Purina Mills, Inc. Retirement Plan and
Trust Agreement for Sales, Administrative
and Clerical Employees Filed as Exhibit 10.5 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
10.6<F**> Purina Mills, Inc. Restated Supplemental
Executive Retirement Plan Filed as Exhibit 10.6 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-70920 and incorporated herein by reference
10.7<F**> Purina Mills, Inc. Discretionary (1992)
Capital Accumulation Plan for Key
Employees Filed as Exhibit 10.7 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
10.8<F**> Purina Mills, Inc. Savings Investment
Plan (Restated as of September 27, 1993) Filed as Exhibit 99.3 to the Current Report on Form
8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
10.9<F**> PMI Employee Stock Ownership Plan
effective as of September 27, 1993 and
related Purina Mills, Inc. Employee Stock
Ownership Plan Trust Agreement effective
as of September 23, 1993 Filed as Exhibit 99.4 to the Current Report on Form
8-K of Holdings dated September 27, 1993 and
incorporated herein by reference
76
<PAGE> 77
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.10 Letter Agreement between PMI and Sterling
relating to compensation payable by PMI
to Sterling for services performed in
connection with the Acquisition and the
financing thereof Filed as Exhibit 10.10 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
10.11 Letter Agreement by and between Sterling
and Messrs. McMillan, Abbott and
Alexander relating to compensation
payable by PMI to Messrs. McMillan,
Abbott and Alexander for their services
in connection with the Acquisition and
financing thereof Filed as Exhibit 10.11 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
10.12 Form of Purchase Agreement by and between
Holdings and certain qualified
institutional buyers relating to the
Units Filed as Exhibit 10.21 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
10.13 Form of Indemnity Agreements between each
of Holdings and the Company and their
respective Directors and Officers Filed as Exhibit 10.22 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
10.14 Purina Mills, Inc. Retirement Plan and
Trust Agreement for Sales, Administrative
and Clerical Employees Filed as Exhibit 10.23 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-66606 and incorporated herein by reference
10.15 First Amendment to Credit Agreement Filed as Exhibit 10.25 to the Registration Statement
on Form S-1 of Holdings and PMI, Registration No.
33-70920 and incorporated herein by reference
10.16<F**> PM Holdings Corporation 1993 Stock
Option Plan Filed as Exhibit 10.24 to the Annual Report on Form
10-K of Holdings dated December 31, 1993 and
incorporated herein by reference
10.17 Second and Third Amendments to Credit
Agreement Filed as Exhibit 10.25 to the Annual Report on Form
10-K of Holdings dated December 31, 1994 and
incorporated herein by reference
77
<PAGE> 78
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.18 Fourth Amendment to Credit Agreement Filed as Exhibit 10.26 to the Annual Report on Form
10-K of Holdings dated December 31, 1994 and
incorporated herein by reference
10.19 Fifth, Sixth, and Seventh Amendments to
Credit Agreement Filed as Exhibit 10.27 to the Annual Report on Form
10-K of Holdings dated December 31, 1994 and
incorporated herein by reference
10.20<F**> PM Holdings Corporation Omnibus Stock And
Incentive Plan Filed as Exhibit 10.28 to the Annual Report on Form
10-K of Holdings dated December 31, 1994 and
incorporated herein by reference
10.21<F**> 1995 PM Holdings Corporation Non-Employee
Directors' Stock Option Plan Filed as Exhibit 10.21 to the Annual Report on Form
10-K of Holdings dated December 31, 1995 and
incorporated herein by reference
10.22 Eighth Amendment dated as of May 31, 1995
to Credit Agreement dated as of September
27, 1993 (the "Credit Agreement") among
the Company, the banks named therein and
Texas Commerce Bank National Association,
as administrative and syndication agent,
and the CIT Group/Business Credit, Inc.,
as collateral agent (collectively, the
"Agents") Filed as Exhibit 10.22 to the Annual Report on Form
10-K of Holdings dated December 31, 1995 and
incorporated herein by reference
10.23<F*> Ninth Amendment dated as of March 22,
1996 to Credit Agreement dated as of
September 27, 1993 (the "Credit
Agreement") among the Company, the banks
named therein and Texas Commerce Bank
National Association, as administrative
and syndication agent, and the CIT
Group/Business Credit, Inc., as
collateral agent (collectively, the
"Agents") Page 80
10.24<F*> Tenth Amendment dated as of June 28, 1996
to Credit Agreement dated as of September
27, 1993 (the "Credit Agreement") among
the Company, the banks named therein and
Texas Commerce Bank National Association,
as administrative and syndication agent,
and the CIT Group/Business Credit, Inc.,
as collateral agent (collectively, the
"Agents") Page 95
78
<PAGE> 79
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
12<F*> Statement re computation of ratio of
earnings to fixed charges Page 106
21<F*> Subsidiaries of the registrant Page 107
27.1<F*> Financial Data Schedule
<FN>
- --------------------
<F*> Filed herewith
<F**> Compensatory Plan or Management Agreement
<F#> Confidential Treatment has been requested for portions of this Exhibit
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
79
<PAGE> 1
NINTH AMENDMENT TO
CREDIT AGREEMENT
This NINTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of
---------
March 22, 1996, is among PURINA MILLS, INC., a Delaware corporation and
successor by merger to PMI Acquisition Corporation (the "Borrower"), the
--------
financial institutions listed on the signature pages hereof (collectively,
the "Lenders" and individually, a "Lender"), TEXAS COMMERCE BANK NATIONAL
------- ------
ASSOCIATION, a national banking association ("TCB"), in its capacity as
---
administrative and syndication agent (in such capacity, the "Agent") for the
-----
Lenders hereunder, and THE CIT GROUP/BUSINESS CREDIT, INC., a New York
corporation ("CIT"), in its capacity as collateral agent (in such capacity,
---
the "Collateral Agent") for the Lenders hereunder.
----------------
PRELIMINARY STATEMENT. The Borrower, the Lenders, the Agent, and the
Collateral Agent are parties to the Credit Agreement dated as of September
27, 1993, as amended by the First Amendment to Credit Agreement dated as of
December 1, 1993, the Second Amendment to Credit Agreement dated as of March
31, 1994, the Third Amendment to Credit Agreement dated as of April 21, 1994,
the Fourth Amendment to Credit Agreement dated as of November 15, 1994, the
Fifth Amendment to Credit Agreement dated as of January 10, 1995, the Sixth
Amendment to Credit Agreement dated March 15, 1995 to be effective as of
January 31, 1995, the Seventh Amendment to Credit Agreement dated as of March
15, 1995 and the Eighth Amendment to Credit Agreement dated as of May 31,
1995 (as so amended, the "Credit Agreement"; capitalized terms used herein
----------------
and not otherwise defined herein shall have the meanings assigned to them in
the Credit Agreement) and each of PM Holdings Corporation, a Delaware
corporation, Carolina Agri-Products, Inc., a Delaware corporation, Coastal
Ag-Development, Inc., a North Carolina corporation, PMI Feeds, Inc., a
Delaware corporation, PMI Nutrition, Inc., a Delaware corporation, Purina
Livestock Management Services, Inc., a Texas corporation, Cole Grain Company,
Inc. (formerly known as Spartan Grain & Feed Co.), a Delaware corporation,
and Earth City Resources, Inc., a Delaware corporation have guaranteed the
obligations of the Borrower under the Credit Agreement and the Notes pursuant
to Guaranty Agreements each dated as of September 27, 1993 and as may be
amended from time to time and Golden Sun Feeds, Inc., a Delaware corporation,
and Golden Sun Finance, Inc., a Delaware corporation have guaranteed the
obligations of the Borrower under the Credit Agreement and the Notes pursuant
to Guaranty Agreements each dated as of March 15, 1995 and as may be amended
from time to time (all such foregoing corporations entering into such
guaranty agreements collectively hereinafter called, the "Guarantors")
----------
The Borrower has requested that the Lenders make the changes to the
Credit Agreement set forth in this Amendment. The Lenders have consented to
such requests, subject to the terms and conditions of this Amendment.
80
<PAGE> 2
I. SECTION 1 Amendment of the Credit Agreement.
---------------------------------
(a) Section 1.1 of the Credit Agreement is hereby amended by
restating the definition for the defined term "Net Worth" to read in its
entirety as follows:
"Net Worth" shall mean, at any date of determination, an amount
---------
equal to (a) the total assets of the Borrower and its
Subsidiaries determined in accordance with GAAP on a
consolidated basis, minus (b) total liabilities of the Borrower
-----
and its Subsidiaries determined in accordance with GAAP on a
consolidated basis as of the date of determination, in each
case after eliminating all intercompany transactions, and
excluding any obligation of the Borrower to repurchase shares
of Holdings Common Stock distributed to participants through
the ESOP, such stock being excluded from "Stockholders' Equity"
under GAAP.
(b) Section 1.1 of the Credit Agreement is hereby amended by the
addition of the following defined terms:
"Cover" means the aggregate payments made by the Borrower (i) as
-----
payments against drawings under Letters of Credit which have
not then been reimbursed pursuant to Section 2.3(e) hereof, and
(ii) when all such drawings have been repaid, as payments into
a collateral account maintained by the Administrative Agent to
secure the undrawn and unexpired amount of outstanding Letters
of Credit, which aggregate payments shall not be greater than
an amount equal to the lesser of (x) the amount of any
prepayments required pursuant to Section 4.3(c) and (y) the
aggregate undrawn and unexpired amount under all outstanding
Letters of Credit; provided that such Cover shall be returned
to the Borrower to the extent that the lesser of the Borrowing
Base or the Revolving Credit Commitments is available to
satisfy amounts available for drawings under outstanding
Letters of Credit from time to time.
(c) Section 2.3(a) is hereby amended by deleting the number
25,000,000 from such Section and replacing it with the number 42,000,000.
(d) Section 4.3(c) of the Credit Agreement is hereby amended to read
in its entirety as follows:
If at any time the aggregate outstanding principal balance of the
Revolving Credit Loans plus the Letter of Credit Obligations
----
exceeds an amount equal to the lesser of the Borrowing Base or
the Revolving Credit Commitments at such time, then the
Borrower shall immediately pay to the Administrative Agent the
amount of such excess to be applied (i) as a prepayment of the
Revolving Credit Loans outstanding and (ii)
81
<PAGE> 3
after payment in full of the Revolving Credit Loans, as Cover for the
Letter of Credit Obligations in an amount of such remaining excess. Any
such prepayment on the Revolving Credit Loans or Cover under this
Section 4.3(c) shall be due and payable at such time when (x) the sum of
the aggregate principal balance of the Revolving Credit Loans plus the
----
Letter of Credit Obligations is greater than the lesser of the Borrowing
Base and the Revolving Credit Commitments or (y) the Revolving Credit
Commitments are terminated hereunder. If at any time the aggregate
outstanding principal balance of the Swing Loans exceeds $5,000,000,
then the Borrower shall immediately pay to the Administrative Agent
the amount of such excess as a prepayment on the Swing Loans. All such
prepayments made shall be applied to the prepayment of the Revolving
Credit Loans or the Swing Loans, as applicable, ratably among the
Lenders.
(e) Section 8.21(b) is hereby amended and restated to read in its
entirety as follows:
(b) Schedule 8.21 includes a complete and correct list, as of
-------------
March 22, 1996, of all Subsidiaries of Holdings and the
Borrower and all other entities in which either Holdings
or the Borrower holds, directly or indirectly, any
beneficial interest (including, without limitation, stock,
partnership or joint venture interest, or other
securities), showing the jurisdiction of their
incorporation or organization and the percentage of the
outstanding shares of each class of capital stock (or
other equivalent interest) owned, directly or indirectly,
by Holdings or the Borrower. Except as disclosed in
Schedule 8.21 and except for Liens created by the Security
-------------
Documents, Holdings or the Borrower, as the case may be,
owns directly or indirectly, free and clear of all Liens
or restrictions on transferability or voting, the
percentage of outstanding shares of the Subsidiaries or
other entities as shown on Schedule 8.21 and all such
-------------
shares are duly authorized, validly issued, fully paid and
non-assessable. Except as disclosed on Schedule 8.21,
-------------
there are no outstanding rights, warrants, options,
contracts, commitments, conversion rights or similar
agreements or understandings of any kind to which any of
Holdings, the Borrower or its Subsidiaries is a party
entitling any Person to purchase or otherwise acquire (i)
any shares of the capital stock of any such Subsidiary or
(ii) any securities convertible into or exchangeable for
any shares of such capital stock. No securities are
outstanding which are convertible into or exchangeable for
any shares of capital stock of any Subsidiary of either of
Holdings or the Borrower.
(f) The last sentence of Section 10.3 of the Credit Agreement is
hereby amended by inserting immediately prior to the period at the end of
such sentence the following proviso:
82
<PAGE> 4
"; provided, however, that the Borrower and any Subsidiary of the
-------- -------
Borrower shall not be required to maintain its separate corporate
existence in connection with any merger or consolidation or
liquidation which is permitted by Section 11.6."
(g) The first sentence of Section 10.7 of the Credit Agreement is
hereby amended by inserting immediately prior to the period at the end of
such sentence the following proviso:
"; provided, further, however, that the Borrower and any Subsidiary of
-------- ------ -------
the Borrower shall not be required to maintain its separate corporate
existence in connection with any merger or consolidation or
liquidation which is permitted by Section 11.6."
(h) Section 11.2 of the Credit Agreement is hereby amended by (i)
retaining the Section 11.2(k) added by the Fourth Amendment, and (ii)
renumbering the Section 11.2(k) added by the Seventh Amendment to become
Section 11.2(l), so that Section 11.2(k) and Section 11.2(l) of the Credit
Agreement shall read in their entirety as follows:
(k) Liens on assets of the Non-Recourse Subsidiaries or any
Subsidiary of a Non-Recourse Subsidiary to secure Indebtedness of
Non-Recourse Subsidiaries permitted under Section 11.1(i); and
(l) Lien on or security interests in accounts in which the
Borrower has an interest, which accounts have been established
pursuant to the terms of a trust indenture in connection with the
issuance of tax-exempt industrial revenue bonds as permitted by
Section 11.23.
(i) Section 11.3 of the Credit Agreement is hereby amended by (i)
deleting Section 11.3(k) that was added pursuant to the Seventh Amendment,
(ii) retaining the Section 11.3(k) added pursuant to the Eighth Amendment,
and (iii) amending and restating Section 11.3(g) to read in its entirety as
follows:
(g) Capital contributions existing on March 22, 1996, in the
Subsidiaries of the Borrower and other entities listed on Schedule
8.21 and capital contributions in such Subsidiaries which will be
used by such Subsidiaries for Additional Capital Expenditures
permitted under Section 11.7 of this Agreement;
(j) Section 11.5 of the Credit Agreement is hereby amended by (i)
inserting the phrase "the Borrower or any of its Subsidiaries may make" at
the beginning of Section 11.5(d) immediately before the word "sales"; (ii)
replacing the period at the end of Section 11.5(d) with "; and" and (ii)
adding a new Section 11.5(e) to read in its entirety as follows:
83
<PAGE> 5
"(e) the Borrower or any of its Subsidiaries may make
dispositions of Investments consisting of capital shares of stock,
other equity securities or interests of any Subsidiary which is a
sale, assignment, pledge, encumbrance or disposal permitted by
Section 11.22."
(k) clause (e) of the proviso to Section 14.2 of the Credit Agreement
is hereby amended by inserting after the phrase "any Collateral sold" in the
parenthetical thereof the phrase "or released".
(l) Subsection 8.21(b) of Schedule 8.21 to the Credit Agreement is
hereby amended and restated in its entirety by Schedule 8.21(b) attached
hereto.
I. SECTION 2 Conditions of Effectiveness. This Amendment shall
---------------------------
become effective if, and only if, the Borrower, the Guarantors and the Lenders
(in accordance with Section 14.2 of the Credit Agreement) shall have executed
and delivered to the Agent a counterpart of this Amendment or evidence
satisfactory to the Agent of such execution thereof.
I. SECTION 3 Consent to Merger; Exchange of Securities. Each Lender
-----------------------------------------
party hereto hereby (a) consents to, and waives 30 days prior written notice
of, the mergers of Golden Sun Acquisition Company ("GSA") and Golden Sun Farm
---
Services, Inc. ("GSFS") into Golden Sun Feeds, Inc. ("Feeds") and (b)
---- -----
authorizes the Collateral Agent to take all actions consistent with respect
to each such merger, including, without limitation, amending the Security
Documents (i) to encumber the stock of Feeds issued to the Borrower, (ii) to
recognize the retirement of the stock of GSA and GSFS, and (iii) to deliver
all such retired GSA stock and GSFS stock to the Borrower upon the delivery
to the Collateral Agent of amendments, stock power(s) and stock
certificate(s) of Feeds, each in form and substance reasonably satisfactory
to the Collateral Agent.
SECTION 4. Representations and Warranties True; No Default or Event of
-----------------------------------------------------------
Default. By its execution and delivery hereof, the Borrower represents and
- -------
warrants that, as of the date hereof after giving effect to this Amendment,
(a) the representations and warranties contained in the Credit Agreement to
be made by it are true and correct on and as of the date hereof as though
made on and as of such date (except for those Sections or parts thereof that,
by their terms, relate to a specified date), (b) no Default or Event of
Default exists, and (c) no material adverse change shall have occurred with
respect to the financial condition, business, operations or reasonably
foreseeable prospects of the Borrower and its Subsidiaries taken as a whole,
or of the Borrower on an individual basis, since December 31, 1994.
SECTION 5. Reference to the Credit Agreement. Upon the effectiveness
---------------------------------
of this Amendment, on and after the date hereof each reference in the Credit
Agreement, the Notes or the Security Documents to "the Credit Agreement,"
"this Agreement,"
84
<PAGE> 6
"hereunder," "herein" or words of like import shall mean and be a reference to
the Credit Agreement as amended hereby.
SECTION 6. Ratification of Credit Agreement. Except as expressly
--------------------------------
affected by the provisions set forth herein, the Credit Agreement, as amended
hereby, shall remain in full force and effect and is hereby ratified and
confirmed by the Borrower. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as an
amendment or waiver of any right, power or remedy of the Agent or the Lenders
under the Credit Agreement, the Notes, the Security Documents, or any other
Loan Document, nor constitute a waiver of any other provision of the Credit
Agreement.
SECTION 7. Further Assurances. Each of the Borrower and the
------------------
Guarantors agrees to do, execute, acknowledge and deliver all and every such
further acts and instruments as the Agent may request for the better assuring
and confirming unto the Agent and the Lenders all and singular the rights
granted or intended to be granted hereby or hereunder.
SECTION 8. Costs and Expenses. Pursuant to Section 14.3 of the Credit
------------------
Agreement, the Borrower agrees to pay on demand all costs and expenses of the
Agent in connection with the preparation, reproduction, execution and
delivery of this Amendment (including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for the Agent with respect thereto
and with respect to advising the Agent as to its rights and responsibilities
under the Credit Agreement, as hereby amended). In addition, the Borrower
shall pay all stamp and other taxes and fees payable or determined to be
payable in connection with the execution and delivery of this Amendment, and
agrees to save the holder of each Note harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay such taxes or fees.
SECTION 9. Counterparts. This Amendment may be executed in one or
------------
more counterparts, each of which shall constitute an original but when taken
together shall constitute but one agreement. Delivery of an executed
counterpart of a signature page of this Amendment by telecopier shall be
equally effective as delivery of a manually executed counterpart. Any party
delivering an executed counterpart of a signature page of this Amendment by
telecopier shall thereafter also promptly deliver a manually executed
counterpart, but the failure to deliver such manually executed counterpart
shall not affect the validity, enforceability and binding effect of this
Amendment.
SECTION 10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE
BINDING UPON THE BORROWER, THE AGENT, THE LENDERS, THE ISSUING LENDERS, THE
COLLATERAL AGENT, THE GUARANTORS AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
85
<PAGE> 7
SECTION 11. FINAL AGREEMENT. THE WRITTEN CREDIT AGREEMENT, AS AMENDED
---------------
BY THIS AMENDMENT, AND THE OTHER DOCUMENTS EXECUTED IN CONNECTION THEREWITH
AND HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE BORROWER AND THE GUARANTORS, ON ONE HAND, AND THE AGENT, THE LENDERS, THE
ISSUING LENDERS AND THE COLLATERAL AGENT, ON THE OTHER HAND.
IN WITNESS WHEREOF, the parties hereof, by their offices duly
authorized have executed this Amendment as of the date first written above.
PURINA MILLS, INC.,
as Borrower
By:---------------------------------------
Ian R. Alexander
Executive Vice President and
Chief Financial Officer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Individually and as Agent
By:---------------------------------------
------------------------------------------
------------------------------------------
THE CIT GROUP/BUSINESS CREDIT, INC.,
Individually and as Collateral Agent
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
86
<PAGE> 8
ABN AMRO BANK, N.V.
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
BANQUE PARIBAS
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
BANK OF SCOTLAND
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
87
<PAGE> 9
THE BANK OF NOVA SCOTIA
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
FBS AG CREDIT, INC.
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
HELLER FINANCIAL, INC.
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
88
<PAGE> 10
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
NATIONAL WESTMINSTER BANK, PLC NEW YORK
AND/OR NASSAU BRANCHES
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
89
<PAGE> 11
Each of the undersigned, in its capacity as a Guarantor, hereby
consents to the terms and conditions set forth in this Amendment, and hereby
acknowledges the joint and several nature of and ratifies and confirms its
obligations under its Guaranty of the obligations of the Borrower under and
in connection with the Credit Agreement, as amended by this Amendment, and
under the other Security Documents to which it is a party.
PM HOLDINGS CORPORATION
By:------------------------------------------
Ian R. Alexander
Executive Vice President and Chief
Financial Officer
CAROLINA AGRI-PRODUCTS, INC.
By:------------------------------------------
Ian R. Alexander
Vice President
COASTAL AG-DEVELOPMENT, INC.
By:------------------------------------------
Ian R. Alexander
Vice President
PMI FEEDS, INC.
By:------------------------------------------
Ian R. Alexander
Vice President
PMI NUTRITION, INC.
By:------------------------------------------
Ian R. Alexander
Vice President
90
<PAGE> 12
PURINA LIVESTOCK MANAGEMENT SERVICES, INC.
By:------------------------------------------
August F. Ottinger
Treasurer
COLE GRAIN COMPANY, INC.
By:------------------------------------------
Ian R. Alexander
Vice President
EARTH CITY RESOURCES, INC.
By:------------------------------------------
Ian R. Alexander
Vice President
GOLDEN SUN FEEDS, INC.
By:------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
GOLDEN SUN FINANCE, INC.
By:------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
91
<PAGE> 13
Schedule 8.21(b)
----------------
to Ninth Amendment to Credit Agreement
--------------------------------------
Subsection 8.21 (b)
Subsidiaries of Holdings and the Borrower on March 22, 1996:
1. Purina Mills, Inc., a Delaware corporation, a wholly-owned entity
of Holdings.
2. Coastal Ag-Development, Inc., a North Carolina corporation, a
wholly-owned entity of the Borrower.
3. Carolina Agri-Products, Inc., a Delaware corporation, a wholly-
owned entity of the Borrower.
4. PMI Feeds, Inc., a Delaware corporation, a wholly-owned entity
of the Borrower.
5. PMI Nutrition, Inc., a Delaware corporation, a wholly-owned
entity of the Borrower.
6. Purina Livestock Management Services, Inc., a Texas corporation,
a wholly-owned entity of the Borrower.
7. Cole Grain Company, Inc., a Delaware corporation, a wholly-owned
entity of the Borrower (formerly known as Spartan Grain & Feed
Co.).
8. Earth City Resources, Inc., a Delaware corporation, a wholly-
owned entity of the Borrower.
9. Golden Sun Feeds, Inc., a Delaware corporation, a wholly owned
entity of the Borrower.
10. Golden Sun Finance, Inc., an Iowa corporation, a wholly owned
entity of Golden Sun Feeds, Inc.
Other entities in which either Holdings or the Borrower holds, directly or
indirectly, any beneficial interest on March 22, 1996:
(The following documents that are marked with an asterisk ("<F*>") contain
restrictions on transferability or voting; provided, however, such
restrictions on transferability or voting are not violated by, or
all necessary consents or waivers have been obtained from parties to
such documents to permit, the Related Transactions.)
92
<PAGE> 14
a. American Egg Products, Inc. ("American"), a Georgia corporation -
approximately 2.99% owned by the Borrower. The Shareholder
Agreement dated May 2, 1989 between American and its
shareholders restricts the transfer of its common stock.
b. Northern Colorado Feed Limited Liability Company ("Northern
Colorado"), a Colorado limited liability company - 50% owned by
the Borrower. The Northern Colorado Operating Agreement dated
effective September 15, 1992, between the Company and Monfort,
Inc. provides that a member has a right to purchase the other
members' interest upon the event of a change of control.
Monfort, Inc. consented to the Acquisition and the Merger.
c. Eastern Block, Inc. - 50% owned by Carolina Agri-Products, Inc.
The Shareholders Agreement dated June 7, 1984 between Carolina
Agri-Products, Inc. and Eastern Minerals, Inc. restricts the
transfer of the common stock of Eastern Block, Inc.
d. Joint Venture/Production Risk Agreement dated October 23, 1985
between the Company and Southern Illinois Pullet Sales, Inc.
("SIPS") - 50% owned by the Borrower. This agreement is
governed by the laws of the State of Illinois.
e. Joint Venture/Production Risk Agreement dated September 14, 1987
between the Company and SIPS - 50% owned by the Borrower. This
agreement is governed by the laws of the State of Illinois.
f. Production Risk Agreement dated December 24, 1986, between the
Company and John J. Hess II, Inc. ("Hess"), as amended by the
Amended Production Participation Agreement dated July 24, 1992,
involving the formation of a business venture to raise and sell
hogs located at property of York Pork, Inc. in Pennsylvania.
The Borrower is entitled to 70% of profits and responsible for
70% of the liabilities from January 1, 1987 through December
31, 1993, to 50% of profits and responsible for 50% of the
liabilities from January 1, 1994 through December 31, 1995, and
to 40% of profits and responsible for 40% of the liabilities
from January 1, 1996 through December 31, 1996.
g.<F*> Certificate of Limited Partnership made as of November 1, 1987
between Dixie Hog Corporation, Inc., as general partner and the
Company, as limited partner. The Company contributed a one
half interest in swine as a capital contribution and has
contributed 50% of the care, feeding and initial start up costs
incurred in connection with the swine. This agreement is
governed by the laws of the State of Georgia.
93
<PAGE> 15
h.<F*> Agreement dated August 1, 1990 among the Company, Bowman, and
James Bailey - 30.25% owned by the Borrower, and pertains to
the raising of pullets by a third party in a joint venture.
This Agreement does not contain a governing law clause.
i.<F*> Agreement dated March 13, 1991 among the Company, Bowman, and
Snyder Farms ("Snyder") - 30.25% owned by the Borrower, and
pertains to the raising of pullets by a third party in a joint
venture. This Agreement does not contain a governing law
clause.
j.<F*> Agreement dated June 12, 1991 among the Company, Bowman, Melhorn
Sales, Service & Trucking Co. ("Melhorn") and Sandy and James
Bailey - 30.25% owned by the Borrower, and pertains to the
raising of pullets by a third party in a joint venture. This
Agreement does not contain a governing law clause.
k.<F*> Agreement dated April 9, 1992 among the Company, Bowman, Melhorn
and Snyder - 30.25% owned by the Borrower, and pertains to the
raising of pullets by a third party in a joint venture. This
Agreement does not contain a governing law clause.
l.<F*> Agreement dated December 28, 1992 among the Company, Bowman,
Melhorn and Gary Miller - 30.25% owned by the Company, and
pertains to the raising of pullets by a third party in a joint
venture. This Agreement does not contain a governing law
clause.
m.<F*> Joint Venture Agreement dated April 23, 1993 among the Company,
Melhorn, and Brickland Enterprises, Inc. - 22% owned by the
Borrower, and pertains to the raising of pullets by a third
party in a joint venture. This agreement is governed by the
laws of the State of Maryland.
n.<F*> Limited Partnership Agreement of Oceanview Farms Limited
Partnership. Coastal Ag-Development, Inc. acts as a general
partner in the partnership formed to acquire, own and manage a
swine production facility located in North Carolina. This
agreement is governed by the laws of the State of North
Carolina.
94
<PAGE> 1
TENTH AMENDMENT TO
CREDIT AGREEMENT
This TENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of
---------
June 28, 1996, is among PURINA MILLS, INC., a Delaware corporation and
successor by merger to PMI Acquisition Corporation (the "Borrower"), the
--------
financial institutions listed on the signature pages hereof (collectively,
the "Lenders" and individually, a "Lender"), TEXAS COMMERCE BANK NATIONAL
------- ------
ASSOCIATION, a national banking association ("TCB"), in its capacity as
---
administrative and syndication agent (in such capacity, the "Agent") for the
-----
Lenders hereunder, and THE CIT GROUP/BUSINESS CREDIT, INC., a New York
corporation ("CIT"), in its capacity as collateral agent (in such capacity,
---
the "Collateral Agent") for the Lenders hereunder.
----------------
PRELIMINARY STATEMENT. The Borrower, the Lenders, the Agent, and the
Collateral Agent are parties to the Credit Agreement dated as of September
27, 1993, as amended by the First Amendment to Credit Agreement dated as of
December 1, 1993, the Second Amendment to Credit Agreement dated as of March
31, 1994, the Third Amendment to Credit Agreement dated as of April 21, 1994,
the Fourth Amendment to Credit Agreement dated as of November 15, 1994, the
Fifth Amendment to Credit Agreement dated as of January 10, 1995, the Sixth
Amendment to Credit Agreement dated March 15, 1995 to be effective as of
January 31, 1995, the Seventh Amendment to Credit Agreement dated as of March
15, 1995, the Eighth Amendment to Credit Agreement dated as of May 31, 1995
and the Ninth Amendment to Credit Agreement dated as of March 22, 1996 (as so
amended, the "Credit Agreement"; capitalized terms used herein and not
----------------
otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement) and each of PM Holdings Corporation, a Delaware
corporation, Carolina Agri-Products, Inc., a Delaware corporation, Coastal
Ag-Development, Inc., a North Carolina corporation, PMI Feeds, Inc., a
Delaware corporation, PMI Nutrition, Inc., a Delaware corporation, Purina
Livestock Management Services, Inc., a Texas corporation, Cole Grain Company,
Inc. (formerly known as Spartan Grain & Feed Co.), a Delaware corporation,
and Earth City Resources, Inc., a Delaware corporation, have guaranteed the
obligations of the Borrower under the Credit Agreement and the Notes pursuant
to Guaranty Agreements each dated as of September 27, 1993 and as may be
amended from time to time and Golden Sun Feeds, Inc., a Delaware corporation,
and Golden Sun Finance, Inc., an Iowa corporation, have guaranteed the
obligations of the Borrower under the Credit Agreement and the Notes pursuant
to a Guaranty Agreement dated as of March 15, 1995 and as may be amended from
time to time (all such foregoing corporations entering into such guaranty
agreements collectively hereinafter called, the "Guarantors")
----------
95
<PAGE> 2
The Borrower has requested that the Lenders make the changes to the
Credit Agreement set forth in this Amendment. The Lenders have consented to
such requests, subject to the terms and conditions of this Amendment.
I. SECTION 1 Amendment of the Credit Agreement.
---------------------------------
(a) Section 1.1 of the Credit Agreement is hereby amended by the
addition of the following proviso to the end of the definition for the
defined term "Letter of Credit Obligations":
; provided that "Letter of Credit Obligations" shall not include IRB
--------
Letter of Credit Obligations.
(b) Section 1.1 of the Credit Agreement is hereby amended by
restating the definition for the defined term "Revolving Credit Commitment"
to read in its entirety as follows:
"Revolving Credit Commitment" shall mean, as to any Lender, such
---------------------------
Lender's Pro Rata Percentage of $65,000,000 on June 28, 1996, as set
forth opposite such Lender's name under the heading "Revolving Credit
Commitment" on Schedule 1.1 hereto, as such amount may be reduced or
------------
terminated from time to time pursuant to Sections 4.4 or 12.1 hereof,
and "Revolving Credit Commitments" means, collectively, the Revolving
----------------------------
Credit Commitments for all the Lenders.
(c) Section 1.1 of the Credit Agreement is hereby amended by the
addition of the following defined terms:
"IRB Letter of Credit" shall mean each Letter of Credit issued in
--------------------
support of industrial revenue bonds, the proceeds of which bonds have
been or will be received by the Borrower or any Subsidiary of the
Borrower as a loan from a municipal issuer, or a nonprofit entity
issuer acting on behalf of a municipality, for the purpose of
constructing, equipping or renovating mills and designated in writing
by the Borrower as an IRB Letter of Credit."
"IRB Letter of Credit Obligations" shall mean, at any time, the
--------------------------------
lesser of (i) $18,000,000 and (ii) the sum of (a) the aggregate undrawn
and unexpired amount of the outstanding IRB Letters of Credit plus (b)
----
the aggregate amount of drawings under IRB Letters of Credit which
have not then been reimbursed pursuant to Section 2.3(e) hereof."
(d) Section 2.3(a) is hereby amended to read in its entirety as
follows:
96
<PAGE> 3
(a) Subject to the terms and conditions of this Agreement, the
Borrower may request that any Lender at its option from time to
time issue Letters of Credit for the Borrower's account for, in
the case of Letters of Credit other than IRB Letters of Credit,
any general corporate purpose, and in the case of IRB Letters
of Credit, for the purpose set forth in the definition thereof,
(such Lender thereby becoming the "Issuing Lender"); provided
-------------- --------
that the Issuing Lender shall not issue any such Letter of
Credit (a) if such issuance would cause the Letter of Credit
Obligations to exceed $25,000,000 at the time of such issuance
or (b) if, after giving effect to such Letter of Credit, (i)
the aggregate outstanding principal balance of the Revolving
Credit Loans plus the Letter of Credit Obligations would
----
exceed an amount equal to the lesser of the Borrowing Base and
the Revolving Credit Commitments at such time or (ii) the
aggregate outstanding principal balance of the Revolving Credit
Loans plus the IRB Letter of Credit Obligations plus the Letter
---- ----
of Credit Obligations would exceed an amount equal to the
Revolving Credit Commitments at such time.
(e) Schedule 1.1 attached to the Credit Agreement is hereby amended
and restated in its entirety by Schedule 1.1 attached hereto.
I. SECTION 2 Conditions of Effectiveness. This Amendment shall
---------------------------
become effective on June 28, 1996, upon the receipt by the Agent of an executed
counterpart of this Amendment or evidence satisfactory to the Agent of such
execution thereof from the Borrower, the Guarantors and the Lenders (in
accordance with Section 4.2 of the Credit Agreement). The obligation of each
Lender to make an advance to the Borrower of all or any portion of its share
of the increase in the Revolving Credit Commitment as increased by this
Amendment is subject to the following conditions (the making of such an
advance by a Lender shall evidence such Lender's satisfaction with the
Borrower's compliance with the following conditions):
(a) The Agent shall have received, appropriately dated and in form
and substance satisfactory to the Agent, for each Lender, a Revolving Credit
Note duly executed by the Borrower and payable to the order of such Lender in
the amount of such Lender's Revolving Credit Commitment as set forth on
Schedule 1.1.
(b) The Agent shall have received a certificate of the Secretary or
an Assistant Secretary of the Borrower certifying (1) the names, offices held
and true signatures of officers of the Borrower authorized to sign this
Amendment, the Revolving Credit Notes and any other amendments to the
Security Documents, to which the Borrower is a party, and the notices and
other documents and certificates to be delivered pursuant to the Credit
Agreement as amended hereby, (2) the by-laws and certificate of incorporation
of the Borrower as in effect on the date of such certification, and (3) the
resolutions of the Board of Directors of the Borrower approving and
authorizing the increase in the Revolving Credit Commitment and the
execution, delivery and performance by the Borrower of this Amendment, the
97
<PAGE> 4
Revolving Credit Notes and any amendments to the Security Documents deemed
necessary by either Agent and the transactions contemplated hereunder.
(c) The Agent shall have received on behalf of the Lenders, an
opinion addressed to the Lenders of Bracewell & Patterson L.L.P., counsel for
the Borrower in form and substance satisfactory to the Agent. The Borrower
hereby directs its counsel referred to in this section to deliver to the
Lenders such opinion and authorizes the Lenders to rely thereon.
(d) Payment of all fees due as specified between the Borrower and the
Agent in an Agent's Letter and of all fees and expenses of or incurred by the
Agent and its counsel to the extent billed as of the effective date of this
Amendment and payable pursuant to this Amendment.
(e) The Borrower shall have taken such actions, and the Agent shall
have received such other documents, as the Agent may reasonably request.
SECTION 3. Representations and Warranties True; No Default or Event of
-----------------------------------------------------------
Default. By its execution and delivery hereof, the Borrower represents and
- -------
warrants that, as of the date hereof and after giving effect to this
Amendment, (a) the representations and warranties contained in the Credit
Agreement and the Holdings Guaranty are true and correct on and as of the
date hereof as though made on and as of such date (except for those Sections
or parts thereof that, by their terms, relate to a specified date (in which
case such representations and warranties shall be or shall have been true and
correct on and as of such date)), and (b) no event has occurred and is
continuing which constitutes a Default or an Event of Default.
SECTION 4. Reference to the Credit Agreement. Upon the effectiveness
---------------------------------
of this Amendment, on and after the date hereof each reference in the Credit
Agreement, the Notes or the Security Documents to "the Credit Agreement,"
"this Agreement," "hereunder," "herein" or words of like import shall mean
and be a reference to the Credit Agreement as amended hereby.
SECTION 5. Ratification of Credit Agreement. Except as expressly
--------------------------------
affected by the provisions set forth herein, the Credit Agreement, as amended
hereby, shall remain in full force and effect and is hereby ratified and
confirmed by the Borrower. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as an
amendment or waiver of any right, power or remedy of the Agent or the Lenders
under the Credit Agreement, the Notes, the Security Documents, or any other
Loan Document, nor constitute a waiver of any other provision of the Credit
Agreement.
SECTION 6. Further Assurances. Each of the Borrower and the
------------------
Guarantors agrees to do, execute, acknowledge and deliver all and every such
further acts and instruments as the Agent may request for the better assuring
and confirming unto the
98
<PAGE> 5
Agent and the Lenders all and singular the rights granted or intended to be
granted hereby or hereunder.
SECTION 7. Costs and Expenses. Pursuant to Section 14.3 of the Credit
------------------
Agreement, the Borrower agrees to pay on demand all costs and expenses of the
Agent in connection with the preparation, reproduction, execution and
delivery of this Amendment (including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for the Agent with respect thereto
and with respect to advising the Agent as to its rights and responsibilities
under the Credit Agreement, as hereby amended). In addition, the Borrower
shall pay all stamp and other taxes and fees payable or determined to be
payable in connection with the execution and delivery of this Amendment, and
agrees to save the holder of each Note harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay such taxes or fees.
SECTION 8. Counterparts. This Amendment may be executed in one or
------------
more counterparts, each of which shall constitute an original but when taken
together shall constitute but one agreement. Delivery of an executed
counterpart of a signature page of this Amendment by telecopier shall be
equally effective as delivery of a manually executed counterpart. Any party
delivering an executed counterpart of a signature page of this Amendment by
telecopier shall thereafter also promptly deliver a manually executed
counterpart, but the failure to deliver such manually executed counterpart
shall not affect the validity, enforceability and binding effect of this
Amendment.
SECTION 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE
BINDING UPON THE BORROWER, THE AGENT, THE LENDERS, THE ISSUING LENDERS, THE
COLLATERAL AGENT, THE GUARANTORS AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
SECTION 10. FINAL AGREEMENT. THE WRITTEN CREDIT AGREEMENT, AS AMENDED
---------------
BY THIS AMENDMENT, AND THE OTHER DOCUMENTS EXECUTED IN CONNECTION THEREWITH
AND HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE BORROWER AND THE GUARANTORS, ON ONE HAND, AND THE AGENT, THE LENDERS, THE
ISSUING LENDERS AND THE COLLATERAL AGENT, ON THE OTHER HAND.
99
<PAGE> 6
IN WITNESS WHEREOF, the parties hereof, by their offices duly
authorized have executed this Amendment as of the date first written above.
PURINA MILLS, INC.,
as Borrower
By:---------------------------------------
Ian R. Alexander
Executive Vice President and
Chief Financial Officer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Individually and as Agent
By:---------------------------------------
---------------------------------------
---------------------------------------
THE CIT GROUP/BUSINESS CREDIT, INC.
Individually and as Collateral Agent
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
ABN AMRO BANK, N.V.
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
100
<PAGE> 7
BANQUE PARIBAS
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
BANK OF SCOTLAND
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
THE BANK OF NOVA SCOTIA
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
FBS AG CREDIT, INC.
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
101
<PAGE> 8
HELLER FINANCIAL, INC.
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
THE FIRST NATIONAL BANK OF
CHICAGO
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED, NEW YORK BRANCH
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
NATIONAL WESTMINSTER BANK, PLC
NEW YORK AND/OR NASSUA
BRANCHES
By:---------------------------------------
Name:-------------------------------------
Title:------------------------------------
102
<PAGE> 9
Each of the undersigned, in its capacity as a Guarantor, hereby
consents to the terms and conditions set forth in this Amendment, and hereby
acknowledges the joint and several nature of and ratifies and confirms its
obligations under its Guaranty of the obligations of the Borrower under and
in connection with the Credit Agreement, as amended by this Amendment, and
under the other Security Documents to which it is a party.
PM HOLDINGS CORPORATION
By:----------------------------------------
Ian R. Alexander
Executive Vice President and Chief
Financial Officer
CAROLINA AGRI-PRODUCTS, INC.
By:----------------------------------------
Ian R. Alexander
Vice President
COASTAL AG-DEVELOPMENT, INC.
By:----------------------------------------
Ian R. Alexander
Vice President
PMI FEEDS, INC.
By:----------------------------------------
Ian R. Alexander
Vice President
PMI NUTRITION, INC.
By:----------------------------------------
Ian R. Alexander
Vice President
103
<PAGE> 10
PURINA LIVESTOCK MANAGEMENT SERVICES, INC.
By:----------------------------------------
August F. Ottinger
Treasurer
COLE GRAIN COMPANY, INC.
By:----------------------------------------
Ian R. Alexander
Vice President
EARTH CITY RESOURCES, INC.
By:----------------------------------------
Ian R. Alexander
Vice President
GOLDEN SUN FEEDS, INC.
By:----------------------------------------
August F. Ottinger
Vice President
GOLDEN SUN FINANCE, INC.
By:----------------------------------------
August F. Ottinger
Vice President
104
<PAGE> 11
<TABLE>
SCHEDULE 1.1
LENDERS SCHEDULE AS OF JUNE 28, 1996
<CAPTION>
===============================================================================================================================
REMAINING REVOLVING
DOMESTIC LENDING EURODOLLAR TERM LOAN CREDIT TOTAL
LENDER OFFICE LENDING OFFICE COMMITMENT COMMITMENT COMMITMENT
------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(a) Texas Commerce Bank National 712 Main Street 712 Main Street $0 $7,712,765.94 $7,712,765.94
Association Houston, TX 77002 Houston, TX 77002
(b) The CIT Group/Business Credit, Inc. Two Lincoln Centre, Two Lincoln Centre, $0 $6,914,893.62 $6,914,893.62
Ste 200 Ste 200
5420 LBJ Freeway 5420 LBJ Freeway
Dallas, TX 75240 Dallas, TX 75240
(c) ABN AMRO Bank N.V., Houston Agency Three Riverway, Three Riverway, $0 $6,914,893.62 $6,914,893.62
Suite 1600 Ste 1600
Houston, TX 77056 Houston, TX 77056
(d) Banque Paribas, Houston Agency 1200 Smith, Suite 3100 1200 Smith, Suite 3100 $0 $6,914,893.62 $6,914,893.62
Houston, TX 77002 Houston, TX 77002
(e) Bank of Scotland, New York Branch 380 Madison Avenue 380 Madison Avenue $0 $6,914,893.62 $6,914,893.62
New York, New York New York, New York
10017 10017
(f) The Bank of Nova Scotia 600 Peachtree St. NE 600 Peachtree St. NE $0 $4,148,936.17 $4,148,936.17
Suite 2700 Suite 2700
Atlanta, GA 30308 Atlanta, GA 30308
(g) FBS AG Credit, Inc. 950 Seventeenth Street 950 Seventeenth Street $0 $4,148,936.17 $4,148,936.17
Suite 350 Suite 350
Denver, CO 80202 Denver, CO 80202
(h) General Electric Capital Corporation 501 Merritt Seven 501 Merritt Seven $0 $4,148,936.17 $4,148,936.17
3rd Floor 3rd Floor
Norwalk, CT 06851 Norwalk, CT 06851
(i) Heller Financial, Inc. 500 W. Monroe St. 500 W. Monroe St. $0 $4,148,936.17 $4,148,936.17
Chicago, IL 60661 Chicago, IL 60661
(j) The First National Bank of Chicago One First National One First National $0 $3,457,446.81 $3,457,446.81
Plaza, Plaza
Mail Suite 0088, I-14 Mail Suite 0088, I-14
Chicago, IL 60670 Chicago, IL 60670
(k) The Long-Term Credit Bank 165 Broadway, 165 Broadway, $0 $2,659,574.47 $2,659,574.47
of Japan, Ltd., New York Branch 49th Floor 49th Floor
New York, NY 10006 New York, NY 10006
(l) Mercantile Bank of St. Louis 721 Locust Street 721 Locust Street $0 $3,457,446.81 $3,457,446.81
National Association St. Louis, MO 63101 St. Louis, MO 63101
(m) National Westminster Bank, Plc New York Branch Nassau Branch $0 $3,457,446.81 $3,457,446.81
175 Water Street 175 Water Street
New York, NY 10038 New York, NY 10038
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL $0 $65,000,000.00 $65,000,000.00
===============================================================================================================================
</TABLE>
105
<PAGE> 1
<TABLE>
Exhibit 12
PM HOLDINGS CORPORATION
(Dollars in Thousands)
Ratio of Earnings to Fixed Charges
<CAPTION>
Predecessor Company Consolidated Holdings
-----------------------------------------------------------------------------------
Eight Months Four Months
Year Ended Ended Ended Year Ended Year Ended Year Ended
December 31, August 31, December 31, December 31, December 31, December 31,
1992 1993 1993 1994 1995 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations before income taxes and
cumulative effect of changes in
accounting principles $ 28,430 $ 24,766 $ 8,697 $ 4,678 $ (2,746) $ (13,441)
Fixed Charges 10,919 4,250 12,143 41,239 45,606 44,763
...................................................................................
Earnings $ 39,349 $ 29,016 $ 20,840 $ 45,917 $ 42,860 $ 31,322
-----------------------------------------------------------------------------------
Ratio of earnings to fixed charges 3.60 6.83 1.72 1.11 .94 .70
-----------------------------------------------------------------------------------
</TABLE>
For the year ended December 31, 1996 earnings are insufficient to cover
fixed charges by $13,441.
For purposes of computing these ratios and amounts, earnings consisted of
income from continuing operations before income taxes and fixed charges.
Fixed charges consist of interest expense on debt, amortization of financing
costs and the portion (approximately one-third) of rental expense that
management believes is representative of the interest component of rental
expense.
106
<PAGE> 1
Exhibit 21
PM HOLDINGS CORPORATION
Subsidiaries of the Registrant
State of
Company Incorporation
------- -------------
Purina Mills, Inc. Delaware
107
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,462
<SECURITIES> 0
<RECEIVABLES> 63,687
<ALLOWANCES> 7,871
<INVENTORY> 61,364
<CURRENT-ASSETS> 162,188
<PP&E> 330,265
<DEPRECIATION> 79,665
<TOTAL-ASSETS> 613,446
<CURRENT-LIABILITIES> 142,889
<BONDS> 364,349
<COMMON> 5
0
0
<OTHER-SE> 7,708
<TOTAL-LIABILITY-AND-EQUITY> 613,446
<SALES> 1,212,197
<TOTAL-REVENUES> 1,212,197
<CGS> 1,035,855
<TOTAL-COSTS> 1,035,855
<OTHER-EXPENSES> 143,594
<LOSS-PROVISION> 2,542
<INTEREST-EXPENSE> 43,647
<INCOME-PRETAX> (13,441)
<INCOME-TAX> (3,415)
<INCOME-CONTINUING> (10,026)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,026)
<EPS-PRIMARY> (25.11)
<EPS-DILUTED> (25.11)
</TABLE>
