<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-66606
PURINA MILLS, INC.
(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)
(314) 768-4100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days.
Yes...X.... No........
Page 1 of 33 pages
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PURINA MILLS, INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended September 30, 2000
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I FINANCIAL INFORMATION
------ ---------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations for the three months
ended September 30, 2000 and 1999, the three months ended
September 30, 2000, the six months ended June 30, 2000 and
the nine months ended September 30, 1999 5
Consolidated Statements of Cash Flows for the three months
ended September 30, 2000, the six months ended June 30, 2000
and the nine months ended September 30, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosure about
Market Risk 26
PART II OTHER INFORMATION
------- -----------------
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURE 30
</TABLE>
2
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PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-EMERGENCE PRE-EMERGENCE
------------------ ---------------------
DECEMBER 31, 1999
(DERIVED FROM AUDITED
SEPTEMBER 30, 2000 FINANCIAL STATEMENTS)
------------------ ---------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,444 $ 48,094
Accounts receivable, net 28,463 38,817
Inventories 49,944 58,869
Prepaid expenses and other current assets 7,164 7,758
Deferred income taxes 14,443 --
-----------------------------------------------
TOTAL CURRENT ASSETS 124,458 153,538
Property, plant and equipment, net 204,661 235,378
Intangible assets, net 41,961 155,000
Reorganization value in excess of amounts allocable to
identifiable assets, net 101,368 --
Notes receivable 2,762 8,147
Deferred financing costs, net -- 10,107
Other assets 27,727 26,845
-----------------------------------------------
TOTAL ASSETS $502,937 $589,015
===============================================
</TABLE>
3
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<TABLE>
<CAPTION>
POST-EMERGENCE PRE-EMERGENCE
-------------- -------------
DECEMBER 31, 1999
(DERIVED FROM AUDITED
SEPTEMBER 30, 2000 FINANCIAL STATEMENTS)
------------------ ---------------------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 35,738 $ 32,759
Customer advance payments 1,593 10,809
Accrued expenses 35,217 31,769
Interest payable 1,160 --
Current portion of long-term debt and bank borrowings under revolving
credit facility -- 278,031
------------------------------------------------
TOTAL CURRENT LIABILITIES 73,708 353,368
Deferred income taxes 64,290 --
Retirement obligations 24,352 25,730
Accrued post-retirement benefit costs -- 150
Other liabilities 2,138 6,069
Liabilities subject to compromise -- 419,500
Long-term debt 156,137 --
Commitments and Contingencies (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value: 5,000,000 shares authorized, none
issued or outstanding -- --
Common stock, $0.01 par value: 20,000,000 authorized, 10,000,000 issued,
or to be issued at September 30, 2000 and 1,000 shares authorized,
issued and outstanding at December 31, 1999
100 1
Additional paid-in capital 184,900 109,499
Retained deficit (2,688) (323,956)
Accumulated other comprehensive loss -- (1,346)
------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 182,312 (215,802)
------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 502,937 $ 589,015
===============================================
</TABLE>
(SEE ACCOMPANYING NOTES)
4
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PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-EMERGENCE PRE-EMERGENCE POST-EMERGENCE PRE-EMERGENCE
-------------- ------------- -------------- --------------
THREE MONTHS THREE MONTHS THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET SALES $ 194,488 $ 203,804 $ 194,488 $ 414,546 $ 641,246
COSTS AND EXPENSES:
Cost of products sold 153,438 161,525 153,438 329,164 514,404
Marketing, distribution and
advertising 21,477 22,276 21,477 43,196 68,499
General and administrative 11,595 16,219 11,595 26,494 49,194
Amortization of intangibles 4,456 3,762 4,456 13,575 11,348
Research and development 1,301 1,454 1,301 2,723 4,457
Provision for plant closings -- -- -- -- 19,665
Restructuring expenses 1,545 4,564 1,545 24,924 5,117
Other (income) expense, net (460) 194 (460) (28,449) (336)
----------------------------------------------------------------------------------------
193,352 209,994 193,352 411,627 672,348
OPERATING INCOME (LOSS) 1,136 (6,190) 1,136 2,919 (31,102)
Interest expense - net 3,711 13,762 3,711 9,759 39,719
----------------------------------------------------------------------------------------
Loss before income taxes (2,575) (19,952) (2,575) (6,840) (70,821)
Benefit for income taxes (688) (4,893) (688) -- (20,947)
----------------------------------------------------------------------------------------
Loss before extraordinary item (1,887) (15,059) (1,887) (6,840) (49,874)
Extraordinary item-gain on
extinguishment of debt, net of
tax -- -- -- 159,359 --
Revaluation of assets and liabilities
pursuant to the adoption of
fresh-start reporting -- -- -- 2,483 --
=========================================================================================
NET INCOME (LOSS) $ (1,887) $ (15,059) $ (1,887) $ 155,002 $ (49,874)
=========================================================================================
BASIC AND DILUTED NET LOSS PER COMMON
SHARE $ (0.19) $ (0.19)
Weighted average common shares
outstanding 10,000,000 10,000,000
</TABLE>
(SEE ACCOMPANYING NOTES)
5
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PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-EMERGENCE PRE-EMERGENCE
-------------- -------------
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, 2000 JUNE 30, 2000 SEPTEMBER 30, 1999
------------------ ------------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (1,887) $ 155,002 $ (49,874)
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on extinguishment of debt -- (159,359) --
Gain on revaluation pursuant to fresh-start reporting -- (2,483) --
Depreciation and amortization 11,586 28,612 34,526
(Gain) loss on asset disposition (385) (2,657) 694
Provision for plant closings -- -- 19,665
Provision for deferred taxes (2,452) -- (20,947)
Other (2,809) 7,858 (42,051)
---------------------------------------------------------------
Net cash provided by (used in) operations $ 4,053 $ 26,973 $ (57,987)
INVESTING ACTIVITIES:
Sale of property, plant and equipment -- 15,757 --
Purchase of property, plant and equipment (5,068) (8,642) (15,872)
Other 1,646 3,739 (1,696)
---------------------------------------------------------------
Net cash provided by (used in) investing activities $ (3,422) $ 10,854 $ (17,568)
FINANCING ACTIVITIES:
Proceeds from revolving credit facility -- (87,471) 67,471
Repayment of term loans (19,000) (15,550) (3,400)
Capital contribution -- 60,000 --
Other (338) 251 (62)
---------------------------------------------------------------
Net cash provided by (used in) financing activities $ (19,338) $ (42,770) $ 64,009
Decrease in cash and cash equivalents (18,707) (4,943) (11,546)
Cash and cash equivalents at beginning of period 43,151 48,094 41,446
---------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,444 $ 43,151 $ 29,900
===============================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3,249 $ 13,598 $ 32,179
Income taxes 417 173 565
</TABLE>
(SEE ACCOMPANYING NOTES)
6
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PURINA MILLS, INC. (FORMERLY PM HOLDINGS CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Pursuant to the Agreement and Plan of Merger among PM Holdings Corporation
("Holdings"), Koch Agriculture Company ("Koch Agriculture") and Arch Acquisition
Corporation, dated as of January 9, 1998 (the "Merger Agreement"), Arch
Acquisition Corporation was merged with and into Holdings (the "Merger"), with
Holdings being the surviving corporation. As a result of the Merger, Koch
Agriculture owned 100% of Holdings, which owned 100% of Purina Mills, Inc.
("Purina Mills" or "PMI"). Subsequently, on October 28, 1999 (the "Petition
Date"), Holdings and certain of its subsidiaries (the "Debtor") filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code, as amended, with the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court").
Purina Mills filed a Form 8-K on January 18, 2000 with the Securities and
Exchange Commission, which included a Plan of Reorganization (the "Plan") and a
disclosure statement. The Plan, as amended, was approved by the creditors,
confirmed on April 5, 2000 by the Bankruptcy Court and became effective on June
29, 2000 (the "Effective Date").
The Plan provided, among other things, the merger of Purina Mills with and into
Holdings prior to the effective date of the Plan. By operation of the merger,
Holdings succeeded to the business previously conducted by Purina Mills and
changed its name to Purina Mills, Inc. On May 19, 2000, Purina Mills merged with
and into Holdings with Holdings being the surviving corporation, renamed as
Purina Mills, Inc. (the "Company"). Subsequently, the Plan became effective and
the Company emerged from Chapter 11 as of the beginning of business on June 30,
2000.
On or about August 15, 2000 the Company made distributions of cash and a partial
distribution of new common stock of the Company to holders of claims that had
been allowed to that date. As of the Effective Date the Company was authorized
to issue 20,000,000 shares of its $0.01 par value common stock. The Company
issued 9,910,000 shares to holders of allowed unsecured claims and 90,000 shares
to certain employees under the Company's Key Employee Retention Program, of
which 8,320,332 shares have been distributed and the remaining 1,679,668 shares
being held in escrow by the transfer agent. The Company's request to list its
stock on the NASDAQ National Market was granted on June 26, 2000.
The Effective Date of the Plan was June 29, 2000. Thus, in accordance with the
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code ("SOP 90-7"), the Company was required
to adopt "fresh-start" reporting and reflect the effects of such adoption in the
financial statements for the period through the Effective Date. Accordingly, the
December 31, 1999 consolidated balance sheet is not comparable to the September
30, 2000 consolidated balance sheet. Operating results subsequent to the
Effective Date are comparable to the operating results prior to the Effective
Date except for amortization of intangibles, interest expense, restructuring
expenses, benefit for income taxes and extraordinary items.
7
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The consolidated balance sheet at September 30, 2000 and the consolidated
statements of operations and cash flows for all periods presented are unaudited
and reflect all adjustments, consisting of normal recurring items and the
adoption of "fresh-start" reporting (See Note 3), which management considers
necessary for a fair presentation. Operating results for fiscal 2000 interim
periods are not necessarily indicative of results to be expected for the fiscal
year ending December 31, 2000. The consolidated balance sheet at December 31,
1999 was derived from the Company's December 31, 1999 audited financial
statements, but does not include all disclosures required by accounting
principles generally accepted in the United States.
Although the Company believes the disclosures are adequate, certain information
and disclosures normally included in the notes to the financial statements have
been condensed or omitted as permitted by the rules and regulations of the
Securities and Exchange Commission. The accompanying unaudited financial
statements should be read in conjunction with the financial statements for the
year ended December 31, 1999, which are included in the registration statement
on Form 10/A, Amendment No. 1 filed on May 18, 2000, and Amendment No. 1 to Form
S-1 filed on October 11, 2000.
2. FINANCIAL RESTRUCTURING DEVELOPMENTS
The economic environment in the agricultural industry during 1998, 1999, and
early 2000 was a difficult one for many individual producers and companies that
participate in the sector. Livestock commodity prices were depressed and reached
historic lows in many markets. In addition to the overall economic environment,
there is significant competition in all areas of agriculture, including the feed
industry.
In connection with the Merger, the Company incurred a significant amount of
indebtedness. Therefore, subsequent to the Merger, a significant portion of the
Company's cash flow from operations was dedicated to the payment of principal
and interest on its indebtedness, thereby reducing the funds available to the
Company for its operations. The Company's substantial degree of leverage limited
its flexibility to adjust to the depressed conditions in the agricultural
industry and made it particularly vulnerable to the downturn in the swine
market.
As a result of its financial condition during 1999 and its substantial degree of
leverage, the Company's ability to finance its working capital requirements and
implement its business plan were adversely affected by its cash requirements for
debt service. Faced with these events and an inability to service future
interest payments on the Notes, the Debtor filed voluntary petitions for relief
(the "Reorganization Cases") under Chapter 11 of the U.S. Bankruptcy Code, as
amended, with the Bankruptcy Court on the Petition Date. As described in the
disclosure statement, a settlement was negotiated between Koch Industries, Inc.
("Koch Industries") and a committee representing holders of Notes
("Noteholders") whereby Koch Industries agreed to make a capital contribution of
$60 million to the Company. Such capital contribution was received by the
Company on the Effective Date.
8
<PAGE> 9
Under Chapter 11, certain claims against the Debtor in existence prior to the
filing of the petitions for relief under the federal bankruptcy laws were stayed
while the Debtor continued business operations as Debtor-in-Possession. These
claims are reflected in the December 31, 1999 balance sheet as "liabilities
subject to compromise" and consist of the following:
<TABLE>
<S> <C>
Accounts payable - other $ 13,764
Accounts payable - affiliate 30,215
Accrued expenses 2,379
Interest payable on Senior Subordinated
Notes due 2010 19,600
Retirement obligations 3,212
Other liabilities 330
Senior Subordinated Notes due 2010 350,000
------------------
$ 419,500
------------------
</TABLE>
As of the Petition Date, the Company discontinued accruing interest on its
unsecured pre-petition debt obligations. Additional claims have arisen
subsequent to the filing date resulting from rejection of executory contracts
and unexpired leases, and from the determination by the court or as agreed to by
parties in interest of allowed claims for contingencies and other disputed
amounts.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fresh-Start Reporting: As of June 30, 2000, the Company adopted "fresh-start"
reporting in accordance with SOP 90-7. In adopting fresh-start reporting, the
Company with the assistance of its financial advisors, was required to determine
its reorganization value, which represents the fair value of the entity before
considering liabilities and approximates the amount a willing buyer would pay
for the net assets of the Company immediately after its emergence from Chapter
11 status. The reorganization value of the Company was determined by
consideration of several factors, including the Company's historical financial
performance, its fiscal 2000 budget, publicly available data of companies whose
operations are generally comparable to the operations of the Company and
economic and industry data trends.
The adjustments to reflect the consummation of the Plan, including the gain on
extinguishment of debt related to pre-petition liabilities and the adjustment to
record assets and liabilities at their fair values (including the establishment
of reorganization value in excess of amounts allocable to identifiable assets),
have been reflected in the consolidated financial statements as of the Effective
Date. As a result of such adjustments, $330.0 million of retained deficit was
eliminated.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in
affiliated companies, 20% through 50% owned, are carried at equity.
Intangible Assets (including Goodwill): Intangible assets at September 30, 2000
represent the Company's estimate of the value of such assets at the Effective
Date, in accordance with the principles of SOP 90-7, less amortization since the
Effective Date. The intangible assets will be amortized over
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their estimated period of related benefit of one to ten years. Intangible
assets, at December 31, 1999, represent the excess of cost over the net tangible
assets of the business at the time of acquisition and were amortized over the
estimated period of related benefit.
Management periodically has and will continue to review 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.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets: As a
result of adopting "fresh-start" reporting, the Company recorded reorganization
value in excess of amounts allocable to identifiable assets of approximately
$104.0 million as of the Effective Date. This intangible asset is being
amortized on a straight-line basis over a ten-year period.
Income Taxes: Deferred income taxes are recognized for the effect of temporary
differences between the financial reporting basis and the tax basis of the
assets and liabilities plus operating loss carryforwards at enacted tax rates
expected to be in effect when such amounts are realized or settled. In
connection with "fresh-start" reporting the Company recorded a net $52.3 million
deferred tax liability for the effect of temporary differences between the
financial reporting and tax bases of its assets and liabilities
The Company was part of a tax sharing agreement with Koch Industries effective
as of the date of the Merger through June 29, 2000. The agreement provided that
the tax liability of the group shall be allocated to the members of this group
on the basis of the percentage of the member's total tax, if computed on a
separate return, would bear to the total amount of the taxes of all members of
the group so computed. If the Company's tax attributes were utilized by another
member of the group, such member would reimburse the Company when the Company
would have been able to utilize such attributes in computing the Company's
separate taxable income. The Company's tax provisions for all periods after
March 12, 1998 through June 29, 2000 were computed on this basis. The results of
operations of the Company after March 12, 1998 through June 29, 2000 have been
or will be included in the consolidated U.S. corporation income tax return and
certain consolidated state income tax returns of Koch Industries. The result of
operations commencing June 30, 2000 will be included in the consolidated return
of the Company and its subsidiaries.
Revenue Recognition: Net sales are generally recognized when products are
shipped. Allowances for customer discounts are recorded when revenues are
recognized.
Reclassifications: Certain reclassifications have been made to the prior period
consolidated financial statements to conform to the consolidated financial
statement presentation at September 30, 2000 and the nine month period then
ended.
4. RESTRUCTURING EXPENSES
During the period commencing June, 1999 through September 30, 2000, the Company
incurred significant advisory fees and expenses in connection with the
Reorganization Cases. Additionally, the Company incurred severance and moving
and compensation expense in connection with the Company's Key Employee Retention
Plan for the same. A summary of such expenses is as follows (in thousands):
10
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<TABLE>
<CAPTION>
POST-EMERGENCE PRE-EMERGENCE POST-EMERGENCE PRE-EMERGENCE
-------------- ------------- -------------- -------------
THREE MONTHS THREE MONTHS THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Advisory Fees $ 1,034 $ 2,056 $ 1,034 $13,888 $ 2,056
Severance Costs -- 2,508 -- 3,511 3,061
Moving Costs -- -- -- 1,045 --
Compensation Expense 511 -- 511 6,480 --
-------------------------------------------------------------------------------
$ 1,545 $ 4,564 $ 1,545 $24,924 $ 5,117
===============================================================================
</TABLE>
5. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Raw materials $ 31,415 $ 37,577
Finished goods 10,477 11,411
Animals 8,052 9,881
--------------------------------------------
Total $ 49,944 $ 58,869
============================================
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Land $ 10,808 $ 13,362
Buildings 61,046 86,332
Machinery and equipment 124,435 180,769
Construction in progress 15,526 7,359
----------------------------------------------
211,815 287,822
Accumulated depreciation (7,154) (52,444)
----------------------------------------------
Total $ 204,661 $ 235,378
==============================================
</TABLE>
In connection with the adoption of "fresh-start" reporting, the Company was
required to adjust property, plant and equipment to its fair value. Based on the
Company's estimate of the fair value of such assets at the Effective Date, an
adjustment was made to decrease the net value of property, plant and equipment
by approximately $ 11.9 million with no material change in the remaining useful
lives.
During the nine month period ended September 30, 1999, the Company made the
decision to discontinue manufacturing operations at five 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 recorded a loss of $13.1 million on manufacturing assets,
representing the amount by which the book value exceeds estimated fair value.
Estimated demolition costs of $1.2 million, severance costs of $0.4 million and
a write-off of $5.0 million for related goodwill were also recorded.
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7. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Distribution network $ 24,000 $ 40,000
Patents 6,298 15,000
Covenant not to compete -- 2,083
Goodwill -- 262,728
Other intangibles 13,520 31,539
------------------------------------------------
43,818 351,350
Accumulated amortization (1,857) (196,350)
------------------------------------------------
Total $ 41,961 $ 155,000
================================================
</TABLE>
Intangible assets at September 30, 2000 represent the Company's estimate of the
value of such assets at the Effective Date, in accordance with the principles of
SOP 90-7, and are being amortized over their estimated period of related benefit
of one to ten years.
During the fourth quarter of 1999, in connection with the Company's
Reorganization Cases, the Company recorded a provision for loss on impairment of
intangible assets of $161.6 million. The provision reduced the net value of
intangible assets to management's estimate of the fair value of intangible
assets at December 31, 1999. Management's estimate was based upon the expected
net realizable value of the Company on a going concern basis which contemplated
continuity of operations, realization of assets and liquidation of liabilities
in the ordinary course of business.
8. DEBT
Debt consists of the following (in thousands):
[CAPTION]
<TABLE>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Term loan $ 156,000 $ 190,550
Senior subordinated notes due 2010 -- 350,000
Revolving credit facility -- 87,471
Other 137 10
---------------------------------------------
Total $ 156,137 $ 628,031
=============================================
</TABLE>
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The foregoing debt is classified as follows in the December 31, 1999
consolidated balance sheet (in thousands):
<TABLE>
<S> <C>
Current portion of long-term debt and
bank borrowings under revolving credit facility $ 278,031
Liabilities subject to compromise 350,000
---------------
Total $ 628,031
===============
</TABLE>
Credit Facility: In connection with the consummation of the Plan, Purina Mills
entered into a new credit agreement ("the Credit Agreement") which provides for
secured borrowings from a syndicate of lenders consisting of (i) a term loan
facility providing for an aggregate of $175.0 million Tranche A Term Loan with a
maturity date of December 31, 2003 ("the Term Loan") and (ii) a $50.0 million
Revolving Credit Facility with a maturity date of December 31, 2002, with a
$30.0 million sub-limit for letters of credit, which is available to finance the
Company's ongoing working capital requirements. The proceeds of the Term Loan
were borrowed in full on June 29, 2000, to repay the prepetition debt, and $10.3
million of the Revolving Credit Facility has been used for the issuance of
letters of credit for ordinary course business purposes of the Company and it
subsidiaries at September 30, 2000. No borrowings have been made under the
Revolving Credit Facility. The Company is charged an annual fee of 0.5% for
amounts available but unused under the Revolving Credit Facility. In addition,
the Company is charged a fee of 2.75% per annum on the daily average amount
available for drawing under any letter of credit. 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 based on Eurodollar rates plus 2.75% were 9.38% at September 30,
2000.
On September 22, 2000, the Company entered into a swap contract on $100.0
million of the Term Loan, pursuant to requirements in the Credit Agreement. The
swap contract provides that the Company will pay interest on the notional amount
based on a fixed rate of 6.74% and will receive the three month Eurodollar rate.
During the three month period ended September 30, 2000, the Company voluntarily
repaid $19.0 million of its Term Loan. As a result of such repayment, the annual
amortization schedule of the Term Loan outstanding on September 30, 2000 is $6.0
million in 2002, and $150.0 million in 2003. The 2003 amount includes a payment
of $135.0 million on the Term Loan maturity date of December 31, 2003. The
Company is also required to make mandatory repayments of the Term Loan in
amounts equal to 80% of Excess Cash Flow, as defined in the Credit Agreement.
The first such payment is scheduled to be paid March 2001, however, the Company
does not anticipate any additional payment to be due as a result of its
voluntary prepayment of $19.0 million in the third quarter of 2000.
Additionally, the Company is generally required to make mandatory repayments of
amounts received on the sale of assets unless reinvested within specific time
periods. Any repayments under the Term Loan are not available for future
re-borrowings.
Covenants: The Credit Agreement contains restrictive covenants that, among other
things and under certain conditions, limit the ability of the Company to incur
additional indebtedness, to acquire (including a limitation on capital
expenditures) or dispose of assets or operations and to pay dividends.
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The Term Loan and Revolving Credit Facility also require the Company to satisfy
certain financial convenants and tests. The Company was in compliance with its
debt covenants at September 30, 2000.
Substantially all wholly-owned subsidiaries of the Company guarantee the
Company's obligations under the Credit Agreement. Borrowings under the Credit
Agreement are also secured by a first priority lien on substantially all assets
of the Company and its subsidiaries.
9. COMMON STOCK
Pursuant to the Plan, the Company issued 9,910,000 shares of common stock to
holders of allowed unsecured claims and 90,000 shares to certain employees under
the Company's Key Employee Retention Program. As of September 30, 2000, the
Company had distributed 8,320,332 shares with the remaining 1,679,668 shares
held in escrow by Wells Fargo Minnesota Bank, N.A., the transfer agent. The
remaining shares will be distributed to holders of unsecured claims as all such
claims are finalized in accordance with the Plan. All shares of the Company's
common stock outstanding prior to the Plan's effective date were cancelled.
On May 17, 2000, the Board of Directors adopted the Purina Mills, Inc. Equity
Incentive Plan (the "Option Plan"). The Option Plan provides for the issuance of
stock options on 1.0 million shares of common stock to key employees at an
exercise price of $18.50 to $27.75 per share. As of September 30, 2000, options
totaling 912,858 shares had been granted.
10. NET LOSS PER COMMON SHARE
The computation of diluted net loss per share for the three month period ended
September 30, 2000 was antidilutive; therefore, the amounts for basic and
diluted loss per share are the same. Earnings or loss per share of Common Stock
for all periods through June 30, 2000 are not shown as the Company stock was not
traded in a public market before such date when the Company was a wholly owned
subsidiary of Koch Agriculture.
11. CONCENTRATION OF CREDIT RISK AND LOAN GUARANTEES
Concentration of Credit Risk: Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of trade
receivables. A substantial portion of the Company's sales are to companies or
individuals in agriculture-related businesses, with approximately 13% of its
sales volume being feed for hogs. Hog producers experienced severely depressed
market prices in 1998 and 1999 and the Company has outstanding trade
receivables, loans and loan guarantees relating to customers in the hog
industry.
Loan Guarantees: The Company had provided a guarantee of up to $11.5 million to
an entity formed in 1995 to provide funding for the growth, consolidation and
expansion of the Company's network of independently-owned dealers and producers.
The Company recorded a loss reserve for the entire amount of the guarantee in
1998. At December 31, 1999, the Company had funded $6.7 million on the guarantee
and issued a letter of credit for $3.3 million to secure a portion of the
unfunded guarantee. On July 21, 2000 the Company reached a global settlement
agreement which provided that the Company
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fund another $1.6 million of the guarantee, the $3.3 million letter of credit
was cancelled and the Company has been relieved of any other further obligations
to this entity.
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 $3.5 million and $6.3 million at September 30, 2000 and December
31, 1999, respectively, under these types of arrangements. The maturity dates of
these guarantees extend through May 2008 with the majority of the guarantees
maturing prior to 2003.
Swine Purchase Commitments and Swine Operations: To capitalize on the
consolidation of the hog industry, the Company implemented a strategy in 1997
that was expected to result in control over the feeding of approximately six
million market hogs over four years. The program provides a source of high
quality weanlings and feeder pigs ("feeders") to independent hog producers and
gains the related feed business for the Company. Under this program, at
September 30, 2000, the Company has future net purchase commitments, subject to
the counterparties' ability to perform, to acquire 0.1 million feeders over the
next eight years. Approximately 8% of these commitments are at fixed prices
whereas the other 92% vary based on current or published futures prices. The net
purchase commitment of 0.1 million feeders represents gross commitments during
the period for the Company to purchase approximately 3.7 million feeders less
3.6 million feeders which are under contract to be sold to third parties.
Additionally, the Company has direct ownership of several hog operations which
are expected to produce an additional 1.0 million feeders over the next ten
years. As hog producers experience volatile market prices for their end
products, the Company has significant exposure relating to its feeder pig
program, direct hog ownership and joint venture interests in hog operations. At
September 30, 2000 and December 31, 1999, the Company had $7.5 million and $8.6
million, respectively, in hog inventory.
Based on published market prices at September 30, 2000, the Company's net
commitment to purchase the 0.1 million feeders totals approximately $4.1
million. This is a decrease of $12.9 million from such amount at December 31,
1999. Upon receipt of the feeders the Company can either sell them at current
market prices, feed the pigs at Company leased facilities, or contract with
independent producers to feed the pigs. Based on contractual commitments,
estimated feed costs, counterparty risks and current spot and futures prices,
the Company estimates that its 2000 loss associated with its swine exposure will
range between $4.5 million and $6.5 million. The Company recorded a loss of
$13.0 million during the nine months ended September 30, 1999 and a loss of $2.0
million and $2.6 million, respectively during the three month period ended
September 30, 2000 and the six month period ended June 30, 2000. Depending on
the future market price for both feeders and market hogs, any or all of the
options available to the Company could have adverse impacts on operations, cash
flows and liquidity.
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ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Background
In connection with the 1998 Merger, the Company incurred a significant amount of
indebtedness. The Company's substantial degree of leverage limited its
flexibility to adjust to the depressed conditions in the agricultural industry
and made it particularly vulnerable to the downturn in the swine market. As a
result of its financial condition during 1999 and its substantial degree of
leverage, the Company's ability to finance its working capital requirements was
adversely affected by its cash requirements for debt service. Faced with these
events and an inability to service future interest payment on the Notes, the
Company and certain of its subsidiaries commenced reorganization cases under
Chapter 11 of the U.S. Bankruptcy Code on October 28, 1999.
Subsequently, on January 18, 2000, the Company filed a Form 8-K with the
Securities and Exchange Commission which included the Plan and a disclosure
statement. The Plan was approved by the creditors, confirmed by the Bankruptcy
Court on April 5, 2000 and became effective on June 29, 2000.
The consolidated financial statements for all the periods through June 29, 2000
have been prepared on the historical cost basis. The consolidated balance sheet
at June 30, 2000 is not comparable with the historical balance sheet presented
due to the adoption of "fresh-start" reporting.
Overview of Business
The Company develops, manufactures and markets a comprehensive line of animal
nutrition products for dairy cattle, beef cattle, hogs, horses and poultry, as
well as specialty feeds for rabbits, zoo animals, birds, fish and pets. For the
year ended December 31, 1999, the product mix by volume was approximately 26%
for dairy, 29% for beef cattle, 14% for hogs, 12% for horses, 7% for poultry and
12% for all others. The feed industry generally prices products on the basis of
aggregate ingredient cost plus a dollar amount margin, rather than a gross
profit percentage. As ingredient prices fluctuate, the changes are generally
passed on to customers through weekly or monthly changes in the Company's price
lists. Feed tonnage and 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. Historically,
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; alternatively, 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 higher-margin concentrates, resulting in
lower sales volume but relatively higher overall unit margins.
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The Company expects the U.S. feed industry to further consolidate in the years
ahead. Although the total volume of processed feed sold into the commercial
market segment may decline, larger producers are tending to purchase products
with lower inclusion rates and higher margins. As they grow larger, these
producers are typically better able to measure performance differences and make
sound economic decisions regarding nutrition and management programs.
Competition in the industry occasionally limits the Company's ability to pass
ingredient price increases on to its customers; however, management believes
that the Company's knowledge of the nutritional value of ingredients and its
sophisticated least-cost formulation system enable the Company to provide
products that meet its nutritional standards and maintain product quality while
minimizing product cost.
The economic environment in the agricultural industry during 1998, 1999 and
early 2000 has been a difficult time for many individual producers and companies
that participate in the sector. Livestock commodity prices have been depressed
and reached historic lows in many markets. In addition to the overall economic
environment, there is significant continuing competition in all areas of
agriculture, including the feed industry. Competition in the industry has caused
the Company and some of its competitors to develop market and production risk
arrangements for their customers to promote sales. The Company has entered into
several production and marketing joint venture arrangements with its animal
production customers, especially in the swine sector, in order to facilitate
additional feed sales.
Additionally, to capitalize on the consolidation of the hog industry, the
Company implemented a strategy in 1997 that was expected to result in control
over the feeding of approximately six million market hogs over four years. The
program provides a source of high quality weanlings and feeder pigs ("feeders")
to independent hog producers and gains the related feed business for the
Company. Under this program, at September 30, 2000, the Company has future net
purchase commitments, subject to the counterparties' ability to perform, to
acquire over 0.1 million feeders over the next eight years. Approximately 8% of
these commitments are at fixed prices whereas the other 92% vary based on
current or published futures prices. The net purchase commitment of 0.1 million
feeders represents gross commitments during such period for approximately 3.6
million feeders less 3.5 million feeders which have contractually been sold.
These contractual sales are subject to the credit worthiness of the third
parties.
Additionally, the Company has direct ownership of several hog operations which
are expected to produce an additional 1.0 million feeders over the next ten
years. As hog producers have experienced severely depressed market prices for
their end products in the past two years, the Company has significant exposure
relating to its feeder pig program, direct hog ownership and joint venture
interests in hog operations. At September 30, 2000, and December 31, 1999, the
Company had $7.5 million and $8.6 million, respectively, in hog inventory.
Based on published market prices at September 30, 2000, the Company's net
commitment to purchase the 0.1 million feeders totals approximately $4.1
million. This is a decrease of $12.9 million from such amount at December 31,
1999. Upon receipt of the feeders, the Company can either sell them at current
market prices, feed the pigs at its owned or leased facilities, or contract with
independent producers to feed the pigs. Based on contractual commitments,
estimated feed costs, counterparty risks and current spot and futures prices,
the Company's loss in 2000 associated with its swine exposure is estimated to be
approximately $5.0 - 6.5 million. Depending on the future market price for both
feeders and market
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hogs, any or all of the options available to the Company could have an adverse
impact on earnings, cash flows and liquidity.
During 1999 the Company focused on managing and mitigating the impact of the
significant decline in hog prices on its performance. With the price of hogs
having increased moderately from December 1998, which was the lowest price in
nearly forty years, and through the efforts of management, the Company mitigated
some of its swine exposure in an effort to reduce the negative implications on
future earnings, cash flow and liquidity. In April 1999, the Company locked in a
margin on market hogs to be marketed during the remainder of 1999 by entering
into futures contracts for market hogs and the major feed ingredients to grow
the hogs. This action resulted in limiting the risk of any market decline for
the remainder of the year on these hogs, but also limited the potential for gain
if market prices significantly increased. The Company has locked in a majority,
but not all, margin for hogs to be marketed in 2000 and the first quarter of
2001 and, as such, the Company is subject to risk of fluctuations in the price
of market hogs, which could have an impact on results of operations and
liquidity.
During 1999, the Company made the decision to discontinue manufacturing
operations at five 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 recorded a loss of $13.1
million on manufacturing assets, representing the amount by which the book value
exceeds the estimated net realized value. Estimated demolition costs of $1.2
million, severance costs of $0.4 million and a write-off of $5.0 million for
related goodwill were also recorded. The Company will continue to review the
performance of its facilities in an attempt to optimize overall capacity and
maximize profits.
From June 1999 through September 30, 2000, the Company incurred $44.6 million in
restructuring costs, including $1.5 million during the three month period ended
September 30, 2000. These expenses included advisory and financing fees incurred
in connection with the Reorganization Cases, moving costs to centralize certain
administrative functions and relocate commodity purchasing personnel from Koch
Agriculture, severance costs in connection with restructuring to reduce future
administrative costs, costs to re-establish the Company's payroll and benefits
programs and compensation expense under the Key Employee Retention Plan. The
Company anticipates that its remaining costs will approximate $3.0 million,
primarily related to its remaining obligations under the Key Employee Retention
Plan.
The following discussion compares the results of operations for the three and
nine month periods ended September 30, 2000 to the comparable three and nine
month periods ended September 30, 1999. As a result of adoption of "fresh-start"
reporting, the financial statements for periods prior to June 29, 2000 are
prepared on a different basis of accounting and are not comparable to the
financial statements for periods prior to June 29,2000, primarily with respect
to the amortization of intangibles, interest expense, benefits for income taxes
and extraordinary items. To facilitate an understanding of the Company's
operating performance, the following discussion is presented on a traditional
comparative basis for all periods, with specific explanation provided for
changes in results of operations due to the effects of "fresh-start" reporting.
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Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Due to overall lower commodity prices and a decrease in tons sold, net sales
decreased 4.6% from the 1999 period. Gross profit was $41.1 million for the
three months ended September 30, 2000 compared to $42.3 million for the three
months ended September 30, 1999 due primarily to the decrease in volume. Overall
volume was 0.9 million tons during the third quarter of 2000, a 7.1% decrease
from the 1999 period. Average IOIC per ton was $70.21, a 3.0% increase from the
three-month period ended September 30, 1999 due primarily to a shift in product
mix to higher margin products.
Beef cattle volume increased 2.7% over the 1999 period as sales volume in the
grass cattle business was favorably affected by weather as well as strong cattle
economics. Dairy cattle volume decreased 6.5% from the prior year due to lower
feeding rates caused by low milk prices. Hog volume decreased 19.6% from the
prior year due to the loss of customers from market consolidation. Horse volume
increased slightly, 2.4% over the 1999 period. Laying chicken and meatbird
volume decreased 46.4% from 1999 reflecting the loss of a major customer in the
third quarter of 1999. Specialty and other volume decreased 2.7% from the prior
1999 period.
Cost of products sold decreased $8.1 million, or 5.0% from the comparable 1999
period, due primarily to the $7.0 million decrease in ingredient costs. Net
losses from the hog program also decreased $1.5 million due to increases in hog
market prices. Manufacturing expenses approximated the amount for the comparable
1999 period.
Marketing, distribution and advertising costs decreased $0.8 million due
primarily to a decrease in sales volume and reduction of sales personnel.
General and administrative expenses decreased $4.6 million from the 1999 period
due primarily to a decrease of $0.5 million in relocation costs and reduced bad
debt expense of $1.7 million. Additionally, a decrease of $2.4 million in
administrative costs was realized due to consolidation of various functions such
as credit and accounting.
Intangible amortization expense increased as a result of adopting "fresh-start"
reporting. The Company recorded reorganization value in excess of amounts
allocable to identifiable assets which is being amortized on a straight-line
basis over a ten-year period. Comparatively, in 1999, intangible assets were
amortized over longer lives with goodwill being amortized over 40 years.
Restructuring expenses during the third quarter of 2000 includes $1.0 million in
advisory and financing fees incurred in connection with the Reorganization
Cases. Additionally, $0.5 million of compensation expense in connection with the
Key Employee Retention Plan was recorded. Restructuring expenses for the third
quarter of 1999 includes $2.1 million in advisory fees and $2.5 million in
severance costs related to reductions in the overall workforce.
Other (income) expense, net for the three months ended September 30, 2000
relates to service fees for swine and dairy management, finance income, the
(income) loss on the Company's equity investments and losses on marketing
arrangements. Other (income) expense, net for the three months ended September
30, 2000 increased primarily due to a decrease in losses from investments in
various animal ventures.
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As a result of the Reorganization Cases, $350.0 million in prepetition
subordinated debt was extinguished. Also, the prepetition bank debt was reduced
from approximately $278.0 million to $175.0 million. Accordingly, interest
expense for the three months ended September 30, 2000 decreased $10.1 million
from the 1999 period due to this significant decrease in outstanding debt.
The Company's effective income tax rate differed from the statutory rate in both
1999 and 2000 due to amortization of goodwill and the amortization of the
reorganization value in excess of amounts allocable to identifiable assets not
being allowed as a tax deduction.
Nine months Ended September 30, 2000 Compared to Nine months Ended September 30,
1999
Due to overall lower commodity prices and a decrease in tons sold, net sales
decreased 5.0% from the 1999 period. Gross profit was $126.4 million for the
nine months ended September 30, 2000 compared to $126.8 million for the nine
months ended September 30, 1999. Overall volume for the nine months ended
September 30, 2000 was 2.9 million tons compared to 3.1 million tons for the
comparable 1999 period, a decrease of 8.3%. Average IOIC per ton was $68.44, a
3.8% increase from the nine-month period ended September 30, 1999 due primarily
to a shift in product mix to higher margin products.
Beef cattle volume increased 3.2% over the 1999 period due to increased volume
in the grass cattle business resulting primarily from weather conditions. Dairy
cattle tons decreased 7.2% from the prior year due to lower feeding rates caused
by low milk prices. Hog volume decreased 22.1% from the prior year, reflecting
the market consolidation and resulting loss of customers. Horse volume increased
4.3% over the 1999 period. The Company has had continued success in growing this
business by aggressive marketing and promotion of product lines. Laying chicken
and meatbird volume decreased 53.6% from 1999 which can be primarily attributed
to the loss of a major customer in the third quarter of 1999. Specialty and
other volume decreased 1.7% over the 1999 period.
Cost of products sold decreased $31.8 million, or 6.2% from the comparable 1999
period, due primarily to $25.7 million decrease in ingredient costs. Net losses
from the hog program also decreased $6.9 million due to increases in hog market
prices in 2000. Manufacturing expenses remained consistent with the amount for
the comparable 1999 period.
Marketing, distribution and advertising costs decreased $3.8 million due
primarily to a decrease in sales volume and reduction of sales personnel.
General and administrative expenses decreased $11.1 million from the 1999 period
due to a decrease in relocation costs of $1.6 million and reduced bad debt
expense of approximately $6.7 million. Additionally, a decrease of $2.8 million
in administrative costs occurred due to consolidation of various functions such
as accounting and credit as a result of the implementation of the new accounting
system and the emphasis on cost control.
Intangible amortization expense increased due to management's evaluation that an
impairment of the intangible assets had occurred during the last quarter of
1999. In addition to recording a loss provision, from January 1, 2000 to June
30, 2000, goodwill was amortized over five years on a straight line basis
compared to being amortized over 40 years before such date. Also, as a result of
adopting "fresh-start" reporting, the Company recorded reorganization value in
excess of amounts allocable to identified assets as of the Effective Date. This
asset is being amortized on a straight-line basis over a ten-year period.
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The Company continued its emphasis on research and development to develop new
products or processes for its business. As such, research and development
expenses totaled $4.0 million during the first nine months of 2000, down
slightly from the comparable 1999 period.
Restructuring expenses for the nine months ending September 30, 2000 includes
$14.9 million in advisory and financing fees incurred in connection with the
Reorganization Cases. Additionally, $4.6 million was incurred for severance and
moving costs and $7.0 million for compensation expense in connection with the
Key Employee Retention Plan. Restructuring expenses for nine months ending
September 30, 1999 includes $2.0 million in advisory fees and $3.1 million in
severance costs.
Other (income) expense, net for the nine months ended September 30, 2000,
relates to service fees for swine and dairy management, the (income) loss on the
Company's equity investments and losses on marketing arrangements. Other
(income) expense for the nine months ended September 30, 2000 includes proceeds
in excess of $24.4 million received in settlement of claims for excess charges
on vitamin purchases in prior years. Additionally, the Company recorded a gain
of $3.3 million from the sale of its headquarters building during 2000.
Interest expense for the nine months ended September 30, 2000 decreased $26.2
million from the 1999 period primarily as a result of the elimination of $23.6
million interest expense on the $350.0 million prepetition subordinated debt
that was extinguished in the Reorganization Cases. Also in 2000, the Company
terminated both its prepetition bank debt and its swap contract on $114.7
million of the prepetition bank debt and realized a gain of $2.5 million which
is shown as a reduction of interest expense during 2000.
The Company's effective income tax rate differed from the statutory rate in 1999
due to amortization of goodwill not being allowed as a tax deduction. For the
year 2000, management determined that it is not likely to receive a tax benefit
or incur any tax cost under its tax sharing agreement with Koch Industries and
thus recorded no tax benefit or expense for the period January 1 to June 30,
2000. For the remainder of the 2000 period, the effective income tax rate
differs from the statutory rate due to the amortization of the reorganization
value in excess of amounts allocable to identifiable assets not being allowed as
a tax deduction.
The extraordinary gain on extinguishment of debt represents the amount of
unsecured liabilities of the Debtor, as reflected on its balance sheet as of the
Petition Date, whose holders of such claims will be issued new common stock of
the Company in full satisfaction of such liabilities. The total of such
liabilities less the reduction in tax basis of the Company's assets as a result
of the debt extinguishment, at the applicable tax rate, less the value of the
new common stock issued to claim holders resulted in a net gain of $159.4
million.
The income on the revaluation of the Company's assets and liabilities pursuant
to the adoption of "fresh-start" reporting totaled $2.5 million. This represents
the Company's best estimate of the reorganization value of the Company
immediately after the Effective Date in excess of the net value of the Company's
assets after the consummation of the Plan, including the extinguishment of debt.
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SEASONALITY
The Company's results of operations are seasonal, with a higher percentage of
volume and earnings being generated during the fourth and first quarters of the
year. This seasonality is driven largely by weather conditions affecting the
Company's sales of beef cattle products. If the weather is particularly warm
during the winter, sales of feed for beef cattle may decrease as compared with
normal seasonal patterns because the cattle may be better able to graze under
warmer conditions. Other product lines are affected marginally by seasonal
conditions, but these conditions do not materially affect the Company's overall
quarter-by-quarter results of operations. The seasonality of the Company's
businesses may have a material adverse affect on the results of operations
achieved by the Company.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 2000, net cash provided by operating
activities was $31.0 million compared to net cash used in operating activities
of $58.0 million during the same period in 1999. The increase in net cash
provided from the prior period results primarily from the net change in working
capital of $47.1 million and an increase in profitability of $41.1 million. As a
result of the Reorganization Cases, the Company's current liabilities, including
trade payables and payables to affiliates for ingredients, at December 31, 1999,
were substantially lower than such amounts at December 31, 1998. Accordingly,
the Company had a slight increase in working capital during the first nine
months of 2000 compared to the significant decrease which occurred during the
comparable 1999 period.
Net cash provided by investing activities was $7.4 million for the first nine
months of 2000 compared to net cash used of $17.6 million for the nine month
period ended September 30, 1999. The increase is due to proceeds received from
the sale of assets, primarily the sale of the headquarters building for
approximately $14.9 million and a decrease in capital expenditures of $2.2
million.
Net cash used in financing activities for the nine months ending September 30,
2000 includes repayment on the prepetition bank debt of $103.0 million and the
repayment of the Term Loan of $19.0 million, offset by the receipt of $60.0
million from Koch Industries related to the negotiated settlement as provided in
the Plan. Net cash provided by financing activities for the nine months ending
September 30, 1999 includes net borrowings of prepetition bank debt of $64.1
million.
At September 30, 2000, the Company had $24.4 million in cash and cash
equivalents on hand with $39.7 million available for borrowing under the
Company's Revolving Credit Facility. The Company operates with a relatively low
working capital level because a majority of its sales are made on terms whereby
customers receive a 3% discount if payment is received immediately upon shipment
of feed products, and raw ingredients are normally purchased just prior to
manufacturing and shipment.
The Company will incur substantially lower interest expense in the future as a
result of the lower level of debt. Management believes that cash flow from
operations and availability under the Revolving Credit Facility will provide
adequate funds for the Company's foreseeable working capital needs, planned
capital expenditures and debt service obligations. The Company's ability to fund
its operations and make planned capital expenditures, to make scheduled debt
payments, to refinance its indebtedness and to remain in compliance with all of
the financial covenants under its debt agreements depends on its
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future operating performance and cash flow, which, in turn, are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond its control.
The Company expects that capital expenditures during fiscal year 2000 will be
approximately $20.0 million to $25.0 million which includes $2.3 million related
to new or improved manufacturing systems at facilities where horse products are
manufactured, to maintain such systems as ionophore free. The Company's actual
capital expenditures for the nine months ended September 30, 2000 were $13.7
million. The Company may from time to time be required to make additional
capital expenditures in connection with the execution of its business
strategies.
The Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions and general corporate purposes,
should it need to do so, may be affected by cash requirements for debt service.
The Credit Agreement contains restrictive covenants that, among other things and
under certain conditions, limit the ability of the Company to incur additional
indebtedness, to acquire (including a limitation on capital expenditures) or
dispose of assets or operations and to pay dividends. Additionally, the Company
is required to provide to the banks monthly financial reports as to the results
of its operations. The Credit Agreement also requires the Company to make
mandatory repayments of the Term Loan in amounts equal to 80% of Excess Cash
Flow, as defined in the Credit Agreement. The first such payment is scheduled
for March 2001, however, since the Company has voluntarily repaid $19.0 million
of the Term Loan during the third quarter of 2000, no additional payment is
expected to be due.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for Derivative
Instruments and Hedging Activities. In June 2000, the FASB issued SFAS No. 138,
Accounting for Certain Instruments and Certain Hedging Activity to amend SFAS
No. 133. Collectively, these statements are intended to represent the
comprehensive guidance on accounting for derivatives and hedging activity. These
statements establish accounting and reporting standards requiring that an entity
recognize certain derivative instruments as assets and liabilities in the
statement of financial position and measure them at fair value. These
statements require that changes in the fair value of derivatives are recognized
currently in earnings unless specific accounting provisions for qualifying
hedges allow a derivative's gains and losses to offset related results of the
hedged item in the income statement, and require that the Company must formally
document, designate and assess the effectiveness of transactions that qualify
for hedge accounting. SFAS No. 133 and SFAS No. 138 become effective for fiscal
years beginning after June 15, 2000. The Company will be required to adopt
these statements by January 2001. The Company is currently evaluating the
impact of SFAS No. 133 and SFAS No. 138 on its financial statements and
believes that when adopted, volatility in reported earnings and other
comprehensive income of the Company could increase.
KEY MEASURES AND CONCEPTS FOR UNDERSTANDING THE BUSINESS
Because one of the principal focuses of the Company is cash flow, management
uses earnings before interest expense, interest income, income taxes,
depreciation, amortization, gains or losses on fixed asset dispositions and
write-downs, restructuring costs, and other extraordinary non-recurring gains,
losses or
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expenses ("EBITDAR") as a key measure for compensating management under its
annual incentive plan. EBITDAR is also a principal component of several
covenants under the Credit Agreement. The following table provides a
reconciliation of income (loss) before taxes and extraordinary items to EBITDAR.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION, AND RESTRUCTURING
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST- PRE- POST-
EMERGENCE EMERGENCE EMERGENCE PRE-EMERGENCE
--------- --------- --------- -------------
THREE MONTHS THREE MONTHS THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING INCOME (LOSS) $ 1,136 $ (6,190) $ 1,136 $ 2,919 $ (31,102)
ADDBACK:
Depreciation and amortization 12,162 11,897 12,162 30,432 36,288
Amortization related to deferred -- (307) -- (602) (1,042)
financing costs
(Gains) losses related to (385) 425 (385) (27,058) 694
asset disposition and
vitamin purchases claim
settlement
NONRECURRING CHARGES:
Provision for asset write-off -- -- -- -- 19,665
Restructuring expenses 1,545 4,564 1,545 24,924 5,117
Other -- 241 -- -- 5,264
------------------------------------------------------------------------------------
EBITDAR $ 14,458 $ 10,630 $ 14,458 $ 30,615 $ 34,884
====================================================================================
</TABLE>
The nonrecurring charges-other represents the cost and expenses in connection
with a provision for losses on discontinued businesses for the three month
period ended September 30, 1999 and reserves for losses on guarantees,
litigation expenses, merger integration expenses, losses on discontinued
businesses and other non-recurring charges for the nine month period ended
September 30, 1999.
EBITDAR as presented may not be comparable to similarly titled measures used by
other companies, depending upon the non-cash charges included. When evaluating
EBITDAR, investors should consider that EBITDAR (i) should not be considered in
isolation but together with other factors which may influence operating and
investing activities, such as changes in operating assets and liabilities and
purchases of property and equipment; (ii) is not a measure of performance
calculated in accordance with generally accepted accounting principles; (iii)
should not be construed as an alternative or substitute for income from
operations, net income or cash flows from operating activities in analyzing the
Company's operating performance, financial position or cash flows; and (iv)
should not be used as an indicator of the Company's operating performance or as
a measure of its liquidity.
24
<PAGE> 25
FORWARD-LOOKING STATEMENTS
Information included in this Report on Form 10Q may constitute forward-looking
statements that involve a number of risks and uncertainties. Our use of the
words "outlook," "anticipates," "believes," "estimate" and similar words is
intended to identify these statements as forward looking. These forward-looking
statements are based on our current expectations and include known and unknown
risks, uncertainties and other factors, many of which we are unable to predict
or control, that may cause our actual results or performance to materially
differ from any future results or performance expressed or implied in these
statements. Factors that could cause actual results to differ materially from
the forward-looking statements include but are not limited to: Bankruptcy Court
actions or proceedings related to the bankruptcy, general economic conditions
including inflation, consumer debt levels, trade restrictions and interest rate
fluctuations; competitive factors including pricing pressures, technological
developments and products offered by competitors; inventory risks due to changes
in market demand or the Company's business strategies; and changes in effective
tax rates. Additional risk factors are described from time to time in our
filings with the SEC, specifically the Company's Registration Statement on Form
S-1 which was originally filed with the SEC on September 8, 2000. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
25
<PAGE> 26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Under the Company's Credit Agreement the Term Loan bears interest at floating
rates which are, at the Company's option, based either upon bank prime or
Eurodollar rates. The Company primarily pays interest based on the Eurodollar
rate. As a result, the Company is subject to interest rate risk. To mitigate the
impact of fluctuations in interest rates, the Company utilizes interest rate
swaps to fix the rate on its floating rate debt. The following table provides
information about the Company's Term Loan that is subject to interest rate risk.
For the Term Loan, the table presents principal cash flows and applicable
interest rates by expected maturity dates.
<TABLE>
<CAPTION>
(Dollars in millions)
FAIR MARKET
VALUE AT
2000(1) 2001(1) 2002 2003 TOTAL SEPTEMBER 30, 2000
------- ------- ---- ---- ----- ------------------
<S> <C> <C> <C> <C> <C> <C>
Variable rate
term debt
including current
portion:
Tranche A $ -- $ -- $ 6.0 $150.0 $ 156.0 $ 156.0
Interest rate (2)
</TABLE>
(1) No payments are due for the remainder of 2000 and 2001
(2) One-month Eurodollar rate of 6.63% plus 2.75% at September 30, 2000
On September 22, 2000, the Company entered into a swap contract on $100.0
million of the Term Loan, pursuant to requirements under the Credit
Agreement. The swap contract provides that the Company will pay interest on
the notational amount based on a fixed rate of 6.74% and will receive the
three month Eurodollar rate. Based on interest rates at September 30, 2000,
an increase in interest rates of 1% would result in an increase in interest
expense of $0.6 million over the next year after considering the swap
contract.
26
<PAGE> 27
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
2(a) Second Amended Joint Plan of Reorganization of Purina Filed as Exhibit 2(a) to the
Mills, Inc., PM Holdings Corporation and its General Form for Registration on
Subsidiaries, dated February 22, 2000 Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
2(b) Form of Agreement and Plan of Merger among Koch Filed as Exhibit 2(b) to the
Agriculture Company, PM Holdings Corporation and General Form for Registration on
Purina Mills, Inc. Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
3(a) Amended and Restated Certificate of Incorporation of Filed as Exhibit 3(a) to the
Purina Mills, Inc. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
3(b) Amended and Restated By-Laws of Purina Mills, Inc. Filed as Exhibit 3(b) to the
General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
4(a) Form of Stock Certificate for Common Stock Filed as Exhibit 4(a) to the
General Form for Registration on
Form 10/A, Amendment No. 1 of
Purina Mills, Inc., Registration
No. 033-66606 and incorporated
herein by reference
4(b) Form of Registration Rights Agreement among Purina Filed as Exhibit 4(b) to the
Mills, Inc. and certain holders of Common Stock General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
4(c) Form of Rights Agreement between Purina Mills, Inc. Filed as Exhibit 4(c) to the
and the Rights Agent thereunder. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
</TABLE>
27
<PAGE> 28
[CAPTION]
<TABLE>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
4(d) Form of Convertible Promissory Note between Purina Filed as Exhibit 4(d) to the
Mills, Inc. and Houlihan Lokey Howard & Zukin Capital Quarterly Report for the
quarterly period ended June 30,
2000 on Form 10-Q of Purina
Mills, Inc. Registration No.
033-66606 and incorporated herein
by reference
4(e) Form of Convertible Promissory Note between Purina Filed as Exhibit 4(e) to the
Mills, Inc. and Chanin Capital Partners Quarterly Report for the
quarterly period ended June 30,
2000 on Form 10-Q of Purina
Mills, Inc. Registration No.
033-66606 and incorporated herein
by reference
4(f) Credit Agreement dated, as of June 28,2000 among Filed as Exhibit 4(f) to the
Purina Mills, Inc. and certain of its lenders Quarterly Report for the
quarterly period ended June 30,
2000 on Form 10-Q of Purina
Mills, Inc. Registration No.
033-66606 and incorporated herein
by reference
4(g) Term Note, dated as of June 28, 2000, made by Purina Filed as Exhibit 4(g) to the
Mills, Inc. Quarterly Report for the
quarterly period ended June 30,
2000 on Form 10-Q of Purina
Mills, Inc. Registration No.
033-66606 and incorporated herein
by reference
4(h) Form of Lockup Agreement in respect of Common Stock Filed as Exhibit 4(i) to the
issued under key employee retention program General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(a) Form of Tax Sharing Agreement by and among Koch Filed as Exhibit 10(a) to the
Industries, Inc. and PM Holdings Corporation et al. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(b) Form of Koch Indemnity Agreement by and among Purina Filed as Exhibit 10(b) to the
Mills, Inc., Koch Industries, Inc. Koch Agriculture, General Form for Registration on
et al. Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(c) Form of Director and Officer Indemnification Agreement Filed as Exhibit 10(c) to the
for Purina Mills, Inc. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
10(d) Form of Senior Executive Officer Employment Agreement Filed as Exhibit 10(d) to the
for Purina Mills, Inc. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(e) Equity Incentive Plan Filed as Exhibit 10(e) to the
General Form for Registration on
Form 10/A, Amendment No. 1 of
Purina Mills, Inc., Registration
No. 033-66606 and incorporated
herein by reference
10(f) License Agreement, dated as of October 1, 1986 between Filed as Exhibit 10(f) to the
Ralston Purina Company and Purina Mills, Inc. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(g) Form of Merger Escrow Agreement by and among Koch Filed as Exhibit 10(g) to the
Agriculture, Purina Mills, Inc. and Escrow Agent General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
27.1 * Financial Data Schedule
</TABLE>
--------------------
* Filed herewith
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended September 30,
2000.
29
<PAGE> 30
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PURINA MILLS, INC.
Date: November 13, 2000 /s/Del G. Meinz
---------------
Del G. Meinz
Chief Accounting Officer
30
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
2(a) Second Amended Joint Plan of Reorganization of Purina Filed as Exhibit 2(a) to the
Mills, Inc. PM Holdings Corporation and its General Form for Registration on
Subsidiaries, dated February 22, 2000 Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
2(b) Form of Agreement and Plan of Merger among Koch Filed as Exhibit 2(b) to the
Agriculture Company, PM Holdings Corporation and General Form for Registration on
Purina Mills, Inc. Bylaws of Purina Mills, Inc. Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
3(a) Amended and Restated Certificate of Incorporation of Filed as Exhibit 3(a) to the
Purina Mills, Inc. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
3(b) Amended and Restated By-Laws of Purina Mills, Inc. Filed as Exhibit 3(b) to the
General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
4(a) Form of Stock Certificate for Common Stock Filed as Exhibit 4(a) to the
General Form for Registration on
Form 10/A, Amendment No. 1 of
Purina Mills, Inc., Registration
No. 033-66606 and incorporated
herein by reference
4(b) Form of Registration Rights Agreement among Purina Filed as Exhibit 4(b) to the
Mills, Inc. and certain holders of Common Stock General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
4(c) Form of Rights Agreement between Purina Mills, Inc. Filed as Exhibit 4(c) to the
and the Rights Agent thereunder. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
4(d) Form of Convertible Promissory Note between Purina Filed as Exhibit 4(d) to the
Mills, Inc. and Houlihan Lokey Howard & Zukin Capital Quarterly Report for the
quarterly period ended June 30,
2000 on Form 10-Q of Purina
Mills, Inc. Registration No.
033-66606 and incorporated herein
by reference
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
4(e) Form of Convertible Promissory Note between Purina Filed as Exhibit 4(e) to the
Mills, Inc. and Chanin Capital Partners Quarterly Report for the
quarterly period ended June 30,
2000 on Form 10-Q of Purina
Mills, Inc. Registration No.
033-66606 and incorporated herein
by reference
4(f) Credit Agreement dated, as of June 28,2000 among Filed as Exhibit 4(f) to the
Purina Mills, Inc. and certain of its lenders Quarterly Report for the
quarterly period ended June 30,
2000 on Form 10-Q of Purina
Mills, Inc. Registration No.
033-66606 and incorporated herein
by reference
4(g) Term Note, dated as of June 28, 2000, made by Purina Filed as Exhibit 4(g) to the
Mills, Inc. Quarterly Report for the
quarterly period ended June 30,
2000 on Form 10-Q of Purina
Mills, Inc. Registration No.
033-66606 and incorporated herein
by reference
4(h) Form of Lockup Agreement in respect of Common Stock Filed as Exhibit 4(i) to the
issued under key employee retention program General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(a) Form of Tax Sharing Agreement by and among Koch Filed as Exhibit 10(a) to the
Industries, Inc. and PM Holdings Corporation et al. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(b) Form of Koch Indemnity Agreement by and among Purina Filed as Exhibit 10(b) to the
Mills, Inc., Koch Industries, Inc. Koch Agriculture, General Form for Registration on
et al. Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(c) Form of Director and Officer Indemnification Agreement Filed as Exhibit 10(c) to the
for Purina Mills, Inc. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10(d) Form of Senior Executive Officer Employment Agreement Filed as Exhibit 10(d) to the
for Purina Mills, Inc. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(e) Equity Incentive Plan Filed as Exhibit 10(e) to the
General Form for Registration on
Form 10/A, Amendment No. 1 of
Purina Mills, Inc., Registration
No. 033-66606 and incorporated
herein by reference
10(f) License Agreement, dated as of October 1, 1986 between Filed as Exhibit 10(f) to the
Ralston Purina Company and Purina Mills, Inc. General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
10(g) Merger Escrow Agreement by and among Koch Agriculture, Filed as Exhibit 10(g) to the
Purina Mills, Inc. and Escrow Agent General Form for Registration on
Form 10 of Purina Mills, Inc.,
Registration No. 033-66606 and
incorporated herein by reference
27.1 * Financial Data Schedule
</TABLE>
--------------------
* Filed herewith
33
