<PAGE> 1
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 June 30, 1998
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 43-1359249
(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 27 pages
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<TABLE>
PURINA MILLS, INC. CORPORATION
Table of Contents
Form 10-Q for the Quarterly Period
Ended June 30, 1998
<CAPTION>
Page
----
PART I FINANCIAL INFORMATION
- ------ ---------------------
<C> <S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30,
1998 and December 31,1997 3
Consolidated Statements of Operations for
the three months ended June 30, 1998 and
1997, the three month and nineteen day
period ended June 30, 1998, the seventy-one
day period ended March 12, 1998 and the
six months ended June 30, 1997. 4
Consolidated Statements of Cash Flows for
the three month and nineteen day period
ended June 30, 1998, the seventy-one day
period ended March 12, 1998 and the six
months ended June 30, 1997. 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 21
Signature 24
</TABLE>
2
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<TABLE>
PURINA MILLS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, 1998 and December 31, 1997
(Dollars in thousands except per share data)
<CAPTION>
Pre-Merger
December 31, 1997
(Derived from
Audited Financial
June 30, 1998 Statements)
------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 12,215 $ 27,620
Accounts receivable, net 38,791 51,208
Inventories 63,304 66,800
Income tax refund receivable 4,320 --
Deferred income taxes 8,746 8,746
Prepaid expenses and other current assets 6,883 13,037
.............................................
Total Current Assets 134,259 167,411
Property, plant and equipment, net 264,870 243,718
Intangible assets, net 339,805 122,403
Other assets 48,263 48,411
.............................................
Total Assets $787,197 $581,943
---------------------------------------------
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable--other $ 33,287 $ 76,078
Accounts payable--affiliate 23,968 --
Current portion of long-term debt 6,050 19,170
Customer advance payments 4,403 16,503
Other current liabilities 35,141 26,872
.............................................
Total Current Liabilities 102,849 138,623
Retirement obligations 25,933 28,768
Accrued post-retirement benefit costs 4,866 37,470
Deferred income taxes 6,550 --
Other liabilities 898 831
Long-term debt 542,811 263,119
Common stock held by ESOP -- 62,736
Stockholder's Equity:
Common stock, $0.01 par value: 1,000 shares
authorized, issued and outstanding -- --
Additional paid-in capital 109,290 79,687
Retained deficit (6,000) (27,192)
Adjustment for minimum supplemental retirement
liabilities -- (2,099)
.............................................
Total Stockholder's Equity 103,290 50,396
---------------------------------------------
Total Liabilities & Stockholder's Equity $787,197 $581,943
---------------------------------------------
(See accompanying notes)
</TABLE>
3
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<TABLE>
PURINA MILLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
<CAPTION>
Post-Merger Pre-Merger Post-Merger Pre-Merger
------------ ------------ ----------- ----------------------------
Three Months Three Months Six Months
Ended Ended March 13 January 1 Ended
June 30, June 30, to June 30, to March 12, June 30,
1998 1997 1998 1998 1997
------------ ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
NET SALES $235,265 $269,744 $288,071 $214,272 $554,194
COSTS AND EXPENSES:
Cost of products sold 187,254 220,882 228,644 171,233 452,329
Marketing, distribution and
advertising 21,762 20,907 26,571 17,543 41,092
General and administrative 15,756 14,170 17,972 27,573 27,633
Amortization of intangibles 5,156 5,610 6,115 3,838 10,340
Research and development 1,628 1,618 1,928 1,376 3,254
Other income, net (147) (1,049) (58) 109 (2,711)
.......................................................................................
231,409 262,138 281,172 221,672 531,937
.......................................................................................
OPERATING INCOME (LOSS) 3,856 7,606 6,899 (7,400) 22,257
Interest expense 12,622 8,666 15,458 6,144 17,065
.......................................................................................
Income (loss) before income
taxes (8,766) (1,060) (8,559) (13,544) 5,192
Provision (benefit) for income
taxes (2,643) (661) (2,559) (5,050) 2,498
.......................................................................................
NET INCOME (LOSS) $ (6,123) $ (399) $ (6,000) $ (8,494) $ 2,694
---------------------------------------------------------------------------------------
(See accompanying notes)
</TABLE>
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<TABLE>
PURINA MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<CAPTION>
Pre-Merger
Post-Merger -------------------------------------
------------- Six Months
March 13 to January 1 to Ended
June 30, 1998 March 12, 1998 June 30, 1997
------------- -------------- -------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $ (6,000) $ (8,494) $ 2,694
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation & amortization 15,519 9,908 24,629
Provision for loss on asset disposition 163 169 35
Compensation under ESOP -- -- 2,092
Provision for deferred taxes (2,005) (108) (1,251)
Other 19,296 (38,826) $(19,830)
................................................................
Net cash provided by (used in) operating activities $ 26,973 $ (37,351) $ 8,369
Investing Activities:
Purchase of property, plant and equipment (7,923) (4,486) (11,626)
Other (941) 156 1,765
................................................................
Net cash used in investing activities $ (8,864) $ (4,330) $ (9,861)
Financing Activities:
Proceeds from Senior Subordinated Notes -- 350,000 --
Proceeds from Term Loans -- 200,000 --
Proceeds of Revolving Credit Facility, net 5,214 -- --
Repayment of Term Loans, Senior Sub. Notes & IRBs (295,486) -- (7,583)
Payment of dividends to PM Holdings Corporation -- (237,172) --
Payment of Financing Costs (111) (11,894) --
Other (84) (2,300) (156)
................................................................
Net cash provided by (used in) financing activities $(290,467) $ 298,634 $ (7,739)
Increase (decrease) in cash and cash equivalents (272,358) 256,953 (9,231)
Cash and cash equivalents at beginning of period 284,573 27,620 25,462
................................................................
Cash and cash equivalents at end of period $ 12,215 $ 284,573 $ 16,231
----------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 6,319 $ 11,267 $ 15,652
Income taxes 290 43 5,084
- -------------------------------------------------------------------------------------------------------------------------
(See accompanying notes)
</TABLE>
5
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PURINA MILLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
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,
with Holdings being the surviving corporation. As a result of the Merger,
all of the shares of the common stock of Holdings ("Holdings Common Stock"),
par value $.01 per share outstanding immediately prior to March 12, 1998,
were canceled and converted into the right to receive cash consideration of
$540 per share (the "Merger Consideration.") In addition, pursuant to the
Merger Agreement, each outstanding stock option and stock rights unit became
100% vested. Option holders and stock rights unit holders received the
Merger Consideration, less the exercise price of the stock options, for each
share of Holdings Common Stock into which such stock options and stock rights
units were exercisable immediately prior to March 12, 1998. As a result of
the Merger, Koch Agriculture owns 100% of Holdings, which owns 100% of Purina
Mills, Inc. ("PMI" or the "Company.")
The estimated sources and use of funds required to consummate the Merger and
related financings are summarized below. See Notes 6 and 7 for a description
of long-term indebtedness and capital stock.
<TABLE>
Sources of funds (in millions):
<S> <C>
New Credit Facilities
Term Loans $ 200.0
Revolving Credit Facility 9.9
Notes 350.0
Equity Contribution to Holdings 109.7
.............
Total $ 669.6
-------------
Use of funds (in millions):
Purchase price for equity of Holdings $ 258.7
Repayment of existing indebtedness 385.5
Fees and expenses 25.4
.............
Total $ 669.6
-------------
</TABLE>
6
<PAGE> 7
The Merger closed on March 12, 1998. The Merger has been accounted for as a
purchase transaction in accordance with Accounting Principles Board Opinion
No. 16 and, accordingly, the consolidated financial statements for periods
subsequent to March 12, 1998 reflect the purchase price, including
transaction costs, allocated to tangible and intangible assets acquired and
liabilities assumed, based on their estimated fair values as of March 12,
1998. The allocation of the purchase price is preliminary, as valuation and
other studies have not been finalized. It is not expected that the final
allocation of purchase price will produce materially different results from
those presented herein. The consolidated financial statements for periods
prior to March 12, 1998 have been prepared on the historical cost basis. The
consolidated balance sheet at June 30, 1998 is not comparable with the
historical balance sheets presented. Operating results subsequent to the
Merger are comparable to the operating results prior to the Merger except for
depreciation expense, amortization of intangible assets, interest expense and
post-retirement health care costs.
The preliminary allocation of the $109.3 million purchase price for the
Company is summarized as follows (in millions):
<TABLE>
<S> <C>
Current assets $ 130.8
Property, plant and equipment 268.1
Intangible assets 344.2
Other noncurrent assets 47.7
Liabilities assumed (681.5)
...............
Total $ 109.3
---------------
</TABLE>
The consolidated balance sheet at June 30, 1998 and the consolidated
statements of operations and cash flows for all periods presented are
unaudited and reflect all adjustments, consisting of normal recurring items,
which management considers necessary for a fair presentation. Operating
results for fiscal 1998 interim periods are not necessarily indicative of
results to be expected for the fiscal year ending December 31, 1998. The
consolidated balance sheet at December 31, 1997 was derived from the
Company's December 31, 1997 audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
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 31,1997 and the quarter
ended March 31, 1998 contained in the Financial Statements on Form S-4.
7
<PAGE> 8
The following unaudited pro forma financial data for the six months ended
June 30, 1997 and June 30, 1998 has been prepared assuming that the Merger
and related financings were consummated on January 1, 1997 and January 1,
1998 (in millions):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1997 1998
------ ------
<S> <C> <C>
Net sales $ 554.2 $ 502.3
Net income (loss) $ (2.0) $ (17.3)
</TABLE>
These pro forma results have been prepared for comparative purposes only and
include certain adjustments such as additional amortization on intangible
assets and increased interest expense on the related debt. They do not
purport to be indicative of the results had the Merger been in effect on
January 1, 1997 and January 1, 1998, or of future results of operations.
In connection with the Merger, the Company has entered into an exclusive
commodity purchasing agreement with Koch Agriculture, whereby its Nutrient
Services division will supply the Company with all of its requirements for
feed ingredients commencing May 1, 1998 for a five-year term, renewable
annually thereafter. The cost of the ingredients to the Company is equal to
the spot market price less a discount to be agreed upon between the Company
and Koch Agriculture on an annual basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Comprehensive Income
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No, 130, Reporting of Comprehensive Income
("SFAS 130"), which is effective for periods ended after December 15, 1997.
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. The Company adopted the standard effective January 1, 1998. The
adoption of the standard did not effect the Financial Statements.
8
<PAGE> 9
Revenue Recognition
Net sales are generally recognized when products are shipped. Accruals for
customer discounts are recorded when revenues are recognized.
Income Taxes
The Company has entered into a tax sharing agreement with Holdings effective
as of the date of the Merger. The agreement provides 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 are utilized by another member of
the group, such member will 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 provision for the period March 13 to June
30, 1998 is computed on this basis. The results of operations of the Company
after March 12, 1998 will be included in the consolidated U.S. corporation
income tax return and certain consolidated state income tax returns of Koch
Industries, Inc. The results of operations of the Company for the period
January 1 to March 12, 1998 will be included in the consolidated U.S.
corporation income tax return of Holdings.
Internal Use Software
The Company has implemented a process to either replace or modify all of the
Company's current computer systems and software applications which will be
year 2000 compliant. In connection with this process, the Company has
purchased and is implementing an enhanced accounting and information
reporting system. The Company capitalizes all software and consultant costs
and the direct costs of those employees involved in the configuration and
implementation of the information system. Such costs are capitalized as
incurred. All other related costs are expensed as incurred. Total
capitalized software costs were $10.8 million and $8.3 million as of June 30,
1998 and December 31, 1997, respectively. The Company is amortizing the
costs associated with the project using the straight line method over 10
years, the expected life of the system.
Reclassifications
Certain reclassifications have been made to prior period consolidated
statements to conform to the consolidated financial statement presentation at
June 30, 1998 and the periods then ended.
9
<PAGE> 10
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Finished goods $ 16,494 $ 17,739
Raw materials 46,810 49,061
....................................
Total inventories $ 63,304 $ 66,800
------------------------------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Land $ 12,546 $ 13,327
Buildings 68,151 73,965
Machinery and equipment 171,150 245,145
Construction in progress 22,036 13,674
....................................
273,883 346,111
Accumulated depreciation (9,013) (102,393)
....................................
Total $ 264,870 $ 243,718
------------------------------------
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Distribution network $ 40,000 $ 45,300
Product specifications 10,000 23,600
Technology 15,000 19,110
Covenant not to compete 2,083 25,000
Feed supply agreement -- 10,598
Goodwill 263,578 57,662
Other intangibles 15,258 24,027
....................................
345,919 205,297
Accumulated amortization (6,114) (82,894)
....................................
Total $ 339,805 $ 122,403
------------------------------------
</TABLE>
10
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6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Term Loan $ 198,675 $ --
Senior Term Loan -- 74,622
Senior Subordinated Notes due 2010 350,000 --
Senior Subordinated Notes due 2003 -- 189,965
IRB Loans -- 17,400
Other 186 302
........................................
548,861 282,289
Less current portion (6,050) (19,170)
........................................
Total $ 542,811 $ 263,119
----------------------------------------
</TABLE>
The annual amortization schedule of the Term Loan (defined below) is $2.7
million in 1998, $7.6 million in 1999, $10.6 million in 2000, $13.6 million
2001, $16.6 million in 2002 and $147.6 million thereafter. The Company is
required to make mandatory repayments of the Term Loan in amounts equal to
50% of Excess Cash Flow (as defined in the Credit Agreement). The first such
payment is due in April, 1999. The Notes (defined below) are due in their
entirety in 2010.
Tender Offer: In connection with the Merger, the Company offered to purchase
for cash any and all of the outstanding existing Purina Mills, Inc. Senior
Subordinated Notes (the "Offering") of which $190.0 million in aggregate
principal amount was outstanding as of the date of the Offering. The
Offering commenced on February 9, 1998 and expired on March 12, 1998. In
conjunction with the Offering, the Company solicited consents of registered
holders of the applicable series of existing debt securities to certain
proposed amendments to eliminate substantially all of the restrictive
covenants in the indentures under which the applicable series of existing
debt securities were issued, in order to increase the financial flexibility
of the Company after the consummation of the Merger. The proposed amendments
became operative immediately following the consummation of the Merger when
all except $15,000 of the existing Senior Subordinated Notes were accepted
for payment.
Credit Facility: In connection with the Merger, the Company 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 amount of $200.0 million (the "Term Loan") and
(ii) a $100.0 million Revolving Credit Facility, with a $40.0 million
sub-limit for letters of credit. The proceeds of the Term Loan were borrowed
in full on the date of the consummation of the Offering, in addition to $9.9
million under the Revolving Credit Facility, and were used to finance the
Merger and related fees and expenses. Proceeds of the Revolving Credit
Facility have also been used to redeem the Company's Industrial Revenue Bonds
and are available to finance the
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Company's ongoing working capital requirements. At June 30, 1998, $5.2
million was outstanding under the Revolving Credit Facility and is classified
as a current liability on the consolidated balance sheet. The Revolving
Credit Facility also may be used in part for the issuance of letters of credit
to be used solely for ordinary course of business purposes of the Company and
its subsidiaries. The Company is charged an annual fee of .50% for amounts
available but unused under the Revolving Credit Facility. In addition, the
Company is charged a fee of .25% per annum on the daily average amount
available for drawing under any letter of credit to the bank that has issued
such 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 averaged 7.8% at
June 30, 1998.
Notes: The Company sold $350.0 million aggregate principal amount of its 9%
Senior Subordinated Notes due 2010 (the "Notes") generating gross proceeds of
$350.0 million. The Notes are senior subordinated, unsecured obligations of
the Company.
The Notes will not be redeemable at the option of the Company prior to March
15, 2003. 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 (defined below). From and after March 15,
2003, the Notes will be subject to redemption at the option of the Company,
in whole or in part, at various redemption prices, declining from 104.5% of
the principal amount to par on and after March 15, 2006. Also, at any time
prior to March 15, 2001, under certain conditions, the Company may redeem up
to 35% of the initial principal amount of the Notes originally issued with
the net proceeds of a public offering of the Common Stock of Holdings or the
Company, at a redemption price equal to 109% of the principal amount.
Covenants: The Credit Agreement 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 the Company 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. The most restrictive of the covenants precludes (except for
$1.0 million annually for operating and administrative expenses and amounts
to cover income tax expenses) any payment of dividends prior to 1999. As of
June 30, 1998, restricted net assets of the Company were approximately $103.3
million. The Term Loan and Revolving Credit Facility also require the
Company to satisfy certain financial covenants and tests. The Credit
Agreement and Notes Indenture contain cross default provisions.
Holdings and all 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 the capital stock of
the Company (to be pledged by Holdings) and its subsidiaries and
substantially all assets of the Company and its subsidiaries.
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7. STOCKHOLDER'S EQUITY
The Company's authorized capital consists of 1,000 shares of common stock.
All common stock of the Company is owned by Holdings. As a result of the
Merger, the Company terminated the ESOP. Upon termination, each ESOP
participant had the right to receive a distribution of Holdings Common Stock
or exchange all their shares of Holdings stock for the Merger Consideration.
8. POST-RETIREMENT BENEFITS OTHER THAN
PENSIONS/POST-EMPLOYMENT BENEFITS
As a result of the Merger, the employee benefit plans of the Company that
provided health care and life insurance benefits to retired employees were
terminated. Retirees previously receiving health benefits under the former
health plans of the Company have been offered medical benefits under Koch
Agriculture's medical plans. For any current employees or retirees who were
100% vested in the former medical plan at the time of the Merger, the Company
will share a portion of their post-retirement health care cost, if any, for
the three years following the date of Merger.
9. DEFERRED INCOME TAXES
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. As a result
of the Merger and the allocation of the purchase price under APB 16, the
deferred tax assets and deferred liabilities were adjusted.
10. ACQUISITION COSTS
Included in general and administrative expenses are $15.9 million in
non-recurring expenses related to the Merger. These costs relate to
compensation paid to management of the Company and the $13.5 million in Merger
consideration paid to holders of options and stock rights units.
11. TRANSACTIONS WITH AFFILIATES
In the ordinary course of business, the Company contracts with Koch
Industries for various administrative and support services. For the period
ended June 30, 1998 the total fees incurred in connection with such services
amounted to $0.3 million. In the opinion of management, such fees were
reasonable. The Company also entered into an exclusive commodity purchasing
agreement with Koch Agriculture's Nutrition Supply & Trading division
commencing May 1, 1998. For the three-month period ended June 30, 1998, the
Company purchased $104.4 million in commodities from Koch Agriculture's
Nutrition Supply & Trading division.
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<PAGE> 14
At June 30, 1998, accounts payable - affiliate consists of noninterest-bearing
current accounts payable to Koch Industries for administrative and support
services, monthly payroll costs and accounts payable to Koch Agriculture for
commodity purchases. The total amount due for administrative and support
services including payroll and related costs amounted to $11.0 million. The
total amount due for purchases of commodities amounted to $13.0 million.
14
<PAGE> 15
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
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, 1997 the product mix by volume was
approximately 25% for dairy, 27% for beef cattle, 20% for hogs, 9% for
horses, 9% for poultry and 10% for all others.
The consolidated financial statements for periods prior to March 13, 1998
have been prepared on the historical cost basis. The consolidated balance
sheet at June 30, 1998 is not comparable with the historical balance sheet
presented. Operating results subsequent to the Merger are comparable to the
operating results prior to the Merger except for depreciation expense,
amortization of intangible assets and interest expense. Depreciation and
amortization included in operating income for the three months and six months
ended June 30, 1998 was $13.1 million and $24.9 million, respectively, as
compared to $12.1 million and $23.4 million for the three months and six
months ended June 30, 1997, respectively. The following discussion is based
on comparison of (i) the three months ended June 30, 1998 to the three
months ended June 30, 1997 and (ii) the seventy-one day period ended March
12, 1998 plus the three month and nineteen day period ended June 30, 1998, to
the six month period ended June 30, 1997.
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 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.
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 higher-margin concentrates, resulting in lower sales
volume but relatively higher overall unit margins. While the mix of complete
and concentrate product sales varies from period to period depending on grain
prices, the offsetting effects of volume and unit margins have tended to
stabilize total IOIC and gross profit dollars.
15
<PAGE> 16
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Due to overall lower commodity prices, net sales decreased 12.8% from the
1997 period. However, gross profit remained fairly constant totaling $48.0
million for the three months ended June 30, 1998, versus $48.9 million for
the comparable 1997 period. Overall volume was 1.07 million tons during the
second quarter of 1998, a 1.0% decrease from the 1997 period. Average IOIC
per ton was $66.45, a 2.7% increase over the three month period ended June
30, 1997, primarily as a result of an increase in sale of concentrates.
Beef cattle tons increased 8.6% over the 1997 period as the drought
conditions in the Southwest and Plains states have dried up pastures and
stimulated the range business. However, IOIC increased only 2.9% due to
lower ingredient profits caused by intense competition for the cattle feed
business. Dairy cattle tons decreased 6.8% due to some product mix switch to
concentrates. Dairy IOIC decreased 3.4% due primarily to the decrease in
volume. Hog volume was consistent with the 1997 period, however, IOIC
increased 4.1% due to the product mix switch to concentrates.
Horse volume and IOIC increased 6.8% and 5.1%, respectively over the 1997
period. The continued success in the business is the result of aggressive
promotion of products. Laying chicken and meatbird volume decreased 14.6%
from 1997 but IOIC decreased by only 6.9% due to the loss of sales of lower
margin turkey and broiler feed to two large customers. Specialty and other
volume and IOIC increased 6.1% and 4.7%, respectively, over the 1997 period.
Cost of products sold decreased $33.6 million, or 15.2% from the comparable
1997 period due primarily to the $33.7 million decrease in ingredient costs.
Manufacturing expenses remained consistent with the 1997 period as overall
volume remained consistent. Marketing, distribution and advertising costs
increased $0.9 million over 1997 due primarily to costs associated with the
roll out of the America's Country Stores and increased costs related to swine
and dairy management services. General and administrative expenses increased
$1.6 million due primarily to increased information system costs. Intangible
amortization expense decreased due to the revaluation of intangible assets in
allocating the purchase price. Research and development costs remained
consistent with the 1997 period.
Other income, net for the three months ended June 30, 1998 related to service
fees for swine and dairy management and marketing arrangements and profit and
loss on the production of eggs, hogs and turkeys. The decrease in other
income of $0.9 million was primarily attributed to the $1.0 million loss
incurred on the production of eggs, hogs and turkeys. This loss is due to
the decline in the market price of hogs and eggs.
Interest expense for 1998 increased $4.0 million as a result of the increase
in the outstanding debt due to the New Credit Facility and the Senior
Subordinated Notes due 2010. The Company's effective income tax rate
exceeded the statutory rate in both
16
<PAGE> 17
1998 and 1997 due to amortization of goodwill not being allowed as a tax
deduction. The deferred tax assets are fully realizable and no allowance is
deemed necessary based on the Company's analysis and its history of
significant operating profits.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Due to overall lower commodity prices, net sales decreased 9.4% from the 1997
period. However, gross profit remained fairly constant totaling $102.5
million for the six months ended June 30, 1998, versus $101.9 million for the
comparable 1997 period. Overall volume for both the six months ended June
30, 1998 and June 30, 1997 totaled 2.27 million tons. Average IOIC per ton
was $64.78, a 0.6% increase over the six month period ended June 30, 1997.
Beef cattle tons increased 5.5% over the 1997 period as the drought
conditions in the Southwest and Plains states have dried up pastures and
stimulated the range business. However, IOIC decreased 1.4% due to lower
ingredient profits caused by intense competition for the cattle feed
business. Dairy cattle tons decreased 5.6% due to some product mix switch to
concentrates. Dairy IOIC decreased 3.7% due primarily to the decrease in
volume and continued low feeding rates. Hog volume was consistent with the
1997 period amount, however, IOIC increased 3.8% due to a product mix switch
to concentrates.
Horse volume and IOIC increased 7.9% and 6.7%, respectively over the 1997
period. The continued success in the business was the result of aggressive
promotion of products. Laying chicken and meatbird volume decreased 5.5%
from 1997 with a corresponding decrease in IOIC of 5.8%. The decreases can
be attributed to the loss of sales of lower margin turkey and broiler feed to
two large customers. The decrease in tons sold was partially offset by
increased sales of lower margin duck feed. Specialty and other volume and
IOIC increased 2.6% and 2.2%, respectively, from 1997.
Cost of products sold decreased $52.5 million, or 11.6% from the comparable
1997 period due primarily to the $51.9 million decrease in ingredient costs.
Manufacturing expenses remained consistent with the 1997 period as overall
volume remained consistent. Marketing, distribution and advertising costs
increased $3.0 million from 1997 due primarily to an increase in the sales
force, costs associated with the roll out of the America's Country Stores and
increased costs related to swine and dairy management services. General and
administrative expenses increased $17.9 million due primarily to the $15.9
million of compensation paid to management and holders of options and stock
rights units as part of the Merger. The remaining $2.0 million increase is
attributed to increased information system costs and relocation expense.
Intangible amortization expense decreased due to the revaluation of
intangible assets in allocating the purchase price. Research and development
costs remained consistent with the 1997 period.
17
<PAGE> 18
Other income, net for the six months ended June 30, 1998 related to service
fees for swine and dairy management and marketing arrangements and profit and
loss on the production of eggs, hogs and turkeys. This decrease in other
income of $2.8 million was primarily attributed to a $2.3 million loss on the
production of eggs, hogs and turkeys. This decrease is due to the decline in
the market price of hogs and eggs.
Interest expense for 1998 increased $4.5 million as a result of the increase
in the outstanding debt due to the New Credit Facility and the Senior
Subordinated Notes due 2010. The Company's effective income tax rate
exceeded the statutory rate in both 1998 and 1997 due to amortization of
goodwill not being allowed as a tax deduction. The deferred tax assets are
fully realizable and no allowance is deemed necessary based on the Company's
analysis and its history of significant operating profits.
Seasonality
The Company's business is seasonal, with a higher percentage of the feed
volume sold and earnings 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 to normal seasonal patterns because the cattle may be better able to
graze under such 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.
Liquidity and Capital Resources
For the six months ended June 30, 1998, net cash provided by operations
before the effects of changes in operating assets and liabilities was $9.2
million, compared to $28.2 million in the 1997 period. The decrease is
attributable to the decrease in income due primarily to the $15.9 million of
compensation paid to management and holders of options and stock rights units
as part of the Merger and the additional interest expense of $4.5 million
resulting from the increase in outstanding debt due to the New Credit
Facility and the Senior Subordinated Notes due 2010.
Net cash used in investing activities for purchases of property, plant and
equipment and intangible assets was approximately $12.4 million and $11.6
million for the six months ended June 30, 1998 and 1997, respectively. The
increase was primarily attributed to an increase in costs associated with the
construction of a new plant in Lubbock, Texas.
Net cash provided by financing activities in 1998 includes the proceeds from
the New Credit Facility of $200.0 million and the proceeds from the Senior
Subordinated Notes due 2010 of $350.0 million less the repayment of the Old
Senior Term Loan, Senior
18
<PAGE> 19
Subordinated Notes due 2003 and the IRB Loans totaling $294.2 million and the
dividend paid to Holdings of $237.2 million. In addition, net cash used in
financing activities includes payments of $12.0 million for financing costs
and repayments of $1.3 million made under the New Credit Facility. At June
30, 1998 the Company had $5.2 million outstanding on its Revolving Credit
Facility. In 1997, net cash used in financing activities included the
repayment under the Old Credit Agreement of $7.6 million.
At June 30, 1998, the Company had $12.2 million in cash and cash equivalents
on hand, and approximately $83.4 million was 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.
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. 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 Notes Indenture
contain restrictive covenants that, among other things and under certain
conditions, limit the ability of the Company 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. The
most restrictive of the covenants precludes (except for $1.0 million annually
for operating and administrative expenses and amounts to cover income tax
expenses) any payment of dividends prior to 1999. The Credit Agreement
requires the Company to make mandatory repayments of the Term Loan in amounts
equal to 50% of Excess Cash Flow (as defined). The first such payment is due
in April, 1999.
The Company expects that capital expenditures during fiscal year 1998 will be
approximately $33.1 million, which includes $6.8 million related to the new
accounting and information reporting system. The Company may from time to
time be required to make additional capital expenditures in connection with
the execution of its business strategies, including expenditures related to
its swine integration strategy. The Company plans to fund capital
expenditures by using internally generated funds and, if necessary, borrowing
capacity under the Revolving Credit Facility.
The Company will incur substantially higher interest expense in the future as
a result of the issuance of the Notes and borrowings under the New Credit
Facilities. Management believes that cash flow from operations and
availability under the Term Loans and 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
19
<PAGE> 20
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 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.
20
<PAGE> 21
<TABLE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
3.1 Certificate of Incorporation of Purina Mills, Inc. Filed as Exhibit 3.1 to the Registration
Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
3.2 Bylaws of Purina Mills, Inc. Filed as Exhibit 3.2 to the Registration
Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
4.1 Indenture, dated as of March 12, 1998, between Purina Filed as Exhibit 4.1 to the Registration
Mills, Inc., as issuer, and The First National Bank of Statement on Form S-4 of Purina Mills, Inc.,
Chicago, as trustee, relating to the Notes (the Registration No. 333-53865 and incorporated
"Indenture") herein by reference
4.2 Form of 9% Senior Subordinated Note due 2010 of Filed as Exhibit 4.2 to the Registration
Purina Mills, Inc. (the "New Notes") (included as Statement on Form S-4 of Purina Mills, Inc.,
Exhibit A of the Indenture filed as Exhibit 4.1) Registration No. 333-53865 and incorporated
herein by reference
4.3 Credit Agreement, dated as of March 12, 1998, among Filed as Exhibit 4.3 to the Registration
Purina Mills, Inc., Chase Bank of Texas, National Statement on Form S-4 of Purina Mills, Inc.,
Association, as Administrative Agent, and the other Registration No. 333-53865 and incorporated
financial institutions parties thereto herein by reference
4.4 Form of Guarantee and Collateral Agreement, dated Filed as Exhibit 4.4 to the Registration
March 12, 1998, among Purina Mills, Inc., the Statement on Form S-4 of Purina Mills, Inc.,
subsidiary guarantors of Purina Mills, Inc. that are Registration No. 333-53865 and incorporated
signatories thereto and Chase Bank of Texas, National herein by reference
Association
4.5 PM Holdings Security Agreement, dated March 12, Filed as Exhibit 4.5 to the Registration
1998, between PM Holdings Corporation and Chase Statement on Form S-4 of Purina Mills, Inc.,
Bank of Texas, National Association Registration No. 333-53865 and incorporated
herein by reference
21
<PAGE> 22
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
4.6 PM Holdings Guaranty, dated March 12, 1998, between Filed as Exhibit 4.6 to the Registration
PM Holdings Corporation and Chase Bank of Texas, Statement on Form S-4 of Purina Mills, Inc.,
National Association Registration No. 333-53865 and incorporated
herein by reference
4.7 Registration Rights Agreement, dated as of March 12, Filed as Exhibit 4.7 to the Registration
1998, by and among Purina Mills, Inc. and the Initial Statement on Form S-4 of Purina Mills, Inc.,
Purchasers listed therein, relating to the Notes Registration No. 333-53865 and incorporated
herein by reference
10.1 Employment Agreement, dated as of November 18, Filed as Exhibit 10.1 to the Registration
1997, between Purina Mills, Inc. and David L. Abbott, Statement on Form S-4 of Purina Mills, Inc.,
and amendment thereto, dated as of March 11, 1998 Registration No. 333-53865 and incorporated
herein by reference
10.2 Form of Purina Mills, Inc. Discretionary Capital Filed as Exhibit 10.2 to the Registration
Accumulation Plan for Key Employees Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
10.3 Purina Mills, Inc./PM Holdings Corporation Severance Filed as Exhibit 10.3 to the Registration
Program for Key Employees, as amended and restated Statement on Form S-4 of Purina Mills, Inc.,
effective January 9, 1998 Registration No. 333-53865 and incorporated
herein by reference
10.4 Purina Mills, Inc. Supplemental Executive Retirement Filed as Exhibit 10.4 to the Registration
Plan, effective as of January 1, 1998 Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
10.5 Koch Industries, Inc. Supplemental Executive Filed as Exhibit 10.5 to the Registration
Retirement Plan, effective as of May 9, 1994 Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
10.6 Sub-Group Tax Sharing Agreement, dated March 12, Filed as Exhibit 10.6 to the Registration
1998, between PM Holdings Corporation and each of its Statement on Form S-4 of Purina Mills, Inc.,
subsidiaries listed therein Registration No. 333-53865 and incorporated
herein by reference
22
<PAGE> 23
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10.7 Parent Tax Sharing Agreement, dated March 12, 1998, Filed as Exhibit 10.7 to the Registration
between Koch Industries, Inc. and PM Holdings Statement on Form S-4 of Purina Mills, Inc.,
Corporation Registration No. 333-53865 and incorporated
herein by reference
10.8 Jet-Pro License Agreement between Purina Mills, Inc. Filed as Exhibit 10.8 to the Registration
and Koch Feed Company, dated March 12, 1998 Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
10.9 Koch Agriculture Supply Agreement between Purina Filed as Exhibit 10.9 to the Registration
Mills, Inc. and Nutrition Supply and Trading, a division Statement on Form S-4 of Purina Mills, Inc.,
of Koch Agriculture Company, dated March 12, 1998 Registration No. 333-53865 and incorporated
herein by reference
10.10 License Agreement dated October 1, 1986 between Filed as Exhibit 10.10 to the Registration
Ralston Purina Company and Purina Mills, Inc. Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
23.1 Consent of Deloitte & Touche LLP, Independent Filed as Exhibit 23.1 to the Registration
Auditors Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton Filed as Exhibit 23.2 to the Registration
(included in its opinion filed as Exhibit 5.1) Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
27.1<F*> Financial Data Schedule
<FN>
- --------------------
<F*> Filed herewith
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June 30,
1998.
23
<PAGE> 24
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: August 12, 1998 /s/Del G. Meinz
---------------
Del G. Meinz
Chief Accounting Officer
24
<PAGE> 25
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
3.1 Certificate of Incorporation of Purina Mills, Inc. Filed as Exhibit 3.1 to the Registration
Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
3.2 Bylaws of Purina Mills, Inc. Filed as Exhibit 3.2 to the Registration
Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
4.1 Indenture, dated as of March 12, 1998, between Purina Filed as Exhibit 4.1 to the Registration
Mills, Inc., as issuer, and The First National Bank of Statement on Form S-4 of Purina Mills, Inc.,
Chicago, as trustee, relating to the Notes (the Registration No. 333-53865 and incorporated
"Indenture") herein by reference
4.2 Form of 9% Senior Subordinated Note due 2010 of Filed as Exhibit 4.2 to the Registration
Purina Mills, Inc. (the "New Notes") (included as Statement on Form S-4 of Purina Mills, Inc.,
Exhibit A of the Indenture filed as Exhibit 4.1) Registration No. 333-53865 and incorporated
herein by reference
4.3 Credit Agreement, dated as of March 12, 1998, among Filed as Exhibit 4.3 to the Registration
Purina Mills, Inc., Chase Bank of Texas, National Statement on Form S-4 of Purina Mills, Inc.,
Association, as Administrative Agent, and the other Registration No. 333-53865 and incorporated
financial institutions parties thereto herein by reference
4.4 Form of Guarantee and Collateral Agreement, dated Filed as Exhibit 4.4 to the Registration
March 12, 1998, among Purina Mills, Inc., the Statement on Form S-4 of Purina Mills, Inc.,
subsidiary guarantors of Purina Mills, Inc. that are Registration No. 333-53865 and incorporated
signatories thereto and Chase Bank of Texas, National herein by reference
Association
4.5 PM Holdings Security Agreement, dated March 12, Filed as Exhibit 4.5 to the Registration
1998, between PM Holdings Corporation and Chase Statement on Form S-4 of Purina Mills, Inc.,
Bank of Texas, National Association Registration No. 333-53865 and incorporated
herein by reference
25
<PAGE> 26
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
4.6 PM Holdings Guaranty, dated March 12, 1998, between Filed as Exhibit 4.6 to the Registration
PM Holdings Corporation and Chase Bank of Texas, Statement on Form S-4 of Purina Mills, Inc.,
National Association Registration No. 333-53865 and incorporated
herein by reference
4.7 Registration Rights Agreement, dated as of March 12, Filed as Exhibit 4.7 to the Registration
1998, by and among Purina Mills, Inc. and the Initial Statement on Form S-4 of Purina Mills, Inc.,
Purchasers listed therein, relating to the Notes Registration No. 333-53865 and incorporated
herein by reference
10.1 Employment Agreement, dated as of November 18, Filed as Exhibit 10.1 to the Registration
1997, between Purina Mills, Inc. and David L. Abbott, Statement on Form S-4 of Purina Mills, Inc.,
and amendment thereto, dated as of March 11, 1998 Registration No. 333-53865 and incorporated
herein by reference
10.2 Form of Purina Mills, Inc. Discretionary Capital Filed as Exhibit 10.2 to the Registration
Accumulation Plan for Key Employees Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
10.3 Purina Mills, Inc./PM Holdings Corporation Severance Filed as Exhibit 10.3 to the Registration
Program for Key Employees, as amended and restated Statement on Form S-4 of Purina Mills, Inc.,
effective January 9, 1998 Registration No. 333-53865 and incorporated
herein by reference
10.4 Purina Mills, Inc. Supplemental Executive Retirement Filed as Exhibit 10.4 to the Registration
Plan, effective as of January 1, 1998 Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
10.5 Koch Industries, Inc. Supplemental Executive Retirement Filed as Exhibit 10.5 to the Registration
Plan, effective as of May 9, 1994 Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
10.6 Sub-Group Tax Sharing Agreement, dated March 12, Filed as Exhibit 10.6 to the Registration
1998, between PM Holdings Corporation and each of its Statement on Form S-4 of Purina Mills, Inc.,
subsidiaries listed therein Registration No. 333-53865 and incorporated
herein by reference
26
<PAGE> 27
<CAPTION>
Exhibit Page Number or
Number Description Incorporation by Reference to
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
10.7 Parent Tax Sharing Agreement, dated March 12, 1998, Filed as Exhibit 10.7 to the Registration
between Koch Industries, Inc. and PM Holdings Statement on Form S-4 of Purina Mills, Inc.,
Corporation Registration No. 333-53865 and incorporated
herein by reference
10.8 Jet-Pro License Agreement between Purina Mills, Inc. Filed as Exhibit 10.8 to the Registration
and Koch Feed Company, dated March 12, 1998 Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
10.9 Koch Agriculture Supply Agreement between Purina Filed as Exhibit 10.9 to the Registration
Mills, Inc. and Nutrition Supply and Trading, a division Statement on Form S-4 of Purina Mills, Inc.,
of Koch Agriculture Company, dated March 12, 1998 Registration No. 333-53865 and incorporated
herein by reference
10.10 License Agreement dated October 1, 1986 between Filed as Exhibit 10.10 to the Registration
Ralston Purina Company and Purina Mills, Inc. Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
23.1 Consent of Deloitte & Touche LLP, Independent Filed as Exhibit 23.1 to the Registration
Auditors Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton Filed as Exhibit 23.2 to the Registration
(included in its opinion filed as Exhibit 5.1) Statement on Form S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and incorporated
herein by reference
27.1<F*> Financial Data Schedule
<FN>
<F*> Filed herewith
</TABLE>
27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,215
<SECURITIES> 0
<RECEIVABLES> 45,389
<ALLOWANCES> 6,598
<INVENTORY> 63,304
<CURRENT-ASSETS> 134,259
<PP&E> 273,883
<DEPRECIATION> 9,013
<TOTAL-ASSETS> 787,197
<CURRENT-LIABILITIES> 102,849
<BONDS> 542,811
<COMMON> 0
0
0
<OTHER-SE> 109,290
<TOTAL-LIABILITY-AND-EQUITY> 787,197
<SALES> 502,343
<TOTAL-REVENUES> 502,343
<CGS> 399,877
<TOTAL-COSTS> 399,877
<OTHER-EXPENSES> 102,967
<LOSS-PROVISION> 706
<INTEREST-EXPENSE> 21,602
<INCOME-PRETAX> (22,103)
<INCOME-TAX> (7,609)
<INCOME-CONTINUING> (14,494)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,494)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
