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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 28 pages
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PURINA MILLS, INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended March 31, 1999
Page
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PART I FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1999
and December 31,1998 3
Consolidated Statements of Operations for
the three months ended March 31, 1999, the
nineteen day period ended March 31, 1998,
and the seventy-one day period ended
March 12, 1998 4
Consolidated Statements of Cash Flows for
the three months ended March 31, 1999, the
nineteen day period ended March 31, 1998,
and the seventy-one day period ended
March 12, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosure about
Market Risk 21
PART II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 25
2
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PURINA MILLS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1999 AND DECEMBER 31, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
DECEMBER 31, 1998
(DERIVED FROM
AUDITED FINANCIAL
MARCH 31, 1999 STATEMENTS)
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,187 $ 41,446
Accounts receivable, net 35,775 44,105
Inventories 60,622 61,862
Prepaid expenses and other current assets 1,734 3,785
Deferred income taxes 13,972 16,428
----------------------------------
TOTAL CURRENT ASSETS 127,290 167,626
Property, plant and equipment, net 258,916 262,791
Intangible assets, net 330,630 333,633
Other assets 63,209 51,658
----------------------------------
TOTAL ASSETS $780,045 $815,708
==================================
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable--other $ 29,234 $ 50,559
Accounts payable--affiliate 44,876 42,321
Customer advance payments 8,447 16,870
Current portion of long-term debt 8,300 7,550
Other current liabilities 21,458 34,742
----------------------------------
TOTAL CURRENT LIABILITIES 112,315 152,042
Retirement obligations 26,253 26,061
Accrued post-retirement benefit costs 481 458
Other liabilities 8,036 12,461
Long-term debt 576,442 558,547
STOCKHOLDER'S EQUITY:
Common stock, $0.01 par value: 1,000 shares
authorized, issued and outstanding -- --
Additional paid-in capital 109,290 109,290
Retained deficit (52,772) (43,151)
----------------------------------
TOTAL STOCKHOLDER'S EQUITY 56,518 66,139
==================================
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $780,045 $815,708
==================================
(SEE ACCOMPANYING NOTES)
</TABLE>
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PURINA MILLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
POST-MERGER PRE-MERGER
------------------------------ ------------
THREE MONTHS PERIOD PERIOD
ENDED MARCH 13 TO JANUARY 1
MARCH 31, MARCH 31, TO MARCH 12,
1999 1998 1998
------------ ----------- ------------
<S> <C> <C> <C>
NET SALES $229,255 $52,807 $214,272
COSTS AND EXPENSES:
Cost of products sold 187,303 41,390 171,233
Marketing, distribution and
advertising 23,415 4,809 17,543
General and administrative 14,537 2,216 27,573
Amortization of intangibles 3,799 959 3,838
Research and development 1,531 300 1,376
Other (income) expense, net (561) 89 109
-------------------------------------------------
230,024 49,763 221,672
-------------------------------------------------
OPERATING INCOME (LOSS) (769) 3,044 (7,400)
Interest expense 13,069 2,836 6,144
-------------------------------------------------
Income (loss) before income
taxes (13,838) 208 (13,544)
Provision (benefit) for income
taxes (4,217) 84 (5,050)
-------------------------------------------------
NET INCOME (LOSS) $ (9,621) $ 124 $ (8,494)
=================================================
(SEE ACCOMPANYING NOTES)
</TABLE>
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PURINA MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
POST-MERGER PRE-MERGER
-------------------------------- --------------
THREE MONTHS PERIOD PERIOD
ENDED MARCH 13 TO JANUARY 1 TO
MARCH 31, 1999 MARCH 31, 1998 MARCH 12, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (9,621) $ 124 $ (8,494)
Adjustment to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 11,577 2,342 9,908
Provision for loss on asset disposition 36 -- 169
Provision for deferred taxes (4,217) 84 (108)
Other (36,465) 3,259 (38,826)
--------------------------------------------------
Net cash provided by (used in) operating
activities $(38,690) $ 5,809 $ (37,351)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,424) (913) (4,486)
Other (1,790) (72) 156
--------------------------------------------------
Net cash used in investing activities $ (6,214) $ (985) $ (4,330)
FINANCING ACTIVITIES:
Proceeds from Senior Subordinated Notes -- -- 350,000
Proceeds from Term Loans -- -- 200,000
Proceeds of Revolving Credit Facility, net 20,000 6,909 --
Repayment of Term Loans, Senior Sub. Notes
& IRBs (1,325) (294,161) --
Payment of dividends to PM Holdings
Corporation -- -- (237,172)
Payment of financing costs -- -- (11,894)
Other (30) -- (2,300)
--------------------------------------------------
Net cash provided by (used in) financing
activities $ 18,645 $(287,252) $ 298,634
Increase (decrease) in cash and cash
equivalents (26,259) (282,428) 256,953
Cash and cash equivalents at beginning
of period 41,446 284,573 27,620
--------------------------------------------------
Cash and cash equivalents at end of period $ 15,187 $ 2,145 $ 284,573
==================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 21,134 $ 1,632 $ 11,267
Income taxes 258 -- 43
(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 January 9, 1998 Agreement and Plan of Merger (the
"Merger Agreement") among PM Holdings Corporation ("Holdings"), Koch
Agriculture Company ("Koch Agriculture") and Arch Acquisition
Corporation, a wholly owned subsidiary of Koch Agriculture, Arch
Acquisition Corporation was merged with and into Holdings (the
"Merger"), 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.
The sources and use of funds required to consummate the Merger and
related financings are summarized below. See Note 4 for a description
of long-term indebtedness.
Sources of funds (in millions):
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
==========
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
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and liabilities assumed, based on their estimated fair values as of
March 12, 1998. The consolidated financial statements for periods prior
to March 12, 1998 have been prepared on the predecessor cost basis of
the Company. 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 allocation of the $109.3 million purchase price for the Company is
summarized as follows (in millions):
Current assets $ 130.8
Property, plant and equipment 268.0
Intangible assets 343.1
Other noncurrent assets 47.6
Liabilities assumed (680.2)
-----------
Total $ 109.3
===========
The consolidated balance sheet at March 31, 1999 and the consolidated
statements of operations and cash flows for the period ended March 31,
1999 are unaudited and reflect all adjustments, consisting of normal
recurring items, which management considers necessary for a fair
presentation. Operating results for fiscal 1999 interim periods are not
necessarily indicative of results to be expected for the fiscal year
ending December 31, 1999. The consolidated balance sheet at December
31, 1998 was derived from the Company's December 31, 1998 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
31,1998 contained in the Financial Statements on Form 10-K.
In connection with the Merger, the Company has entered into an exclusive
commodity purchasing agreement with Koch Agriculture, whereby its
Nutrient Services division supplies 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.
7
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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.
Revenue Recognition
Net sales are generally recognized when products are shipped. Accruals
for customer discounts are recorded when revenues are recognized.
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 at enacted tax rates expected to be in effect
when such amounts are realized or settled.
The Company and Holdings are part of tax sharing agreements with Koch
Industries, Inc. ("Koch Industries") 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 all
periods after March 12, 1998 are 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. 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 so that
they 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 adopted Statement of Position
No. 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1") in 1998. Since the Company's
existing policies were materially in accordance with the provisions of
SOP 98-1, adoption of the provisions of SOP 98-1 were immaterial. All
other related costs of implementing the Company's new computer systems
are expensed as incurred. Total capitalized software costs were
$14.1 million and $13.4 million as of March 31, 1999 and December 31,
1998, respectively. The Company is amortizing the costs associated with
the project using the straight-line method over five years, the expected
life of the system.
8
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Reclassifications
Certain reclassifications have been made to prior period consolidated
financial statements to conform to the consolidated financial statement
presentation at March 31, 1999 and the periods then ended.
3. INVENTORIES
Inventories consist of the following (in thousands):
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
Raw materials $31,946 $34,619
Finished goods 13,826 12,391
Animals 14,850 14,852
----------------------------------
Total inventories $60,622 $61,862
==================================
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
Term Loan $194,700 $196,025
Senior Subordinated Notes due 2010 350,000 350,000
Revolving Credit Facility 40,000 20,000
Other 42 72
-----------------------------------
584,742 566,097
Less current portion (8,300) (7,550)
-----------------------------------
Total $576,442 $558,547
===================================
The annual amortization schedule of the Term Loan (defined below) is
$6.2 million for the remainder of 1999, $10.6 million in 2000,
$13.6 million in 2001, $16.6 million in 2002, $19.6 million in 2003 and
$128.1 million thereafter. The 9% Senior Subordinated Notes due 2010
(the "Notes") are due in their entirety in 2010.
TENDER OFFER: In connection with the Merger, the Company offered to
purchase for cash the outstanding Purina Mills, Inc. Senior Subordinated
Notes due 2003 (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
9
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following the consummation of the Merger and all of the Senior
Subordinated Notes due 2003 were redeemed during 1998.
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 sublimit for letters of credit. The Term Loan consists of
a $100.0 million Tranche A Term Loan with a maturity date of March 12,
2005 and a $100.0 million Tranche B Term Loan with a maturity date of
March 12, 2007. The Revolving Credit Facility has a maturity date of
March 12, 2005.
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 Company's ongoing working capital
requirements. At March 31, 1999, a balance of $40.0 million was
outstanding under the Revolving Credit Facility and $49.3 million was
available for future borrowings. 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. At March 31, 1999, the Company had $10.7 million in
outstanding letters of credit. 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 2.0% 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 8.0% at March 31, 1999.
On February 26, 1999 the Company entered into a fixed rate swap contract
effective March 31, 1999, on $114.7 million of amortizing debt under the
Credit Agreement. The swap contract provides that the Company will pay
interest on the notional amount based on a fixed rate of 5.6% and will
receive the three month Eurodollar rate. The Company also has an option
contract on $75.0 million of debt under the Credit Agreement. The
option contract provides that the Company will pay interest on the
notional amount if the three month Eurodollar rate falls below 5.2% and
will receive interest if the three month Eurodollar rate is above 7.0%.
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
10
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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
related to dividends precludes the Company from paying annual dividends
in excess of 25% of Excess Cash Flow, as defined in the Credit
Agreement, for the prior fiscal year. As of March 31, 1999, restricted
net assets of the Company were approximately $56.5 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. The Company was in
compliance with its debt covenants at March 31, 1999.
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 (pledged by Holdings) and its subsidiaries and
substantially all assets of the Company and its subsidiaries.
5. LOAN GUARANTEES AND CONCENTRATION OF CREDIT RISK
Loan Guarantees: The Company has agreed to provide a guarantee of up to
$11.5 million related to an entity formed in 1995 to provide funding for
the Company's network of independently-owned dealers and producers. All
dealers or producers who are members of the entity must have
arrangements with the Company for some purchase of its products. At
March 31, 1999, the Company had funded $6.8 million on the guarantee.
The Company recorded a loss reserve for the funded and the remaining
$4.7 million unfunded amount in 1998. At December 31, 1998, the amount
funded on the guarantee was $2.0 million. The Company is not a member
of this non-stock membership corporation and, thus, does not have an
equity interest in the new entity; however, the Company did make a loan
of $2.0 million to the entity to provide funding for its establishment
and initial operation. The Company recorded a loss reserve for the
entire loan balance in 1998.
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 $5.5 million and $8.7 million at March 31, 1999 and
December 31, 1998, respectively, under these types of arrangements. A
loss reserve of $2.7 million was established in 1998 for the above
guarantees.
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The maturity dates of these guarantees extend through January 2009 with
the majority of the guarantees maturing prior to 2003.
Concentration of Credit Risk: Financial instruments which potentially
subject the Company to concentration of credit risk consist principally
of trade receivables. Substantially all of the Company's sales are to
companies or individuals in agriculture-related businesses, with
approximately 15% of its sales volume being feed for hogs. Hog
producers continue to experience severely depressed market prices and
the Company has outstanding trade receivables, loans and loan guarantees
relating to customers in the hog industry.
Swine Purchase Commitments and Swine Operations: To capitalize on the
consolidation of the hog industry, the Company implemented a strategy
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 March 31, 1999, the Company has future net purchase
commitments, subject to the counterparties' ability to perform, to
acquire over 7.3 million feeders over the next nine years through 2007.
Approximately 30% of these commitments are at fixed prices whereas the
other 70% vary based on current or published futures prices. The net
purchase commitment of 7.3 million feeders represents gross commitments
during such period for approximately 9.4 million feeders less
2.1 million feeders which have contractually been sold.
Additionally, the Company has direct ownership of several hog operations
which are expected to produce an additional 2.0 million feeders over the
next ten years. As hog producers are experiencing severely depressed
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 March 31, 1999 and
December 31, 1998, the Company had $11.8 million and $10.3 million,
respectively, in direct ownership of hogs.
Based on published market prices at March 31, 1999, the Company's net
commitment to purchase the 7.3 million feeders totals approximately
$308.0 million. This is an increase of $58.0 million over such amount
at December 31, 1998 due to the increase in hog market prices which
increased the Company's obligation on non-fixed price contracts. Upon
receipt of the feeders the Company can either sell them at current
market prices, feed the pigs at Company-owned or leased facilities, or
contract with independent producers to feed the pigs. Based on 1999
contractual commitments, estimated feed costs, counterparty risks and
current spot and futures prices, the Company estimates that its 1999
loss associated with its swine exposure will range between $15.0 million
and $20.0 million. The Company recorded a loss of $6.0 million in the
first quarter of 1999. Depending on the future market price for both
feeders and market hogs, any or all of the options available to the
Company could have significant adverse impact on earnings and cash
flows.
12
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6. ACQUISITION COSTS
Included in general and administrative expenses in 1998 are
$15.9 million in non-recurring expenses related to the Merger. These
costs relate to compensation paid to management of the Company and
$13.5 million in Merger consideration paid to holders of options and
stock rights units.
7. 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 March 31, 1999 the total fees incurred in connection with
such services amounted to $0.9 million. In the opinion of management,
such fees were reasonable. The Company also entered into an exclusive
commodity purchasing agreement with Koch Agriculture's Nutrient Services
division commencing May 1, 1998. For the period ended March 31, 1999,
the Company purchased $143.8 million in commodities from Koch
Agriculture's Nutrient Services division.
At March 31, 1999, 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 $16.2 million. The total amount due for purchases of
commodities amounted to $28.7 million.
13
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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, 1998 the product mix by
volume was approximately 24% for dairy, 28% for beef cattle, 20% for
hogs, 10% for horses, 8% for poultry and 10% 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 changes in the Company's price
lists. Feed tonnage and total margin, which is net sales minus cost of
ingredients and direct manufacturing costs, and gross profit (margin
less indirect 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 somewhat stabilize total margin and gross profit
dollars.
In prior years the Company has also used total income over ingredient
cost ("IOIC"), which is net sales minus cost of ingredients as a key
indicator of performance. However, due to variances in direct
manufacturing costs for its extensive line of products, the Company has
determined that margin rather than IOIC is the key indicator of
performance.
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. In addition, the Company
believes that its strong leadership
14
<PAGE>
<PAGE>
position in research and technology will enable it to grow its total
margin from the commercial market segment more effectively than others
in 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 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 March 31,
1999, the Company has future net purchase commitments, subject to the
counterparties' ability to perform, to acquire over 7.3 million feeders
over the next nine years through 2007. Approximately 30% of these
commitments are at fixed prices whereas the other 70% vary based on
current or published futures prices. The net purchase commitment of
7.3 million feeders represents gross commitments during such period for
approximately 9.4 million feeders less 2.1 million feeders which have
contractually been sold.
Additionally, the Company has direct ownership of several hog operations
which are expected to produce an additional 2.0 million feeders over the
next ten years. As hog producers are experiencing severely depressed
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 March 31, 1999 and
December 31, 1998, the Company had $11.8 million and $10.3 million,
respectively, in direct ownership of hogs.
Based on published market prices at March 31, 1999, the Company's net
commitment to purchase the 7.3 million feeders totals approximately
$308.0 million. This is an increase of $58.0 million over such amount
at December 31, 1998 due to the increase in hog market prices which
increased the Company's obligation on non-fixed price contracts. Upon
receipt of the feeders the Company can either sell them at current
market prices, feed the pigs at Company-owned or leased facilities, or
contract with independent producers to feed the pigs. Based on 1999
contractual commitments, estimated feed costs, counterparty risks and
current spot and futures prices, the Company estimates that its 1999
loss associated with its swine exposure will range between $15.0 million
and $20.0 million. The Company recorded a loss of $6.0 million in the
first quarter of 1999. Depending on the future market price for both
feeders and market hogs, any or all of the options available to the
Company could have significant adverse impact on earnings and cash
flows.
The Company has focused on managing and mitigating the impact of the
recent significant decline in hog prices on the Company's performance.
The Company has obtained covenant relief from its bank group for the
next two years so that it can work to resolve its swine exposure. With
the price of hogs starting to climb out of the trough of December 1998,
which was the lowest price in nearly forty years, and through the
efforts of management, the Company expects to mitigate some of its swine
exposure in an effort to reduce the negative implications on future
15
<PAGE>
<PAGE>
earnings and cashflow. The Company has locked in a margin on market
hogs to be marketed during the remainder of 1999. This was accomplished
during April of 1999 by entering into futures contracts for market hogs
and the major feed ingredients to grow the hogs. This action will
result in limiting the risk of any market decline for the remainder of
the year on these hogs, but will also limit the potential for gain if
market prices significantly increase. However, at current prices for
hogs, the Company's swine exposure could have a material adverse impact
on results of operations in the near term.
The Company is currently reviewing the performance of its facilities to
attempt to optimize overall capacity and maximize profits. This review
is likely to result in the decision to discontinue operations at some of
the Company's facilities which would result in a loss provision being
recorded.
The consolidated financial statements for the period prior to March 13,
1998 have been prepared on the predecessor basis of the Company.
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 following discussion is based on comparison of
the three months ended March 31, 1999 to the sum of the nineteen day
period ended March 31, 1998 plus the seventy-one day period ended March
12, 1998.
Three Months Ended March 31, 1999 Compared to Three Months Ended
March 31, 1998
Due to overall lower commodity prices and a slight decrease in tons
sold, net sales decreased 14.2% from the 1998 period. Gross profit was
$42.0 million for the three months ended March 31, 1999 compared to
$54.5 million for the three months ended March 31, 1998. Overall volume
was 1.1 million tons during the first quarter of 1999, a 4.6% decrease
from the 1998 period. Average margin per ton was $38.17, a 12.9%
decrease from the three month period ended March 31, 1998.
Both beef cattle and dairy cattle tons remained consistent with the 1998
period. Hog volume decreased 25.6% from the prior year due to the
prevailing depressed market conditions and the resulting loss of one
large customer. Horse volume set an all time first quarter record by
increasing 11.4% over the 1998 period. The continued success in growing
this business can be attributed to aggressive marketing and promotion of
product. Laying chicken and meatbird volume decreased 13.9% from 1998
which can be attributed to the loss of sales of turkey and broiler feed
to two large customers in the second quarter of 1998. Specialty and
other volume increased 6.1% over the 1998 period.
Cost of products sold decreased $25.3 million, or 11.9% from the
comparable 1998 period, due primarily to the $33.1 million decrease in
ingredient costs. This decrease was partially offset by 1999 net losses
of $4.5 million from the Company's hog program due to the depressed hog
market. Manufacturing expenses increased $3.3 million over the 1998
period due primarily to increased depreciation expense and increased
labor costs associated with operational quality initiatives. Marketing,
distribution and advertising costs increased $1.1 million due primarily to
16
<PAGE>
<PAGE>
costs associated with the rollout of the America's Country Stores and an
increase in the sales force. General and administrative expenses
decreased $15.2 million from the 1998 period which included the
$15.9 million of compensation paid to management and holders of options
and stock rights units as a part of the Merger. The decrease was
partially offset by an increase in information system costs in
connection with the Company's enhancement of its information systems.
Intangible amortization expense decreased due to the revaluation of
intangible assets in allocating the purchase price. Research and
development costs remained consistent with the 1998 period.
Other income, net for the three months ended March 31, 1999 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, net for the first quarter of 1999 includes $1.5 million in
losses on hog marketing arrangements offset by income on equity
investments and services fees.
Interest expense for 1999 increased $4.1 million as a result of the
increase in the outstanding debt under the Credit Agreement and the
Notes due 2010. 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. The 1998 effective rate approximated the
Company's combined effective U.S. and State income tax rate. Management
has reviewed the realization of the deferred tax assets and believes it
is more likely than not that they will be realized through future
taxable earnings.
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.
YEAR 2000
Many computer systems and software applications, including most of those
used by the Company, identify dates using only the last two digits of
the year. Without corrective action, programs with time-sensitive
software could potentially recognize a date ending in "00" as the year
1900 rather than the year 2000, causing many computer applications to
fail or create erroneous results. Year 2000 problems could affect many
of the Company's processes, including production, distribution, research
and development, financial and administrative operations.
17
<PAGE>
<PAGE>
The Company has reviewed its computer systems and hardware to locate
potential operational problems associated with the year 2000. The
Company has implemented a process to either replace or modify all of the
Company's current computer systems and software applications. New
software has been configured and implemented at 38 feed mills and the
Company's corporate headquarters; the Company expects to complete the
entire project by September 1999. The Company currently estimates that
its costs to enhance its information systems beginning in 1997 and
through the year 2000 will approximate $25 million, of which $5 to
$7 million is yet to be incurred. The Company is also working with its
key suppliers, customers and financial institutions to obtain assurances
that their systems are year 2000 compliant.
The Company believes that all year 2000 problems in its computer systems
have been or will be resolved in a timely manner and have not caused and
will not cause disruption of its operations or have a material adverse
impact on its financial condition or results of operations. However,
failure to correct a material year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely impact the
Company's results of operations, liquidity and financial condition. Due
to the general uncertainty inherent in the year 2000 problem resulting
in part from the uncertainty of the year 2000 readiness of third-party
suppliers, customers and financial institutions, the Company is unable
to determine at this time whether the consequences of year 2000 failures
will have a material impact on the Company's results of operations,
liquidity or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1999, net cash used in operating
activities was $38.7 million compared to net cash used in operating
activities of $31.5 million during the same period in 1998. The
increase from the prior year can primarily be attributed to an increase
in interest paid of $8.2 million, an increase in hog losses of
$4.8 million and payments of $4.8 million to fund guarantees.
Additionally, litigation and severance payments increased $2.2 million
and $1.0 million, respectively, over the 1998 period. These increases
are partially offset by the $15.9 million in compensation paid to
management and holders of options and stock rights units as a part of
the Merger in 1998.
Net cash used in investing activities was $6.2 million and $5.3 million
for the three-month periods ended March 31, 1999 and 1998, respectively.
The increase is due to an increase in capital loans of $1.9 million over
1998 offset by a decrease in capital expenditures of $1.0 million as
construction of the new Lubbock plant was completed in the last quarter
of 1998.
Net cash provided by financing activities in 1999 includes borrowings on
the Revolving Credit Facility of $20.0 million less the repayment of
Term Loans of $1.3 million. Net cash provided by financing activities
in 1998 includes the proceeds from the Credit Agreement of
$206.9 million and the proceeds from the Notes due 2010 of
$350.0 million less the repayment of the Term Loans, Senior Subordinated
Notes due 2003, and IRB Loans totaling $294.1 million and the dividend
paid to Holdings of $237.2 million. In addition, net cash used in
financing activities in 1998 includes payments of $11.9 million for
financing costs. At March 31, 1999, $40.0 million was outstanding under
the Revolving Credit Facility.
18
<PAGE>
<PAGE>
At March 31, 1999, the Company had $15.2 million in cash and cash
equivalents on hand, and approximately $49.3 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 it 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 Credit Agreement
requires the Company to make mandatory repayments of the Term Loan in
amounts equal to 50% of Excess Cash Flow, as defined in the Credit
Agreement. Based on Excess Cash Flow for 1998, a supplemental repayment
was not required. The Company was in compliance with its debt covenants
at March 31, 1999.
The Company expects that capital expenditures during fiscal year 1999
will be approximately $30.0 million, which includes $7.0 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. 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
Credit Agreement. 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 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 and could have a material adverse impact
on the Company.
19
<PAGE>
<PAGE>
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. This statement
standardizes the accounting for derivative instruments by requiring that
an entity recognize these items as assets and liabilities in the
statement of financial position and measure them at fair value. SFAS
No. 133 becomes effective for fiscal years beginning after June 15,
1999; however, the Company does not believe that the adoption of this
statement will have a material impact on its financial statements.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and in the Notes to
Consolidated Financial Statements reflect management's estimates and
beliefs and are intended to be, and are hereby identified as, "forward-
looking statements" for purposes of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These include
statements in the sections entitled Overview, Results of Operations,
Year 2000 and Liquidity and Capital Resources.
20
<PAGE>
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Loans under the Company's Credit Agreement bear 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
three month Eurodollar. 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 and collars to fix the rate on
its floating rate debt. The following table provides information about
the Company's notes and term loans that are subject to interest rate
risk. For notes and term loans, the table presents principal cash flows
and applicable interest rates by expected maturity dates.
<TABLE>
<CAPTION>
(Dollars in millions)
FAIR MARKET
VALUE AT
MARCH 31,
1999<F1> 2000 2001 2002 2003 THEREAFTER TOTAL 1999
-------- ---- ---- ---- ---- ---------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes $ -- $ -- $ -- $ -- $ -- $350.0 $350.0 $294.0
Interest rate 9.0%
Variable rate
term debt
including current
portion:
Tranche A $6.0 $10.3 $13.3 $16.3 $19.3 $ 29.8 $ 95.0 $ 95.0
Interest rate<F2>
Tranche B $0.2 $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ 98.3 $ 99.7 $ 99.7
Interest rate<F3>
<FN>
<F1>Represents payments for the remainder of 1999
<F2>Eurodollar plus 2.75% (7.75% at March 31, 1999)
<F3>Eurodollar plus 3.25% (8.25% at March 31, 1999)
</TABLE>
In 1998 the Company entered into an option contract to mitigate interest
rate fluctuations on a notional amount of $75.0 million of debt under
the Credit Agreement. The option contract provides that the Company
will pay interest on the notional amount if the three month Eurodollar
rate falls below 5.2% and will receive interest if the three month
Eurodollar rate is above 7.0%. There were no material payments or
receipts of interest during the first quarter. The Company entered into
a swap contract on $114.7 million of amortizing debt under the Credit
Agreement in February 1999. The swap contract provides that the Company
will pay interest on the notional amount based on a fixed rate of 5.6%
and will receive the three month Eurodollar rate. Based on interest
rates at March 31, 1999, an increase in interest rates of 1.0% would
result in an increase in interest expense of $1.1 million after
considering the option contract and the swap contract.
21
<PAGE>
<PAGE>
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
- -----------------------------------------------------------------------------------------------------
<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
Mills, Inc., as issuer, and The First National Bank of Registration Statement on Form
Chicago, as trustee, relating to the Notes (the S-4 of Purina Mills, Inc.,
"Indenture") Registration No. 333-53865 and
incorporated herein by
reference
4.2 Form of 9% Senior Subordinated Note due 2010 of Purina Filed as Exhibit 4.2 to the
Mills, Inc. (the "New Notes") (included as Exhibit A of Registration Statement on
the Indenture filed as Exhibit 4.1) Form S-4 of Purina Mills,
Inc., 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
Purina Mills, Inc., Chase Bank of Texas, National Registration Statement on
Association, as Administrative Agent, and the other Form S-4 of Purina Mills,
financial institutions parties thereto Inc., Registration No. 333-
53865 and incorporated herein
by reference
4.4 Form of Guarantee and Collateral Agreement, dated Filed as Exhibit 4.4 to the
March 12, 1998, among Purina Mills, Inc., the Registration Statement on
subsidiary guarantors of Purina Mills, Inc. that are Form S-4 of Purina Mills,
signatories thereto and Chase Bank of Texas, National Inc., Registration No. 333-
Association 53865 and incorporated herein
by reference
4.5 PM Holdings Security Agreement, dated March 12, 1998, Filed as Exhibit 4.5 to the
between PM Holdings Corporation and Chase Bank of Registration Statement on
Texas, National Association Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
4.6 PM Holdings Guaranty, dated March 12, 1998, between PM Filed as Exhibit 4.6 to the
Holdings Corporation and Chase Bank of Texas, National Registration Statement on
Association Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
22
<PAGE>
<PAGE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
4.7 Registration Rights Agreement, dated as of March 12, Filed as Exhibit 4.7 to the
1998, by and among Purina Mills, Inc. and the Initial Registration Statement on
Purchasers listed therein, relating to the Notes Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
4.8 First Amendment dated as of December 31, 1998, to Filed as Exhibit 4.8 to the
Credit Agreement, dated March 12, 1998, among Purina Registration Statement on
Mills, Inc., Chase Bank of Texas, National Association, Form 10-K of Purina Mills,
as Administrative Agent, and the other financial Inc., Registration No.
institutions parties thereto 333-53865 and incorporated
herein by reference
10.1 Employment Agreement, dated as of November 18, 1997, Filed as Exhibit 10.1 to the
between Purina Mills, Inc. and David L. Abbott, and Registration Statement on
amendment thereto, dated as of March 11, 1998 Form S-4 of Purina Mills,
Inc., 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
Accumulation Plan for Key Employees Registration 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
Program for Key Employees, as amended and restated Registration Statement on
effective January 9, 1998 Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
10.4 Purina Mills, Inc. Supplemental Executive Retirement Filed as Exhibit 10.4 to the
Plan, effective as of January 1, 1998 Registration 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
Retirement Plan, effective as of May 9, 1994 Registration 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
1998, between PM Holdings Corporation and each of Registration Statement on Form
its subsidiaries listed therein S-4 of Purina Mills, Inc.,
Registration No. 333-53865 and
incorporated herein by
reference
10.7 Parent Tax Sharing Agreement, dated March 12, 1998, Filed as Exhibit 10.7 to the
between Koch Industries, Inc. and PM Holdings Registration Statement on
Corporation Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
23
<PAGE>
<PAGE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
10.8 Jet-Pro License Agreement between Purina Mills, Inc. Filed as Exhibit 10.8 to the
and Koch Feed Company, dated March 12, 1998 Registration 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
Mills, Inc. and Nutrition Supply and Trading, a Registration Statement on
division of Koch Agriculture Company, dated March 12, Form S-4 of Purina Mills,
1998 Inc., 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
Ralston Purina Company and Purina Mills, Inc. Registration Statement on
Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
10.11 Employment Agreement dated as of September 18, 1998, Filed as Exhibit 10.11 to the
between Purina Mills, Inc. and David L. Abbott Quarterly Report for the
quarterly period ended
September 30, 1998 on Form
10-Q 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 March 31, 1999.
24
<PAGE>
<PAGE>
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: May 10, 1999 /s/ Del G. Meinz
----------------------------
Del G. Meinz
Chief Accounting Officer
25
<PAGE>
<PAGE>
<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
Mills, Inc., as issuer, and The First National Bank of Registration Statement on
Chicago, as trustee, relating to the Notes (the Form S-4 of Purina Mills,
"Indenture") Inc., Registration No. 333-
53865 and incorporated herein
by reference
4.2 Form of 9% Senior Subordinated Note due 2010 of Purina Filed as Exhibit 4.2 to the
Mills, Inc. (the "New Notes") (included as Exhibit A of Registration Statement on
the Indenture filed as Exhibit 4.1) Form S-4 of Purina Mills,
Inc., 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
Purina Mills, Inc., Chase Bank of Texas, National Registration Statement on
Association, as Administrative Agent, and the other Form S-4 of Purina Mills,
financial institutions parties thereto Inc., Registration No. 333-
53865 and incorporated herein
by reference
4.4 Form of Guarantee and Collateral Agreement, dated Filed as Exhibit 4.4 to the
March 12, 1998, among Purina Mills, Inc., the Registration Statement on
subsidiary guarantors of Purina Mills, Inc. that are Form S-4 of Purina Mills,
signatories thereto and Chase Bank of Texas, National Inc., Registration No. 333-
Association 53865 and incorporated herein
by reference
4.5 PM Holdings Security Agreement, dated March 12, 1998, Filed as Exhibit 4.5 to the
between PM Holdings Corporation and Chase Bank of Registration Statement on
Texas, National Association Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
4.6 PM Holdings Guaranty, dated March 12, 1998, between Filed as Exhibit 4.6 to the
PM Holdings Corporation and Chase Bank of Texas, Registration Statement on
National Association Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
26
<PAGE>
<PAGE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
4.7 Registration Rights Agreement, dated as of March 12, Filed as Exhibit 4.7 to the
1998, by and among Purina Mills, Inc. and the Initial Registration Statement on
Purchasers listed therein, relating to the Notes Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
4.8 First Amendment dated as of December 31, 1998, to Filed as Exhibit 4.8 to the
Credit Agreement, dated March 12, 1998, among Purina Registration Statement on
Mills, Inc., Chase Bank of Texas, National Association, Form 10-K of Purina Mills,
as Administrative Agent, and the other financial Inc., Registration No.
institutions parties thereto 333-53865 and incorporated
herein by reference
10.1 Employment Agreement, dated as of November 18, 1997, Filed as Exhibit 10.1 to the
between Purina Mills, Inc. and David L. Abbott, and Registration Statement on
amendment thereto, dated as of March 11, 1998 Form S-4 of Purina Mills,
Inc., 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
Accumulation Plan for Key Employees Registration 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
Program for Key Employees, as amended and restated Registration Statement on
effective January 9, 1998 Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
10.4 Purina Mills, Inc. Supplemental Executive Retirement Filed as Exhibit 10.4 to the
Plan, effective as of January 1, 1998 Registration 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
Plan, effective as of May 9, 1994 Registration 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, 1998, Filed as Exhibit 10.6 to the
between PM Holdings Corporation and each of its Registration Statement on
subsidiaries listed therein Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
10.7 Parent Tax Sharing Agreement, dated March 12, 1998, Filed as Exhibit 10.7 to the
between Koch Industries, Inc. and PM Holdings Registration Statement on
Corporation Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
27
<PAGE>
<PAGE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATION BY REFERENCE TO
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
10.8 Jet-Pro License Agreement between Purina Mills, Inc. Filed as Exhibit 10.8 to the
and Koch Feed Company, dated March 12, 1998 Registration 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 Mills, Filed as Exhibit 10.9 to the
Inc. and Nutrition Supply and Trading, a division of Registration Statement on
Koch Agriculture Company, dated March 12, 1998 Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
10.10 License Agreement dated October 1, 1986 between Ralston Filed as Exhibit 10.10 to the
Purina Company and Purina Mills, Inc. Registration Statement on
Form S-4 of Purina Mills,
Inc., Registration No. 333-
53865 and incorporated herein
by reference
10.11 Employment Agreement dated as of September 18, 1998, Filed as Exhibit 10.11 to the
between Purina Mills, Inc. and David L. Abbott Quarterly Report for the
quarterly period ended
September 30, 1998 on Form
10-Q of Purina Mills, Inc.
Registration No. 333-53865 and
incorporated herein by
reference
27.1<F*> Financial Data Schedule
<FN>
- ----------
<F*> Filed herewith
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,187
<SECURITIES> 0
<RECEIVABLES> 44,675
<ALLOWANCES> 8,900
<INVENTORY> 60,622
<CURRENT-ASSETS> 127,290
<PP&E> 290,129
<DEPRECIATION> 31,213
<TOTAL-ASSETS> 780,045
<CURRENT-LIABILITIES> 112,315
<BONDS> 576,442
<COMMON> 0
0
0
<OTHER-SE> 56,518
<TOTAL-LIABILITY-AND-EQUITY> 780,045
<SALES> 229,255
<TOTAL-REVENUES> 229,255
<CGS> 187,303
<TOTAL-COSTS> 187,303
<OTHER-EXPENSES> 42,550
<LOSS-PROVISION> 171
<INTEREST-EXPENSE> 13,069
<INCOME-PRETAX> (13,838)
<INCOME-TAX> (4,217)
<INCOME-CONTINUING> (9,621)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,621)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
