EXHIBIT 99.1
(DOANE PET CARE LETTERHEAD)
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NEWS FOR IMMEDIATE RELEASE
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DOANE PET CARE REPORTS FIRST QUARTER 2003 RESULTS AND FISCAL 2003
OUTLOOK
BRENTWOOD, TENNESSEE, MAY 8, 2003 - Doane Pet Care Company (the "Company") today
reported results for its first quarter ended March 29, 2003 and updated its
outlook for fiscal 2003.
QUARTERLY RESULTS
For the three months ended March 29, 2003, the Company's net sales increased
18.1% (13.3% excluding the positive impact of foreign currency exchange rate) to
$259.9 million from $220.1 million recorded in the first quarter ended March 30,
2002. First quarter 2003 sales performance benefited from increased sales volume
primarily from new business awarded in 2002 as well as the favorable currency
exchange rate between the dollar and Euro.
The Company reported a net loss of $7.9 million for the 2003 first quarter
compared to net income of $8.5 million for the 2002 first quarter. The Company's
net loss in the 2003 first quarter included an $11.1 million non-cash charge
associated with the bond offering and debt refinancing.
The Company reported net cash provided by operating activities of $0.1 million
for the 2003 first quarter compared to $38.5 million for the 2002 first quarter.
The decrease is primarily due to an unusually favorable net change in working
capital in the 2002 first quarter. In addition, 2003 included a one time accrued
interest payment of $8.3 million on the sponsor facility that was repaid in full
with proceeds from the bond offering. The Company believes net cash provided by
operating activities is the most directly comparable GAAP financial measure to
the non-GAAP Adjusted EBITDA liquidity measure typically reported in its
earnings releases. The calculation of Adjusted EBITDA is explained below in the
section entitled "Adjusted EBITDA Supplemental Information."
Adjusted EBITDA was $25.8 million for the 2003 first quarter compared to $26.5
million in the 2002 first quarter. The benefit to the 2003 first quarter
performance from higher sales volume and a favorable foreign currency exchange
rate was offset by higher commodity costs.
Doug Cahill, the Company's President and CEO, said, "We are pleased to report
first quarter 2003 results in line with our expectations. Our first quarter
performance represents a strong start to the year and is a credit to the hard
work of our entire organization. We continued to benefit from the new business
awarded last year and by the fact that private label programs continue to be
supported by retailers in all channels. Despite margin pressures created by
significantly higher commodity costs, we were able to deliver solid results
because of our Project Focus business strategy, with a continued emphasis on the
sales mix and profitability of our business. Our global manufacturing team did a
great job satisfying the increased demand with excellent service levels at our
targeted costs."
Net interest expense for the 2003 first quarter increased $0.7 million to $14.0
million from $13.3 million recorded in the 2002 first quarter primarily due to
the higher interest rate on the portion of the Company's outstanding debt that
was refinanced.
The fair value accounting for the Company's commodity derivative instruments
under SFAS 133 resulted in a $0.5 million reduction in cost of goods sold in the
2003 first quarter, compared to a $6.8 million reduction in cost of goods sold
in the 2002 first quarter, or a $6.3 million unfavorable impact on operating
results.
BOND OFFERING
On February 28, 2003, the Company completed its $213.0 million offering of 10
3/4% senior notes due March 1, 2010. The proceeds were used to repay $169.3
million of the outstanding balance under the Company's senior credit facility
and $33.3 million was used to repay in full the outstanding principal and
accrued interest under the Company's sponsor facility. The balance of the
proceeds was used to pay transaction fees and expenses associated with the
offering. In connection with the refinancing, the Company incurred a non-cash
loss of $11.1 million. See the footnote to the statements of operations table
below for the components of this loss.
2003 OUTLOOK AND GUIDANCE
Cahill concluded, "We believe that our first quarter 2003 performance
demonstrates that our global team is successfully executing our Project Focus
initiatives. Our manufacturing organization continues its strong performance
levels as a result of our ongoing cost control measures. Moreover, our volume
growth trend is positive, reflecting the new business awarded last year,
continued growth from our top customers and a solid growth trend for private
label pet food in both the U.S. and Europe. Nevertheless, we are cautious in our
near term outlook because of the potential for further volatility in commodities
and natural gas."
The Company said that it anticipates annualized net sales growth in the range of
11% to 12% for 2003. The Company also revised its original 2003 Adjusted EBITDA
outlook of $105 million to a range of $95 million to $105 million, which
reflects the current uncertainty concerning commodity prices.
The Company said that the comparable GAAP financial measure, cash flow from
operating activities is expected to range between $14.7 million and $56.2
million for fiscal 2003. Cash flow from operating activities is difficult to
project with more precision because of the potential volatility in commodity
prices and the resulting impact on cash margin requirements for financial
derivatives the Company uses to hedge certain commodities. This fact, combined
with the variability in the timing of cash receipts and disbursements, can have
a significant impact on net working capital levels and thus, cash flow from
operating activities. For the full year 2003, the Company expects that net
changes in working capital will not use or provide any incremental cash, but
because of these uncertainties, the net change in working capital could vary up
to $15 million.
In connection with the Company's outlook of fiscal 2003 Adjusted EBITDA, the
Company has assumed higher commodity and natural gas costs in fiscal 2003 over
2002 and an increase in employee-related costs and distribution expenses,
partially offset by the impact of increased sales volume, improved operating
efficiencies at the Company's manufacturing plants and continued Project Focus
related initiatives. The Company's outlook for annualized cash flow from
operating activities for 2003 assumes no changes in net working capital from the
2002 level and current income taxes of less than $2 million. The Company's
assumption for 2003 annualized cash interest expense reflects the variability in
interest expense due to a portion of the Company's debt being subject to
variable interest rates and a portion of the Company's debt being
Euro-denominated debt and impacted by fluctuations in currency exchange rates.
See the Adjusted EBITDA reconciliation table below for a reconciliation of the
outlook for full year 2003 Adjusted EBITDA to the outlook for full year 2003
cash flow from operating activities.
ADJUSTED EBITDA SUPPLEMENTAL INFORMATION
Adjusted EBITDA is a non-GAAP liquidity measure presented in this press release
as a supplemental disclosure to cash flow from operating activities. Management
believes that it is a useful presentation to investors in addition to GAAP cash
flow from operating activities because of the significant impact working
capital fluctuations can have on reported cash flow from operating activities.
Management also believes Adjusted EBITDA is an analytical indicator of cash
generated for purposes of assessing the Company's ability to service its debt
and fund capital expenditures. In addition, management believes that
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Adjusted EBITDA is of interest to the Company's investors and lenders because it
is the basis for the calculation of various financial covenant tests under the
Company's senior credit facility. The Company's management uses Adjusted EBITDA
to evaluate its business units, to allocate resources and capital to its
business units and to measure performance for incentive compensation purposes.
However, Adjusted EBITDA should be considered in addition to, not as a
substitute for, cash flows from operating activities. The Company has
significant uses of cash flows, including capital expenditures, interest
payments, income tax payments, debt principal repayments and other charges,
which are not reflected in Adjusted EBITDA. The Company defines Adjusted EBITDA
as net cash provided by operating activities, including equity in joint
ventures, before interest paid, income taxes paid and the cash impact of certain
other charges. These other charges include SFAS 133 accounting, which may be
either a positive or negative impact to earnings, as well as charges associated
with strategic and financial initiatives, including acquisitions, divestitures,
financing transactions and restructuring efforts such as plant closings.
A reconciliation of Adjusted EBITDA to GAAP net income (loss) and GAAP cash flow
from operating activities is included as a table below.
FORWARD-LOOKING STATEMENTS
All statements in this press release, including without limitation those
relating to our fiscal 2003 outlook, other than statements of historical facts
are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Readers should not place undue reliance on any
forward-looking statements, which speak only as of the date made. Although the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. It is important to note that actual results could differ
materially from those expressed or implied by such forward-looking statements.
Factors that could cause results to differ materially include without
limitation: decreases or changes in demand for the Company's products, changes
in market trends, general competitive pressures from existing and new
competitors, price volatility of commodities, natural gas, other raw materials
and packaging, foreign currency exchange rate fluctuations, future investment
returns in our pension plans, changes in laws and regulations, adverse changes
in operating performance, adverse economic conditions and other factors. Further
information concerning factors that could cause actual results to differ
materially from those in the forward-looking statements are contained from time
to time in the Company's SEC filings, including without limitation the Company's
2002 Annual Report on Form 10-K. We undertake no obligation to revise the
forward-looking statements to reflect any future events or circumstances. All
forward-looking statements attributable to the Company are expressly qualified
in their entirety by this cautionary statement.
ABOUT THE COMPANY
Doane Pet Care Company, based in Brentwood, Tennessee, is the largest
manufacturer of private label pet food and the second largest manufacturer of
dry pet food overall in the United States. The Company sells to over 600
customers around the world and serves many of the top pet food retailers in the
United States, Europe and Japan. The Company offers its customers a full range
of pet food products for both dogs and cats, including dry, semi-moist, wet,
treats and dog biscuits. For more information about the Company, including SEC
filings and past press releases, please visit www.doanepetcare.com
CONTACT: PHILIP K. WOODLIEF, VICE PRESIDENT FINANCE AND CHIEF FINANCIAL OFFICER
TEL: (615) 373-7774
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DOANE PET CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
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MARCH 29, MARCH 30,
2003 2002
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Net sales $ 259.9 $ 220.1
Cost of goods sold 214.5 169.2
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Gross profit 45.4 50.9
% of sales 17.5% 23.1%
Operating expenses:
Promotion and distribution 14.4 13.3
Selling, general and administrative 12.1 11.1
Amortization 1.2 1.1
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Income from operations 17.7 25.4
Interest expense, net 14.0 13.3
Loss from debt extinguishment (1) 11.1 --
Other income, net (0.1) (0.2)
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Income (loss) before income taxes (7.3) 12.3
Income tax expense 0.6 3.8
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Net income (loss) $ (7.9) $ 8.5
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</Table>
(1) The loss from debt extinguishment pre-tax charge included: (i) a
$4.0 million write-off of deferred financing costs, primarily related
to the Company's senior credit facility; (ii) a charge of $7.6 million
for the accretion of the Company's sponsor facility to face value;
(iii) a charge of $6.2 million realized foreign currency translation
loss as a result of retiring a portion of the Euro Term Loan Facility,
which is a part of the Company's senior credit facility, with a
corresponding credit to accumulated other comprehensive income; and
(iv) a credit of $6.7 million for the reversal of an Excess Leverage
Fee accrual under the Company's senior credit facility.
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DOANE PET CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<Table>
<Caption>
MARCH 29, DECEMBER 28,
2003 2002
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(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 6.8 $ 7.6
Accounts receivable, net 133.3 129.3
Inventories, net 65.6 63.6
Deferred tax assets 5.0 5.9
Prepaid expenses and other current assets 9.0 8.2
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Total current assets 219.7 214.6
Property, plant and equipment, net 260.5 260.1
Goodwill and trademarks, net 366.8 363.1
Other assets 36.0 32.9
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Total assets $ 883.0 $ 870.7
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 4.5 $ 5.7
Accounts payable 91.8 93.5
Accrued liabilities 60.2 56.2
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Total current liabilities 156.5 155.4
Long-term debt, excluding current maturities 570.6 548.3
Other long-term liabilities 9.4 23.7
Deferred tax liabilities 6.6 7.2
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Total liabilities 743.1 734.6
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Senior Preferred Stock (Redeemable), 3,000,000 shares authorized,
1,200,000 shares issued and outstanding 80.8 77.6
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Commitments and contingencies
Stockholder's equity:
Common stock, $0.01 par value; 1,000 shares authorized,
issued and outstanding -- --
Additional paid-in-capital 115.7 115.7
Accumulated other comprehensive income 21.2 9.5
Accumulated deficit (77.8) (66.7)
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Total stockholder's equity 59.1 58.5
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Total liabilities and stockholder's equity $ 883.0 $ 870.7
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</Table>
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DOANE PET CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
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MARCH 29, MARCH 30,
2003 2002
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Cash flows from operating activities:
Net income (loss) $ (7.9) $ 8.5
Items not requiring (providing) cash:
Depreciation 7.1 6.3
Amortization 1.4 1.4
Deferred income tax expense (benefit) (0.1) 3.7
Non-cash interest expense 2.0 1.9
Equity in joint ventures (0.1) (0.2)
Loss from debt extinguishment 11.1 --
Changes in current assets and liabilities (13.4) 16.9
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Net cash provided by operating activities 0.1 38.5
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Cash flows from investing activities:
Capital expenditures (4.3) (2.1)
Proceeds from sale of assets 0.1 0.4
Other, net (0.9) (0.5)
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Net cash used in investing activities (5.1) (2.2)
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Cash flows from financing activities:
Net repayments under revolving credit agreements (8.7) (29.0)
Proceeds from issuance of long-term debt 210.4 9.7
Principal payments on long-term debt (189.9) (14.9)
Payments for debt issuance costs (7.7) (2.0)
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Net cash provided by (used in) financing activities 4.1 (36.2)
Effect of exchange rate changes on cash and cash equivalents 0.1 (0.1)
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Increase (decrease) in cash and cash equivalents (0.8) --
Cash and cash equivalents, beginning of period 7.6 6.0
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Cash and cash equivalents, end of period $ 6.8 $ 6.0
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</Table>
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ADJUSTED EBITDA RECONCILIATION FOR
DOANE PET CARE COMPANY AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
(UNAUDITED)
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND
CASH FLOW FROM OPERATIONS:
<Table>
<Caption>
THREE MONTHS ENDED
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MARCH 29, MARCH 30,
2003 2002
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Net income (loss) $ (7.9) $ 8.5
Adjustments to net income (loss):
Interest expense, net 14.0 13.3
Income tax expense 0.6 3.8
Depreciation 7.1 6.3
Amortization 1.4 1.4
SFAS 133 gain (0.5) (6.8)
Loss from debt extinguishment 11.1 --
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Adjusted EBITDA 25.8 26.5
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Changes in current assets and liabilities (13.4) 16.9
Adjustments to net income (loss) which are changes in current assets and
liabilities:
Change in interest payable 4.2 (2.8)
Change in income taxes payable (0.5) (0.1)
SFAS 133 gain 0.5 6.8
Adjustments to net income (loss) which require cash:
Interest paid (16.2) (8.6)
Income taxes paid (0.2) --
Equity in joint ventures (0.1) (0.2)
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Net cash provided by operating cash flows $ 0.1 $ 38.5
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</Table>
RECONCILIATION OF THE OUTLOOK FOR FULL YEAR 2003 ADJUSTED EBITDA TO THE OUTLOOK
FOR FULL YEAR 2003 CASH FLOW FROM OPERATING ACTIVITIES:
<Table>
<Caption>
FISCAL 2003 RANGE
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Adjusted EBITDA full year 2003 outlook $ 95.0 --- $ 105.0
Adjustments to Adjusted EBITDA full year 2003 outlook:
Changes in current assets and liabilities (15.0) --- 15.0
Cash interest expense (55.0) --- (53.5)
Interest paid on the Sponsor Facility (8.3) --- (8.3)
Current income tax expense (2.0) --- (2.0)
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Net cash provided by operating cash flows
full year 2003 outlook $ 14.7 --- $ 56.2
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</Table>
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