EXHIBIT 99.1
(DOANE PET CARE LOGO) 210 WESTWOOD PLACE SOUTH, SUITE 400
BRENTWOOD, TN 37027
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NEWS FOR IMMEDIATE RELEASE
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DOANE PET CARE REPORTS 2003 SECOND QUARTER AND SIX MONTHS RESULTS;
UPDATES FISCAL 2003 OUTLOOK
BRENTWOOD, TENNESSEE, JULY 30, 2003 - Doane Pet Care Company (the "Company")
today reported results for its second quarter and six months ended June 28, 2003
and updated its outlook for the balance of fiscal 2003.
QUARTERLY RESULTS
For the three months ended June 28, 2003, the Company's net sales increased
14.8% (9.2% excluding the positive impact of the foreign currency exchange rate)
to $234.5 million from $204.3 million recorded in the quarter ended June 29,
2002. The 2003 second quarter sales increase was primarily due to sales volume
from new business awarded in 2002 and the favorable currency exchange rate
between the dollar and the Euro.
The Company reported a net loss of $3.4 million for its 2003 second quarter
compared to net income of $5.2 million for the 2002 second quarter. The positive
impact on performance from higher sales volume was offset by higher commodity
and natural gas costs. Second quarter 2003 net income (loss) was also impacted
by SFAS 133 fair value accounting for the Company's commodity derivative
instruments, which resulted in a $4.0 million period-over-period unfavorable
impact on operating results.
Net cash provided by operating activities was $14.6 million for the 2003 second
quarter compared to $20.2 million for the 2002 second quarter. This decrease was
primarily due to the decline in net income (loss) as a result of higher
commodity and natural gas costs, partially offset by a favorable change in
working capital.
The Company believes cash flows from 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 titled "Adjusted EBITDA Supplemental
Information."
Adjusted EBITDA was $19.0 million in the 2003 second quarter compared to $24.4
million recorded in the 2002 second quarter primarily due to higher commodity
and natural gas costs, as discussed above.
Doug Cahill, the Company's President and CEO, said, "Our global team exceeded
our expectations in meeting our operational, service and cost containment
objectives in the 2003 second quarter and we continued to post solid top line
growth. Unfortunately, bottom line performance was impacted by higher
commodity costs."
YEAR TO DATE RESULTS
For the six months ended June 28, 2003, the Company's net sales increased 16.5%
(11.3% excluding the positive impact of the foreign currency exchange rate) to
$494.4 million from $424.4 million recorded in the six months ended June 29,
2002. The year to date 2003 sales increase was primarily due to sales volume
from new business awarded in 2002 and the favorable currency exchange rate
between the dollar and the Euro.
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The Company reported a net loss of $11.3 million for the first six months of
2003 compared to net income of $13.7 million for the 2002 six month period. The
positive benefit on performance from higher sales volume in the 2003 six month
period was offset by higher commodity and natural gas costs. The 2003 six
month period also included an $11.1 million non-cash charge associated with the
Company's debt refinancing completed during the first quarter of 2003. In
addition, year to date 2003 net income (loss) was impacted by SFAS 133 fair
value accounting for the Company's commodity derivative instruments, which
resulted in a $10.3 million period-over-period unfavorable impact on operating
results.
Net cash provided by operating activities was $14.7 million for the 2003 six
month period compared to $58.7 million for the 2002 six month period. This
decrease was primarily due to an unfavorable change in working capital and the
impact of higher commodity and natural gas costs on net income (loss). The
unfavorable change in working capital was primarily due to higher sales activity
in the 2003 period, an $8.3 million interest payment in the 2003 period on the
sponsor facility that was repaid in full with proceeds from the senior note
offering in the first quarter of 2003 and an unusually favorable change
in working capital in the 2002 period.
Adjusted EBITDA was $44.8 million in the first six months of 2003 compared to
$50.9 million recorded in the first six months of 2002. Higher sales volume in
the 2003 period was offset by higher commodity and natural gas costs, as
discussed above.
2003 OUTLOOK AND GUIDANCE
Cahill continued, "Our ability to convert top line growth to the same level of
earnings growth has been hampered by the higher commodity environment
resulting from last year's drought. We anticipate this higher cost trend will
continue through the third quarter of this year. Looking forward, we are
cautiously optimistic that commodity prices will decline because the growing
conditions in the U.S. for corn, soybeans and wheat are ideal thus far this
season."
The Company said that it anticipates net sales growth in the range of
11% to 12% for the full year 2003. The Company also said that it expects the
full year 2003 Adjusted EBITDA to be at the lower end of its previously
forecasted range of $95 million to $105 million based upon the outlook for
commodity prices.
The Company said it expects the comparable GAAP financial measure, cash flows
from operating activities, to range between $14.7 million and $56.2 million for
fiscal 2003. Cash flows 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 used to
hedge certain commodities. This fact, combined with the possible temporary
variability in the timing of cash receipts and disbursements, can have a
significant impact on net working capital levels on any particular day and thus,
cash flows from operating activities for the relevant period. For the full year
2003, the Company believes that net changes in working capital, which are
reflected as changes in current assets and liabilities in the Adjusted EBITDA
reconciliation table below, could vary from a positive $15 million on the high
end to a negative $15 million on the low end due to the uncertainties described
above.
In connection with the Company's outlook for full year 2003 Adjusted EBITDA, the
Company 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 initiatives.
In addition to the possible temporary variability in working capital as
described above in the Company's outlook for cash flows from operating
activities, the Company also assumed cash income taxes of approximately $2
million, and variability in cash 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
foreign currency exchange rates.
See the Adjusted EBITDA reconciliation table below for a reconciliation of the
Company's outlook for full year 2003 Adjusted EBITDA to the outlook for full
year 2003 cash flows from operating activities.
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ADJUSTED EBITDA SUPPLEMENTAL INFORMATION
Adjusted EBITDA is a non-GAAP liquidity measure presented in this press release
as a supplemental disclosure to cash flows from operating activities. Management
believes that it is a useful presentation to investors in addition to GAAP cash
flows from operating activities because of the significant impact working
capital fluctuations can have on reported cash flows 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 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, to allocate resources and capital, 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 cash flows from operating activities, including equity in joint ventures,
before interest paid, income taxes paid, changes in working capital and certain
other charges. These other charges include SFAS 133 accounting 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
flows 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 and guidance, 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 its 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
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dogs and cats, including dry, semi-moist, wet, treats and dog biscuits. For more
information about the Company, including its 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)
THREE MONTHS ENDED SIX MONTHS ENDED
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June 28, June 29, June 28, June 29,
2003 2002 2003 2002
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Net sales $ 234.5 $ 204.3 $ 494.4 $ 424.4
Cost of goods sold 196.0 155.5 410.5 324.7
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Gross profit 38.5 48.8 83.9 99.7
% of sales 16.4% 23.9% 17.0% 23.5%
Operating expenses:
Promotion and distribution 12.8 13.1 27.2 26.4
Selling, general and administrative 12.4 11.5 24.5 22.6
Amortization 1.1 1.1 2.3 2.2
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Income from operations 12.2 23.1 29.9 48.5
Interest expense, net 14.9 16.5 28.9 29.8
Loss from debt extinguishment (1) - - 11.1 -
Other income, net (0.4) (0.4) (0.5) (0.6)
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Income (loss) before income taxes (2.3) 7.0 (9.6) 19.3
Income tax expense 1.1 1.8 1.7 5.6
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Net income (loss) $ (3.4) $ 5.2 $ (11.3) $ 13.7
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(1) The loss from debt extinguishment pre-tax charge of $11.1 million for the
six months ended June 28, 2003 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 the 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)
JUNE 28, DECEMBER 28,
2003 2002
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(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 7.9 $ 7.6
Accounts receivable, net 118.5 129.3
Inventories, net 62.5 63.6
Deferred tax assets 4.9 5.9
Prepaid expenses and other current assets 13.3 8.2
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Total current assets 207.1 214.6
Property, plant and equipment, net 262.7 260.1
Goodwill and trademarks, net 372.0 363.1
Other assets 34.8 32.9
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Total assets $ 876.6 $ 870.7
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 7.8 $ 5.7
Accounts payable 88.2 93.5
Accrued liabilities 55.2 56.2
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Total current liabilities 151.2 155.4
Long-term debt, excluding current maturities 562.4 548.3
Deferred tax liabilities 7.5 7.2
Other long-term liabilities 9.7 23.7
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Total liabilities 730.8 734.6
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Senior Preferred Stock (Redeemable), 3,000,000 shares authorized,
1,200,000 shares issued and outstanding 84.1 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 30.6 9.5
Accumulated deficit (84.6) (66.7)
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Total stockholder's equity 61.7 58.5
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Total liabilities and stockholder's equity $ 876.6 $ 870.7
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DOANE PET CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
SIX MONTHS ENDED
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June 28, June 29,
2003 2002
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Cash flows from operating activities:
Net income (loss) $ (11.3) $ 13.7
Items not requiring (providing) cash:
Depreciation 15.1 12.8
Amortization 2.8 2.8
Deferred income tax expense 0.8 5.0
Non-cash interest expense 3.0 6.1
Equity in joint ventures (0.3) (0.6)
Loss from debt extinguishment 11.1 -
Changes in current assets and liabilities (6.5) 18.9
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Net cash provided by operating activities 14.7 58.7
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Cash flows from investing activities:
Capital expenditures (9.6) (6.5)
Proceeds from sale of assets 0.2 0.5
Other, net (1.9) (0.6)
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Net cash used in investing activities (11.3) (6.6)
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Cash flows from financing activities:
Net repayments under revolving credit agreements (15.0) (38.0)
Proceeds from issuance of long-term debt 210.4 9.7
Principal payments on long-term debt (191.3) (21.5)
Payments for debt issuance costs (7.7) (2.7)
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Net cash used in financing activities (3.6) (52.5)
Effect of exchange rate changes on cash and cash equivalents 0.5 0.6
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Increase in cash and cash equivalents 0.3 0.2
Cash and cash equivalents, beginning of period 7.6 6.0
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Cash and cash equivalents, end of period $ 7.9 $ 6.2
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ADJUSTED EBITDA RECONCILIATION FOR
DOANE PET CARE COMPANY AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
(UNAUDITED)
HISTORICAL RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND CASH FLOWS
FROM OPERATING ACTIVITIES:
THREE MONTHS ENDED SIX MONTHS ENDED
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June 28, June 29, June 28, June 29,
2003 2002 2003 2002
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Net income (loss) $ (3.4) $ 5.2 $ (11.3) $ 13.7
Adjustments to net income (loss):
Interest expense, net 14.9 16.5 28.9 29.8
Income tax expense 1.1 1.8 1.7 5.6
Depreciation 8.0 6.5 15.1 12.8
Amortization 1.4 1.4 2.8 2.8
SFAS 133 gain (3.0) (7.0) (3.5) (13.8)
Loss from debt extinguishment - - 11.1 -
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Adjusted EBITDA 19.0 24.4 44.8 50.9
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Changes in current assets and liabilities 6.9 2.0 (6.5) 18.9
Adjustments to net income (loss) which are changes
in current assets and liabilities:
Change in interest payable (2.1) 3.4 2.1 0.6
Change in income taxes payable - (0.5) (0.5) (0.6)
SFAS 133 gain 3.0 7.0 3.5 13.8
Adjustments to net income (loss) which require cash:
Interest paid (11.8) (15.7) (28.0) (24.3)
Income taxes paid (0.2) - (0.4) -
Equity in joint ventures (0.2) (0.4) (0.3) (0.6)
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Net cash provided by operating cash flows $ 14.6 $ 20.2 $ 14.7 $ 58.7
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RECONCILIATION OF THE OUTLOOK FOR FULL YEAR 2003 ADJUSTED EBITDA TO THE OUTLOOK
FOR FULL YEAR 2003 CASH FLOWS FROM OPERATING ACTIVITIES:
RANGE FOR FISCAL
2003 OUTLOOK
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LOW HIGH
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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)
Cash 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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