##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q (Mark One) þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 2, 2005 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to Commission file number 0-27818 Doane Pet Care Company  Delaware
    
    43-1350515(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 210 Westwood Place South, Suite 400
Brentwood, TN 37027
(Address of principal executive office, including zip code)
 (615) 373-7774
(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 reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ As
of May 10, 2005, the registrant had outstanding 1,000 shares of common stock, all of which
were held by its parent, Doane Pet Care Enterprises, Inc.




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TABLE OF CONTENTS  
 PagePART I. Financial InformationItem 1.
    
    Financial StatementsUnaudited Condensed Consolidated Balance Sheets as of the end of the first quarter of fiscal 2005 and the end of fiscal 2004
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the first quarter of fiscal 2005 and 2004
    
    
    2Unaudited Condensed Consolidated Statement of Stockholders Equity and Comprehensive Loss as of the end of and for the first quarter of fiscal 2005
    
    
    3Unaudited Condensed Consolidated Statements of Cash Flows for the first quarter of fiscal 2005 and 2004
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Report of Independent Registered Public Accounting Firm
    
    
    15Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    24PART II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    25Item 6.
    
    Exhibits
    
    
    25Signatures
    
    
    26Letter from KPMG LLPCertification CEO Pursuant to Rule 13a-14(a)Certification CFO Pursuant to Rule 13a-14(a)Certification CEO Pursuant to Section 1350Certification CFO Pursuant to Section 1350




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PART 1. Financial
Information 
 ITEM 1. Financial
Statements DOANE PET CARE COMPANY AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and par value amounts)
 End ofFirst quarter
    
    
    Fiscal2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,580
    
    
    $
    28,847Accounts receivable, net
    
    
    102,107
    
    
    
    112,445Inventories, net
    
    
    69,452
    
    
    
    68,321Deferred tax assets
    
    
    2,356
    
    
    
    2,414Prepaid expenses and other current assets
    
    
    11,137
    
    
    
    7,038Total current assets
    
    
    212,632
    
    
    
    219,065Property, plant and equipment, net
    
    
    248,567
    
    
    
    258,070Goodwill and
other intangible assets
    
    
    384,524
    
    
    
    390,471Other assets
    
    
    32,334
    
    
    
    34,300Total assets
    
    $
    878,057
    
    
    $
    901,906LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    3,612
    
    
    $
    3,673Accounts payable
    
    
    87,081
    
    
    
    102,149Accrued liabilities
    
    
    52,026
    
    
    
    59,239Total current liabilities
    
    
    142,719
    
    
    
    165,061Long-term debt:Long-term debt, excluding current maturities
    
    
    578,761
    
    
    
    580,090Senior Preferred Stock (Redeemable), 3,000,000 shares authorized, 1,200,000
shares issued and outstanding, $114,894 current redemption value
    
    
    110,578
    
    
    
    106,421Total long-term debt
    
    
    689,339
    
    
    
    686,511Deferred tax liabilities
    
    
    34,458
    
    
    
    33,641Other long-term liabilities
    
    
    9,693
    
    
    
    9,567Total liabilities
    
    
    876,209
    
    
    
    894,780Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 1,000 shares authorized,
issued and outstanding
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    115,674
    
    
    
    115,674Accumulated other comprehensive income
    
    
    50,196
    
    
    
    62,650Accumulated deficit
    
    
    (164,022
    )
    
    
    (171,198
    )Total stockholders equity
    
    
    1,848
    
    
    
    7,126Total liabilities and stockholders equity
    
    $
    878,057
    
    
    $
    901,906
 See accompanying notes to the unaudited condensed consolidated financial statements and accompanying
report of independent registered public accounting firm. 1




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DOANE PET CARE COMPANY AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands)
 First quarter2005
    
    
    2004Net sales
    
    $
    267,136
    
    
    $
    270,880Cost of goods sold
    
    
    215,033
    
    
    
    230,062Gross profit
    
    
    52,103
    
    
    
    40,818Operating expenses:Promotion and distribution
    
    
    14,430
    
    
    
    14,227Selling, general and administrative
    
    
    13,119
    
    
    
    13,183Amortization
    
    
    1,166
    
    
    
    1,229Other operating (income) expense
    
    
    (3,516
    )
    
    
    1,223Income from operations
    
    
    26,904
    
    
    
    10,956Interest expense, net
    
    
    18,646
    
    
    
    17,977Other income, net
    
    
    (245
    )
    
    
    (407
    )Income (loss) before income taxes
    
    
    8,503
    
    
    
    (6,614
    )Income tax expense
    
    
    1,327
    
    
    
    1,193Net income (loss)
    
    $
    7,176
    
    
    $
    (7,807
    )
 See accompanying notes to the unaudited condensed consolidated financial statements and accompanying
report of independent registered public accounting firm. 2




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DOANE PET CARE COMPANY AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
 STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS
 (In thousands, except share amounts)
 AccumulatedAdditional
    
    
    otherCommon stock
    
    
    paid-in
    
    
    comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    capital
    
    
    income (loss)
    
    
    deficit
    
    
    TotalBalances at end of fiscal 2004
    
    
    1,000
    
    
    $
    
    
    
    $
    115,674
    
    
    $
    62,650
    
    
    $
    (171,198
    )
    
    $
    7,126Comprehensive loss:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,176
    
    
    
    7,176Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,454
    )
    
    
    
    
    
    
    (12,454
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,278
    )Balances at end of first quarter 2005
    
    
    1,000
    
    
    $
    
    
    
    $
    115,674
    
    
    $
    50,196
    
    
    $
    (164,022
    )
    
    $
    1,848
 See accompanying notes to the unaudited condensed consolidated financial statements and accompanying
report of independent registered public accounting firm. 3




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DOANE PET CARE COMPANY AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 First quarter2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    7,176
    
    
    $
    (7,807
    )Items not requiring (providing) cash:Depreciation
    
    
    8,823
    
    
    
    8,384Amortization
    
    
    1,217
    
    
    
    1,478Deferred income tax expense
    
    
    1,016
    
    
    
    917Non-cash interest expense
    
    
    5,479
    
    
    
    4,658Equity in joint ventures
    
    
    (302
    )
    
    
    (298
    )Asset impairments
    
    
    
    
    
    
    420Changes in current assets and liabilities
    
    
    (18,804
    )
    
    
    (9,796
    )Net cash provided by (used in) operating activities
    
    
    4,605
    
    
    
    (2,044
    )Cash flows from investing activities:Capital expenditures
    
    
    (4,531
    )
    
    
    (2,124
    )Other, net
    
    
    (538
    )
    
    
    (438
    )Net cash used in investing activities
    
    
    (5,069
    )
    
    
    (2,562
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (898
    )
    
    
    (1,530
    )Payments for debt issuance costs
    
    
    (22
    )
    
    
    (2,990
    )Net cash used in financing activities
    
    
    (920
    )
    
    
    (4,520
    )Effect of
exchange rate changes on cash and cash equivalents
    
    
    117
    
    
    
    (21
    )Decrease in cash and cash equivalents
    
    
    (1,267
    )
    
    
    (9,147
    )Cash and cash equivalents, beginning of period
    
    
    28,847
    
    
    
    29,293Cash and cash equivalents, end of period
    
    $
    27,580
    
    
    $
    20,146
 See accompanying notes to the unaudited condensed consolidated financial statements and accompanying
report of independent registered public accounting firm. 4




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DOANE PET CARE COMPANY AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Doane Pet Care
Company and its consolidated subsidiaries, or the Company, do not include all the information and
footnotes required by generally accepted accounting principles for complete financial statements.
The year-end condensed consolidated balance sheet data was derived from audited financial
statements. In the opinion of management, all material adjustments, consisting of normal and
recurring adjustments, have been made which were considered necessary to present fairly the
financial position and the results of operations and cash flows at the dates and for the periods
presented. The unaudited condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes contained in the
Companys 2004 annual report on Form 10-K for the fiscal year ended January 1, 2005, or the 2004
10-K, including related exhibits. The accounting policies used in preparing these financial
statements are the same as those summarized in the 2004 10-K. In conformity with accounting principles generally accepted in the United States, preparation
of the Companys consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the consolidated financial
statements; and therefore, actual results could ultimately differ from those estimates. The Companys fiscal year ends on the Saturday nearest to the end of December. Each quarter
also ends on a Saturday with the first quarters of fiscal 2005 and 2004 ending on April 2, 2005 and
April 3, 2004, respectively. (2) Recent Accounting Pronouncements In
December 2004, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment, or
SFAS 123  Revised. SFAS 123  Revised replaces SFAS 123
and supersedes SFAS No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure  An Amendment of FASB Statement No. 123
and APB Opinion No. 25. SFAS 123  Revised eliminates the alternative to use the intrinsic value
method of accounting under Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, or APB 25, previously allowed under SFAS 123 and requires entities to
recognize the cost of services received in exchange for awards of equity instruments, or
compensation cost, based on the fair value of those awards at the grant date. In April 2005, the
Securities and Exchange Commission announced that it was delaying the effective date of the revised
accounting standard. SFAS 123  Revised is effective as of the beginning of our next fiscal
year, or January 1, 2006, for all awards granted after the effective date and for all awards
modified, repurchased or cancelled after that date. In the opinion of management, the Company
meets the nonpublic entity criteria under SFAS 123  Revised. Accordingly, upon adoption, the
grant-date fair value of awards of equity share options and similar instruments is to be calculated
using the historical volatility of an appropriate industry sector index rather than expected
volatility of the Companys share price. The Company will evaluate the impact on its results of
operations and financial position upon the adoption of SFAS 123  Revised. (3) Inventories A summary of inventories follows (in thousands): End ofFirst quarter
    
    
    Fiscal2005
    
    
    2004Raw materials
    
    $
    15,689
    
    
    $
    16,041Packaging materials
    
    
    22,415
    
    
    
    20,564Finished goods
    
    
    33,646
    
    
    
    34,57371,750
    
    
    
    71,178Less: Allowances
    
    
    (2,298
    )
    
    
    (2,857
    )Total
    
    $
    69,452
    
    
    $
    68,321
 5




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DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (4) Long-Term Debt and Liquidity A summary of long-term debt follows (in thousands): End ofFirst quarter
    
    
    Fiscal2005
    
    
    2004Revolving credit facility
    
    $
    
    
    
    $
    Term loan facility
    
    
    194,025
    
    
    
    194,513Senior notes
    
    
    211,233
    
    
    
    211,144Senior subordinated notes
    
    
    149,237
    
    
    
    149,147Industrial development revenue bonds
    
    
    14,496
    
    
    
    14,493Debt of
foreign subsidiaries
    
    
    13,382
    
    
    
    14,466582,373
    
    
    
    583,763Less: Current maturities
    
    
    (3,612
    )
    
    
    (3,673
    )578,761
    
    
    
    580,090Senior preferred stock
    
    
    110,578
    
    
    
    106,421Total
    
    $
    689,339
    
    
    $
    686,511
 As of the end of the first quarter of fiscal 2005, the Companys senior credit facility
provided for total commitments of $230.0 million, consisting of a $195.0 million Term Loan Facility
and a $35.0 million Revolving Credit Facility, with a $20.0 million sub-limit for issuance of
stand-by letters of credit. The Term Loan Facility bears interest, at the option of the Company,
of adjusted LIBOR plus 4.00%, or ABR, as defined in the senior credit facility agreement, plus
3.00%. The Revolving Credit Facility bears interest, at the option of the Company, of adjusted
LIBOR plus 4.50%, or ABR plus 3.50%. As of the end of the first quarter of fiscal 2005, the Term
Loan Facility bore interest at 6.70%. As of the end of the first quarter of fiscal 2005, the Company had no borrowings outstanding
under its Revolving Credit Facility and $4.8 million of stand-by letters of credit outstanding,
resulting in $30.2 million of availability under its Revolving Credit Facility. Availability of
funds under the senior credit facility is subject to certain customary terms and conditions. As of the end of the first quarter of fiscal 2005, the principal amounts due under the
Companys long-term debt and the respective final maturity dates were as follows (in thousands): Maturities by fiscal year2010 andFinal maturity
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    thereafter
    
    
    TotalTerm loan facility
    
    February 13, 2007
    
    $
    1,462
    
    
    $
    1,950
    
    
    $
    190,613
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    194,025Senior notes
    
    March 1, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211,233
    
    
    
    211,233Senior subordinated notes
    
    May 15, 2007
    
    
    
    
    
    
    
    
    
    
    149,237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,237Other
    
    Various
    
    
    1,216
    
    
    
    1,686
    
    
    
    2,126
    
    
    
    2,268
    
    
    
    2,417
    
    
    
    18,165
    
    
    
    27,8782,678
    
    
    
    3,636
    
    
    

    341,976
    
    
    
    2,268
    
    
    
    2,417
    
    
    
    229,398
    
    
    
    582,373Senior preferred stock
    
    September 30, 2007
    
    
    
    
    
    
    
    
    
    
    110,578
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,578Total
    
    
    
    $
    2,678
    
    
    $
    3,636
    
    
    $
    452,554
    
    
    $
    2,268
    
    
    $
    2,417
    
    
    $
    229,398
    
    
    $
    692,951
 The Company is highly leveraged and has significant cash requirements for debt service
relating to its senior credit facility, senior notes, senior subordinated notes, industrial
development revenue bonds and foreign debt. The Companys ability to borrow is limited by its
senior credit facility, including compliance with the financial covenants therein, and the
limitations on the incurrence of additional indebtedness in the indentures governing the 6




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DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Companys
senior notes and senior subordinated notes. The Company was in compliance with the financial
covenants in its senior credit facility as of the end of the first quarter of fiscal 2005.  (5)
    Accruals for Restructuring Costs A rollforward of the Companys accrued restructuring costs for the first quarter of
fiscal 2005 follows (in thousands): First quarter2005Balance at end of fiscal 2004
    
    $
    722Revisions to estimates
    
    
    (15
    )Cash payments
    
    
    (216
    )Balance at end of first quarter 2005
    
    $
    491
 During the first quarter of fiscal 2005, the Company made payments of $0.2 million for
severance costs related to the European restructuring plan which was
completed in fiscal 2004. As of the end of the first quarter of fiscal 2005, the future expected payout of the Companys
accrued restructuring costs, which consist primarily of severance associated with European
restructuring, follows (in thousands): Fiscal years ending
    
    Payout2005
    
    $
    4282006
    
    
    63Total
    
    $
    491
 (6) Comprehensive Loss The components of comprehensive loss were as follows (in thousands): First quarter2005
    
    
    2004Comprehensive loss:Net income (loss)
    
    $
    7,176
    
    
    $
    (7,807
    )Foreign currency translation
    
    
    (12,454
    )
    
    
    (4,034
    )Total
    
    $
    (5,278
    )
    
    $
    (11,841
    )
 (7) Stock Option Plan of Parent The Company and its Parent, Doane Pet Care Enterprises, Inc., have elected to continue to
follow APB
25 to account for fixed stock awards granted to employees. However, if the Company adopted SFAS
No. 123, Accounting for Stock Based Compensation, or SFAS 123, to account for fixed stock awards
granted to employees, the Companys net income (loss) for the first quarter of fiscal 2005 and 2004
would have been adjusted as follows (in thousands): 7




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DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) First quarter2005
    
    
    2004Net income (loss), as reported
    
    $
    7,176
    
    
    $
    (7,807
    )Less: Stock-based employee compensation
expense determined based on
the fair value method for all awards
    
    
    (1
    )
    
    
    (1
    )Pro forma net income (loss)
    
    $
    7,175
    
    
    $
    (7,808
    )
 At the end of the first quarter of fiscal 2005 and 2004, Parent had total options outstanding
of 3,718,398 and 4,230,350, respectively, under its stock option plans. There were no new stock
options granted during the first quarter of fiscal 2005. (8) Benefit Plans Pension and Postretirement Plans The Company has a defined benefit, non-contributory inactive pension plan which was frozen on
May 28, 1998. As a result, future benefits no longer accumulate and the Company no longer incurs
service cost related to the plan. The Companys funding policy for this inactive plan is to make
the minimum annual contribution required by applicable regulations. The Companys only active
pension plan covers 42 union employees at one of its facilities. The Company also has a
postretirement healthcare plan that provides medical coverage for eligible retirees and their
dependents. The Company pays benefits under this plan when due and does not fund its plan
obligations as they accrue; therefore, there are no plan assets. The information below has been
determined based on the three months ending March 31, 2005 and 2004, respectively. A summary of net periodic cost follows (in thousands): Pension benefits
    
    
    Postretirement benefitsFirst quarter
    
    
    First quarter2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    9
    
    
    $
    9
    
    
    $
    3
    
    
    $
    3Interest cost
    
    
    253
    
    
    
    270
    
    
    
    58
    
    
    
    75Expected return on plan assets
    
    
    (345
    )
    
    
    (347
    )
    
    
    
    
    
    
    Recognition of actuarial loss
    
    
    168
    
    
    
    169
    
    
    
    35
    
    
    
    Amortization
    
    
    4
    
    
    
    4
    
    
    
    (61
    )
    
    
    14Net periodic cost
    
    $
    89
    
    
    $
    105
    
    
    $
    35
    
    
    $
    92
 (9) Commitments and Contingencies The Company is a party, in the ordinary course of business, to claims and litigation. In
managements opinion, the resolution of such matters is not expected to have a material impact on
the future financial condition, results of operations or cash flows of the Company. (10) Financial Information Related to Guarantor Subsidiaries The Companys guarantor subsidiaries are wholly-owned domestic subsidiaries who have
jointly and severally guaranteed on a full and unconditional basis all of the Companys senior
notes and senior subordinated notes. The guarantor subsidiaries are minor subsidiaries of the
Companys domestic operations that have no material operations of their own; and therefore, no
separate information for these subsidiaries is presented. The financial information presented
below in the guarantor columns is substantially that of the Company, excluding its European
operations. 8




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DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The financial information presented below in the non-guarantor columns consist of the
Companys non-guarantor subsidiaries, which are its wholly-owned European subsidiaries. See Note
8, Long-Term Debt and Liquidity, in the Companys 2004 10-K. Unaudited condensed consolidated financial information follows (in thousands, except share and par value
amounts): 9




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DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Unaudited Condensed Consolidated Balance Sheets
For The Guarantor and Non-Guarantor Subsidiaries End of first quarter 2005IntercompanyGuarantor
    
    
    Non-guarantor
    
    
    eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,424
    
    
    $
    3,156
    
    
    $
    
    
    
    $
    27,580Accounts receivable, net
    
    
    47,155
    
    
    
    54,952
    
    
    
    
    
    
    
    102,107Inventories, net
    
    
    41,933
    
    
    
    27,519
    
    
    
    
    
    
    
    69,452Deferred tax assets
    
    
    2,356
    
    
    
    
    
    
    
    
    
    
    
    2,356Prepaid expenses and other current assets
    
    
    9,750
    
    
    
    1,387
    
    
    
    
    
    
    
    11,137Total current assets
    
    
    125,618
    
    
    
    87,014
    
    
    
    
    
    
    
    212,632Property, plant and equipment, net
    
    
    145,074
    
    
    
    103,493
    
    
    
    
    
    
    
    248,567Goodwill and other intangible assets
    
    
    267,780
    
    
    
    116,744
    
    
    
    
    
    
    
    384,524Other assets
    
    
    268,710
    
    
    
    13,653
    
    
    
    (250,029
    )
    
    
    32,334Total assets
    
    $
    807,182
    
    
    $
    320,904
    
    
    $
    (250,029
    )
    
    $
    878,057LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    1,950
    
    
    $
    1,662
    
    
    $
    
    
    
    $
    3,612Accounts payable
    
    
    47,878
    
    
    
    39,203
    
    
    
    
    
    
    
    87,081Accrued liabilities
    
    
    38,305
    
    
    
    13,721
    
    
    
    
    
    
    
    52,026Total current liabilities
    
    
    88,133
    
    
    
    54,586
    
    
    
    
    
    
    
    142,719Long-term debt:Long-term debt, excluding current maturities
    
    
    567,041
    
    
    
    166,935
    
    
    
    (155,215
    )
    
    
    578,761Senior Preferred Stock (Redeemable), 3,000,000
shares authorized, 1,200,000 shares issued and
outstanding, $114,894 current redemption value
    
    
    110,578
    
    
    
    
    
    
    
    
    
    
    
    110,578Total long-term debt
    
    
    677,619
    
    
    
    166,935
    
    
    
    (155,215
    )
    
    
    689,339Deferred tax liabilities
    
    
    31,705
    
    
    
    2,753
    
    
    
    
    
    
    
    34,458Other long-term liabilities
    
    
    9,693
    
    
    
    
    
    
    
    
    
    
    
    9,693Total liabilities
    
    
    807,150
    
    
    
    224,274
    
    
    
    (155,215
    )
    
    
    876,209Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 1,000 shares
authorized, issued and outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    115,674
    
    
    
    95,861
    
    
    
    (95,861
    )
    
    
    115,674Accumulated other comprehensive income (loss)
    
    
    (24,555
    )
    
    
    73,704
    
    
    
    1,047
    
    
    
    50,196Accumulated deficit
    
    
    (91,087
    )
    
    
    (72,935
    )
    
    
    
    
    
    
    (164,022
    )Total stockholders equity
    
    
    32
    
    
    
    96,630
    
    
    
    (94,814
    )
    
    
    1,848Total liabilities and stockholders equity
    
    $
    807,182
    
    
    $
    320,904
    
    
    $
    (250,029
    )
    
    $
    878,057
 10




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##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Unaudited Condensed Consolidated Balance Sheets
For The Guarantor and Non-Guarantor Subsidiaries End of fiscal 2004IntercompanyGuarantor
    
    
    Non-guarantor
    
    
    eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,963
    
    
    $
    3,884
    
    
    $
    
    
    
    $
    28,847Accounts receivable, net
    
    
    48,660
    
    
    
    63,785
    
    
    
    
    
    
    
    112,445Inventories, net
    
    
    39,406
    
    
    
    28,915
    
    
    
    
    
    
    
    68,321Deferred tax assets
    
    
    2,414
    
    
    
    
    
    
    
    
    
    
    
    2,414Prepaid expenses and other current assets
    
    
    6,128
    
    
    
    910
    
    
    
    
    
    
    
    7,038Total current assets
    
    
    121,571
    
    
    
    97,494
    
    
    
    
    
    
    
    219,065Property, plant and equipment, net
    
    
    147,293
    
    
    
    110,777
    
    
    
    
    
    
    
    258,070Goodwill and other intangible assets
    
    
    267,780
    
    
    
    122,691
    
    
    
    
    
    
    
    390,471Other assets
    
    
    267,224
    
    
    
    14,436
    
    
    
    (247,360
    )
    
    
    34,300Total assets
    
    $
    803,868
    
    
    $
    345,398
    
    
    $
    (247,360
    )
    
    $
    901,906LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    1,950
    
    
    $
    1,723
    
    
    $
    
    
    
    $
    3,673Accounts payable
    
    
    52,131
    
    
    
    50,018
    
    
    
    
    
    
    
    102,149Accrued liabilities
    
    
    46,623
    
    
    
    12,616
    
    
    
    
    
    
    
    59,239Total current liabilities
    
    
    100,704
    
    
    
    64,357
    
    
    
    
    
    
    
    165,061Long-term debt, excluding current maturities
    
    
    567,347
    
    
    
    165,574
    
    
    
    (152,831
    )
    
    
    580,090Senior Preferred Stock (Redeemable), 3,000,000
shares authorized, 1,200,000 shares issued and
outstanding, $110,942 current redemption value
    
    
    106,421
    
    
    
    
    
    
    
    
    
    
    
    106,421Total long-term debt
    
    
    673,768
    
    
    
    165,574
    
    
    
    (152,831
    )
    
    
    686,511Deferred tax liabilities
    
    
    30,714
    
    
    
    2,927
    
    
    
    
    
    
    
    33,641Other long-term liabilities
    
    
    9,567
    
    
    
    
    
    
    
    
    
    
    
    9,567Total liabilities
    
    
    814,753
    
    
    
    232,858
    
    
    
    (152,831
    )
    
    
    894,780Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 1,000 shares
authorized, issued and outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    115,674
    
    
    
    95,861
    
    
    
    (95,861
    )
    
    
    115,674Accumulated other comprehensive income (loss)
    
    
    (24,555
    )
    
    
    85,873
    
    
    
    1,332
    
    
    
    62,650Accumulated deficit
    
    
    (102,004
    )
    
    
    (69,194
    )
    
    
    
    
    
    
    (171,198
    )Total stockholders equity
    
    
    (10,885
    )
    
    
    112,540
    
    
    
    (94,529
    )
    
    
    7,126Total liabilities and stockholders equity
    
    $
    803,868
    
    
    $
    345,398
    
    
    $
    (247,360
    )
    
    $
    901,906
 11




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##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Unaudited Condensed Consolidated Statements of Operations
For The Guarantor and Non-Guarantor Subsidiaries First quarter 2005Guarantor
    
    
    Non-guarantor
    
    
    ConsolidatedNet sales
    
    $
    194,621
    
    
    $
    72,515
    
    
    $
    267,136Cost of goods sold
    
    
    157,887
    
    
    
    57,146
    
    
    
    215,033Gross profit
    
    
    36,734
    
    
    
    15,369
    
    
    
    52,103Operating expenses:Promotion and distribution
    
    
    6,557
    
    
    
    7,873
    
    
    
    14,430Selling, general and administrative
    
    
    8,867
    
    
    
    4,252
    
    
    
    13,119Amortization
    
    
    949
    
    
    
    217
    
    
    
    1,166Other operating income
    
    
    (3,255
    )
    
    
    (261
    )
    
    
    (3,516
    )Income from operations
    
    
    23,616
    
    
    
    3,288
    
    
    
    26,904Interest expense, net
    
    
    11,988
    
    
    
    6,658
    
    
    
    18,646Other (income) expense, net
    
    
    (338
    )
    
    
    93
    
    
    
    (245
    )Income (loss) before income taxes
    
    
    11,966
    
    
    
    (3,463
    )
    
    
    8,503Income tax expense
    
    
    1,049
    
    
    
    278
    
    
    
    1,327Net income (loss)
    
    $
    10,917
    
    
    $
    (3,741
    )
    
    $
    7,176
 First quarter 2004Guarantor
    
    
    Non-guarantor
    
    
    ConsolidatedNet sales
    
    $
    199,438
    
    
    $
    71,442
    
    
    $
    270,880Cost of goods sold
    
    
    173,336
    
    
    
    56,726
    
    
    
    230,062Gross profit
    
    
    26,102
    
    
    
    14,716
    
    
    
    40,818Operating expenses:Promotion and distribution
    
    
    6,775
    
    
    
    7,452
    
    
    
    14,227Selling, general and administrative
    
    
    8,433
    
    
    
    4,750
    
    
    
    13,183Amortization
    
    
    1,021
    
    
    
    208
    
    
    
    1,229Other operating (income) expense
    
    
    (415
    )
    
    
    1,638
    
    
    
    1,223Income from operations
    
    
    10,288
    
    
    
    668
    
    
    
    10,956Interest expense, net
    
    
    11,751
    
    
    
    6,226
    
    
    
    17,977Other (income) expense, net
    
    
    (613
    )
    
    
    206
    
    
    
    (407
    )Loss before income taxes
    
    
    (850
    )
    
    
    (5,764
    )
    
    
    (6,614
    )Income tax expense
    
    
    931
    
    
    
    262
    
    
    
    1,193Net loss
    
    $
    (1,781
    )
    
    $
    (6,026
    )
    
    $
    (7,807
    )
 12




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##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Unaudited Condensed Consolidated Statements of Cash Flows
For The Guarantor and Non-Guarantor Subsidiaries First quarter 2005Guarantor
    
    
    Non-guarantor
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    10,917
    
    
    $
    (3,741
    )
    
    $
    7,176Items not requiring (providing) cash:Depreciation and amortization
    
    
    5,730
    
    
    
    4,310
    
    
    
    10,040Deferred income tax expense (benefit)
    
    
    1,049
    
    
    
    (33
    )
    
    
    1,016Intercompany
    
    
    (2,669
    )
    
    
    2,669
    
    
    
    Other non-cash charges (income), net
    
    
    5,302
    
    
    
    (125
    )
    
    
    5,177Changes in current assets and liabilities
    
    
    (17,309
    )
    
    
    (1,495
    )
    
    
    (18,804
    )Net cash provided by operating activities
    
    
    3,020
    
    
    
    1,585
    
    
    
    4,605Cash flows from investing activities:Capital expenditures
    
    
    (2,511
    )
    
    
    (2,020
    )
    
    
    (4,531
    )Other, net
    
    
    (538
    )
    
    
    
    
    
    
    (538
    )Net cash used in investing activities
    
    
    (3,049
    )
    
    
    (2,020
    )
    
    
    (5,069
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (488
    )
    
    
    (410
    )
    
    
    (898
    )Payments for debt issuance costs
    
    
    (22
    )
    
    
    
    
    
    
    (22
    )Net cash used in financing activities
    
    
    (510
    )
    
    
    (410
    )
    
    
    (920
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    117
    
    
    
    117Decrease in cash and cash equivalents
    
    
    (539
    )
    
    
    (728
    )
    
    
    (1,267
    )Cash and cash equivalents, beginning of period
    
    
    24,963
    
    
    
    3,884
    
    
    
    28,847Cash and cash equivalents, end of period
    
    $
    24,424
    
    
    $
    3,156
    
    
    $
    27,580
 13




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##### Table of Contents



DOANE PET CARE COMPANY
AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Unaudited Condensed Consolidated Statements of Cash Flows
For The Guarantor and Non-Guarantor Subsidiaries First quarter 2004Non-Guarantor
    
    
    guarantor
    
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (1,781
    )
    
    $
    (6,026
    )
    
    $
    (7,807
    )Items not requiring (providing) cash:Depreciation and amortization
    
    
    5,627
    
    
    
    4,235
    
    
    
    9,862Deferred income tax expense (benefit)
    
    
    931
    
    
    
    (14
    )
    
    
    917Asset impairments
    
    
    420
    
    
    
    
    
    
    
    420Other non-cash charges (income), net
    
    
    4,441
    
    
    
    (81
    )
    
    
    4,360Changes in current assets and liabilities
    
    
    (14,290
    )
    
    
    4,494
    
    
    
    (9,796
    )Net cash (used in) provided by operating activities
    
    
    (4,652
    )
    
    
    2,608
    
    
    
    (2,044
    )Cash flows from investing activities:Capital expenditures
    
    
    (1,096
    )
    
    
    (1,028
    )
    
    
    (2,124
    )Other, net
    
    
    202
    
    
    
    (640
    )
    
    
    (438
    )Net cash used in investing activities
    
    
    (894
    )
    
    
    (1,668
    )
    
    
    (2,562
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (353
    )
    
    
    (1,177
    )
    
    
    (1,530
    )Payments for debt issuance costs
    
    
    (2,990
    )
    
    
    
    
    
    
    (2,990
    )Net cash used in financing activities
    
    
    (3,343
    )
    
    
    (1,177
    )
    
    
    (4,520
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Decrease in cash and cash equivalents
    
    
    (8,889
    )
    
    
    (258
    )
    
    
    (9,147
    )Cash and cash equivalents, beginning of period
    
    
    25,939
    
    
    
    3,354
    
    
    
    29,293Cash and cash equivalents, end of period
    
    $
    17,050
    
    
    $
    3,096
    
    
    $
    20,146
 14




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors
Doane Pet Care Company: We have reviewed the accompanying condensed consolidated balance sheet of Doane Pet Care Company
and subsidiaries as of April 2, 2005, the related condensed consolidated statements of operations
for the three-month periods ended April 2, 2005 and April 3, 2004, the condensed consolidated
statement of stockholders equity and comprehensive loss as of and for the three-month period ended
April 2, 2005 and the condensed consolidated statements of cash flows for the three-month periods
ended April 2, 2005 and April 3, 2004. These condensed consolidated financial statements are the
responsibility of the Companys management. We conducted our reviews in accordance with standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the objective of which
is the expression of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the
condensed consolidated financial statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles. We have previously audited, in accordance with standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet of Doane Pet Care Company and subsidiaries as
of January 1, 2005, and the related consolidated statements of operations, stockholders equity and
comprehensive income (loss) and cash flows for the year then ended (not presented herein); and in
our report dated March 30, 2005, we expressed an unqualified opinion on those consolidated
financial statements. Our report refers to the restatement of previously issued fiscal 2003
consolidated financial statements and a change in accounting for senior preferred stock. In our
opinion, the information set forth in the accompanying condensed consolidated balance sheet as of
January 1, 2005 is fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived. /s/ KPMG LLP
 Nashville, Tennessee
May 10, 2005 15




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations The reader is encouraged to refer to the accompanying unaudited condensed consolidated
financial statements and related notes included elsewhere in this quarterly report on Form 10-Q and
our audited consolidated financial statements and related notes in our annual report on Form 10-K
for the fiscal year ended January 1, 2005, or the 2004 10-K. Forward-Looking Statements Certain of the statements in this quarterly report on Form 10-Q 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. Some of these statements can be
identified by terms and phrases such as anticipate, believe, assume, intend, estimate,
expect, continue, could, may, plan, project, predict, will and similar expressions.
These statements appear in a number of places and include statements regarding our plans, beliefs
or current expectations, including those plans, beliefs and expectations of our officers and
directors, with respect to, among other things:  
    reliance on a few customers for a large portion of our sales and our ability
to maintain our relationships with these customers;
    our exposure to, and our ability to manage, market risk relating to commodity
and natural gas prices, interest rates and foreign currency exchange rates;
    future capital expenditures and our ability to finance these capital
expenditures;
    our ability to finance our debt service requirements under our senior credit
facility and other indebtedness and to comply with the financial covenants under our debt
agreements;
    our future results of operations or financial condition;
    our business strategies and other plans and objectives for future operations;
    general economic and business conditions;
    business opportunities that may be presented to and pursued by us from time to time;
    risks related to our international operations;
    the impact of existing or new accounting pronouncements; and
    the outcome of any legal proceedings to which we or any of our subsidiaries may be a party. These forward-looking statements are based on our assumptions and analyses and are not
guarantees of our future performance. These statements are subject to risks, many of which are
beyond our control, that could cause our actual results to differ materially from those contained
in our forward-looking statements. Factors that could cause results to differ materially include
without limitation: decreases or changes in demand for our 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 on our pension plans, changes in laws and regulations, adverse changes in
operating performance, adverse economic conditions and other factors described under Risk Factors
in our 2004 10-K. 16




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##### Table of Contents



We undertake no obligation to revise these forward-looking statements to reflect any future
events or circumstances. All forward-looking statements attributable to us are expressly qualified
in their entirety by this cautionary statement. First Quarter Fiscal 2005 in Review In the first quarter of fiscal 2005, net sales decreased 1.4% to $267.1 million from
$270.9 million in the first quarter of fiscal 2004. Excluding the impact of foreign currency
exchange rate fluctuations, net sales decreased 2.6% from the first quarter of fiscal 2004. This
decrease in our net sales was primarily due to our new domestic pricing and cost-sharing strategy,
in which we passed through a portion of the period-over-period commodity cost decreases to our
cost-sharing customers. Our gross profit increased $11.3 million as a result of lower global
commodity costs, partially offset by the impact of our domestic
pricing strategy discussed above. We had net income of $7.2
million, which was also favorably impacted by litigation settlements of $3.2 million. Results of Operations We manufacture pet food, primarily private label, in the United States and Europe using
28 combined manufacturing and distribution facilities. We manufacture pet food products primarily
for dogs and cats, including dry, wet, semi-moist, soft dry, soft treats and dog biscuits. We sell
our products to various types of retailers. Historically, approximately 75% of our cost of goods sold has been comprised of raw material
and packaging costs with the remainder primarily comprised of salaries, wages and related fringe
benefits, utilities and depreciation. Our operating expenses generally consist of promotion and
distribution expenses, selling, general and administrative expenses, amortization and other
operating expenses. Promotion and distribution expenses are primarily comprised of promotions,
freight, brokerage fees and warehousing expenses. Selling, general and administrative expenses
primarily include salaries and related fringe benefits, depreciation and other corporate overhead
costs, which typically do not increase proportionately with increases in net sales and sales
volumes. We have foreign currency exposure
relating to our business transactions in currencies other
than the U.S. dollar. In addition, the timing and extent of foreign currency exchange rate
fluctuations may have a material impact on our operations due to the translations of the financial
statements of our foreign subsidiaries. Although our functional currencies other than the U.S.
dollar include the Euro, Danish Krona and British Pound Sterling, the Euro to U.S. dollar exchange
rate approximates the impact of movements in our individual functional foreign currency exchange
rates. For the purpose of analyzing our results of operations, the average Euro to U.S. dollar
exchange rates for the first quarter of fiscal 2005 and 2004 were approximately 1.31 and 1.25,
respectively. For the purpose of analyzing our financial position, the Euro to U.S. dollar
exchange rates as of the end of the first quarter of fiscal 2005 and the end of fiscal 2004
were approximately 1.30 and 1.36, respectively. Our fiscal year ends on the Saturday nearest to the end of December; and therefore, fiscal
2004 ended on January 1, 2005. Each quarter also ends on a Saturday with the first quarter of
fiscal 2005 and 2004 ending on April 2, 2005 and April 3, 2004, respectively. 17




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##### Table of Contents



Statement of operations data.The following table sets forth our statement of operations
derived from the accompanying unaudited condensed consolidated financial statements expressed as a
percentage of net sales for the first quarter of fiscal 2005 and 2004 as indicated (in thousands,
except percentages): First quarter2005
    
    
    2004Net sales
    
    $
    267,136
    
    
    
    100.0
    %
    
    $
    270,880
    
    
    
    100.0
    %Cost of goods sold:Commodity costs
    
    
    123,812
    
    
    
    46.4
    
    
    
    136,324
    
    
    
    50.3Other
    
    
    91,221
    
    
    
    34.1
    
    
    
    93,738
    
    
    
    34.6Total cost of goods sold
    
    
    215,033
    
    
    
    80.5
    
    
    
    230,062
    
    
    
    84.9Gross profit
    
    
    52,103
    
    
    
    19.5
    
    
    
    40,818
    
    
    
    15.1Operating expenses:Promotion and distribution
    
    
    14,430
    
    
    
    5.4
    
    
    
    14,227
    
    
    
    5.2Selling, general and administrative
    
    
    13,119
    
    
    
    4.9
    
    
    
    13,183
    
    
    
    4.9Amortization
    
    
    1,166
    
    
    
    0.4
    
    
    
    1,229
    
    
    
    0.5Other operating (income) expense
    
    
    (3,516
    )
    
    
    (1.3
    )
    
    
    1,223
    
    
    
    0.5Income from operations
    
    
    26,904
    
    
    
    10.1
    
    
    
    10,956
    
    
    
    4.0Interest expense, net
    
    
    18,646
    
    
    
    7.0
    
    
    
    17,977
    
    
    
    6.6Other income, net
    
    
    (245
    )
    
    
    (0.1
    )
    
    
    (407
    )
    
    
    (0.1
    )Income (loss) before income taxes
    
    
    8,503
    
    
    
    3.2
    
    
    
    (6,614
    )
    
    
    (2.5
    )Income tax expense
    
    
    1,327
    
    
    
    0.5
    
    
    
    1,193
    
    
    
    0.4Net income (loss)
    
    $
    7,176
    
    
    
    2.7
    %
    
    $
    (7,807
    )
    
    
    (2.9
    )%
 First Quarter of Fiscal 2005 Compared to First Quarter of Fiscal 2004 Net sales. Net sales in the first quarter of fiscal 2005 decreased 1.4%, or $3.8
million, to $267.1 million from $270.9 million in the first quarter of fiscal 2004. Excluding the
impact of foreign currency exchange fluctuations in the first quarter of fiscal 2005, net sales
decreased 2.6%, or $7.1 million, from the first quarter of fiscal 2004. The decrease in our net
sales was primarily due to our new domestic pricing and cost-sharing
strategy  in which we passed through a portion of
the lower U.S. commodity costs to our cost-sharing customers. Gross profit.Gross profit in the first quarter of fiscal 2005 increased 27.6%, or $11.3
million, to $52.1 million from $40.8 million in the first quarter of fiscal 2004. Excluding the
impact of foreign currency exchange fluctuations in the first quarter of fiscal 2005, gross profit
increased 25.9%, or $10.6 million, from the first quarter of fiscal 2004. This increase was
primarily due to lower global commodity costs, which decreased as a percentage of net sales to
46.4% in the first quarter of fiscal 2005 from 50.3% in the first quarter of fiscal 2004, partially
offset by the impact of our new domestic pricing and cost-sharing
strategy. Other cost of goods sold was
consistent in the first quarter of fiscal 2005 compared to the first quarter of fiscal 2004 as a
percentage of net sales. Promotion and distribution. Promotion and distribution expenses for the first quarter of
fiscal 2005 increased 1.4%, or $0.2 million, to $14.4 million from $14.2 million in the first
quarter of fiscal 2004. Excluding the impact of foreign currency exchange fluctuations in the
first quarter of fiscal 2005, promotion and distribution expenses decreased 1.1%, or $0.2 million,
from the first quarter of fiscal 2004. Selling, general and administrative. Selling, general and administrative expenses in the
first quarter of fiscal 2005 decreased 0.5%, or $0.1 million, to $13.1 million from $13.2 million
in the first quarter of fiscal 18




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2004. Excluding the impact of foreign currency exchange
fluctuations in the first quarter of fiscal 2005, selling, general and administrative expenses
decreased 2.0%, or $0.3 million, from the first quarter of fiscal 2004, primarily due to the cost
reductions associated with our European restructuring plan completed in fiscal 2004. Other operating (income) expense.Other operating income of $3.5 million in the first quarter
of fiscal 2005 included $3.2 million of favorable litigation settlements. Other operating expenses
of $1.2 million in the first quarter of fiscal 2004 consisted of severance costs of $1.6 million
related to our European restructuring plan and asset impairments of $0.4 million related to the
closure of a distribution center, partially offset by $0.8 million of income
related to an arbitration award. Interest expense, net. Interest expense, net of interest income, in the first quarter of
fiscal 2005 increased 3.7%, or $0.6 million, to $18.6 million from $18.0 million in the first
quarter of fiscal 2004. The increase was primarily due to increased dividends on our senior
preferred stock. Income tax expense. We recognized income tax expense of $1.3 million in the first quarter of
fiscal 2005 compared to $1.2 million in the first quarter of fiscal 2004. The overall effective
tax rate for both periods differs from the expected combined federal and state rate of 38.9% due to
the valuation allowances against our deferred tax assets that are not recoverable through known
reversals of deferred tax liabilities. Liquidity and Capital Resources We have historically funded our operations, capital expenditures and working capital
requirements with cash flows from operations, bank borrowings and the issuance of other
indebtedness. Cash and Cash Flows Net cash provided by our operating activities was $4.6 million in the first quarter of fiscal
2005 compared to net cash used in operating activities of $2.0 million in the first quarter of
fiscal 2004. The
increase was due to higher net income partially offset by the timing of payments on certain
accrued expenses. Net cash used in our investing activities was $5.1 million in the first quarter of fiscal 2005
compared to $2.6 million in the first quarter of fiscal 2004. Capital expenditures in the first
quarter of fiscal 2005 were $4.5 million compared to $2.1 million in the first quarter of fiscal
2004. Net cash used in our financing activities was $0.9 million in the first quarter of fiscal 2005
compared to $4.5 million in the first quarter of fiscal 2004. In the first quarter of fiscal 2005,
we made scheduled payments on our current senior credit facility and
debt of our foreign subsidiaries.
In the first quarter of fiscal 2004, we made scheduled principal payments on our previous senior
credit facility and paid transaction fees and expenses associated with a first quarter amendment to
our previous senior credit facility. Debt We are highly leveraged and have significant cash requirements for debt service relating to
our senior credit facility, senior notes, senior subordinated notes, industrial development revenue
bonds and foreign debt. Our ability to borrow is limited by our senior credit facility, including
compliance with the financial covenants therein, and the limitations on the incurrence of
additional indebtedness in the indentures governing our senior notes and senior subordinated notes. Our senior credit facility provides for total commitments of $230.0 million, consisting of a
$195.0 million term loan facility, of which $1.0 million has been repaid as of the end of the first
quarter of fiscal 2005, and a $35.0 million revolving credit facility, with a $20.0 million
sub-limit for issuance of stand-by letters of credit. The term loan facility bears interest, at
the option of the Company, of adjusted LIBOR plus 4.00%, or ABR, as defined in the senior credit
facility agreement, plus 3.00%. The revolving credit facility bears interest, at the option of the
Company, of adjusted LIBOR plus 4.50%, or ABR plus 3.50%. 19




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As of the end of the first quarter of
fiscal 2005, the term loan facility bore interest at 6.70%. We are required to make annual
principal payments on the senior credit facility calculated as 1% of $195.0 million, payable in
equal quarterly installments of each year. The loans under our senior credit facility may be
prepaid and commitments may be reduced; however, optional prepayments of the term loan facility may
not be reborrowed. Liquidity As of the end of the first quarter of fiscal 2005, our principal sources of liquidity
consisted of working capital of $69.9 million, including cash of $27.6 million, and $30.2 million
of availability under our revolving credit facility. We believe that cash flows generated from our business, together with available cash balances
and future borrowings, will be sufficient in the near term to enable us to make interest and
required principal payments on our debt and to provide us with the necessary liquidity for
operational and capital requirements in our current operating environment. However, we have
significant debt and redemption obligations that mature in 2007. See the section on annual
maturities of long-term debt below. We may be required to refinance all or a portion of the
principal amount of our outstanding obligations, including those that mature in 2007, on or prior
to maturity or a mandatory redemption date. In addition, we may not have sufficient capital
available to us for any future acquisitions, joint ventures or similar transactions. We believe
that offerings of additional debt securities are possible, or other sources of capital are
available, if the need arises, although any such capital may not be available on terms acceptable
to us or at all. Although we believe that future borrowings under our revolving credit facility will be
available to fund our liquidity needs, availability of these funds is subject to our satisfaction
of certain customary terms and conditions, including our ability to satisfy the financial covenants
in our senior credit facility. For a summary of these financial covenants, see our 2004 10-K. We
were in compliance with the financial covenants in our senior credit facility as of the end of the
first quarter of fiscal 2005; however, we have experienced difficulty in the past satisfying
financial covenants in our previous senior credit facility, and
negotiated amendments and obtained waivers for fiscal 2000, 2001 and
2003 due to covenant non-compliance. Our ability to
satisfy the covenants contained in our senior credit facility is determined based on our cash
flows, outstanding senior secured debt and capital expenditures. We may experience difficulty
satisfying these covenants in the future. If we are unable to negotiate an amendment or secure a
waiver from our lenders for any potential default, it could result in an event of default under the
senior credit facility and permit a majority of the lenders to accelerate outstanding debt under
the senior credit facility, terminate our revolving credit commitment and seize the cash in our
operating accounts. Such acceleration would result in cross-defaults under our senior notes and
senior subordinated notes. In that event, we may not have sufficient liquidity to make interest
and required principal payments on our debt and to fund operational and capital requirements. We believe the capital expenditures permitted under our senior credit facility are sufficient
to provide us with the necessary flexibility to spend required maintenance capital and at the same
time fund any planned expansion, cost reduction projects and customer requirements for fiscal 2005.
We anticipate that our capital expenditures for fiscal 2005 will approximate $25 million to $30
million, with approximately $10 million to $12 million required to maintain our current business.
Our capital expenditures were $4.5 million in the first quarter of fiscal 2005. Annual Maturities of Long-Term Debt A summary of the maturities by fiscal year of
our long-term debt as of the end of the first
quarter of fiscal 2005 follows (in thousands): 20




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Fiscal
    
    Maturities2005
    
    $
    2,6782006
    
    
    3,6362007
    
    
    452,5542008
    
    
    2,2682009
    
    
    2,4172010 and thereafter
    
    
    229,398$
    692,951
 Commitments and Contingencies We believe our operations are in compliance in all material respects with environmental,
safety and other regulatory requirements; however, these requirements may change in the future,
which may cause us to incur material costs to comply with these requirements or in connection with
the effect of these matters on our business. Inflation and Changes in Prices Our financial results depend to a large extent on the costs of raw materials and
packaging and our ability to pass through increased costs to our customers. Historically, market
prices for commodity grains and food stocks have fluctuated in response to a number of factors,
including changes in U.S. government farm support programs, changes in international agricultural
trading policies, impacts of disease outbreaks on protein sources and the potential effect on
supply and demand, changes in international demand, trading activity in commodity markets, as well
as weather conditions during the growing and harvesting seasons. Fluctuations in paper prices, which affect our costs for packaging materials, have resulted
from changes in supply and demand, general economic conditions and other factors. In addition, we
have exposure to changes in pricing of natural gas, which affects our manufacturing costs. Our
results of operations have been exposed to volatility in the commodity and natural gas markets in
the past. We have cost-sharing arrangements with certain of our domestic customers to reduce the
impact of volatile commodity costs; however, these arrangements only reduce our exposure to such
volatility in the future and are subject to change. In the event of any increases in raw materials, packaging and natural gas costs, we may be
required to seek increased selling prices for our products to avoid margin deterioration. We cannot
provide any assurances as to the timing or extent of our ability to implement future selling price
increases in the event of increased raw materials, packaging or natural gas costs or whether any
selling price increases implemented by us may affect future sales volumes to our customers. Seasonality Our sales are moderately seasonal. We normally experience an increase in net sales
during the first and fourth quarters of each year, which is typical in the pet food industry.
Generally, cooler weather results in increased dog food consumption. Recently Issued Accounting Pronouncements See Note 2, Recent Accounting Pronouncements, in the accompanying unaudited condensed
consolidated financial statements. Critical Accounting Policies Accounts receivable allowances.As of the end of the first quarter of fiscal 2005 and
the end of fiscal 2004, our gross accounts receivable were $105.6 million and $116.3 million,
respectively. We had cash 21




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discounts on our gross
accounts receivable of $1.0 million and $1.2 million as of the end of
the first quarter of fiscal 2005 and the end of fiscal 2004,
respectively. Our allowances for doubtful accounts and outstanding deductions with customers were
$2.5 million and $2.7 million as of the end of the first quarter of fiscal 2005 and the end of
fiscal 2004, respectively. We estimate the allowances by applying a recovery percentage based on
historical collection experience. We accrue additional allowances based on a specific
identification review for amounts deemed to be at risk. Receivables are written off against the
allowances at the point in which an amount is deemed uncollectible by us. We may revise our
allowances against accounts receivable as we receive more information or as we assess other factors
impacting the realizability of our accounts receivable. Inventories allowances.As of the end of the first quarter of fiscal 2005 and the end of
fiscal 2004, our gross inventories were $71.8 million and $71.2 million, respectively. We had
allowances, primarily for obsolescence of packaging inventories, of $2.3 million and $2.9 million
as of the end of the first quarter of fiscal 2005 and the end of fiscal 2004, respectively. We
estimate our allowances against inventories based on a specific identification review of obsolete
stock keeping units, or SKUs, or probable SKUs to be rationalized. We may revise our allowance
against inventories as we receive more information on this matter or as we assess other factors
impacting the realizability of our inventories. Deferred tax assets.As of the end of the first quarter of fiscal 2005 and the end of fiscal
2004, our federal net operating loss, or NOL, carryforwards were $131.1 million and $142.2 million,
respectively, and our foreign NOL carryforwards were $0.6 million and $0.9 million, respectively.
Our gross deferred tax assets, including federal, foreign, state and local NOL carryforwards, were
$75.1 million and $79.0 million as of the end of the first quarter of fiscal 2005 and the end of
fiscal 2004, respectively, and our gross deferred tax liabilities were $56.3 million and $54.8
million, respectively. We have concluded that, based on the weight of available evidence, it is more likely than not
that we will not generate sufficient future taxable income to realize our deferred tax assets and
that a valuation allowance is necessary. Our consolidated valuation allowance was $50.9 million
and $55.4 million as of
the end of the first quarter of fiscal 2005 and the end of fiscal 2004, respectively. During
the first quarter of fiscal 2005, we reduced the valuation allowance against our U.S. federal and
state deferred tax assets $5.4 million and increased the valuation allowance against our foreign
deferred tax assets $0.9 million. We currently expect that future years deferred income tax
expense (benefit) will include deferred tax expense approximating the growth in our deferred tax
liabilities related to amortization of goodwill for tax purposes. Goodwill
and other intangible assets.As of the end of the first quarter of fiscal 2005 and the end of
fiscal 2004, our goodwill and other intangible assets were $384.5 million and $390.5 million, respectively. The
$6.0 million decrease is due to the impact of foreign currency exchange rate fluctuations. We test
the carrying value of our goodwill and other intangible assets for impairment annually in the fourth quarter of
each fiscal year and upon the occurrence of certain events. Our impairment test includes
quantitative analyses of discounted future cash flows, market multiples of earnings and comparable
transactions, if available. If the estimated fair value of goodwill
and other intangible assets of either our
domestic or European reporting unit is less than the carrying value, an impairment loss will be
recognized. In the fourth quarter of fiscal 2004, we performed our annual assessment of impairment
and determined no impairment was evident at that date. 
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks, which may give rise to losses from adverse changes in
market prices and rates. Our market risks could arise from changes in commodity prices, interest
rates and foreign currency exchange rates. Commodity price risk.We are exposed to market risk related to changes in commodity prices.
We may seek to manage our commodity price risk associated with market fluctuations by using
derivative instruments for portions of our corn, soybean meal, alternative proteins and natural gas
purchases, principally through exchange traded futures and options contracts. The terms of such
contracts are generally less than one year. During the term of a contract, we balance positions
daily with cash payments to or from the exchanges. At the termination of a contract, we have the
ability to settle financially or by 22




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##### Table of Contents



exchange for the physical commodity, in which case, we would
deliver the contract against the acquisition of the physical commodity. Our policy does not permit
speculative commodity trading. Although we may seek to manage the price risk of market fluctuations by hedging portions of
our primary commodity product purchases, our results of operations have been adversely affected in
the past by these fluctuations and may in the future. Moreover, the use of futures contracts also
reduces our ability to take advantage of short-term reductions in raw material prices. If one or
more of our competitors is able to reduce their manufacturing costs by taking advantage of any
reductions in raw material prices, we may face pricing pressures from these competitors and may be
forced to reduce our selling prices or face a decline in net sales, either of which could have a
material adverse effect on our business, results of operations and financial condition. Our commodity derivative instruments are measured at fair value under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, or SFAS 133, in our accompanying unaudited
condensed consolidated financial statements. Our results of operations for particular periods have
been adversely affected in the past under SFAS 133 fair value accounting of our commodity
derivative instruments due to the volatility in commodity prices and, similarly, our results of
operations may be adversely affected in the future by SFAS 133 accounting. As of the end of the first quarter of fiscal 2005, we had open commodity contracts with a fair
value gain of $3.8 million. Based upon an analysis we completed at the end of the first quarter of
fiscal 2005 in which we utilized our actual derivative contractual volumes and assumed a 5% adverse
movement in commodity prices, we determined the potential decrease in the fair value of our
commodity derivative instruments would be approximately $1.1 million. Interest rate risk.We are exposed to market risk related to changes in interest rates. We
periodically enter into interest rate swap and cap contracts to limit our exposure to the interest
rate risk associated with our floating rate debt, which totaled $194.0 million at the end of the
first quarter of fiscal 2005. Changes in
market values of these financial instruments are highly correlated with changes in market
values of the hedged item both at inception and over the life of the contract. At the end of the
first quarter of fiscal 2005, we had no outstanding interest rate swap or cap contracts. Our results of operations may be adversely affected by changes in interest rates. Assuming a
100 basis point increase in the interest rates on our floating rate debt as of the end of the first
quarter of fiscal 2005, interest expense would have increased by approximately $0.5 million for the
first quarter of fiscal 2005. In addition, such a change would have resulted in a decrease of
approximately $12.6 million in the fair value of our fixed rate debt at the end of the first
quarter of fiscal 2005. In the event of an adverse change in interest rates, we could take action
to mitigate our exposure; however, due to the uncertainty of these potential actions and the
possible adverse effects, our analysis assumes no such actions. Furthermore, our analysis does not
consider the effect of any changes in the level of overall economic activity that may exist in such
an environment. Foreign currency exchange risk. We have foreign currency exposure relating to the translation
of the financial statements of our foreign operations into U.S. dollars. Our functional
currencies, other than the U.S. dollar, include the Euro, Danish Krona and British Pound Sterling.
We also funded a portion of our fiscal 2000 acquisition of Arovit with Euro-denominated debt
designated as a hedge of our net investment in Europe. The cumulative translation adjustment for
the net investment in our European operations is recognized in accumulated other comprehensive
income in the accompanying unaudited condensed consolidated financial statements included herein.
At the end of the first quarter of fiscal 2005, we had a cumulative translation gain of $55.3
million, which included a $19.2 million cumulative loss for the translation of our previously
extinguished Euro-denominated debt to U.S. dollars through the final repayment date. We also have foreign currency exposure, to a lesser extent, relating to transacting business
in countries with foreign currencies other than our functional currencies. From time to time, we
may enter into foreign currency options or forward contracts for the purchase or sale of a foreign
currency to mitigate the risk 23




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##### Table of Contents



from foreign currency exchange rate fluctuations in those
transactions and translations. As of the end of the first quarter of fiscal 2005, we had no
material outstanding foreign currency contracts. 
 ITEM 4. Controls and Procedures Evaluation of disclosure controls and procedures.Our disclosure controls and procedures
are designed to ensure that information required to be disclosed in the reports that we file or
submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commissions rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in the reports that we file
under the Exchange Act is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. Under the supervision and with the participation of management, including our Chief Executive
Officer and Chief Financial Officer, we performed an evaluation of the design and operation of our
disclosure controls and procedures as of the end of the quarterly period ending April 2, 2005,
pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures are effective. Changes in internal control over financial reporting.Other than those changes referred to in
Item 9A of the 2004 10-K, there were no changes in our internal controls over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter
that have materially affected or are reasonably likely to materially affect our internal controls
over financial reporting. 24




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##### Table of Contents



PART II. Other Information 
  ITEM 1. Legal Proceedings See Note 9, Commitments and Contingencies, in the accompanying unaudited condensed
consolidated financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q,
which is incorporated by reference in this Part II, Item 1. 
  ITEM 6. Exhibits ExhibitNumber
    
    Description15.1*
    
    Letter from KPMG LLP dated May 10, 2005 regarding unaudited interim financial
information.31.1*
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) /
15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) /
15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   *
    
    Filed herewith.
    
    Furnished herewith. 25




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##### Table of Contents



SIGNATURES 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. DOANE PET CARE COMPANYBy:
    
    /s/ PHILIP K. WOODLIEFPhilip K. WoodliefVice President, Finance and
Chief Financial OfficerBy:
    
    /s/ STEPHEN P. HAVALAStephen P. HavalaCorporate Controller and
Principal Accounting Officer
 Date: May 10, 2005 26




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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description15.1*
    
    Letter from KPMG LLP dated May 10, 2005, regarding unaudited interim
financial information.31.1*
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) /
15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) /
15(d)-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   *
    
    Filed herewith.
    
    Furnished herewith.