##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Form 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 2, 2004 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
(State or Other Jurisdiction of
Incorporation or Organization)
    
    43-1350515
(IRS Employer
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 x 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 x As of November 12, 2004, the registrant had outstanding 1,000 shares of
common stock, all of which were held by its parent, Doane Pet Care Enterprises,
Inc.




---



TABLE OF CONTENTS PagePART I. Financial InformationItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets as of the end of the third quarter of fiscal 2004 and the end of fiscal 2003
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the third quarter and the first nine months of fiscal 2004 and 2003
    
    
    2Unaudited Condensed Consolidated Statement of Stockholders Equity (Deficit) and Comprehensive Loss for the first nine months of fiscal 2004
    
    
    3Unaudited Condensed Consolidated Statements of Cash Flows for the first nine months of fiscal 2004 and 2003
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Report of Independent Registered Public Accounting Firm
    
    
    17Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    31PART II. Other InformationItem 5. Legal Proceedings
    
    
    32Item 6. Exhibits
    
    
    32Signatures
    
    
    33Senior Credit AgreementLetter from KMPG LLP dated November 10, 2004Certification of CEO pursuant to Section 302Certification of CFO pursuant to Section 302Certification of CEO pursuant to Section 906Certification of CFO pursuant to Section 906




---



##### Table of Contents



PART I. 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 ofThird quarter
    
    Fiscal2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,254
    
    
    $
    29,293Accounts receivable, net
    
    
    105,806
    
    
    
    91,569Inventories, net
    
    
    67,268
    
    
    
    68,619Deferred tax assets
    
    
    2,449
    
    
    
    1,898Prepaid expenses and other current assets
    
    
    11,214
    
    
    
    14,390Total current assets
    
    
    188,991
    
    
    
    205,769Property, plant and equipment, net
    
    
    248,277
    
    
    
    266,457Goodwill and trademarks
    
    
    379,665
    
    
    
    380,418Other assets
    
    
    33,134
    
    
    
    33,270Total assets
    
    $
    850,067
    
    
    $
    885,914LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current maturities of long-term debt
    
    $
    3,501
    
    
    $
    13,185Accounts payable
    
    
    89,962
    
    
    
    100,512Accrued liabilities
    
    
    59,828
    
    
    
    51,719Total current liabilities
    
    
    153,291
    
    
    
    165,416Long-term debt:Long-term debt, excluding current maturities
    
    
    563,624
    
    
    
    560,861Senior Preferred Stock (Redeemable)
    
    
    102,389
    
    
    
    Total long-term debt
    
    
    666,013
    
    
    
    560,861Deferred tax liabilities
    
    
    32,300
    
    
    
    28,524Other long-term liabilities
    
    
    9,266
    
    
    
    8,863Total liabilities
    
    
    860,870
    
    
    
    763,664Senior Preferred Stock (Redeemable)
    
    
    
    
    
    
    91,052Commitments and contingenciesStockholders equity (deficit):Common stock, $0.01 par value; 1,000 shares authorized,
issued and outstanding
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    115,674
    
    
    
    115,674Accumulated other comprehensive income
    
    
    48,953
    
    
    
    50,185Accumulated deficit
    
    
    (175,430
    )
    
    
    (134,661
    )Total stockholders equity (deficit)
    
    
    (10,803
    )
    
    
    31,198Total liabilities and stockholders equity (deficit)
    
    $
    850,067
    
    
    $
    885,914
 See accompanying notes to the unaudited condensed consolidated financial statements and accompanying report of
independent registered public accounting firm. 1




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands)
 Third quarter
    
    First nine months2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    250,977
    
    
    $
    243,810
    
    
    $
    780,195
    
    
    $
    738,235Cost of goods sold
    
    
    218,165
    
    
    
    206,970
    
    
    
    673,428
    
    
    
    617,526Gross profit
    
    
    32,812
    
    
    
    36,840
    
    
    
    106,767
    
    
    
    120,709Operating expenses:Promotion and distribution
    
    
    13,777
    
    
    
    14,703
    
    
    
    41,771
    
    
    
    41,910Selling, general and administrative
    
    
    12,461
    
    
    
    12,077
    
    
    
    38,447
    
    
    
    36,558Amortization
    
    
    993
    
    
    
    1,171
    
    
    
    3,356
    
    
    
    3,488Other operating expenses
    
    
    1,168
    
    
    
    
    
    
    
    6,329
    
    
    
    Income from operations
    
    
    4,413
    
    
    
    8,889
    
    
    
    16,864
    
    
    
    38,753Interest expense, net
    
    
    18,432
    
    
    
    14,671
    
    
    
    54,595
    
    
    
    43,543Debt extinguishments
    
    
    
    
    
    
    1,030
    
    
    
    
    
    
    
    12,143Other income, net
    
    
    (90
    )
    
    
    (201
    )
    
    
    (828
    )
    
    
    (786
    )Loss before income taxes
    
    
    (13,929
    )
    
    
    (6,611
    )
    
    
    (36,903
    )
    
    
    (16,147
    )Income tax expense
    
    
    1,296
    
    
    
    4,025
    
    
    
    3,866
    
    
    
    5,767Net loss
    
    
    (15,225
    )
    
    
    (10,636
    )
    
    
    (40,769
    )
    
    
    (21,914
    )Preferred stock dividends and accretion
    
    
    
    
    
    
    (3,428
    )
    
    
    
    
    
    
    (9,962
    )Net loss available to common shares
    
    $
    (15,225
    )
    
    $
    (14,064
    )
    
    $
    (40,769
    )
    
    $
    (31,876
    )
 See accompanying notes to the unaudited condensed consolidated financial statements and accompanying report of
independent registered public accounting firm. 2




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
 STOCKHOLDERS EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
 (In thousands, except share amounts)
 AccumulatedCommon stock
    
    Additionalpaid-in
    
    othercomprehensive
    
    AccumulatedShares
    
    Amount
    
    capital
    
    income
    
    deficit
    
    TotalBalances at end of fiscal 2003
    
    
    1,000
    
    
    $
    
    
    
    $
    115,674
    
    
    $
    50,185
    
    
    $
    (134,661
    )
    
    $
    31,198Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,769
    )
    
    
    (40,769
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,232
    )
    
    
    
    
    
    
    (1,232
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,001
    )Balances at end of third quarter 2004
    
    
    1,000
    
    
    $
    
    
    
    $
    115,674
    
    
    $
    48,953
    
    
    $
    (175,430
    )
    
    $
    (10,803
    )
 See accompanying notes to the unaudited condensed consolidated financial statements and accompanying report of
independent registered public accounting firm. 3




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 First nine months2004
    
    2003Cash flows from operating activities:Net loss
    
    $
    (40,769
    )
    
    $
    (21,914
    )Items not requiring (providing) cash:Depreciation
    
    
    25,466
    
    
    
    22,850Amortization
    

    
    4,102
    
    
    
    4,233Deferred income tax expense
    
    
    3,236
    
    
    
    4,630Non-cash interest expense
    
    
    14,895
    
    
    
    3,904Equity in joint ventures
    
    
    (650
    )
    
    
    (414
    )Debt extinguishments
    
    
    
    
    
    
    12,143Asset impairments
    
    
    420
    
    
    
    Changes in current assets and liabilities
    
    
    (13,363
    )
    
    
    8,290Net cash provided by (used in) operating activities
    
    
    (6,663
    )
    
    
    33,722Cash flows from investing activities:Capital expenditures
    
    
    (9,934
    )
    
    
    (15,876
    )Proceeds from sale of assets
    
    
    854
    
    
    
    233Other, net
    
    
    (1,492
    )
    
    
    (2,817
    )Net cash used in investing activities
    
    
    (10,572
    )
    
    
    (18,460
    )Cash flows from financing activities:Net repayments under revolving credit agreements
    
    
    
    
    
    
    (15,000
    )Proceeds from issuance of long-term debt
    
    
    13,078
    
    
    
    210,444Principal payments on long-term debt
    
    
    (20,208
    )
    
    
    (207,045
    )Payments for debt issuance costs
    
    
    (3,006
    )
    
    
    (7,761
    )Net cash used in financing activities
    
    
    (10,136
    )
    
    
    (19,362
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    332
    
    
    
    557Decrease in cash and cash equivalents
    
    
    (27,039
    )
    
    
    (3,543
    )Cash and cash equivalents, beginning of period
    
    
    29,293
    
    
    
    7,596Cash and cash equivalents, end of period
    
    $
    2,254
    
    
    $
    4,053
 See accompanying notes to the unaudited condensed consolidated financial statements and accompanying report of
independent registered public accounting firm. 4




---



##### Table of Contents



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 U.S. generally
accepted accounting principles for complete financial statements. The fiscal
2003 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. Certain reclassifications have been made to previously reported
consolidated financial statements to conform with the fiscal 2004 presentation. The unaudited condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
contained in the Companys 2003 annual report on Form 10-K for the fiscal year
ended January 3, 2004, or the 2003 10-K, including related exhibits. The
accounting policies used in preparing these financial statements are the same
as those summarized in the 2003 10-K, with the exception of the Companys
accounting for its Senior Preferred Stock (Redeemable) as discussed in Note 3,
Change in Accounting Principle. The Companys fiscal year ends on the Saturday nearest to the end of
December. Each quarter also ends on a Saturday with the third quarters of
fiscal 2004 and 2003 ending on October 2, 2004 and September 27, 2003,
respectively. (2) Recent Accounting Pronouncements Effective
as of the beginning of the third quarter of fiscal 2004, the Company
adopted Staff Position 106-2, Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug Improvement
and Modernization Act of 2003, or FSP 106-2. FSP 106-2 superceded the FASBs
previously released guidance contained in FSP 106-1. The Company does
not anticipate that the Medicare Act will significantly affect the
accounting for its post-retirement benefit plan, and will incorporate
any effects at its next measurement date. (3) Change in Accounting Principle In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity, or SFAS 150. SFAS 150 required companies to
classify mandatorily redeemable financial instruments as liabilities and was
effective for the first fiscal period beginning after December 15, 2003 for
nonpublic entities. The Company adopted SFAS 150 as of the beginning of fiscal
2004 and reclassified its Senior Preferred Stock (Redeemable) as long-term debt
in its condensed consolidated balance sheet and the related accretion and
dividends as interest expense in its condensed consolidated statement of
operations for the third quarter and the first nine months of fiscal 2004. (4) Inventories A summary of inventories follows (in thousands): 5




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) End ofThird quarter
    
    Fiscal2004
    
    2003Raw materials
    
    $
    14,511
    
    
    $
    14,726Packaging materials
    
    
    22,840
    
    
    
    23,551Finished goods
    
    
    34,537
    
    
    
    34,70371,888
    
    
    
    72,980Allowances
    
    
    (4,620
    )
    
    
    (4,361
    )Total
    
    $
    67,268
    
    
    $
    68,619
 (5) Long-Term Debt A summary of long-term
debt as of the end of the third quarter of fiscal 2004, after giving effect to the
November 5, 2005 refinancing described below, follows (in
thousands): End ofThird quarter
    
    Fiscal2004
    
    2003Revolving Credit Facility
    
    $
    16,000
    
    
    $
    16,000Term Loan Facilities
    
    
    162,974
    
    
    
    169,322Senior notes
    
    
    211,053
    
    
    
    210,779Senior subordinated notes
    
    
    149,058
    
    
    
    148,789Debt of foreign subsidiaries
    
    
    13,549
    
    
    
    14,674Industrial development revenue bonds
    
    
    14,491
    
    
    
    14,482567,125
    
    
    
    574,046Less: Current maturities
    
    
    (3,501
    )
    
    
    (13,185
    )Subtotal
    
    
    563,624
    
    
    
    560,861Senior Preferred Stock (Redeemable)
    
    
    102,389
    
    
    
    Total
    
    $
    666,013
    
    
    $
    560,861
 As of the end of the third
quarter of fiscal 2004, the Companys previous senior credit facility
provided for total commitments of Euro 30.1 million Euro Term Loan
Facility ($37.4 million assuming a Euro to USD exchange rate of
approximately 1.24) and $175.6 million, consisting of a
$125.6 million USD Term Loan Facility and a $50 million
Revolving Credit Facility, with a $20 million sub-limit for the
issuance of letters of credit. All loans under the previous
senior credit facility bore interest at the higher of the Euro dollar
rate plus 5.25%, or the prime rate of the administrative agent plus
4.25%. As of the end of the third quarter of fiscal 2004, the Euro
Term Loan Facility bore interest at 7.34%, the USD Term Loan Facility
bore interest at 7.15% and the Revolving Credit Facility bore
interest at 7.75%. The Senior Preferred Stock (Redeemable) has an initial liquidation
preference of $25 per share (aggregate initial liquidation preference is $30.0
million) with 3.0 million shares authorized and 1.2 million shares issued and
outstanding. Dividends on the Senior Preferred Stock (Redeemable) accrue
quarterly at the rate of 14.25% per annum on the most recent quarterly
liquidation value of each share and accrete to the liquidation value of the
Senior Preferred Stock (Redeemable). The Senior Preferred Stock (Redeemable) is mandatorily
redeemable on September 30, 2007 under circumstances described in the Certificate of Designation governing the Senior Preferred Stock (Redeemable).
See Note 3, Change in Accounting Principle, for a discussion of the reclassification of the Companys Senior
Preferred Stock (Redeemable) as long-term debt as of the beginning of fiscal
2004 and Note 7, Senior Preferred Stock (Redeemable), in the 2003 10-K for
additional disclosures. Refinancing On November 5, 2004, the Company refinanced its existing senior credit
facility by entering into a new senior credit facility with a syndicate of
institutional investors, as lenders, and Credit Suisse First Boston, an
affiliate of the Company, as administrative agent. The new senior credit
facility provides for total commitments of $230.0 million, consisting of a
$195.0 million term loan facility, or the Term Loan Facility, and a $35.0
million revolving credit facility, or the Revolving Credit Facility, with a
$20.0 million sub-limit for issuance of 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 new 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%. The Company will pay principal payments on the Term Loan Facility
of 1% of the initial principal amount per year, payable in equal quarterly
installments. Final maturity of the new senior credit facility is on the earlier of November
5, 2009 or 91 days prior to the maturity of the Senior Subordinated Notes due May 15, 2007, as such notes may be
amended, extended or refinanced, unless terminated sooner upon an event of
default. Current maturities in the balance sheet as of the end of the
third quarter of fiscal 2004 reflects the scheduled maturities in the
new senior credit facility. The Company and its restricted domestic subsidiaries are required to guarantee
amounts outstanding under the new senior credit facility. The indebtedness
incurred pursuant to the new senior credit facility is secured by a first
priority lien on substantially all of the material assets of the Company and
its restricted domestic subsidiaries. The new senior credit facility contains
certain financial and other covenants usual and customary for a secured credit
agreement. 6




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In conjunction with the refinancing, the Company will
recognize in the fourth quarter of fiscal 2004 a non-cash loss on debt extinguishment, the amount of which has not yet been finalized. The Company is highly leveraged and has significant cash requirements for
debt service relating to its new 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 new senior credit facility, including
compliance with the financial covenants therein, and the limitations on the
incurrence of additional indebtedness in the indentures governing the Companys
senior notes and senior subordinated notes. The Company has experienced difficulty in the past satisfying financial
covenants in the previous senior credit facility and negotiated amendments and
obtained waivers for fiscal 2000, 2001 and 2003 due to covenant non-compliance.
The Companys ability to satisfy the covenants included in the new senior
credit facility is determined based on the Companys cash flows, senior secured
debt and capital expenditures. The Company may experience difficulty
satisfying these covenants in the future. If the Company is unable to
negotiate an amendment or secure a waiver from its lenders for any potential
default, it could result in an event of default under its new senior credit
facility and permit a majority of the lenders to accelerate outstanding debt
under its new senior credit facility, terminate the Companys revolving credit
commitment and seize the cash in its
operating accounts. Such acceleration would result in a cross-default under the
Companys senior notes and senior subordinated notes. (6) Accruals for Restructuring Costs A rollforward of the Companys accrued restructuring costs for the first
nine months of fiscal 2004 follows (in thousands): 7




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) First ninemonths2004Balance at end of fiscal 2003
    
    $
    1,154Plant closure costs
    
    
    3,715Severance
    
    
    3,028Cash payments
    
    
    (7,010
    )Balance at end of third quarter 2004
    
    $
    887
 The Company incurred total restructuring costs for the first nine months
of fiscal 2004 of approximately $6.7 million, excluding asset impairments,
related to its European restructuring efforts. These restructuring costs
consisted of (1) $3.0 million for severance; (2) $2.4 million for the
installation of transferred equipment; and (3) $1.3 million of manufacturing
inefficiencies through the transition period. For the third quarter of fiscal
2004, the Company incurred manufacturing inefficiency costs of $0.8 million and
installation costs of $0.4 million. The future expected payout of the Companys accrued restructuring costs,
consisting primarily of severance, as of the end of the third quarter of fiscal
2004 follows (in thousands): Fiscal years ending
    
    Payout2004
    
    $
    4362005
    
    
    3872006
    
    
    64Total
    
    $
    887
 (7) Comprehensive Income (Loss) The components of comprehensive income (loss) were as follows (in
thousands): Third quarter
    
    First nine months2004
    
    2003
    
    2004
    
    2003Comprehensive income (loss):Net loss
    
    $
    (15,225
    )
    
    $
    (10,636
    )
    
    $
    (40,769
    )
    
    $
    (21,914
    )Foreign currency translation
    
    
    3,675
    
    
    
    4,470
    
    
    
    (1,232
    )
    
    
    24,881Unrealized gain on interest rate swap, net
of deferred income tax expense of $223
and $619, respectively
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    971Total
    
    $
    (11,550
    )
    
    $
    (5,816
    )
    
    $
    (42,001
    )
    
    $
    3,938
 (8) Stock Option Plan of Parent The Company and its Parent, Doane Pet Care Enterprises, Inc., have elected
to continue to follow Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, or 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 loss for the third quarter and the
first nine months of fiscal 2004 and 2003 would have been adjusted as follows
(in thousands): 8




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Third quarter
    
    First nine months2004
    
    2003
    
    2004
    
    2003Net loss available to common shares
    
    $
    (15,225
    )
    
    $
    (14,064
    )
    
    $
    (40,769
    )
    
    $
    (31,876
    )Less: Total stock-based employee
compensation expense determined based
on the fair value method for all awards, net of income tax benefit
    
    
    (1
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    (6
    )Pro forma net loss available to common shares
    
    $
    (15,226
    )
    
    $
    (14,066
    )
    
    $
    (40,772
    )
    
    $
    (31,882
    )
 Pro forma information regarding net loss has been determined as if the
Company had accounted for its employee stock options under the minimum value
method of SFAS 123 under the assumptions of a risk free rate of return of 3.70%
for the third quarter and first nine months of fiscal 2004 and 2003, and an
expected life of options ranging from 3 to 10 years. The Company has no present
plans to pay dividends on its common stock. The effect of applying SFAS 123, as
calculated above, may not be representative of the effect on reported net
income (loss) for future years. (9) Benefit Plans Pension Plans The Company has an inactive defined benefit, non-contributory pension plan
covering certain hourly and salaried employees. As a result, future benefits no
longer accumulate and the Companys service cost ceased. The Companys funding
policy for this plan is to make the minimum annual contribution required by
applicable regulations. The Company also has an active defined benefit,
non-contributory pension plan covering approximately 50 union employees at one
of its facilities. The information below for both pension plans has been
determined based on the three and nine months ending September 30, 2004 and
2003, respectively. Under federal law, the Company was not required to make any cash
contributions to its inactive plan in fiscal 2003 or the first nine months of
fiscal 2004. A summary of net periodic cost for the Companys pension plans follows (in
thousands): Third quarter
    
    First nine months2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    9
    
    
    $
    7
    
    
    $
    27
    
    
    $
    21Interest cost
    
    
    270
    
    
    
    268
    
    
    
    810
    
    
    
    804Expected income on plan assets
    
    
    (347
    )
    
    
    (311
    )
    
    
    (1,040
    )
    
    
    (934
    )Amortization
    
    
    173
    
    
    
    187
    
    
    
    518
    
    
    
    562Net periodic pension cost
    
    $
    105
    
    
    $
    151
    
    
    $
    315
    
    
    $
    453
 Post-retirement Plan The Company has a post-retirement healthcare plan that provides medical
coverage for eligible retirees and their dependents. The Company pays benefits
under the plan when due and does not fund its plan obligations as they accrue.
The post-retirement plan information below has been determined based on the
three and nine months ending September 30, 2004 and 2003, respectively. A summary of net periodic cost for the Companys post-retirement plan
follows (in thousands): 9




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Third quarter
    
    First nine months2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    3
    
    
    $
    5
    
    
    $
    10
    
    
    $
    15Interest cost
    
    
    75
    
    
    
    78
    
    
    
    225
    
    
    
    234Amortization
    
    
    14
    
    
    
    6
    
    
    
    42
    
    
    
    19Net periodic post-retirement cost
    
    $
    92
    
    
    $
    89
    
    
    $
    277
    
    
    $
    268
 (10) Commitments and Contingencies In the first quarter of fiscal 2004, the Company won an arbitration award
from Merrick Petfoods, Inc., or Merrick, after Merrick terminated the joint
venture agreement with the Company related to a manufacturing facility in
Hereford, Texas. The award consisted of an initial payment and monthly royalty
payments. Under the arbitration agreement, the royalty payments will continue
for approximately nine years and are based on Merricks future sales volumes of
certain products. In the first quarter of fiscal 2004, the Company recorded
$1.0 million relating to the award, consisting of both the initial payment of
$0.8 million, recorded as an offset to other operating expenses, and royalty
payments of $0.2 million, recorded as other expense (income), net. Royalty
payments made subsequent to the initial payment in the first nine months of
fiscal 2004 did not have a material impact on the Companys results of
operations, nor does the Company expect future payments to have a material
impact. The Company is also a party to other legal proceedings in the ordinary
course of business. The resolution of such matters is not expected to have a
material adverse effect on the Companys financial position, results of
operations or cash flows. (11) Financial Information Related to Guarantor Subsidiaries Unaudited condensed consolidated financial information related to the
Company and its guarantor subsidiaries and non-guarantor subsidiaries as of the
end of the third quarter of fiscal 2004 and the end of fiscal 2003 and for the
third quarter and first nine months of fiscal 2004 and 2003 is disclosed to
comply with the reporting requirements of the Companys guarantor subsidiaries.
The guarantor subsidiaries are wholly-owned domestic subsidiaries of the
Company which have fully and unconditionally guaranteed the Companys new senior credit facility, the 103⁄4%
Senior Notes due March 1, 2010 and the Companys 93⁄4% Senior Subordinated
Notes due May 15, 2007. The non-guarantor subsidiaries are wholly-owned
foreign subsidiaries of the Company which have not fully and unconditionally
guaranteed the Companys new senior credit facility, the 103⁄4% Senior Notes due March 1, 2010 or the
Companys 93⁄4% Senior Subordinated Notes due May 15, 2007. See Note 6,
Long-Term Debt and Liquidity, in the Companys 2003 10-K. Unaudited condensed
consolidated financial information follows (in thousands, except share and par
value amounts): 10




---



##### Table of Contents



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 third quarter 2004Non-
    
    IntercompanyGuarantor
    
    guarantor
    
    eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    78
    
    
    $
    2,176
    
    
    $
    
    
    
    $
    2,254Accounts receivable, net
    
    
    49,158
    
    
    
    56,648
    
    
    
    
    
    
    
    105,806Inventories, net
    
    
    39,061
    
    
    
    28,207
    
    
    
    
    
    
    
    67,268Deferred tax assets
    
    
    2,449
    
    
    
    
    
    
    
    
    
    
    
    2,449Prepaid expenses and other current assets
    
    
    8,970
    
    
    
    2,244
    
    
    
    
    
    
    
    11,214Total current assets
    
    
    99,716
    
    
    
    89,275
    
    
    
    
    
    
    
    188,991Property, plant and equipment, net
    
    
    147,456
    
    
    
    100,821
    
    
    
    
    
    
    
    248,277Goodwill and trademarks
    
    
    267,780
    
    
    
    111,885
    
    
    
    
    
    
    
    379,665Other assets
    
    
    260,397
    
    
    
    13,257
    
    
    
    (240,520
    )
    
    
    33,134Total assets
    
    $
    775,349
    
    
    $
    315,238
    
    
    $
    (240,520
    )
    
    $
    850,067LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current maturities of long-term debt
    
    $
    1,950
    
    
    $
    1,551
    
    
    $
    
    
    
    $
    3,501Accounts payable
    
    
    45,936
    
    
    
    44,026
    
    
    
    
    
    
    
    89,962Accrued liabilities
    
    
    44,485
    
    
    
    15,343
    
    
    
    
    
    
    
    59,828Total current liabilities
    
    
    92,371
    
    
    
    60,920
    
    
    
    
    
    
    
    153,291Long-term debt:Long-term debt, excluding current maturities
    
    
    551,626
    
    
    
    163,509
    
    
    
    (151,511
    )
    
    
    563,624Senior Preferred Stock (Redeemable)
    
    
    102,389
    
    
    
    
    
    
    
    
    
    
    
    102,389Total long-term debt
    
    
    654,015
    
    
    
    163,509
    
    
    
    (151,511
    )
    
    
    666,013Deferred tax liabilities
    
    
    29,782
    
    
    
    2,518
    
    
    
    
    
    
    
    32,300Other long-term liabilities
    
    
    9,266
    
    
    
    
    
    
    
    
    
    
    
    9,266Total liabilities
    
    
    785,434
    
    
    
    226,947
    
    
    
    (151,511
    )
    
    
    860,870Commitments and contingenciesStockholders equity (deficit):Common stock, $0.01 par value; 1,000 shares
authorized, issued and outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    115,674
    
    
    
    89,749
    
    
    
    (89,749
    )
    
    
    115,674Accumulated other comprehensive income (loss)
    
    
    (15,301
    )
    
    
    63,514
    
    
    
    740
    
    
    
    48,953Accumulated deficit
    
    
    (110,458
    )
    
    
    (64,972
    )
    
    
    
    
    
    
    (175,430
    )Total stockholders equity (deficit)
    
    
    (10,085
    )
    
    
    88,291
    
    
    
    (89,009
    )
    
    
    (10,803
    )Total liabilities and stockholders
equity (deficit)
    
    $
    775,349
    
    
    $
    315,238
    
    
    $
    (240,520
    )
    
    $
    850,067
 11




---



##### Table of Contents



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 fiscal 2003Non-
    
    IntercompanyGuarantor
    
    guarantor
    
    eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,939
    
    
    $
    3,354
    
    
    $
    
    
    
    $
    29,293Accounts receivable, net
    
    
    35,639
    
    
    
    55,930
    
    
    
    
    
    
    
    91,569Inventories, net
    
    
    43,616
    
    
    
    25,003
    
    
    
    
    
    
    
    68,619Deferred tax assets
    
    
    1,898
    
    
    
    
    
    
    
    
    
    
    
    1,898Prepaid expenses and other current assets
    
    
    10,727
    
    
    
    3,663
    
    
    
    
    
    
    
    14,390Total current assets
    
    
    117,819
    
    
    
    87,950
    
    
    
    
    
    
    
    205,769Property, plant and equipment, net
    
    
    156,697
    
    
    
    109,760
    
    
    
    
    
    
    
    266,457Goodwill and trademarks
    
    
    267,780
    
    
    
    112,638
    
    
    
    
    
    
    
    380,418Other assets
    
    
    241,749
    
    
    
    12,396
    
    
    
    (220,875
    )
    
    
    33,270Total assets
    
    $
    784,045
    
    
    $
    322,744
    
    
    $
    (220,875
    )
    
    $
    885,914LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    8,952
    
    
    $
    4,233
    
    
    $
    
    
    
    $
    13,185Accounts payable
    
    
    52,006
    
    
    
    48,506
    
    
    
    
    
    
    
    100,512Accrued liabilities
    
    
    39,921
    
    
    
    11,798
    
    
    
    
    
    
    
    51,719Total current liabilities
    
    
    100,879
    
    
    
    64,537
    
    
    
    
    
    
    
    165,416Long-term debt, excluding current maturities
    
    
    550,420
    
    
    
    165,251
    
    
    
    (154,810
    )
    
    
    560,861Deferred tax liabilities
    
    
    26,161
    
    
    
    2,363
    
    
    
    
    
    
    
    28,524Other long-term liabilities
    
    
    8,863
    
    
    
    
    
    
    
    
    
    
    
    8,863Total liabilities
    
    
    686,323
    
    
    
    232,151
    
    
    
    (154,810
    )
    
    
    763,664Senior Preferred Stock (Redeemable)
    
    
    91,052
    
    
    
    
    
    
    
    
    
    
    
    91,052Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 1,000 shares
authorized, issued and outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    115,674
    
    
    
    67,040
    
    
    
    (67,040
    )
    
    
    115,674Accumulated other comprehensive income (loss)
    
    
    (15,562
    )
    
    
    64,772
    
    
    
    975
    
    
    
    50,185Accumulated deficit
    
    
    (93,442
    )
    
    
    (41,219
    )
    
    
    
    
    
    
    (134,661
    )Total stockholders equity
    
    
    6,670
    
    
    
    90,593
    
    
    
    (66,065
    )
    
    
    31,198Total liabilities and stockholders equity
    
    $
    784,045
    
    
    $
    322,744
    
    
    $
    (220,875
    )
    
    $
    885,914
 12




---



##### 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 Third quarter 2004Non-Guarantor
    
    guarantor
    
    ConsolidatedNet sales
    
    $
    180,580
    
    
    $
    70,397
    
    
    $
    250,977Cost of goods sold
    
    
    162,925
    
    
    
    55,240
    
    
    
    218,165Gross profit
    
    
    17,655
    
    
    
    15,157
    
    
    
    32,812Operating expenses:Promotion and distribution
    
    
    5,970
    
    
    
    7,807
    
    
    
    13,777Selling, general and administrative
    
    
    8,667
    
    
    
    3,794
    
    
    
    12,461Amortization
    
    
    788
    
    
    
    205
    
    
    
    993Other operating expenses
    
    
    
    
    
    
    1,168
    
    
    
    1,168Income from operations
    
    
    2,230
    
    
    
    2,183
    
    
    
    4,413Interest expense, net
    
    
    12,320
    
    
    
    6,112
    
    
    
    18,432Other expense (income), net
    
    
    (183
    )
    
    
    93
    
    
    
    (90
    )Loss before income taxes
    
    
    (9,907
    )
    
    
    (4,022
    )
    
    
    (13,929
    )Income tax expense
    
    
    1,069
    
    
    
    227
    
    
    
    1,296Net loss
    
    $
    (10,976
    )
    
    $
    (4,249
    )
    
    $
    (15,225
    )
 Third quarter 2003Non-Guarantor
    
    guarantor
    
    ConsolidatedNet sales
    
    $
    178,052
    
    
    $
    65,758
    
    
    $
    243,810Cost of goods sold
    
    
    155,661
    
    
    
    51,309
    
    
    
    206,970Gross profit
    
    
    22,391
    
    
    
    14,449
    
    
    
    36,840Operating expenses:Promotion and distribution
    
    
    7,136
    
    
    
    7,567
    
    
    
    14,703Selling, general and administrative
    
    
    8,284
    
    
    
    3,793
    
    
    
    12,077Amortization
    
    
    984
    
    
    
    187
    
    
    
    1,171Income from operations
    
    
    5,987
    
    
    
    2,902
    
    
    
    8,889Interest expense, net
    
    
    8,299
    
    
    
    6,372
    
    
    
    14,671Debt extinguishments
    
    
    1,030
    
    
    
    
    
    
    
    1,030Other expense (income), net
    
    
    (309
    )
    
    
    108
    
    
    
    (201
    )Loss before income taxes
    
    
    (3,033
    )
    
    
    (3,578
    )
    
    
    (6,611
    )Income tax expense
    
    
    3,891
    
    
    
    134
    
    
    
    4,025Net loss
    
    
    (6,924
    )
    
    
    (3,712
    )
    
    
    (10,636
    )Preferred stock dividends and accretion
    
    
    (3,428
    )
    
    
    
    
    
    
    (3,428
    )Net loss available to common shares
    
    $
    (10,352
    )
    
    $
    (3,712
    )
    
    $
    (14,064
    )
 13




---



##### 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 nine months 2004Non-Guarantor
    
    guarantor
    
    ConsolidatedNet sales
    
    $
    572,520
    
    
    $
    207,675
    
    
    $
    780,195Cost of goods sold
    
    
    509,641
    
    
    
    163,787
    
    
    
    673,428Gross profit
    
    
    62,879
    
    
    
    43,888
    
    
    
    106,767Operating expenses:Promotion and distribution
    
    
    19,325
    
    
    
    22,446
    
    
    
    41,771Selling, general and administrative
    
    
    25,773
    
    
    
    12,674
    
    
    
    38,447Amortization
    
    
    2,744
    
    
    
    612
    
    
    
    3,356Other operating expenses
    
    
    (415
    )
    
    
    6,744
    
    
    
    6,329Income from operations
    
    
    15,452
    
    
    
    1,412
    
    
    
    16,864Interest expense, net
    
    
    36,276
    
    
    
    18,319
    
    
    
    54,595Other expense (income), net
    
    
    (1,317
    )
    
    
    489
    
    
    
    (828
    )Loss before income taxes
    
    
    (19,507
    )
    
    
    (17,396
    )
    
    
    (36,903
    )Income tax expense
    
    
    3,070
    
    
    
    796
    
    
    
    3,866Net loss
    
    $
    (22,577
    )
    
    $
    (18,192
    )
    
    $
    (40,769
    )
 First nine months 2003Non-Guarantor
    
    guarantor
    
    ConsolidatedNet sales
    
    $
    555,779
    
    
    $
    182,456
    
    
    $
    738,235Cost of goods sold
    
    
    476,400
    
    
    
    141,126
    
    
    
    617,526Gross profit
    
    
    79,379
    
    
    
    41,330
    
    
    
    120,709Operating expenses:Promotion and distribution
    
    
    21,642
    
    
    
    20,268
    
    
    
    41,910Selling, general and administrative
    
    
    24,387
    
    
    
    12,171
    
    
    
    36,558Amortization
    
    
    2,926
    
    
    
    562
    
    
    
    3,488Income from operations
    
    
    30,424
    

    
    
    8,329
    
    
    
    38,753Interest expense, net
    
    
    23,003
    
    
    
    20,540
    
    
    
    43,543Debt extinguishments
    
    
    12,143
    
    
    
    
    
    
    
    12,143Other expense (income), net
    
    
    (1,032
    )
    
    
    246
    
    
    
    (786
    )Loss before income taxes
    
    
    (3,690
    )
    
    
    (12,457
    )
    
    
    (16,147
    )Income tax expense
    
    
    4,791
    
    
    
    976
    
    
    
    5,767Net loss
    
    
    (8,481
    )
    
    
    (13,433
    )
    
    
    (21,914
    )Preferred stock dividends and accretion
    
    
    (9,962
    )
    
    
    
    
    
    
    (9,962
    )Net loss available to common shares
    
    $
    (18,443
    )
    
    $
    (13,433
    )
    
    $
    (31,876
    )
 14




---



##### 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 nine months 2004Non-Guarantor
    
    guarantor
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (22,577
    )
    
    $
    (18,192
    )
    
    $
    (40,769
    )Items not requiring (providing) cash:Depreciation and amortization
    
    
    17,183
    
    
    
    12,385
    
    
    
    29,568Deferred income tax expense
    
    
    3,070
    
    
    
    166
    
    
    
    3,236Asset impairments
    
    
    420
    
    
    
    
    
    
    
    420Other non-cash charges (income), net
    
    
    14,405
    
    
    
    (160
    )
    
    
    14,245Changes in current assets and liabilities
    
    
    (25,655
    )
    
    
    12,292
    
    
    
    (13,363
    )Net cash provided by (used in) operating activities
    
    
    (13,154
    )
    
    
    6,491
    
    
    
    (6,663
    )Cash flows from investing activities:Capital expenditures
    
    
    (5,186
    )
    
    
    (4,748
    )
    
    
    (9,934
    )Proceeds from sale of assets
    
    
    
    
    
    
    854
    
    
    
    854Other, net
    
    
    1,572
    
    
    
    (3,064
    )
    
    
    (1,492
    )Net cash used in investing activities
    
    
    (3,614
    )
    
    
    (6,958
    )
    
    
    (10,572
    )Cash flows from financing activities:Proceeds from the issuance of long-term debt
    
    
    
    
    
    
    13,078
    
    
    
    13,078Principal payments on long-term debt
    
    
    (6,087
    )
    
    
    (14,121
    )
    
    
    (20,208
    )Payments for debt issuance costs
    
    
    (3,006
    )
    
    
    
    
    
    
    (3,006
    )Net cash used in financing activities
    
    
    (9,093
    )
    
    
    (1,043
    )
    
    
    (10,136
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    332
    
    
    
    332Decrease in cash and cash equivalents
    
    
    (25,861
    )
    
    
    (1,178
    )
    
    
    (27,039
    )Cash and cash equivalents, beginning of period
    
    
    25,939
    
    
    
    3,354
    
    
    
    29,293Cash and cash equivalents, end of period
    
    $
    78
    
    
    $
    2,176
    
    
    $
    2,254
 15




---



##### 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 nine months 2003Non-Guarantor
    
    guarantor
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (8,481
    )
    
    $
    (13,433
    )
    
    $
    (21,914
    )Items not requiring (providing) cash:Depreciation and amortization
    
    
    16,068
    
    
    
    11,015
    
    
    
    27,083Deferred income tax expense (benefit)
    
    
    4,791
    
    
    
    (161
    )
    
    
    4,630Debt extinguishments
    
    
    12,143
    
    
    
    
    
    
    
    12,143Other non-cash charges (income), net
    
    
    3,666
    
    
    
    (176
    )
    
    
    3,490Changes in current assets and liabilities
    
    
    (7,744
    )
    
    
    16,034
    
    
    
    8,290Net cash provided by operating activities
    
    
    20,443
    
    
    
    13,279
    
    
    
    33,722Cash flows from investing activities:Capital expenditures
    
    
    (8,297
    )
    
    
    (7,579
    )
    
    
    (15,876
    )Proceeds from sale of assets
    
    
    52
    
    
    
    181
    
    
    
    233Other, net
    
    
    4,229
    
    
    
    (7,046
    )
    
    
    (2,817
    )Net cash used in investing activities
    
    
    (4,016
    )
    
    
    (14,444
    )
    
    
    (18,460
    )Cash flows from financing activities:Net repayments under revolving credit agreements
    
    
    (15,000
    )
    
    
    
    
    
    
    (15,000
    )Proceeds from issuance of long-term debt
    
    
    210,444
    
    
    
    
    
    
    
    210,444Principal payments on long-term debt
    
    
    (204,092
    )
    
    
    (2,953
    )
    
    
    (207,045
    )Payments for debt issuance costs
    
    
    (7,761
    )
    
    
    
    
    
    
    (7,761
    )Net cash used in financing activities
    
    
    (16,409
    )
    
    
    (2,953
    )
    
    
    (19,362
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    557
    
    
    
    557Increase (decrease) in cash and cash equivalents
    
    
    18
    
    
    
    (3,561
    )
    
    
    (3,543
    )Cash and cash equivalents, beginning of period
    
    
    57
    
    
    
    7,539
    
    
    
    7,596Cash and cash equivalents, end of period
    
    $
    75
    
    
    $
    3,978
    
    
    $
    4,053
 16




---



##### 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 October 2, 2004, the related condensed
consolidated statements of operations for the three-month and nine-month
periods ended October 2, 2004 and September 27, 2003, the related condensed
consolidated statement of stockholders equity (deficit) and comprehensive loss
for the nine-month period ended October 2, 2004 and the related condensed
consolidated statements of cash flows for the nine-month periods ended October
2, 2004 and September 27, 2003. 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 3, 2004, 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 February 25, 2004, except as to Note 6, which was as of
March 9, 2004, we expressed an unqualified opinion on those consolidated
financial statements. Our report refers to a change in accounting for goodwill
and other intangible assets in fiscal 2002. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of January 3,
2004 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived. As discussed in Note 3 to the accompanying condensed consolidated financial
statements, effective January 4, 2004, Doane Pet Care Company and subsidiaries
adopted Statement of Financial Accounting Standards No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. /s/ KPMG LLPNashville,TennesseeNovember 10, 2004
 17




---



##### 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 3, 2004, or the 2003 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, our market risks
relating to commodity 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 our other debt 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 2003 10-K. 18




---



##### 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. Third Quarter Fiscal 2004 in Review In the third quarter of fiscal 2004, net sales increased 2.9% to $251.0
million from $243.8 million in the third quarter of fiscal 2003. Excluding the
impact of foreign currency exchange rate fluctuations, net sales increased
0.6%. The favorable impact of our 2004 domestic price increases, described below, was partially
offset by lower domestic sales volume due to the 2004 domestic price
increases. The $4.0 million decrease in our gross profit was a
result of higher global commodity costs, partially offset by the above factors.
Our net loss of $15.2 million was further impacted by two factors. First, we
recognized additional European restructuring costs in the amount of $1.2
million primarily relating to our consolidation of the Vrä, Denmark facility.
Second, we recognized $3.9 million of accretion and dividends relating to our
Senior Preferred Stock (Redeemable) as interest expense in connection with our
adoption of SFAS 150, described below. Due to higher than expected commodity costs and the volatility of domestic
commodity prices, we implemented a broad price increase in January 2004 of
approximately 7.5% to 9.5% followed by additional price increases in the second
quarter of 2004 of approximately 6.0% to 8.0% for most of our domestic
products.In addition, we have cost-sharing arrangements with certain of our
domestic customers such that we now have approximately 80% of our domestic
volume under some form of cost-sharing arrangement. In the aggregate, these
arrangements enable us to pass through to our domestic customers approximately
half of any commodity movements, whether up or down. Because we generally do
not have long-term contracts with our customers, our recent price increases and
our cost-sharing arrangements are subject to change. Our European restructuring plan neared completion in the third quarter of
fiscal 2004. We recognized $1.2 million of other operating expenses during the
period consisting of manufacturing inefficiencies and installation costs. Our
European restructuring plan is comprised of two major components: (1) the
consolidation of our wet pet food operation in Vrä, Denmark into our facility
in Esbjerg, Denmark and our recently expanded facility in Carat, Austria; and
(2) the reorganization of certain of our European subsidiaries to more
efficiently manage our foreign operations and reduce selling, general and
administrative expenses. We anticipate that this project will result in lower
labor and administrative costs and other operating efficiencies estimated to be
approximately $4 million to $5 million on an annual basis. As of the beginning of fiscal 2004, we adopted Statement of Financial
Accounting Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, or SFAS 150. SFAS 150 required
us to reclassify our Senior Preferred Stock (Redeemable) to long-term debt and
to recognize the related accretion and dividends of $3.9 million for the third
quarter of fiscal 2004 as interest expense rather than as a component of
stockholders equity. SFAS 150 explicitly prohibits restatement of prior
periods. See Note 3, Change in Accounting Principle, in the accompanying
unaudited condensed consolidated financial statements. On November 5, 2004, we refinanced our existing senior credit facility by
entering into a new senior credit facility with a syndicate of institutional
investors, as lenders, and Credit Suisse First Boston, as administrative agent.
The new senior credit facility provides 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
letters of credit. We used approximately $180.5 million of the proceeds from the new term loan facility to
pay off the previous senior credit facility. In addition, we estimate that we will use
approximately $6.0 million from the new term loan proceeds to pay fees and expenses related
to the new senior credit facility, with the remaining $8.5 million in net proceeds to be
used for general corporate purposes. The refinancing improved our capital structure by replacing
our previous senior credit facility, portions of which were scheduled to mature in
fiscal 2005, as well as lowering our debt service costs and increasing our
liquidity. Financial Covenant Compliance One of our major risks is our ability to finance our cash requirements for
debt service under our new senior credit facility and our other debt and to comply
with the financial covenants under our new senior credit facility. 19




---



##### Table of Contents



Our new senior credit facility requires us to maintain specified financial
ratios and satisfy certain financial tests which, if violated, could place us
in default, and our lenders could then accelerate our debt and prohibit us from
borrowing additional funds from this facility to meet our liquidity needs. As discussed above, we entered into a new senior credit facility on
November 5, 2004. Our ability to meet the financial ratios and tests required
under our new senior credit facility can be affected by events beyond our
control, such as prevailing economic, financial or industry conditions. The
occurrence of any adverse event may prevent us from meeting these financial ratios
and tests. We have experienced difficulty in the past satisfying the financial
covenants in our previous senior credit facility and have negotiated amendments
and obtained waivers from our previous lenders for fiscal 2000, 2001 and 2003
due to covenant non-compliance. If we violate the covenants under the new
senior credit facility and are unable to either negotiate amendments or obtain
waivers from our lenders, we could be in default under our new senior credit facility and permit a majority of the lenders to accelerate outstanding
debt under our
new 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 payments on our
debt and for operational and capital requirements. Results of Operations We manufacture pet food, primarily private label, in the United States and
Europe using 29 combined manufacturing and distribution facilities that we own
or lease. We manufacture pet food products primarily for dogs and cats,
including dry, wet, semi-moist, soft dry, soft treats and 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 and selling, general and administrative 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 volume and product sales. We have foreign currency exposure related to foreign-denominated revenues
and costs translated into U.S. dollars, or USD, primarily related to the Euro
to USD exchange rate. Our results of operations were impacted by foreign
currency exchange rate fluctuations for the three and nine-month periods ending
in the third quarter of fiscal 2004 and 2003. For the purpose of evaluating
our results of operations, the average Euro to USD exchange rates for the three
months ending in the third quarter of fiscal 2004 and 2003 were approximately
1.22 and 1.12, respectively, and for the nine months ending in the third
quarter of fiscal 2004 and 2003 were approximately 1.23 and 1.11, respectively.
For the purpose of evaluating our financial position, the Euro to USD exchange
rates as of end of the third quarter of fiscal 2004 and the end of fiscal 2003
were approximately 1.24 and 1.25, respectively. Our fiscal year ends on the Saturday nearest to the end of December; and
therefore, fiscal 2003 ended on January 3, 2004. Each quarter also ends on a
Saturday with the third quarter of fiscal 2004 and 2003 ending on October 2,
2004 and September 27, 2003, respectively. 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 third quarter and first nine months of fiscal 2004 and 2003 as indicated
(table in thousands, except percentages): 20




---



##### Table of Contents



Third quarter
    
    First nine months2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    250,977
    
    
    
    100.0
    %
    
    $
    243,810
    
    
    
    100.0
    %
    
    $
    780,195
    
    
    
    100.0
    %
    
    $
    738,235
    
    
    
    100.0
    %Cost of goods sold:Commodity costs
    
    
    129,427
    
    
    
    51.6
    
    
    
    115,559
    
    
    
    47.4
    
    
    
    399,903
    
    
    
    51.2
    
    
    
    352,685
    
    
    
    47.7Other
    
    
    88,738
    
    
    
    35.3
    
    
    
    91,411
    
    
    
    37.5
    
    
    
    273,525
    
    
    
    35.1
    
    
    
    264,841
    
    
    
    35.9Total cost of goods sold
    
    
    218,165
    
    
    
    86.9
    
    
    
    206,970
    
    
    
    84.9
    
    
    
    673,428
    
    
    
    86.3
    
    
    
    617,526
    
    
    
    83.6Gross profit
    
    
    32,812
    
    
    
    13.1
    
    
    
    36,840
    
    
    
    15.1
    
    
    
    106,767
    
    
    
    13.7
    
    
    
    120,709
    
    
    
    16.4Operating expenses:Promotion and distribution
    
    
    13,777
    
    
    
    5.5
    
    
    
    14,703
    
    
    
    6.0
    
    
    
    41,771
    
    
    
    5.4
    
    
    
    41,910
    
    
    
    5.7Selling, general and administrative
    
    
    12,461
    
    
    
    5.0
    
    
    
    12,077
    
    
    
    5.0
    
    
    
    38,447
    
    
    
    4.9
    
    
    
    36,558
    
    
    
    5.0Amortization
    
    
    993
    
    
    
    0.4
    
    
    
    1,171
    
    
    
    0.5
    
    
    
    3,356
    
    
    
    0.4
    
    
    
    3,488
    
    
    
    0.5Other operating expenses
    
    
    1,168
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    6,329
    
    
    
    0.8
    
    
    
    
    
    
    
    Income from operations
    
    
    4,413
    
    
    
    1.7
    
    
    
    8,889
    
    
    
    3.6
    
    
    
    16,864
    
    
    
    2.2
    
    
    
    38,753
    
    
    
    5.2Interest expense, net
    
    
    18,432
    
    
    
    7.3
    
    
    
    14,671
    
    
    
    6.0
    
    
    
    54,595
    
    
    
    7.0
    
    
    
    43,543
    
    
    
    5.9Debt extinguishments
    
    
    
    
    
    
    
    
    
    
    1,030
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    12,143
    
    
    
    1.6Other income, net
    
    
    (90
    )
    
    
    
    
    
    
    (201
    )
    
    
    (0.1
    )
    
    
    (828
    )
    
    
    (0.1
    )
    
    
    (786
    )
    
    
    (0.1
    )Loss before income taxes
    
    
    (13,929
    )
    
    
    (5.6
    )
    
    
    (6,611
    )
    
    
    (2.7
    )
    
    
    (36,903
    )
    
    
    (4.7
    )
    
    
    (16,147
    )
    
    
    (2.2
    )Income tax expense
    
    
    1,296
    
    
    
    0.5
    
    
    
    4,025
    
    
    
    1.7
    
    
    
    3,866
    
    
    
    0.5
    
    
    
    5,767
    
    
    
    0.8Net loss
    
    $
    (15,225
    )
    
    
    (6.1
    )%
    
    $
    (10,636
    )
    
    
    (4.4
    )%
    
    $
    (40,769
    )
    
    
    (5.2
    )%
    
    $
    (21,914
    )
    
    
    (3.0
    )%
 Third quarter of fiscal 2004 compared to third quarter of fiscal 2003 Net sales. Net sales for the third quarter of fiscal 2004 increased 2.9%
to $251.0 million from $243.8 million in the third quarter of fiscal 2003.
Excluding the impact of foreign currency exchange fluctuations in the third
quarter of fiscal 2004, net sales increased 0.6%, or $1.5 million. The
increase in net sales in the third quarter of fiscal 2004 was primarily due to
our domestic price increases partially offset by a decrease in domestic sales
volume. The decrease in domestic sales volume is primarily a result of the impact of our domestic price increases on volume. Gross profit.Gross profit in the third quarter of fiscal 2004 decreased
10.9% to $32.8 million from $36.8 million in the third quarter of fiscal 2003.
Excluding the impact of foreign currency exchange fluctuations in the third
quarter of fiscal 2004, gross profit decreased 14.2%, or $5.2 million. This
decrease was primarily due to higher global commodity costs, which increased as
a percentage of net sales to 51.6% in the third quarter of fiscal 2004 from
47.4% in the third quarter of fiscal 2003, and lower consolidated sales volume,
partially offset by the positive impact of the 2004 domestic price increases
and lower manufacturing costs. Promotion and distribution. Promotion and distribution expenses for the
third quarter of fiscal 2004 decreased 6.3% to $13.8 million from $14.7 million
in the third quarter of fiscal 2003. As a percent of sales, promotion and
distribution expenses decreased to 5.5% for the third quarter of fiscal 2004
from 6.0% for the third quarter of fiscal 2003 as a result of lower
distribution expenses due to the closing of our Alexandria distribution center. Selling, general and administrative. Selling, general and administrative
expenses in the third quarter of fiscal 2004 increased 3.2%, or $0.4 million,
from the third quarter of fiscal 2003. Excluding the impact of foreign
currency exchange fluctuations in the third quarter of fiscal 2004, selling,
general and administrative expenses were consistent as these expenses increased
0.1%, or $0.1 million from the third quarter of 2003. Other operating expenses.Other operating expenses of $1.2 million in the
third quarter of fiscal 2004 consisted of manufacturing inefficiency costs of
$0.8 million and installation costs of $0.4 million related to our European
restructuring plan. Interest expense, net. Interest expense, net of interest income, in the
third quarter of fiscal 2004 increased 25.6%, or $3.7 million, to $18.4 million
from $14.7 million in the third quarter of fiscal 2003. The increase was
primarily due to $3.9 million of accretion and dividends relating to our Senior
Preferred 21




---



##### Table of Contents



Stock (Redeemable). See Note 3, Change in Accounting Principle, in
the accompanying unaudited condensed consolidated financial statements. Debt extinguishments.Debt extinguishments of $1.0 million for
the third quarter of fiscal 2003 related to a $15.0 million optional prepayment
on our senior credit facility. Income tax expense. We recognized income tax expense of $1.3 million in
the third quarter of fiscal 2004 compared to $4.0 million in the third quarter
of fiscal 2003. We recorded valuation allowances against deferred tax assets
of $7.0 million and $6.2 million in the third quarter of fiscal 2004 and 2003,
respectively. First nine months fiscal 2004 compared to first nine months fiscal 2003 Net sales.Net sales for the first nine months of fiscal 2004 increased
5.7% to $780.2 million from $738.2 million for the first nine months of fiscal
2003. Excluding the impact of foreign currency exchange fluctuations in the
first nine months of 2004, net sales increased 3.0%, or $22.4 million. The
increase in net sales in the first nine months of fiscal 2004 was primarily due
to our domestic price increases and European sales volume growth, partially
offset by a decrease in domestic sales volume. The decrease in domestic sales
volume was due to our domestic price increases and the
initial prohibition and subsequent limitations imposed by Mexico on the export
of pet food from the United States to Mexico. Gross profit.Gross profit for the first nine months of fiscal 2004
decreased 11.6% to $106.8 million from $120.7 million for the first nine months
of fiscal 2003. Excluding the impact of foreign currency exchange
fluctuations, gross profit decreased 15.0%, or $18.1 million. This decrease
was primarily due to higher global commodity costs, which increased as a
percentage of net sales to 51.2% in the first nine months of fiscal 2004 from
47.7% in the first nine months of fiscal 2003, and lower consolidated sales
volume, partially offset by the positive impact of the 2004 domestic price
increases. As a percentage of sales, other costs of goods sold decreased in
the first nine months of fiscal 2004 compared to the first nine months of
fiscal 2003 as a result of lower manufacturing costs in the United States and
Europe. Promotion and distribution. Promotion and distribution expenses for the
first nine months of fiscal 2004 decreased 0.3% to $41.8 million from $41.9
million for the first nine months of 2003. As a percent of sales, promotion
and distribution expenses were consistent in the first nine months of fiscal
2004 compared to the first nine months of fiscal 2003. Selling, general and administrative.Selling, general and administrative
expenses for the first nine months of fiscal 2004 increased 5.2% to $38.4
million from $36.6 million for the first nine months of 2003. Excluding the
impact of foreign currency exchange fluctuations in the first nine months of
fiscal 2004,
selling, general and administrative expenses increased 1.9%, or $0.7
million from the first nine months of fiscal 2003. Other operating expenses. Other operating expenses of $6.3 million in the
first nine months of fiscal 2004 consisted of: (1) severance costs of $3.0
million, installation costs of $2.4 million and manufacturing inefficiency
costs of $1.3 million related to our European restructuring plan; (2) asset
impairments of $0.4 million related to the closure of our distribution center
in Alexandria, Louisiana; and (3) $0.8 million of income related to the
arbitration award we received from Merrick. See Note 10, Commitments and
Contingencies, in the accompanying unaudited condensed consolidated financial
statements. Interest expense, net.Interest expense, net of interest income, for the
first nine months of fiscal 2004 increased 25.4%, or $11.1 million, from the
first nine months of 2003. The increase was primarily due to $11.3 million of
accretion and dividends relating to our Senior Preferred Stock (Redeemable).
See Note 3, 22




---



##### Table of Contents



Change in Accounting Principle, in the accompanying unaudited
condensed consolidated financial statements. Debt
extinguishments. Debt extinguishments of $12.1
million in the first nine months of fiscal 2003 consisted of $11.1 million
related to our refinancing in February 2003 and $1.0 million related to the
optional prepayment on our senior credit facility in the third quarter of
fiscal 2003, as described in the third quarter results above. Income tax expense.We recognized income tax expense of $3.9 million for
the first nine months of fiscal 2004 compared to $5.8 million for the first
nine months of 2003. We recorded valuation allowances against deferred tax
assets that were generated during these periods of $12.1 million in the 2004
period and $14.9 million in the 2003 period. Liquidity and Capital Resources General On November 5, 2004, we entered into a new senior credit facility. The
information presented in this section gives effect to the new senior credit
facility. We have historically funded our operations, capital expenditures and
working capital requirements with cash flows from operations, bank borrowings
and the issuance of other long-term indebtedness. We are highly leveraged and
have significant cash requirements for debt service relating to our new senior
credit facility, senior notes, senior subordinated notes, industrial
development revenue bonds and foreign debt. Our
principal sources of liquidity consist of cash, working capital and
our borrowing capacity under our revolving credit facility. As of the
end of the third quarter of fiscal 2004, our working capital excluding cash
was $20.1 million. Our cash and borrowing capacity as of the end
of the third quarter of fiscal 2004, on a historical basis and a pro
forma basis after giving effect to the new senior credit facility
follows: Pro forma
    
    HistoricalCash
    
    $
    10.8
    
    
    $
    2.3Revolving credit facility
capacity
    
    
    35.0
    
    
    
    50.0Less:Amounts outstanding under
the revolving credit facility
    
    
    
    
    
    
    (16.0
    )Letters of credit outstanding
    
    
    (5.6
    )
    
    
    (5.3
    )Total
    
    $
    40.2
    
    
    $
    31.0
 We
anticipate that our capital expenditures will not exceed $25 million
for fiscal 2004 and that approximately $10 million to $12 million is required
for maintenance of our business. We believe that we have sufficient
flexibility under our new senior credit facility to meet these needs. We believe that offerings of additional debt securities are possible if
the need arises, although such offerings may not be available to us on
acceptable terms based on market conditions that exist at the time of any such
offering. Moreover, our ability to borrow is limited by our new 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. We may be required to refinance all or a portion of the
principal amount of our outstanding debt on or prior to maturity or a mandatory
redemption date, and we may not have sufficient capital available to us for any
future acquisitions, joint ventures or similar transactions. Although we believe that future borrowings under our new revolving credit
facility will be available to fund our liquidity needs, availability of these
funds is subject to our satisfaction of certain terms and conditions, including
our ability to satisfy the financial covenants in our new senior credit
facility. As discussed below, we have experienced difficulty in the past
generating sufficient operating revenues and cash flows to satisfy financial
covenants associated with the previous senior credit facility and were required
to negotiate amendments and obtain waivers from our lenders. We may experience
difficulty in the future satisfying the financial covenants in our
new senior credit facility and, absent an
amendment or waiver from our lenders, it could result in an event of default
under our new senior credit facility and permit a majority of the lenders 23




---



##### Table of Contents



to
accelerate outstanding debt under our new 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 payments on our
debt and for operational and capital requirements. See Financial Covenant
Compliance above. Statement of Cash Flows Review Net cash used in our operating activities was $6.7 million for the first
nine months of fiscal 2004 compared to net cash provided by operating
activities of $33.7 million for the first nine months of fiscal 2003. The
change is primarily due to an unusually favorable change in working
capital in the third quarter of fiscal 2003 as
a result of reaching more favorable payment terms with certain
customers in that period. Net cash used in our investing activities was $10.6 million for the first
nine months of fiscal 2004 compared to $18.5 million for the first nine months
of fiscal 2003. Capital expenditures for the first nine months of fiscal 2004
were $9.9 million compared to $15.9 million for the first nine months of fiscal
2003. Net cash used in our financing activities was $10.1 million for the first
nine months of fiscal 2004 compared to $19.4 million for the first nine months
of fiscal 2003. In the first nine months of fiscal 2004, we paid $3.0 million
in transaction fees and expenses relating to our March 9, 2004 amendment to our
senior credit facility and made scheduled payments in the amount of $6.1
million on the USD term loan facility of our senior credit facility.
Additionally in June 2004, we refinanced our European loans and borrowed $13.1
million, of which we used $11.8 million to repay the previous loans. In the
second quarter of fiscal 2003, we received $210.4 million of gross proceeds
from the issuance of our senior notes that was used to repay a portion of the
outstanding debt under our senior credit facility, repay our sponsor facility
in full, and pay related transaction fees and expenses. Refinancing On November 5, 2004, we entered into a new senior credit facility with a
syndicate of institutional investors, as lenders, and Credit
Suisse First Boston, as administrative agent. The new senior credit facility
provides 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 letters of credit. The term loan
facility bears interest, at our option, of adjusted LIBOR plus
4.00%, or ABR, as defined in the new senior credit facility
agreement, plus 3.00%. The revolving credit facility bears interest,
at our option, of adjusted LIBOR plus 4.50% or ABR plus 3.50%. We will pay principal payments on the term loan
facility of 1% of the initial principal amount per year, payable in equal quarterly
installments. Final maturity of the new senior
credit facility is on the earlier of November 5, 2009, or 91 days prior to
the maturity of the senior subordinated notes due May 15, 2007, as such notes may be
as amended, extended
or refinanced, unless terminated sooner upon an
event of default. In
conjunction with the refinancing, we will recognize in the fourth quarter of 2004 a non-cash loss on debt
extinguishment, the amount of which has not been finalized. 24




---



##### Table of Contents



New Senior Credit Facility We are highly leveraged and have significant cash requirements for debt
service relating to our new senior credit facility, senior notes, senior
subordinated notes, industrial development revenue bonds and foreign debt. Our
ability to borrow is limited by our new 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. The following is a summary of certain provisions of our new senior credit
facility. The facilities.As of November 5, 2004, our new senior credit facility
provides for total commitments of $230.0 million, consisting of:  
    
    a $195.0 term loan facility and
    
    a $35.0 million revolving credit facility, with a $20.0 million
sub-limit for issuance of letters of credit. As of November 5, 2004, we had no borrowings outstanding under our
new revolving credit facility and $5.6 million of letters of credit outstanding,
resulting in $29.4 million of availability under our new revolving credit facility.
Availability of funds under our new senior credit facility is subject to
certain customary terms and conditions. Interest.The new term loan facility bears interest, at our option, of adjusted LIBOR plus 4.00%, or ABR,
as defined in the new senior credit facility agreement, plus
3.00%. The new revolving credit facility bears interest, at our
option, of adjusted LIBOR plus 4.50% or the ABR plus
3.50%. Maturity. All loans under the new senior credit facility mature on the
earlier of November 5, 2009, or 91 days prior to the maturity of the senior
subordinated notes due May 15, 2007, as such notes may be amended, extended or refinanced, unless terminated
sooner upon an event of default. Prepayments.The loans under our new senior credit facility may be
prepaid and commitments may be reduced. Optional prepayments of the term loan
may not be reborrowed. Covenants. Our new senior credit facility contains financial and other
covenants that we believe are usual and customary for a secured credit
agreement. The financial covenants include the following requirements:  
    
    Minimum Consolidated EBITDA. Our consolidated EBITDA, as defined in
the new senior credit facility, for any period of four consecutive
fiscal quarters ending with any fiscal quarter set forth below must
exceed the following amounts: Fiscal quarter ending on or nearest to
    
    AmountSeptember 30, 2004
    
    $
    70,000,000December 31, 2004
    
    
    70,000,000March 31, 2005
    
    
    72,500,000June 30, 2005
    
    
    75,000,000September 30, 2005
    
    
    80,000,000December 31, 2005
    
    
    80,000,000March 31, 2006 and thereafter
    
    
    85,000,000
 25




---



##### Table of Contents



Our new senior credit facility defines consolidated EBITDA for any period
as consolidated net income for such period plus, without duplication and
to the extent reflected as a charge in the statement of such consolidated
net income for such period, the sum of (a) income tax expense, (b)
consolidated interest expense, (c) non-cash depreciation and amortization
expense, (d) any extraordinary, unusual, transition or non-recurring
expenses or losses (including, whether or not otherwise includable as a
separate item in the statement of such consolidated net income for such
period, non-cash losses on sales of assets outside of the ordinary course
of business), (e) any other non-cash charges (provided that any
non-cash charges added back cannot be duplicated at the time of the
related cash payment) and minus, to the extent
included in the statement of such consolidated net income for such
period, the sum of (x) interest income, (y) any extraordinary, unusual or
non-recurring non-cash income or non-cash gains (including, whether or
not otherwise includable as a separate item in the statement of such
consolidated net income for such period, gains on the sales of assets
outside of the ordinary course of business) and (z) any other non-cash
income, all as determined on a consolidated basis.
    
    Consolidated Senior Secured Leverage. Our consolidated senior
secured debt ratio as of the last day of any period of four consecutive
fiscal quarters ending with the fiscal quarter set forth below must not
exceed ratios as set forth below: Fiscal quarter ending on or nearest to
    
    RatioSeptember 30, 2004 through March 31, 2005
    
    
    2.75:1.00June 30, 2005 through September 30, 2005
    
    
    2.50:1.00December 31, 2005 through June 30, 2007
    
    
    2.25:1.00September 30, 2007 and each fiscal quarter thereafter
    
    
    2.00:1.00
  Consolidated senior secured debt is the outstanding principal balance as
of any day of the loans under the new senior credit facility. Our
consolidated senior secured debt ratio is the ratio of consolidated
senior secured debt to consolidated EBITDA for each respective period.
    
    Capital Expenditures. Capital expenditures must not exceed $25.0
million for fiscal 2004 and $30.0 million for each fiscal year
thereafter, subject to certain exceptions. We have experienced difficulty in the past satisfying financial covenants
in our previous senior credit facility, and we have negotiated amendments and
obtained waivers for fiscal 2000, 2001 and 2003 due to
covenant non-compliance. Our ability to satisfy the covenants contained in
the new 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 our new senior credit
facility and permit a majority of the lenders to accelerate outstanding debt
under our new 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. Guarantees;
collateral.We and certain restricted subsidiaries are required to guarantee amounts
outstanding under the new senior credit facility. The indebtedness incurred
pursuant to the new senior credit facility is secured by a first priority lien
on substantially all of our material assets and all the material assets of our restricted domestic
subsidiaries. Events of default.Our new senior credit facility contains default
provisions that we believe are customary for facilities and transactions of
this type, including default provisions relating to:  
    
    our failure to pay principal or interest when and as due or any other
amount under our new senior credit facility within three days after such
amount becomes due;
    
    representations or warranties being inaccurate in any material
respect when made; 26




---



##### Table of Contents




    
    cross-default to certain other indebtedness and agreements including
our senior notes and senior subordinated notes;
    
    bankruptcy or insolvency;
    
    actual invalidity, or invalidity asserted by us, of any security document;
    
    material judgments;
    
    certain ERISA events; and
    
    change of control or ownership. Liquidity of Our New Senior Credit Facility As of November 5, 2004, on an adjusted basis after giving effect to the
new senior credit facility, we had approximately $29.4 million of remaining
availability under the new revolving credit facility out of a total
availability of $35.0 million. Availability of funds under the new revolving
credit facility is subject to our satisfaction of certain terms and conditions,
including our ability to satisfy the financial covenants in our new senior
credit facility. See Covenants above. We may be required to refinance all
or a portion of the principal amount of our outstanding debt on or prior to
maturity or a mandatory redemption date. We believe the capital expenditures
permitted under our new senior credit facility are sufficient to provide us
with the necessary flexibility to spend required capital for the remainder of
fiscal 2004 and fiscal 2005. Any future acquisitions, joint ventures or similar transactions will
likely require additional capital and we may not have such capital available to
us on commercially reasonable terms, on terms acceptable to us, or at all. Our
business may not generate sufficient cash flows or future borrowings may not be
available in an amount sufficient to enable us to make principal and interest
payments on our debt, including our senior notes and senior subordinated notes,
or to fund our other liquidity needs. In addition, our business may not
generate sufficient operating results and cash flows to allow us to comply with
the financial covenants in our new senior credit facility. In the event of a
default under our new senior credit facility, absent an amendment or a waiver
from our lenders, a majority of our lenders could accelerate outstanding debt
under our new senior credit facility, terminate our revolving credit commitment
and seize the cash in our operating
accounts. In that event, we may not have sufficient liquidity to make interest
payments on our debt and for operational and capital requirements. Contractual Obligations The following table presents the maturities of our contractual obligations
relating to our new senior credit facility entered into on November 5, 2004 (in
thousands): Payments due by period2009 and2004
    
    2005-2006
    
    2007-2008(1)
    
    thereafter
    
    TotalContractual
obligations:Long-term debt
    
    $
    869
    
    
    $
    7,047
    
    
    $
    446,299
    
    
    $
    231,325
    
    
    $
    685,540
   (1)
    
    As of the end of the third quarter of fiscal 2004, we had outstanding
$105.6 million of current redemption value, excluding future dividends, for our
senior preferred stock, which has a scheduled redemption date of September 30,
2007. 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, 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 27




---



##### Table of Contents



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 only as long as these
agreements continue in effect. In the event of any increases in raw materials, packaging and natural gas
costs, we may be required to seek additional sales price increases for our
products to avoid margin deterioration. For instance, because of the increases
in our raw material costs during fiscal 2003 and 2004, we implemented a price
increase in January 2004 and additional price increases in the second quarter
of fiscal 2004 for most of our domestic products. We cannot provide any
assurances as to the timing or extent of our ability to implement future price
adjustments in the event of increased raw materials, packaging or natural gas
costs or of whether any 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 third quarter of
fiscal 2004 and the end of fiscal 2003, our gross accounts receivable were
$109.0 and $94.2 million, respectively. We had allowances of $3.2 million and
$2.6 million as of the end of the third quarter of fiscal 2004 and the end of
fiscal 2003, respectively, primarily for doubtful accounts and outstanding
deductions with customers. Our policy is to estimate our allowances by
applying a recovery percentage based on historical collection experience and
performing a specific identification review of customer account balances. We
may revise our allowances against accounts receivable as we receive more
information or as we assess other factors impacting the ability to realize our
accounts receivable. Inventories allowances.As of the end of the third quarter of fiscal 2004
and the end of fiscal 2003, our gross inventories were $71.9 and $73.0 million,
respectively. We had allowances of $4.6 million and $4.4
million as of the end of the third quarter of fiscal 2004 and the end of
fiscal 2003, respectively, primarily related to obsolescence of packaging
inventories. Our policy is to estimate our allowances based on specific
identification of obsolete stock keeping units, or SKUs, or probable SKUs to be
rationalized. We may revise our allowances against inventories as we receive
more information or as we assess other factors impacting the ability to realize
of our inventories. Deferred tax assets.As of the end of the third quarter of fiscal 2004
and the end of fiscal 2003, our federal net operating loss, or NOL,
carryforwards were $153.6 million and $126.5 million, respectively, and our
foreign NOL carryforwards were $1.2 million and $2.2 million, respectively.
Our gross deferred tax assets, including federal, foreign, state and local NOL
carryforwards, were $82.9 million and $72.3 million as of the end of the third
quarter of fiscal 2004 and the end of fiscal 2003, respectively, and our gross
deferred tax liabilities were $57.5 million and $55.8 million, respectively.
We assess the realization of our deferred tax assets dependent upon our ability
to generate sufficient taxable income during the periods in which our deferred
tax assets may be utilized. This assessment incorporates a determination of
whether it is more likely than not that we will realize the benefit of our
existing deferred tax assets in future periods. When we determine that we do
not meet this probability criteria, we record valuation allowances that take
into consideration tax planning strategies, historical and projected earnings,
and the future reversal of taxable temporary differences. 28




---



##### Table of Contents



Due primarily to the magnitude of our operating losses in fiscal 2003, our
loss in the first nine months of fiscal 2004 and the variability of our
historical earnings, we do not believe that we currently meet the more likely
than not recoverability criteria necessary to recognize our deferred tax
assets, except for those assets which will be recovered through known reversals
of deferred tax liabilities. Our consolidated valuation allowance was $55.2
million and $43.1 million as of the end of the third quarter of fiscal 2004 and
the end of fiscal 2003, respectively. During the first nine months of fiscal
2004 and for the full year fiscal 2003, we recorded valuation allowances
against our U.S. federal and state deferred tax assets in the amounts of $12.8
million and $35.2 million, respectively. We reduced our valuation allowances
against foreign deferred tax assets in the amount of $0.7 million in the first
nine months of fiscal 2004, while for the full year fiscal 2003, we recorded
valuation allowances in the amount of $7.3 million. The reduction to the
valuation allowance against foreign deferred tax assets in the first nine
months of fiscal 2004 related to a tax law change in one of the foreign
jurisdictions in which we operate. The tax law change eliminated a deferred
tax asset in the amount of $6.3 million against which we had previously
recorded a valuation allowance in the full amount. Accordingly, we wrote off
the deferred tax asset and made a corresponding reduction to the associated
valuation allowance. The offsetting increase of $5.6 million was recorded
against deferred tax assets generated in foreign jurisdictions during the first
nine months of 2004 resulting in a net reduction of $0.7 million to the
valuation allowance against deferred tax assets in foreign jurisdictions in the
first nine months of fiscal 2004. Due to these recent changes, we are in the
process of evaluating our foreign corporate tax strategies, and plan to have
that evaluation completed by the end of fiscal 2004. We do not expect any
adverse changes in our effective tax rate in the near term. We currently
expect that future years deferred income tax expense (benefit) will include
deferred income tax expense in an amount approximating the growth in our
deferred tax liabilities related to the tax amortization of goodwill and other
intangible assets recognized on our income tax return. Goodwill and trademarks.As of the end of the third quarter of fiscal
2004 and the end of fiscal 2003, our goodwill and trademarks were $379.7
million and $380.4 million, respectively. Our policy is to test the fair value
of goodwill and trademarks 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 the estimated fair value
of goodwill or trademarks of either the domestic or international reporting
unit is less than the carrying value, an impairment loss will be recognized.
In the fourth quarter of fiscal 2003, we performed our annual assessment of
impairment and determined no impairment was evident at this 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 have in the past and may continue to 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 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 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 29




---



##### Table of Contents



reduce their 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 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
133 in our accompanying unaudited condensed consolidated financial statements.
Our results of operations have been adversely affected in the past by
volatility in commodity prices under the SFAS 133 fair value accounting of our
commodity derivative instruments and our results of operations may be adversely
affected in the future by SFAS 133 accounting. As of the end of the third quarter of fiscal 2004, we had open commodity
contracts with a fair value loss of $5.3 million. Based upon an analysis we
completed at the end of the third quarter of fiscal 2004 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 $0.7 million. With the changes in our pricing strategy resulting from reaching
cost-sharing arrangements, we have and will continue to collaborate with our
customers on any hedging strategies we may pursue. Interest rate risk.We are exposed to market risk related to changes in
interest rates. We periodically use interest rate swap and cap contracts to
limit our exposure to the interest rate risk associated with our domestic
floating rate debt, which totaled $195.0 million as of November 5,
2004. 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. We had no open interest rate swap or cap contracts as of either the end of the third quarter of fiscal 2004 or November 5, 2004. Our net loss is affected by changes in interest rates. Assuming a 100
basis point increase in interest rates on our floating rate debt, our net
loss would increase by approximately $0.4 million and $1.3 million for the
third quarter and first nine months of fiscal 2004, respectively. In addition,
such a change would result in a decrease of approximately $13.7 million in the
fair value of our fixed rate debt at the end of the third quarter of fiscal
2004. 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 their possible 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.Our financial position and results of
operations are affected by foreign currency exchange rate fluctuations. Our
European operations sell pet food products throughout Europe. The cumulative translation
adjustment for the net investment in our foreign operations is recorded in
accumulated other comprehensive income (loss) in the accompanying unaudited
condensed consolidated financial statements. As of the end of the third
quarter of fiscal 2004, we had a cumulative translation gain of $54.0 million,
which included an unrealized cumulative loss of $10.3 million for the
translation of our Euro-denominated debt to U.S. dollars, that has been
recognized in the accompanying unaudited condensed consolidated financial
statements. We are exposed to foreign currency exchange risk arising from transactions
in the normal course of business in Europe as well as the translation of the
results of our European operations. From time to time, we may enter into
foreign currency forward contracts for the purchase or sale of a currency to
mitigate the risk from foreign currency exchange rate fluctuations in those
transactions. Accordingly, changes in market values of these financial
instruments are highly correlated with changes in the market values of the
hedged items both at inception and over the life of the contracts. Changes in
fair value of foreign currency forward contracts that qualify for hedge
accounting are recorded in accumulated other comprehensive income (loss), net
of deferred taxes, in our consolidated balance sheet until they are realized,
at which point, they are recognized in other income, net, in the accompanying
consolidated statements of operations. All other 30




---



##### Table of Contents



gains and losses on foreign
currency forward contracts are recorded as an increase or decrease in net sales
in our consolidated statements of operations as they occur. As of the end of the
third quarter of fiscal 2004, we had no open foreign currency forward or option
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. We carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the quarterly period ending
October 2, 2004, 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 controls.There were no significant changes in our
internal controls or in other factors that could significantly affect our
internal controls subsequent to the date of their evaluation, nor were there
any significant deficiencies or material weaknesses in our internal controls.
As a result, no corrective actions were required or undertaken. 31




---



##### Table of Contents



PART II. Other Information 
 ITEM 5. Legal Proceedings See Note 10, 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 5. 
 ITEM 6. Exhibits  (a)
    
    Exhibits ExhibitNumber
    
    Description10.1*
    
    Credit Agreement, dated as of November 5, 2004 among
Doane Pet Care Company, as borrower, Doane Pet Care Enterprises,
Inc., as guarantor, Credit Suisse First Boston, as administrative
agent, and the lenders party thereto.15.1*
    
    Letter from KPMG LLP dated November 10, 2004 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.
    
    Not considered to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934 or
otherwise subject to the liabilities of that section. 32




---



##### 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 Officer By:
    /s/ STEPHEN P. HAVALAStephen P. HavalaCorporate Controller and
Principal Accounting Officer Date: November 12, 2004 33




---



##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description10.1*
    
    Credit Agreement, dated as of November 5, 2004 among
Doane Pet Care Company, as borrower, Doane Pet Care Enterprises,
Inc., as guarantor, Credit Suisse First Boston, as administrative
agent, and the lenders party thereto.15.1*
    
    Letter from KPMG LLP dated November 10, 2004, 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.
    
    Not considered to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934 or
otherwise subject to the liabilities of that section.