##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-K (Mark One) þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 2005 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from            to Commission file number 0-27818 Doane Pet Care Company  Delaware
    
    43-1350515(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)
 210 Westwood Place South,
Suite 400
Brentwood, TN 37027
(Address of principal executive office, including zip code) (615) 373-7774
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes o No þ As of the last business day of the registrants most recently completed second fiscal quarter,
the registrant had no common equity held by non-affiliates. As
of April 1, 2005, 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 PART IItem 1.
    
    Business
    
    
    1Item 2.
    
    Properties
    
    
    19Item 3.
    
    Legal Proceedings
    
    
    20Item 4.
    
    Submissions of Matters to a Vote of Security Holders
    
    
    20PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    20Item 6.
    
    Selected Financial Data
    
    
    20Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 8.
    
    Financial Statements and Supplementary Data
    
    
    37Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    37Item 9A.
    
    Controls and Procedures
    
    
    37Item 9B.
    
    Other Information
    
    
    37PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    38Item 11.
    
    Executive Compensation
    
    
    40Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    44Item 13.
    
    Certain Relationships and Related Transactions
    
    
    47Item 14.
    
    Principal Accountant Fees and Services
    
    
    48PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    49Signatures
    
    
    52Index to Financial
Statements
    
    
    F-1Employment Agreement - Kenneth H. KochForm of Non-Qualified Salary Continuation AgreementList of SubsidiariesConsent of Independent Registered Public Accounting FirmCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350
    In this Annual Report on Form 10-K, Doane, the Company, we, us and our refer to
Doane Pet Care Company and its subsidiaries, unless the context indicates otherwise.




---



##### Table of Contents



Explanatory Note Restated financial statements, including the related notes and disclosures thereto for the
2003 fiscal year ended January 3, 2004, are included in this Annual Report on Form 10-K for the
2004 fiscal year ended January 1, 2005, or the 2004 10-K. During the preparation of the 2004 10-K, the Audit Committee of our Board of Directors
determined that, following a review of our accounting practices for realized foreign currency
transaction losses and the computation of interest expense, and in consultation with management and
our independent registered public accounting firm, the restatement of our previously issued fiscal
2003 consolidated financial statements was necessary. The restatement resulted in a decrease in
the fiscal 2003 net loss from $54.4 million to $45.3 million. This $9.1 million reduction resulted
from the reversal of previously recognized transaction losses of $7.7 million related to the
cumulative translation of our Euro-denominated debt and the
correction of a cumulative error in our interest
expense calculation of $1.4 million. We are including restated consolidated financial statements
and related notes and disclosures thereto for fiscal 2003 to correct these errors and have discussed the impact of the
restatement in Part I, Item 6, Item 7, Item 7A and Item 9A of our 2004 10-K. The adjustments made to our
consolidated financial statements are further described in Note 2 to our accompanying audited
consolidated financial statements included herein. The adjustments made in fiscal 2003 relating to
previously recognized foreign currency translation
losses and the computation of interest expense included cumulative errors through fiscal 2002 of
$0.8 million and $0.7 million, respectively, which have been recognized in the 2003 restated financial
statements as adjustments to the first quarter of fiscal 2003. These adjustments have not been
recorded in prior periods due to managements conclusion that these cumulative errors through
fiscal 2002, and the correction of the cumulative errors in fiscal 2003, were not material to any
of the periods impacted.




---



##### Table of Contents



PART I 
 ITEM 1  Business General We are the largest manufacturer of private label pet food and the second largest
manufacturer of dry pet food overall in the United States. We are also a leading manufacturer of
private label pet food in Europe. We sell to approximately 550 customers around the world and serve
many of the top pet food retailers in the United States, Europe, Mexico and Japan. We offer our
customers a full range of pet food products predominately for dogs and cats, including dry,
semi-moist, soft dry, wet, treats and dog biscuits. We categorize our sales into three product areas: (i) private label, (ii) co-manufacturing and
(iii) regional brands that we own. Our private label customers primarily include mass
merchandisers, grocery chains, farm and fleet companies and pet specialty stores. We refer to each
of these customer types as a channel. Our co-manufacturing customers include the top five global
brand pet food companies, for whom we produce, package and ship a portion of their pet food
products. A majority of our regional brand sales are to the grocery and farm and fleet channels. We have been the primary supplier of private label dry pet food to WalMart Stores, Inc., or
WalMart, since 1973 and have been a supplier to its Sams Club division since 1990. Collectively,
we refer to them as Wal*Mart, Inc. We manufacture a wide variety of products for Wal*Mart, Inc.,
including the majority of its top selling private label pet food brands, Ol Roy and Special Kitty.
Ol Roy is the number one selling brand of dry pet food in the United States by volume and will
celebrate its 25th anniversary next year. Our net sales to Wal*Mart, Inc. accounted for
44%, 42% and 43% of our total net sales for fiscal 2002, 2003 and 2004, respectively. As the primary supplier of private label pet food to WalMart, we jointly developed a
cost-effective and innovative logistic network designed to facilitate the delivery of our pet food
to WalMart six days a week on WalMarts trailers. The backhaul system of this network is designed
such that, after a WalMart freight truck leaves the last store of a delivery run that begins at a
WalMart distribution center, the truck drops the empty trailer at one of Doanes 18 manufacturing
and distribution facilities that service WalMart. At that point, a full load of Doane-manufactured
pet food is loaded onto the trailer for delivery to WalMart. The backhaul system benefits both
Doane and WalMart and solves logistical issues by reducing handling costs, minimizing freight and
shipping costs, and maximizing inventory turns. Doane also provides a consumer hotline for
WalMarts Ol Roy and Special Kitty product lines and has a dedicated support staff to handle any
logistic network issues related to pet food for WalMart. As a result, this jointly developed
network yields cost savings for both Doane and WalMart. Doane Pet Care Company is a Delaware corporation incorporated in 1995. Our principal
executive offices are located at 210 Westwood Place South, Suite 400, Brentwood, Tennessee 37027
and our telephone number is (615) 373-7774. Doane Pet Care Enterprises, Inc., our parent corporation, was formed in 1995 by a group of
private equity investors led by Summit Capital, Inc., DLJ Merchant Banking Partners, L.P., J.P.
Morgan Partners (BHCA), L.P. and certain members of existing management to acquire our company,
formerly known as Doane Products Company. Our parent has no other material assets or activities
other than the ownership of our common stock. Recent Developments Impact of commodity price volatility. In fiscal 2003 and 2004, our domestic dry pet food
commodity costs were significantly higher than in previous years. In this two-year run, we
experienced unprecedented volatility and an increase in these costs exceeding $90 million compared
to our fiscal 2002 costs. As a result, we reached cost-sharing arrangements with certain of our
domestic customers such that, if these
arrangements continue in their present form, we will effectively pass through to our domestic
customers approximately half of future commodity movements, whether up or down. In addition, we
implemented a broad 1




---



##### Table of Contents



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. As a result of the new pricing and the cost-sharing strategy, the negative impact of
commodities on our results of operations in fiscal 2004 was not as dramatic as it was in fiscal
2003, despite the continued increase in commodity costs. In late fiscal 2004, certain commodity costs began to recede. As commodity costs declined,
our prices adjusted downward for our customers on a cost-sharing arrangement. The
extent to which we otherwise lower our prices in 2005 depends on the stability of lower commodity
costs and the overall marketplace conditions. Refinancing.In November 2004, we refinanced our previous 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 stand-by letters
of credit. We used $180.5 million of the proceeds to fully repay our previous senior credit
facility and $5.9 million to pay related fees and expenses of the new senior credit facility. The
refinancing replaced our previous senior credit facility, portions of which were scheduled to
mature in fiscal 2005, lowered our debt service costs and increased our liquidity. Europe restructuring.In December 2004, we completed our European restructuring plan to
consolidate our wet pet food operation in Vrä, Denmark into our facility in Esbjerg, Denmark and
our recently expanded facility in Carat, Austria and to reorganize certain of our European
subsidiaries to more efficiently manage our foreign operations and reduce selling, general and
administrative expenses. In conjunction with these restructuring efforts, we recognized $5.3
million of asset impairments in the fourth quarter of fiscal 2003 and $7.0 million of other
operating expenses during fiscal 2004 for severance, equipment installation and manufacturing
inefficiencies during the transition period. We anticipate this project will result in labor and
administrative cost savings and other operating efficiencies of approximately $4 million on an
annual basis. Products and Services We provide our customers with comprehensive pet food category management services
designed to expand each customers pet food product lines and to improve the categorys
profitability. Category management services include:  
    product development services;
    packaging design services; and
    pricing and marketing strategy services in connection with our customers store brand programs. Our store brand programs involve the formulation and supply of a wide variety of high quality
pet food products, including dry, semi-moist, soft dry, soft treats and dog biscuits in the United
States as well as dry and wet products in Europe. We believe that these products are comparable in
quality to competing nationally advertised brand pet food products and we offer them at a lower
price. For our nationally advertised brand customers, we manufacture pet food products to meet
those customers specifications and quality standards. Our regional brands are generally
economically priced and marketed by our customers as a complement to their other pet food
offerings. In the United States, we manufacture dry pet food under approximately 200 store brands,
including Dura Life, Maxximum Nutrition, NutriCare, Ol Roy, Pet Pride, PMI-Nutrition, Retriever,
Special Kitty and Sportsmans Choice. Our regional brands, which include Country Prime, Kozy Kitten
and TrailBlazer, allow our customers to broaden their product offerings. We also offer our Bonkers
and Pet Lovers brand treats to retailers. In Europe, we manufacture pet food under a variety of
store brands. A description of each of our product lines is set forth below:  
    Dry pet food (71% of our fiscal 2004 net sales).We are the second largest
manufacturer of dry pet food in 2




---



##### Table of Contents



the United States. We produce, market and distribute a wide selection of high quality dry pet
food products, predominately for dogs and cats. Our dry pet food product lines include high
protein, premium-blended, puppy food, gravy style and super premium meat inclusion products
for dogs, and regular and blended products for cats.  
    Wet, semi-moist and all other (21% of our fiscal 2004 net sales).These
products are distinguishable from dry pet food based on their higher moisture level
content, the technology used to manufacture such products and their higher packaging costs.
Europe has a much stronger market for wet products than the United States. To meet this
demand, we manufacture and sell wet products throughout Europe, including chunks and gravy,
pâté and loaf, and packages, such as cans, alucups and pouches.
    Biscuits and treats (8% of our fiscal 2004 net sales).We are a leading global manufacturer of dog biscuits and a
manufacturer of soft treats. The
manufacturing process for dog biscuits primarily involves baking, whereas, manufacturing of
dry pet food involves extrusion. In addition to manufacturing pet food products, we maintain an in-house engineering services
group. This group designs and builds extruders, conveyors, dryers and other parts and equipment,
including replacement parts, for our pet food manufacturing facilities and, to a lesser extent, for
third parties. The engineering services group maintains repair staff that service and repair
machinery and equipment at our manufacturing facilities, giving us the ability to make timely
repairs and reduce downtime. Our in-house engineers generally design and supervise plant
construction, thereby reducing plant construction costs and resulting in consistency in
manufacturing processes and quality control. We believe our engineering services group provides us
with services at a lower cost and more timely and efficiently than we could obtain from third
parties. 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. Marketing We believe our success depends upon our ability to partner with our customers and create
brands and products that their consumers believe their pets will love. It also depends on the
ability of our people, together with our customers, to find new and appealing ways to deliver those
brands to pet-owning consumers everywhere. Our marketing approach emphasizes fundamental consumer,
pet, brand and category research, which we leverage to build successful brand programs. Our team of
experienced marketing professionals provides consumer and category trend analysis, category and
shelf management expertise, product development direction, packaging design and promotional
planning to drive profitable growth for our customers brands and our company. Sales and Distribution Our sales team works directly with current and prospective customers, including mass
merchandisers, membership clubs, farm and fleet stores, pet specialty stores and grocery chains. We
also use independent food brokers to sell our products. We generate new business, in part, through
the expansion of our product lines and the development of new marketing programs to existing
customers. As described earlier, we jointly developed a cost effective and innovative logistic network
with WalMart to facilitate the delivery of our pet food to WalMart six days a week on WalMarts
trailers. In addition, we distribute a substantial amount of our products to other customers
utilizing their transportation networks. We are a just-in-time supplier to several of our largest
customers who choose to maintain trailers at our manufacturing and distribution facilities.
Proximity to certain of our customers distribution centers and retail locations is a key
consideration in deciding the location of our manufacturing and distribution facilities and, we
believe, is a significant competitive advantage. Our customers trailers can be loaded for shipment
either directly to individual stores or to their own distribution centers. Those customers that
have products shipped directly from our manufacturing and distribution 3




---



##### Table of Contents



facilities to their retail stores are able to reduce their inventory, freight and handling
costs by avoiding shipment to their own distribution centers. Like WalMart, those customers that
use their own transportation fleet are able to utilize their trucks that would otherwise be empty
to backhaul a load of pet food on return to their distribution center or directly to another retail
store. For customers that do not utilize their own transportation fleet, we provide transportation on
a contract basis through common carriers. We do not own or operate any transportation equipment. We provide vendor-managed inventory fulfillment services for our customers. We offer the
ability to communicate on-line with our customers inventory management systems, evaluate their
inventory levels and place orders on their behalf to meet their just-in-time inventory supply
requirements and manage their inventory levels. We believe this provides our customers with a
significant competitive advantage, which includes shorter lead-time requirements, higher inventory
turns, reduced out-of-stock positions and fresh product for their customers. Customers We manufacture pet food products for approximately 550 customers globally. Our store
brand customers in the United States include mass merchandisers such as Wal*Mart, Inc., pet
specialty stores such as PETsMART, grocery chains such as Food Lion, Kroger, Royal Ahold and
Safeway, and farm and fleet stores such as Tractor Supply, Mid-States and Land O Lakes Purina Feeds. Net sales
to Wal*Mart, Inc. accounted for 44%, 42% and 43% of our total net sales for fiscal 2002, 2003 and
2004, respectively. In addition, we manufacture products for many of the largest nationally
advertised brand pet food companies in the United States. Our European customer base is similar to
the United States. We sell to over 180 customers in Europe, including many of the leading retailers
and farm and fleet outlets, and to a lesser extent, pet specialty stores. In addition, we
manufacture products in Europe for several global brand pet food companies. Globally, we sell to customers in approximately
40 countries. Competition The pet food industry is highly competitive. The companies that produce and market the
major nationally advertised brand pet foods are national or international conglomerates that are
substantially larger than us and possess significantly greater financial and marketing resources.
Our store brand pet food products compete for shelf space with nationally advertised brand pet food
products on the basis of quality and retail price. In addition, certain nationally advertised brand
companies also manufacture store brands. Nationally advertised brand products compete principally
through advertising to create brand awareness and loyalty. We experience some price competition
from nationally advertised brand products. Significant price competition from nationally advertised
brand products or considerably increased store brand presence by the nationally advertised brand
manufacturers could adversely affect our operating results and cash flows. We also compete with
regional brand manufacturers and regional store brand manufacturers. We believe we differentiate our company from the nationally advertised brand pet food
manufacturers by offering comparable, lower-priced products tailored to each retailers needs. This
provides retailers with the opportunity to increase pet food category profitability and provides a
destination purchase item in this important consumer category. In addition, we believe we
differentiate our company from other store brand pet food manufacturers by offering higher quality
products and national production and distribution capabilities. Raw Materials and Packaging The principal ingredients
required for our dry manufacturing operations in the United States and Europe
are bulk commodity grains and food stocks, including corn, soybean meal, wheat, rice, flour, wheat
middling, poultry meal, meat and bone meal, corn gluten meal, tallow and poultry fat. We purchase
ingredients from large national commodity companies and local grain cooperatives. The ingredient
requirements of each of our manufacturing facilities are purchased locally when available and
economically feasible due to the high freight costs of transporting bulk commodity products. As a
result, ingredient costs may vary substantially among our manufacturing facilities due to the
impact of local supply and demand and varying freight costs. Manufacturing of our wet food in
Europe requires fresh or frozen pork, beef and poultry products which are purchased
either from suppliers that aggregate and process meat by-products or directly from suppliers of
meat by-products. Packaging, which includes bags, cartons, pouches, cans and alucups, is also a
significant component of our material costs. We have several packaging suppliers in the United
States and Europe. We generally do not maintain long-term contracts or agreements with any of our
suppliers, except in our operations in Denmark where we utilize certain sole source suppliers for
raw materials and packaging. We believe alternative suppliers of raw materials and packaging are
readily available. 4




---



##### Table of Contents



Our pricing strategy is based on the costs of raw materials, packaging and certain other
manufacturing costs plus a conversion charge, which includes a profit factor. We periodically
adjust our selling prices based on fluctuations in raw material, packaging and other manufacturing
costs. Future selling price increases may not be acceptable to our customers in the event of
increased material costs. See the section on risks related to our business operations and the
section in Item 7 on inflation and changes in prices. We have cost-sharing arrangements with certain of our domestic customers to reduce the impact
of volatile commodity costs on our domestic business. If these arrangements continue in their
present form, we will effectively pass through to our domestic customers approximately half of
future commodity movements, whether up or down. Because we generally do not have long-term
contracts with our customers, our cost-sharing arrangements could change. We
are exposed to market risk related to changes in commodity prices. We may seek to manage
commodity price risk associated with market fluctuations by using derivative instruments for
portions of our corn, soybean meal and alternative protein purchases, principally through exchange
traded futures and options contracts. The terms of such contracts are generally less than one year.
See Item 7A. Research and Development We continuously strive to develop new and improved pet food products and manufacturing
processes. Our research and development department includes a full-time staff of food
technologists, chemists and companion animal nutritionists, a central laboratory with chemists and
microbiologists for research and development, and quality control laboratories at each of our
manufacturing facilities. Our research and development team formulates new recipes comprised of
ingredients fortified with vitamins and minerals, and tests the nutritional content of new
products. We exclusively use USDA licensed and inspected independent commercial kennels and
catteries meeting our strict animal care and welfare standards for comparison feeding tests with
nationally advertised brand products to assure comparable digestibility and palatability and to
substantiate the nutritional claims of new products. Quality Assurance We maintain a comprehensive program for qualifying new vendors, testing raw materials for
nutritional adequacy and screening to detect the presence of mycotoxins and other harmful
substances. We continuously test pet food production at each of our manufacturing facilities by
analyzing finished pet food product against specifications, formula and regulatory requirements.
Packaging is inspected for print quality, proper dimensions, construction and compliance with
labeling regulations. Environmental and Safety Matters We are subject to a broad range of federal, state, local and foreign environmental laws
and regulations, including those governing discharges into the air, soil and water, the storage of
petroleum substances and chemicals, the handling and disposal of solid or hazardous wastes, and the
investigation or remediation of contamination arising from spills and releases. Failure to comply
with these laws and regulations may result in the assessment of administrative, civil and criminal
penalties, permit revocation and modification, performance of investigatory or remedial activities,
as well as, in certain instances, the issuance of injunctions that may limit or prohibit our
operations. Environmental laws and regulations have changed substantially over the years and we
believe the trend of more strict and expansive environmental laws and regulations will continue. We
have not experienced any material adverse effect on our capital expenditures, earnings and
competitive position from compliance with applicable environmental, safety and public health laws.
Although we believe we are in substantial compliance with these environmental requirements, there
can be no assurance that additional costs for compliance will not be incurred in the future or that
such costs will not be material. 5




---



##### Table of Contents



Our U.S. operations involve the current use of aboveground storage tanks and below ground
sumps and, in the past, has involved use of regulated underground storage tanks. Under applicable
laws and regulations, we are responsible for the proper use, maintenance and abandonment of
regulated storage tanks that we own or operate and for remediation of soils, groundwater and
surface water impacted by releases from such existing or abandoned aboveground or underground
storage tanks and below ground sumps. Our U.S. operations are also subject to laws and regulations governing remediation, recycling
and disposal. The Comprehensive Environmental Response, Compensation and Liability Act of 1980,
also known as CERCLA or the Superfund law, and analogous state laws impose liability, without
regard to fault or the legality of the original conduct, on certain classes of persons who are
considered responsible for the release of a hazardous substance into the environment. These
persons include the owner or operator of a facility where a hazardous substance release occurred
and companies that disposed or arranged for the disposal of hazardous substances found at the site.
Under CERCLA, such persons may be subject to strict, joint and several liability for the costs of
environmental response measures and natural resource damages, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal injury and property
damage allegedly caused by the hazardous substances released into the environment. We also generate
wastes that are subject to the federal Resource Conservation and Recovery Act, also known as RCRA,
and comparable state statutes. The U.S. Environmental Protection Agency, or EPA, and various state
agencies have limited the approved methods of disposal for certain hazardous and nonhazardous
wastes and any future changes to such methods that are more rigorous or restrictive can increase
the operating and disposal requirements incurred by us as well as by the industry in general. In
the past, nearby industries have suffered releases of hazardous substances to the environment that
are the subject of CERCLA investigations. It is possible that these neighboring environmental
activities may have impacted some of our properties. We have not been advised, nor do we expect to
be advised, by any environmental agency that we are considered a potentially responsible party for
the neighboring environmental conditions, and we have no reason to believe that such conditions
would have a material adverse effect on our company. On August 17, 2004, the EPA issued to us an
information request regarding the use of any tetrachloroethylene, trichloroethylene, or Freon 11 or
12 at our San Bernardino, California facility. We responded to the EPA in November 2004 and have
not received any follow-up correspondence from the agency on this matter since that time. We currently own or lease properties and through acquisitions in the future could own or lease
additional properties that, in some instances, have been used for pet food manufacturing or feed
mill operations for many years. Although we have utilized operating and disposal practices that
were standard in the industry at the time, in some locations environmentally sensitive materials
were spilled or released on or under the properties owned or leased by us or on or under other
locations where such materials were taken for disposal. In addition, many of these properties have
been operated by third parties whose use, handling and disposal of such environmentally sensitive
materials or similar wastes were not under our control. These properties and the waste materials
spilled, released or otherwise found thereon may be subject to CERCLA, RCRA, and analogous state
laws. Under such laws, we can be required to remove or remediate previously spilled or released
waste materials (including such materials spilled or released by prior owners or operators) or
property contamination (including groundwater contamination caused by prior owners or operators),
or to perform monitoring or remedial activities to prevent future contamination (including releases
from previously operated underground storage tanks or existing aboveground bulk petroleum storage
facilities). It is possible that we could incur additional environmental response costs in the
future at existing manufacturing facilities or at other sites where waste material impacts
resulting from historical or ongoing operations may be identified. Our U.S. operations are also subject to the federal Clean Water Act and analogous state laws
relating to the discharge of pollutants into state and federal waters. These laws also regulate the
discharge of stormwater in process areas. Local sewerage authorities have established regulations
governing connections to and discharges into their sewer systems and treatment plants. Pursuant to
these laws and regulations, we are required to obtain and maintain approvals or permits at a number
of our facilities for the discharge of our wastewater and stormwater and develop and implement
spill prevention control and countermeasure plans, also referred to as SPCC plans, in connection
with on-site storage of greater than threshold quantities of oil. In July 2002, the EPA issued a
revised SPCC rule, whereby SPCC plans are subject to more rigorous review and certification
procedures. The implementation date of this rule has been extended by the EPA. Under the current
EPA deadlines, SPCC plans must be amended, if necessary to ensure compliance, by no later than
February 17, 2006 and any such amended plans must be 6




---



##### Table of Contents



implemented by no later than August 18, 2006. Compliance with this rule will require us to
update and implement amended SPCC plans at a number of our facilities where the plans are required.
As part of the regular overall evaluation of our ongoing operations, we are updating the
stormwater discharge permitting coverage at certain of our facilities. Moreover, from time to time,
we are required to make capital improvements or make certain operational upgrades at certain of our
facilities to assure compliance with regulatory and permit conditions relating to our wastewaters
discharged offsite as well as our other operating activities. Failure to comply with these laws,
regulations and permit conditions may result in the imposition of administrative, civil and
criminal penalties. We believe that our operations are in substantial compliance with the Clean
Water Act and analogous state and local requirements, and that the implementation of amended SPCC
plans and the installation of any wastewater discharge capital
improvements will not have a material adverse effect on our operations or financial condition. Our U.S. operations are subject to federal, state and local requirements pertaining to air
emissions. We have been required from time to time to install air emission control or odor control
devices to satisfy applicable air requirements. It is possible that in the future, additional air
emission or odor control devices may be required to be installed at facilities of ours as deemed
necessary to satisfy existing or future requirements. The manufacturing and marketing of our products in the United States are subject to regulation
by federal regulatory agencies, including the Occupational Safety and Health Administration, the
Food and Drug Administration and the Department of Agriculture, and by various state and local
authorities. The Food and Drug Administration also regulates the labeling of our products.
Substantial administrative, civil and criminal penalties may be imposed for violations of
Occupational Safety and Health Administration, Food and Drug Administration and Department of
Agriculture regulations, and violations may be restrained through injunction proceedings. We
procure and maintain the necessary permits and licenses to operate our U.S. facilities and consider
our company to be in material compliance with applicable Occupational Safety and Health
Administration, Food and Drug Administration and Department of Agriculture requirements. Our facilities outside of the United States are potentially subject to similar foreign
governmental controls and restrictions pertaining to the environment, safety, and public health.
Among the controls and restrictions imposed on our facilities outside of the United States are
requirements for obtaining necessary environmental permits, cleanup of subsurface conditions
beneath our facilities arising from primarily historical operations, control of odors resulting
from our operations, limitation of pollutants that are contained in wastewater effluent discharged
or otherwise transported from our facilities, and development and implementation or upgrading of
environmental management systems at our facilities to assure compliance with applicable laws and
regulations. We believe our U.S. and foreign operations are in compliance in all material respects with
applicable current environmental, safety and public health laws and regulations; however, those
laws and regulations may change in the future and we may incur significant costs in the future to
comply with those laws and regulations or in connection with the effect of these matters on our
business. Trademarks Certain of our brands are protected by trademark registrations in the United States and
in certain foreign markets. We believe our registered trademarks are adequate to protect such brand
names. Employees As of March 15, 2005, our global workforce consisted of 2,392 employees. We had 1,587
employees in the United States and 805 employees in Europe, comprised of 692 management and
administrative personnel and 1,700 manufacturing personnel. We have 366 employees represented by
labor unions at seven of our U.S. facilities. A collective bargaining agreement with the Joplin,
Missouri facility covered 98 employees as of March 15, 2005 and expires on February 4, 2006. A
collective bargaining agreement with the Muscatine, Iowa facility covered 43 employees as of March
15, 2005 and expires on June 30, 2006. A collective bargaining agreement with the Hillburn, New
York facility covered 13 employees as of March 15, 2005 and expires on May 1, 2007. A collective
bargaining agreement with the Portland, Indiana facility covered 51 employees as of March 15, 2005
and expires on July 22, 2007. A collective bargaining agreement with the Birmingham, Alabama
facility covered 75 employees as of March 15, 2005 and expires on July 20, 2008. The employees at
our Allentown, Pennsylvania and Miami, Oklahoma 7




---



##### Table of Contents



facilities have recently voted to be represented by a union. In June 2004, we began
negotiating a collective bargaining agreement at the Allentown, Pennsylvania facility which would
cover approximately 32 employees. In January 2005, we began negotiating a collective bargaining
agreement at the Miami, Oklahoma facility, which would cover approximately 54 employees. We
consider relations with our employees to be satisfactory. Foreign Operations See Note 18 to our accompanying audited consolidated financial statements included herein
for geographical segment data related to our foreign operations. Forward-Looking Statements Certain of the statements in this Annual Report on Form 10-K 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:  
    reliance on a few customers for a large portion of our sales and our
ability to maintain our relationships with these customers;
    our exposure to, and our ability to manage, market risk relating to
commodity and natural gas prices, interest rates and foreign currency exchange rates;
    future capital expenditures and our ability to finance these capital
expenditures;
    our ability to finance our debt service requirements under our senior
credit facility and other indebtedness and to comply with the financial covenants under
our debt agreements;
    our future results of operations or financial condition;
    our business strategies and other plans and objectives for future operations;
    general economic and business conditions;
    business opportunities that may be presented to and pursued by us from time to time;
    risks related to our international operations;
    the impact of existing or new accounting pronouncements; and
    the outcome of any legal proceedings to which we or any of our subsidiaries may be a party. These forward-looking statements are based on our assumptions and analyses and are not
guarantees of our future performance. These statements are subject to risks, many of which are
beyond our control, that could cause our actual results to differ materially from those contained
in our forward-looking statements. Factors that could cause results to differ materially include
without limitation: decreases or changes in demand for our products, changes in market trends,
general competitive pressures from existing and new competitors, price volatility of commodities,
natural gas, other raw materials and packaging, future investment returns on our pension plans,
changes in laws and regulations, adverse changes in operating performance, adverse economic
conditions and other factors described in the risk factors section below. 8




---



##### Table of Contents



We undertake no obligation to revise our 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. Risk Factors Risks Relating to Our Indebtedness We have up to
$543.0 million in debt and redemption obligations that mature in 2007 that we may be
required to refinance rather than repay, and we may not find sources of capital to refinance on
terms acceptable to us or at all. We have up to $543.0 million in
debt and redemption obligations that mature in 2007. As of the end of fiscal
2004, these obligations consisted of outstanding amounts of $194.5 million principal
amount (out of a total availability of $230 million) under our senior credit facility due the
earlier of November 5, 2009 or 91 days prior to the maturity of the senior subordinated notes due
May 15, 2007 (as may be refinanced, extended or renewed), $149.1 million principal amount
(accreting to $150 million principal amount) of senior
subordinated notes, $110.9 million of
current redemption value (with a scheduled redemption value of $160.8 million) related to our
senior preferred stock with a scheduled redemption of September 30, 2007 and $2.2 million of
principal payments due in 2007 on other debt. We may be required to refinance rather than repay all or a
portion of the principal amount of these obligations as they mature. We may not find sources of
capital to refinance on terms acceptable to us or at all. Our senior notes mature after all of our other material obligations and the repayment of such
obligations could adversely affect our ability to satisfy our obligations under our senior notes. As of the end of fiscal 2004, we had outstanding $211.1 million principal amount (accreting to
$213.0 million principal amount) of senior notes due March 1, 2010. These senior notes mature
after the maturity of all of our other material obligations. Consequently, our payment of these
other obligations may make it more difficult for us to pay interest due on our senior notes or to
repay the outstanding principal on our senior notes at maturity in 2010. In addition, all of the
subsidiary guarantors of our senior credit facility and our senior notes are also guarantors of our
senior subordinated notes. Accordingly, if we fail to pay these obligations at maturity, these
subsidiary guarantors would be required to satisfy our payment obligation, making it more difficult
for the guarantors to satisfy any obligations under their guarantees of our senior notes. Our senior subordinated notes mature after our senior credit facility and if we are unable to
satisfy our obligations under or refinance the senior credit facility, we would not have sufficient
funds to satisfy our obligations under the senior subordinated notes. As of the end of fiscal 2004, we had outstanding $194.5 million principal amount under our
senior credit facility due the earlier of November 5, 2009 or 91 days prior to the maturity of the
senior subordinated notes due May 15, 2007 (as may be refinanced, extended or renewed), unless
terminated sooner upon an event of default. Consequently, our payment of obligations under our
senior credit facility may make it more difficult for us to pay interest due on our senior
subordinated notes or to repay the outstanding principal on our senior subordinated notes at
maturity in 2007. In addition, if we are unable to satisfy the obligations under our senior credit
facility, we would be in default under such facility, allowing the lenders to accelerate the
outstanding debt. If such an event occurs or appears likely to occur, there can be no assurance
that we would be able to make necessary payments to such lenders or that we would be able to
refinance with such lenders or find alternative financing to prevent such an occurrence. Even if we
were able to refinance or obtain alternative financing, there can be no assurance that it would be on
terms that are acceptable. If we are unable to satisfy our obligations under, refinance or find
alternative financing to satisfy our obligations under the senior credit facility, we would not have
sufficient funds to satisfy our obligations under the senior subordinated notes. Our level of indebtedness could negatively impact our financial condition, results of operations
and business prospects and prevent us from fulfilling our debt service obligations. As of the end of fiscal 2004, we had $690.2 million of indebtedness outstanding. The
principal amounts due under this indebtedness at the respective maturity dates include $213.0
million of senior notes, $194.5 million under our senior credit facility, $150.0 million of senior
subordinated notes, $15.0 million of industrial development revenue bonds and $14.5 million of
foreign debt. In addition, we had $110.9 million of current redemption value, excluding future
dividends, related to our senior preferred stock. Our principal sources of liquidity as of the end
of fiscal 2004 consisted of working
capital of $54.0 million, including cash of $28.8 million,
and $29.7 million of availability out of a total availability of $35.0 million under the revolving
credit facility portion of our senior credit facility. We are permitted to incur additional
indebtedness in the future if we meet certain requirements in our 9




---



##### Table of Contents



senior credit facility and the indentures governing our senior notes and senior subordinated
notes. Our ability to meet future debt service obligations is dependent upon our future
performance, which is subject to general economic conditions and to financial, business and other
factors affecting our operations, many of which are beyond our control. Our level of indebtedness could have important consequences to our operations, including:  
    making it more difficult for us to satisfy our debt service obligations which,
if we fail to comply with the requirements of any of our debt, could result in an event of
default;
    requiring us to dedicate a substantial portion of our cash flow from
operations to make repayments on debt, thereby reducing the availability of cash flow for
working capital, capital expenditures, acquisitions and other general business activities;
    limiting our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions and other general business activities;
    limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
    making us vulnerable to fluctuations in interest rates because indebtedness
under our senior credit facility is subject to variable interest rates;
    detracting from our ability to successfully withstand a downturn in our
business or the general economy; and
    placing us at a competitive disadvantage against other less leveraged
competitors. Our 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. Our senior credit facility requires us to maintain specified financial ratios and satisfy
certain financial condition tests. Our ability to meet these financial ratios and tests can be
affected by events beyond our control, such as prevailing economic, financial or industry
conditions, and we may not be able to meet these ratios or tests. We have experienced difficulty in
the past satisfying the financial covenants in our previous senior credit facility and have either
negotiated amendments or obtained waivers from our previous lenders for fiscal 2000, 2001 and 2003.
If we violate the financial covenants and are unable to negotiate amendments or obtain waivers from
our current lenders, we could be in default and our lenders may accelerate our debt, and we would
not be able to draw upon additional availability under our senior credit facility to meet our
liquidity needs. We were in compliance with the financial covenants in our senior credit facility
as of the end of fiscal 2004. Our debt agreements limit
certain business activities and could have a material adverse effect on our operations. Our senior credit facility and the indentures governing our senior notes and senior
subordinated notes limit our ability to take a number of actions that we may otherwise desire to
take, including:  
    incurring additional indebtedness;
    incurring liens;
    paying dividends or making other restricted payments;
    selling assets; 10




---



##### Table of Contents




    entering into transactions with affiliates;
    merging or consolidating with any other entity;
    disposing of substantially all of our assets; or
    entering into certain lines of business. If we are unable to generate sufficient operating cash flows in the future to service our
indebtedness, to comply with financial covenants and to meet other commitments, we may be required
to take certain actions, such as selling material assets or operations, reducing or delaying
capital expenditures, or revising or delaying our strategic plans. We may not be able to take any
of these actions on a timely basis or on satisfactory terms or take actions that would enable us to
continue to satisfy our capital requirements. Certain of these actions may be prohibited by the
indentures governing our senior notes and senior subordinated notes or require the consent of the
lenders under our senior credit facility. In addition, an event of default under one of these debt agreements may affect other debt
agreements that contain cross-acceleration or cross-default provisions, causing obligations under
the other agreements to be accelerated and become due and payable. If any of these events occur,
there can be no assurance that we would be able to make necessary payments to the lenders or that
we would be able to find alternative financing. Even if we were able to obtain alternative
financing, there can be no assurance that it would be on terms that are acceptable. Our senior notes and the related guarantees are effectively subordinated to all of our secured
debt, including the debt under our senior credit facility, and if a default occurs, we may not have
sufficient funds to fulfill our obligations under our senior notes. Our senior notes and the related guarantees are general unsecured obligations that are
effectively subordinated to all of our senior secured debt as well as any secured debt of our
subsidiary guarantors to the extent of the value of the assets securing that debt. We have pledged
substantially all of our assets as collateral to secure our indebtedness under our senior credit
facility. As of the end of fiscal 2004, we had secured indebtedness in the principal amount of
$194.5 million under our senior credit facility to which our senior notes and the related
guarantees would have been effectively subordinated as a result of liens granted by us. We also
have secured indebtedness in the principal amounts of $15.0 million under our industrial
development revenue bonds and $14.5 million of foreign debt. We and our subsidiary guarantors may
also incur additional secured indebtedness in the future. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets
that secure our secured indebtedness will be available, if at all, to pay obligations on our senior
notes only after all secured indebtedness has been repaid in full from those assets. Likewise,
because our obligations under our senior credit facility are secured obligations, our failure to
comply with the terms of our senior credit facility would entitle those lenders to foreclose on
substantially all of our assets that serve as collateral. In this event, these lenders would be
entitled to be repaid in full from the proceeds of the liquidation of those assets before those
assets would be available for distribution to other creditors, including holders of our senior
notes. Holders of our senior notes will share in our remaining assets, if any, ratably with all
holders of our unsecured indebtedness that is deemed to be of the same class as our senior notes,
and potentially with all of our other general creditors. There may not be sufficient assets
remaining to pay amounts due on any or all of our senior notes then outstanding. The guarantees of
our senior notes will similarly be subordinated to secured indebtedness of the guarantors. Our senior subordinated notes and the related guarantees of these notes are subordinated in right
of payment to all of our existing and future senior indebtedness. Our senior subordinated notes and the related guarantees of these notes are general unsecured
obligations and subordinated in the right of payment to all of our existing and future senior
indebtedness, including all indebtedness under our senior credit facility and senior notes. As of
the end of fiscal 2004, we had senior indebtedness in the principal amounts of $213.0 million of
senior notes and $194.5 million under our senior credit facility as well as 11




---



##### Table of Contents



secured indebtedness in the principal amounts of $15.0 million under our industrial
development revenue bonds and $14.5 million of foreign debt. As a result of the subordination, the
holders of any senior indebtedness must be paid in full before the holders of our senior
subordinated notes in the event of the insolvency, liquidation, reorganization, dissolution or
other winding-up of our company or upon a default in payment with respect to, or the acceleration
of, any senior indebtedness. If we incur any additional indebtedness that is on an equal basis with
the senior subordinated notes, the holders of that debt would be entitled to share on an equal
basis with the holders of our senior subordinated notes in any proceeds distributed in connection
with any insolvency, liquidation, reorganization, dissolution or other winding-up of our company.
This may have the effect of reducing the amount of proceeds paid to holders of our senior
subordinated notes. In addition, we cannot make cash payments with respect to our senior
subordinated notes during a payment default with respect to senior indebtedness and, under certain
circumstances, no payments may be made with respect to the principal of, and premium, if any, on
our senior subordinated notes for a period of up to 179 days if a non-payment default exists with
respect to designated senior indebtedness. Our senior notes and senior subordinated notes are structurally subordinated to all indebtedness of
our subsidiaries that are not guarantors of the applicable notes. Holders of our senior notes and senior subordinated notes will not have any claim as a
creditor against our subsidiaries that are not guarantors of the applicable notes, and indebtedness
and other liabilities, including trade payables, whether secured or unsecured, of those
subsidiaries will effectively be senior to these holders claims against the assets of those
subsidiaries. All obligations owed by our non-guarantor subsidiaries would have to be satisfied
before any of the assets of these subsidiaries would be available for distribution, upon
liquidation or otherwise, to us or a subsidiary that is a guarantor of our senior notes or senior
subordinated notes. Our non-guarantor subsidiaries are currently the same for both our senior notes
and senior subordinated notes. Our non-guarantor subsidiaries represented 27.4% of our
consolidated net sales and 12.3% of our consolidated income from operations in fiscal 2004. As of
the end of fiscal 2004, our non-guarantor subsidiaries represented, after eliminations, 38.3% of
our consolidated assets and had $80.0 million of liabilities. The liabilities exclude $152.8
million of intercompany obligations owed to our guarantor subsidiaries. These non-guarantor
subsidiaries may incur additional indebtedness in the future. If a transaction constitutes a change of control that would obligate us to offer to repurchase our
senior notes, senior subordinated notes or senior preferred stock, we may not be able to satisfy
our obligation to repurchase these securities. Upon the occurrence of certain change of control events, holders of our senior notes, senior
subordinated notes and senior preferred stock may require us to offer to repurchase all or part of
their securities. However, certain important corporate events, such as leveraged recapitalizations
that would increase the level of our indebtedness and transactions that do not involve a sufficient
change in voting power or beneficial ownership, would not constitute a change of control. If a
transaction constitutes a change of control, we may not have sufficient funds at the time of the
change of control to make these required repurchases. Additionally, restrictions in our senior
credit facility may not allow such repurchases and certain events that would constitute a change of
control as defined in the indentures of our senior notes and senior subordinated notes or the
certificate of designations of our senior preferred stock would constitute an event of default
under our senior credit facility. That event would, if it should occur, permit the lenders to
accelerate the debt outstanding under our senior credit facility and that, in turn, would cause an
event of default under the indentures of our senior notes and senior subordinated notes. The source of funds for any repurchase required as a result of any change of control will be
our available cash or cash generated from our operations or other sources, including borrowings,
sales of assets, sales of equity or funds provided by a new controlling entity. We may not have
sufficient available funds at the time of any change of control to make any required repurchases of
our senior notes, senior subordinated notes or senior preferred stock tendered and to repay debt
under our senior credit facility. Furthermore, using available cash to fund the potential
consequences of a change of control may impair our ability to obtain additional financing in the
future. Any future credit agreements or other debt agreements to which we may become a party will
most likely contain similar restrictions on our ability to repurchase our senior notes, senior
subordinated notes and senior preferred stock upon a change of control. A guarantee of our senior notes or senior subordinated notes could be voided or subordinated
because of federal 12




---



##### Table of Contents



bankruptcy law or comparable state law provisions. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws,
one or more of the guarantees of our senior notes or senior subordinated notes could be voided, or
claims in respect of a guarantee could be subordinated to all other debts of that guarantor if,
among other things, the guarantor, at the time it incurred the indebtedness evidenced by its
guarantee received less than reasonably equivalent value or fair consideration for the incurrence
of such guarantee; and  
    was insolvent or rendered insolvent by reason of such incurrence;
    was engaged in a business or transaction for which the guarantors remaining
assets constituted unreasonably small capital; or
    intended to incur, or believed that it would incur, indebtedness beyond its
ability to pay such debts as they would mature. In addition, any payment by that guarantor pursuant to its guarantee could be voided and
required to be returned to the guarantor or to a fund for the benefit of the creditors of the
guarantor. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending
upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred.
Generally, however, a guarantor would be considered insolvent if:  
    the sum of its debts, including contingent liabilities, was greater than the
fair saleable value of all of its assets;
    the present fair saleable value of its assets was less than the amount that would be
required to pay its probable liability on existing debts, including contingent liabilities,
as they become absolute and mature; or
    it could not pay its debts as they become due. A court may apply a different standard in making these determinations. Risks Relating to Our Business Operations One of our customers accounts for a substantial portion of our revenue and the loss of this
customer, or a significant decrease or change in business with this customer, would have a material adverse
effect on our results of operations and reduce our ability to service our debt obligations. Net sales to Wal*Mart, Inc. accounted for 44%, 42% and 43% of our total net sales for fiscal
2002, 2003 and 2004, respectively. We do not have a long-term contract with Wal*Mart, Inc. The
loss of Wal*Mart, Inc. as a customer, or a significant decrease or change in business from
Wal*Mart, Inc., would have a material adverse effect on our results of operations, financial condition and
cash flows. In addition, our results of operations and ability to service our debt obligations
would be negatively impacted to the extent that Wal*Mart, Inc. is unable to make payments or does
not make timely payments on outstanding accounts receivable with us. 13




---



##### Table of Contents



We rely on a small number of customers, certain of which are able to make greater demands of us. We rely on a small number of customers to generate a substantial portion of our net sales. As
a result of the leading market positions of many of our customers, they are able to exert pressure
on us with respect to pricing, promotions, new product introductions and other services that may
affect our results of operations. For our private label and co-manufactured customers, we rely on
the strength of brands not owned by us and on the willingness of the owners of such brands to
promote them to increase sales volume. Our net sales and results of operations may be increasingly
sensitive to a deterioration in the financial condition of, or other adverse developments with, one
or more of our customers. Increases in raw materials, packaging and natural gas costs and volatility in the commodity markets
has in the past and may in the future adversely affect our results of operations. Our financial results depend to a large extent on the costs of raw materials, packaging and
natural gas and our ability to pass through increases in these 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 as well as weather conditions during the growing and
harvesting seasons. Fluctuations in paper prices, which affect our costs for packaging materials,
have resulted from changes in supply and demand, general economic conditions and other factors. In
addition, we have exposure to changes in the pricing of natural gas, which affects our
manufacturing costs. In the event of any increases in raw materials, packaging and natural gas costs, we may be
required to seek increased sales prices for our products to avoid margin deterioration. We cannot
provide any assurances as to the timing or extent of our ability to implement future 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. Our results of operations have in the past been adversely affected by volatility in the
commodity and natural gas markets and our results of operations may be adversely affected in the
future by this volatility. See Item 7A. The use of commodity derivative instruments may expose us to increased risk of market fluctuations
in commodity prices and may reduce our flexibility in managing fluctuations in the costs of raw
materials, which may adversely affect our results of operations. We may seek to manage our commodity price risk associated with market fluctuations by using
derivative instruments for portions of our corn, soybean meal, alternative proteins and natural gas
purchases, principally through exchange traded futures and options contracts. The terms of such
contracts are generally less than one year. Although we may seek to manage the price risk of
market fluctuations by hedging portions of our primary commodity product purchases, our results of
operations have been adversely affected in the past by these fluctuations and they may be adversely
affected by these fluctuations in the future. The use of commodity derivative instruments under SFAS 133 has adversely affected our results
of operations in the past due to the volatility of commodity prices and may adversely affect our
results of operations in the future. As of the end of fiscal 2004, we had open commodity contracts
with a fair value gain of $0.2 million. See Item 7A. The use of certain commodity contracts reduces our ability to take advantage of short-term
reductions in raw material costs. If one or more of our competitors is able to reduce their costs
by taking advantage of any reductions in raw material costs, we may face pricing pressures from
these competitors and may be forced to reduce our selling prices or face a decline in sales
volumes, either of which could have a material adverse effect on our business, results of operations and
financial condition. Restrictions imposed in reaction to outbreaks of mad cow disease, bird flu, foot-and-mouth
disease or other animal diseases could adversely impact the cost and availability of our raw
materials. In late 2000, the cost of our raw materials was impacted by the publicity surrounding bovine
spongiform 14




---



##### Table of Contents



encephalopathy, or BSE, in Europe. BSE is also known as mad cow disease and is a terminal
brain disease of cattle. In the second quarter of fiscal 2003, the first North American case of
BSE was discovered in Canada. A second BSE case, also traceable to Canadian origin, was
subsequently discovered in the United States in the fourth quarter of fiscal 2003. As a result of
extensive global publicity and trade restrictions imposed to provide safeguards against the
disease, the cost of alternative sources for our raw material proteins, such as soybeans and pork
meat and bone meal, increased significantly in late fiscal 2000 and again in the first quarter of
fiscal 2004. In fiscal 2001, there was an outbreak of foot-and-mouth disease, or FMD, in Europe. FMD
affects animals with cloven hooves, such as cattle, swine, sheep, goats and deer. While FMD is not
considered a threat to humans, people who come in contact with the virus can spread it to animals. In early fiscal 2004, the first case in 20 years of highly pathogenic Avian Influenza, or
HPAI, was detected in the United States. The U.S. HPAI virus, while classified as highly virulent
to birds, has not been shown to affect humans and is not related to the highly publicized strain of
the Asian HPAI virus that spread to 10 Asian countries and killed over 20 people and several
domestic cats reportedly exposed to infected poultry. There is no risk of HPAI disease
transmission by pet food as ingredient rendering and pet food cooking processes destroy both
strains of the HPAI virus. If BSE, FMD or HPAI impacts the availability of our raw materials, we may be required to
locate alternative sources for our raw materials. We can give no assurance that those sources would
be available to sustain our sales volumes or that these alternative sources would not be more
costly. If outbreaks of BSE, FMD or HPAI, or the resulting regulation or publicity, impacts the
cost of our raw materials, or the cost of alternative raw materials compared to current costs, we
may be required to increase the selling price for our products to avoid margin deterioration. We
can give no assurance of the timing or extent of our ability to implement future price increases in
the event of higher costs or of whether any such price adjustments implemented by us may affect
future sales volumes to our customers. Our acquisition activities, including integration, operation and management of these businesses,
may not be successful or may subject us to losses. Any acquisition we may pursue could be based on identifying and acquiring businesses engaged
in manufacturing and distributing pet food products in markets where we currently do not operate or
businesses with products that would complement our product mix. Our lack of experience in new
markets we may enter through future acquisitions could have an adverse effect on our results of
operations and financial condition. Acquisitions may require investment of operational and
financial resources and could require integration of dissimilar operations, assimilation of new
employees, diversion of management time and resources, increases in administrative costs, potential
loss of key employees of the acquired company and additional costs associated with debt or equity
financing. Acquisitions may also result in losses associated with discontinued operations. For
example, we recognized a net loss of $4.7 million in connection with our 2001 divestitures of our
Perham, Minnesota facility and our Deep Run domestic wet pet food business, both of which we
acquired in our 1998 Windy Hill acquisition. We also recognized asset impairments of $2.4 million
in fiscal 2003 related to our 51% interest in Crona, which was divested in January 2004. We may encounter increased competition for acquisitions in the future, which could result in
acquisition prices we do not consider acceptable. We may not have sufficient available capital
resources to execute potential acquisitions, and our ability to enter into acquisitions may be
limited by our senior credit facility and our indentures. We may not find suitable acquisition
candidates at acceptable prices or succeed in integrating any acquired business into our existing
business or in retaining key customers of acquired businesses. Our operating results and financial condition could be adversely affected by acquisitions if
any of the following were to occur:  
    the expected operating efficiencies from the acquisitions do not materialize;
    we fail to successfully integrate the acquisitions into our existing operations; or 15




---



##### Table of Contents




    the cost of the acquisition integrations exceeds expectations. The amount of goodwill, trademarks and other intangible assets we have recorded from our
acquisitions may not be realized, which could have a material adverse effect on our results of operations. As of the end of fiscal 2004, we had $390.5 million of goodwill and trademarks and $10.1
million of intangible assets with estimable useful lives that were recorded from our acquisitions.
These assets, which represented 44.4% of our consolidated total assets as of the end of fiscal
2004, may become impaired in the future. We completed our fiscal 2004 annual assessment of
impairment related to goodwill and trademarks and determined no impairment was currently evident,
but our results of operations in future periods could be materially,
adversely affected if our goodwill and
trademarks are determined to be impaired. We face significant competition from national, regional and store brand manufacturers, many of whom
are larger than we are and have significantly greater resources than we do. The pet food industry is highly competitive. The companies that produce and market the major
nationally advertised brand pet foods are national or international conglomerates that are
substantially larger than us and possess significantly greater financial and marketing resources
than us. Our store brand pet food products compete for shelf space with nationally advertised brand
pet food products on the basis of quality and price. In addition, certain nationally advertised
brand manufacturers also manufacture store brands. Nationally advertised brand products compete
principally through advertising to create brand awareness and loyalty. We experience direct and
indirect price competition from nationally advertised brand products. To the extent significant
price competition from nationally advertised brand products exists or the nationally advertised
brand manufacturers significantly increase their store brand presence, our operating results and
cash flows could be adversely affected. We also compete with regional brand manufacturers and other
store brand manufacturers. A portion of our revenues is derived from our European operations, which subject us to additional
business, economic and political risks and could limit our ability to successfully carry out our
business strategy. We operate a portion of our business and market products internationally. We have
manufacturing facilities in Austria, Denmark, Spain and the United
Kingdom. Globally, we sell to customers in approximately 40 countries. Our foreign subsidiaries had net sales of $288.0 million, or
27.4% of our consolidated net sales, with the majority of these sales in Europe. We are,
therefore, subject to the risks customarily attributable to international operations and investment
in foreign countries. We have foreign currency exposure relating to our business transactions in currencies other than
the U.S. dollar. Our functional
currencies other than the U.S. dollar include the Euro, Danish Krona and British Pound Sterling.
The timing and extent of fluctuations in foreign currency exchange rates may have a material adverse effect on our
operations due to the translations of the financial statements of our foreign subsidiaries. Our management of foreign currency exposure may not protect
us from fluctuations in foreign currency exchange rates. Other risks include:  
    import and export license requirements;
    trade restrictions;
    foreign tax laws, tariffs, and other foreign laws and regulations;
    limitation on repatriating earnings back to the United States;
    difficulties in staffing and managing our European operations; 16




---



##### Table of Contents




    nationalization;
    expropriation;
    restrictive actions by local governments;
    acts of terrorism;
    war and civil disturbance; and
    disruptions or delays in shipments. Any of these events could have a material adverse effect on our operations in foreign countries and an
interruption of our international operations could have a material adverse effect on our results of
operations and financial condition. If we lose certain key personnel or are unable to hire additional qualified personnel, we may not
be successful. Our success depends, in part, upon the continued services of our personnel involved in
management, sales, manufacturing and distribution, and, in particular, upon the efforts and
abilities of our executive management team. If we lose the service of any of the members of our
executive management team, the loss could have a material adverse effect on our business, financial
condition and results of operations. We do not have key person life insurance covering any of our
employees. Our success also depends upon our ability to attract and retain highly qualified
employees. We are subject to extensive regulation and our compliance with existing or future laws and
regulations or making any product recalls pursuant thereto could cause us to incur substantial
expenditures. We are subject to a broad range of federal, state, local and foreign laws and regulations
intended to protect public health and the environment, including those governing discharges into
the air and water, the storage of petroleum substances and chemicals, the handling and disposal of
solid or hazardous wastes and the remediation of contamination associated with releases of wastes
or hazardous substances. Our U.S. operations are also subject to regulation by the Occupational
Safety and Health Administration, the Food and Drug Administration, the Department of Agriculture
and by various state and local authorities regarding the processing, packaging, storage,
distribution, advertising and labeling of our products, including food safety standards. Our
foreign operations are subject to similar environmental, safety and public health laws and
regulations that are enforced by governmental agencies, such as the European Commissioner of Foods,
which is the controlling body for public health of the European Union. The European Union is taking
a much stronger role than the United States in both the regulation of raw materials for
manufacturing and the labeling of pet food. Violations of any of these laws and regulations may result in administrative, civil or
criminal penalties being levied against us, permit revocation or modification, performance of
environmental investigatory or remedial activities, voluntary or involuntary product recalls, or a
cease and desist order against operations that are not in compliance. These laws and regulations
may change in the future and we may incur material costs in our efforts to comply with current or
future laws and regulations or to effect any product recalls. These
matters may have a material adverse
effect on our business. See the section above on environmental and safety matters. The board of directors of Doane Pet Care Enterprises, Inc., our parent company, and our board of
directors are controlled by certain stockholders and their interests may be different than those of
our noteholders. Doane Pet Care Enterprises, Inc., our parent company, is a holding company with no operations.
We are its sole operating subsidiary. In connection with our 1998 acquisition of Windy Hill, we,
Summit/DPC Partners, L.P., Summit Capital, Inc., Chase Manhattan Investment Holdings, Inc.
(predecessor to J.P. Morgan Partners (BHCA), L.P.) and an affiliate thereof, DLJ Merchant Banking
Partners, L.P. and certain of its affiliates, all of Windy Hills 17




---



##### Table of Contents



former stockholders, and certain other stockholders of Doane Pet Care Enterprises, Inc.
entered into an investors agreement. The investors agreement provides certain of these parties
with board designation rights. Through their control of the boards of directors of Doane Pet Care
Enterprises, Inc. and our company, these investors are able to control our policies, management and
affairs and to effectively prevent or cause a change in our control. Each of our parents
significant stockholders, together with its affiliates, has other business interests and activities
in addition to its ownership interest in us. It is possible that the significant stockholders may
exercise their control in ways that serve their individual interests but do not serve the best
interests of our noteholders. It is also possible that conflicts or disagreements among the
stockholders may make it difficult for us to take action important to the achievement of our goals. We may be subject to work stoppages at our facilities or those of our principal customers or
transportation companies with whom we do business, which could have a
material adverse effect on the profitability
of our business. A portion of our global work force is unionized. If our unionized workers were to engage in a
strike, work stoppage or other slowdown in the future, we could experience a significant disruption
of our operations, which could have a material adverse effect on us. Furthermore, our principal customers
or transportation companies responsible for shipping our products may be impacted by strikes, work
stoppages or other slowdowns staged by the unions representing employees of such customers or
transportation companies. Any interruption in the delivery of our
products could have a material adverse
effect on us. If the investments in our pension plans do not perform as expected, we may have to contribute
additional amounts to the plans. We maintain a non-contributory
inactive pension plan that was frozen in 1998 and an active pension plan
that covered 42 union employees at one of our facilities as of the end of fiscal 2004. Due to an overall decline
since fiscal 2000 in the market value of these plans assets and interest rates used in discounting
benefit liabilities, the assets of our pension plans were $1.2 million less than the accumulated
benefit obligations as of the end of fiscal 2004. Under federal law, we were not required to make
any cash contributions to our inactive plan in fiscal 2002 through 2004 and do not expect to make
any cash contributions in fiscal 2005. We were required to make contributions to our active plan in
fiscal 2002 through 2004 of approximately $0.1 million each year and we expect to contribute
approximately $0.1 million in fiscal 2005. However, if underperformance of the plans investments
continues, we may be required in the future to contribute additional funds to ensure that the
pension plans will be able to pay out benefits as scheduled. Such an increase in funding could
result in a decrease in our available cash flow, which would limit our ability to fund our business
activities or pay principal or interest on our debt. 18




---



##### Table of Contents



ITEM 2  Properties Our corporate headquarters are located in Brentwood, Tennessee. Our manufacturing and
distribution facilities are generally located in rural areas in close proximity to our customers,
raw materials and transportation networks, including rail transportation. We believe our broad
number of strategically located facilities enhances our position as a low cost provider of pet food
by reducing freight costs for raw materials and finished goods. Our rural locations also reduce
land and labor costs. We believe we can construct new manufacturing facilities at a lower cost than
competitors by using our engineering services group to design and construct most of the necessary
manufacturing equipment. The following table shows our domestic and European manufacturing and distribution facilities: Location
    
    Principal products
    
    Square footageDomestic manufacturing and warehouse facilities:Allentown, PA
    
    Dry dog/cat food
    
    
    70,000Birmingham, AL
    
    Dry dog/cat food
    
    
    115,000Butler, MO
    
    Dry dog/cat food
    
    
    57,000Cartersville, GA
    
    Dry dog/cat food
    
    
    42,000Clinton, OK
    
    Dry dog/cat food
    
    
    197,000Delavan, WI
    
    Semi-moist food; treats
    
    
    55,000Dexter, MO
    
    Dry dog/cat food
    
    
    70,000Everson, PA
    
    Dry dog/cat food
    
    
    74,000Hillburn, NY
    
    Dog biscuits
    
    
    95,000Joplin, MO
    
    Dry dog/cat food; dog biscuits
    
    
    308,000LeSueur, MN
    
    Dry dog/cat food; dog biscuits
    
    
    160,000Manassas, VA
    
    Dry dog/cat food
    
    
    80,000McKenzie, TN
    
    Dry dog/cat food
    
    
    90,000Miami, OK
    
    Dog and cat treats
    
    
    76,000Muscatine, IA
    
    Dry dog/cat food
    
    
    100,000Orangeburg, SC
    
    Dry dog/cat food
    
    
    139,000Portland, IN
    
    Dry dog/cat food; dog biscuits

    
    
    120,000Pueblo, CO
    
    Dry dog/cat food
    
    
    125,000San Bernardino, CA
    
    Dry dog/cat food
    
    
    169,000Temple, TX
    
    Dry dog/cat food
    
    
    110,000Tomah, WI
    
    Dry dog/cat food
    
    
    98,000Tracy, CA
    
    Dry dog/cat food
    
    
    110,000Washington Courthouse, OH
    
    Dry dog/cat food; dog biscuits
    
    
    190,000Domestic distribution warehouses:Johnstown, NY(1)
    
    N/A
    
    
    41,000Ocala, FL
    
    N/A
    
    
    76,000European manufacturing and warehouse facilities:Carat, Austria
    
    Wet dog/cat food
    
    
    38,000Esbjerg, Denmark
    
    Wet dog/cat food; treats
    
    
    487,000Norwich, England(1)
    
    Dry dog/cat food
    
    
    81,000Valladolid, Spain
    
    Dry dog/cat food
    
    
    112,000Vejen, Denmark
    
    Dry dog/cat food
    
    
    151,000Joint venture facility:Milano, Italy
    
    Dry dog/cat food
    
    
    67,000
  (1)
    
    These facilities are leased. All other facilities are owned by us other than the joint venture
facility. 19




---



##### Table of Contents



ITEM 3  Legal Proceedings In the ordinary course of business, we are party to litigation from time to time;
however, we are not a party to any material pending legal proceedings that, if adversely
determined, we believe would have a material adverse effect on our results of operations or financial
condition. 
 ITEM 4  Submissions of Matters to a Vote of Security Holders None. 
 PART II 
 ITEM 5  Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities Market Information All of our common stock is owned by our parent, Doane Pet Care Enterprises, Inc. No
established public trading market currently exists for our common stock. Sales of Unregistered Equity Securities We did not sell any unregistered equity securities in fiscal 2004. Dividends We did not declare any cash dividends on our common stock in fiscal 2003 and 2004 and we
do not anticipate paying any cash dividends in the foreseeable future. We intend, instead, to
retain any future earnings for reinvestment in our business or other corporate purposes. Any
future determination as to the payment of dividends will be made at the discretion of our board of
directors and will depend on our operating results, financial condition, capital requirements,
general business conditions and such other factors as the board of directors deems relevant. Our ability to pay dividends is also restricted by our senior credit facility and the
indentures governing our senior notes and senior subordinated notes. Equity Compensation Plan Information Please refer to Item 12 of this Annual Report on Form 10-K for information concerning
securities authorized under our equity compensation plan. 
 ITEM 6  Selected Financial Data The selected financial data presented below (except for volume of pet food sold data) was
derived from our consolidated financial statements, which have been audited by KPMG LLP, our
independent registered public accounting firm. The selected data should be read in conjunction
with the accompanying audited consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 10-K. Our fiscal year ends on the Saturday nearest to the
end of December; and therefore, fiscal 2000, 2001, 2002, 2003 and 2004 ended on December 30, 2000,
December 29, 2001, December 28, 2002, January 3, 2004 and January 1, 2005, respectively. Fiscal
2000 through 2002 and 2004 were each 52-week years and fiscal 2003 was a 53-week year. The tables
presented below are in thousands. 20




---



##### Table of Contents



Fiscal20032000(2)
    
    
    2001 (3) (4)
    
    
    2002
    
    
    restated (1)
    
    
    2004Statement of income data:Net sales
    
    $
    875,761
    
    
    $
    895,830
    
    
    $
    887,333
    
    
    $
    1,013,865
    
    
    $
    1,051,241Cost of goods sold
    
    
    687,799
    
    
    
    749,092
    
    
    
    701,418
    
    
    
    851,578
    
    
    
    896,191Gross profit
    
    
    187,962
    
    
    
    146,738
    
    
    
    185,915
    
    
    
    162,287
    
    
    
    155,050Operating expenses:Promotion and distribution
    
    
    51,929
    
    
    
    58,241
    
    
    
    52,445
    
    
    
    57,616
    
    
    
    56,805Selling, general and administrative
    
    
    50,863
    
    
    
    47,945
    
    
    
    48,712
    
    
    
    52,015
    
    
    
    51,861Amortization (5)
    
    
    12,779
    
    
    
    13,743
    
    
    
    4,583
    
    
    
    4,989
    
    
    
    4,313Other operating expenses (6)
    
    
    28,639
    
    
    
    8,655
    
    
    
    1,447
    
    
    
    7,227
    
    
    
    6,978Income from operations
    
    
    43,752
    
    
    
    18,154
    
    
    
    78,728
    
    
    
    40,440
    
    
    
    35,093Interest expense, net
    
    
    51,223
    
    
    
    57,020
    
    
    
    62,395
    
    
    
    57,494
    
    
    
    72,841Debt extinguishments (7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,438
    
    
    
    4,137Other income, net
    
    
    (1,732
    )
    
    
    (757
    )
    
    
    (724
    )
    
    
    (1,156
    )
    
    
    (1,417
    )Income (loss) before
income taxes
    
    
    (5,739
    )
    
    
    (38,109
    )
    
    
    17,057
    
    
    
    (20,336
    )
    
    
    (40,468
    )Income tax expense (benefit)
    
    
    (854
    )
    
    
    (16,171
    )
    
    
    1,786
    
    
    
    25,039
    
    
    
    5,124Net income (loss)
    
    $
    (4,885
    )
    
    $
    (21,938
    )
    
    $
    15,271
    
    
    $
    (45,375
    )
    
    $
    (45,592
    )
 Fiscal20032000 (2)
    
    
    2001
    
    
    2002
    
    
    restated (1)
    
    
    2004Other data:Cash flows provided by (used in) operating activities
    
    $
    45,388
    
    
    $
    (23,936
    )
    
    $
    78,773
    
    
    $
    55,663
    
    
    $
    21,287Cash flows provided by (used in) investing activities
    
    
    (181,316
    )
    
    
    1,466
    
    
    
    (25,902
    )
    
    
    (30,185
    )
    
    
    (20,054
    )Cash flows provided by (used in) financing activities
    
    
    131,972
    
    
    
    25,433
    
    
    
    (51,731
    )
    
    
    (4,572
    )
    
    
    (1,829
    )Depreciation and amortization
    
    
    36,334
    
    
    
    41,430
    
    
    
    32,164
    
    
    
    37,161
    
    
    
    40,356Capital expenditures(8)
    
    
    35,347
    
    
    
    17,316
    
    
    
    24,348
    
    
    
    28,062
    
    
    
    18,856Volume of
pet food sold (thousands of U.S. tons):North America
    
    
    1,710
    
    
    
    1,653
    
    
    
    1,705
    
    
    
    1,836
    
    
    
    1,647Europe
    
    
    207
    
    
    
    282
    
    
    
    258
    
    
    
    276
    
    
    
    289
 End of fiscal20032000 (2)
    
    
    2001
    
    
    2002
    
    
    restated (1)
    
    
    2004Balance sheet data:Working capital
    
    $
    25,812
    
    
    $
    46,995
    
    
    $
    59,215
    
    
    $
    41,704
    
    
    $
    54,004Total assets
    
    
    907,062
    
    
    
    836,545
    
    
    
    870,667
    
    
    
    885,914
    
    
    
    901,906Total debt (9)
    
    
    573,165
    
    
    
    587,823
    
    
    
    554,020
    
    
    
    574,046
    
    
    
    690,184Senior Preferred Stock
(Redeemable)(9)
    
    
    55,205
    
    
    
    65,672
    
    
    
    77,550
    
    
    
    91,052
    
    
    
    Stockholders equity
    
    
    70,881
    
    
    
    37,926
    
    
    
    58,503
    
    
    
    32,549
    
    
    
    7,126
 21




---



##### Table of Contents



(1)
    
    See Note 2 to our accompanying audited consolidated financial statements included herein for
a discussion of the restatement. A summary of the adjustments and the effect of the
restatement on previously issued fiscal 2003 selected financial data follows (in thousands): Fiscal 2003Previouslyreported
    
    
    Adjustments
    
    
    RestatedStatement of income data:Net sales
    
    $
    1,013,865
    
    
    $
    
    
    
    $
    1,013,865Cost of goods sold
    
    
    851,578
    
    
    
    
    
    
    
    851,578Gross profit
    
    
    162,287
    
    
    
    
    
    
    
    162,287Operating expenses:Promotion and distribution
    
    
    57,616
    
    
    
    
    
    
    
    57,616Selling, general and administrative
    
    
    52,015
    
    
    
    
    
    
    
    52,015Amortization
    
    
    4,989
    
    
    
    
    
    
    
    4,989Other operating expenses
    
    
    7,227
    
    
    
    
    
    
    
    7,227Income from operations
    
    
    40,440
    
    
    
    
    
    
    
    40,440Interest expense, net
    
    
    58,845
    
    
    
    (1,351
    )
    
    
    57,494Debt extinguishments
    
    
    12,142
    
    
    
    (7,704
    )
    
    
    4,438Other income, net
    
    
    (1,156
    )
    
    
    
    
    
    
    (1,156
    )Income
(loss) before income taxes
    
    
    (29,391
    )
    
    
    9,055
    
    
    
    (20,336
    )Income tax expense (benefit)
    
    
    25,039
    
    
    
    
    
    
    
    25,039Net income (loss)
    
    $
    (54,430
    )
    
    $
    9,055
    
    
    $
    (45,375
    )
 Fiscal 2003Previouslyreported
    
    
    Adjustments
    
    
    RestatedOther data:Cash flows provided by operating activities
    
    $
    55,663
    
    
    $
    
    
    
    $
    55,663Cash flows used in investing activities
    
    
    (30,185
    )
    
    
    
    
    
    
    (30,185
    )Cash flows used in financing activities
    
    
    (4,572
    )
    
    
    
    
    
    
    (4,572
    )Depreciation and amortization
    
    
    37,161
    
    
    
    
    
    
    
    37,161Capital expenditures
    
    
    28,062
    
    
    
    
    
    
    
    28,062Volume of
pet food sold (thousands of U.S. tons):North America
    
    
    1,836
    
    
    
    
    
    
    
    1,836Europe
    
    
    276
    
    
    
    
    
    
    
    276
 Fiscal 2003Previouslyreported
    
    
    Adjustments
    
    
    RestatedBalance sheet data:Working capital
    
    $
    40,353
    
    
    $
    1,351
    
    
    $
    41,704Total assets
    
    
    885,914
    
    
    
    
    
    
    
    885,914Total debt
    
    
    574,046
    
    
    
    
    
    
    
    574,046Senior Preferred
Stock (Redeemable)
    
    
    91,052
    
    
    
    
    
    
    
    91,052Stockholders equity
    
    
    31,198
    
    
    
    1,351
    
    
    
    32,549
  (2)
    
    Results for fiscal 2000 include the results of our acquisition on May 10, 2000 of A/S Arovit
Petfood, headquartered in Esbjerg, Denmark, for approximately $144.4 million and assumed
indebtedness, net of cash, of approximately $11.8 million. Arovit manufactures and sells
throughout Europe a full range of pet food products for dogs and cats, including wet, dry and
treats, primarily through private label programs.(3)
    
    Results for fiscal 2001 include the results of two divestitures until the dates of sale: our
Perham, Minnesota facility from the beginning of fiscal 2001 through April 27, 2001 and our
Deep Run domestic wet pet food business from the beginning of fiscal 2001 through May 3, 2001.(4)
    
    Results for fiscal 2001 include $16.9 million of expenses associated with strategic
initiatives that commenced in fiscal 2001 consisting of $6.7 million of other operating
expenses related to the divestitures and $10.2 million of Project Focus
expenses. The Project Focus expenses were classified as follows: (1) $0.3 million as a
reduction in net sales; (2) $6.6 million as cost of goods sold; (3) $0.9 million as promotion
and distribution expenses; (4) $0.4 million as selling, general and administrative expenses;
and (5) $2.0 million as other operating expenses. 22




---



##### Table of Contents



(5)
    
    As of the beginning of fiscal 2002, we adopted SFAS 142 and ceased amortization of goodwill
and trademarks. Net income (loss) for fiscal 2000 and 2001, as adjusted to give effect to the
adoption of SFAS 142 as of the beginning of each such fiscal year, would have been $2.3
million and $14.3 million, respectively.(6)
    
    Other operating expenses of $28.6 million in fiscal 2000 include $22.3 million of
restructuring costs and $6.3 million of transaction costs. The restructuring costs consist of
$15.3 million of asset impairments, $3.5 million of severance and $3.5 million of other plant
closing costs. The transaction costs consist of a $4.6 million loss on a foreign currency
forward contract associated with the Arovit acquisition, $1.5 million of expenses for
abandoned strategic initiatives and $0.2 million of miscellaneous transaction costs.Other operating expenses of $8.7 million in fiscal 2001 include a $4.7 million net loss from
the divestitures and $4.0 million of restructuring costs. The restructuring costs consist of
$2.0 million of severance for the elimination of corporate positions following the
divestitures, $1.0 million of severance for the elimination of corporate positions in the
fourth quarter of fiscal 2001 and $1.0 million of asset impairments related to Project Focus
and a U.S. plant closure.Other operating expenses of $1.4 million in fiscal 2002 are transaction costs consisting of
$0.8 million related to our postponed senior note offering and $0.6 million for an abandoned
strategic initiative.Other operating expenses of $7.2 million in fiscal 2003 are restructuring costs consisting of
asset impairments of $5.3 million related to our European restructuring plan and $2.4 million
related to the divestiture of our 51% interest in Crona, partially offset by $0.5 million of
net positive revisions to estimates of previously accrued restructuring costs. See Note 14 to
our accompanying audited consolidated financial statements included herein.Other operating expenses of $7.0 million in fiscal 2004 include $7.3 million of restructuring
costs, $0.6 million of income from litigation settlements
and $0.3 million of other costs. Restructuring costs associated with our European restructuring plan include $3.2
million of severance, $2.5 million of equipment installation costs and $1.3 million for
manufacturing inefficiencies. In addition, the Company had restructuring costs for asset
impairments of $0.2 million primarily related to the closure of a U.S. distribution facility
and $0.1 million of revisions to estimates of previously accrued restructuring costs.
See Note 14 to our accompanying audited consolidated financial statements
included herein.(7)
    
    Debt extinguishments of $4.4 million in fiscal 2003 consist of $4.1 million related to our
refinancing in February 2003 and $0.3 million related to the write-off of a pro-rata portion
of unamortized debt issuance costs for an optional prepayment we made on our previous senior
credit facility. See Note 8 to our accompanying audited consolidated financial statements
included herein.Debt extinguishment of $4.1 million in fiscal 2004 relates to the write-off of unamortized
debt issuance costs in connection with the November 2004 refinancing of our senior credit
facility. See Note 8 to our accompanying audited consolidated financial statements included
herein(8)
    
    Capital expenditures exclude payments for acquisitions.(9)
    
    Senior Preferred Stock (Redeemable) was reclassified to long-term debt as of the beginning of
fiscal 2004 upon adoption of SFAS 150. See Note 3 to our accompanying audited consolidated
financial statements included herein. 
 ITEM 7  Managements Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion together with the accompanying audited
consolidated financial statements and related notes included elsewhere in this Annual Report on
Form 10-K. You are also urged to read the sections on forward-looking statements and risk factors
in Item 1 for some of the factors that could cause our actual results to differ materially from
those contained in any forward-looking statements in this discussion. Restatement of Fiscal 2003 During the preparation of the 2004 10-K, the Audit Committee of our Board of Directors
determined that, following a review of our accounting practices for realized foreign currency
transaction losses and the computation of interest expense, and in consultation with management and
our independent registered public accounting firm, the 23




---



##### Table of Contents



restatement of our previously issued fiscal
2003 consolidated financial statements was necessary. The restatement resulted in a decrease in
the fiscal 2003 net loss from $54.4 million to $45.3 million. This $9.1 million reduction resulted
from the reversal of previously recognized transaction losses of $7.7 million related to the
cumulative translation of our Euro-denominated debt and the
correction of a cumulative error in our interest
expense calculation of $1.4 million. The restatement did not affect our compliance with any
covenants under our senior credit facility or other debt instruments. We have included the restated
consolidated financial statements and related notes for fiscal 2003 in our 2004 10-K to correct
these errors. The adjustments made to our consolidated financial statements are further described
in Note 2 to the accompanying audited consolidated financial statements included herein. Business Overview The U.S. pet food industry is approximately a $13 billion industry with a compound annual
growth rate of 4.8% from 2000 through 2004. From 2000 to 2004,the U.S. dog and cat population
grew from approximately 135 million to 142 million, or 5.2%. Recent trends in the U.S. pet food industry include the following:  
    Dry pet food has grown more rapidly than wet pet food. From 2000 to 2004, dry
pet food grew at a compound annual growth rate of 5.3% compared to 2.4% for wet pet food.
    Private label dry pet food has grown more rapidly than nationally advertised
brand dry pet food. From 2000 to 2004, private label dry pet food grew at a compound
annual growth rate of 9.2% compared to 4.0% for nationally advertised brand dry pet food.
    Sales through mass merchandisers have grown more rapidly than sales through
the grocery channel.From 2000 to 2004, pet food sales through mass merchandisers grew at
a compound annual growth rate of 9.8%, compared to a decline of 1.7% for the grocery
channel. In fiscal 2004, 34% of pet food sales through mass merchandisers were private
label compared to 10% for the grocery channel.
    Consolidation.Over the past several years, significant consolidation
occurred among pet food producers, including Nestlé S.A.s 2001 acquisition of Ralston
Purina Company in the United States and Mars, Inc.s 2002 acquisition of Royal Canin S.A.
in Europe. We manufacture pet food, primarily private label, in the United States and Europe using 28
combined manufacturing and distribution facilities. We manufacture pet food products predominately
for dogs and cats, including dry, wet, semi-moist, soft dry, soft treats and dog biscuits. We sell
our products to a variety of types of retailers. Our net sales to Wal*Mart, Inc. accounted for
44%, 42% and 43% of our total net sales for fiscal 2002, 2003 and 2004, respectively. 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 consist of promotion and distribution
expenses, selling, general and administrative expenses, amortization and other operating expenses.
Promotion and distribution expenses are primarily comprised of promotions, freight, brokerage fees
and warehousing expenses. Selling, general and administrative expenses primarily include salaries
and related fringe benefits, depreciation and other corporate overhead costs, which typically do
not increase proportionately with increases in net sales and sales volumes. 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 raw materials and the potential effect on supply and
demand, changes in international demand, trading activity in the commodity markets, as well as
weather conditions during the growing and harvesting seasons. Fluctuations in paper prices,
which affect our costs for packaging materials, have resulted from changes in supply and demand,
general economic conditions and other factors. In addition, we have exposure to changes in pricing
of natural gas, which affects our manufacturing costs. 24




---



##### Table of Contents



Our results of operations have been exposed
to volatility in the commodity and natural gas markets in the past and may be exposed to such
volatility in the future. In the event of any increases in raw materials, packaging or natural gas costs, we may be
required to seek increased selling prices for our products to avoid margin deterioration. We cannot
provide assurance regarding the timing or extent of our ability to implement such price increases
or whether any price increases implemented by us may affect future sales volumes with our
customers. 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. Fiscal 2004 Year in Review In fiscal 2004, net sales increased 3.7% to $1,051.2 million from $1,013.9 million in
fiscal 2003. Excluding the impact of foreign currency exchange rate fluctuations and the
53rd week in fiscal 2003, net sales increased 2.6%. The favorable impact of our 2004
domestic price increases, as described below, and sales volume growth in our European business
was partially offset by lower domestic sales volume. Our fiscal 2004
gross profit decreased 4.5% to $155.1 million from $162.3 million in fiscal 2003. The $7.2 million
decrease in our gross profit was a result of higher global commodity costs, partially offset by the
positive net impact of the above factors affecting sales. Our net loss of $45.6 million was
further impacted by (1) other operating expenses of $7.0 million primarily related to our European
restructuring plan; (2) $4.1 million of debt extinguishment associated with refinancing our senior
credit facility and (3) $15.4 million of non-cash interest expense related to our senior preferred
stock upon adoption of SFAS 150, as described below. In fiscal 2003 and 2004, our domestic dry pet food commodity costs were significantly higher
than in previous years. In this two-year run, we experienced unprecedented volatility and an
increase in these costs exceeding $90 million compared to our fiscal 2002 costs. As a result, we
reached cost-sharing arrangements with certain of our domestic customers such that, by the end of
the first quarter of fiscal 2004, approximately 80% of our domestic volume was under some form of
cost-sharing arrangement. That compares to cost-sharing arrangements covering approximately 20% of
our domestic volume at the end of fiscal 2003. If these arrangements continue in their present
form, we will effectively pass through to our domestic customers approximately half of future
commodity movements, whether up or down. In addition, 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. As a result of the
new pricing and the cost-sharing strategy, the negative impact of commodities on our results of
operations in fiscal 2004 was not as dramatic as it was in fiscal 2003, despite the continued
increase in commodity costs. In late fiscal 2004, certain commodity costs began to recede.
As commodity costs declined, our prices adjusted downward for our customers on a cost-sharing arrangement. The
extent to which we otherwise lower our prices in 2005 depends on the stability of lower commodity
costs and the overall marketplace conditions. We completed our European restructuring plan in the fourth quarter of fiscal 2004. We
recognized $7.0 million of other operating expenses related to this plan during fiscal 2004
consisting of $3.2 million for severance, $2.5 million for installation of transferred equipment
and $1.3 million for manufacturing inefficiencies during the transition period. Our European
restructuring plan was 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 this project will result in labor and administrative cost savings and
other operating efficiencies of approximately $4 million on an annual basis. In November 2004, we refinanced our previous 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 25




---



##### Table of Contents



facility and a $35.0
million revolving credit facility, with a $20.0 million sub-limit for issuance of stand-by letters
of credit. We used $180.5 million of the proceeds to fully repay our previous senior credit
facility and $5.9 million to pay related fees and expenses of the new senior credit facility. The
refinancing replaced our previous senior credit facility, portions of which were scheduled to
mature in fiscal 2005, lowered our debt service costs and increased our liquidity. 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 to long-term
debt and to recognize the related accretion and dividends of $15.4 million in fiscal 2004 as
interest expense. SFAS 150 explicitly prohibits restatement of prior periods. See Note 3 to the
accompanying audited consolidated financial statements included herein. Financial Covenant Compliance One of our major risks is our ability to finance our cash requirements for debt service
under our senior credit facility and our other debt and to comply with the financial covenants
under our senior credit facility. Our 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. Our ability to meet the financial ratios and tests required under our 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 our new senior credit facility and are unable to either negotiate amendments or
obtain waivers from our current lenders, we could be in default under our senior credit facility
and permit a majority of the lenders to accelerate outstanding debt under our senior credit
facility, terminate our revolving credit commitment and seize the cash in our operating accounts.
Such acceleration would result in cross-defaults under our senior notes and senior subordinated
notes. In that event, we may not have sufficient liquidity to make interest and required principal
payments on our debt and for operational and capital requirements. We were in compliance with the
financial covenants in our new senior credit facility as of the end of fiscal 2004. Results of Operations Our fiscal year ends on the Saturday nearest to the end of December and, therefore,
fiscal 2002, 2003 and 2004 ended on December 28, 2002, January 3, 2004 and January 1, 2005,
respectively. Fiscal 2002 and 2004 were 52-week years and fiscal 2003 was a 53-week year. We have foreign currency exposure relating to our business transactions in currencies other than
the U.S. dollar. In addition, the timing and extent of foreign currency exchange rate fluctuations
may have a material impact on our operations due to the translations of the financials statements
of our foreign subsidiaries. Although our functional currencies other than the U.S.
dollar include the Euro, Danish Krona and British Pound Sterling, the Euro to U.S. dollar exchange
rate approximates the impact of movements in our individual functional foreign currency exchange
rates. For the purpose of analyzing our results of operations, the average annual Euro to U.S.
dollar exchange rates for fiscal 2002, 2003 and 2004 were 0.9425, 1.1281 and 1.2417, respectively.
For the purpose of analyzing our financial position, the Euro to U.S. dollar exchange rates as of
the end of fiscal 2003 and 2004 were 1.2495 and 1.3604, respectively. Statement of operations data. The following table sets forth our statement of operations
derived from the accompanying audited consolidated financial statements included herein and
expressed as a percentage of net sales for the fiscal years indicated (in thousands, except
percentages): 26




---



##### Table of Contents



Fiscal2002
    
    
    2003 restated
    
    
    2004Net sales
    
    $
    887,333
    
    
    
    100.0
    %
    
    $
    1,013,865
    
    
    
    100.0
    %
    
    $
    1,051,241
    
    
    
    100.0
    %Cost of goods sold:Commodities
    
    
    390,899
    
    
    
    44.1
    
    
    
    494,302
    
    
    
    48.8
    
    
    
    531,980
    
    
    
    50.6Other
    
    
    310,519
    
    
    
    34.9
    
    
    
    357,276
    
    
    
    35.2
    
    
    
    364,211
    
    
    
    34.7Total cost of goods sold
    
    
    701,418
    
    
    
    79.0
    
    
    
    851,578
    
    
    
    84.0
    
    
    
    896,191
    
    
    
    85.3Gross profit
    
    
    185,915
    
    
    
    21.0
    
    
    
    162,287
    
    
    
    16.0
    
    
    
    155,050
    
    
    
    14.7Operating expenses:Promotion and distribution
    
    
    52,445
    
    
    
    5.9
    
    
    
    57,616
    
    
    
    5.7
    
    
    
    56,805
    
    
    
    5.4Selling, general and administrative
    
    
    48,712
    
    
    
    5.5
    
    
    
    52,015
    
    
    
    5.1
    
    
    
    51,861
    
    
    
    4.9Amortization
    
    
    4,583
    
    
    
    0.5
    
    
    
    4,989
    
    
    
    0.5
    
    
    
    4,313
    
    
    
    0.4Other operating expenses
    
    
    1,447
    
    
    
    0.2
    
    
    
    7,227
    
    
    
    0.7
    
    
    
    6,978
    
    
    
    0.7Income from operations
    
    
    78,728
    
    
    
    8.9
    
    
    
    40,440
    
    
    
    4.0
    
    
    
    35,093
    
    
    
    3.3Interest expense, net
    
    
    62,395
    
    
    
    7.0
    
    
    
    57,494
    
    
    
    5.7
    
    
    
    72,841
    
    
    
    6.8Debt extinguishments
    
    
    
    
    
    
    
    
    
    
    4,438
    
    
    
    0.4
    
    
    
    4,137
    
    
    
    0.4Other income, net
    
    
    (724
    )
    
    
    
    
    
    
    (1,156
    )
    
    
    (0.1
    )
    
    
    (1,417
    )
    
    
    (0.1
    )Income (loss) before
income taxes
    
    
    17,057
    
    
    
    1.9
    
    
    
    (20,336
    )
    
    
    (2.0
    )
    
    
    (40,468
    )
    
    
    (3.8
    )Income tax expense
    
    
    1,786
    
    
    
    0.2
    
    
    
    25,039
    
    
    
    2.5
    
    
    
    5,124
    
    
    
    0.5Net income (loss)
    
    $
    15,271
    
    
    
    1.7
    %
    
    $
    (45,375
    )
    
    
    (4.5
    )%
    
    $
    (45,592
    )
    
    
    (4.3)
    %
 Fiscal 2004 Compared to Fiscal 2003, as Restated Net sales. Net sales in fiscal 2004 increased 3.7% to $1,051.2 million from $1,013.9 million
in fiscal 2003. The increase was due to the domestic price increases implemented in the first half
of fiscal 2004, sales volume growth in our European business and the positive impact of foreign
currency exchange rate fluctuations. These items were partially offset by a decrease in domestic sales volume and
the extra week in fiscal 2003.
Excluding both the impact of the foreign currency exchange rate and the 53rd week, net sales
increased 2.6% in fiscal 2004. Gross profit. Gross profit in fiscal 2004 decreased 4.5%,
or $7.2 million, to $155.1 million
from $162.3 million in fiscal 2003. Excluding the impact of foreign currency exchange rate fluctuations and the
53rd week, gross profit decreased 6.7%, or $10.7 million from
fiscal 2003. Of this decrease in gross profit, $7.3 million is due to
the fair value accounting of our commodity derivative instruments
under SFAS 133 combined with the volatility of commodity prices which resulted in a $2.1
million increase in cost of goods sold in fiscal 2004 compared to a $5.2 million reduction in cost
of goods sold in fiscal 2003.
In addition, depreciation expense increased $3.9 million. Excluding the impact of these factors, higher global commodity costs and lower domestic
sales volume were offset by our pricing strategy and manufacturing efficiencies in both the United States and Europe. Promotion and distribution. Promotion and distribution expenses in fiscal 2004 decreased 1.4%
to $56.8 million from $57.6 million in fiscal 2003. As a percentage of net sales, promotion and
distribution expenses decreased to 5.4% in fiscal 2004 from 5.7% in fiscal 2003 primarily due to
lower distribution expenses associated with the closure of a U.S. distribution facility. 27




---



##### Table of Contents



Selling, general and administrative.Selling, general and administrative expenses in fiscal
2004 decreased 0.3%, or $0.2 million. Excluding the foreign currency exchange rate impact and the
53rd week, selling, general and administrative expenses increased 2.4%, or $1.3 million
from fiscal 2003. This increase is primarily due to variable compensation incentives paid to
employees that are tied to our business performance, partially offset by lower sales and marketing
expenses. Other operating expenses.Other operating expenses of $7.0 million in fiscal 2004 include
$7.3 million of restructuring costs, $0.6 million of income from litigation settlements and $0.3
million of transaction costs. See the section below on fiscal 2003, as restated, compared to
fiscal 2002 results and Note 14 to our accompanying audited consolidated financial statements
included herein. Interest expense, net. Interest expense in fiscal 2004 increased 26.7% to $72.8 million from
$57.5 million in fiscal 2003. Excluding the foreign currency exchange rate impact and the
53rd week, interest expense increased 28.8%, or $16.2 million primarily due to $15.4
million of accretion and dividends in fiscal 2004 relating to our senior preferred stock. See
Notes 2 and 3 in the accompanying audited consolidated financial statements included herein. Debt extinguishment. Debt extinguishment of $4.1 million in fiscal 2004 related to the
write-off of unamortized debt issuance costs in connection with the November 2004 refinancing of
our senior credit facility. See the section below on fiscal 2003, as restated, compared to fiscal
2002 results. Income tax expense.We recognized income tax expense of $5.1 million in fiscal 2004 compared
to $25.0 million in fiscal 2003. We recognized increases in the valuation allowance against
deferred tax assets of $15.8 million in fiscal 2004 and $39.0 million in fiscal 2003. The overall
effective tax rate in these periods differs from the expected combined U.S. federal and state rate
of 38.9% due to the increases in the valuation allowance recognized during these periods and
foreign taxes. See Note 15 in the accompanying audited consolidated financial statements included
herein. Fiscal 2003, as Restated, Compared to Fiscal 2002 Net sales. Net sales in fiscal 2003 increased 14.3% to $1,013.9 million from $887.3
million in fiscal 2002. The fiscal 2003 sales increase was primarily due to sales volume growth
and favorable currency exchange rate, primarily between the U.S. dollar and Euro. Fiscal 2003
sales volume growth also benefited from an extra week in fiscal 2003 compared to fiscal 2002. Excluding only the foreign currency exchange rate impact, net sales
increased 9.5%; whereas, excluding only the benefit of the extra week of sales in fiscal 2003, net

sales increased 12.6%. Excluding both the positive impact of the foreign currency exchange rate and
the extra week, net sales increased 7.8%. The increase in sales volume is primarily attributable
to the impact of a full year of Meow Mix and Ol Roy Meaty Chunks N Gravy volume in fiscal 2003
compared to a partial year of this volume for fiscal 2002. Gross profit.Gross profit in fiscal 2003 decreased 12.7%, or $23.6 million, to $162.3
million from $185.9 million in fiscal 2002. Excluding the foreign currency exchange rate impact
and the 53rd week in fiscal 2003, gross profit decreased $35.0 million, or 18.8%, from
fiscal 2002 to fiscal 2003. This decrease was primarily due to higher commodity costs, which
increased as a percentage of net sales to 48.8% in fiscal 2003 from 44.1% in fiscal 2002. In
addition, other cost of goods sold increased as a percentage of net sales to 35.2% in fiscal 2003
from 34.9% in fiscal 2002 primarily due to higher natural gas costs. The impact of these higher
costs on gross profit was partially offset by the increase in our sales volume in fiscal 2003. Due
to the volatility of commodity prices, gross profit increased $0.3 million under SFAS 133 fair
value accounting of our commodity derivative instruments, which resulted in a $5.2 million
reduction in our cost of goods sold in fiscal 2003 compared to a $4.9 million reduction in our cost
of goods sold in fiscal 2002. Promotion and distribution. Promotion and distribution expenses in fiscal 2003 increased 9.9%
to $57.6 million from $52.4 million in fiscal 2002. As a percentage of net sales, promotion and
distribution expenses decreased to 5.7% in fiscal 2003 from 5.9% in fiscal 2002 primarily due to
the product mix of our new business. Selling, general and administrative. Selling, general and administrative expenses in fiscal
2003 increased 6.8% to $52.0 million from $48.7 million in fiscal 2002. Excluding the foreign
currency exchange rate impact in fiscal 28




---



##### Table of Contents



2003, selling, general and administrative expenses were consistent with fiscal 2002. Other operating expenses.Other operating expenses of $7.2 million in fiscal 2003 include
asset impairments of $5.3 million related to the building and certain equipment of our
manufacturing facility in Vrä, Denmark and $2.4 million related to the divestiture of our 51%
interest in Crona, partially offset by net positive revisions to estimates of previously accrued
restructuring costs of $0.5 million. Other operating expenses of $1.4 million in fiscal 2002 are
transaction costs consisting of $0.8 million related to our postponed senior note offering that was
subsequently completed in February 2003 and $0.6 million for an abandoned strategic initiative.
See Note 14 in the accompanying audited consolidated financial statements included herein. Interest expense, net. Interest expense in fiscal 2003 decreased 7.9% to $57.5 million from
$62.4 million in fiscal 2002. This decrease was primarily due to the elimination of the excess
leverage fee accrual under our senior credit facility and a decrease in interest rates associated
with our floating rate debt, partially offset by a higher interest rate on the portion of our
long-term debt refinanced in February 2003. See Note 2 to our accompanying audited consolidated
financial statements included herein. Debt extinguishments. Debt extinguishments of $4.4 million in fiscal 2003 consisted of $4.1
million related to our refinancing in February 2003 and $0.3 million related to the write-off of a
pro-rata portion of unamortized debt issuance costs for an optional prepayment on our senior credit
facility in the third quarter of fiscal 2003. See Notes 2 and 8 to our accompanying audited
consolidated financial statements included herein. Income tax expense. We recognized income tax expense of $25.0 million in fiscal 2003 compared
to $1.8 million in fiscal 2002. We recognized increases in the valuation allowance against
deferred tax assets during these periods of $39.0 million in fiscal 2003 and $0.6 million in fiscal
2002. Due to the magnitude of our operating losses in fiscal 2003, coupled with the variability of
our historical earnings, we determined that we no longer met 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. The overall effective
tax rate for both periods differs from the expected combined federal and state rate of 38.9% due to
the increases in the valuation allowance described above and foreign taxes. See Note 15 to our
accompanying audited consolidated financial statements included herein. Liquidity and Capital Resources General We have historically funded our operations, capital expenditures and working capital
requirements with cash flows from operations, bank borrowings and the issuance of other indebtedness. We are highly leveraged and have significant cash requirements for debt service
relating to our senior credit facility, senior notes, senior subordinated notes, industrial
development revenue bonds and foreign debt. We believe that cash flows generated from our business, together with available cash balances
and future borrowings, will be sufficient in the near term to enable us to make interest and
required principal payments on our debt and to provide us with the necessary liquidity for
operational and capital requirements in our current operating environment. However, we have
significant debt and redemption obligations that mature in 2007. See the section on annual maturities of
long-term debt below. We may be required to refinance rather than repay all or a portion of the
principal amount of these obligations as they mature. We believe that offerings of additional debt
securities are possible, or other sources of capital are available, if the need arises, although
any such capital may not be available on terms acceptable to us or at all. As of the end of fiscal 2004, our principal sources of liquidity consisted of
working capital of $54.0 million, including cash of
$28.8 million, and $29.7 million of availability out of a total availability of $35.0 million under our
revolving credit facility. Although we believe that future borrowings under our revolving credit facility will be
available to fund our liquidity needs, availability of these funds is subject to our satisfaction
of certain customary terms and conditions, including our ability to satisfy the financial covenants
in our senior credit facility. As discussed below, we have experienced difficulty in the past
generating sufficient operating revenues and cash flows to satisfy financial covenants associated
with our 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 the senior credit facility and permit a majority of the
lenders to accelerate outstanding debt under the senior credit facility, terminate our revolving
credit commitment and seize the cash in our operating accounts. Such acceleration would result in
cross-defaults under our senior notes and senior subordinated notes. In that event, we may not
have sufficient liquidity to make interest and required principal payments on our debt and to fund operational and capital requirements. See the section above on financial covenant compliance. 29




---



##### Table of Contents



We believe the capital expenditures permitted under our senior credit facility are sufficient
to provide us with the necessary flexibility to spend required maintenance capital and at the same
time fund any planned expansion, cost reduction projects and customer requirements for fiscal 2005.
We anticipate that our capital expenditures for fiscal 2005 will approximate $25 million to $30
million, with approximately $10 million to $12 million required to maintain our current business
and the remainder available for any facility expansions, cost reduction projects and customer
requirements. Our capital expenditures in fiscal 2004 were $18.9 million. We may be required to refinance all or a portion of the principal amount of our outstanding
obligations, including those that mature in 2007, on or prior to maturity or a mandatory redemption
date. We may not have sufficient capital available to us for any future acquisitions, joint
ventures or similar transactions. If the need arises, we believe that offerings of additional debt
securities are possible, or other sources of capital are available. However, any such capital may
not be available on terms acceptable terms to us or at all. Moreover, our ability to borrow is
limited by our senior credit facility, including compliance with the financial covenants therein,
and the limitations on the incurrence of additional indebtedness in the indentures governing our
senior notes and senior subordinated notes. Statement of Cash Flows Review Net cash provided by our operating activities in fiscal 2002, 2003 and 2004 was $78.8 million,
$55.7 million and $21.3 million, respectively. Operating cash flows in fiscal 2003 were lower than
fiscal 2002 primarily due to significantly higher commodity costs, partially offset by higher sales
volumes and unusually favorable working capital from improved payment terms with certain customers
in fiscal 2003. Operating cash flows in fiscal 2004 were lower than fiscal 2003 primarily due to
unusually favorable payment terms with certain customers in fiscal 2003. Net cash used in our investing activities in fiscal 2002, 2003 and 2004 was $25.9 million,
$30.2 million and $20.1 million, respectively. Capital expenditures in these years were $24.3
million, $28.1 million and $18.9 million, respectively. Capital expenditures in fiscal 2003 were
higher than both fiscal 2002 and 2004 primarily due to our manufacturing facility expansion in
Carat, Austria. Net cash used in our financing activities in fiscal 2002, 2003 and 2004 was $51.7 million,
$4.6 million and $1.8 million, respectively. In fiscal 2002, we made scheduled principal payments
on our senior credit facility, refinanced certain debt in Europe and paid transaction fees and
expenses associated with an amendment to our senior credit facility. In fiscal 2003, we issued our
senior notes and used the proceeds to repay a portion of our senior credit facility and to repay
the shareholder loan in full, including accrued interest. We paid transaction fees and expenses
associated with our senior note offering and concurrent amendments to our senior credit facility.
In addition, we made an optional prepayment on our senior credit facility in fiscal 2003. In
fiscal 2004, we refinanced our senior credit facility as well as debt in Europe repaying in full
each of the previous facilities. We paid transaction fees and expenses associated with a first
quarter amendment to our previous senior credit facility and the refinancing. Senior Credit Facility In November 2004, we refinanced our previous 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 stand-by letters
of credit. We used $180.5 million of the proceeds to fully repay our previous senior credit
facility and $5.9 million to 30




---



##### Table of Contents



pay related fees and expenses of the new senior credit facility. 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. The following is a summary of certain provisions of the new senior credit facility we entered
into on November 5, 2004. The facilities.As of the end of fiscal 2004, our senior credit facility provided for total
commitments of $230.0 million, consisting of:  
    a $195.0 million term loan facility, of which $0.5 million has been repaid as
of the end of fiscal 2004, and
    a $35.0 million revolving credit facility, with a $20.0 million sub-limit for
issuance of stand-by letters of credit. Interest rates.The term loan facility bears interest, at our option, of adjusted LIBOR plus
4.00%, or ABR, as defined in the senior credit facility agreement, plus 3.00%. The revolving
credit facility bears interest, at our option, at adjusted LIBOR plus 4.50% or ABR plus 3.50%. Maturity. All loans under the senior credit facility mature on the earlier of November 5,
2009 or 91 days prior to the maturity of our senior subordinated notes due May 15, 2007 (as may be
amended, extended or renewed), unless terminated sooner upon an event of default. Prepayments.We are required to make annual principal payments calculated as 1% of $195.0
million, payable in equal quarterly installments of each year. The loans under our senior credit
facility may be prepaid and commitments may be reduced. Optional prepayments of the term loan
facility may not be reborrowed. Covenants. Our 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 senior credit facility, for any period of four consecutive fiscal quarters ending with
any fiscal quarter set forth below must exceed
the following amounts (in thousands): Fiscal quarter ending on or nearest to
    
    AmountDecember 31, 2004
    
    $
    70,000March 31, 2005
    
    
    72,500June 30, 2005
    
    
    75,000September 30, 2005
    
    
    80,000December 31, 2005
    
    
    80,000March 31, 2006 and thereafter
    
    
    85,000
  Our 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 31




---



##### Table of Contents



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 defined in the senior credit facility, 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
    
    RatioDecember 31, 2004 and March 31, 2005
    
    
    2.75:1.00June 30, 2005 and 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 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 negotiated amendments and obtained waivers for fiscal 2000, 2001 and
2003 due to covenant non-compliance. Our ability to satisfy the covenants contained in our 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 the
senior credit facility and permit a majority of the lenders to accelerate outstanding debt under
the senior credit facility, terminate our revolving credit commitment and seize the cash in our
operating accounts. Such acceleration would result in cross-defaults under our senior notes and
senior subordinated notes.
We were in compliance with the financial covenants in our senior credit facility as of the end of fiscal 2004. Guarantees; collateral. We and certain restricted subsidiaries are required to guarantee
amounts outstanding under the senior credit facility. The indebtedness incurred pursuant to the
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 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 senior credit facility within three days after such amount becomes due;
    representations or warranties being inaccurate in any material respect when
made;
    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; 32




---



##### Table of Contents




    material judgments;
    certain ERISA events; and
    change of control or ownership. Liquidity As of the end of fiscal 2004, we had $29.7 million of remaining availability under the
revolving credit facility out of a total availability of $35.0 million. Availability of funds
under the revolving credit facility is subject to our satisfaction of certain terms and conditions,
including our ability to satisfy the financial covenants in our senior credit facility. See the
section above on covenants. We may be required to refinance all or a portion of the principal
amount of our outstanding obligations on or prior to maturity or a mandatory redemption date. We believe
the capital expenditures permitted under our senior credit facility are sufficient to provide us
with the necessary flexibility to spend required capital for fiscal 2005 and beyond. 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 required 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 senior credit facility.
In the event of a default under the senior credit facility, absent an amendment or a waiver from
our lenders, a majority of our lenders could accelerate outstanding debt under the 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 required principal and interest
payments on our debt and to fund operational and capital requirements. Annual Maturities of Long-Term Debt A summary of the annual maturities of our long-term debt as of the end of fiscal 2004 follows
(in thousands): Maturities by fiscal year2010 andFinal maturity
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    thereafter
    
    
    TotalTerm loan facility
    
    February 13, 2007
    
    $
    1,950
    
    
    $
    1,950
    
    
    $
    190,613
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    194,513Senior notes
    
    March 1, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211,144
    
    
    
    211,144Senior subordinated notes
    
    May 15, 2007
    
    
    
    
    
    
    
    
    
    
    149,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,147Other
    
    Various
    
    
    1,723
    
    
    
    1,770
    
    
    
    2,213
    
    
    
    2,361
    
    
    
    2,514
    
    
    
    18,378
    
    
    
    28,9593,673
    
    
    
    3,720
    
    
    
    341,973
    
    
    
    2,361
    
    
    
    2,514
    
    
    
    229,522
    
    
    
    583,763Senior preferred stock
    
    September 30, 2007
    
    
    
    
    
    
    
    
    
    
    106,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,421Total
    
    
    
    $
    3,673
    
    
    $
    3,720
    
    
    $
    448,394
    
    
    $
    2,361
    
    
    $
    2,514
    
    
    $
    229,522
    
    
    $
    690,184
 Contractual Obligations A summary of the maturities of our contractual obligations and other commercial
obligations as of the end of fiscal 2004 follows (in thousands): 33




---



##### Table of Contents



Payments due by period2010 and2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    thereafter
    
    
    TotalContractual obligations:Long-term debt
    
    $
    3,673
    
    
    $
    452,114
    
    
    $
    4,875
    
    
    $
    229,522
    
    
    $
    690,184Operating leases
    
    
    5,203
    
    
    
    5,442
    
    
    
    3,654
    
    
    
    3,299
    
    
    
    17,598Total
    
    $
    8,876
    
    
    $
    457,556
    
    
    $
    8,529
    
    
    $
    232,821
    
    
    $
    707,782
 Payments due by period2010 and2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    thereafter
    
    
    TotalOther commercial obligations:Lines of credit
    
    $
    8,869
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8,869Standby letters of credit
    
    
    5,262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,262Total
    
    $
    14,131
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    14,131
 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. See the section on environmental and safety matters
in Item 1. In 1996 and 1997, we entered into partial guarantees of certain third-party loans made to 11
employees in connection with their purchase of our parents common stock under our parents 1996
and 1997 Management Stock Purchase Plans. We guaranteed to cover up to a maximum of $0.3 million of
such loans in the event one or more of the employees defaulted in their loan repayment. None of the
individuals who received such loans currently serve as one of our executive officers. Inflation and Changes in Prices Our financial results depend to a large extent on the costs of raw materials and
packaging and our ability to pass through increased costs to our customers. Historically, market
prices for commodity grains and food stocks have fluctuated in response to a number of factors,
including changes in U.S. government farm support programs, changes in international agricultural
trading policies, impacts of disease outbreaks on protein sources and the potential effect on
supply and demand, changes in international demand, trading activity in the commodity markets, as
well as weather conditions during the growing and harvesting seasons. Fluctuations in paper prices,
which affect our costs for packaging materials, have resulted from changes in supply and demand,
general economic conditions and other factors. In addition, we have exposure to changes in pricing
of natural gas, which affects our manufacturing costs. Our results of operations have been exposed
to volatility in the commodity and natural gas markets in the past. As mentioned previously, we
have cost-sharing arrangements with certain of our domestic customers to reduce the impact of
volatile commodity costs; however, these arrangements only reduce our exposure to such volatility
in the future and are subject to change. In the event of any increases in raw materials, packaging and natural gas costs, we may be
required to seek increased selling prices for our products to avoid margin deterioration. For
instance, because of the increases in our raw material costs during fiscal 2003 and 2004, we
implemented a broad 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 selling price increases in the event of
increased raw materials, packaging or natural gas costs or of whether any selling price increases
implemented by us may affect future sales volumes to our customers. Critical Accounting Policies Accounts receivable allowances.As of the end of fiscal 2003 and 2004, our gross
accounts receivable were $94.2 million and $116.3 million,
respectively. We had valuation allowances for doubtful accounts and outstanding
deductions with customers of $2.0 million and $2.7 million as of the
end of fiscal 2003 and 2004, respectively. We 34




---



##### Table of Contents



estimate the allowances by applying a recovery
percentage based on historical collection experience. We accrue additional allowances based on a
specific identification review for amounts deemed to be at risk. Receivables are written off
against the allowances at the point in which an amount is deemed uncollectible by us. We may
revise our allowances against accounts receivable as we receive more information or as we assess
other factors impacting the realizability of our accounts receivable. Inventories allowance.As of the end of fiscal 2003 and 2004, our gross inventories were
$73.0 million and $71.2 million, respectively. We had allowances, primarily for obsolescence of packaging
inventories, of $4.4 million and $2.9 million as of the end of fiscal 2003 and 2004, respectively.
We estimate our allowances against inventories based on a specific identification review of
obsolete stock keeping units, or SKUs, or probable SKUs to be rationalized. We may revise our
allowance against inventories as we receive more information on this matter or as we assess other
factors impacting the realizability of our inventories. Deferred tax assets.As of the end of fiscal 2003 and 2004, our federal net operating loss,
or NOL, carryforwards were $117.4 million and $142.2 million and our foreign NOL carryforwards were
$2.2 million and $0.9 million, respectively. Our gross deferred tax assets, including federal,
foreign, state and local NOL carryforwards, were $68.8 million and $79.0 million as of the end of
fiscal 2003 and 2004, respectively, and our gross deferred tax liabilities were $55.8 million and $54.8 million, respectively. We assess
the realizability of our deferred tax assets based on 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 recognize a valuation allowance that takes into consideration
tax planning strategies, historical and projected earnings, and the expected future reversal of
taxable temporary differences. Primarily due to the magnitude of our operating losses in fiscal 2003 and 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 $39.6 million and $55.4 million as of the end of fiscal 2003
and 2004, respectively. During fiscal 2003 and 2004, we recognized increases in the valuation
allowance against our U.S. federal and state deferred tax assets of $31.7 million and $14.5
million, respectively. We recognized increases in the valuation allowance against our foreign
deferred tax assets of $7.3 million and $1.3 million in fiscal 2003 and 2004, respectively. The
$1.3 million increase in foreign valuation allowance in fiscal 2004 includes a $6.3 million
reduction to previously recorded valuation allowance due to the elimination of a deferred tax asset
from a tax law change in one of the foreign jurisdictions in which we operate. We currently expect that future
years deferred income tax expense (benefit) will include deferred tax expense approximating the
growth in our deferred tax liabilities related to amortization of goodwill for tax purposes. Goodwill and trademarks.At the end of fiscal 2003 and 2004, our goodwill and trademarks were
$380.4 million and $390.5 million, respectively. The $10.1 million increase is primarily due to
the impact of foreign currency exchange rate fluctuations. We test the carrying value of our
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 available. If the
estimated fair value of goodwill or trademarks of either our domestic or European reporting unit is
less than the carrying value, an impairment loss will be recognized. In the fourth quarters of
fiscal 2003 and 2004, we performed our annual assessments of impairment and determined no
impairment was evident at either assessment date. Recently Issued Accounting Pronouncements See Note 1 to our accompanying audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for a description of recent accounting pronouncements
and the expected dates of adoption, if applicable, and the potential impact on our results of
operations and financial condition. 35




---



##### Table of Contents



ITEM 7A  Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks, which may give rise to losses from adverse changes in
market prices and rates. Our market risks could arise from changes in commodity prices, interest
rates and foreign currency exchange rates. Commodity price risk.We are exposed to market risk related to changes in commodity prices.
We may seek to manage our commodity price risk associated with market fluctuations by using
derivative instruments for portions of our corn, soybean meal, alternative proteins and natural gas
purchases, principally through exchange traded futures and options contracts. The terms of such
contracts are generally less than one year. During the term of a contract, we balance positions
daily with cash payments to or from the exchanges. At the termination of a contract, we have the
ability to settle financially or by exchange for the physical commodity, in which case, we would
deliver the contract against the acquisition of the physical commodity. Our policy does not permit
speculative commodity trading. Although we may seek to manage the price risk of market fluctuations by hedging portions of
our primary commodity product purchases, our results of operations have been adversely affected in
the past by these fluctuations and may in the future. Moreover, the use of futures contracts also
reduces our ability to take advantage of short term reductions in raw material prices. If one or
more of our competitors is able to reduce their manufacturing costs by taking advantage of any
reductions in raw material prices, we may face pricing pressures from these competitors and may be
forced to reduce our selling prices or face a decline in net sales, either of which
could have a material adverse effect on our business, results of operations and financial condition. Our commodity derivative instruments are measured at fair value under SFAS 133 in our
accompanying audited consolidated financial statements included herein. Our results of operations
for particular periods have been adversely affected in the past under SFAS 133 fair value
accounting of our commodity derivative instruments due to the volatility in commodity prices and,
similarly, our results of operations may be adversely affected in the future by SFAS 133
accounting. As
of the end of fiscal 2004, we had open commodity contracts with a fair value gain of $0.2
million. Based upon an analysis we completed at the end 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 $0.3 million. Interest rate risk.We are exposed to market risk related to changes in interest rates. We
periodically enter into interest rate swap and cap contracts to limit our exposure to the interest
rate risk associated with our floating rate debt, which totaled $194.5 million at the end of fiscal
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. At the end of
fiscal 2004, we had no outstanding interest rate swap or cap contracts. Our results of operations may be adversely affected by changes in interest rates. Assuming a
100 basis point increase in the interest rates on our floating rate debt as of the end of fiscal
2004, interest expense would have increased by approximately $1.9 million for fiscal 2004. In
addition, such a change would have resulted in a decrease of approximately $13.2 million in the
fair value of our fixed rate debt at the end 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 the possible adverse effects, our analysis assumes no such actions.
Furthermore, our analysis does not consider the effect of any changes in the level of overall
economic activity that may exist in such an environment. Foreign currency exchange risk. We have foreign currency exposure relating to the translation
of the financial statements of our foreign operations into U.S. dollars. Our functional
currencies, other than the U.S. dollar, include the Euro, Danish Krona and British Pound Sterling.
We also funded a portion of our fiscal 2000 acquisition of Arovit with Euro-denominated debt
designated as a hedge of our net investment in Europe. The cumulative translation adjustment for
the net investment in our European operations is recognized in accumulated other comprehensive
income in the accompanying audited consolidated financial statements included herein. At the end
of fiscal 2004, we had a cumulative translation gain of
$67.7 million, which includes a $19.2
million cumulative loss for the translation of our Euro-denominated debt to U.S. dollars through
the final repayment date. We also have foreign currency exposure, to a lesser extent, relating to transacting business
in countries with foreign currencies other than our functional currencies. From time to time, we
may enter into foreign currency 36




---



##### Table of Contents



options or forward contracts for the purchase or sale of a foreign
currency to mitigate the risk from foreign currency exchange rate fluctuations in those
transactions and translations. As of the end of fiscal 2004, we had no outstanding foreign
currency contracts. 
 ITEM 8  Financial Statements and Supplementary Data Reference is made to the information beginning on page F-1, which is filed as a part of
this Annual Report on Form 10-K. 
 ITEM 9  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 ITEM 9A  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 Securities Exchange Act of 1934 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. During the preparation of this Form 10-K, the Audit Committee of our board of directors
determined that, following a review of our accounting practices for realized foreign currency
transaction losses and the computation of interest expense, and in consultation with management and
our independent registered public accounting firm, the restatement of our previously issued fiscal
2003 consolidated financial statements was necessary. The restatement resulted in a decrease in
the fiscal 2003 net loss from $54.4 million to $45.3 million. This $9.1 million reduction resulted
from the reversal of previously recognized transaction losses of $7.7 million related to the
cumulative translation of our Euro-denominated debt and the correction of an error in our interest
expense calculation of $1.4 million. We are including restated consolidated financial statements
and related notes and disclosures thereto for fiscal 2003 to correct these errors. Under the supervision and with the participation of our management, including our chief
executive officer and chief financial officer, we performed an evaluation of the design and
operation of our disclosure controls and procedures in effect as of January 1, 2005. Based on that
evaluation and because of the restatement described above, our chief executive officer and chief
financial officer concluded that, as of January 1, 2005, such disclosure controls and procedures
were not effective to ensure that material information relating to the company, including our
consolidated subsidiaries, was accumulated and communicated to our management and made known to our
chief executive officer and chief financial officer. We determined that the accounting errors relating to the transaction losses associated with
our Euro-denominated debt resulted from an incorrect interpretation of relevant accounting
literature relating to these non-routine transactions. We also determined that the accounting
errors relating to the interest expense calculation resulted from an incorrect formula used to
calculate interest expense. Accordingly, we have taken the following steps:  1)
    All non-routine transactions will be reviewed by a designated member of our finance department who shall have the requisite expertise to research and
interpret relevant accounting literature. The analysis and conclusion regarding the
proper accounting treatment and financial statement disclosure of the transaction will
be documented in a memorandum that must be approved by our chief financial
officer.2)
    The formula used to calculate interest expense has been corrected, and a formal
review of the computation and the related accrual has been implemented. Changes in internal controls over financial reporting.There were no changes in our internal
controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that
occurred during our last fiscal quarter that have materially affected or are reasonably likely to
materially affect our internal controls over financial reporting. However, we have implemented the
changes noted above in the first quarter of fiscal 2005, which we believe will improve our internal
controls over financial reporting. 
 ITEM 9B  Other
Information None. 37




---



##### Table of Contents



PART III 
 ITEM 10  Directors and Executive Officers of the Registrant The following table sets forth the names, ages and titles of the current directors and
executive officers of Doane and Doane Pet Care Enterprises, Inc. Pursuant to an investors
agreement, our board of directors and the board of directors of Doane Pet Care Enterprises, Inc.
each consist of at least seven members. Except as indicated below, each of the members of the
board of directors of Doane named below also serves on the board of directors of Doane Pet Care
Enterprises, Inc. Officers serve at the discretion of the boards of directors. In addition, the
board of directors of Doane has approved the addition of two board members designated by a majority
of holders of our senior preferred stock. See the sections on the investors agreement in Item 13
and employment and retirement agreements in Item 11. Name
    
    Age
    
    PositionGeorge B. Kelly
    
    
    55
    
    
    Chairman of the BoardDouglas J. Cahill (1)
    
    
    45
    
    
    Chief Executive Officer, President and DirectorPhilip K. Woodlief (1)
    
    
    51
    
    
    Vice President, Finance and Chief Financial OfficerDavid L. Horton
    
    
    44
    
    
    Vice President and General Manager, North American OperationsJoseph J. Meyers
    
    
    43
    
    
    Vice President, Supply Chain, Quality and Chief Information OfficerKenneth H. Koch
    
    
    49
    
    
    Vice President, Doane EuropeRichard A. Hannasch
    
    
    51
    
    
    Vice President, Co-Manufacturing and SpecialtyEdward H. DAlelio (2)
    
    
    52
    
    
    DirectorJerry W. Finney, Jr.
    
    
    36
    
    
    DirectorMathew J. Lori
    
    
    41
    
    
    DirectorTerry R. Peets
    
    
    60
    
    
    DirectorStephen C. Sherrill
    
    
    52
    
    
    DirectorPaul E. Suckow (2)
    
    
    57
    
    
    DirectorJeffrey C. Walker
    
    
    49
    
    
    Director
   (1)
    
    These executive officers hold the same positions at Doane and Doane Pet Care
Enterprises, Inc.(2)
    
    Does not serve on the board of directors of Doane Pet Care Enterprises, Inc. Set forth below is a brief description of the business experience of the directors and
executive officers of Doane and Doane Pet Care Enterprises, Inc. Each of the directors of Doane Pet
Care Enterprises, Inc. is elected to serve a three-year term. The terms of Messrs. Kelly, Finney
and Walker expire in 2005. The terms of Messrs. Sherrill and Peets expire in 2006. The terms of
Messrs. Cahill and Lori have expired but they continue to serve as directors pending the annual
meeting of the shareholders of Doane Pet Care Enterprises, Inc. The directors of Doane are elected
at each annual meeting to serve for the ensuing year. George B. Kellyhas served as Chairman
of the Board of Doane Pet Care Enterprises, Inc. since
June 1995 and Chairman of the Board of Doane since October 1995. Mr. Kelly is Chairman of The
CapStreet Group, LLC (formerly known as Summit Capital Group, LLC and Summit Capital, Inc.,
and is a director of Jackson Products, Inc., FS Strategies, Switch & Data Facilities Company, Inc.,
Susser Holdings and other privately held companies. Douglas J. Cahillbecame Chief Operating Officer of Doane and Doane Pet Care Enterprises, Inc.
in September 1997, began serving as President of Doane and Doane Pet Care Enterprises, Inc. in January 1998
and began serving as Chief Executive Officer of Doane and Doane Pet Care Enterprises, Inc. in July
1998. He has been a director of Doane and Doane Pet Care Enterprises, Inc. since December 1998 and
currently serves as the Chairman of the Pet 38




---



##### Table of Contents



Food Institute. Prior to
joining us, Mr. Cahill served as President of Olin Corporations Winchester Division, Corporate Vice President of Olin
Corporation and held various other positions with Olin Corporation from July 1984 through September
1997. Philip K. Woodliefbecame Vice President, Finance and Chief Financial Officer of Doane and
Doane Pet Care Enterprises, Inc. in June 2000 and served as Vice President, Finance for Doane from
February 1999 to June 2000. Prior to joining us, Mr. Woodlief was an independent financial
consultant from June 1998 to January 1999. From April 1997 to May 1998, Mr. Woodlief was Vice
President and Corporate Controller of Insilco Corporation, a diversified consumer and industrial
products manufacturing company, and served as Corporate Controller of Insilco from January 1989 to
April 1997. David L. Hortonjoined Doane in December 1997, began serving as Vice President and General
Manager of North American Operations in June 2001, served as Vice President, Manufacturing,
Engineering, and Quality from August 1999 to June 2001, Vice President Manufacturing and
Engineering from January 1999 to August 1999 and Vice President, Fulfillment from December 1997 to
January 1999. Prior to joining us, Mr. Horton served as Vice President of Manufacturing and
Engineering for Olin Corporations Winchester Division and held various other positions with Olin
Corporation from January 1984 to November 1997. Joseph J. Meyersjoined Doane as our Chief Information Officer in August 1998 and has
continued in such role to the present. In addition, he began serving as Vice President Supply
Chain, Quality in June 2001 and served as Vice President, Fulfillment from August 1999 to June
2001. Prior to joining us, Mr. Meyers held various information technology positions at Realtime
Consulting, PricewaterhouseCoopers LLP and Olin Corporation from 1992 to 1998. Richard A. Hannaschjoined Doane in October 1996, began serving as Vice President,
Co-Manufacturing and Specialty in March 2000, served as Vice President, Business Integration from
August 1999 to March 2000, Vice President, Fulfillment from January 1999 to August 1999, Vice
President, Strategic Planning from June 1998 to January 1999 and Vice President, Marketing from
November 1997 to January 1999. Prior to joining us, Mr. Hannasch served as Director, Business
Development for Ralston Purina Companys International Division and held various other positions at
Ralston Purina Company from December 1978 to October 1996. Kenneth H. Kochjoined Doane in November 2003 as Vice President, Doane Europe and in July 2004
was made an executive officer. Prior to joining us, Mr. Koch was the President and Chief Executive
Officer, and a director of Inrange Technologies Corporation, a Nasdaq listed manufacturer of high
speed switching optical networking and data extension and connectivity products, from July 2002
through the companys sale in May 2003. He previously served as Vice President and General Counsel
of Inrange Technologies from July 2000 until becoming its President. Before joining Inrange
Technologies, Mr. Koch was Vice President and General Counsel of Insilco Corporation, a diversified
consumer and industrial products manufacturing company, from 1993 through 1999. Edward H. DAleliobecame
a director of Doane in November 2002. Mr. DAlelio currently serves as an
Executive in Residence at the College of Management of the University of Massachusetts. From 1989
to 2002, Mr. DAlelio was a Managing Director of Putnam Investments, where he also served as the
Chief Investment Officer of the Taxable Fixed Income Area. Jerry W. Finney, Jr. became a director of Doane and Doane Pet Care Enterprises, Inc. in August
2001. He is a director of the Mergers & Acquisitions Group of
Credit Suisse First Boston LLC. Mr. Finney was formerly a director of
Credit Suisse First Boston Private Equity, Inc., which includes
DLJ Merchant Banking Partners, L.P. until July 2004. In November 2000, Credit Suisse Group acquired Donaldson,
Lufkin & Jenrette, Inc. Prior to the acquisition, Mr. Finney was a principal of Credit Suisse First
Boston Equity Partners, L.P. since May 2000. Previously, he was a
member of the Mergers &
Acquisitions Group of Credit Suisse First Boston LLC from 1995 to
2000. Mathew
J. Lori became
a director of Doane and Doane Pet Care Enterprises, Inc. in March 2001 and is a partner of JPMorgan
Partners, LLC, the private equity investment arm of J.P. Morgan Chase & Co.  Mr. Lori joined JPMorgan Partners in 1993 after completing his M.B.A. from Kellogg
Graduate School of Management at Northwestern University. Prior to receiving his M.B.A., he worked
in the Corporate Finance Group
at Ernst & Young in Toronto. Mr. Lori focuses on management buyouts and growth equity
investments for media, industrial, and consumer product companies. He currently serves as a
director of Ascend Media, Arbinet-the exchange and Berry Plastics Corporation. 39




---



##### Table of Contents



Terry R. Peetsbecame a director of Doane and Doane Pet Care Enterprises, Inc. in October
2001. Mr. Peets is a consultant to JPMorgan Partners, LLC. Over the past 25 years, Mr. Peets
has served as Executive Vice President of Vons Grocery
Company, Executive Vice President of Ralphs Grocery Company, and President and CEO of PIA
Merchandising, Inc. He has an M.B.A. from the Graduate School of
Management at Pepperdine University. He currently serves as the Chairman of the Board and a director of World Kitchens, Inc.,
and is a director of Pinnacle Food Corporation, PSC Scanning Inc.,
Ruiz Foods Inc. and Berry
Plastics Corporation. Stephen C. Sherrillbecame a director of Doane and Doane Pet Care Enterprises, Inc. in August
1998. He has been a Managing Director of Bruckmann, Rosser, Sherrill & Co., Inc. since its
formation in 1995. Bruckmann, Rosser, Sherrill & Co., Inc. is the management company for Bruckmann,
Rosser, Sherrill & Co., L.P. Mr. Sherrill previously served as a director of Windy Hill. Mr.
Sherrill was an officer of Citicorp Venture Capital from 1983 to 1994. Previously, he was an
associate at the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison.
He has a B.A. from Yale University and a J.D. from Columbia Law School.
Mr. Sherrill is a
director of B & G Foods, Inc., Lazy Days RV Center, Inc., Remington Arms Company, Inc., MWI Veterinary Supply, Inc.,
Eurofresh, Inc. and Seroyal, Inc. Paul E. Suckowbecame a director of Doane in November 2002. Mr. Suckow has been an adjunct
professor of economics and finance at Villanova University since 1999. Prior to his teaching
career, he spent 25 years in the investment management industry, retiring in 1999. Mr. Suckow held
positions as Executive Vice President, Chief Investment Officer-Fixed Income at Delaware Investment
Advisers, Inc. and Executive Vice President, Director of Fixed Income Securities at Oppenheimer
Management Corporation. He is a director of Ascent Assurance, Inc. and Prandium, Inc. Jeffrey
C. Walkerbecame a
director of Doane and Doane Pet Care Enterprises, Inc. in April 1996. Mr. Walker
is the Managing Partner of JPMorgan Partners, LLC and a Vice Chairman of
JPMorgan Chase & Co. Before founding JPMorgan Partners, LLC in 1984, Mr. Walker worked in the Investment Banking and
Finance Divisions of Chemical Bank. His previous experience includes the Audit and Consulting
Divisions of Arthur Young & Co. He has a B.S. from the University of Virginia, an M.B.A. from
Harvard Business School, is a Certified Public Accountant and a Certified Management Accountant.
He currently serves as a director of Pliant Corporation, Axis Capital Holdings Limited, 1-800-Flowers.com Inc., the Big
Apple Circus, House of Blues, MetoKote, Metroplex, The Thomas Jefferson Foundation (Monticello), NY
Film Society, Morgan Library, The Foundation Board of the McIntire School of the University of
Virginia, and NPower NY. Messrs. Kelly and Walker serve on our Compensation Committee and there is currently a vacancy
on such committee as a result of the resignation by Lawrence S. Benjamin from the board of
directors of Doane and Doane Pet Care Enterprises on February 1, 2005. Messrs. Peets, Sherrill and
Walker serve on our Audit Committee. Mr. Peets is an audit committee financial expert as defined
in Item 401(h) of Regulation S-K and is independent as that term is defined in Sections
303.01(B)(2)(a) and (3) of the New York Stock Exchanges listing standards. Code of Ethics We have adopted a code of ethics which contains the ethical principles by which our chief
executive officer, chief financial officer, controller and principal accounting officer, assistant
controller, finance director, purchasing director, treasurer and assistant treasurer are expected
to conduct themselves when carrying out their duties and responsibilities. A copy of our code of
ethics is available without charge upon oral or written request by
contacting us at Doane Pet Care
Company, 210 Westwood Place South, Suite 400, Brentwood, Tennessee 37027, attention human resources
department, telephone (615) 373-7774. 
 ITEM 11  Executive Compensation Summary Compensation Table The following table sets forth information with respect to the Chief Executive Officer of
Doane and the other four most highly compensated individuals serving as executive officers in
fiscal 2004 who earned $100,000 or more
in combined salary and bonus during such year (collectively, the Named Executive Officers): 40




---



##### Table of Contents



Long-termcompensationawards ofsecuritiesAnnual compensation(1)
    
    
    underlyingName and principal
    
    Fiscal
    
    
    
    
    
    
    
    
    
    
    Other annual
    
    
    options/SARSposition at Doane
    
    year
    
    
    Salary
    
    
    Bonus(2)
    
    
    compensation
    
    
    (#)
    
    
    All other compensationDouglas J. Cahill
    
    
    2004
    
    
    $
    437,500
    
    
    $
    742,500
    
    
    $
    
    
    
    
    
    
    
    $
    347,255
    (3)(4)(5)(6)(7)President and Chief
    
    
    2003
    
    
    
    400,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    206,350
    (3)(4)(5)(6)(7)Executive Officer
    
    
    2002
    
    
    
    400,000
    
    
    
    479,982
    
    
    
    
    
    
    
    
    
    
    
    207,506

    (3)(4)(5)(6)Philip K. Woodlief
    
    
    2004
    
    
    
    268,750
    
    
    
    226,875
    
    
    
    
    
    
    
    
    
    
    
    114,649
    (3)(4)(5)(6)(7)Vice President, Finance and
    
    
    2003
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    
    66,112
    (3)(4)(5)(6)(7)Chief Financial Officer
    
    
    2002
    
    
    
    225,000
    
    
    
    134,995
    
    
    
    
    
    
    
    
    
    
    
    61,139
    (3)(4)(5)(6)David L. Horton
    
    
    2004
    
    
    
    268,750
    
    
    
    226,875
    
    
    
    
    
    
    
     
    
    
    
    112,656
    (3)(4)(5)(6)(7)Vice President and General Manager,
    
    
    2003
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    
    61,569
    (3)(4)(5)(6)(7)North American Operations
    
    
    2002
    
    
    
    225,000
    
    
    
    134,995
    
    
    
    
    
    
    
    
    
    
    
    62,973
    (3)(4)(5)(6)Joseph J. Meyers
    
    
    2004
    
    
    
    242,500
    
    
    
    137,500
    
    
    
    
    
    
    
    20,000
    
    
    
    70,450
    (3)(4)(5)(6)Vice President, Supply Chain, Quality
    
    
    2003
    
    
    
    220,000
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    54,251
    (3)(4)(5)(6)and Chief Information Officer
    
    
    2002
    
    
    
    200,000
    
    
    
    119,995
    
    
    
    
    
    
    
    
    
    
    
    57,052
    (3)(4)(5)(6)Kenneth H. Koch (8)
    
    
    2004
    
    
    
    250,000
    
    
    
    137,500
    
    
    
    102,510
    (9)
    
    
    100,000
    
    
    
    1,349
    (3)(4)(5)Vice President, Doane Europe
    
    
    2003
    
    
    
    24,000
    
    
    
    
    
    
    
    4,723
    (9)
    
    
    
    
    
    
    
   (1)
    
    Amounts exclude perquisites and other personal benefits that did not exceed the lesser
of either $50,000 or 10% of the total annual salary and bonus reported for each Named
Executive Officer.(2)
    
    Annual bonus for the Named Executive Officers is calculated by multiplying their
respective target bonus amounts times a factor that is determined according to the
achievement of a company performance incentive target and the achievement of individual
performance incentive targets. The company performance target and the individual
performance targets are weighted 60% and 40%, respectively. Actual company and individual
performance can result in the actual bonus being less than or greater than the target
bonus. The target bonus for Mr. Cahill is 150% of his annual base salary amount, which is
currently $450,000, and the
target bonuses for each of Messrs. Woodlief and Horton are 75% and Messrs. Meyers and Koch
are 50% of their annual base salary amounts, which are $275,000, $275,000, $250,000 and $250,000, respectively.
Bonus payments for fiscal 2004 and
2002 were 110% and 120%, respectively, of the incentive target. The bonus payments for fiscal 2004
were paid contemporaneously with the filing of this Form 10‐K. No bonus payments were
made in 2003.(3)
    
    Amounts include a company match under the Doane Pet
Care Retirement Savings Plan as follows: Mr. Cahill  $5,500 in 2002, $2,769 in 2003 and
$6,150 in 2004; Mr. Woodlief  $2,969 in 2002, $6,000 in 2003 and $7,650 in 2004; Mr.
Horton  $4,803 in 2002, $1,950 in 2003 and $6,150 in 2004; Mr. Meyers  $5,144 in 2002,
$2,331 in 2002 and $6,016 in 2004; and Mr. Koch  $865 in 2004.(4)
    
    Amounts include term life insurance premiums as follows: Mr. Cahill  $192 in 2002 and
2003, and $216 in 2004; Mr. Woodlief  $106 in 2002, $120 in 2003 and $132 in 2004; Mr.
Horton  $106 in 2002, $120 in 2003 and $132 in 2004; Mr. Meyers  $94 in 2002, $106 in
2003 and $120 in 2004; and Mr. Koch  $30 in 2004.(5)
    
    Amounts include disability insurance premiums in 2002, 2003 and 2004 of $1,814, except
for Mr. Koch which includes $454 in 2004.(6)
    
    Amounts include retention bonuses paid as follows: Mr. Cahill  $200,000 in 2002 and
2003 and $337,500 in 2004; Mr. Woodlief  $56,250 in 2002 and 2003 and $103,125 in 2004;
Mr. Horton  $56,250 in 2002 and 2003 and $103,125 in 2004; and Mr. Meyers  $50,000 in
2002 and 2003 and $62,500 in 2004.(7)
    
    Amounts include supplemental long-term disability premiums as follows: Mr. Cahill 
$1,575 in 2003 and 2004; Mr. Woodlief  $1,928 in 2003 and 2004; and Mr. Horton  $1,435 in 2003 and 2004.(8)
    
    Mr. Koch was hired in November 2003 as
Vice President, Doane Europe, and in July 2004,
was made an executive officer.(9)
    
    Amounts include reimbursement for the payment of
taxes of $58,517, a housing allowance of $33,356 and a car allowance
of $10,687. Employment and Retirement Agreements We entered into employment agreements with Messrs. Cahill and Horton effective January 1,
1998, Mr. Meyers effective August 17, 1998, Mr. Woodlief effective February 15, 1999 and Mr. Koch
effective August 31, 2004, all of 41




---



##### Table of Contents



which renew annually. The terms of their employment agreements
are substantially similar except for salary and bonus amounts, and except for a Europe housing
allowance provided to Mr. Koch. The agreements are subject to early
termination for cause without severance. The employment agreements for Messrs. Woodlief, Horton,
Meyers and Koch provide (1) that terminations without cause entitle the executive to receive
severance payments equal to two years base salary and bonus and (2) for a two-year non-competition
agreement commencing upon termination for any reason. The employment agreement for Mr. Cahill
contains similar provisions for severance and non-competition, but with a term of three years. Each of the Named Executive Officers was awarded a retention bonus in an amount equal to their
annual bonus target amount. One-half of the bonus was paid in January 2005 and the other one-half
will be paid on June 30, 2005 if the officer is still employed by us. Compensation of Directors Terry R. Peets serves as an independent director of Doane and Doane Pet Care Enterprises,
Inc. Pursuant to an agreement entered into at the time of his appointment, Mr. Peets is paid a
$1,500 per month retainer fee and $2,000 for each board of directors meeting he attends. In
addition, Mr. Peets was granted stock options covering 20,000 shares under the 1999 Stock Incentive
Plan in each of fiscal years 2001 and 2003. These options have a time-vesting schedule pursuant to
which one-third of the stock options will vest after each of the first three years following the
grant date. Edward H. DAlelio and Paul E. Suckow serve as independent directors of Doane. Mr.
DAlelio and Mr. Suckow are paid $2,000 for each board of directors meeting they attend. In fiscal
2004, Messrs. Peets, DAlelio and Suckow earned $26,000, $6,000 and $6,000, respectively. We also
paid $16,000 to Lawrence S. Benjamin, who served as an independent director of Doane and Doane Pet
Care Enterprises, Inc. in fiscal 2004. He resigned from this position effective February 1, 2005.
No compensation was paid by us to our other directors. Stock Option Plans Certain employees of Doane are covered under two stock-based employee compensation plans
of our parent, the 1996 Stock Option Plan and the 1999 Stock Incentive Plan. Under these plans,
each stock option granted allows for the purchase of one share of our parents Class A Common Stock
upon vesting and expires ten years from the date of grant. In connection with the adoption of the 1999 Stock Incentive Plan, no new grants can
be made under the 1996 Stock Option Plan. In fiscal 2001, our parent approved the repricing of
certain vested and unvested stock options under the 1996 Stock Option Plan and the 1999 Stock
Incentive Plan. All eligible stock options with an exercise price exceeding $2.50 per share were
given a new exercise price of $2.50 per share and the vesting period was restarted. The repricing
involved a surrender of 1,516,300 eligible stock options in exchange for the granting of new stock
options covering an equivalent number of shares at $2.50 per share. All of the repriced stock
options are accounted for as fixed plan awards. Substantially all of the grants have a time-vesting schedule pursuant to which 50% of an
individuals stock options will vest two years after the grant date, 25% will vest after the third
year, and the remaining 25% will vest after the fourth year. Generally, all stock options vest
upon a change of control of our parent. Under the 1996 Stock Option Plan, options covering 242,200
shares had been granted and were outstanding at the end of fiscal 2004. All options under this
plan were exercisable at the end of fiscal 2004. Under the 1999 Stock Incentive Plan, 4,200,000
shares are authorized for issuance. Options granted during fiscal
2002, 2003 and 2004 were 20,000, 725,000 and 135,000, respectively,
under this plan. At the end of fiscal 2004, options covering
3,496,950 shares had been granted and were outstanding, and 2,061,684
shares were exercisable, under the 1999 Stock Incentive Plan. Stock Option Grants The following table sets forth certain information on options granted in fiscal 2004
under the 1999 Stock Incentive Plan to the Named Executive Officers: 42




---



##### Table of Contents



Individual grants
    
    
    Potential
    
    
    Potentialrealizable
    
    
    realizablevalue at
    
    
    value atassumed 5%
    
    
    assumed 10%Number of
    
    
    % of total
    
    
    
    
    
    
    
    
    
    
    annual rate
    
    
    annual ratesecurities
    
    
    options
    
    
    
    
    
    
    
    
    
    
    of stock price
    
    
    of stock priceunderlying
    
    
    granted to
    
    
    Exercise
    
    
    
    
    
    
    appreciation
    
    
    appreciationoptions
    
    
    employees in
    
    
    price per
    
    
    Expiration
    
    
    for option
    
    
    for optionName
    
    granted
    
    
    fiscal 2004
    
    
    share
    
    
    date
    
    
    term
    
    
    termJoseph J. Meyers
    
    
    20,000
    
    
    14.8%
    
    $2.57
    
    2014
    
    $
    
    
    
    $
    11,887Kenneth H. Koch
    
    
    100,000
    
    
    74.1%
    
    2.57
    
    2014
    
    
    
    
    
    
    59,437
 Stock Option Exercises The following table sets forth certain information on exercises of stock options in
fiscal 2004 by the Named Executive Officers and the number of shares underlying unexercised stock
options held by such officers as of the end of fiscal 2004: Number of
    
    
    
    
    
    
    Number of shares underlying
    
    
    Value of shares underlying in-the-shares
    
    
    
    
    
    
    unexercised options
    
    
    money unexercised optionsacquired onName
    
    exercise
    
    
    Value realized
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableDouglas J. Cahill
    
    
    
    
    
    $
    
    
    
    
    675,150
    
    
    
    325,050
    
    
    $
    
    
    
    $
    Philip K. Woodlief
    
    
    
    
    
    
    
    
    
    
    180,900
    
    
    
    130,300
    
    
    
    
    
    
    
    David L. Horton
    
    
    
    
    
    
    
    
    
    
    210,900
    
    
    
    140,300
    
    
    
    
    
    
    
    Joseph J. Meyers
    
    
    
    
    
    
    
    
    
    
    165,900
    
    
    
    125,300
    
    
    
    
    
    
    
    Kenneth H. Koch
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
 Since the fair value of our parents Class A Common Stock was less than $2.50 per share as of
the end of fiscal 2004, no in-the-money unexercised options existed at that date. Compensation Committee Interlocks and Insider Participation Messrs. Kelly, Walker and Benjamin served on our Compensation Committee in fiscal 2004.
Mr. Benjamin resigned from the board of directors and compensation committee as of February 1,
2005. There is currently a vacancy on the compensation committee. Other Compensatory Arrangements 401(k)plans.We currently have two active 401(k) plans. On January 1, 2000, we adopted
the Doane Pet Care Retirement Savings Plan, which was formed through the merger of two predecessor
plans. The merged plan was amended and restated and is intended to be a qualified plan under the
Internal Revenue Code. The plan provides coverage for eligible employees and permits employee
contributions from 1% to 60% of pre-tax earnings, subject to annual dollar limits set by the IRS.
We match 50% of the first 6% of the participants contribution with a provision for other
contributions at the board of directors discretion. Employer contributions are vested 25% per
year for each of the first four years of an employees service. Thereafter, all employer
contributions are fully vested. The Doane Pet Care Savings and Investment Plan  Union Plan covers eligible union employees at
the Joplin, Missouri and Muscatine, Iowa plants. This plan is intended to be a qualified plan under
the Internal Revenue Code and permits employee contributions between 1% and 60% of pre-tax
earnings, subject to annual dollar limits set by the IRS. Non-qualified salary continuation agreements.Doane has entered into agreements with all of
the Named Executive Officers to provide benefits to those employees or their beneficiaries upon
retirement at age 65, or on or 43




---



##### Table of Contents



after age 55 and with 10 years of service with Doane. If the
employee remains employed until age 65, the employee or the employees beneficiary will receive an
annual retirement benefit payable for 10 years as set forth in the agreement. The annual
benefit is calculated at four times the employee's annual base salary at the time the agreement is entered into divided by ten.
If the employee
terminates employment before age 65 but after age 55 and with 10 years of service with Doane, the
employees retirement benefit will be reduced in accordance with percentages specified in the
agreement, depending upon the employees age at retirement ranging from 100% at age 65 to 55.8% at
age 55. Assuming the Named Executive Officers remain employed with Doane until age 65, they will
receive the following annual amounts for ten years: Mr. Cahill  $160,000; Mr. Woodlief  $90,000;
Mr. Horton  $90,000; Mr. Meyers  $80,000 and Mr. Koch  $100,000. Under the terms of the
agreements, each employee may, with the consent of Doane, elect to receive the benefit in a
lump-sum payment equal to the actuarial equivalent of the installment payments discounted at a 6%
interest rate. The salary continuation agreements
also include a death benefit such that, in the event of an employees death, the beneficiary would receive an annual death benefit over the longer of 10
years or the number of years from the year of death to the year in which the participant would have
reached age 65. The death benefit is comprised of payments to the beneficiary equal to the
employees annual base salary, at the time the agreement is entered into, in the first year after death and one half of such amount for each year
thereafter. At the boards discretion, the agreement may be amended to reflect any
increase in an employees annual base salary. 
 ITEM 12  Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters All of our issued and outstanding shares of common stock are held by Doane Pet Care
Enterprises, Inc. As of March 15, 2005, we had 1,200,000 shares of senior preferred stock issued
and outstanding, 200,000 of which were held by J.P. Morgan Partners (BHCA), L.P. and one of its
affiliates and 1,000,000 of which were held by qualified institutional buyers, as defined in Rule
144A under the Securities Act of 1933. The following table sets forth certain information regarding
the beneficial ownership of Doane Pet Care Enterprises, Inc.s common stock as of March 15, 2005
by:  
    each director of Doane;
    each Named Executive Officer;
    each person who is known by us to own beneficially more than 5% of the common
stock of Doane Pet Care Enterprises, Inc.;
    all parties to the investors agreement as a group; and
    all directors and executive officers as a group. Unless otherwise indicated, each person has sole voting and dispositive power over the shares
indicated as owned by that person. Certain of Doane Pet Care Enterprises, Inc.s principal
stockholders are parties to the investors agreement. See the section on the investors agreement
in Item 13. 44




---



##### Table of Contents



Number of sharesName of beneficial owner(1)
    
    owned beneficially
    
    
    Percent of class(2)J.P. Morgan Partners (BHCA), L.P. (3)
    
    
    9,682,246
    
    
    
    34.9Bruckmann, Rosser, Sherrill & Co., L.P.(4)
    
    
    6,162,868
    
    
    
    26.1DLJ Merchant Banking Partners, L.P. (5)
    
    
    4,866,356
    
    
    
    19.0Equus II Inc.
    
    
    1,943,598
    
    
    
    9.2Summit Capital, Inc. (6)
    
    
    1,892,769
    
    
    
    9.0Laura Hawkins Mansur (7)
    
    
    1,781,000
    
    
    
    8.5Bob L. Robinson (8)
    
    
    1,181,546
    
    
    
    5.6PNC Capital Corp. (9)
    
    
    1,111,304
    
    
    
    5.2Jeffrey C. Walker (3)
    
    
    9,682,246
    
    
    
    34.9Stephen C. Sherrill(4)
    
    
    6,162,868
    
    
    
    26.1Jerry W. Finney, Jr. (5)
    
    
    4,866,356
    
    
    
    19.0George B. Kelly (6)
    
    
    1,892,769
    
    
    
    9.0Mathew J. Lori (10)
    
    
    9,682,246
    
    
    
    34.9Edward H. DAlelio (11)
    
    
    
    
    
    
    *Paul E. Suckow (11)
    
    
    
    
    
    
    *Terry R. Peets (12)
    
    
    26,666
    
    
    
    *Douglas J. Cahill (12)
    
    
    920,712
    
    
    
    4.2Philip K. Woodlief (12)
    
    
    208,681
    
    
    
    1.0David L. Horton (12)
    
    
    258,681
    
    
    
    1.2Joseph J. Meyers (12)
    
    
    165,900
    
    
    
    *Kenneth H. Koch
    
    
    
    
    
    
    *All parties to the investors agreement as a group
    
    
    33,872,653
    
    
    
    95.7All executive officers and
directors as a group (14 persons)
    
    
    24,424,822
    
    
    
    67.2
   *
    
    Represents less than one percent.(1)
    
    The address of J.P. Morgan Partners (BHCA), L.P.
and Messrs. Walker and Lori is 1221 Avenue of the Americas, New York, New York 10020. The address of Bruckmann, Rosser,
Sherrill & Co., L.P. and Mr. Sherrill is 126 East 56th Street, New York, New York 10022.
The address of DLJ Merchant Banking Partners, L.P. is 11 Madison Avenue,
16th Floor, New York, New York 10010. The address of Mr. Finney
is 11 Madison Avenue, 22nd Floor, New York, New York 10010. The
address of Equus II Inc. is 2929 Allen Parkway,
Suite 2500, Houston, Texas 77019. The address of Summit Capital,
Inc. and Mr. Kelly is 600 Travis, Suite 6110, Houston,
Texas 77002. The address of Mrs. Mansur is 5602 Indian Circle,
Houston, Texas 77056. The address of Mr. Robinson is
8591 SE Highway 166, Baxter Springs,
Kansas 66713. The address of PNC Capital Corp. is 249 5th Avenue, 8th
Floor, Pittsburgh, Pennsylvania 15222. The address of Mr. Peets is 327 Coral Avenue, Balboa
Island, Newport Beach, California 92662. The address of Messrs. Cahill, Woodlief, Horton
and Meyers is 210 Westwood Place South, Suite 400, Brentwood, Tennessee 37027. The address
of Mr. Koch is Harston Mill, Harston, Cambridge, CB2 5NH, United Kingdom. The address of
Mr. DAlelio is 7 Ringbolt Road, Hingham, Massachusetts 02043. The address of Mr. Suckow is
1219 Denbigh Lane, Radnor, Pennsylvania 19087.(2)
    
    In accordance with Rule 13d-3(d) under the Securities Exchange Act of 1934, the
calculation of this percentage for each beneficial owner assumes that such owners
securities that are subject to options, warrants, rights or conversion privileges are
outstanding for the purpose of computing the percentage of outstanding securities of the
class owned by such beneficial owner, but the securities of all other persons that are
subject to options, warrants, rights or conversion privileges are not deemed to be
outstanding.(3)
    
    Amount represents shares held by J.P. Morgan Partners (BHCA), L.P. and
related parties. Of the 9,682,246 shares indicated as owned by J.P. Morgan Partners (BHCA),
L.P., (i) 428,000 represent shares of Class A Common Stock; (ii) 2,560,093 represent shares
of Class B Common Stock, 222,093 of which are held by J.P. Morgan Partners (23A SBIC), L.P.
(23A SBIC); and (iii) 6,694,153 are shares issuable within 60 days upon exercise of
warrants. Mr. Walker, a director of Doane, serves as President of JPMP Capital Corp., the
general partner of JPMP Master Fund Manager, L.P., the general partner of J.P. Morgan
Partners (BHCA), L.P., and he is also a limited partner of JPMP Master Fund Manager, L.P. As such,
Mr. Walker may be deemed to beneficially own the shares indicated as owned by J.P. Morgan
Partners (BHCA), L.P. The actual pro rata portion of such beneficial ownership that may be
deemed attributable to Mr. Walker is not readily determinable because it is subject to
several variables, including the internal rate of return and vesting within J.P. Morgan Partners
(BHCA), L.P. and within JPMP Master Fund Manager, L.P.
Mr. Walker disclaims beneficial ownership of these shares within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934 to the extent it exceeds his pecuniary interest in
them, if any.The shares owned by 23A SBIC may be deemed attributable to Mr. Walker because he is the
President of J.P. Morgan Partners (23A SBIC Manager), Inc. (23A
SBIC Manager), which is the
general partner of 23A SBIC, and he is also a limited partner of JPMP
Master Fund Manager, L.P., the sole limited partner of 23A SBIC. The actual pro rata portion of such beneficial ownership that
may be deemed attributable to Mr. Walker is not readily determinable because it is subject
to several variables, including the internal rate of return and vesting within
23A SBIC and within JPMP Master Fund Manager, L.P. Mr. Walker disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934 to the extent it exceeds his pecuniary interest therein. 45




---



##### Table of Contents



(4)
    
    Amount includes shares held by Bruckmann, Rosser, Sherrill & Co., L.P. and certain
other entities and individuals affiliated with it. Of the 6,162,868 shares indicated as
owned by Bruckmann, Rosser, Sherrill & Co., L.P., (i) 3,585,822 represent shares of Class A
Common Stock and (ii) 2,577,046 are shares issuable within 60 days upon exercise of
warrants. Of the shares indicated as owned by Bruckmann, Rosser, Sherrill & Co., L.P., (i)
60,617 shares of Class A Common Stock and (ii) 44,042 shares issuable within 60 days upon
exercise of warrants are owned individually by Mr. Sherrill, a director of Doane. Mr.
Sherrill may be deemed to beneficially own 5,924,484 shares beneficially owned by
Bruckmann, Rosser, Sherrill & Co., L.P. and certain other entities and individuals
affiliated with it. Mr. Sherrill disclaims beneficial ownership of 238,384 of such shares
within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934.(5)
    
    Amount represents shares held by DLJ Merchant Banking Partners, L.P. and related
entities. Of the 4,866,356 shares held by DLJ Merchant Banking Partners, L.P., (i) 351,428
represent shares of Class A common stock and (ii) 4,514,928 are shares issuable within 60
days upon the exercise of warrants. Of the shares indicated, 150,494 shares, 80,135 shares,
34,918 shares, 46,556 shares, 34,917 shares and 4,408 shares are held by DLJ Merchant Banking Partners,
L.P., DLJ International Partners, C.V., DLJ ESC II, L.P., DLJ First
ESC L.P., DLJ Merchant Banking Funding,
Inc. and DLJ Offshore Partners, C.V., respectively. Of the warrants indicated, warrants to
purchase 2,126,748 shares, 950,960 shares, 524,444 shares, 857,640 and 55,136 shares are
held by DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V., DLJ First
ESC L.P., DLJ Merchant Banking Funding, Inc., and DLJ Offshore Partners, C.V.,
respectively. In November 2000, Credit Suisse Group acquired Donaldson, Lufkin
& Jenrette, Inc. DLJ Merchant Banking Partners, L.P. is a limited partnership, the general
partner of which is DLJ Merchant Banking, Inc., an indirect affiliate of Credit Suisse
First Boston LLC and Credit Suisse Group. Mr. Finney is a director of Doane and serves as
a director of Credit Suisse First Boston LLC and as such may be
deemed to beneficially own the shares indicated as owned by DLJ Merchant Banking Partners,
L.P. and related entities. Mr. Finney disclaims beneficial ownership of such shares within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934.(6)
    
    Amount represents shares held by Summit Capital, Inc. Summit/DPC Partners, L.P. was
dissolved in 2001 and all of the shares it held were distributed to its partners, including
Summit Capital, Inc. Mr. Kelly, a director of Doane, is Chairman of the Board and a
stockholder of Summit Capital, Inc. Mr. Kelly may be deemed to beneficially own the shares
indicated. Mr. Kelly disclaims beneficial ownership of 24,006 shares within the meaning of
Rule 13d-3 of the Securities Exchange Act of 1934.(7)
    
    Of the shares indicated as owned by Mrs. Mansur, 634,500 are held by the estate of
Walid Mansur, 846,500 are owned by Mrs. Mansur and 300,000 are held in trust for their
children.(8)
    
    Of the shares indicated as owned by Mr. Robinson, 264,566 are held in Mr. Robinsons
name, 560,000 are held in a limited partnership of which Mr. Robinson is the Managing
Partner, 150,371 are held in trust for Mr. Robinson, 150,371 are held in trust for Mr.
Robinsons wife, Jeanine L. Robinson, and 56,238 are held in Mrs. Robinsons name.(9)
    
    Amount represents shares held by PNC Capital Corp. and related entities. Of the
1,111,304 shares indicated as owned by PNC Capital Corp., (i) 711,384 represent shares of
Class A Common Stock; and (ii) 399,920 are shares issuable within 60 days upon the exercise
of warrants.(10)
    
    Amount represents shares held by J.P. Morgan Partners (BHCA), L.P. and related parties. Of
the 9,682,246 shares indicated as owned by J.P. Morgan Partners (BHCA), L.P., (i) 428,000
represent shares of Class A Common Stock; (ii) 2,560,093 represent shares of Class B Common
Stock, 222,093 of which are held by J.P. Morgan Partners (23A SBIC), L.P. (23A SBIC); and
(iii) 6,694,153 are shares issuable within 60 days upon exercise of warrants. Mr. Lori, a
director of Doane, serves as a Managing Director of JPMP Capital Corp., the general partner of
JPMP Master Fund Manager, L.P., the general partner of J.P. Morgan Partners (BHCA), L.P., and
he is also a limited partner of JPMP Master Fund Manager, L.P. As such, Mr. Lori may be deemed to
beneficially own the shares indicated as owned by J.P. Morgan Partners (BHCA), L.P. The actual
pro rata portion of such beneficial ownership that may be deemed attributable to Mr. Lori is
not readily determinable because it is subject to several variables, including the internal
rate of return and vesting within J.P. Morgan Partners (BHCA), L.P.
and within JPMP Master Fund Manager, L.P. Mr. Lori disclaims
beneficial ownership of these
shares within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934 to the extent
it exceeds his pecuniary interest in them, if any.The shares owned by 23A SBIC may be
deemed attributable to Mr. Lori because he is a Managing Director of
J.P. Morgan Partners (23A SBIC Manager), Inc. ("23A SBIC
Manager"), which is the general partner of 23A SBIC, and he is also a
limited partner of JPMP Master Fund Manager, L.P., the sole limited
partner of 23A SBIC. The actual pro rata portion of such beneficial
ownership that may be deemed attributable to Mr. Lori is
not readily determinable because it is subject to several variables,
including the internal rate of return and vesting within 23A SBIC and
within JPMP Master Fund Manager, L.P. Mr. Lori disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934 to the extent it exceeds the pecuniary
interest therein.(11)
    
    These directors serve only on our board of directors, and not on the board of directors
of Doane Pet Care Enterprises, Inc.(12)
    
    Amounts include shares which are issuable within 60 days upon exercise of warrants as
follows:, Mr. Cahill 45,562 and Mr. Woodlief22,781. In addition, amounts include options
which are exerciseable within 60 days as follows: Mr. Cahill  675,150; Mr. Woodlief 
180,900; Mr. Horton  210,900; Mr. Meyers  165,900; and Mr. Peets  26,666. 46




---



##### Table of Contents



Equity Compensation Plans Neither we nor our subsidiaries or affiliates have any compensation plans or
individual compensation arrangements under which our equity securities are authorized for issuance
to employees or non-employees in exchange for consideration in the form of goods or services. The
compensation plans under which the equity securities of our parent are authorized for issuance are
discussed above. 
 ITEM 13  Certain Relationships and Related Transactions Investors Agreement Doane Pet Care Enterprises, Inc., Doane, Summit Capital, Inc., J.P. Morgan Partners
(BHCA), L.P. and an affiliate thereof, DLJ Merchant Banking Partners, L.P. and certain of its
affiliates, Bruckmann, Rosser, Sherrill & Co., L.P.(1) and certain affiliated entities
and individuals, all of the former stockholders of Windy Hill and certain other stockholders of
Doane are parties to a second amended and restated investors agreement. The investors agreement contains provisions concerning our governance and the governance of
Doane Pet Care Enterprises, Inc., restrictions on the transferability of our securities and those
of Doane Pet Care Enterprises, Inc. and registration rights for such securities. The governance
provisions of the investors agreement provide that the board of directors of Doane and Doane Pet
Care Enterprises, Inc. each consist of at least seven members. The investors agreement provides
that if at any time the number of shares of common stock (which, for the purposes of the investors
agreement, includes warrants on an as-if-exercised basis) of Doane Pet Care Enterprises, Inc. owned
of record by:  
    J.P. Morgan Partners (BHCA), L.P. is 5% or more, then it will have the right
to designate two individuals as directors.
    DLJ Merchant Banking Partners, L.P. is 5% or more, then it will have the right
to designate one individual as director.
    the former investors in Summit/DPC Partners, L.P. (including after its
dissolution and the distribution of its shares) is 50% or more of the number of shares of
common stock of Doane Pet Care Enterprises, Inc. it owned as of August 3, 1998, then Summit
Capital, Inc. will have the right to designate one individual as director.
    the Windy Hill investors is 50% or more of the number of shares of common
stock of Doane Pet Care Enterprises, Inc. owned by them as of August 3, 1998, then
Bruckmann, Rosser, Sherrill & Co., L.P. will have the right to designate one individual as
director. Additionally, one designee as director is required to be the Chief Executive Officer of Doane
Pet Care Enterprises, Inc. and one is required to be an independent director designated by a
majority of the board of directors.   (1)
    
    Affiliates of Credit Suisse First Boston own, in the aggregate, an approximate 12%
non-voting interest in Bruckmann, Rosser, Sherrill & Co., L.P. Transactions with Related Parties J.P. Morgan Partners (BHCA), L.P., or JPMP, and one of its affiliates own shares of our
senior preferred stock and shares of common stock and warrants of Doane Pet Care Enterprises, Inc.
JPMP is a party to the investors agreement and, in accordance with that agreement, designated
Messrs. Walker and Lori to the boards of directors of Doane and Doane Pet Care Enterprises, Inc.
JPMP is an affiliate of JP Morgan Chase Bank (JPM). JPM and its affiliates received payments of
fees for various investment banking and commercial banking services, as described below, that were
provided to Doane and Doane Pet Care Enterprises, Inc. Such fees totaled $0.5 million, $2.1
million and $0.5 million in fiscal 2002, 2003 and 2004, respectively. 47




---



##### Table of Contents



DLJ
Merchant Banking Partners, L.P., or DLJMBP, and certain of its affiliates own shares of
common stock and warrants of Doane Pet Care Enterprises, Inc.. DLJMBP and certain affiliates are
parties to the investors agreement and, in accordance with that agreement, designated Mr. Finney
to the boards of directors of Doane and Doane Pet Care Enterprises,
Inc. DLJMBP is an affiliate of
Credit Suisse First Boston LLC or CSFB. CSFB and its affiliates received payments of fees for
various investment banking and commercial banking services, as described below, that were provided
to Doane and Doane Pet Care Enterprises, Inc. Such fees totaled $3.3 million and $5.2 million in
fiscal 2003 and 2004, respectively. No fees were paid to CSFB in fiscal 2002. CSFB
and an affiliate of JPM were joint book-running managers in our
offering of 93/4% senior
notes. JPMP and related persons were holders of $16.9 million of promissory notes under a
shareholder loan that was fully repaid with a portion of the net
proceeds from the sale of the 93/4%
senior notes. JPM served as the administrative agent and a lender under our previous senior credit
facility. An affiliate of CSFB was the syndication agent and a lender under our previous senior
credit facility. An affiliate of CSFB is the sole administrative agent, collateral agent,
book-runner and lead arranger under our new senior credit facility. In addition to promissory notes under the shareholder loan that were held by JPMP and related
persons, as discussed above, affiliates of other persons known to us to beneficially own more than

5% of the common stock of Doane Pet Care Enterprises, Inc. and their affiliates also held
promissory notes. Bruckmann, Rosser, Sherrill & Co., L.P. received $7.5 million, Summit Capital
Inc. received $2.3 million and PNC Capital Corp. received $1.2 million of the net proceeds from the
sale of the 93/4% senior notes. Additionally, certain of our executive officers each received $0.1
million from the repayment of their promissory notes under the shareholder loan in connection with
the sale of the 93/4% senior notes. 
 ITEM 14  Principal Accountant Fees and Services The following table presents fees for professional audit services rendered by KPMG LLP
for the audit of the Companys annual consolidated financial statements for 2003 and 2004, and fees
billed for other services rendered by KPMG LLP. 2003
    
    
    2004Audit fees
    
    $
    815,600
    
    
    $
    744,000Audit related fees (1)
    
    
    52,800
    
    
    
    38,000Tax fees (2)
    
    
    350,800
    
    
    
    241,500All other fees
    
    
    
    
    
    
    Total fees (3)
    
    $
    1,219,200
    
    
    $
    1,023,500
   (1)
    
    Audit related fees consisted principally of fees for audits of financial statements of
certain employee benefit plans, due diligence services and consultation on accounting matters.(2)
    
    Tax fees consisted of fees for tax consultation and tax compliance services.(3)
    
    Total fees include some amounts in foreign currencies that have been translated to U.S.
dollars as of the date such fees were approved. 48




---



##### Table of Contents



PART IV 
 ITEM 15  Exhibits, Financial Statements Schedules  (a)
    The following documents are filed as part of this report:  (1)
    Consolidated Financial Statements The following financial statements and the Report of Independent Registered Public
Accounting Firm thereon are included beginning at page F-1 of this Annual Report on Form
10-K:  
    Report of Independent Registered Public Accounting Firm
    Consolidated Balance Sheets as of the end of fiscal 2003 restated and 2004
    Consolidated Statements of Operations for fiscal 2002, 2003 restated and 2004
    Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
for fiscal 2002, 2003 restated and 2004
    Consolidated Statements of Cash Flows for fiscal 2002, 2003 restated and 2004
    Notes to Consolidated Financial Statements  (2)
    Consolidated Financial Statement SchedulesAll schedules are omitted because they are not applicable or not required, or because the required
information is included in the consolidated financial statements or notes thereto in this
Annual Report on Form 10-K.(3)
    Exhibits The following exhibits are filed as part of this report: Exhibitnumber
    
    
    
    Description3.1
    
    
    
    Certificate of Incorporation of Doane Pet Care Company
(incorporated by reference to Exhibit 3.1 to Doane Pet Care
Companys Registration Statement on Form S-1, Reg. No.
33-98110 (the Form S-1))3.2
    
    
    
    Certificate of Designations, Preferences and Rights of
14.25% Senior Exchangeable Preferred Stock due 2007 dated
October 4, 1995 (incorporated by reference to Exhibit 3.2 to
Doane Pet Care Companys Annual Report on Form 10-K for the
year ended December 29, 2001 (the 2001 Form 10-K))3.3
    
    
    
    Certificate of Amendment to Certificate of
Incorporation of Doane Pet Care Company dated February 4,
1998 (incorporated by reference to Exhibit 3.1 to Doane Pet
Care Companys Annual Report on Form 10-K for the year ended
December 31, 1997 (the 1997 Form 10-K))3.4
    
    
    
    Certificate of Amendment of Certificate of
Incorporation of Doane Pet Care Company dated November 10,
1998 (incorporated by reference to Exhibit 3.4 to the 2001
Form 10-K)3.5
    
    
    
    Certificate of Amendment of Certificate of
Designations, Preferences and Rights of 14.25% Senior
Exchangeable Preferred Stock due 2007 dated November 11, 1998
(incorporated by reference to Exhibit 3.5 to the 2001 Form
10-K)3.6
    
    
    
    Amended and Restated Bylaws of Doane Pet Care Company
(incorporated by reference to Exhibit 3.6 to the 2001 Form
10-K)
 49




---



##### Table of Contents



Exhibitnumber
    
    
    
    Description4.1
    
    
    
    Indenture dated November 12, 1998 between Doane Pet
Care Company and Wilmington Trust Company (incorporated by
reference to Exhibit 10.12 of Doane Pet Care Enterprises,
Inc.s Registration Statement on Form S-1, Reg. No. 333-61027
(Enterprises Form S-1))4.2
    
    
    
    Registration Agreement among Doane Pet Care Company,
Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc. dated November 12, 1998 (incorporated by
reference to Exhibit 4.2 to Doane Pet Care Companys
Registration Statement on Form S-4, Reg. No. 333-70759 (the
Form S-4))4.3
    
    
    
    Indenture dated February 28, 2003 between Doane Pet Care
Company and Wilmington Trust Company ( incorporated by
reference to Exhibit 4.3 to Doane Pet Care Companys Annual
Report on Form 10-K for the year ended December 28, 2002 (the
2002 Form 10-K))4.4
    
    
    
    Registration Rights Agreement dated as of February 28,
2003 between Doane Pet Care Company, DPC Investment Corp.,
Doane/Windy Hill Joint Venture L.L.C., Credit Suisse First
Boston LLP and J.P. Morgan Securities Inc. (incorporated by
reference to Exhibit 4.4 to the 2002 Form 10-K)9.1
    
    
    
    Second Amended and Restated Investors Agreement dated
as of March 26, 2001 among Doane Pet Care Company, Doane Pet
Care Enterprises, Inc., Summit Capital Inc., Summit/DPC
Partners Inc., J. P. Morgan Partners (BHCA), L.P., Baseball
Partners, DLJ Merchant Banking Partners, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners, C.V., DLJ
Merchant Banking Funding, Inc., DLJ First ESC, L.P.,
Bruckmann, Rosser, Sherrill & Co., L.P., PNC Capital Corp.,
and certain other persons named therein (incorporated by
reference to Exhibit 9.1 to Doane Pet Care Companys Annual
Report on Form 10-K/A for the year ended December 30, 2000
(the 2000 Form 10-K/A))10.1
    
    
    
    Employment Agreement dated January 1, 1998, between
Doane Pet Care Company and Douglas J. Cahill (incorporated by
reference to Exhibit 10.3 to the 1997 Form 10-K)10.2
    
    
    
    Change in Control Severance Agreement dated April 22, 2004, between Doane Pet Care Company and
Douglas J. Cahill (incorporated by reference to Exhibit 10.2 to Doane Pet Care Companys Quarterly
Report on Form 10-Q for the quarterly period ended July 3, 2004)10.3
    
    
    
    Employment Agreement dated February 15, 1999, between
Doane Pet Care Company and Philip K. Woodlief (incorporated by
reference to Exhibit 10.14 to Enterprises Form S-1)10.4
    
    
    
    First Amendment to Employment Agreement dated as of
January 1, 2001, between Doane Pet Care Company and Philip K.
Woodlief (incorporated by reference to Exhibit 10.4 to the
2000 Form 10-K/A)10.5
    
    
    
    Change in Control Severance Agreement dated April 22, 2004, between Doane Pet Care Company and
Philip K. Woodlief (incorporated by reference to Exhibit 10.5 to
Doane Pet Care Companys Quarterly Report on
Form 10-Q for the quarterly period ended July 3, 2004)10.6
    
    
    
    Employment Agreement dated January 1, 1998, between
Doane Pet Care Company and David L. Horton (incorporated by
reference to Exhibit 10.6 to the Form S-4).10.7
    
    
    
    First Amendment to Employment Agreement dated as of
January 1, 2001, between Doane Pet Care Company and David L.
Horton (incorporated by reference to Exhibit 10.6 to the 2000
Form 10-K/A)10.8
    
    
    
    Change in Control Severance Agreement dated April 22, 2004, between Doane Pet Care Company and
David L. Horton (incorporated by reference to Exhibit 10.3 to
Doane Pet Care Companys Quarterly Report on
Form 10-Q for the quarterly period ended July 3, 2004)10.9
    
    
    
    Employment Agreement dated August 17, 1998 between
Doane Pet Care Company and Joseph J. Meyers (incorporated by
reference to Exhibit 10.7 to the 2000 Form 10-K/A)10.10
    
    
    
    First Amendment to Employment Agreement dated as of
January 1, 2001, between Doane Pet Care Company and Joseph J.
Meyers (incorporated by reference to Exhibit 10.8 to the 2000
Form 10-K/A)10.11
    
    
    
    Change in Control Severance Agreement dated April 22, 2004, between Doane Pet Care Company and
Joseph J. Meyers (incorporated by reference to Exhibit 10.4 to
Doane Pet Care Companys Quarterly Report on
Form 10-Q for the quarterly period ended July 3, 2004)
 50




---



##### Table of Contents



Exhibitnumber
    
    
    
    Description*10.12
    
    
    
    Employment Agreement dated August 31, 2004, between
Doane Pet Care Company and Kenneth H. Koch*10.13
    
    
    
    Form of Non-Qualified Salary Continuation Agreement for the Named Executive Officers10.14
    
    
    
    Doane Pet Care Enterprises Inc.s, 1996 Stock Option
Plan (incorporated by reference to Exhibit 10.7 to Doane Pet
Care Companys Annual Report on Form 10-K for the year ended
December 31, 1996)10.15
    
    
    
    First Amendment to Doane Pet Care Enterprises, Inc.s
1996 Stock Option Plan (incorporated by reference to Exhibit
10.8 to the 1997 Form 10-K)10.16
    
    
    
    Second Amendment to Doane Pet Care Enterprises,
Inc.s, 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.9 to the 1997 Form 10-K)10.17
    
    
    
    Doane Pet Care Enterprises, Inc.s 1999 Stock
Incentive Plan (incorporated by reference to Exhibit 10.10 to
Doane Pet Care Companys Annual Report on Form 10-K for the
fiscal year ended January 1, 2000)10.18
    
    
    
    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
(incorporated by reference to Exhibit 10.1 to Doane Pet Care
Companys Quarterly Report on Form 10-Q for the quarterly
period ended October 2, 2004)10.19
    
    
    
    Loan and Warrant Agreement dated as of March 26, 2001
among Doane Pet Care Enterprises, Inc., Doane Pet Care Company
and each of the lenders named therein (incorporated by
reference to Exhibit 10.15 to the 2000 Form 10-K/A)*21.1
    
    
    
    List of Subsidiaries of Doane Pet Care Company*23.1
    
    
    
    Consent of Independent Registered Public Accounting
Firm*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.
    
    Management contracts or compensatory plans or arrangements. Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by
Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act. No annual report or proxy material has been sent to our security holder as of the date hereof.
We do not expect to furnish our security holder with an annual shareholders report or proxy
soliciting material subsequent to the filing of this Form 10-K. 51




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. DOANE PET CARE COMPANYBy:          /s/ PHILIP K. WOODLIEFPhilip K. WoodliefVice President, Finance and Chief Financial OfficerBy:          /s/ STEPHEN P. HAVALAStephen P. HavalaCorporate Controller and Principal Accounting Officer
 Date: April 1, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on behalf of the registrant and in the capacities and on the dates
indicated. Signature
    

Title
    

Date/s/ GEORGE B. KELLY
    
    Chairman of the Board and Director
    
    March 31, 2005George B. Kelly/s/ DOUGLAS J. CAHILL
    
    Chief Executive Officer, President and
    
    March 31, 2005Douglas J. Cahill
    
    Director (Principal Executive Officer)/s/ PHILIP K. WOODLIEF
    
    Vice President, Finance and Chief Financial Officer
    
    March 31, 2005Philip K. Woodlief
    
    (Principal Financial Officer)/s/ STEPHEN P. HAVALA
    
    Corporate Controller and Principal Accounting Officer
    
    March 31, 2005Stephen P. Havala/s/ EDWARD H. DALELIO
    
    Director
    
    March 31, 2005Edward H. DAlelio/s/ JERRY W. FINNEY, JR.
    
    Director
    
    March 31, 2005Jerry W. Finney, Jr./s/ MATHEW J. LORI
    
    Director
    
    March 31, 2005Mathew J. Lori/s/ TERRY R. PEETS
    
    Director
    
    March 31, 2005Terry R. Peets/s/ STEPHEN C. SHERRILL
    
    Director
    
    March 31, 2005Stephen C. Sherrill/s/ PAUL E. SUCKOW
    
    Director
    
    March 31, 2005Paul E. Suckow/s/ JEFFREY C. WALKER
    
    Director
    
    March 31, 2005Jeffrey C. Walker
 52




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES FINANCIAL INFORMATION 
 INDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of the end of fiscal 2003 restated and 2004
    
    F-3Consolidated Statements of Operations for fiscal 2002, 2003 restated and 2004
    
    F-4Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for fiscal
2002, 2003 restated and 2004
    
    F-5Consolidated Statements of Cash Flows for fiscal 2002, 2003 restated and 2004
    
    F-6Notes to Consolidated Financial Statements
    
    F-7




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors
Doane Pet Care Company: We have audited the accompanying consolidated balance sheets of Doane Pet Care Company and
subsidiaries as of January 3, 2004 and January 1, 2005 and the related consolidated statements of
operations, stockholders equity and comprehensive income (loss) and cash flows for each of the
fiscal years in the three-year period ended January 1, 2005. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Doane Pet Care Company and subsidiaries as of January
3, 2004 and January 1, 2005 and the results of their operations and their cash flows for each of
the fiscal years in the three-year period ended January 1, 2005 in conformity with U.S. generally accepted
accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company has restated its
fiscal 2003 consolidated financial statements. As discussed in Note 3 to the consolidated financial statements, effective January 4, 2004, the
Company adopted Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. /s/ KPMG LLP
 Nashville, Tennessee
March 30, 2005 F-2




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts) End of fiscal2003 restated
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,293
    
    
    $
    28,847Accounts receivable, net
    
    
    91,569
    
    
    
    112,445Inventories, net
    
    
    68,619
    
    
    
    68,321Deferred tax assets
    
    
    1,898
    
    
    
    2,414Prepaid expenses and other current assets
    
    
    14,390
    
    
    
    7,038Total current assets
    
    
    205,769
    
    
    
    219,065Property, plant and equipment, net
    
    
    266,457
    
    
    
    258,070Goodwill
    
    
    318,656
    
    
    
    327,954Trademarks
    
    
    61,762
    
    
    
    62,517Other assets
    
    
    33,270
    
    
    
    34,300Total assets
    
    $
    885,914
    
    
    $
    901,906LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    13,185
    
    
    $
    3,673Accounts payable
    
    
    100,512
    
    
    
    102,149Accrued liabilities
    
    
    50,368
    
    
    
    59,239Total current liabilities
    
    
    164,065
    
    
    
    165,061Long-term debt:Long term debt, excluding current maturities
    
    
    560,861
    
    
    
    580,090Senior Preferred Stock (Redeemable), 3,000,000 shares
authorized 1,200,000 shares issued and outstanding, $110,942
current redemption value
    
    
    
    
    
    
    106,421Total long-term debt
    
    
    560,861
    
    
    
    686,511Deferred tax liabilities
    
    
    28,524
    
    
    
    33,641Other long-term liabilities
    
    
    8,863
    
    
    
    9,567Total liabilities
    
    
    762,313
    
    
    
    894,780Senior Preferred Stock (Redeemable), 3,000,000 shares
authorized 1,200,000 shares issued and outstanding, $97,801
current redemption value
    
    
    91,052
    
    
    
    Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 1,000 shares authorized,
issued and outstanding
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    115,674
    
    
    
    115,674Accumulated other comprehensive income
    
    
    42,481
    
    
    
    62,650Accumulated deficit
    
    
    (125,606
    )
    
    
    (171,198
    )Total stockholders equity
    
    
    32,549
    
    
    
    7,126Total liabilities and stockholders equity
    
    $
    885,914
    
    
    $
    901,906
 See accompanying notes to consolidated financial statements. F-3




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands) Fiscal2002
    
    
    2003 restated
    
    
    2004Net sales
    
    $
    887,333
    
    
    $
    1,013,865
    
    
    $
    1,051,241Cost of goods sold
    
    
    701,418
    
    
    
    851,578
    
    
    
    896,191Gross profit
    
    
    185,915
    
    
    
    162,287
    
    
    
    155,050Operating expenses:Promotion and distribution
    
    
    52,445
    
    
    
    57,616
    
    
    
    56,805Selling, general and administrative
    
    
    48,712
    
    
    
    52,015
    
    
    
    51,861Amortization
    
    
    4,583
    
    
    
    4,989
    
    
    
    4,313Other operating expenses
    
    
    1,447
    
    
    
    7,227
    
    
    
    6,978Income from operations
    
    
    78,728
    
    
    
    40,440
    
    
    
    35,093Interest expense, net
    
    
    62,395
    
    
    
    57,494
    
    
    
    72,841Debt extinguishments
    
    
    
    
    
    
    4,438
    
    
    
    4,137Other income, net
    
    
    (724
    )
    
    
    (1,156
    )
    
    
    (1,417
    )Income (loss) before income taxes
    
    
    17,057
    
    
    
    (20,336
    )
    
    
    (40,468
    )Income tax expense
    
    
    1,786
    
    
    
    25,039
    
    
    
    5,124Net income (loss)
    
    
    15,271
    
    
    
    (45,375
    )
    
    
    (45,592
    )Senior preferred stock dividends and accretion
    
    
    (11,878
    )
    
    
    (13,502
    )
    
    
    Net income (loss) available to common shares
    
    $
    3,393
    
    
    $
    (58,877
    )
    
    $
    (45,592
    )
 See accompanying notes to
consolidated financial statements. F-4




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)
(In thousands, except share amounts) Additional
    
    
    AccumulatedotherCommon stock
    
    
    paid-in
    
    
    comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    capital
    
    
    income (loss)
    
    
    deficit
    
    
    TotalBalances at the end of fiscal 2001
    
    
    1,000
    
    
    $
    
    
    
    $
    115,655
    
    
    $
    (7,607
    )
    
    $
    (70,122
    )
    
    $
    37,926Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,271
    
    
    
    15,271Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,792
    
    
    
    
    
    
    
    22,792Unrealized loss, net of deferred
tax benefit of $313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (43
    )Increase in minimum pension liability,
net of deferred tax benefit of $3,556
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,584
    )
    
    
    
    
    
    
    (5,584
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,436Senior preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,801
    )
    
    
    (10,801
    )Senior preferred stock accretion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,077
    )
    
    
    (1,077
    )Parent capital contribution
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19Balances at the end of fiscal 2002
    
    
    1,000
    
    
    
    
    
    
    
    115,674
    
    
    
    9,558
    
    
    
    (66,729
    )
    
    
    58,503Comprehensive loss restated:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,375
    )
    
    
    (45,375
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,021
    
    
    
    
    
    
    
    31,021Reclassification of realized loss, net of
deferred tax benefit of $849
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    
    
    
    
    1,333Decrease in minimum pension liability,
net of deferred tax expense of $362
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    569Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,452
    )Senior preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,425
    )
    
    
    (12,425
    )Senior preferred stock accretion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,077
    )
    
    
    (1,077
    )Balances at the end of fiscal 2003 restated
    
    
    1,000
    
    
    
    
    
    
    
    115,674
    
    
    
    42,481
    
    
    
    (125,606
    )
    
    
    32,549Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,592
    )
    
    
    (45,592
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,243
    
    
    
    
    
    
    
    20,243Increase in minimum pension liability,
net of deferred tax benefit of $45
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    (74
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,423
    )Balances at the end of fiscal 2004
    
    
    1,000
    
    
    $
    
    
    
    $
    115,674
    
    
    $
    62,650
    
    
    $
    (171,198
    )
    
    $
    7,126
 See accompanying notes to consolidated financial statements. F-5




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Fiscal2002
    
    
    2003 restated
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    15,271
    
    
    $
    (45,375
    )
    
    $
    (45,592
    )Items not requiring (providing) cash:Depreciation
    
    
    26,586
    
    
    
    31,178
    
    
    
    35,049Amortization
    
    
    5,578
    
    
    
    5,983
    
    
    
    5,307Deferred tax expense
    
    
    1,258
    
    
    
    23,644
    
    
    
    4,415Non-cash interest expense
    
    
    15,058
    
    
    
    4,906
    
    
    
    20,229Equity in joint ventures
    
    
    (705
    )
    
    
    (616
    )
    
    
    (969
    )Debt extinguishments
    
    
    
    
    
    
    4,438
    
    
    
    4,137Asset impairments
    
    
    
    
    
    
    7,727
    
    
    
    215Other non-cash charges (income), net
    
    
    2,352
    
    
    
    (372
    )
    
    
    447Changes in current assets and liabilities:Accounts receivable, net
    
    
    (2,669
    )
    
    
    45,653
    
    
    
    (15,632
    )Inventories, net
    
    
    (5,587
    )
    
    
    (1,323
    )
    
    
    2,790Prepaid expenses and other current assets
    
    
    (1,632
    )
    
    
    (5,310
    )
    
    
    5,675Accounts payable
    
    
    25,541
    
    
    
    (1,462
    )
    
    
    (2,342
    )Accrued liabilities
    
    
    (2,278
    )
    
    
    (13,408
    )
    
    
    7,558Net cash provided by operating activities
    
    
    78,773
    
    
    
    55,663
    
    
    
    21,287Cash flows from investing activities:Capital expenditures
    
    
    (24,348
    )
    
    
    (28,062
    )
    
    
    (18,856
    )Proceeds from sale of assets
    
    
    1,766
    
    
    
    1,378
    
    
    
    865Other, net
    
    
    (3,320
    )
    
    
    (3,501
    )
    
    
    (2,063
    )Net cash used in investing activities
    
    
    (25,902
    )
    
    
    (30,185
    )
    
    
    (20,054
    )Cash flows from financing activities:Net borrowings (repayments) under revolving credit agreement
    
    
    (23,000
    )
    
    
    1,000
    
    
    
    (16,000
    )Proceeds from issuance of long-term debt
    
    
    9,738
    
    
    
    210,444
    
    
    
    208,078Principal payments on long-term debt
    
    
    (36,172
    )
    
    
    (208,255
    )
    
    
    (185,526
    )Payments for debt issuance costs
    
    
    (2,316
    )
    
    
    (7,761
    )
    
    
    (8,381
    )Parent capital contribution
    
    
    19
    
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (51,731
    )
    
    
    (4,572
    )
    
    
    (1,829
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    424
    
    
    
    791
    
    
    
    150Increase
(decrease) in cash and cash equivalents
    
    
    1,564
    
    
    
    21,697
    
    
    
    (446
    )Cash and cash equivalents, beginning of year
    
    
    6,032
    
    
    
    7,596
    
    
    $
    29,293Cash and cash equivalents, end of year
    
    $
    7,596
    
    
    $
    29,293
    
    
    $
    28,847
 See accompanying notes to consolidated financial statements. F-6




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Nature of Business Doane Pet Care Company, or the Company, is a wholly-owned subsidiary of Doane Pet Care
Enterprises, Inc., or Parent. The Company is a leading global provider of pet food, primarily
private label, with 28 manufacturing facilities in the United States and
Europe. The Company manufactures pet food products predominately for dogs and cats, including dry,
wet, semi-moist, soft dry, soft treats and dog biscuits. The Company categorizes its sales into
three product areas consisting of private label, co-manufacturing and regional brands. The Company
also operates a machine shop and a structural steel fabrication plant that sells to third parties
and supports the Companys facilities. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned and majority-owned subsidiaries. All significant intercompany transactions and balances
have been eliminated. The Company also has investments in companies that are not majority-owned and
have been included in the consolidated financial statements of the Company using the equity method
of accounting. The Companys share of the profit or loss of these unconsolidated subsidiaries is
recognized in other income, net, in the statements of operations and the related increase or
decrease in the investment in these unconsolidated subsidiaries is recognized in the consolidated
balance sheets of the Company. As of the end of fiscal 2004, the Companys unconsolidated
subsidiaries included 50% joint venture investments in two companies, Doane International Pet
Products, LLC and Effeffe S.p.A. The Companys only majority-owned subsidiary, Crona, was divested
in fiscal 2004. Certain
consolidated and unconsolidated subsidiaries of the Company have calendar year-end fiscal years
and quarters. Any intervening events between the period ends of the Company and its subsidiaries
would be disclosed to the extent they have a material impact on the Companys results of operations
or financial condition. 52-53 Week Fiscal Year The Companys fiscal years end on the Saturday nearest to the end of December and its quarters
end on the Saturday nearest to the end of the respective calendar month. Fiscal 2002, 2003 and 2004
ended on December 28, 2002, January 3, 2004 and January 1, 2005, respectively. Fiscal 2002 and 2004
were each 52-week years and fiscal 2003 was a 53-week year. The fourth quarter of fiscal 2003
included the extra week occurring in that year. Reclassifications Certain fiscal 2002 and 2003 amounts have been reclassified to conform with the fiscal 2004
presentation. Use of Estimates In conformity with accounting principles generally accepted in the United States, preparation
of the Companys consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the consolidated financial
statements; and therefore, actual results could ultimately differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include all liquid investments with original maturities of three
months or less. F-7




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Accounts Receivable Accounts receivable, principally consisting of trade accounts receivable, are stated at
net realizable value through recording valuation allowances for
doubtful accounts and outstanding deductions with customers. In
addition, the Company reduces accounts receivable for cash discounts
offered to its customers. The
Company estimates the allowances by applying a
recovery percentage based on historical collection experience. The Company accrues additional
allowances based on a specific identification review for amounts deemed to be at risk. Receivables
are written off against the allowances at the point in which an amount is deemed uncollectible by
the Company. See Note 19 and 24. Inventories Inventories are valued at the lower of cost or market. Cost is determined using the first-in,
first-out method and consists of raw material, packaging, labor and overhead expenses. Inventories are stated net of valuation allowances primarily for obsolescence of
packaging inventories. The Company estimates its allowances against inventories based on a specific
identification review for obsolete stock keeping units, or SKUs, or probable SKUs to be
rationalized. See Note 4. Property, Plant and Equipment Property, plant and equipment are stated at cost or the fair value determined as of the date
of acquisition for property, plant and equipment acquired in a purchase business combination. The
Company expenses repair and maintenance costs as incurred and expenditures that significantly
increase useful lives of existing property, plant and equipment are capitalized. Property, plant and
equipment are depreciated using the straight-line method over the estimated useful lives of 20 to
40 years for buildings and improvements and 3 to 12 years for machinery and equipment. See Note 5. Goodwill and Trademarks Goodwill has been recorded under the purchase accounting method as the excess of the purchase
price over the fair value of assets acquired and liabilities assumed. The Companys only intangible
assets with indefinite useful lives other than goodwill are its trademarks. Trademarks are stated at
cost or the fair value determined as of the date of acquisition for trademarks acquired in a
purchase business combination. Goodwill and trademarks are not amortized. Other Assets Other assets include: (1) intangible assets with estimable useful lives; (2) debt issuance
costs; (3) investments in joint ventures; and (4) other miscellaneous long-term assets. Intangible
assets with estimable useful lives are amortized using the straight-line method over 3 to 30
years. The Company amortizes debt issuance costs into interest expense over
the life of each related indebtedness. See Note 6. Impairment The Company tests the carrying value of goodwill and trademarks for impairment annually and upon
the occurrence of certain events. Our impairment test includes quantitative analyses of discounted
future cash flows, market multiples of earnings and comparable transactions, if available. If the
estimated fair value of goodwill or trademarks of either the Companys domestic or European
reporting unit is less than the carrying value, an impairment loss will be recognized. Upon adoption
of SFAS 142, Goodwill and Other Intangible Assets, or SFAS 142, in the first quarter of fiscal
2002, the Company reassessed the useful lives and residual values of all intangible assets acquired
in purchase business combinations, including trademarks and other intangible assets having
estimable useful lives which resulted in no impact on its consolidated financial statements. In the
second quarter of fiscal 2002, the Company completed the required transitional impairment tests of
its goodwill and trademarks and, F-8




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) based on the results of the tests, determined no impairment to the carrying values of
these assets existed as of the beginning of fiscal 2002. In the fourth quarters of fiscal 2002, 2003
and 2004, the Company performed its required annual assessment for impairment of goodwill and
trademarks and determined no impairment was evident at the assessment dates. The
Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying value of an asset may not be recoverable. Long-lived assets principally consist of property, plant and equipment and intangible assets
with estimable useful lives. Long-lived
assets to be disposed of by sale are measured at the lower of the carrying amount or fair value
less cost to sell, whether reported in continuing operations or in discontinued operations. An
impairment loss would be recognized to the extent that the carrying amount of an asset exceeds its
fair value. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are determined based upon differences between the financial reporting and tax bases of
assets and liabilities. The differences are measured by applying enacted tax rates and laws to
taxable years in which such differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of any change in tax rates is recognized in the period that
includes the enactment date. The Company assesses the likelihood that net deferred tax assets will
be realized in future periods and records a valuation allowance against its net deferred tax assets
accordingly. See Note 15. Revenue Recognition The Company recognizes revenue when products are shipped, the customer takes ownership and
assumes risk of loss, collection of the related account receivable is probable, persuasive evidence
of an arrangement exists and the sales price is fixed or determinable. Net sales are comprised of
gross sales less cash discounts, deductions and volume incentive rebates. Products are generally
sold with no right of return except in the case of goods which do not meet product specifications
or that are damaged. Cost of Goods Sold Cost
of goods sold consist of expenses incurred directly in the
manufacturing of the Companys products sold. These costs
include raw materials, packaging, labor, overhead, intercompany freight and depreciation expense related to assets used in production. Promotion and Distribution Promotion expenses primarily consist of allowances offered by the Company to its customers for
providing certain goods and services, such as advertising, coupons, gift certificates or free
products and services. Distribution expenses include outbound freight costs, brokerage fees and
warehousing expenses. In fiscal 2002, 2003 and 2004, promotion expenses were $18.7 million, $17.8
million and $15.9 million, respectively, and distribution expenses were $33.7 million, $39.8
million and $40.9 million, respectively. Comprehensive Income (Loss) Comprehensive
income (loss) includes: (1) net income (loss); (2) foreign currency translation,
including the changes in fair value of the Companys
Euro-denominated debt, which was retired in fiscal 2004; (3) changes in the
fair value of derivative instruments designated as cash flow hedges; and (4) changes in the minimum
pension liability. In fiscal 2004, the Company repaid the remainder of its Euro-denominated debt designated as a hedge
of its net investment in Europe. The Company will continue to defer the cumulative gains and losses
associated with this debt until its European operations are sold or substantially
liquidated. As of the end of fiscal 2003 and 2004, the F-9




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Company had cumulative
translation losses associated with this debt of $18.0 million and $19.2
million, respectively, in accumulated other comprehensive income in the consolidated balance
sheets. In fiscal 2002, 2003 and 2004, the Company recognized losses of $10.7 million, $8.3 million
and $1.2 million, respectively, in accumulated other comprehensive income. See Note 2. Foreign Currency Translation and Transactions The Companys foreign operations have functional currencies in the Euro, Danish Krona and
British Pound Sterling. The Company translates to U.S. dollars its foreign assets and liabilities
using the exchange rates in effect at the period end dates for its balance sheets and its results
of foreign operations using the average exchange rates during the periods covered in its statements
of operations. The cumulative translation adjustment for the Companys net investment in foreign
operations has been recognized in accumulated other comprehensive income in the consolidated
balance sheets. The Company also sells its products in countries with foreign currencies other than
its functional currencies. The foreign currency gains and losses associated with these transactions
are recognized in the consolidated statements of operations as incurred. Financial Instruments The carrying value of certain of the Companys financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities, approximates fair value
due to the relatively short maturity of such instruments. The Company determines the fair value of
its long-term debt based on market value, if the debt is traded, or
otherwise by using alternative fair value methods. The carrying
value of the Companys derivative financial instruments is recorded at fair value. See Note 9. Commodity Derivative Instruments The Company is exposed to market risk related to changes in commodity prices. The Company may
seek to manage its commodity price risk associated with market fluctuations by using derivative
instruments for portions of its corn, soybean meal, alternative proteins and natural gas purchases,
principally through exchange traded futures and options contracts. The terms of these contracts are
generally less than one year. During the term of the contract, the Company balances positions daily
with cash payments to or from the exchanges. At the termination of a contract, the Company has the
ability to settle financially or by exchange for the physical commodity, in which case, the Company
would deliver the contract against the acquisition of the physical commodity. The Companys policy
does not permit speculative commodity trading. The fair value of the Companys open commodity
derivative instruments at each period end is recognized in prepaid expenses and other current
assets and accrued liabilities in the consolidated balance sheets. Changes in the fair value of
these instruments are included in cost of goods sold in the consolidated statements of operations
as incurred. Upon maturity, sale or other termination, gains and losses associated with these
instruments are also recognized in cost of goods sold. See Note 9. Interest Rate Swap and Cap Contracts The Company is exposed to market risk related to changes in interest rates. The Company
periodically enters into interest rate swap and cap contracts to limit its exposure to the interest
rate risk associated with its floating rate debt. The Companys policy does not permit speculative
trading related to its debt. 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 contracts. The fair value of the Companys open interest rate swap and cap contracts at each
period end is recognized in prepaid expenses and other current assets and accrued liabilities in
the consolidated balance sheets. The Company has designated its interest rate swap and cap contracts
as cash flow hedges; and therefore, recognizes the changes in fair value of these instruments in
accumulated other comprehensive income, net of deferred taxes, in the consolidated balance sheets
until they are realized, at which point, they are recognized in interest expense, net, in the
consolidated statements of operations. Upon maturity, sale or other termination, gains and losses
associated with these instruments are also recognized in interest expense, net. The Company had no
open interest rate swap or cap contracts at the end of fiscal 2003 and 2004. F-10




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Foreign Currency Derivative Instruments The Company has foreign currency exposure related to the translation of the financial
statements of its foreign operations into U.S. dollars and related to transacting business in
countries with foreign currencies other than its functional currencies. The Companys functional
currencies, other than the U.S. dollar, include the Euro, Danish Krona and British Pound
Sterling. The Company periodically enters into foreign currency options and forward contracts to
seek to manage its exposure to exchange rate fluctuations on foreign currency translations and
transactions. The Companys policy does not permit speculative trading related to foreign currency.
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 contracts. The fair
value of the Companys open foreign currency derivative instruments at each period end is
recognized in prepaid expenses and other current assets and accrued liabilities in the consolidated
balance sheets. Changes in the fair value of foreign currency contracts that have been designated as
cash flow hedges are recognized in accumulated other comprehensive income, net of deferred taxes,
until they are realized, at which point, they are recognized in other income, net, in the
consolidated statements of operations. The changes in fair value of foreign currency contracts that
qualify for fair value hedging treatment are recognized in other income, net, as incurred. Upon
maturity, sale or other termination, gains and losses associated with these instruments are also
recognized in other income, net. The Company had no open foreign currency derivative instruments at
the end of fiscal 2003 and 2004. Stock-Based Employee Compensation Certain employees of the Company are covered under two stock-based employee compensation plans
of the Companys Parent, the 1996 Stock Option Plan and the 1999 Stock Incentive Plan. Under these
plans, each stock option granted allows for the purchase of one share of Parents Class A Common
Stock upon vesting and expires ten years from the date of grant.
Substantially all of the grants have a time-vesting schedule pursuant to which
50% of an individuals stock options will vest two years after the grant date, 25% will vest after
the third year, and the remaining 25% will vest after the fourth year. Compensation expense is
recognized over the vesting period of the underlying stock options. The Company accounts for stock-based employee compensation using the intrinsic value method in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, or APB 25, and related Interpretations, as permitted by SFAS No. 123, Accounting for
Stock-Based Compensation, or SFAS 123. Under the intrinsic value method, no compensation expense was
recognized in fiscal 2002, 2003 or 2004. While the fair value of Parents Class A Common Stock was
greater than the exercise price at the end of fiscal 2002, the resulting compensation expense for
fiscal 2002 was minimal. The fair value of Parents Class A Common Stock at the end of fiscal 2003
and 2004 was less than the exercise price of options granted in those years resulting in no
compensation expense for fiscal 2003 or 2004. Pro forma information for net income (loss) and net income (loss) available to common shares
determined as if the Company accounted for its employee stock options under the minimum fair value
method is required by SFAS 123 and follows (in thousands): Fiscal2002
    
    
    2003 restated
    
    
    2004Net income (loss), as reported
    
    $
    15,271
    
    
    $
    (45,375
    )
    
    $
    (45,592
    )Less: Stock based employee compensation expense
determined based on the fair value method
for all awards, net of income tax benefit
    
    
    (128
    )
    
    
    (8
    )
    
    
    (6
    )Pro forma net income (loss)
    
    $
    15,143
    
    
    $
    (45,383
    )
    
    $
    (45,598
    )Net income (loss) available to common shares, as reported
    
    $
    3,393
    
    
    $
    (58,877
    )
    
    $
    (45,592
    )Pro forma net income (loss) available to common shares
    
    $
    3,265
    
    
    $
    (58,885
    )
    
    $
    (45,598
    )
 F-11




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The effect of applying SFAS 123, as calculated above, may not be representative of the
effect on reported net income (loss) and net income (loss) available to common shares for future
years. Recently Issued Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share Based Payment, or SFAS
123  Revised. SFAS 123  Revised replaces SFAS 123 and supercedes SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  An Amendment of FASB Statement No. 123 and
APB Opinion No. 25. SFAS 123  Revised eliminates the alternative to use the intrinsic value method
of accounting under APB 25 previously allowed under SFAS 123 and requires entities to recognize the
cost of services received in exchange for awards of equity instruments, or compensation cost, based
on the fair value of those awards at the grant date. SFAS 123  Revised is effective as of the
beginning of the first annual reporting period that begins after December 15, 2005 for all awards
granted after the effective date and for all awards modified, repurchased or cancelled after that
date. In the opinion of management, the Company meets the nonpublic entity criteria under SFAS 123 
Revised. Accordingly, upon adoption, the grant-date fair value of awards of equity share options and
similar instruments is to be calculated using the historical volatility of an appropriate industry
sector index rather than expected volatility of the Companys share price. The Company will evaluate
the impact on its results of operations and financial position upon the adoption of SFAS 123 -
Revised. In
November 2004, the FASB issued SFAS No. 151, Inventory
Costs, or SFAS 151, which amends the guidance in Chapter 4 of Accounting Research Bulletin No. 43,
to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs
and wasted material (spoilage). SFAS 151 requires those items to be recognized as current-period
charges regardless of whether they meet the criterion of so abnormal and also requires the
allocation of fixed production overheads to the costs of conversion be based on the normal capacity
of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005 with earlier application permitted for such costs incurred after the
date this statement was issued. The Company will evaluate the impact
on its results of operations and financial position upon the adoption
of SFAS 151. (2) Restatement of Fiscal 2003 Consolidated Financial Statements On March 4, 2005, the Audit Committee of the Board of Directors determined that,
following a review of the Companys accounting practices for realized foreign currency transaction
losses and the computation of interest expense, and in consultation with management and its
independent registered public accounting firm, the restatement of its previously issued 2003
consolidated financial statements was necessary. The restatement resulted in a decrease of fiscal
2003 net loss by $9.1 million, or from $54.4 million to $45.3 million. The $9.1 million reduction
was a result of the reversal of previously recognized transaction losses of $7.7 million related to
the cumulative translation of our Euro-denominated debt and the
correction of a cumulative error in our
interest expense calculation of $1.4 million. The restatement did not affect the Companys
compliance with any covenants under its senior credit facility or other debt instruments. In fiscal 2000, the Company incurred Euro-denominated debt in connection with its acquisition
of A/S Arovit Petfood. The Company recorded the foreign currency translation losses as realized
transaction losses associated with payments on the Euro debt in its consolidated statement of
operations. During the fiscal 2004 year end review, the Audit Committee of the Board of Directors,
in consultation with management and the Companys independent registered public accounting firm,
determined that such practice was not in accordance with SFAS No. 52, Foreign Currency Translation,
or SFAS 52. Under SFAS 52, realized losses on the translation of the Companys Euro debt, which was
designated as an economic hedge against its European net assets, should have been deferred as a
component of accumulated other comprehensive income until its European operations are sold or
substantially liquidated. As such, the restatement resulted from the reversal of $7.7 million of
previously recognized transaction losses in its consolidated statement of operations, thereby
reinstating the loss as a reduction in accumulated other comprehensive income as of the end of
fiscal 2003. F-12




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) During the fiscal 2004 year end review, the Company also discovered an error in its
interest expense calculation. The restatement to correct this error resulted in a reduction of
previously reported fiscal 2003 interest expense from $58.9 million to $57.5 million, or $1.4
million. The adjustments made in fiscal 2003 relating to
previously recognized foreign currency translation losses and the computation of interest expense included cumulative errors through fiscal 2002 of $0.8 million
and $0.7 million, respectively, which have been recognized in the
Companys 2003 restated financial statements as adjustments to the first quarter of fiscal 2003.
These adjustments have not been recorded in prior periods due to
managements conclusion that these cumulative errors through
fiscal 2002, and the correction of the cumulative errors in fiscal 2003, were not material to any of the periods impacted. A summary of the adjustments to correct these errors and the effect of the restatement on
previously issued consolidated financial statements as of the end of and for fiscal 2003 follows
(in thousands): End of fiscal 2003Previously reported
    
    
    Adjustment
    
    
    RestatedConsolidated balance sheet:Total assets
    
    $
    885,914
    
    
    $
    
    
    
    $
    885,914Accrued liabilities
    
    
    51,719
    
    
    
    (1,351
    )
    
    
    50,368Total current liabilities
    
    
    165,416
    
    
    
    (1,351
    )
    
    
    164,065Total liabilities
    
    
    763,664
    
    
    
    (1,351
    )
    
    
    762,313Accumulated other comprehensive income
    
    
    50,185
    
    
    
    (7,704
    )
    
    
    42,481Accumulated deficit
    
    
    (134,661
    )
    
    
    9,055
    
    
    
    (125,606
    )Total stockholders equity
    
    
    31,198
    
    
    
    1,351
    
    
    
    32,549
 End of fiscal 2003Previously reported
    
    
    Adjustment
    
    
    RestatedConsolidated statement of operations:Net sales
    
    $
    1,013,865
    
    
    $
    
    
    
    $
    1,013,865Gross profit
    
    
    162,287
    
    
    
    
    
    
    
    162,287Income from operations
    
    
    40,440
    
    
    
    
    
    
    
    40,440Interest expense, net
    
    
    58,845
    
    
    
    (1,351
    )
    
    
    57,494Debt extinguishments
    
    
    12,142
    
    
    
    (7,704
    )
    
    
    4,438Loss before income taxes
    
    
    (29,391
    )
    
    
    9,055
    
    
    
    (20,336
    )Net loss
    
    
    (54,430
    )
    
    
    9,055
    
    
    
    (45,375
    )Net loss available to common shares
    
    
    (67,932
    )
    
    
    9,055
    
    
    
    (58,877
    )
 End of and for fiscal 2003Previously reported
    
    
    Adjustment
    
    
    RestatedConsolidated statement of stockholders equity and
comprehensive income (loss):Net loss
    
    $
    (54,430
    )
    
    $
    9,055
    
    
    $
    (45,375
    )Foreign currency translation
    
    
    38,725
    
    
    
    (7,704
    )
    
    
    31,021Total comprehensive loss
    
    
    (13,803
    )
    
    
    1,351
    
    
    
    (12,452
    )Total stockholders equity
    
    
    31,198
    
    
    
    1,351
    
    
    
    32,549
 End of fiscal 2003Previously reported
    
    
    Adjustment
    
    
    RestatedConsolidated statement of cash flows:Net loss
    
    $
    (54,430
    )
    
    $
    9,055
    
    
    $
    (45,375
    )Debt extinguishments
    
    
    12,142
    
    
    
    (7,704
    )
    
    
    4,438Changes in accrued liabilities
    
    
    (12,057
    )
    
    
    (1,351
    )
    
    
    (13,408
    )Net cash provided by operating activities
    
    
    55,663
    
    
    
    
    
    
    
    50,663Net cash used in investing activities
    
    
    (30,185
    )
    
    
    
    
    
    
    (30,185
    )Net cash used in financing activities
    
    
    (4,572
    )
    
    
    
    
    
    
    (4,572
    )
 (3) Change in Accounting Principle In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity, or SFAS 150. SFAS 150 requires companies to
classify as liabilities those financial instruments that meet the definition of mandatorily
redeemable, as defined in SFAS 150. SFAS 150 was effective for the first fiscal period beginning
after December 15, 2003 for nonpublic entities. The Company adopted SFAS F-13




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 150 as of the beginning of fiscal 2004 and, as a result, reclassified its Senior
Preferred Stock (Redeemable), or senior preferred stock, to long-term debt in its consolidated
balance sheet at the adoption date and recognized the related accretion and dividends beginning in
fiscal 2004 as interest expense in its consolidated statements of operations. Prior to the adoption
of SFAS 150, the Company recognized its senior preferred stock as a separate component of its
consolidated balance sheets between the liabilities and equity sections and recognized the related
accretion and dividends as a direct component of accumulated deficit. See Note 8. (4) Inventories A summary of inventories follows (in thousands): End of fiscal2003
    
    
    2004Raw materials
    
    $
    15,508
    
    
    $
    16,041Packaging materials
    
    
    23,237
    
    
    
    20,564Finished goods
    
    
    34,235
    
    
    
    34,57372,980
    
    
    
    71,178Less: Allowances
    
    
    (4,361
    )
    
    
    (2,857
    )Total
    
    $
    68,619
    
    
    $
    68,321
 (5) Property, Plant and Equipment A summary of property, plant and equipment follows (in thousands): End of fiscal2003
    
    
    2004Land
    
    $
    11,415
    
    
    $
    11,601Buildings and improvements
    
    
    100,661
    
    
    
    104,778Machinery and equipment
    
    
    292,682
    
    
    
    320,097Construction-in-progress
    
    
    13,333
    
    
    
    6,727418,091
    
    
    
    443,203Less: Accumulated depreciation
    
    
    (151,634
    )
    
    
    (185,133
    )Total
    
    $
    266,457
    
    
    $
    258,070
 (6) Other Assets A summary of other assets follows (in thousands): F-14




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) End of fiscal2003
    
    
    2004Intangible assets with estimable useful lives
    
    $
    17,383
    
    
    $
    15,375Debt issuance costs
    
    
    11,971
    
    
    
    12,394Investments in joint ventures
    
    
    3,464
    
    
    
    4,649Other
    
    
    452
    
    
    
    1,882Total
    
    $
    33,270
    
    
    $
    34,300
 The gross carrying value and accumulated amortization of intangible assets with estimable
useful lives follows (in thousands): End of fiscal2003
    
    
    2004Gross
    
    
    Accumulated
    
    
    Gross
    
    
    Accumulatedcarrying value
    
    
    amortization
    
    
    carrying value
    
    
    amortizationPlate costs
    
    $
    16,473
    
    
    $
    11,497
    
    
    $
    18,535
    
    
    $
    14,085Software
    
    
    9,526
    
    
    
    7,233
    
    
    
    9,733
    
    
    
    8,972Customer lists
    
    
    4,134
    
    
    
    505
    
    
    
    4,505
    
    
    
    701Non-compete agreements and other contracts
    
    
    8,657
    
    
    
    2,227
    
    
    
    9,432
    
    
    
    3,088Other
    
    
    678
    
    
    
    623
    
    
    
    150
    
    
    
    134Total
    
    $
    39,468
    
    
    $
    22,085
    
    
    $
    42,355
    
    
    $
    26,980
 A summary of the expected amortization expense as of the end of fiscal 2004 for each of the
next five succeeding fiscal years follows (in thousands): ExpectedFiscal years ending
    
    amortization2005
    
    $3,8682006
    
    2,3262007
    
    1,5042008
    
    9682009
    
    870
 (7) Accrued Liabilities A summary of accrued liabilities follows (in thousands): F-15




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) End of fiscal2003 restated
    
    
    2004Rebates and promotions
    
    $
    15,033
    
    
    $
    20,838Compensation
    
    
    12,790
    
    
    
    17,407Interest
    
    
    11,240
    
    
    
    11,237Taxes
    
    
    2,398
    
    
    
    3,167Restructuring
    
    
    1,154
    
    
    
    722Other
    
    
    7,753
    
    
    
    5,868Total
    
    $
    50,368
    
    
    $
    59,239
 (8) Long-Term Debt and Liquidity A summary of long-term debt follows (in thousands): End of fiscal2003
    
    
    2004Revolving credit facility
    
    $
    16,000
    
    
    $
    Term loan facilities
    
    
    169,322
    
    
    
    194,513Senior notes
    
    
    210,779
    
    
    
    211,144Senior subordinated notes
    
    
    148,789
    
    
    
    149,147Industrial development revenue bonds
    
    
    14,482
    
    
    
    14,493Debt of foreign subsidiaries
    
    
    14,674
    
    
    
    14,466574,046
    
    
    
    583,763Less: Current maturities
    
    
    (13,185
    )
    
    
    (3,673
    )560,861
    
    
    
    580,090Senior preferred stock
    
    
    
    
    
    
    106,421Total
    
    $
    560,861
    
    
    $
    686,511
 Senior Credit Facility On November 5, 2004, the Company refinanced its previous 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 stand-by letters of
credit. The Term Loan Facility bears interest, at the option of the Company, of adjusted LIBOR plus
4.00%, or ABR, as defined in the 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%. Under the new senior credit facility, the Company is required to make principal payments
calculated as 1% of $195.0 million, payable each year in equal quarterly installments. The remaining
principal balance is due at final maturity on the earlier of November 5, 2009 or 91 days prior to
the maturity of the senior subordinated notes due May 15, 2007 (as may be refinanced, extended, or
renewed), unless terminated sooner upon an event of default. The Company had no borrowings outstanding under its revolving credit facility and $5.3 million of stand-by letters of credit outstanding, resulting in $29.7 million of availability out of a total availability of $35.0 million under its revolving credit facility as of the end of fiscal 2004. The Company and its restricted domestic subsidiaries are required to guarantee amounts
outstanding under the senior credit facility. The indebtedness incurred pursuant to the 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 senior credit facility contains certain
financial and other covenants usual and customary for a secured credit agreement. F-16




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) In connection with the November 2004 refinancing, the Company fully repaid its previous
senior credit facility and as a result, incurred a pre-tax loss from debt extinguishment of $4.1
million in the fourth quarter of fiscal 2004 for the write-off of unamortized debt issuance costs
associated with the Companys previous senior credit facility and related amendments. The Companys previous senior credit facility was initially entered into in May 2000 with a
syndicate of banks and other institutional investors, as lenders, and JPMorgan Chase Bank, as
administrative agent. The previous senior credit facility was amended in March 2001, March 2002,
February 2003 and March 2004. All loans of the previous senior credit facility under the most recent
amendment in March 2004 bore interest at the higher of the Euro dollar rate plus 5.25%, or the
prime rate of the administrative agent plus 4.25%. The Companys final amendment to the previous
senior credit facility was completed effective March 9, 2004 and included provisions to (1) extend
the maturity of the Revolving Credit Facility from March 31, 2005 to December 29, 2005; (2)
permanently reduce the borrowing capacity under the Revolving Credit Facility from $60.0 million to
$50.0 million; (3) waive non-compliance with certain financial covenants at the end of fiscal 2003;
(4) simplify the financial covenants to include only minimum consolidated EBITDA, maximum senior
secured leverage and capital expenditure limits; and (5) increase the interest rate margin to 5.00%
as of March 9, 2004, 5.25% as of September 30, 2004 and 6.25% as of March 31, 2005. The Company incurred a pre-tax loss from debt extinguishment of $4.4 million in fiscal 2003. Of
this amount,$4.1 million related to the repayments and amendments to the previous senior credit
facility that occurred concurrent with the issuance of the 93/4% senior notes and full repayment of
promissory notes under a shareholder loan. See the senior notes section below. The remaining $0.3
million related to the write-off of a pro-rata portion of unamortized debt issuance costs for a
$15.0 million optional prepayment made by the Company on the previous senior credit facility
subsequent to the February 2003 amendment. The Company is highly leveraged and has significant cash requirements for debt service
relating to its senior credit facility, senior notes, senior subordinated notes, industrial
development revenue bonds and foreign debt. The Companys ability to borrow is limited by its senior
credit facility, including compliance with the financial covenants therein, and the limitations on
the incurrence of additional indebtedness in the indentures governing the Companys senior notes
and senior subordinated notes. The Company has experienced difficulty in the past satisfying financial covenants in its
previous senior credit facility, negotiated amendments and obtained waivers for fiscal 2000, 2001
and 2003 due to covenant non-compliance. The Companys ability to satisfy the covenants in its new
senior credit facility is determined based on the Companys cash flows, senior secured debt and
capital expenditures, as defined by the senior credit facility. 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 the senior credit facility and permit a majority of the lenders to
accelerate outstanding debt under the senior credit facility, terminate the Companys revolving
credit commitment and seize the cash in the Companys operating accounts. Such acceleration would
result in cross-defaults under the Companys senior notes and senior subordinated notes. The Company
was in compliance with the financial covenants in its senior credit facility as of the end of
fiscal 2004. Senior Notes On
February 28, 2003, the Company issued $213.0 million in
aggregate principal amount of
93/4%
Senior Notes due March 1, 2010, or senior notes, with interest payable semi-annually on March 1 and
September 1 of each year, commencing on September 1, 2003. The senior notes were issued at a
discount of 98.8% of par that is being amortized as interest expense over the term of the notes. The senior notes are general unsecured obligations and are subordinated
in right of payment to all senior indebtedness and senior in right of payment to any current or
future indebtedness of the Company that, by its terms, is subordinated to the senior notes. The
payments of obligations of each subsidiary guarantor are subordinated to the payment of senior
indebtedness of such subsidiary guarantor. The senior notes have certain covenants that have
restrictions on dividends, distributions, indebtedness, affiliate transactions and lines of
business. F-17




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The Company may redeem the senior notes at any time on or after March 1, 2007, in whole
or in part, at the option of the Company, at the redemption prices set forth below, plus accrued
and unpaid interest, if any, to the redemption date: Years beginningMarch 1,
    
    Percentage2007
    
    105.375%2008
    
    102.688%2009 and thereafter
    
    100.000%
 At any time prior to March 1, 2007, the senior notes may also be redeemed in whole, but not in
part, at the option of the Company upon the occurrence of a Change in Control (as defined in the
Note Indenture) at a redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium (as defined in the Note Indenture) and the accrued and unpaid interest, if any,
to the date of redemption. Upon a Change in Control, holders of the senior notes may require the
Company to purchase all or a portion of the senior notes at a purchase price equal to 101% of their
principal amount plus accrued interest, if any. Before March 1, 2007, up to 35% of the senior notes
may also be redeemed at the option of the Company with the proceeds of one or more equity offerings
of its Parents common stock at a purchase price equal to 110.75% of the principal amount plus
accrued and unpaid interest, if any. In connection with certain asset dispositions, the Company may
be required to use the proceeds from those asset dispositions to make an offer to repurchase the
senior notes at 100% of their principal amount plus accrued and unpaid interest, if any, if the
proceeds are not otherwise used to repay senior secured indebtedness or to repay indebtedness under
the senior credit facility or to invest in assets related to the Companys business. Senior Subordinated Notes On
November 12, 1998, the Company issued $150.0 million in
aggregate principal amount of 93/4%
Senior Subordinated Notes due May 15, 2007, or senior subordinated notes, with interest payable
semi-annually on May 15 and November 15 of each year. The senior subordinated notes were issued at
a discount of 98.0% of par that is being amortized as interest expense over the term of the notes. The senior subordinated notes are general unsecured obligations
and are subordinated in right of payment to all senior indebtedness and senior in right of payment
to any current or future indebtedness of the Company that, by its terms, is subordinated to the
senior subordinated notes. The payment of obligations of each subsidiary guarantor are subordinated
to the payment of senior indebtedness of such subsidiary guarantor. The senior subordinated notes
have certain covenants that have restrictions on dividends, distributions, indebtedness, affiliate
transactions and lines of business. The Company may redeem the senior subordinated notes at any time, in whole or in part, at the
option of the Company, at the redemption prices set forth below, plus accrued and unpaid interest,
if any, to the redemption date: Years beginningMay 15,
    
    Percentage2004
    
    101.625%2005 and thereafter
    
    100.000%
 Senior Preferred Stock (Redeemable) The Company has senior preferred stock consisting of 3,000,000 shares authorized and 1,200,000
shares issued and outstanding with an initial liquidation preference of $25 per share, or $30.0 million for
all shares. The senior preferred stock was recorded on the date of issuance, or October 5, 1995, at
the net proceeds of $17.1 million after deducting $12.9 million paid to the Company for 1,354,478
warrants of Parent, which were issued in connection with the senior preferred stock. Pursuant to
SFAS 150, as of the beginning of fiscal 2004, the senior preferred stock was reclassified to
long-term debt in the Companys accompanying consolidated balance sheet and the related F-18




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) accretion and dividends for fiscal 2004 were recognized as interest expense in the
accompanying consolidated statement of operations. See Note 3. The excess of the initial liquidation preference over the initial carrying value is being
accreted quarterly over a 12-year period that ends September 30, 2007.
Dividends on the senior preferred stock are accrued quarterly at the rate of 14.25% per annum on
the most recent quarterly liquidation value of each share. The Company has not paid dividends in
cash or additional shares of senior preferred stock since the issuance date. Cumulative dividends
that have not been paid as of the end of fiscal 2003 and 2004 were $65.1 million and $79.4 million,
respectively, and are included in the carrying amount of the senior preferred stock in the
accompanying consolidated balance sheets. As of the end of fiscal 2003 and 2004, the cumulative
accretion to redemption value of the senior preferred stock was $8.9 million and $9.9 million,
respectively.
In fiscal 2002, 2003 and 2004, the Company accrued dividends of
$10.8 million, $12.4 million and $14.3 million, respectively, and
recognized accretion of $1.1 million, in each of those fiscal years. The Company may redeem the senior preferred stock, in whole or in part at its option, at
redemption prices per share, as determined by applying the percentage of liquidation value in
effect at the time to the amount subject to redemption, or the carrying value and remaining
accretion. The percentage of liquidation value is determined as follows: Years beginning September 30,
    
    Percentage of liquidation value2004
    
    101.425%2005
    
    100.000%2006 through September 30, 2007
    
    100.000%
 Under the Certificate of Designations, Preferences and Rights for the Companys senior
preferred stock, or the senior preferred stock certificate, the Company shall redeem all
outstanding shares of senior preferred stock on September 30, 2007 at 100% of the liquidation value
at this date, together with accrued and unpaid dividends. As of the end of fiscal 2004, the Company
had outstanding $110.9 million of current redemption value, excluding future dividends, for its
senior preferred stock assuming a scheduled redemption date of September 30, 2007. In the event of a
Change of Control, as defined in the senior preferred stock certificate, the holders of senior
preferred stock have the right to require the Company to redeem such senior preferred stock, in
whole or in part, at a price equal to 101% of liquidation value at the Change of Control date,
together with accrued and unpaid dividends. The senior preferred stock certificate provides that, in the event the Company is unable or
shall fail to discharge its obligation to redeem all outstanding shares of its senior preferred
stock upon a Change of Control or upon reaching September 30, 2007, the dividend rate shall
increase by 0.25% at each quarter or portion thereof following this date until all outstanding
shares have been redeemed, provided that the aggregate increase in the dividend rate shall not
exceed 3%. The terms of the senior preferred stock certificate prohibit (1) the payment of dividends on
securities ranking on parity with or junior to the senior preferred stock; and (2) redemption,
repurchase or acquisition of any junior securities, with certain exceptions, in each case, unless
full cumulative dividends have been paid on the senior preferred stock. Payments to preferred
stockholders are currently prohibited under the Companys senior credit facility. Holders of the senior preferred stock have limited voting rights customary for preferred stock
and the right to elect two directors to the Companys board of directors upon certain events such
as the Company failing to declare and pay dividends on any six consecutive dividend payment dates. Industrial Development Revenue Bonds On March 12, 1997, the Company issued $6.0 million of 7.25% Ottawa County Finance Authority
Industrial F-19




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Development Revenue Bonds, or the Miami Bonds. The Miami Bonds are subject to mandatory
redemption, under certain circumstances, prior to maturity at a redemption price of 110% of the
principal amount thereof, plus accrued and unpaid interest to the redemption date, in varying
principal amounts on June 1 of each year from 2007 through 2017. The Miami Bonds are senior secured
obligations of the Company and effectively rank senior to the Companys unsecured debt to the
extent of the value of the assets that serve as collateral and otherwise rank on a parity in right
of payment with all other senior indebtedness of the Company. On July 24, 1998, the Company issued $9.0 million of 6.25% Oklahoma Development Finance
Authority Industrial Development Revenue Bonds, Series 1998, or the Clinton Bonds, through the
Oklahoma Development Finance Authority. The Clinton Bonds are subject to mandatory redemption prior
to maturity, under certain circumstances, at a redemption price of 105% of the principal amount
thereof, plus accrued and unpaid interest to the redemption date, in varying principal amounts on
July 15 of each year from 2018 through 2023. The Clinton Bonds are senior secured obligations of
the Company and effectively rank senior to the Companys unsecured debt to the extent of the value
of the assets that serve as collateral and otherwise rank on a parity in right of payment with all
other senior indebtedness of the Company. On July 24, 1998, the Clinton Bonds were purchased by the
Companys wholly-owned subsidiary, DPC Investment Corp., which sold the bonds on May 6, 1999 at a
net price of $8.7 million. Debt of Foreign Subsidiaries On June 17, 2004, the Company refinanced its previous FIH (Finansierings Instituttet for
Industri og Handvaerk A/S, a Danish lender) loans, denominated in Euro (), and the majority of its
Danish Krona, or DKK, denominated debt by entering into a new FIH loan, denominated in Euro. As of
the end of fiscal 2004, the outstanding balance on the new FIH loan was 10.5 million ($14.3
million assuming a Euro to U.S. dollar exchange rate of 1.3604). The new FIH loan has a fixed
interest rate of 5.05% for the life of the loan. Principal payments on the new FIH loan are due
quarterly through the final maturity in 2012. The Companys previous Euro-denominated FIH loans had an outstanding balance of 7.8 million
($9.8 million assuming a Euro to U.S. dollar exchange rate of 1.2495) and an interest rate of 5.4%
as of the end of fiscal 2003. The Companys previous DKK-denominated loans had an outstanding
balance of DKK 28.7 million ($4.8 million assuming a DKK to U.S. dollar exchange rate of 5.9579) as
of the end of fiscal 2003 and had interest rates ranging from 4.14% to 7.80% through maturity. Annual Maturities of Long-Term Debt A summary of the annual maturities of long-term debt as of the end of fiscal 2004 follows (in
thousands): Maturities by fiscal year2010 andFinal maturity
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    thereafter
    
    
    TotalTerm loan facility
    
    February 13, 2007
    
    $
    1,950
    
    
    $
    1,950
    
    
    $
    190,613
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    194,513Senior notes
    
    March 1, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211,144
    
    
    
    211,144Senior subordinated notes
    
    May 15, 2007
    
    
    
    
    
    
    
    
    
    
    149,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,147Other
    
    Various
    
    
    1,723
    
    
    
    1,770
    
    
    
    2,213
    
    
    
    2,361
    
    
    
    2,514
    
    
    
    18,378
    
    
    
    28,959$
    3,673
    
    
    $
    3,720
    
    
    $
    341,973
    
    
    $
    2,361
    
    
    $
    2,514
    
    
    $
    229,522
    
    
    $
    583,763Senior preferred stock
    
    September 30, 2007
    
    
    
    
    
    
    
    
    
    
    106,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,421Total
    
    
    
    $
    3,673
    
    
    $
    3,720
    
    
    $
    448,394
    
    
    $
    2,361
    
    
    $
    2,514
    
    
    $
    229,522
    
    
    $
    690,184
 (9) Fair Value of Financial Instruments A summary of the estimated fair value of financial instruments, other than current assets
and liabilities, follows (in thousands): F-20




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) End of fiscal2003
    
    
    2004Book value
    
    

Estimatedfair value
    
    
    Book value
    
    
    Estimatedfair valueLong-term debt:Revolving credit facility
    
    $
    16,000
    
    
    $
    16,000
    
    
    $
    
    
    
    $
    Term loan facilities
    
    
    169,322
    
    
    
    169,766
    
    
    
    194,513
    
    
    
    197,431Senior notes
    
    
    210,779
    
    
    
    219,210
    
    
    
    211,144
    
    
    
    225,924Senior subordinated notes
    
    
    148,789
    
    
    
    133,910
    
    
    
    149,147
    
    
    
    146,910Senior preferred stock
    
    
    
    
    
    
    
    
    
    
    106,421
    
    
    
    106,421Other
    
    
    29,156
    
    
    
    29,156
    
    
    
    28,959
    
    
    
    28,959Total
    
    $
    574,046
    
    
    $
    568,042
    
    
    $
    690,184
    
    
    $
    705,645Commodity derivative instruments
asset (liability):
    
    $
    1,395
    
    
    $
    1,395
    
    
    $
    232
    
    
    $
    232
 The fair value of long-term debt was determined based on the traded market price, where
available, on the date closest to the Companys fiscal year end. The Company considers the carrying
value of its Revolving Credit Facility and other long-term debt to approximate fair value. (10) Common Stock and Warrants of Parent Parents common stock consists of two classes, Class A Common Stock and Class B Common
Stock. The Class A and Class B Common Stock are identical except the Class B Common Stock has no
voting rights. The Class B Common Stock is convertible into shares of Class A Common Stock at any
time at the option of the holder thereof. Each holder of Class A Common Stock is entitled to one
vote for each share of Class A Common Stock held of record on all matters submitted to a vote of
stockholders. The holders of Class A Common Stock do not have cumulative voting rights in the
election of members to the Parents board of directors. The holders of Common Stock have no
preemptive, subscription, redemptive or conversion rights, except that holders of Class B Common
Stock may at their option, convert their shares into Class A Common Stock. Parent issued warrants of Class A Common Stock in connection with the Companys issuance of
senior preferred stock in 1995 and a shareholder loan of the Company in 2001 that has been
subsequently repaid. The holders of these warrants have the right to pay an exercise price of $0.01
for each warrant and within 60 days of making such payment to receive one share of Class A Common
Stock for each warrant exercised. The warrants are considered exercisable upon issuance as no
vesting period exists. As of the end of fiscal 2004, 14,384,519 warrants of Parent were outstanding
and unexercised. (11) Stock Option Plan of Parent Certain employees of the Company are covered under two stock-based employee compensation plans
of the Companys Parent, the 1996 Stock Option Plan and the 1999 Stock Incentive Plan. Under these
plans, each stock option granted allows for the purchase of one share of Parents Class A Common
Stock upon vesting and expires ten years from the date of grant. In connection with the adoption
of the 1999 Stock Incentive Plan, no new grants can be made under the
1996 Stock Option Plan. Substantially all grants have a time-vesting schedule pursuant to which 50% of an individuals stock options vest
two years after the grant date, 25% will vest after the third year, and the remaining 25% will vest
after the fourth year. In fiscal 2001, Parent approved the repricing of certain vested and unvested stock options
under the 1996 Stock Option Plan and the 1999 Stock Incentive Plan. All eligible stock options
that had an exercise price exceeding $2.50 per share were given a new exercise price of $2.50 per
share and the vesting period was restarted. The repricing involved a surrender of 1,516,300
eligible stock options in exchange for the granting of new stock options covering an equivalent
number of shares at $2.50 per share. The repricing triggered a new measurement date for the
awards. Stock options that have been granted subsequent to the repricing in fiscal 2001 have been
issued at an exercise price of $2.57 per share and are accounted for as fixed plan awards. A summary of the activity associated with the
stock option plans follows: Number of
    
    
    Weighted-averageoptions
    
    
    exercise priceOutstanding at end of fiscal 2001
    
    
    3,876,627
    
    
    $
    2.50Granted
    
    
    20,000
    
    
    
    2.50Exercised
    
    
    (7,595
    )
    
    
    2.50Forfeited
    
    
    (85,032
    )
    
    
    2.50Outstanding at end of fiscal 2002
    
    
    3,804,000
    
    
    
    2.50Granted
    
    
    725,000
    
    
    
    2.57Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (333,650
    )
    
    
    2.50Outstanding at end of fiscal 2003
    
    
    4,195,350
    
    
    
    2.51Granted
    
    
    135,000
    
    
    
    2.57Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (591,200
    )
    
    
    2.51Outstanding at end of fiscal 2004
    
    
    3,739,150
    
    
    
    2.51
 F-21




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Under the 1999 Stock Incentive Plan, 4,200,000 shares are authorized for issuance. At the end
of fiscal 2002, 2003 and 2004, Parent had a total number of options exercisable of 352,862,
1,956,273 and 2,303,884, respectively, under its stock option plans. The weighted-average exercise
price of options exercisable was $2.50 in each of fiscal 2002, 2003
and 2004. At the end of fiscal 2004,
Parent had 2,969,150 options outstanding at an exercise price of $2.50 and a weighted-average
remaining contractual life of seven years, and 770,000 options outstanding at an exercise price of
$2.57 and a weighted-average remaining contractual life of nine years under its stock option plans. The Company and its Parent have elected to continue to follow APB 25, as permitted by SFAS
123, to account for fixed stock awards granted to employees. Using the intrinsic value method, the
Company did not recognize any compensation expense in fiscal 2002, 2003 or 2004 related to stock
options. Under SFAS 123, the Company has the option to use the minimum fair value method, which
requires the use of option valuation models, to determine compensation expense related to its stock
awards granted to employees or is otherwise required to make pro forma disclosures on the impact of
using this method on net income (loss) and net income (loss) available to common shares. See the section on
stock-based compensation in Note 1. To determine the required pro forma disclosures, the Company
uses the Black-Scholes Option Pricing Model to estimate the fair value of its employee stock
options. In addition, the Company used the assumptions of a weighted-average risk-free rate of
return of 3.6%, 4.2%, and 4.3% for fiscal 2002, 2003, and 2004, respectively, an expected life
for options outstanding of ten years, and zero volatility. These assumptions yielded a fair value
per share for options granted of $0.83 for fiscal 2002 and a minimal amount for each of fiscal 2003 and 2004. (12) Accumulated Other Comprehensive Income (Loss) A summary of accumulated other comprehensive income (loss) follows (in thousands): Foreign
    
    
    
    
    
    
    Unrealized and
    
    
    Accumulated othercurrency
    
    
    Minimum pension
    
    
    realized gains
    
    
    comprehensivetranslation
    
    
    liability, net
    
    
    (losses), net
    
    
    income (loss)Balances at end of fiscal 2001
    
    $
    (6,317
    )
    
    $
    
    
    
    $
    (1,290
    )
    
    $
    (7,607
    )Other comprehensive income (loss)
    
    
    22,792
    
    
    
    (5,584
    )
    
    
    (43
    )
    
    
    17,165Balances at end of fiscal 2002
    
    
    16,475
    
    
    
    (5,584
    )
    
    
    (1,333
    )
    
    
    9,558Other comprehensive income restated
    
    
    31,021
    
    
    
    569
    
    
    
    1,333
    
    
    
    32,923Balances at end of fiscal 2003 restated
    
    
    47,496
    
    
    
    (5,015
    )
    
    
    
    
    
    
    42,481Other comprehensive income (loss)
    
    
    20,243
    
    
    
    (74
    )
    
    
    
    
    
    
    20,169Balances at end of fiscal 2004
    
    $
    67,739
    
    
    $
    (5,089
    )
    
    $
    
    
    
    $
    62,650
  (13)
    Operating Leases The Company leases certain facilities, machinery and equipment under operating lease
agreements with varying terms and conditions, including
usual and customary renewal and fair value purchase options. A summary of the future annual minimum lease payments
required under these lease commitments as of the end of the fiscal 2004 follows (in thousands): MinimumYears ending
    
    annual payments2005
    
    $
    5,2032006
    
    
    3,0762007
    
    
    2,3662008
    
    
    2,2372009
    
    
    1,4172010 and thereafter
    
    
    3,299
 F-22




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Rent expense was $6.0 million, $7.2 million and $6.4 million in fiscal 2002, 2003 and
2004, respectively. (14) Other Operating Expenses A summary of other operating expenses follows (in thousands): Fiscal2002
    
    
    2003
    
    
    2004Other operating expenses:Transaction
and other costs
    
    $
    1,447
    
    
    $
    
    
    
    $
    333Litigation settlements
    
    
    
    
    
    
    
    
    
    
    (612
    )Restructuring costs:Plant closure costs
    
    
    
    
    
    
    
    
    
    
    3,820Severance
    
    
    
    
    
    
    
    
    
    
    3,157Asset impairments
    
    
    
    
    
    
    7,727
    
    
    
    215Revisions to estimates
    
    
    
    
    
    
    (500
    )
    
    
    65Total restructuring costs
    
    
    
    
    
    
    7,227
    
    
    
    7,257Total other operating expenses
    
    $
    1,447
    
    
    $
    7,227
    
    
    $
    6,978
 Transaction and Other Costs Fiscal
2002 transaction and other costs included $0.8 million related to the write-off of costs for the
Companys postponed senior note offering, which was subsequently completed, and $0.6 million of
expenses related to an abandoned strategic initiative. Litigation Settlements Fiscal 2004 litigation settlements included $0.6 million of income from an arbitration award
and $0.7 million of proceeds received from a lawsuit settlement, partially offset by $0.7 million
paid by the Company to a former vendor as settlement costs. Restructuring Costs Fiscal 2003 restructuring costs consisted of $5.3 million related to the Companys European
restructuring plan, $2.4 million related to a divestiture and $0.5 million of net positive
revisions to estimates of previously accrued restructuring costs. In December 2003, the Company
finalized plans to consolidate its wet pet food operations in Vrä, Denmark into its facility in
Esbjerg, Denmark and its recently expanded facility in Carat, Austria during fiscal 2004. As a result, the Company recorded asset impairments of $5.3 million for the building and
certain equipment from the Vrä, Denmark facility to be disposed of or sold. In January 2004, the
Company divested its 51% interest in Crona, which owns a manufacturing facility in Tver, Russia,
and recorded asset impairments of $2.4 million in the fourth quarter of fiscal 2003 based on an
evaluation of the net assets of this facility. The Companys net positive revisions to estimates of
previously accrued restructuring costs primarily related to plant closures in prior years. Fiscal 2004 restructuring costs consisted of $7.0 million related to the Companys European
restructuring plan and $0.3 million related to domestic plant closures. In fiscal 2004, the Company
expanded its European restructuring plan to include the reorganization of certain European
subsidiaries to more efficiently manage its foreign operations and reduce selling, general and
administrative expenses. The Company recorded $3.2 million of severance costs, $2.5 million of
installation costs for transferred equipment from the Vra, Denmark facility and $1.3 million of
costs for manufacturing inefficiencies during the transition period. The Company completed its
European F-23




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) restructuring plan in the fourth quarter of fiscal 2004. In addition, the Company had
impairment of $0.2 million primarily related to machinery and equipment at a U.S. distribution
facility that was closed during fiscal 2004 and net revisions to estimates of previously accrued
restructuring costs of $0.1 million primarily related to plant closures in prior years. A summary of the activity for the Companys accrued restructuring costs for fiscal 2002, 2003 and 2004
follows (in thousands): Balance at end of fiscal 2001
    
    $
    4,784Cash payments and other
    
    
    (2,032
    )Balance at end of fiscal 2002
    
    
    2,752Revisions to estimates
    
    
    (500
    )Cash payments and other
    
    
    (1,098
    )Balance at end of fiscal 2003
    
    
    1,154Plant closure costs
    
    
    3,820Severance
    
    
    3,157Revisions to estimates
    
    
    65Cash payments and other
    
    
    (7,474
    )Balance at end of fiscal 2004
    
    $
    722
 The future expected payout of the Companys accrued restructuring costs, primarily for
severance, as of the end of fiscal 2004 follows (in thousands): Fiscal years ending2005
    
    $
    6552006
    
    
    67Total
    
    $
    722
 (15) Income Taxes The
restatement of the Companys previously issued fiscal 2003 consolidated financial statements
resulted in no net impact to income tax expense in its fiscal 2003 consolidated statements of
operations and no net impact to the net deferred tax assets in its consolidated balance sheet as of
the end of fiscal 2003. The additional pre-tax income of $9.1 million due to the restatement decreased the Companys U.S. federal NOL carryforwards by
$9.1 million and resulted in a decrease in the deferred tax asset arising from those NOL
carryforwards of $3.5 million, which was fully offset by a $3.5 million reduction in the Companys
U.S. valuation allowance. A summary of income tax expense (benefit) follows (in thousands): F-24




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Fiscal2002
    
    
    2003 restated
    
    
    2004Current:Federal
    
    $
    (625
    )
    
    $
    
    
    
    $
    State and local
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    1,153
    
    
    
    1,395
    
    
    
    709Net current tax expense
    
    
    528
    
    
    
    1,395
    
    
    
    709Deferred:Federal
    
    
    2,603
    
    
    
    19,740
    
    
    
    3,453State and local
    
    
    363
    
    
    
    3,600
    
    
    
    630Foreign
    
    
    (1,708
    )
    
    
    304
    
    
    
    332Net deferred tax expense
    
    
    1,258
    
    
    
    23,644
    
    
    
    4,415Total income tax expense
    
    $
    1,786
    
    
    $
    25,039
    
    
    $
    5,124
 A summary of income (loss) before income taxes by domestic and foreign source follows (in
thousands): Fiscal2002
    
    
    2003 restated
    
    
    2004Domestic
    
    $
    22,404
    
    
    $
    (2,211
    )
    
    $
    (19,095
    )Foreign
    
    
    (5,347
    )
    
    
    (18,125
    )
    
    
    (21,373
    )Total
    
    $
    17,057
    
    
    $
    (20,336
    )
    
    $
    (40,468
    )
 Income tax expense (benefit) differs from the amount computed by applying the U.S. federal
statutory rate of 35% to pre-tax income (loss) as follows (in thousands): Fiscal2002
    
    
    2003 restated
    
    
    2004Computed expected federal tax expense (benefit)
    
    $
    5,970
    
    
    $
    (7,118
    )
    
    $
    (14,164
    )State and local tax expense
    
    
    236
    
    
    
    2,340
    
    
    
    409Foreign tax expense (benefit)
    
    
    (4,462
    )
    
    
    1,271
    
    
    
    382Senior preferred stock
    
    
    
    
    
    
    
    
    
    
    5,379Meals and entertainment, and other
    
    
    42
    
    
    
    84
    
    
    
    59Change in valuation allowance
    
    
    
    
    
    
    28,462
    
    
    
    13,059Total
    
    $
    1,786
    
    
    $
    25,039
    
    
    $
    5,124
 A summary of the income tax effects of temporary differences that give rise to significant
portions of the Companys deferred tax assets and liabilities follows (in thousands): F-25




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) End of fiscal2003 restated
    
    
    2004Current deferred tax assets (liabilities):Accounts receivable
    
    $
    683
    
    
    $
    652Inventories
    
    
    1,255
    
    
    
    1,795Accrued liabilities and other allowances
    
    
    2,860
    
    
    
    5,203Valuation allowance
    
    
    (2,900
    )
    
    
    (5,236
    )Net current deferred tax assets
    
    $
    1,898
    
    
    $
    2,414Noncurrent deferred tax assets (liabilities):Net operating loss carryforwards
    
    $
    46,020
    
    
    $
    55,653Property, plant and equipment
    
    
    (24,393
    )
    
    
    (22,721
    )Goodwill and other assets
    
    
    (22,747
    )
    
    
    (26,634
    )Accumulated other comprehensive income
    
    
    3,194
    
    
    
    3,240Foreign assets
    
    
    14,257
    
    
    
    11,761Foreign liabilities
    
    
    (8,676
    )
    
    
    (5,400
    )Other
    
    
    499
    
    
    
    662Valuation allowance
    
    
    (36,678
    )
    
    
    (50,202
    )Net noncurrent deferred tax liabilities
    
    
    (28,524
    )
    
    
    (33,641
    )Total net deferred tax liabilities
    
    $
    (26,626
    )
    
    $
    (31,227
    )
 At the end of fiscal 2004, the Company had current U.S. federal and
state income tax receivables totaling $0.7 million and a current
foreign income tax payable of $0.8 million.
The Companys gross deferred tax assets, including federal, foreign, state and local net
operating loss, or NOL, carryforwards, were $68.8 million and $79.0 million as of the end of fiscal
2003 and 2004, respectively, and its gross deferred tax liabilities were $55.8 million and $54.8
million, respectively. As of the end of fiscal 2003 and 2004, the Companys federal NOL
carryforwards were $117.4 million and $142.2 million, respectively, and its foreign NOL
carryforwards were $2.2 million and $0.9 million, respectively. The Companys federal and state
NOL carryforwards as of the end of fiscal 2004 resulted in deferred tax assets of $55.7 million,
which are available to offset future taxable income through 2024. The Companys foreign NOL
carryforwards as of the end of fiscal 2004 resulted in deferred tax assets of $0.3 million. In assessing the realizability of the Companys deferred tax assets, management determines
whether it is more likely than not that some portion or all existing deferred tax assets will not
be realized in future periods. If management concludes in the future that it is more likely than
not the Company will not generate sufficient future taxable income to realize a tax benefit for the
deductible temporary differences, the deferred tax assets would be reduced by a valuation allowance
to the amount that is more likely than not to be realized. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax planning strategies
in making this assessment. Primarily due to the magnitude of operating losses in fiscal 2003 and 2004 and the variability
of historical earnings, management has determined the Company no longer meets the more likely than
not recoverability criteria necessary to recognize deferred tax assets, except for those assets
which will be recovered through known reversals of deferred tax liabilities. The Companys
consolidated valuation allowance against its domestic and foreign deferred tax assets was $39.6
million and $55.4 million as of the end of fiscal 2003 and 2004, respectively. During fiscal 2003
and 2004, the Company recognized increases in the valuation allowance of $31.7 million and $14.5
million, respectively, against its U.S. federal and state deferred tax assets. The Company
recognized increases in the valuation allowance against its foreign deferred tax assets of $7.3
million and $1.3 million in fiscal 2003 and 2004, respectively. The $1.3 million increase in
foreign valuation allowance in fiscal 2004 includes a
$6.3 million reduction of a previously recorded
valuation allowance due to the elimination of a deferred tax asset from a tax law change in one of
the foreign jurisdictions in which the Company operates. F-26




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Cumulative undistributed earnings of the Companys foreign operations were $18.2 million
and $19.1 million as of the end of fiscal 2003 and 2004, respectively. These earnings are
considered indefinitely reinvested and, accordingly, no deferred taxes have been recognized. A
deferred tax liability will be recognized when the Company is no longer able to demonstrate that it
plans to permanently reinvest undistributed earnings. Determination of the amount of unrecognized
deferred tax liability is not practical because of complexities in tax laws and assumptions
associated with its calculation. In December 2004, the FASB issued Staff Position 109-2, Accounting and Disclosure Guidance for
the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004, or FSP
109-2. The American Jobs Creation Act of 2004, or the Act, creates a temporary incentive for U.S.
companies to repatriate accumulated foreign earnings by providing an 85% dividends received
deduction for certain dividends from foreign subsidiaries. Due to limitations of the deduction and
uncertainty on how to interpret the numerous provisions in the Act, FSP 109-2 allows companies to
delay decisions regarding its plan for reinvestment or repatriation of foreign earnings. As such,
the Company has not decided on whether, and to what extent, it might repatriate foreign earnings
that have not yet been remitted to the United States. (16) Employee Benefit Plans Pension and Postretirement Plans The Company has a defined benefit,
non-contributory inactive pension plan which was frozen on May 28,
1998. As a result, future benefits no longer accumulate and the Company no longer incurs service
cost related to the plan. The Companys funding policy for this inactive plan is to make the
minimum annual contribution required by applicable regulations. The Companys only active pension
plan covered 42 union employees at one of its facilities as of the end of fiscal 2004. The Company also has a
postretirement healthcare plan that provides medical coverage for eligible retirees and their
dependents. The Company pays benefits under this plan when due and does not fund its plan
obligations as they accrue; therefore, there are no plan assets. The Company uses a December
31 measurement date for its pension and postretirement plans. A summary of the benefit obligations and funded status for the Companys pension and
postretirement plans follows (in thousands): F-27




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Pension benefits
    
    
    Postretirement benefits2003
    
    
    2004
    
    
    2003
    
    
    2004Change in benefit obligation:Benefit obligation, beginning of year
    
    $
    16,485
    
    
    $
    17,262
    
    
    $
    5,038
    
    
    $
    5,014Service cost
    
    
    29
    
    
    
    34
    
    
    
    19
    
    
    
    11Interest cost
    
    
    1,072
    
    
    
    1,049
    
    
    
    313
    
    
    
    259Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    168
    
    
    
    182Benefits paid
    
    
    (1,273
    )
    
    
    (1,247
    )
    
    
    (605
    )
    
    
    (424
    )Actuarial loss
    
    
    848
    
    
    
    1,078
    
    
    
    225
    
    
    
    385Amendments
    
    
    101
    
    
    
    30
    
    
    
    (144
    )
    
    
    (1,410
    )Benefit obligation, end of year
    
    
    17,262
    
    
    
    18,206
    
    
    
    5,014
    
    
    
    4,017Change in plan assets:Fair value of plan assets, beginning of year
    
    
    15,406
    
    
    
    16,562
    
    
    
    
    
    
    
    Employer contributions
    
    
    140
    
    
    
    83
    
    
    
    437
    
    
    
    242Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    168
    
    
    
    182Actual return on plan assets
    
    
    2,289
    
    
    
    1,625
    
    
    
    
    
    
    
    Benefits paid
    
    
    (1,273
    )
    
    
    (1,247
    )
    
    
    (605
    )
    
    
    (424
    )Fair value of plan assets, end of year
    
    
    16,562
    
    
    
    17,023
    
    
    
    
    
    
    
    Funded status
    
    
    (700
    )
    
    
    (1,183
    )
    
    
    (5,014
    )
    
    
    (4,017
    )Unrecognized net loss
    
    
    8,209
    
    
    
    8,328
    
    
    
    1,662
    
    
    
    1,905Unrecognized prior service cost
    
    
    173
    
    
    
    192
    
    
    
    (383
    )
    
    
    (1,605
    )Unrecognized transition obligation
    
    
    53
    
    
    
    49
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    7,735
    
    
    $
    7,386
    
    
    $
    (3,735
    )
    
    $
    (3,717
    )
 The Company uses alternative methods to amortize unrecognized prior service cost and
unrecognized net (gain) loss associated with its pension and
postretirement plans. Under the pension plans, unrecognized prior service cost is
amortized using the straight-line method and unrecognized net (gain) loss is amortized over the
average remaining life of active participants to the extent that this average exceeds 10% of the
greater of the benefit obligation or the fair value of the
plans assets. Under the postretirement plan, unrecognized prior
service cost and unrecognized net (gain) loss are amortized using the
straight-line method. A summary of the amounts recognized in the accompanying consolidated balance sheets follows
(in thousands): Pension benefits
    
    
    Postretirement benefits2003
    
    
    2004
    
    
    2003
    
    
    2004Accrued benefit costs
    
    $
    (700
    )
    
    $
    (1,183
    )
    
    $
    (3,735
    )
    
    $
    (3,717
    )Intangible asset
    
    
    226
    
    
    
    241
    
    
    
    
    
    
    
    Accumulated other comprehensive loss
    
    
    8,209
    
    
    
    8,328
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    7,735
    
    
    $
    7,386
    
    
    $
    (3,735
    )
    
    $
    (3,717
    )
 A summary of the pension plans benefit obligation in excess of the fair value of plan assets
as of the end of the year follows (in thousands): F-28




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Pension benefits2003
    
    
    2004Projected benefit obligation
    
    $
    17,262
    
    
    $
    18,206Accumulated benefit obligation
    
    
    17,262
    
    
    
    18,206Fair value of plan assets
    
    
    16,562
    
    
    
    17,023
 A summary of the weighted-average assumptions used to determine benefit obligations as of the
end of the year follows: Pension benefits
    
    
    Postretirement benefits2003
    
    
    2004
    
    
    2003
    
    
    2004Discount rate
    
    
    6.25
    %
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 A summary of the net periodic (benefit) cost follows (in thousands): Pension benefits
    
    
    Postretirement benefits2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    

2004Service cost
    
    $
    20
    
    
    $
    29
    
    
    $
    34
    
    
    $
    15
    
    
    $
    19
    
    
    
    11Interest cost
    
    
    1,104
    
    
    
    1,072
    
    
    
    1,049
    
    
    
    308
    
    
    
    313
    
    
    
    259Expected return on plan assets
    
    
    (1,494
    )
    
    
    (1,246
    )
    
    
    (1,336
    )
    
    
    
    
    
    
    
    
    
    
    Recognition of actuarial loss
    
    
    291
    
    
    
    736
    
    
    
    670
    
    
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    9
    
    
    
    13
    
    
    
    15
    
    
    
    (10
    )
    
    
    26
    
    
    
    (46
    )Net periodic (benefit) cost
    
    $
    (70
    )
    
    $
    604
    
    
    $
    432
    
    
    $
    313
    
    
    $
    358
    
    
    $
    224Increase (decrease) in minimum
pension liability included in
other comprehensive income
    
    $
    9,140
    
    
    $
    (931
    )
    
    $
    119
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 A summary of the weighted-average assumptions used by the Company to determine net periodic
(benefit) cost follows: Pension benefits
    
    
    Postretirement benefits2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004Discount rate
    
    
    7.60
    %
    
    
    6.75
    %
    
    
    6.25
    %
    
    
    7.60
    %
    
    
    6.75
    %
    
    
    6.25
    %Expected long-term rate of
return on plan assets
    
    
    8.45
    %
    
    
    8.42
    %
    
    
    8.41
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 The Companys weighted-average asset allocations by asset category for its pension plans as of
the end of the year follows: F-29




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Target asset
    
    
    Percentage of plan assetsallocation
    
    
    2003
    
    
    2004Asset categories:Equity securities
    
    
    40-70
    %
    
    
    65
    %
    
    
    69
    %Debt securities
    
    
    25-40
    %
    
    
    34
    %
    
    
    30
    %Other
    
    
    0-5
    %
    
    
    1
    %
    
    
    1
    %Total
    
    
    
    
    
    
    100
    %
    
    
    100
    %
 The expected long-term rate of return for the Companys pension plan assets is based on
current expected long-term inflation and historical rates of return on equities and fixed income
securities, taking into account the investment policy under the plan. The expected long-term rate
of return is weighted based on the target allocation for each asset category. Equity securities
are expected to return between 10% and 11% and debt securities are expected to return between 4%
and 7%. The Company expects its pension plan asset managers will provide a premium of
approximately 0.5% to 1.0% per annum to the respective market benchmark indices. The Companys investment policy related to its pension plans is to provide for growth of
capital with a moderate level of volatility by investing in accordance with the target asset
allocations stated above. The Company reviews its investment policy, including its target asset
allocations, on a semi-annual basis to determine whether any changes in market conditions or
amendments to its pension plans require a revision to its investment policy. A summary of the healthcare cost trend rate assumptions used by the Company to determine
postretirement benefit obligations as of the end of the year follows: 2003
    
    
    2004Healthcare cost trend rate assumed for next year
    
    
    12.50
    %
    
    
    8.50
    %Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
    
    
    4.50
    %
    
    
    4.50
    %Year that the rate reaches the ultimate trend rate
    
    
    2008
    
    
    
    2008
 Assumed healthcare cost trend rates have a significant effect on the amounts reported for the
Companys postretirement plan. A one percentage point change in assumed healthcare cost trend
rates would have the following impact (in thousands): 2002
    
    
    2003
    
    
    2004One percentage point
    
    
    One percentage point
    
    
    One percentage pointIncrease
    
    
    Decrease
    
    
    Increase
    
    
    Decrease
    
    
    Increase
    
    
    DecreaseImpact on service and interest costs
    
    $
    34
    
    
    $
    (29
    )
    
    $
    36
    
    
    $
    (30
    )
    
    $
    23
    
    
    $
    (20
    )Impact on postretirement benefit
obligation
    
    
    430
    
    
    
    (371
    )
    
    
    530
    
    
    
    (443
    )
    
    
    364
    
    
    
    (317
    )
 The
Company expects to contribute $0.1 million to its active pension plan and $0.3 million to
its postretirement plan in fiscal 2005. In addition, the Company expects that
employee contributions to its postretirement plan will approximate
$0.2 million in fiscal 2005. The estimated future benefit payments reflecting future service as of the end of 2004 for the
Companys pension and postretirement plans follows (in thousands): F-30




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Pension
    
    
    PostretirementYears ending
    
    benefits
    
    
    benefits2005
    
    $
    1,175
    
    
    $
    3162006
    
    
    1,160
    
    
    
    3312007
    
    
    1,138
    
    
    
    3452008
    
    
    1,116
    
    
    
    3612009
    
    
    1,110
    
    
    
    3612010 - 2014
    
    
    5,514
    
    
    
    1,651
 Defined Contribution Plans The Company has a defined contribution plan called the Doane Pet Care Retirement Savings Plan
which was adopted on January 1, 2000 and was formed through the merger of two predecessor plans.
The merged plan was amended and restated and is intended to be a qualified plan under the Internal
Revenue Code. The plan provides coverage for eligible employees and permits employee contributions
from 1% to 60% of pre-tax earnings, subject to annual dollar limits set by the IRS. The Company
matches 50% of the first 6% of the employee contribution with a provision for other contributions
at the discretion of the board of directors of the Company. Participant vesting for the employers
matching contributions are 25% per year for each of the first four years of an employees service.
Thereafter, all employer contributions are fully vested. The Company contributed $1.0 million to
the Doane Pet Care Retirement Savings Plan in each of fiscal 2002, 2003 and 2004. The Company also has a plan called the Doane Pet Care Savings and Investment Plan  Union Plan
which was adopted on June 1, 1998 and covers eligible union employees at the Joplin, Missouri and
Muscatine, Iowa facilities. This plan is intended to be a qualified retirement plan under the
Internal Revenue Code. The plan permits employee contributions between 1% and 60% of pre-tax
earnings, subject to annual dollar limits set by the IRS, and provides for a variety of investment
options. The Company does not contribute to this plan.  (17)
    Salary Continuation and Deferred Compensation Agreements The Company has salary continuation agreements with 19 persons as of the end of fiscal
2004. Under these agreements, participants who reach age 55 and have 10 years of service with the
Company begin vesting in their benefits, which are payable in 10 equal annual installments after
retirement. The salary continuation agreements also include a death benefit such that in the event
of a participants death, the beneficiary would receive an annual death benefit over the longer of
10 years or the number of years from the year of death to the year in which the participant would
have reached age 65. In addition, the Company has a deferred
compensation agreement with a former employee that provides for
payments over 10 consecutive years, of which four years and two
months remain as of the end of fiscal 2004.
The Company had an expected future liability equal to the present value of future payments under
its salary continuation and deferred compensation agreement of $2.6 million and $2.5 million as of
the end of fiscal 2003 and 2004, respectively, which is recognized in other long-term liabilities
in the accompanying consolidated balance sheets. F-31




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (18) Segment Data The Company has manufacturing and distribution facilities in two distinct

geographical markets, North America and Europe. Its operations in both of these markets have
similar manufacturing and distribution processes, products, services and customer types as well as
similar economic characteristics. Long-lived assets of the Company are attributed to individual
countries on the basis of where these assets are domiciled. The Companys net sales are attributed
to individual countries on the basis of where its products are manufactured. A
summary of long-lived assets and net sales by geographical segment follows (in thousands): End of fiscal2003
    
    
    2004Long-lived assets:North America:United States
    
    $
    424,477
    
    
    $
    415,073Europe:Denmark
    
    
    181,753
    
    
    
    188,309Spain
    
    
    33,472
    
    
    
    38,354United Kingdom
    
    
    7,173
    
    
    
    6,805Total Europe
    
    
    222,398
    
    
    
    233,468Total long-lived assets
    
    $
    646,875
    
    
    $
    648,541
 Fiscal2002
    
    
    2003
    
    
    2004Net sales:North America:United States
    
    $
    692,237
    
    
    $
    758,459
    
    
    $
    763,226Europe:Denmark
    
    
    151,354
    
    
    
    201,827
    
    
    
    207,946Spain
    
    
    33,676
    
    
    
    38,897
    
    
    
    61,593United Kingdom
    
    
    10,066
    
    
    
    14,682
    
    
    
    18,476Total Europe
    
    
    195,096
    
    
    
    255,406
    
    
    
    288,015Total net sales
    
    $
    887,333
    
    
    $
    1,013,865
    
    
    $
    1,051,241
 See Note 25 for condensed financial statements of the Companys guarantor subsidiaries, which
comprise its North American geographical segment and non-guarantor subsidiaries, which comprise its
European geographical segment. (19) Major Customer In fiscal 2002, 2003 and 2004, the same customer accounted for 44%, 42% and 43%,
respectively, of the Companys net sales in the accompanying consolidated statements of operations.
The Company does not have a long-term contract with this customer. Trade accounts receivable with
this customer were 24% and 35% of consolidated accounts receivable, net, in the accompanying consolidated balance
sheets as of the end of fiscal 2003 and 2004, respectively. The loss of this customer, or a
significant decrease or change in business with this customer, would have a material adverse impact on the
Companys financial position, results of operations and liquidity. (20) Supplemental Cash Flow Information Supplemental cash flow information for fiscal 2002, 2003 and 2004 follows (in thousands): F-32




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Fiscal2002
    
    
    2003
    
    
    2004Cash paid during the year:Interest
    
    $
    48,226
    
    
    $
    55,584
    
    
    $
    52,630Income taxes
    
    
    236
    
    
    
    1,447
    
    
    
    985Schedule of non-cash investing and financing activities:Unrealized gain (loss) on interest rate derivatives
    
    
    2,347
    
    
    
    (2,182
    )
    
    
    Unrealized gain (loss) on foreign currency derivatives
    
    
    625
    
    
    
    
    
    
    
    Foreign currency translation on Euro-denominated debt
designated as hedge of net investment in Europe
    
    
    (11,553
    )
    
    
    (7,491
    )
    
    
    (1,215
    )
 (21) Related Party Transactions J.P. Morgan Partners (BHCA), L.P., or JPMP, and one of its affiliates own shares of senior
preferred stock of the Company and common stock and warrants of Parent. JPMP is a party to the
investors agreement, and in accordance with that agreement, designated two individuals to the
boards of directors of the Company and Parent. JPMP is an affiliate of JP Morgan Chase Bank (JPM).
JPM and its affiliates have received payments of fees for various investment banking and
commercial banking services, as described below, that were provided to the Company and Parent.
Such fees totaled $0.5 million, $2.1 million and $0.5 million in fiscal 2002, 2003 and 2004,
respectively. DLJ Merchant Banking Partners, L.P., or DLJMBP, and certain of its affiliates own shares of
common stock and warrants of Parent. DLJMBP and certain affiliates are parties to the investors
agreement, and in accordance with that agreement, designated one individual to the boards of
directors of the Company and Parent. DLJMBP is an affiliate of Credit Suisse First Boston LLC., or
CSFB. CSFB and its affiliates have received payments of fees for various investment banking and
commercial banking services, as described below, that were provided to the Company and Parent.
Such fees totaled $3.3 million and $5.2 million in fiscal 2003 and 2004, respectively. No fees
were paid to CSFB in fiscal 2002. CSFB and an affiliate of JPM were joint book-running managers in the Companys offering of
93/4% senior notes. Affiliates of JPMP were holders of $16.9 million of promissory notes under a
shareholder loan that were fully repaid with a portion of the net proceeds from the sale of the
93/4% senior notes. JPM served as the administrative agent and a lender under the Companys
previous senior credit facility. An affiliate of CSFB was the syndication agent and a lender under
the previous senior credit facility. An affiliate of CSFB is the sole administrative agent,
book-runner and lead arranger under the Companys new senior credit facility. In addition to promissory notes under the shareholder loan that were held by JPMP and related
persons, as discussed above, affiliates of other persons known to the Company to beneficially own
more than 5% of the common stock of Parent also held promissory notes under the shareholder loan.
Bruckmann, Rosser, Sherrill & Co., L.P. received $7.5 million, Summit Capital Inc. received $2.3
million and PNC Capital Corp. received $1.2 million of the net proceeds from the sale of the 93/4%
senior notes. In addition, certain executive officers of the Company each received $0.1 million
from the repayment of their promissory notes under the shareholder loan in connection with the sale
of the 93/4% senior notes. (22) Commitments and Contingencies The Company is a party, in the ordinary course of business, to claims and litigation. In
managements opinion, the resolution of such matters is not expected to have a material impact on
the future financial condition, results of F-33




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued) operations or cash flows of the Company. In
the first quarter of fiscal 2005, the Company received
$3.2 million related to litigation settlements. The
Company will recognize this income as other operating income in
its consolidated financial statements for the first quarter of fiscal
2005. (23) Quarterly Financial Data (Unaudited) A
summary of quarterly results for fiscal 2003 and 2004 and a reconciliation of the previously reported and
restated amounts for fiscal 2003 follows (in thousands): First quarter fiscal 2003Previouslyreported
    
    
    Adjustment
    
    
    RestatedNet sales
    
    $
    259,949
    
    
    $
    
    
    
    $
    259,949Gross profit
    
    
    45,360
    
    
    
    
    
    
    
    45,360Net loss
    
    
    (7,874
    )
    
    
    7,823
    
    
    
    (51
    )Net loss available to common shares
    
    
    (11,089
    )
    
    
    7,823
    
    
    
    (3,266
    )
 Second quarter fiscal 2003Previouslyreported
    
    
    Adjustment
    
    
    RestatedNet sales
    
    $
    234,476
    
    
    $
    
    
    
    $
    234,476Gross profit
    
    
    38,509
    
    
    
    
    
    
    
    38,509Net loss
    
    
    (3,404
    )
    
    
    190
    
    
    
    (3,214
    )Net loss available to common shares
    
    
    (6,723
    )
    
    
    190
    
    
    
    (6,533
    )
 Third quarter fiscal 2003Previouslyreported
    
    
    Adjustment
    
    
    RestatedNet sales
    
    $
    243,810
    
    
    $
    
    
    
    $
    243,810Gross profit
    
    
    36,840
    
    
    
    
    
    
    
    36,840Net loss
    
    
    (10,636
    )
    
    
    898
    
    
    
    (9,738
    )Net loss available to common shares
    
    
    (14,064
    )
    
    
    898
    
    
    
    (13,166
    )
 Fourth quarter fiscal 2003Previouslyreported
    
    
    Adjustment
    
    
    RestatedNet sales
    
    $
    275,630
    
    
    $
    
    
    
    $
    275,630Gross profit
    
    
    41,578
    
    
    
    
    
    
    
    41,578Net loss
    
    
    (32,516
    )
    
    
    144
    
    
    
    (32,372
    )Net loss available to common shares
    
    
    (36,056
    )
    
    
    144
    
    
    
    (35,912
    )
 F-34




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Fiscal 2004First
    
    
    Second
    
    
    Third
    
    
    Fourthquarter
    
    
    quarter
    
    
    quarter
    
    
    quarterNet sales
    
    $
    270,880
    
    
    $
    258,338
    
    
    $
    250,977
    
    
    $
    271,046Gross profit
    
    
    40,818
    
    
    
    33,137
    
    
    
    32,812
    
    
    
    48,283Net loss
    
    
    (7,807
    )
    
    
    (17,737
    )
    
    
    (15,225
    )
    
    
    (4,823
    )Net loss available to common shares
    
    
    (7,807
    )
    
    
    (17,737
    )
    
    
    (15,225
    )
    
    
    (4,823
    )
 (24) Other Supplemental Information A
summary of activity in the Companys valuation allowances for accounts receivable follows (in
thousands): BeginningFiscal
    
    balances
    
    
    Provisions
    
    
    Write-offs
    
    
    Ending balances2002
    
    $
    7,604
    
    
    $
    4,251
    
    
    $
    (7,830
    )
    
    $
    4,0252003
    
    
    4,025
    
    
    
    3,655
    
    
    
    (5,642
    )
    
    
    2,0382004
    
    
    2,038
    
    
    
    3,033
    
    
    
    (2,329
    )
    
    
    2,742
 (25) Financial Information Related to Guarantor Subsidiaries The Companys guarantor
subsidiaries are wholly-owned domestic subsidiaries who have jointly and
severally guaranteed on a full and unconditional basis all of the Companys senior notes and senior
subordinated notes. The guarantor subsidiaries are minor subsidiaries of the Companys domestic
operations that have no material operations of their own; and therefore, no separate information
for these subsidiaries is presented. The financial information presented below in the guarantor
columns is substantially that of the Company, excluding its European operations. The financial information presented below in the
non-guarantor
columns consist of the Companys non-guarantor
subsidiaries, which are its wholly-owned European subsidiaries. See Note 8. Condensed
consolidated financial information follows (in thousands, except
share and par value amounts): F-35




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONDENSED CONSOLIDATED BALANCE SHEET End of fiscal 2003 restatedNon-
    
    
    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
    
    
    214,437
    
    
    
    104,219
    
    
    
    
    
    
    
    318,656Trademarks
    
    
    53,343
    
    
    
    8,419
    
    
    
    
    
    
    
    61,762Other 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
    
    
    38,570
    
    
    
    11,798
    
    
    
    
    
    
    
    50,368Total current liabilities
    
    
    99,528
    
    
    
    64,537
    
    
    
    
    
    
    
    164,065Long-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
    
    
    684,972
    
    
    
    232,151
    
    
    
    (154,810
    )
    
    
    762,313Senior Preferred Stock (Redeemable), 3,000,000
shares authorized, 1,200,000 shares issued and
outstanding, $97,801 current redemption value
    
    
    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)
    
    
    (23,266
    )
    
    
    64,772
    
    
    
    975
    
    
    
    42,481Accumulated deficit
    
    
    (84,387
    )
    
    
    (41,219
    )
    
    
    
    
    
    
    (125,606
    )Total stockholders equity
    
    
    8,021
    
    
    
    90,593
    
    
    
    (66,065
    )
    
    
    32,549Total liabilities and stockholders equity
    
    $
    784,045
    
    
    $
    322,744
    
    
    $
    (220,875
    )
    
    $
    885,914
 F-36




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONDENSED CONSOLIDATED BALANCE SHEET End of fiscal 2004Non-
    
    
    IntercompanyGuarantor
    
    
    guarantor
    
    
    eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,963
    
    
    $
    3,884
    
    
    $
    
    
    
    $
    28,847Accounts receivable, net
    
    
    48,660
    
    
    
    63,785
    
    
    
    
    
    
    
    112,445Inventories, net
    
    
    39,406
    
    
    
    28,915
    
    
    
    
    
    
    
    68,321Deferred tax assets
    
    
    2,414
    
    
    
    
    
    
    
    
    
    
    
    2,414Prepaid expenses and other current assets
    
    
    6,128
    
    
    
    910
    
    
    
    
    
    
    
    7,038Total current assets
    
    
    121,571
    
    
    
    97,494
    
    
    
    
    
    
    
    219,065Property, plant and equipment, net
    
    
    147,293
    
    
    
    110,777
    
    
    
    
    
    
    
    258,070Goodwill
    
    
    214,437
    
    
    
    113,517
    
    
    
    
    
    
    
    327,954Trademarks
    
    
    53,343
    
    
    
    9,174
    
    
    
    
    
    
    
    62,517Other assets
    
    
    267,224
    
    
    
    14,436
    
    
    
    (247,360
    )
    
    
    34,300Total assets
    
    $
    803,868
    
    
    $
    345,398
    
    
    $
    (247,360
    )
    
    $
    901,906LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    1,950
    
    
    $
    1,723
    
    
    $
    
    
    
    $
    3,673Accounts payable
    
    
    52,131
    
    
    
    50,018
    
    
    
    
    
    
    
    102,149Accrued liabilities
    
    
    46,623
    
    
    
    12,616
    
    
    
    
    
    
    
    59,239Total current liabilities
    
    
    100,704
    
    
    
    64,357
    
    
    
    
    
    
    
    165,061Long-term debt, excluding current maturities
    
    
    567,347
    
    
    
    165,574
    
    
    
    (152,831
    )
    
    
    580,090Senior Preferred Stock (Redeemable), 3,000,000
shares authorized, 1,200,000 shares issued and
outstanding, $110,942 current redemption value
    
    
    106,421
    
    
    
    
    
    
    
    
    
    
    
    106,421Total long-term debt
    
    
    673,768
    
    
    
    165,574
    
    
    
    (152,831
    )
    
    
    686,511Deferred tax liabilities
    
    
    30,714
    
    
    
    2,927
    
    
    
    
    
    
    
    33,641Other long-term liabilities
    
    
    9,567
    
    
    
    
    
    
    
    
    
    
    
    9,567Total liabilities
    
    
    814,753
    
    
    
    232,858
    
    
    
    (152,831
    )
    
    
    894,780Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 1,000 shares
authorized, issued and outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    115,674
    
    
    
    95,861
    
    
    
    (95,861
    )
    
    
    115,674Accumulated other comprehensive income (loss)
    
    
    (24,555
    )
    
    
    85,873
    
    
    
    1,332
    
    
    
    62,650Accumulated deficit
    
    
    (102,004
    )
    
    
    (69,194
    )
    
    
    
    
    
    
    (171,198
    )Total stockholders equity
    
    
    (10,885
    )
    
    
    112,540
    
    
    
    (94,529
    )
    
    
    7,126Total liabilities and stockholders equity
    
    $
    803,868
    
    
    $
    345,398
    
    
    $
    (247,360
    )
    
    $
    901,906
 F-37




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Fiscal 2002Non-Guarantor
    
    
    guarantor
    
    
    ConsolidatedNet sales
    
    $
    692,237
    
    
    $
    195,096
    
    
    $
    887,333Cost of goods sold
    
    
    556,967
    
    
    
    144,451
    
    
    
    701,418Gross profit
    
    
    135,270
    
    
    
    50,645
    
    
    
    185,915Operating expenses:Promotion and distribution
    
    
    31,493
    
    
    
    20,952
    
    
    
    52,445Selling, general and administrative
    
    
    34,609
    
    
    
    14,103
    
    
    
    48,712Amortization
    
    
    3,903
    
    
    
    680
    
    
    
    4,583Other operating expenses
    
    
    1,447
    
    
    
    
    
    
    
    1,447Income from operations
    
    
    63,818
    
    
    
    14,910
    
    
    
    78,728Interest expense, net
    
    
    42,558
    
    
    
    19,837
    
    
    
    62,395Other expense (income), net
    
    
    (1,144
    )
    
    
    420
    
    
    
    (724
    )Income (loss) before income taxes
    
    
    22,404
    
    
    
    (5,347
    )
    
    
    17,057Income tax expense (benefit)
    
    
    2,341
    
    
    
    (555
    )
    
    
    1,786Net income (loss)
    
    
    20,063
    
    
    
    (4,792
    )
    
    
    15,271Senior preferred stock dividends and accretion
    
    
    (11,878
    )
    
    
    
    
    
    
    (11,878
    )Net income (loss) available to common shares
    
    $
    8,185
    
    
    $
    (4,792
    )
    
    $
    3,393
 F-38




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Fiscal 2003 restatedNon-Guarantor
    
    
    guarantor
    
    
    ConsolidatedNet sales
    
    $
    758,459
    
    
    $
    255,406
    
    
    $
    1,013,865Cost of goods sold
    
    
    653,367
    
    
    
    198,211
    
    
    
    851,578Gross profit
    
    
    105,092
    
    
    
    57,195
    
    
    
    162,287Operating expenses:Promotion and distribution
    
    
    29,642
    
    
    
    27,974
    
    
    
    57,616Selling, general and administrative
    
    
    35,074
    
    
    
    16,941
    
    
    
    52,015Amortization
    
    
    4,229
    
    
    
    760
    
    
    
    4,989Other operating expenses
    
    
    (500
    )
    
    
    7,727
    
    
    
    7,227Income from operations
    
    
    36,647
    
    
    
    3,793
    
    
    
    40,440Interest expense, net
    
    
    35,748
    
    
    
    21,746
    
    
    
    57,494Debt extinguishments
    
    
    4,438
    
    
    
    
    
    
    
    4,438Other expense (income), net
    
    
    (1,328
    )
    
    
    172
    
    
    
    (1,156
    )Loss before income taxes
    
    
    (2,211
    )
    
    
    (18,125
    )
    
    
    (20,336
    )Income tax expense
    
    
    23,340
    
    
    
    1,699
    
    
    
    25,039Net loss
    
    
    (25,551
    )
    
    
    (19,824
    )
    
    
    (45,375
    )Senior preferred stock dividends and accretion
    
    
    (13,502
    )
    
    
    
    
    
    
    (13,502
    )Net loss available to common shares
    
    $
    (39,053
    )
    
    $
    (19,824
    )
    
    $
    (58,877
    )
 F-39




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Fiscal 2004Non-Guarantor
    
    
    guarantor
    
    
    ConsolidatedNet sales
    
    $
    763,226
    
    
    $
    288,015
    
    
    $
    1,051,241Cost of goods sold
    
    
    667,231
    
    
    
    228,960
    
    
    
    896,191Gross profit
    
    
    95,995
    
    
    
    59,055
    
    
    
    155,050Operating expenses:Promotion and distribution
    
    
    25,878
    
    
    
    30,927
    
    
    
    56,805Selling, general and administrative
    
    
    35,839
    
    
    
    16,022
    
    
    
    51,861Amortization
    
    
    3,487
    
    
    
    826
    
    
    
    4,313Other operating expenses
    
    
    17
    
    
    
    6,961
    
    
    
    6,978Income from operations
    
    
    30,774
    
    
    
    4,319
    
    
    
    35,093Interest expense, net
    
    
    47,830
    
    
    
    25,011
    
    
    
    72,841Debt extinguishment
    
    
    4,137
    
    
    
    
    
    
    
    4,137Other expense (income), net
    
    
    (2,098
    )
    
    
    681
    
    
    
    (1,417
    )Loss before income taxes
    
    
    (19,095
    )
    
    
    (21,373
    )
    
    
    (40,468
    )Income tax expense
    
    
    4,083
    
    
    
    1,041
    
    
    
    5,124Net loss
    
    $
    (23,178
    )
    
    $
    (22,414
    )
    
    $
    (45,592
    )
 F-40




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Fiscal 2002Non-Guarantor
    
    
    guarantor
    
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    20,063
    
    
    $
    (4,792
    )
    
    $
    15,271Items not requiring (providing) cash:Depreciation and amortization
    
    
    20,202
    
    
    
    11,962
    
    
    
    32,164Deferred tax expense (benefit)
    
    
    2,966
    
    
    
    (1,708
    )
    
    
    1,258Other non-cash charges (income), net
    
    
    16,740
    
    
    
    (35
    )
    
    
    16,705Changes in current assets and liabilities
    
    
    (1,089
    )
    
    
    14,464
    
    
    
    13,375Net cash provided by operating activities
    
    
    58,882
    
    
    
    19,891
    
    
    
    78,773Cash flows from investing activities:Capital expenditures
    
    
    (14,858
    )
    
    
    (9,490
    )
    
    
    (24,348
    )Proceeds from sale of assets
    
    
    314
    
    
    
    1,452
    
    
    
    1,766Other, net
    
    
    2,502
    
    
    
    (5,822
    )
    
    
    (3,320
    )Net cash used in investing activities
    
    
    (12,042
    )
    
    
    (13,860
    )
    
    
    (25,902
    )Cash flows from financing activities:Net repayments under revolving credit agreement
    
    
    (23,000
    )
    
    
    
    
    
    
    (23,000
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    9,738
    
    
    
    9,738Principal payments on long-term debt
    
    
    (23,436
    )
    
    
    (12,736
    )
    
    
    (36,172
    )Payments for debt issuance costs
    
    
    (2,316
    )
    
    
    
    
    
    
    (2,316
    )Parent capital contribution
    
    
    19
    
    
    
    
    
    
    
    19Net cash used in financing activities
    
    
    (48,733
    )
    
    
    (2,998
    )
    
    
    (51,731
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    424
    
    
    
    424Increase (decrease) in cash and cash equivalents
    
    
    (1,893
    )
    
    
    3,457
    
    
    
    1,564Cash and cash equivalents, beginning of year
    
    
    1,950
    
    
    
    4,082
    
    
    
    6,032Cash and cash equivalents, end of year
    
    $
    57
    
    
    $
    7,539
    
    
    $
    7,596
 F-41




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Fiscal 2003 restatedNon-Guarantor
    
    
    guarantor
    
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (25,551
    )
    
    $
    (19,824
    )
    
    $
    (45,375
    )Items not requiring (providing) cash:Depreciation and amortization
    
    
    22,607
    
    
    
    14,554
    
    
    
    37,161Deferred tax expense
    
    
    23,340
    
    
    
    304
    
    
    
    23,644Debt extinguishments
    
    
    4,438
    
    
    
    
    
    
    
    4,438Asset impairments
    
    
    
    
    
    
    7,727
    
    
    
    7,727Other non-cash charges (income), net
    
    
    4,633
    
    
    
    (715
    )
    
    
    3,918Changes in current assets and liabilities
    
    
    8,244
    
    
    
    15,906
    
    
    
    24,150Net cash provided by operating activities
    
    
    37,711
    
    
    
    17,952
    
    
    
    55,663Cash flows from investing activities:Capital expenditures
    
    
    (15,653
    )
    
    
    (12,409
    )
    
    
    (28,062
    )Proceeds from sale of assets
    
    
    1,150
    
    
    
    228
    
    
    
    1,378Other, net
    
    
    3,083
    
    
    
    (6,584
    )
    
    
    (3,501
    )Net cash used in investing activities
    
    
    (11,420
    )
    
    
    (18,765
    )
    
    
    (30,185
    )Cash flows from financing activities:Net borrowings under revolving credit agreement
    
    
    1,000
    
    
    
    
    
    
    
    1,000Proceeds from issuance of long-term debt
    
    
    210,444
    
    
    
    
    
    
    
    210,444Principal payments on long-term debt
    
    
    (204,092
    )
    
    
    (4,163
    )
    
    
    (208,255
    )Payments for debt issuance costs
    
    
    (7,761
    )
    
    
    
    
    
    
    (7,761
    )Net cash used in financing activities
    
    
    (409
    )
    
    
    (4,163
    )
    
    
    (4,572
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    791
    
    
    
    791Increase (decrease) in cash and cash equivalents
    
    
    25,882
    
    
    
    (4,185
    )
    
    
    21,697Cash and cash equivalents, beginning of year
    
    
    57
    
    
    
    7,539
    
    
    
    7,596Cash and cash equivalents, end of year
    
    $
    25,939
    
    
    $
    3,354
    
    
    $
    29,293
 F-42




---



##### Table of Contents



DOANE PET CARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Fiscal 2004Non-Guarantor
    
    
    guarantor
    
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (23,178
    )
    
    $
    (22,414
    )
    
    $
    (45,592
    )Items not requiring (providing) cash:Depreciation and amortization
    
    
    23,422
    
    
    
    16,934
    
    
    
    40,356Deferred tax expense
    
    
    4,083
    
    
    
    332
    
    
    
    4,415Debt extinguishment
    
    
    4,137
    
    
    
    
    
    
    
    4,137Asset impairments
    
    
    215
    
    
    
    
    
    
    
    215Other non-cash charges (income), net
    
    
    20,427
    
    
    
    (720
    )
    
    
    19,707Changes in current assets and liabilities
    
    
    (20,226
    )
    
    
    18,275
    
    
    
    (1,951
    )Net cash provided by operating activities
    
    
    8,880
    
    
    
    12,407
    
    
    
    21,287Cash flows from investing activities:Capital expenditures
    
    
    (10,181
    )
    
    
    (8,675
    )
    
    
    (18,856
    )Proceeds from sale of assets
    
    
    457
    
    
    
    408
    
    
    
    865Other, net
    
    
    273
    
    
    
    (2,336
    )
    
    
    (2,063
    )Net cash used in investing activities
    
    
    (9,451
    )
    
    
    (10,603
    )
    
    
    (20,054
    )Cash flows from financing activities:Net repayments under revolving credit agreement
    
    
    (16,000
    )
    
    
    
    
    
    
    (16,000
    )Proceeds from issuance of long-term debt
    
    
    195,000
    
    
    
    13,078
    
    
    
    208,078Principal payments on long-term debt
    
    
    (171,024
    )
    
    
    (14,502
    )
    
    
    (185,526
    )Payments for debt issuance costs
    
    
    (8,381
    )
    
    
    
    
    
    
    (8,381
    )Net cash used in financing activities
    
    
    (405
    )
    
    
    (1,424
    )
    
    
    (1,829
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    150
    
    
    
    150Increase (decrease) in cash and cash equivalents
    
    
    (976
    )
    
    
    530
    
    
    
    (446
    )Cash and cash equivalents, beginning of year
    
    
    25,939
    
    
    
    3,354
    
    
    
    29,293Cash and cash equivalents, end of year
    
    $
    24,963
    
    
    $
    3,884
    
    
    $
    28,847
 F-43




---



##### Table of Contents



INDEX TO EXHIBITS Exhibitnumber
    
    
    
    Description3.1
    
    
    
    Certificate of Incorporation of Doane Pet Care Company
(incorporated by reference to Exhibit 3.1 to Doane Pet Care
Companys Registration Statement on Form S-1, Reg. No.
33-98110 (the Form S-1))3.2
    
    
    
    Certificate of Designations, Preferences and Rights of
14.25% Senior Exchangeable Preferred Stock due 2007 dated
October 4, 1995 (incorporated by reference to Exhibit 3.2 to
Doane Pet Care Companys Annual Report on Form 10-K for the
year ended December 29, 2001 (the 2001 Form 10-K))3.3
    
    
    
    Certificate of Amendment to Certificate of
Incorporation of Doane Pet Care Company dated February 4, 1998
(incorporated by reference to Exhibit 3.1 to Doane Pet Care
Companys Annual Report on Form 10-K for the year ended
December 31, 1997 (the 1997 Form 10-K))3.4
    
    
    
    Certificate of Amendment of Certificate of
Incorporation of Doane Pet Care Company dated November 10,
1998 (incorporated by reference to Exhibit 3.4 to the 2001
Form 10-K)3.5
    
    
    
    Certificate of Amendment of Certificate of
Designations, Preferences and Rights of 14.25% Senior
Exchangeable Preferred Stock due 2007 dated November 11, 1998
(incorporated by reference to Exhibit 3.5 to the 2001 Form
10-K)3.6
    
    
    
    Amended and Restated Bylaws of Doane Pet Care Company
(incorporated by reference to Exhibit 3.6 to the 2001 Form
10-K)4.1
    
    
    
    Indenture dated November 12, 1998 between Doane Pet
Care Company and Wilmington Trust Company (incorporated by
reference to Exhibit 10.12 of Doane Pet Care Enterprises,
Inc.s Registration Statement on Form S-1, Reg. No. 333-61027
(Enterprises Form S-1))4.2
    
    
    
    Registration Agreement among Doane Pet Care Company,
Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc. dated November 12, 1998 (incorporated by
reference to Exhibit 4.2 to Doane Pet Care Companys
Registration Statement on Form S-4, Reg. No. 333-70759 (the
Form S-4))4.3
    
    
    
    Indenture dated February 28, 2003 between Doane Pet Care
Company and Wilmington Trust Company (incorporated by
reference to Exhibit 4.3 to Doane Pet Care Companys Annual
Report on Form 10-K for the year ended December 28, 2002 (the
2002 Form 10-K))4.4
    
    
    
    Registration Rights Agreement dated as of February 28,
2003 between Doane Pet Care Company, DPC Investment Corp.,
Doane/Windy Hill Joint Venture L.L.C., Credit Suisse First
Boston LLP and J.P. Morgan Securities Inc. (incorporated by
reference to Exhibit 4.4 to the 2002 Form 10-K)9.1
    
    
    
    Second Amended and Restated Investors Agreement dated
as of March 26, 2001 among Doane Pet Care Company, Doane Pet
Care Enterprises, Inc., Summit Capital Inc., Summit/DPC
Partners Inc., J. P. Morgan Partners (BHCA), L.P., Baseball
Partners, DLJ Merchant Banking Partners, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners, C.V., DLJ
Merchant Banking Funding, Inc., DLJ First ESC, L.P.,
Bruckmann, Rosser, Sherrill & Co., L.P., PNC Capital Corp.,
and certain other persons named therein (incorporated by
reference to Exhibit 9.1 to Doane Pet Care Companys Annual
Report on Form 10-K/A for the year ended December 30, 2000
(the 2000 Form 10-K/A)) i




---



##### Table of Contents



INDEX TO EXHIBITS Exhibitnumber
    
    
    
    Description10.1
    
    
    
    Employment Agreement dated January 1, 1998, between
Doane Pet Care Company and Douglas J. Cahill (incorporated by
reference to Exhibit 10.3 to the 1997 Form 10-K)10.2
    
    
    
    Change in Control Severance Agreement dated April 22, 2004, between Doane Pet Care Company and
Douglas J. Cahill
(incorporated by reference to Exhibit 10.2 to Doane Pet Care Companys
Quarterly Report on Form 10-Q for the quarterly period ended July 3, 2004)10.3
    
    
    
    Employment Agreement dated February 15, 1999, between
Doane Pet Care Company and Philip K. Woodlief (incorporated by
reference to Exhibit 10.14 to Enterprises Form S-1)10.4
    
    
    
    First Amendment to Employment Agreement dated as of January
1, 2001, between Doane Pet Care Company and Philip K. Woodlief
(incorporated by reference to Exhibit 10.4 to the 2000 Form
10-K/A)10.5
    
    
    
    Change in Control Severance Agreement dated April 22, 2004, between Doane Pet Care Company and
Philip K. Woodlief
(incorporated by reference to Exhibit 10.5 to Doane Pet Care Companys
Quarterly Report on Form 10-Q for the quarterly period ended July 3, 2004)10.6
    
    
    
    Employment Agreement dated January 1, 1998, between
Doane Pet Care Company and David L. Horton (incorporated by
reference to Exhibit 10.6 to the Form S-4)10.7
    
    
    
    First Amendment to Employment Agreement dated as of
January 1, 2001, between Doane Pet Care Company and David L.
Horton (incorporated by reference to Exhibit 10.6 to the 2000
Form 10-K/A)10.8
    
    
    
    Change in Control Severance Agreement dated April 22, 2004, between Doane Pet Care Company and
David L. Horton
(incorporated by reference to Exhibit 10.3 to Doane Pet Care Companys
Quarterly Report on Form 10-Q for the quarterly period ended July 3, 2004)10.9
    
    
    
    Employment Agreement dated August 17, 1998 between
Doane Pet Care Company and Joseph J. Meyers (incorporated by
reference to Exhibit 10.7 to the 2000 Form 10-K/A)10.10
    
    
    
    First Amendment to Employment Agreement dated as of
January 1, 2001, between Doane Pet Care Company and Joseph J.
Meyers (incorporated by reference to Exhibit 10.8 to the 2000
Form 10-K/A)10.11
    
    
    
    Change in Control Severance Agreement dated April 22, 2004, between Doane Pet Care Company and
Joseph J. Meyers
(incorporated by reference to Exhibit 10.4 to Doane Pet Care Companys
Quarterly Report on Form 10-Q for the quarterly period ended July 3, 2004)*10.12
    
    
    
    Employment Agreement dated August
31, 2004, between
Doane Pet Care Company and Kenneth H. Koch*10.13
    
    
    
    Form of Non-Qualified Salary Continuation Agreement for the Named Executive Officers10.14
    
    
    
    Doane Pet Care Enterprises Inc.s, 1996 Stock Option
Plan (incorporated by reference to Exhibit 10.7 to Doane Pet
Care Companys Annual Report on Form 10-K for the year ended
December 31, 1996)10.15
    
    
    
    First Amendment to Doane Pet Care Enterprises, Inc.s
1996 Stock Option Plan (incorporated by reference to Exhibit
10.8 to the 1997 Form 10-K)10.16
    
    
    
    Second Amendment to Doane Pet Care Enterprises,
Inc.s, 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.9 to the 1997 Form 10-K)10.17
    
    
    
    Doane Pet Care Enterprises, Inc.s 1999 Stock
Incentive Plan (incorporated by reference to Exhibit 10.10 to
Doane Pet Care Companys Annual Report on Form 10-K for the
fiscal year ended January 1, 2000)10.18
    
    
    
    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
(incorporated by reference to Exhibit 10.1 to Doane Pet Care
Companys Quarterly Report on Form 10-Q for the quarterly
period ended October 2, 2004)
 ii




---



##### Table of Contents



INDEX TO EXHIBITS Exhibitnumber
    
    
    
    Description10.19
    
    
    
    Loan and Warrant Agreement dated as of March 26,
2001 among Doane Pet Care Enterprises, Inc., Doane Pet Care
Company and each of the lenders named therein (incorporated by
reference to Exhibit 10.15 to the 2000 Form 10-K/A)*21.1
    
    
    
    List of Subsidiaries of Doane Pet Care Company*23.1
    
    
    
    Consent of Independent Registered Public Accounting
Firm*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.  Management contracts or compensatory plans or arrangements. iii