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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
|X|* QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
|_| 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 333-64641
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Phibro Animal Health Corporation
(Exact name of registrant as specified in its charter)
New York 13-1840497
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Parker Plaza, Fort Lee, New Jersey 07024
(Address of principal executive offices) (Zip Code)
(201) 944-6020
(Registrant's telephone number, including area code)
---------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| * No |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes | | No |X|
Number of shares of each class of common stock outstanding as of September 30,
2003:
Class A Common Stock, $.10 par value: 12,600.00
Class B Common Stock, $.10 par value: 11,888.50
* By virtue of Section 15(d) of the Securities Act of 1934, the Registrant is
not subject to such filing requirements and not required to file this
Quarterly Report, but has provided all such reports as if so required
during the preceding 12 months.
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PHIBRO ANIMAL HEALTH CORPORATION
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION (UNAUDITED)
Item 1. Condensed Consolidated Financial Statements............... 3
Condensed Consolidated Balance Sheets..................... 4
Condensed Consolidated Statements of Operations
and Comprehensive Income................................ 5
Condensed Consolidated Statements of Changes in
Stockholders' Deficit................................... 6
Condensed Consolidated Statements of Cash Flows........... 7
Notes to Condensed Consolidated Financial Statements...... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 23
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................. 31
Item 4. Controls and Procedures................................... 31
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 32
SIGNATURES ................................................................. 33
2
This Form 10-Q contains "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. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed in the
Company's Annual Report on Form 10-K for its fiscal year ended June 30, 2003
and/or throughout this Form 10-Q and in particular in Item 2 of Part I of this
Form 10-Q under the caption "Certain Factors Affecting Future Operating
Results." Unless the context otherwise requires, references in this report to
the "Company" or to "we" or "our" refers to Phibro Animal Health Corporation
and/or one or more of its subsidiaries, as applicable.
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
3
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
September 30 June 30,
2003 2003
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26,917 $ 11,179
Trade receivables, less allowance for doubtful
accounts of $1,466 at September 30, 2003 and
$1,445 at June 30, 2003 54,324 55,671
Other receivables 4,541 3,642
Inventories 94,389 88,767
Prepaid expenses and other current assets 9,117 10,188
Current assets from discontinued operations -- 4,942
--------- ---------
TOTAL CURRENT ASSETS 189,288 174,389
PROPERTY, PLANT AND EQUIPMENT, net 65,317 66,440
INTANGIBLES 8,080 8,669
OTHER ASSETS 13,531 14,199
OTHER ASSETS FROM DISCONTINUED OPERATIONS -- 10,650
--------- ---------
$ 276,216 $ 274,347
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdraft $ 2,417 $ 1,686
Loans payable to banks 38,750 38,914
Current portion of long-term debt 23,828 24,124
Accounts payable 59,235 56,915
Accrued expenses and other current liabilities 48,965 41,609
Current liabilities from discontinued operations -- 2,051
--------- ---------
TOTAL CURRENT LIABILITIES 173,195 165,299
LONG-TERM DEBT 102,880 102,391
OTHER LIABILITIES 15,057 22,088
OTHER LIABILITIES FROM DISCONTINUED OPERATIONS -- 198
--------- ---------
TOTAL LIABILITIES 291,132 289,976
--------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SECURITIES:
Series B and C preferred stock 69,868 68,881
--------- ---------
STOCKHOLDERS' DEFICIT:
Series A preferred stock 521 521
Common stock 2 2
Paid-in capital 860 860
Accumulated deficit (79,221) (79,489)
Accumulated other comprehensive income (loss):
Gain on derivative instruments 398 81
Cumulative currency translation adjustment (7,344) (6,485)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (84,784) (84,510)
--------- ---------
$ 276,216 $ 274,347
========= =========
See notes to unaudited Condensed Consolidated Financial Statements
4
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended September 30, 2003 and 2002
(In Thousands)
2003 2002
-------- --------
NET SALES $ 87,170 $ 86,282
COST OF GOODS SOLD 66,006 64,134
-------- --------
GROSS PROFIT 21,164 22,148
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 16,161 15,850
-------- --------
OPERATING INCOME 5,003 6,298
OTHER:
Interest expense 3,949 4,504
Interest (income) (242) (126)
Other (income) expense, net (635) 1,186
-------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,931 734
PROVISION FOR INCOME TAXES 783 432
-------- --------
INCOME FROM CONTINUING OPERATIONS 1,148 302
DISCONTINUED OPERATIONS:
(Loss) from discontinued operations
(net of income taxes) (124) (459)
Gain on disposal of discontinued operations
(net of income taxes) 231 --
-------- --------
NET INCOME (LOSS) 1,255 (157)
OTHER COMPREHENSIVE INCOME (LOSS):
Derivative instruments 317 (1,083)
Currency translation adjustment (859) (2,827)
-------- --------
COMPREHENSIVE INCOME (LOSS) $ 713 $ (4,067)
======== ========
See notes to unaudited Condensed Consolidated Financial Statements
5
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
For the Three Months Ended September 30, 2003 and 2002
(In Thousands)
Common Accumulated
Preferred Stock Other
Stock -------------------- Paid-in Accumulated Comprehensive
Series A Class A Class B Capital Deficit Income (Loss) Total
-------- ------- ------- ------- ------- ------------- -----
Balance, June 30, 2003 $ 521 $ 1 $ 1 $ 860 $(79,489) $ (6,404) $(84,510)
Dividends on Series B and C
redeemable preferred stock (2,453) (2,453)
Equity value accreted on
Series B and C redeemable
preferred stock 1,466 1,466
Derivative instruments 317 317
Foreign currency translation
adjustment (859) (859)
Net income 1,255 1,255
-------- -------- -------- -------- -------- -------- --------
Balance, September 30, 2003 $ 521 $ 1 $ 1 $ 860 $(79,221) $ (6,946) $(84,784)
======== ======== ======== ======== ======== ======== ========
See notes to unaudited Condensed Consolidated Financial Statements
6
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended September 30, 2003 and 2002
(In Thousands)
2003 2002
-------- --------
OPERATING ACTIVITIES:
Net income (loss) $ 1,255 $ (157)
-------- -------
Adjustment for discontinued operations (107) 459
-------- -------
Income from continuing operations 1,148 302
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 3,268 3,256
Deferred income taxes 53 373
Unrealized foreign currency (gains) losses and other (1,262) 1,225
Changes in operating assets and liabilities:
Accounts receivable 2,136 3,380
Inventories (4,932) (2,890)
Prepaid expenses and other current assets (41) 550
Other assets (375) (63)
Accounts payable (5,775) 9,899
Accrued expenses and other liabilities 7,469 5,100
Cash provided (used) by discontinued operations (421) 2,442
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,268 23,574
-------- -------
INVESTING ACTIVITIES:
Capital expenditures (891) (2,681)
Proceeds from sale of assets 12 6
Discontinued operations 14,088 (1,022)
-------- -------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 13,209 (3,697)
-------- -------
FINANCING ACTIVITIES:
Cash overdraft 731 (5,800)
Net (decrease) in short-term debt (188) (10,387)
Proceeds from long-term debt 1,500 -
Payments of long-term debt (950) (1,468)
-------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,093 (17,655)
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 168 12
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15,738 2,234
CASH AND CASH EQUIVALENTS at beginning of period 11,179 6,419
-------- -------
CASH AND CASH EQUIVALENTS at end of period $ 26,917 $ 8,653
======== =======
See notes to unaudited Condensed Consolidated Financial Statements
7
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
1. General
Principles of Consolidation and Basis of Presentation
In the opinion of Phibro Animal Health Corporation ("PAHC"), the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly its financial position as of September 30, 2003 and its results
of operations and cash flows for the three months ended September 30, 2003 and
2002. PAHC and/or its subsidiaries are referred to as the "Company".
The condensed consolidated balance sheet as of June 30, 2003 was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles in the United States. Additionally,
it should be noted that the accompanying condensed consolidated financial
statements and notes thereto have been prepared in accordance with accounting
standards appropriate for interim financial statements. While the Company
believes that the disclosures presented are adequate to make the information
contained herein not misleading, it is suggested that these financial statements
be read in conjunction with the Company's audited consolidated financial
statements for the year ended June 30, 2003.
The Company's Odda, Carbide, and MRT businesses have been classified as
discontinued operations, as discussed in Note 5. These footnotes present
information only for continuing operations, unless otherwise indicated.
The results of operations for the three months ended September 30, 2003 may
not be indicative of results for the full year.
New Accounting Pronouncements
The Company adopted the following new accounting pronouncements in fiscal
2004:
Statement of Financial Accounting Standards No. 149, "Amendment of SFAS No.
133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No.
149 amends and clarifies accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. The adoption of SFAS No. 149 did not
result in a material impact on the Company's financial statements.
Statement of Financial Accounting Standards No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS No. 150"). SFAS No. 150 requires that an issuer classify a
financial instrument, that is within its scope, as a liability (or an asset in
some circumstances). SFAS No. 150 also revises the definition of liabilities to
encompass certain obligations that can, or must, be settled by issuing equity
shares, depending on the nature of the relationship established between the
holder and the issuer. The adoption of SFAS No. 150 did not result in an impact
on the Company's financial statements.
2. Risks and Uncertainties
The use of antibiotics in medicated feed additives is a subject of
legislative and regulatory interest. The issue of potential for increased
bacterial resistance to certain antibiotics used in certain food-producing
animals is the subject of discussions on a worldwide basis and, in certain
instances, has led to government restrictions on the use of antibiotics in
food-producing animals. The sale of feed additives containing antibiotics is a
material portion of the Company's business. Should regulatory or other
developments result in further restrictions on the sale of such products, it
could have a material adverse impact on the Company's financial position,
results of operations and cash flows.
The testing, manufacturing, and marketing of certain products are subject
to extensive regulation by numerous government authorities in the United States
and other countries.
The Company has significant assets located outside of the United States,
and a significant portion of the Company's sales and earnings are attributable
to operations conducted abroad.
8
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
The Company has assets located in Israel and a portion of its sales and
earnings are attributable to operations conducted in Israel. The Company is
affected by social, political and economic conditions affecting Israel, and any
major hostilities involving Israel as well as the Middle East or curtailment of
trade between Israel and its current trading partners, either as a result of
hostilities or otherwise, could have a material adverse effect on the Company.
The Company's operations, properties and subsidiaries are subject to a wide
variety of complex and stringent federal, state, local and foreign environmental
laws and regulations, including those governing the use, storage, handling,
generation, treatment, emission, release, discharge and disposal of certain
materials and wastes, the remediation of contaminated soil and groundwater, the
manufacture, sale and use of pesticides and the health and safety of employees.
As such, the nature of the Company's current and former operations and those of
its subsidiaries exposes the Company and its subsidiaries to the risk of claims
with respect to such matters.
3. Refinancing
On October 21, 2003 the Company issued 105,000 units consisting of $85,000
of 13% Senior Secured Notes due 2007 of PAHC (the "US Senior Notes") and $20,000
13% Senior Secured Notes due 2007 of Philipp Brothers Netherlands III B.V. (the
"Dutch Senior Notes" and, together with the US Senior Notes, the "Senior Secured
Notes"), an indirect wholly-owned subsidiary of PAHC (the "Dutch issuer"). The
Company used the proceeds from the issuance to: (i) repurchase $51,971 of its 9
7/8% Senior Subordinated Notes due 2008 at a price equal to 60% of the principal
amount thereof, plus accrued and unpaid interest; (ii) repay its senior credit
facility of $34,888 outstanding at the repayment date; (iii) satisfy, for a
payment of approximately $29,315, certain of its outstanding obligations to
Pfizer Inc., including: (a) $20,075 aggregate principal amount of its promissory
note plus accrued and unpaid interest; (b) $9,681 of accounts payable, (c)
$9,257 of accrued expenses; and (d) future contingent purchase price obligations
under its agreements with Pfizer by which the Company acquired Pfizer's
medicated feed additive business, and; (iv) pay fees and expenses relating to
the above transactions.
The US Senior Notes and the Dutch Senior Notes are senior secured
obligations of each of PAHC and the Dutch issuer, respectively. The US Senior
Notes and the Dutch Senior Notes are guaranteed on a senior secured basis by all
PAHC's domestic restricted subsidiaries, and the Dutch Senior Notes are
guaranteed on a senior secured basis by PAHC and by the restricted subsidiaries
of the Dutch issuer, including Phibro Animal Health (Belgium) SPRL. The US
Senior Notes and related guarantees are secured by substantially all of PAHC's
assets and the assets of its domestic restricted subsidiaries, other than real
property and interests therein. The Dutch Senior Notes and related guarantees
are secured by a pledge of all the accounts receivable, a security interest or
floating charge on the inventory to the extent permitted by applicable law, a
mortgage on substantially all of the real property, of the Dutch issuer and each
of its restricted subsidiaries, a pledge of 100% of the capital stock of each
subsidiary of the Dutch issuer, a pledge of the intercompany loans made by the
Dutch issuer to its restricted subsidiaries and substantially all of the assets
of the U.S. guarantors, other than real property and interests therein. The
indenture governing the Senior Secured Notes provides for optional make-whole
redemptions at any time prior to June 1, 2005, optional redemption on or after
June 1, 2005, and requires the Company to make certain offers to purchase Senior
Secured Notes upon a change of control, upon certain asset sales and from fifty
percent (50%) of excess cash flow (as such terms are defined in the indenture).
Also, on October 21, 2003, the Company entered into a new replacement
domestic senior working capital credit facility with Wells Fargo Foothill, Inc.,
providing for a working capital line plus a letter of credit facility. The
aggregate amount of borrowings under such working capital and letter of credit
facilities may not exceed $25,000, and the aggregate amount of borrowings under
the working capital facility may not exceed $15,000.
Borrowings under the replacement domestic senior credit facility are
subject to a borrowing base formula based on percentages of eligible domestic
receivables and domestic inventory. Under the replacement credit facility, the
Company may choose between two interest rate options: (i) the applicable base
rate as defined plus 0.50% and (ii) the LIBOR rate as defined plus 2.75%.
Indebtedness under the replacement credit facility is secured by a first
priority lien on substantially all of the Company's assets and assets of
substantially all of the Company's domestic subsidiaries. The Company is
required to pay an unused line fee of 0.375% on the unused portion of the
replacement credit facility, a
9
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
monthly servicing fee and standard letter of credit fees to issuing banks.
Borrowings under the replacement credit facility are available until, and are
repayable no later than, October 31, 2007, although borrowings must be repaid by
June 30, 2007 if the maturity of the Senior Secured Notes has not been extended,
as required by the credit facility, by that date.
Pursuant to the terms of an intercreditor agreement, the security interest
securing the Senior Secured Notes and the guarantees made by the Company's
domestic restricted subsidiaries are subordinated to a lien securing the
replacement domestic senior credit facility.
The Company believes that, through the refinancings referred to above, the
liquidity issues mentioned in the Company's June 30, 2003 consolidated financial
statements have been resolved. The Company's replaced senior bank credit
facility and its note payable to Pfizer were to mature in November 2003 and
March 2004, respectively. The effect of the above refinancing transactions will
be included in the December 31, 2003 financial statements.
The Company's ability to fund its operating plan relies upon its ability to
continue to successfully implement its efforts to improve its overall liquidity
(through cost reduction activities, working capital improvement plans, shutdown
of unprofitable operations and sale of certain business operations and other
assets) and the continued availability of borrowings under its replacement
senior working capital facility. The Company believes that it will be able to
comply with the terms of its covenants under the replacement senior credit
facility based on its forecasted operating plan. In the event of adverse
operating results and/or violation of covenants under this facility, there can
be no assurance that the Company would be able to obtain waivers or consents on
favorable terms, if at all.
The Company intends to sell the assets and business of its subsidiary, The
Prince Manufacturing Company ("PMC"), to Palladium Equity Partners II, LP and
certain of its affiliates (the "Palladium Investors"). The material elements of
the transactions relating to this sale include: (i) the transfer of ownership to
the Palladium Investors of PMC's assets; (ii) the reduction of the preferred
stock of the Palladium Investors from $69,868 (as of September 30, 2003) to
$15,200 (as of September 30, 2003); (iii) the termination of any obligation of
the Company or any subsidiaries of the Company in respect of the $2,250 annual
management advisory fee; (iv) a separate cash payment to the Palladium Investors
of $10,000 (derived from the recent sale of the Company's subsidiary, Mineral
Resource Technologies, Inc. ("MRT"); (v) payments by PMC to the Company for
central support services for the next three years of $1,000, $500 and $200,
respectively; and (vi) supply arrangements between the Company and PMC with
respect to manganous oxide and red iron oxide. The PMC transactions are subject
to definitive documentation that is expected to include customary
representations, warranties and indemnities of the Company, provisions for
working capital adjustments and settlement of intercompany accounts, a closing
fee payable to Palladium and the agreement of the Company to pay or reimburse
the Palladium Investors for their reasonable out-of-pocket transaction expenses.
The economic terms set forth above are subject to the terms upon which
intercompany accounts would be settled, the amount of minimum working capital of
PMC to be agreed upon and the amount of the closing fee payable to Palladium.
The Company also expects that it will establish a $1,000 escrow or other credit
support for two years to secure its net working capital and indemnification
obligations, and indemnify the Palladium Investors, payable after the maturity
of the Company's Senior Subordinated Notes due 2008, for a portion, at the rate
of $0.65 for every dollar, of the amount they receive in respect of the
disposition of the PMC business less than $21,000, up to a maximum payment by
the Company of $4,000. Under the indenture for the Senior Secured Notes, the
transaction must be completed on or before December 31, 2003.
10
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
4. Inventories
Inventories are valued at the lower of cost or market. Cost is determined
principally under the first-in, first-out (FIFO) and average methods; however
certain of the Company's subsidiaries use the last-in, first-out (LIFO) method
of valuing inventories. Obsolete and unsaleable inventories are reflected at
estimated net realizable value. Inventory costs include materials, direct labor
and manufacturing overhead. Inventories consisted of the following as of:
September 30, 2003 June 30, 2003
------------------ -------------
Raw materials $ 24,415 $ 22,277
Work-in-process 2,198 1,765
Finished goods 68,408 65,357
Excess of FIFO cost over LIFO cost (632) (632)
-------- --------
Total inventory $ 94,389 $ 88,767
======== ========
5. Intangibles
Product intangibles cost arising from the MFA acquisition was $10,449 at
September 30, 2003 and June 30, 2003 and accumulated amortization was $2,369 and
$1,780 at September 30, 2003 and June 30, 2003, respectively. Amortization
expense was $304 and $320 for the three month periods ended September 30, 2003
and 2002, respectively. Amortization expense from the MFA acquisition for each
of the next five years from 2004 to 2008 will be $1,045 per year.
6. Discontinued Operations
The Company shutdown Odda Smelteverk (Norway) ("Odda") and divested Carbide
Industries (U.K.) ("Carbide"), during the 2003 fiscal year, and sold Mineral
Resource Technologies, Inc. ("MRT") in August 2003. These businesses have been
classified as discontinued operations. The Company's consolidated financial
statements have been reclassified to report separately the operating results,
financial position, and cash flows of the discontinued operations.
Odda and Carbide:
Operating results of Odda and Carbide were:
Three Months Ended
September 30, 2002
------------------
OPERATING RESULTS:
Net sales $ 4,905
Cost of goods sold 6,037
Selling, general and administrative expenses 1,077
Other income 1,496
-------
Loss before income taxes (713)
Provision for income taxes 15
-------
Loss from discontinued operations $ (728)
=======
Depreciation and amortization $ 372
=======
11
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
Mineral Resource Technologies, Inc. ("MRT"):
The Company sold MRT on August 28, 2003 for net proceeds, after transaction
costs, of approximately $13,836, subject to certain post-closing adjustments and
escrow requirements. Based upon its assessment of likely outcomes, the Company
does not anticipate a material effect from post-closing adjustments. Operating
results and gain on sale of MRT were:
Three Months Ended September 30,
--------------------------------
2003 2002
------- -------
OPERATING RESULTS:
Net sales $ 3,327 $ 5,854
Cost of goods sold 3,135 5,066
Selling, general and administrative expenses 316 519
------- -------
Income (loss) before income taxes (124) 269
Provision for income taxes -- --
------- -------
Income (loss) from discontinued operations $ (124) $ 269
======= =======
Depreciation and amortization $ -- $ 309
======= =======
Three Months Ended
GAIN ON SALE: September 30, 2003
------------------
Current assets $ 5,813
Net property, plant & equipment and other assets 10,703
Current liabilities (2,511)
Other liabilities (400)
Net proceeds of sale (13,836)
--------
(Gain) on sale $ (231)
========
12
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
7. Contingencies
(a) Litigation:
On or about April 17, 1997, CP Chemicals, Inc. (a subsidiary, "CP") and the
Company were served with a complaint filed by Chevron U.S.A. Inc. ("Chevron") in
the United States District Court for the District of New Jersey, alleging that
the operations of CP at its Sewaren plant affected adjoining property owned by
Chevron and alleging that the Company, as the parent of CP, is also responsible
to Chevron. In July 2002, a phased settlement agreement was reached and a
Consent Order entered by the Court. That settlement is in the process of being
implemented. The Company's and CP's portion of the settlement for past costs and
expenses through the entry of the Consent Order was $495 and was included in
selling, general and administrative expenses in fiscal 2002 and was paid in
fiscal 2003. The Consent Order then provides for a period of due diligence
investigation of the property owned by Chevron. The investigation has been
conducted and the results are under review. The investigation costs are being
split with one other defendant, Vulcan Materials Company. Upon completion of the
review of the results of the investigation, a decision will be made whether to
opt out of the settlement or proceed. If no party opts out of the settlement,
the Company and CP will take title to the adjoining Chevron property, probably
through the use of a three-member New Jersey limited liability company. The
third member of the limited liability company will be Vulcan Materials Company.
The Company also has commenced negotiations with Chevron regarding its
allocation of responsibility and associated costs under the Consent Order. While
the costs cannot be estimated with any degree of certainty at this time, the
Company believes that insurance recoveries will be available to offset some of
those costs.
The Company's Phibro-Tech subsidiary was named in 1993 as a potentially
responsible party ("PRP") in connection with an action commenced under the
Federal Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") by the United States Environmental Protection Agency ("the EPA"),
involving a former third-party fertilizer manufacturing site in Jericho, South
Carolina. An agreement has been reached under which such subsidiary agreed to
contribute up to $900 of which $635 has been paid as of June 30, 2003. Some
recovery from insurance and other sources is expected. The Company also has
accrued its best estimate of any future costs.
Phibro-Tech, Inc. has resolved certain alleged technical permit violations
with the California Department of Toxic Substances Control and has reached an
oral agreement to pay $425 over six years
In February 2000, the EPA notified numerous parties of potential liability
for waste disposal at a licensed Casmalia, California disposal site, including a
business, assets of which were originally acquired by a subsidiary in 1984. A
settlement has been reached in this matter and the Company has paid $171 of the
settlement amount.
On or about April 5, 2002, the Company was served, as a potentially
responsible party, with an information request from the EPA relating to a
third-party superfund site in Rhode Island. The Company is investigating the
matter, which relates to events in the 1950's and 1960's.
The Company and its subsidiaries are party to a number of claims and
lawsuits arising out of the normal course of business including product
liabilities and governmental regulation. Certain of these actions seek damages
in various amounts. In most cases, such claims are covered by insurance. The
Company believes that none of the claims or pending lawsuits, either
individually or in the aggregate, will have a material adverse effect on its
financial position.
(b) Environmental Remediation:
The Company's operations, properties and subsidiaries are subject to a wide
variety of complex and stringent federal, state, local and foreign environmental
laws and regulations, including those governing the use, storage, handling,
generation, treatment, emission, release, discharge and disposal of certain
materials and wastes, the remediation of contaminated soil and groundwater, the
manufacture, sale and use of pesticides and the health and safety of employees.
As such, the nature of the Company's current and former operations and those of
its subsidiaries exposes the Company and its subsidiaries to the risk of claims
with respect to such matters. Under certain circumstances, the Company or any of
its subsidiaries might be required to curtail operations until a particular
problem is remedied. Known costs and expenses under environmental laws
incidental to ongoing operations are generally included within operating
results.
13
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
Potential costs and expenses may also be incurred in connection with the repair
or upgrade of facilities to meet existing or new requirements under
environmental laws or to investigate or remediate potential or actual
contamination and from time to time the Company establishes reserves for such
contemplated investigation and remediation costs. In many instances, the
ultimate costs under environmental laws and the time period during which such
costs are likely to be incurred are difficult to predict.
The Company's subsidiaries have, from time to time, implemented procedures
at their facilities designed to respond to obligations to comply with
environmental laws. The Company believes that its operations are currently in
material compliance with such environmental laws, although at various sites its
subsidiaries are engaged in continuing investigation, remediation and/or
monitoring efforts to address contamination associated with their historic
operations.
The nature of the Company's and its subsidiaries' current and former
operations exposes the Company and its subsidiaries to the risk of claims with
respect to environmental matters and the Company cannot assure it will not incur
material costs and liabilities in connection with such claims. Based upon its
experience to date, the Company believes that the future cost of compliance with
existing environmental laws, and liability for known environmental claims
pursuant to such environmental laws, will not have a material adverse effect on
the Company's financial position.
Based upon information available, the Company estimates the cost of
litigation proceedings described above and the cost of further investigation and
remediation of identified soil and groundwater problems at operating sites,
closed sites and third-party sites, and closure costs for closed sites to be
approximately $2,518, which is included in current and long-term liabilities in
the September 30, 2003 condensed consolidated balance sheet (approximately
$2,791 at June 30, 2003).
14
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
8. Business Segments
The Company's reportable segments are Animal Health and Nutrition,
Industrial Chemicals, Distribution and All Other. Reportable segments have been
determined primarily on the basis of the nature of products and services and
certain similar operating units have been aggregated. The Company's Animal
Health and Nutrition segment manufactures and markets more than 500 formulations
and concentrations of medicated feed additives and nutritional feed additives
including antibiotics, antibacterials, anticoccidials, anthelmintics, trace
minerals, vitamins, vitamin premixes and other animal health and nutrition
products. The Industrial Chemicals segment manufactures and markets a number of
chemicals for use in the pressure-treated wood, chemical catalyst,
semiconductor, automotive, and aerospace industries. The Distribution segment
markets and distributes a variety of industrial, specialty and fine organic
chemicals and intermediates produced primarily by third parties. The All Other
segment manufactures and markets a variety of specialty custom chemicals and
copper-based fungicides. Intersegment sales and transfers were not significant.
The following segment data includes information only for continuing operations.
Animal
Health & Industrial All Corporate &
Nutrition Chemicals Distribution Other Other Total
--------- --------- ------------ ----- ----------- -----
Three Months Ended September 30, 2003
Net sales $59,841 $11,982 $ 7,939 $ 7,408 $ -- $87,170
Operating income (loss) 6,900 822 841 297 (3,857) 5,003
Depreciation and amortization 2,029 649 3 215 372 3,268
Animal
Health & Industrial All Corporate &
Nutrition Chemicals Distribution Other Other Total
--------- --------- ------------ ----- ----------- -----
Three Months Ended September 30, 2002
Net sales $59,976 $13,894 $ 8,096 $ 4,316 $ -- $86,282
Operating income (loss) 9,420 92 750 (184) (3,780) 6,298
Depreciation and amortization 1,892 819 3 187 355 3,256
Animal
Identifiable Assets of Health & Industrial All Corporate &
Continuing Operations Nutrition Chemicals Distribution Other Other Total
--------- --------- ------------ ----- ----------- -----
At September 30, 2003 $206,024 $ 36,867 $ 9,366 $ 11,355 $ 12,604 $276,216
At June 30, 2003 190,864 33,191 9,154 12,735 12,811 258,755
9. Consolidating Financial Statements
The Senior Subordinated Notes due 2008 (the "Notes") are guaranteed by
certain subsidiaries. The Company's U.S. subsidiaries fully and unconditionally
guaranteed such Notes on a joint and several basis. Foreign subsidiaries do not
presently guarantee the Notes.
The following consolidating financial data summarizes the assets,
liabilities and results of operations and cash flows of the Parent, Guarantors
and Non-Guarantor Subsidiaries. The Company is the Parent. The Guarantor
Subsidiaries include all domestic subsidiaries of the Company including: CP
Chemicals, Inc.; Phibro-Tech, Inc.; Prince Agriproducts, Inc.; The Prince
Manufacturing Company; Phibrochem, Inc.; Phibro Chemicals, Inc.; Western
Magnesium Corp.; Phibro Animal Health Holdings, Inc.; and Phibro Animal Health
U.S., Inc. The Guarantor Subsidiaries and Non-Guarantor Subsidiaries are
directly or indirectly wholly owned as to voting stock by the Company.
Investments in subsidiaries are accounted for by the Parent using the
equity method. Income tax expense (benefit) is allocated among the consolidating
entities based upon taxable income (loss) by jurisdiction within each group.
15
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands)
The principal consolidation adjustments are to eliminate investments in
subsidiaries and intercompany balances and transactions. Separate financial
statements of the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries are
not presented because management has determined that such financial statements
would not be material to investors.
16
PHIBRO ANIMAL HEALTH CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
As of September 30, 2003
(In Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
Guarantor Non-Guarantor Consolidation Consolidated
Parent Subsidiaries Subsidiaries Adjustments Balance
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 43 $ 949 $ 25,925 $ 26,917
Trade receivables 2,637 25,747 25,940 54,324
Other receivables 1,370 1,380 1,791 4,541
Inventory 3,390 58,172 32,827 94,389
Prepaid expenses and other 2,441 1,348 5,328 9,117
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 9,881 87,596 91,811 -- 189,288
--------- --------- --------- --------- ---------
Property, plant & equipment, net 122 16,158 49,037 65,317
Intangibles -- -- 8,080 8,080
Investment in subsidiaries 125,741 3,619 -- (129,360) --
Intercompany 9,879 66,047 (124) (75,802) --
Other assets 11,057 1,687 787 13,531
--------- --------- --------- --------- ---------
$ 156,680 $ 175,107 $ 149,591 $(205,162) $ 276,216
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdraft $ 368 $ 1,969 $ 80 $ 2,417
Loan payable to banks 31,598 -- 7,152 38,750
Current portion of long-term debt 21,368 382 2,078 23,828
Accounts payable 2,128 34,886 22,221 59,235
Accrued expenses and other 11,886 10,588 26,491 48,965
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 67,348 47,825 58,022 -- 173,195
--------- --------- --------- --------- ---------
Long-term debt 100,000 6 2,874 102,880
Intercompany debt -- -- 75,802 (75,802) --
Other liabilities 4,248 6,167 4,642 15,057
--------- --------- --------- --------- ---------
TOTAL LIABILITIES 171,596 53,998 141,340 (75,802) 291,132
--------- --------- --------- --------- ---------
REDEEMABLE SECURITIES:
Series B and C preferred stock 69,868 -- -- 69,868
--------- --------- --------- --------- ---------
STOCKHOLDERS' DEFICIT:
Series A preferred stock 521 -- -- 521
Common stock 2 32 -- (32) 2
Paid-in capital 860 110,863 5,199 (116,062) 860
Accumulated deficit (79,221) 10,001 10,210 (20,211) (79,221)
Accumulated other comprehensive income (loss):
gain on derivative instruments 398 398 -- (398) 398
cumulative currency translation adjustment (7,344) (185) (7,158) 7,343 (7,344)
--------- --------- --------- --------- ---------
TOTAL STOCKHOLDERS' DEFICIT (84,784) 121,109 8,251 (129,360) (84,784)
--------- --------- --------- --------- ---------
$ 156,680 $ 175,107 $ 149,591 $(205,162) $ 276,216
========= ========= ========= ========= =========
17
PHIBRO ANIMAL HEALTH CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
For The Three Months Ended September 30, 2003
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
Guarantor Non-Guarantor Consolidation Consolidated
Parent Subsidiaries Subsidiaries Adjustments Balance
- ------------------------------------------------------------------------------------------------------------------------
NET SALES $ 5,742 $ 53,811 $ 28,465 $ (848) $ 87,170
COST OF GOODS SOLD 4,508 39,512 22,834 (848) 66,006
-------- -------- -------- -------- --------
GROSS PROFIT 1,234 14,299 5,631 -- 21,164
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 4,673 6,896 4,592 16,161
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) (3,439) 7,403 1,039 -- 5,003
OTHER:
Interest expense 3,713 11 225 3,949
Interest (income) -- -- (242) (242)
Other (income) expense, net 228 (242) (621) (635)
Intercompany interest and other (5,993) 3,621 2,372 --
Loss (profit) relating to subsidiaries (2,536) -- -- 2,536 --
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 1,149 4,013 (695) (2,536) 1,931
PROVISION FOR INCOME TAXES 1 234 548 783
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 1,148 3,779 (1,243) (2,536) 1,148
DISCONTINUED OPERATIONS:
Profit (loss) relating to discontinued operations (124) -- -- 124 --
(Loss) from discontinued operations (net of
income taxes) -- (124) -- (124)
Gain from disposal of discontinued operations
(net of income taxes) 231 -- -- 231
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 1,255 $ 3,655 $ (1,243) $ (2,412) $ 1,255
======== ======== ======== ======== ========
18
PHIBRO ANIMAL HEALTH CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
For the Three Months Ended September 30, 2003
(In Thousands)
- -----------------------------------------------------------------------------------------------------------------------
Guarantor Non-Guarantor Consolidation Consolidated
Parent Subsidiaries Subsidiaries Adjustments Balance
- -----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ 1,255 $ 3,655 $ (1,243) $ (2,412) $ 1,255
Adjustment for discontinued operation (107) 124 -- (124) (107)
-------- -------- -------- -------- --------
Income (loss) from continuing operations 1,148 3,779 (1,243) (2,536) 1,148
Adjustments to reconcile income (loss) from
continuing operations to net cash
provided (used) by operating activities:
Depreciation and amortization 372 873 2,023 3,268
Deferred income taxes -- -- 53 53
Unrealized foreign currency (gains) losses
and other 126 155 (1,543) (1,262)
Changes in operating assets and liabilities:
Accounts receivable 119 (1,268) 3,285 2,136
Inventory (778) (11,300) 7,146 (4,932)
Prepaid expenses and other 433 (551) 77 (41)
Other assets (530) 79 76 (375)
Intercompany (11,283) 8,267 480 2,536 --
Accounts payable (1,176) (707) (3,892) (5,775)
Accrued expenses and other 4,015 (183) 3,637 7,469
Cash provided (used) by discontinued operations 231 (652) -- -- (421)
-------- -------- -------- -------- --------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (7,323) (1,508) 10,099 -- 1,268
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures -- (318) (573) (891)
Proceeds from sale of assets -- -- 12 12
Discontinued operations 13,788 -- 300 14,088
-------- -------- -------- -------- --------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 13,788 (318) (261) -- 13,209
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Cash overdraft 18 642 71 731
Net increase (decrease) in short-term debt (6,280) -- 6,092 (188)
Proceeds from long-term debt -- -- 1,500 1,500
Payments of long-term debt (203) (155) (592) (950)
-------- -------- -------- -------- --------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (6,465) 487 7,071 -- 1,093
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- 2 166 168
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS -- (1,337) 17,075 -- 15,738
CASH AND CASH EQUIVALENTS
at beginning of period 43 2,286 8,850 11,179
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS
at end of period $ 43 $ 949 $ 25,925 $ -- $ 26,917
======== ======== ======== ======== ========
19
PHIBRO ANIMAL HEALTH CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
As of June 30, 2003
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Guarantor Non-Guarantor Consolidation Consolidated
Parent Subsidiaries Subsidiaries Adjustments Balance
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 43 $ 2,286 $ 8,850 $ 11,179
Trade receivables 2,759 24,523 28,389 55,671
Other receivables 957 736 1,949 3,642
Inventory 2,612 45,544 40,611 88,767
Prepaid expenses and other 3,267 1,439 5,482 10,188
Current assets from discontinued operations -- 4,942 -- 4,942
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 9,638 79,470 85,281 -- 174,389
--------- --------- --------- --------- ---------
Property, plant & equipment, net 153 16,566 49,721 66,440
Intangibles -- -- 8,669 8,669
Investment in subsidiaries 96,672 3,621 -- (100,293) --
Intercompany 35,186 40,334 (2,537) (72,983) --
Other assets 11,516 1,832 851 14,199
Other assets from discontinued operations -- 10,650 -- 10,650
--------- --------- --------- --------- ---------
$ 153,165 $ 152,473 $ 141,985 $(173,276) $ 274,347
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdraft $ 350 $ 1,327 $ 9 $ 1,686
Loan payable to banks 32,147 -- 6,767 38,914
Current portion of long-term debt 21,599 447 2,078 24,124
Accounts payable 3,304 28,276 25,335 56,915
Accrued expenses and other 6,924 11,082 23,603 41,609
Current liabilities from discontinued operations -- 2,051 -- 2,051
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 64,324 43,183 57,792 -- 165,299
--------- --------- --------- --------- ---------
Long-term debt 100,073 362 1,956 102,391
Intercompany debt -- -- 72,983 (72,983) --
Other liabilities 4,397 13,403 4,288 22,088
Other liabilities from discontinued operations -- 198 -- 198
--------- --------- --------- --------- ---------
TOTAL LIABILITIES 168,794 57,146 137,019 (72,983) 289,976
--------- --------- --------- --------- ---------
REDEEMABLE SECURITIES:
Series B and C preferred stock 68,881 -- -- 68,881
--------- --------- --------- --------- ---------
STOCKHOLDERS' DEFICIT:
Series A preferred stock 521 -- -- 521
Common stock 2 32 -- (32) 2
Paid-in capital 860 110,885 5,179 (116,064) 860
Accumulated deficit (79,489) (15,479) 6,079 9,400 (79,489)
Accumulated other comprehensive income (loss):
gain on derivative instruments 81 81 -- (81) 81
cumulative currency translation adjustment (6,485) (192) (6,292) 6,484 (6,485)
--------- --------- --------- --------- ---------
TOTAL STOCKHOLDERS' DEFICIT (84,510) 95,327 4,966 (100,293) (84,510)
--------- --------- --------- --------- ---------
$ 153,165 $ 152,473 $ 141,985 $(173,276) $ 274,347
========= ========= ========= ========= =========
20
PHIBRO ANIMAL HEALTH CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
For The Three Months Ended September 30, 2002
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Guarantor Non-Guarantors Consolidation Consolidated
Parent Subsidiaries Subsidiaries Adjustments Balance
- ------------------------------------------------------------------------------------------------------------------------------
NET SALES $ 7,108 $ 50,363 $ 30,665 $ (1,854) $ 86,282
COST OF GOODS SOLD 5,787 37,747 22,454 (1,854) 64,134
-------- -------- -------- -------- --------
GROSS PROFIT 1,321 12,616 8,211 -- 22,148
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,358 6,955 4,537 15,850
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) (3,037) 5,661 3,674 -- 6,298
OTHER:
Interest expense 3,764 30 710 4,504
Interest (income) (1) -- (125) (126)
Other expense, net 97 139 950 1,186
Intercompany interest and other (7,546) 4,950 2,596 --
Loss (profit) relating to subsidiaries 347 -- -- (347) --
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 302 542 (457) 347 734
PROVISION FOR INCOME TAXES -- 77 355 432
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 302 465 (812) 347 302
DISCONTINUED OPERATIONS:
Profit (loss) relating to discontinued operations (459) -- -- 459 --
Profit (loss) from discontinued operations (net
of income taxes) -- 269 (728) (459)
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (157) $ 734 $ (1,540) $ 806 $ (157)
======== ======== ======== ======== ========
21
PHIBRO ANIMAL HEALTH CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
For the Three Months Ended September 30, 2002
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Guarantor Non-Guarantor Consolidation Consolidated
Parent Subsidiaries Subsidiaries Adjustments Balance
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ (157) $ 734 $ (1,540) $ 806 $ (157)
Adjustment for discontinued operation 459 (269) 728 (459) 459
-------- -------- -------- -------- --------
Income (loss) from continuing operations 302 465 (812) 347 302
Adjustments to reconcile income (loss) from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 355 1,052 1,849 3,256
Deferred income taxes -- -- 373 373
Unrealized foreign currency (gains) losses
and other 95 (523) 1,653 1,225
Changes in operating assets and liabilities:
Accounts receivable (306) 2,243 1,443 3,380
Inventory (65) (3,832) 1,007 (2,890)
Prepaid expenses and other 1,285 1,705 (2,440) 550
Other assets (154) 566 (475) (63)
Intercompany 5,541 (273) (4,921) (347) --
Accounts payable 536 7,524 1,839 9,899
Accrued expenses and other 2,322 (1,614) 4,392 5,100
Cash provided by discontinued operations -- (85) 2,527 2,442
-------- -------- -------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,911 7,228 6,435 -- 23,574
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (172) (1,395) (1,114) (2,681)
Proceeds from sale of assets -- -- 6 6
Discontinued operations -- (177) (845) (1,022)
-------- -------- -------- -------- --------
NET CASH (USED) BY INVESTING ACTIVITIES (172) (1,572) (1,953) -- (3,697)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Cash overdraft (226) (3,885) (1,689) (5,800)
Net (decrease) in short-term debt (9,927) -- (460) (10,387)
Payments of long-term debt -- (136) (1,332) (1,468)
-------- -------- -------- -------- --------
NET CASH (USED) BY FINANCING ACTIVITIES (10,153) (4,021) (3,481) -- (17,655)
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (7) 19 12
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (414) 1,628 1,020 -- 2,234
CASH AND CASH EQUIVALENTS
at beginning of period 457 130 5,832 6,419
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS
at end of period $ 43 $ 1,758 $ 6,852 $ -- $ 8,653
======== ======== ======== ======== ========
22
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This information should be read in conjunction with the condensed
consolidated financial statements and related notes, contained in this Report.
The Company's Odda, Carbide, and MRT businesses have been classified as
discontinued operations. This discussion presents information only for
continuing operations, unless otherwise indicated.
General
The Company is a leading diversified global manufacturer and marketer of a
broad range of animal health and nutrition products, specifically medicated feed
additives (MFAs) and nutritional feed additives (NFAs), which are sold
throughout the world predominantly to the poultry, swine and cattle markets.
MFAs are used preventatively and therapeutically in animal feeds to produce
healthy livestock. The Company believes it is the third largest manufacturer and
marketer of MFAs in the world, and that certain of its MFA products have leading
positions in the marketplace. The Company is also a specialty chemicals
manufacturer and marketer, serving primarily the United States pressure-treated
wood and chemical industries. The Company has several proprietary products, and
many of the Company's products provide critical performance attributes to
customers' products, while representing a relatively small percentage of total
end-product cost.
The Company recently changed its name to Phibro Animal Health Corporation.
The Company was formerly known as Philipp Brothers Chemicals, Inc. The new name
reflects the core focus and strategic direction of the Company.
In August 2003, the Company completed the sale of MRT for net proceeds
after transaction costs of approximately $13.8 million, subject to certain
post-closing adjustments and escrow requirements.
Refinancing
On October 21, 2003 the Company issued 105,000 units consisting of
$85,000,000 of 13% Senior Secured Notes due 2007 of Phibro Animal Health
Corporation ("PAHC") (the "US Senior Notes") and $20,000,000 13% Senior Secured
Notes due 2007 of Philipp Brothers Netherlands III B.V. (the "Dutch Senior
Notes" and, together with the US Senior Notes, the "Senior Secured Notes"), an
indirect wholly-owned subsidiary of PAHC (the "Dutch issuer"). The Company used
the proceeds from the issuance to: (i) repurchase $51,971,000 of its 9 7/8%
Senior Subordinated Notes due 2008 at a price equal to 60% of the principal
amount thereof, plus accrued and unpaid interest; (ii) repay its senior credit
facility of $34,888,000 outstanding at the repayment date; (iii) satisfy, for a
payment of approximately $29,315,000, certain of its outstanding obligations to
Pfizer Inc., including: (a) $20,075,000 aggregate principal amount of its
promissory note plus accrued and unpaid interest; (b) $9,681,000 of accounts
payable, (c) $9,257,000 of accrued expenses; and (d) future contingent purchase
price obligations under its agreements with Pfizer by which the Company acquired
Pfizer's medicated feed additive business, and; (iv) pay fees and expenses
relating to the above transactions.
The US Senior Notes and the Dutch Senior Notes are senior secured
obligations of each of PAHC and the Dutch issuer, respectively. The US Senior
Notes and the Dutch Senior Notes are guaranteed on a senior secured basis by all
PAHC's domestic restricted subsidiaries, and the Dutch Senior Notes are
guaranteed on a senior secured basis by PAHC and by the restricted subsidiaries
of the Dutch issuer, including Phibro Animal Health (Belgium) SPRL. The US
Senior Notes and related guarantees are secured by substantially all of PAHC's
assets and the assets of its domestic restricted subsidiaries, other than real
property and interests therein. The Dutch Senior Notes and related guarantees
are secured by a pledge of all the accounts receivable, a security interest or
floating charge on the inventory to the extent permitted by applicable law, a
mortgage on substantially all of the real property, of the Dutch issuer and each
of its restricted subsidiaries, a pledge of 100% of the capital stock of each
subsidiary of the Dutch issuer, a pledge of the intercompany loans made by the
Dutch issuer to its restricted subsidiaries and substantially all of the assets
of the U.S. guarantors, other than real property and interests therein. The
indenture governing the Senior Secured Notes provides for optional make-whole
redemptions at any time prior to June 1, 2005, optional redemption on or after
June 1, 2005, and requires the Company to make certain offers to purchase Senior
Secured Notes upon a change of control, upon certain asset sales and from fifty
percent (50%) of excess cash flow (as such terms are defined in the indenture).
Also, on October 21, 2003, the Company entered into a new replacement
domestic senior working capital credit facility with Wells Fargo Foothill, Inc.,
providing for a working capital line plus a letter of credit facility. The
aggregate amount of borrowings under such working capital and letter of credit
facilities may not exceed $25,000,000, and the aggregate amount of borrowings
under the working capital facility may not exceed $15,000,000.
23
Borrowings under the replacement domestic senior credit facility are subject to
a borrowing base formula based on percentages of eligible domestic receivables
and domestic inventory. Under the replacement credit facility, the Company may
choose between two interest rate options: (i) the applicable base rate as
defined plus 0.50% and (ii) the LIBOR rate as defined plus 2.75%. Indebtedness
under the replacement credit facility is secured by a first priority lien on
substantially all of the Company's assets and assets of substantially all of the
Company's domestic subsidiaries. The Company is required to pay an unused line
fee of 0.375% on the unused portion of the replacement credit facility, a
monthly servicing fee and standard letter of credit fees to issuing banks.
Borrowings under the replacement credit facility are available until, and are
repayable no later than, October 31, 2007, although borrowings must be repaid by
June 30, 2007 if the maturity of the Senior Secured Notes has not been extended,
as required by the credit facility, by that date.
Pursuant to the terms of an intercreditor agreement, the security interest
securing the Senior Secured Notes and the guarantees made by the Company's
domestic restricted subsidiaries is subordinated to a lien securing the
replacement domestic senior credit facility.
The Company believes that, through the refinancings referred to above, the
liquidity issues mentioned in the Company's June 30, 2003 consolidated financial
statements have been resolved. The Company's replaced senior bank credit
facility and its note payable to Pfizer were to mature in November 2003 and
March 2004, respectively. The effect of the above refinancing transactions will
be included in the December 31, 2003 financial statements.
The Company intends to sell the assets and business of its subsidiary, The
Prince Manufacturing Company ("PMC"), to Palladium Equity Partners II, LP and
certain of its affiliates (the "Palladium Investors"). The material elements of
the transactions relating to this sale include: (i) the transfer of ownership to
the Palladium Investors of PMC's assets; (ii) the reduction of the preferred
stock of the Palladium Investors from $69,868,000 (as of September 30, 2003) to
$15,200,000 (as of September 30, 2003); (iii) the termination of any obligation
of the Company or any subsidiaries of the Company in respect of the $2,250,000
annual management advisory fee; (iv) a separate cash payment to the Palladium
Investors of $10,000,000 (derived from the recent sale of the Company's
subsidiary, Mineral Resource Technologies, Inc. ("MRT"); (v) payments by PMC to
the Company for central support services for the next three years of $1,000,000,
$500,000 and $200,000, respectively; and (vi) supply arrangements between the
Company and PMC with respect to manganous oxide and red iron oxide. The PMC
transactions are subject to definitive documentation that is expected to include
customary representations, warranties and indemnities of the Company, provisions
for working capital adjustments and settlement of intercompany accounts, a
closing fee payable to Palladium and the agreement of the Company to pay or
reimburse the Palladium Investors for their reasonable out-of-pocket transaction
expenses. The economic terms set forth above are subject to the terms upon which
intercompany accounts would be settled, the amount of minimum working capital of
PMC to be agreed upon and the amount of the closing fee payable to Palladium.
The Company also expects that it will establish a $1,000,000 escrow or other
credit support for two years to secure its net working capital and
indemnification obligations, and indemnify the Palladium Investors, payable
after the maturity of the Company's Senior Subordinated Notes due 2008, for a
portion, at the rate of $0.65 for every dollar, of the amount they receive in
respect of the disposition of the PMC business less than $21,000,000, up to a
maximum payment by the Company of $4,000,000. Under the indenture for the Senior
Secured Notes, the transaction must be completed on or before December 31, 2003.
24
Summary Consolidated Results of Continuing Operations
Three Months Ended September 30,
--------------------------------
2003 2002
---- ----
(Thousands)
Net sales $ 87,170 $ 86,282
Gross profit 21,164 22,148
Selling, general and administrative 16,161 15,850
Operating income 5,003 6,298
Interest expense, net 3,707 4,378
Other (income) expense, net (635) 1,186
Provision for income taxes 783 432
Income from continuing operations $ 1,148 $ 302
Comparison of Three Months Ended September 30, 2003 and 2002
Net Sales of $87.2 million increased $0.9 million, or 1%. Animal Health and
Nutrition sales of $59.8 million declined slightly from the prior year.
Specialty Chemicals sales of $27.4 million increased $1.0 million, or 4%,
primarily due to volume increases in the All Other segment.
Gross Profit of $21.2 million decreased $1.0 million to 24.3% of net sales,
compared with 25.7% in 2002. Unfavorable sales mix in Animal Health and
Nutrition was responsible for the overall decrease.
Selling, General and Administrative Expenses of $16.2 million increased
$0.3 million, or 2%. Operating segment expenses approximated the prior year.
Corporate expenses increased $0.3 million due to higher staffing levels that
began in mid-fiscal 2003.
Operating Income of $5.0 million decreased $1.3 million to 5.7% of sales.
The decrease was primarily due to gross profit declines in the Animal Health and
Nutrition segment offset in part by improved operating performance of the
Specialty Chemicals group.
Interest Expense, Net of $3.7 million decreased $0.7 million, compared with
$4.4 million in 2002, primarily due to lower average borrowing levels.
Other (Income) Expense, Net of ($0.6) million improved compared with
expense of $1.2 million last year. The (income) expense principally reflects
foreign currency transaction net (gains) losses related to short-term
inter-company balances and foreign currency translation (gains) losses.
Income Taxes of $0.8 million on a consolidated pre-tax income of $1.9
million were primarily due to income tax provisions in profitable foreign
jurisdictions and also for state income taxes.
25
Operating Segments
Three Months Ended September 30,
--------------------------------
2003 2002
---- ----
(Thousands)
Net Sales
Animal Health & Nutrition $59,841 $59,976
Specialty Chemicals:
Industrial Chemicals 11,982 13,894
Distribution 7,939 8,096
All Other 7,408 4,316
------- -------
$87,170 $86,282
======= =======
Three Months Ended September 30,
--------------------------------
2003 2002
---- ----
(Thousands)
Operating Income
Animal Health & Nutrition $ 6,900 $ 9,420
Specialty Chemicals:
Industrial Chemicals 822 92
Distribution 841 750
All Other 297 (184)
Corporate (3,857) (3,780)
------- -------
$ 5,003 $ 6,298
======= =======
The Animal Health and Nutrition segment manufactures and markets MFAs and
NFAs to the poultry, swine and cattle markets, and includes the operations of
the Phibro Animal Health business unit, Prince AgriProducts, Koffolk Israel, and
Koffolk Brazil. The Industrial Chemicals segment manufactures and markets
specialty chemicals for use in the pressure treated wood, brick, glass, and
chemical industries, and includes Phibro-Tech and PMC. The Distribution segment
markets a variety of specialty chemicals, and includes PhibroChem and Ferro
operations. The All Other segment includes contract manufacturing of crop
protection chemicals, Wychem and all other operations.
Operating Segments Comparison of Three Months Ended September 30, 2003 and 2002
Animal Health and Nutrition
Net Sales of $59.8 million decreased $0.1 million. Medicated Feed Additives
net sales decreased by $2.8 million. Revenues were lower for antibacterials,
antibiotics and anticoccidials but were offset in part by higher sales of
anthelmintics and other medicated feed additives. The decreased revenues
primarily were due to unit volume decreases. Nutritional Feed Additives net
sales increased by $2.7 million, principally due to volume increases in core
inorganic minerals, trace mineral premixes and other ingredients.
Operating Income of $6.9 million decreased $2.5 million, or 27%. Operating
income declined due to higher cost of goods reflecting the stronger Euro's
effect on Belgium manufacturing costs, lower unit volumes and changes in product
mix to lower margin items. This was offset in part by higher average selling
prices, including favorable currency effect on international sales.
26
Specialty Chemicals
Industrial Chemicals net sales of $12.0 million decreased $1.9 million, or
14%. Sales of etchants and related products to the printed circuit board market
decreased $1.8 million due to the divesture of the Company's eastern United
States etchant business in mid-fiscal 2003. The Company continues its existing
etchant business at one remaining facility. Sales of iron and manganese
compounds to the brick, masonry, glass, and other chemical industries decreased
$0.1 million primarily due to lower unit volumes. Industrial Chemicals operating
income of $0.8 million improved $0.7 million. The improvement principally was
due to savings from headcount reductions and facility restructurings.
Distribution net sales of $7.9 million decreased $0.2 million, or 2%. Lower
unit sales volumes in the U.S. were partially offset by higher sales volumes in
Europe. Distribution operating income of $0.8 million increased $0.1 million, or
12%. As a percentage of sales, operating income increased to 11% in 2003 from 9%
in 2002. The improvement in operating income margins resulted principally from
increased sales of higher margin products.
All Other net sales of $7.4 million increased $3.1 million, or 72%.
Revenues for contract manufacturing increased $3.0 million and specialized lab
projects and formulations increased $0.1 million. All Other operating income of
$0.3 million improved from the prior year loss of $0.2 million due to increased
unit volumes and higher average selling prices.
27
Discontinued Operations
The Company shutdown Odda Smelteverk (Norway) ("Odda"), and divested
Carbide Industries (U.K.) ("Carbide") and Mineral Resource Technologies, Inc.
("MRT"). These businesses have been classified as discontinued operations. The
Company's consolidated financial statements have been reclassified to report
separately the operating results, financial position, and cash flows of the
discontinued operations.
Three Months Ended
September 30, 2003
------------------
(Thousands)
MRT
---
Net sales $ 3,327
=======
Pre-tax income (loss) from discontinued operations $ (124)
Provision (benefit) for income tax $ --
-------
Income (loss) from discontinued operations $ (124)
=======
Depreciation and Amortization $ --
=======
Three Months Ended September 30, 2002
------------------------------------------
(Thousands)
Odda Carbide MRT Total
-------- -------- -------- --------
Net sales $ 3,428 $ 1,477 $ 5,854 $ 10,759
======== ======== ======== ========
Pre-tax income (loss) from discontinued
operations $ (805) $ 92 $ 269 $ (444)
Provision (benefit) for income tax $ -- $ 15 $ -- $ 15
-------- -------- -------- --------
Income (loss) from discontinued
operations $ (805) $ 77 $ 269 $ (459)
======== ======== ======== ========
Depreciation and Amortization $ 318 $ 54 $ 309 $ 681
======== ======== ======== ========
Odda and Carbide. During 2003, the Company determined that it would
permanently shutdown and no longer fund the operations of Odda. On February 28,
2003, Odda filed for bankruptcy in Norway. The bankruptcy is proceeding in
accordance with Norwegian law. The Company has been advised that, as a result of
the bankruptcy, the creditors of Odda have recourse only to the assets of Odda,
except in the case of certain debt guaranteed by the Company. The Company is the
guarantor of certain debt of Odda. As of September 30, 2003, debt of Norwegian
Krone (NOK) 23.8 million ($3.4 million) was outstanding and was included in
loans payable to banks on the Company's consolidated balance sheet. The
outstanding balance is payable November 30, 2003. The Company has been advised
by Norwegian counsel that it will obtain the benefit of the banks' position as a
secured creditor upon payment pursuant to the guarantees. During 2003, the
Company sold Carbide, previously a distributor for one of Odda's product lines.
Proceeds from the divestiture were not material.
Mineral Resource Technologies, Inc. ("MRT"). The Company sold MRT on August
28, 2003 for net proceeds, after transaction costs, of approximately $13.8
million, subject to post-closing adjustments and escrow requirements. The
Company recorded a gain of approximately $0.2 million on disposal. Based upon
its assessment of likely outcomes, the Company does not anticipate a material
effect from post-closing adjustments.
28
Liquidity and Capital Resources
Net Cash Provided by Operating Activities. Cash provided by operations for
the three months ended September 30, 2003 and 2002 was $0.7 million and $23.6
million, respectively. Cash provided in 2003 was attributable to income from
operations offset by unrealized foreign currency losses and increased working
capital requirements. Cash provided in 2002 was due to aggressive working
capital management.
Net Cash Provided (Used) by Investing Activities. Net cash provided (used)
by investing activities for the three months ended September 30, 2003 and 2002
was $13.2 million and ($3.7) million, respectively. Discontinued operations
provided (used) $14.1 million and ($1.0) million in 2003 and 2002, respectively.
Capital expenditures of $.9 million and $2.7 million in the respective 2003 and
2002 periods were for new product capacity, for maintaining the Company's
existing asset base and for environmental, health and safety projects.
Net Cash Provided (Used) by Financing Activities. Net cash provided (used)
by financing activities for the three months ended September 30, 2003 and 2002
was $1.1 million and ($17.7) million, respectively. Short-term debt decreased
due to a $4.0 million reduction in the domestic credit facility and related
capital expenditure line and a $2.3 million payment related to Norwegian bank
debt, offset by a $6.0 million increase in foreign borrowings. Payments of
long-term debt and changes in cash overdraft accounted for the remainder of net
cash provided by financing activities.
Working Capital and Capital Expenditures. Working capital, defined as
accounts receivables, inventories and prepaid expenses and other current assets,
less accounts payable and accrued expenses and other current liabilities, was
$54.2 million and $59.7 million as of September 30, 2003 and June 30, 2003,
respectively. The decrease was primarily due to improved management of accounts
receivable and increases in accrued expenses.
The Company anticipates spending approximately $10.0 million for capital
expenditures related to continuing operations in fiscal 2004, primarily to cover
the Company's asset replacement needs, to improve processes, and for
environmental and regulatory compliance, subject to the availability of funds.
Liquidity. At September 30, 2003, the Company was holding excess cash of
approximately $18.0 million, due to the pending status of its refinancing
transactions at that date. The cash was substantially from the sale of MRT and
additional borrowings under foreign credit facilities.
At September 30, 2003, the Company was in compliance with the financial
covenants included in its since replaced domestic senior credit facility with
its lending banks. At September 30, 2003, the amount of credit extended under
the Company's replaced domestic senior credit facility totaled $28.2 million
under the revolving credit facility and $1.3 million under the capital
expenditure facility. At November 14, 2003, the amount of borrowings under the
Company's new replacement working capital facility was $7.6 million, and the
Company had $4.9 million available under that facility, after reduction for a
$2.5 million reserve for interest payments due December 1, 2003. In addition,
certain of the Company's foreign subsidiaries also had availability totaling
$0.6 million under their respective loan agreements.
The Company's ability to fund its operating plan relies upon its ability to
continue to successfully implement its efforts to improve its overall liquidity
(through cost reduction activities, working capital improvement plans, shutdown
of unprofitable operations and sale of certain business operations and other
assets) and the continued availability of borrowings under its replacement
senior working capital facility. The Company believes that it will be able to
comply with the terms of its covenants under the replacement senior credit
facility based on its forecasted operating plan. In the event of adverse
operating results and/or violation of covenants under this facility, there can
be no assurance that the Company would be able to obtain waivers or consents on
favorable terms, if at all.
The Company anticipates taxable gains on extinguishment of debt and other
aspects of the refinancing will be substantially offset by existing net
operating loss carry forwards, and that the Company will not incur significant
cash income tax payments related to these gains.
29
Certain Factors Affecting Future Operating Results
Forward-Looking Statements
This Report on Form 10-Q contains "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. Statements that are not
historical facts, including statements about our beliefs and expectations, are
forward-looking statements. Forward-looking statements include statements
preceded by, followed by or that include the words "may," "could," "would,"
"should," "believe," "expect," "anticipate," "plan," "estimate," "target,"
"project," "intend," or similar expressions. These statements include, among
others, statements regarding our expected business outlook, anticipated
financial and operating results, our business strategy and means to implement
the strategy, our objectives, the amount and timing of capital expenditures, the
likelihood of our success in expanding our business, financing plans, budgets,
working capital needs and sources of liquidity.
Forward-looking statements are only predictions and are not guarantees of
performance. These statements are based on our management's beliefs and
assumptions, which in turn are based on currently available information.
Important assumptions relating to the forward-looking statements include, among
others, assumptions regarding demand for our products, the expansion of product
offerings geographically or through new applications, the timing and cost of
planned capital expenditures, competitive conditions and general economic
conditions. These assumptions could prove inaccurate. Forward-looking statements
also involve risks and uncertainties, which could cause actual results that
differ materially from those contained in any forward-looking statement. Many of
these factors are beyond our ability to control or predict. Such factors
include, but are not limited to, the following:
o our substantial leverage and potential inability to service our debt
o our dependence on distributions from our subsidiaries
o risks associated with our international operations and significant
foreign assets
o our dependence on our Israeli operations
o competition in each of our markets
o potential environmental liability
o potential legislation affecting the use of medicated feed additives
o extensive regulation by numerous government authorities in the United
States and other countries
o our reliance on the continued operation and sufficiency of our
manufacturing facilities
o our reliance upon unpatented trade secrets
o the risks of legal proceedings and general litigation expenses
o potential operating hazards and uninsured risks
o the risk of work stoppages
o our dependence on key personnel
See also the discussion under "Risks and Uncertainties" in Note 2 of our
Consolidated Financial Statements included in our Annual Report on Form 10-K for
the fiscal year ended June 30, 2003 and in Note 2 of our Condensed Consolidated
Financial Statements included in this Report.
In addition, the issue of the potential for increased bacterial resistance
to certain antibiotics used in certain food producing animals is the subject of
discussions on a worldwide basis and, in certain instances, has led to
government restrictions on the use of antibiotics in these food producing
animals. The sale of feed additives containing antibiotics is a material portion
of
30
our business. Should regulatory or other developments result in further
restrictions on the sale of such products, it could have a material adverse
impact on our financial position, results of operations and cash flows.
We believe the forward-looking statements in this Report are reasonable;
however, no undue reliance should be placed on any forward-looking statements,
as they are based on current expectations. Further, forward-looking statements
speak only as of the date they are made, and we undertake no obligation to
update publicly any of them in light of new information or future events.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For financial market risks related to changes in interest rates, foreign
currency exchange rates and commodity prices, reference is made to Part II, Item
7, Quantitative and Qualitative Disclosure About Market Risk, in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2003 and to Note 15 to
our Consolidated Financial Statements included therein.
Item 4. Controls and Procedures
(a) Our management has evaluated, under the supervision and with the
participation of our Chief Executive Officer, Chairman of the Board and
Chief Financial Officer, the effectiveness and design of our disclosure
controls and procedures, and have concluded that, as of the end of the
period covered by this Report, our disclosure controls and procedures, as
defined in Rule 15d-15(e) of the Securities Exchange Act of 1934, as
amended, are effective for gathering, analyzing and disclosing information
we are required to disclose in reports that we furnish to the Securities
and Exchange Commission. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
(b) There have been no changes in our internal control over financial reporting
that occurred during the period covered by this Report that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
31
PART II --OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
4.1.4 Fourth Supplemental Indenture, dated as of October 1, 2003, among
Phibro Animal Health Corporation, the Guarantors named therein
and JPMorgan Chase Bank, as trustee, relating to the 9 7/8%
Senior Subordinated Notes due 2008 of Registrant. (1)
4.1.5 Fifth Supplemental Indenture, dated as of October 21, 2003, among
Phibro Animal Health Corporation, the Guarantors named therein
and JPMorgan Chase Bank, as trustee, relating to the 9 7/8%
Senior Subordinated Notes due 2008 of Registrant.
4.2 Indenture, dated as of October 21, 2003, by and among Phibro
Animal Health Corporation and Philipp Brothers Netherlands III
B.V., as Issuers, the Guarantors named therein, and HSBC Bank
USA, as Trustee and Collateral Agent. (2)
10.31 Loan and Security Agreement, dated October 21, 2003, by and
among, the lenders identified on the signature pages thereto,
Wells Fargo Foothill, Inc., and Phibro Animal Health Corporation
("Parent"), and each of Parent's Subsidiaries identified on the
signature pages thereto.
10.31.1 Amendment Number One to Loan and Security Agreement dated
November 14, 2003.
10.32 Intercreditor and Lien Subordination Agreement, dated as of
October 21, 2003, made by and among Wells Fargo Foothill, Inc.,
HSBC Bank USA, Phibro Animal Health Corporation ("Parent") and
those certain subsidiaries of the Parent party thereto.
31.1 Certification of Gerald K. Carlson, Chief Executive Officer
required by Rule 15d-14(a) of the Act.
31.2 Certification of Jack C. Bendheim, Chairman of the Board required
by Rule 15d-14(a) of the Act.
31.3 Certification of Richard G. Johnson, Chief Financial Officer
required by Rule 15d-14(a) of the Act.
(1) Filed as an exhibit to the Company's Current Report on Form 8-K dated
October 2, 2003.
(2) Filed as an exhibit to the Company's Current Report on Form 8-K dated
October 21, 2003.
Since the Company does not have securities registered under Section 12 of
the Securities Exchange Act of 1934 and is not required to file periodic reports
pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, the
Company is not an "issuer" as defined in the Sarbanes-Oxley Act of 2002, and
therefore the Company is not filing the written certification statement pursuant
to Section 906 of such Act. The Company submits periodic reports with the
Securities and Exchange Commission because it is required to do so by the terms
of the indenture governing its 9 7/8% Senior Subordinated Notes due 2008.
(b) Reports on Form 8-K
On September 12, 2003 the Company furnished a report on Form 8-K reporting
items 2 and 7.
On September 24, 2003, the Company furnished a report on Form 8-K reporting
items 7 and 9.
Subsequent to the period covered by this Report, on October 7, 2003 the
Company furnished a report on Form 8-K reporting items 5 and 7, and on October
31, 2003 the Company furnished a report on Form 8-K reporting items 5 and 7.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHIBRO ANIMAL HEALTH CORPORATION
Date: November 14, 2003 By: /s/ JACK C. BENDHEIM
-----------------------------------
Jack C. Bendheim
Chairman of the Board
Date: November 14, 2003 By: /S/ GERALD K. CARLSON
-----------------------------------
Gerald K. Carlson
Chief Executive Officer
Date: November 14, 2003 By: /s/ RICHARD G. JOHNSON
-----------------------------------
Richard G. Johnson
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
33
Exhibit Index
Exhibit No. Description
4.1.4 Fourth Supplemental Indenture, dated as of October 1, 2003, among
Phibro Animal Health Corporation, the Guarantors named therein
and JPMorgan Chase Bank, as trustee, relating to the 9 7/8%
Senior Subordinated Notes due 2008 of Registrant. (1)
4.1.5 Fifth Supplemental Indenture, dated as of October 21, 2003, among
Phibro Animal Health Corporation, the Guarantors named therein
and JPMorgan Chase Bank, as trustee, relating to the 9 7/8%
Senior Subordinated Notes due 2008 of Registrant.
4.2 Indenture, dated as of October 21, 2003, by and among Phibro
Animal Health Corporation and Philipp Brothers Netherlands III
B.V., as Issuers, the Guarantors named therein, and HSBC Bank
USA, as Trustee and Collateral Agent. (2)
10.31 Loan and Security Agreement, dated October 21, 2003, by and
among, the lenders identified on the signature pages thereto,
Wells Fargo Foothill, Inc., and Phibro Animal Health Corporation
("Parent"), and each of Parent's Subsidiaries identified on the
signature pages thereto.
10.31.1 Amendment Number One to Loan and Security Agreement dated
November 14, 2003.
10.32 Intercreditor and Lien Subordination Agreement, dated as of
October 21, 2003, made by and among Wells Fargo Foothill, Inc.,
HSBC Bank USA, Phibro Animal Health Corporation ("Parent") and
those certain subsidiaries of the Parent party thereto.
31.1 Certification of Gerald K. Carlson, Chief Executive Officer
required by Rule 15d-14(a) of the Act.
31.2 Certification of Jack C. Bendheim, Chairman of the Board required
by Rule 15d-14(a) of the Act.
31.3 Certification of Richard G. Johnson, Chief Financial Officer
required by Rule 15d-14(a) of the Act.
(1) Filed as an exhibit to the Company's Current Report on Form 8-K dated
October 2, 2003.
(2) Filed as an exhibit to the Company's Current Report on Form 8-K dated
October 21, 2003.
Since the Company does not have securities registered under Section 12 of
the Securities Exchange Act of 1934 and is not required to file periodic reports
pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, the
Company is not an "issuer" as defined in the Sarbanes-Oxley Act of 2002, and
therefore the Company is not filing the written certification statement pursuant
to Section 906 of such Act. The Company submits periodic reports with the
Securities and Exchange Commission because it is required to do so by the terms
of the indenture governing its 9 7/8% Senior Subordinated Notes due 2008.