================================================================================
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 March 31, 2001
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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Philipp Brothers Chemicals, Inc.
(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)
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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 | |
Number of shares of each class of common stock outstanding as of May 1, 2001:
Class A Common Stock, $.10 par value: 12,600.00
Class B Common Stock, $.10 par value: 11,888.50
PHILIPP BROTHERS CHEMICALS, INC.
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION (UNAUDITED)
Item 1. Condensed Financial Statements 3
Condensed Consolidated Balance Sheets .................... 4
Condensed Consolidated Statements of Operations
and Comprehensive Income ............................... 5
Condensed Consolidated Statements of Changes in
Stockholders' Equity ................................... 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 ...................... 22
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ...................................... 27
PART II OTHER INFORMATION
Item 5. Other Information ........................................ 28
Item 6. Exhibits and Reports on Form 8-K ......................... 28
SIGNATURES ............................................................. 29
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 throughout this
Form 10-Q and are discussed 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" refers to the
Company and/or one or more of its subsidiaries, as applicable.
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
3
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
March 31, June 30,
2001 2000
--------- ---------
Assets
CURRENT ASSETS:
Cash and cash equivalents ...................................................... $ 15,084 $ 2,403
Trade receivables, less allowance for doubtful accounts of $869
at March 31, 2001 and $756 at June 30, 2000 .................................. 79,626 79,376
Other receivables .............................................................. 4,829 8,479
Inventories .................................................................... 102,289 50,405
Prepaid expenses and other current assets ...................................... 14,100 9,098
--------- ---------
TOTAL CURRENT ASSETS ........................................................... 215,928 149,761
PROPERTY, PLANT AND EQUIPMENT, NET ................................................ 98,204 76,180
INTANGIBLES ....................................................................... 6,049 6,297
OTHER ASSETS ...................................................................... 27,867 26,213
--------- ---------
$ 348,048 $ 258,451
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft ................................................................. $ 4,805 $ 2,120
Loans payable to banks ......................................................... 62,900 8,650
Current portion of long-term debt .............................................. 3,639 2,296
Accounts payable ............................................................... 38,735 32,642
Accrued expenses and other current liabilities ................................. 36,367 24,157
--------- ---------
TOTAL CURRENT LIABILITIES .................................................... 146,446 69,865
LONG-TERM DEBT .................................................................... 131,690 139,722
OTHER LIABILITIES ................................................................. 10,478 13,282
--------- ---------
TOTAL LIABILITIES ............................................................ 288,614 222,869
--------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SECURITIES:
Series B and C preferred stock ................................................. 47,250 --
Common stock ................................................................... 1,226 3,513
Common stock of subsidiary ..................................................... 95 451
--------- ---------
TOTAL REDEEMABLE SECURITIES .................................................. 48,571 3,964
--------- ---------
STOCKHOLDERS' EQUITY:
Series A preferred stock ....................................................... 521 521
Common stock ................................................................... 2 2
Paid-in capital ................................................................ 878 878
Retained earnings .............................................................. 16,780 32,808
Accumulated other comprehensive loss ........................................... (7,318) (2,591)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ................................................... 10,863 31,618
--------- ---------
$ 348,048 $ 258,451
========= =========
See notes to unaudited Condensed Consolidated Financial Statements
4
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
(In Thousands)
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
-------- -------- -------- --------
NET SALES ............................... $ 102,203 $ 79,443 $ 255,329 $ 226,661
COST OF GOODS SOLD ...................... 75,312 57,934 188,912 163,992
--------- --------- --------- ---------
GROSS PROFIT ......................... 26,891 21,509 66,417 62,669
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ............................. 25,575 18,856 66,083 55,887
--------- --------- --------- ---------
OPERATING INCOME ..................... 1,316 2,653 334 6,782
OTHER:
Interest expense ..................... 5,183 3,777 13,202 10,765
Interest income ...................... 16 (292) (387) (467)
Other expense, net ................... 1,137 743 1,234 2,778
Gain from property damage claim ...... -- (550) -- (550)
Gain from sale of asset .............. -- (14,195) -- (14,195)
--------- --------- --------- ---------
(LOSS) INCOME BEFORE INCOME
TAXES ............................. (5,020) 13,170 (13,715) 8,451
(BENEFIT) PROVISION FOR INCOME
TAXES ................................. (1,171) 3,687 (4,129) 1,699
--------- --------- --------- ---------
NET (LOSS) INCOME .................... (3,849) 9,483 (9,586) 6,752
OTHER COMPREHENSIVE (LOSS)
Loss on derivative instruments ....... (168) -- -- --
Change in foreign currency translation
adjustment ......................... (3,955) (1,087) (4,727) (177)
--------- --------- --------- ---------
COMPREHENSIVE (LOSS) INCOME .......... $ (7,972) $ 8,396 $ (14,313) $ 6,575
========= ========= ========= =========
See notes to unaudited Condensed Consolidated Financial Statements
5
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (Unaudited)
For the Three Months and Nine Months Ended March 31, 2001
(In Thousands)
Preferred Stock Common Stock Accumulated
--------------- ----------------- Other
Class Class Paid-in Retained Comprehensive
Series A "A" "B" Capital Earnings Income (loss) Total
-------- -------- -------- -------- --------- -------------- --------
BALANCE,
JULY 1, 2000 ................ $ 521 $ 1 $ 1 $ 878 $ 32,808 $ (2,591) $ 31,618
Foreign currency
translation adjustment ..... (1,161) (1,161)
Net loss ..................... -- -- -- -- (3,119) -- (3,119)
-------- -------- -------- -------- -------- -------- --------
BALANCE,
SEPTEMBER 30, 2000 ........... $ 521 $ 1 $ 1 $ 878 $ 29,689 $ (3,752) $ 27,338
======== ======== ======== ======== ======== ======== ========
Accretion of redeemable
preferred securities to fair
market value ............... -- -- -- -- (4,192) -- (4,192)
Dividends on series B and C
redeemable preferred stock . -- -- -- -- (563) -- (563)
Gain on derivative
instruments ................ -- -- -- -- -- 168 168
Foreign currency translation
adjustment ................. -- -- -- -- -- 389 389
Net loss ..................... -- -- -- -- (2,618) -- (2,618)
-------- -------- -------- -------- -------- -------- --------
BALANCE,
DECEMBER 31, 2000 ............ $ 521 $ 1 $ 1 $ 878 $ 22,316 $ (3,195) $ 20,522
======== ======== ======== ======== ======== ======== ========
Dividends on series B and C
redeemable preferred stock .. -- -- -- -- (1,687) -- (1,687)
Loss on derivative
instruments ................ -- -- -- -- -- (168) (168)
Foreign currency translation
adjustment ................. -- -- -- -- -- (3,955) (3,955)
Net loss ..................... -- -- -- -- (3,849) -- (3,849)
-------- -------- -------- --------
BALANCE,
MARCH 31, 2001 .................. $ 521 $ 1 $ 1 $ 878 $ 16,780 $ (7,318) $ 10,863
======== ======== ======== ======== ======== ======== ========
See notes to unaudited Condensed Consolidated Financial Statements
6
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended March 31, 2001 and 2000
(In Thousands)
2001 2000
-------- --------
OPERATING ACTIVITIES:
Net (loss) income ................................................ $ (9,586) $ 6,752
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization ................................. 10,256 9,223
Gain from property damage claim ............................... -- (550)
Gain from sale of asset ....................................... -- (14,195)
Other ......................................................... (2,038) (3,258)
Changes in operating assets and liabilities:
Accounts receivable ......................................... 1,138 5,165
Inventories ................................................. (1,202) (10,779)
Prepaid expenses and other current assets ................... 854 184
Other assets ................................................ (3,165) (805)
Accounts payable ............................................ 5,683 (2,520)
Accrued expenses and other current liabilities .............. (360) (8)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ......... 1,580 (10,791)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures ............................................. (10,326) (13,921)
Acquisition of a business ........................................ (51,700) --
Proceeds from property damage claim .............................. -- 872
Proceeds from sale of assets ..................................... 37 18,700
Other investing .................................................. (494) (3,000)
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ......... (62,483) 2,651
-------- --------
FINANCING ACTIVITIES:
Cash overdraft ................................................... 3,344 1,845
Net increase in short-term debt .................................. 25,485 2,076
Proceeds from long-term debt ..................................... 1,578 19,249
Proceeds from issuance of redeemable preferred stock ............. 45,000 --
Payments of long-term debt ....................................... (836) (11,414)
Other financing .................................................. (942) 62
-------- --------
NET CASH PROVIDED BY FINANCIAL ACTIVITIES ................... 73,629 11,818
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................. (45) --
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................... 12,681 3,678
CASH AND CASH EQUIVALENTS at beginning of period .................... 2,403 2,308
-------- --------
CASH AND CASH EQUIVALENTS at end of period .................. $ 15,084 $ 5,986
======== ========
See notes to unaudited Condensed Consolidated Financial Statements
7
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands)
1. General
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of March 31, 2001 and the results of operations and cash flows for the three
months and nine months ended March 31, 2001 and 2000.
The condensed consolidated balance sheet as of June 30, 2000 was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. 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 consolidated financial statements for the year
ended June 30, 2000.
Certain prior year amounts in the accompanying condensed consolidated
financial statements and related notes have been reclassified to conform to the
fiscal 2001 presentation. Such reclassifications include a reclassification of
customer rebates of $1,132 and $3,561 for the three months and nine months ended
March 31, 2000, respectively, from selling, general and administrative expenses
to net sales on the consolidated statements of operations and comprehensive
income, as a result of the adoption of the Emerging Issues Task Force Issue No.
00-14 "Accounting for Certain Sales Incentives."
The Company adopted Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) on
July 1, 2000. SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company uses
foreign currency forward contracts as a means of hedging exposure to foreign
currency risks and foreign currency options as a means of hedging forecasted
operating costs. The Company also utilizes, on a limited basis, certain
commodity derivatives, primarily on copper used in its manufacturing process, to
hedge the cost of its anticipated production requirements. During the quarter
ended March 31, 2001, the Company's foreign currency options have been
designated and qualify as cash flow hedges under the criteria of SFAS 133. SFAS
133 requires that changes in fair value of derivatives that qualify as cash flow
hedges be recognized in other comprehensive income while the ineffective portion
of the derivative's change in fair value be recognized immediately in earnings.
The Company's foreign currency forward contracts and commodity derivatives did
not meet the criteria of SFAS 133 to qualify for hedge accounting. SFAS 133
requires that unrealized gains and losses on derivatives not qualifying for
hedge accounting be recognized currently in earnings. The cumulative effect of a
change in accounting principle due to the adoption of SFAS 133 as of July 1,
2000 was not material. The Company recorded a net loss of $168 in other
comprehensive income for foreign currency options, a net loss of $147 in cost of
goods sold for commodity contracts and a net loss of $567 in other expense for
the foreign currency forward contracts and the ineffective portion of the option
contracts for the three month period ended March 31, 2001 and net losses of $0
and $143 and a net gain of $60, respectively, for the nine months ended March
31, 2001.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition", which provides
guidelines in applying generally accepted accounting principles to selected
revenue recognition issues. In October 2000, the SEC issued an interpretive
release to SAB 101, clarifying certain of its positions on revenue recognition.
The SAB is effective in the fourth fiscal quarter of fiscal years beginning
after December 15, 1999, or as of April 1, 2001 in the Company's case. The
Company anticipates recording the effect of adoption of SAB 101 as a cumulative
effect adjustment, retroactive to July 1, 2000, however, the Company continues
to assess the impact of the SEC's interpretive release and the amount of the
cumulative effect adjustment will not be known until the fourth fiscal quarter.
In October 2000, the Emerging Issues Task Force ("EITF") issued guidance
on how to classify certain revenues and costs in a company's financial
statements. EITF No. 00-10 "Accounting for Shipping and Handling Revenues and
Costs" requires that companies classify all amounts billed to customers related
to shipping and handling costs as revenue. This statement will be effective in
the fourth fiscal quarter of fiscal years beginning after December 15, 1999 and
is not expected to have any effect on the financial statements.
The results of operations for the three months and nine months ended March
31, 2001 and 2000 may not be indicative of results for the full year.
8
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) -- (Continued)
(In Thousands)
2. Acquisition
On November 30, 2000, the Company purchased the Medicated Feed Additives
(MFA) business of Pfizer, Inc. and certain of its subsidiaries ("Pfizer"). The
MFA business was a group of products within Pfizer's Animal Health Group. The
business produces and sells a broad range of Medicated Feed Additive Products
(MFAs) to the global livestock industry, either directly to large integrated
livestock producers or through a network of independent distributors. The
activities of the MFA business (production, sales and marketing, and finance)
were integrated within Pfizer's Animal Health Group.
The purchase price of $74,434 (including cost of acquisition) was paid
with cash of $51,700 and the issuance of a promissory note to Pfizer for
$22,734, which matures in 2003 with interest payable semi-annually in arrears at
13%. The purchase price continues to be subject to finalization based on certain
working capital adjustments under the agreement. The Company financed the
$51,700 cash payment through the issuance of $40,808 of redeemable preferred
securities ($45,000 of redeemable preferred securities, less costs connected
with the issue of those securities of $4,192), and the remainder was financed
through an amendment to existing bank credit facilities. In addition, under the
terms of the purchase agreement, the Company is required to pay Pfizer
contingent purchase price based on a percentage of future net revenues of a
particular product. The term of the contingent payments is five years from
November 30, 2000. The maximum contingent purchase price due under this
arrangement is limited to $55,000, with a maximum annual payment of $12,000.
Contingent purchase price paid will be allocated to related production equipment
and product intangibles and the Company accrued $3,406 under this arrangement as
of March 31, 2001. In addition, the Company is required to pay Pfizer contingent
purchase price up to a maximum of $10,000 over five years on other products
based on certain gross profit levels of the MFA business. No amounts have been
accrued under this arrangement.
The acquisition was accounted for in accordance with the purchase method
and results of the MFA business have been included since the date of
acquisition. The purchase price has been preliminarily allocated to inventory
and property, plant, and equipment. Property, plant and equipment includes two
facilities, Rixensart, Belgium and Guarulhols, Brazil. Following the closing,
the Company is operating under a supply agreement with Pfizer in respect of the
manufacturing facility in Belgium pending regulatory approval of the transfer of
title. In addition, the transfer of employees in Belgium is also pending such
regulatory approval and is also pending further negotiations of the settlement
of the pensions. The Company expects the transfer of pension obligations to be
fully funded by Pfizer. The final allocation of the purchase price and the
determination of the useful lives of the long-term assets acquired will be based
on an independent valuation to be completed prior to the Company's fiscal 2001
year end.
The unaudited consolidated results of operations on a pro-forma basis as
if such acquisition had occurred at the beginning of the nine-month periods
being reported are as follows.
Nine Months Ended
March 31,
2001 2000
-------- --------
Net sales $305,940 $348,433
Net (loss) income (10,243) 18,386
The impact of purchase price adjustments to the inventory acquired from
Pfizer increased the net loss in 2001 by $3,335.
3. Inventories
Inventories are valued at the lower of cost or market. Cost is principally
determined using the first-in, first-out (FIFO) and average methods; however,
certain subsidiaries of the Company use the last-in, first-out (LIFO) method for
valuing inventories.
Inventories at March 31, 2001 and June 30, 2000 consist of the following:
March 31, June 30,
2001 2000
-------- -------
Raw materials $ 27,117 $21,457
Work-in-process 2,832 5,340
Finished goods 72,340 23,608
-------- -------
$102,289 $50,405
======== =======
9
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) -- (Continued)
(In Thousands)
4. Contingencies
a. Litigation
The Company's subsidiary, Phibro-Tech, Inc., has been named as a
potentially responsible party ("PRP") in connection with an action commenced by
the EPA, involving a third party fertilizer manufacturing site in South
Carolina. While the outcome of ongoing negotiation is uncertain, the Company has
accrued its best estimate of the amount for which this matter can be settled.
Phibro-Tech, Inc. has also been named as a PRP involving a third party site in
California. The Company is not, at this time, in a position to assess the extent
of liability associated with this site.
Phibro-Tech, Inc. has also been named as one of several defendants in a
suit brought by Communities for a Better Environment in California, alleging
violations under California's Proposition 65, the Safe Drinking Water and Toxic
Enforcement Act, relating to its Santa Fe Springs, California facility. The
Company is not, at this time, in a position to assess the extent of liability,
if any.
The Company and its subsidiary, C.P. Chemicals, Inc., are involved in
litigation alleging that operations at the Sewaren, New Jersey site have
affected the adjoining owner's property. The Company is not, at this time, in a
position to assess the extent of any liability.
The Company and its subsidiaries are party to a number of claims and
lawsuits arising in the normal course of business, including patent
infringement, product liability and governmental regulation concerning
environmental and other matters. Certain of these actions seek damages in
various amounts.
All such claims are being contested, and management believes the
resolution of these matters will not materially affect the consolidated
financial position, results of operations or cash flows of the Company.
b. Environmental Remediation
The Company's domestic subsidiaries are subject to various federal, state
and local environmental laws and regulations which govern the management of
chemical wastes. The most significant regulation governing the Company's
recycling activities is the Resource Conservation and Recovery Act of 1976
("RCRA"). The Company has been issued final RCRA "Part B" permits to operate as
hazardous waste treatment and storage facilities at its facilities in Santa Fe
Springs, California; Garland, Texas; Joliet, Illinois; Sumter, South Carolina
and Sewaren, New Jersey. The Company has also obtained an interim status RCRA
permit for its Union City, California facility.
In connection with applying for RCRA "Part B" permits, the Company has
been required to perform extensive site investigations at certain of its
operating facilities and inactive sites to identify possible contamination and
to provide the regulatory authorities with plans and schedules for remediation.
Some soil and groundwater contamination has been identified at several plant
sites and will require corrective action over the next several years.
Based upon information available, management estimates the cost of further
investigation and remediation of identified soil and groundwater problems at
operating sites, closed sites and third party sites to be approximately $1,737
as of March 31, 2001, which is included in current and long-term liabilities.
5. Business Segments
The Company operates in two business segments: AgChem and Industrial
Chemicals. The AgChem segment manufactures and markets a variety of animal
nutrition and health products, copper based fungicides and growth regulators.
The MFA business is included in the AgChem segment. The Industrial Chemicals
segment manufactures and markets a number of specialty organic and inorganic
intermediate chemicals for use in a broad variety of industrial chemical
applications. The Company aggregates certain operating segments into its
reportable segments. Management evaluates the performance of its operating
segments and allocates resources based on operating income. Transfers between
segments are priced at amounts that include a manufacturing profit except that
transfers of $2,751 and $2,014 for the three months ended March 31, 2001 and
2000, respectively, and $9,215 and $6,157 for the nine months ended March 31,
2001 and 2000, respectively, from the Industrial
10
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) -- (Continued)
(In Thousands)
Chemicals group to the AgChem group are recorded at the cost of product
transferred. Other includes corporate expenses and elimination of intersegment
revenues.
Industrial
AgChem Chemicals
Group Group Other Total
-------- --------- -------- --------
Three Months Ended March 31, 2001
Revenues - external customers ............. $ 68,049 $ 34,154 $ -- $102,203
- intersegment ................... 1,622 5,847 (7,469) 0
-------- -------- -------- --------
Total revenues ............................ $ 69,671 $ 40,001 $ (7,469) $102,203
======== ======== ======== ========
Operating income (loss) ................... $ 3,113 $ 479 $ (2,276)(1) $ 1,316
======== ======== ======== ========
----------
(1) Represents corporate expenses and intercompany profit eliminations.
Industrial
AgChem Chemicals
Group Group Other Total
-------- --------- -------- -------
Three Months Ended March 31, 2000
Revenues - external customers ............. $43,892 $35,551 $ -- $79,443
- intersegment ................... 806 4,652 (5,458) 0
------- ------- ------- -------
Total revenues ............................ $44,698 $40,203 $(5,458) $79,443
======= ======= ======= =======
Operating income (loss) ................... $ 2,989 $ 1,842 $(2,178)(2) $ 2,653
======= ======= ======= =======
----------
(2) Represents corporate expenses and intercompany profit eliminations.
Industrial
AgChem Chemicals
Group Group Other Total
-------- --------- -------- --------
Nine Months Ended March 31, 2001
Revenues - external customers ............. $156,272 $ 99,057 $-- $255,329
- intersegment ................... 3,896 18,025 (21,921) 0
-------- -------- -------- --------
Total revenues ............................ $160,168 $117,082 $(21,921) $255,329
======== ======== ======== ========
Operating income (loss) ................... $ 5,634 $ 2,257 $ (7,557)(1) $ 334
======== ======== ======== ========
----------
(1) Represents corporate expenses and intercompany profit eliminations.
Industrial
AgChem Chemicals
Group Group Other Total
-------- --------- -------- --------
Nine Months Ended March 31, 2000
Revenues - external customers ............. $122,573 $104,088 $ -- $226,661
- intersegment ................. 3,654 15,521 (19,175) 0
-------- -------- -------- --------
Total revenues ............................ $126,227 $119,609 $(19,175) $226,661
======== ======== ======== ========
Operating income (loss) ................... $ 6,126 $ 7,687 $ (7,031)(2) $ 6,782
======== ======== ======== ========
----------
(2) Represents corporate expenses and intercompany profit eliminations.
6. Credit Facility
In connection with the MFA acquisition, the Company has amended its
existing $35,000 revolving credit facility with PNC Bank to increase the
facility to $70,000 and to provide for an additional $15,000 facility for
capital expenditure spending. The Company, under the amended credit agreement,
may choose between two interest options: (i) base rate, as defined and
11
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) -- (Continued)
(In Thousands)
(ii) Euro Rate, as defined, plus 21/4% - 3% per annum, depending on the
Company's operating performance and whether the drawdowns are under the
revolving credit facility or the capital expenditure facility. The facilities
have a maturity date of three years from December 1, 2000 and required the grant
of security interests in substantially all the Company's domestic assets as well
as certain of the capital stock of the Company's foreign subsidiaries. Due to
the nature and terms of the amended credit agreement, which includes both a
subjective acceleration clause and a requirement to maintain a lock box
arrangement, all borrowings against this facility are now classified as a
current liability.
7. Redeemable Preferred Stock
Redeemable preferred securities were issued on November 30, 2000 to
Palladium Equity Partners LLC and related entities ("Palladium") as follows:
Preferred B - $25,000 - 25,000 shares
Preferred C - $20,000 - 20,000 shares
The redeemable preferred stock is entitled to cumulative cash dividends,
payable semi-annually, at 15% per annum of the liquidation value. The
liquidation value of the Preferred B stock is an amount equal to $1 per share
plus all accrued and unpaid dividends (the "Liquidation Value"). The redeemable
Preferred C stock is entitled to the Liquidation Value plus a percentage of the
equity value of the Company, as defined in the amended Certificate of
Incorporation. The equity value is calculated as a multiple of the earnings
before interest, tax, depreciation and amortization ("EBITDA") of the combined
Company business ("Equity Value"). The Company may, at the date of the annual
closing anniversary, redeem the Preferred B stock, in whole or in part at the
Liquidation Value, for cash, provided that if Preferred B is redeemed separately
from the Preferred C, then the Preferred B must be redeemed for the Liquidation
Value plus an additional amount which would generate an internal rate of return
of 20% to Palladium on the Preferred B investment. Redemption in part of
Preferred B is only available if at least 50% of the outstanding Preferred B is
redeemed. On the third closing anniversary and on each closing anniversary
thereafter, the Company may redeem for cash only in whole the Preferred C, at
the Liquidation Value plus the Equity Value payment.
At any time after the redemption of the Company's Senior Subordinated
Notes due 2008, Palladium shall have the right to require the Company to redeem
for cash the Preferred B at the Liquidation Value and the Preferred C at the
Liquidation Value plus the Equity Value payment.
The redeemable preferred securities were initially recorded at $40,808,
representing proceeds of $45,000, net of costs of issuance of $4,192. The
Company has recorded a charge of $4,192 to retained earnings to reflect the
accretion of the preferred securities to their fair market value as at the
closing date. Dividends of $2,250 have been accrued on the preferred securities
and charged to retained earnings as of March 31, 2001. No equity value accretion
was required as of March 31, 2001 under the applicable formula.
In addition, an annual management advisory fee of $2,250 is payable to
Palladium until all of the Preferred B and Preferred C shares are redeemed.
Payments are made quarterly in advance.
8. Subsequent Event
On May 4, 2001, the Company sold its Agtrol U.S. business, a division of
the Company's Phibro-Tech, Inc. subsidiary, to Nufarm, Inc. ("Nufarm"), a U.S.
subsidiary of Nufarm Limited, a publicly listed Australian based company. The
effective date was May 1, 2001 and the sale included inventory and intangible
assets to Nufarm. The sale did not include plant, equipment, and other
manufacturing assets. The Company also entered into a five-year agreement to
supply copper fungicide products to Nufarm from its Sumter, South Carolina
plant.
The sales price was $16,000, of which $14,775 was paid in cash plus a note
for $1,225 payable on June 30, 2001. Additionally, the purchase price will be
adjusted upward or downward for any inventory in excess or less than the amount
of inventory at June 30, 2000.
The parties are involved in ongoing discussions relating to the sale of
Agtrol's European operations.
12
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) -- (Continued)
(In Thousands)
9. Condensed Consolidating Financial Statements
In June 1998, the Company issued $100 million of its 97/8% Senior
Subordinated Notes due 2008 (the "Notes"). In connection with the issuance of
these Notes, 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 condensed consolidating financial data summarizes the
assets, liabilities and results of operations and cash flows of the Parent,
Guarantors and Non-Guarantor Subsidiaries. The Parent is Philipp Brothers
Chemicals, Inc. ("PBC"). The U.S. Guarantor Subsidiaries include all domestic
subsidiaries of PBC including the following: C.P. Chemicals, Inc., Koffolk,
Inc., Phibro-Tech, Inc., MRT Management Corp., Mineral Resource Technologies,
L.L.C., Prince Agriproducts, Inc., The Prince Manufacturing Company (PA), The
Prince Manufacturing Company (IL), PhibroChem, Inc., Phibro Chemicals, Inc.,
Western Magnesium Corp., Phibro Animal Health Holdings, Inc. and Phibro Animal
Health U.S., Inc. The U.S. and foreign Guarantor and Non-Guarantor Subsidiaries
are directly or indirectly wholly owned as to voting stock by PBC.
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.
The principal consolidation adjustments are to eliminate investments in
subsidiaries and intercompany balances and transactions. Separate financial
statements of the U.S. Guarantor Subsidiaries and the Non-Guarantor Subsidiaries
are not presented because management has determined that such financial
statements would not be material to investors.
13
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
AS OF MARCH 31, 2001
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
Foreign
U.S. Guarantor Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents ...................... $ 2,007 $ 473 $ 12,604 $ 15,084
Trade receivables .............................. 5,251 36,992 37,383 79,626
Other receivables .............................. 1,445 435 2,949 4,829
Inventory ...................................... 2,987 59,678 39,624 102,289
Prepaid expenses and other ..................... 6,909 3,700 3,491 14,100
-----------------------------------------------------------------------------
Total current assets ...................... 18,599 101,278 96,051 -- 215,928
-----------------------------------------------------------------------------
Property, plant & equipment, net ............... 694 29,074 68,436 98,204
Intangibles .................................... 87 2,009 3,953 6,049
Investment in subsidiaries ..................... 66,467 1,530 (6,126) (61,871) --
Intercompany ................................... 78,946 (39,030) (4,498) (35,418) --
Other assets ................................... 95,154 (69,531) 2,244 27,867
-----------------------------------------------------------------------------
Total assets .............................. $ 259,947 $ 25,330 $ 160,060 $ (97,289) $ 348,048
=============================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft ................................. $ 13 $ 4,791 $ 1 $ 4,805
Loan payable to banks .......................... 53,708 -- 9,192 62,900
Current portion of long term debt .............. 2,304 398 937 3,639
Accounts payable ............................... 3,672 15,890 19,173 38,735
Other loans payable ............................ 688 -- -- 688
Accrued expenses and other ..................... 9,485 15,386 10,808 35,679
-----------------------------------------------------------------------------
Total current liabilities ................. 69,870 36,465 40,111 -- 146,446
-----------------------------------------------------------------------------
Long term debt ................................. 121,330 (52,674) 98,452 (35,418) 131,690
Other liabilities .............................. 2,100 4,543 3,835 10,478
Redeemable securities:
Series B and C preferred stock ................. 47,250 -- -- 47,250
Common stock ................................... 1,360 -- (134) 1,226
Common stock of subsidiary ..................... -- 95 -- 95
-----------------------------------------------------------------------------
48,610 95 (134) -- 48,571
-----------------------------------------------------------------------------
Stockholders' Equity
Series A preferred stock ....................... 521 -- -- 521
Common stock ................................... 2 32 -- (32) 2
Paid in capital ................................ 878 33,941 100 (34,041) 878
Retained earnings .............................. 16,780 2,911 24,887 (27,798) 16,780
Accumulated other comprehensive
income (loss) ............................... (144) 17 (7,191) (7,318)
-----------------------------------------------------------------------------
Total stockholders' equity ................ 18,037 36,901 17,796 (61,871) 10,863
-----------------------------------------------------------------------------
Total liabilities and equity .............. $ 259,947 $ 25,330 $ 160,060 $ (97,289) $ 348,048
=============================================================================
14
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
Foreign
U.S. Guarantor Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Net sales ...................................... $ 8,795 $ 58,957 $ 50,888 $ (16,437) $102,203
Cost of goods sold ............................. 7,156 43,864 40,729 (16,437) 75,312
-----------------------------------------------------------------------------
Gross profit .............................. 1,639 15,093 10,159 -- 26,891
Selling, general, and
administrative expenses ..................... 4,161 13,812 7,602 25,575
-----------------------------------------------------------------------------
Operating (loss) income ........................ (2,522) 1,281 2,557 -- 1,316
Interest expense ............................... 3,639 (71) 1,615 5,183
Interest income ................................ (5) (9) 30 16
Other expense .................................. 29 340 768 1,137
Intercompany allocation ........................ (4,699) 2,991 1,708 --
Loss (profit) relating to subsidiaries ......... 2,445 -- -- (2,445) --
-----------------------------------------------------------------------------
(Loss) income before income taxes .............. (3,931) (1,970) (1,564) 2,445 (5,020)
(Benefit) for income taxes ..................... (82) (471) (618) (1,171)
-----------------------------------------------------------------------------
Net (loss) income .............................. $ (3,849) $ (1,499) $ (946) $ 2,445 $ (3,849)
=============================================================================
15
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 2001
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
Foreign
U.S. Guarantor Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Net sales ...................................... $ 25,439 $ 147,776 $ 114,376 $ (32,262) $ 255,329
Cost of goods sold ............................. 20,603 108,471 92,100 (32,262) 188,912
-----------------------------------------------------------------------------
Gross profit ................................... 4,836 39,305 22,276 -- 66,417
Selling, general, and
administrative expenses ..................... 11,165 36,815 18,103 66,083
-----------------------------------------------------------------------------
Operating (loss) income ........................ (6,329) 2,490 4,173 -- 334
Interest expense ............................... 8,882 (10) 4,330 13,202
Interest income ................................ (49) (10) (328) (387)
Other expense .................................. 150 336 748 1,234
Intercompany allocation ........................ (11,594) 9,500 2,094 --
Loss (profit) relating to subsidiaries ......... 6,062 -- -- (6,062) --
-----------------------------------------------------------------------------
(Loss) income before income taxes .............. (9,780) (7,326) (2,671) 6,062 (13,715)
(Benefit) for income taxes ..................... (194) (2,490) (1,445) (4,129)
-----------------------------------------------------------------------------
Net (loss) income .............................. $ (9,586) $ (4,836) $ (1,226) $ 6,062 $ (9,586)
=============================================================================
16
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 2001
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
Foreign
U.S. Guarantor Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net (loss) income .............................. $ (9,586) $ (4,836) $ (1,226) $ 6,062 $ (9,586)
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Depreciation and amortization ............... 528 3,805 5,923 10,256
Other ....................................... (878) 320 (1,480) (2,038)
Changes in operating assets and
liabilities:
Accounts receivable ............................ 920 8,255 (8,037) 1,138
Inventory ...................................... 280 (9,834) 8,352 (1,202)
Prepaid expenses and other ..................... (434) 2,910 (1,622) 854
Other assets ................................... (918) (2,286) 39 (3,165)
Intercompany ................................... (3,517) 4,116 5,463 (6,062) --
Accounts payable ............................... 1,532 573 3,578 5,683
Accrued expenses and other ..................... (2,476) 1,491 625 (360)
-----------------------------------------------------------------------------
Net cash (used in) provided by operating
activities ............................... (14,549) 4,514 11,615 -- 1,580
-----------------------------------------------------------------------------
Investing activities:
Capital expenditures ........................... (236) (6,845) (3,245) (10,326)
Acquisition of a business ...................... (51,700) -- -- (51,700)
Other investing ................................ -- -- (457) (457)
-----------------------------------------------------------------------------
Net cash used in investing activities .......... (51,936) (6,845) (3,702) -- (62,483)
-----------------------------------------------------------------------------
Financing activities:
Cash overdraft ................................. (145) 3,489 -- 3,344
Net increase in short term debt ................ 24,592 -- 893 25,485
Proceeds from long term debt ................... -- 26 1,552 1,578
Proceeds from issuance of
redeemable preferred stock .................. 45,000 -- -- 45,000
Payments of long term debt ..................... (24) (806) (6) (836)
Other financing ................................ (942) -- -- (942)
-----------------------------------------------------------------------------
Net cash provided by financing activities ...... 68,481 2,709 2,439 -- 73,629
-----------------------------------------------------------------------------
Effect of exchange rate changes
on cash ..................................... -- (4) (41) (45)
-----------------------------------------------------------------------------
Net increase in cash and cash equivalents ...... 1,996 374 10,311 -- 12,681
Cash and cash equivalents at
beginning of year ........................... 11 99 2,293 2,403
-----------------------------------------------------------------------------
Cash and cash equivalents at end
of year ..................................... $ 2,007 $ 473 $ 12,604 $ -- $ 15,084
=============================================================================
17
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
AS OF JUNE 30, 2000
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
Foreign
U.S. Guarantor Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents ...................... $ 11 $ 99 $ 2,293 $ 2,403
Trade receivables .............................. 6,172 45,378 27,826 79,376
Other receivables .............................. 4,855 550 3,074 8,479
Inventory ...................................... 3,267 25,072 22,066 50,405
Prepaid expenses and other ..................... 3,065 2,443 3,590 9,098
-----------------------------------------------------------------------------
Total current assets ..................... 17,370 73,542 58,849 -- 149,761
-----------------------------------------------------------------------------
Property, plant & equipment, net ............... 702 25,032 50,446 76,180
Intangibles .................................... 87 2,292 3,918 6,297
Investment in subsidiaries ..................... 78,028 1,533 (6,129) (73,432) --
Intercompany ................................... 63,874 (32,463) 3,197 (34,608) --
Other assets ................................... 15,236 8,542 2,435 26,213
-----------------------------------------------------------------------------
Total assets ............................. $ 175,297 $ 78,478 $ 112,716 $(108,040) $ 258,451
=============================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft ................................. $ 158 $ 1,302 $ 660 $ 2,120
Loan payable to banks .......................... -- -- 8,650 8,650
Current portion of long term debt .............. 31 893 1,372 2,296
Accounts payable ............................... 2,140 14,999 15,503 32,642
Accrued expenses and other ..................... 3,892 13,118 7,147 24,157
-----------------------------------------------------------------------------
Total current liabilities ................ 6,221 30,312 33,332 -- 69,865
-----------------------------------------------------------------------------
Long term debt ................................. 130,600 1,435 42,295 (34,608) 139,722
Other liabilities ............................. 2,022 4,431 6,829 13,282
Redeemable Securities:
Common stock ................................... 2,389 -- 1,124 3,513
Common stock of subsidiary ..................... -- 451 -- 451
-----------------------------------------------------------------------------
2,389 451 1,124 -- 3,964
-----------------------------------------------------------------------------
Stockholders' Equity
Series A preferred stock ....................... 521 -- -- 521
Common stock ................................... 2 32 -- (32) 2
Paid in capital ................................ 878 34,040 -- (34,040) 878
Retained earnings .............................. 32,808 7,747 31,613 (39,360) 32,808
Accumulated other comprehensive
income (loss) ............................... (144) 30 (2,477) (2,591)
-----------------------------------------------------------------------------
Total stockholders' equity ............... 34,065 41,849 29,136 (73,432) 31,618
-----------------------------------------------------------------------------
Total liabilities and equity ............. $ 175,297 $ 78,478 $ 112,716 $(108,040) $ 258,451
=============================================================================
18
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
Foreign
U.S. Guarantor Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Net sales ...................................... $ 9,066 $ 45,540 $ 34,127 $ (9,290) $ 79,443
Cost of goods sold ............................. 7,389 34,555 25,280 (9,290) 57,934
-----------------------------------------------------------------------------
Gross profit ................................... 1,677 10,985 8,847 -- 21,509
Selling, general, and
administrative expenses ..................... 3,801 9,837 5,218 18,856
-----------------------------------------------------------------------------
Operating (loss) income ........................ (2,124) 1,148 3,629 -- 2,653
Interest expense ............................... 2,223 75 1,479 3,777
Interest income ................................ (5) -- (287) (292)
Other expense .................................. -- -- 743 743
Gain from property damage claim ................ -- (550) -- (550)
Gain from sale of asset ........................ -- -- (14,195) (14,195)
Intercompany allocation ........................ (2,757) 2,757 -- --
(Profit) loss relating to subsidiaries ......... (11,292) -- -- 11,292 --
-----------------------------------------------------------------------------
Income (loss) income before
income taxes ................................ 9,707 (1,134) 15,889 (11,292) 13,170
(Benefit) provision for income taxes ........... (211) (259) 4,157 -- 3,687
-----------------------------------------------------------------------------
Net income (loss) .............................. $ 9,918 $ (875) $ 11,732 $ (11,292) $ 9,483
=============================================================================
19
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
Foreign
U.S. Guarantor Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Net sales ...................................... $ 26,511 $ 125,915 $ 101,684 $ (27,449) $ 226,661
Cost of goods sold ............................. 21,421 95,099 74,921 (27,449) 163,992
-----------------------------------------------------------------------------
Gross profit ................................... 5,090 30,816 26,763 -- 62,669
Selling, general, and
administrative expenses ..................... 10,283 28,385 17,219 55,887
-----------------------------------------------------------------------------
Operating (loss) income ........................ (5,193) 2,431 9,544 -- 6,782
Interest expense ............................... 6,102 193 4,470 10,765
Interest income ................................ (17) (1) (449) (467)
Other expense .................................. (912) -- 3,690 2,778
Gain from property damage claim ................ -- (550) -- (550)
Gain from sale of asset ........................ -- -- (14,195) (14,195)
Intercompany allocation ........................ (7,969) 7,969 -- --
(Profit) loss relating to subsidiaries ......... (8,590) -- -- 8,590 --
-----------------------------------------------------------------------------
Income (loss) income before
income taxes ................................ 6,193 (5,180) 16,028 (8,590) 8,451
(Benefit) provision for income taxes ........... (994) (1,724) 4,417 -- 1,699
-----------------------------------------------------------------------------
Net income (loss) .............................. $ 7,187 $ (3,456) $ 11,611 $ (8,590) $ 6,752
=============================================================================
20
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
Foreign
U.S. Guarantor Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net income (loss) .............................. $ 7,187 $ (3,456) $ 11,611 $ (8,590) $ 6,752
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization ............... 405 3,329 5,489 9,223
Gain from property damage claim ............. -- (550) -- (550)
Gain from sale of asset ..................... -- -- (14,195) (14,195)
Other ....................................... 2,133 (467) (4,924) (3,258)
Changes in operating assets and liabilities:
Accounts receivable ............................ 248 914 4,003 5,165
Inventory ...................................... (290) (8,744) (1,745) (10,779)
Prepaid expenses and other ..................... (2,440) 609 2,015 184
Other assets ................................... 19 (595) (229) (805)
Intercompany ................................... (24,081) 18,847 (3,356) 8,590 --
Accounts payable ............................... (162) 432 (2,790) (2,520)
Accrued expenses and other ..................... 2,796 (6,602) 3,798 (8)
-----------------------------------------------------------------------------
Net cash (used in) provided by
operating activities ........................ (14,185) 3,717 (323) -- (10,791)
-----------------------------------------------------------------------------
Investing activities:
Capital expenditures ........................... (90) (6,185) (7,646) (13,921)
Proceeds from property damage claim ............ -- 872 -- 872
Proceeds from sale of asset .................... -- -- 18,700 18,700
Other investing ................................ (3,000) -- -- (3,000)
-----------------------------------------------------------------------------
Net cash provided by (used in)
investing activities ........................ (3,090) (5,313) 11,054 -- 2,651
-----------------------------------------------------------------------------
Financing activities:
Cash overdraft ................................. (75) 812 1,108 1,845
Net increase in short term debt ................ 229 74 1,773 2,076
Proceeds from long term debt ................... 16,807 1,566 876 19,249
Payments of long term debt ..................... (94) (464) (10,856) (11,414)
Other financing ................................ -- -- 62 62
-----------------------------------------------------------------------------
Net cash (used in) provided by
financing activities ........................ 16,867 1,988 (7,037) -- 11,818
-----------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents ........................ (408) 392 3,694 3,678
Cash and cash equivalents at
beginning of year ........................... 393 166 1,749 2,308
-----------------------------------------------------------------------------
Cash and cash equivalents at
end of year ................................. $ (15) $ 558 $ 5,443 $ -- $ 5,986
=============================================================================
21
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 throughout this
Form 10-Q and are discussed under the caption of this Item 2 entitled "Certain
Factors Affecting Future Operating Results".
General
Philipp Brothers Chemicals, Inc. (together with its subsidiaries, the
"Company"), is a leading diversified global manufacturer and marketer of a broad
range of specialty agricultural and industrial chemicals, which are sold
world-wide for use in numerous markets, including animal nutrition and health,
agriculture, pharmaceutical, electronics, wood treatment, glass, construction
and concrete. The Company also provides recycling and hazardous waste services
primarily to the electronics and metal treatment industries. Unless the context
otherwise requires, references herein to the Company are intended to refer to
Philipp Brothers Chemicals, Inc. and/or one or more of its subsidiaries, as
applicable.
Acquisition
On November 30, 2000, the Company purchased (see Note 2 of the Notes to
the Condensed Consolidated Financial Statements) the Medicated Feed Additives
(MFA) business of Pfizer, Inc. (Pfizer). The MFA business produces and sells a
broad range of medicated feed additive products to the global livestock
industry, either directly to large integrated livestock producers or through a
network of independent distributors.
The purchase price for this acquisition was $74.4 million, of which $51.7
million was paid in cash with the remainder being financed through the issuance
of a promissory note to Pfizer for $22.7 million. The note is payable in 2003
and bears interest at 13% payable semi-annually in arrears. The purchase price
continues to be subject to finalization based on certain working capital
adjustments under the agreement. The Company financed the $51.7 million cash
payment through net cash proceeds of $40.8 million from the issuance of
redeemable preferred securities (see Note 7 of the Notes to Condensed
Consolidated Financial Statements) and the remainder through an amendment to
existing bank credit facilities (see Note 6 of the Notes to Condensed
Consolidated Financial Statements). In addition, under the terms of the purchase
agreement, the Company is required to pay Pfizer contingent purchase price based
on a percentage of future net revenues of a particular product. The term of the
contingent payments is five years from November 30, 2000. The maximum contingent
purchase price due under this arrangement is limited to $55.0 million, with a
maximum annual payment of $12.0 million. In addition, the Company is required to
pay Pfizer contingent payments to a maximum of $10.0 million over five years on
other products based on certain gross profit levels of the MFA business.
The acquisition was accounted for as a purchase and operating results have
been included since the date of acquisition. The MFA business is included in the
AgChem Segment for segment reporting purposes.
Subsequent Event
On May 4, 2001, the Company sold its Agtrol U.S. business, a division of
the Company's Phibro-Tech, Inc. subsidiary to Nufarm Inc. (Nufarm), a U.S.
subsidiary of Nufarm Limited, a publicly listed Australian based company. Agtrol
develops, manufactures, and markets crop protection products, including copper
fungicides. The effective date was May 1, 2001 and the sale included inventory
and intangible assets to Nufarm. The sale did not include plant, equipment, and
other manufacturing assets. The Company also entered into a five-year agreement
to supply copper fungicide products to Nufarm from its Sumter, South Carolina
plant.
The sales price was $16.0 million, of which $14.8 million was paid in cash
with a note for $1.2 million payable on June 30, 2001. Additionally, the
purchase price will be adjusted upward or downward for any inventory in excess
or less than the amount of inventory at June 30, 2000. The proceeds will be used
to pay down debt.
The parties are involved in ongoing discussions relating to the sale of
Agtrol's European operations.
Results of Operations
The Company operates in two industry segments: AgChem and Industrial
Chemicals.
22
Sales
($000's)
Three Months Ended Nine Months Ended
March 31, March 31,
Operating Segments 2001 2000 2001 2000
--------- --------- --------- ---------
AgChem ............................ $ 69,671 $ 44,698 $ 160,168 $ 126,227
Industrial Chemicals .............. 40,001 40,203 117,082 119,609
Elimination of intersegment sales . (7,469) (5,458) (21,921) (19,175)
--------- --------- --------- ---------
$ 102,203 $ 79,443 $ 255,329 $ 226,661
========= ========= ========= =========
Operating Income
($000's)
Three Months Ended Nine Months Ended
March 31, March 31,
Operating Segments 2001 2000 2001 2000
--------- --------- --------- ---------
AgChem ............................ $ 3,113 $ 2,989 $ 5,634 $ 6,126
Industrial Chemicals .............. 479 1,842 2,257 7,687
Corporate expenses and eliminations (2,276) (2,178) (7,557) (7,031)
--------- --------- --------- ---------
$ 1,316 $ 2,653 $ 334 $ 6,782
========= ========= ========= =========
Comparison of Three Months Ended March 31, 2001 and 2000
Net Sales. Net sales increased by $22.8 million, or 28.6% to $102.2
million in the three months ended March 31, 2001 as compared to the same period
of the prior year. AgChem sales increased by $25.0 million, due to $27.6 million
of sales from the newly acquired MFA business. This was partially offset by a
$1.4 million reduction in sales of crop protection chemicals primarily due to a
weather related delay in the California grape-growing season. Industrial
Chemicals sales were lower by $.2 million. Lower sales volume of etchants due to
the slowdown in the electronics industry was partially offset by increased
demand for coal fly ash and higher recycling fees.
Gross Profit. Gross profit increased by $5.4 million, or 25.0% to $26.9
million as compared to the same period of the prior year. In AgChem, gross
profits generated by operations of the MFA business were $8.7 million. Gross
profit (and operating income) of the MFA business would have been $4.6 million
higher than reported if not for purchase price adjustments to the value of
inventory acquired from Pfizer. Offsetting this was a reduction in gross profit
from crop protection chemicals of $1.4 million, resulting from reduced sales and
changes in product mix. Lower profits in the Industrial Chemicals segment were
primarily due to the lower sales volume to the electronics industry as well as
increased utility costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.7 million, or 35.6% to $25.6 million for
the three months ended March 31, 2001 as compared to the same period of the
prior year. $6.5 million of this increase relates to S,G&A expenses of the MFA
business. A reduction in the repurchase value of redeemable common stock of a
minority shareholder was partially offset by management advisory fees payable to
Palladium in the 2001 period.
Operating Income. Operating income decreased by $1.3 million to $1.3
million for the three months ended March 31, 2001 as compared to the same period
of the prior year. Operating income of the AgChem segment increased by $.1
million as income generated by the MFA business of $2.2 million was
substantially offset by reduced profitability from crop protection chemicals
($1.5 million). Operating income of the Industrial Chemicals segment was lower
by $1.4 million primarily due to lower sales to the electronics industry, and
higher utility and freight costs. Operating income would have been $4.6 million
higher than reported if not for purchase price adjustments to the value of
inventory acquired from Pfizer.
Interest Expense, Net. Net interest expense increased by $1.7 million, to
$5.2 million for the three months ended March 31, 2001 as compared to the same
period of the prior year. The additional debt taken on as part of the financing
of the MFA acquisition as well as increased borrowings under the amended credit
facility with PNC Bank were the primary factors for the increase.
Other Expense, Net. Other expense, net is primarily comprised of
unrealized foreign currency losses.
23
Income Taxes. The Company provides a benefit on interim period losses as
it is anticipated that future earnings can be utilized to offset the tax benefit
recorded in the current year. The effective tax rate for the quarter is lower
than the U.S. statutory rate due to the relationship of each domestic and
international subsidiaries' individual income or loss position to the statutory
tax rates in each country.
Comparison of Nine Months Ended March 31, 2001 and 2000
Net Sales. Net sales increased by $28.7 million, or 12.6% to $255.3
million in the nine months ended March 31, 2001 as compared to the same period
of the prior year. AgChem sales increased by $33.9 million, primarily due to
$38.0 million of sales from the MFA business. This was partially offset by a
drop in sales of crop protection chemicals ($4.2 million) primarily due to a
weather related delay in the sales in the third quarter of fiscal 2001 as well
as heavier than normal sales volume during the second quarter of fiscal 2000 as
one customer purchased additional product to meet its minimum purchase
commitments for the calendar year. Sales to this customer during fiscal 2001
have followed a more normalized sales pattern. Industrial Chemicals sales were
lower by $2.5 million primarily due to lower sales of calcium carbide ($3.8
million) as the continuing weak market negatively impacted both pricing and
volume. In addition, sales of halogenated organic compounds were down $2.4
million due to the impact of competitive products from China. Offsetting these
decreases were higher recycling fees ($1.9 million) and sales of coal fly ash
($2.3 million) as sales volume increased resulting from new supply contracts.
Gross Profit. Gross profit increased by $3.7 million, or 6.0% to $66.4
million as compared to the same period of the prior year. In AgChem, gross
profits generated by the MFA business were $12.3 million, which were partially
offset by reduced profits from crop protection chemicals ($3.1 million). Gross
profit (and operating income) of the MFA business would have been $5.7 higher
than reported if not for purchase price adjustments to the value of inventory
acquired from Pfizer. Lower profits in the Industrial Chemicals segment were
primarily due to increased raw material and utility costs in the production of
calcium carbide and dicyandiamide which, in conjunction with the reduced volume
and pricing on calcium carbide, negatively impacted gross profit by $5.2
million. In addition, the lower sales of halogenated compounds, the weakening in
the electronics industry, and higher utility costs more than offset the
additional gross profit from coal fly ash and recycling fees.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $10.2 million, or 18.2% to $66.1 million for
the nine months ended March 31, 2001 as compared to the same period of the prior
year. This increase was primarily due to S,G&A expenses relating to the MFA
business ($9.7 million), compensation expense associated with the separation of
employment of a senior executive of the Company ($1.3 million), and additional
warehousing and distribution costs associated with the increased sales of coal
fly ash ($1.6 million). Offsetting these items were lower expenses ($1.9
million) at the Company's Norwegian subsidiary, primarily the result of cost
containment measures taken over the past year. A reduction in the repurchase
value of redeemable common stock of a minority shareholder was partially offset
by management advisory fees payable to Palladium in the 2001 period.
Operating Income. Operating income decreased by $6.4 million to $.3
million for the nine months ended March 31, 2001 as compared to the same period
of the prior year. Operating income of the AgChem segment decreased by $.5
million. Income generated from the MFA business ($2.6 million) was offset by
reduced profitability from crop protection chemicals ($2.5 million). Operating
income of the Industrial Chemicals segment was lower by $5.4 million primarily
due to lower profitability of dicyandiamide and calcium carbide ($3.2 million)
and halogenated organic compounds ($1.2 million). In addition, the weakening
electronics industry and increased freight and utility costs have adversely
impacted the segment's profitability. Operating income would have been $5.7
million higher than reported if not for purchase price adjustments to the value
of inventory acquired from Pfizer.
Interest Expense, Net. Net interest expense increased by $2.5 million, or
24.4% to $12.8 million in the nine months ended March 31, 2001 as compared to
the same period of the prior year. Increased average borrowings as well as
higher interest rates were the primary factors for the increase.
Other Expense, Net. Other expense, net is primarily comprised of
unrealized foreign currency losses.
Income Taxes. The Company provides a benefit on interim period losses as
it is anticipated that future earnings can be utilized to offset the tax benefit
recorded in the current year. The effective tax rate is lower than the U.S.
statutory rate due to the relationship of each domestic and international
subsidiaries' individual income or loss position to the statutory tax rates in
each country.
24
Liquidity and Capital Resources
Net Cash Provided by Operating Activities. Cash provided by operations for
the nine months ended March 31, 2001 was $1.6 million. Included in this is $4.1
million as a final settlement from the Company's insurance carrier for business
interruption and other reimbursable losses and expenses in connection with a
fire, in April 1999, at its Bowmanstown, Pennsylvania facility.
Net Cash Used in Investing Activities. Cash used in investing activities
for the nine months ended March 31, 2001 was $62.5 million, primarily related to
the MFA acquisition ($51.7 million). See Note 2 of the Notes to the Condensed
Consolidated Financial Statements for details on the non-cash consideration for
this acquisition. Capital expenditures of $10.3 million were primarily for
improvements at the Company's ODDA (Norway) facility and expansion of the
Company's coal fly ash operations.
Net Cash Provided by Financing Activities. Net cash provided by financing
activities for the nine months ended March 31, 2001 was $73.6 million, of which
$45.0 million was received through the issuance of redeemable preferred
securities and $24.0 million through utilization of the amended revolving credit
facility with PNC Bank (see Note 6 of the Notes to the Condensed Consolidated
Financial Statements).
Liquidity. In connection with the MFA acquisition, the Company amended its
loan agreement with PNC Bank, increasing the revolving credit portion of the
facility to $70 million (from $35 million) and adding an additional $15 million
facility for spending on capital expenditures. The Company may choose between
two interest options: the base rate, as defined; and the Euro Rate, as defined,
plus 21/4% to 3% per annum, depending on the Company's operating performance and
whether the drawdowns are under the revolving credit facility or the capital
expenditure facility. The agreement was effective December 1, 2000 and continues
until November 30, 2003.
On November 30, 2000 the Company issued $25 million of redeemable Series B
preferred stock and $20 million of redeemable Series C preferred stock. Each
Series is entitled to cumulative cash dividends, payable semi-annually at 15%
per annum of the liquidation value. The liquidation value of the Preferred B
stock is an amount equal to $1 per share plus all accrued and unpaid dividends
(Liquidation Value). The Preferred C stock is entitled to the Liquidation Value
plus a percentage of the equity value of the Company, as defined in the amended
Certificate of Incorporation. The equity value is calculated as a multiple of
the earnings before interest, tax, depreciation and amortization of the Company
(Equity Value). The Company may, at the date of the annual closing anniversary,
redeem the Preferred B in whole or in part at the Liquidation Value, for cash,
provided that if the Preferred B stock is redeemed separately from the Preferred
C stock then the Preferred B must be redeemed for the Liquidation Value plus an
additional amount which would generate an internal rate of return of 20% to the
holders of the shares. Redemption in part of the Preferred B shares is only
available if at least 50% of the outstanding Preferred B shares are redeemed. On
the third closing anniversary and on each closing anniversary thereafter, the
Company may redeem for cash only in whole the Preferred C shares, at the
Liquidation Value plus the Equity Value payment. At any time after the
redemption of the Company's Senior Subordinated Notes due 2008, the holders of
both series have the right to require the Company to redeem for cash all such
preferred shares outstanding.
As of March 31, 2001, the Company had $69.5 million of working capital
compared to $79.9 million as of June 30, 2000. Inventories increased by $51.9
million from the fiscal year end, primarily due to inventory purchased as part
of the MFA acquisition ($51.7 million). Due to the nature and terms of the
amended revolving credit agreement, which includes both a subjective
acceleration clause and a requirement to maintain a lockbox arrangement, all
borrowings against this facility are now classified as a current liability. At
March 31, 2001, the amount of credit extended under this agreement totaled $53.7
million and the Company had $12.1 million available under the borrowing base
formula in this agreement.
Cash on hand as of March 31, 2001 amounted to $15.1 million compared to
$2.4 million at the fiscal year end. Much of the increase in cash results from
the initial funding requirements for the international operations of the MFA
business.
Commencing with the fourth quarter of fiscal 2000, due to competitive
market conditions, the Company extended payment terms on selected AgChem sales
representing $6.7 million of revenues. These terms deferred cash inflows into
the third and fourth quarters of fiscal 2001. As of March 31, 2001, $6.1 million
of receivables is still outstanding relating to these revenues.
The Company anticipates spending approximately $14 million for capital
expenditures in the 2001 fiscal year for its existing business, principally for
improvements at its ODDA facility and for expansion of its coal fly ash
operations. Depending on actual future operating results, the Company may, if
necessary, postpone certain expenditures that are considered discretionary.
25
The Company believes that cash flows from operations and available
borrowing arrangements should provide sufficient working capital to operate the
Company's business, to make budgeted capital expenditures, and to service
interest and current principal coming due on outstanding debt for the next
twelve months.
Seasonality of Business
The Company's sales of copper-based fungicides and other agricultural
products included in the Agtrol business has been typically highest in the first
and fourth fiscal quarters, and its sales of gibberellic acid, also part of the
Agtrol business, has been highest in the fourth quarter, due to the seasonal
nature of the agricultural industry. The Company's sales of finished chemicals
to the wood treatment industry are typically highest in the first and fourth
fiscal quarters due to the increased level of home construction during these
periods. Additionally, sales of these products may be more concentrated in one
of these quarters due to weather conditions.
Quantitative and Qualitative Disclosure About Market Risk
In the normal course of operations, the Company is exposed to market risks
arising from adverse changes in interest rates, foreign currency exchange rates,
and commodity prices. As a result, future earnings, cash flows and fair values
of assets and liabilities are subject to uncertainty. The Company uses foreign
currency forward contracts as a means of hedging exposure to foreign currency
risks. The Company also utilizes, on a limited basis, certain commodity
derivatives, primarily on copper used in its manufacturing processes, to hedge
the cost of its anticipated purchase requirements. The Company does not utilize
derivative instruments for trading purposes. The Company does not hedge its
exposure to market risks in a manner that completely eliminates the effects of
changing market conditions on earnings, cash flows and fair values. The Company
monitors the financial stability and credit standing of its major
counterparties.
Interest Rate Risk
The Company uses sensitivity analysis to assess the market risk of its
debt-related financial instruments and derivatives. Market risk is defined for
these purposes as the potential change in the fair value resulting from an
adverse movement in interest rates. The carrying amounts of cash and cash
equivalents, trade receivables, trade payables and short term debt is considered
to be representative of their fair value because of their short maturities. As
of March 31, 2001, the fair value of the Company's senior subordinated debt was
estimated based on quoted market rates to be $65.0 million and the related
carrying amount is $100 million. A 100 basis point increase in interest rates
could result in an approximately $5.4 million reduction in the fair value of
total debt.
Foreign Currency Exchange Rate Risk
A significant portion of the financial results of the Company is derived
from activities conducted outside the U.S. and denominated in currencies other
than the U.S. dollar. Because the financial results of the Company are reported
in U.S. dollars, they are affected by changes in the value of the various
foreign currencies in relation to the U.S. dollar. Exchange rate risks are
reduced, however, by the diversity of the Company's foreign operations and the
fact that international activities are not concentrated in any single non-U.S.
currency. Short-term exposures to changing foreign currency exchange rates are
primarily due to operating cash flows denominated in foreign currencies. The
Company covers known and anticipated operating exposures by using purchased
foreign currency exchange option and forward contracts. The primary currencies
for which the Company has foreign currency exchange rate exposure are the Euro,
Brazilian real, Belgian franc, and Japanese yen.
The Company uses sensitivity analysis to assess the market risk associated
with its foreign currency transactions. Market risk is defined for these
purposes as the potential change in fair value resulting from an adverse
movement in foreign currency exchange rates. The fair value associated with the
foreign currency contracts has been estimated by valuing the net position of the
contracts using the applicable spot rates and forward rates as of the reporting
date. At March 31, 2001, the fair market value was equal to their carrying
amount due to the Company's adoption of SFAS 133 at July 1, 2000 which requires
that all derivatives be recorded on the balance sheet at fair value.
Other
The Company obtains third party letters of credit and surety bonds in
connection with certain inventory purchases and insurance obligations. At March
31, 2001, the contract values of these letters of credit and surety bonds were
$1.4 million and their fair values did not differ materially from their carrying
amount.
26
Commodity Price Risk
The Company purchases certain raw materials, such as copper, under
short-term supply contracts. The purchase prices thereunder are generally
determined based on prevailing market conditions. The Company uses commodity
derivative instruments to modify some of the commodity price risks. At March 31,
2001, the fair market value was equal to their carrying value due to the
Company's adoption of SFAS 133 at July 1, 2000 which requires that all
derivatives be recorded on the balance sheet at fair value.
The foregoing market risk discussion and the estimated amounts presented
are Forward-Looking Statements that assume certain market conditions. Actual
results in the future may differ materially from these projected results due to
developments in relevant financial markets and commodity markets. The methods
used above to assess risk should not be considered projections of expected
future events or results.
Certain Factors Affecting Future Operating Results
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 include, among other factors
noted herein, the following: the Company's substantial leverage and potential
inability to service its debt; the Company's dependence on distributions from
its subsidiaries; risks associated with the Company's international operations;
the Company's ability to absorb and integrate into its existing operations the
MFA acquisition referred to above; the Company's dependence on its Israeli
operations; competition in each of the Company's markets; potential
environmental liability; extensive regulation by numerous government authorities
in the United States and other countries; significant cyclical price fluctuation
for the principal raw materials used by the Company in the manufacture of its
products; the Company's reliance on the continued operation and sufficiency of
its manufacturing facilities; the Company's dependence upon unpatented trade
secrets; the risks of legal proceedings and general litigation expenses;
potential operating hazards and uninsured risks; the risk of work stoppages; the
Company's dependence on key personnel; the uncertain impact of the Company's
acquisition plans; and the seasonality of the Company's business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Part I -- Item 2 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quantitative and Qualitative Disclosure
About Market Risk."
27
PART II -- Other Information
Item 5. Other Information.
On May 4, 2001, the Company agreed to sell certain of the assets of its
Agtrol International division ("Agtrol") fungicide business to Nufarm Limited,
an Australian public company ("Nufarm"). Agtrol develops, manufactures and
markets crop protection products, including copper fungicides. The sale of the
U.S. operations of the Agtrol division and the contemplated sale of the Agtrol
European operations (as discussed below) includes Agtrol's products, trademarks
and other intellectual property, inventory and commercial relationships. The
Company is retaining ownership of all Agtrol receivables, copper know-how and
its plants, equipment and other manufacturing assets, including its plants in
Sumter, South Carolina and Bordeaux, France. The Company has agreed to supply
100% of Nufarm's requirements of copper fungicide products from the Company's
Sumter and Bordeaux plants. The sale of the United States assets of Agtrol was
effective as of May 1, 2001 for a purchase price of $15,999,990, of which the
Company received $14,775,000 in cash at the closing and the remaining $1,224,990
in the form of a note of Nufarm, Inc., a subsidiary of Nufarm, payable on June
30, 2001. The purchase price will be adjusted upward or downward for inventory
of Agtrol in excess of or less than the amount of inventory at June 30, 2000. In
addition to the U. S. asset sale, the Company has agreed to sell certain of the
assets of Agtrol International located in France to Nufarm, as well as all the
stock of an operating subsidiary of Agtrol International in Argentina and of a
newly formed non-operating subsidiary of Agtrol International in Mexico. The
entry into a definitive agreement for the disposition of the French assets is
subject to compliance with certain French labor law requirements. In connection
with the foregoing transactions, the Company and Nufarm, Inc. entered into a
license agreement pursuant to which the Company licensed certain technology
relating to its dry prill manufacturing process to Nufarm on an exclusive basis
in the fungicide field and with respect to certain pesticide products and on a
non-exclusive basis in all other fields.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
---------- -----------
10.37 United States Asset Purchase Agreement between Phibro-Tech,
Inc. and Nufarm, Inc. dated as of May 1, 2001.*
10.38 Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc.
dated as of May 1, 2001.*
10.39 License Agreement between Phibro-Tech, Inc. and Nufarm,
Inc. dated as of May 1, 2001.*
----------
* Filed herewith.
(b) Reports on Form 8-K.
The registrant filed a Current Report on Form 8-K dated November 30, 2000,
as amended by a Current Report on Form 8-K/A dated February 2, 2001, reporting
under Item 2 the acquisition of assets relating to the Medicated Feed Additives
business of Pfizer Inc. and certain of its subsidiaries. The financial
statements reported in Item 7 of said Form 8-K/A were: (a) statements of assets
acquired as of December 31, 1999 and 1998, and the related statements of
revenues and operating expenses for the years ended December 31, 1999, 1998 and
1997, and (b) the following pro forma balance sheet as of September 30, 2000,
and pro forma income statements for the year ended June 30, 2000 and for the
three months ended September 30, 2000.
28
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.
PHILIPP BROTHERS CHEMICALS, INC.
Date: May 14, 2001 By: /s/ DAVID STORBECK
----------------------------------
David Storbeck
Chief Financial Officer
Date: May 14, 2001 By: /S/ JOSEPH KATZENSTEIN
----------------------------------
Joseph Katzenstein, Treasurer
and Secretary
29
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
10.37 United States Asset Purchase Agreement between Phibro-Tech,
Inc. and Nufarm, Inc. dated as of May 1, 2001.*
10.38 Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc.
dated as of May 1, 2001.*
10.39 License Agreement between Phibro-Tech, Inc. and Nufarm,
Inc. dated as of May 1, 2001.*
----------
* Filed herewith.