================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
----------
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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
----------
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)
----------
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 December 31,
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............................... 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 26
PART II OTHER INFORMATION
Item 5. Other Information................................................. 27
Item 6. Exhibits and Reports on Form 8-K.................................. 27
SIGNATURES.................................................................. 28
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, 2001
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" 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)
December 31, June 30,
2001 2001
------------ ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,316 $ 14,845
Trade receivables, less allowance
for doubtful accounts of $2,670 at
December 31, 2001 and $2,369 at
June 30, 2001 65,694 77,910
Other receivables 2,610 4,800
Inventories 97,607 83,796
Prepaid expenses and other
current assets 18,838 17,448
--------- ---------
TOTAL CURRENT ASSETS 202,065 198,799
PROPERTY, PLANT AND EQUIPMENT, net 102,977 102,323
INTANGIBLES 10,366 5,832
OTHER ASSETS 23,635 23,065
--------- ---------
$ 339,043 $ 330,019
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 5,079 $ 4,222
Loans payable to banks 40,304 28,463
Current portion of long-term debt 5,390 5,404
Accounts payable 49,769 51,304
Accrued expenses and other
current liabilities 37,426 35,378
--------- ---------
TOTAL CURRENT LIABILITIES 137,968 124,771
LONG-TERM DEBT 140,917 139,464
OTHER LIABILITIES 10,521 12,926
--------- ---------
TOTAL LIABILITIES 289,406 277,161
--------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SECURITIES:
Series B and C preferred stock 55,374 48,980
Common stock -- 378
Common stock of subsidiary 95 95
--------- ---------
TOTAL REDEEMABLE SECURITIES 55,469 49,453
--------- ---------
STOCKHOLDERS' EQUITY:
Series A preferred stock 521 521
Common stock 2 2
Paid-in capital 878 878
Retained earnings (717) 9,741
Accumulated other comprehensive income
(loss) - gain on derivative instruments 433 --
cumulative currency translation
adjustment (6,949) (7,737)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (5,832) 3,405
--------- ---------
$ 339,043 $ 330,019
========= =========
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 Six Months Ended
December 31, December 31,
2001 2000 2001 2000
--------- --------- --------- ---------
NET SALES $ 97,987 $ 83,344 $ 192,646 $ 156,139
COST OF GOODS SOLD 66,698 61,310 134,294 113,600
--------- --------- --------- ---------
GROSS PROFIT 31,289 22,034 58,352 42,539
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 26,675 24,426 52,329 43,521
--------- --------- --------- ---------
OPERATING INCOME 4,614 (2,392) 6,023 (982)
OTHER:
Interest expense 4,674 4,080 9,317 8,019
Interest income (233) (186) (303) (403)
Other expense (income), net 1,220 (1,231) 1,025 97
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (1,047) (5,055) (4,016) (8,695)
PROVISION (BENEFIT) FOR INCOME TAXES 652 (2,437) 48 (2,958)
--------- --------- --------- ---------
NET LOSS (1,699) (2,618) (4,064) (5,737)
OTHER COMPREHENSIVE INCOME (LOSS)-
Gain on derivative instruments 288 168 433 168
Change in currency translation
adjustment 2,354 389 788 (772)
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ 943 $ (2,061) $ (2,843) $ (6,341)
========= ========= ========= =========
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 Six Months Ended December 31, 2001
(In Thousands)
Preferred Stock Common Stock Accumulated
--------------- -------------- Other
Class Class Paid-in Retained Comprehensive
Series A "A" "B" Capital Earnings (Loss) income- Total
--------------- ----- ----- ------- -------- -------------- -----
BALANCE, JULY 1, 2001 $ 521 $ 1 $ 1 $ 878 $9,741 $(7,737) $3,405
Accretion of redeemable
preferred securities to fair
market value (590) (590)
Dividends on Series B and C
redeemable preferred stock (1,837) (1,837)
Gain on derivative
instruments 145 145
Foreign currency translation
adjustment (1,566) (1,566)
Net loss (2,365) (2,365)
----- --- --- ----- ------ ------- -------
BALANCE, SEPTEMBER 30, 2001 $ 521 $ 1 $ 1 $ 878 $4,949 $(9,158) $(2,808)
===== === === ===== ====== ======= =======
Accretion of redeemable
preferred securities to fair
market value (2,085) (2,085)
Dividends on Series B and C
redeemable preferred stock (1,882) (1,882)
Gain on derivative
instruments 288 288
Foreign currency translation
adjustment 2,354 2,354
Net loss (1,699) (1,699)
----- --- --- ----- ------ ------- -------
BALANCE, DECEMBER 31, 2001 $ 521 $ 1 $ 1 $ 878 $ (717) $(6,516) $(5,832)
===== === === ===== ====== ======= =======
See notes to unaudited Condensed Consolidated Financial Statements.
6
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended December 31, 2001 and 2000
(In Thousands)
2001 2000
-------- --------
OPERATING ACTIVITIES:
Net loss $ (4,064) $ (5,737)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 8,044 6,640
Other 1,666 (1,584)
Changes in operating assets
and liabilities:
Accounts receivable 11,968 7,776
Inventories (13,927) (4,017)
Prepaid expenses and other
current assets (372) (813)
Other assets (507) (2,914)
Accounts payable (2,218) 3,801
Accrued expenses and other
current liabilities 3,714 2,253
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,304 5,405
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (6,634) (6,509)
Acquisition of a business (4,422) (51,700)
Other investing (38) (339)
-------- --------
NET CASH USED IN
INVESTING ACTIVITIES (11,094) (58,548)
-------- --------
FINANCING ACTIVITIES:
Cash overdraft 751 1,432
Net increase in short-term debt 10,402 12,403
Proceeds from long-term debt 2,042 1,590
Proceeds from issuance of
redeemable preferred stock -- 45,000
Payments of long-term debt (3,963) (1,018)
Other financing -- (942)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 9,232 58,465
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 29 (164)
-------- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 2,471 5,158
CASH AND CASH EQUIVALENTS at
beginning of period 14,845 2,403
-------- --------
CASH AND CASH EQUIVALENTS
at end of period $ 17,316 $ 7,561
======== ========
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 its financial position
as of December 31, 2001 and its results of operations and cash flows for the
three months and six months ended December 31, 2001 and 2000.
The condensed consolidated balance sheet as of June 30, 2001 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, 2001.
Certain prior year amounts in the accompanying condensed consolidated
financial statements and related notes have been reclassified to conform to the
fiscal 2002 presentation. Such reclassifications include a reclassification of
freight income of $1,570 and $3,013 for the three months and six months ended
December 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. 00-10 "Accounting for Shipping and Handling Revenues and Costs."
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS No.
141") and No. 142 "Goodwill and Other Intangibles" ("SFAS No. 142"). SFAS No.
141 and No. 142 are effective for the Company on July 1, 2002. SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. The statement also establishes
specific criteria for recognition of intangible assets separately from goodwill.
SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. The statement requires that goodwill and
indefinite lived intangible assets no longer be amortized and be tested for
impairment at least annually. The amortization period of intangible assets with
finite lives will no longer be limited to forty years. The Company is currently
assessing the impact of these statements.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 is effective for the Company on July
1, 2002. The statement establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. The Company is currently assessing the impact of this
statement.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for Impairment or Disposal
of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 is effective for the
Company on July 1, 2002. The statement addresses significant issues relating to
the implementation of FASB Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS No. 121"),
and the development of a single accounting model, based on the framework
established in FAS No. 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. The Company is currently
assessing the impact of this statement.
The results of operations for the three months and six months ended
December 31, 2001 and 2000 may not be indicative of results for the full year.
2. Acquisition
On November 30, 2000, the Company purchased the Medicated Feed Additives
(MFA) business of Pfizer, Inc. and certain of its subsidiaries ("Pfizer"). 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. The Company has recorded $7,469, allocated to related
production equipment, and $4,787, related to product intangibles, under this
arrangement as of December 31, 2001, of which $5,363 has been paid as of
December 31, 2001. Under the terms of the agreement, the Company has elected to
defer $3,000 of the payment until June 30, 2006. The deferred payment bears
interest at an annual rate of 13%. In addition, the Company is
8
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands)
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 unaudited consolidated results of operations on a pro-forma basis as
if such acquisition had occurred at the beginning of the six-month period ended
December 31, 2000 are as follows:
Net sales .................................... $ 203,732
Net (loss) income ............................ (6,480)
The impact of purchase price adjustments to the inventory acquired from
Pfizer increased the loss before income taxes for the three months and six
months ended December 31, 2001 by $941 and $2,914, respectively, and for the
three months and six months ended December 31, 2000 by $1,081. Exclusive of
these charges the loss before income taxes for the three months and six months
ended December 31, 2001 would have been $106 and $1,102, respectively, and for
the three months and six months ended December 31, 2000 would have been $3,974
and $7,614, respectively.
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 December 31, 2001 and June 30, 2001 consist of the
following:
December 31, June 30,
2001 2001
------- -------
Raw materials $24,040 $22,614
Work-in-process 3,718 4,257
Finished goods 69,849 56,925
------- -------
Total inventory $97,607 $83,796
======= =======
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. Phibro-Tech, Inc. was also named as a PRP involving a third party site
in California. Tentative settlements have been reached in both of these actions
and adequate reserves have been established.
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. Active settlement discussions are
taking place and at this time the Company does not believe there will be a
material net cost to any settlement.
The Company and its subsidiaries are a 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 the Company 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 ceased operations at its Union City,
California facility. Costs for closure cannot be determined at this time.
9
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands)
On or about November 15, 2001, the Company was advised by the State of
California that the State intended to file a civil complaint against the Company
for alleged violations arising out of operations at the Santa Fe Springs,
California facility. The Company is engaged in negotiations with the State of
California at this time. The amount of any penalty that may be assessed cannot
be determined at this time, but is not expected to be material.
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, the Company 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 $2,182 as of December 31, 2001, which is included in current and
long-term liabilities.
5. Risks and Uncertainties
The Company's Odda, Norway operation has suffered operating losses during
fiscal 2001 and for the six months ended December 31, 2001. The Company has
initiated and completed a number of cost cutting and efficiency initiatives.
However, continued competitive pricing pressures on Odda's primary products and
increasing raw material and production costs have more than offset the favorable
impact of initiatives undertaken to date. The Company is evaluating the future
operation of Odda under a number of scenarios, which range from ceasing
production of certain products to a complete shutdown of the operation. Among
other uncertainties, the ultimate decision may be affected by the outcome of
negotiations with the government of Norway for certain financial assistance.
This outcome is not expected to be known until the third or fourth quarter of
fiscal 2002.
The Company has evaluated the likelihood of the possible scenarios and the
related probability weighted estimated future cash flows under Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-lived Assets and For Long-lived Assets To Be Disposed Of" and believes no
impairment of long-lived assets of Odda (with a carrying value of $26,912)
exists at December 31, 2001; however, certain of the possible operating
scenarios could result in a write-down of assets that could be material to
operating results and financial position. A material write-down may also result
in violation of certain of the financial covenants included in the Company's
revolving credit facility and certain debt of Odda, making amounts outstanding
under these facilities callable at the discretion of the lenders. The Company
believes it will be able to successfully negotiate waivers of such violations or
amendments to financial covenants, if required; however the outcome and
resolution of the above matters is uncertain at this time.
6. Business Segments
The Company has four reportable segments--Animal Health and Nutrition,
Industrial Chemicals, Distribution, and All Other. The Company previously
reported two reportable segments - Agchem and Industrial Chemicals; however, due
principally to organizational changes during fiscal 2001, including those
associated with the acquisition of the animal health business from Pfizer and
the sale of the Agtrol crop protection business, segment reporting was revised
at June 30, 2001. Prior period segment information has been revised to conform
to the fiscal 2002 segment presentation. 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 a broad range of feed
additive products including trace minerals, anticoccidials, antibiotics,
vitamins, vitamin premixes, and other animal health products. The Company's
Industrial Chemicals segment manufactures and markets pigments and other mineral
products which include copper oxide, which is produced by the Company's
recycling operation, mineral oxides, and alkaline etchants. The Company's
Distribution segment markets and distributes a variety of industrial, specialty
and fine organic chemicals, and intermediates produced by others. The Company's
All Other segment manufactures and markets a variety of specialty custom
chemicals and copper-based fungicides, as well as providing management and
recycling of coal combustion residues.
10
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands)
Segment data for the three and six months ended December 31, 2001 and 2000 are
as follows:
Animal Corporate
Health & Industrial All Expenses &
Three Months Ended December 31, 2001 Nutrition Chemicals Distribution Other Adjustments Total
--------- --------- ------------ -------- ----------- ---------
Revenues -external customers $ 63,156 $ 17,394 $ 8,383 $ 9,054 $ -- $ 97,987
-intersegment 857 4,474 442 19 (5,792) --
-------- -------- ------- -------- -------- ---------
Total revenues $ 64,013 $ 21,868 $ 8,825 $ 9,073 $ (5,792) $ 97,987
======== ======== ======= ======== ======== =========
Operating income/(loss) $ 10,259 $ (2,542) $ 751 $ (229) $ (3,625) $ 4,614
======== ======== ======= ======== ======== =========
Animal Corporate
Health & Industrial All Expenses &
Three Months Ended December 31, 2000 Nutrition Chemicals Distribution Other Adjustments Total
--------- --------- ------------ -------- ----------- ---------
Revenues -external customers $ 43,548 $ 18,870 $10,454 $ 10,472 $ -- $ 83,344
-intersegment 1,306 5,562 434 -- (7,302) --
-------- -------- ------- -------- -------- ---------
Total revenues $ 44,854 $ 24,432 $10,888 $ 10,472 $ (7,302) $ 83,344
======== ======== ======= ======== ======== =========
Operating income/(loss) $ 3,446 $ (845) $ 927 $ (1,965) $ (3,955) $ (2,392)
======== ======== ======= ======== ======== =========
Animal Corporate
Health & Industrial All Expenses &
Six Months Ended December 31, 2001 Nutrition Chemicals Distribution Other Adjustments Total
--------- --------- ------------ -------- ----------- ---------
Revenues -external customers $121,099 $ 34,739 $17,818 $ 18,990 $ -- $ 192,646
-intersegment 2,267 8,140 996 30 (11,433) --
-------- -------- ------- -------- -------- ---------
Total revenues $123,366 $ 42,879 $18,814 $ 19,020 $(11,433) $ 192,646
======== ======== ======= ======== ======== =========
Operating income/(loss) $ 17,624 $ (6,742) $ 1,589 $ (110) $ (6,338) $ 6,023
======== ======== ======= ======== ======== =========
Animal Corporate
Health & Industrial All Expenses &
Six Months Ended December 31, 2000 Nutrition Chemicals Distribution Other Adjustments Total
--------- --------- ------------ -------- ----------- ---------
Revenues -external customers $ 77,210 $ 36,637 $21,372 $ 20,920 $ -- $ 156,139
-intersegment 2,274 9,868 915 -- (13,057) --
-------- -------- ------- -------- -------- ---------
Total revenues $ 79,484 $ 46,505 $22,287 $ 20,920 $(13,057) $ 156,139
======== ======== ======= ======== ======== =========
Operating income/(loss) $ 6,493 $ (400) $ 1,845 $ (3,639) $ (5,281) $ (982)
======== ======== ======= ======== ======== =========
7. Divestitures
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"), the U.S.
subsidiary of Nufarm Limited, a publicly listed Australian based company. On
June 14, 2001, the Company sold its Agtrol international business to Nufarm. The
sales included inventory and intangible assets to Nufarm and did not include
plant, equipment, or other manufacturing assets. Phibro-Tech also entered into
agreements to supply copper fungicide products to Nufarm from its Sumter, South
Carolina plant for five years, and from its Bordeaux, France plant for three
years. On December 24, 2001, the Company transferred certain receivables and
rebate liabilities, at net carrying value, from Agtrol U.S. sales prior to May
1, 2001, to Nufarm, with no recourse.
Revenues and operating losses relating to the Agtrol business amounted to
$6,907 and $1,969, respectively, for the three months ended December 31, 2000,
and $13,274 and $3,972, respectively, for the six months ended December 31,
2000.
11
8. Condensed Consolidating Financial Statements
In June 1998, the Company issued $100 million of 9 7/8% 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,
Guarantor Subsidiaries 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.,
Phibro-Tech, Inc., Mineral Resource Technologies, Inc., 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.
Guarantor and Foreign 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 the Company has determined that such financial
statements would not be material to investors.
12
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
As of December 31, 2001
(In Thousands)
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
-----------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 1,838 $ 1,110 $ 14,368 $ 17,316
Trade receivables 3,302 27,605 34,787 65,694
Other receivables 611 547 1,452 2,610
Inventory 3,840 45,397 48,370 97,607
Prepaid expenses and other 4,699 3,077 11,062 18,838
-----------------------------------------------------------------------------------------
Total current assets 14,290 77,736 110,039 -- 202,065
-----------------------------------------------------------------------------------------
Property, plant & equipment, net 516 29,748 72,713 102,977
Intangibles 32 1,856 8,478 10,366
Investment in subsidiaries 58,844 2,254 (6,850) (54,248) --
Intercompany 67,244 (28,811) (3,909) (34,524) --
Other assets 93,235 (71,296) 1,696 23,635
-----------------------------------------------------------------------------------------
Total assets $ 234,161 $ 11,487 $182,167 $(88,772) $339,043
=========================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft $ 28 $ 4,987 $ 64 $ 5,079
Loan payable to banks 38,137 - 2,167 40,304
Current portion of long term debt 2,540 478 2,372 5,390
Accounts payable 1,135 22,204 26,430 49,769
Accrued expenses and other 7,288 9,173 20,965 37,426
-----------------------------------------------------------------------------------------
Total current liabilities 49,128 36,842 51,998 -- 137,968
-----------------------------------------------------------------------------------------
Long term debt 126,738 (66,480) 115,183 (34,524) 140,917
Other liabilities 2,016 4,877 3,628 10,521
Redeemable securities:
Series B and C preferred stock 55,374 -- -- 55,374
Common stock 365 -- (365) --
Common stock of subsidiary -- 95 -- 95
-----------------------------------------------------------------------------------------
55,739 95 (365) -- 55,469
-----------------------------------------------------------------------------------------
Stockholders' Equity
Series A preferred stock 521 -- -- 521
Common stock 2 32 -- (32) 2
Paid in capital 878 34,041 -- (34,041) 878
Retained earnings (717) 2,049 18,126 (20,175) (717)
Accumulated other comprehensive
income (loss)-
gain on derivative instruments -- -- 433 433
cumulative currency translation
adjustment (144) 31 (6,836) (6,949)
-----------------------------------------------------------------------------------------
Total stockholders' equity 540 36,153 11,723 (54,248) (5,832)
-----------------------------------------------------------------------------------------
Total liabilities and equity $ 234,161 $ 11,487 $182,167 $(88,772) $339,043
=========================================================================================
13
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
For The Three Months Ended December 31, 2001
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 6,071 $56,267 $42,994 $(7,345) $97,987
Cost of goods sold 4,765 37,743 31,535 (7,345) 66,698
-----------------------------------------------------------------------------------------
Gross profit 1,306 18,524 11,459 -- 31,289
Selling, general, and administrative
expenses 4,120 13,688 8,867 26,675
-----------------------------------------------------------------------------------------
Operating (loss) income (2,814) 4,836 2,592 -- 4,614
Interest expense 521 635 3,518 4,674
Interest income (13) -- (220) (233)
Other (income) expense (421) (12) 1,653 1,220
Intercompany allocation (3,942) 3,942 -- --
Loss (profit) relating to subsidiaries 2,225 -- -- (2,225) --
-----------------------------------------------------------------------------------------
(Loss) income before income taxes (1,184) 271 (2,359) 2,225 (1,047)
Provision (benefit) for income taxes 515 544 (407) 652
-----------------------------------------------------------------------------------------
Net (loss) income $(1,699) $ (273) $(1,952) $ 2,225 $(1,699)
=========================================================================================
14
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
For The Six Months Ended December 31, 2001
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Net sales $13,179 $107,861 $85,398 $(13,792) $192,646
Cost of goods sold 10,397 73,915 63,774 (13,792) 134,294
-----------------------------------------------------------------------------------------
Gross profit 2,782 33,946 21,624 -- 58,352
Selling, general, and administrative
expenses 7,857 27,219 17,253 52,329
-----------------------------------------------------------------------------------------
Operating (loss) income (5,075) 6,727 4,371 -- 6,023
Interest expense 1,195 1,568 6,554 9,317
Interest income (10) -- (293) (303)
Other (income) expense (304) 7 1,322 1,025
Intercompany allocation (4,935) 4,935 -- --
Loss (profit) relating to subsidiaries 3,323 -- -- (3,323) --
-----------------------------------------------------------------------------------------
(Loss) income before income taxes (4,344) 217 (3,212) 3,323 (4,016)
(Benefit) provision for income taxes (280) 864 (536) 48
-----------------------------------------------------------------------------------------
Net (loss) income $(4,064) $ (647) $(2,676) $ 3,323 $ (4,064)
=========================================================================================
15
PHILIPP BROTHERS CHEMICALS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
For the Six Months Ended December 31, 2001
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net (loss) income $ (4,064) $ (647) $ (2,676) $3,323 $ (4,064)
Adjustments to reconcile net (loss)
income to cash (used in) provided by
operating activities:
Depreciation and amortization 532 2,643 4,869 8,044
Other (190) 286 1,570 1,666
Changes in operating assets and liabilities:
Accounts receivable 1,292 3,692 6,984 11,968
Inventory (587) (2,931) (10,409) (13,927)
Prepaid expenses and other 727 863 (1,962) (372)
Other assets 185 (587) (105) (507)
Intercompany (8,599) 3,535 8,387 (3,323) --
Accounts payable (608) (1,726) 116 (2,218)
Accrued expenses and other 410 (3,337) 6,641 3,714
-----------------------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (10,902) 1,791 13,415 -- 4,304
-----------------------------------------------------------------------------------------
Investing activities:
Capital expenditures (72) (2,368) (4,194) (6,634)
Acquisition of a business -- -- (4,422) (4,422)
Other investing (541) 412 91 (38)
-----------------------------------------------------------------------------------------
Net cash used in
investing activities (613) (1,956) (8,525) -- (11,094)
-----------------------------------------------------------------------------------------
Financing activities:
Cash overdraft 15 817 (81) 751
Net increase (decrease)
in short term debt 12,570 -- (2,168) 10,402
Proceeds from long term debt 2,000 -- 42 2,042
Payments of long term debt (2,524) (242) (1,197) (3,963)
-----------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 12,061 575 (3,404) -- 9,232
-----------------------------------------------------------------------------------------
Effect of exchange rate changes
on cash -- -- 29 29
-----------------------------------------------------------------------------------------
Net increase in cash and
cash equivalents 546 410 1,515 -- 2,471
Cash and cash equivalents
at beginning of year 1,292 700 12,853 14,845
-----------------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 1,838 $ 1,110 $ 14,368 $ -- $ 17,316
=========================================================================================
16
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
As of June 30, 2001
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 1,292 $ 1,210 $ 12,343 $ 14,845
Trade receivables 4,624 32,291 40,995 77,910
Other receivables 791 1,913 2,096 4,800
Inventory 2,715 44,050 37,031 83,796
Prepaid expenses and other 5,461 2,745 9,242 17,448
-----------------------------------------------------------------------------------------
Total current assets 14,883 82,209 101,707 -- 198,799
-----------------------------------------------------------------------------------------
Property, plant & equipment, net 626 30,143 71,554 102,323
Intangibles 87 1,915 3,830 5,832
Investment in subsidiaries 63,490 1,542 (6,138) (58,894) -
Intercompany 54,322 (22,808) 3,852 (35,366) -
Other assets 93,466 (71,571) 1,170 23,065
-----------------------------------------------------------------------------------------
Total assets $226,874 $ 21,430 $175,975 $(94,260) $330,019
=========================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft $ 13 $ 4,209 $ -- $ 4,222
Loan payable to banks 24,471 -- 3,992 28,463
Current portion of long term debt 2,541 493 2,370 5,404
Accounts payable 1,743 23,359 26,202 51,304
Accrued expenses and other 7,859 11,780 15,739 35,378
-----------------------------------------------------------------------------------------
Total current liabilities 36,627 39,841 48,303 -- 124,771
-----------------------------------------------------------------------------------------
Long term debt 127,263 (60,654) 108,221 (35,366) 139,464
Other liabilities 2,129 5,731 5,066 12,926
Redeemable securities:
Series B and C preferred stock 48,980 -- -- 48,980
Common stock 877 -- (499) 378
Common stock of subsidiary -- 95 -- 95
-----------------------------------------------------------------------------------------
49,857 95 (499) -- 49,453
-----------------------------------------------------------------------------------------
Stockholders' Equity
Series A preferred stock 521 -- -- 521
Common stock 2 32 -- (32) 2
Paid in capital 878 34,041 -- (34,041) 878
Retained earnings 9,741 2,325 22,496 (24,821) 9,741
Accumulated other comprehensive
(loss) income-
cumulative currency translation
adjustment (144) 19 (7,612) (7,737)
-----------------------------------------------------------------------------------------
Total stockholders' equity 10,998 36,417 14,884 (58,894) 3,405
-----------------------------------------------------------------------------------------
Total liabilities and equity $226,874 $ 21,430 $175,975 $(94,260) $330,019
=========================================================================================
17
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
For The Three Months Ended December 31, 2000
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 8,148 $48,993 $35,391 $(9,188) $83,344
Cost of goods sold 6,656 34,690 29,152 (9,188) 61,310
-----------------------------------------------------------------------------------------
Gross profit 1,492 14,303 6,239 -- 22,034
Selling, general, and administrative
expenses 3,557 14,523 6,346 24,426
-----------------------------------------------------------------------------------------
Operating (loss) income (2,065) (220) (107) -- (2,392)
Interest expense 2,773 (5) 1,312 4,080
Interest income (8) (1) (177) (186)
Other expense 32 (4) (1,259) (1,231)
Intercompany allocation (3,571) 3,442 129 --
Loss (profit) relating to subsidiaries 2,112 -- -- (2,112) --
-----------------------------------------------------------------------------------------
(Loss) income before income taxes (3,403) (3,652) (112) 2,112 (5,055)
Benefit for income taxes (785) (1,307) (345) (2,437)
-----------------------------------------------------------------------------------------
Net (loss) income $(2,618) $(2,345) $ 233 $ 2,112 $(2,618)
=========================================================================================
18
PHILIPP BROTHERS CHEMICALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
For The Six Months Ended December 31, 2000
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Net sales $16,669 $91,807 $63,488 $(15,825) $156,139
Cost of goods sold 13,447 64,607 51,371 (15,825) 113,600
-----------------------------------------------------------------------------------------
Gross profit 3,222 27,200 12,117 -- 42,539
Selling, general, and administrative
expenses 7,029 25,991 10,501 43,521
-----------------------------------------------------------------------------------------
Operating (loss) income (3,807) 1,209 1,616 -- (982)
Interest expense 5,243 61 2,715 8,019
Interest income (44) (1) (358) (403)
Other expense 121 (4) (20) 97
Intercompany allocation (6,895) 6,509 386 --
Loss (profit) relating to subsidiaries 3,617 -- -- (3,617) --
-----------------------------------------------------------------------------------------
(Loss) income before income taxes (5,849) (5,356) (1,107) 3,617 (8,695)
Benefit for income taxes (112) (2,019) (827) (2,958)
-----------------------------------------------------------------------------------------
Net (loss) income $(5,737) $(3,337) $ (280) $ 3,617 $ (5,737)
=========================================================================================
19
PHILIPP BROTHERS CHEMICALS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
For the Six Months Ended December 31, 2000
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net (loss) income $ (5,737) $(3,337) $ (280) $ 3,617 $ (5,737)
Adjustments to reconcile net (loss)
income to cash provided by
operating activities:
Depreciation and amortization 273 2,551 3,816 6,640
Other (565) (22) (997) (1,584)
Changes in operating assets and liabilities:
Accounts receivable 1,048 9,128 (2,400) 7,776
Inventory (306) (5,619) 1,908 (4,017)
Prepaid expenses and other 1,904 (2,248) (469) (813)
Other assets (957) (1,948) (9) (2,914)
Intercompany (891) 2,620 1,888 (3,617) --
Accounts payable 184 552 3,065 3,801
Accrued expenses and other 438 2,082 (267) 2,253
-----------------------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (4,609) 3,759 6,255 -- 5,405
-----------------------------------------------------------------------------------------
Investing activities:
Capital expenditures (47) (4,099) (2,363) (6,509)
Acquisition of a business (51,700) -- -- (51,700)
Other investing -- -- (339) (339)
-----------------------------------------------------------------------------------------
Net cash used in
investing activities (51,747) (4,099) (2,702) -- (58,548)
-----------------------------------------------------------------------------------------
Financing activities:
Cash overdraft (158) 1,590 -- 1,432
Net decrease in short term debt 12,586 -- (183) 12,403
Proceeds from long term debt -- -- 1,590 1,590
Proceeds from issuance of
redeemable preferred stock 45,000 -- -- 45,000
Payments of long term debt (15) (340) (663) (1,018)
Other financing (942) -- -- (942)
-----------------------------------------------------------------------------------------
Net cash provided by
financing activities 56,471 1,250 744 -- 58,465
-----------------------------------------------------------------------------------------
Effect of exchange rate changes
on cash -- -- (164) (164)
-----------------------------------------------------------------------------------------
Net increase in cash and
cash equivalents 115 910 4,133 -- 5,158
Cash and cash equivalents
at beginning of year 11 99 2,293 2,403
-----------------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 126 $ 1,009 $ 6,426 $ -- $ 7,561
=========================================================================================
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
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 health and nutrition,
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.
The Company has four operating segments--Animal Health and Nutrition,
Industrial Chemicals, Distribution and All Other. The Company previously
reported two operating segments--Agchem and Industrial Chemicals. Due to
organizational changes during fiscal 2001, including those associated with the
acquisition of the animal health business from Pfizer and the sale of the Agtrol
crop protection business, segment reporting was revised as of June 30, 2001.
Prior period segment information has been revised to conform to the fiscal 2002
segment presentation.
On November 30, 2000, the Company purchased the animal health business of
Pfizer, Inc. ("Pfizer"). The operating results of this business, now called
Phibro Animal Health, ("PAH"), are included in the Company's consolidated
statements of operations from the date of acquisition and are included in the
Animal Health and Nutrition segment.
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. On
June 14, 2001, the Company sold its Agtrol international business to Nufarm.
Agtrol developed, manufactured and marketed crop protection products, including
copper fungicides. The sale included inventory and intangible assets to Nufarm
but did not include plant, equipment, or other manufacturing assets. Phibro-Tech
also entered into agreements to supply copper fungicide products to Nufarm from
its Sumter, South Carolina plant for five years, and from its Bordeaux, France
plant for three years. On December 24, 2001, the Company transferred certain
receivables and rebate liabilities, at net carrying value, from Agtrol U.S.
sales prior to May 1, 2001, to Nufarm, with no recourse. The operating results
of Agtrol are included in the Company's consolidated statements of operations up
to the date of disposition and are included in the All Other segment.
The Company's Odda, Norway operation has suffered operating losses during
fiscal 2001 and for the six months ended December 31, 2001. The Company has
initiated and completed a number of cost cutting and efficiency initiatives.
However, continued competitive pricing pressures on Odda's primary products and
increasing raw material and production costs have more than offset the favorable
impact of initiatives undertaken to date. The Company is evaluating the future
operation of Odda under a number of scenarios, which range from ceasing
production of certain products to a complete shutdown of the operation. Among
other uncertainties, the ultimate decision may be affected by the outcome of
negotiations with the government of Norway for certain financial assistance.
This outcome is not expected to be known until the third or fourth quarter of
fiscal 2002.
The Company has evaluated the likelihood of the possible scenarios and the
related probability-weighted estimated future cash flows under Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-lived Assets and For Long-lived Assets To Be Disposed Of" and believes no
impairment of long-lived assets of Odda (with a carrying value of $26.9 million)
exists at December 31, 2001; however, certain of the possible operating
scenarios, could result in a write-down of assets that could be material to
operating results and financial position. A material write-down may also result
in violation of certain of the financial covenants included in the Company's
revolving credit facility and certain debt of Odda, making amounts outstanding
under these facilities callable at the discretion of the lenders. The Company
believes it will be able to successfully negotiate waivers of such violations or
amendments to financial covenants, if required; however the outcome and
resolution of the above matters is uncertain at this time.
21
Results of Operations
Sales
($000's)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ----------------------------
Operating Segments 2001 2000 2001 2000
-------- --------- --------- ---------
Animal Health and Nutrition ............ $ 64,013 $ 44,854 $ 123,366 $ 79,484
Industrial Chemicals ................... 21,868 24,432 42,879 46,505
Distribution ........................... 8,825 10,888 18,814 22,287
All Other .............................. 9,073 10,472 19,020 20,920
Elimination of intersegment sales ...... (5,792) (7,302) (11,433) (13,057)
-------- --------- --------- ---------
$ 97,987 $ 83,344 $ 192,646 $ 156,139
======== ========= ========= =========
Operating Income (Loss)
($000's)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ----------------------------
Operating Segments 2001 2000 2001 2000
-------- --------- --------- ---------
Animal Health and Nutrition ............ $ 10,259 $ 3,446 $ 17,624 $ 6,493
Industrial Chemicals ................... (2,542) (845) (6,742) (400)
Distribution ........................... 751 927 1,589 1,845
All Other .............................. (229) (1,965) (110) (3,639)
Corporate expenses and eliminations .... (3,625) (3,955) (6,338) (5,281)
-------- --------- --------- ---------
$ 4,614 $ (2,392) $ 6,023 $ (982)
======== ========= ========= =========
Comparison of Three Months Ended December 31, 2001 and 2000
Net Sales. Net sales increased by $14.6 million, or 18%, to $98.0 million
in the three months ended December 31, 2001, as compared to the same period of
the prior year. The increase was primarily due to the purchase of the PAH
business offset in part by the sale of the Company's Agtrol operations.
The Animal Health and Nutrition segment's net sales increased by $19.2
million, or 43%, to $64.0 million in the three months ended December 31, 2001,
as compared to the prior period. The net sales increase was due to increased
unit volume primarily as a result of the PAH purchase. Excluding PAH, sales for
the segment in 2001 were $.4 million below the prior year primarily due to
discontinuing sales of vitamin exports and lower average selling prices by the
Company's Koffolk Israel facility due to the adverse business climate in Israel.
Higher unit volumes in the U.S. were offset in part by lower average sales
prices.
The Industrial Chemicals segment's net sales decreased by $2.6 million, or
10%, to $21.9 million in the three months ended December 31, 2001, as compared
to the prior period. Sales by the Company's Phibro-Tech subsidiary were down by
$2.0 million due to volume declines related to the printed circuit board
industry. Higher unit volume sales at the Company's Odda subsidiary increased
revenues by $.3 million and partially offset the decrease. Other declines in
intersegment sales aggregated $.9 million.
Net sales for the Distribution segment decreased by $2.1 million, or 19%,
to $8.8 million in 2001, as compared to the prior period. The net sales decrease
was due to lower unit volumes. Significant declines in the segment's cyanide,
carbide and dicyandiamide products occurred during the first and second quarters
of this fiscal year as compared to the prior year periods.
Net sales for the All Other segment decreased by $1.4 million, or 13%, to
$9.1 million in 2001, as compared to the prior period. Approximately $2.1
million of this decrease related to lower sales of crop protection chemicals.
The Company's Agtrol crop protection business was sold during the fourth quarter
of fiscal 2001 and sales of certain crop protection chemicals are currently
being made under supply agreements to Nufarm. Excluding Agtrol, sales for the
segment in 2001 were $.7 million above the prior year. The Company's fly ash
business increased by $.3 million primarily due to increased volume as a result
of additional contracts with utilities in Missouri and Michigan and improved
average selling prices. Revenues at the Company's Wychem, U.K. facility improved
by $.4 million due to an increase in specialized lab projects and formulations.
22
Gross Profit. Gross profit increased by $9.3 million, or 42%, to $31.3
million in the three months ended December 31, 2001, as compared to the prior
period. The increase was primarily due to the purchase of the PAH business
offset in part by lower production volumes at the Company's Phibro-Tech
facilities and the sale of the Company's Agtrol operations. Purchase accounting
adjustments relating to inventory acquired in the PAH acquisition resulted in an
increase to cost of goods sold of $.9 and $1.1 million for the three months
ended December 31, 2001 and 2000, respectively. The remainder of the inventory
purchase adjustment, approximately $.3 million, will be charged to cost of goods
sold during the balance of the fiscal year. Margin declines in the All Other
segment were due to sales of crop protection products sold to Nufarm under a
supply agreement in the current period as opposed to higher margin sales to
third parties in the prior period.
Selling, General and Administrative Expenses. Costs increased by $2.2
million to $26.7 million in 2001, as compared to the prior period. Excluding PAH
and Agtrol, costs were up approximately $.9 million principally due to
management advisory fees to Palladium Equity Partners, LLC ($.4 million), higher
warehousing and distribution costs primarily relating to sales growth in the
Company's fly ash business ($.8 million), environmental remediation ($.3
million), and other general spending increases ($.7 million). The prior period
included an accrual for severance costs ($1.3 million) associated with the
termination of employment of an executive of the Company.
Operating Income. Operating income increased by $7.0 million to $4.6
million in 2001, as compared to the prior period. The Animal Health and
Nutrition segment increased due to the inclusion of PAH for the period.
Operating income declined in the Industrial Chemicals segment primarily due to
lower sales and production volumes. The Company is implementing cost reduction
programs and other initiatives with respect to PhibroTech's copper related
businesses in reaction to current market conditions in the printed circuit board
industry. The improvement in operating income of the All Other segment is
primarily the result of the sale of Agtrol as the Company is no longer
materially impacted by the seasonal nature of the crop protection business. The
Distribution segment was slightly below the prior year primarily due to sales
volume declines.
Interest Expense, Net. Costs increased by $.5 million or 14% to $4.4
million for the three months ended December 31, 2001 as compared to the prior
period primarily due to debt incurred in connection with the PAH acquisition and
higher levels of average bank borrowings.
Other Expense, Net. Other expense, net principally reflects foreign
currency transaction losses of the Company's foreign subsidiaries and the
quarter over quarter change reflects the strengthening of currencies against the
U.S. dollar in 2001 (principally Norwegian Kroner) versus weakening of these
currencies in the December 2000 quarter.
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 differs from 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 Six Months Ended December 31, 2001 and 2000
Net Sales. Net sales increased by $36.5 million, or 23%, to $192.6 million
in the six months ended December 31, 2001, as compared to same period of the
prior year. The increase was primarily due to the purchase of the PAH business
offset in part by the sale of the Company's Agtrol operations.
The Animal Health and Nutrition segment's net sales increased by $43.9
million, or 55%, to $123.4 million in the six months ended December 31, 2001, as
compared to the prior period. The net sales increase was due to increased unit
volume primarily as a result of the PAH purchase. Excluding PAH, sales for the
segment in 2001 were $.6 million above the prior year primarily due to higher
unit volume sales of vitamin, mineral and other pre-mix products at our domestic
facilities. This was offset in part by the adverse business climate in Israel
and the discontinuation of sales of vitamin exports by the Company's Koffolk
Israel facility.
The Industrial Chemicals segment's net sales decreased by $3.6 million, or
8%, to $42.9 million in the six months ended December 31, 2001, as compared to
the prior period. Sales by the Company's Phibro-Tech subsidiary were down by
$3.7 million due to volume declines related to the printed circuit board
industry. Higher unit volume sales at the Company's Odda subsidiary increased
revenues by $2.0 million and partially offset the decrease. Declines in
intersegment sales aggregated $1.4 million. Lower unit sales of iron and
manganese oxides accounted for the balance of the change.
Net sales for the Distribution segment decreased by $3.5 million, or 16%,
to $18.8 million in 2001, as compared to the prior period. The net sales
decrease was due to lower unit volumes. Significant declines in the segment's
cyanide, carbide
23
and dicyandiamide products occurred during the first and second quarters of this
fiscal year as compared to the prior year periods.
Net sales for the All Other segment decreased by $1.9 million, or 9%, to
$19.0 million in 2001, as compared to the prior period. Approximately $4.5
million of this decrease related to lower sales of crop protection chemicals.
The Company's Agtrol crop protection business was sold during the fourth quarter
of fiscal 2001 and sales of certain crop protection chemicals are currently
being made under supply agreements to Nufarm. Excluding Agtrol, sales for the
segment in 2001 were $2.6 million above the prior year. The Company's fly ash
business increased by $1.6 million primarily due to increased volume as a result
of additional contracts with utilities in Missouri and Michigan and improved
average selling prices. Revenues at the Company's Wychem, U.K. facility improved
by $1.0 million due to an increase in specialized lab projects and formulations.
Gross Profit. Gross profit increased by $15.8 million, or 37%, to $58.4
million in the six months ended December 31, 2001, as compared to the prior
period. The increase was primarily due to the purchase of the PAH business
offset in part by lower production volumes at the Company's Phibro-Tech
facilities and the sale of the Company's Agtrol operations. Purchase accounting
adjustments relating to inventory acquired in the PAH acquisition resulted in an
increase to cost of goods sold of $2.9 and $1.1 million for the six months ended
December 31, 2001 and 2000, respectively. The remainder of the inventory
purchase adjustment, approximately $.3 million, will be charged to cost of goods
sold during the balance of the fiscal year. Margin declines in the All Other
segment were due to sales of crop protection products sold to Nufarm under a
supply agreement in the current period as opposed to higher margin sales to
third parties in the prior period.
Selling, General and Administrative Expenses. Costs increased by $8.8
million to $52.3 million in 2001, as compared to the prior period. Excluding PAH
and Agtrol, costs were up approximately $3.5 million principally due to
management advisory fees to Palladium Equity Partners, LLC ($.9 million), higher
warehousing and distribution primarily relating to sales growth in the Company's
fly ash business ($1.3 million), environmental remediation ($.7 million), and
other general spending increases ($1.9 million). The prior period included an
accrual for severance costs ($1.3 million) associated with the termination of
employment of an executive of the Company.
Operating Income. Operating income increased by $7.0 million to $6.0
million in 2001, as compared to the prior period. The Animal Health and
Nutrition segment increased due to the inclusion of PAH for the period.
Operating income declined in the Industrial Chemicals segment primarily due to
lower sales and production volumes. The Company is implementing cost reduction
programs and other initiatives with respect to PhibroTech's copper related
businesses in reaction to current market conditions in the printed circuit board
industry. The improvement in operating income of the All Other segment is
primarily the result of the sale of Agtrol as the Company is no longer
materially impacted by the seasonal nature of the crop protection business. The
Distribution segment was slightly below the prior year primarily due to sales
volume declines.
Interest Expense, Net. Costs increased by $1.4 million or 18% to $9.0
million for the six months ended December 31, 2001 as compared to the prior
period primarily due to debt incurred in connection with the PAH acquisition and
higher levels of average bank borrowings.
Other Expense, Net. Other expense, net principally reflects foreign
currency transaction losses of the Company's foreign subsidiaries.
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 differs from 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.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities. Cash provided by operations for
the six months ended December 31, 2001 was $4.3 million. The increase in cash
from the collection of receivables from our crop protection business was offset
by higher inventories at the PAH business unit. This build up of inventories is
considered necessary to ensure an adequate availability of product as the
Company continues to refine its supply chain and expand into new markets.
Net Cash Used by Investing Activities. Net cash used in investing
activities for the six months ended December 31, 2001 was $11.1 million. Capital
expenditures of $6.6 million were mostly for maintaining the Company's existing
asset base and for environmental, health and safety projects. The remainder
primarily relates to contingent purchase price payments from the PAH
acquisition.
24
Net Cash Provided by Financing Activities. Net cash provided by financing
activities totaled $9.2 million. Borrowings under the domestic revolving credit
agreement were partially offset by paydowns of debt at several of the Company's
international subsidiaries and a $2.5 million payment on long-term debt related
to the PAH acquisition.
Liquidity. At December 31, 2001, working capital totaled $64.1 million
compared to $74.0 million at the fiscal year end. Due to the nature and terms of
the revolving credit agreement, which includes both a subjective acceleration
clause and a requirement to maintain a lockbox arrangement, all borrowings
against this facility are classified as a current liability. At December 31,
2001, the amount of credit extended under this agreement totaled $38.1 million
and the Company had $8.3 million available under the borrowing base formula in
this agreement. In addition, certain of the Company's foreign subsidiaries also
had availability under their respective credit facilities totaling $9.6 million.
The Company anticipates spending approximately $13 million for capital
expenditures in fiscal 2002, primarily to cover the Company's asset replacement
needs, improve processes, and for environmental and regulatory compliance. The
Company believes that cash flows from operations and available borrowing
arrangements should provide sufficient working capital to operate the Company's
existing business, to make budgeted capital expenditures, and to service
interest and current principal coming due on outstanding debt.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS No.
141") and No. 142 "Goodwill and Other Intangibles" ("SFAS No. 142"). SFAS No.
141 and No. 142 are effective for the Company on July 1, 2002. SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. The statement also establishes
specific criteria for recognition of intangible assets separately from goodwill.
SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. The statement requires that goodwill and
indefinite lived intangible assets no longer be amortized and be tested for
impairment at least annually. The amortization period of intangible assets with
finite lives will no longer be limited to forty years. The Company is currently
assessing the impact of these statements.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 is effective for the Company on July
1, 2002. The statement establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. The Company is currently assessing the impact of this
statement.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for Impairment or Disposal
of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 is effective for the
Company on July 1, 2002. The statement addresses significant issues relating to
the implementation of FASB Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS No. 121"),
and the development of a single accounting model, based on the framework
established in FAS No. 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. The Company is currently
assessing the impact of this statement.
Seasonality of Business
Prior to the divestiture of the crop protection business, the Company's
sales were typically highest in the fourth fiscal quarter due to the seasonal
nature of the agricultural industry. With the sale of this business, as well as
the acquisition of the non-seasonal PAH business, the Company's sales are
expected to be less seasonal. However, some seasonality in the Company's results
will remain as sales of certain industrial chemicals to the wood treatment
industry as well as sales of coal fly ash are typically highest during the peak
construction periods of the first and fourth fiscal quarters.
Quantitative and Qualitative Disclosure 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 the Company's
Annual Report on Form 10-K for the year ended June 30, 2001 and to Note 13 to
the Consolidated Financial Statements of the Company included therein.
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,
25
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 PAH 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."
26
PART II -- OTHER INFORMATION
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
None.
(b) Reports on Form 8-K.
None.
27
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: February 12, 2002 By: /s/ DAVID C. STORBECK
---------------------------------
David C. Storbeck
Chief Financial Officer
Date: February 12, 2002 By: /S/ JOSEPH KATZENSTEIN
---------------------------------
Joseph Katzenstein, Treasurer
and Secretary
28