Our Animal Health and Nutrition segment manufactures and markets more than 500 formulations and concentrations of medicated and nutritional feed additives, including antibiotics, antibacterials, anticoccidials, anthelmintics, trace minerals, vitamins, vitamin premixes and other animal health and nutrition products, to the livestock and pet food industries. Our MFA products are internationally recognized for quality and efficacy in the prevention and treatment of diseases in livestock, such as coccidiosis in poultry, dysentery in swine and acidosis in cattle. We market our Animal Health and Nutrition products under approximately 450 governmental product registrations, approving our MFA products with respect to animal drug safety and effectiveness.
We have in recent years focused our business on animal health and nutrition products. As a result of the rapid decline of the printed circuit board industry in the United States, we have substantially exited that business, including our etchant recycling operations, and re-directed our productive capacity in niche markets. We have also sold other non-strategic businesses, such as our Agtrol,
copper fungicide business and our subsidiaries, Mineral Resource Technologies, Inc. ("MRT"(“MRT”) and, The Prince Manufacturing Company ("PMC"(“PMC”) and Wychem Limited (“Wychem”). In addition, we closed our operations in Odda, Norway ("Odda"(“Odda”) and Bordeaux, France ("(“La Cornubia"Cornubia”).
In August 2003,
Antibiotics are natural products produced by fermentation and are used to treat or to prevent diseases, thereby promoting more efficient growth. Several factors contribute to limit the efficiency, the weight gain and feed conversions of livestock production, including poor nutrition, environmental and management problems, heat stress and subclinical disease.
Antibacterials are produced through chemistry and are used to treat and prevent diseases.
Anticoccidials are produced through fermentation and chemistry, and are primarily used to prevent and control the disease coccidiosis in poultry and in cattle. Coccidiosis is a disease of the digestive tract that is of great concern to animal producers. Caused by the protozoan parasites such as parasiteEimeria spp., coccidiosis is one of the most destructive diseases facing the world'sworld’s poultry producers. Common effects of this disease (such as weight loss, wet droppings, poor feed utilization and higher mortality rates) rapidly affect an entire flock of poultry, resulting in annual losses of hundreds of millions of dollars for the poultry industry.
Modern, large scale poultry production is based on intensive animal management practices. This type of animal production requires routine preventive medications in order to prevent health problems. Coccidiosis is one of the critical disease challenges which poultry producers face globally. We sell our anticoccidials globally, primarily to integrated poultry producers and feed companies in North America, the Middle East, Latin America and Asia, and to international animal health companies.
We believe that we are the largest volume world-wide producer of amprolium, and the largest volume world-wide producer of nicarbazin. We are also the sole Latin American producer of nicarbazin. Nicarbazin and amprolium, along with salinomycin and semduramicin, are among the most effective medications for the prevention of coccidiosis in chickens when used in rotation with other anticoccidials. In the United States, we market nicarbazin under the trademark Nicarb(R)Nicarb®.
Other Anticoccidials.
We manufacture bulk active ingredients for our MFA products primarily in four modern facilities located in:
o Guarulhos, Brazil (salinomycin and semduramicin),
o Rixensart, Belgium (virginiamycin and semduramicin),
o Ramat Hovav, Israel (nicarbazin and amprolium), and
o
Active ingredients are further processed in our facilities and in contract premix facilities located in each major region of the world.
We have
The use of MFAs is controlled by regulatory authorities that are specific to each country (e.g., the Food and Drug Administration ("FDA"(“FDA”) in the United States, Health Canada in Canada, EFSA/EMEA authorities in Europe, etc.), responsible for the safety and wholesomeness of the human food supply, including feed additives for animals from which human foods are derived. Each product is registered separately in each country where it is sold. The appropriate registration files pertaining to such regulations and approvals are continuously monitored, maintained and updated by us. In certain countries where we are working with a third party distributor, local regulatory requirements may require registration in the name of such distributor.
The raw materials used in our business include certain active drug ingredients, a wide variety of chemicals, mineral ores and copper metal that are purchased from manufacturers and suppliers in the United States, Europe and Asia. In fiscal 2004,2005, no single raw material accounted for more than 5% of our cost of goods sold. Total raw materials cost was approximately $133$158 million or 38%43% of net sales in fiscal 2004.2005. We believe that for most of our raw materials, alternate sources of supply are available to us at competitive prices.
Research, development and technical service efforts are conducted at our various facilities. We operate research and development facilities in Rixensart, Belgium (which are to be transferred to Guarulhos, Brazil), Sumter, South Carolina and Ramat Hovav, Israel and Stradishall, England.Israel. These facilities provide research and development services relating to fermentation development in the areas of micro-biological strain improvement as well as: process scale-up; wood treatment products; and organic chemical intermediates.
Technology is an important component of our competitive position, providing us unique and low cost positions enabling us to produce high quality products. Patents protect some of our technology, but a great deal of our competitive advantage revolves around know-how built up over many years of commercial operation.
We do not consider our business to be dependent on a single customer or a few customers, and the loss of any of our customers would not have a material adverse effect on our results. No single customer accounted for more than 5%7% of our fiscal 20042005 net sales. We typically do not enter into long-term contracts with our customers.
incidental to ongoing operations are generally included within operating budgets. Potential costs and expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or new requirements under environmental laws or to investigate or remediate potential or actual contamination and from time to time we establish reserves for such contemplated investigation and remediation costs. In many instances, the ultimate costs under environmental laws and the time period during which such costs are likely to be incurred are difficult to predict.
Our
In addition to those federal programs described above, a number of states and some local governments have also enacted laws and regulations similar to the federal laws described above governing hazardous waste generation, handling and disposal, emissions to the water and air and the design, operation and maintenance of recycling facilities.
Our foreign subsidiaries are subject to a variety of foreign environmental laws relating to pollution and protection of the environment, including the generation, handling, storage, management, transportation, treatment and disposal of solid and hazardous materials and wastes, the manufacture and processing of pesticides and animal feed additives, emissions to the air, discharges to land, surface water and subsurface water, human exposure to hazardous and toxic materials and the remediation of environmental pollution relating to their past and present properties and operations.
Regulation of Recycling Activities
We have
In connection with RCRA Part B permits for the waste storage and treatment units of various facilities, ourthe Company’s subsidiaries have been required to perform extensive site investigations at such facilities to identify possible contamination and to provide regulatory authorities with plans and schedules for remediation. Soil and groundwater contamination has been identified at several plant sites and has required and will continue to require corrective action and monitoring over future years. In order to maintain compliance with RCRA Part B permits, which are subject to suspension, revocation, modification or denial under certain circumstances, we have been, and in the future may be, required to undertake additional capital improvements or corrective action.
Our
The following is a description of certain environmental matters relating to certain facilities of certain of our subsidiaries. References to "we"“we” or "us"“us” throughout this section is intended to refer only to the applicable subsidiary unless the context otherwise requires. These matters should be read in conjunction with the description of Legal Proceedings in Item 3 below, certain of which involve such facilities, and Note 1517 to our Consolidated Financial Statements.
In 1984, Congress enacted certain amendments to RCRA under which facilities with RCRA permits were required to have RCRA facility assessments ("RFA"(“RFA”) by the EPA or the authorized state agency. Following an RFA, a RCRA facility investigation, a corrective measures study, and corrective measure implementation must, if warranted, be developed and implemented. As indicated below, certain of our subsidiaries are in the process of developing or completing various actions associated with these regulatory phases at certain of their facilities.
lease payments aggregating $2 million, and covering certain areas of the property, including those areas of the property relating to the existing hazardous waste storage, treatment and transfer permit, loading docks and pads, and a building, as well as access, parking, scale use and office space.
The property is the subject of an Administrative Consent Order executed in March 1991 between the New Jersey Department of Environmental Protection (or “DEP”) and CP. CP has ongoing obligations under that Administrative Consent Order. CP is required to complete the implementation of the Remedial Action Work Plan approved by the Department of Environmental Protection.Protection and the United States Environmental Protection Agency. Remediation of soils at the Sewaren facility is complete, with the exception of long term maintenance, and groundwater remediation is underway. Although some of the obligations of the Administrative Consent Order, specifically with respect to groundwater, have been assumed by the Township under the Lease, for example, the
maintenance of the groundwater recovery system, CP remains responsible to the Department of Environmental Protection underand the Administrative Consent Order.United States Environmental Protection Agency. CP is currently engaged in discussions with the Department of Environmental Protection, the United States Environmental Protection Agency and the Township concerning the ongoing groundwater remediation. CP has posted financial assurance, based on the estimated costs of implementation, under the Administrative Consent Order.
The property is also regulated under the Corrective Action Program administered by the United States Environmental Protection Agency pursuant to the Resource Conservation and Recovery Act. The property has been designated as a RCRA facility for which achieving the Environmental Indicators is a priority. Currently, CP is interfacing with the Department of Environmental Protection and the Environmental Protection Agency to coordinate its efforts under this program and the Administrative Consent Order discussed above. Much of the effort required by CP in this program is already being conducted as part of the requirements of the Administrative Consent Order discussed above.
The hazardous waste facility permit issued to CP for this facility expired in August 2003. CP has commencedcompleted the implementation of its approved closure plan.plan and is awaiting DEP approval. Based on a formula established by the Department of Environmental Protection, those closure costs were estimated at $292,823 and submitted to the
Department in April 2003.$293,000. CP has also advised the New Jersey Division of Law of its intent to withdrawwithdrawal from the licensing program governing facilities.
The issue of the potential for increased bacterial resistance to certain antibiotics used in certain food producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led to government restrictions on the use of antibiotics in these food producing animals. The sale of feed additives containing antibiotics is a material portion of our business. Should regulatory or other developments result in restrictions on the sale of such products, it could have a material adverse impact on our financial position, results of operations and cash flows.
The FDA is responsible for the safety and wholesomeness of the human food supply. It regulates foods intended for human consumption and, through The Center for Veterinary Medicine, regulates the manufacture and distribution of animal drugs, including feed additives and drugs that will be given to animals from which human foods are derived, as well as feed additives and drugs for pet (or companion) animals.
To protect the food and drug supply for animals, the FDA develops technical standards for animal drug safety and effectiveness and evaluates data bases necessary to support approvals of veterinary drugs. The USDA monitors the food supply for animal drug residues.
FDA approval is based on satisfactory demonstration of safety and efficacy. Efficacy requirements are based on the desired label claim and encompass all species for which label indication is desired. Safety requirements include target animal safety and, in the case of food animals, drug residues and the safety of those residues must be considered. In addition to the safety and efficacy requirements for animal drugs used in food producing animals, the environmental impact must be determined. Depending on the compound, the environmental studies may be quite extensive and expensive. In many instances the regulatory hurdles for a drug which will be used in food producing animals are at least as stringent if not more so than those required for a drug used in humans. For FDA approval of a new animal drug it is estimated the cost is $100 million to $150 million and time for approval could be 8 to 10 years.
The FDA may deny a NADA if applicable regulatory criteria are not satisfied, require additional testing or information, or require postmarketing testing and surveillance to monitor the safety or efficacy of a product. There can be no assurances that FDA approval of any NADA will be granted on a timely basis or at all. Moreover, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which it may be marketed. Finally, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. Among the conditions for NADA approval is the requirement that the prospective manufacturer'smanufacturer’s quality control and manufacturing procedures conform to Current Good Manufacturing Practice ("cGMP"(“cGMP”). The plant must be inspected biannually by the FDA for determination of compliance with cGMP after an initial preapproval inspection. After FDA approval, any manufacturing changes that may have an impact on the safety and/or efficacy must be approved by the
FDA prior to implementation. In complying with standards set forth in these regulations, manufacturers must continue to expend time, monies and effort in the area of production and quality control to ensure compliance.
For clinical investigation and marketing outside the United States, we are also subject to foreign regulatory requirements governing investigation, clinical trials and marketing approval for animal drugs. The foreign regulatory approval process includes all of the risks associated with FDA approval set forth above. Currently, in the EU, feed additives which are successfully sponsored by a manufacturer are assigned to an Annex. Initially, they are assigned to Annex II. During this period, member states may approve the feed additive for local use. After five years or earlier, the product passes to Annex I if no adverse reactions or trends develop over the probationary period.
The following information discusses certain conditions in Israel that could affect our Israeli subsidiary, Koffolk Israel. As of June 30, 2004 and for the
year then ended, Israeli operations (excluding Koffolk Israel'sIsrael’s non-Israeli subsidiaries)subsidiary) accounted for approximately 14% of our consolidated assets as of June 30, 2005 and approximately 12%11% of our consolidated net sales.sales for fiscal 2005. We are, therefore, directly affected by the political, military and economic conditions in Israel.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying from time to time in intensity and degree, has led to security and economic problems for Israel. Although Israel has entered into various agreements with certain Arab countries and the Palestinian Authority, since October 2000 there has been a significant increase in violence and terrorist activity in Israel. In April 2002, and from time to time thereafter,
Israel undertook military operations in several Palestinian cities and towns. We cannot predict whether the current violence and unrest will continue and to what extent it will have an adverse impact on Israel'sIsrael’s economic development or on Koffolk Israel'sIsrael’s or our results of operations. We also cannot predict whether or not any further hostilities will erupt in Israel and the Middle East and to what extent such hostilities, if they do occur, will have an adverse impact on Israel'sIsrael’s economic development or on Koffolk Israel'sIsrael’s or our results of operations.
Certain countries, companies and organizations continue to participate in a boycott of Israeli firms and other companies doing business in Israel or with IsraelIsraeli companies. We do not believe that the boycott has had a material adverse effect on us, but we can notcannot provide assurance that restrictive laws, policies or practices directed toward Israel or Israeli businesses will not have an adverse impact on our operations or expansion of the our business.
Generally, male adult citizens who are permanent residents of Israel under the age of 4540 are, unless exempt, obligated to perform certain military duty annually. Additionally, all such residents are subject to being called to active duty at any time under emergency circumstances and since April 2002 some
reservists have been called to active duty.circumstances. Some of the employees of Koffolk Israel currently are obligated to perform annual reserve duty. While Koffolk Israel has operated effectively under these and similar requirements in the past, we cannot assess the full impact of such requirements on Koffolk Israel and us in the future, particularly if emergency circumstances occur and employees of Koffolk Israel are called to active duty.
Koffolk Israel receives a portion of its revenues in U.S. dollars while its expenses are principally payable in New Israeli Shekels. Dramatic changesChanges in the currency rates could have an adverse effect on Koffolk Israel'sIsrael’s results of operations.
In addition to such matters, we or certain of our subsidiaries are subject to certain litigation described below.
On or about April 5, 2002, the Company was served, as a potentially responsible party, with an information request from the EPA relating to a third-party superfund site in Rhode Island. The Company is investigatinghas investigated the matter, which relates to events in the 1950's1950’s and 1960's, but1960’s, and management does not believe that the Company has any liability in this matter.
The following selected consolidated financial data as of and for fiscal years ended June 30, 2000, 2001, 2002, 2003, 2004 and 20042005 have been derived from our audited consolidated financial statements. The selected consolidated financial data reflect our Odda, Carbide, MRT, and La Cornubia and Wychem businesses as discontinued operations for all periods presented. You should read the information set forth below in conjunction with our "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” and our consolidated financial statements and related notes included elsewhere in this Report.
Fiscal Years Ended June 30,
-------------------------------------------------------------
2000 2001 2002 2003 2004
--------- --------- --------- --------- ---------
Net income (loss) $ 10,053 $ (14,895) $ (51,770) $ (17,559) $ 12,850
Excess of the reduction of redeemable
preferred stock over total assets
divested and costs and liabilities
incurred on the Prince Transactions -- -- -- -- 20,138
Dividends and equity value accreted on Series
B and C redeemable preferred stock -- (8,172) (7,623) (12,278) (11,463)
--------- --------- --------- --------- ---------
Net income (loss) available to common shareholders $ 10,053 $ (23,067) $ (59,393) $ (29,837) $ 21,525
========= ========= ========= ========= =========
Balance Sheet Data:
Cash and cash equivalents $ 2,403 $ 14,845 $ 6,419 $ 11,179 $ 5,568
Total assets 258,450 330,019 296,444 274,347 241,369
Long-term debt 139,685 139,455 136,641 102,263 158,018
Series B and C redeemable preferred stock -- 48,980 56,602 68,881 24,678
Total stockholders' equity (deficit) 31,618 3,405 (61,189) (84,510) (63,833)
Item 7. Management's | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This information should be read in conjunction with the consolidated financial statements and related notes contained in this Report. The Company'sCompany’s Odda, Carbide, MRT, LaCornubia and LaCornubiaWychem businesses have been classified as discontinued operations. This discussion presents information only for continuing operations, unless otherwise indicated. The Company presents its annual consolidated financial statements on the basis of its fiscal year ending June 30. All references to years 2005, 2004, and 2003 and 2002 in this discussionthese financial statements refer to the fiscal year ended June 30 of that year.
General
The Company is a leading diversified global manufacturer and marketer of a broad range of animal health and nutrition products, specifically medicated feed additives (MFAs) and nutritional feed additives (NFAs), which are sold throughout the world predominantly to the poultry, swine and cattle markets. MFAs are used preventativelypreventively and therapeutically in animal feedsfeed to produce healthy livestock. The Company believes it is the third largest manufacturer and marketer of MFAs in the world, and that certain of its MFA products have leading positions in the marketplace. The Company is also a specialty chemicals manufacturer and marketer, serving primarily the United States pressure-treated wood and chemical industries. The Company has several proprietary products, and many of the Company'sCompany’s products provide critical performance attributes to customers'customers’ products, while representing a relatively small percentage of total end-product cost.
In August 2003,
| |
| Holding Company and HoldCo Notes |
During February 2005, PAHC Holdings Corporation (“Holdings”) was formed to hold the Company completedcapital stock of PAHC, except for its Series C Preferred Stock. On February 10, 2005, Holdings issued $29.0 million aggregate principal amount of its 15% Senior Secured Notes due 2010 (the “HoldCo Notes”) in a private placement. Interest is payable at the option of Holdings in cash or pay-in-kind HoldCo Notes in its sole discretion. PAHC is not obligated for the HoldCo Notes. PAHC’s ability to make payments to Holdings is subject to the terms of PAHC’s Senior Secured Notes, its Senior Subordinated Notes, its domestic senior credit facility, and to applicable law.
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The proceeds from the sale of MRTthe HoldCo Notes were used by Holdings to make a capital contribution to PAHC to contemporaneously finance the redemption of PAHC’s Series C Preferred Stock in the amount of $26.4 million on February 28, 2005.
On May 16, 2005, Holdings completed the exchange of its privately placed HoldCo Notes with new HoldCo Notes that have been registered with the SEC.
Holdings was formed by the holders of all of PAHC’s capital stock, other than the holders of PAHC’s Series C Preferred Stock. In particular, Jack Bendheim, Marvin Sussman and trusts for the benefit of Mr. Bendheim and his family exchanged all of their shares of Series A Preferred Stock and Class B Common Stock and Mr. Bendheim exchanged all of his shares of Class A Common Stock, for the same number and class of shares of Holdings, having the same designations, relative rights, privileges and limitations as PAHC’s shares of such class (except to the extent that Holdings is a Delaware corporation and PAHC is a New York corporation). Holdings owns all the outstanding capital stock of all classes of PAHC.
The HoldCo Notes are collateralized by all of Holdings’ assets (now consisting substantially of all the outstanding capital stock of PAHC). The HoldCo Notes and such security interest are effectively subordinated to all liabilities, including PAHC’s and its subsidiaries’ trade payables, as well as PAHC’s indenture indebtedness.
| |
| Redemption of Series C Preferred Stock |
On February 28, 2005, PAHC, Palladium Equity Partners II, LP and certain of its affiliates (“Palladium”), Holdings and the principal stockholders of Holdings entered into an agreement to redeem PAHC’s Series C Preferred Stock with respect to (i) the redemption price of $26.4 million (consisting of $19.6 million of liquidation preference and $6.8 million of equity value), (ii) amending the terms of the post-redemption redemption price adjustment set forth in the certificate of incorporation of PAHC (a) from an amount payable upon occurrence of certain capital stock transactions determined with respect to the value of the Company upon the occurrence of such capital stock transaction, to a liquidated amount of $4.0 million, payable only after the occurrence of certain capital stock transactions and the receipt by the current stockholders of PAHC, on a cumulative basis, of an aggregate of $24.0 million of dividends and distributions in respect of such capital stock transactions, and (b) to remove the one year time period for such adjustment of the redemption price, and (iii) eliminating the backstop indemnification obligation of up to $4.0 million of PAHC to Palladium incurred in connection with the sale by PAHC to Palladium in December 2003 of The Prince Manufacturing Company (“PMC”). The excess of the redemption price over the carrying value of the Series C Preferred Stock and the elimination of the backstop indemnification obligation have been reflected as adjustments to stockholder’s deficit on the consolidated balance sheet at June 30, 2005. The redemption agreement also eliminated PAHC’s agreement to pay $0.1 million per year to Palladium for certain treasury services. The Company has determined the fair value of the liability for the post-redemption redemption price adjustment to be insignificant to the consolidated financial statements, due to the uncertainty of the ultimate timing of such payment, if any. Future changes in the fair value of the liability for the post-redemption redemption price adjustment will be recorded through earnings in the period in which such change occurs.
| |
| Discontinued Operations — Wychem |
On April 29, 2005, the Company sold the shares of Wychem, an indirect wholly-owned subsidiary, for cash proceeds of $4.8 million to an investor group that included the former head of the Company’s Specialty Chemicals Group, who retired in August 2004, and the Managing Director of Wychem. The Company owned 75% of Wychem through Koffolk (1949), Ltd. (Israel) and 25% through Ferro Metal and Chemical Corporation Limited (U.K.). The Company recorded a gain on the sale of Wychem of $0.5 million in 2005. Wychem was included in the Company’s All Other segment.
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| Belgium Plant Transactions |
On December 16, 2004, Phibro Animal Health SA (“PAH Belgium”), entered into an agreement with GlaxoSmithKline Biologicals (“GSK”) to sell to GSK substantially all of PAH Belgium’s facilities in
23
Rixensart, Belgium (the “Belgium Plant”). Such sale, when completed (the “Belgium Plant Transactions”), will include the following elements (U.S. dollar amounts at the June 30, 2005 exchange rate): (i) the transfer of substantially all of the land and buildings and certain equipment of PAH Belgium at the Belgium Plant, as well as the industrial activities and intellectual property relating to certain solvent technology of PAH Belgium for a purchase price of EUR 6.2 million ($7.5 million), payable at closing; (ii) the transfer to GSK of a majority of the employees of the Belgium Plant and the corresponding responsibility for statutory severance obligations; (iii) GSK agreeing to be responsible for cleaning-up, by demolition or otherwise, certain buildings not to be used by it, but for PAH Belgium to reimburse GSK up to a maximum of EUR 0.7 million ($0.8 million) for such cleaning-up costs; (iv) in recognition of the benefits to PAHC from the proposed transaction, PAH Belgium agreeing to pay to GSK EUR 1.5 million ($1.8 million) within six months from the closing date, EUR 1.5 million ($1.8 million) within eighteen months from the closing date, EUR 1.5 million ($1.8 million) within thirty months from the closing date, and EUR 0.5 million ($0.6 million) within forty-two months from the closing date; (v) PAH Belgium retaining certain excess land (valued at approximately EUR 0.4 million ($0.5 million)) and being able to sell such land for its own account; (vi) PAH Belgium being responsible for certain plant closure costs and legally required severance indemnities in connection with workforce reductions; and (vii) PAH Belgium retaining any or all equipment at the Belgium Plant, and being able to sell such equipment for the account of PAH Belgium or transfer such equipment, together with other assets and rights related to the production of virginiamycin, to PAH Brazil which owns a facility in Guarulhos, Brazil or in connection with alternative production arrangements.
The foregoing transactions and agreements are subject to a closing that is expected to occur on November 30, 2005, but in no event later than June 30, 2006.
The Dutch Notes and related guarantees are collateralized by a mortgage on the Belgium Plant which will be released in connection with the closing of the sale of the Belgium Plant to GSK.
As a result of the above agreement, the Company will depreciate the Belgium plant to its estimated salvage value of EUR 2.1 million ($2.5 million) as of the projected closing date of November 30, 2005. The Company recorded incremental depreciation expense of EUR 5.8 million ($7.5 million) during 2005 and will record an additional EUR 3.8 million ($4.6 million) of incremental depreciation expense ratably through November 2005.
The Company recorded accrued severance expense of EUR 10.2 million ($12.8 million) during 2005, representing the estimated total cost of severance and early-retirement programs for those employees not transferring to GSK. The expense includes $0.9 million for enhanced pension benefits agreed as part of the early-retirement program. The Company estimates $6.5 million will be payable at or around the closing date, and $6.3 million will be payable in subsequent periods.
The Company also recorded $1.9 million of other transaction-related expense during 2005.
The incremental depreciation expense of $7.5 million, severance expense of $12.8 million and other transaction-related expense of $1.9 million recorded in 2005 are included in cost of goods sold on the Company’s consolidated statements of operations and comprehensive income (loss).
The Company expects to record an estimated $6.2 million of additional net expense during fiscal 2006 for employee retention agreements, plant dismantling and decommissioning, plant shutdown and other costs associated with the completion of the sale of the Belgium Plant. The estimated net expense includes an estimated $1.1 million gain from the curtailment of the Belgium pension plan. The Company estimates no material gain or loss during fiscal 2006 resulting from the sale of the Belgium Plant.
The Company has determined that the carrying amount of the Belgium Plant at June 30, 2005 is recoverable based on the estimated future cash flows arising from the use of the assets.
In anticipation of transferring production of virginiamycin from the Belgium Plant to an alternative production location, the Company has been increasing inventory levels of virginiamycin to ensure adequate supplies during the transfer period. Virginiamycin inventories were approximately $38.8 million and
24
$24.1 million at June 30, 2005 and 2004, respectively and are expected to continue to increase through November 2005, based on current production rates.
| |
| Issuance of Additional 13% Senior Secured Notes |
On December 21, 2004, PAHC completed a private placement pursuant to which PAHC (the “Parent Issuer”) and Philipp Brothers Netherlands III B.V., an indirect wholly-owned subsidiary of PAHC (the “Dutch Issuer” and together with PAHC, the “Issuers”) issued and sold 22,491 additional units consisting of $18.2 million 13% Senior Secured Notes due 2007 of the Parent Issuer (the “U.S. Notes”) and $4.3 million 13% Senior Secured Notes due 2007 of the Dutch Issuer (the “Dutch Notes” and together with the U.S. Notes, the “Additional Notes”), from which they received gross proceeds after
transactionof $23.4 million. The proceeds were used to refinance indebtedness outstanding under PAHC’s domestic senior credit facility. PAHC incurred financing costs of approximately $13.8 million. In$2.3 million in connection with the issuance of the Additional Notes. The Additional Notes were issued under the Indenture dated October 21, 2003, as amended and supplemented (the “Indenture”) under which the Issuers previously issued 105,000 units consisting of $85.0 million aggregate principal amount of U.S. Notes and $20.0 million aggregate principal amount of Dutch Notes.
On March 9, 2005, PAHC completed the exchange of its privately placed 127,491 units of 13% Senior Secured Notes due 2007 with 127,491 new units of 13% Senior Secured Notes due 2007 that have been registered with the SEC.
| |
| Amendment to the Domestic Senior Credit Facility |
On December 21, 2004, concurrent with the completion of the offering of the Additional Notes, PAHC amended its domestic senior credit facility to: (i) amend the EBITDA definition to exclude charges and expenses related to the sale of the Belgium Plant in an aggregate amount not to exceed $26.8 million for purposes of calculating a certain financial covenant; (ii) amend the Indenture reserve definition to include scheduled payments of interest due on the Additional Notes; (iii) amend the maximum aggregate amount of borrowing available under the working capital facility to permit a temporary increase to $22.5 million and for its reduction to $17.5 million on such borrowings being refinanced by the proceeds of the Additional Notes; (iv) amend the Permitted Investments definition to include investments in connection with the sale of the Belgium Plant and transfer of certain equipment, together with other assets and rights related to the production of virginiamycin, to Phibro Saude International Ltda. (“PAH Brazil”) or in connection with alternative production arrangements; and (v) provide for the issuance of the Additional Notes and the sale of the Belgium Plant and related transactions.
Effective December 26, 2003, the Company completed the divestiture of substantially all of the business and assets of Prince Quincy, Inc. (f/k/a The Prince Manufacturing Company (see discussion below under "Prince Transactions"(“PMC”).
On June 30, 2004, one) to a company (“Buyer”) formed by Palladium Equity Partners II, LP and certain of its affiliates (“Palladium”), and the related reduction of the Company's French subsidiaries,Company’s preferred stock held by Palladium (collectively the “Prince Transactions”).
Certain of the Company’s discontinued operations (MRT, La Cornubia SA
("La Cornubia"), filed for bankruptcy underand Wychem) were previously included in the insolvency laws of France. The
Company believes that, as a resultAll Other segment. Contract manufacturing, also previously included in the All Other segment, has been aggregated with the Industrial Chemicals segment due to the similar nature, management and economic characteristics of the bankruptcy filing by La Cornubia, it
is possible that LC Holding S.A. ("LC Holding"), La Cornubia's parent,businesses as well as common copper-based raw materials and production facilities. In addition, certain product lines previously included in the Animal Health and Nutrition segment have been included in the Distribution segment due to a holding
Company with no assets exceptchange in management and marketing responsibilities. Prior years segment data have been revised for its investment in La Cornubia, may also file
for bankruptcy in France.comparability.
25
Other Risks and Uncertainties
The
Company does not believe that La Cornubia's
bankruptcy filing, nor the possible bankruptcy filing by LC Holding, will have a
material adverse effect on its financial condition or results of operations.
During 2004, the Company incurred $5.3 million of costs in connection with a
potential acquisition transaction that was not completed. The Company has
charged the costs to expense in its 2004 results. The costs primarily consisted
of professional fees for services in connection with the transaction.
The Company'sCompany’s ability to fund its operating plan relies upon the continued availability of borrowing under the
domestic senior credit facility. The Company believes that it will be able to comply with the terms of its covenants under the
amendeddomestic senior credit facility based on its forecasted operating plan. In the event of adverse operating results and/or violation of covenants under this facility, there can be no assurance that the Company would be able to obtain waivers or amendments on favorable terms, if at all. The
Company's 2005Company’s 2006 operating plan projects adequate liquidity throughout the year, with periods of reduced availability around the dates of the semi-annual interest payments due
NovemberDecember 1
2004 and June 1
2005.related to its senior secured notes and its senior subordinated notes. The Company is pursuing additional cost reduction activities, working capital improvement plans, and sales of non-strategic assets to ensure additional liquidity. The Company also has availability under foreign credit lines that would be available as needed.
The Company also has undertaken
a strategic review of its manufacturing capabilities, and is currently
increasing inventory levels of certain products to enhance future flexibility
and reduce cost. There can be no assurance the Company will be successful in any of the above-noted actions.
18
Refinancing The use of antibiotics in medicated feed additives is a subject of legislative and regulatory interest. The issue of potential for increased bacterial resistance to certain antibiotics used in certain food-producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led to government restrictions on the use of antibiotics in food-producing animals. The sale of feed additives containing antibiotics is a material portion of the Company’s business. Should regulatory or other developments result in further restrictions on the sale of such products, it could have a material adverse impact on the Company’s financial position, results of operations and cash flows.
The testing, manufacturing, and marketing of certain of the Company’s products are subject to extensive regulation by numerous government authorities in the United States and other countries.
The Company has significant assets located outside of the United States, and a significant portion of the Company’s sales and earnings are attributable to operations conducted abroad.
The Company has assets located in Israel and a portion of its sales and earnings are attributable to operations conducted in Israel. The Company is affected by social, political and economic conditions affecting Israel, and any major hostilities involving Israel as well as the Middle East or curtailment of trade between Israel and its current trading partners, either as a result of hostilities or otherwise, could have a material adverse effect on the Company.
The Company’s operations, properties and subsidiaries are subject to a wide variety of complex and stringent federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes, the remediation of contaminated soil and groundwater, the manufacture, sale and use of pesticides and the health and safety of employees. As such, the nature of the Company’s current and former operations and those of its subsidiaries exposes the Company and its subsidiaries to the risk of claims with respect to such matters.
Summary Consolidated Results of Continuing Operations
| | | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| | | (Thousands) | |
| Net Sales | | $ | 364,379 | | | $ | 354,384 | | | $ | 337,818 | |
| Gross profit | | | 71,293 | | | | 89,167 | | | | 89,241 | |
| Selling, general and administrative expenses | | | 66,911 | | | | 63,417 | | | | 63,346 | |
| Costs of non-completed transaction | | | — | | | | 5,261 | | | | | |
| Operating Income | | | 4,382 | | | | 20,489 | | | | 25,895 | |
| Interest expense, net | | | 25,222 | | | | 20,594 | | | | 17,370 | |
| Other (income) expense, net | | | (1,859 | ) | | | (788 | ) | | | 1,548 | |
| Net (gain) on extinguishment of debt | | | — | | | | (23,226 | ) | | | — | |
| Provision for income taxes | | | 2,120 | | | | 7,804 | | | | 9,830 | |
| Income (loss) from continuing operations | | $ | (21,101 | ) | | $ | 16,105 | | | $ | (2,853 | ) |
26
2005 Compared with 2004
Net Salesof $364.4 million increased $10.0 million, or 3%. Animal Health and Nutrition sales of $278.8 million grew $15.4 million, or 6%, due to volume increases and higher average selling prices. Specialty Chemical Group (comprised of the Industrial Chemicals and Distribution segments) sales of $85.6 million decreased $5.4 million. Excluding PMC, Specialty Chemical Group sales increased by $5.7 million, or 7%, primarily due to higher average selling prices. The Specialty Chemical Group included PMC sales of $11.1 million for 2004.
Gross Profitof $71.3 million decreased $17.9 million to 19.6% of net sales. The Belgium Plant Transactions increased costs by $22.2 million for the current period. Excluding this charge, Animal Health and Nutrition gross profit increased due to higher average selling prices and unit volumes offset in part by higher unit costs. The Specialty Chemical Group, excluding PMC, also contributed to the improvement due to expanded sales of the Company’s new copper-based wood treatment product and higher average selling prices in its Distribution segment. The Specialty Chemical Group included PMC gross profit of $3.6 million for the 2004 period.
Gross profit included $2.0 million in the fourth quarter of 2004 due to an agreement related to the production and sale of amprolium, an anticoccidial MFA. The Company acquired the rights to sell amprolium in most international markets. In payment for the acquired rights, the Company relinquished its claims against the seller for certain purchase order commitments and agreed to pay the seller $2.1 million over a five year period.
Selling, General and Administrative Expensesof $66.9 million increased $3.5 million. Expenses in the operating segments, excluding PMC, increased over the prior year due to higher research and development costs associated with registration trials, unfavorable foreign exchange rates, advertising and promotion expenditures and severance costs. Corporate expenses increased due to higher professional fees, costs associated with the relocation of the Company’s corporate office and lower PMC advisory fees income offset in part by the elimination of the Palladium management fee in fiscal 2004. In addition, the Company recognized additional income of$1.0 million during 2005 related to the previous sale of its etchant business during fiscal 2003. PMC expenses were $1.3 million for the 2004 period. The amortization of deferred financing costs, previously included in selling, general and administrative expenses, is now included in interest expense. Prior year amounts have been revised for comparability.
Costs of Non-completed Transaction. During 2004, the Company incurred $5.3 million of costs in connection with a potential acquisition transaction that was not completed. The Company charged the costs to expense in its 2004 results. The costs primarily consisted of professional fees for services in connection with the transaction.
Net Gain on Extinguishment of Debt. During 2004, the Company recorded a net gain on the extinguishment of debt of $23.2 million due to the repurchase of senior subordinated notes ($16.7 million), and the repayment of Pfizer obligations ($7.5 million) offset in part by a loss on repayment of a senior credit facility ($1.0 million).
Operating Incomeof $4.4 million decreased $16.1 million due to $22.2 million of expenses for the Belgium Plant Transactions in 2005, offset in part by $5.3 million of non-completed transaction costs in 2004. Excluding the Belgium Plant Transactions and the non-completed transaction costs, operating income would have improved by $0.8 million. Operating income, excluding PMC, improved in the Specialty Chemical Group with increased gross profit offset in part by higher selling, general and administrative expenses. Operating income, excluding the Belgium Plant Transactions, declined slightly in Animal Health and Nutrition. PMC contributed $2.3 million for the 2004 period offset in part by the elimination of the $1.1 million Palladium management fee.
Interest Expense, Netof $25.2 million increased $4.6 million from the 2004 period, primarily due to higher average interest rates and also higher borrowing levels associated with the issuance of the Company’s senior secured notes. The amortization of deferred financing costs was $3.0 million and $2.1 million for 2005 and 2004, respectively.
27
Other (Income) Expense, Netprincipally reflects foreign currency transaction net (gains) losses related to short-term inter-company balances and foreign currency translation (gains) losses. In addition, the Company recorded gains of $0.8 million on the sale of its Wilmington, Illinois property and $0.7 million on the redemption of its preferred stock investment in Penick Holding Company.
Income Taxesof $2.1 million were recorded on a consolidated pre-tax loss of $19.0 million. The tax rate reflects income tax provisions in profitable foreign jurisdictions and for state income taxes. A provision for U.S. federal income taxes has not been recorded due to the utilization of net operating loss carryforwards. The Company has recorded valuation allowances related to substantially all deferred tax assets. The Company will continue to evaluate the likelihood of recoverability of these deferred tax assets based upon actual and expected operating performance.
2004 Compared with 2003
Net Salesof $354.4 million increased $16.6 million, or 5%. Animal Health and Nutrition sales of $263.4 million grew $15.2 million, or 6%, due to volume increases. Specialty Chemical Group (comprised of the Industrial Chemicals and Distribution segments) sales of $91.0 million increased $1.4 million, or 2%, primarily due to volume increases in all segments, offset by a decrease in PMC sales. The Specialty Chemical group included PMC sales of $11.1 million and $22.3 million for 2004 and 2003, respectively.
Gross Profitof $89.2 million decreased $0.1 million to 25.2% of net sales, compared with 26.4% in 2003. Animal Health and Nutrition gross profit decreased due to lower average selling prices and unfavorable currency related to the effect of the Euro on Belgium manufacturing costs. Improvements in the Specialty Chemical Group partially offset the Animal Health and Nutrition decline. The Specialty Chemical Group included PMC gross profit of $3.6 million and $6.2 million, respectively, for the 2004 and 2003 periods.
Gross profit included $2.0 million in the fourth quarter of 2004 due to an agreement related to the production and sale of amprolium, an anticoccidial MFA. The Company acquired the rights to sell amprolium in most international markets. In payment for the acquired rights, the Company relinquished its claims against the seller for certain purchase order commitments and agreed to pay the seller $2.1 million over a five year period.
Selling, General and Administrative Expensesof $63.4 million increased $0.1 million. Expenses in the operating segments, excluding PMC, approximated the prior year primarily due to lower environmental and severance accruals offset in part by unfavorable foreign exchange rates. Corporate expenses in 2004 reflect the elimination of the Palladium annual management fee of $2.25 million as of December 31, 2003 and income of $0.5 million from the PMC Advisory fee. Corporate expenses increased in 2004 due to higher insurance costs offset by lower benefit charges. Corporate expenses in 2003 included vitamin settlement income of $3.0 million. PMC expenses were $1.3 million and $2.6 million for 2004 and 2003, respectively. The amortization of deferred financing costs, previously included in selling, general and administrative expenses, is now included in interest expense. Prior year amounts have been revised for comparability.
Costs of Non-completed Transaction. During 2004, the Company incurred $5.3 million of costs in connection with a potential acquisition transaction that was not completed. The Company has charged the costs to expense in its 2004 results. The costs primarily consisted of professional fees for services in connection with the transaction.
Net Gain on Extinguishment of Debt. During 2004, the Company recorded a net gain on the extinguishment of debt of $23.2 million due to the repurchase of senior subordinated notes ($16.7 million), and the repayment of Pfizer obligations ($7.6 million) offset in part by a loss on repayment of a senior credit facility ($1.0 million).
Operating Incomeof $20.5 million decreased $5.4 million to 5.7% of sales. The decrease was primarily due to the non-completed transaction costs described above. In addition, gross profit declined in the Animal Health and Nutrition segment but was offset in part by improved operating performance of the Specialty Chemical group. PMC contributed $2.3 million and $3.6 million for 2004 and 2003, respectively.
28
Interest Expense, Netof $20.6 million increased $3.2 million from the prior year, primarily due to higher borrowing levels and also higher average interest rates associated with the issuance of the Company’s Senior Secured Notes. The amortization of deferred financing costs was $2.1 million and $1.2 million for 2004 and 2003, respectively.
Other (Income) Expense, Netof ($0.8) million improved in comparison with $1.5 million of expense in 2003. During 2004, the Company’s Phibro-Tech subsidiary received $1.0 million in exchange for the sale of certain assets related to the manufacture and sale of ferric chloride from its plant in Joliet, Illinois and recognized a net gain of $0.7 million. The balance of other (income) expense principally reflects foreign currency transaction net (gains) losses related to short-term inter-company balances and foreign currency translation (gains) losses.
Income Taxesof $7.8 million were 33% of consolidated pre-tax income of $23.9 million. The tax rate reflects income tax provisions in profitable foreign jurisdictions and for state income taxes. A provision for U.S. federal income taxes has not been recorded due to the utilization of net operating loss carryforwards. The Company has recorded valuation allowances related to substantially all deferred tax assets. The Company will continue to evaluate the likelihood of recoverability of these deferred tax assets based upon actual and expected operating performance.
Operating Segments
The Animal Health and Nutrition segment manufactures and markets MFAs and NFAs to the poultry, swine and cattle markets, and includes the operations of the Phibro Animal Health business unit, Prince AgriProducts, Koffolk (1949) Ltd. and Planalquimica. The Industrial Chemicals segment manufacturers and markets specialty chemicals for use in the pressure treated wood and chemical industries and contract manufacturing of crop protection chemicals, and includes Phibro-Tech and, until its divestiture, PMC. The Distribution segment markets a variety of specialty chemicals, and includes PhibroChem and Ferro operations. Due to the divestiture of PMC in December 2003, PMC’s results are shown separately for comparability.
Certain of the Company’s discontinued operations (MRT, La Cornubia and Wychem) were previously included in the All Other segment. Contract manufacturing, also previously included in the All Other segment, has been aggregated with the Industrial Chemicals segment due to the similar nature, management and economic characteristics of the businesses as well as common copper-based raw materials and production facilities. In addition, certain product lines previously included in the Animal Health and Nutrition segment have been included in the Distribution segment due to a change in management and marketing responsibilities. Prior years segment data has been revised for comparability.
| | | | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| | | (Thousands) | |
Net Sales | | | | | | | | | | | | |
| | Animal Health & Nutrition | | $ | 278,837 | | | $ | 263,417 | | | $ | 248,262 | |
| | Industrial Chemicals — ex PMC | | | 52,305 | | | | 46,984 | | | | 34,708 | |
| | Industrial Chemicals — PMC | | | — | | | | 11,118 | | | | 22,332 | |
| | Distribution | | | 33,237 | | | | 32,865 | | | | 32,516 | |
| | | | | | | | | | |
| | | $ | 364,379 | | | $ | 354,384 | | | $ | 337,818 | |
| | | | | | | | | | |
Operating Income | | | | | | | | | | | | |
| | Animal Health & Nutrition | | $ | 10,073 | | | $ | 32,605 | | | $ | 37,325 | |
| | Industrial Chemicals — ex PMC | | | 4,835 | | | | 2,291 | | | | (5,589 | ) |
| | Industrial Chemicals — PMC | | | — | | | | 2,278 | | | | 3,579 | |
| | Distribution | | | 4,671 | | | | 3,602 | | | | 4,354 | |
| | Corporate expenses and adjustments | | | (15,197 | ) | | | (20,287 | ) | | | (13,774 | ) |
| | | | | | | | | | |
| | | $ | 4,382 | | | $ | 20,489 | | | $ | 25,895 | |
| | | | | | | | | | |
29
Operating Segments 2005 Compared to 2004
| |
| Animal Health and Nutrition |
Net Salesof $278.8 million increased $15.4 million, or 6%. MFA net sales increased by $6.5 million. Revenues were higher primarily for antibiotics but were offset in part by lower sales of anticoccidials. The increase in MFA revenues was due to higher unit volumes and favorable currency effect on international sales offset in part by lower average selling prices. NFA net sales increased by $8.9 million principally due to higher average selling prices and volume increases. NFA sales were notably higher for the Company’s specialty products, trace mineral premixes and other feed ingredient products.
Operating Incomeof $10.1 million decreased $22.5 million from the 2004 period. Operating income, excluding costs relating to the Belgium Plant Transactions of $22.2 million, declined slightly due to higher selling, general and administrative expenses and manufacturing costs offset in part by higher average selling prices and sales unit volumes.
| |
| Specialty Chemicals Group |
Industrial Chemicalsnet sales of $52.3 million, increased $5.3 million, or 11% excluding PMC. Sales of copper-related products to the wood treatment markets increased due to new copper based wood treatment products and higher sales of other specialty copper products arising from capacity expansion. Revenues for contract manufacturing increased due to higher average selling prices and increased volumes. PMC, divested in December 2003, generated revenues of $11.1 million for the 2004 period. Operating income, excluding PMC, of $4.8 million improved by $2.5 million from the 2004 period. This improvement was due to new product introductions and savings from previously implemented headcount reductions and facility restructurings. PMC provided operating income of $2.3 million for the 2004 period.
Distributionnet sales of $33.2 million increased $0.4 million. Higher domestic unit volumes and average selling prices were offset in part by lower sales volumes in Europe. Distribution operating income of $4.7 million improved by $1.1 million from the 2004 period due to increased sales of higher margin products. As a percentage of sales, operating income was 14% and 11% in 2005 and 2004, respectively.
Operating Segments 2004 Compared to 2003
| |
| Animal Health and Nutrition |
Net Salesof $263.4 million increased $15.2 million, or 6%. MFA net sales decreased by $7.3 million. Revenues were lower primarily for anticoccidials but were offset in part by higher sales of other medicated feed additives. Sales of anticoccidial products were lower due to contract negotiations with a major customer that were completed in the fourth quarter of 2004. The decrease in MFA revenues also was due to lower average selling prices offset in part by favorable currency effect on international sales. NFA net sales increased by $22.5 million, principally due to volume increases in core inorganic minerals, trace mineral premixes and other ingredients.
Operating Incomeof $32.6 million decreased $4.7 million, or 13%. Operating income declined due to product mix, higher cost of goods reflecting the stronger Euro’s effect on Belgian manufacturing cost and unfavorable currency effects on international selling, general and administrative expense. Lower average selling prices also contributed to the decrease. Operating income increased $2.0 million in the fourth quarter of 2004 due to an agreement related to the production and sale of amprolium, an anticoccidial MFA.
| |
| Specialty Chemicals Group |
Industrial Chemicalsnet sales of $47.0 million, excluding PMC, increased $12.3 million, or 35%. Sales of copper related products to the wood treatment markets increased due to the introduction of new copper based wood treatment chemicals which offset the divestiture of the Company’s Eastern United States etchant business in mid 2003. The Company continues its existing etchant business at one remaining facility. Revenues for contract manufacturing improved due to increased volumes and average selling prices. PMC,
30
divested in December 2003, generated revenues of $11.1 million and $22.3 million for 2004 and 2003, respectively. Operating income of $2.3 million improved by $7.9 million from the prior year. This improvement was due to new product introductions and savings from headcount reductions and facility restructurings. Operating income also improved due to higher revenues and increased margins on contract manufacturing. PMC provided operating income of $2.3 million and $3.6 million for 2004 and 2003, respectively.
Distributionnet sales of $32.9 million increased $0.3 million, or 1%. Higher sales volumes in Europe were offset in part by lower domestic unit volumes and lower average selling prices. Distribution operating income of $3.6 million decreased $0.8 million from the prior year. As a percentage of sales, operating income was 11% and 13% in 2004 and 2003, respectively.
Discontinued Operations
On October 21,April 29, 2005, the Company sold the shares of Wychem, an indirect wholly-owned subsidiary, for cash proceeds of $4.8 million to an investor group that included the former head of the Company’s Specialty Chemicals Group, who retired in August 2004, and the Managing Director of Wychem. The Company owned 75% of Wychem through Koffolk (1949), Ltd. (Israel) and 25% through Ferro Metal and Chemical Corporation Limited (U.K.). The Company recorded a gain on the sale of Wychem of $0.5 million in 2005. Wychem was included in the Company’s All Other segment.
During 2004, the Company shut down its operations at La Cornubia and divested MRT. During 2003, the Company issued 105,000 units consistingshut down or divested Odda Smelteverk (Norway), and Carbide Industries (U.K.). These businesses have been classified as discontinued operations. The Company’s consolidated financial statements have been reclassified to report separately the operating results and cash flows of $85.0the discontinued operations.
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, 2005 | |
| | | | |
| | | Odda/Carbide | | MRT | | LaCornubia | | Wychem | | | Total | |
| | | | | | | | | | | | | |
| Net Sales | | $ | — | | | $ | — | | | $ | — | | | $ | 4,431 | | | $ | 4,431 | |
| | | | | | | | | | | | | | | | |
| Operating Income | | $ | — | | | $ | — | | | $ | — | | | | 940 | | | $ | 940 | |
| Other Expense (Income), net | | | — | | | | — | | | | — | | | | 6 | | | | 6 | |
| Provision (benefit) for income tax | | | — | | | | — | | | | — | | | | 263 | | | | 263 | |
| | | | | | | | | | | | | | | | |
| Net Income from discontinued operations | | $ | — | | | $ | — | | | $ | — | | | $ | 671 | | | $ | 671 | |
| | | | | | | | | | | | | | | | |
| Depreciation and Amortization | | $ | — | | | $ | — | | | $ | — | | | $ | 344 | | | $ | 344 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, 2004 | |
| | | | |
| | | Odda/Carbide | | MRT | | | LaCornubia | | | Wychem | | | Total | |
| | | | | | | | | | | | | | | |
| Net Sales | | $ | — | | | $ | 3,327 | | | $ | 13,918 | | | $ | 3,890 | | | $ | 21,135 | |
| | | | | | | | | | | | | | | | |
| Operating Loss | | $ | — | | | $ | (124 | ) | | $ | (1,491 | ) | | | 631 | | | $ | (984 | ) |
| Interest Expense, net | | | — | | | | — | | | | 94 | | | | — | | | | 94 | |
| Other Expense (Income), net | | | — | | | | — | | | | (102 | ) | | | 7 | | | | (95 | ) |
| Provision (benefit) for income tax | | | — | | | | — | | | | 18 | | | | 165 | | | | 183 | |
| | | | | | | | | | | | | | | | |
| Net Income (loss) from discontinued operations | | $ | — | | | $ | (124 | ) | | $ | (1,501 | ) | | $ | 459 | | | $ | (1,166 | ) |
| | | | | | | | | | | | | | | | |
| Depreciation and Amortization | | $ | — | | | $ | — | | | $ | 400 | | | $ | 419 | | | $ | 819 | |
| | | | | | | | | | | | | | | | |
31
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, 2003 | |
| | | | |
| | | Odda/Carbide | | | MRT | | | LaCornubia | | | Wychem | | | Total | |
| | | | | | | | | | | | | | | | |
| Net Sales | | $ | 11,217 | | | $ | 18,671 | | | $ | 13,479 | | | $ | 3,928 | | | $ | 47,295 | |
| | | | | | | | | | | | | | | | |
| Operating Loss | | $ | (13,462 | ) | | $ | (3,454 | ) | | $ | (359 | ) | | | 775 | | | $ | (16,500 | ) |
| Interest Expense, net | | | | | | | | | | | 60 | | | | | | | | 60 | |
| Other Expense (Income), net | | | (2,327 | ) | | | — | | | | (389 | ) | | | (9 | ) | | | (2,725 | ) |
| Provision (benefit) for income tax | | | (58 | ) | | | — | | | | 16 | | | | 230 | | | | 188 | |
| | | | | | | | | | | | | | | | |
| Net Income (loss) from discontinued operations | | $ | (11,077 | ) | | $ | (3,454 | ) | | $ | (46 | ) | | $ | 554 | | | $ | (14,023 | ) |
| | | | | | | | | | | | | | | | |
| Depreciation and Amortization | | $ | 894 | | | $ | 1,309 | | | $ | 359 | | | $ | 364 | | | $ | 2,926 | |
| | | | | | | | | | | | | | | | |
Mineral Resource Technologies, Inc. (“MRT”). In August 2003, the Company divested MRT for net proceeds, after transaction costs, of approximately $13.8 million. MRT was included in the Company’s All Other segment.
La Cornubia. On June 30, 2004, one of the Company’s French subsidiaries, La Cornubia SA (“La Cornubia”), filed for bankruptcy under the insolvency laws of France. The Company believes that, as a result of the bankruptcy filing by La Cornubia, it is possible that LC Holding S.A. (“LC Holding”), La Cornubia’s parent, a holding company with no assets except for its investment in La Cornubia, may also file for bankruptcy in France. The Company does not believe that La Cornubia’s bankruptcy filing, nor the possible bankruptcy filing by LC Holding, will have a material adverse effect on its financial condition or results of operations.
Liquidity and Capital Resources
Net Cash Provided (Used) by Operating Activities. Cash provided (used) by operations for 2005 and 2004 was ($6.3) million and $2.9 million, respectively. Cash used was due to higher working capital requirements. The Company is currently increasing inventory levels of virginiamycin to enhance future supply flexibility and reduce cost as part of the planned exit of the Belgium Plant. Total inventories increased by $14.3 million in the current fiscal year. In addition, the Company paid $4.0 million of itscosts related to a non-completed transaction that was charged to expense in fiscal 2004.
Net Cash Provided by Investing Activities. Net cash provided by investing activities for 2005 and 2004 was $0.0 million and $9.1 million, respectively. Capital expenditures of $7.5 million and $6.1 million for 2005 and 2004, respectively, were for new product capacity, for maintaining the Company’s existing asset base and for environmental, health and safety projects. Discontinued operations, primarily from the sale of Wychem and MRT, provided funds of $4.8 million and $14.8 million in 2005 and 2004, respectively. Proceeds from sales of fixed assets and other investing activities accounted for the remainder of cash provided by investing activities in 2005 and 2004, respectively.
Net Cash Provided (Used) by Financing Activities. Net cash provided (used) by financing activities for 2005 and 2004 was $13.8 million and ($17.8) million, respectively. For 2005, proceeds from long-term debt reflect the issuance of additional 13% Senior Secured Notes
and borrowings of Koffolk Israel. The decrease in short-term debt is due
2007 (the "US Senior Notes") and
$20.0 million 13% of Senior Secured Notes due 2007 of Philipp Brothers
Netherlands III B.V. (the "Dutch Senior Notes" and, together withto the
US Senior
Notes, the "Senior Secured Notes"), an indirect wholly-owned subsidiaryreduced outstanding balance of the
Company (the "Dutch issuer"). The Company used the proceeds from the issuance
to: (i) repurchase $52.0 million of its 9 7/8% Senior Subordinated Notes due
2008 at a price equal to 60% of the principal amount thereof, plus accrued and
unpaid interest; (ii) repay its senior credit facility of $34.9 million
outstanding at the repayment date; (iii) satisfy, for a payment of approximately
$29.3 million certain of its outstanding obligations to Pfizer Inc., including:
(a) $20.1 million aggregate principal amount of its promissory note plus accrued
and unpaid interest, (b) $9.7 million of accounts payable, (c) $9.0 million of
accrued expenses, and (d) future contingent purchase price obligations under its
agreements with Pfizer Inc. by which the Company acquired Pfizer's medicated
feed additive business; and (iv) pay fees and expenses relating to the above
transactions.
A net gain on extinguishment of debt is included in the Company's condensed
consolidated statement of operations, calculated as follows (amounts in
thousands):
Net Gain on Repurchase of 9 7/8% Senior Subordinated Notes due 2008:
Principal amount of repurchased notes $ 51,971
Repurchased at 60% of principal amount (31,183)
Transaction costs (4,107)
--------
Net gain on repurchase of notes 16,681
--------
Loss on repayment of senior credit facility (1,018)
--------
Net Gain on Payment of Pfizer Obligations:
Obligations paid:
-promissory note 20,075
-accrued interest on promissory note 1,015
-accounts payable and accrued expenses 18,788
--------
Total obligations paid 39,878
Cash payment to Pfizer (29,315)
Transaction costs (3,000)
--------
Net gain on payment of Pfizer obligations 7,563
--------
Net gain on extinguishment of debt $ 23,226
========
The US Senior Notes and the Dutch Senior Notes are senior secured
obligations of each of the Company (the "US Issuer") and the Dutch issuer,
respectively. The US Senior Notes and the Dutch Senior Notes are guaranteed on a
senior secured basis by all the US Issuer's domestic restricted subsidiaries,
and the Dutch Senior Notes are guaranteed on a senior secured basis by the US
Issuer and by the restricted subsidiaries of the Dutch issuer, presently
consisting of Phibro Animal Health SA. The US Senior Notes and related
guarantees are collateralized by substantially all of the US Issuer's assets and
the assets of its domestic restricted subsidiaries, other than real property and
interests therein, including a pledge of all the capital stock of such domestic
restricted subsidiaries. The Dutch Senior Notes and related guarantees are
collateralized by a pledge of all the accounts receivable, a security interest
or floating charge on the inventory to the extent permitted by applicable law,
and a mortgage on substantially all of the real property of the Dutch issuer and
each of its restricted subsidiaries, a pledge of 100% of the capital stock of
each subsidiary of the Dutch issuer, a pledge of the intercompany loans made by
the Dutch issuer to its restricted subsidiaries and substantially all of the
assets of the U.S. guarantors, other than real property and interests therein.
The indenture governing the Senior Secured Notes provides for optional
make-whole redemptions at any time prior to June 1, 2005, optional redemption on
or after June 1, 2005, and requires the Company to make certain offers to
purchase Senior Secured Notes upon a change of control, upon certain asset sales
and from fifty percent (50%) of excess cash flow (as such terms are defined in
the indenture).
The Company timely filed a registration statement with the SEC on Form S-4
with respect to an exchange offer for the Senior Secured Notes, but due to
pending confidential acquisition negotiations, such registration statement has
not become effective.
19
Also, on October 21, 2003, the Company entered into a new replacement domestic senior credit facility ("primarily funded from proceeds of additional long-term debt. Payments of long-term debt reflect the repayments of Koffolk Israel borrowings. The Company used $26.4 million of capital contribution from Holdings to redeem for $26.4 million, the remaining Series C Preferred Stock. Working Capital and Capital Expenditures. Working capital as of June 30, 2005 was $78.8 million compared to $54.4 million at June 30, 2004, an increase of $24.4 million. The fiscal 2005 increase in working capital primarily was due to higher inventory levels and to reduced short-term debt levels related to the issuance of new long-term debt.
32
The Company anticipates spending approximately $18.0 million for capital expenditures in fiscal 2006, primarily for expansion of virginiamycin production capacity at the Brazil facility and to cover the Company’s asset replacement needs, to improve processes, and for environmental and regulatory compliance, subject to the availability of funds.
Liquidity. At June 30, 2005 the amount of credit extended under PAHC’s domestic senior credit facility") with Wells Fargo
Foothill, Inc., providing for a working capital facility plus a letter of credit
facility. The aggregate amount of borrowings under such working capital and
letter of credit facilities initially could not exceed $25.0totaled $8.0 million including
aggregate borrowings under the working capital facility up to $15.0 million. On
April 29, 2004,and $11.0 million under the Company amended the senior credit facility to increase the
aggregate amount of borrowings available under such working capital and letter of credit facilities from $25.0facility, and PAHC had $9.5 million to $27.5 million and to increase the
amount of aggregate borrowings available under the working capital facility from
$15.0facility. In addition, certain of PAHC’s foreign subsidiaries also had availability totaling $7.2 million to $17.5 million.under their respective loan agreements.
As of September 24, 2004, the CompanyPAHC amended theits domestic senior credit facility to: (i) increase the aggregate amount of borrowings available under such working capital and letter of credit facilities from $27.5
million to $32.5 million; the amount of aggregate borrowings available under the working capital facility remained unchanged at $17.5 million; (ii) amend the EBITDA definition to exclude charges and expenses related to unsuccessful acquisitions and related financings in an aggregate amount not to exceed $5.3 million for the period beginning January 1, 2004 and ending June 30, 2004; (iii) amend the definition of Additional Indebtedness to exclude advances under the working capital facility; (iv) amend the definition of Permitted Investments to allow other investments made during the period from January 1, 2004 through June 30, 2004 in an aggregate amount not to exceed $336,000; and (v) establish covenant EBITDA levels for the periods ending after June 30, 2004. The amendment was effective June 30, 2004 for items (i), (ii) and (iii); effective January 1, 2004 for item (iv); and effective September 24, 2004 for all other items.
Borrowings underitem (v).
On December 21, 2004, concurrent with the
senior credit facility are subject to a borrowing base
formula based on percentages of eligible domestic receivables and domestic
inventory. Under the senior credit facility, the Company may choose between two
interest rate options: (i) the applicable base rate as defined plus 0.50% and
(ii) the LIBOR rate as defined plus 2.75%. Indebtedness under the senior credit
facility is secured by a first priority lien on substantially allcompletion of the
Company's assets and assets of substantially alloffering of the
Company's domestic
subsidiaries. The Company is required to pay an unused line fee of 0.375% on the
unused portion of the senior credit facility, a monthly servicing fee and
standard letter of credit fees to issuing banks. Borrowings under the senior
credit facility are available until, and are repayable no later than, October
31, 2007, although borrowings must be repaid by June 30, 2007 if the maturity of
the Senior SecuredAdditional Notes,
has not been extended, as required by the senior credit
facility, by that date.
Pursuant to the terms of an intercreditor agreement, the security interest
securing the Senior Secured Notes and the guarantees made by the Company's
domestic restricted subsidiaries is subordinated to a lien securing the senior
credit facility.
Prince Transactions
Effective December 26, 2003 (the "Closing Date"), the Company completed the
divestiture of substantially all of the business and assets of The Prince
Manufacturing Company ("PMC") to a company ("Buyer") formed by Palladium Equity
Partners II, LP and certain of its affiliates (the "Palladium Investors"), and
the related reduction of the Company's preferred stock held by the Palladium
Investors (collectively the "Prince Transactions").
Pursuant to definitive purchase and other agreements executed on and
effective as of the Closing Date, the Prince Transactions included the following
elements: (i) the transfer of substantially all of the business and assets of
PMC to Buyer; (ii) the reduction of the value of the Company's Preferred Stock
owned by the Palladium Investors from $72.2 million to $16.5 million (accreted
through the Closing Date) by means of the redemption of all of its shares of
Series B Preferred Stock and a portion of its Series C Preferred Stock; (iii)
the termination of $2.2 million in annual management advisory fees payable by
the Company to Palladium; (iv) a cash payment of $10.0 million to the Palladium
Investors in respect of the portion of the Company's Preferred Stock not
exchanged in consideration of the business and assets of PMC; (v) the agreement
of the Buyer to pay the Company for advisory fees for the next three years of
$1.0 million, $0.5 million, and $0.2 million, respectively (which were pre-paid
at closing by the Buyer and satisfied for $1.3 million, the net present value of
such payments); and (vi) the Buyer agreed to supply manganous oxide and red iron
oxide products and to provide certain mineral blending services to the Company's
Prince Agriproducts subsidiary ("Prince Agri"). Prince Agri agreed to continue
to provide the Buyer with certain laboratory, MIS and telephone services, all on
terms substantially consistent with the historic relationship between Prince
Agri and PMC, and to lease to Buyer office space used by PMC in Quincy,
Illinois. The Company has an agreement to receive certain treasury services from
Palladium for $0.1 million per year. Pursuant to definitive agreements, the
Company made customary representations, warranties and environmental and other
indemnities, agreed to a post-closing working capital adjustment, paid $4.0
million in full satisfaction of all intercompany debt owed to PMC, paid a
closing fee to Palladium of $0.5 million, made certain capital expenditure
adjustments included as part of the intercompany settlement amount, and agreed
to pay for certain out-of-pocket transaction expenses. PMC retained $0.4 million
of its accounts receivable. The Company established a $1.0 million letter of
credit escrow for two years to secure its working capital adjustment and certain
indemnification obligations. The Company agreed to indemnify the Palladium
Investors for a portion, at the rate of $0.65 for every dollar, of the amount
they receive in respect of the disposition of Buyer for less than $21.0 million
up to a maximum payment by the Company of $4.0 million (the "Backstop
Indemnification Amount"). The Backstop Indemnification Amount would be payable
on the earlier to occur of July 1, 2008 or six months after the redemption date
of all of the Company's Senior Secured Notes due 2007 if such a disposition
closes prior to such redemption and six months after the closing of any such
disposition if the disposition closes after any such redemption. The Company's
obligations with respect to the Backstop Indemnification Amount will cease if
the Palladium Investors do not close the disposition of Buyer by January 1,
2009. The definition of "Equity Value" in the Company's Certificate of
20
Incorporation was amended to reduce the multiple of trailing EBITDA payable in
connection with any future redemption of Series C Preferred to 6.0 from 7.5. The
amount of consideration paid and payable in connection with the Prince
Transactions and all matters in connection therewith were determined pursuant to
arm's length negotiations.
The excess of the reduction in redeemable preferred stock over total assets
divested and costs and liabilities incurred on the Prince Transactions was
recorded as a decrease to accumulated deficit on the Company's condensed
consolidated balance sheet at December 31, 2003, and was calculated as follows
(amounts in thousands):
Series B & C Redeemable Preferred Stock:
Accreted value pre-transaction $72,184
Accreted value post-transaction 16,517
-------
Reduction in redeemable preferred stock 55,667
-------
Assets Divested and Costs Incurred:
PMC net assets divested 7,430
Cash paid to Palladium Investors for:
-reduction of redeemable preferred stock 10,000
-settlement of PMC intercompany debt 3,958
-working capital adjustment 1,331
-closing fee 500
Transaction costs 8,310
Contingent Backstop Indemnification Amount accrued 4,000
-------
Total assets divested and costs and liabilities incurred 35,529
-------
Excess amount recorded as a decrease to accumulated deficit $20,138
=======
PMC is included in the Company's Industrial Chemicals segment. The divestiture
of PMC has not been reflected as a discontinued operation due to the existence
of the Backstop Indemnification and continuing supply and service agreements.
Other Risks and Uncertainties
The use of antibiotics in medicated feed additives is a subject of
legislative and regulatory interest. The issue of potential for increased
bacterial resistance to certain antibiotics used in certain food-producing
animals is the subject of discussions on a worldwide basis and, in certain
instances, has led to government restrictions on the use of antibiotics in
food-producing animals. The sale of feed additives containing antibiotics is a
material portion of the Company's business. Should regulatory or other
developments result in further restrictions on the sale of such products, it
could have a material adverse impact on the Company's financial position,
results of operations and cash flows.
The testing, manufacturing, and marketing of certain products are subject
to extensive regulation by numerous government authorities in the United States
and other countries.
The Company has significant assets located outside of the United States,
and a significant portion of the Company's sales and earnings are attributable
to operations conducted abroad.
The Company has assets located in Israel and a portion of its sales and
earnings are attributable to operations conducted in Israel. The Company is
affected by social, political and economic conditions affecting Israel, and any
major hostilities involving Israel as well as the Middle East or curtailment of
trade between Israel and its current trading partners, either as a result of
hostilities or otherwise, could have a material adverse effect on the Company.
The Company's operations, properties and subsidiaries are subject to a wide
variety of complex and stringent federal, state, local and foreign environmental
laws and regulations, including those governing the use, storage, handling,
generation, treatment, emission, release, discharge and disposal of certain
materials and wastes, the remediation of contaminated soil and groundwater, the
manufacture, sale and use of pesticides and the health and safety of employees.
As such, the nature of the Company's current and former operations and those of
its subsidiaries exposes the Company and its subsidiaries to the risk of claims
with respect to such matters.
21
Summary Consolidated Results of Continuing Operations
Year Ended June 30,
------------------------------
2004 2003 2002
---- ---- ----
(Thousands)
Net sales $ 358,274 $ 341,746 $ 328,676
Gross margin 90,403 90,546 81,265
Selling, general and administrative expenses 66,128 65,050 70,636
Costs of non-completed transaction 5,261 -- --
Operating income 19,014 25,496 10,629
Interest expense, net 18,488 16,196 17,724
Other expense (income), net (781) 1,539 3,349
Net (gain) on extinguishment of debt (23,226) -- --
Income (loss) from continuing operations $ 24,533 $ 7,761 $ (10,444)
2004 Compared with 2003
Net Sales of $358.3 million increased $16.5 million, or 5%. Animal Health
and Nutrition sales of $265.4 million grew $14.7 million, or 6%, due to volume
increases. Specialty Chemical group sales (comprised of the Industrial
Chemicals, Distribution and All Other segments) of $92.9 million increased $1.8
million, or 2%, primarily due to volume increases in all segments, offset by a
decrease in PMC sales. The Specialty Chemical group included PMC sales of $11.1
million and $22.3 million for 2004 and 2003, respectively.
Gross Profit of $90.4 million decreased $0.1 million to 25.2% of net sales,
compared with 26.5% in 2003. Animal Health and Nutrition gross profit decreased
due to lower average selling prices and unfavorable currency related to the
effect of the Euro on Belgium manufacturing costs. Improvements in the Specialty
Chemical group partially offset the Animal Health and Nutrition decline. The
Specialty Chemical group included PMC gross profit of $3.6 million and $6.2
million, respectively, for the fiscal 2004 and 2003 periods.
Gross profit increased $2.0 million in the fourth quarter of 2004 due to an
agreement related to the production and sale of amprolium, an anticoccidial MFA.
The Company acquired the rights to sell amprolium in most international markets.
In payment for the acquired rights, the Company relinquished its claims against
the seller for certain purchase order commitments, and will make $2.1
22
million of cash payments to the seller over the next five years. The present
value of these payments is $1.9 million and was recorded as a liability. The
$2.4 million value of the purchase order commitments was recorded as a reduction
in cost of goods sold and inventory, and an intangible asset of $4.3 million was
recorded representing the fair value of the acquired rights and is included on
the Company's balance sheet at June 30, 2004. The Company will amortize this
intangible over a 10 year period. No amortization was recorded in 2004.
Amortization expense for each of the next five years from 2005 to 2009 is
expected to be $0.4 million per year.
Selling, General and Administrative Expenses of $66.1 million increased $1.1
million. Expenses in the operating segments, excluding PMC, approximated the
prior year primarily due to lower environmental and severance accruals offset in
part by unfavorable foreign exchange rates. Corporate expenses in the current
fiscal year reflect the elimination of the Palladium annual management fee of
$2.25 million as of December 31, 2003 and income of $0.5 million from the PMC
Advisory fee. Corporate expenses increased in fiscal 2004 due to higher
depreciation and amortization charges and insurance costs offset by lower
benefit charges. Corporate expenses in fiscal 2003 included vitamin settlement
income of $3.0 million. PMC expenses were $1.3 million and $2.6 million for 2004
and 2003, respectively.
Costs of non-completed transaction. During 2004, the Company incurred $5.3
million of costs in connection with a potential acquisition transaction that was
not completed. The Company has charged the costs to expense in its 2004 results.
The costs primarily consisted of professional fees for services in connection
with the transaction.
Net gain on extinguishment of debt. The Company recorded a net gain on the
extinguishment of debt of $23.2 million due to the repurchase of senior
subordinated notes ($16.7 million), and the repayment of Pfizer obligations
($7.6 million) offset in part by a loss on repayment of the senior credit
facility ($1.0 million).
Operating Income of $19.0 million decreased $6.5 million to 5.3% of sales.
The decrease was primarily due to the non-completed transaction costs described
above. In addition, gross profit declined in the Animal Health and Nutrition
segment but was offset in part by improved operating performance of the
Specialty Chemical group. PMC contributed $2.3 million and $3.6 million for 2004
and 2003, respectively.
Interest Expense, Net of $18.5 million increased $2.3 million from the prior
year, primarily due to higher borrowing levels and also higher average interest
rates associated with the issuance of the Company's Senior Secured Notes.
Other (Income) Expense, Net of ($0.8) million improved in comparison with
$1.5 million of expense last year. During 2004, the Company's Phibro-Tech
subsidiary received $1.0 million in exchange for the sale of certain assets
related to the manufacture and sale of ferric chloride from its plant in Joliet,
Illinois and recognized a net gain of $0.7 million. The balance of other
(income) expense principally reflects foreign currency transaction net (gains)
losses related to short-term inter-company balances and foreign currency
translation (gains) losses.
Income Taxes of $8.0 million were 32% of consolidated pre-tax income of
$24.5 million. The tax rate reflects income tax provisions in profitable foreign
jurisdictions and for state income taxes. A provision for U.S. federal income
taxes has not been recorded due to the utilization of net operating loss
carryforwards. The Company has recorded valuation allowances related to
substantially all deferred tax assets. The Company will continue to evaluate the
likelihood of recoverability of these deferred tax assets based upon actual and
expected operating performance.
2003 Compared with 2002
Net Sales of $341.7 million increased $13.1 million, or 4%. Animal Health
and Nutrition sales of $250.7 million grew $11.1 million, or 5%, due to volume
increases. Specialty Chemical sales of $91.0 million increased $2.0 million, or
2%, primarily due to volume increases in the Distribution and All Other
businesses.
Gross Profit of $90.5 million improved $9.3 million to 26.5% of net sales,
compared with 24.7% in 2002. Animal Health and Nutrition gross profit
improvements were responsible for the overall increase. Purchase accounting
adjustments related to the MFA acquisition resulted in a $3.3 million increase
to cost of goods sold in 2002. Excluding the purchase accounting adjustment, the
gross profit ratio would have been 25.7% in 2002.
Selling, General and Administrative Expenses of $65.1 million decreased $5.6
million, or 8%. Expenses declined $6.5 million in the Specialty Chemicals
businesses due to downsizing and restructuring of the Industrial Chemicals
segment, reflecting the decline in the printed circuit board market. Industrial
Chemicals included expense for additional environmental reserves and write-offs
of unamortized permit fees at closed facilities of $1.0 million and $1.6 million
for 2003 and 2002, respectively. Animal Health and Nutrition expenses decreased
by approximately $0.4 million. Corporate expenses increased $1.3 million,
primarily due to increased staff levels. Corporate expenses included a vitamin
settlement income of $3.0 million and $0.7 million in 2003 and 2002,
respectively, from the settlement of class action litigation against European
vitamin manufacturers. Debt restructuring costs of $0.8 million,
23
severance of $0.4 million, and expense related to a divested business of $0.2
million were also recorded in 2003. Included in 2002 was $0.4 million non-cash
income to reflect the decrease in value of redeemable common stock; no amount
was recorded in 2003.
Operating Income of $25.5 million increased $14.9 million to 7.5% of sales.
The improvement was due to sales growth, gross margin improvements in Animal
Health and Nutrition, and operating expense reductions.
Interest Expense, Net of $16.2 million decreased $1.5 million, compared with
$17.7 million in 2002, primarily due to lower average interest rates and reduced
average borrowing levels.
Other Expense, Net of $1.5 million in fiscal 2003 improved in comparison
with $3.4 million in the prior year. The expense principally reflects foreign
currency transaction and translation net losses related to short-term
inter-company balances.
Income Taxes of $10.1 million were primarily due to a $5.6 million increase
in valuation allowances for deferred tax assets in foreign jurisdictions where
future profitability is not currently considered more likely than not, and
income tax provisions in profitable foreign jurisdictions. The Company has
recorded valuation allowances related to substantially all deferred tax assets.
The Company will continue to evaluate the likelihood of recoverability of these
deferred tax assets based upon actual and expected operating performance.
Operating Segments
The Animal Health and Nutrition segment manufactures and markets MFAs and
NFAs to the poultry, swine and cattle markets, and includes the operations of
the Phibro Animal Health business unit, Prince AgriProducts, Koffolk Israel, and
Planalquimica, Brazil. The Industrial Chemicals segment manufacturers and market
specialty chemicals for use in the pressure treated wood, brick, glass, and
chemical industries, and includes Phibro-Tech and PMC. The Distribution segment
markets a variety of specialty chemicals, and includes PhibroChem and Ferro
operations. The All Other segment includes contract manufacturing of crop
protection chemicals, Wychem and all other operations. Due to the divestiture of
PMC in December 2003, PMC's results are shown separately for comparability.
Year Ended June 30,
------------------------------------
2004 2003 2002
--------- --------- ---------
(Thousands)
Net Sales
Animal Health & Nutrition $ 265,421 $ 250,706 $ 239,602
Industrial Chemicals - ex PMC 31,135 26,465 29,403
Industrial Chemicals - PMC 11,118 22,332 21,451
Distribution 30,861 30,072 27,852
All other 19,739 12,171 10,368
--------- --------- ---------
$ 358,274 $ 341,746 $ 328,676
========= ========= =========
Year Ended June 30,
------------------------------------
2004 2003 2002
--------- --------- ---------
(Thousands)
Operating Income
Animal Health & Nutrition $ 33,307 $ 38,472 $ 28,298
Industrial Chemicals - ex PMC 621 (5,434) (10,964)
Industrial Chemicals - PMC 2,278 3,579 3,640
Distribution 2,900 3,207 2,345
All other 2,301 620 1,164
Corporate expenses and adjustments (22,393) (14,948) (13,854)
--------- --------- ---------
$ 19,014 $ 25,496 $ 10,629
========= ========= =========
24
Operating Segments 2004 Compared to 2003
Animal Health and Nutrition
Net Sales of $265.4 million increased $14.7 million, or 6%. Medicated Feed
Additives net sales decreased by $7.8 million. Revenues were lower primarily for
anticoccidials but were offset in part by higher sales of other medicated feed
additives. Sales of anticcoccidial products were $7.1 million lower due to
contract negotiations with a major customer that were completed in the fourth
quarter of 2004. The decrease in MFA revenues also was due to lower average
selling prices offset in part by favorable currency effect on international
sales. Nutritional Feed Additives net sales increased by $22.5 million,
principally due to volume increases in core inorganic minerals, trace mineral
premixes and other ingredients.
Operating Income of $33.3 million decreased $5.2 million, or 13%. Operating
income declined due to product mix, higher cost of goods reflecting the stronger
Euro's effect on Belgian manufacturing cost and unfavorable currency effects on
international selling, general and administrative expense. Lower average selling
prices also contributed to the decrease. Operating income increased $2.0 million
in the fourth quarter of 2004 due to an agreement related to the production and
sale of amprolium, an anticoccidial MFA.
Specialty Chemicals
Industrial Chemicals net sales of $31.1 million, excluding PMC, increased
$4.7 million, or 18%. Sales of copper related products to the wood treatment
markets increased due to the introduction of new copper based wood treatment
chemicals which offset the divestiture of the Company's Eastern United States
etchant business in mid 2003. The Company continues its existing etchant
business at one remaining facility. PMC, divested in December 2003, generated
revenues of $11.1 million and $22.3 million for 2004 and 2003, respectively.
Operating income of $0.6 million improved by $6.1 million from the prior year.
This improvement was due to new product introductions and savings from headcount
reductions and facility restructurings in Phibro-Tech operations. PMC provided
operating income of $2.3 million and $3.6 million for 2004 and 2003,
respectively.
Distribution net sales of $30.9 million increased $0.8 million, or 3%.
Higher sales volumes in Europe were offset in part by lower domestic unit
volumes and lower average selling prices. Distribution operating income of $2.9
million decreased $0.3 million from the prior year. As a percentage of sales,
operating income was 9% and 11% in 2004 and 2003, respectively.
All Other net sales of $19.7 million increased $7.6 million, or 62%.
Revenues for contract manufacturing increased $7.6 million due to increased
volumes and average selling prices. Specialized lab projects and formulations
approximated the prior year. Operating income of $2.3 million improved by $1.7
million from the prior year due to higher revenues and increased margins on
contract manufacturing.
Operating Segments 2003 Compared to 2002
Animal Health and Nutrition
Net Sales of $250.7 million increased $11.1 million, or 5%. Medicated Feed
Additives net sales increased by $6.7 million. Revenues were higher for
antibacterials, antibiotics and anticoccidials but were offset in part by lower
sales of anthelmintics and other medicated feed additives. The increased
revenues were due to volume increases offset in part by lower average selling
prices, including the effect of currency devaluations in Latin America.
Nutritional Feed Additives net sales increased by $4.4 million, principally due
to volume increases in core inorganic minerals, trace mineral premixes and other
ingredients.
Operating Income of $38.5 million increased $10.2 million, or 36%. Purchase
accounting adjustments relating to inventory in the MFA acquisition resulted in
a $3.3 million increase to 2002 cost of goods sold. The operating income ratio
increased to 15% in 2003 from 13% in 2002 (excluding the purchase accounting
adjustments). The improvement in operating income resulted from increased sales
of higher margin products and close control of operating expenses.
Specialty Chemicals
Industrial Chemicals net sales of $26.5 million, excluding PMC, decreased
$2.9 million, or 10%. Industrial Chemicals net sales decreased due to the
divestiture of the Company's Eastern United States etchant business in
mid-fiscal 2003 and reduced sales of etchants to the printed circuit board
market. PMC, divested in December 2003, generated revenues of $22.3 million and
$21.5 million for fiscal periods 2003 and 2002, respectively. Industrial
Chemicals operating loss of $5.4 million improved by $5.5 million from the year
earlier loss. The improvement principally was due to the partial disposal during
2003 of the ammoniacal etchant business and savings from headcount reductions
and facility restructurings. The gain on the transaction was not material. PMC
provided operating income of $3.6 million in each of the 2003 and 2002 fiscal
periods.
25
Distribution net sales of $30.1 million increased $2.2 million, or 8%.
Higher sales volumes in Europe and improved product mix in domestic operations
accounted for the increase. Distribution operating income of $3.2 million
increased $0.9 million, or 37%. As a percentage of sales, operating income
increased to 11% in 2003 from 8% in 2002. The improvement in operating income
margins resulted principally from increased sales of higher margin products.
All Other net sales of $12.2 million increased $1.8 million, or 17%.
Revenues for contract manufacturing increased $2.4 million due to increased
volumes. Revenues from specialized lab projects and formulations declined $0.6
million. Operating income of $0.6 million decreased primarily due to specialized
lab projects and formulations.
Discontinued Operations
During 2004, the Company shutdown its operations at La Cornubia. During
2003, the Company shutdown or divested Odda Smelteverk (Norway), Carbide
Industries (U.K.), and Mineral Resource Technologies, Inc. These businesses have
been classified as discontinued operations. The Company's consolidated financial
statements have been reclassified to report separately the operating results,
financial position, and cash flows of the discontinued operations. Prior year
financial statements have been reclassified to conform to the 2004 presentation.
Year Ended June 30, 2004
---------------------------------------------
La Cornubia Odda/Carbide MRT Total
----------- ------------ --- -----
Net Sales $ 13,918 $ -- $ 3,327 $ 17,245
======== ======== ======== ========
Operating Loss $ (1,491) $ -- $ (124) $ (1,615)
Interest Expense, net 94 94
Other Expense (Income), net (102) -- -- (102)
Provision (benefit) for income tax 18 -- -- 18
-------- -------- -------- --------
Net Income (loss) from discontinued operations $ (1,501) $ -- $ (124) $ (1,625)
======== ======== ======== ========
Depreciation and Amortization $ 400 $ -- $ -- $ 400
======== ======== ======== ========
Year Ended June 30, 2003
---------------------------------------------
La Cornubia Odda/Carbide MRT Total
----------- ------------ --- -----
Net Sales $ 13,479 $ 11,217 $ 18,671 $ 43,367
======== ======== ======== ========
Operating Loss $ (359) $(13,462) $ (3,454) $(17,275)
Interest Expense, net 60 60
Other Expense (Income), net (389) (2,327) -- (2,716)
Provision (benefit) for income tax 16 (58) -- (42)
-------- -------- -------- --------
Net Income (loss) from discontinued operations $ (46) $(11,077) $ (3,454) $(14,577)
======== ======== ======== ========
Depreciation and Amortization $ 359 $ 894 $ 1,309 $ 2,562
======== ======== ======== ========
Year Ended June 30, 2002
---------------------------------------------
La Cornubia Odda/Carbide MRT Total
----------- ------------ --- -----
Net Sales $ 11,873 $ 31,219 $ 17,045 $ 60,137
======== ======== ======== ========
Interest Expense, net
Operating Loss (912) $(27,709) $ (2,930) $(31,551)
Interest Expense, net 78 78
Other Expense (Income), net (263) (3,699) (3,962)
Provision (benefit) for income tax 62 (1,170) -- (1,108)
-------- -------- -------- --------
Net Income (loss) from discontinued operations $ (789) $(22,840) $ (2,930) $(26,559)
======== ======== ======== ========
Depreciation and Amortization $ 325 $ 17,676 $ 1,192 $ 19,193
======== ======== ======== ========
26
Odda and Carbide. During 2003, the Company determined that it would
permanently shutdown and no longer fund the operations of Odda. On February 28,
2003, Odda filed for bankruptcy in Norway. The bankruptcy is proceeding in
accordance with Norwegian law. The Company removed all assets, liabilities
(except as noted below), and cumulative translation adjustments related to Odda
from the Company's consolidated balance sheet as of June 30, 2003, and recorded
the net result as a loss on disposal of discontinued operations. The Company has
been advised that, as a result of the bankruptcy, the creditors of Odda have
recourse only to the assets of Odda, except in the case of certain debt
guaranteed by the Company. During 2004, the Company paid the remaining
guaranteed debt of $5.7 million. The Company has been advised by Norwegian
counsel that it has obtained the benefit of the banks' position as a secured
creditor upon payment pursuant to the guarantees. During 2003, the Company sold
Carbide, previously a distributor for one of Odda's product lines. Proceeds from
the divestiture were not material. Odda was included in the Company's Industrial
Chemicals segment and Carbide was included in the Company's Distribution
segment.
The Company recorded a $0.7 million loss on disposal of Odda and Carbide.
The loss primarily related to the write-off of Odda's remaining net assets,
including the related cumulative currency translation adjustment.
Mineral Resource Technologies, Inc. ("MRT"). During 2003, the Company
decided to pursue a sale of MRT. MRT provides management and recycling of coal
combustion residues, principally fly ash. The sale was completed in August 2003
for net proceeds, after transaction costs, of approximately $13.8 million. MRT
was included in the Company's All Other segment.
La Cornubia. On June 30, 2004, one of the Company's French subsidiaries, La
Cornubia SA ("La Cornubia"), filed for bankruptcy under the insolvency laws of
France. The Company believes that, as a result of the bankruptcy filing by La
Cornubia, it is possible that LC Holding S.A. ("LC Holding"), La Cornubia's
parent, a holding Company with no assets except for its investment in La
Cornubia, may also file for bankruptcy in France. The Company does not believe
that La Cornubia's bankruptcy filing, nor the possible bankruptcy filing by LC
Holding, will have a material adverse effect on its financial condition or
results of operations.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities. Cash provided by operations for
2004 and 2003 was $2.9 million and $34.7 million, respectively. Cash provided in
2004 was due to income from continuing operations offset in part by working
capital requirements. In addition, payment of the Pfizer obligations (shown in
financing activities) eliminated additional working capital requirements that
otherwise would have been necessary. Cash provided in 2003 was due to improved
income from continuing operations and aggressive working capital management. The
Company incurred $5.3 million of costs for a non-completed acquisition
transaction and paid approximately $1.4 million of these charges in 2004.
Net Cash Provided (Used) by Investing Activities. Net cash provided (used)
by investing activities for 2004 and 2003 was $9.1 million and ($4.0) million,
respectively. Discontinued operations, primarily from the sale of MRT, provided
funds of $14.9 million in 2004. Discontinued operations provided $1.4 million in
2003. Capital expenditures of $6.2 million and $8.6 million for 2004 and 2003,
respectively, were for new product capacity, for maintaining the Company's
existing asset base and for environmental, health and safety projects. Proceeds
from sales of fixed assets and other investing activities accounted for the
remainder of cash provided by investing activities in 2004.
Net Cash Provided (Used) by Financing Activities. Net cash (used) by
financing activities for 2004 and 2003 was ($17.8) million and ($26.4) million,
respectively. Short-term debt decreased due to the reduction of the senior
credit facility of $21.2 million, debt payments related to Odda of $5.7 million
and by other increases of $0.1 million. Proceeds from long-term debt reflect the
issuance of $105.0 million Senior Secured Notes and an increase of $4.6 million
in foreign bank loans. Payments of long-term debt primarily reflect the
retirement of Senior Subordinated Notes. Payments of the Pfizer obligations, the
Prince transactions and costs related to the refinancing account for the
remainder of funds used by financing activities.
Working Capital and Capital Expenditures. Working capital as of June 30,
2004 was $54.4 million compared to $9.1 million at fiscal year end June 30,
2003, an increase of $45.3 million. The increase in working capital was due to
reduced current debt, accounts payable and accrued expense levels, principally
as a result of the Company's refinancing and satisfaction of its obligations due
Pfizer.
The Company anticipates spending approximately $8.0 million for capital
expenditures in 2005, primarily to cover the Company's asset replacement needs,
to improve processes, and for environmental and regulatory compliance, subject
to the availability of funds.
27
Liquidity. At June 30, 2004, the amount of credit extended under the
Company's senior credit facility totaled $11.0 million under the revolving
credit facility and $9.3 million under the letter of credit facility, and the
Company had $6.5 million available under the borrowing base formula in effect.
In addition, certain of the Company's foreign subsidiaries also had availability
totaling $4.8 million under their respective loan agreements. On April 29, 2004,
the CompanyPAHC amended the senior credit facility to increase the aggregate amount
of borrowings available under such working capital and letter of credit
facilities from $25.0 million to $27.5 million and to increase the amount of
aggregate borrowings available under the working capital facility from $15.0
million to $17.5 million. As of September 24, 2004, the Company amended thedomestic senior credit facility to: (i) increase the aggregate amount of borrowings
available under such working capital and letter of credit facilities from $27.5
million to $32.5 million; the amount of aggregate borrowings available under the
working capital facility remained unchanged at $17.5 million; (ii) amend the EBITDA definition to exclude charges and expenses related to unsuccessful
acquisitions and related financingsthe sale of the Belgium Plant in an aggregate amount not to exceed $5.3$26.8 million for purposes of calculating a certain financial covenant; (ii) amend the period beginning January 1, 2004 and ending June 30, 2004;Indenture reserve definition to include scheduled payments of interest due on the Additional Notes; (iii) amend the definitionmaximum aggregate amount of Additional Indebtedness to exclude advancesborrowing available under the working capital facility;facility to permit a temporary increase to $22.5 million and for its reduction to $17.5 million on such borrowings being refinanced by the proceeds of the Additional Notes; (iv) amend the definition of Permitted Investments definition to allowinclude investments in connection with the sale of the Belgium Plant and transfer of certain equipment, together with other investments made duringassets and rights related to the period from January 1, 2004 through June
30, 2004production of virginiamycin, to PAH Brazil or in an aggregate amount not to exceed $336,000;connection with alternative production arrangements; and (v) establish
covenant EBITDA levelsprovide for the periods ending after June 30, 2004. The amendment
was effective June 30, 2004 for items (i), (ii)issuance of the Additional Notes and (iii); effective January 1,
2004 for item (iv);the sale of the Belgium Plant and effective September 24, 2004 for all other items.
Therelated transactions. PAHC’s domestic senior credit facility contains a lock-box requirement and a material adverse change clause should an event of default (as defined in the agreement) occur. Accordingly, the amounts outstanding have been classified as short-term and are included in loans payable to banks in the condensed consolidated balance sheet.
The Company'sCompany’s ability to fund its operating plan reliesdepends upon the continued availability of borrowing under theits domestic senior credit facility. The Company believes that it will be able to comply with the terms of its covenants under the amendeddomestic senior credit facility based on its forecasted operating plan. In the event of adverse operating results and/or violation of covenants under this facility, there can be no assurance that the Company would be able to obtain waivers or amendments on favorable terms, if at all. The Company's 2005 operating plan
projectsCompany expects adequate liquidity throughout the year,2006, with periods of reduced availability around the dates of the semi-annual interest payments due NovemberDecember 1 2004 and June 1 2005.related to its Senior Secured Notes and Senior Subordinated Notes. The Company is pursuing additional cost reduction activities, working capital improvement plans, and sales of non-strategic assets to ensure additional liquidity. The Company also has availability under foreign credit lines that likely would be available as needed. The Company also has undertaken
a strategic review of its manufacturing capabilities, and is currently
increasing inventory levels of certain products to enhance future flexibility
and reduce cost.available. There can be no assurance the Company will be successful in any of the above-noted actions.
As of June 30, 2005, PAHC was in compliance with the financial covenants of its domestic senior credit facility. The Company anticipates taxable gainsdomestic senior credit facility requires, among other things, the maintenance of certain levels of trailing consolidated and domestic EBITDA (earnings before interest, taxes, depreciation and amortization) calculated on extinguishmenta monthly basis, and an acceleration clause should an event of debtdefault (as defined in the
33
agreement) occur. In addition, there are certain restrictions on additional borrowings, additional liens on PAHC’s assets, guarantees, dividend payments, redemption or purchase of PAHC’s stock, sale of subsidiaries’ stock, disposition of assets, investments, and other
aspects of the refinancing structure will be substantially offset by existing
net operating loss carry forwards,mergers and that the Company will not incur
significant cash income tax payments related to these gains.acquisitions.
The
Company'sCompany’s contractual obligations (in millions) at June 30,
20042005 mature as follows:
Years
------------------------------------------------
Within 1 Over 1 to 3 Over 3 to 5 Total
-------- ----------- ----------- -----
(Dollars in thousands)
Loans payable to banks $ 11.0 $ -- $ -- $ 11.0
Lease commitments 1.6 1.4 0.6 3.6
Long-term debt (including current portion) 1.4 4.1 153.9 159.4
Interest payments 19.2 38.4 11.8 69.4
Acquisition of rights 0.7 1.2 0.2 2.1
------ ------- ------ ------
Total contractual obligations $ 33.9 $ 45.1 $166.5 $245.5
====== ======= ====== ======
| | | | | | | | | | | | | | | | | | | | | | |
| | | Years | | | |
| | | | | | |
| | | | | Over | | | Over | | | | | |
| | | Within 1 | | | 1 to 3 | | | 3 to 5 | | | Over 5 | | | Total | |
| | | | | | | | | | | | | | | | |
| | | (Dollars in millions) | |
| Loans payable to banks | | $ | 8.0 | | | $ | — | | | $ | — | | | $ | — | | | $ | 8.0 | |
| Long-term debt (including current portion) | | | 1.6 | | | | 176.5 | | | | — | | | | — | | | | 178.1 | |
| Interest payments | | | 22.1 | | | | 34.9 | | | | — | | | | — | | | | 57.0 | |
| Lease commitments | | | 1.5 | | | | 2.6 | | | | 1.8 | | | | 1.7 | | | | 7.6 | |
| Acquisition of rights | | | 0.5 | | | | 0.7 | | | | 0.2 | | | | — | | | | 1.4 | |
| | | | | | | | | | | | | | | | |
| | Total contractual obligations | | $ | 33.7 | | | $ | 214.7 | | | $ | 2.0 | | | $ | 1.7 | | | $ | 252.1 | |
| | | | | | | | | | | | | | | | |
A significant portion of the Company’s debt becomes due in December, 2007 and June 2008. The Company anticipates that it will refinance these obligations prior to maturity.
Supplemental Information (Unaudited)
The Company
shutdownshut down Odda and divested Carbide during 2003, sold MRT in August 2003,
and shutdownshut down La Cornubia in June
2004.2004 and sold Wychem in April 2005. These businesses have been classified as discontinued operations. The
Company'sCompany’s consolidated financial statements have been reclassified to report separately the operating results, financial position, and cash flows of the discontinued operations. In addition, the Company completed the Prince Transactions in December 2003, including the divestiture of PMC and the termination of management fees to the Palladium Investors.
28
To facilitate quarterly comparisons, the following unaudited statements present the quarterly operating results of continuing operations, for
each quarter of the
fiscal years ended June 30,
2005, 2004
2003 and
2002.2003. Amounts are in thousands.
29
Quarters ended
----------------------------------------------- Year ended
Sept 30, Dec 31, March 31, June 30, June 30,
2003 2003 2004 2004 2004
--------- --------- --------- --------- ----------
Net sales:
Animal Health & Nutrition $ 59,841 $ 68,687 $ 64,819 $ 72,074 $ 265,421
Industrial Chemicals - ex PMC 6,299 6,244 10,000 8,592 31,135
Industrial Chemicals - PMC 5,683 5,435 -- -- 11,118
Distribution 7,939 7,656 7,916 7,350 30,861
All Other 5,188 4,518 4,302 5,731 19,739
--------- --------- --------- --------- ---------
Total net sales 84,950 92,540 87,037 93,747 358,274
Cost of goods sold 63,790 69,991 63,843 70,247 267,871
--------- --------- --------- --------- ---------
Gross profit 21,160 22,549 23,194 23,500 90,403
Selling, general and administrative expenses 15,785 16,824 16,165 17,354 66,128
Costs of non-completed transaction -- -- -- 5,261 5,261
--------- --------- --------- --------- ---------
Operating income (loss):
Animal Health & Nutrition 6,900 7,655 8,370 10,382 33,307
Industrial Chemicals - ex PMC (391) (287) 1,136 163 621
Industrial Chemicals - PMC 1,213 1,065 -- -- 2,278
Distribution 841 692 789 578 2,900
All Other 669 657 557 418 2,301
Corporate Expenses (3,377) (4,132) (4,116) (9,729) (21,354)
Eliminations 82 638 293 (927) 86
Palladium management fee (562) (563) -- -- (1,125)
--------- --------- --------- --------- ---------
Total operating income (loss) 5,375 5,725 7,029 885 19,014
Other:
Interest expense 3,933 4,549 4,918 5,218 18,618
Interest (income) (242) 168 (43) (13) (130)
Other expense, net (585) 127 (131) (192) (781)
Net (gain) on extinguishment of debt -- (23,226) -- -- (23,226)
Income (loss) from continuing operations
before income taxes 2,269 24,107 2,285 (4,128) 24,533
Provision for income taxes 783 2,880 2,209 2,097 7,969
--------- --------- --------- --------- ---------
Income/(loss) from continuing operations 1,486 21,227 76 (6,225) 16,564
Discontinued operations:
Income (loss) from operations (462) 59 (471) (751) (1,625)
Gain (loss) on disposal 231 -- -- (2,320) (2,089)
--------- --------- --------- --------- ---------
Net income/(loss) $ 1,255 $ 21,286 $ (395) $ (9,296) $ 12,850
========= ========= ========= ========= =========
Depreciation and amortization from
continuing operations:
Animal Health & Nutrition $ 2,029 $ 2,059 $ 2,086 $ 2,089 $ 8,263
Industrial Chemicals - ex PMC 406 395 403 432 1,636
Industrial Chemicals - PMC 243 244 -- -- 487
Distribution 3 4 3 1 11
All Other 115 98 105 101 419
Corporate Expenses 372 576 660 759 2,367
--------- --------- --------- --------- ---------
Total depreciation and amortization $ 3,168 $ 3,376 $ 3,257 $ 3,382 $ 13,183
========= ========= ========= ========= =========
30
Quarters ended
----------------------------------------------- Year ended
Sept 30, Dec 31, March 31, June 30, June 30,
2002 2002 2003 2003 2003
--------- --------- --------- --------- ---------
Net sales:
Animal Health & Nutrition $ 59,976 $ 66,650 $ 62,675 $ 61,405 $ 250,706
Industrial Chemicals - ex PMC 8,138 5,946 6,449 5,932 26,465
Industrial Chemicals - PMC 5,756 5,285 5,743 5,548 22,332
Distribution 8,096 7,197 7,612 7,167 30,072
All Other 1,711 2,190 3,793 4,477 12,171
--------- --------- --------- --------- ---------
Total net sales 83,677 87,268 86,272 84,529 341,746
Cost of goods sold 61,638 63,366 63,306 62,890 251,200
--------- --------- --------- --------- ---------
Gross profit 22,039 23,902 22,966 21,639 90,546
Selling, general and administrative expenses 15,544 15,874 17,496 16,136 65,050
Operating income (loss):
Animal Health & Nutrition 9,420 11,593 8,902 8,557 38,472
Industrial Chemicals - ex PMC (1,035) (1,815) (1,555) (1,029) (5,434)
Industrial Chemicals - PMC 1,127 901 839 712 3,579
Distribution 750 802 900 755 3,207
All Other 13 245 356 6 620
Corporate Expenses (3,051) (3,440) (3,324) (2,905) (12,720)
Eliminations (167) 305 (86) (30) 22
Palladium management fee (562) (563) (562) (563) (2,250)
--------- --------- --------- --------- ---------
Total operating income (loss) 6,495 8,028 5,470 5,503 25,496
Other:
Interest expense 4,489 3,641 3,958 4,193 16,281
Interest (income) (126) 31 (39) 49 (85)
Other expense, net 1,155 235 201 (52) 1,539
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes 977 4,121 1,350 1,313 7,761
Provision for income taxes 432 1,409 599 7,620 10,060
--------- --------- --------- --------- ---------
Income/(loss) from continuing operations 545 2,712 751 (6,307) (2,299)
Discontinued operations:
Income (loss) from operations (702) (10,547) (1,681) (1,647) (14,577)
Gain (loss) on disposal -- -- (1,342) 659 (683)
--------- --------- --------- --------- ---------
Net income/(loss) $ (157) $ (7,835) $ (2,272) $ (7,295) $ (17,559)
========= ========= ========= ========= =========
Depreciation and amortization from
continuing operations:
Animal Health & Nutrition $ 1,892 $ 1,920 $ 1,890 $ 1,988 $ 7,690
Industrial Chemicals - ex PMC 587 699 498 164 1,948
Industrial Chemicals - PMC 232 239 240 245 956
Distribution 3 3 2 4 12
All Other 87 90 94 93 364
Corporate Expenses 355 395 405 399 1,554
--------- --------- --------- --------- ---------
Total depreciation and amortization $ 3,156 $ 3,346 $ 3,129 $ 2,893 $ 12,524
========= ========= ========= ========= =========
31
Quarters ended
------------------------------------------------ Year ended
Sept 30, Dec 31, March 31, June 30, June 30,
2001 2001 2002 2002 2002
--------- --------- --------- --------- ---------
Net sales:
Animal Health & Nutrition $ 57,943 $ 63,156 $ 59,378 $ 59,125 $ 239,602
Industrial Chemicals - ex PMC 6,591 6,253 7,258 9,301 29,403
Industrial Chemicals - PMC 5,062 5,218 5,418 5,753 21,451
Distribution 7,590 6,640 6,753 6,869 27,852
All Other 2,377 2,448 2,595 2,948 10,368
--------- --------- --------- --------- ---------
Total net sales 79,563 83,715 81,402 83,996 328,676
Cost of goods sold 59,592 60,128 60,885 66,806 247,411
--------- --------- --------- --------- ---------
Gross profit 19,971 23,587 20,517 17,190 81,265
Selling, general and administrative expenses 16,431 17,614 17,577 19,014 70,636
--------- --------- --------- --------- ---------
Operating income (loss):
Animal Health & Nutrition 7,365 10,259 6,246 4,428 28,298
Industrial Chemicals - ex PMC (2,759) (2,160) (1,175) (4,870) (10,964)
Industrial Chemicals - PMC 821 588 1,058 1,173 3,640
Distribution 612 544 496 693 2,345
All Other 214 367 108 475 1,164
Corporate Expenses (2,204) (2,708) (2,733) (3,746) (11,391)
Eliminations 53 (354) (498) 586 (213)
Palladium management fee (562) (563) (562) (563) (2,250)
--------- --------- --------- --------- ---------
Total operating income (loss) 3,540 5,973 2,940 (1,824) 10,629
Other:
Interest expense 4,596 4,660 4,590 4,224 18,070
Interest (income) (65) (231) (6) (44) (346)
Other expense, net 1,263 753 368 965 3,349
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (2,254) 791 (2,012) (6,969) (10,444)
Provision for income taxes (197) 1,203 1,264 12,497 14,767
--------- --------- --------- --------- ---------
Income/(loss) from continuing operations (2,057) (412) (3,276) (19,466) (25,211)
Discontinued operations:
Income (loss) from operations (308) (1,287) (5,796) (19,168) (26,559)
Gain (loss) on disposal -- -- --
--------- --------- --------- --------- ---------
Net income/(loss) $ (2,365) $ (1,699) $ (9,072) $ (38,634) $ (51,770)
========= ========= ========= ========= =========
Depreciation and amortization from
continuing operations:
Animal Health & Nutrition $ 1,810 $ 1,589 $ 1,996 $ 2,043 $ 7,438
Industrial Chemicals - ex PMC 633 579 609 748 2,569
Industrial Chemicals - PMC 242 240 242 242 966
Distribution 7 (1) 3 3 12
All Other 81 78 80 82 321
Corporate Expenses 264 268 263 254 1,049
--------- --------- --------- --------- ---------
Total depreciation and amortization $ 3,037 $ 2,753 $ 3,193 $ 3,372 $ 12,355
========= ========= ========= ========= =========
32
34
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarters Ended | | | |
| | | | | | Year Ended | |
| | | Sept 30, | | | Dec 31, | | | March 31, | | | June 30, | | | June 30, | |
| | | 2004 | | | 2004 | | | 2005 | | | 2005 | | | 2005 | |
| | | | | | | | | | | | | | | | |
| Net sales: | | | | | | | | | | | | | | | | | | | | |
| | Animal Health & Nutrition | | $ | 65,342 | | | $ | 69,952 | | | $ | 68,405 | | | $ | 75,138 | | | $ | 278,837 | |
| | Industrial Chemicals | | | 13,430 | | | | 13,205 | | | | 13,412 | | | | 12,258 | | | | 52,305 | |
| | Distribution | | | 8,125 | | | | 8,860 | | | | 8,438 | | | | 7,814 | | | | 33,237 | |
| | | | | | | | | | | | | | | | |
| | | Total net sales | | | 86,897 | | | | 92,017 | | | | 90,255 | | | | 95,210 | | | | 364,379 | |
| Cost of goods sold | | | 64,727 | | | | 68,915 | | | | 67,132 | | | | 70,121 | | | | 270,895 | |
| Belgium Plant Transactions costs | | | — | | | | 9,536 | | | | 4,372 | | | | 8,283 | | | | 22,191 | |
| | | | | | | | | | | | | | | | |
| | | Gross profit | | | 22,170 | | | | 13,566 | | | | 18,751 | | | | 16,806 | | | | 71,293 | |
| Selling, general and administrative expenses | | | 15,838 | | | | 16,914 | | | | 17,019 | | | | 17,140 | | | | 66,911 | |
| | | | | | | | | | | | | | | | |
| Operating income (loss): | | | | | | | | | | | | | | | | | | | | |
| | Animal Health & Nutrition | | | 7,625 | | | | 7,610 | | | | 7,529 | | | | 9,500 | | | | 32,264 | |
| | Belgium Plant Transactions costs | | | — | | | | (9,536 | ) | | | (4,372 | ) | | | (8,283 | ) | | | (22,191 | ) |
| | Industrial Chemicals | | | 1,191 | | | | 979 | | | | 1,371 | | | | 1,294 | | | | 4,835 | |
| | Distribution | | | 1,054 | | | | 1,202 | | | | 1,158 | | | | 1,257 | | | | 4,671 | |
| | Corporate Expenses | | | (3,575 | ) | | | (3,892 | ) | | | (3,895 | ) | | | (4,120 | ) | | | (15,482 | ) |
| | Eliminations | | | 37 | | | | 289 | | | | (59 | ) | | | 18 | | | | 285 | |
| | | | | | | | | | | | | | | | |
| | | Total operating income (loss) | | | 6,332 | | | | (3,348 | ) | | | 1,732 | | | | (334 | ) | | | 4,382 | |
| Other: | | | | | | | | | | | | | | | | | | | | |
| | Interest expense | | | 5,837 | | | | 6,062 | | | | 6,757 | | | | 6,686 | | | | 25,342 | |
| | Interest (income) | | | (25 | ) | | | (33 | ) | | | (19 | ) | | | (43 | ) | | | (120 | ) |
| | Other expense, net | | | 24 | | | | (792 | ) | | | 77 | | | | (1,168 | ) | | | (1,859 | ) |
| | | | | | | | | | | | | | | | |
| | | Income (loss) from continuing operations before income taxes | | | 496 | | | | (8,585 | ) | | | (5,083 | ) | | | (5,809 | ) | | | (18,981 | ) |
| Provision for income taxes | | | 844 | | | | (918 | ) | | | 773 | | | | 1,421 | | | | 2,120 | |
| | | | | | | | | | | | | | | | |
| | | Income/(loss) from continuing operations | | | (348 | ) | | | (7,667 | ) | | | (5,856 | ) | | | (7,230 | ) | | | (21,101 | ) |
| Discontinued operations: | | | | | | | | | | | | | | | | | | | | |
| | Income (loss) from operations (net of income taxes) | | | 207 | | | | 96 | | | | 272 | | | | 96 | | | | 671 | |
| | Gain (loss) on disposal (net of income taxes) | | | — | | | | — | | | | — | | | | 765 | | | | 765 | |
| | | | | | | | | | | | | | | | |
| | | Net income/(loss) | | $ | (141 | ) | | $ | (7,571 | ) | | $ | (5,584 | ) | | $ | (6,369 | ) | | $ | (19,665 | ) |
| | | | | | | | | | | | | | | | |
| Depreciation and amortization from continuing operations: | | | | | | | | | | | | | | | | | | | | |
| | Animal Health & Nutrition | | $ | 2,195 | | | $ | 2,172 | | | $ | 2,208 | | | $ | 2,201 | | | $ | 8,776 | |
| | Belgium Plant Transactions costs | | | — | | | | 533 | | | | 3,095 | | | | 3,839 | | | | 7,467 | |
| | Industrial Chemicals | | | 403 | | | | 413 | | | | 374 | | | | 407 | | | | 1,597 | |
| | Distribution | | | 2 | | | | 6 | | | | 6 | | | | 6 | | | | 20 | |
| | Corporate Expenses | | | 64 | | | | 52 | | | | 63 | | | | 67 | | | | 246 | |
| | | | | | | | | | | | | | | | |
| | | Total depreciation and amortization | | $ | 2,664 | | | $ | 3,176 | | | $ | 5,746 | | | $ | 6,520 | | | $ | 18,106 | |
| | | | | | | | | | | | | | | | |
35
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarters Ended | | | |
| | | | | | Year Ended | |
| | | Sept 30, | | | Dec 31, | | | March 31, | | | June 30, | | | June 30, | |
| | | 2003 | | | 2003 | | | 2004 | | | 2004 | | | 2004 | |
| | | | | | | | | | | | | | | | |
| Net sales: | | | | | | | | | | | | | | | | | | | | |
| | Animal Health & Nutrition | | $ | 59,290 | | | $ | 68,354 | | | $ | 64,240 | | | $ | 71,533 | | | $ | 263,417 | |
| | Industrial Chemicals — ex PMC | | | 10,579 | | | | 9,786 | | | | 13,241 | | | | 13,378 | | | | 46,984 | |
| | Industrial Chemicals — PMC | | | 5,683 | | | | 5,435 | | | | — | | | | — | | | | 11,118 | |
| | Distribution | | | 8,490 | | | | 7,989 | | | | 8,495 | | | | 7,891 | | | | 32,865 | |
| | | | | | | | | | | | | | | | |
| | | Total net sales | | | 84,042 | | | | 91,564 | | | | 85,976 | | | | 92,802 | | | | 354,384 | |
| Cost of goods sold | | | 63,016 | | | | 69,401 | | | | 63,246 | | | | 69,554 | | | | 265,217 | |
| | | | | | | | | | | | | | | | |
| | | Gross profit | | | 21,026 | | | | 22,163 | | | | 22,730 | | | | 23,248 | | | | 89,167 | |
| Selling, general and administrative expenses | | | 15,324 | | | | 16,150 | | | | 15,406 | | | | 16,537 | | | | 63,417 | |
| Costs of non-completed transaction | | | — | | | | — | | | | — | | | | 5,261 | | | | 5,261 | |
| | | | | | | | | | | | | | | | |
| Operating income (loss): | | | | | | | | | | | | | | | | | | | | |
| | Animal Health & Nutrition | | | 6,731 | | | | 7,587 | | | | 8,147 | | | | 10,140 | | | | 32,605 | |
| | Industrial Chemicals — ex PMC | | | 304 | | | | 145 | | | | 1,390 | | | | 452 | | | | 2,291 | |
| | Industrial Chemicals — PMC | | | 1,213 | | | | 1,065 | | | | — | | | | — | | | | 2,278 | |
| | Distribution | | | 1,010 | | | | 760 | | | | 1,012 | | | | 820 | | | | 3,602 | |
| | Corporate Expenses | | | (3,076 | ) | | | (3,619 | ) | | | (3,518 | ) | | | (3,774 | ) | | | (13,987 | ) |
| | Eliminations | | | 82 | | | | 638 | | | | 293 | | | | (927 | ) | | | 86 | |
| | Palladium management fee | | | (562 | ) | | | (563 | ) | | | — | | | | — | | | | (1,125 | ) |
| | Costs of non-completed transaction | | | — | | | | — | | | | — | | | | (5,261 | ) | | | (5,261 | ) |
| | | | | | | | | | | | | | | | |
| | | Total operating income (loss) | | | 5,702 | | | | 6,013 | | | | 7,324 | | | | 1,450 | | | | 20,489 | |
| Other: | | | | | | | | | | | | | | | | | | | | |
| | Interest expense | | | 4,234 | | | | 5,062 | | | | 5,516 | | | | 5,912 | | | | 20,724 | |
| | Interest (income) | | | (242 | ) | | | 168 | | | | (43 | ) | | | (13 | ) | | | (130 | ) |
| | Other expense, net | | | (586 | ) | | | 126 | | | | (134 | ) | | | (194 | ) | | | (788 | ) |
| | Net (gain) on extinguishment of debt | | | — | | | | (23,226 | ) | | | — | | | | — | | | | (23,226 | ) |
| | | | | | | | | | | | | | | | |
| | | Income (loss) from continuing operations before income taxes | | | 2,296 | | | | 23,883 | | | | 1,985 | | | | (4,255 | ) | | | 23,909 | |
| Provision for income taxes | | | 800 | | | | 2,819 | | | | 2,126 | | | | 2,059 | | | | 7,804 | |
| | | | | | | | | | | | | | | | |
| | | Income/(loss) from continuing operations | | | 1,496 | | | | 21,064 | | | | (141 | ) | | | (6,314 | ) | | | 16,105 | |
| Discontinued operations: | | | | | | | | | | | | | | | | | | | | |
| | Income (loss) from operations (net of income taxes) | | | (472 | ) | | | 222 | | | | (254 | ) | | | (662 | ) | | | (1,166 | ) |
| | Gain (loss) on disposal (net of income taxes) | | | 231 | | | | — | | | | — | | | | (2,320 | ) | | | (2,089 | ) |
| | | | | | | | | | | | | | | | |
| | | Net income/(loss) | | $ | 1,255 | | | $ | 21,286 | | | $ | (395 | ) | | $ | (9,296 | ) | | $ | 12,850 | |
| | | | | | | | | | | | | | | | |
| Depreciation and amortization from continuing operations: | | | | | | | | | | | | | | | | | | | | |
| | Animal Health & Nutrition | | $ | 2,029 | | | $ | 2,059 | | | $ | 2,086 | | | $ | 2,089 | | | $ | 8,263 | |
| | Industrial Chemicals — ex PMC | | | 406 | | | | 395 | | | | 403 | | | | 432 | | | | 1,636 | |
| | Industrial Chemicals — PMC | | | 243 | | | | 244 | | | | — | | | | — | | | | 487 | |
| | Distribution | | | 3 | | | | 4 | | | | 3 | | | | 1 | | | | 11 | |
| | Corporate Expenses | | | 71 | | | | 63 | | | | 62 | | | | 65 | | | | 261 | |
| | | | | | | | | | | | | | | | |
| | | Total depreciation and amortization | | $ | 2,752 | | | $ | 2,765 | | | $ | 2,554 | | | $ | 2,587 | | | $ | 10,658 | |
| | | | | | | | | | | | | | | | |
36
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarters Ended | | | |
| | | | | | Year Ended | |
| | | Sept 30, | | | Dec 31, | | | March 31, | | | June 30, | | | June 30, | |
| | | 2002 | | | 2002 | | | 2003 | | | 2003 | | | 2003 | |
| | | | | | | | | | | | | | | | |
| Net sales: | | | | | | | | | | | | | | | | | | | | |
| | Animal Health & Nutrition | | $ | 59,277 | | | $ | 65,943 | | | $ | 62,373 | | | $ | 60,669 | | | $ | 248,262 | |
| | Industrial Chemicals — ex PMC | | | 9,056 | | | | 7,210 | | | | 9,015 | | | | 9,427 | | | | 34,708 | |
| | Industrial Chemicals — PMC | | | 5,756 | | | | 5,285 | | | | 5,743 | | | | 5,548 | | | | 22,332 | |
| | Distribution | | | 8,795 | | | | 7,904 | | | | 7,914 | | | | 7,903 | | | | 32,516 | |
| | | | | | | | | | | | | | | | |
| | | Total net sales | | | 82,884 | | | | 86,342 | | | | 85,045 | | | | 83,547 | | | | 337,818 | |
| Cost of goods sold | | | 60,977 | | | | 62,756 | | | | 62,527 | | | | 62,317 | | | | 248,577 | |
| | | | | | | | | | | | | | | | |
| | | Gross profit | | | 21,907 | | | | 23,586 | | | | 22,518 | | | | 21,230 | | | | 89,241 | |
| Selling, general and administrative expenses | | | 15,134 | | | | 15,461 | | | | 17,046 | | | | 15,705 | | | | 63,346 | |
| | | | | | | | | | | | | | | | |
| Operating income (loss): | | | | | | | | | | | | | | | | | | | | |
| | Animal Health & Nutrition | | | 9,024 | | | | 11,165 | | | | 8,851 | | | | 8,285 | | | | 37,325 | |
| | Industrial Chemicals — ex PMC | | | (1,022 | ) | | | (1,767 | ) | | | (1,498 | ) | | | (1,302 | ) | | | (5,589 | ) |
| | Industrial Chemicals — PMC | | | 1,127 | | | | 901 | | | | 839 | | | | 712 | | | | 3,579 | |
| | Distribution | | | 1,146 | | | | 1,230 | | | | 951 | | | | 1,027 | | | | 4,354 | |
| | Corporate Expenses | | | (2,773 | ) | | | (3,146 | ) | | | (3,023 | ) | | | (2,604 | ) | | | (11,546 | ) |
| | Eliminations | | | (167 | ) | | | 305 | | | | (86 | ) | | | (30 | ) | | | 22 | |
| | Palladium management fee | | | (562 | ) | | | (563 | ) | | | (562 | ) | | | (563 | ) | | | (2,250 | ) |
| | | | | | | | | | | | | | | | |
| | | Total operating income (loss) | | | 6,773 | | | | 8,125 | | | | 5,472 | | | | 5,525 | | | | 25,895 | |
| Other: | | | | | | | | | | | | | | | | | | | | |
| | Interest expense | | | 4,767 | | | | 3,935 | | | | 4,259 | | | | 4,494 | | | | 17,455 | |
| | Interest (income) | | | (126 | ) | | | 31 | | | | (39 | ) | | | 49 | | | | (85 | ) |
| | Other expense, net | | | 1,155 | | | | 235 | | | | 208 | | | | (50 | ) | | | 1,548 | |
| | | | | | | | | | | | | | | | |
| | | Income (loss) from continuing operations before income taxes | | | 977 | | | | 3,924 | | | | 1,044 | | | | 1,032 | | | | 6,977 | |
| Provision for income taxes | | | 416 | | | | 1,348 | | | | 520 | | | | 7,546 | | | | 9,830 | |
| | | | | | | | | | | | | | | | |
| | | Income/(loss) from continuing operations | | | 561 | | | | 2,576 | | | | 524 | | | | (6,514 | ) | | | (2,853 | ) |
| Discontinued operations: | | | | | | | | | | | | | | | | | | | | |
| | Income (loss) from operations (net of income taxes) | | | (718 | ) | | | (10,411 | ) | | | (1,454 | ) | | | (1,440 | ) | | | (14,023 | ) |
| | Income (loss) on disposal (net of income taxes) | | | — | | | | — | | | | (1,342 | ) | | | 659 | | | | (683 | ) |
| | | | | | | | | | | | | | | | |
| | | Net income/(loss) | | $ | (157 | ) | | $ | (7,835 | ) | | $ | (2,272 | ) | | $ | (7,295 | ) | | $ | (17,559 | ) |
| | | | | | | | | | | | | | | | |
| Depreciation and amortization from continuing operations: | | | | | | | | | | | | | | | | | | | | |
| | Animal Health & Nutrition | | $ | 1,892 | | | $ | 1,920 | | | $ | 1,890 | | | $ | 1,988 | | | $ | 7,690 | |
| | Industrial Chemicals — ex PMC | | | 587 | | | | 699 | | | | 498 | | | | 164 | | | | 1,948 | |
| | Industrial Chemicals — PMC | | | 232 | | | | 239 | | | | 240 | | | | 245 | | | | 956 | |
| | Distribution | | | 3 | | | | 3 | | | | 2 | | | | 4 | | | | 12 | |
| | Corporate Expenses | | | 77 | | | | 101 | | | | 104 | | | | 98 | | | | 380 | |
| | | | | | | | | | | | | | | | |
| | | Total depreciation and amortization | | $ | 2,791 | | | $ | 2,962 | | | $ | 2,734 | | | $ | 2,499 | | | $ | 10,986 | |
| | | | | | | | | | | | | | | | |
37
Critical Accounting Policies
Critical accounting policies are those that require application of management'smanagement’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
The Company's significant accounting policies are described in Note 2 to the
Consolidated Financial Statements.
Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, management of the Company is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Significant estimates include reserves for bad debts, inventory obsolescence, environmental matters, depreciation and amortization periods of long-lived assets, recoverability of long-lived assets, realizability of deferred tax assets and actuarial assumptions related to the Company’s pension plans. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period they are determined to be necessary. Actual results could differ from those estimates. Following are some of the Company's criticalThe Company’s significant accounting policies impacted by judgments, assumptions and estimates.
Revenue Recognition
Revenues are recognized when title to products and risk of loss are
transferred to customers. Additional conditions for recognition of revenue are
that collection of sales proceeds is reasonably assured and the Company has no
further performance obligations. Net sales are comprised of total sales billed,
less reductions for returned goods, trade discounts and customer allowances.
Litigation
The Company is subject to legal proceedings and claims arising out of the
normal course of business. The Company routinely assesses the likelihood of any
adverse judgments or outcomes to these matters as well as ranges of probable
losses. A determination of the amount of the reserves required for these
contingencies is based on an analysis of the various issues, historical
experience, other third party judgments and outside specialists, where required.
The required reserves may changedescribed in the future due to new developments in each
matter. For further discussion, see Note 152 to the Consolidated Financial Statements.
Environmental Matters
The Company determines
New Accounting Pronouncements
During the
costs of environmental remediation of its
facilities and formerly owned properties onyear, the
basis of current law and
existing technologies. Uncertainties exist in these evaluations primarily due to
unknown conditions, changing governmental regulations and legalFinancial Accounting Standards Board released several new standards. These standards
regarding liability, and evolving technologies. The liabilities are adjusted
periodically as remediation efforts progress or as additional information
becomes available. The Company has recorded liabilities of $2.9 million at June
30, 2004 for such activities.
Long Lived Assets
Long-lived assets, including plant and equipment, and other intangible
assets are reviewed for impairment when events or circumstances indicate that a
diminution in value may have occurred, based on a comparison of undiscounted
future cash flows to the carrying amount of the long-lived asset. If the
carrying amount exceeds undiscounted future cash flows, an impairment charge is
recorded based on the difference between the carrying amount of the asset and
its fair value.
The assessment of potential impairment for a particular asset or set of
assets requires certain judgments and estimateswill be adopted by the Company
including the
determination of an event indicating impairment; the future cash flows to be
generated by the asset, including the estimated life of the assetduring fiscal 2006 and
likelihood
of alternative courses of action; the risk associated with those cash flows; and
the Company's cost of capital or discount rate to be utilized.
Useful Lives of Long-Lived Assets
Useful lives of long-lived assets, including plant and equipment and other
intangible assets are
based on management's estimates of the periods that the
assets will be productively utilizeddiscussed in the
revenue-generation process. Factors
that affect the determination of lives include prior experience with similar
assets and product life expectations and management's estimate of the period
that the assets will generate revenue.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined on
a first-in, first-out (FIFO) and average methods for most inventories. The
determination of market value to compare to cost involves assessment of numerous
factors, including costs to
33
dispose of inventory and estimated selling prices. Reserves are recorded for
inventory determined to be damaged, obsolete, or otherwise unsaleable.
Income Taxes
Deferred tax assets and liabilities are determined using enacted tax rates
for the effects of net operating losses and temporary differences between the
book and tax bases of assets and liabilities. The Company records a valuation
allowance on deferred tax assets when appropriate to reflect the expected future
tax benefits to be realized. In determining the appropriate valuation allowance,
certain judgments are made relating to recoverability of deferred tax assets,
use of tax loss carryforwards, level of expected future taxable income and
available tax planning strategies. These judgments are routinely reviewed by
management. For further discussion, see Note 142 to the Consolidated Financial Statements.
New Accounting Pronouncements Off-Balance Sheet Arrangements
The Company adopted the following new and revised accounting pronouncements
in fiscal 2004:
Statement of Financial Accounting Standards No. 149, "Amendment of SFAS No.
133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No.
149 amends and clarifies accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. The adoption of SFAS No. 149 didhas not result in a material impact on the Company's financial statements.
Statement of Financial Accounting Standards No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS No. 150"). SFAS No. 150 requires that an issuer classify a financial
instrument, that is within its scope, as a liability (or an asset in some
circumstances). SFAS No. 150 also revises the definition of liabilities to
encompass certain obligations that can, or must, be settled by issuing equity
shares, depending on the nature of the relationship established between the
holder and the issuer. The adoption of SFAS No. 150 did not result in a material
impact on the Company's financial statements.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits, an amendment to FASB
Statements No. 87, 88, and 106 (revised 2003)" ("SFAS No. 132"). This revision
to SFAS No. 132 relates to employers' disclosures about pension plans and other
postretirement benefit plans. SFAS No. 132 now requires additional disclosures
to describe the types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows, and components of net periodic benefit cost
recognized during interim periods of defined pension plans and other defined
postretirement plans. The additional disclosures required by this revision to
SFAS No. 132 have been provided.
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities
(revised December 2003)" ("FIN No. 46"). This revision to FIN No. 46 clarifies
the application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support. The adoption of FIN No. 46 did not result in a
material impact on the Company's financial statements.
entered into any off-balance sheet arrangements.
Effect of Inflation; Foreign Currency Exchange RatesInflation
Inflation generally affects the Company by increasing the cost of labor, equipment and raw materials. The Company does not believe that inflation has had any material effect on the
Company'sCompany’s business over the last two years.
The Company's substantial foreign operations expose it to risk of exchange
rate fluctuations. Financial position and results of operations of the Company's
international subsidiaries generally are measured using local currencies as the
functional currency. Assets and liabilities of these operations are translated
at the exchange rates in effect at each fiscal year end. The translation
adjustments related to assets and liabilities that arise from the use of
differing exchange rates from period to period are included in accumulated other
comprehensive loss in shareholders' equity. Income statement accounts are
translated at the average rates of exchange prevailing during the year.
A business unit of Koffolk and all of Planalquimica operate primarily in
U.S. dollars. The U.S. dollar is designated as the functional currency for these
businesses and translation gains and losses are included in determining net
income or loss.
Foreign currency transaction gains and losses primarily arise from
short-term intercompany balances. Net foreign currency transaction and
translation (gains) losses were ($116), $789 and $3,385 for 2004, 2003 and 2002,
respectively, and were included in other expense, net in the consolidated
statements of operations.
34
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, from time to time, 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.
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 Company'sCompany’s debt portfolio is comprised of fixed rate and variable rate debt of approximately $170.4$186.2 million as of June 30, 2004.2005. Approximately 10%4% of the debt is variable and would be interest rate sensitive. For further details, see Note 9,12 to the Consolidated Financial Statements of the Company appearing
elsewhere herein.Company.
38
For the purposes of the sensitivity analysis, an immediate 10% change in interest rates would not have a material impact on the Company'sCompany’s cash flows and earnings over a one year period.
As of June 30, 2004,2005, the fair value of the Company'sCompany’s senior secured and senior subordinated notes are estimated based on quoted market rates at $158$182.0 million and the related carrying amount is $153$175.5 million.
| |
| Foreign Currency Exchange Rates — Translation Risk |
The Company’s substantial foreign operations expose it to risk of exchange rate fluctuations. Financial position and results of operations of the Company’s international subsidiaries generally are measured using local currencies as the functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) in stockholders’ deficit. Income statement accounts are translated at the average rates of exchange prevailing during the year.
Koffolk and Planalquimica operate primarily in U.S. dollars. The U.S. dollar is designated as the functional currency for these businesses and translation gains and losses are included in determining net income or loss.
Foreign currency transaction gains and losses primarily arise from short-term intercompany balances. Net foreign currency transaction and translation (gains) losses were $(0.3) million, $(0.1) million and $0.8 million for 2005, 2004 and 2003, respectively, and were included in other (income) expense, net in the consolidated statements of operations and comprehensive income (loss).
| |
| Foreign Currency Exchange Rate — Transaction 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'sCompany’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. From time to time, the Company may cover 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 and the Brazilian Real, and Japanese yen.Real.
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. Based on the limited amount of foreign currency contracts at June 30,
2004, the Company does not believe that an instantaneous 10% adverse movement in foreign currency rates from their levels at June 30, 2004,2005, with all other variables held constant, would have a material effect on the Company'sCompany’s results of operations, financial position or cash flows.
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. Assuming a 10% change in the underlying commodity price, the potential change in the fair value of commodity derivative contracts held at June 30, 20042005 would not be material when compared to the Company'sCompany’s operating results and financial position.
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
39
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.
35
Certain Factors Affecting Future Operating Results
| |
| Forward-Looking Statements |
This Report on Form 10-K contains "forward-looking statements"“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words "may," "could," "would,"
"should," "believe," "expect," "anticipate," "plan," "estimate," "target,"
"project," "intend,"“may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend,” or similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity.
Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management'smanagement’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve risks and uncertainties, which could cause actual results that differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:
o our substantial leverage and potential inability to service our debt
o our dependence on distributions from our subsidiaries
o risks associated with our international operations and significant
foreign assets
o our dependence on our Israeli operations
o competition in each of our markets
o potential environmental liability
o potential legislation affecting the use of medicated feed additives
o extensive regulation by numerous government authorities in the United
States and other countries
o our reliance on the continued operation and sufficiency of our
manufacturing facilities
o our reliance upon unpatented trade secrets
o the risks of legal proceedings and general litigation expenses
o potential operating hazards and uninsured risks
o the risk of work stoppages
o
| | |
| • | our substantial leverage and potential inability to service our debt |
|
| • | our dependence on distributions from our subsidiaries |
|
| • | risks associated with our international operations and significant foreign assets |
|
| • | our dependence on our Israeli operations |
|
| • | competition in each of our markets |
|
| • | potential environmental liability |
|
| • | potential legislation affecting the use of medicated feed additives |
|
| • | extensive regulation by numerous government authorities in the United States and other countries |
|
| • | our reliance on the continued operation and sufficiency of our manufacturing facilities, including the transition of virginiamycin production from our Belgium to our Brazil facility. |
|
| • | our reliance upon unpatented trade secrets |
|
| • | the risks of legal proceedings and general litigation expenses |
|
| • | potential operating hazards and uninsured risks |
|
| • | the risk of work stoppages |
|
| • | our dependence on key personnel |
See also the discussion under "Other Risks“Risks, Uncertainties and Uncertainties"Liquidity” in Note 2 of our Consolidated Financial Statements included in this Report.
In addition, the issue of the potential for increased bacterial resistance to certain antibiotics used in certain food producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led to government restrictions on the use of antibiotics in these food producing animals. The sale of feed
40
additives containing antibiotics is a material portion of our business. Should regulatory or other developments result in further restrictions on the sale of such products, it could have a material adverse impact on our financial position, results of operations and cash flows.
We believe the forward-looking statements in this Report are reasonable; however, no undue reliance should be placed on any forward-looking statements, as they are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
36
Item 7A. | |
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Information regarding quantitative and qualitative disclosures about market risk is set forth in Item 7 of this Form 10-K.
Item 8.
| |
| Item 8. | Financial Statements and Supplementary Data |
The financial statements are set forth commencing on page F-1 hereto.
Item 9.
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
No response required.
Item 9A.
| |
| Item 9A. | Controls and Procedures |
(a) Based upon an evaluation, under the supervision and with the participation of our Principal Executive Officers and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, they have concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures, as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, are not
effective for gathering, analyzing and disclosing information we are required to
disclose in periodic reports that we furnish to the Securities and Exchange
Commission, for the specific reasons noted in paragraph (b) below. The
corrective actions we are taking are also noted in paragraph (b).effective.
(b) As of the end of the period covered by this report,Report there have been no significant changes in our internal control over financial reportingcontrols that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During September 2004, as part of the audit of
the financial statements for the year ended June 30, 2004, the Company's
auditors determined and communicated to the Company's management significant
deficiencies in internal control that, when viewed collectively, constituted a
material weakness in the Company's internal control. A material weakness is
defined as a significant deficiency, or combination of significant deficiencies,
that results in more than a remote likelihood that a material misstatement of
the annual or interim financial statements will not be prevented or detected.
The significant deficiencies noted related to the failure to perform timely
review, substantiation and evaluation of certain general ledger account
balances, principally related to bank account reconciliations and accrued
pension liabilities. The Company is addressing the material weakness by
completing a review of significant balance sheet accounts and enhancing the
review process by requiring supervisory review and sign-off on bank account
reconciliations and other balance sheet account analyses. Additionally, the
Company plans to remediate the matters discussed above through further
improvements in processes and procedures related to the review, substantiation
and evaluation of general ledger account balances.
It should be noted that any system of internal controls, however well designed and operated, can provide only reasonable, but not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions, regardless of how remote.
Item 9B.
| |
| Item 9B. | Other Information |
41
PART III
Item 10.
| |
| Item 10. | Directors and Executive Officers of the Registrant |
Set forth below is certain information with respect to our directors and executive officers.
| | | | | | |
| Name | | Age | | | Position |
| | | | | |
| Jack C. Bendheim | | | 58 | | | Chairman of the Board of Directors; President |
| Gerald K. Carlson | | | 62 | | | Chief Executive Officer |
| Marvin S. Sussman | | | 58 | | | Vice Chairman of the Board of Directors and President, Prince Agri |
| James O. Herlands | | | 63 | | | Director and Executive Vice President |
| Richard G. Johnson | | | 56 | | | Chief Financial Officer |
| Daniel M. Bendheim | | | 33 | | | President, Specialty Chemicals Group(1) |
| Steven L. Cohen | | | 61 | | | Vice President, General Counsel and Secretary |
| Keith R. Collins | | | 50 | | | President, Animal Health Division(2) |
| Daniel A. Welch | | | 55 | | | Senior Vice President, Human Resources |
| Sam Gejdenson | | | 57 | | | Director, Noteholder Representative |
| Mary Lou Malanoski | | | 48 | | | Director |
| |
| (1) | William A. Mathison, the former President, Specialty Chemicals Group, retired in August 2004. |
|
| (2) | David G. McBeath, the former President, Animal Health Group, returned, as planned, to his private consulting business in December 2004. |
Peter A. Joseph and Marco Rodriguez served on PAHC’s board of directors as designees of the Registrant
The following table sets forth information regarding our executive officers
and directors:
Name Age Position
- ---------------------------- --- ------------------------------------------
Jack C. Bendheim............ 57 Chairmanholders of Series C Preferred Stock of PAHC. Upon the redemption of the Board of Directors;
President
Gerald K. Carlson........... 61 Chief Executive Officer
Marvin S. Sussman........... 57 Vice Chairman ofSeries C Preferred Stock by PAHC on February 28, 2005, Messrs. Joseph and Rodriguez tendered their resignations from the Board of Directors
and President, Prince Agri
James O. Herlands........... 62 Director and Executive Vice President
Richard G. Johnson.......... 55 Chief Financial Officer
Daniel M. Bendheim.......... 32 President, Specialty Chemicals Group*
Steven L. Cohen............. 60 Vice President, General Counsel and
Assistant Secretary
David G. McBeath............ 57 President, Animal Health Group
Daniel A. Welch............. 54 Senior Vice President, Human Resources
Sam Gejdenson .............. 56 Director, Noteholder Representative
Peter A. Joseph............. 52 Director
Mary Lou Malanoski.......... 47 Director
Marcos Rodriguez............ 43 Director
* William A. Mathison, the former President, Specialty Chemicals Group,
retired in August 2004.
board effective February 28, 2005.
Jack C. BendheimChairman of the Board of Directors and President. Mr. Bendheim has been President since 1988. He was Chief Operating Officer from 1988 to 1998, and was Chief Executive Officer from 1998 to May 2002. He has been a director since 1984. Mr. Bendheim joined us in 1969 and served as Executive Vice President and Treasurer from 1983 to 1988 and as Vice President and Treasurer from 1975 to 1983. Mr. Bendheim is also a director of The Berkshire Bank in New York, New York, and Empire Resources, Inc., a metals tradingdistribution company in Fort Lee, New Jersey.
Gerald K. CarlsonChief Executive Officer. Mr. Carlson joined us in May 2002 and has served as our Chief Executive Officer since then. Prior to joining us, Mr. Carlson served as the Commissioner of Trade and Development for the State of Minnesota from January 1999 to March 2001. Mr. Carlson served as Senior Vice President--President — Corporate Planning and Development from June 1996 to his retirement in October 1998 from Ecolab, Inc. During his thirty-two year career at Ecolab, Mr. Carlson also served as Senior Vice President of International as well as Senior Vice President and General Manager--Manager — Institutional North America.
Marvin S. SussmanVice Chairman of the Board of Directors and President of our Prince Agri subsidiary. He has been a director since 1988 and was Chief Operating Officer from 1998 to 2002. Mr. Sussman joined us in 1971. Since then, he has served in various executive positions with us. Mr. Sussman was President of our Prince Group from 1988 to 2002. Mr. Sussman is the brother-in-law of Jack Bendheim.
James O. Herlands Director;Director and Executive Vice President. Mr. Herlands joined us in 1964. Since then, he has served in various capacities in sales/marketing and purchasing. He has been a director since 1988 and served as President of our CP/PhibroChem division since 1992. In addition, Mr. Herlands has served as our Executive Vice President since 1988. Mr. Herlands is the first cousin of Jack Bendheim.
42
Richard G. JohnsonChief Financial Officer. Mr. Johnson joined us in September 2002 and has served as our Chief Financial Officer since then. Prior to joining us, Mr. Johnson served as Director of Financial Management for Laserdyne Prima, Inc. from 2001 to 2002 and as Vice President--President — Planning and Control, Latin America for Ecolab, Inc. from 1992 to 1999. In addition, Mr. Johnson served in various senior financial positions at Ecolab over a fifteen year period.
Daniel M. BendheimPresident, Specialty Chemicals Group. Mr. Bendheim joined the Companyus in 1998. In 2001 he was appointed Vice President of Business Development, and was appointed to his current position of President, Specialty Chemicals Group in September, 2004. Prior to joining the Companyus, Mr. Bendheim worked as an analyst at SouthCoast Capital. Mr. Bendheim received a JD from Harvard Law School in 1996 and a BA from Yeshiva University in 1993. Mr. Bendheim is a son of Jack Bendheim.
Steven L. CohenVice President,
General Counsel and
General Counsel.Secretary. Mr. Cohen joined us in October 2000 and has served as our Vice
President--President — Regulatory and General Counsel since then. Prior to joining us, Mr. Cohen was, from 1997 to 2000, General Counsel of Troy Corporation, a multi-national chemical company. From 1994 to 1997, Mr. Cohen was in the private practice of law.
38
David G. McBeath Keith R. CollinsPresident, Animal Health Group. Dr. McBeathDivision. Mr. Collins joined us in August 2004 and was initially accountable for Business Development, Latin American and European Operations for the Animal Health Division. Mr. Collins was appointed President of the Animal Health Division on AugustJanuary 1, 2003.2005. Prior to joining us he was CEOMr. Collins served as Director, Global Marketing, Large Animal Global Enterprise, Merial Limited from 2002 to 2004 and Director of Scottish Health Innovations
Ltd., a company created to identify and exploit intellectual property arisingBusiness Development, Merial Limited from research carried out within the National Health Service in Scotland. From
March 2001 to December 2002, he served on the Management Committee of Merial as
Head of the Production Animal business; and prior2002. Prior to this Mr. Collins was onArea Director, North and Eastern Europe based in Holland for Intervet Limited. Mr. Collins has spent 30 years of his career in the Board of
Hoechst Roussel Vet GmbH, with direct responsibility for R&D and Regulatory
Affairs.
animal health industry.
Daniel A. WelchSenior Vice President Human Resources. Mr. Welch joined us on August 9, 2004. Prior to joining us, he was Director of Human Resources offor Pfizer Inc. since 2001. From 1998 to 2001, Mr. Welch was the President of Value Growth Dynamics, LLC, a consulting firm focused on strategic change.
Sam Gejdenson Director,Director. From 1981 to 2000, Congressman Sam Gejdenson served eastern Connecticut in the U.S. House of Representatives. Mr. Gejdenson was the senior Democrat on the House International Relations Committee. He received an A.S. degree from Mitchell College in New London, Connecticut in 1968 and a B.A. from the University of Connecticut in Storrs, Connecticut in 1970. In 1974, he was elected to the Connecticut House of Representatives, serving two terms before accepting a post in the administration of Connecticut Governor Ella T. Grasso. Mr. Gejdenson is now involved in international trade in his own company Sam Gejdenson International.
Peter A. Joseph Director. Mr. Joseph has served as one of our Directors
since February 2001. From 1998 to present, he has been a member of Palladium
Equity Partners, LLC. From 1986 to 1997, Mr. Joseph was a general partner of
Joseph Littlejohn & Levy, a buyout firm.
Mary Lou MalanoskiDirector. Ms. Malanoski currently serves as a managing
directorManaging Director at Morgan Joseph & Co. Inc. From 1994 until June 2001, Ms. Malanoski served as Managing Director and Chief Financial Officer of New Street Advisors LP, a private equity firm that she co-founded. Ms.MalanoskiMs. Malanoski began her career at Drexel Burnham Lambert in 1980 in the Corporate Finance Department. She subsequently served in various positions, finally serving as Managing Director in the Mergers and Acquisitions Department and Chair of the Corporate Finance Underwriting Commitment Committee. Following Drexel'sDrexel’s bankruptcy filing in 1990, Ms. Malanoski was responsible for formulating the firm'sfirm’s plan of reorganization, which was successfully consummated in 1992. She remained at the reorganized firm, which was renamed New Street Capital Corp., as a Managing Director responsible for many of the firm'sfirm’s merchant banking investments. Following New Street Capital'sCapital’s sale in 1994, Ms. Malanoski co-founded New Street Advisors. She
is a Trustee of Rosemont College, from which she received a B.A. degree in
Mathematics, and she also received an MBA from
Board Composition
Since the Johnson School of Cornell
University.
Marcos A. Rodriguez Director. Mr. Rodriguez founded Palladium Equity
Partners in 1997 and serves as Managing Member. Prior to forming Palladium, Mr.
Rodriguez was a partner of Joseph Littlejohn & Levy (JLL), a buyout firm which
he joined in 1989. He was responsible for spearheading a number of JLL's major
investments. Before launching his private equity career 14 years ago, Mr.
Rodriguez worked in operations for General Electric Company in the U.S., Mexico
and France and graduated from GE's Manufacturing Management Program. Mr.
Rodriguez serves on the Board of Directors of portfolio companies Haden
International, The Hilsinger Company and Wise Foods. In addition, Mr. Rodriguez
serves as Chairmanredemption of the Development Committee and TreasurerSeries C Preferred Stock of the Board of
Directors of The Robert Toigo Foundation, a not-for-profit organization that
supports the advancement of exceptional minority business degree students and
alumni within the finance industry through scholarships, mentoring, internships
and job placement. He is also a member of the New America Alliance. Mr.
Rodriguez earned a B.S. in Mechanical Engineering from Columbia University, an
M.B.A from the Wharton School and an M.A. in International Studies from the
Lauder Institute of the University of Pennsylvania.
Board Composition
OurPAHC on February 28, 2005, PAHC’s entire Board of Directors consists of 7five members, all of whom are currently designated and serving as directors. Our boardPAHC’s Board of directorsDirectors is elected annually, and ourPAHC’s directors hold office until the next annual meeting of our shareholders or until their successors are elected and qualified. Each officer serves at the discretion of the Board of Directors.
43
Compensation of Directors
Except for the payment of $50,000 annually to Mr. Sam Gejdenson, the director
of PAHC designated by the holders of the Senior Secured Notes
ourof PAHC, none of PAHC’s directors
do
not receive any cash compensation for service on
ourPAHC’s Board of Directors. Directors may be reimbursed for certain expenses in connection with attendance at board meetings, however. We have entered into certain transactions with certain of the directors. See
"Certain“Certain Relationships and Related Transactions.
"
39
”Code of Ethics
Our
PAHC’s Board of Directors has not adopted a code of ethics applicable to our principal executive, financial or accounting officers. TheSuch Board of Directors believes that our current internal control procedures and business practices are adequate to promote honest and ethical conduct and to deter wrongdoing by these executives.
Committees of the Board of Directors
Audit Committee
We are not a "listed issuer"“listed issuer” as defined under Section 10A-3 of the Exchange Act and are therefore not required to have an audit committee comprised of independent directors. We currently do not have an audit committee and ourPAHC’s Board of Directors has determined that we doPAHC does not need to have an audit committee financial expert. The Board of Directors believes that each of its members has the requisite financial background, experience, and knowledge to fulfill the duties and obligations that an audit committee would have, and therefore does not believe that it is necessary at this time to search for a person who would qualify as an audit committee financial expert.
Our
PAHC’s Board of Directors has not created any committees other than thea compensation committee.
The duties of the Compensation Committee of the Board of Directors of PAHC are to recommend to the Board of Directors of PAHC a compensation program, including incentives, for the Chief Executive Officer and other senior officers of the Company,PAHC for approval by the full Board of Directors.Directors of PAHC.
The current members of the Compensation Committee of PAHC are Mr. Jack C. Bendheim Mr. Joseph and Mr. Gejdenson.
Item 11.
44
| |
| Item 11. | Executive Compensation |
The following table sets forth the cash compensation paidrecorded by us and our subsidiaries for services during fiscal 2005, 2004, 2003, and 20022003 to our Chief Executive Officer and to the next four most highly compensated executive officers:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | Annual Compensation | | | |
| | | | | | | | |
| | | | | | | Other Annual | | | All Other | |
| Name and Principal Position | | Year | | | Salary | | | Bonus(7) | | | Compensation | | | Compensation(1) | |
| | | | | | | | | | | | | | | | |
| Jack C. Bendheim | | | 2005 | | | $ | 1,650,000 | | | $ | 300,000 | | | $ | — | | | $ | 2,100 | |
| | Chairman of the Board; President | | | 2004 | | | | 1,650,000 | | | | — | | | | — | | | | 2,050 | |
| | | | | 2003 | | | | 1,650,000 | | | | — | | | | 150,000 | (2) | | | 6,500 | |
| Gerald K. Carlson(3) | | | 2005 | | | | 500,000 | | | | 544,000 | | | | 24,000 | | | | 2,642 | |
| | Chief Executive Officer | | | 2004 | | | | 500,000 | | | | 500,000 | | | | 24,000 | | | | 1,458 | |
| | | | | 2003 | | | | 500,000 | | | | 575,000 | | | | 24,000 | | | | — | |
| Marvin S. Sussman(4) | | | 2005 | | | | 1,000,000 | | | | 152,000 | | | | — | | | | 24,000 | (6) |
| | Vice Chairman of the Board; | | | 2004 | | | | 1,000,000 | | | | 151,600 | | | | — | | | | 24,581 | (6) |
| | President of Prince Agri | | | 2003 | | | | 1,000,000 | | | | 101,372 | | | | — | | | | 24,500 | (6) |
| James O. Herlands | | | 2005 | | | | 400,000 | | | | 139,000 | | | | — | | | | 4,375 | |
| | Executive Vice President | | | 2004 | | | | 400,000 | | | | 55,000 | | | | — | | | | 6,581 | |
| | | | | 2003 | | | | 400,000 | | | | 95,519 | | | | — | | | | 6,500 | |
| Richard G. Johnson(5) | | | 2005 | | | | 297,917 | | | | 114,000 | | | | — | | | | 7,407 | |
| | Chief Financial Officer | | | 2004 | | | | 268,750 | | | | 194,800 | | | | 13,500 | | | | 6,703 | |
| | | | | 2003 | | | | 192,308 | | | | 100,000 | | | | 39,000 | | | | — | |
Annual Compensation
---------------------------------------------------------------------
Name | |
| (1) | Represents contributions by us under our 401(k) Retirement and Other Annual All Other
Principal Position Year Savings Plan. See “Compensation Pursuant to Plans.” |
|
| (2) | In fiscal 2003, Mr. Bendheim was paid $150,000 for temporary deferral of fiscal 2002 compensation. |
|
| (3) | In fiscal 2005, 2004 and 2003, Mr. Carlson received $24,000 housing assistance. |
|
| (4) | Pursuant to a Stockholders Agreement between us and Mr. Sussman, we are required to purchase, at book value, all shares of our Class B Common Stock owned by Mr. Sussman in the event of his retirement, death, disability or the termination of his employment by us. Should Mr. Sussman elect to sell his shares, we have a right of first offer and an option to purchase the shares. See “Certain Relationships and Related Transactions.” As a result, each year, we are required to record as compensation expense (income) in our results of operations the change in our book value attributable to Mr. Sussman’s shares. For 2005, 2004 and 2003, the expense (income) attributable to Mr. Sussman’s shares was $0. No distributions have been made to Mr. Sussman under this agreement. |
|
| (5) | Salary Bonus Compensation Compensation(1)
- ------------------------------- ----- ------ ----- ------------ ---------------
Jack C. Bendheimis since date of employment for 2003. In fiscal 2004 $ 1,650,000 $ -- $ -- $ 2,050
Chairmanand 2003, Mr. Johnson received $13,500 and $39,000, respectively, for relocation and housing assistance. |
|
| (6) | Of such amount, $18,000 represents the cost of the Board; President 2003 1,650,000 -- 150,000(2) 6,500
2002 1,500,000 265,000 -- 6,000
Gerald K. Carlson(3) 2004 500,000 575,000 24,000 1,458
Chief Executive Officer 2003 500,000 -- 24,000 --
2002 49,350 -- -- --
Marvin S. Sussman(4) 2004 1,000,000 101,372 -- 24,581(6)
Vice Chairmanterm portion of a life insurance policy purchased by the Board; 2003 1,000,000 -- -- 24,500(6)
PresidentCompany in the face amount of Prince Agri 2002 1,000,000 -- -- 6,000
James O. Herlands 2004 400,000 95,519 -- 6,581
Executive Vice President 2003 400,000 150,000 -- 6,500
2002 400,000 150,000 -- 6,000
Richard G. Johnson(5) 2004 268,750 200,000 13,500 6,703
Chief Financial Officer 2003 192,308 -- 39,000 --
$10 million on the life of Mr. Sussman, with a required premium of $252,000 per year. The policy commenced in April 2002. |
|
| (7) | Bonuses include annual awards under the Company’s management incentive plan and are reported in the year in which the bonus was earned. Prior year information has been revised for consistency of presentation. |
- ----------
(1) Represents contributions by us under our 401(k) Retirement and Savings Plan.
See "Compensation Pursuant to Plans."
(2) In fiscal
2003, Mr. Bendheim was paid $150,000 for temporary deferral of
fiscal 2002 compensation.
(3) 2002 salary is for a partial year commencing May 2002. In fiscal 2004 and
2003, Mr. Carlson received $24,000 for relocation and housing assistance.
(4) Pursuant to a Stockholders Agreement between us and Mr. Sussman, we are
required to purchase, at book value, all shares of our Class B Common Stock
owned by Mr. Sussman in the event of his retirement, death, disability or
the termination of his employment by us. Should Mr. Sussman elect to sell
his shares, we have a right of first offer and an option to purchase the
shares.
40
See "Certain Relationships and Related Transactions." As a result, each
year, we are required to record as compensation expense (income) in our
results of operations the change in our book value attributable to Mr.
Sussman's shares. For 2004, 2003 and 2002, the expense (income) attributable
to Mr. Sussman's shares was $0, $0 and ($378,000), respectively. No
distributions have been made to Mr. Sussman under this agreement.
(5) Salary is since date of employment for 2003. In fiscal 2004 and 2003, Mr.
Johnson received $13,500 and $39,000, respectively, for relocation and
housing assistance.
(6) Of such amount, $18,000 represents the cost of the term portion of a life
insurance policy purchased by the Company in the face amount of $10 million
on the life of Mr. Sussman, with a required premium of $252,000 per year.
The policy commenced in April 2002.
In fiscal 2004,2005, no options were granted to the named executive officers and no options were held or exercised by any of the named executive officers.Employment and Severance Agreements
We
The Company entered into an employment agreement with Gerald K. Carlson in May 2002, whereby Mr. Carlson will serve as our Chief Executive Officer. The agreement provides for a base salary of $500,000 during the first year of its term. Mr. Carlson is eligible to receive an annual bonus of up to 150% of his base
45
salary based on our achievement of certain specified EBITDA growth targets. If Mr. Carlson is terminated without Cause (as defined) or he voluntarily terminates the agreement with Good Reason (as defined), he is entitled to receive the accrued portion of the target annual bonus, as well as an amount ranging from two to eight months of base salary depending on when such termination occurs. If, within six months after a Change of Control (as defined), Mr. Carlson is terminated without cause or he voluntarily terminates the agreement with Good Reason, he will be entitled to receive a lump sum payment equal to the amount of annual target bonus accrued to the date of termination, plus 100% of base salary and 50% of annual target bonus. We are obligated under the agreement to provide separate indemnification insurance to Mr. Carlson in the amount of the current coverage provided to our current board of directors.
We
The Company entered into an employment agreement with Marvin S. Sussman in December 1987. The term of employment is from year-to-year, unless terminated by us at any time or by his death or permanent disability.
Our UK subsidiary, PAH Management Company Ltd., entered into an employment
agreement with
In December 2004, David McBeath in May 2003, commencing August 1, 2003, whereby Mr.
McBeath will serveresigned as President, of our Animal Health Group. PAHC entered into a consulting agreement with Mr. McBeath in November 2004, pursuant to which Mr. McBeath agreed to provide to PAHC consulting services through December 2005. The consulting agreement provides for a base salary of $250,000. The agreement also provides for
additional payments tothat during such time Mr. McBeath shall work ten days per month at a rate of $100,000 upon commencementGBP1,000 per day from January through June 2005 and five days per month at a rate of his
employment and $130,000 upon completion of his term of employment (the
"Completion Fee"). If Mr. McBeath dies during the term of the agreement or the
agreement is terminated because of his disability or Mr. McBeath is terminated
other than for cause, he, or his estate, as the case may be, would be entitled
to receive, in lieu of severance, a prorated portion of the Completion Fee.GBP1,100 per day through December 2005.
In 1995, James O. Herlands purchased stock in Phibro-Tech. In connection therewith, we entered into a severance agreement with him. The agreement provides that, upon his Actual or Constructive Termination or a Change in Control Event (as such terms are defined), he is entitled to receive a cash Severance Amount (as defined therein), based upon a multiple of Phibro-Tech'sPhibro-Tech’s pre-tax earnings (as defined therein). In addition, if an Extraordinary Event (as defined) occurs within 12 months after the occurrence of an Actual or Constructive Termination, the executive is entitled to receive an additional Catch-up Payment (as defined). At June 30, 2004,2005, no severance payments would have been due to Mr. Herlands if he were terminated. See "Certain“Certain Relationships and Related Transactions."
”
Compensation Pursuant to Plans
401(k) Plan. We maintain for the benefit of our employees a 401(k) Retirement and Savings Plan (the
"Plan"“Plan”), which is a defined contribution, profit sharing plan qualified under
SectionSections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"“Code”). Our employees are eligible for participation in the Plan once they have attained age 21 and completed
a yearsix months of
service (in
which the employee completed 1,000 hours of service).service. Up to
$200,000$210,000 (indexed for inflation) of an
employee'semployee’s base salary may be taken into account for Plan purposes. Under the Plan, employees may make pre-tax contributions of up to
60.0%60% of such
employee'semployee’s base salary, and we will make non-matching contributions equal to 1% of an
employee'semployee’s base salary and matching contribution equal to
50.0%50% of an
employee'semployee’s pre-tax contribution up to
3.0%3% of such
employee'semployee’s base salary and
25.0%25% of such
employee'semployee’s pre-tax contribution from
3.0%3% to
6.0%6% of base salary. Participants are vested in employer contributions in 20% increments beginning after completion of the second year of service and become fully vested after five years of service. Distributions are generally payable in a lump sum after termination of employment, retirement, death, disability, plan termination, attainment of age 59
1/1/2, disposition of substantially all of our assets or upon financial hardship. The Plan also provides for Plan loans to participants.
41
The accounts of Messrs. Bendheim, Carlson, Sussman, Herlands, and Johnson were credited with employer contributions of $2,050, $1,458, $6,581, $6,581,$2,100, $2,642, $6,000, $4,375, and $6,703,$7,407, respectively, for fiscal 2004.
2005.
Retirement Plan. We have adoptedmaintain for the benefit of our employees The Retirement Plan of Phibro Animal Health Corporation and Subsidiaries and Affiliates, which is a defined benefit pension plan (the "Retirement Plan"“Retirement Plan”). qualified under Section 401(a) of the Code. Our employees are eligible for participation in the Retirement Plan once they have attained age 21 and completed a year of service (which is a Plan Year in which the employee completes 1,000 hours of service). The Retirement Plan provides benefits equal to the sum of (a) 1.0% of an employee's "average salary"employee’s “average salary” plus 0.5% of the employee's "average salary"employee’s “average salary” in excess of the average of the employee'semployee’s social security taxable wage base, times years of service after July 1, 1989, plus (b) the employee'semployee’s frozen accrued benefit, if any, as of June 30, 1989 calculated under the Retirement Plan
46
formula in effect at that time. For purposes of calculating the portion of the benefit based on "average salary"“average salary” in excess of the average wage base, years of service shall not exceed 35. "Average salary"“Average salary” for these purposes means the employee'semployee’s salary over the consecutive five year period in the last ten years preceding retirement or other termination of employment which produces the highest average; or, if an employee has fewer than five years of service, all such years of service. An employee becomes vested in his plan benefit once he completes five years of service with us. In general, benefits are payable after retirement or disability in the form of a 50%, 75% or 100% joint orand survivor annuity, life annuity or life annuity with a five or ten year term.term certain. In some cases benefits may also be payable under the Retirement Plan in the event of an employee'semployee’s death.
The following table shows estimated annual benefits payable upon retirement in specified compensation and years of service classifications, assuming a life annuity with a ten year term.
Years of Service
Average ------------------------------------------------------------
Compensation 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
$ 25,000 ..... $ 3,750 $ 5,000 $ 6,250 $ 7,500 $ 8,750
$ 50,000 ..... $ 7,500 $ 10,000 $ 12,500 $ 15,000 $ 17,500
$ 75,000 ..... $ 11,420 $ 15,000 $ 18,750 $ 22,500 $ 26,250
$ 100,000 ..... $ 17,040 $ 22,000 $ 26,980 $ 31,990 $ 37,280
$ 150,000 ..... $ 28,290 $ 37,000 $ 45,730 $ 54,490 $ 63,530
$ 200,000 ..... $ 39,540 $ 52,000 $ 64,480 $ 76,990 $ 89,780
| | | | | | | | | | | | | | | | | | | | | |
| | | Years of Service | |
| | | | |
| Average Compensation | | 15 | | | 20 | | | 25 | | | 30 | | | 35 | |
| | | | | | | | | | | | | | | | |
| $ 25,000 | | $ | 3,750 | | | $ | 5,000 | | | $ | 6,250 | | | $ | 7,500 | | | $ | 8,750 | |
| $ 50,000 | | $ | 7,500 | | | $ | 10,000 | | | $ | 12,500 | | | $ | 15,000 | | | $ | 17,500 | |
| $ 75,000 | | $ | 11,280 | | | $ | 15,000 | | | $ | 18,750 | | | $ | 22,500 | | | $ | 26,250 | |
| $100,000 | | $ | 16,910 | | | $ | 21,850 | | | $ | 26,800 | | | $ | 31,830 | | | $ | 37,120 | |
| $150,000 | | $ | 28,160 | | | $ | 36,850 | | | $ | 45,550 | | | $ | 54,330 | | | $ | 63,370 | |
| $200,000 | | $ | 39,410 | | | $ | 51,850 | | | $ | 64,300 | | | $ | 76,830 | | | $ | 89,620 | |
As of June 30, 2004,2005, Messrs. Bendheim, Carlson, Sussman, Herlands, and Johnson had 35, 2, 33, 4036, 3, 34, 41 and 23 estimated credited years of service, respectively, under the Retirement Plan. The compensation covered by the Retirement Plan for each of these officers as of June 30, 20042005 is $205,000.$210,000. Such individuals, at normal retirement age 65, will have 43, 6, 41, 43 and 12 credited years of service, respectively. The annual expected benefit after normal retirement at age 65 for each of these individuals, based on the compensation taken into account as of June 30, 2004,2005, is $118,200, $16,580,
$134,110, $129,240,$119,680, $16,940, $135,660, $129,910, and $32,000,$32,880, respectively.
Most of our foreign subsidiaries have retirement plans covering substantially all employees. Contributions to these plans are generally deposited under fiduciary-type arrangements. Benefits under these plans are primarily based on levels of compensation. Funding policies are based on applicable legal requirements and local practices.
Deferred Compensation Plan. In 1994, we adopted a non-qualified Deferred Compensation Plan and Trust, as an incentive for certain executives. The plan provides for (i) a Retirement Income Benefit (as defined), (ii) a Survivor'sSurvivor’s Income Benefit (as defined), and (iii) Deferred Compensation Benefit (as defined). Three employees currently participate in this plan. A grantor trust has been established to provide the benefits described above.
The following table shows the estimated benefits from this plan as of June 30, 2004.
Annual Survivor's Deferred
Retirement Income Compensation
Income Benefit Benefit Benefit
-------------- ------- -------
Jack C. Bendheim.................. $35,309 $1,500,000 $386,368
Marvin S. Sussman................. $35,309 $1,000,000 $128,451
James O. Herlands................. $35,085 $ 400,000 $347,1042005.
| | | | | | | | | | | | | |
| | | Annual | | | Survivor’s | | | Deferred | |
| | | Retirement | | | Income | | | Compensation | |
| | | Income Benefit | | | Benefit | | | Benefit | |
| | | | | | | | | | |
| Jack C. Bendheim | | $ | 39,786 | | | $ | 1,500,000 | | | $ | 416,265 | |
| Marvin S. Sussman | | $ | 39,786 | | | $ | 1,000,000 | | | $ | 147,481 | |
| James O. Herlands | | $ | 39,086 | | | $ | 400,000 | | | $ | 402,673 | |
We determine the Retirement Income Benefit based upon the employee'semployee’s salary, years of service and age at retirement. At present, it is contemplated that a benefit of 1% of each participant'sparticipant’s eligible compensation will be accrued each year. The benefit is payable upon retirement (after age 65 with at least 10 years of service) in monthly installments over a 15 year period to the participant or his named beneficiary. The Survivor'sSurvivor’s Income Benefit for the current participants is one times annualized compensation at the time of death, capped at $1,500,000, payable in 24 equal monthly installments. The Deferred Compensation Benefit is substantially funded by compensation deferred by the participants. Such benefit is based upon a participant making an election to defer no less than $3,000 and no more than $20,000 of his compensation in excess of $150,000,
47
$150,000, payable in a lump sum or in monthly installments for up to 15 years. We make a matching contribution of $3,000. Participants have no claim against us other than as unsecured creditors. We intend to fund the payments using the cash value or the death benefit from the life insurance policies insuring each
Executive'sExecutive’s life.
42
Executive Income Program. On March 1, 1990, we entered into an Executive Income Program to provide a pre-retirement death benefit and a retirement benefit to certain of our executives. The Program consists of a Split-Dollar Agreement and a Deferred Compensation Agreement with Jack Bendheim, Marvin S. Sussman and James O. Herlands (the "Executives"“Executives”). The Split Dollar Agreement provides for us to own a whole life insurance policy in the amount of $1,000,000 (plus additions) on the life of each Executive.
Each policy also contains additional paid-up insurance and extended term insurance. On the death of the Executive prior to his 60th birthday or his actual retirement date, whichever is later: (i) the first $1,000,000 of the death benefit is payable to the Executive'sExecutive’s spouse, or issue; (ii) the excess is payable to us up to the aggregate amount of premiums paid by us; and (iii) any balance is payable to the Executive'sExecutive’s spouse or issue. The Split-Dollar Agreement terminates and no benefit is payable if the Executive dies after his retirement. The Deferred Compensation Agreement provides that upon the Executive'sExecutive’s retirement, at or after attaining age 65, we will make retirement payments to the Executive during his life for 10 years or until he or his beneficiaries have received a total of 120 monthly payments. Participants have no claim against us other than as unsecured creditors. We intend to fund the payments using the cash value or the death benefit from the life insurance policies insuring each Executive'sExecutive’s life. The retirement benefits are as follows: Jack Bendheim $30,000; Marvin S. Sussman $30,000; and James O. Herlands $20,000.
1993 Split Dollar Agreement. On August 12, 1993, we entered into a Split Dollar Agreement with David Butler and Gail Bendheim, as trustees under an Indenture of Trust dated August 12, 1993 (the "Trust"“Trust”). This Agreement provides for the Trust to purchase and own life insurance policies on the life of Jack C. Bendheim in the aggregate face amount of $5,000,000 (plus additions). The premiums for such insurance are paid in part by the Trust (to the extent of the lesser of the P.S. 58 rates, or the insurers'insurers’ current published premium rate for annually renewable term insurance for standard risks) and in part by us (we pay the balance of the premiums not paid by the Trust). Upon the death of Jack C. Bendheim or upon the cancellation of the policies or the termination of the Agreement, we have the right to be repaid the total amount we advanced toward payment of premiums. To secure our right to be repaid, the Trust has assigned each policy to us as collateral. After repayment of the amount due to us, the remaining cash surrender value or the remaining death benefit is payable to the Trust, the beneficiaries of which are the wife and issue of Jack C. Bendheim.
Meetings of Directors
During fiscal 2004,2005, the Board of Directors took certain actions by both written consent and at regular meetings. Directors are elected annually and serve until the next annual meeting of Shareholdersshareholders or until their successors are elected and qualified.
Report of the Compensation Committee
The compensation committee was established during fiscal 2004. The responsibility of the compensation committee is to recommend to the Board of Directors a compensation program, including incentives, for the Chief Executive Officer and other senior officers, for approval by the full Board of Directors. The compensation committee will prepare recommendations to the Board of Directors for the 20052006 fiscal year. Executive compensation for the 20042005 fiscal year was determined by the Board as a whole. During fiscal 20042005 the directors participated in deliberations regarding compensation of our officers.
Compensation Committee Interlocks and Insider Participation
Jack Bendheim, Marvin S. Sussman and James O. Herlands are members of our Board of Directors and are executive officers. Jack Bendheim Peter Joseph and Sam Gejdenson are members of the compensation committee.committee of PAHC. None of our executive officers serve as a member of the Board of Directors of any other non-Company entity which has one or more members serving as a member of our Board of Directors, except that Jack Bendheim and Peter Joseph serve as directors of
Penick Holding Company. Directors.
48
Messrs. Bendheim, Sussman, Herlands, Joseph and RodriguezHerlands have participated in certain transactions with us and our subsidiaries and affiliates. See Item 13, Certain“Certain Relationships and Related Transactions.
Item 12. ”
| |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The table sets forth certain information as of June 30,
20042005 regarding beneficial ownership of our capital stock by each of our directors and named executive officers, each beneficial owner of 5% or more of the outstanding shares of capital stock and all directors and officers as a group.
43
Number of Common Shares
(Percentage of Class)
---------------------------------------
Name Class A Voting(1) Class B Voting(2)
- --------------------------------------- ------------------ -----------------
Jack Bendheim(3)....................... 12,600 (100)% 10,699.65(90%)(4)
Marvin S. Sussman...................... -- 1,188.85(10%)
All other officers and directors(5).... -- --
All officers and directors as a group.. 12,600 (100)% 11,888.50(100%)
- ----------
(1) The entire voting power is exercised by the holders of Class A Common Stock,
except that the holders of Class A Common Stock currently are entitled to
elect all but three of the directors. The holders of Class B Common Stock
are entitled to elect one and the holders of Series C Preferred Stock are
entitled to elect two directors but do not vote on any other matters. In
addition, the holders of the units of senior secured notes have the right to
designate one member of the Board of Directors.
(2) Class B Common shareholders will receive the entire equity upon our
liquidation, after payment of preferences to holders of all classes of
preferred stock and Class A Common Stock.
(3) Jack Bendheim also owns 5,207 (100%) shares of Series A Preferred Stock.
(4) Includes 6,308.527 shares owned by trusts for the benefit of Jack Bendheim,
his spouse, his children and their spouses and his grandchildren.
(5) Peter A. Joseph and Marcos Rodriguez have been designated as directors of
the Company by Palladium Equity Partners II, LP ("Palladium") which
beneficially owns 10,591 shares of our Series C Preferred Stock. Palladium
has the right to designate two directors to the Board of Directors. See
"Certain Relationships and Related Transactions."
Item 13. | | | | | |
| | Number of Common Shares |
| | (Percentage of Class) |
| | |
| Name | | Class A Voting(1) | | Class B Non-Voting(2) |
| | | | |
| PAHC Holdings Corporation(3) | | 12,600 (100%) | | 11,888.50 (100%) |
| 65 Challenger Road | | | | |
| Ridgefield Park, NJ 07660 | | | | |
| Jack Bendheim(4) | | 12,600 (100%) | | 11,888.50 (100%) |
| 65 Challenger Road | | | | |
| Ridgefield Park, NJ 07660 | | | | |
| All other officers and directors | | — | | — |
| All officers and directors as a group | | 12,600 (100%) | | 11,888.50 (100%) |
| |
| (1) | The entire voting power is exercised by the holder of Class A Common Stock, except that the holder of Class A Common Stock currently is entitled to elect all but two of the directors. The holder of Class B Common Stock is entitled to elect one director but does not vote on any other matters. In addition, the holders of the units of senior secured notes have the right to designate one member of the Board of Directors. |
|
| (2) | Class B Common shareholders will receive the entire equity upon our liquidation, after payment of preferences to holders of all classes of preferred stock and Class A Common Stock. |
|
| (3) | PAHC Holdings Corporation also owns 5,207 (100%) shares of Series A Preferred Stock. |
|
| (4) | Deemed to be a beneficial owner through his security ownership of PAHC Holdings Corporation. Jack Bendheim is also deemed to be a beneficial owner of 5,207 (100%) shares of Series A Preferred Stock through his security ownership of PAHC Holdings Corporation. |
| |
| Item 13. | Certain Relationships and Related Transactions |
Our Phibro-Tech subsidiary leases the property underlying its Santa Fe Springs, California facility from First Dice Road Company, a California limited partnership ("(“First Dice"Dice”), in which Jack Bendheim, our President and principal stockholder, Marvin S. Sussman and James O. Herlands, directors, own 39.0%, 40.0% and 20.0% limited partnership interests, respectively. The general partner, having a 1% interest in the partnership, is Western Magnesium Corp., a wholly-owned subsidiary of ours, of which Jack Bendheim is the president. The lease expires on June 30, 2008. The annual rent is $250,000. Phibro-Tech is also required to pay all real property taxes, personal property taxes and liability and property insurance premiums. In June 2001, Jack Bendheim entered into a secured $1.4 million revolving credit arrangement with First Union National Bank, which replaced a prior loan from Fleet Bank. Mr. Bendheim reloans borrowings under the First Union credit line to First Dice on the same terms as his borrowing from First Union. We believe that the terms of such lease and loan are on terms no less favorable to Phibro-Tech than those that reasonably could be obtained at such time in a comparable arm's-lengtharm’s-length transaction from an unrelated third-party.
Pursuant to a Shareholders Agreement dated December 29, 1987 between Marvin S. Sussman and us, we are required to purchase, at book value, all shares of our Class B Common Stock owned by Mr. Sussman, in the event of his retirement, death, permanent disability or the termination of his employment by us. Should Mr. Sussman elect to sell his shares, we have a right of first offer and an option to purchase the shares.
49
A Shareholders Agreement initially entered into by Phibro-Tech and three executives of Phibro-Tech, including James O. Herlands (the "Executives"“Executives”) provides, among other things, for restrictions on their shares as to voting, dividends, liquidation and transfer rights. The Shareholders Agreement also provides that upon the death of an Executive or termination of an Executive'sExecutive’s employment, Phibro-Tech must purchase the Executive'sExecutive’s shares at their fair market value, as determined by a qualified appraiser. In the event of a Change of Control (as defined), the Executive has the option to sell his shares to Phibro-Tech at such value. The Shareholders Agreement provides, that, upon the consent of Phibro-Tech, the Executives and us, the Executives'Executives’ shares of Phibro-Tech Common Stock may be exchanged for a number of shares of our Common Stock, which may be non-voting Common Stock, having an equivalent value, and upon any such exchange such shares of our Common Stock will become subject to the Shareholders Agreement. We and Phibro-Tech also entered into Severance Agreements with the Executives which provide, among other things, for certain severance payments. See Item 11, Executive Compensation --— Employment and Severance Agreements.
We advanced $200,000 to Marvin Sussman and his wife in 1987, pursuant to a secured promissory note that is payable on demand and bears interest at the annual rate of 9%.
Certain relatives of Jack Bendheim, other than Mr. Sussman and Mr. Herlands named above, provide services to us, in one case through a consulting firm controlled by a relative, and in other cases as employees, and received directly or through such consulting firm annual aggregate payments of approximately
$650,000$670,000 for the fiscal year ended June 30,
2004.
44
2005. On January 5, 2000, the United States Bankruptcy Court for the Eastern District of New York confirmed a Plan of Reorganization for Penick Corporation and Penick Pharmaceutical, Inc. (collectively, "Penick"“Penick”) which prior to such confirmation were debtors in proceedings in such Court for reorganization under Chapter 11 of the Bankruptcy Code, and awarded Penick to Penick Holding Company ("PHC"(“PHC”). PHC is a corporation formed to effect such acquisition by the Company, PBCI LLC, a limited liability company controlled by Mr. Bendheim, and several other investors, including Peter A. Joseph, a former director of the Company. PursuantIn May 2005, in connection with the sale PHC, the Company received the return of its $2,418,000 investment in preferred interests in PHC Holdings LLC, the company formed by the investors to a Shareholders' Agreement among the shareholdershold, receive and sell their interest in PHC (net carrying value of $1,711,000). The principal common stockholder of Holdings owns approximately 15% voting common stock interest in PHC Messrs. Bendheim and
Joseph have been designated as two of three directors of PHC, and Mr.
Katzenstein, our Secretary, has been designated as Secretary and Treasurer of
PHC.Holdings LLC. The Company has invested approximately $2,300,000 for shares of Series A
Preferred Stock of PHC bearing an 8.5 percent annual cumulative dividend, and
PBCI LLC invested approximately $500,000 for approximately 15 percentrecorded a gain on the sale of the Common Stockinvestment of PHC. Mr. Joseph owns or controls approximately 12 percent of the
Common Stock of PHC.$0.7 million.
In connection with the sale by PAHC of ourits Series B and Series C Preferred Stock to the Palladium Investors, wePAHC and Jack Bendheim entered into a Stockholders Agreement (the "Palladium“Palladium Stockholders Agreement"Agreement”) dated November 30, 2000 with the Palladium Investors. The Palladium Stockholders Agreement providesprovided for ourPAHC’s Board to include two directors to be designated by the Palladium Investors.
Peter A. Joseph and Marcos Rodriguez are currently the two designees of the
Palladium Investors serving as directors. If and for so long as we fail to
redeem any share of Series B or Series C Preferred Stock requested for
redemption by a Palladium Investor after the earliest to occur of June 1, 2008
(the maturity date of our 9 7/8% Senior Subordinated Notes due 2008), the
redemption of such Notes in full prior thereto or a change in control of us,
then (x) the Palladium Investors may take control of our Board of Directors, and
(y) Jack C. Bendheim has agreed to cause all equity securities owned by him to
be voted in the manner directed by the Palladium Investors; provided, that, we
must pay Jack Bendheim and Marvin Sussman, whether or not employed by us, an
amount not less than their respective annual base salaries in effect immediately
prior to such assumption of control, until the earlier to occur of the
expiration of control by the Palladium Investors, and the fifth anniversary of
their assumption of control.
The Palladium Stockholders Agreement containscontained covenants which restrict,restricted without the consent of at least one director designated by the Palladium Investors, (or, if no such director is then serving on the Board, at least one
Palladium Investor), among other things, certain (a) issuances of any equity securities, unless the purchaser agrees to be bound by the Palladium
Stockholders Agreement, (b)purchases and sales of assets, in excess of $10 million, (c)
purchases of businessesborrowings and other investments in excesstransactions by PAHC. Peter A. Joseph and Marcos Rodriguez were the two most recent designees of $10 million, (d) the incurrencePalladium Investors serving as directors of indebtedness for borrowed money, including guarantees, in excess
of $12.5 million, (e) redemptions, acquisitions or other purchases of equity
securities, (f) transactions with officers, directors, stockholders or employees
or any family member or affiliate thereof in excess of $500,000, (g)
compensation and benefits of certain officers, and (h) transactions involving a
change of control.PAHC. The Palladium Stockholders Agreement also provides that we
shall furnishterminated upon the redemption by PAHC of all of its outstanding Series C Preferred Stock owned by the Palladium Investors certain financial reporting and
environmental information each year and grant toon February 28, 2005. The directors of PAHC representing the Palladium Investors registration rights comparable to anytendered their resignations effective on such rights granted to any third party,
and requires us to maintain certain key man life insurance on Jack C. Bendheim
for the benefit of the Palladium Investors. The Palladium Stockholders Agreement
provides certain limitations on the ability of Jack C. Bendheim to transfer
voting shares, and certain limitations on the ability of the Palladium Investors
to transfer their shares, including a right of first refusal in favor of us and
Mr. Bendheim.date.
Pursuant to the Amended and Restated Management and Advisory Services Agreement dated November
30, 2000as of October 21, 2003 between usPAHC and the Palladium Investors, weCapital Management, L.L.C., PAHC agreed to pay, on a quarterly basis, the Palladium InvestorsCapital an annual management advisory fee of $2.25 million until such time as all shares of Series B and Series C Preferred Stock are redeemed. Pursuant to the sale of PMC described below, ourPAHC’s obligations for this fee have been terminated.
Our policy with respect to the sale, lease or purchase of assets or property of any related party is that such transaction should be on terms that are no less favorable to us or our subsidiary, as the case may be, than those that could reasonably be obtainable at such time in a comparable arm'sarm’s length transaction from an unrelated third party. The indentureindentures and the new domestic senior credit facility botheach include a similar restriction on us
50
and our domestic subsidiaries with respect to the sale, purchase, exchange or lease of assets, property or services, subject to certain limitations as to the applicability thereof.
Effective December 26, 2003 (the "Closing Date"“Closing Date”), the CompanyPAHC completed the divestiture of substantially all of the business and assets of The Prince Manufacturing Company ("PMC"(“PMC”) to a company ("Buyer"(“Buyer”) formed by Palladium Equity Partners II, LP and certain of its affiliates (the "Palladium Investors"“Palladium Investors”), and the related reduction of the Company'sPAHC’s preferred stock held by the Palladium Investors (collectively the "Prince Transactions"“Prince Transactions”).
Pursuant to definitive purchase and other agreements executed on and effective as of the Closing Date, the Prince Transactions included the following elements: (i) the transfer of substantially all of the business and assets of PMC to Buyer; (ii) the reduction of the value of
the Company'sPAHC’s Preferred Stock owned by the Palladium Investors from $72.2 million to $16.5 million (accreted through the Closing Date) by means of the redemption of all of its shares of Series B Preferred Stock and a portion of its Series C Preferred Stock; (iii) the termination of
$2.2$2.25 million in annual management advisory fees payable by
the CompanyPAHC to Palladium; (iv) a cash payment of $10.0 million to the Palladium Investors in respect of the portion of
the Company'sPAHC’s Preferred Stock not exchanged in consideration of the business and assets of PMC; (v) the agreement of the Buyer to pay
the CompanyPAHC for advisory fees for the next
45
three years of $1.0 million, $0.5 million, and $0.2 million, respectively (which were pre-paid at closing by the Buyer and satisfied for $1.3 million, the net present value of such payments); and (vi) the Buyer agreed to supply manganous oxide and red iron oxide products and to provide certain mineral blending services to the Company'sPAHC’s Prince Agriproducts subsidiary ("(“Prince Agri"Agri”). Prince Agri agreed to continue to provide the Buyer with certain laboratory, MIS and telephone services, all on terms substantially consistent with the historic relationship between Prince Agri and PMC, and to lease to Buyer office space used by PMC in Quincy, Illinois. The CompanyPAHC has an agreement to receive certain treasury services from Palladium for $0.1 million per year. Pursuant to definitive agreements, the CompanyPAHC made customary representations, warranties and environmental and other indemnities, agreed to a post-closing working capital adjustment, paid $4.0 million in full satisfaction of all intercompany debt owed to PMC, paid a closing fee to Palladium of $0.5 million, made certain capital expenditure adjustments included as part of the intercompany settlement amount, and agreed to pay for certain out-of-pocket transaction expenses. PMC retained $0.4 million of its accounts receivable. The CompanyPAHC established a $1.0 million letter of credit escrow for two years to secure its working capital adjustment and certain indemnification obligations. The CompanyPAHC agreed to indemnify the Palladium Investors for a portion, at the rate of $0.65 for every dollar, of the amount they receive in respect of the disposition of Buyer for less than $21.0 million up to a maximum payment by the CompanyPAHC of $4.0 million (the "Backstop“Backstop Indemnification Amount"Amount”). The Backstop Indemnification Amount would be payable on the earlier to occur of July 1, 2008 or six months after the redemption date of all of the Company'sPAHC’s Senior Secured Notes due 2007 if such a disposition closes prior to such redemption and six months after the closing of any such disposition if the disposition closes after any such redemption. The
Company'sPAHC’s obligations with respect to the Backstop Indemnification Amount will cease if the Palladium Investors do not close the disposition of Buyer by January 1, 2009. The definition of "Equity Value"“Equity Value” in the Company'sPAHC’s Certificate of Incorporation was amended to reduce the multiple of trailing EBITDA payable in connection with any future redemption of Series C Preferred to 6.0 from 7.5. The amount of consideration paid and payable in connection with the Prince Transactions and all matters in connection therewith were determined pursuant to arm'sarm’s length negotiations. 46
Item 14. Principal AccountantIn connection with the redemption by PAHC of all of its Series C Preferred Stock, the Palladium Investors agreed to terminate the Backstop Indemnification. On February 28, 2005, PAHC consummated the redemption of its Series C Preferred Stock, all of which was held by Palladium Equity Partners II, L.P. and certain of its affiliates, for $26.4 million. The funds used for such redemption were contributed to the capital of PAHC by Holdings.
In connection with the redemption, Holdings, PAHC, the Palladium investors and the principal stockholders of Holdings entered into an agreement dated as of February 28, 2005 with respect to (1) the redemption price (consisting of $19.6 million of liquidation preference and $6.8 million of equity value), (2) amending the terms of the post-redemption redemption price adjustment set forth in the certificate of incorporation of PAHC (A) from an amount payable upon the occurrence of certain capital stock transactions determined with respect to the value of PAHC upon the occurrence of such capital stock transaction, to a
51
liquidated amount of $4 million, payable only after the occurrence of certain capital stock transactions and the receipt by the current stockholders of Holdings, on a cumulative basis, of an aggregate of $24 million of dividends and distributions in respect of such capital stock transactions, and (B) to remove the one-year time period for such adjustment of the redemption price, and (3) eliminating the backstop indemnification obligation of PAHC to the Palladium investors of up to $4 million incurred in connection with the sale by PAHC to the Palladium investors in December 2003 of The Prince Manufacturing Company. In addition, the directors of PAHC designated by the Palladium investors resigned, the Palladium investors released PAHC and Holdings from certain claims, and confirmed the termination of the Palladium Stockholders Agreement.
| |
| Item 14. | Principal Accounting Fees and Services |
Aggregate fees for professional services rendered for us by PricewaterhouseCoopers LLP ("PwC"(“PwC”), our independent registered public accounting firm, for the fiscal years ended June 30, 2005 and 2004 and 2003 were:
2004 2003
---- ----
Audit $1,629,000 $ 795,000
Audit Related 1,328,000 --
Tax
Tax Planning
180,000 123,000
Tax Compliance and Other
29,000
---------- ----------
Total Tax 180,000 152,000
All Other -- --
---------- ----------
Total $3,137,000 $ 947,000
========== ==========
| | | | | | | | | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Audit | | $ | 938,000 | | | $ | 1,066,000 | |
| Audit Related | | | 1,314,000 | | | | 1,891,000 | |
| Tax | | | | | | | | |
| | Tax Planning | | | 175,000 | | | | 180,000 | |
| | Tax Compliance and Other | | | 68,000 | | | | | |
| | | | | | | |
| | | Total Tax | | | 243,000 | | | | 180,000 | |
| All Other | | | — | | | | — | |
| | | | | | | |
| Total | | $ | 2,495,000 | | | $ | 3,137,000 | |
| | | | | | | |
Our Board of Directors pre-approves audit and non-audit services performed for us by PwC.
Our Board
Audit and audit related fees in 2004 were revised to reflect $563,000 of
Directors has considered whether the provisionfees incurred as a part of
non-audit
services by PwC to us is compatible with maintaining PwC's independence. PwC
advised our
Board of Directors that PwC was and continues to be independent with
respect to us.
47
2004 debt issuance as audit related. 52
PART IV
Item 15.
| |
| Item 15. | Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this Report:
| |
| Reference is made to the Index to Consolidated Financial Statements appearing on page F-1 of this Report. |
| |
| (2) Financial Statement Schedules |
| |
| All supplemental schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the consolidated financial statements or notes thereto or in other supplemental schedules. |
| | | | | |
| Exhibit No. | | Description of Exhibit |
| | | |
| | 3 | .1 | | Composite Certificate of Incorporation of Registrant(15) |
| |
| | 3 | .1(a) | | Certificate of Amendment of Certificate of Incorporation of Registrant dated February 28, 2005(21) |
| |
| | 3 | .2 | | By-laws of Registrant(1) |
| |
| | 4 | .1 | | Indenture, dated as of June 11, 1998, among Registrant, the Guarantors named therein and The Chase Manhattan Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant, and exhibits thereto, including Form of 97/8% Senior Subordinated Note due 2008 of Company(1) |
| |
| | 4 | .1.1 | | First Supplemental Indenture, dated as of January 15, 1999, among Registrant, the Guarantors named therein and The Chase Manhattan Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(10) |
| |
| | 4 | .1.2 | | Second Supplemental Indenture, dated as of March 19, 2003, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(10) |
| |
| | 4 | .1.3 | | Third Supplemental Indenture, dated as of June 10, 2003, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(10) |
| |
| | 4 | .1.4 | | Fourth Supplemental Indenture, dated as of October 1, 2003, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(11) |
| |
| | 4 | .1.5 | | Fifth Supplemental Indenture, dated as of October 21, 2003, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(12) |
| |
| | 4 | .1.6 | | Sixth Supplemental Indenture, dated as of June 25, 2004, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(16) |
| |
| | 4 | .2 | | Indenture, dated as of October 21, 2003, by and among Registrant and Philipp Brothers Netherlands III B.V., as Issuers, the Guarantors named therein, and HSBC Bank USA, as Trustee and Collateral Agent(13) |
| |
| | 4 | .2.1 | | First Supplemental Indenture, dated as of June 25, 2004, by and among Registrant and Philipp Brothers Netherlands III B.V., as Issuers, the Guarantors named therein, and HSBC Bank USA, as Trustee and Collateral Agent(16) |
| |
| | 4 | .2.2 | | Second Supplemental Indenture, dated as of December 8, 2004, by and among Registrant and Philipp Brothers Netherlands III B.V., as Issuers, the Guarantors named therein, and HSBC Bank USA, National Association as Trustee and Collateral Agent(17) |
53
| | | | | |
| Exhibit No. | | Description of Exhibit |
| | | |
| |
| | 4 | .2.3 | | Third Supplemental Indenture, dated as of March 10, 2005, by and among Registrant and Philipp Brothers Netherlands III B.V., as Issuers, the Guarantors named therein, and HSBC Bank USA, National Association as Trustee and Collateral Agent(22) |
| |
| | | | | Certain instruments which define the rights of holders of long-term debt of Registrant and its consolidated subsidiaries have not been filed as Exhibits to this Report since the total amount of securities authorized under any such instrument does not exceed 10% of the total assets of Registrant and its subsidiaries on a consolidated basis, as of June 30, 2005. For a description of such indebtedness, see Note 12 of Notes to Consolidated Financial Statements. Registrant hereby agrees to furnish copies of such instruments to the Securities and Exchange Commission upon its request |
| |
| | 10 | .1 | | Lease, dated September 27, 2004, between Registrant and Hartz Mountain Industries, Inc.(19) |
| |
| | 10 | .2 | | Lease, dated June 30, 1995, between First Dice Road Co. and Phibro-Tech, Inc., as amended May 1998(1) |
| |
| | 10 | .3 | | Lease, dated December 24, 1981, between Koffolk (1949) Ltd. and Israel Land Administration(1) |
| |
| | 10 | .4 | | Master Lease Agreement, dated February 27, 1998, between General Electric Capital Corp., Registrant and Phibro-Tech, Inc.(1) |
| |
| | 10 | .5 | | Stockholders Agreement, dated December 29, 1987, by and between Registrant, Charles H. Bendheim, Jack C. Bendheim and Marvin S. Sussman(1) |
| |
| | 10 | .6 | | Employment Agreement, dated December 29, 1987, by and between Registrant and Marvin S. Sussman(1)†† |
| |
| | 10 | .7 | | Stockholders Agreement, dated February 21, 1995, between James O. Herlands and Phibro-Tech, Inc., as amended as of June 11, 1998(1) |
| |
| | 10 | .8 | | Form of Severance Agreement, dated as of February 21, 1995, between Registrant and James O. Herlands(1)†† |
| |
| | 10 | .9 | | Agreement of Limited Partnership of First Dice Road Company, dated June 1, 1985, by and among Western Magnesium Corp., Jack Bendheim, Marvin S. Sussman and James O. Herlands, as amended November 1985(1) |
| |
| | 10 | .10 | | Philipp Brothers Chemicals, Inc. Retirement Income and Deferred Compensation Plan Trust, dated as of January 1, 1994, by and between Registrant on its own behalf and on behalf of C.P. Chemicals, Inc., Phibro-Tech, Inc. and the Trustee thereunder; Philipp Brothers Chemicals, Inc. Retirement Income and Deferred Compensation Plan, dated March 18, 1994 (“Retirement Income and Deferred Compensation Plan”)(1)†† |
| |
| | 10 | .10.1 | | First, Second and Third Amendments to Retirement Income and Deferred Compensation Plan(2)†† |
| |
| | 10 | .11 | | Form of Executive Income Deferred Compensation Agreement, each dated March 11, 1990, by and between Registrant and each of Jack Bendheim, James Herlands and Marvin Sussman(1)†† |
| |
| | 10 | .12 | | Form of Executive Income Split Dollar Agreement, each dated March 1, 1990, by and between Registrant and each of Jack Bendheim, James Herlands and Marvin Sussman(1)†† |
| |
| | 10 | .13 | | Administrative Consent Order, dated March 11, 1991, issued by the State of New Jersey Department of Environmental Protection, Division of Hazardous Waste Management, to C.P. Chemicals, Inc.(1) |
| |
| | 10 | .14 | | Agreement for Transfer of Ownership, dated as of June 8, 2000, between C. P. Chemicals, Inc. (“CP”) and the Township of Woodbridge (“Township”), and related Environmental Indemnification Agreement, between CP and Township, and Lease, between Township and CP(2) |
| |
| | 10 | .15 | | Stockholders’ Agreement, dated as of January 5, 2000, among shareholders of Penick Holding Company (“PHC”), and Certificate of Incorporation of PHC and Certificate of Designation, Preferences and Rights of Series A Redeemable Cumulative Preferred Stock of PHC(2) |
54
| | | | | |
| Exhibit No. | | Description of Exhibit |
| | | |
| |
| | 10 | .16 | | Asset Purchase Agreement, dated as of September 28, 2000, among Pfizer, Inc., the Asset Selling Corporations (named therein) and Registrant, and various exhibits and certain Schedules thereto(3)† |
| |
| | 10 | .16.1 | | Amendment, dated August 11, 2003 to Asset Purchase Agreement, dated as of September 28, 2000, among Pfizer, Inc., the Asset Selling Corporations (named therein) and Registrant(10) |
| |
| | 10 | .17 | | Stock Purchase Agreement, dated as of November 30, 2000, between Registrant and the Purchasers (as defined therein)(4) |
| |
| | 10 | .18 | | Stockholders’ Agreement, dated as of November 30, 2000, among Registrant, the Investor Stockholders (as defined therein) and Jack C. Bendheim(4) |
| |
| | 10 | .19 | | United States Asset Purchase Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of May 1, 2001(5) |
| |
| | 10 | .19.1 | | Amendment No. 1 to United States Asset Purchase Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of June 14, 2001(6) |
| |
| | 10 | .20 | | Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of May 1, 2001(5) |
| |
| | 10 | .21 | | License Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of May 1, 2001(5) |
| |
| | 10 | .22 | | Amended and Restated Management and Advisory Services Agreement dated as of October 21, 2003 between Registrant and Palladium Capital Management, L.L.C.(15)†† |
| |
| | 10 | .23 | | Employment Agreement, dated May 28, 2002, by and between Registrant and Gerald K. Carlson(8)†† |
| |
| | 10 | .24 | | Consulting Agreement dated as of November 1, 2004, by and between Registrant and David McBeath(19)†† |
| |
| | 10 | .25 | | Consulting Agreement dated as of December 13, 2004, by and between Registrant and David McBeath(19)†† |
| |
| | 10 | .26 | | Stock Purchase Agreement, dated August 14, 2003, by and between Registrant and Cemex, Inc.(9) |
| |
| | 10 | .27 | | Loan and Security Agreement, dated October 21, 2003, by and among, the lenders identified on the signature pages thereto, Wells Fargo Foothill, Inc., and Registrant, and each of Registrant’s Subsidiaries identified on the signature pages thereto(12) |
| |
| | 10 | .27.1 | | Amendment Number One to Loan and Security Agreement dated November 14, 2003(12) |
| |
| | 10 | .27.2 | | Amendment Number Two to Loan and Security Agreement dated April 29, 2004(14) |
| |
| | 10 | .27.3 | | Amendment Number Three to Loan and Security Agreement dated as of September 24, 2004(16) |
| |
| | 10 | .27.4 | | Amendment Number Four to Loan and Security Agreement dated December 20, 2004(18) |
| |
| | 10 | .28 | | Intercreditor and Lien Subordination Agreement, dated as of October 21, 2003, made by and among Wells Fargo Foothill, Inc., HSBC Bank USA, Registrant and those certain subsidiaries of the Registrant party thereto(12) |
| |
| | 10 | .28.1 | | Amendment One to Intercreditor Agreement dated December 20, 2004(18) |
| |
| | 10 | .29 | | Purchase and Sale Agreement dated as of December 26, 2003 by and among Registrant, Prince MFG, LLC, (“Prince MFG”), The Prince Manufacturing Company (“Prince” and together with Registrant and Prince MFG, the “Phibro Parties”), Palladium Equity Partners II, L.P. (“PEP II”), Palladium Equity Partners II-A, L.P., (“PEP II-A”), Palladium Equity Investors II, L.P., (“PEI II”, and together with PEP II and PEP II-A, the “Investor Stockholders”), and Prince Mineral Company, Inc. (“Buyer”)(15) |
| |
| | 10 | .30 | | Environmental Indemnification Agreement dated as of December 26, 2003 between the Phibro Parties (as defined therein) and Buyer(15) |
| |
| | 10 | .31 | | Amendment to Stockholders Agreement dated as of December 26, 2003 between Registrant, the Investor Stockholders and Jack Bendheim(15) |
| |
| | 10 | .32 | | Advisory Fee Agreement dated as of December 26, 2003 between Buyer and Registrant(15)†† |
| |
| | 10 | .33 | | Business Purchase Agreement by and between Phibro Animal Health SA and GlaxoSmithKline Biologicals SA, dated December 16, 2004(20)* |
55
| | | | | |
| Exhibit No. | | Description of Exhibit |
| | | |
| |
| | 10 | .34 | | Redemption Agreement, dated as of February 28, 2005, among the Registrant, PAHC Holdings Corporation, Palladium Capital Management, L.L.C., Palladium Equity Partners II, L.P., Palladium Equity Partners II-A, L.P., Palladium Equity Investors II, L.P., Jack C. Bendheim and Marvin S. Sussman(21) |
| |
| | 10 | .35 | | Agreement for the Sale and Purchase of the Entire Share Capital in Wychem Limited dated as of April 29, 2005 among Ferro Metal and Chemical Corporation Limited, Koffolk (1949) Limited and MRG Holdings Limited(22) |
| |
| | 21 | | | List of Subsidiaries |
| |
| | 31 | .1 | | Certification of Gerald K. Carlson, Chief Executive Officer required by Rule 15d-14(a) of the Act |
| |
| | 31 | .2 | | Certification of Jack C. Bendheim, Chairman of the Board required by Rule 15d-14(a) of the Act |
| |
| | 31 | .3 | | Certification of Richard G. Johnson, Chief Financial Officer required by Rule 15d-14(a) of the Act |
| |
| | 32 | | | Section 1350 Certifications of Registrant |
| |
| (1) | Filed as an Exhibit to the Registrant’s Registration Statement on Form S-4, No. 333-64641. |
|
| (2) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2000. |
|
| (3) | Filed as an Exhibit to the Registrant’s Report on Form 10-Q for the quarter ended September 30, 2000. |
|
| (4) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated November 30, 2000. |
|
| (5) | Filed as an Exhibit to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 2001. |
|
| (6) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated June 14, 2001. |
|
| (7) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001. |
|
| (8) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002. |
|
| (9) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated September 11, 2003, as amended by the Registrant’s Form 8-K/ A dated June 2, 2004. |
| |
| (10) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003. |
|
| (11) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated October 2, 2003. |
|
| (12) | Filed as an Exhibit to the Registrant’s Report on Form 10-Q for the quarter ended September 30, 2003. |
|
| (13) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated October 31, 2003. |
|
| (14) | Filed as an Exhibit to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 2004. |
|
| (15) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated January 12, 2004. |
|
| (16) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004. |
|
| (17) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated December 8, 2004. |
|
| (18) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated December 23, 2004. |
|
| (19) | Filed as an Exhibit to the Registrant’s Registration Statement on Form S-4, No. 333-122063. |
|
| (20) | Filed as an Exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004. |
|
| (21) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated February 28, 2005. |
|
| (22) | Filed as an Exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
56
| | |
| * | A request for confidential treatment has been made for certain portions of such document. Confidential portions have been omitted and filed separately with the SEC in accordance with Rule 24b-2 under the Securities Exchange Act |
| | |
| † | A request for confidential treatment has been granted for portions of such document. Confidential portions have been omitted and furnished separately to the SEC in accordance with Rule 406(b). |
| |
| †† | This Exhibit is a management contract or compensatory plan or arrangement. |
57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits
Exhibit No. DescriptionStatements of Exhibit
3.1 Composite Certificate of Incorporation of Registrant (15)
3.2 By-laws of Registrant (1)
4.1 Indenture, dated as of June 11, 1998, among Registrant, the Guarantors
named therein and The Chase Manhattan Bank, as trustee, relating to the
9 7/8% Senior Subordinated Notes due 2008 of Registrant, and exhibits
thereto, including Form of 9 7/8% Senior Subordinated Note due 2008 of
Company (1)
4.1.1 First Supplemental Indenture, dated as of January 15, 1999, among
Registrant, the Guarantors named therein and The Chase Manhattan Bank,
as trustee, relating to the 9 7/8% Senior Subordinated Notes due 2008 of
Registrant (10)
4.1.2 Second Supplemental Indenture, dated as of March 19, 2003, among
Registrant, the Guarantors named therein and JPMorgan Chase Bank, as
trustee, relating to the 9 7/8% Senior Subordinated Notes due 2008 of
Registrant (10)
4.1.3 Third Supplemental Indenture, dated as of June 10, 2003, among
Registrant, the Guarantors named therein and JPMorgan Chase Bank, as
trustee, relating to the 9 7/8% Senior Subordinated Notes due 2008 of
Registrant (10)
4.1.4 Fourth Supplemental Indenture, dated as of October 1, 2003, amongCertain Phibro Animal Health Corporation Affiliates
The following financial statements of Phibro Animal Health SA, a corporation organized under the
Guarantors named thereinlaws of Belgium, and
JPMorgan
Chase Bank, as trustee, relating to the 9 7/8% Senior Subordinated Notes
due 2008an indirect, wholly owned subsidiary of
Registrant. (11)
4.1.5 Fifth Supplemental Indenture, dated as of October 21, 2003, among Phibro Animal Health Corporation,
are included pursuant to Regulation S-X Rule 3-16 of the
Guarantors named therein and JPMorgan
Chase Bank, as trustee, relatingExchange Act, “Financial Statements of Affiliates Whose Securities Collateralize an Issue Registered or Being Registered.” See Notes to the
9 7/8% Senior Subordinated Notes
due 2008 of Registrant. (12)
4.1.6 Sixth Supplemental Indenture, dated as of June 25, 2004, among Phibro Animal Health Corporation
the Guarantors named therein and JPMorgan
Chase Bank, as trustee, relating to the 9 7/8% Senior Subordinated Notes
due 2008 of Registrant. (16)
4.2 Indenture, dated as of October 21, 2003, by and among Phibro Animal
Health Corporation and Philipp Brothers Netherlands III B.V., as
Issuers, the Guarantors named therein, and HSBC Bank USA, as Trustee and
Collateral Agent. (13)
4.2.1 First Supplemental Indenture, dated as of June 25, 2004, by and among
Phibro Animal Health Corporation and Philipp Brothers Netherlands III
B.V., as Issuers, the Guarantors named therein, and HSBC Bank USA, as
Trustee and Collateral Agent. (16)
Certain instruments which define the rights of holders of long-term debt
of Registrant and its consolidated
subsidiaries have not been filed as
Exhibits to this Report since the total amount of securities authorized
under any such instrument does not exceed 10% of the total assets of
Registrant and its subsidiaries on a consolidated basis, as of June 30,
2004. For a description of such indebtedness, see Note 9 of Notes to
Consolidated Financial Statements. Registrant hereby agrees to furnish
copies of such instruments to the Securities and Exchange Commission
upon its request.
10.1 [Reserved]
10.2 Manufacturing Agreement, dated May 15, 1994, by and between Merck & Co.,
Inc., Koffolk, Ltd., and Registrant (1)+
10.3 Lease, dated July 25, 1986, between Registrant and 400 Kelby Associates,
as amended December 1, 1986 and December 30, 1994 (1)
10.4 Lease, dated June 30, 1995, between First Dice Road Co. and Phibro-Tech,
Inc., as amended May 1998 (1)
10.5 Lease, dated December 24, 1981, between Koffolk (1949) Ltd. and Israel
Land Administration (1)
48
10.6 Master Lease Agreement, dated February 27, 1998, between General
Electric Capital Corp., Registrant and Phibro-Tech, Inc. (1)
10.7 Stockholders Agreement, dated December 29, 1987, by and between
Registrant, Charles H. Bendheim, Jack C. Bendheim and Marvin S. Sussman
(1)
10.8 Employment Agreement, dated December 29, 1987, by and between Registrant
and Marvin S. Sussman (1)++
10.9 Stockholders Agreement, dated February 21, 1995, between James O.
Herlands and Phibro-Tech, Inc., as amended as of June 11, 1998(1)
10.10 Form of Severance Agreement, dated as of February 21, 1995, between
Registrant and James O. Herlands (1)++
10.11 Agreement of Limited Partnership of First Dice Road Company, dated June
1, 1985, by and among Western Magnesium Corp., Jack Bendheim, Marvin S.
Sussman and James O. Herlands, as amended November 1985 (1)
10.12 Philipp Brothers Chemicals, Inc. Retirement Income and Deferred
Compensation Plan Trust, dated as of January 1, 1994, by and between
Registrant on its own behalf and on behalf of C.P. Chemicals, Inc.,
Phibro-Tech, Inc. and the Trustee thereunder; Philipp Brothers
Chemicals, Inc. Retirement Income and Deferred Compensation Plan, dated
March 18, 1994 ("Retirement Income and Deferred Compensation Plan")
(1)++
10.12.1 First, Second and Third Amendments to Retirement Income and Deferred
Compensation Plan. (2)++
10.13 Form of Executive Income Deferred Compensation Agreement, each dated
March 11, 1990, by and between Registrant and each of Jack Bendheim,
James Herlands and Marvin Sussman (1)++
10.14 Form of Executive Income Split Dollar Agreement, each dated March 1,
1990, by and between Registrant and each of Jack Bendheim, James
Herlands and Marvin Sussman (1)++
10.15 [Reserved]
10.16 Administrative Consent Order, dated March 11, 1991, issued by the State
of New Jersey Department of Environmental Protection, Division of
Hazardous Waste Management, to C.P. Chemicals, Inc. (1)
10.17 Agreement for Transfer of Ownership, dated as of June 8, 2000, between
C. P. Chemicals, Inc. ("CP") and the Township of Woodbridge
("Township"), and related Environmental Indemnification Agreement,
between CP and Township, and Lease, between Township and CP (2)
10.18 Stockholders' Agreement, dated as of January 5, 2000, among shareholders
of Penick Holding Company ("PHC"), and Certificate of Incorporation of
PHC and Certificate of Designation, Preferences and Rights of Series A
Redeemable Cumulative Preferred Stock of PHC (2)
10.19 [Reserved]
10.20 [Reserved]
10.21 Asset Purchase Agreement, dated as of September 28, 2000, among Pfizer,
Inc., the Asset Selling Corporations (named therein) and Registrant, and
various exhibits and certain Schedules thereto (3)+
10.21.1 Amendment, dated August 11, 2003 to Asset Purchase Agreement, dated as
of September 28, 2000, among Pfizer, Inc., the Asset Selling
Corporations (named therein) and Registrant (10)
10.22 Stock Purchase Agreement, dated as of November 30, 2000, between
Registrant and the Purchasers (as defined therein) (4)
10.23 Stockholders' Agreement, dated as of November 30, 2000, among
Registrant, the Investor Stockholders (as defined therein) and Jack C.
Bendheim (4)
10.24 United States Asset Purchase Agreement between Phibro-Tech, Inc. and
Nufarm, Inc. dated as of May 1, 2001 (5)
49
10.24.1 Amendment No. 1 to United States Asset Purchase Agreement between
Phibro-Tech, Inc. and Nufarm, Inc. dated as of June 14, 2001 (6)
10.25 Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of
May 1, 2001 (5)
10.26 License Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of
May 1, 2001 (5)
10.27 Management and Advisory Services Agreement dated November 30, 2000
between Registrant and Palladium Equity Partners, L.L.C. (7)++
10.27.1 Amended and Restated Management Services Agreement dated as of October
21, 2003 between Registrant and Palladium Capital Management, L.L.C.
(15)++
10.28 Employment Agreement, dated May 28, 2002, by and between Registrant and
Gerald K. Carlson (8)++
10.29 Agreement dated as of May 2, 2003, by and between PAH Management
Company, Ltd. and David McBeath (10) ++
10.30 Stock Purchase Agreement, dated August 14, 2003, by and between
Registrant and Cemex, Inc. (9)
10.31 Loan and Security Agreement, dated October 21, 2003, by and among, the
lenders identified on the signature pages thereto, Wells Fargo Foothill,
Inc., and Phibro Animal Health Corporation ("Parent"), and each of
Parent's Subsidiaries identified on the signature pages thereto. (12)
10.31.1 Amendment Number One to Loan and Security Agreement dated November 14,
2003. (12)
10.31.2 Amendment Number Two to Loan and Security Agreement dated April 29,
2004. (14)
10.31.3 Amendment Number Three to Loan and Security Agreement dated as of
September 24, 2004. (16)
10.32 Intercreditor and Lien Subordination Agreement, dated as of October 21,
2003, made by and among Wells Fargo Foothill, Inc., HSBC Bank USA,
Phibro Animal Health Corporation ("Parent") and those certain
subsidiaries of the Parent party thereto. (12)
10.33 Purchase and Sale Agreement dated as of December 26, 2003 by and among
Phibro Animal Health Corporation ("PAHC"), Prince MFG, LLC, ("Prince
MFG"), The Prince Manufacturing Company ("Prince" and together with PAHC
and Prince MFG, the "Phibro Parties"), Palladium Equity Partners II,
L.P. ("PEP II"), Palladium Equity Partners II-A, L.P., ("PEP II-A"),
Palladium Equity Investors II, L.P., ("PEI II", and together with PEP II
and PEP II-A, the "Investor Stockholders"), and Prince Mineral Company,
Inc. ("Buyer"). (15)
10.34 Environmental Indemnification Agreement dated as of December 26, 2003
between the Phibro Parties (as defined therein) and Buyer. (15)
10.35 Amendment to Stockholders Agreement dated as of December 26, 2003
between PAHC, the Investor Stockholders and Jack Bendheim (15)
10.36 Advisory Fee Agreement dated as of December 26, 2003 between Buyer and
PAHC(15)++
21 List of Subsidiaries (16)
31.1 Certification of Gerald K. Carlson, Chief Executive Officer required by
Rule 15d-14(a) of the Act (16)
31.2 Certification of Jack C. Bendheim, Chairman of the Board required by
Rule 15d-14(a) of the Act (16)
31.3 Certification of Richard G. Johnson, Chief Financial Officer required by
Rule 15d-14(a) of the Act (16)
- ----------
1 Filed as an Exhibit to the Registrant's Registration Statement on Form S-4,
No. 333-64641.
2 Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 2000.
50
3 Filed as an Exhibit to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 2000.
4 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
November 30, 2000.
5 Filed as an Exhibit to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 2001.
6 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
June 14, 2001.
7 Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 2001.
8 Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 2002.
9 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
September 11, 2003, as amended by the Registrant's Form 8-K/A dated June 2,
2004.
10 Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 2003.
11 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
October 2, 2003.
12 Filed as an Exhibit to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 2003.
13 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
October 31, 2003.
14 Filed as an Exhibit to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 2004.
15 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
January 12, 2004.
16 Filed herewith.
+ A request for confidential treatment has been granted for portions of such
document. Confidential portions have been omitted and furnished separately
to the SEC in accordance with Rule 406(b).
++ This Exhibit is a management compensatory plan or arrangement.
Since the Company does not have securities registered under Section 12 of the
Securities Exchange Act of 1934 and is not required to file periodic reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Company is not filing the written certification statement pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. The Company submits periodic reports with
the Securities and Exchange Commission because it is required to do so by the
terms of the indenture governing its senior subordinated notes.
(b) Financial Statement Schedules
All supplemental schedules are omitted because of the absence of conditions
under which they are required or because the information is shown in the
financial statements or notes thereto or in other supplemental schedules.
(c) Reports on Form 8-K.
The Company filed a Form 8-K/A on June 2, 2004 reporting Item 7 to withdraw its
application for confidential treatment of certain portions of a Stock Purchase
Agreement. The Company did furnish reports on Form 8-K since then. On July 2,
2004 the Company furnished a report on Form 8-K reporting items 5 to disclose
the filing of bankruptcy for La Cornubia.
51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets
as of June 30, 2004 and 2003 F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the years ended June 30, 2004, 2003 and 2002 F-4
Consolidated Statements of Changes in Stockholders' Deficit
for the years ended June 30, 2004, 2003 and 2002 F-5
Consolidated Statements of Cash Flows
for the years ended June 30, 2004, 2003 and 2002 F-6
Notes to Consolidated Financial Statements F-7
statements. F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Phibro Animal Health Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders'stockholders’ deficit and cash flows present fairly, in all material respects, the financial position of Phibro Animal Health Corporation and its subsidiaries at June 30, 20042005 and 2003,2004, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2004,2005, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company'sCompany’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
| |
| /s/ PricewaterhouseCoopers LLP |
| |
| PricewaterhouseCoopers LLP |
Florham Park, New Jersey
September 27, 2004
23, 2005
F-2
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 2004 and 2003
(In Thousands)
2004 2003
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,568 $ 11,179
Trade receivables, less allowance for
doubtful accounts of $1,358 and $1,437
at June 30, 2004 and 2003, respectively 57,658 52,714
Other receivables 2,766 3,503
Inventories 79,910 87,849
Prepaid expenses and other current assets 8,688 9,868
Current assets from discontinued operations -- 9,276
--------- ---------
TOTAL CURRENT ASSETS 154,590 174,389
PROPERTY, PLANT AND EQUIPMENT, net 58,786 63,905
INTANGIBLES 11,695 8,669
OTHER ASSETS 16,298 14,059
OTHER ASSETS FROM DISCONTINUED OPERATIONS -- 13,325
--------- ---------
$ 241,369 $ 274,347
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdraft $ 891 $ 1,686
Loans payable to banks 10,996 37,878
Current portion of long-term debt 1,351 24,124
Accounts payable 46,972 55,355
Accrued expenses and other current liabilities 40,010 40,699
Current liabilities from discontinued operations -- 5,557
--------- ---------
TOTAL CURRENT LIABILITIES 100,220 165,299
LONG-TERM DEBT 158,018 102,263
OTHER LIABILITIES 22,286 21,241
OTHER LIABILITIES FROM DISCONTINUED OPERATIONS -- 1,173
--------- ---------
TOTAL LIABILITIES 280,524 289,976
--------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SECURITIES:
Series B and C preferred stock 24,678 68,881
--------- ---------
STOCKHOLDERS' DEFICIT:
Preferred stock - $100 par value, 150,543
shares authorized, none issued 521 521
at June 30, 2004 and 2003; Series A
preferred stock - $100 par value,
6% non-cumulative, 5,207 shares
authorized, issued and outstanding
at June 30, 2004 and 2003
Common stock - $0.10 par value, 30,300
authorized and 24,488 shares issued 2 2
and outstanding at June 30, 2004 and 2003
Paid-in capital 860 860
Accumulated deficit (57,964) (79,489)
Accumulated other comprehensive income (loss):
Gain on derivative instruments, net of tax 9 81
Cumulative foreign currency translation adjustment (7,261) (6,485)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (63,833) (84,510)
--------- ---------
$ 241,369 $ 274,347
========= =========
| | | | | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| | | (In thousands) | |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | |
| | Cash and cash equivalents | | $ | 13,001 | | | $ | 5,568 | |
| | Trade receivables, less allowance for doubtful accounts of $1,372 and $1,358 at June 30, 2005 and 2004, respectively | | | 52,806 | | | | 57,217 | |
| | Other receivables | | | 3,611 | | | | 2,766 | |
| | Inventories | | | 96,621 | | | | 78,562 | |
| | Prepaid expenses and other current assets | | | 12,787 | | | | 8,591 | |
| | Current assets from discontinued operations | | | — | | | | 1,886 | |
| | | | | | | |
| | | | TOTAL CURRENT ASSETS | | | 178,826 | | | | 154,590 | |
| PROPERTY, PLANT AND EQUIPMENT, net | | | 49,960 | | | | 55,381 | |
| INTANGIBLES, net | | | 10,201 | | | | 11,695 | |
| OTHER ASSETS | | | 14,070 | | | | 16,298 | |
| OTHER ASSETS FROM DISCONTINUED OPERATIONS | | | — | | | | 3,405 | |
| | | | | | | |
| | | $ | 253,057 | | | $ | 241,369 | |
| | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| CURRENT LIABILITIES: | | | | | | | | |
| | Cash overdraft | | $ | 190 | | | $ | 891 | |
| | Loans payable to banks | | | 8,038 | | | | 10,996 | |
| | Current portion of long-term debt | | | 1,625 | | | | 1,351 | |
| | Accounts payable | | | 36,347 | | | | 46,764 | |
| | Accrued expenses and other current liabilities | | | 53,815 | | | | 39,380 | |
| | Current liabilities from discontinued operations | | | — | | | | 838 | |
| | | | | | | |
| | | | TOTAL CURRENT LIABILITIES | | | 100,015 | | | | 100,220 | |
| LONG-TERM DEBT | | | 176,501 | | | | 158,018 | |
| OTHER LIABILITIES | | | 21,465 | | | | 22,286 | |
| | | | | | | |
| | | | TOTAL LIABILITIES | | | 297,981 | | | | 280,524 | |
| | | | | | | |
| COMMITMENTS AND CONTINGENCIES | | | | | | | | |
| REDEEMABLE SECURITIES: | | | | | | | | |
| | Series C preferred stock | | | — | | | | 24,678 | |
| | | | | | | |
| STOCKHOLDERS’ DEFICIT: | | | | | | | | |
| | Preferred stock — $100 par value, 150,543 shares authorized, none issued at June 30, 2005 and 2004; Series A preferred stock — $100 par value, 6% non-cumulative, 5,207 shares authorized, issued and outstanding at June 30, 2005 and 2004 | | | 521 | | | | 521 | |
| | Common stock — $0.10 par value, 30,300 authorized and 24,488 shares issued and outstanding at June 30, 2005 and 2004 | | | 2 | | | | 2 | |
| | Paid-in capital | | | 27,260 | | | | 860 | |
| | Accumulated deficit | | | (74,379 | ) | | | (57,964 | ) |
| | Accumulated other comprehensive income (loss): | | | | | | | | |
| | | Gain on derivative instruments, net of income taxes | | | 123 | | | | 9 | |
| | | Cumulative foreign currency translation adjustment, net of income taxes | | | 1,549 | | | | (7,261 | ) |
| | | | | | | |
| | | | TOTAL STOCKHOLDERS’ DEFICIT | | | (44,924 | ) | | | (63,833 | ) |
| | | | | | | |
| | | $ | 253,057 | | | $ | 241,369 | |
| | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements
F-3
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended June 30, 2004, 2003 and 2002
(In Thousands)
2004 2003 2002
--------- --------- ---------
NET SALES $ 358,274 $ 341,746 $ 328,676
COST OF GOODS SOLD 267,871 251,200 247,411
--------- --------- ---------
GROSS PROFIT 90,403 90,546 81,265
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (includes
litigation income of $3,040 in 2003 and $742 in 2002) 66,128 65,050 70,636
COSTS OF NON-COMPLETED TRANSACTION 5,261 -- --
--------- --------- ---------
OPERATING INCOME 19,014 25,496 10,629
OTHER:
Interest expense 18,618 16,281 18,070
Interest (income) (130) (85) (346)
Other (income) expense, net (781) 1,539 3,349
Net (gain) on extinguishment of debt (23,226) -- --
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 24,533 7,761 (10,444)
PROVISION FOR INCOME TAXES 7,969 10,060 14,767
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 16,564 (2,299) (25,211)
DISCONTINUED OPERATIONS:
(Loss) from discontinued operations (net of income taxes) (1,625) (14,577) (26,559)
(Loss) on disposal of discontinued operations (net of income taxes) (2,089) (683) --
--------- --------- ---------
NET INCOME (LOSS) 12,850 (17,559) (51,770)
OTHER COMPREHENSIVE INCOME (LOSS):
Change in derivative instruments, net of tax (72) (981) 1,062
Change in currency translation adjustment (776) 7,377 (6,125)
--------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ 12,002 $ (11,163) $ (56,833)
========= ========= =========
NET INCOME (LOSS) 12,850 (17,559) (51,770)
Excess of the reduction of redeemable preferred stock over total assets
divested and costs and liabilities incurred on the Prince Transactions 20,138 -- --
Dividends and equity value accreted on Series B and C redeemable
preferred stock (11,463) (12,278) (7,623)
--------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 21,525 $ (29,837) $ (59,393)
========= ========= =========
| | | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| | | (In thousands) | |
| NET SALES | | $ | 364,379 | | | $ | 354,384 | | | $ | 337,818 | |
| COST OF GOODS SOLD (includes Belgium Plant Transactions costs of $22,191 for the year ended June 30, 2005) | | | 293,086 | | | | 265,217 | | | | 248,577 | |
| | | | | | | | | | |
| | GROSS PROFIT | | | 71,293 | | | | 89,167 | | | | 89,241 | |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (includes litigation income of $3,040 for the year ended June 30, 2003) | | | 66,911 | | | | 63,417 | | | | 63,346 | |
| COSTS OF NON-COMPLETED TRANSACTION | | | — | | | | 5,261 | | | | — | |
| | | | | | | | | | |
| | OPERATING INCOME | | | 4,382 | | | | 20,489 | | | | 25,895 | |
| OTHER: | | | | | | | | | | | | |
| | Interest expense | | | 25,342 | | | | 20,724 | | | | 17,455 | |
| | Interest (income) | | | (120 | ) | | | (130 | ) | | | (85 | ) |
| | Other (income) expense, net | | | (1,859 | ) | | | (788 | ) | | | 1,548 | |
| | Net (gain) on extinguishment of debt | | | — | | | | (23,226 | ) | | | — | |
| | | | | | | | | | |
| | INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | | (18,981 | ) | | | 23,909 | | | | 6,977 | |
| PROVISION FOR INCOME TAXES | | | 2,120 | | | | 7,804 | | | | 9,830 | |
| | | | | | | | | | |
| | INCOME (LOSS) FROM CONTINUING OPERATIONS | | | (21,101 | ) | | | 16,105 | | | | (2,853 | ) |
| DISCONTINUED OPERATIONS: | | | | | | | | | | | | |
| | Income (loss) from discontinued operations, net of income taxes | | | 671 | | | | (1,166 | ) | | | (14,023 | ) |
| | Income (loss) on disposal of discontinued operations, net of income taxes | | | 765 | | | | (2,089 | ) | | | (683 | ) |
| | | | | | | | | | |
| | NET INCOME (LOSS) | | | (19,665 | ) | | | 12,850 | | | | (17,559 | ) |
| OTHER COMPREHENSIVE INCOME (LOSS): | | | | | | | | | | | | |
| | Change in derivative instruments, net of income taxes | | | 114 | | | | (72 | ) | | | (981 | ) |
| | Change in currency translation adjustment, net of income taxes | | | 8,810 | | | | (776 | ) | | | 7,377 | |
| | | | | | | | | | |
| | COMPREHENSIVE INCOME (LOSS) | | $ | (10,741 | ) | | $ | 12,002 | | | $ | (11,163 | ) |
| | | | | | | | | | |
| | NET INCOME (LOSS) | | | (19,665 | ) | | | 12,850 | | | | (17,559 | ) |
| Excess of the reduction of redeemable preferred stock over total assets divested and costs and liabilities incurred on the Prince Transactions | | | 4,973 | | | | 20,138 | | | | — | |
| Dividends and equity value accreted on Series B and C redeemable preferred stock | | | (1,723 | ) | | | (11,463 | ) | | | (12,278 | ) |
| | | | | | | | | | |
| | NET INCOME AVAILABLE (LOSS ATTRIBUTABLE) TO COMMON SHAREHOLDERS | | $ | (16,415 | ) | | $ | 21,525 | | | $ | (29,837 | ) |
| | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements
F-4
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'STOCKHOLDERS’ DEFICIT
For the Years Ended June 30, 2005, 2004 2003 and 2002
(In Thousands)
Common Retained
Preferred Stock Earnings Accumulated Other
Stock ----------------- Paid-in (Accumulated Comprehensive
Series A Class A Class B Capital Deficit) (Loss) income Total
-------- ------- ------- ------- -------- ------------- -----
BALANCE, JUNE 30, 2001 $ 521 $ 1 $ 1 $ 878 $ 9,741 $ (7,737) $ 3,405
Dividends on Series B and C
redeemable preferred stock (7,623) (7,623)
Change in derivative
instruments, net of tax 1,062 1,062
Foreign currency translation
adjustment (6,125) (6,125)
Receivable from principal
shareholder (138) (138)
Net (loss) (51,770) (51,770)
----- --- --- ----- --------- --------- ---------
BALANCE, JUNE 30, 2002 $ 521 $ 1 $ 1 $ 740 $ (49,652) $ (12,800) $ (61,189)
===== === === ===== ========= ========= =========
Dividends on Series B and C
redeemable preferred stock (8,808) (8,808)
Equity value accreted on
Series B and C redeemable
preferred stock (3,470) (3,470)
Change in derivative
instruments, net of tax (981) (981)
Foreign currency translation
adjustment 7,377 7,377
Payable to principal
shareholder 120 120
Net (loss) (17,559) (17,559)
----- --- --- ----- --------- --------- ---------
BALANCE, JUNE 30, 2003 $ 521 $ 1 $ 1 $ 860 $ (79,489) $ (6,404) $ (84,510)
===== === === ===== ========= ========= =========
Excess of the reduction in redeemable preferred stock over total assets
divested and costs and liabilities incurred on
the Prince Transactions 20,138 20,138
Dividends on Series B and C
redeemable preferred stock (6,042) (6,042)
Equity value accreted on
Series B and C redeemable
preferred stock (5,421) (5,421)
Change in derivative
instruments, net of tax (72) (72)
Foreign currency translation
adjustment (776) (776)
Net income 12,850 12,850
----- --- --- ----- --------- --------- ---------
BALANCE, JUNE 30, 2004 $ 521 $ 1 $ 1 $ 860 $ (57,964) $ (7,252) $ (63,833)
===== === === ===== ========= ========= =========
2003 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Preferred | | | Common Stock | | | | | | | Accumulated Other | | | |
| | | Stock | | | | | | Paid-in | | | (Accumulated | | | Comprehensive | | | |
| | | Series A | | | Class A | | | Class B | | | Capital | | | Deficit) | | | (Loss) Income | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | (In thousands) | |
| BALANCE, JUNE 30, 2002 | | $ | 521 | | | $ | 1 | | | $ | 1 | | | $ | 740 | | | $ | (49,652 | ) | | $ | (12,800 | ) | | $ | (61,189 | ) |
| | Dividends on Series B and C redeemable preferred stock | | | | | | | | | | | | | | | | | | | (8,808 | ) | | | | | | | (8,808 | ) |
| | Equity value accreted on Series B and C redeemable preferred stock | | | | | | | | | | | | | | | | | | | (3,470 | ) | | | | | | | (3,470 | ) |
| | Change in derivative instruments, net of income taxes | | | | | | | | | | | | | | | | | | | | | | | (981 | ) | | | (981 | ) |
| | Foreign currency translation adjustment, net of income taxes | | | | | | | | | | | | | | | | | | | | | | | 7,377 | | | | 7,377 | |
| | Payable to principal shareholder | | | | | | | | | | | | | | | 120 | | | | | | | | | | | | 120 | |
| | Net (loss) | | | | | | | | | | | | | | | | | | | (17,559 | ) | | | | | | | (17,559 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, JUNE 30, 2003 | | $ | 521 | | | $ | 1 | | | $ | 1 | | | $ | 860 | | | $ | (79,489 | ) | | $ | (6,404 | ) | | $ | (84,510 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | Excess of the reduction in redeemable preferred stock over total assets divested and costs and liabilities incurred on the Prince Transactions | | | | | | | | | | | | | | | | | | | 20,138 | | | | | | | | 20,138 | |
| | Dividends on Series B and C redeemable preferred stock | | | | | | | | | | | | | | | | | | | (6,042 | ) | | | | | | | (6,042 | ) |
| | Equity value accreted on Series B and C redeemable preferred stock | | | | | | | | | | | | | | | | | | | (5,421 | ) | | | | | | | (5,421 | ) |
| | Change in derivative instruments, net of income taxes | | | | | | | | | | | | | | | | | | | | | | | (72 | ) | | | (72 | ) |
| | Foreign currency translation adjustment, net of income taxes | | | | | | | | | | | | | | | | | | | | | | | (776 | ) | | | (776 | ) |
| | Net income | | | | | | | | | | | | | | | | | | | 12,850 | | | | | | | | 12,850 | |
| | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, JUNE 30, 2004 | | $ | 521 | | | $ | 1 | | | $ | 1 | | | $ | 860 | | | $ | (57,964 | ) | | $ | (7,252 | ) | | $ | (63,833 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | Capital contribution from PAHC Holdings Corporation | | | | | | | | | | | | | | | 26,400 | | | | | | | | | | | | 26,400 | |
| | Excess of the reduction in redeemable preferred stock over total assets divested and costs and liabilities incurred on the Prince Transactions | | | | | | | | | | | | | | | | | | | 4,973 | | | | | | | | 4,973 | |
| | Dividends on Series C redeemable preferred stock | | | | | | | | | | | | | | | | | | | (1,813 | ) | | | | | | | (1,813 | ) |
| | Equity value accreted on Series C redeemable preferred stock | | | | | | | | | | | | | | | | | | | 90 | | | | | | | | 90 | |
| | Change in derivative instruments, net of income taxes | | | | | | | | | | | | | | | | | | | | | | | 114 | | | | 114 | |
| | Foreign currency translation adjustment, net of income taxes | | | | | | | | | | | | | | | | | | | | | | | 8,810 | | | | 8,810 | |
| | Net (loss) | | | | | | | | | | | | | | | | | | | (19,665 | ) | | | | | | | (19,665 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, JUNE 30, 2005 | | $ | 521 | | | $ | 1 | | | $ | 1 | | | $ | 27,260 | | | $ | (74,379 | ) | | $ | 1,672 | | | $ | (44,924 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements
F-5
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2004, 2003 and 2002
(In Thousands)
2004 2003 2002
--------- --------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ 12,850 $ (17,559) $ (51,770)
Adjustment for discontinued operations 3,714 15,260 26,559
--------- --------- ---------
Income (loss) from continuing operations 16,564 (2,299) (25,211)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided (used) by
operating activities:
Depreciation and amortization 13,183 12,524 12,355
Deferred income taxes 326 6,460 11,238
Net gain from sales of assets (692) (127) (5)
Net gain on extinguishment of debt (23,226) -- --
Change in redemption amount of redeemable common stock -- -- (378)
Effects of changes in foreign currency (548) 390 2,120
Other 1,114 387 2,416
Changes in operating assets and liabilities:
Accounts receivable (7,222) 3,810 6,046
Inventories 3,660 (1,598) (13,991)
Prepaid expenses and other current assets (314) (3,122) (2,819)
Other assets (3,079) (2,632) 2,667
Accounts payable (5,650) 20,503 (6,606)
Accrued expenses and other liabilities 6,965 (355) 8,511
Accrued costs of non-completed transaction 3,970 -- --
Cash provided (used) by discontinued operations (2,189) 716 (1,088)
--------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,862 34,657 (4,745)
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (6,244) (8,636) (8,518)
Acquisition of a business, net of cash acquired -- -- (7,182)
Proceeds from property damage claim -- -- 411
Proceeds from sale of assets 1,094 2,565 19
Other investing (655) 737 580
Discontinued operations 14,875 1,363 (2,671)
--------- --------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 9,070 (3,971) (17,361)
--------- --------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in cash overdraft (795) (6,081) 3,438
Net increase (decrease) in short-term debt (26,954) (6,660) 14,237
Proceeds from long-term debt 109,661 2,000 2,322
Payments of long-term debt (35,453) (16,014) (4,730)
Payment of Pfizer obligations (28,300) -- --
Payments relating to the Prince Transactions and
related costs (21,393) -- --
Debt refinancing costs (15,548) -- --
Discontinued operations 1,005 377 (1,590)
--------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (17,777) (26,378) 13,677
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 234 452 3
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,611) 4,760 (8,426)
CASH AND CASH EQUIVALENTS at beginning of period 11,179 6,419 14,845
--------- --------- ---------
CASH AND CASH EQUIVALENTS at end of period $ 5,568 $ 11,179 $ 6,419
========= ========= =========
Supplemental Cash Flow Information:
Interest paid $ 17,578 $ 16,104 $ 17,003
Income taxes paid 4,755 3,046 2,629
| | | | | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| | | (In thousands) | |
| OPERATING ACTIVITIES: | | | | | | | | | | | | |
| | Net income (loss) | | $ | (19,665 | ) | | $ | 12,850 | | | $ | (17,559 | ) |
| | Adjustment for discontinued operations | | | (1,436 | ) | | | 3,255 | | | | 14,706 | |
| | | | | | | | | | |
| | Income (loss) from continuing operations | | | (21,101 | ) | | | 16,105 | | | | (2,853 | ) |
| | Adjustments to reconcile income (loss) from continuing operations to net cash provided (used) by operating activities: | | | | | | | | | | | | |
| | | Depreciation and amortization (includes accelerated depreciation from the Belgium Plant transactions of $7,467 for the year ended June 30, 2005) | | | 18,106 | | | | 10,658 | | | | 10,986 | |
| | | Amortization of deferred financing costs | | | 2,974 | | | | 2,106 | | | | 1,174 | |
| | | Deferred income taxes | | | (1,018 | ) | | | 326 | | | | 6,460 | |
| | | Net gain from sales of assets | | | (1,542 | ) | | | (692 | ) | | | (127 | ) |
| | | Net gain on extinguishment of debt | | | — | | | | (23,226 | ) | | | — | |
| | | Effects of changes in foreign currency | | | (699 | ) | | | (548 | ) | | | 390 | |
| | | Other | | | 852 | | | | 1,114 | | | | 387 | |
| | | Changes in operating assets and liabilities: | | | | | | | | | | | | |
| | | | Accounts receivable | | | 4,399 | | | | (7,458 | ) | | | 3,907 | |
| | | | Inventories | | | (14,251 | ) | | | 3,776 | | | | (1,527 | ) |
| | | | Prepaid expenses and other current assets | | | (2,780 | ) | | | (260 | ) | | | (3,107 | ) |
| | | | Other assets | | | 117 | | | | (3,079 | ) | | | (2,632 | ) |
| | | | Accounts payable | | | (8,854 | ) | | | (5,730 | ) | | | 20,479 | |
| | | | Accrued expenses and other liabilities | | | 7,177 | | | | 7,129 | | | | (1,010 | ) |
| | | | Accrued costs of non-completed transaction | | | (3,970 | ) | | | 3,970 | | | | — | |
| | | | Accrued costs of the Belgium Plant Transactions | | | 13,309 | | | | — | | | | — | |
| | Cash provided (used) by discontinued operations | | | 1,022 | | | | (1,329 | ) | | | 2,130 | |
| | | | | | | | | | |
| | | | NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES | | | (6,259 | ) | | | 2,862 | | | | 34,657 | |
| | | | | | | | | | |
| INVESTING ACTIVITIES: | | | | | | | | | | | | |
| | Capital expenditures | | | (7,489 | ) | | | (6,129 | ) | | | (8,507 | ) |
| | Proceeds from sales of assets | | | 3,817 | | | | 1,087 | | | | 2,564 | |
| | Other investing | | | (1,101 | ) | | | (655 | ) | | | 737 | |
| | Discontinued operations | | | 4,795 | | | | 14,767 | | | | 1,235 | |
| | | | | | | | | | |
| | | | NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES | | | 22 | | | | 9,070 | | | | (3,971 | ) |
| | | | | | | | | | |
| FINANCING ACTIVITIES: | | | | | | | | | | | | |
| | Net (decrease) in cash overdraft | | | (701 | ) | | | (795 | ) | | | (6,081 | ) |
| | Net (decrease) in short-term debt | | | (2,958 | ) | | | (26,954 | ) | | | (6,660 | ) |
| | Proceeds from long-term debt | | | 24,292 | | | | 109,661 | | | | 2,000 | |
| | Payments of long-term debt | | | (4,667 | ) | | | (35,453 | ) | | | (16,014 | ) |
| | Proceeds from capital contribution by PAHC Holdings Corporation | | | 26,400 | | | | — | | | | — | |
| | Redemption of Series C preferred stock | | | (26,400 | ) | | | — | | | | — | |
| | Payment of Pfizer obligations | | | — | | | | (28,300 | ) | | | — | |
| | Payments relating to the Prince Transactions and related costs | | | — | | | | (21,393 | ) | | | — | |
| | Debt financing costs | | | (2,216 | ) | | | (15,548 | ) | | | — | |
| | Discontinued operations | | | — | | | | 1,005 | | | | 377 | |
| | | | | | | | | | |
| | | | NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES | | | 13,750 | | | | (17,777 | ) | | | (26,378 | ) |
| | | | | | | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | | | (80 | ) | | | 234 | | | | 452 | |
| | | | | | | | | | |
| | | | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 7,433 | | | | (5,611 | ) | | | 4,760 | |
| CASH AND CASH EQUIVALENTS at beginning of period | | | 5,568 | | | | 11,179 | | | | 6,419 | |
| | | | | | | | | | |
| CASH AND CASH EQUIVALENTS at end of period | | $ | 13,001 | | | $ | 5,568 | | | $ | 11,179 | |
| | | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | | | | | |
| | Interest paid | | $ | 21,381 | | | $ | 17,578 | | | $ | 16,104 | |
| | Income taxes paid | | | 1,653 | | | | 4,531 | | | | 2,674 | |
The accompanying notes are an integral part of the consolidated financial statements
F-6
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In
(In Thousands)
1.
| |
| 1. | Description of Business |
Phibro Animal Health Corporation (the "Company"“Company” or "PAHC"“PAHC”) is a leading diversified global manufacturer and marketer of a broad range of animal health and nutrition products, specifically medicated feed additives ("MFA"(“MFA”) and nutritional feed additives ("NFA"(“NFA”), which the Company sells throughout the world predominately to the poultry, swine and cattle markets. The Company is also a specialty chemicals manufacturer and marketer, serving numerous markets.
2. Summary
The Company is a wholly-owned subsidiary of Significant Accounting Policies
PAHC Holdings Corporation, which was formed in February 2005, as discussed in these notes to consolidated financial statements.
| |
| 2. | Summary of Significant Accounting Policies |
| |
| Principles of Consolidation and Basis of Presentation: |
The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.
The Company consolidates the financial statements of Koffolk (1949) Ltd. (Israel) ("Koffolk"(“Koffolk”) and Planalquimica Industrial Ltda. (Brazil) ("Planalquimica"(“Planalquimica”) on the basis of their March 31 fiscal year-ends to facilitate the timely inclusion of such entities in the Company'sCompany’s consolidated financial reporting.
The Company'sCompany’s Odda Smelteverk (Norway) ("Odda"(“Odda”), Carbide Industries (U.K.) ("Carbide"(“Carbide”), Mineral Resource Technologies, Inc. ("MRT"(“MRT”), and La Cornubia S.A. (France) ("(“La Cornubia"Cornubia”) and Wychem Limited (U.K.) (“Wychem”) businesses have been classified as discontinued operations as discussed in Note 5.operations. The Company'sCompany’s consolidated financial statements have been reclassifiedrevised to report separately the operating results, financial position and cash flows of the discontinued operations. These footnotes present information only for continuing operations, unless otherwise indicated.
The Company presents its consolidated financial statements on the basis of its fiscal year ending June 30. All references to years 2005, 2004, 2003, and 20022003 in these financial statements refer to the fiscal year ended June 30 of that year.
| |
| Risks, Uncertainties and Liquidity: |
The Company'sCompany’s ability to fund its operating plan relies upon the continued availability of borrowing under the domestic senior credit facility. The Company believes that it will be able to comply with the terms of its covenants under the amendeddomestic senior credit facility based on its forecasted operating plan. In the event of adverse operating results and/or violation of covenants under this facility, there can be no assurance that the Company would be able to obtain waivers or amendments on favorable terms, if at all. The Company's 2005Company’s 2006 operating plan projects adequate liquidity throughout the year, with periods of reduced availability around the dates of the semi-annual interest payments due NovemberDecember 1 2004 and June 1 2005.related to its senior secured notes and its senior subordinated notes. The Company is pursuing additional cost reduction activities, working capital improvement plans, and sales of non-strategic assets to ensure additional liquidity. The Company also has availability under foreign credit lines that would be available as needed. The Company has also undertaken
a strategic review of its manufacturing capabilities, and is currently
increasing inventory levels of certain products to enhance future flexibility
and reduce costs. There can be no assurance the Company will be successful in any of the above-noted actions.
The use of antibiotics in medicated feed additives is a subject of legislative and regulatory interest. The issue of potential for increased bacterial resistance to certain antibiotics used in certain food-producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led to government restrictions on the use of antibiotics in food-producing animals. The sale of feed additives containing antibiotics is a material portion of the Company'sCompany’s business. Should regulatory or other developments result in
F-7
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
further restrictions on the sale of such products, it could have a material adverse impact on the Company'sCompany’s financial position, results of operations and cash flows.
The testing, manufacturing, and marketing of certain products are subject to extensive regulation by numerous government authorities in the United States and other countries.
F-7
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands) The Company has significant assets located outside of the United States, and a significant portion of the Company'sCompany’s sales and earnings are attributable to operations conducted abroad.
The Company has assets located in Israel and a portion of its sales and earnings are attributable to operations conducted in Israel. The Company is affected by social, political and economic conditions affecting Israel, and any major hostilities involving Israel as well as the Middle East or curtailment of trade between Israel and its current trading partners, either as a result of hostilities or otherwise, could have a material adverse effect on the Company.
The Company'sCompany’s operations, properties and subsidiaries are subject to a wide variety of complex and stringent federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes, the remediation of contaminated soil and groundwater, the manufacture, sale and use of pesticides and the health and safety of employees. As such, the nature of the Company'sCompany’s current and former operations and those of its subsidiaries exposes the Company and its subsidiaries to the risk of claims with respect to such matters.
Preparation of the Company'sCompany’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Actual results could differ from these estimates. Significant estimates include reserves for bad debts, inventory obsolescence, environmental matters, depreciation and amortization periods of long-lived assets, recoverability of long-lived assets, realizability of deferred tax assets and actuarial assumptions related to the Company'sCompany’s pension plans.
Revenue is recognized upon transfer of title and when risk of loss passes to the customer. Certain of the Company’s subsidiaries have terms of FOB shipping point where title and risk of loss transfer on shipment. Certain of the Company’s subsidiaries have terms FOB destination where title and risk of loss transfer on delivery. In the case of FOB destination, revenue is not recognized until products are received by the customer. Additional conditions for recognition of revenue are that collection of sales proceeds are reasonably assured and the Company has no further performance obligations. The Company records estimated reductions to revenue for customer generallyprograms and incentive offerings, including pricing arrangements and other volume-based incentives at the time of shipment. Net sales reflect total
sales billed, lessthe sale is recorded. There were no material provisions for estimated reductions for goods returned, trade discountsto revenues in 2005, 2004 and customer
allowances.
2003.
| |
| Cash and Cash Equivalents: |
Cash equivalents include highly liquid investments with maturities of three months or less when purchased.
| |
| Accounts Receivable and Allowance for Doubtful Accounts: |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company'sCompany’s best estimate of the probable credit losses in its existing accounts
F-8
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
receivable. The allowance is based on historical write-off experience and is reviewed periodically. Past due balances are reviewed individually for collectibility. Account balances are charged against the allowance when the Company feels thatdetermines it is probable that the receivable will not be recovered. Receivables consist of
the following:
As of
----------------------------------
June 30, 2004 June 30, 2003
------------- -------------
Trade receivables $57,658 $52,714
Employee receivables 256 267
Other receivables 2,510 3,236
------- -------
Total receivables $60,424 $56,217
======= =======are comprised of:
| | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Trade receivables | | $ | 52,806 | | | $ | 57,217 | |
| Employee receivables | | | 474 | | | | 256 | |
| Other receivables | | | 3,137 | | | | 2,510 | |
| | | | | | | |
| Total receivables | | $ | 56,417 | | | $ | 59,983 | |
| | | | | | | |
The allowance for doubtful accounts was:
2004 2003 2002
------- ------- -------
Balance at beginning of period $ 1,437 $ 1,461 $ 1,760
Provision for bad debts 565 347 979
Bad debt write-offs (644) (371) (1,278)
------- ------- -------
Balance at end of period $ 1,358 $ 1,437 $ 1,461
======= ======= =======
F-8
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
| | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Balance at beginning of period | | $ | 1,358 | | | $ | 1,437 | | | $ | 1,461 | |
| Provision for bad debts | | | 258 | | | | 565 | | | | 347 | |
| Bad debt write-offs | | | (244 | ) | | | (644 | ) | | | (371 | ) |
| | | | | | | | | | |
| Balance at end of period | | $ | 1,372 | | | $ | 1,358 | | | $ | 1,437 | |
| | | | | | | | | | |
Inventories are valued at the lower of cost or market. Cost is determined principally under the first-in, first-out (FIFO) and average methods; cost for
certain inventories is determined under the last-in, first-out (LIFO) method.
Inventories valued at LIFO amounted to $0 and $3,805 at June 30, 2004 and 2003,
respectively.methods. Obsolete and unsaleable inventories, if any, are reflected at estimated net realizable value. Inventory costs include materials, direct labor and manufacturing overhead. Inventories are comprised of:
As of
-------------------------------
June 30, 2004 June 30, 2003
------------- -------------
Raw materials $ 16,313 $ 21,668
Work-in-process 1,764 1,565
Finished goods 61,833 65,248
Excess of FIFO cost over LIFO cost -- (632)
-------- --------
Total inventory $ 79,910 $ 87,849
======== ========
| | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Raw materials | | $ | 23,703 | | | $ | 16,038 | |
| Work-in-process | | | 434 | | | | 1,468 | |
| Finished goods | | | 72,484 | | | | 61,056 | |
| | | | | | | |
| Total inventory | | $ | 96,621 | | | $ | 78,562 | |
| | | | | | | |
| |
| Property, Plant and Equipment: |
Property, plant and equipment are stated at cost. The Company capitalizes interest expense as part of the cost of construction of facilities and equipment. InterestNo interest expense was capitalized was $0, $0in 2005, 2004 and $106 in 2004, 2003 and
2002, respectively.2003.
Depreciation is charged to results of operations using the straight-line method based upon the assets'assets’ estimated useful lives ranging from 8 to 20 years for buildings and improvements and 3 to 10 years for machinery and equipment.
The Company capitalizes costs that extend the useful life or productive capacity of an asset. Repair and maintenance costs are expensed as incurred. In the case of disposals, the assets and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in the statements of operations and comprehensive income (loss).
F-9
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| Deferred Financing Costs: |
Deferred financing costs related to the senior secured notes and senior subordinated notes are amortized over the respective lives of the notes. Deferred financing costs related to the domestic senior credit facility are amortized over the life of the agreement.
Amortization of deferred financing costs was $2,974, $2,106 and $1,174 for 2005, 2004 and 2003, respectively, and is included in interest expense in the Company’s consolidated statements of operations and comprehensive income (loss). Amortization of deferred financing costs was previously included in corporate general and administrative expenses. Prior year financial statements have been revised for comparability.
Product intangibles cost arising from the
MFA acquisition
was $10,673 and
$10,449 at June 30, 2004 and 2003, respectively, and accumulated amortization of
$3,230 and $1,780 at June 30, 2004 and 2003, respectively. Amortization expense
was $1,229, $964 and $816 for 2004, 2003 and 2002, respectively. Amortization
expense from the MFA
business of Pfizer, Inc. and the acquisition
for each of
the next five years from 2005 to
2009 is expected to be $1,145 per year.
In May 2004 the Company acquired the rights to sell amprolium, an anticoccidial MFA, in most international
markets. In payment for the acquired
rights, the Company relinquished its claims against the seller for certain
purchase order commitments,markets, was $14,907 and
will make $2,100 of cash payments to the seller
over the next five years. The present value of these payments is $1,898 and was
recorded as a liability. The $2,354 value of the purchase order commitments was
recorded as a reduction in cost of goods sold and inventory, and an intangible
asset of $4,252 was recorded representing the fair value of the acquired rights
and is included on the Company's balance sheet$14,925 at June 30,
2004. The Company
will amortize this intangible over a 10 year period. No2005 and 2004, respectively, and accumulated amortization
of $4,706 and $3,230 at June 30, 2005 and 2004, respectively. Amortization expense was
recorded in 2004.$1,493, $1,229 and $964 for 2005, 2004 and 2003, respectively. Amortization expense for each of the next five years from
20052006 to
20092010 is expected to be
$425approximately $1,491 per year.
F-9
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
| |
| Foreign Currency Translation: |
Financial position and results of operations of the Company'sCompany’s international subsidiaries generally are measured using local currencies as the functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss in stockholders'stockholders’ deficit. Income statement accounts are translated at the average rates of exchange prevailing during the year.
A business unit of
Koffolk and all of Planalquimica operate primarily in U.S. dollars. The U.S. dollar is designated as the functional currency for these businesses and translation gains and losses are included in determining net income or loss.
Foreign currency transaction gains and losses primarily arise from short-term intercompany balances. Net foreign currency transaction and translation (gains) losses were $(116)$(284), $(116) and $789 for 2005, 2004 and $3,385 for 2004, 2003, and 2002, respectively, and were included in other expense, net in the consolidated statements of operations and comprehensive income (loss).
| |
| Derivative Financial Instruments: |
The Company records all derivative financial instruments on the consolidated balance sheet at fair value. Changes in the fair value of derivatives are recorded in results of operations or accumulated other comprehensive income (loss), depending on whether a derivative is designated and effective as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income (loss) are included in operations in the periods in which operations are affected by the hedged item.
| |
| Recoverability of Long-Lived Assets: |
The Company evaluates the recoverability of long-lived assets, including intangible assets, when events or circumstances indicate that a diminution in value may have occurred, using financial indicators such as historical and future ability to generate cash flows from operations. The Company'sCompany’s policy is to record an impairment loss in the period it is determined the carrying amount of the asset may not be recoverable. This
F-10
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
determination is based on an evaluation of such factors as the occurrence of a significant event, a significant change in the environment in which the business operates, or if the expected future net cash flows (undiscounted and without interest or income taxes) are less than the carrying amount of the assets.
| |
| Environmental Liabilities: |
Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. The Company capitalizes expenditures made to improve the condition of property, compared with the condition of that property when constructed or acquired. The Company also capitalizes expenditures that prevent future environmental contamination. Other expenditures are expensed as incurred. The Company records the expense and related liability in the period an environmental assessment indicates remedial efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology, and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors. All available evidence is considered, including prior experience in remediation of contaminated sites, other companies'companies’ experience, and data released by the U.S. Environmental Protection Agency or other organizations. When such costs will be incurred over a long-term period and can be reliably estimated as to timing, the liabilities are included in the consolidated balance sheet at their discounted amounts.
Income tax expense includes U.S. federal, state, and foreign income taxes. The tax effect of certain temporary differences between amounts recognized for financial reporting purposes and amounts recognized for tax purposes are reported as deferred income taxes. Deferred tax balances are adjusted to reflect tax rates, based on current tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. Valuation allowances are established as necessary to reduce deferred tax assets to amounts more likely than not to be realized.
F-10
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
| |
| Research and Development Expenditures: |
Research and development expenditures are expensed as incurred, recorded in selling, general and administrative expenses and were $5,076, $4,634$5,568, $4,808 and $4,251$4,362 for 2005, 2004 and 2003, and 2002, respectively.
| |
| New Accounting Pronouncements: |
The Company adoptedwill adopt the following new and revised accounting pronouncements in fiscal 2004:2006:
| |
| Statement of Financial Accounting Standards No. 151, “Inventory Costs, an amendment to Accounting Research Bulletin No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB No. 43, Chapter 4, previously stated “. . .under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . .”. SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal”. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 30, 2005 and the provisions of this statement shall be applied prospectively. The Company anticipates that the adoption of SFAS No. 151 will not result in a material impact on the Company’s financial statements. |
F-11
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29” (“SFAS No. 153”). SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of this statement shall be applied prospectively. The Company is currently assessing the impact of this statement. |
|
| Statement of Financial Accounting Standards No. 123, “Share-Based Payment (revised 2004)” (“SFAS No. 123”). This Statement is a revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” and supercedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS No. 123 as originally issued, and it does not address the accounting for employee share ownership plans. This Statement applies to all awards granted after the effective date and to awards modified, repurchased, or cancelled after that date. The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date. SFAS No. 123, as revised, is effective as of the beginning of the first annual reporting period that begins after December 31, 2005. The Company anticipates that the adoption of this revision of SFAS No. 123 will not result in a material impact on the Company’s financial statements. |
|
| FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN No. 47”). FIN No. 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations (“ARO”)” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Thus, the timing and/or method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional ARO if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional ARO should be recognized when incurred; generally upon acquisition, construction, or development and/or through the normal operation of the asset. Uncertainty about the timing and/or method of settlement of a conditional ARO should be factored into the measurement of the liability when sufficient information exists. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an ARO. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company anticipates that the adoption of FIN No. 47 will not result in a material impact on the Company’s financial statements. |
|
| Statement of Financial Accounting Standards No. 154, “Accounting for Changes and Error Corrections, a replacement of APB Opinion No. 20 and SFAS No. 3” (“SFAS No. 154”). SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS No. 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change |
F-12
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| when retrospective application is impracticable. The correction of an error in previously issued financial statements is not an accounting change. However, the reporting of an error correction involves adjustments to previously issued financial statements similar to those generally applicable to reporting an accounting change retrospectively. Therefore, the reporting of a correction of an error by restating previously issued financial statements is also addressed. SFAS No. 154 shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company is currently assessing the impact of this statement. |
| |
| Issuance of Additional 13% Senior Secured Notes: |
On December 21, 2004, PAHC completed a private placement pursuant to which PAHC (the “Parent Issuer”) and Philipp Brothers Netherlands III B.V., an indirect wholly-owned subsidiary of Financial Accounting Standards No. 149, "AmendmentPAHC (the “Dutch Issuer” and together with PAHC, the “Issuers”) issued and sold 22,491 additional units consisting of SFAS No.
133$18,207 13% Senior Secured Notes due 2007 of the Parent Issuer (the “U.S. Notes”) and $4,284 13% Senior Secured Notes due 2007 of the Dutch Issuer (the “Dutch Notes” and together with the U.S. Notes, the “Additional Notes”), from which they received gross proceeds of $23,391. The proceeds were used to refinance indebtedness outstanding under the PAHC’s domestic senior credit facility. PAHC incurred financing costs of $2,275 in connection with the issuance of the Additional Notes. The Additional Notes were issued under the Indenture dated October 21, 2003, as amended and supplemented (the “Indenture”) under which the Issuers previously issued 105,000 units consisting of $85,000 aggregate principal amount of U.S. Notes and $20,000 aggregate principal amount of Dutch Notes.
On March 9, 2005, PAHC completed the exchange of its privately placed 127,491 units of 13% Senior Secured Notes due 2007 with 127,491 new units of 13% Senior Secured Notes due 2007 that have been registered with the Securities and Exchange Commission (the “SEC”).
| |
| Amendment to the Domestic Senior Credit Facility: |
On December 21, 2004, concurrent with the completion of the offering of the Additional Notes, PAHC amended its domestic senior credit facility to: (i) amend the EBITDA definition to exclude charges and expenses related to the sale of the Belgium Plant in an aggregate amount not to exceed $26,800 for purposes of calculating a certain financial covenant; (ii) amend the indenture reserve definition to include scheduled payments of interest due on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No.
149 amends and clarifies accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts,the Additional Notes; (iii) amend the maximum aggregate amount of borrowing available under the working capital facility to permit a temporary increase to $22,500 and for hedging activities under SFAS No. 133. The adoption of SFAS No. 149 did not
result in a material impactits reduction to $17,500 on such borrowings being refinanced by the Company's financial statements.
Statement of Financial Accounting Standards No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS No. 150"). SFAS No. 150 requires that an issuer classify a
financial instrument, that is within its scope, as a liability (or an asset in
some circumstances). SFAS No. 150 also revises the definition of liabilities to
encompass certain obligations that can, or must, be settled by issuing equity
shares, depending on the natureproceeds of the relationship established betweenAdditional Notes; (iv) amend the holderPermitted Investments definition to include investments in connection with the sale of the Belgium Plant and transfer of certain equipment, together with other assets and rights related to the production of virginiamycin, to Phibro Saude International Ltda. (“PAH Brazil”) or in connection with alternative production arrangements; and (v) provide for the issuance of the Additional Notes and the issuer. The adoptionsale of SFAS No. 150 did not result in a material
impact on the Company's financial statements.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about PensionsBelgium Plant and Other Postretirement Benefits, an amendment to
FASB Statements No. 87, 88, and 106 (revised 2003)" ("SFAS No. 132"). This
revision to SFAS No. 132 relates to employers' disclosures about pension plans
and other postretirement benefit plans. SFAS No. 132 now requires additional
disclosures to describe the types of plan assets, investment strategy,
measurement date(s), plan obligations, cash flows, and components of net
periodic benefit cost recognized during interim periods of defined pension plans
and other defined postretirement plans. The additional disclosures required by
this revision to SFAS No. 132 have been provided in the notes to consolidated
financial statements.
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities
(revised December 2003)" ("FIN No. 46"). This revision to FIN No. 46 clarifies
the application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support. The adoption of FIN No. 46 did not result in a
material impact on the Company's financial statements.
3. Refinancingrelated transactions.
| |
| Issuance of 13% Senior Secured Notes, Repurchase of 97/8% Senior Subordinated Notes, Repayment of Domestic Senior Credit Facility, and Payment of Pfizer Obligations |
On October 21, 2003, the CompanyPAHC (the “Parent Issuer”) issued 105,000 units consisting of $85,000 of 13% Senior Secured Notes due 2007 (the "US Senior Notes") and $20,000 13% Senior Secured Notes due 2007 of Philipp Brothers Netherlands III B.V. (the
"Dutch Senior Notes" and, together with the US Senior Notes, the "Senior Secured
Notes"), an indirect wholly-owned subsidiary of the CompanyPAHC (the "Dutch
issuer"“Dutch Issuer”). The CompanyPAHC used the proceeds from the issuance to: (i) repurchase $51,971 of its 9 7/8%7/8% Senior Subordinated Notes due 2008 at a price equal to 60% of the principal amount thereof, plus accrued and unpaid interest; (ii) repay its senior credit facility of $34,888 outstanding at the repayment date; (iii) satisfy, for a payment of approximately $29,315,
F-13
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$29,315, certain of its outstanding obligations to Pfizer Inc., including: (a) $20,075 aggregate principal amount of its promissory note plus accrued and unpaid interest, (b) $9,748 of accounts payable, (c) $9,040 of accrued expenses, and (d) future contingent purchase price obligations under its agreements with Pfizer Inc. by which the Company acquired
Pfizer'sPfizer’s medicated feed additive business; and (iv) pay fees and expenses relating to the above transactions.
F-11
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands) A net gain on extinguishment of debt is included in the Company's condensedCompany’s consolidated statementstatements of operations and comprehensive income (loss), calculated as follows:
| | | | | |
Net Gain on Repurchase of 9 7/8% Senior Subordinated
Notes due 2008:
Principal amount of repurchased notes $ 51,971
Repurchased at 60% of principal amount (31,183)
Transaction costs (4,107)
--------
Net gain on repurchase of notes 16,681
--------
Loss on repayment of senior credit facility (1,018)
--------
Net Gain on Payment of Pfizer Obligations:
Obligations paid:
-promissory note 20,075
-accrued interest on promissory note 1,015
-accounts payable and accrued expenses 18,788
--------
Total obligations paid 39,878
Cash payment to Pfizer (29,315)
Transaction costs (3,000)
--------
Net gain on payment of Pfizer obligations 7,563
--------
Net gain on extinguishment of debt $ 23,226
========
The US Senior Notes and the Dutch Senior Notes are senior secured
obligations of each of the Company (the "US Issuer") and the Dutch issuer,
respectively. The US Senior Notes and the Dutch Senior Notes are guaranteed on a
senior secured basis by all the US Issuer's domestic restricted subsidiaries,
and the Dutch Senior Notes are guaranteed on a senior secured basis by the US
Issuer and by the restricted subsidiaries of the Dutch issuer, presently
consisting of 97/8% Senior Subordinated Notes due 2008: | | | | |
| Principal amount of repurchased notes | | $ | 51,971 | |
| Repurchased at 60% of principal amount | | | (31,183 | ) |
| Transaction costs | | | (4,107 | ) |
| | | |
Net gain on repurchase of notes | | | 16,681 | |
| | | |
Loss on repayment of senior credit facility | | | (1,018 | ) |
| | | |
Net Gain on Payment of Pfizer Obligations: | | | | |
| Obligations paid: | | | | |
| -promissory note | | | 20,075 | |
| -accrued interest on promissory note | | | 1,015 | |
| -accounts payable and accrued expenses | | | 18,788 | |
| | | |
| Total obligations paid | | | 39,878 | |
| Cash payment to Pfizer | | | (29,315 | ) |
| Transaction costs | | | (3,000 | ) |
| | | |
Net gain on payment of Pfizer obligations | | | 7,563 | |
| | | |
Net gain on extinguishment of debt | | $ | 23,226 | |
| | | |
| |
| 4. | Belgium Plant Transactions |
On December 16, 2004, Phibro Animal Health SA. The US Senior Notes and related
guarantees are collateralized bySA, (“PAH Belgium”) entered into an agreement with GlaxoSmithKline Biologicals (“GSK”) to sell to GSK substantially all of PAH Belgium’s facilities in Rixensart, Belgium (the “Belgium Plant”). Such sale, when completed (the “Belgium Plant Transactions”), will include the following elements (U.S. dollar amounts at the June 30, 2005 exchange rate): (i) the transfer of substantially all of the US Issuer'sland and buildings and certain equipment of PAH Belgium at the Belgium Plant, as well as the industrial activities and intellectual property relating to certain solvent technology of PAH Belgium for a purchase price of EUR 6,200 ($7,501), payable at closing; (ii) the transfer to GSK of a majority of the employees of the Belgium Plant and the corresponding responsibility for statutory severance obligations; (iii) GSK agreeing to be responsible for cleaning-up, by demolition or otherwise, certain buildings not to be used by it, but for PAH Belgium to reimburse GSK up to a maximum of EUR 700 ($847) for such cleaning-up costs; (iv) in recognition of the benefits to PAHC from the proposed transaction, PAH Belgium agreeing to pay to GSK EUR 1,500 ($1,815) within six months from the closing date, EUR 1,500 ($1,815) within eighteen months from the closing date, EUR 1,500 ($1,815) within thirty months from the closing date, and EUR 500 ($605) within forty-two months from the closing date; (v) PAH Belgium retaining certain excess land (valued at approximately EUR 400 ($484)) and being able to sell such land for its own account; (vi) PAH Belgium being responsible for certain plant closure costs and legally required severance indemnities in connection with workforce reductions; and (vii) PAH Belgium retaining any or all equipment at the Belgium Plant, and being able to sell such equipment for the account of PAH Belgium or transfer such
F-14
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
equipment, together with other assets and rights related to the assetsproduction of its domestic restricted subsidiaries, othervirginiamycin, to PAH Brazil which owns a facility in Guarulhos, Brazil or in connection with alternative production arrangements.
The foregoing transactions and agreements are subject to a closing that is expected to occur on November 30, 2005, but in no event later than real property and
interests therein, including a pledge of all the capital stock of such domestic
restricted subsidiaries.June 30, 2006.
The Dutch Senior Notes and related guarantees are collateralized by a pledge of all the accounts receivable, a security interest
or floating chargemortgage on the inventory toBelgium Plant which will be released in connection with the extent permitted by applicable law,
and a mortgage on substantially allclosing of the real propertysale of the Dutch issuerBelgium Plant to GSK.
As a result of the above agreement, the Company will depreciate the Belgium plant to its estimated salvage value of EUR 2,100 ($2,500) as of the projected closing date of November 30, 2005. The Company recorded incremental depreciation expense of EUR 5,828 ($7,467) during 2005 and eachwill record an additional EUR 3,800 ($4,600) of its restricted subsidiaries, a pledgeincremental depreciation expense ratably through November 2005.
The Company recorded accrued severance expense of 100%EUR 10,200 ($12,808) during 2005, representing the estimated total cost of severance and early-retirement programs for those employees not transferring to GSK. The expense includes $888 for enhanced pension benefits agreed as part of the early-retirement program. The Company estimates $6,500 will be payable at or around the closing date and $6,308 will be payable in subsequent periods.
The Company also recorded $1,916 of other transaction-related expense during 2005.
The incremental depreciation expense of $7,467, severance expense of $12,808 and other transaction-related expense of $1,916 recorded in 2005 are included in cost of goods sold on the Company’s consolidated statements of operations and comprehensive income (loss).
The Company expects to record an estimated $6,200 of additional net expense during fiscal 2006 for employee retention agreements, plant dismantling and decommissioning, plant shutdown and other costs associated with the completion of the sale of the Belgium Plant. The estimated net expense includes an estimated $1,100 of gain from the curtailment of the Belgium pension plan. The Company estimates no material gain or loss during fiscal 2006 resulting from the sale of the Belgium Plant.
The Company has determined that the carrying amount of the Belgium Plant at June 30, 2005 is recoverable based on the estimated future cash flows arising from the use of the assets.
In anticipation of transferring production of virginiamycin from the Belgium plant to an alternative production location, the Company has been increasing inventory levels of virginiamycin to ensure adequate supplies during the transfer period. Virginiamycin inventories were approximately $38,800 and $24,100 at June 30, 2005 and 2004, respectively, and are expected to continue to increase through November 2005, based on current production rates.
| |
| 5. | Holding Company and HoldCo Notes |
During February 2005, PAHC Holdings Corporation (“Holdings”) was formed to hold the capital stock of each subsidiarythe Company, except for its Series C Preferred Stock. On February 10, 2005, Holdings issued $29,000 aggregate principal amount of the Dutch issuer, a pledge of the intercompany loans made by
the Dutch issuer to its restricted subsidiaries and substantially all of the
assets of the U.S. guarantors, other than real property and interests therein.
The indenture governing the15% Senior Secured Notes providesdue 2010 (the “HoldCo Notes”) in a private placement. Interest is payable at the option of Holdings in cash or pay-in-kind HoldCo Notes in its sole discretion. PAHC is not obligated for optional
make-whole redemptions at any time prior to June 1, 2005, optional redemption on
or after June 1, 2005, and requires the CompanyHoldCo Notes. PAHC’s ability to make certain offerspayments to purchaseHoldings is subject to the terms of PAHC’s Senior Secured Notes, uponits Senior Subordinated Notes, and its domestic senior credit facility, and to applicable law.
The proceeds from the sale of the HoldCo Notes were used by Holdings to make a
changecapital contribution to PAHC to contemporaneously finance the redemption of
control, upon certain asset sales
and from fifty percent (50%) of excess cash flow (as such terms are definedPAHC’s Series C Preferred Stock in the
indenture).
F-12
amount of $26,400 on February 28, 2005. F-15
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
Also,— (Continued)
On May 16, 2005, Holdings completed the exchange of its privately placed HoldCo Notes with new HoldCo Notes that have been registered with the SEC.
Holdings was formed by the holders of all of PAHC’s capital stock, other than the holders of PAHC’s Series C Preferred Stock. In particular, Jack Bendheim, Marvin Sussman and trusts for the benefit of Mr. Bendheim and his family exchanged all of their shares of Series A Preferred Stock and Class B Common Stock and Mr. Bendheim exchanged all of his shares of Class A Common Stock, for the same number and class of shares of Holdings, having the same designations, relative rights, privileges and limitations as PAHC’s shares of such class (except to the extent that Holdings is a Delaware corporation and PAHC is a New York corporation). Holdings owns all the outstanding capital stock of all classes of PAHC.
The HoldCo Notes are collateralized by all of Holdings’ assets (now consisting substantially of all the outstanding capital stock of PAHC). The HoldCo Notes and such security interest are effectively subordinated to all liabilities, including PAHC’s and its subsidiaries’ trade payables, as well as PAHC’s indenture indebtedness.
| |
| 6. | Series C Preferred Stock |
On February 28, 2005, PAHC, Palladium Equity Partners II, LP and certain of its affiliates (“Palladium”), Holdings and the principal stockholders of Holdings entered into an agreement to redeem PAHC’s Series C Preferred Stock with respect to (i) the redemption price of $26,400 (consisting of $19,600 of liquidation preference and $6,800 of equity value), (ii) amending the terms of the post-redemption redemption price adjustment set forth in the certificate of incorporation of PAHC (a) from an amount payable upon occurrence of certain capital stock transactions determined with respect to the value of PAHC upon the occurrence of such capital stock transaction, to a liquidated amount of $4,000, payable only after the occurrence of certain capital stock transactions and the receipt by the current stockholders of the Company, on October 21,a cumulative basis, of an aggregate of $24,000 of dividends and distributions in respect of such capital stock transactions, and (b) to remove the one year time period for such adjustment of the redemption price, and (iii) eliminating the backstop indemnification obligation of up to $4,000 of PAHC to Palladium incurred in connection with the sale by PAHC to Palladium in December 2003 of The Prince Manufacturing Company (“PMC”). The excess of the redemption price over the carrying value of the Series C Preferred Stock and the elimination of the backstop indemnification obligation have been reflected as adjustments to stockholder’s deficit on the consolidated balance sheet at June 30, 2005. The redemption agreement also eliminated PAHC’s agreement to pay $100 per year to Palladium for certain treasury services. The Company has determined the fair value of the liability for the post-redemption redemption price adjustment to be insignificant to the consolidated financial statements, due to the uncertainty of the ultimate timing of such payment, if any. Future changes in the fair value of the liability for the post-redemption redemption price adjustment will be recorded through earnings in the period in which such change occurs.
Effective December 26, 2003 (the “Closing Date”), PAHC entered into the Prince Transactions with Palladium. Pursuant to definitive purchase and other agreements executed on and effective as of the Closing Date, the Prince Transactions included the following elements which relate to PAHC’s Redeemable Preferred Stock: the reduction of the value of PAHC’s Preferred Stock owned by Palladium from $72,184 (25,000 Series B shares and 20,000 Series C shares) to $16,517 (accreted through the Closing Date) (10,591 Series C shares) by means of the redemption of all of its shares of Series B Preferred Stock and a portion of its Series C Preferred Stock; the termination of $2,250 in annual management advisory fees payable by PAHC to Palladium; a cash payment of $10,000 to Palladium in respect of the portion of PAHC’s Preferred Stock not exchanged in consideration of the business and assets of PMC; and the agreement of Palladium to pay PAHC for advisory fees for the next three years of $1,000, $500, and $200, respectively (which were pre-paid at closing by Palladium and satisfied for $1,300, the net present value of such payments).
F-16
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Dividends of $1,813, $6,042 and $8,808 for 2005, 2004 and 2003, respectively, were accrued on the preferred shares and charged to accumulated deficit on the Company’s consolidated balance sheet. Equity Value adjustments of $(90), $5,421 and $3,470 for 2005, 2004 and 2003, respectively, were accrued and charged to accumulated deficit on the Company’s consolidated balance sheet.
Effective December 26, 2003, the Company entered into completed the divestiture of substantially all of the business and assets of Prince Quincy, Inc. (f/k/a new replacementThe Prince Manufacturing Company (“PMC”)), to a company (“Buyer”) formed by Palladium Equity Partners II, LP and certain of its affiliates (“Palladium”), and the related reduction of the Company’s preferred stock held by Palladium (collectively, the “Prince Transactions”).
The excess of the reduction in redeemable preferred stock over total assets divested and costs and liabilities incurred on the Prince Transactions was recorded as a decrease to accumulated deficit on the Company’s consolidated balance sheet at December 31, 2003, and was calculated as follows:
| | | | | |
Series B & C Redeemable Preferred Stock: | | | | |
| Accreted value pre-transaction | | $ | 72,184 | |
| Accreted value post-transaction | | | 16,517 | |
| | | | |
Reduction in redeemable preferred stock | | | 55,667 | |
| | | | |
Assets Divested and Costs Incurred: | | | | |
| PMC net assets divested | | | 7,430 | |
| Cash paid to Palladium Investors for: | | | | |
| -reduction of redeemable preferred stock | | | 10,000 | |
| -settlement of PMC intercompany debt | | | 3,958 | |
| -working capital adjustment | | | 1,331 | |
| -closing fee | | | 500 | |
| Transaction costs | | | 8,310 | |
| Contingent Backstop Indemnification Amount accrued | | | 4,000 | |
| | | | |
Total assets divested and costs and liabilities incurred | | | 35,529 | |
| | | | |
Excess amount recorded as a decrease to accumulated deficit | | $ | 20,138 | |
| | | | |
On December 29, 2004, the Company and the Buyer reached agreement regarding the post-closing working capital adjustment, which resulted in a final $227 payment to the Company from the Buyer. The Company reassessed the accruals relating to the Prince Transactions and adjusted the accruals accordingly. The adjustments resulted in a net gain of $973 which was recorded as a decrease to accumulated deficit on the Company’s consolidated balance sheet at June 30, 2005.
In connection with the February 2005 redemption of the Series C Preferred Stock, PAHC and the Palladium Investors agreed to eliminate the backstop indemnification obligation of up to $4,000 of PAHC to Palladium incurred in connection with the sale of PMC. The backstop indemnification obligation was previously included in long term liabilities in the Company’s consolidated balance sheet. The net gain of $4,000 from the elimination of the backstop indemnification obligation was recorded as a decrease to accumulated deficit on the Company’s consolidated balance sheet at June 30, 2005.
F-17
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The divestiture of PMC has not been reflected as a discontinued operation due to the existence of continuing supply and service agreements. PMC is included in the Company’s Industrial Chemicals segment. The results of operations of PMC were:
| | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | 2004 | | | 2003 | |
| | | | | | | | | |
| Net sales | | $ | — | | | $ | 11,118 | | | $ | 22,332 | |
| Operating income | | | — | | | | 2,278 | | | | 3,579 | |
| Depreciation and amortization | | | — | | | | 487 | | | | 956 | |
| |
| 8. | Discontinued Operations |
On April 29, 2005, the Company sold the shares of Wychem, an indirect wholly-owned subsidiary, for net cash proceeds of $4,896, to an investor group that included the former head of the Company’s Specialty Chemicals Group, who retired in August 2004, and the Managing Director of Wychem. The Company owned 75% of Wychem through Koffolk and 25% through Ferro Metal and Chemical Corporation Limited (U.K.). The Company recorded a gain on the sale of Wychem of $448. Wychem was included in the Company’s All Other segment.
Operating results and balance sheet items of Wychem were:
| | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
OPERATING RESULTS: | | | | | | | | | | | | |
| Net sales | | $ | 4,431 | | | $ | 3,890 | | | $ | 3,928 | |
| Cost of goods sold | | | 2,921 | | | | 2,654 | | | | 2,623 | |
| Selling, general and administrative expenses | | | 570 | | | | 605 | | | | 530 | |
| Other (income) expense | | | 6 | | | | 7 | | | | (9 | ) |
| | | | | | | | | | |
| Income before income taxes | | | 934 | | | | 624 | | | | 784 | |
| Provision for income taxes | | | 263 | | | | 165 | | | | 230 | |
| | | | | | | | | | |
| Income from operations | | $ | 671 | | | $ | 459 | | | $ | 554 | |
| | | | | | | | | | |
| Depreciation and amortization | | $ | 344 | | | $ | 419 | | | $ | 364 | |
| | | | | | | | | | |
GAIN ON SALE: | | | | | | | | | | | | |
| Current assets | | $ | (2,328 | ) | | | | | | | | |
| Property, plant & equipment-net and other assets | | | (3,342 | ) | | | | | | | | |
| Liabilities | | | 924 | | | | | | | | | |
| Currency translation adjustment | | | 511 | | | | | | | | | |
| Net proceeds of sale | | | 4,896 | | | | | | | | | |
| Income tax expense | | | (213 | ) | | | | | | | | |
| | | | | | | | | | |
| Gain on sale | | $ | 448 | | | | | | | | | |
| | | | | | | | | | |
F-18
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | |
| | | As of June 30, | |
| | | 2004 | |
| | | | |
BALANCE SHEET: | | | | |
| Trade receivables | | $ | 441 | |
| Inventories | | | 1,348 | |
| Prepaid expenses and other current assets | | | 97 | |
| | | | |
| Current assets from discontinued operations | | $ | 1,886 | |
| | | | |
| Property, plant & equipment, net | | $ | 3,405 | |
| | | | |
| Other assets from discontinued operations | | $ | 3,405 | |
| | | | |
| Accounts payable | | $ | 208 | |
| Accrued expenses and other current liabilities | | | 630 | |
| | | | |
| Current liabilities from discontinued operations | | $ | 838 | |
| | | | |
The Company sold MRT and shutdown La Cornubia during fiscal 2004. These businesses have been classified as discontinued operations. The Company reassessed the accruals relating to the La Cornubia shutdown and adjusted the accruals accordingly which resulted in a net gain of $137 which was recorded as income on disposal of discontinued operations on the Company’s consolidated statements of operations and comprehensive income (loss).
Operating results and gain on sale of MRT were:
| | | | | | | | | |
| | | For the Years Ended | |
| | | June 30, | |
| | | | |
| | | 2004 | | | 2003 | |
| | | | | | | |
OPERATING RESULTS: | | | | | | | | |
| Net sales | | $ | 3,327 | | | $ | 18,671 | |
| Cost of goods sold | | | 3,135 | | | | 19,943 | |
| Selling, general and administrative expenses | | | 316 | | | | 2,182 | |
| | | | | | | |
| (Loss) before income taxes | | | (124 | ) | | | (3,454 | ) |
| Provision for income taxes | | | — | | | | — | |
| | | | | | | |
| (Loss) from operations | | $ | (124 | ) | | $ | (3,454 | ) |
| | | | | | | |
| Depreciation and amortization | | $ | — | | | $ | 1,309 | |
| | | | | | | |
GAIN ON SALE: | | | | | | | | |
| Current assets | | $ | (5,813 | ) | | | | |
| Property, plant & equipment-net and other assets | | | (10,703 | ) | | | | |
| Liabilities | | | 2,911 | | | | | |
| Net proceeds of sale | | | 13,836 | | | | | |
| | | | | | | |
| Gain on sale | | $ | 231 | | | | | |
| | | | | | | |
F-19
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Operating results and loss on disposal of La Cornubia were:
| | | | | | | | | |
| | | For the Years Ended | |
| | | June 30, | |
| | | | |
| | | 2004 | | | 2003 | |
| | | | | | | |
OPERATING RESULTS: | | | | | | | | |
| Net sales | | $ | 13,918 | | | $ | 13,479 | |
| Cost of goods sold | | | 13,723 | | | | 12,528 | |
| Selling, general and administrative expenses | | | 1,686 | | | | 1,310 | |
| Other (income) | | | (102 | ) | | | (389 | ) |
| Interest expense | | | 94 | | | | 60 | |
| | | | | | | |
| (Loss) before income taxes | | | (1,483 | ) | | | (30 | ) |
| Provision for income taxes | | | 18 | | | | 16 | |
| | | | | | | |
| (Loss) from operations | | $ | (1,501 | ) | | $ | (46 | ) |
| | | | | | | |
| Depreciation and amortization | | $ | 400 | | | $ | 359 | |
| | | | | | | |
LOSS ON DISPOSAL: | | | | | | | | |
| Current assets | | $ | (5,085 | ) | | | | |
| Property, plant & equipment-net and other assets | | | (2,557 | ) | | | | |
| Liabilities | | | 3,614 | | | | | |
| Unsecured debt | | | 2,167 | | | | | |
| Currency translation adjustment | | | (459 | ) | | | | |
| | | | | | | |
| (Loss) on disposal | | $ | (2,320 | ) | | | | |
| | | | | | | |
The Company reassessed the accruals relating to the Odda shutdown and adjusted the accruals accordingly which resulted in a net gain of $180 which was recorded as income on disposal of discontinued operations on the Company’s consolidated statements of operations and comprehensive income (loss).
F-20
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Operating results and loss on disposal of Odda and Carbide were:
| | | | | |
| | | For the Year | |
| | | Ended June 30, | |
| | | 2003 | |
| | | | |
OPERATING RESULTS: | | | | |
| Net sales | | $ | 11,217 | |
| Cost of goods sold | | | 13,723 | |
| Selling, general and administrative expenses | | | 3,175 | |
| Asset writedowns | | | 7,781 | |
| Other income | | | 2,327 | |
| | | | |
| (Loss) before income taxes | | | (11,135 | ) |
| (Benefit) for income taxes | | | (58 | ) |
| | | | |
| (Loss) from operations | | $ | (11,077 | ) |
| | | | |
| Depreciation and amortization | | $ | 894 | |
| | | | |
LOSS ON DISPOSAL: | | | | |
| Assets | | $ | (3,359 | ) |
| Liabilities | | | 6,432 | |
| Unsecured debt | | | 2,488 | |
| Currency translation adjustment | | | (6,244 | ) |
| | | | |
| (Loss) on disposal | | $ | (683 | ) |
| | | | |
| |
| 9. | Property, Plant and Equipment |
Property, plant and equipment is comprised of:
| | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Land | | $ | 6,250 | | | $ | 5,633 | |
| Buildings and improvements | | | 25,967 | | | | 25,743 | |
| Machinery and equipment | | | 108,762 | | | | 100,771 | |
| | | | | | | |
| | | | 140,979 | | | | 132,147 | |
| Less: accumulated depreciation | | | 91,019 | | | | 76,766 | |
| | | | | | | |
| | | $ | 49,960 | | | $ | 55,381 | |
| | | | | | | |
Certain of the buildings of Koffolk are on land leased for a nominal amount from the Israel Land Authority. The lease expires on July 9, 2027.
Depreciation expense was $16,095, $8,703 and $8,838 for 2005, 2004 and 2003, respectively. Depreciation expense for 2005 includes accelerated depreciation of $7,467 relating to the Belgium Plant Transactions.
| |
| 10. | Related Party Transactions |
On January 5, 2000, the United States Bankruptcy Court for the Eastern District of New York confirmed a plan of reorganization for Penick Corporation and Penick Pharmaceutical, Inc. (collectively “Penick”) which prior to such confirmation were debtors in proceedings in such Court for reorganization under
F-21
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Chapter 11 of the Bankruptcy Code, and awarded Penick to Penick Holding Company (“PHC”). PHC is a corporation formed to effect such acquisition by the Company, PBCI LLC, a limited liability company controlled by Mr. Bendheim, and several other investors, including Peter A. Joseph, a former director of the Company. In May 2005, in connection with the sale of PHC, the Company received the return of its $2,418 investment in preferred interest in PHC Holdings LLC, the company formed by the investors to hold, receive and sell their interests in PHC (net carrying value of $1,711). The principal common stockholder of Holdings owns approximately 15% voting common stock interest in PHC Holdings LLC. The Company recorded a gain on the sale of the investment of $707, which was included in other (income) expense, net on the Company’s consolidated statements of operations and comprehensive income (loss).
A subsidiary of the Company leases the property underlying its Santa Fe Springs, California plant from a limited partnership controlled by common shareholders of the Company. The lease requires annual base rent of $250 and terminates on December 31, 2008. The Company is responsible under the lease agreement to pay all real property taxes.
In accordance with the terms of the Prince Transactions the Company recorded advisory fee income of $750 and $500 for 2005 and 2004, respectively. The Buyer also supplied manganous oxide and red iron oxide products, and provided certain mineral blending services to the Company’s Prince Agriproducts subsidiary (“Prince Agri”) in the amounts of $4,607 and $2,149 during 2005 and 2004, respectively. Prince Agri provided the Buyer with certain laboratory, MIS and telephone services, and leased to Buyer office space in Quincy, Illinois in the amounts of $586 and $421 during 2005 and 2004, respectively. The Company also had an agreement to receive certain treasury services from the Palladium Investors for $100 per year which terminated on February 28, 2005 concurrent with the redemption of the Series C Preferred Stock. Prior to the Prince Transactions an annual management advisory fee of $2,250 was payable to the Palladium Investors. Payments were due quarterly in advance and were charged to selling, general and administrative expenses. The management fee was $1,125 and $2,250 for 2004 and 2003, respectively.
| |
| 11. | Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities were:
| | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Belgium Plant Transactions | | $ | 13,309 | | | $ | — | |
| Employee related expenses | | | 14,774 | | | | 11,409 | |
| Interest and income tax accruals | | | 5,858 | | | | 4,311 | |
| Other accrued liabilities | | | 19,874 | | | | 23,660 | |
| | | | | | | |
| | | $ | 53,815 | | | $ | 39,380 | |
| | | | | | | |
At June 30, 2005, loans payable to banks included $8,000 under PAHC’s domestic senior credit facility ("senior credit facility") with Wells Fargo Foothill, Inc., providing for a working capital facility plus a letter The weighted average interest rate at June 30, 2005 was 6.00%. At June 30, 2005, PAHC had $9,500 of credit
facility. The aggregate amount of borrowings under such working capital and
letter of credit facilities initially could not exceed $25,000, including
aggregate borrowings under the working capital facility up to $15,000. On April
29, 2004, the Company amended the senior credit facility to increase the
aggregate amount of borrowings available under such working capital and letter
of credit facilities from $25,000 to $27,500 and to increase the amount of
aggregate borrowings available under the working capital facility from $15,000that is provided under the domestic senior credit facility. Koffolk had $38 included in loans payable to $17,500.banks at June 30, 2005.
As of September 24, 2004, the CompanyPAHC amended theits domestic senior credit facility to: (i) increase the aggregate amount of borrowings available under such working capital and letter of credit facilities from $27,500 to $32,500; the amount of aggregate borrowings available under the working capital facility remained
F-22
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unchanged at $17,500; (ii) amend the EBITDA definition to exclude charges and expenses related to unsuccessful acquisitions and related financings in an aggregate amount not to exceed $5,300 for the period beginning January 1, 2004 and ending June 30, 2004; (iii) amend the definition of Additional Indebtedness to exclude advances under the working capital facility; (iv) amend the definition of Permitted Investments to allow other investments made during the period from January 1, 2004 through June 30, 2004 in an aggregate amount not to exceed $336; and (v) establish
covenant EBITDA
levels for the periods ending
after June 30, 2004. The amendment was effective June 30, 2004 for items (i),
(ii) and (iii); effective January 1, 2004 for item (iv); and effective September
24, 2004 for all other items.
Borrowings under the senior credit facility are subject to a borrowing base
formula based on percentages of eligible domestic receivables and domestic
inventory. Under the senior credit facility, the Company may choose between two
interest rate options: (i) the applicable base rate as defined plus 0.50% and
(ii) the LIBOR rate as defined plus 2.75%. Indebtedness under the senior credit
facility is secured by a first priority lien on substantially all of the
Company's assets and assets of substantially all of the Company's domestic
subsidiaries. The Company is required to pay an unused line fee of 0.375% on the
unused portion of the senior credit facility, a monthly servicing fee and
standard letter of credit fees to issuing banks. Borrowings under the senior
credit facility are available until, and are repayable no later than, October
31, 2007, although borrowings must be repaid by June 30, 2007 if the maturity of
the Senior Secured Notes has not been extended, as required by the senior credit
facility, by that date.
Pursuant to the terms of an intercreditor agreement, the security interest
securing the Senior Secured Notes and the guarantees made by the Company's
domestic restricted subsidiaries are subordinated to a lien securing the senior
credit facility.
4. Prince Transactions
Effective December 26, 2003 (the "Closing Date"), the Company completed the
divestiture of substantially all of the business and assets of The Prince
Manufacturing Company ("PMC") to a company ("Buyer") formed by Palladium Equity
Partners II, LP and certain of its affiliates (the "Palladium Investors"), and
the related reduction of the Company's preferred stock held by the Palladium
Investors (collectively the "Prince Transactions").
Pursuant to definitive purchase and other agreements executed on and
effective as of the Closing Date, the Prince Transactions included the following
elements: (i) the transfer of substantially all of the business and assets of
PMC to Buyer; (ii) the reduction of the value of the Company's Preferred Stock
owned by the Palladium Investors from $72,184 to $16,517 (accreted through the
Closing Date) by means of the redemption of all of its shares of Series B
Preferred Stock and a portion of its Series C Preferred Stock; (iii) the
termination of $2,250 in annual management advisory fees payable by the Company
to Palladium; (iv) a cash payment of $10,000 to the Palladium Investors in
respect of the portion of the Company's Preferred Stock not exchanged in
consideration of the business and assets of PMC; (v) the agreement of the Buyer
to pay the Company for advisory fees for the next three years of $1,000, $500,
and $200, respectively (which were pre-paid at closing by the Buyer and
satisfied for $1,300, the net present value of such payments); and (vi) the
Buyer agreed to supply manganous oxide and red iron oxide products and to
provide certain mineral blending services to the Company's Prince Agriproducts
subsidiary ("Prince Agri"). Prince Agri agreed to continue to provide the Buyer
with certain laboratory, MIS and telephone services, all on terms substantially
consistent with the historic relationship between Prince Agri and PMC, and to
lease to Buyer office space used by PMC in Quincy, Illinois. The Company has an
agreement to receive certain treasury services from Palladium for $100 per year.
Pursuant to definitive agreements, the Company made customary representations,
warranties and environmental and other
F-13
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
indemnities, agreed to a post-closing working capital adjustment, paid $3,958 in
full satisfaction of all intercompany debt owed to PMC, paid a closing fee to
Palladium of $500, made certain capital expenditure adjustments included as part
of the intercompany settlement amount, and agreed to pay for certain
out-of-pocket transaction expenses. PMC retained $414 of its accounts
receivable. The Company established a $1,000 letter of credit escrow for two
years to secure its working capital adjustment and certain indemnification
obligations. The Company agreed to indemnify the Palladium Investors for a
portion, at the rate of $0.65 for every dollar, of the amount they receive in
respect of the disposition of Buyer for less than $21,000, up to a maximum
payment by the Company of $4,000 (the "Backstop Indemnification Amount"). The
Backstop Indemnification Amount would be payable on the earlier to occur of July
1, 2008 or six months after the redemption date of all of the Company's Senior
Secured Notes due 2007 if such a disposition closes prior to such redemption and
six months after the closing of any such disposition if the disposition closes
after any such redemption. The Company's obligations with respect to the
Backstop Indemnification Amount will cease if the Palladium Investors do not
close the disposition of Buyer by January 1, 2009. The definition of "Equity
Value" in the Company's Certificate of Incorporation was amended to reduce the
multiple of trailing EBITDA payable in connection with any future redemption of
Series C Preferred to 6.0 from 7.5
The excess of the reduction in redeemable preferred stock over total assets
divested and costs and liabilities incurred on the Prince Transactions was
recorded as a decrease to accumulated deficit on the Company's consolidated
balance sheet at December 31, 2003, and was calculated as follows:
Series B & C Redeemable Preferred Stock:
Accreted value pre-transaction $72,184
Accreted value post-transaction 16,517
-------
Reduction in redeemable preferred stock 55,667
-------
Assets Divested and Costs Incurred:
PMC net assets divested 7,430
Cash paid to Palladium Investors for:
-reduction of redeemable preferred stock 10,000
-settlement of PMC intercompany debt 3,958
-working capital adjustment 1,331
-closing fee 500
Transaction costs 8,310
Contingent Backstop Indemnification Amount accrued 4,000
-------
Total assets divested and costs and liabilities incurred 35,529
-------
Excess amount recorded as a decrease to accumulated deficit $20,138
=======
PMC is included in the Company's Industrial Chemicals segment. The results
of operations of PMC were:
For the Years Ended June 30,
----------------------------------
2004 2003 2002
---- ---- ----
Net sales $11,118 $22,332 $21,451
Operating income 2,278 3,579 3,640
Depreciation and amortization 487 956 966
The divestiture of PMC has not been reflected as a discontinued operation
due to the existence of the Backstop Indemnification and continuing supply and
service agreements.
F-14
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
5. Discontinued Operations
The Company shutdown Odda and divested Carbide during 2003, and sold MRT and
shutdown La Cornubia during 2004. These businesses have been classified as
discontinued operations.
Odda and Carbide
Operating results and loss on disposal of Odda and Carbide were:
For the Years Ended June 30,
----------------------------
2003 2002
-------- --------
OPERATING RESULTS:
Net sales $ 11,217 $ 31,219
Cost of goods sold 13,723 46,116
Selling, general and
administrative expenses 3,175 12,812
Asset writedowns 7,781 --
Other income 2,327 3,699
-------- --------
(Loss) before income taxes (11,135) (24,010)
(Benefit) for income taxes (58) (1,170)
-------- --------
(Loss) from operations $(11,077) $(22,840)
======== ========
Depreciation and amortization $ 894 $ 17,676
======== ========
LOSS ON DISPOSAL:
Assets $ (3,359)
Liabilities 6,432
Unsecured debt 2,488
Currency translation adjustment (6,244)
--------
(Loss) on disposal $ (683)
========
F-15
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
Mineral Resource Technologies, Inc.
The Company sold MRT on August 28, 2003. Net proceeds, after transaction
costs, were approximately $13,836. Operating results, gain on sale and balance
sheet items of MRT were:
For the Years Ended June 30,
------------------------------------
2004 2003 2002
-------- -------- --------
OPERATING RESULTS:
Net sales $ 3,327 $ 18,671 $ 17,045
Cost of goods sold 3,135 19,943 17,676
Selling, general and
administrative expenses 316 2,182 2,299
-------- -------- --------
(Loss) before income taxes (124) (3,454) (2,930)
Provision for income taxes -- -- --
-------- -------- --------
(Loss) from operations $ (124) $ (3,454) $ (2,930)
======== ======== ========
Depreciation and amortization $ -- $ 1,309 $ 1,192
======== ======== ========
GAIN ON SALE:
Current Assets $ (5,813)
Property, plant & equipment-net
and other assets (10,703)
Liabilities 2,911
Net proceeds of sale 13,836
--------
Gain on disposal $ 231
========
As of
June 30, 2003
-------------
BALANCE SHEET:
Trade receivables $ 2,633
Other receivables 304
Inventories 1,643
Prepaid expenses and other current assets 362
-------
Current assets from discontinued operations $ 4,942
=======
Property, plant and equipment, net $ 9,999
Intangibles 196
Other assets 455
-------
Other assets from discontinued operations $10,650
=======
Accounts payable $ 1,466
Accrued expenses and other current liabilities 585
-------
Current liabilities from discontinued operations $ 2,051
=======
Other liabilities $ 198
-------
Other liabilities from discontinued operations $ 198
=======
F-16
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
La Cornubia, S.A.
During June 2004 the Company determined that it would no longer fund the
operations of La Cornubia. On June 30, 2004, La Cornubia filed for bankruptcy in
France. The bankruptcy is proceeding in accordance with French law. The Company
has been advised that, as a result of the bankruptcy, the creditors of La
Cornubia have recourse only to the assets of La Cornubia. The Company removed
all assets, liabilities, and cumulative translation adjustments related to La
Cornubia from the Company's consolidated balance sheet as of June 30, 2004, and
recorded a loss on disposal of discontinued operations. The Company obtained the
consent of a majority of the holders of its senior secured notes due 2007 and
its senior subordinated notes due 2008 to amend the indentures governing these
notes in such a manner that the bankruptcy of La Cornubia would not create an
event of default thereunder. The Company also obtained a waiver under its senior
credit facility so that the bankruptcy of La Cornubia would not constitute an
event of default under the senior credit facility.
Operating results, loss on disposal and balance sheet items of La Cornubia
were:
For the Years Ended June 30,
-------------------------------------
2004 2003 2002
-------- -------- --------
OPERATING RESULTS:
Net sales $ 13,918 $ 13,479 $ 11,873
Cost of goods sold 13,723 12,528 11,144
Selling, general and
administrative expenses 1,686 1,310 1,641
Other income 102 389 263
Interest (expense) - net (94) (60) (78)
-------- -------- --------
(Loss) before income taxes (1,483) (30) (727)
Provision for income taxes 18 16 62
-------- -------- --------
(Loss) from operations $ (1,501) $ (46) $ (789)
======== ======== ========
Depreciation and amortization $ 400 $ 359 $ 325
======== ======== ========
LOSS ON DISPOSAL:
Current Assets $ (5,085)
Property, plant & equipment-net
and other assets (2,557)
Liabilities 3,614
Unsecured debt 2,167
Currency translation adjustment (459)
--------
(Loss) on disposal $ (2,320)
========
F-17
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
As of
June 30,
2003
-------
BALANCE SHEET:
Trade receivables $2,957
Other receivables 139
Inventories 918
Prepaid expenses and other current assets 348
------
Current assets from discontinued operations $4,362
======
Property, plant and equipment, net $2,535
Other assets 140
------
Other assets from discontinued operations $2,675
======
Accounts payable $1,560
Accrued expenses and other current liabilities 910
Unsecured debt 1,036
------
Current liabilities from discontinued operations $3,506
======
Other liabilities $ 975
------
Other liabilities from discontinued operations $ 975
======
6. Property, Plant and Equipment
Property, plant and equipment was:
As of June 30,
--------------------------
2004 2003
-------- --------
Land $ 5,657 $ 5,816
Buildings and improvements 27,925 29,841
Machinery and equipment 105,308 106,026
-------- --------
138,890 141,683
Less: accumulated depreciation 80,104 77,778
-------- --------
$ 58,786 $ 63,905
======== ========
Certain of the buildings of Koffolk are on land leased for a nominal amount
from the Israel Land Authority. The lease expires on July 9, 2027.
Depreciation expense was $9,122, $9,202 and $10,235 for 2004, 2003 and
2002, respectively.
7. Related Party Transactions
The Company owns approximately $2,300 par value of preferred stock of a
pharmaceutical company. The principal common stockholder of the Company owns
approximately 15% voting common stock interest in the pharmaceutical company,
acquired for approximately $500. The preferred stock investment, included in
other assets, has a net carrying value of $1,610 at June 30, 2004.
F-18
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
A subsidiary of the Company leases the property underlying its Santa Fe
Springs, California plant from a limited partnership controlled by common
shareholders of the Company. The lease requires annual base rent of $250 and
terminates on December 31, 2008. The Company is responsible under the lease
agreement to pay all real property taxes.
In accordance with the terms of the Prince Transactions (Note 4) the Buyer
paid the Company advisory fees of $500 for the year ended June 30, 2004. The
Buyer also supplied manganous oxide and red iron oxide products, and provided
certain mineral blending services to the Company's Prince Agriproducts
subsidiary ("Prince Agri") for which Prince Agri paid $2,149 during the year
ended June 30, 2004. Prince Agri provided the Buyer with certain laboratory, MIS
and telephone services, and leased to Buyer office space in Quincy, Illinois for
which the buyer paid Prince Agri $421 during the year ended June 30, 2004. The
Company also has an agreement to receive certain treasury services from the
Palladium Investors for $100 per year. Prior to the Prince Transactions an
annual management advisory fee of $2,250 was payable to the Palladium Investors.
Payments were due quarterly in advance and were charged to general and
administrative expense. The management fee was $1,125, $2,250 and $2,250 for
2004, 2003 and 2002, respectively.
8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were:
As of June 30,
-------------------------
2004 2003
------- -------
Employee related expenses $11,444 $10,003
Payments due to Pfizer -- 9,040
Interest and tax accruals 4,836 9,249
Other accrued liabilities 23,730 12,407
------- -------
$40,010 $40,699
======= =======
9. Debt
Loans Payable to Banks
At June 30, 2004, loans payable to banks included $10,996 under the senior
credit facility with Wells Fargo Foothill, Inc. The weighted average interest
rate under the senior credit facility from its inception at October 21, 2003
through June 30, 2004 was 8.0%. At June 30, 2004, the Company had $6,504 of
borrowings available under the borrowing base formula in effect for the working
capital facility that is provided under the senior credit facility.
On October 21, 2003, the Company entered into a new senior credit facility
with Wells Fargo Foothill, Inc., providing for a working capital facility plus a
letter of credit facility. The aggregate amount of borrowings under such working
capital and letter of credit facilities may not exceed $25,000, including
aggregate borrowings under the working capital facility of up to $15,000. On
April 29, 2004, the Company amended the senior credit facility to increase the
aggregate amount of borrowings available under such working capital and letter
of credit facilities from $25,000 to $27,500 and to increase the amount of
aggregate borrowings available under the working capital facility from $15,000
to $17,500. As of September 24, 2004, the Company amended the senior credit
facility to: (i) increase the aggregate amount of borrowings available under
such working capital and letter of credit facilities from $27,500 to $32,500;
the amount of aggregate borrowings available under the working capital facility
remained unchanged at $17,500; (ii) amend the EBITDA definition to exclude
charges and expenses related to unsuccessful acquisitions and related financings
in an aggregate amount not to exceed $5,300 for the period beginning January 1,
2004 and ending June 30, 2004; (iii) amend the definition of Additional
Indebtedness to exclude advances under the working capital facility; (iv) amend
the definition of Permitted Investments to allow other investments made during
the period from January 1, 2004 through June 30, 2004 in an aggregate amount not
to exceed $336; and (v) establish covenant EBITDA levels for the periods after June 30, 2004. The amendment was effective June 30, 2004 for items (i), (ii) and (iii); effective January 1, 2004 for item (iv); and effective September 24, 2004 for all other items.
F-19
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
Borrowings underitem (v). On December 21, 2004, concurrent with the completion of the offering of the Additional Notes, PAHC amended its domestic senior credit facility are subjectto: (i) amend the EBITDA definition to exclude charges and expenses related to the sale of the Belgium Plant in an aggregate amount not to exceed $26,800 for purposes of calculating a certain financial covenant; (ii) amend the Indenture reserve definition to include scheduled payments of interest due on the Additional Notes; (iii) amend the maximum aggregate amount of borrowing base
formula based on percentages of eligible domestic receivables and domestic
inventory. Under the senior credit facility, the Company may choose between two
interest rate options: (i) the applicable base rate as defined plus 0.50% and
(ii) the LIBOR rate as defined plus 2.75%. Indebtednessavailable under the senior creditworking capital facility is securedto permit a temporary increase to $22,500 and for its reduction to $17,500 on such borrowings being refinanced by a first priority lien on substantially allthe proceeds of the Company'sAdditional Notes; (iv) amend the Permitted Investments definition to include investments in connection with the sale of the Belgium Plant and transfer of certain equipment, together with other assets and assetsrights related to the production of substantially allvirginiamycin, to Phibro Saude Animal International Ltda, (“PAH Brazil”) or in connection with alternative production arrangements; and (v) provide for the issuance of the Company's domestic
subsidiaries. The Company is required to pay an unused line fee of 0.375% onAdditional Notes and the unused portionsale of the senior credit facility, a monthly servicing feeBelgium Plant and standard letter of credit fees to issuing banks. Borrowings under the senior
credit facility are available until, and are repayable no later than, October
31, 2007, although borrowings must be repaid by June 30, 2007 if the maturity of
the Senior Secured Notes has not been extended, as required by the senior credit
facility, by that date.related transactions.
As of June 30, 2004, the Company2005, PAHC was in compliance with the financial covenants of the amendedits domestic senior credit facility. The domestic senior credit facility requires, among other things, the maintenance of certain levels of trailing consolidated and domestic EBITDA (earnings before interest, taxes, depreciation and amortization) calculated on a monthly basis, and an acceleration clause should an event of default (as defined in the agreement) occur. In addition, there are certain restrictions on additional borrowings, additional liens on the
Company'sPAHC’s assets, guarantees, dividend payments, redemption or purchase of the
Company'sPAHC’s stock, sale of subsidiaries'subsidiaries’ stock, disposition of assets, investments, and mergers and acquisitions.
The
PAHC’s domestic senior credit facility contains a lock-box requirement and a material adverse change clause should an event of default (as defined in the agreement) occur. Accordingly, the amounts outstanding have been classified as short-term and are included in loans payable to banks in the consolidated balance sheet.
Long-Term Debt
As of
-----------------------------
June 30, 2004 June 30, 2003
------------- -------------
Senior secured notes due December 1, 2007 $105,000 $ --
Senior subordinated notes due June 1, 2008 48,029 100,000
Foreign bank loans 6,237 3,906
Pfizer promissory note -- 20,075
Bank capital expenditure facility -- 1,496
Capitalized lease obligations and other 103 910
-------- --------
159,369 126,387
Less: current maturities 1,351 24,124
-------- --------
$158,018 $102,263
======== ========
| | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Senior secured notes due December 1, 2007 | | $ | 127,491 | | | $ | 105,000 | |
| Senior subordinated notes due June 1, 2008 | | | 48,029 | | | | 48,029 | |
| Foreign bank loans | | | 2,606 | | | | 6,237 | |
| Capitalized lease obligations and other | | | — | | | | 103 | |
| | | | | | | |
| | | | 178,126 | | | | 159,369 | |
| Less: current maturities | | | 1,625 | | | | 1,351 | |
| | | | | | | |
| | | $ | 176,501 | | | $ | 158,018 | |
| | | | | | | |
F-23
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| Senior Secured Notes due 2007 |
In October 2003 PAHC (the “Parent Issuer”) and Philipp Brothers Netherlands III B.V., an indirect wholly-owned subsidiary of PAHC (the “Dutch Issuer” and together with PAHC, the Company“Issuers”) issued and sold 105,000 units, consisting of $85,000 of 13% Senior Secured Notes due 2007 of the Parent Issuer (the "US Senior Notes"“U.S. Notes”) and $20,000 of 13% Senior Secured Notes due 2007 of Philipp Brothers Netherlands III B.V.the Dutch Issuer (the "Dutch Senior Notes"“Dutch Notes” and, together with the US SeniorU.S. Notes, the "Senior“Senior Secured Notes"Notes”), an indirect wholly-owned subsidiary.
On December 21, 2004, PAHC completed a private placement pursuant to which the Parent Issuer and the Dutch Issuer issued and sold 22,491 additional units consisting of
$18,207 of additional U.S. Notes and $4,284 of additional Dutch Notes from which they received gross proceeds of $23,391. The proceeds were used to refinance indebtedness outstanding under PAHC’s domestic senior credit facility. PAHC incurred financing costs of $2,275 in connection with the
Companyissuance of these additional Senior Secured Notes. These additional Senior Secured Notes were issued under the Indenture dated October 21, 2003, as amended and supplemented (the
"Dutch
issuer"“Indenture”)
.
F-20
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands) under which the Issuers previously issued 105,000 units consisting of $85,000 aggregate principal amount of U.S. Notes and $20,000 aggregate principal amount of Dutch Notes. On March 9, 2005, PAHC completed the exchange of its privately placed 127,491 units of 13% Senior Secured Notes due 2007 with 127,491 new units of 13% Senior Secured Notes due 2007 that have been registered with the SEC.
The US SeniorU.S. Notes and the Dutch Senior Notes are senior secured obligations of each of the Company (the "US issuer")Parent Issuer and the Dutch issuer,Issuer, respectively. The US SeniorU.S. Notes and the Dutch Senior Notes are guaranteed on a senior secured basis by all the US Issuer'sParent Issuer’s domestic restricted subsidiaries (the “U.S. Guarantor Subsidiaries”), and the Dutch Senior Notes are guaranteed on a senior secured basis by the USParent Issuer and by the restricted subsidiaries of the Dutch issuer,Issuer, presently consisting of Phibro Animal Health SA.SA (the “Belgium Guarantor”). The US SeniorU.S. Notes and related guarantees are collateralized by substantially all of the US Issuer'sParent Issuer’s assets and the assets of its domestic restricted subsidiaries,the U.S. Guarantor Subsidiaries, other than real property and interests therein, including a pledge of all the capital stock of such domestic
restricted subsidiaries.the U.S. Guarantor Subsidiaries. The Dutch Senior Notes and related guarantees are collateralized by a pledge of all the accounts receivable, a security interest or floating charge on the inventory to the extent permitted by applicable law, and a mortgage on substantially all of the real property of the Dutch issuerIssuer and each of its restricted subsidiaries,the Belgium Guarantor, a pledge of 100% of the capital stock of each subsidiary of the Dutch issuer,Belgium Guarantor, a pledge of the intercompany loans made by the Dutch issuerIssuer to its restricted subsidiariesthe Belgium Guarantor and substantially all of the assets of the U.S. guarantors,Guarantor Subsidiaries, other than real property and interests therein. The indenture governing the Senior Secured Notes provides for optional make-whole redemptions at any time prior to June 1, 2005, optional redemption on or after June 1, 2005, and requires the CompanyPAHC to make certain offers to purchase Senior Secured Notes upon a change of control, upon certain asset sales and from fifty percent (50%) of excess cash flow (as such terms are defined in the indenture).
The indenture contains certain covenants with respect to the CompanyPAHC and the guarantors, which restrict, among other things, (a) the incurrence of additional indebtedness, (b) the payment of dividends and other restricted payments, (c) the creation of certain liens, (d) the sale of assets, (e) certain payment restrictions affecting subsidiaries, and (f) transactions with affiliates. The indenture restricts the Company'sPAHC’s ability to consolidate, or merge with or into, or to transfer all or substantially all of its assets to, another person.
Senior Subordinated Notes due 2008
The Company
| |
| Senior Subordinated Notes due 2008 |
PAHC issued $100,000 aggregate principal amount of 9-7/8%97/8% Senior Subordinated Notes due 2008 ("(“Senior Subordinated Notes"Notes”) of which $51,971 principal amount was repurchased with proceeds of the Senior Secured Notes. The Senior Subordinated Notes are general unsecured obligations of the CompanyPAHC and are subordinated in right of payment to all existing and future senior debt (as defined in the indenture agreement of the Company)PAHC) and rank pari passu in right of payment with all other existing and future senior subordinated indebtedness of the Company.PAHC. The Senior Subordinated Notes are unconditionally guaranteed on a senior
F-24
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
subordinated basis by the domestic restricted subsidiaries of the
Company.PAHC. Additional future domestic subsidiaries may become guarantors under certain circumstances.
The indenture contains certain covenants with respect to the CompanyPAHC and the Guarantors, which restrict, among other things, (a) the incurrence of additional indebtedness, (b) the payment of dividends and other restricted payments, (c) the creation of certain liens, (d) the sale of assets, (e) certain payment restrictions affecting subsidiaries, and (f) transactions with affiliates. The indenture restricts the Company'sPAHC’s ability to consolidate, or merge with or into, or to transfer all or substantially all of its assets to, another person.
The bank loans of the Company's Koffolk Ltd. (Israel) subsidiary are collateralized by its receivables and inventory, accrue interest at LIBOR plus 1.25%, and are repayable in equal quarterly payments through 2005.2008. The LIBOR rate was 1.15%3.125% at June 30, 2004.
The Company's foreign subsidiaries have2005.
Koffolk has aggregate credit lines of
$11,044.
At$10,500, and at June 30,
2004, the Company2005, had
$4,807$7,135 of borrowings available under these credit lines.
F-21
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
| |
| Aggregate Maturities of Long-Term Debt |
The aggregate maturities of long-term debt as of June 30, 20042005 were:
Year Ended June 30,
- -------------------
2005 $ 1,351
2006 4,127
2007 --
2008 153,891
2009 --
--------
Total $159,369
========
10.
| | | | | | |
| Year Ended June 30, | | |
| | | |
| 2006 | | $ | 1,625 | |
| 2007 | | | — | |
| 2008 | | | 176,501 | |
| 2009 | | | — | |
| 2010 | | | — | |
| | | | |
| | Total | | $ | 178,126 | |
| | | | |
| |
| 13. | Redeemable Common Stock of Subsidiary |
A key executive of the Company has a 2.1% ownership interest in the common stock of a subsidiary. The subsidiary'ssubsidiary’s shares are redeemable at fair market value, based on independent appraisal, upon the death, disability or termination of the key executive. The Company and its subsidiary have entered into a severance agreement with the executive for payments based on a multiple of pre-tax earnings (as defined). The payments are subject to certain restrictions pursuant to terms of the domestic senior credit facility. At June 30, 20042005 no severance payments would have been due upon termination.
11. Redeemable Preferred Stock
Effective December 26, 2003 (the "Closing Date"), the Company entered into
the Prince Transactions with the Palladium Investors (Note 4). Pursuant to
definitive purchase and other agreements executed on and effective as of the
Closing Date, the Prince Transactions included the following elements which
relate to the Company's Redeemable Preferred Stock: the reduction of the value
of the Company's Preferred Stock owned by the Palladium Investors from $72,184
(25,000 Series B shares and 20,000 Series C shares) to $16,517 (accreted through
the Closing Date) (10,591 Series C shares) by means of the redemption of all of
its shares of Series B Preferred Stock and a portion of its Series C Preferred
Stock; the termination of $2,250 in annual management advisory fees payable by
the Company to Palladium; a cash payment of $10,000 to the Palladium Investors
in respect of the portion of the Company's Preferred Stock not exchanged in
consideration of the business and assets of PMC; and the agreement of the
Palladium Investors to pay the Company for advisory fees for the next three
years of $1,000, $500, and $200, respectively (which were pre-paid
| |
| 14. | Common Stock and Preferred Stock |
Common stock at
closing by
the Palladium Investors and satisfied for $1,300, the net present value of such
payments). The Company has an agreement to receive certain treasury services
from the Palladium Investors for $100 per year.
The redeemable preferred stock is entitled to cumulative cash dividends,
payable semi-annually, at 15% per annum of 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 earnings before
interest, taxes, depreciation and amortization ("EBITDA") of the Company's
business ("Equity Value").
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 June 2008), Palladium
Investors shall have the right to require the Company to redeem, for cash, the
Preferred C at the Liquidation Value plus the Equity Value payment.
Dividends of $6,042, $8,808 and $7,623 for the years ended June 30,
2005 and 2004
2003 and 2002, respectively, were accrued on the preferred shares and charged to
retained earnings. Equity Value of $5,421, $3,470 and $0 for the years ended
June 30, 2004, 2003 and 2002, respectively, was accrued and charged to retained
earnings.
F-22
was: | | | | | | | | | | | | | |
| | | Authorized | | | | | |
| | | Shares | | | Issued Shares | | | Amount at Par | |
| | | | | | | | | | |
| Class A common stock | | | 16,200 | | | | 12,600 | | | $ | .10 | |
| Class B common stock | | | 14,100 | | | | 11,888 | | | $ | .10 | |
| | | | | | | | | | |
| | | | 30,300 | | | | 24,488 | | | | | |
F-25
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
As of
--------------------------------
June 30, 2004 June 30, 2003
------------- -------------
Series B
Value at issuance $ -- $25,000
Accrued dividends -- 11,339
Series C
Value at issuance 10,591 20,000
Accrued dividends 7,200 9,072
Accreted equity value 6,887 3,470
------- -------
Total redeemable preferred stock $24,678 $68,881
======= =======
The agreement with the Palladium Investors contains covenants which
restrict, without the consent of at least one director designated by the
Palladium Investors (or if no such director is then serving on the Board, at
least one of the Palladium Investors), certain (a) issuances of equity
securities, (b) sales of assets in excess of $10,000, (c) purchases of business
and other investments in excess of $10,000, (d) incurrence of indebtedness for
borrowed money in excess of $12,500, (e) redemptions, acquisitions or other
purchases of equity securities, (f) transactions with officers, directors,
stockholders or employees or any family member or affiliate thereof in excess of
$500, (g) compensation and benefits of certain officers, and (h) transactions
involving a change of control.
12. Common Stock and Paid-in Capital
Common Stock:
Common stock at June 30, 2004 and 2003 was:
Authorized
Shares Issued Shares Amount at Par
---------- ------------ -------------
Class A common stock................. 16,200 12,600 $.10
Class B common stock................. 14,100 11,888 $.10
------ ------
30,300 24,488— (Continued)
The entire voting power is vested in the holders of Class A common stock, except the holders of Class A common stock are entitled to elect all but threetwo of the directors. The holders of Class B common stock are entitled to elect one director, and the purchasersholders of the Preferred B and Preferred C are entitled by
contractunits of senior secured notes have the right to elect two directors.designate one director. No dividends may be paid to common stockholders until all dividends have been paid to preferred stockholders. Thereafter, holders of Class A common stock shall receive dividends, when and as declared by the directors, at the rate of 5.5% of the par value of such stock (non-cumulative). After all declared dividends have been paid to Class A common stockholders, dividends may be declared and paid to the holders of Class B common stock. In the event of any complete liquidation, dissolution, winding-up of the business, or sale of all the assets of the Company, and after the redemption of the preferred stock, the Class A common stockholders are entitled to a distribution equal to the par value of the stock plus declared and unpaid dividends. Thereafter, the remaining assets of the Company shall be distributed to the holders of Class B common stock.
Redeemable Common Stock:
Pursuant to terms
Non-cumulative dividends are payable on the outstanding Series A preferred stock, when and as declared by the directors, at the rate of
an agreement with a minority shareholder, who is also
an officer of the Company, the Company is required to purchase at book value,
the Class B$1.00 per year for each share. The shares of
such shareholder upon his retirement, death, disability,Series A preferred stock are redeemable at our option, in whole or
in part, at any time or from time to time, for a redemption price equal to the
termination of his employment. Should such shareholder elect to sell his
shares, the Company has a right of first offer and an option to purchase the
shares. The Company records a liability for the redemption amount as calculated
at each balance sheet date. No liability was recorded as of June 30, 2004 and
2003. Income of $378 was recorded during 2002 to adjust the shares to redeemable
value.
F-23
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
13. par value thereof plus any declared but unpaid dividends. | |
| 15. | Employee Benefit Plans |
The Company and its domestic subsidiaries maintain noncontributory defined benefit pension plans for all eligible domestic nonunion employees who meet certain requirements of age, length of service and hours worked per year. The Company'sCompany’s Belgium subsidiary maintains a defined contribution and defined benefit plan for eligible employees. The benefits provided by the plans are based upon years of service and the employees'employees’ average compensation, as defined. The measurement datedates for the domestic and international pension plans waswere June 30, 2005 and 2004, and 2003, respectively.
Reconciliations of changes in benefit obligations, plan assets, and funded status of the plans were:
Domestic International
-------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Change in Benefit Obligation
Benefit obligation at beginning
of year $ 15,846 $ 11,821 $ 6,595 $ 4,251
Service cost 1,260 1,056 467 310
Employee contributions -- -- 27 100
Interest cost 891 784 374 259
Benefits paid (595) (243) (3) (29)
Actuarial (gain) or loss (251) (663) (475) 879
Curtailment (922) -- -- --
Change in Discount Rate (786) 3,092 -- --
Exchange rate impact -- -- 338 825
-------- -------- -------- --------
Benefit obligation at
end of year $ 15,443 $ 15,846 $ 7,323 $ 6,595
======== ======== ======== ========
| | | | | | | | | | | | | | | | | |
| | | Domestic | | | International | |
| | | | | | | |
| | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| | | | | | | | | | | | | |
Change in benefit obligation | | | | | | | | | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 15,443 | | | $ | 15,846 | | | $ | 7,323 | | | $ | 6,595 | |
| Service cost | | | 1,220 | | | | 1,260 | | | | 477 | | | | 467 | |
| Interest cost | | | 943 | | | | 891 | | | | 423 | | | | 374 | |
| Benefits paid | | | (295 | ) | | | (595 | ) | | | (14 | ) | | | (3 | ) |
| Employee contributions | | | — | | | | — | | | | 39 | | | | 27 | |
| Actuarial (gain) or loss | | | 197 | | | | (251 | ) | | | 670 | | | | (475 | ) |
| Curtailment | | | — | | | | (922 | ) | | | — | | | | — | |
| Special termination benefits | | | — | | | | — | | | | 888 | | | | — | |
| Change in discount rate | | | 3,732 | | | | (786 | ) | | | 1,690 | | | | — | |
| Exchange rate impact | | | — | | | | — | | | | (232 | ) | | | 338 | |
| | | | | | | | | | | | | |
| Benefit obligation at end of year | | $ | 21,240 | | | $ | 15,443 | | | $ | 11,264 | | | $ | 7,323 | |
| | | | | | | | | | | | | |
At June 30, 20042005 and 2003,2004, the accumulated benefit obligation was $13,075$17,844 and $12,458,$13,075, respectively, for domestic pension plans and $4,383$7,325 and $4,248,$4,383, respectively, for international pension plans.
Change in Plan Assets
Fair value of
The International plan assets at
beginning of year $ 10,387 $ 9,717 $ 4,566 $ 2,882
Actual return on plan assets 1,069 537 435 204
Employer contributions 935 376 558 841
Employee contributions -- -- 27 100
Benefits paid (595) (243) (3) (29)
Exchange rate impact -- -- 245 568
-------- -------- -------- --------
Fair value of plan assets at
end of year $ 11,795 $ 10,387 $ 5,828 $ 4,566
======== ======== ======== ========
Funded Status
Funded status2005 benefit obligation and pension cost include $888 for enhanced pension benefits with certain employees who have agreed to an early-retirement program effective as of the closing of the Belgium Plant Transactions.
F-26
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company expects the International plan $ (3,648) $ (5,459) $ (1,495) $ (2,029)
Unrecognized net actuarial
(gain) or loss 152 2,358 368 961
Unrecognized prior service cost (337) (554) -- --
Unrecognized transition
obligation/(asset) (8) (12) -- --
-------- -------- -------- --------
(Accrued) pension cost $ (3,842) $ (3,666) $ (1,127) $ (1,068)
======== ======== ======== ========will record during fiscal 2006 a curtailment gain of approximately $1,100 related to the reduction in number of international participants due to the Belgium Plant Transactions.
| | | | | | | | | | | | | | | | | |
Change in Plan Assets | | | | | | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | 11,795 | | | $ | 10,387 | | | $ | 5,828 | | | $ | 4,566 | |
| Actual return on plan assets | | | 365 | | | | 1,068 | | | | 623 | | | | 435 | |
| Employer contributions | | | 720 | | | | 935 | | | | 658 | | | | 558 | |
| Employee contributions | | | — | | | | — | | | | 38 | | | | 27 | |
| Other | | | — | | | | — | | | | 353 | | | | — | |
| Benefits paid | | | (295 | ) | | | (595 | ) | | | (14 | ) | | | (3 | ) |
| Exchange rate impact | | | — | | | | — | | | | (78 | ) | | | 245 | |
| | | | | | | | | | | | | |
| Fair value of plan assets at end of year | | $ | 12,585 | | | $ | 11,795 | | | $ | 7,408 | | | $ | 5,828 | |
| | | | | | | | | | | | | |
Funded status | | | | | | | | | | | | | | | | |
| Funded status of the plan | | $ | (8,655 | ) | | $ | (3,648 | ) | | $ | (3,856 | ) | | $ | (1,495 | ) |
| Unrecognized net actuarial (gain) or loss | | | 4,618 | | | | 152 | | | | 2,002 | | | | 368 | |
| Unrecognized prior service cost | | | (195 | ) | | | (338 | ) | | | — | | | | — | |
| Unrecognized transition obligation/(asset) | | | (5 | ) | | | (8 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| (Accrued) pension cost | | $ | (4,237 | ) | | $ | (3,842 | ) | | $ | (1,854 | ) | | $ | (1,127 | ) |
| | | | | | | | | | | | | |
The Company expects to contribute
$990 and $602approximately $1,411 to its
Domestic and
International plans, respectively,domestic plan during fiscal
2005.2006. The
Company'sCompany’s policy is to fund the pension plans in amounts which comply with contribution limits imposed by
law.
F-24
law or by contractual obligation. The Company expects it will not contribute to the international plan during fiscal 2006 due to the anticipated reduction in plan participants resulting from employees who will transfer to GSK and from an early-retirement program.
The Company expects international plan assets during 2006 will be reduced by approximately $6,800 in connection with the expected transfer of employees to GSK and the early-retirement program.
F-27
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)— (Continued)
Components of net periodic pension expense were:
2004 2003 2002
------- ------- -------
Domestic Pension Expense
Service cost - benefits earned during the year $ 1,260 $ 1,056 $ 879
Interest cost on benefit obligation 891 784 714
Expected return on plan assets (846) (756) (709)
Amortization of initial unrecognized
net transition (asset) (3) (3)
(3)
Amortization of prior service costs (153) (162) (165)
Amortization of net actuarial loss (gain) 25 (57)
(31)
Curtailment benefit (64) -- --
------- ------- -------
Net periodic pension cost - domestic $ 1,110 $ 862 $ 685
======= ======= =======
International Pension Expense
Service cost - benefits earned during the year $ 467 $ 310 $ 217
Interest cost on benefit obligation 374 259 164
Expected return on plan assets (300) (203) (123)
Amortization of net actuarial loss 22 -- --
------- ------- -------
Net periodic pension cost - international $ 563 $ 366 $ 258
======= ======= =======
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
Domestic Pension Expense | | | | | | | | | | | | |
| Service cost — benefits earned during the year | | $ | 1,220 | | | $ | 1,260 | | | $ | 1,056 | |
| Interest cost on benefit obligation | | | 943 | | | | 891 | | | | 784 | |
| Expected return on plan assets | | | (902 | ) | | | (846 | ) | | | (756 | ) |
| Amortization of initial unrecognized net transition (asset) | | | (3 | ) | | | (3 | ) | | | (3 | ) |
| Amortization of prior service costs | | | (143 | ) | | | (153 | ) | | | (162 | ) |
| Amortization of net actuarial loss (gain) | | | — | | | | 25 | | | | (57 | ) |
| Curtailment benefit | | | — | | | | (64 | ) | | | — | |
| | | | | | | | | | |
| Net periodic pension expense — domestic | | $ | 1,115 | | | $ | 1,110 | | | $ | 862 | |
| | | | | | | | | | |
International Pension Expense | | | | | | | | | | | | |
| Service cost — benefits earned during the year | | $ | 477 | | | $ | 467 | | | $ | 310 | |
| Interest cost on benefit obligation | | | 424 | | | | 374 | | | | 259 | |
| Expected return on plan assets | | | (362 | ) | | | (300 | ) | | | (203 | ) |
| Special Termination Benefits | | | 888 | | | | — | | | | — | |
| Amortization of net actuarial loss | | | — | | | | 22 | | | | — | |
| | | | | | | | | | |
| Net periodic pension expense — international | | $ | 1,427 | | | $ | 563 | | | $ | 366 | |
| | | | | | | | | | |
Significant actuarial assumptions for the plans were:
2004 2003 2002
---- ---- ----
Domestic Actuarial Assumptions
Discount
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
Domestic Actuarial Assumptions | | | | | | | | | | | | |
| Discount rate for service and interest | | | 6.1% | | | | 5.8% | | | | 7.1% | |
| Expected rate of return on plan assets | | | 7.5% | | | | 7.5% | | | | 7.5% | |
| Rate of compensation increase | | | 3.0%-4.5% | | | | 3.0%-4.5% | | | | 3.0%-4.5% | |
| Discount rate for year-end benefit obligation | | | 5.0% | | | | 6.1% | | | | 5.8% | |
International Actuarial Assumptions | | | | | | | | | | | | |
| Discount rate for service and interest | | | 5.5% | | | | 5.5% | | | | 5.8% | |
| Expected rate of return on plan assets | | | 6.0% | | | | 6.0% | | | | 6.0% | |
| Rate of compensation increase | | | 3.0% | | | | 3.0% | | | | 3.0% | |
| Discount rate for year-end benefit obligation | | | 4.5% | | | | 5.5% | | | | 5.5% | |
The Company uses Moody’s Aa Corporate Bond Rate as a benchmark for its assumed discount rate for service and interest 5.8% 7.1% 7.5%
Expectedthe domestic pension plan. The international pension plan utilizes Euro-zone A+ rated bonds in the determination of the discount rate based on the average liability duration of return onthe plan assets 7.5% 7.5% 7.5%
Rate of compensation increase 3.0%-4.5% 3.0%-4.5% 3.0%-4.5%
Discount rate for year-end benefit
obligation 6.1% 5.8% 7.1%
International Actuarial Assumptions
Discount rate for service and interest 5.5% 5.8% 5.8%
Expected rate of return on plan assets 6.0% 6.0% 6.0%
Rate of compensation increase 3.0% 3.0% 3.0%
Discount rate for year-end benefit
obligation 5.5% 5.5% 5.8%beneficiaries.
F-28
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated future benefit payments, including benefits attributable to future service, are as follows:
Domestic International
-------- -------------
2005 $ 295 $ 37
2006 301 38
2007 311 40
2008 451 41
2009 508 42
2010-2014 4,500 1,817
F-25
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)| | | | | | | | | |
| | | Domestic | | | International | |
| | | | | | | |
| 2006 | | $ | 333 | | | $ | 48 | |
| 2007 | | | 334 | | | | 10 | |
| 2008 | | | 447 | | | | 6 | |
| 2009 | | | 512 | | | | 5 | |
| 2010 | | | 616 | | | | 4 | |
| 2011-2015 | | | 5,267 | | | | 13 | |
Estimated future benefit payments for the international plan reflect participants remaining after completion of the Belgium Plant Transactions.
The Company'sCompany’s domestic plan target asset allocations for fiscal 20052006 and the weighted asset allocation of plan assets as of June 30, 20042005 and 20032004 are as follows:
2005 2004 2003
---- ---- ----
Domestic Plan Asset Allocations
Debt Securities 45% - 55% 50% 59%
Equity Securities 15% - 25% 19% 9%
Other 25% - 35% 31% 32%
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| | | | | | | | | | |
Domestic Plan Asset Allocations | | | | | | | | | | | | |
| Debt Securities | | | 35% - 45% | | | | 39% | | | | 50% | |
| Equity Securities | | | 25% - 35% | | | | 30% | | | | 19% | |
| Other | | | 25% - 35% | | | | 31% | | | | 31% | |
The expected long-term rate of return for the plan'splan’s total assets is based on the expected return of each of the above categories, weighted based on the median of the target allocation of each class. Equity securities are expected to return 8% to 10% annually over the long-term, while debt securities are expected to return 4% to 6%. Based on historical experience, the Committee expects that the Plan'sPlan’s asset managers will provide a modest (1/2%1/2% to 1% per annum)annual premium to their respective market benchmark indices.
The investment policy and strategy is to earn a long-termlong term investment return sufficient to meet the obligations of the Plan,plan, while assuming a moderate amount of risk in order to maximize investment return. In order to achieve this goal, assets are invested in a diversified portfolio consisting of equity securities, debt securities, limited partnerships and other investments in a manner consistent with ERISA'sERISA’s fiduciary requirements.
The Company'sCompany’s international plan target asset allocations for fiscal 20052006 and the weighted asset allocation of plan assets as of June 30, 20042005 and 20032004 are as follows:
2005 2004 2003
---- ---- ----
International Plan Asset Allocations
Debt Securities 59% 62% 79%
Equity Securities 25% 21% 20%
Other 16% 17% 1%
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| | | | | | | | | | |
International Plan Asset Allocations | | | | | | | | | | | | |
| Debt Securities | | | 57% | | | | 57% | | | | 62% | |
| Equity Securities | | | 24% | | | | 23% | | | | 21% | |
| Other | | | 19% | | | | 20% | | | | 17% | |
The expected long-term rate of return for the plan'splan’s total assets is based on the expected return of each of the above categories, weighted based on the target allocation for each class. Equity securities are expected to return 7.5% over the long-term, while debt securities are expected to return 5.5%.
The Company assumed the liability for the International pension plan during
2002 as part of the MFA acquisition.
In addition to Belgium, most of the Company'sCompany’s foreign subsidiaries have retirement plans covering substantially all employees. Contributions to these plans are generally deposited under fiduciary-type arrangements. Benefits under these plans primarily are based on compensation levels. Funding policies are based on legal requirements and local practices. Expense under these plans was $585, $522$547, $498 and $534$437 for 2005, 2004 and 2003, and 2002, respectively.
F-29
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company and its domestic subsidiaries provide a 401(k) savings plan, under which an employee may make a pre-tax contribution of up to 60% of base compensation. The Company makes a non-matching contribution equal to 1% of the
employee'semployee’s base compensation and a matching contribution equal to 50% of the
employee'semployee’s contribution up to the first 3% of base compensation and 25% of the
employee'semployee’s contribution from 3% to 6% of base compensation. All employee contributions are subject to the maximum amounts permitted for federal income tax purposes. Employees vest in the
Company'sCompany’s matching contributions over 5 years. The
Company'sCompany’s contribution was
$425, $502
and $528
in 2005, 2004 and
$539 in 2004, 2003,
and
2002, respectively.
F-26
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands) The Company has a deferred compensation and supplemental retirement plan for certain senior executives. The benefits provided by the plan are based upon years of service and the executives'executives’ average compensation, subject to certain limits. The plan also provides for death benefits before retirement. Expense under this plan was $268, $259, and $249 in 2005, 2004 and $204 in 2004, 2003, and 2002, respectively. The aggregate liability under this plan amounted to $2,018$2,297 and $1,678$2,018 at June 30, 20042005 and 2003,2004, respectively. To assist in funding the benefits of the plan, the Company invested in corporate-owned life insurance policies, through a trust, which at June 30, 20042005 and 20032004 had cash surrender values of $1,481$1,566 and $1,299,$1,481, respectively, and are included in other assets.
The Company has an executive income program to provide a pre-retirement death benefit and a supplemental retirement benefit for certain senior executives. The aggregate liability under this plan amounted to $416$441 and $385$416 at June 30, 20042005 and 2003,2004, respectively. To assist in funding the benefits of the plan, the Company invested in split-dollar life insurance policies, which at June 30, 20042005 and 20032004 had cash surrender values to the Company of $1,529$2,246 and $1,392,$1,529, respectively, and are included in other assets.
14.
Income (loss) from continuing operations before income taxes was:
2004 2003 2002
-------- -------- --------
Domestic .................................... $ 27,587 $ 3,855 $ (5,507)
Foreign ..................................... (3,054) 3,906 (4,937)
-------- -------- --------
Income (loss) from continuing operations
before income taxes ....................... $ 24,533 $ 7,761 $(10,444)
======== ======== ========
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Domestic | | $ | 2,786 | | | $ | 27,587 | | | $ | 3,855 | |
| Foreign | | | (21,767 | ) | | | (3,678 | ) | | | 3,122 | |
| | | | | | | | | | |
| Income (loss) from continuing operations before income taxes | | $ | (18,981 | ) | | $ | 23,909 | | | $ | 6,977 | |
| | | | | | | | | | |
F-30
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Components of the provision for income taxes were:
2004 2003 2002
-------- -------- --------
Current tax provision (benefit):
Federal .................................. $ 563 $ -- $ --
State and local .......................... 1,333 516 (256)
Foreign .................................. 5,747 3,084 3,785
-------- -------- --------
Total current tax provision .............. 7,643 3,600 3,529
-------- -------- --------
Deferred tax provision (benefit):
Federal .................................. 10,150 1,705 (1,225)
State and local .......................... (1,396) (345) (590)
Foreign .................................. (1,671) 850 (1,673)
Change in valuation allowance -domestic .. (8,754) (1,360) 14,726
-foreign ... 1,997 5,610 --
-------- -------- --------
Total deferred tax provision ............. 326 6,460 11,238
-------- -------- --------
Provision for income taxes .................. $ 7,969 $ 10,060 $ 14,767
======== ======== ========
F-27
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)| | | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Current tax provision (benefit): | | | | | | | | | | | | |
| | Federal | | $ | 175 | | | $ | 563 | | | $ | — | |
| | State and local | | | 518 | | | | 1,333 | | | | 516 | |
| | Foreign | | | 2,445 | | | | 5,582 | | | | 2,854 | |
| | | | | | | | | | |
| | Total current tax provision | | | 3,138 | | | | 7,478 | | | | 3,370 | |
| | | | | | | | | | |
| Deferred tax provision (benefit): | | | | | | | | | | | | |
| | Federal | | | 1,200 | | | | 10,150 | | | | 1,705 | |
| | State and local | | | (170 | ) | | | (1,396 | ) | | | (345 | ) |
| | Foreign | | | (5,527 | ) | | | (1,671 | ) | | | 850 | |
| | Change in valuation allowance — domestic | | | (1,030 | ) | | | (8,754 | ) | | | (1,360 | ) |
| | — foreign | | | 4,509 | | | | 1,997 | | | | 5,610 | |
| | | | | | | | | | |
| | Total deferred tax provision | | | (1,018 | ) | | | 326 | | | | 6,460 | |
| | | | | | | | | | |
| Provision for income taxes | | $ | 2,120 | | | $ | 7,804 | | | $ | 9,830 | |
| | | | | | | | | | |
Reconciliations of the Federal statutory rate to the Company'sCompany’s effective tax rate are:
2004 2003 2002
---- ---- ----
Federal income tax rate ...................... 35.0% 35.0% (35.0)%
State and local taxes, net of federal
income tax effect .......................... 3.5 1.4 (4.9)
Foreign tax rate differences and taxes
in certain profitable foreign jurisdictions 22.9 33.2 50.8
Change in valuation allowance ................ (41.4) 55.0 131.8
Gain not taxable for book purposes ........... 10.4 -- --
Expenses with no tax benefit ................. 1.7 4.4 1.0
Other ........................................ 0.3 0.6 (2.3)
---- ----- -----
Effective tax rate ........................... 32.4% 129.6% 141.4%
==== ===== =====
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Federal income tax rate | | | (35.0 | )% | | | 35.0 | % | | | 35.0 | % |
| State and local taxes, net of federal income tax effect | | | 1.8 | | | | 3.6 | | | | 1.6 | |
| Foreign tax rate differences and taxes in certain profitable foreign jurisdictions | | | 41.0 | | | | 23.9 | | | | 38.8 | |
| Change in valuation allowance | | | (6.3 | ) | | | (42.5 | ) | | | 60.9 | |
| Taxable income not recorded on books | | | 9.0 | | | | 10.6 | | | | — | |
| Nondeductible expenses | | | 2.1 | | | | 1.7 | | | | 4.9 | |
| Other | | | (1.4 | ) | | | 0.3 | | | | (0.3 | ) |
| | | | | | | | | | |
| Effective tax rate | | | 11.2 | % | | | 32.6 | % | | | 140.9 | % |
| | | | | | | | | | |
Most of the investments in fixed assets of the Company'sCompany’s Israeli subsidiary have been granted "approved enterprise"“approved enterprise” status under Israeli law. The subsidiary is also a "foreign investors' company"“foreign investors’ company” as defined by Israeli law. This status entitles the subsidiary to reduced tax rates. The entitlement of the reduced tax rates is conditional upon the subsidiary fulfilling the conditions stipulated by Israeli law, regulations published there-under and the instruments of approval for the specific investments in approved enterprises. In the event of failure to comply with these conditions, the benefits may be canceledcancelled and the subsidiary may be required to refund the amount of the benefits, in whole or in part, with the addition of interest. The periods of benefits associated with “approved enterprise” status expire in various yearsincrements through 2010.
Provision has not been made for United States or additional foreign taxes on undistributed earnings of foreign subsidiaries of approximately $39,200,$46,100, whose earnings have been or are intended to be reinvested. It is not practicable at this time to determine the amount of income tax liability that would result should such earnings be repatriated.
F-31
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tax effects of significant temporary differences that comprise deferred tax assets and liabilities at June 30,
2005 and 2004
and 2003 were:
As of June 30,
-----------------------
2004 2003
-------- --------
Deferred tax assets:
Employee benefits ............................. $ 3,274 $ 3,194
Property, plant and equipment ................. 475 686
Insurance ..................................... 350 341
Receivables allowances ........................ 724 770
Inventory ..................................... 3,441 4,588
Environmental remediation ..................... 1,322 1,232
Alternative minimum tax ....................... 701 163
Net operating loss carry forwards -domestic ... 11,645 20,186
-foreign .... 10,432 1,290
Other ......................................... 1,333 2,059
-------- --------
33,697 34,509
Valuation allowance ........................... (30,045) (32,954)
-------- --------
3,652 1,555
Deferred tax liabilities
Property, plant and equipment ................. (2,727) (2,354)
Other ......................................... (2,649) --
-------- --------
(5,376) (2,354)
-------- --------
Net deferred tax liability ....................... $ (1,724) $ (799)
======== ========
F-28
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)| | | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Deferred tax assets: | | | | | | | | |
| | Employee benefits | | $ | 3,149 | | | $ | 3,274 | |
| | Property, plant and equipment | | | 406 | | | | 475 | |
| | Insurance | | | 334 | | | | 350 | |
| | Receivables allowances | | | 729 | | | | 724 | |
| | Inventory | | | 1,434 | | | | 3,441 | |
| | Environmental remediation | | | 1,156 | | | | 1,322 | |
| | Alternative minimum tax | | | 563 | | | | 701 | |
| | Net operating loss carry forwards — domestic | | | 9,944 | | | | 11,645 | |
| | — foreign | | | 18,982 | | | | 10,432 | |
| | Other | | | 1,822 | | | | 1,333 | |
| | | | | | | |
| | | | 38,519 | | | | 33,697 | |
| | Valuation allowance | | | (33,437 | ) | | | (30,045 | ) |
| | | | | | | |
| | | | 5,082 | | | | 3,652 | |
| | | | | | | |
| Deferred tax liabilities | | | | | | | | |
| | Property, plant and equipment | | | (3,141 | ) | | | (2,727 | ) |
| | Other | | | (2,647 | ) | | | (2,649 | ) |
| | | | | | | |
| | | | (5,788 | ) | | | (5,376 | ) |
| | | | | | | |
| Net deferred tax liability | | $ | (706 | ) | | $ | (1,724 | ) |
| | | | | | | |
Deferred taxes are included in the following line items in the consolidated balance sheets:
2004 2003
------- -------
Prepaid expenses and other current assets .......... $ 502 $ 543
Accrued expenses and other current liabilities ..... (138) (111)
Other assets ....................................... 669 624
Other liabilities .................................. (2,757) (1,855)
------- -------
$(1,724) $ (799)
======= =======
| | | | | | | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Prepaid expenses and other current assets | | $ | 541 | | | $ | 502 | |
| Accrued expenses and other current liabilities | | | (141 | ) | | | (138 | ) |
| Other assets | | | 255 | | | | 669 | |
| Other liabilities | | | (1,361 | ) | | | (2,757 | ) |
| | | | | | | |
| | | $ | (706 | ) | | $ | (1,724 | ) |
| | | | | | | |
The Company has incurred domestic and foreign losses in recent years and has reassessed the likelihood of recovering net deferred tax assets, resulting in the recording of valuation allowances due to the uncertainty of future profitability. The Company recorded income tax expense and increased the foreign valuation allowances by $5,610$4,509, $1,997 and $11,594$5,610 during the fourth quarters of 20032005, 2004 and 2002,2003, respectively. The Company will continue to evaluate the likelihood of recoverability of these deferred tax assets based upon actual and expected operating performance.
F-32
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The valuation allowance for deferred tax assets was:
2004 2003 2002
-------- -------- --------
Balance at beginning
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Balance at beginning of period | | $ | 30,045 | | | $ | 32,954 | | | $ | 18,495 | |
| Change in valuation allowance | | | 3,479 | | | | (6,757 | ) | | | 4,250 | |
| Other adjustments | | | (87 | ) | | | 3,848 | | | | 10,209 | |
| | | | | | | | | | |
| Balance at end of period | | $ | 33,437 | | | $ | 30,045 | | | $ | 32,954 | |
| | | | | | | | | | |
$3,202 and $4,811 of period $ 32,954 $ 18,495 $ 1,434
Change inthe valuation allowance (6,757) 4,250 14,726
Other adjustments 3,848 10,209 2,335
-------- -------- --------
Balancerelates to the current portion of deferred tax assets at end of period $ 30,045 $ 32,954 $ 18,495
======== ======== ========June 30, 2005 and 2004, respectively.
The other adjustments into the valuation allowance consist primarily of changes in the valuation allowance attributable to discontinued operations.
The Company has domestic federal net operating loss carry forwards of approximately $25,000$20,000 that expire infrom 2019 through 2024, state net operating loss carry forwards of approximately $55,000$56,000 that expire over various periods beginning in 2005 and foreign net operating loss carry forwards of approximately $30,000$55,000 that expire over various periods beginning in 2010.
15. Commitments and Contingencies
| |
| 17. | Commitments and Contingencies |
The Company leases office, warehouse and manufacturing equipment and facilities for minimum annual rentals (plus certain cost escalations) as follows:
Non-Cancelable
Capital Operating
Year Ended June 30 Leases Leases
- ----------------- ------- ---------
2005 ........................................... $ 103 $1,524
2006 ........................................... 2 778
2007 ........................................... -- 568
2008 ........................................... -- 456
2009 ........................................... -- 167
Thereafter ..................................... -- 72
------ ------
Total minimum lease payments ................... $ 105 $3,565
======
Amounts representing interest .................. 2
------
Present value of minimum lease payments ........ $ 103
======
F-29
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
Equipment under capitalized leases included in the consolidated balance
sheet at June 30, 2004 was $1,027, net of accumulated depreciation of $440.| | | | | |
| | | Non-Cancelable | |
| | | Operating | |
| Year Ended June 30 | | Leases | |
| | | | |
| 2006 | | $ | 1,474 | |
| 2007 | | | 1,388 | |
| 2008 | | | 1,244 | |
| 2009 | | | 972 | |
| 2010 | | | 853 | |
| Thereafter | | | 1,695 | |
| | | | |
| Total minimum lease payments | | $ | 7,626 | |
| | | | |
Operating lease commitments include $1,125$875 with a related party controlled by shareholders of the Company, as described in Related Party Transactions.
Rent expense under operating leases was $1,873, $2,441 and $2,221 for 2005, 2004 and 2003, and 2002 was $2,441,
$2,221 and $2,015, respectively.
On or about April 17, 1997, CP Chemicals, Inc. (a, a subsidiary "CP"(“CP”), and the Company were served with a complaint filed by Chevron U.S.A. Inc. ("Chevron"(“Chevron”) in the United States District Court for the District of New Jersey, alleging that the operations of CP at its Sewaren plant affected adjoining property owned by Chevron and alleging that the Company, as the parent of CP, is also responsible to Chevron. In July 2002, a phased settlement agreement was reached and a Consent Order entered by the Court. That settlement is in the process of being
implemented. The Company's and CP's portion of the settlement for past costs and
expenses through the entry of the Consent Order was $495 and was included in
selling, general and administrative expenses in fiscal 2002 and was paid in
fiscal 2003. The Consent Order then providesprovided for a period of due diligence investigation of the property owned by Chevron. The investigation has been
conductedChevron and the results are under review. The investigation costs are being
split with one other defendant, Vulcan Materials Company. Uponupon completion of the review of the results of the investigation, a decision willwas to be made whether to opt out of the settlement or proceed. If no party opts out of the settlement,
the Company and CP will take title to the adjoining Chevron property, probably
through the use of a three-member New Jersey limited liability company. In
preparation to move forward, a limited liability company has been formed, with
Vulcan Materials Company as the third member. The Company also has commenced
negotiationsNegotiations with Chevron regarding its allocation of responsibility and associated costs
F-33
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
under the Consent Order.Order reached an impasse and it became necessary for the Company and another defendant, Vulcan Materials Company (“Vulcan”), to opt out of the settlement on April 21, 2005. Since then, settlement negotiations have continued and the parties are in the process of memorializing the terms of a revised settlement. The Court will reopen the case if a revised settlement is not finalized.
As proposed, CP, the Company and Vulcan, through an acquisition entity known as NFE, LLC (“NFE”), would acquire a portion of the property. NFE will then proceed with the remediation of the acquired property. Vulcan will pay a share of the remediation costs. Vulcan’s share has not yet been determined. Another defendant will also make a contribution toward the remediation costs to be incurred by NFE in an amount that has not yet been determined but which is estimated to be approximately $175. Chevron will retain title to a portion of the property and will also retain responsibility for further investigation and remediation of certain identified environmental conditions on the property. In addition, Chevron will also be required to complete any necessary remediation in a certain area of the property. While the costs and liabilities cannot be estimated with any degree of certainty at this time, the Company believes that insurance recoveries will be available to offset somemost of those costs.
The Company'sCompany’s subsidiary, Phibro-Tech, subsidiaryInc. (“Phibro-Tech”), was named in 1993 as a potentially responsible party ("PRP"(“PRP”) in connection with an action commenced under the Federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"(“CERCLA”) by the United States Environmental Protection Agency ("the EPA"(the “EPA”), involving a former third-party fertilizer manufacturing site in Jericho, South Carolina. An agreement has been reached under which such subsidiary agreed to contribute up to $900 of which $635$675 has been paid as of June 30, 2004.2005. Some recovery from insurance and other sources is expected but has not been recorded. The Company also has accrued its best estimate of any future costs.
Phibro-Tech Inc. has resolved certain alleged technical permit violations with the California Department of Toxic Substances Control (“DTSC”) and has reached an agreement to pay $425 over a six year period endingmake annual payments through October 2008. In February 2000,The remaining payments under this agreement were $315 as of June 30, 2005.
Phibro-Tech and the EPA notified numerous partiesDTSC are currently negotiating the settlement of potential liability
for waste disposal at a licensed Casmalia, California disposal site, including a
business, assetscertain alleged technical permit violations from 2003. A preliminary assessment of which were originally acquired by a subsidiarypenalties in 1984. A
settlementthe amount of $49 has been reached inmade. Phibro-Tech, Inc. believes this matter and the Company has paid $171 in full
settlement.amount will be reduced.
On or about April 5, 2002, the Company was served, as a potentially responsible party, with an information request from the EPA relating to a third-party superfund site in Rhode Island. The Company is investigatinghas investigated the matter, which relates to events in the 1950's1950’s and 1960's, but1960’s, and management does not believe that the Company has any liability in this matter.
On or about August 13, 2004 the Company was served with a Request for Information pursuant to Section 104 of CERCLA and Section 3007 of
RCRAthe Resource Conservation and Recovery Act relating to possible discharges into Turkey Creek in Sumter, South Carolina. The Company
is preparinghas submitted its response to the Request for Information and believes that, because its Sumter, South Carolina facility is distant from Turkey Creek and does not discharge into Turkey Creek,
there is a low probabilitythe likelihood of liability associated with this
matter.
F-30
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)matter is remote. By letter dated February 22, 2005, Phibro-Tech has been advised by the adjoining property owner of Phibro-Tech’s Powder Springs, Georgia property, of a potential claim for property damage as a result of certain alleged environmental conditions on Phibro-Tech’s Powder Springs property. No specific claim was made nor was any specific amount alleged. The Company has investigated this matter but does not, at this time, believe there will be any material liability resulting therefrom.
The Company and its subsidiaries are party to a number of claims and lawsuits arising out of the normal course of business including product liabilities and governmental regulation. Certain of these actions seek damages in various amounts. In most cases, such claims are covered by insurance. The Company believes that
F-34
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
none of the claims or pending lawsuits, either individually or in the aggregate, will have a material adverse effect on its financial position.
position or results of operations.
| |
| Environmental Remediation: |
The Company'sCompany’s operations, properties and subsidiaries are subject to a wide variety of complex and stringent federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes, the remediation of contaminated soil and groundwater, the manufacture, sale and use of pesticides and the health and safety of employees. As such, the nature of the Company'sCompany’s current and former operations and those of its subsidiaries exposes the Company and its subsidiaries to the risk of claims with respect to such matters. Under certain circumstances, the Company or any of its subsidiaries might be required to curtail operations until a particular problem is remedied. Known costs and expenses under environmental laws incidental to ongoing operations are generally included within operating results. Potential costs and expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or new requirements under environmental laws or to investigate or remediate potential or actual contamination and from time to time the Company establishes reserves for such contemplated investigation and remediation costs. In many instances, the ultimate costs under environmental laws and the time period during which such costs are likely to be incurred are difficult to predict.
The Company'sCompany’s subsidiaries have, from time to time, implemented procedures at their facilities designed to respond to obligations to comply with environmental laws. The Company believes that its operations are currently in material compliance with such environmental laws, although at various sites its subsidiaries are engaged in continuing investigation, remediation and/or monitoring efforts to address contamination associated with their historic operations.
Israel’s Ministry of the Environment has imposed revised business license terms on Koffolk’s Ramat Hovav manufacturing facilities. The Company has taken steps to contest the revised terms and can not currently estimate the costs or the timing of the final resolution of the issue.
The nature of the Company'sCompany’s and its subsidiaries'subsidiaries’ current and former operations exposes the Company and its subsidiaries to the risk of claims with respect to environmental matters and the Company cannot assure it will not incur material costs and liabilities in connection with such claims. Based upon its experience to date, the Company believes that the future cost of compliance with existing environmental laws, and liability for known environmental claims pursuant to such environmental laws, will not have a material adverse effect on the Company'sCompany’s financial position.
Based upon information available, the Company estimates the cost of litigation proceedings described above and the cost of further investigation and remediation of identified soil and groundwater problems at operating sites, closed sites and third-party sites, and closure costs for closed sites to be approximately $2,933,$2,743, which is included in current and long-term liabilities in the June 30, 20042005 consolidated balance sheet (approximately $2,652$2,933 at June 30, 2003)2004). Environmental provisions were $661, $1,511 and $1,610 for 2005, 2004 and $2,148 for 2004, 2003,
and 2002, respectively, and were included in selling, general and administrative expenses inon the Company’s consolidated statements of operations.
16. operations and comprehensive income (loss).
As part of the Prince Transactions,
(Note 4), as is normal for such transactions, the Company has agreed to indemnify the Palladium Investors for losses arising out of breach of representations, warranties and covenants. The
Company'sCompany’s maximum liability under such indemnifications is limited to $15,000.
The Company agreed to indemnify the Palladium Investors for a portion, at
the rate of $0.65 for every dollar, of the amount they receive in respect of the
disposition of Buyer for less than $21,000, up to a maximum payment by the
Company of $4,000 (the "Backstop Indemnification Amount"). The Backstop
Indemnification Amount would be payable on the earlier to occur of July 1, 2008
or six months after the redemption date of all of the Company's Senior Secured
Notes due 2007 if such a disposition closes prior to such redemption and six
months after the closing of any such disposition if the disposition closes after
any such redemption. The Company's obligations with respect to the Backstop
Indemnification Amount will cease if the Palladium Investors do not close the
disposition of Buyer by January 1, 2009. The maximum potential Backstop
Indemnification Amount is included in other liabilities on the Company's
condensed consolidated balance sheet at June 30, 2004.
F-31
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands) The Company established a $1,000 letter of credit escrow for two yearsthrough December 2005 to collateralize its working capital adjustment and certain other indemnification obligations relating to the Prince Transactions.
17.
F-35
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and trade receivables. The Company places its cash and cash equivalents with high quality financial institutions in various countries. The Company sells to customers in a variety of industries, markets and countries. Concentrations of credit risk with respect to receivables arising from these sales are limited due to the large number of customers comprising the Company'sCompany’s customer base. Ongoing credit evaluations of customers'customers’ financial conditions are performed and, generally, no collateral is required. The Company maintains appropriate reserves for uncollectible receivables.
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. The fair values of the Company'sCompany’s Senior Secured Notes and Senior Subordinated Notes are estimated based on quoted market prices. At June 30, 2005 the fair values of the Company’s Senior Secured Notes and Senior Subordinated Notes were $136,415 and $45,628, respectively, and the related carrying amounts were $127,491 and $48,029, respectively. At June 30, 2004 the fair values of the Company'sCompany’s Senior Secured Notes and Senior Subordinated Notes were $114,450 and $43,706, respectively, and the related carrying amounts were $105,000 and $48,029,48,029, respectively. At June 30,
2003 the fair value of the Company's Senior Subordinated Notes was $40,000 and
the related carrying amount was $100,000. The fair value of the Company'sCompany’s other long-term debt does not differ materially from its carrying amount based on the variable interest rate structure of these obligations.
The Company obtains third-party letters of credit in connection with certain regulatory and insurance obligations, inventory purchases and insuranceother contractual obligations. The contract values of the letters of credit at June 30, 2005 and 2004 were $11,686 and 2003 were $9,263, and $2,593, respectively. The difference between the carrying values and fair values of these letters of credit was not material.
The Company operates internationally, with manufacturing and sales facilities in various locations around the world and utilizes certain financial instruments to manage its foreign currency and commodity exposures, primarily related to forecasted transactions. To qualify a derivative as a hedge at inception and throughout the hedge period, the Company formally documents the nature and relationships between hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction would occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be recognized in operations currently. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. The Company hedges forecasted transactions for periods not exceeding the next twelve months. The Company does not engage in trading or other speculative uses of financial instruments.
From time to time, the Company uses forward contracts and options to mitigate its exposure to changes in foreign currency exchange rates and as a means of hedging forecasted operating costs. When using options as a hedging instrument, the Company excludes the time value from the assessment of effectiveness. Pursuant to SFAS No. 133, for contracts that qualify as a hedge at inception and throughout the hedge period, all cumulative changes in a foreign currency option'soption’s fair value are deferred as a component of accumulated other comprehensive income until the underlying hedged transactions are reported on the Company'sCompany’s consolidated statement of operations and comprehensive income. 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. The Company's foreign currency options and
forward contracts andCompany’s commodity futures contracts were designated as cash flow hedges and qualified for hedge accounting treatment. The notional amount of the Company’s copper contracts at June 30, 2005 was $1,858. The Company deferred $9$123 and $81$9 of cumulative gains (net of losses) on various copper futures contracts designated as cash flow hedges as of June 30, 2005 and 2004, and 2003, respectively.
F-36
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of commodity contracts is estimated based on quotes from the market makers of these instruments and represents the estimated amounts that the Company would expect to receive or pay to terminate the agreements as of the reporting date.
F-32
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
18. The Company'sCompany’s reportable segments are Animal Health and Nutrition, Industrial Chemicals Distribution and All Other.Distribution. 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'sCompany’s Animal Health and Nutrition segment manufactures and markets more than 500 formulations and concentrations of medicated feed additives and nutritional feed additives including antibiotics, antibacterials, anticoccidials, anthelmintics, trace minerals, vitamins, vitamin premixes and other animal health and nutrition products. The Industrial Chemicals segment manufactures and markets a number of chemicals for use in the pressure-treated wood, chemical catalyst, semiconductor, automotive and aerospace industries.industries; and copper-based fungicides. The Distribution segment markets and distributes a variety of industrial, specialty and fine organic chemicals and intermediates produced primarily by third parties. The All Other
segment manufactures and markets a variety of specialty custom chemicals and
copper-based fungicides. Intersegment sales and transfers were not significant.
Certain of the Company’s operations (MRT, La Cornubia and Wychem) were previously included in the All Other segment. Contract manufacturing, also previously included in the All Other segment, has been aggregated with the Industrial Chemicals segment due to the similar nature, management and economic characteristics of the businesses as well as common copper-based raw materials and production facilities. In addition, certain product lines previously included in the Animal Health and Nutrition segment have been included in the Distribution segment due to a change in management and marketing responsibilities. Prior years segment data has been revised for comparability.
The following segment data includes information only for continuing operations.
Animal Corporate
Health & Industrial All Expenses &
2004 Segment Detail Nutrition Chemicals Distribution Other Adjustments Total
- ------------------- --------- --------- ------------ ----- ----------- -----
Net Sales $265,421 $ 42,253 $ 30,861 $ 19,739 $ -- $358,274
Operating income/(loss) 33,307 2,899 2,900 2,301 (17,132) 24,275
Depreciation and amortization 8,263 2,123 11 419 2,367 13,183
Identifiable assets 185,601 26,146 7,715 5,696 16,211 241,369
Capital expenditures 3,850 2,216 6 115 57 6,244
Animal Corporate
Health & Industrial All Expenses &
2003 Segment Detail Nutrition Chemicals Distribution Other Adjustments Total
- ------------------- --------- --------- ------------ ----- ----------- -----
Net Sales $250,706 $ 48,797 $ 30,072 $ 12,171 $ -- $341,746
Operating income/(loss) 38,472 (1,855) 3,207 620 (14,948) 25,496
Depreciation and amortization 7,690 2,904 12 364 1,554 12,524
Identifiable assets 190,864 33,191 9,154 5,726 12,811 251,746
Capital expenditures 5,669 2,836 -- 129 2 8,636
Animal Corporate
Health & Industrial All Expenses &
2002 Segment Detail Nutrition Chemicals Distribution Other Adjustments Total
- ------------------- --------- --------- ------------ ----- ----------- -----
Net Sales $239,602 $ 50,854 $ 27,852 $ 10,368 $ -- $328,676
Operating income/(loss) 28,298 (7,324) 2,345 1,164 (13,854) 10,629
Depreciation and amortization 7,438 3,535 12 321 1,049 12,355
Identifiable assets 186,118 38,985 8,059 8,097 10,393 251,652
Capital expenditures 5,915 2,328 12 144 119 8,518
F-33
| | | | | | | | | | | | | | | | | | | | | |
| | | Animal | | | | | | | | | |
| | | Health & | | | Industrial | | | | | | | |
| | | Nutrition | | | Chemicals | | | Distribution | | | Corporate | | | Total | |
| | | | | | | | | | | | | | | | |
2005 Segment Detail | | | | | | | | | | | | | | | | | | | | |
| Net Sales | | $ | 278,837 | | | $ | 52,305 | | | $ | 33,237 | | | $ | — | | | $ | 364,379 | |
| Operating income/(loss) | | | 10,073 | | | | 4,835 | | | | 4,671 | | | | (15,197 | ) | | | 4,382 | |
| Depreciation and amortization | | | 16,243 | | | | 1,597 | | | | 20 | | | | 246 | | | | 18,106 | |
| Identifiable assets | | | 204,799 | | | | 21,473 | | | | 8,092 | | | | 18,693 | | | | 253,057 | |
| Capital expenditures | | | 4,823 | | | | 1,384 | | | | 50 | | | | 1,232 | | | | 7,489 | |
The Animal Health and Nutrition Segment includes Belgium Plant Transactions Costs for severance of $12,808, depreciation expense of $7,467 and other costs of $1,916.
| | | | | | | | | | | | | | | | | | | | | |
| | | Animal | | | | | | | | | |
| | | Health & | | | Industrial | | | | | | | |
| | | Nutrition | | | Chemicals | | | Distribution | | | Corporate | | | Total | |
| | | | | | | | | | | | | | | | |
2004 Segment Detail | | | | | | | | | | | | | | | | | | | | |
| Net Sales | | $ | 263,417 | | | $ | 58,102 | | | $ | 32,865 | | | $ | — | | | $ | 354,384 | |
| Operating income/(loss) | | | 32,605 | | | | 4,569 | | | | 3,602 | | | | (20,287 | ) | | | 20,489 | |
| Depreciation and amortization | | | 8,263 | | | | 2,123 | | | | 11 | | | | 261 | | | | 10,658 | |
| Identifiable assets | | | 185,601 | | | | 26,146 | | | | 7,715 | | | | 16,616 | | | | 236,078 | |
| Capital expenditures | | | 3,850 | | | | 2,216 | | | | 6 | | | | 57 | | | | 6,129 | |
F-37
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
19. — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | Animal | | | | | | | | | |
| | | Health & | | | Industrial | | | | | | | |
| | | Nutrition | | | Chemicals | | | Distribution | | | Corporate | | | Total | |
| | | | | | | | | | | | | | | | |
2003 Segment Detail | | | | | | | | | | | | | | | | | | | | |
| Net Sales | | $ | 248,262 | | | $ | 57,040 | | | $ | 32,516 | | | $ | — | | | $ | 337,818 | |
| Operating income/(loss) | | | 37,325 | | | | (2,010 | ) | | | 4,354 | | | | (13,774 | ) | | | 25,895 | |
| Depreciation and amortization | | | 7,690 | | | | 2,904 | | | | 12 | | | | 380 | | | | 10,986 | |
| Identifiable assets | | | 190,864 | | | | 33,191 | | | | 9,154 | | | | 13,353 | | | | 246,562 | |
| Capital expenditures | | | 5,669 | | | | 2,836 | | | | — | | | | 2 | | | | 8,507 | |
| |
| 21. | Geographic Information |
The following is information about the Company'sCompany’s geographic operations. Information is attributed to the geographic areas based on the location of the Company'sCompany’s subsidiaries.
2004 2003 2002
-------- -------- --------
Net Sales:
United States $248,577 $233,942 $219,981
Europe 18,605 16,643 12,004
Israel 43,170 44,383 45,266
Latin America 26,800 25,235 28,970
Asia/Pacific 21,122 21,543 22,455
-------- -------- --------
Total $358,274 $341,746 $328,676
======== ======== ========
Property, Plant and Equipment, net:
United States $ 13,836 $ 16,719 $ 19,370
Europe 20,732 20,463 17,451
Israel 9,157 10,990 12,647
Latin America 14,783 15,396 13,772
Asia/Pacific 278 337 258
-------- -------- --------
Total $ 58,786 $ 63,905 $ 63,498
======== ======== ========
20.
| | | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
Net Sales: | | | | | | | | | | | | |
| | United States | | $ | 251,520 | | | $ | 248,577 | | | $ | 233,942 | |
| | Europe | | | 17,091 | | | | 14,715 | | | | 12,715 | |
| | Israel | | | 40,150 | | | | 43,170 | | | | 44,383 | |
| | Latin America | | | 31,397 | | | | 26,800 | | | | 25,235 | |
| | Asia/ Pacific | | | 24,221 | | | | 21,122 | | | | 21,543 | |
| | | | | | | | | | |
| | Total | | $ | 364,379 | | | $ | 354,384 | | | $ | 337,818 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
Property, Plant and Equipment, net: | | | | | | | | | | | | |
| | United States | | $ | 14,742 | | | $ | 13,836 | | | $ | 16,719 | |
| | Europe | | | 8,167 | | | | 17,327 | | | | 17,062 | |
| | Israel | | | 7,816 | | | | 9,157 | | | | 10,990 | |
| | Latin America | | | 18,997 | | | | 14,783 | | | | 15,396 | |
| | Asia/ Pacific | | | 238 | | | | 278 | | | | 337 | |
| | | | | | | | | | |
| | Total | | $ | 49,960 | | | $ | 55,381 | | | $ | 60,504 | |
| | | | | | | | | | |
| |
| 22. | Consolidating Financial Statements |
The units of Senior Secured Notes due 2007, consisting of US SeniorU.S. Notes issued by the Company (the "Parent Issuer")Parent Issuer and Dutch Senior Notes issued by Philipp Brothers Netherlands III B.V. (the "Dutch Issuer"),the Dutch Issuer, are guaranteed by certain subsidiaries. The CompanyParent Issuer and its U.S. subsidiaries ("(“U.S. Guarantor Subsidiaries"Subsidiaries”), excluding The Prince Manufacturing Company,PMC, Prince MFG, LLC and Mineral Resource Technologies, Inc. (until divested)MRT (the "Unrestricted
Subsidiaries"“Unrestricted Subsidiaries”, as defined in the indenture)Indenture), fully and unconditionally guarantee all of the Senior Secured Notes on a joint and several basis. In addition, the Dutch Issuer'sIssuer’s subsidiaries, presently consisting of Phibro Animal Health SA (the "Belgium Guarantor"“Belgium Guarantor”), fully and unconditionally guarantee the Dutch Senior
Notes. The Dutch issuerIssuer and the Belgium Guarantor do not guarantee the US SeniorU.S. Notes. Other foreign subsidiaries ("(“Non-Guarantor Subsidiaries"Subsidiaries”) do not presently guarantee the Senior Secured Notes. The U.S. Guarantor Subsidiaries include all domestic subsidiaries of the CompanyParent Issuer other than the Unrestricted Subsidiaries and include: CP Chemicals, Inc.,; Phibro-Tech, Inc.,; Prince Agriproducts, Inc,Inc.; Phibrochem, Inc., ;
F-38
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Phibro Chemicals, Inc.,; Western Magnesium Corp.,; Phibro Animal Health Holdings, Inc.,; and Phibro Animal Health U.S., Inc.
The Senior Subordinated Notes due 2008, issued by the Parent Issuer, are guaranteed by certain subsidiaries. The
Company'sParent Issuer’s U.S. subsidiaries, including the U.S. Guarantor Subsidiaries and the Unrestricted Subsidiaries, fully and unconditionally guarantee the Senior Subordinated Notes on a joint and several basis. The Dutch Issuer, Belgium Guarantor and Non-Guarantor Subsidiaries do not presently guarantee the Senior Subordinated Notes. The U.S. Guarantor Subsidiaries and Unrestricted Subsidiaries include all domestic subsidiaries of the
CompanyParent Issuer including: CP
F-34
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
Chemicals, Inc.,; Phibro-Tech, Inc.,; Prince Agriproducts, Inc., The Prince
Manufacturing Company,; PMC; Prince MFG, LLC, Mineral Resource Technologies, Inc.LLC; MRT (until divested),; Phibrochem, Inc.,; Phibro Chemicals, Inc.,; Western Magnesium Corp.,; Phibro Animal Health Holdings, Inc.,; and Phibro Animal Health U.S., Inc. The following consolidating financial data summarizes the assets, liabilities and results of operations and cash flows of the Parent Issuer, Unrestricted Subsidiaries, U.S. Guarantor Subsidiaries, Dutch Issuer, Belgium Guarantor and Non-Guarantor Subsidiaries. The Unrestricted Subsidiaries, U.S. Guarantor Subsidiaries, Dutch Issuer, Belgium Guarantor and Non-Guarantor Subsidiaries are directly or indirectly wholly owned as to voting stock by the Company.
Investments in subsidiaries are accounted for by the Parent Issuer 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.
F-35
F-39
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
— (Continued)
CONSOLIDATING BALANCE SHEET
As of June 30, 2004
Parent Unrestricted U.S. Guarantor Dutch Belgium Non-Guarantor Consolidation Consolidated
Issuer Subsidiaries Subsidiaries Issuer Guarantor Subsidiaries Adjustments Balance
---------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents $ 136 $ -- $ 801 $ 17 $ 212 $ 4,402 $ -- $ 5,568
Trade receivables 2,670 -- 26,996 -- 2,592 25,400 -- 57,658
Other receivables 317 414 1,195 -- 72 768 -- 2,766
Inventory 1,994 -- 37,890 -- 23,159 16,867 -- 79,910
Prepaid expenses
and other 3,195 110 565 -- 1,018 3,800 -- 8,688
---------------------------------------------------------------------------------------------------
TOTAL CURRENT
ASSETS 8,312 524 67,447 17 27,053 51,237 -- 154,590
---------------------------------------------------------------------------------------------------
Property, plant &
equipment, net 105 -- 13,730 -- 17,321 27,630 -- 58,786
Intangibles -- -- 4,252 -- 1,569 5,874 -- 11,695
Investment in
subsidiaries 125,355 -- 3,619 1,604 -- -- (130,578) --
Intercompany (14,995) 20,995 60,030 20,181 1,630 (12,497) (75,344) --
Other assets 14,506 -- 1,056 -- -- 736 -- 16,298
---------------------------------------------------------------------------------------------------
$ 133,283 $ 21,519 $ 150,134 $ 21,802 $ 47,573 $ 72,980 $(205,922) $ 241,369
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Cash overdraft $ -- $ 10 $ 881 $ -- $ -- $ -- $ -- $ 891
Loan payable to
banks 10,996 -- -- -- -- -- -- 10,996
Current portion of
long-term debt -- -- 101 -- -- 1,250 -- 1,351
Accounts payable 4,734 9 28,434 -- 2,258 11,537 -- 46,972
Accrued expenses
and other 11,857 159 8,306 216 12,022 7,450 -- 40,010
---------------------------------------------------------------------------------------------------
TOTAL CURRENT
LIABILITIES 27,587 178 37,722 216 14,280 20,237 -- 100,220
---------------------------------------------------------------------------------------------------
Long-term debt 133,029 -- 2 20,000 -- 4,987 -- 158,018
Intercompany debt -- -- -- -- 30,553 44,791 (75,344) --
Other liabilities 11,822 -- 4,897 -- 1,136 4,431 -- 22,286
---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 172,438 178 42,621 20,216 45,969 74,446 (75,344) 280,524
---------------------------------------------------------------------------------------------------
REDEEMABLE SECURITIES:
Series C preferred
stock 24,678 -- -- -- -- -- -- 24,678
---------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
(DEFICIT):
Series A preferred
stock 521 -- -- -- -- -- -- 521
Common stock 2 1 31 -- -- -- (32) 2
Paid-in capital 860 -- 112,004 21 52 1,537 (113,614) 860
Retained earnings
(accumulated
deficit) (57,964) 21,340 (4,339) (2,744) (2,757) 8,374 (19,874) (57,964)
Accumulated other
comprehensive --
income (loss):
Gain on derivative
instruments 9 -- 9 -- -- -- (9) 9
Cumulative
currency
translation
adjustment (7,261) -- (192) 4,309 4,309 (11,377) 2,951 (7,261)
---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) (63,833) 21,341 107,513 1,586 1,604 (1,466) (130,578) (63,833)
---------------------------------------------------------------------------------------------------
$ 133,283 $ 21,519 $ 150,134 $ 21,802 $ 47,573 $ 72,980 $(205,922) $ 241,369
===================================================================================================
F-36
2005 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | U.S. | | | | | | | Non- | | | | | |
| | | Parent | | | Unrestricted | | Guarantor | | | Dutch | | | Belgium | | | Guarantor | | | Consolidation | | | Consolidated | |
| | | Issuer | | | Subsidiaries | | Subsidiaries | | | Issuer | | | Guarantor | | | Subsidiaries | | | Adjustments | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | $ | 2,490 | | | $ | — | | | $ | 1,787 | | | $ | 17 | | | $ | 255 | | | $ | 8,452 | | | $ | — | | | $ | 13,001 | |
| | Trade receivables | | | 2,828 | | | | — | | | | 24,791 | | | | — | | | | 3,980 | | | | 21,207 | | | | — | | | | 52,806 | |
| | Other receivables | | | 549 | | | | — | | | | 971 | | | | — | | | | 804 | | | | 1,287 | | | | — | | | | 3,611 | |
| | Inventory | | | 2,669 | | | | — | | | | 36,289 | | | | — | | | | 29,691 | | | | 27,972 | | | | — | | | | 96,621 | |
| | Prepaid expenses and other | | | 4,118 | | | | — | | | | 921 | | | | — | | | | 1,203 | | | | 6,545 | | | | — | | | | 12,787 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | TOTAL CURRENT ASSETS | | | 12,654 | | | | — | | | | 64,759 | | | | 17 | | | | 35,933 | | | | 65,463 | | | | — | | | | 178,826 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Property, plant & equipment, net | | | 1,178 | | | | — | | | | 13,564 | | | | — | | | | 8,122 | | | | 27,096 | | | | — | | | | 49,960 | |
| Intangibles, net | | | — | | | | — | | | | 3,827 | | | | — | | | | 1,339 | | | | 5,035 | | | | — | | | | 10,201 | |
| Other assets | | | 12,303 | | | | — | | | | 796 | | | | — | | | | — | | | | 971 | | | | — | | | | 14,070 | |
| Investment in subsidiaries | | | 101,464 | | | | — | | | | — | | | | (17,469 | ) | | | — | | | | — | | | | (83,995 | ) | | | — | |
| Intercompany | | | 9,384 | | | | — | | | | 93,463 | | | | 31,103 | | | | (1,427 | ) | | | (14,325 | ) | | | (118,198 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 136,983 | | | $ | — | | | $ | 176,409 | | | $ | 13,651 | | | $ | 43,967 | | | $ | 84,240 | | | $ | (202,193 | ) | | $ | 253,057 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash overdraft | | $ | — | | | $ | — | | | $ | 190 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 190 | |
| | Loan payable to banks | | | 8,000 | | | | — | | | | — | | | | — | | | | — | | | | 38 | | | | — | | | | 8,038 | |
| | Current portion of long-term debt | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,625 | | | | — | | | | 1,625 | |
| | Accounts payable | | | 1,683 | | | | — | | | | 20,137 | | | | — | | | | 3,320 | | | | 11,207 | | | | — | | | | 36,347 | |
| | Accrued expenses and other | | | 10,910 | | | | — | | | | 9,222 | | | | 248 | | | | 21,195 | | | | 12,240 | | | | | | | | 53,815 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | TOTAL CURRENT LIABILITIES | | | 20,593 | | | | — | | | | 29,549 | | | | 248 | | | | 24,515 | | | | 25,110 | | | | — | | | | 100,015 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 151,236 | | | | — | | | | — | | | | 24,284 | | | | — | | | | 981 | | | | — | | | | 176,501 | |
| Other liabilities | | | 10,078 | | | | — | | | | 5,364 | | | | — | | | | 1,856 | | | | 4,167 | | | | — | | | | 21,465 | |
| Intercompany debt | | | — | | | | — | | | | 28,047 | | | | 6,591 | | | | 35,065 | | | | 48,495 | | | | (118,198 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | TOTAL LIABILITIES | | | 181,907 | | | | — | | | | 62,960 | | | | 31,123 | | | | 61,436 | | | | 78,753 | | | | (118,198 | ) | | | 297,981 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| STOCKHOLDERS’ EQUITY (DEFICIT): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A preferred stock | | | 521 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 521 | |
| | Common stock | | | 2 | | | | — | | | | 33 | | | | — | | | | — | | | | — | | | | (33 | ) | | | 2 | |
| | Paid-in capital | | | 27,260 | | | | — | | | | 108,383 | | | | 21 | | | | 52 | | | | 1,537 | | | | (109,993 | ) | | | 27,260 | |
| | Retained earnings (accumulated deficit) | | | (74,379 | ) | | | — | | | | 5,188 | | | | (21,445 | ) | | | (21,473 | ) | | | 6,074 | | | | 31,656 | | | | (74,379 | ) |
| | Accumulated other comprehensive | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| | | income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Gain on derivative instruments, net of income taxes | | | 123 | | | | — | | | | 123 | | | | — | | | | — | | | | — | | | | (123 | ) | | | 123 | |
| | | Cumulative currency translation adjustment, net of income taxes | | | 1,549 | | | | — | | | | (278 | ) | | | 3,952 | | | | 3,952 | | | | (2,124 | ) | | | (5,502 | ) | | | 1,549 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | | | (44,924 | ) | | | — | | | | 113,449 | | | | (17,472 | ) | | | (17,469 | ) | | | 5,487 | | | | (83,995 | ) | | | (44,924 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 136,983 | | | $ | — | | | $ | 176,409 | | | $ | 13,651 | | | $ | 43,967 | | | $ | 84,240 | | | $ | (202,193 | ) | | $ | 253,057 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-40
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
— (Continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For The Twelve Monthsthe Year Ended June 30, 2004
Parent Unrestricted U.S. Guarantor Dutch Belgium Non-Guarantor Consolidation Consolidated
Issuer Subsidiaries Subsidiaries Issuer Guarantor Subsidiaries Adjustments Balance
---------------------------------------------------------------------------------------------------
NET SALES $ 21,868 $ 11,118 $ 215,591 $ -- $ 5,742 $ 103,955 $ -- $ 358,274
NET SALES -
INTERCOMPANY 150 2,598 468 -- 28,970 4,375 (36,561) --
COST OF GOODS SOLD 17,318 10,139 160,136 -- 25,293 91,546 (36,561) 267,871
---------------------------------------------------------------------------------------------------
GROSS PROFIT 4,700 3,577 55,923 -- 9,419 16,784 -- 90,403
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 20,238 1,299 25,317 4 2,676 16,594 -- 66,128
COSTS OF NON-COMPLETED
TRANSACTION 5,261 -- -- -- -- -- -- 5,261
---------------------------------------------------------------------------------------------------
OPERATING INCOME
(LOSS) (20,799) 2,278 30,606 (4) 6,743 190 -- 19,014
OTHER:
Interest expense 16,208 18 -- 1,806 95 491 -- 18,618
Interest (income) (4) -- -- -- -- (126) -- (130)
Other (income)
expense, net 578 -- (605) -- (265) (489) -- (781)
Net (gain) on
extinguishment
of debt (23,226) -- -- -- -- -- -- (23,226)
Intercompany
interest and
other (26,755) 1,892 16,392 (1,823) 3,335 6,959 -- --
(Profit) loss
relating to
subsidiaries (5,349) -- -- (2,124) -- -- 7,473 --
---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
CONTINUING
OPERATIONS
BEFORE INCOME
TAXES 17,749 368 14,819 2,137 3,578 (6,645) (7,473) 24,533
PROVISION FOR INCOME
TAXES 1,185 221 1,294 -- 1,454 3,815 -- 7,969
---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
CONTINUING
OPERATIONS 16,564 147 13,525 2,137 2,124 (10,460) (7,473) 16,564
DISCONTINUED
OPERATIONS:
Profit (loss)
relating to
discontinued
operations (517) -- -- -- -- -- 517 --
(Loss) from
discontinued
operations
(net of income
taxes) -- (124) -- -- -- (1,501) -- (1,625)
Gain (loss) from
disposal of
discontinued
operations
(net of income
taxes) (3,197) -- (2,735) -- -- 3,843 -- (2,089)
---------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 12,850 $ 23 $ 10,790 $ 2,137 $ 2,124 $ (8,118) $ (6,956) $ 12,850
===================================================================================================
F-37
2005 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | U.S. | | | | | | | Non- | | | | | |
| | | Parent | | | Unrestricted | | Guarantor | | | Dutch | | | Belgium | | | Guarantor | | | Consolidation | | | Consolidated | |
| | | Issuer | | | Subsidiaries | | Subsidiaries | | | Issuer | | | Guarantor | | | Subsidiaries | | | Adjustments | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| NET SALES | | $ | 23,877 | | | $ | — | | | $ | 227,643 | | | $ | — | | | $ | 10,276 | | | $ | 102,583 | | | $ | — | | | $ | 364,379 | |
| NET SALES — INTERCOMPANY | | | 173 | | | | — | | | | 265 | | | | — | | | | 30,298 | | | | 7,417 | | | | (38,153 | ) | | | — | |
| COST OF GOODS SOLD (includes Belgium Plant Transactions costs of $22,191) | | | 18,503 | | | | — | | | | 167,734 | | | | — | | | | 55,688 | | | | 89,314 | | | | (38,153 | ) | | | 293,086 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | GROSS PROFIT | | | 5,547 | | | | — | | | | 60,174 | | | | — | | | | (15,114 | ) | | | 20,686 | | | | — | | | | 71,293 | |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | | 18,694 | | | | — | | | | 29,424 | | | | 17 | | | | 2,345 | | | | 16,431 | | | | — | | | | 66,911 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | OPERATING INCOME (LOSS) | | | (13,147 | ) | | | — | | | | 30,750 | | | | (17 | ) | | | (17,459 | ) | | | 4,255 | | | | — | | | | 4,382 | |
| OTHER: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest expense | | | 21,662 | | | | — | | | | — | | | | 2,877 | | | | 61 | | | | 742 | | | | — | | | | 25,342 | |
| | Interest (income) | | | (12 | ) | | | — | | | | (8 | ) | | | — | | | | — | | | | (100 | ) | | | — | | | | (120 | ) |
| | Other (income) expense, net | | | (707 | ) | | | — | | | | (10 | ) | | | — | | | | 62 | | | | (1,204 | ) | | | — | | | | (1,859 | ) |
| | Intercompany interest and other | | | (26,862 | ) | | | — | | | | 20,754 | | | | (2,909 | ) | | | 4,073 | | | | 4,944 | | | | — | | | | — | |
| | Loss relating to subsidiaries | | | 12,657 | | | | — | | | | — | | | | 18,716 | | | | — | | | | — | | | | (31,373 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | | (19,885 | ) | | | — | | | | 10,014 | | | | (18,701 | ) | | | (21,655 | ) | | | (127 | ) | | | 31,373 | | | | (18,981 | ) |
| PROVISION (BENEFIT) FOR INCOME TAXES | | | 1,216 | | | | — | | | | 487 | | | | — | | | | (2,939 | ) | | | 3,356 | | | | — | | | | 2,120 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | INCOME (LOSS) FROM CONTINUING OPERATIONS | | | (21,101 | ) | | | — | | | | 9,527 | | | | (18,701 | ) | | | (18,716 | ) | | | (3,483 | ) | | | 31,373 | | | | (21,101 | ) |
| DISCONTINUED OPERATIONS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Income from discontinued operations, net of income taxes | | | — | | | | — | | | | — | | | | — | | | | — | | | | 671 | | | | — | | | | 671 | |
| | Gain from disposal of discontinued operations, net of income taxes | | | 253 | | | | — | | | | — | | | | — | | | | — | | | | 512 | | | | — | | | | 765 | |
| | Income relating to discontinued operations | | | 1,183 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,183 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET INCOME (LOSS) | | $ | (19,665 | ) | | $ | — | | | $ | 9,527 | | | $ | (18,701 | ) | | $ | (18,716 | ) | | $ | (2,300 | ) | | $ | 30,190 | | | $ | (19,665 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-41
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
— (Continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve MonthsYear Ended June 30, 2004
Parent Unrestricted U.S. Guarantor Dutch Belgium Non-Guarantor Consolidation Consolidated
Issuer Subsidiaries Subsidiaries Issuer Guarantor Subsidiaries Adjustments Balance
---------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ 12,850 $ 23 $ 10,790 $ 2,137 $ 2,124 $ (8,118) $ (6,956) $ 12,850
Adjustment for
discontinued
operation 3,714 124 2,735 -- -- (2,342) (517) 3,714
---------------------------------------------------------------------------------------------------
Income (loss) from
continuing
operations 16,564 147 13,525 2,137 2,124 (10,460) (7,473) 16,564
Adjustments to
reconcile income
(loss) from
continuing
operations to
net cash provided
(used) by
operating
activities:
Depreciation and
amortization 2,367 487 2,542 -- 2,669 5,118 -- 13,183
Deferred income
taxes 733 -- -- -- -- (407) -- 326
Net gain from
sales of assets -- -- (689) -- -- (3) -- (692)
Net gain on
extinguishment
of debt (23,226) -- -- -- -- -- -- (23,226)
Effects of changes
in foreign
currency -- -- 84 -- (264) (368) -- (548)
Other 525 -- 395 -- -- 194 -- 1,114
Changes in
operating assets
and liabilities: --
Accounts receivable 79 336 (4,826) -- (945) (1,866) -- (7,222)
Inventory 618 (543) 4,143 -- (8,762) 8,204 -- 3,660
Prepaid expenses
and other (268) 188 (479) -- 1,369 (1,124) -- (314)
Other assets 1,997 -- (4,548) -- -- (528) -- (3,079)
Intercompany (981) 17,331 (8,706) (22,336) 13,316 (6,097) 7,473 --
Accounts payable (370) (328) (2,368) -- (2,395) (189) -- (5,650)
Accrued expenses
and other 2,803 (89) 5,089 216 2,742 (3,796) -- 6,965
Accrued costs of
non-completed
transaction 3,970 -- -- -- -- -- -- 3,970
Cash provided (used)
by discontinued
operations (3,197) (652) (2,735) -- -- 4,395 -- (2,189)
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED
(USED) BY
OPERATING
ACTIVITIES 1,614 16,877 1,427 (19,983) 9,854 (6,927) -- 2,862
---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (57) (62) (2,506) -- (1,613) (2,006) -- (6,244)
Proceeds from sale
of assets -- -- 1,057 -- -- 37 -- 1,094
Other investing (654) -- -- -- -- (1) -- (655)
Discontinued
operations 14,343 -- -- -- -- 532 -- 14,875
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED
(USED) BY
INVESTING
ACTIVITIES 13,632 (62) (1,449) -- (1,613) (1,438) -- 9,070
---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) in
cash overdraft (350) (276) (160) -- -- (9) -- (795)
Net (decrease) in
short-term debt (26,882) -- -- -- -- (72) -- (26,954)
Proceeds from
long-term debt 85,000 -- -- 20,000 -- 4,661 -- 109,661
Payments of
long-term debt (32,679) (13) (1,055) -- -- (1,706) -- (35,453)
Payment of Pfizer
obligations (20,075) -- -- -- (8,225) -- -- (28,300)
Payments relating
to the Prince
Transactions and
transaction costs (4,619) (16,645) (129) -- -- -- -- (21,393)
Debt refinancing
costs (15,548) -- -- -- -- -- -- (15,548)
Discontinued
operations -- -- -- -- -- 1,005 -- 1,005
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED
(USED) BY
FINANCING
ACTIVITIES (15,153) (16,934) (1,344) 20,000 (8,225) 3,879 -- (17,777)
---------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE
RATE CHANGES ON CASH -- -- -- -- 11 223 234
---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 93 (119) (1,366) 17 27 (4,263) -- (5,611)
CASH AND CASH
EQUIVALENTS
at beginning of
period 43 119 2,167 -- 185 8,665 11,179
---------------------------------------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS
at end of period $ 136 $ -- $ 801 $ 17 $ 212 $ 4,402 $ -- $ 5,568
===================================================================================================
F-38
2005 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | U.S. | | | | | | | Non- | | | | | |
| | | Parent | | | Unrestricted | | | Guarantor | | | Dutch | | | Belgium | | | Guarantor | | | Consolidation | | | Consolidated | |
| | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Issuer | | | Guarantor | | | Subsidiaries | | | Adjustments | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net income (loss) | | $ | (19,665 | ) | | $ | — | | | $ | 9,527 | | | $ | (18,701 | ) | | $ | (18,716 | ) | | $ | (2,300 | ) | | $ | 30,190 | | | $ | (19,665 | ) |
| | Adjustment for discontinued operations | | | (1,436 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,183 | ) | | | 1,183 | | | | (1,436 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Income (loss) from continuing operations | | | (21,101 | ) | | | — | | | | 9,527 | | | | (18,701 | ) | | | (18,716 | ) | | | (3,483 | ) | | | 31,373 | | | | (21,101 | ) |
| | Adjustments to reconcile income (loss) from continuing operations to net cash provided (used) by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Depreciation and amortization (includes accelerated depreciation from the Belgium Plant Transactions of $7,467) | | | 246 | | | | — | | | | 2,829 | | | | — | | | | 10,489 | | | | 4,542 | | | | — | | | | 18,106 | |
| | | Amortization of deferred financing costs | | | 2,974 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,974 | |
| | | Deferred income taxes | | | — | | | | — | | | | — | | | | — | | | | (2,124 | ) | | | 1,106 | | | | — | | | | (1,018 | ) |
| | | Net gain from sales of assets | | | (643 | ) | | | — | | | | (823 | ) | | | — | | | | — | | | | (76 | ) | | | — | | | | (1,542 | ) |
| | | Effects of changes in foreign currency | | | — | | | | — | | | | (731 | ) | | | — | | | | 62 | | | | (30 | ) | | | — | | | | (699 | ) |
| | | Other | | | 291 | | | | — | | | | 294 | | | | — | | | | — | | | | 267 | | | | — | | | | 852 | |
| | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Accounts receivable | | | (168 | ) | | | — | | | | 2,460 | | | | — | | | | (1,482 | ) | | | 3,589 | | | | — | | | | 4,399 | |
| | | | Inventory | | | (675 | ) | | | — | | | | 2,906 | | | | — | | | | (7,084 | ) | | | (9,398 | ) | | | — | | | | (14,251 | ) |
| | | | Prepaid expenses and other | | | (1,102 | ) | | | — | | | | 338 | | | | — | | | | (786 | ) | | | (1,230 | ) | | | — | | | | (2,780 | ) |
| | | | Other assets | | | 804 | | | | — | | | | (23 | ) | | | — | | | | — | | | | (664 | ) | | | — | | | | 117 | |
| | | | Intercompany | | | 7,809 | | | | 5 | | | | (7,023 | ) | | | 14,386 | | | | 7,871 | | | | 8,325 | | | | (31,373 | ) | | | — | |
| | | | Accounts payable | | | (1,251 | ) | | | 6 | | | | (8,325 | ) | | | — | | | | 1,137 | | | | (421 | ) | | | — | | | | (8,854 | ) |
| | | | Accrued expenses and other | | | 3,455 | | | | (1 | ) | | | 1,512 | | | | 31 | | | | (1,628 | ) | | | 3,808 | | | | — | | | | 7,177 | |
| | | | Accrued costs of non-completed transaction | | | (3,970 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,970 | ) |
| | | | Accrued costs of the Belgium Plant Transactions | | | — | | | | — | | | | — | | | | — | | | | 13,309 | | | | — | | | | — | | | | 13,309 | |
| | Cash provided by discontinued operations | | | 765 | | | | — | | | | — | | | | — | | | | — | | | | 257 | | | | — | | | | 1,022 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES | | | (12,566 | ) | | | 10 | | | | 2,941 | | | | (4,284 | ) | | | 1,048 | | | | 6,592 | | | | — | | | | (6,259 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital expenditures | | | (1,232 | ) | | | — | | | | (2,527 | ) | | | — | | | | (1,001 | ) | | | (2,729 | ) | | | — | | | | (7,489 | ) |
| | Proceeds from sale of assets | | | 2,418 | | | | — | | | | 1,366 | | | | — | | | | — | | | | 33 | | | | — | | | | 3,817 | |
| | Other investing | | | (1,101 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,101 | ) |
| | Discontinued operations | | | 940 | | | | — | | | | — | | | | — | | | | — | | | | 3,855 | | | | — | | | | 4,795 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES | | | 1,025 | | | | — | | | | (1,161 | ) | | | — | | | | (1,001 | ) | | | 1,159 | | | | — | | | | 22 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net (decrease) in cash overdraft | | | — | | | | (10 | ) | | | (691 | ) | | | — | | | | — | | | | — | | | | — | | | | (701 | ) |
| | Net increase (decrease) in short-term debt | | | (2,996 | ) | | | — | | | | — | | | | — | | | | — | | | | 38 | | | | — | | | | (2,958 | ) |
| | Proceeds from long-term debt | | | 19,107 | | | | — | | | | — | | | | 4,284 | | | | — | | | | 901 | | | | — | | | | 24,292 | |
| | Payments of long-term debt | | | — | | | | — | | | | (103 | ) | | | — | | | | — | | | | (4,564 | ) | | | — | | | | (4,667 | ) |
| | Proceeds from capital contribution from PAHC Holdings Corporation | | | 26,400 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 26,400 | |
| | Redemption of Series C preferred stock | | | (26,400 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (26,400 | ) |
| | Debt financing costs | | | (2,216 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,216 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES | | | 13,895 | | | | (10 | ) | | | (794 | ) | | | 4,284 | | | | — | | | | (3,625 | ) | | | — | | | | 13,750 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | | | — | | | | — | | | | — | | | | — | | | | (4 | ) | | | (76 | ) | | | | | | | (80 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCREASE IN CASH AND CASH EQUIVALENTS | | | 2,354 | | | | — | | | | 986 | | | | — | | | | 43 | | | | 4,050 | | | | — | | | | 7,433 | |
| CASH AND CASH EQUIVALENTS at beginning of period | | | 136 | | | | — | | | | 801 | | | | 17 | | | | 212 | | | | 4,402 | | | | | | | | 5,568 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS at end of period | | $ | 2,490 | | | $ | — | | | $ | 1,787 | | | $ | 17 | | | $ | 255 | | | $ | 8,452 | | | $ | — | | | $ | 13,001 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-42
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
— (Continued)
CONSOLIDATING BALANCE SHEET
As of June 30, 2003
Parent Unrestricted U.S. Guarantor Dutch Belgium Non-Guarantor Consolidation Consolidated
Issuer Subsidiaries Subsidiaries Issuer Guarantor Subsidiaries Adjustments Balance
---------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents $ 43 $ 119 $ 2,167 $ -- $ 185 $ 8,665 $ 11,179
Trade receivables 2,759 2,452 22,071 -- 1,542 23,890 52,714
Other receivables 957 3 733 -- 518 1,292 3,503
Inventory 2,612 4,278 41,266 -- 13,460 26,233 87,849
Prepaid expenses
and other 3,267 458 981 -- 1,866 3,296 9,868
Current assets from
discontinued
operations -- 4,942 -- -- -- 4,334 9,276
---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 9,638 12,252 67,218 -- 17,571 67,710 -- 174,389
---------------------------------------------------------------------------------------------------
Property, plant &
equipment, net 153 3,269 13,297 -- 17,049 30,137 63,905
Intangibles -- -- -- -- 1,818 6,851 8,669
Investment in
subsidiaries 103,574 -- 3,619 -- -- -- (107,193) --
Intercompany 35,034 (19,431) 59,765 -- 6,731 (9,116) (72,983) --
Other assets 11,516 710 1,122 -- -- 711 14,059
Other assets from
discontinued
operations -- 10,650 -- -- -- 2,675 13,325
---------------------------------------------------------------------------------------------------
$159,915 $ 7,450 $ 145,021 $ -- $ 43,169 $ 98,968 $(180,176) $ 274,347
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Cash overdraft $ 350 $ 286 $ 1,041 $ -- $ -- $ 9 1,686
Loan payable to
banks 37,878 -- -- -- -- -- 37,878
Current portion of
long-term debt 21,599 66 381 -- -- 2,078 24,124
Accounts payable 3,304 2,350 25,926 -- 12,115 11,660 55,355
Accrued expenses
and other 7,943 1,151 9,931 -- 8,583 13,091 40,699
Current liabilities
from discontinued
operations -- 2,051 -- -- -- 3,506 5,557
---------------------------------------------------------------------------------------------------
TOTAL CURRENT
LIABILITIES 71,074 5,904 37,279 -- 20,698 30,344 -- 165,299
---------------------------------------------------------------------------------------------------
Long-term debt 100,073 213 149 -- -- 1,828 102,263
Intercompany debt -- -- -- -- 22,319 50,664 (72,983) --
Other liabilities 4,397 114 13,289 -- 1,256 2,185 21,241
Other liabilities
from discontinued
operations -- 198 -- -- -- 975 1,173
---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 175,544 6,429 50,717 -- 44,273 85,996 (72,983) 289,976
---------------------------------------------------------------------------------------------------
REDEEMABLE SECURITIES:
Series B and C
preferred stock 68,881 -- -- -- -- -- 68,881
---------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
(DEFICIT):
Series A preferred
stock 521 -- -- -- -- -- 521
Common stock 2 1 31 -- -- -- (32) 2
Paid-in capital 860 -- 110,883 -- -- 5,179 (116,062) 860
Retained earnings
(accumulated
deficit) (79,489) 1,020 (16,499) -- (4,881) 17,862 2,498 (79,489)
Accumulated other
comprehensive --
income (loss):
Gain on derivative
instruments 81 -- 81 -- -- -- (81) 81
Cumulative
currency
translation
adjustment (6,485) -- (192) -- 3,777 (10,069) 6,484 (6,485)
---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) (84,510) 1,021 94,304 -- (1,104) 12,972 (107,193) (84,510)
---------------------------------------------------------------------------------------------------
$159,915 $ 7,450 $ 145,021 $ -- $ 43,169 $ 98,968 $(180,176) $ 274,347
===================================================================================================
F-39
2004 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | U.S. | | | | | | | Non- | | | | | |
| | | Parent | | | Unrestricted | | | Guarantor | | | Dutch | | | Belgium | | | Guarantor | | | Consolidation | | | Consolidated | |
| | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Issuer | | | Guarantor | | | Subsidiaries | | | Adjustments | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | $ | 136 | | | $ | — | | | $ | 801 | | | $ | 17 | | | $ | 212 | | | $ | 4,402 | | | $ | — | | | $ | 5,568 | |
| | Trade receivables | | | 2,670 | | | | — | | | | 26,996 | | | | — | | | | 2,592 | | | | 24,959 | | | | — | | | | 57,217 | |
| | Other receivables | | | 317 | | | | 414 | | | | 1,195 | | | | — | | | | 72 | | | | 768 | | | | — | | | | 2,766 | |
| | Inventory | | | 1,994 | | | | — | | | | 37,890 | | | | — | | | | 23,159 | | | | 15,519 | | | | | | | | 78,562 | |
| | Prepaid expenses and other | | | 3,195 | | | | 110 | | | | 565 | | | | — | | | | 1,018 | | | | 3,703 | | | | — | | | | 8,591 | |
| | Current assets from discontinued operations | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,886 | | | | — | | | | 1,886 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | TOTAL CURRENT ASSETS | | | 8,312 | | | | 524 | | | | 67,447 | | | | 17 | | | | 27,053 | | | | 51,237 | | | | — | | | | 154,590 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Property, plant & equipment, net | | | 105 | | | | — | | | | 13,730 | | | | — | | | | 17,321 | | | | 24,225 | | | | — | | | | 55,381 | |
| Intangibles, net | | | — | | | | — | | | | 4,252 | | | | — | | | | 1,569 | | | | 5,874 | | | | — | | | | 11,695 | |
| Other assets | | | 14,506 | | | | — | | | | 1,056 | | | | — | | | | — | | | | 736 | | | | — | | | | 16,298 | |
| Other assets from discontinued operations | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,405 | | | | — | | | | 3,405 | |
| Investment in subsidiaries | | | 125,355 | | | | — | | | | — | | | | 1,604 | | | | — | | | | — | | | | (126,959 | ) | | | — | |
| Intercompany | | | (14,995 | ) | | | 20,995 | | | | 60,030 | | | | 20,181 | | | | 1,630 | | | | (12,497 | ) | | | (75,344 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 133,283 | | | $ | 21,519 | | | $ | 146,515 | | | $ | 21,802 | | | $ | 47,573 | | | $ | 72,980 | | | $ | (202,303 | ) | | $ | 241,369 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash overdraft | | $ | — | | | $ | 10 | | | $ | 881 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 891 | |
| | Loan payable to banks | | | 10,996 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,996 | |
| | Current portion of long-term debt | | | — | | | | — | | | | 101 | | | | — | | | | — | | | | 1,250 | | | | — | | | | 1,351 | |
| | Accounts payable | | | 4,734 | | | | 9 | | | | 28,434 | | | | — | | | | 2,258 | | | | 11,329 | | | | — | | | | 46,764 | |
| | Accrued expenses and other | | | 11,857 | | | | 159 | | | | 8,306 | | | | 216 | | | | 12,022 | | | | 6,820 | | | | | | | | 39,380 | |
| | Current liabilities from discontinued operations | | | — | | | | — | | | | — | | | | — | | | | — | | | | 838 | | | | — | | | | 838 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | TOTAL CURRENT LIABILITIES | | | 27,587 | | | | 178 | | | | 37,722 | | | | 216 | | | | 14,280 | | | | 20,237 | | | | — | | | | 100,220 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 133,029 | | | | — | | | | 2 | | | | 20,000 | | | | — | | | | 4,987 | | | | — | | | | 158,018 | |
| Other liabilities | | | 11,822 | | | | — | | | | 4,897 | | | | — | | | | 1,136 | | | | 4,431 | | | | — | | | | 22,286 | |
| Intercompany debt | | | — | | | | — | | | | — | | | | — | | | | 30,553 | | | | 44,791 | | | | (75,344 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | TOTAL LIABILITIES | | | 172,438 | | | | 178 | | | | 42,621 | | | | 20,216 | | | | 45,969 | | | | 74,446 | | | | (75,344 | ) | | | 280,524 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| REDEEMABLE SECURITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | �� | | | |
| | Series C preferred stock | | | 24,678 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 24,678 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| STOCKHOLDERS’ EQUITY (DEFICIT): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A preferred stock | | | 521 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 521 | |
| | Common stock | | | 2 | | | | 1 | | | | 33 | | | | — | | | | — | | | | — | | | | (34 | ) | | | 2 | |
| | Paid-in capital | | | 860 | | | | — | | | | 108,383 | | | | 21 | | | | 52 | | | | 1,537 | | | | (109,993 | ) | | | 860 | |
| | Retained earnings (accumulated deficit) | | | (57,964 | ) | | | 21,340 | | | | (4,339 | ) | | | (2,744 | ) | | | (2,757 | ) | | | 8,374 | | | | (19,874 | ) | | | (57,964 | ) |
| | Accumulated other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Gain on derivative instruments, net of income taxes | | | 9 | | | | — | | | | 9 | | | | — | | | | — | | | | — | | | | (9 | ) | | | 9 | |
| | | Cumulative currency translation adjustment, net of income taxes | | | (7,261 | ) | | | — | | | | (192 | ) | | | 4,309 | | | | 4,309 | | | | (11,377 | ) | | | 2,951 | | | | (7,261 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | | | (63,833 | ) | | | 21,341 | | | | 103,894 | | | | 1,586 | | | | 1,604 | | | | (1,466 | ) | | | (126,959 | ) | | | (63,833 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 133,283 | | | $ | 21,519 | | | $ | 146,515 | | | $ | 21,802 | | | $ | 47,573 | | | $ | 72,980 | | | $ | (202,303 | ) | | $ | 241,369 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-43
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
— (Continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For The Twelve Monthsthe Year Ended June 30, 2003
Parent Unrestricted U.S. Guarantor Dutch Belgium Non-Guarantor Consolidation Consolidated
Issuer Subsidiaries Subsidiaries Issuer Guarantor Subsidiaries Adjustments Balance
---------------------------------------------------------------------------------------------------
NET SALES $ 23,982 $ 22,332 $ 187,628 $ -- $ 6,625 $ 101,179 $ -- $ 341,746
NET SALES -
INTERCOMPANY 1,338 4,244 775 -- 26,994 6,812 (40,163) --
COST OF GOODS SOLD 20,083 20,422 144,543 -- 31,435 74,880 (40,163) 251,200
---------------------------------------------------------------------------------------------------
GROSS PROFIT 5,237 6,154 43,860 -- 2,184 33,111 -- 90,546
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 18,064 2,575 26,632 -- 1,868 15,911 65,050
---------------------------------------------------------------------------------------------------
OPERATING INCOME
(LOSS) (12,827) 3,579 17,228 -- 316 17,200 -- 25,496
OTHER:
Interest expense 15,050 86 1 -- 62 1,082 16,281
Interest (income) (2) -- -- -- -- (83) (85)
Other (income)
expense, net 3,283 -- (3,481) -- 1,283 454 1,539
Intercompany
interest and other (33,819) 4,952 18,997 -- 2,849 7,021 --
(Profit) loss
relating to
subsidiaries 4,036 -- -- -- -- -- (4,036) --
---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
CONTINUING
OPERATIONS BEFORE
INCOME TAXES (1,375) (1,459) 1,711 -- (3,878) 8,726 4,036 7,761
PROVISION FOR INCOME
TAXES 924 52 570 -- 572 7,942 10,060
---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
CONTINUING
OPERATIONS (2,299) (1,511) 1,141 -- (4,450) 784 4,036 (2,299)
DISCONTINUED
OPERATIONS:
Profit (loss)
relating to
discontinued
operations 14,759 -- -- -- -- -- (14,759) --
(Loss) from
discontinued
operations
(net of income
taxes) -- (3,454) -- -- -- (11,123) (14,577)
Gain (loss) from
disposal of
discontinued
operations
(net of income
taxes) (30,019) -- -- -- -- 29,336 (683)
---------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(17,559) $ (4,965) $ 1,141 $ -- $ (4,450) $ 18,997 $(10,723) $ (17,559)
===================================================================================================
F-40
2004 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | U.S. | | | | | | | Non- | | | | | |
| | | Parent | | | Unrestricted | | | Guarantor | | | Dutch | | | Belgium | | | Guarantors | | | Consolidation | | | Consolidated | |
| | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Issuer | | | Guarantor | | | Subsidiaries | | | Adjustments | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET SALES | | $ | 21,868 | | | $ | 11,118 | | | $ | 215,591 | | | $ | — | | | $ | 5,742 | | | $ | 100,065 | | | $ | — | | | $ | 354,384 | |
| NET SALES — INTERCOMPANY | | | 150 | | | | 2,598 | | | | 468 | | | | — | | | | 28,970 | | | | 4,375 | | | | (36,561 | ) | | | — | |
| COST OF GOODS SOLD | | | 17,318 | | | | 10,139 | | | | 160,136 | | | | — | | | | 25,293 | | | | 88,892 | | | | (36,561 | ) | | | 265,217 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | GROSS PROFIT | | | 4,700 | | | | 3,577 | | | | 55,923 | | | | — | | | | 9,419 | | | | 15,548 | | | | — | | | | 89,167 | |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | | 23,393 | | | | 1,299 | | | | 25,317 | | | | 4 | | | | 2,676 | | | | 15,989 | | | | | | | | 68,678 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | OPERATING INCOME (LOSS) | | | (18,693 | ) | | | 2,278 | | | | 30,606 | | | | (4 | ) | | | 6,743 | | | | (441 | ) | | | — | | | | 20,489 | |
| OTHER: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest expense | | | 18,314 | | | | 18 | | | | — | | | | 1,806 | | | | 95 | | | | 491 | | | | | | | | 20,724 | |
| | Interest (income) | | | (4 | ) | | | — | | | | — | | | | — | | | | — | | | | (126 | ) | | | | | | | (130 | ) |
| | Other (income) expense, net | | | 578 | | | | — | | | | (605 | ) | | | — | | | | (265 | ) | | | (496 | ) | | | | | | | (788 | ) |
| | Net (gain) on extinguishment of debt | | | (23,226 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | (23,226 | ) |
| | Intercompany interest and other | | | (26,755 | ) | | | 1,892 | | | | 16,392 | | | | (1,823 | ) | | | 3,335 | | | | 6,959 | | | | | | | | — | |
| | Loss relating to subsidiaries | | | (4,890 | ) | | | — | | | | — | | | | (2,124 | ) | | | — | | | | — | | | | 7,014 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | | 17,290 | | | | 368 | | | | 14,819 | | | | 2,137 | | | | 3,578 | | | | (7,269 | ) | | | (7,014 | ) | | | 23,909 | |
| PROVISION FOR INCOME TAXES | | | 1,185 | | | | 221 | | | | 1,294 | | | | — | | | | 1,454 | | | | 3,650 | | | | | | | | 7,804 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | INCOME (LOSS) FROM CONTINUING OPERATIONS | | | 16,105 | | | | 147 | | | | 13,525 | | | | 2,137 | | | | 2,124 | | | | (10,919 | ) | | | (7,014 | ) | | | 16,105 | |
| DISCONTINUED OPERATIONS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (Loss) from discontinued operations, net of income taxes | | | — | | | | (124 | ) | | | — | | | | — | | | | — | | | | (1,042 | ) | | | | | | | (1,166 | ) |
| | Gain (loss) on disposal of discontinued operations, net of income taxes | | | (3,197 | ) | | | — | | | | (2,735 | ) | | | — | | | | — | | | | 3,843 | | | | | | | | (2,089 | ) |
| | (Loss) relating to discontinued operations | | | (58 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 58 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET INCOME (LOSS) | | $ | 12,850 | | | $ | 23 | | | $ | 10,790 | | | $ | 2,137 | | | $ | 2,124 | | | $ | (8,118 | ) | | $ | (6,956 | ) | | $ | 12,850 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-44
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
— (Continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve MonthsYear Ended June 30, 2003
Parent Unrestricted U.S. Guarantor Dutch Belgium Non-Guarantor Consolidation Consolidated
Issuer Subsidiaries Subsidiaries Issuer Guarantor Subsidiaries Adjustments Balance
---------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $(17,559) $ (4,965) $ 1,141 $ -- $ (4,450) $ 18,997 $(10,723) $ (17,559)
Adjustment for
discontinued
operation 15,260 3,454 -- -- -- (18,213) 14,759 15,260
---------------------------------------------------------------------------------------------------
Income (loss) from
continuing
operations (2,299) (1,511) 1,141 -- (4,450) 784 4,036 (2,299)
Adjustments to
reconcile income
(loss) from
continuing
operations to
net cash provided
(used) by
operating
activities:
Depreciation and
amortization 1,554 956 2,900 -- 2,019 5,095 12,524
Deferred income
taxes -- -- -- -- -- 6,460 6,460
Net gain from
sales of assets -- -- (118) -- -- (9) (127)
Effects of changes
in foreign
currency -- -- (399) -- 1,268 (479) 390
Other 218 13 540 -- -- (384) 387
Changes in
operating assets
and liabilities:
Accounts receivable 301 245 1,489 -- (322) 2,097 3,810
Inventory 95 (61) (3,658) -- 2,270 (244) (1,598)
Prepaid expenses
and other (702) (195) 558 -- (1,191) (1,592) (3,122)
Other assets (3,171) -- 1,131 -- -- (592) (2,632)
Intercompany 12,780 2,717 (12,285) -- 4,989 (4,165) (4,036) --
Accounts payable 2,280 714 12,542 -- 3,523 1,444 20,503
Accrued expenses
and other 1,415 95 2,326 -- (6,444) 2,253 (355)
Cash provided
(used) by
discontinued
operations -- (1,928) -- -- -- 2,644 716
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED
(USED) BY
OPERATING
ACTIVITIES 12,471 1,045 6,167 -- 1,662 13,312 -- 34,657
---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (2) (350) (2,573) -- (2,149) (3,562) (8,636)
Proceeds from sale
of assets -- -- 2,530 -- -- 35 2,565
Other investing -- -- -- -- -- 737 737
Discontinued
operations -- (493) -- -- -- 1,856 1,363
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED
(USED) BY
INVESTING
ACTIVITIES (2) (843) (43) -- (2,149) (934) -- (3,971)
---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) in
cash overdraft (226) (24) (4,151) -- -- (1,680) (6,081)
Net (decrease) in
short-term debt (5,844) -- -- -- -- (816) (6,660)
Proceeds from
long-term debt -- -- -- -- -- 2,000 2,000
Payments of
long-term debt (6,813) (111) (415) -- -- (8,675) (16,014)
Discontinued
operations -- -- -- -- -- 377 377
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED
(USED) BY
FINANCING
ACTIVITIES (12,883) (135) (4,566) -- -- (8,794) -- (26,378)
---------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE
RATE CHANGES ON CASH -- -- 9 -- 54 389 452
---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (414) 67 1,567 -- (433) 3,973 -- 4,760
CASH AND CASH
EQUIVALENTS
at beginning
of period 457 52 600 -- 618 4,692 6,419
---------------------------------------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS
at end of period $ 43 $ 119 $ 2,167 $ -- $ 185 $ 8,665 $ -- $ 11,179
===================================================================================================
F-41
2004 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | U.S. | | | | | | | Non- | | | | | |
| | | Parent | | | Unrestricted | | | Guarantor | | | Dutch | | | Belgium | | | Guarantor | | | Consolidation | | | Consolidated | |
| | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Issuer | | | Guarantor | | | Subsidiaries | | | Adjustments | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net income (loss) | | $ | 12,850 | | | $ | 23 | | | $ | 10,790 | | | $ | 2,137 | | | $ | 2,124 | | | $ | (8,118 | ) | | $ | (6,956 | ) | | $ | 12,850 | |
| | Adjustment for discontinued operations | | | 3,255 | | | | 124 | | | | 2,735 | | | | — | | | | — | | | | (2,801 | ) | | | (58 | ) | | | 3,255 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Income (loss) from continuing operations | | | 16,105 | | | | 147 | | | | 13,525 | | | | 2,137 | | | | 2,124 | | | | (10,919 | ) | | | (7,014 | ) | | | 16,105 | |
| | Adjustments to reconcile income (loss) from continuing operations to net cash provided (used) by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Depreciation and amortization | | | 261 | | | | 487 | | | | 2,542 | | | | — | | | | 2,669 | | | | 4,699 | | | | | | | | 10,658 | |
| | | Amortization of deferred financing costs | | | 2,106 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | 2,106 | |
| | | Deferred income taxes | | | 733 | | | | — | | | | — | | | | — | | | | — | | | | (407 | ) | | | | | | | 326 | |
| | | Net gain from sales of assets | | | — | | | | — | | | | (689 | ) | | | — | | | | — | | | | (3 | ) | | | | | | | (692 | ) |
| | | Net gain on extinguishment of debt | | | (23,226 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | (23,226 | ) |
| | | Effects of changes in foreign currency | | | — | | | | — | | | | 84 | | | | — | | | | (264 | ) | | | (368 | ) | | | | | | | (548 | ) |
| | | Other | | | 525 | | | | — | | | | 395 | | | | — | | | | — | | | | 194 | | | | | | | | 1,114 | |
| | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Accounts receivable | | | 79 | | | | 336 | | | | (4,826 | ) | | | — | | | | (945 | ) | | | (2,102 | ) | | | | | | | (7,458 | ) |
| | | | Inventory | | | 618 | | | | (543 | ) | | | 4,143 | | | | — | | | | (8,762 | ) | | | 8,320 | | | | | | | | 3,776 | |
| | | | Prepaid expenses and other | | | (268 | ) | | | 188 | | | | (479 | ) | | | — | | | | 1,369 | | | | (1,070 | ) | | | | | | | (260 | ) |
| | | | Other assets | | | 1,997 | | | | — | | | | (4,548 | ) | | | — | | | | — | | | | (528 | ) | | | | | | | (3,079 | ) |
| | | | Intercompany | | | (522 | ) | | | 17,331 | | | | (8,706 | ) | | | (22,336 | ) | | | 13,316 | | | | (6,097 | ) | | | 7,014 | | | | — | |
| | | | Accounts payable | | | (370 | ) | | | (328 | ) | | | (2,368 | ) | | | — | | | | (2,395 | ) | | | (269 | ) | | | | | | | (5,730 | ) |
| | | | Accrued expenses and other | | | 2,803 | | | | (89 | ) | | | 5,089 | | | | 216 | | | | 2,742 | | | | (3,632 | ) | | | | | | | 7,129 | |
| | | | Accrued costs of non-completed transaction | | | 3,970 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | 3,970 | |
| | Cash provided (used) by discontinued operations | | | (3,197 | ) | | | (652 | ) | | | (2,735 | ) | | | — | | | | — | | | | 5,255 | | | | | | | | (1,329 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET CASH PROVIDED (USED) BY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | OPERATING ACTIVITIES | | | 1,614 | | | | 16,877 | | | | 1,427 | | | | (19,983 | ) | | | 9,854 | | | | (6,927 | ) | | | — | | | | 2,862 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital expenditures | | | (57 | ) | | | (62 | ) | | | (2,506 | ) | | | — | | | | (1,613 | ) | | | (1,891 | ) | | | | | | | (6,129 | ) |
| | Proceeds from sale of assets | | | — | | | | — | | | | 1,057 | | | | — | | | | — | | | | 30 | | | | | | | | 1,087 | |
| | Other investing | | | (654 | ) | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | | | | | (655 | ) |
| | Discontinued operations | | | 14,343 | | | | — | | | | — | | | | — | | | | — | | | | 424 | | | | | | | | 14,767 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES | | | 13,632 | | | | (62 | ) | | | (1,449 | ) | | | — | | | | (1,613 | ) | | | (1,438 | ) | | | — | | | | 9,070 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net (decrease) in cash overdraft | | | (350 | ) | | | (276 | ) | | | (160 | ) | | | — | | | | — | | | | (9 | ) | | | | | | | (795 | ) |
| | Net (decrease) in short-term debt | | | (26,882 | ) | | | — | | | | — | | | | — | | | | — | | | | (72 | ) | | | | | | | (26,954 | ) |
| | Proceeds from long-term debt | | | 85,000 | | | | — | | | | — | | | | 20,000 | | | | — | | | | 4,661 | | | | | | | | 109,661 | |
| | Payments of long-term debt | | | (32,679 | ) | | | (13 | ) | | | (1,055 | ) | | | — | | | | — | | | | (1,706 | ) | | | | | | | (35,453 | ) |
| | Payment of Pfizer obligations | | | (20,075 | ) | | | — | | | | — | | | | — | | | | (8,225 | ) | | | — | | | | | | | | (28,300 | ) |
| | Payments relating to the Prince Transactions and transaction costs | | | (4,619 | ) | | | (16,645 | ) | | | (129 | ) | | | — | | | | — | | | | — | | | | | | | | (21,393 | ) |
| | Debt financing costs | | | (15,548 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | (15,548 | ) |
| | Discontinued operations | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,005 | | | | | | | | 1,005 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES | | | (15,153 | ) | | | (16,934 | ) | | | (1,344 | ) | | | 20,000 | | | | (8,225 | ) | | | 3,879 | | | | — | | | | (17,777 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | | | — | | | | — | | | | — | | | | — | | | | 11 | | | | 223 | | | | | | | | 234 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 93 | | | | (119 | ) | | | (1,366 | ) | | | 17 | | | | 27 | | | | (4,263 | ) | | | — | | | | (5,611 | ) |
| CASH AND CASH EQUIVALENTS at beginning of period | | | 43 | | | | 119 | | | | 2,167 | | | | — | | | | 185 | | | | 8,665 | | | | | | | | 11,179 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS at end of period | | $ | 136 | | | $ | — | | | $ | 801 | | | $ | 17 | | | $ | 212 | | | $ | 4,402 | | | $ | — | | | $ | 5,568 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-45
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
— (Continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For The Twelve Monthsthe Year Ended June 30, 2002
Parent Unrestricted U.S. Guarantor Dutch Belgium Non-Guarantor Consolidation Consolidated
Issuer Subsidiaries Subsidiaries Issuer Guarantor Subsidiaries Adjustments Balance
---------------------------------------------------------------------------------------------------
NET SALES $ 24,578 $ 21,451 $ 173,952 $ -- $ 4,196 $ 104,499 $ -- $ 328,676
NET SALES -
INTERCOMPANY 1,114 4,212 924 -- 21,509 9,607 (37,366) --
COST OF GOODS SOLD 20,837 19,400 135,378 -- 21,631 87,531 (37,366) 247,411
---------------------------------------------------------------------------------------------------
GROSS PROFIT 4,855 6,263 39,498 -- 4,074 26,575 -- 81,265
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 16,786 2,623 32,959 -- 1,559 16,709 70,636
---------------------------------------------------------------------------------------------------
OPERATING INCOME
(LOSS) (11,931) 3,640 6,539 -- 2,515 9,866 -- 10,629
OTHER:
Interest expense 15,858 (29) (172) -- 365 2,048 18,070
Interest (income) (15) -- -- -- -- (331) (346)
Other (income)
expense, net (2,001) -- (839) -- 2,294 3,895 3,349
Intercompany interest
and other (28,534) 5,210 12,467 -- 2,486 8,371 --
(Profit) loss
relating to
subsidiaries 17,913 -- -- -- -- -- (17,913) --
---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
CONTINUING
OPERATIONS BEFORE
INCOME TAXES (15,152) (1,541) (4,917) -- (2,630) (4,117) 17,913 (10,444)
PROVISION (BENEFIT)
FOR INCOME TAXES 10,059 (407) 4,636 -- (626) 1,105 14,767
---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
CONTINUING
OPERATIONS (25,211) (1,134) (9,553) -- (2,004) (5,222) 17,913 (25,211)
DISCONTINUED OPERATIONS:
Profit (loss)
relating to
discontinued
operations (26,559) -- -- -- -- -- 26,559 --
(Loss) from
discontinued
operations
(net of income
taxes) -- (2,930) -- -- -- (23,629) (26,559)
---------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(51,770) $ (4,064) $ (9,553) $ -- $ (2,004) $ (28,851) $ 44,472 $ (51,770)
===================================================================================================
F-42
2003 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | U.S. | | | | | | | Non- | | | | | |
| | | Parent | | | Unrestricted | | | Guarantor | | | Dutch | | Belgium | | | Guarantor | | | Consolidation | | | Consolidated | |
| | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Issuer | | Guarantor | | | Subsidiaries | | | Adjustments | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| NET SALES | | $ | 23,982 | | | $ | 22,332 | | | $ | 187,628 | | | $ | — | | | $ | 6,625 | | | $ | 97,251 | | | $ | — | | | $ | 337,818 | |
| NET SALES — INTERCOMPANY | | | 1,338 | | | | 4,244 | | | | 775 | | | | — | | | | 26,994 | | | | 6,812 | | | | (40,163 | ) | | | — | |
| COST OF GOODS SOLD | | | 20,083 | | | | 20,422 | | | | 144,543 | | | | — | | | | 31,435 | | | | 72,257 | | | | (40,163 | ) | | | 248,577 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | GROSS PROFIT | | | 5,237 | | | | 6,154 | | | | 43,860 | | | | — | | | | 2,184 | | | | 31,806 | | | | — | | | | 89,241 | |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | | 16,890 | | | | 2,575 | | | | 26,632 | | | | — | | | | 1,868 | | | | 15,381 | | | | — | | | | 63,346 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | OPERATING INCOME (LOSS) | | | (11,653 | ) | | | 3,579 | | | | 17,228 | | | | — | | | | 316 | | | | 16,425 | | | | — | | | | 25,895 | |
| OTHER: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest expense | | | 16,224 | | | | 86 | | | | 1 | | | | — | | | | 62 | | | | 1,082 | | | | — | | | | 17,455 | |
| | Interest (income) | | | (2 | ) | | | — | | | | — | | | | — | | | | — | | | | (83 | ) | | | — | | | | (85 | ) |
| | Other (income) expense, net | | | 3,283 | | | | — | | | | (3,481 | ) | | | — | | | | 1,283 | | | | 463 | | | | — | | | | 1,548 | |
| | Intercompany interest and other | | | (33,819 | ) | | | 4,952 | | | | 18,997 | | | | — | | | | 2,849 | | | | 7,021 | | | | — | | | | — | |
| | Loss relating to subsidiaries | | | 4,590 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4,590 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | | (1,929 | ) | | | (1,459 | ) | | | 1,711 | | | | — | | | | (3,878 | ) | | | 7,942 | | | | 4,590 | | | | 6,977 | |
| PROVISION FOR INCOME TAXES | | | 924 | | | | 52 | | | | 570 | | | | — | | | | 572 | | | | 7,712 | | | | — | | | | 9,830 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | INCOME (LOSS) FROM CONTINUING OPERATIONS | | | (2,853 | ) | | | (1,511 | ) | | | 1,141 | | | | — | | | | (4,450 | ) | | | 230 | | | | 4,590 | | | | (2,853 | ) |
| DISCONTINUED OPERATIONS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (Loss) from discontinued operations, net of income taxes | | | — | | | | (3,454 | ) | | | — | | | | — | | | | — | | | | (10,569 | ) | | | — | | | | (14,023 | ) |
| | Gain (loss) from disposal of discontinued operations, net of income taxes | | | (30,019 | ) | | | — | | | | — | | | | — | | | | — | | | | 29,336 | | | | — | | | | (683 | ) |
| | Income relating to discontinued operations | | | 15,313 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (15,313 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET INCOME (LOSS) | | $ | (17,559 | ) | | $ | (4,965 | ) | | $ | 1,141 | | | $ | — | | | $ | (4,450 | ) | | $ | 18,997 | | | $ | (10,723 | ) | | $ | (17,559 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-46
PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands)
— (Continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve MonthsYear Ended June 30, 2002
2003
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | U.S. | | | | | | | Non- | | | | | |
| | | Parent | | | Unrestricted | | | Guarantor | | | Dutch | | | Belgium | | | Guarantor | | | Consolidation | | | Consolidated | |
| | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Issuer | | | Guarantor | | | Subsidiaries | | | Adjustments | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net income (loss) | | $ | (17,559 | ) | | $ | (4,965 | ) | | $ | 1,141 | | | $ | — | | | $ | (4,450 | ) | | $ | 18,997 | | | $ | (10,723 | ) | | $ | (17,559 | ) |
| | Adjustment for discontinued operations | | | 14,706 | | | | 3,454 | | | | — | | | | — | | | | — | | | | (18,767 | ) | | | 15,313 | | | | 14,706 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Income (loss) from continuing operations | | | (2,853 | ) | | | (1,511 | ) | | | 1,141 | | | | — | | | | (4,450 | ) | | | 230 | | | | 4,590 | | | | (2,853 | ) |
| | Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Depreciation and amortization | | | 380 | | | | 956 | | | | 2,900 | | | | — | | | | 2,019 | | | | 4,731 | | | | — | | | | 10,986 | |
| | | Amortization of deferred financing costs | | | 1,174 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,174 | |
| | | Deferred income taxes | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,460 | | | | — | | | | 6,460 | |
| | | Net gain from sales of assets | | | — | | | | — | | | | (118 | ) | | | — | | | | — | | | | (9 | ) | | | — | | | | (127 | ) |
| | | Effects of changes in foreign currency | | | — | | | | — | | | | (399 | ) | | | — | | | | 1,268 | | | | (479 | ) | | | — | | | | 390 | |
| | | Other | | | 218 | | | | 13 | | | | 540 | | | | — | | | | — | | | | (384 | ) | | | — | | | | 387 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Accounts receivable | | | 301 | | | | 245 | | | | 1,489 | | | | — | | | | (322 | ) | | | 2,194 | | | | — | | | | 3,907 | |
| | | | Inventory | | | 95 | | | | (61 | ) | | | (3,658 | ) | | | — | | | | 2,270 | | | | (173 | ) | | | — | | | | (1,527 | ) |
| | | | Prepaid expenses and other | | | (702 | ) | | | (195 | ) | | | 558 | | | | — | | | | (1,191 | ) | | | (1,577 | ) | | | — | | | | (3,107 | ) |
| | | | Other assets | | | (3,171 | ) | | | — | | | | 1,131 | | | | — | | | | — | | | | (592 | ) | | | — | | | | (2,632 | ) |
| | | | Intercompany | | | 13,334 | | | | 2,717 | | | | (12,285 | ) | | | — | | | | 4,989 | | | | (4,165 | ) | | | (4,590 | ) | | | — | |
| | | | Accounts payable | | | 2,280 | | | | 714 | | | | 12,542 | | | | — | | | | 3,523 | | | | 1,420 | | | | — | | | | 20,479 | |
| | | | Accrued expenses and other | | | 1,415 | | | | 95 | | | | 2,326 | | | | — | | | | (6,444 | ) | | | 1,598 | | | | — | | | | (1,010 | ) |
| | Cash provided (used) by discontinued operations | | | — | | | | (1,928 | ) | | | — | | | | — | | | | — | | | | 4,058 | | | | — | | | | 2,130 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET CASH PROVIDED BY OPERATING ACTIVITIES | | | 12,471 | | | | 1,045 | | | | 6,167 | | | | — | | | | 1,662 | | | | 13,312 | | | | — | | | | 34,657 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital expenditures | | | (2 | ) | | | (350 | ) | | | (2,573 | ) | | | — | | | | (2,149 | ) | | | (3,433 | ) | | | — | | | | (8,507 | ) |
| | Proceeds from sale of assets | | | — | | | | — | | | | 2,530 | | | | — | | | | — | | | | 34 | | | | — | | | | 2,564 | |
| | Other investing | | | — | | | | — | | | | — | | | | — | | | | — | | | | 737 | | | | — | | | | 737 | |
| | Discontinued operations | | | — | | | | (493 | ) | | | — | | | | — | | | | — | | | | 1,728 | | | | — | | | | 1,235 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET CASH (USED) BY INVESTING ACTIVITIES | | | (2 | ) | | | (843 | ) | | | (43 | ) | | | — | | | | (2,149 | ) | | | (934 | ) | | | — | | | | (3,971 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net (decrease) in cash overdraft | | | (226 | ) | | | (24 | ) | | | (4,151 | ) | | | — | | | | — | | | | (1,680 | ) | | | — | | | | (6,081 | ) |
| | Net (decrease) in short-term debt | | | (5,844 | ) | | | — | | | | — | | | | — | | | | — | | | | (816 | ) | | | — | | | | (6,660 | ) |
| | Proceeds from long-term debt | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,000 | | | | — | | | | 2,000 | |
| | Payments of long-term debt | | | (6,813 | ) | | | (111 | ) | | | (415 | ) | | | — | | | | — | | | | (8,675 | ) | | | — | | | | (16,014 | ) |
| | Discontinued operations | | | — | | | | — | | | | — | | | | — | | | | — | | | | 377 | | | | — | | | | 377 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | NET CASH (USED) BY FINANCING ACTIVITIES | | | (12,883 | ) | | | (135 | ) | | | (4,566 | ) | | | — | | | | — | | | | (8,794 | ) | | | — | | | | (26,378 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | | | — | | | | — | | | | 9 | | | | — | | | | 54 | | | | 389 | | | | | | | | 452 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (414 | ) | | | 67 | | | | 1,567 | | | | — | | | | (433 | ) | | | 3,973 | | | | — | | | | 4,760 | |
| CASH AND CASH EQUIVALENTS at beginning of period | | | 457 | | | | 52 | | | | 600 | | | | — | | | | 618 | | | | 4,692 | | | | | | | | 6,419 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS at end of period | | $ | 43 | | | $ | 119 | | | $ | 2,167 | | | $ | — | | | $ | 185 | | | $ | 8,665 | | | $ | — | | | $ | 11,179 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Phibro Animal Health SA (Belgium):
In our opinion, the accompanying balance sheets and the related statements of operations and comprehensive income (loss), changes in stockholders’ equity (deficit) and cash flows present fairly, in all material respects, the financial position of Phibro Animal Health SA (Belgium) at June 30, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2005, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 6 to the financial statements, a significant portion of the Company’s business is conducted with Phibro Animal Health Corporation and certain of its subsidiaries, which are related parties.
Parent Unrestricted U.S. Guarantor Dutch Belgium Non-Guarantor Consolidation Consolidated
Issuer Subsidiaries Subsidiaries Issuer Guarantor Subsidiaries Adjustments Balance
---------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $(51,770) $ (4,064) $ (9,553) $ -- $ (2,004) $ (28,851) $ 44,472 $ (51,770)
Adjustment | |
| /s/ PricewaterhouseCoopers LLP |
| |
| PricewaterhouseCoopers LLP |
Florham Park, New Jersey
September 23, 2005
F-48
PHIBRO ANIMAL HEALTH SA (Belgium)
BALANCE SHEETS
| | | | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| | | (In thousands) | |
| ASSETS |
| CURRENT ASSETS: | | | | | | | | |
| | Cash, including restricted balance of $175 at June 30, 2004 | | $ | 255 | | | $ | 212 | |
| | Trade receivables, less allowance for doubtful accounts of $0 and $13 at June 30, 2005 and 2004, respectively | | | 3,980 | | | | 2,592 | |
| | Other receivables | | | 804 | | | | 72 | |
| | Inventories | | | 29,691 | | | | 23,159 | |
| | Prepaid expenses and other current assets | | | 1,203 | | | | 1,018 | |
| | Trade receivables — related parties | | | 5,560 | | | | 4,527 | |
| | | | | | | |
| | | TOTAL CURRENT ASSETS | | | 41,493 | | | | 31,580 | |
| PROPERTY, PLANT AND EQUIPMENT, net | | | 8,122 | | | | 17,321 | |
| INTANGIBLES, net | | | 1,339 | | | | 1,569 | |
| | | | | | | |
| | | $ | 50,954 | | | $ | 50,470 | |
| | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| CURRENT LIABILITIES: | | | | | | | | |
| | Accounts payable | | $ | 3,320 | | | $ | 2,258 | |
| | Accrued expenses and other current liabilities | | | 19,909 | | | | 8,291 | |
| | Trade payables — related parties | | | 6,390 | | | | 2,879 | |
| | | | | | | |
| | | TOTAL CURRENT LIABILITIES | | | 29,619 | | | | 13,428 | |
| OTHER LIABILITIES | | | 1,855 | | | | 2,897 | |
| NOTES PAYABLE — RELATED PARTIES | | | 35,662 | | | | 30,571 | |
| | | | | | | |
| | | TOTAL LIABILITIES | | | 67,136 | | | | 46,896 | |
| | | | | | | |
| STOCKHOLDERS’ EQUITY (DEFICIT): | | | | | | | | |
| | Paid-in capital | | | 3,114 | | | | 1,896 | |
| | Accumulated deficit | | | (23,243 | ) | | | (2,631 | ) |
| | Cumulative foreign currency translation adjustment, net of income taxes | | | 3,947 | | | | 4,309 | |
| | | | | | | |
| | | TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | | | (16,182 | ) | | | 3,574 | |
| | | | | | | |
| | | $ | 50,954 | | | $ | 50,470 | |
| | | | | | | |
The accompanying notes are an integral part of the financial statements
F-49
PHIBRO ANIMAL HEALTH SA (Belgium)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| | | (In thousands) | |
| NET SALES | | $ | 10,276 | | | $ | 5,742 | | | $ | 6,625 | |
| NET SALES — RELATED PARTIES | | | 30,298 | | | | 28,970 | | | | 26,994 | |
| | | | | | | | | | |
| | TOTAL SALES | | | 40,574 | | | | 34,712 | | | | 33,619 | |
| COST OF GOODS SOLD (includes Belgium Plant Transaction costs of $22,191 for the year ended June 30, 2005) | | | 55,688 | | | | 25,293 | | | | 31,435 | |
| | | | | | | | | | |
| | GROSS PROFIT | | | (15,114 | ) | | | 9,419 | | | | 2,184 | |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | | 3,563 | | | | 3,334 | | | | 2,595 | |
| | | | | | | | | | |
| | OPERATING INCOME (LOSS) | | | (18,677 | ) | | | 6,085 | | | | (411 | ) |
| OTHER: | | | | | | | | | | | | |
| | Interest expense | | | 61 | | | | 95 | | | | 62 | |
| | Interest expense — related parties | | | 4,073 | | | | 3,335 | | | | 2,849 | |
| | Other (income) expense, net | | | 62 | | | | (265 | ) | | | 1,283 | |
| | | | | | | | | | |
| | INCOME (LOSS) BEFORE INCOME TAXES | | | (22,873 | ) | | | 2,920 | | | | (4,605 | ) |
| PROVISION (BENEFIT) FOR INCOME TAXES | | | (2,261 | ) | | | 1,614 | | | | (1,086 | ) |
| | | | | | | | | | |
| | NET INCOME (LOSS) | | | (20,612 | ) | | | 1,306 | | | | (3,519 | ) |
| OTHER COMPREHENSIVE INCOME: | | | | | | | | | | | | |
| | Change in currency translation adjustment, net of income taxes | | | (362 | ) | | | 532 | | | | 2,401 | |
| | | | | | | | | | |
| | COMPREHENSIVE INCOME (LOSS) | | $ | (20,974 | ) | | $ | 1,838 | | | $ | (1,118 | ) |
| | | | | | | | | | |
The accompanying notes are an integral part of the financial statements
F-50
PHIBRO ANIMAL HEALTH SA (Belgium)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
| | | | | | | | | | | | | | | | | | |
| | | For the Years Ended June 30, 2005 and 2004 and 2003 | |
| | | | |
| | | | | Foreign | | | |
| | | | | Currency | | | |
| | | Paid-in | | | (Accumulated | | | Translation | | | |
| | | Capital | | | Deficit) | | | Adjustment | | | Total | |
| | | | | | | | | | | | | |
| | | (In thousands) | |
| BALANCE, JUNE 30, 2002 | | $ | 459 | | | $ | (418 | ) | | $ | 1,376 | | | $ | 1,417 | |
| | Contribution from parent | | | 727 | | | | | | | | | | | | 727 | |
| | Net (loss) | | | | | | | (3,519 | ) | | | | | | | (3,519 | ) |
| | Foreign currency translation adjustment, net of income taxes | | | | | | | | | | | 2,401 | | | | 2,401 | |
| | | | | | | | | | | | | |
| BALANCE, JUNE 30, 2003 | | $ | 1,186 | | | $ | (3,937 | ) | | $ | 3,777 | | | $ | 1,026 | |
| | | | | | | | | | | | | |
| | Contribution from parent | | | 710 | | | | | | | | | | | | 710 | |
| | Net income | | | | | | | 1,306 | | | | | | | | 1,306 | |
| | Foreign currency translation adjustment, net of income taxes | | | | | | | | | | | 532 | | | | 532 | |
| | | | | | | | | | | | | |
| BALANCE, JUNE 30, 2004 | | $ | 1,896 | | | $ | (2,631 | ) | | $ | 4,309 | | | $ | 3,574 | |
| | | | | | | | | | | | | |
| | Contribution from parent | | | 1,218 | | | | | | | | | | | | 1,218 | |
| | Net (loss) | | | | | | | (20,612 | ) | | | | | | | (20,612 | ) |
| | Foreign currency translation adjustment, net of income taxes | | | | | | | | | | | (362 | ) | | | (362 | ) |
| | | | | | | | | | | | | |
| BALANCE, JUNE 30, 2005 | | $ | 3,114 | | | $ | (23,243 | ) | | $ | 3,947 | | | $ | (16,182 | ) |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of the financial statements
F-51
PHIBRO ANIMAL HEALTH SA (Belgium)
STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| | | (In thousands) | |
| OPERATING ACTIVITIES: | | | | | | | | | | | | |
| | Net income (loss) | | $ | (20,612 | ) | | $ | 1,306 | | | $ | (3,519 | ) |
| | Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | | | | | | | | | | | | |
| | | Depreciation and amortization (includes accelerated depreciation from the Belgium Plant Transactions of $7,467 for the year ended June 30, 2005) | | | 10,484 | | | | 2,669 | | | | 2,019 | |
| | | Deferred taxes | | | (1,446 | ) | | | 112 | | | | 142 | |
| | | Allocated selling, general and administrative expenses from parent | | | 1,218 | | | | 658 | | | | 727 | |
| | | Effects of changes in foreign currency and other | | | 62 | | | | (264 | ) | | | 1,268 | |
| | | Changes in operating assets and liabilities: | | | | | | | | | | | | |
| | | | Accounts receivable | | | (1,482 | ) | | | (945 | ) | | | (322 | ) |
| | | | Inventories | | | (7,084 | ) | | | (8,762 | ) | | | 2,270 | |
| | | | Prepaid expenses and other current assets | | | (786 | ) | | | 1,369 | | | | (1,191 | ) |
| | | | Related party receivables and payables | | | 3,010 | | | | 5,135 | | | | 1,557 | |
| | | | Accounts payable | | | 1,137 | | | | (2,395 | ) | | | 3,523 | |
| | | | Accrued expenses and other liabilities | | | (1,826 | ) | | | 2,790 | | | | (8,244 | ) |
| | | | Accrued costs of the Belgium Plant Transactions | | | 13,069 | | | | — | | | | — | |
| | | | | | | | | | |
| | | | NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES | | | (4,256 | ) | | | 1,673 | | | | (1,770 | ) |
| | | | | | | | | | |
| INVESTING ACTIVITIES: | | | | | | | | | | | | |
| | Capital expenditures | | | (1,001 | ) | | | (1,613 | ) | | | (2,149 | ) |
| | Other investing | | | 296 | | | | — | | | | — | |
| | | | | | | | | | |
| | | | NET CASH (USED) BY INVESTING ACTIVITIES | | | (705 | ) | | | (1,613 | ) | | | (2,149 | ) |
| | | | | | | | | | |
| FINANCING ACTIVITIES: | | | | | | | | | | | | |
| | Net increase in intercompany debt | | | 5,008 | | | | 8,181 | | | | 3,432 | |
| | Payment of Pfizer obligations | | | — | | | | (8,225 | ) | | | — | |
| | | | | | | | | | |
| | | | NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES | | | 5,008 | | | | (44 | ) | | | 3,432 | |
| | | | | | | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | | | (4 | ) | | | 11 | | | | 54 | |
| | | | | | | | | | |
| | | | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 43 | | | | 27 | | | | (433 | ) |
| CASH AND CASH EQUIVALENTS at beginning of period | | | 212 | | | | 185 | | | | 618 | |
| | | | | | | | | | |
| CASH AND CASH EQUIVALENTS at end of period | | $ | 255 | | | $ | 212 | | | $ | 185 | |
| | | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | | | | | |
| | Interest paid | | $ | — | | | $ | 55 | | | $ | 88 | |
| | Income taxes paid | | | — | | | | — | | | | 366 | |
The accompanying notes are an integral part of the financial statements
F-52
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
| |
| 1. | Description of Business |
Phibro Animal Health SA, a company organized under the laws of Belgium, (the “Company”) is a manufacturer and marketer of a broad range of animal health and nutrition products, specifically medicated feed additives (“MFA”), which the Company sells in various markets predominately to the poultry, swine and cattle markets.
The Company is a direct wholly-owned subsidiary of Philipp Brothers Netherlands III B.V. (“BV III”) and an indirect wholly-owned subsidiary of both Philipp Brothers Netherlands I B.V. (“BV I”) and Phibro Animal Health Corporation (“PAHC”).
On November 30, 2000, PAHC purchased the MFA business of Pfizer, Inc. The Company, BV III and BV I were part of that acquisition.
| |
| 2. | Summary of Significant Accounting Policies |
The Company presents its financial statements on the basis of its fiscal year ending June 30. All references to years 2005, 2004, and 2003 in these financial statements refer to the fiscal year ended June 30 of that year.
The use of antibiotics in medicated feed additives is a subject of legislative and regulatory interest. The issue of potential for increased bacterial resistance to certain antibiotics used in certain food-producing animals is the subject of discussions on a worldwide basis and, in certain instances, has led to government restrictions on the use of antibiotics in food-producing animals. The sale of feed additives containing antibiotics is a material portion of the Company’s business. Should regulatory or other developments result in further restrictions on the sale of such products, it could have a material adverse impact on the Company’s financial position, results of operations and cash flows.
The testing, manufacturing, and marketing of certain products are subject to extensive regulation by numerous government authorities in the United States and other countries.
A significant portion of the Company’s sales and earnings are attributable to transactions with related parties.
The Company’s ability to fund its operating plan relies upon the continuance of this business and the continued support of BV III, BV I and PAHC, including their agreement to not require repayment of the Company’s notes payable to them for the foreseeable future.
Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Actual results could differ from these estimates. Significant estimates include reserves for bad debts, inventory obsolescence, environmental matters, depreciation and amortization periods of long-lived assets, recoverability of long-lived assets and realizability of deferred tax assets and actuarial assumptions related to the Company’s pension plan.
F-53
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Revenue is recognized upon transfer of title and when risk of loss passes to the customer. Certain of the Company’s customers have terms of FOB shipping point where title and risk of loss transfer on shipment. Certain of the Company’s customers have terms FOB destination where title and risk of loss transfer on delivery. In the case of FOB destination, revenue is not recognized until products are received by the customer. Additional conditions for recognition of revenue are that collection of sales proceeds are reasonably assured and the Company has no further performance obligations. The Company records estimated reductions to revenue for customer programs and incentive offerings, including pricing arrangements and other volume-based incentives at the time the sale is recorded. There were no material provisions for estimated reductions to revenues in 2005, 2004 and 2003.
Cash includes cash in banks. Cash also includes cash on deposit in a restricted bank account under a contractual obligation with a customer, in the amount of $175 at June 30, 2004. This cash was subsequently released during 2005.
| |
| Accounts Receivable and Allowance for discontinued
operation 26,559 2,930 -- -- -- 23,629 (26,559) 26,559
---------------------------------------------------------------------------------------------------
Doubtful Accounts: |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the probable credit losses in its existing accounts receivable. The allowance is based on historical write-off experience and is reviewed periodically. Past due balances are reviewed individually for collectibility. Account balances are charged against the allowance when the Company determines that it is probable that the receivable will not be recovered. The allowance for doubtful accounts was:
| | | | | | | | | | | | | |
| | | For the Years Ended | |
| | | June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Balance at beginning of period | | $ | 13 | | | $ | 22 | | | $ | — | |
| Provision for bad debts | | | — | | | | — | | | | 22 | |
| Bad debt write-offs | | | (13 | ) | | | (9 | ) | | | — | |
| | | | | | | | | | |
| Balance at end of period | | $ | — | | | $ | 13 | | | $ | 22 | |
| | | | | | | | | | |
Inventories are valued at the lower of cost or market. Cost is determined principally under the first-in, first-out (FIFO) method. Obsolete and unsaleable inventories, if any, are reflected at estimated net realizable value. Inventory costs include materials, direct labor and manufacturing overhead. Inventories are comprised of:
| | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Raw materials | | $ | 907 | | | $ | 910 | |
| Work-in-process | | | — | | | | 166 | |
| Finished goods | | | 28,784 | | | | 22,083 | |
| | | | | | | |
| Total inventory | | $ | 29,691 | | | $ | 23,159 | |
| | | | | | | |
F-54
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
| Property, Plant and Equipment: |
Property, plant and equipment are stated at cost.
Depreciation is charged to results of operations using the straight-line method based upon the assets’ estimated useful lives ranging from 8 to 20 years for buildings and improvements and 3 to 10 years for machinery and equipment.
The Company capitalizes costs that extend the useful life or productive capacity of an asset. Repair and maintenance costs are expensed as incurred. In the case of disposals, the assets and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in the statements of operations and comprehensive income (loss).
Product intangibles cost arising from the acquisition of the MFA business from Pfizer, Inc. was $2,173 and $2,191 at June 30, 2005 and 2004, respectively, and accumulated amortization of $834 and $622 at June 30, 2005 and 2004, respectively. Amortization expense was $229, $252 and $156 for 2005, 2004 and 2003, respectively. Amortization expense for each of the next five years from 2006 to 2010 is expected to be approximately $243 per year. These product intangible costs are being amortized on a straight-line basis over ten years with 51/2 years remaining at June 30, 2005.
| |
| Foreign Currency Translation: |
Financial position and results of operations of the Company are measured using the Euro as the functional currency. Assets and liabilities are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from the use of differing exchange rates from period to period are included in cumulative foreign currency translation adjustment on the Company’s balance sheet. Income statement accounts are translated at the average rates of exchange prevailing during the year.
Foreign currency transaction gains and losses primarily arise from short-term intercompany balances. Net foreign currency transaction (gains) losses were $62, $(264) and $1,268 for 2005, 2004 and 2003, respectively, and were included in other (income) expense, net in the Company’s statements of operations and comprehensive income (loss).
PAHC considers long-term notes payable with related parties to be balances for which settlement is not planned or anticipated in the foreseeable future. PAHC considers these balances to be part of the net investment and, accordingly, foreign currency transaction (gains) losses from such items are recorded in cumulative foreign currency translation adjustment on the Company’s balance sheet.
| |
| Recoverability of Long-Lived Assets: |
The Company evaluates the recoverability of long-lived assets, including intangible assets, when events or circumstances indicate that a diminution in value may have occurred, using financial indicators such as historical and future ability to generate cash flows from operations. The Company’s policy is to record an impairment loss in the period it is determined the carrying amount of the asset may not be recoverable. This determination is based on an evaluation of such factors as the occurrence of a significant event, a significant change in the environment in which the business operates, or if the expected future net cash flows (undiscounted and without interest or income taxes) are less than the carrying amount of the assets.
F-55
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
| Income (loss) from
continuing
operations (25,211) (1,134) (9,553) -- (2,004) (5,222) 17,913 (25,211)
AdjustmentsTaxes: |
Income tax expense includes Belgium income taxes. The tax effect of certain temporary differences between amounts recognized for financial reporting purposes and amounts recognized for tax purposes are reported as deferred income taxes. Deferred tax balances are adjusted to reflect tax rates, based on current tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. Valuation allowances are established as necessary to reduce deferred tax assets to amounts more likely than not to be realized.
| |
| Research and Development Expenditures: |
Research and development expenditures are expensed as incurred, recorded in selling, general and administrative expenses and were $122 for 2004. There were no research and development expenditures in 2005 and 2003.
| |
| New Accounting Pronouncements: |
The Company will adopt the following new and revised accounting pronouncements in fiscal 2006:
| |
| Statement of Financial Accounting Standards No. 151, “Inventory Costs, an amendment to reconcile income
(loss) from
continuing
operationsAccounting Research Bulletin No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing” to net
cash provided
(used) by
operating
activities:
Depreciationclarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and amortization 1,049 966 3,434 -- 2,252 4,654 12,355
Deferred income
taxes 9,297 (466) 5,356 -- -- (2,949) 11,238
Net gain from
saleswasted material (spoilage). Paragraph 5 of assets -- -- -- -- -- (5) (5)
ChangeARB No. 43, Chapter 4, previously stated “...under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges....”. SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal”. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 30, 2005 and the provisions of this statement shall be applied prospectively. The Company anticipates that the adoption of SFAS No. 151 will not result in redemption
amounta material impact on the Company’s financial statements. |
|
| Statement of redeemable
common stock (378) -- -- -- -- -- (378)
EffectsFinancial Accounting Standards No. 153, “Exchanges of changes
in foreign
currency -- -- (100) -- 1,912 308 2,120
Other (43) 12 985 -- -- 1,462 2,416
Changes in
operatingNonmonetary Assets, an amendment of APB Opinion No. 29” (“SFAS No. 153”). SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and liabilities:
Accounts
receivable 1,299 278 1,932 -- 886 1,651 6,046
Inventory 606 1,165 (2,915) -- (10,325) (2,522) (13,991)
Prepaid expensesreplaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of this statement shall be applied prospectively. The Company is currently assessing the impact of this statement. |
|
| Statement of Financial Accounting Standards No. 123, “Share-Based Payment (revised 2004)” (“SFAS No. 123”). This Statement is a revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” and supercedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties |
F-56
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
| other 210 (157) (1,550) -- 273 (1,595) (2,819)
Other assets (1,335) 1 2,519 -- 66 1,416 2,667
Intercompany 473 4,753 2,164 -- 7,562 2,961 (17,913) --
Accounts payable (719) (844) 1,460 1,472 (7,975) (6,606)
Accrued expensesthan employees provided in SFAS No. 123 as originally issued, and other (119) (225) (3,248) -- 3,487 8,616 8,511
Cash provided
(used) by
discontinued
operations -- (2,437) -- -- -- 1,349 (1,088)
---------------------------------------------------------------------------------------------------
NET CASH
PROVIDED
(USED) BY
OPERATING
ACTIVITIES (14,871) 1,912 484 -- 5,581 2,149 -- (4,745)
---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (119) (192) (3,022) -- (1,939) (3,246) (8,518)
Acquisitionit does not address the accounting for employee share ownership plans. This Statement applies to all awards granted after the effective date and to awards modified, repurchased, or cancelled after that date. The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date. SFAS No. 123, as revised, is effective as of the beginning of the first annual reporting period that begins after December 31, 2005. The Company anticipates that the adoption of this revision of SFAS No. 123 will not result in a material impact on the Company’s financial statements. |
|
| FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN No. 47”). FIN No. 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations (“ARO”)” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Thus, the timing and/or method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a business -- -- -- -- (4,421) (2,761) (7,182)
Proceeds from
property damage
claim -- -- 411 -- -- -- 411
Proceeds from saleconditional ARO if the fair value of assets -- -- -- -- -- 19 19
Other investing 613 -- -- -- -- (33) 580
Discontinued
operations -- (1,832) -- -- -- (839) (2,671)
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED
(USED) BY
INVESTING
ACTIVITIES 494 (2,024) (2,611) -- (6,360) (6,860) -- (17,361)
---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase
(decrease) in
cash overdraft 563 (116) 1,447 -- -- 1,544 3,438
Net increase in
short-term debt 13,520 -- -- -- -- 717 14,237
Proceeds from
long-term debt 2,000 322 -- -- -- -- 2,322
Paymentsthe liability can be reasonably estimated. The fair value of long-term debt (2,541) (98) (396) -- -- (1,695) (4,730)
Discontinued
operations -- -- -- -- -- (1,590) (1,590)
---------------------------------------------------------------------------------------------------
NET CASH PROVIDED
(USED) BY
FINANCING
ACTIVITIES 13,542 108 1,051 -- -- (1,024) -- 13,677
---------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE
RATE CHANGES ON CASH -- -- -- -- 128 (125) 3
---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (835) (4) (1,076) -- (651) (5,860) -- (8,426)
CASH AND CASH
EQUIVALENTS
at beginninga liability for the conditional ARO should be recognized when incurred; generally upon acquisition, construction, or development and/or through the normal operation of period 1,292 56 1,676 -- 1,269 10,552 14,845
---------------------------------------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS
atthe asset. Uncertainty about the timing and/or method of settlement of a conditional ARO should be factored into the measurement of the liability when sufficient information exists. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an ARO. FIN No. 47 is effective no later than the end of period $ 457 $ 52 $ 600 $ -- $ 618 $ 4,692 $ -- $ 6,419
===================================================================================================
fiscal years ending after December 15, 2005. The Company anticipates that the adoption of FIN No. 47 will not result in a material impact on the Company’s financial statements. |
|
| Statement of Financial Accounting Standards No. 154, “Accounting for Changes and Error Corrections, a replacement of APB Opinion No. 20 and SFAS No. 3” (“SFAS No. 154”). SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS No. 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The correction of an error in previously issued financial statements is not an accounting change. However, the reporting of an error correction involves adjustments to previously issued financial statements similar to those generally applicable to reporting an accounting change retrospectively. Therefore, the reporting of a correction of an error by restating previously issued financial statements is also addressed. SFAS No. 154 shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company is currently assessing the impact of this statement. |
F-43
| |
| Issuance of 13% Senior Secured Notes and Payment of Pfizer Obligations |
On October 21, 2003, PAHC issued 105,000 units consisting of $85,000 of 13% Senior Secured Notes due 2007 (the “U.S. Notes”) and $20,000 13% Senior Secured Notes due 2007 of BVIII (the “Dutch Notes”), the direct parent of the Company. Certain proceeds from the issuance were used to satisfy outstanding obligations to Pfizer Inc., including $8,225 of accounts payable.
F-57
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
| Issuance of Additional 13% Senior Secured Notes: |
On December 21, 2004, PAHC completed a private placement pursuant to which PAHC and BVIII issued and sold 22,491 additional units consisting of $18,207 of U.S. Notes of PAHC and $4,284 of Dutch Notes of BV III. The proceeds were used to refinance indebtedness outstanding under the PAHC’s domestic senior credit facility. These additional Notes were issued under the Indenture dated October 21, 2003, as amended and supplemented (the “Indenture”) under which PAHC and BV III previously issued 105,000 units consisting of $85,000 aggregate principal amount of U.S. Notes and $20,000 aggregate principal amount of Dutch Notes.
On March 9, 2005, PAHC completed the exchange of its privately placed 127,491 units of 13% Senior Secured Notes due 2007 with 127,491 new units of 13% Senior Secured Notes due 2007 that have been registered with the Securities and Exchange Commission (the “SEC”).
| |
| 4. | Belgium Plant Transactions |
On December 16, 2004, the Company entered into an agreement with GlaxoSmithKline Biologicals (“GSK”) to sell to GSK substantially all of the Company’s facilities in Rixensart, Belgium (the “Belgium Plant”). Such sale, when completed (the “Belgium Plant Transactions”), will include the following elements (U.S. dollar amounts at the June 30, 2005 exchange rate): (i) the transfer of substantially all of the land and buildings and certain equipment of the Company at the Belgium Plant, as well as the industrial activities and intellectual property relating to certain solvent technology of the Company for a purchase price of EUR 6,200 ($7,501), payable at closing; (ii) the transfer to GSK of a majority of the employees of the Belgium Plant and the corresponding responsibility for statutory severance obligations; (iii) GSK agreeing to be responsible for cleaning-up, by demolition or otherwise, certain buildings not to be used by it, but for the Company to reimburse GSK up to a maximum of EUR 700 ($847) for such cleaning-up costs; (iv) in recognition of the benefits to PAHC from the proposed transaction, the Company agreeing to pay to GSK EUR 1,500 ($1,815) within six months from the closing date, EUR 1,500 ($1,815) within eighteen months from the closing date, EUR 1,500 ($1,815) within thirty months from the closing date, and EUR 500 ($605) within forty-two months from the closing date; (v) the Company retaining certain excess land (valued at approximately EUR 400 ($484)) and being able to sell such land for its own account; (vi) the Company being responsible for certain plant closure costs and legally required severance indemnities in connection with workforce reductions; and (vii) the Company retaining any or all equipment at the Belgium Plant, and being able to sell such equipment for its own account or transfer such equipment, together with other assets and rights related to the production of virginiamycin, to PAH Brazil which owns a facility in Guarulhos, Brazil or in connection with alternative production arrangements.
The foregoing transactions and agreements are subject to a closing that is expected to occur on November 30, 2005, but in no event later than June 30, 2006.
The Dutch Notes and related guarantees are collateralized by a mortgage on the Belgium Plant which will be released in connection with the closing of the sale of the Belgium Plant to GSK.
As a result of the above agreement, the Company will depreciate the Belgium plant to its estimated salvage value of EUR 2,100 ($2,500) as of the projected closing date of November 30, 2005. The Company recorded incremental depreciation expense of EUR 5,828 ($7,467) during 2005 and will record an additional EUR 3,800 ($4,600) of incremental depreciation expense ratably through November 2005.
The Company recorded accrued severance expense of EUR 10,200 ($12,808) during 2005, representing the estimated total cost of severance and early-retirement programs for those employees not transferring to GSK. The expense includes $888 for enhanced pension benefits agreed as part of the early-retirement program. The Company estimates $6,500 will be payable at or around the closing date and $6,308 will be payable in subsequent periods.
F-58
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
The Company also recorded $1,916 of other transaction-related expense during 2005.
The incremental depreciation expense of $7,467, severance expense of $12,808 and other transaction-related expense of $1,916 recorded in 2005 are included in cost of goods sold on the Company’s consolidated statements of operations and comprehensive income (loss).
The Company expects to record an estimated $6,200 of additional net expense during fiscal 2006 for employee retention agreements, plant dismantling and decommissioning, plant shutdown and other costs associated with the completion of the sale of the Belgium Plant. The estimated net expense includes an estimated $1,100 of gain from the curtailment of the Belgium pension plan. The Company estimates no material gain or loss during fiscal 2006 resulting from the sale of the Belgium Plant.
The Company has determined that the carrying amount of the Belgium Plant at June 30, 2005 is recoverable based on the estimated future cash flows arising from the use of the assets.
In anticipation of transferring production of virginiamycin from the Belgium plant to an alternative production location, the Company has been increasing inventory levels of virginiamycin to ensure adequate supplies during the transfer period.
| |
| 5. | Property, Plant and Equipment |
Property, plant and equipment is comprised of:
| | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Land | | $ | 1,896 | | | $ | 1,912 | |
| Buildings and improvements | | | 5,926 | | | | 6,153 | |
| Machinery and equipment | | | 17,482 | | | | 16,425 | |
| | | | | | | |
| | | | 25,304 | | | | 24,490 | |
| Less: accumulated depreciation | | | 17,182 | | | | 7,169 | |
| | | | | | | |
| | | $ | 8,122 | | | $ | 17,321 | |
| | | | | | | |
Depreciation expense was $10,255, $2,417 and $1,863 for 2005, 2004 and 2003, respectively. Depreciation expense for 2005 includes accelerated depreciation of $7,467 relating to the Belgium Plant Transactions.
| |
| 6. | Related Party Transactions |
The Company transacts business with PAHC and certain of its subsidiaries. The amounts of these transactions, and the related receivables and payables, reflected in the Company’s financial statements are as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Product sales | | $ | 30,298 | | | $ | 28,970 | | | $ | 26,994 | |
| Product purchases | | | 8,183 | | | | 3,553 | | | | 5,344 | |
| Receivables at June 30 | | | 5,560 | | | | 4,527 | | | | 8,553 | |
| Payables at June 30 | | | 6,390 | | | | 2,879 | | | | 1,835 | |
The Company has notes payable to related parties. These notes bear interest at 13.125% per annum and interest is payable annually on December 31. The Company’s related interest obligations to related parties will be payable only to the extent that the Company’s cash flows are sufficient to service such obligations. These
F-59
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
notes mature on December 7, 2007 and July 2, 2011. These notes payable are included in notes payable — related parties on the Company’s balance sheet.
Cost allocations from PAHC and certain other related parties are included in selling, general and administrative expenses on the Company’s statements of operations and comprehensive income (loss). These allocations are based upon the ratio of the Company’s third party sales to the third party sales of PAHC and certain other related parties, and represent administrative costs incurred by these entities in support of the operations of the Company. These cost allocations amounted to $1,218, $658 and $727 for 2004, 2003 and 2002, respectively. PAHC and the certain other related parties have elected not to seek repayment for these amounts from the Company and have contributed these amounts as additional capital to the Company.
| |
| 7. | Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities are comprised of:
| | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Belgium Plant Transactions | | $ | 13,069 | | | | — | |
| Employee related expenses | | | 2,511 | | | | 2,507 | |
| Tax accruals | | | 4,442 | | | | 4,059 | |
| Other accrued liabilities | | | 707 | | | | 1,725 | |
| | | | | | | |
| | | $ | 20,729 | | | $ | 8,291 | |
| | | | | | | |
In October 2003 PAHC issued 105,000 units, consisting of $85,000 of 13% Senior Secured Notes due 2007 of PAHC (the “U.S. Notes”) and $20,000 of 13% Senior Secured Notes due 2007 of BV III (the “Dutch Notes”), the direct parent of the Company.
In December 2004 PAHC completed a private placement pursuant to which PAHC and BVIII issued and sold 22,491 additional units consisting of $18,207 of U.S. Notes of PAHC and $4,284 of Dutch Notes of BV III.
The Dutch Notes are senior secured obligations of the BV III and are guaranteed on a senior secured basis by PAHC and by the restricted subsidiaries of BV III, presently consisting of the Company. The Dutch Notes and related guarantees are secured by a pledge of all the accounts receivable, a security interest or floating charge on the inventory to the extent permitted by applicable law, and a mortgage on substantially all of the real property of BV III and each of its restricted subsidiaries, a pledge of 100% of the capital stock of each subsidiary of BV III, and a pledge of the intercompany loans made by BV III to its restricted subsidiaries.
The indenture governing the Senior Secured Notes provides for optional make-whole redemptions at any time prior to June 1, 2005, optional redemption on or after June 1, 2005, and requires PAHC to make certain offers to purchase Senior Secured Notes upon a change of control, upon certain asset sales and from fifty percent (50%) of excess cash flow (as such terms are defined in the indenture).
The indenture contains certain covenants with respect to PAHC, the Company and the guarantors, which restrict, among other things, (a) the incurrence of additional indebtedness, (b) the payment of dividends and other restricted payments, (c) the creation of certain liens, (d) the sale of assets, (e) certain payment restrictions affecting subsidiaries, and (f) transactions with affiliates. The indenture restricts the Company’s ability to consolidate, or merge with or into, or to transfer all or substantially all of its assets to, another person.
F-60
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
The Company maintains a defined benefit plan for eligible employees. The benefits provided by the plans are based upon years of service and the employees’ average compensation, as defined. The measurement dates for the domestic and international pension plans were June 30, 2005 and 2004, respectively.
Reconciliations of changes in benefit obligations, plan assets, and funded status of the plans were:
| | | | | | | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
Change in benefit obligation | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 7,323 | | | $ | 6,595 | |
| Service cost | | | 477 | | | | 467 | |
| Interest cost | | | 423 | | | | 374 | |
| Benefits paid | | | (14 | ) | | | (3 | ) |
| Employee contributions | | | 39 | | | | 27 | |
| Actuarial (gain) or loss | | | 670 | | | | (475 | ) |
| Curtailment | | | — | | | | — | |
| Special termination benefits | | | 888 | | | | — | |
| Change in discount rate | | | 1,690 | | | | — | |
| Exchange rate impact | | | (232 | ) | | | 338 | |
| | | | | | | |
| Benefit obligation at end of year | | $ | 11,264 | | | $ | 7,323 | |
| | | | | | | |
At June 30, 2005 and 2004, the accumulated benefit obligation was $7,325 and $4,383, respectively.
The International plan 2005 benefit obligation and pension cost include $888 for enhanced pension benefits with certain employees who have agreed to an early-retirement program effective as of the closing of the Belgium Plant Transactions.
The Company expects the International plan will record during fiscal 2006 a curtailment gain of approximately $1,100 related to the reduction in number of international participants due to the Belgium Plant Transactions.
| | | | | | | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
Change in Plan Assets | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | 5,828 | | | $ | 4,566 | |
| Actual return on plan assets | | | 623 | | | | 435 | |
| Employer contributions | | | 658 | | | | 558 | |
| Employee contributions | | | 38 | | | | 27 | |
| Other | | | 353 | | | | — | |
| Benefits paid | | | (14 | ) | | | (3 | ) |
| Exchange rate impact | | | (78 | ) | | | 245 | |
| | | | | | | |
| Fair value of plan assets at end of year | | $ | 7,408 | | | $ | 5,828 | |
| | | | | | | |
Funded status | | | | | | | | |
| Funded status of the plan | | $ | (3,856 | ) | | $ | (1,495 | ) |
| Unrecognized net actuarial (gain) or loss | | | 2,002 | | | | 368 | |
| Unrecognized prior service cost | | | — | | | | — | |
| Unrecognized transition obligation/(asset) | | | — | | | | — | |
| | | | | | | |
| (Accrued) pension cost | | $ | (1,854 | ) | | $ | (1,127 | ) |
| | | | | | | |
F-61
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
The Company expects it will not contribute to the plan during fiscal 2006 due to the anticipated reduction in plan participants resulting from employees who will transfer to GSK and from an early-retirement program.
The Company expects plan assets during 2006 will be reduced by approximately $6,800 in connection with the expected transfer of employees to GSK and the early-retirement program.
Components of net periodic pension expense were:
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Service cost — benefits earned during the year | | $ | 477 | | | $ | 467 | | | $ | 310 | |
| Interest cost on benefit obligation | | | 424 | | | | 374 | | | | 259 | |
| Expected return on plan assets | | | (362 | ) | | | (300 | ) | | | (203 | ) |
| Special Termination Benefits | | | 888 | | | | — | | | | — | |
| Amortization of net actuarial loss | | | — | | | | 22 | | | | — | |
| | | | | | | | | | |
| Net periodic pension expense — international | | $ | 1,427 | | | $ | 563 | | | $ | 366 | |
| | | | | | | | | | |
Significant actuarial assumptions for the plans were:
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Discount rate for service and interest | | | 5.5% | | | | 5.5% | | | | 5.8% | |
| Expected rate of return on plan assets | | | 6.0% | | | | 6.0% | | | | 6.0% | |
| Rate of compensation increase | | | 3.0% | | | | 3.0% | | | | 3.0% | |
| Discount rate for year-end benefit obligation | | | 4.5% | | | | 5.5% | | | | 5.5% | |
The international pension plan utilizes Euro-zone A+ rated bonds in the determination of the discount rate based on the average liability duration of the plan beneficiaries.
Estimated future benefit payments, including benefits attributable to future service, are as follows:
| | | | | |
| 2006 | | $ | 48 | |
| 2007 | | | 10 | |
| 2008 | | | 6 | |
| 2009 | | | 5 | |
| 2010 | | | 4 | |
| 2011-2015 | | | 13 | |
Estimated future benefit payments for the plan reflect participants remaining after completion of the Belgium Plant Transactions.
The Company’s plan target asset allocations for fiscal 2006 and the weighted asset allocation of plan assets as of June 30, 2005 and 2004 are as follows:
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| | | | | | | | | | |
| Debt Securities | | | 57% | | | | 57% | | | | 62% | |
| Equity Securities | | | 24% | | | | 23% | | | | 21% | |
| Other | | | 19% | | | | 20% | | | | 17% | |
The Company assumed the liability for the plan during 2002 as part of the acquisition of the MFA business from Pfizer, Inc.
F-62
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | |
| | | For the Years Ended | |
| | | June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| Income (loss) before income taxes | | $ | (22,873 | ) | | $ | 2,920 | | | $ | (4,605 | ) |
| | | | | | | | | | |
| Current tax provision (benefit) | | $ | (815 | ) | | $ | 1,502 | | | $ | (1,228 | ) |
| Deferred tax provision (benefit) | | | (1,446 | ) | | | 112 | | | | 142 | |
| | | | | | | | | | |
| Provision (benefit) for income taxes | | $ | (2,261 | ) | | $ | 1,614 | | | $ | (1,086 | ) |
| | | | | | | | | | |
Reconciliations of the statutory income tax rate to the Company’s effective tax rate are:
| | | | | | | | | | | | | |
| | | For the Years Ended | |
| | | June 30, | |
| | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | |
| | | % | | | % | | | % | |
| Statutory income tax rate | | | (34.0 | ) | | | 34.0 | | | | (34.0 | ) |
| Expenses with no tax benefit | | | 1.8 | | | | 16.9 | | | | 5.4 | |
| Changes in valuation allowance | | | 21.3 | | | | (6.5 | ) | | | 4.1 | |
| Other | | | 1.0 | | | | 10.9 | | | | 0.9 | |
| | | | | | | | | | |
| Effective income tax rate | | | (9.9 | ) | | | 55.3 | | | | (23.6 | ) |
| | | | | | | | | | |
The tax effects of significant temporary differences that comprise deferred tax assets and deferred tax liabilities at June 30, 2004 and 2003 were:
| | | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Deferred tax assets: | | | | | | | | |
| | Depreciation | | $ | 7 | | | $ | 7 | |
| | Inventory | | | 615 | | | | 615 | |
| | Net operating loss carry forwards | | | 7,363 | | | | — | |
| | Other | | | 575 | | | | 97 | |
| | | | | | | |
| | | | 8,560 | | | | 719 | |
| | Valuation allowance | | | (4,867 | ) | | | — | |
| | | | | | | |
| | | | 3,693 | | | | 719 | |
| | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| | Depreciation | | | (2,058 | ) | | | (1,022 | ) |
| | Other | | | (1,635 | ) | | | (1,143 | ) |
| | | | | | | |
| | | | (3,693 | ) | | | (2,165 | ) |
| | | | | | | |
| Net deferred tax liability | | $ | — | | | $ | (1,446 | ) |
| | | | | | | |
F-63
PHIBRO ANIMAL HEALTH SA (Belgium)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Deferred taxes are included in the following line items on the Company’s balance sheets:
| | | | | | | | | |
| | | As of June 30, | |
| | | | |
| | | 2005 | | | 2004 | |
| | | | | | | |
| Prepaid expenses and other current assets | | $ | 315 | | | $ | 315 | |
| Other liabilities | | | (315 | ) | | | (1,761 | ) |
| | | | | | | |
| Net deferred tax liability | | $ | — | | | $ | (1,446 | ) |
| | | | | | | |
The Company incurred losses in 2003 and prior years and assessed the likelihood of recovering net deferred tax assets, which resulted in the recording of valuation allowances. In 2004 the Company had taxable income and utilized the net operating loss carry forwards from 2003 and prior years. The Company will continue to evaluate the likelihood of recoverability of the remaining deferred tax assets based upon actual and expected operating performance.
Financial instruments that potentially subject the Company to credit risk consist principally of cash and trade receivables. The Company places its cash with high quality financial institutions. The Company sells to customers in a variety of industries, markets and countries. Concentrations of credit risk with respect to receivables arising from these sales are limited due to the large number of customers comprising the Company’s customer base. Ongoing credit evaluations of customers’ financial conditions are performed and, generally, no collateral is required. The Company maintains appropriate reserves for uncollectible receivables.
The carrying amounts of cash, trade receivables and trade payables is considered to be representative of their fair value because of their short term maturities.
F-64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
PHIBRO ANIMAL HEALTH CORPORATION
By: /s/ Jack C. Bendheim By: /s/ Gerald K. Carlson
- --------------------------------- ----------------------------
Jack C. Bendheim Gerald K. Carlson
Chairman of the Board Chief Executive Officer
Date: September 28, 2004 Date: September 28, 2004
| | | | |
| By: /s/ Jack C. Bendheim | | | By: /s/ Gerald K. Carlson | |
| | | |
| Jack C. Bendheim | | | Gerald K. Carlson | |
| Chairman of the Board | | | Chief Executive Officer | |
| Date: September 28, 2005 | | | Date: September 28, 2005 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature and Title Date
- ------------------- ----
/s/ Gerald K. Carlson September 28, 2004
--------------------------------
Gerald K. Carlson
Chief Executive Officer
(Principal Executive Officer)
/s/ Jack C. Bendheim September 28, 2004
--------------------------------
Jack C. Bendheim
Director, Chairman of the Board
/s/ Richard G. Johnson September 28, 2004
- --------------------------------
Richard G. Johnson
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Marvin S. Sussman September 28, 2004
--------------------------------
Marvin S. Sussman
Director
/s/ James O. Herlands September 28, 2004
- --------------------------------
James O. Herlands
Director
/s/ Sam Gejdenson September 28, 2004
- --------------------------------
Sam Gejdenson
Director
II-1
| | | | |
| Signature and Title | | Date |
| | |
|
/s/ Gerald K. Carlson
Gerald K. Carlson
Chief Executive Officer
(Principal Executive Officer) | | September 28, 2005 |
|
/s/ Jack C. Bendheim
Jack C. Bendheim
Director, Chairman of the Board | | September 28, 2005 |
|
/s/ Richard G. Johnson
Richard G. Johnson
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer) | | September 28, 2005 |
|
/s/ Marvin S. Sussman
Marvin S. Sussman
Director | | September 28, 2005 |
|
/s/ James O. Herlands
James O. Herlands
Director | | September 28, 2005 |
|
/s/ Sam Gejdenson
Sam Gejdenson
Director | | September 28, 2005 |
|
/s/ Mary Lou Malanoski
Mary Lou Malanoski
Director | | September 28, 2005 |
S-1
EXHIBIT INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.1 Composite Certificate of Incorporation of Registrant (15)
3.2 By-laws of Registrant (1)
4.1 Indenture, dated as of June 11, 1998, among Registrant, the
Guarantors named therein and The Chase Manhattan Bank, as
trustee, relating to the 9 7/8% Senior Subordinated Notes due
2008 of Registrant, and exhibits thereto, including Form of 9
7/8% Senior Subordinated Note due 2008 of Company (1)
4.1.1 First Supplemental Indenture, dated as of January 15, 1999,
among Registrant, the Guarantors named therein and The Chase
Manhattan Bank, as trustee, relating to the 9 7/8% Senior
Subordinated Notes due 2008 of Registrant (10)
4.1.2 Second Supplemental Indenture, dated as of March 19, 2003,
among Registrant, the Guarantors named therein and JPMorgan
Chase Bank, as trustee, relating to the 9 7/8% Senior
Subordinated Notes due 2008 of Registrant (10)
4.1.3 Third Supplemental Indenture, dated as of June 10, 2003, among
Registrant, the Guarantors named therein and JPMorgan Chase
Bank, as trustee, relating to the 9 7/8% Senior Subordinated
Notes due 2008 of Registrant (10)
4.1.4 Fourth Supplemental Indenture, dated as of October 1, 2003,
among Phibro Animal Health Corporation, the Guarantors named
therein and JPMorgan Chase Bank, as trustee, relating to the 9
7/8% Senior Subordinated Notes due 2008 of Registrant. (11)
4.1.5 Fifth Supplemental Indenture, dated as of October 21, 2003,
among Phibro Animal Health Corporation, the Guarantors named
therein and JPMorgan Chase Bank, as trustee, relating to the 9
7/8% Senior Subordinated Notes due 2008 of Registrant. (12)
4.1.6 Sixth Supplemental Indenture, dated as of June 25, 2004, among
Phibro Animal Health Corporation, the Guarantors named therein
and JPMorgan Chase Bank, as trustee, relating to the 9 7/8%
Senior Subordinated Notes due 2008 of Registrant. (16)
4.2 Indenture, dated as of October 21, 2003, by and among Phibro
Animal Health Corporation and Philipp Brothers Netherlands III
B.V., as Issuers, the Guarantors named therein, and HSBC Bank
USA, as Trustee and Collateral Agent. (13)
4.2.1 First Supplemental Indenture, dated as of June 25, 2004, by
and among Phibro Animal Health Corporation and Philipp
Brothers Netherlands III B.V., as Issuers, the Guarantors
named therein, and HSBC Bank USA, as Trustee and Collateral
Agent. (16)
Certain instruments which define the rights of holders of
long-term debt of Registrant and its consolidated subsidiaries
have not been filed as Exhibits to this Report since the total
amount of securities authorized under any such instrument does
not exceed 10% of the total assets of Registrant and its
subsidiaries on a consolidated basis, as of June 30, 2004. For
a description of such indebtedness, see Note 9 of Notes to
Consolidated Financial Statements. Registrant hereby agrees to
furnish copies of such instruments to the Securities and
Exchange Commission upon its request.
10.1 [Reserved]
10.2 Manufacturing Agreement, dated May 15, 1994, by and between
Merck & Co., Inc., Koffolk, Ltd., and Registrant (1)+
10.3 Lease, dated July 25, 1986, between Registrant and 400 Kelby
Associates, as amended December 1, 1986 and December 30, 1994
(1)
10.4 Lease, dated June 30, 1995, between First Dice Road Co. and
Phibro-Tech, Inc., as amended May 1998 (1)
10.5 Lease, dated December 24, 1981, between Koffolk (1949) Ltd.
and Israel Land Administration (1)
10.6 Master Lease Agreement, dated February 27, 1998, between
General Electric Capital Corp., Registrant and Phibro-Tech,
Inc. (1)
10.7 Stockholders Agreement, dated December 29, 1987, by and
between Registrant, Charles H. Bendheim, Jack C. Bendheim and
Marvin S. Sussman (1)
10.8 Employment Agreement, dated December 29, 1987, by and between
Registrant and Marvin S. Sussman (1)++
10.9 Stockholders Agreement, dated February 21, 1995, between James
O. Herlands and Phibro-Tech, Inc., as amended as of June 11,
1998(1)
10.10 Form of Severance Agreement, dated as of February 21, 1995,
between Registrant and James O. Herlands (1)++
10.11 Agreement of Limited Partnership of First Dice Road Company,
dated June 1, 1985, by and among Western Magnesium Corp., Jack
Bendheim, Marvin S. Sussman and James O. Herlands, as amended
November 1985 (1)
10.12 Philipp Brothers Chemicals, Inc. Retirement Income and
Deferred Compensation Plan Trust, dated as of January 1, 1994,
by and between Registrant on its own behalf and on behalf of
C.P. Chemicals, Inc., Phibro-Tech, Inc. and the Trustee
thereunder; Philipp Brothers Chemicals, Inc. Retirement Income
and Deferred Compensation Plan, dated March 18, 1994
("Retirement Income and Deferred Compensation Plan") (1)++
10.12.1 First, Second and Third Amendments to Retirement Income and
Deferred Compensation Plan. (2)++
10.13 Form of Executive Income Deferred Compensation Agreement, each
dated March 11, 1990, by and between Registrant and each of
Jack Bendheim, James Herlands and Marvin Sussman (1)++
10.14 Form of Executive Income Split Dollar Agreement, each dated
March 1, 1990, by and between Registrant and each of Jack
Bendheim, James Herlands and Marvin Sussman (1)++
10.15 [Reserved]
10.16 Administrative Consent Order, dated March 11, 1991, issued by
the State of New Jersey Department of Environmental
Protection, Division of Hazardous Waste Management, to C.P.
Chemicals, Inc. (1)
10.17 Agreement for Transfer of Ownership, dated as of June 8, 2000,
between C. P. Chemicals, Inc. ("CP") and the Township of
Woodbridge ("Township"), and related Environmental
Indemnification Agreement, between CP and Township, and Lease,
between Township and CP (2)
10.18 Stockholders' Agreement, dated as of January 5, 2000, among
shareholders of Penick Holding Company ("PHC"), and
Certificate of Incorporation of PHC and Certificate of
Designation, Preferences and Rights of Series A Redeemable
Cumulative Preferred Stock of PHC (2)
10.19 [Reserved]
10.20 [Reserved]
10.21 Asset Purchase Agreement, dated as of September 28, 2000,
among Pfizer, Inc., the Asset Selling Corporations (named
therein) and Registrant, and various exhibits and certain
Schedules thereto (3)+
10.21.1 Amendment, dated August 11, 2003 to Asset Purchase Agreement,
dated as of September 28, 2000, among Pfizer, Inc., the Asset
Selling Corporations (named therein) and Registrant (10)
10.22 Stock Purchase Agreement, dated as of November 30, 2000,
between Registrant and the Purchasers (as defined therein) (4)
10.23 Stockholders' Agreement, dated as of November 30, 2000, among
Registrant, the Investor Stockholders (as defined therein) and
Jack C. Bendheim (4)
10.24 United States Asset Purchase Agreement between Phibro-Tech,
Inc. and Nufarm, Inc. dated as of May 1, 2001 (5)
10.24.1 Amendment No. 1 to United States Asset Purchase Agreement
between Phibro-Tech, Inc. and Nufarm, Inc. dated as of June
14, 2001 (6)
10.25 Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc.
dated as of May 1, 2001 (5)
10.26 License Agreement between Phibro-Tech, Inc. and Nufarm, Inc.
dated as of May 1, 2001 (5)
10.27 Management and Advisory Services Agreement dated November 30,
2000 between Registrant and Palladium Equity Partners, L.L.C.
(7)++
10.27.1 Amended and Restated Management Services Agreement dated as of
October 21, 2003 between Registrant and Palladium Capital
Management, L.L.C. (15)++
10.28 Employment Agreement, dated May 28, 2002, by and between
Registrant and Gerald K. Carlson (8)++
10.29 Agreement dated as of May 2, 2003, by and between PAH
Management Company, Ltd. and David McBeath (10) ++
10.30 Stock Purchase Agreement, dated August 14, 2003, by and
between Registrant and Cemex, Inc. (9)
10.31 Loan and Security Agreement, dated October 21, 2003, by and
among, the lenders identified on the signature pages thereto,
Wells Fargo Foothill, Inc., and Phibro Animal Health
Corporation ("Parent"), and each of Parent's Subsidiaries
identified on the signature pages thereto. (12)
10.31.1 Amendment Number One to Loan and Security Agreement dated
November 14, 2003. (12)
10.31.2 Amendment Number Two to Loan and Security Agreement dated
April 29, 2004. (14)
10.31.3 Amendment Number Three to Loan and Security Agreement dated as
of September 24, 2004. (16)
10.32 Intercreditor and Lien Subordination Agreement, dated as of
October 21, 2003, made by and among Wells Fargo Foothill,
Inc., HSBC Bank USA, Phibro Animal Health Corporation
("Parent") and those certain subsidiaries of the Parent party
thereto. (12)
10.33 Purchase and Sale Agreement dated as of December 26, 2003 by
and among Phibro Animal Health Corporation ("PAHC"), Prince
MFG, LLC, ("Prince MFG"), The Prince Manufacturing Company
("Prince" and together with PAHC and Prince MFG, the "Phibro
Parties"), Palladium Equity Partners II, L.P. ("PEP II"),
Palladium Equity Partners II-A, L.P., ("PEP II-A"), Palladium
Equity Investors II, L.P., ("PEI II", and together with PEP II
and PEP II-A, the "Investor Stockholders"), and Prince
Mineral Company, Inc. ("Buyer"). (15)
10.34 Environmental Indemnification Agreement dated as of December
26, 2003 between the Phibro Parties (as defined therein) and
Buyer. (15)
10.35 Amendment to Stockholders Agreement dated as of December 26,
2003 between PAHC, the Investor Stockholders and Jack Bendheim
(15)
10.36 Advisory Fee Agreement dated as of December 26, 2003 between
Buyer and PAHC(15)++
21 List of Subsidiaries (16)
31.1 Certification of Gerald K. Carlson, Chief Executive Officer
required by Rule 15d-14(a) of the Act (16)
31.2 Certification of Jack C. Bendheim, Chairman of the Board
required by Rule 15d-14(a) of the Act (16)
31.3 Certification of Richard G. Johnson, Chief Financial Officer
required by Rule 15d-14(a) of the Act (16)
- ----------
1 Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4, No. 333-64641.
2 Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 2000.
3 Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 2000.
4 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
November 30, 2000.
5 Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 2001.
6 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
June 14, 2001.
7 Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 2001.
8 Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 2002.
9 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
September 11, 2003, as amended by the Registrant's Form 8-K/A dated June
2, 2004.
10 Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 2003.
11 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
October 2, 2003.
12 Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 2003.
13 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
October 31, 2003.
14 Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 2004.
15 Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
January 12, 2004.
16 Filed herewith.
+ A request for confidential treatment has been granted for portions of such
document. Confidential portions have been omitted and furnished separately
to the SEC in accordance with Rule 406(b).
++ This Exhibit is a management compensatory plan or arrangement.
Since the Company does not have securities registered under Section 12 of the
Securities Exchange Act of 1934 and is not required to file periodic reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Company is not filing the written certification statement pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. The Company submits periodic reports with
the Securities and Exchange Commission because it is required to do so by the
terms of the indenture governing its senior subordinated notes.
| | | | | |
| Exhibit | | |
| No. | | Description of Exhibit |
| | | |
| | 3 | .1 | | Composite Certificate of Incorporation of Registrant(15) |
| | 3 | .1(a) | | Certificate of Amendment of Certificate of Incorporation of Registrant dated February 28, 2005(21) |
| |
| | 3 | .2 | | By-laws of Registrant(1) |
| |
| | 4 | .1 | | Indenture, dated as of June 11, 1998, among Registrant, the Guarantors named therein and The Chase Manhattan Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant, and exhibits thereto, including Form of 97/8% Senior Subordinated Note due 2008 of Company(1) |
| |
| | 4 | .1.1 | | First Supplemental Indenture, dated as of January 15, 1999, among Registrant, the Guarantors named therein and The Chase Manhattan Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(10) |
| |
| | 4 | .1.2 | | Second Supplemental Indenture, dated as of March 19, 2003, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(10) |
| |
| | 4 | .1.3 | | Third Supplemental Indenture, dated as of June 10, 2003, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(10) |
| |
| | 4 | .1.4 | | Fourth Supplemental Indenture, dated as of October 1, 2003, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(11) |
| |
| | 4 | .1.5 | | Fifth Supplemental Indenture, dated as of October 21, 2003, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(12) |
| |
| | 4 | .1.6 | | Sixth Supplemental Indenture, dated as of June 25, 2004, among Registrant, the Guarantors named therein and JPMorgan Chase Bank, as trustee, relating to the 97/8% Senior Subordinated Notes due 2008 of Registrant(16) |
| |
| | 4 | .2 | | Indenture, dated as of October 21, 2003, by and among Registrant and Philipp Brothers Netherlands III B.V., as Issuers, the Guarantors named therein, and HSBC Bank USA, as Trustee and Collateral Agent(13) |
| | 4 | .2.1 | | First Supplemental Indenture, dated as of June 25, 2004, by and among Registrant and Philipp Brothers Netherlands III B.V., as Issuers, the Guarantors named therein, and HSBC Bank USA, as Trustee and Collateral Agent(16) |
| |
| | 4 | .2.2 | | Second Supplemental Indenture, dated as of December 8, 2004, by and among Registrant and Philipp Brothers Netherlands III B.V., as Issuers, the Guarantors named therein, and HSBC Bank USA, National Association as Trustee and Collateral Agent(17) |
| |
| | 4 | .2.3 | | Third Supplemental Indenture, dated as of March 10, 2005, by and among Registrant and Philipp Brothers Netherlands III B.V., as Issuers, the Guarantors named therein, and HSBC Bank USA, National Association as Trustee and Collateral Agent(22) |
| |
| | | | | Certain instruments which define the rights of holders of long-term debt of Registrant and its consolidated subsidiaries have not been filed as Exhibits to this Report since the total amount of securities authorized under any such instrument does not exceed 10% of the total assets of Registrant and its subsidiaries on a consolidated basis, as of June 30, 2005. For a description of such indebtedness, see Note 12 of Notes to Consolidated Financial Statements. Registrant hereby agrees to furnish copies of such instruments to the Securities and Exchange Commission upon its request. |
| |
| | 10 | .1 | | Lease, dated September 27, 2004, between Registrant and Hartz Mountain Industries, Inc.(19) |
| |
| | 10 | .2 | | Lease, dated June 30, 1995, between First Dice Road Co. and Phibro-Tech, Inc., as amended May 1998(1) |
| |
| | 10 | .3 | | Lease, dated December 24, 1981, between Koffolk (1949) Ltd. and Israel Land Administration(1) |
| |
| | 10 | .4 | | Master Lease Agreement, dated February 27, 1998, between General Electric Capital Corp., Registrant and Phibro-Tech, Inc.(1) |
| | | | | |
| Exhibit | | |
| No. | | Description of Exhibit |
| | | |
| |
| | 10 | .5 | | Stockholders Agreement, dated December 29, 1987, by and between Registrant, Charles H. Bendheim, Jack C. Bendheim and Marvin S. Sussman(1) |
| |
| | 10 | .6 | | Employment Agreement, dated December 29, 1987, by and between Registrant and Marvin S. Sussman(1)†† |
| |
| | 10 | .7 | | Stockholders Agreement, dated February 21, 1995, between James O. Herlands and Phibro-Tech, Inc., as amended as of June 11, 1998(1) |
| |
| | 10 | .8 | | Form of Severance Agreement, dated as of February 21, 1995, between Registrant and James O. Herlands(1)†† |
| |
| | 10 | .9 | | Agreement of Limited Partnership of First Dice Road Company, dated June 1, 1985, by and among Western Magnesium Corp., Jack Bendheim, Marvin S. Sussman and James O. Herlands, as amended November 1985(1) |
| |
| | 10 | .10 | | Philipp Brothers Chemicals, Inc. Retirement Income and Deferred Compensation Plan Trust, dated as of January 1, 1994, by and between Registrant on its own behalf and on behalf of C.P. Chemicals, Inc., Phibro-Tech, Inc. and the Trustee thereunder; Philipp Brothers Chemicals, Inc. Retirement Income and Deferred Compensation Plan, dated March 18, 1994 (“Retirement Income and Deferred Compensation Plan”)(1)†† |
| |
| | 10 | .10.1 | | First, Second and Third Amendments to Retirement Income and Deferred Compensation Plan(2)†† |
| |
| | 10 | .11 | | Form of Executive Income Deferred Compensation Agreement, each dated March 11, 1990, by and between Registrant and each of Jack Bendheim, James Herlands and Marvin Sussman(1)†† |
| |
| | 10 | .12 | | Form of Executive Income Split Dollar Agreement, each dated March 1, 1990, by and between Registrant and each of Jack Bendheim, James Herlands and Marvin Sussman(1)†† |
| |
| | 10 | .13 | | Administrative Consent Order, dated March 11, 1991, issued by the State of New Jersey Department of Environmental Protection, Division of Hazardous Waste Management, to C.P. Chemicals, Inc.(1) |
| |
| | 10 | .14 | | Agreement for Transfer of Ownership, dated as of June 8, 2000, between C. P. Chemicals, Inc. (“CP”) and the Township of Woodbridge (“Township”), and related Environmental Indemnification Agreement, between CP and Township, and Lease, between Township and CP(2) |
| |
| | 10 | .15 | | Stockholders’ Agreement, dated as of January 5, 2000, among shareholders of Penick Holding Company (“PHC”), and Certificate of Incorporation of PHC and Certificate of Designation, Preferences and Rights of Series A Redeemable Cumulative Preferred Stock of PHC(2) |
| |
| | 10 | .16 | | Asset Purchase Agreement, dated as of September 28, 2000, among Pfizer, Inc., the Asset Selling Corporations (named therein) and Registrant, and various exhibits and certain Schedules thereto(3)† |
| |
| | 10 | .16.1 | | Amendment, dated August 11, 2003 to Asset Purchase Agreement, dated as of September 28, 2000, among Pfizer, Inc., the Asset Selling Corporations (named therein) and Registrant(10) |
| |
| | 10 | .17 | | Stock Purchase Agreement, dated as of November 30, 2000, between Registrant and the Purchasers (as defined therein)(4) |
| |
| | 10 | .18 | | Stockholders’ Agreement, dated as of November 30, 2000, among Registrant, the Investor Stockholders (as defined therein) and Jack C. Bendheim(4) |
| |
| | 10 | .19 | | United States Asset Purchase Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of May 1, 2001(5) |
| |
| | 10 | .19.1 | | Amendment No. 1 to United States Asset Purchase Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of June 14, 2001(6) |
| |
| | 10 | .20 | | Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of May 1, 2001(5) |
| |
| | 10 | .21 | | License Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of May 1, 2001(5) |
| |
| | 10 | .22 | | Amended and Restated Management and Advisory Services Agreement dated as of October 21, 2003 between Registrant and Palladium Capital Management, L.L.C.(15)†† |
| |
| | 10 | .23 | | Employment Agreement, dated May 28, 2002, by and between Registrant and Gerald K. Carlson(8)†† |
| |
| | 10 | .24 | | Consulting Agreement dated as of November 1, 2004, by and between Registrant and David McBeath(19)†† |
| | | | | |
| Exhibit | | |
| No. | | Description of Exhibit |
| | | |
| |
| | 10 | .25 | | Consulting Agreement dated as of December 13, 2004, by and between Registrant and David McBeath(19)†† |
| |
| | 10 | .26 | | Stock Purchase Agreement, dated August 14, 2003, by and between Registrant and Cemex, Inc.(9) |
| |
| | 10 | .27 | | Loan and Security Agreement, dated October 21, 2003, by and among, the lenders identified on the signature pages thereto, Wells Fargo Foothill, Inc., and Registrant, and each of Registrant’s Subsidiaries identified on the signature pages thereto(12) |
| |
| | 10 | .27.1 | | Amendment Number One to Loan and Security Agreement dated November 14, 2003(12) |
| |
| | 10 | .27.2 | | Amendment Number Two to Loan and Security Agreement dated April 29, 2004(14) |
| |
| | 10 | .27.3 | | Amendment Number Three to Loan and Security Agreement dated as of September 24, 2004(16) |
| |
| | 10 | .27.4 | | Amendment Number Four to Loan and Security Agreement dated December 20, 2004(18) |
| |
| | 10 | .28 | | Intercreditor and Lien Subordination Agreement, dated as of October 21, 2003, made by and among Wells Fargo Foothill, Inc., HSBC Bank USA, Registrant and those certain subsidiaries of the Registrant party thereto(12) |
| |
| | 10 | .28.1 | | Amendment One to Intercreditor Agreement dated December 20, 2004(18) |
| |
| | 10 | .29 | | Purchase and Sale Agreement dated as of December 26, 2003 by and among Registrant, Prince MFG, LLC, (“Prince MFG”), The Prince Manufacturing Company (“Prince” and together with Registrant and Prince MFG, the “Phibro Parties”), Palladium Equity Partners II, L.P. (“PEP II”), Palladium Equity Partners II-A, L.P., (“PEP II-A”), Palladium Equity Investors II, L.P., (“PEI II”, and together with PEP II and PEP II-A, the “Investor Stockholders”), and Prince Mineral Company, Inc. (“Buyer”)(15) |
| |
| | 10 | .30 | | Environmental Indemnification Agreement dated as of December 26, 2003 between the Phibro Parties (as defined therein) and Buyer(15) |
| |
| | 10 | .31 | | Amendment to Stockholders Agreement dated as of December 26, 2003 between Registrant, the Investor Stockholders and Jack Bendheim(15) |
| |
| | 10 | .32 | | Advisory Fee Agreement dated as of December 26, 2003 between Buyer and Registrant(15)†† |
| |
| | 10 | .33 | | Business Purchase Agreement by and between Phibro Animal Health SA and GlaxoSmithKline Biologicals SA, dated December 16, 2004(20)* |
| |
| | 10 | .34 | | Redemption Agreement, dated as of February 28, 2005, among the Registrant, PAHC Holdings Corporation, Palladium Capital Management, L.L.C., Palladium Equity Partners II, L.P., Palladium Equity Partners II-A, L.P., Palladium Equity Investors II, L.P., Jack C. Bendheim and Marvin S. Sussman(21) |
| |
| | 10 | .35 | | Agreement for the Sale and Purchase of the Entire Share Capital in Wychem Limited dated as of April 29, 2005 among Ferro Metal and Chemical Corporation Limited, Koffolk (1949) Limited and MRG Holdings Limited(22) |
| |
| | 21 | | | List of Subsidiaries |
| |
| | 31 | .1 | | Certification of Gerald K. Carlson, Chief Executive Officer required by Rule 15d-14(a) of the Act |
| |
| | 31 | .2 | | Certification of Jack C. Bendheim, Chairman of the Board required by Rule 15d-14(a) of the Act |
| |
| | 31 | .3 | | Certification of Richard G. Johnson, Chief Financial Officer required by Rule 15d-14(a) of the Act |
| | 32 | | | Section 1350 Certifications of Registrant |
| | |
| (1) | Filed as an Exhibit to the Registrant’s Registration Statement on Form S-4, No. 333-64641. |
|
| (2) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2000. |
|
| (3) | Filed as an Exhibit to the Registrant’s Report on Form 10-Q for the quarter ended September 30, 2000. |
|
| (4) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated November 30, 2000. |
|
| (5) | Filed as an Exhibit to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 2001. |
|
| (6) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated June 14, 2001. |
|
| (7) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001. |
| | |
| (8) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002. |
|
| (9) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated September 11, 2003, as amended by the Registrant’s Form 8-K/ A dated June 2, 2004. |
| |
| (10) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003. |
|
| (11) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated October 2, 2003. |
|
| (12) | Filed as an Exhibit to the Registrant’s Report on Form 10-Q for the quarter ended September 30, 2003. |
|
| (13) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated October 31, 2003. |
|
| (14) | Filed as an Exhibit to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 2004. |
|
| (15) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated January 12, 2004. |
|
| (16) | Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004. |
|
| (17) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated December 8, 2004. |
|
| (18) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated December 23, 2004. |
|
| (19) | Filed as an Exhibit to the Registrant’s Registration Statement on Form S-4, No. 333-122063. |
|
| (20) | Filed as an Exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004. |
|
| (21) | Filed as an Exhibit to the Registrant’s Current Report on Form 8-K dated February 28, 2005. |
|
| (22) | Filed as an Exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
| | |
| * | A request for confidential treatment has been made for certain portions of such document. Confidential portions have been omitted and filed separately with the SEC in accordance with Rule 24b-2 under the Securities Exchange Act. |
| | |
| † | A request for confidential treatment has been granted for portions of such document. Confidential portions have been omitted and furnished separately to the SEC in accordance with Rule 406(b). |
| | |
| †† | This Exhibit is a management contract or compensatory plan or arrangement. |