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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number 333-64641
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Philipp Brothers Chemicals, Inc.
(Exact name of registrant as specified in its charter)
New York 13-1840497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Parker Plaza, Fort Lee, New Jersey 07024
(Address of principal executive offices) (Zip Code)
(201) 944-6020
(Registrant's telephone number, including area code)
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Indicate by check mark whether the Registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Number of shares of each class of common stock outstanding as of November 15,
1999:
Class A Common Stock, $.10 par value 12,600.00
Class B Common Stock, $.10 par value 11,888.50
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<PAGE>
PHILIPP BROTHERS CHEMICALS, INC.
Table of Contents
Page
----
PART I FINANCIAL INFORMATION (UNAUDITED)
Item 1.Condensed Financial Statements 4
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Operations 6
Condensed Consolidated Statements of Changes in
Stockholders' Equity 7
Condensed Consolidated Statements of Cash Flows 8
Notes to Condensed Consolidated Financial Statements 9
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 3.Quantitative and Qualitative Disclosures About Market Risk 23
PART II OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K 24
SIGNATURES 25
<PAGE>
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed throughout this
Form 10-Q and are discussed in Item 2 of Part I of this Form 10-Q under the
caption "Certain Factors Affecting Future Operating Results."
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
4
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands)
September 30, June 30,
1999 1999
------------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,048 $ 2,308
Trade receivables, less allowance for doubtful
accounts of $916 at September 30, 1999 and
$886 at June 30,1999 57,575 69,113
Other receivables 6,388 9,961
Inventories 55,346 51,430
Prepaid expenses and other current assets 7,402 7,273
--------- ---------
TOTAL CURRENT ASSETS 130,759 140,085
PROPERTY, PLANT AND EQUIPMENT, net 67,392 66,040
INTANGIBLES 6,955 6,959
OTHER ASSETS 24,923 24,289
--------- ---------
$ 230,029 $ 237,373
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 819 $ 1,438
Loans payable to banks 2,261 3,019
Current portions of long-term debt 1,434 1,450
Accounts payable 34,512 36,260
Other loans payable 118 182
Accrued expenses and other current liabilities 23,333 25,072
--------- ---------
TOTAL CURRENT LIABILITIES 62,477 67,421
LONG-TERM DEBT 132,846 134,088
OTHER LIABILITIES 10,994 11,524
--------- ---------
TOTAL LIABILITIES 206,317 213,033
--------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SECURITIES:
Common stock 2,309 2,376
Common stock of subsidiary 621 581
--------- ---------
TOTAL REDEEMABLE SECURITIES 2,930 2,957
--------- ---------
STOCKHOLDERS' EQUITY:
Series A preferred stock 521 521
Common stock 2 2
Paid-in capital 816 816
Retained earnings 20,770 22,755
Accumulated other comprehensive income (loss) -
cumulative currency translation adjustment (1,327) (2,711)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 20,782 21,383
--------- ---------
$ 230,029 $ 237,373
========= =========
See notes to unaudited Condensed Consolidated Financial Statements
5
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(In Thousands)
1999 1998
-------- --------
NET SALES $ 70,319 $ 59,209
COST OF GOODS SOLD 50,228 46,703
-------- --------
GROSS PROFIT 20,091 12,506
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 19,306 11,888
-------- --------
OPERATING INCOME 785 618
OTHER:
Interest expense 3,390 2,721
Interest income (92) (343)
Other expense, net 901 340
-------- --------
LOSS BEFORE INCOME TAXES (3,414) (2,100)
BENEFIT FOR INCOME TAXES (1,429) (1,013)
-------- --------
NET LOSS $ (1,985) $ (1,087)
======== ========
See notes to unaudited Condensed Consolidated Financial Statements
6
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated
--------------- -------------------- Other
Class Class Paid-in Retained Comprehensive
Series A "A" "B" Capital Earnings Income (loss) Total
--------------- -------- -------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1999 $ 521 $ 1 $ 1 $ 816 $ 22,755 $ (2,711) $ 21,383
Foreign currency translation
adjustment -- -- -- -- -- 1,384 1,384
Net loss -- -- -- -- (1,985) -- (1,985)
-------- -------- -------- -------- -------- -------- --------
BALANCE, SEPTEMBER 30, 1999 $ 521 $ 1 $ 1 $ 816 $ 20,770 $ (1,327) $ 20,782
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to unaudited Condensed Consolidated Financial Statements
7
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30,1999 AND 1998
(In Thousands)
1999 1998
-------- --------
OPERATING ACTIVITIES:
Net loss $ (1,985) $ (1,087)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,988 1,986
Other 695 35
Changes in operating assets and
liabilities:
Accounts receivable 11,508 16,888
Inventories (3,917) (5,793)
Prepaid expenses and other
current assets 1,073 528
Other assets (261) (183)
Accounts payable (1,748) (4,306)
Accrued expenses and other
current liabilities (240) 1,206
-------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 8,113 9,274
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (4,045) (2,538)
Proceeds from property damage claim 872 --
Other (500) --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,673) (2,538)
-------- --------
FINANCING ACTIVITIES:
Cash overdraft (619) (313)
Net (decrease) increase in short-term debt (822) 1,491
Proceeds from long-term debt 1,019 42
Payments of long-term debt (2,278) (60)
-------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (2,700) 1,160
-------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,740 7,896
CASH AND CASH EQUIVALENTS at beginning of period 2,308 24,221
-------- --------
CASH AND CASH EQUIVALENTS at end of period $ 4,048 $ 32,117
======== ========
See notes to unaudited Condensed Consolidated Financial Statements
8
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands)
1. General
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of September 30, 1999 and June 30, 1999 and the results of operations and
cash flows for the three months ended September 30, 1999 and 1998.
The condensed consolidated balance sheet as of June 30, 1999 was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. Additionally, it should be noted
that the accompanying condensed consolidated financial statements and notes
thereto have been prepared in accordance with accounting standards appropriate
for interim financial statements. While the Company believes that the
disclosures presented are adequate to make the information contained herein not
misleading, it is suggested that these financial statements be read in
conjunction with the Company's consolidated financial statements for the year
ended June 30, 1999.
The results of operations for the three months ended September 30, 1999
and 1998 are not indicative of results for the full year.
2. Acquisition
On October 1, 1998, the Company acquired (the "ODDA Acquisition") all of
the outstanding capital stock of ODDA Smelteverk, AS, a Norwegian company, and
certain assets of the business of BOC Carbide Industries in the United Kingdom
(together "ODDA") from the BOC Group Plc for $19 million in cash and $18.2
million in debt. The acquisition has been accounted for using the purchase
method of accounting.
The unaudited consolidated results of operations on a pro forma basis as
if such acquisition had occurred at the beginning of fiscal 1998 are as follows:
Three Months Ended
September 30, 1998
------------------
Net Sales $68,568
Net Loss (2,867)
3. Inventories
Inventories are valued at the lower of cost or market. Cost is principally
determined using the first-in, first-out (FIFO) and average methods, however,
certain subsidiaries of the Company use the last-in, first-out (LIFO) method for
valuing inventories.
Inventories at September 30, 1999 and June 30, 1999 are based on perpetual
records and consist of the following:
September 30, June 30,
1999 1999
------------ -------
Raw materials $24,009 $24,499
Work-in-process 5,979 5,409
Finished goods 25,358 21,522
------- -------
$55,346 $51,430
======= =======
9
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) -- (Continued)
(In Thousands)
4. Comprehensive Income
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS
130 states that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in the financial
statements.
The Company's comprehensive loss amounts were computed as follows:
Three Months Ended
September 30,
---------------------
1999 1998
-------- --------
Net loss $ (1,985) $ (1,087)
Change in foreign currency translation
adjustments 1,384 276
-------- --------
Total comprehensive loss $ (601) $ (811)
======== ========
5. Contingencies
a. Litigation
The Company is party to a number of claims and lawsuits arising in the
normal course of business, including patent infringement, product liabilities
and governmental regulation concerning environmental and other matters. Certain
of these actions seek damages in various amounts. All such claims are being
contested, and management believes the resolution of these matters will not
materially affect the consolidated financial position, results of operations or
cash flows of the Company.
b. Environmental Remediation
The Company's domestic subsidiaries are subject to various federal, state
and local environmental laws and regulations, which govern the management of
chemical wastes. The most significant regulation governing the Company's
recycling activities is the Resource Conservation and Recovery Act of 1976
("RCRA"). The Company has been issued final RCRA "Part B" permits to operate as
hazardous waste treatment and storage facilities at its facilities in Santa Fe
Springs, California; Garland, Texas; Joliet, Illinois; Sumter, South Carolina
and Sewaren, New Jersey. The Company has also obtained an interim status RCRA
permit for its Union City, California facility.
In connection with applying for RCRA "Part B" permits, the Company has
been required to perform extensive site investigations at certain of its
operating facilities and inactive sites to identify possible contamination and
to provide the regulatory authorities with plans and schedules for remediation.
Some soil and groundwater contamination has been identified at several plant
sites and will require corrective action over the next several years.
The Company has been named as a potentially responsible party ("PRP") in
connection with an action commenced by the Environmental Protection Agency
("EPA"), involving a third party fertilizer manufacturing site in South
Carolina. While the outcome of ongoing negotiation is uncertain, the Company has
accrued its best estimate of the amount for which this matter can be settled.
Based upon information available, management estimates the cost of further
investigation and remediation of identified soil and groundwater problems at
operating sites, closed sites and third party sites to be approximately $1,783
as of September 30, 1999, which is included in current and long-term
liabilities.
10
<PAGE>
PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) -- (Continued)
(In Thousands)
6. Business Segments
The Company operates in two business segments: AgChem and Industrial
Chemicals. The AgChem segment manufactures and markets a variety of animal
nutrition and health products, copper based fungicides and growth regulators.
The Industrial Chemicals segment manufactures and markets a number of specialty
organic and inorganic intermediate chemicals for use in a broad variety of
industrial chemical applications. The Company aggregates certain operating
segments into its reportable segments. Management evaluates the performance of
its operating segments and allocates resources based on operating income.
Transfers between segments are priced at amounts that include a manufacturing
profit except that transfers of $917 and $1,439 from the Industrial Chemicals
group to the AgChem group for the three months ended September 30, 1999 and
1998, respectively, are recorded at the cost of product transferred. Other
includes corporate expenses and elimination of intersegment revenues.
<TABLE>
<CAPTION>
Industrial
AgChem Chemicals
Group Group Other Total
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Three Months Ended September 30, 1999
Revenues -- external customers $35,815 $34,504 $ -- $70,319
-- intersegment 1,672 3,947 (5,619) 0
------- ------- ------- -------
Total revenues $37,487 $38,451 $(5,619) $70,319
======= ======= ======= =======
Operating income (loss) $ 783 $ 2,147 $(2,145)(1) $ 785
</TABLE>
<TABLE>
<CAPTION>
Industrial
AgChem Chemicals
Group Group Other Total
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Three Months Ended September 30, 1998
Revenues -- external customers $35,573 $23,636 $ -- $59,209
-- intersegment 1,075 5,264 (6,339) 0
------- ------- ------- -------
Total revenues $36,648 $28,900 $(6,339) $59,209
======= ======= ======= =======
Operating income (loss) $ 84 $ 1,927 $(1,393)(1) $ 618
</TABLE>
- ----------
(1) Represents corporate expenses and intercompany profit eliminations.
7. Condensed Consolidating Financial Statements
In June 1998, the Company issued $100 million of its 97/8% Senior
Subordinated Notes due 2008 (the "Notes"). In connection with the issuance of
these Notes, the Company's U.S. Subsidiaries fully and unconditionally
guaranteed such Notes on a joint and several basis. Foreign subsidiaries do not
presently guarantee the Notes.
The following condensed consolidating financial data summarizes the
assets, liabilities and results of operations and cash flows of the Parent,
Guarantors and Non-Guarantor subsidiaries. The Parent is Philipp Brothers
Chemicals, Inc. ("PBC"). The U.S. Guarantor Subsidiaries include all domestic
subsidiaries of PBC including the following: C.P. Chemicals, Inc., Koffolk,
Inc., Phibro-Tech, Inc., MRT Management Corp., Mineral Resource Technologies,
L.L.C., Prince Agriproducts, Inc., The Prince Manufacturing Company (PA), The
Prince Manufacturing Company (IL), Phibrochem, Inc., Phibro Chemicals, Inc. and
Western Magnesium Corp. The Non-Guarantor Subsidiaries include the following:
Koffolk (1949) Ltd., Agtrol International, Ferro Metal and Chemical Corporation
and ODDA Smelteverk, AS. The U.S. and foreign Guarantor and Non-Guarantor
Subsidiaries are wholly-owned as to voting common stock by the Parent.
Investments in subsidiaries are accounted for by the Parent using the
equity method. Income tax expense (benefit) is allocated among the consolidating
entities based upon taxable income (loss) by jurisdiction within each group.
11
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF SEPTEMBER 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 6 $ 435 $ 3,607 $ 4,048
Trade receivables 5,618 22,947 29,010 57,575
Other receivables 1,110 3,176 2,102 6,388
Inventory 5,192 28,330 21,824 55,346
Prepaid expenses and other 3,232 1,976 2,194 7,402
---------------------------------------------------------------------------
Total current assets 15,158 56,864 58,737 -- 130,759
---------------------------------------------------------------------------
Property, plant & equipment, net 916 17,826 48,650 67,392
Intangibles 17 2,577 4,361 6,955
Investment in subsidiaries 65,507 1,533 (3,142) (63,898) 0
Intercompany 51,040 (12,304) 2,159 (40,895) 0
Other assets 12,026 8,704 4,193 24,923
---------------------------------------------------------------------------
Total assets $ 144,664 $ 75,200 $ 114,958 $(104,793) $ 230,029
===========================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft $ 181 $ 578 $ 60 $ 819
Loan payable to banks -- -- 2,261 2,261
Current portion of long term debt 57 1,366 11 1,434
Accounts payable 1,745 12,558 20,209 34,512
Other loans payable -- -- 118 118
Accrued expenses and other 5,074 13,455 4,804 23,333
---------------------------------------------------------------------------
Total current liabilities 7,057 27,957 27,463 -- 62,477
---------------------------------------------------------------------------
Long term debt 111,348 599 61,794 (40,895) 132,846
Other liabilities 1,909 5,916 3,169 10,994
Redeemable securities:
Common stock 2,309 2,309
Common stock of subsidiary 621 621
---------------------------------------------------------------------------
2,309 621 -- -- 2,930
---------------------------------------------------------------------------
Stockholders' Equity
Series "A" preferred stock 521 -- -- 521
Common stock 2 32 127 (159) 2
Paid in capital 878 34,040 2,667 (36,769) 816
Retained earnings 20,770 6,005 20,964 (26,969) 20,770
Accumulated other comprehensive income
(loss)- cumulative currency translation
adjustment (130) 30 (1,226) (1) (1,327)
---------------------------------------------------------------------------
Total Stockholders' Equity 22,041 40,107 22,532 (63,898) 20,782
---------------------------------------------------------------------------
Total Liabilities and Equity $ 144,664 $ 75,200 $ 114,958 $(104,793) $ 230,029
===========================================================================
</TABLE>
12
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONDENSED CONSOLIDATING INCOME STATEMENT (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 8,709 $ 37,761 $ 33,001 $ (9,152) $ 70,319
Cost of goods sold 7,056 28,000 24,324 (9,152) 50,228
---------------------------------------------------------------------------
Gross profit 1,653 9,761 8,677 0 20,091
Selling, general, and administrative
expenses 3,176 9,850 6,280 19,306
---------------------------------------------------------------------------
Operating (loss) income (1,523) (89) 2,397 0 785
Interest expense 1,932 43 1,415 3,390
Interest income (7) -- (85) (92)
Other expense, net 87 -- 814 901
Intercompany allocation (2,588) 2,588 -- 0
(Profit) loss relating to subsidiaries 1,427 -- -- (1,427) 0
---------------------------------------------------------------------------
(Loss) income before income taxes (2,374) (2,720) 253 1,427 (3,414)
Benefit for income taxes (389) (983) (57) -- (1,429)
---------------------------------------------------------------------------
Net (loss) income $ (1,985) $ (1,737) $ 310 $ 1,427 $ (1,985)
===========================================================================
</TABLE>
13
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net (loss) income $ (1,985) $ (1,737) $ 310 $ 1,427 $ (1,985)
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Depreciation and amortization 129 1,110 1,749 2,988
Other 1,253 4 (562) 695
Changes in operating assets and liabilities:
Accounts receivable 473 8,861 2,174 11,508
Inventory (981) (1,787) (1,149) (3,917)
Prepaid expenses and other (1,385) 1,240 1,218 1,073
Other assets 40 (109) (192) (261)
Intercompany 2,780 (1,633) 280 (1,427) 0
Accounts payable (222) (1,754) 228 (1,748)
Accrued expenses and other 2,414 (3,931) 1,277 (240)
---------------------------------------------------------------------------
Net cash provided by operating
activities 2,516 264 5,333 0 8,113
---------------------------------------------------------------------------
Investing activities:
Capital expenditures (44) (1,232) (2,769) (4,045)
Proceeds from property damage claim -- 872 -- 872
Other (500) -- -- (500)
---------------------------------------------------------------------------
Net cash used in investing activities (544) (360) (2,769) -- (3,673)
---------------------------------------------------------------------------
Financing activities:
Cash overdraft (96) 365 (888) (619)
Net decrease in short term debt (32) -- (790) (822)
Proceeds from long term debt 7 39 973 1,019
Payments of long term debt (2,238) (39) (1) (2,278)
---------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (2,359) 365 (706) -- (2,700)
---------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (387) 269 1,858 -- 1,740
Cash and cash equivalents at beginning
of period 393 166 1,749 2,308
---------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 6 $ 435 $ 3,607 $ -- $ 4,048
===========================================================================
</TABLE>
14
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 393 $ 166 $ 1,749 $ 2,308
Trade receivables 6,091 31,838 31,184 69,113
Other receivables 993 5,684 3,284 9,961
Inventory 4,212 26,543 20,675 51,430
Prepaid expenses and other 1,964 1,580 3,729 7,273
---------------------------------------------------------------------------
Total current assets 13,653 65,811 60,621 -- 140,085
---------------------------------------------------------------------------
Property, plant & equipment, net 964 17,377 47,699 66,040
Intangibles 268 2,668 4,023 6,959
Investment in subsidiaries 67,264 1,386 (2,995) (65,655) 0
Intercompany 52,393 (13,790) 364 (38,967) 0
Other assets 11,604 8,833 3,852 24,289
---------------------------------------------------------------------------
Total assets $ 146,146 $ 82,285 $ 113,564 $(104,622) $ 237,373
===========================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft $ 277 $ 213 $ 948 $ 1,438
Loan payable to banks -- -- 3,019 3,019
Current portion of long term debt 94 1,345 11 1,450
Accounts payable 1,967 14,312 19,981 36,260
Other loans payable 32 -- 150 182
Accrued expenses and other 2,660 17,385 5,027 25,072
---------------------------------------------------------------------------
Total current liabilities 5,030 33,255 29,136 -- 67,421
---------------------------------------------------------------------------
Long term debt 113,541 620 58,894 (38,967) 134,088
Other liabilities 1,876 5,981 3,667 11,524
Redeemable securities:
Common stock 2,376 2,376
Common stock of subsidiary 581 581
---------------------------------------------------------------------------
2,376 581 -- -- 2,957
---------------------------------------------------------------------------
Stockholders' Equity
Series "A" preferred stock 521 -- -- 521
Common stock 2 32 127 (159) 2
Paid in capital 878 34,040 2,654 (36,756) 816
Retained earnings 23,096 7,745 20,654 (28,740) 22,755
Accumulated other comprehensive
income (loss)- cumulative currency
translation adjustment (1,174) 31 (1,568) -- (2,711)
---------------------------------------------------------------------------
Total Stockholders' Equity 23,323 41,848 21,867 (65,655) 21,383
---------------------------------------------------------------------------
Total Liabilities and Equity $ 146,146 $ 82,285 $ 113,564 (104,622) $ 237,373
===========================================================================
</TABLE>
15
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONDENSED CONSOLIDATING INCOME STATEMENT (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 7,948 $ 36,637 $ 19,901 $ (5,277) $ 59,209
Cost of goods sold 6,550 28,646 16,784 (5,277) 46,703
---------------------------------------------------------------------------
Gross profit 1,398 7,991 3,117 0 12,506
Selling, general, and administrative
expenses 2,578 7,024 2,286 11,888
---------------------------------------------------------------------------
Operating (loss) income (1,180) 967 831 0 618
Interest expense 1,772 88 861 2,721
Interest income (302) -- (41) (343)
Other expense, net -- -- 340 340
Intercompany allocation (2,506) 2,471 35 0
Loss relating to subsidiaries 989 -- -- (989) 0
---------------------------------------------------------------------------
(Loss) income before income taxes (1,133) (1,592) (364) 989 (2,100)
Benefit for income taxes (46) (767) (200) -- (1,013)
---------------------------------------------------------------------------
Net (loss) income $ (1,087) $ (825) $ (164) $ 989 $ (1,087)
===========================================================================
</TABLE>
16
<PAGE>
PHILIPP BROTHERS CHEMICALS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net (loss) income $ (1,087) $ (825) $ (164) $ 989 $ (1,087)
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 105 917 964 1,986
Other 10 (377) 402 35
Changes in operating assets and liabilities:
Accounts receivable 138 11,577 5,173 16,888
Inventory 1,034 (5,312) (1,515) (5,793)
Prepaid expenses and other (1,523) (65) 2,116 528
Other assets (131) (69) 17 (183)
Intercompany (11,251) (5,757) 17,997 (989) 0
Accounts payable (384) 381 (4,303) (4,306)
Accrued expenses and other 1,465 (437) 178 1,206
---------------------------------------------------------------------------
Net cash (used in) provided by operating
activities (11,624) 33 20,865 0 9,274
---------------------------------------------------------------------------
Investing activities:
Capital expenditures (73) (1,386) (1,079) (2,538)
---------------------------------------------------------------------------
Net cash used in investing activities (73) (1,386) (1,079) -- (2,538)
---------------------------------------------------------------------------
Financing activities:
Cash overdraft (913) 600 -- (313)
Net (decrease) increase in short term debt (713) -- 2,204 1,491
Proceeds from long term debt -- 37 5 42
Payments of long term debt (26) (34) -- (60)
---------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (1,652) 603 2,209 -- 1,160
---------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (13,349) (750) 21,995 -- 7,896
Cash and cash equivalents at beginning
of period 18,312 928 4,981 24,221
---------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,963 $ 178 $ 26,976 $ -- $ 32,117
===========================================================================
</TABLE>
17
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed throughout this
Form 10-Q and are discussed under the caption in this Item 2 entitled "Certain
Factors Affecting Future Operating Results."
Overview
Philipp Brothers Chemicals, Inc. ("Philipp Brothers" or the "Company") is
a leading diversified global manufacturer and marketer of a broad range of
specialty agricultural and industrial chemicals, which are sold world-wide for
use in numerous markets, including animal nutrition and health, agriculture,
pharmaceutical, electronics, wood treatment, glass, construction and concrete.
The Company also provides recycling and hazardous waste services primarily to
the electronics and metal treatment industries.
The Company operates in two industry segments: AgChem and Industrial
Chemicals.
On October 1, 1998, the Company acquired (the "ODDA Acquisition") all of
the outstanding capital stock of ODDA Smelteverk, AS, a Norwegian Company, and
certain assets of the business of BOC Carbide Industries in the United Kingdom
(together "ODDA") from the BOC Group Plc for $19 million in cash and $18.2
million in debt. The operating results of ODDA are included in the Company's
consolidated statements of operations, as part of the Industrial Chemical
segment, from the date of acquisition.
Results of Operations
Sales
($000's)
Three Months Ended September
Operating Segments 1999 1998
------- -------
AgChem $37,487 $36,648
Industrial Chemicals 38,451 28,900
Elimination of intersegment sales (5,619) (6,339)
------- -------
$70,319 $59,209
======= =======
Operating Income
($000's)
Three Months Ended September
Operating Segments 1999 1998
------- -------
AgChem $ 783 $ 84
Industrial Chemicals 2,147 1,927
Corporate expenses and eliminations (2,145) (1,393)
------- -------
$ 785 $ 618
======= =======
Comparison of Three Months Ended September 30, 1999 and 1998
Net Sales. Net sales increased by $11.1 million, or 18.8% to $70.3 million
in the three months ended September 30, 1999, as compared to the same period of
the prior year. Industrial Chemicals sales were higher by $9.6 million primarily
due to dicyandiamide and calcium carbide ($8.3 million) as a result of the ODDA
Acquisition and higher volume sales of coal fly ash products ($2.1 million).
AgChem sales were higher by $.8 million as compared to the prior period
primarily as a result of higher volume sales of the Company's animal nutrition
and health products, primarily coccidiostats ($1.8 million), which were somewhat
offset by lower volume sales of crop protection chemicals ($1.0 million).
Gross Profit. Gross profit increased by $7.6 million or 61% to $20.1
million as compared to the same period of the prior year. This increase was
primarily attributable to higher profits ($5.9 million) from increased sales in
the Company's Industrial Chemicals segment due to the ODDA Acquisition and
higher sales of coal fly ash products. Gross profit of the Company's AgChem
segment was higher ($1.8 million) than the comparable prior period primarily due
to higher volume sales and lower costs, principally raw materials, for the
Company's coccidiostats.
18
<PAGE>
Gross profit as a percentage of net sales also increased to 28.6% in the quarter
ended September 30, 1999 as compared to 21.1% in the same period of the prior
year principally due to the impact of the ODDA Acquisition and increased
profitability from coal-fly ash products and having greater sales of higher
margin products of the Company's animal health and nutrition products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.4 million or 62.3% to $19.3 million for the
three months ended September 30, 1999, as compared to the same period of the
prior year. In the Industrial Chemicals segment, this increase was primarily due
to the ODDA AAcquisition ($3.6 million) and higher distribution expenses
associated with increased sales of the Company's coal fly ash products ($1.1
million). Also included in the quarter ended September 30, 1998 is a non-cash
compensation adjustment of $.5 million to reflect lower redemption values of
common stock of a subsidiary. In the AgChem segment, higher fixed expenses
associated with the Company's crop protection products ($.7 million) contributed
to the increase.
Operating Income. Operating income increased by $.2 million or 27.0% to
$.8 million in the three months ended September 30, 1999, as compared to the
same period of the prior year. Operating income of the AgChem segment increased
by $.7 million primarily due to increased profitability of the Company's animal
health and nutrition products which was somewhat offset by increased selling
expenses associated with crop protection product sales. Operating income of the
Industrial Chemicals segment increased by $.3 million primarily due to increased
profitability of coal fly ash products and organic intermediates. In addition,
non-segment operating expenses increased by $.8 million in the three months
ended September 30, 1999 as compared to the same period of the prior year.
Interest Expense. Interest expense increased by $.7 million or 24.6% to
$3.4 million in the three months ended September 30, 1999, as compared to the
same period of the prior year primarily due to interest expense incurred by ODDA
on its bank borrowings and increased borrowings under the Company's credit
facility with PNC Bank.
Other Expense, Net. Other expenses, net, principally reflects foreign
currency translation gain and losses of the Company's foreign subsidiaries.
Income Taxes. The Company provides a benefit on interim period losses to
the extent income is projected for the full fiscal year.
Liquidity and Capital Resources
Net Cash Provided By Operating Activities. Net cash provided by operations
for the three months ended September 30, 1999 was $8.1 million, a decrease of
$1.2 million from the same period of the prior year. This decrease was primarily
due to a higher net loss offset by higher depreciation and amortization and
other non-cash charges and reduced collections of accounts receivable due to
extended selling terms. In addition, the Company received $1.0 million as an
advance payment from its insurance carrier for reimbursable business
interruption losses in connection with a fire, in April 1999, at the Company's
Bowmanstown, Pennsylvania facility.
Net Cash Used in Investing Activities. Net cash used in investing
activities for the three months ended September 30, 1999 was $3.7 million, an
increase of $1.1 million. This increase was primarily due to expenditures by
ODDA, (acquired October 1, 1998) for increased production capacity. In addition,
the Company received $.9 million as an advance payment from its insurance
carrier for property damage in connection with the aforementioned fire loss.
Net Cash Used in Financing Activities. Net cash used in financing
activities for the three months ended September 30, 1999 was $2.7 million,
primarily due to repayments under the Company's various revolving credit
facilities which were somewhat offset by long-term borrowings by ODDA. Net cash
provided by financing activities for the three months ended September 30, 1998
was $1.2 million, primarily due to net borrowings under the Company's various
revolving credit facilities.
Liquidity. As of September 30, 1999, the Company had $68.3 million of
working capital and $72.7 million as of June 30, 1999. Cash on hand as of
September 30, 1999 amounted to $4.0 million, as compared to $2.3 million at June
30, 1999.
At September 30, 1999, the Company had $11.2 million outstanding borrowings
under its Credit Agreement with PNC Bank. In addition to amounts outstanding,
the Company had $15.0 million available under the borrowing base formula. The
Company expects that cash flows from operations and available borrowing
arrangements will provide sufficient working capital to operate the Company's
business, to make expected capital expenditures and service interest and
principal on outstanding debt and meet the Company's foreseeable liquidity
requirement for the next twelve months.
19
<PAGE>
Seasonality of Business
The Company's sales are typically highest in the fourth fiscal quarter.
The Company's sales of copper-based fungicides and other agricultural products
are typically highest in the first and fourth fiscal quarters, and its sales of
gibberellic acid are highest in the fourth quarter, due to the seasonal nature
of the agricultural industry. The Company's sales of finished chemicals to the
wood treatment industry are typically highest in the first and fourth fiscal
quarters due to the increased level of home construction during these periods.
Additionally, sales of these products may be more concentrated in one of these
quarters due to weather conditions.
Quantitative and Qualitative Disclosure About Market Risk
In the normal course of operations, the Company is exposed to market risks
arising from adverse changes in interest rates, foreign currency exchange rates,
and commodity prices. As a result, future earnings, cash flows and fair values
of assets and liabilities are subject to uncertainty. The Company uses a variety
of derivative financial instruments, including interest rate caps and foreign
currency forward contracts as a means of hedging exposure to floating interest
rate bank borrowings and foreign currency risks. The Company also utilizes, on a
limited basis, certain commodity derivatives, primarily on copper used in its
manufacturing processes, to hedge the cost of its anticipated purchase
requirements. The Company does not utilize derivative instruments for trading
purposes. The Company does not hedge its exposure to market risks in a manner
that completely eliminates the effects of changing market conditions on
earnings, cash flows and fair values. The Company monitors the financial
stability and credit standing of its major counterparties.
Interest Rate Risk
The Company uses sensitivity analysis to assess the market risk of its
debt-related financial instruments and derivatives. Market risk is defined for
these purposes as the potential change in the fair value resulting from an
adverse movement in interest rates. The carrying amounts of cash and cash
equivalents, trade receivables, trade payables and short term debt is considered
to be representative of their fair value because of their short maturities. As
of September 30, 1999, the fair value of the Company's senior subordinated debt
is estimated based on quoted market rates is $88.0 million and the related
carrying amount is $100 million. A 100 basis point increase in interest rates
could result in approximately $6.0 million reduction in the fair value of total
debt.
Foreign Currency Exchange Rate Risk
A significant portion of the financial results of the Company is derived
from activities conducted outside the U.S. and denominated in currencies other
than the U.S. dollar. Because the financial results of the Company are reported
in U.S. dollars, they are affected by changes in the value of the various
foreign currencies in relation to the U.S. Dollar. Exchange rate risks are
reduced, however, by the diversity of the Company's foreign operations and the
fact that international activities are not concentrated in any single non-U.S.
currency. Short-term exposures to changing foreign currency exchange rates are
primarily due to operating cash flows denominated in foreign currencies. The
Company covers known and anticipated operating exposures by using purchased
foreign currency exchange option and forward contracts. The primary currencies
for which the Company has foreign currency exchange rate exposure are the Euro
and Japanese yen.
The Company uses sensitivity analysis to assess the market risk associated
with its foreign currency transactions. Market risk is defined for these
purposes as the potential change in fair value resulting from an adverse
movement in foreign currency exchange rates. The fair value associated with the
foreign currency contracts has been estimated by valuing the net position of the
contracts using the applicable spot rates and forward rates as of the reporting
date. At September 30, 1999, the fair value did not differ materially from its
carrying amount. Based on the limited amount of foreign currency contracts at
September 30, 1999, the Company does not believe that an instantaneous 10%
adverse movement in foreign currency rates from their levels at September 30,
1999, with all other variables held constant, would have a material effect on
the Company's results of operations, financial position or cash flows.
Other
The Company obtains third party letters of credit and surety bonds in
connection with certain inventory purchases and insurance obligations. At
September 30, 1999, the contract values of these letters of credit and surety
bonds were $4.6 million and their fair values did not differ materially from
their carrying amount.
20
<PAGE>
Commodity Price Risk
The Company purchases certain raw materials, such as copper, under
short-term supply contracts. The purchase prices thereunder are generally
determined based on prevailing market conditions. The Company uses commodity
derivative instruments to modify some of the commodity price risks. Assuming a
10% change in the underlying commodity price, the potential change in the fair
value of commodity derivative contracts held at September 30, 1999 would not be
material when compared to the Company's earnings 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 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.
Year 2000 Disclosure
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act.
The term "Year 2000 ("Y2K") Issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from the dates in the "1900's." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. The Y2K
computer software compliance issues affect the Company and most companies in the
world.
The Company has conducted a review of its core management information
systems and equipment with embedded chips or processors ("Management Systems")
used in the Company's operations, and also its internal manufacturing systems at
its plants, including computer-based manufacturing, logistical and related
systems ("Manufacturing Systems").
Over the last three years, the Company has replaced or upgraded most of
its Management Systems and Manufacturing Systems. The Company has substantially
upgraded its desktop computers, networks and servers and software applications
and packages. The Company has expended approximately $587,000, $920,000 and
$245,000 in the fiscal years ended June 30, 1997, 1998 and 1999, respectively,
towards compliance with Y2K issues. Such amounts during such periods were
allocated as follows: for 1997, $72,700 for hardware, $9,000 for software,
$300,800 for outside consultants and $205,000 for internal costs; for 1998,
$229,700 for hardware, $35,600 for software, $235,000 for outside consultants
and $420,000 for internal costs; for 1999, $168,000 for hardware, $53,000 for
software, $24,000 for outside consultants and nominal internal costs. The
Company believes that its Manufacturing Systems worldwide are currently in Y2K
compliance. With regard to its Management Systems, the Company estimates that
100 percent of its operations worldwide are Y2K compliant, subject to final
review and testing in Israel and Norway. The Company expects that any required
modifications will be made on a timely basis. The Company continues to test its
Management and Manufacturing Systems, on a system-by-system basis, as it
completes its ongoing compliance efforts. The Company estimates that future
expenditures will not exceed $150,000, of which $30,000 is expected to be spent
on hardware, $70,000 on software modifications and systems testing by outside
consultants and $50,000 is allocated to internal costs and contingencies. The
Company's estimates of completion are based on management's estimates of the
number and complexity of the systems involved and the status of its Y2K effort
with respect to such systems. Such estimates may not necessarily be consistent
with the timing of the Company's incurrence of Y2K-related expenditures.
As part of the Company's Y2K readiness program, the Company has identified
significant service providers, vendors, suppliers and customers ("Key Business
Partners") that it believes are critical to business operations after January 1,
2000 and has sent questionnaires in an attempt to reasonably ascertain their
stage of Y2K readiness. The Company may follow-up responses to the
questionnaires through interviews and other available means. In conjunction with
this effort, key utilities upon which the Company and its operating subsidiaries
rely will be approached on a worldwide basis to identify their level of Y2K
preparedness. In many cases, these entities (particularly outside North America)
have a lower level of Y2K awareness and are less willing to provide information
concerning their state of Y2K readiness.
The Company is considering business interruption contingency plans to
address internal and external issues specific to the Y2K problem, to the extent
practicable. These contingency plans, which are intended to enable the Company
to continue to operate on January 1, 2000 and beyond, may include stockpiling
raw and packaging materials, increasing
21
<PAGE>
inventory levels, securing alternate sources of supply, performing certain
functions manually, repairing or obtaining replacement systems to interface with
third-party systems and other appropriate measures. The Company's Manufacturing
Systems rely on control systems which include process manufacturing and mixing
controls, production monitoring power, and emission and safety. While comparable
control systems are used at plants having similar processes, specific
facility-related configurations exist to meet the needs of production equipment
at each plant. If a failure were to occur, the potential impact would be
isolated to the affected facility and, more particularly, the product or
products manufactured with the affected equipment. Also, in many cases, the
Company has the ability to manufacture the same product at different facilities.
The Company's Management Systems include administrative and financial
applications, such as for order processing and collection. In the event one of
these systems were not corrected, the Company's ability to capture, schedule and
fulfill customer demands could be impaired. Similarly, if a collection
processing system were to fail, the Company may not be able to properly apply
payments to customer balances or correctly determine cash balances. However, as
discussed above, the Company will consider various alternatives, including
performing manually certain functions that it had performed manually before the
applicable computer system was in use.
The Company's plans are intended to provide a means of managing risk, but
cannot eliminate the potential for disruption due to third party failure. To the
extent that responses to Y2K readiness are unsatisfactory, the Company may
consider changing suppliers, service providers or contractors to those which
have demonstrated Y2K readiness. However, the Company believes that due to the
widespread nature of the potential Y2K issues, its contingency planning is an
ongoing process which will require further consideration as the Company obtains
additional information regarding the Company's internal systems and equipment
during completion of the testing of its systems and regarding the status of its
suppliers, customers and other third party providers regarding their becoming
Y2K compliant. The Company is defining a strategy based on the importance of
each relationship. The Company's efforts with respect to specific problems
identified will depend in part upon its assessment of the risk that such problem
may have an adverse impact on its operations. The Company has not yet developed
contingency plans in the event of a Y2K failure caused by a supplier or third
party, but would intend to do so if a specific problem is identified through the
program described above. In some cases, particularly with respect to its utility
vendors, alternative suppliers may not be available.
Because of the substantial number of Manufacturing and Management Systems
used by the Company and its operating subsidiaries, the significant number of
Key Business Partners, the extent of the Company's foreign operations, including
operations within countries that are not actively promoting remediation of the
Y2K issue, the Company presently believes that it may experience some disruption
in its business due to the Y2K issue. The Company currently believes that the
greatest risk of disruption in its business exists in certain international
markets. The possible consequences of the Company or Key Business Partners not
being fully Y2K complaint by January 1, 2000 include, among other things,
temporary plant closings, delays in the delivery of products, delays in the
receipt of supplies, invoice and collection errors, and inventory and supply
obsolescence.
The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. More specifically, the
Company could be materially adversely affected if utilities and private
businesses with which it does business or that provide essential products or
services are not Y2K ready. Due to the general uncertainty inherent in the Y2K
problem, resulting in part from the uncertainty of the Y2K readiness of the
Company's customers, suppliers, and other third-party providers, the Company is
unable to determine at this time whether the consequences of any Y2K failures
will have a material impact on the Company's results of operations, liquidity,
financial condition or cash flows. The Company believes that, with the
implementation of new business systems and completion of the Company's Y2K
modifications, the possibility of significant interruptions of normal operations
should be mitigated.
The preceding "Y2K Issue" discussion contains various forward-looking
statements which represent the Company's beliefs or expectations regarding
future events. When used in the "Y2K problem" discussion, the words "believes,"
"expects," "estimates," and similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it will complete the
remediation and testing phases of its systems as well as its Y2K contingency
plans, its estimated cost of becoming Y2K compliant; and the Company's belief
that its internal systems and equipment will be Y2K compliant in a timely
manner. All forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ materially from the
projected results, including problems that may arise on the part of third
parties. Factors that may cause these differences include, but are not limited
to, the availability of qualified personnel and other information technology
resources; the ability to identify and remediate all date sensitive lines of
computer code or to replace embedded computer chips in affected systems or
equipment; and the actions of governmental agencies or other third parties with
respect to Y2K
22
<PAGE>
compliance which are not made or are not completed on a timely basis. The
resulting problems could have a material impact on the operations of the
Company, and could, in turn, have a material adverse effect on the Company's
results of operations, financial position or cash flows.
Certain Factors Affecting Future Operating Results
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include, among other factors
noted herein, the following: the Company's substantial leverage and potential
inability to service its debt; the Company's dependence on distributions from
its subsidiaries; risks associated with the Company's international operations;
the Company's dependence on its Israeli operations; competition in each of the
Company's markets; potential environmental liability; extensive regulation by
numerous government authorities in the United States and other countries;
significant cyclical price fluctuation for the principal raw materials used by
the Company in the manufacture of its products; the Company's reliance on the
continued operation and sufficiency of its manufacturing facilities; the
Company's dependence upon unpatented trade secrets; the risks of legal
proceedings and general litigation expenses; potential operating hazards and
uninsured risks; the risk of work stoppages; the Company's dependence on key
personnel; the uncertain impact of the Company's acquisition plans; the
seasonality of the Company's business; and risks associated with Year 2000
compliance by the Company and third parties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Part I -- Item 2 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quantitative and Qualitative Disclosures
About Market Risk."
23
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
-------- --------
27 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K has been filed during the quarter ended September
30, 1999.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHILIPP BROTHERS CHEMICALS, INC.
Date: November 12, 1999 By: /s/ NATHAN Z. BISTRICER
---------------------------------------
Nathan Z. Bistricer, Vice President and
Chief Financial Officer
Date: November 12, 1999 By: /s/ JOSEPH KATZENSTEIN
---------------------------------------
Joseph Katzenstein, Treasurer and
Secretary
25
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,048
<SECURITIES> 0
<RECEIVABLES> 58,491
<ALLOWANCES> 916
<INVENTORY> 55,346
<CURRENT-ASSETS> 130,759
<PP&E> 130,813
<DEPRECIATION> 63,421
<TOTAL-ASSETS> 230,029
<CURRENT-LIABILITIES> 62,477
<BONDS> 100,000
0
521
<COMMON> 2
<OTHER-SE> 20,259
<TOTAL-LIABILITY-AND-EQUITY> 230,029
<SALES> 70,319
<TOTAL-REVENUES> 70,319
<CGS> 50,228
<TOTAL-COSTS> 19,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 3,390
<INCOME-PRETAX> (3,414)
<INCOME-TAX> (1,429)
<INCOME-CONTINUING> (1,985)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,985)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
