SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended January 31, 1999
Commission File Number: 0-24312
VIRBAC CORPORATION
(formerly Agri-Nutrition Group Limited)
State of Incorporation: Delaware I.R.S. Employer I.D. 43-1648680
Riverport Executive Center II
13801 Riverport Drive, Suite 111
Maryland Heights, MO 63043
(314) 298-7330
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
The number of shares of common stock outstanding at March 14, 1999 is 21,968,197
shares.
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Index
- --------------------------------------------------------------------------------
Page
Financial information
Financial Statements
Consolidated Balance Sheet -
October 31, 1998 and
January 31, 1999 (unaudited) 1
Consolidated Statement of Operations -
three months ended January 31, 1998
and 1999 (unaudited) 2
Consolidated Statement of Cash Flows -
three months ended January 31, 1998
and 1999 (unaudited) 3
Consolidated Statement of Shareholders' Equity -
three months ended January 31, 1999
(unaudited) 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Other information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Consolidated Balance Sheet
Page 1
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<TABLE>
<CAPTION>
October 31, January 31,
1998 1999
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 97,971 $ 23,503
Accounts receivable 4,812,842 5,123,234
Inventories 7,150,042 7,779,344
Prepaid expenses and other assets 1,245,809 1,887,076
---------------- -----------------
13,306,664 14,813,157
Property, plant and equipment, net 5,520,798 5,398,369
Goodwill 7,930,705 7,771,601
Other assets 1,284,421 1,280,955
---------------- -----------------
Total Assets $ 28,042,588 $ 29,264,082
================ =================
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable $ 1,160,912 $ 1,323,950
Current portion of acquisition notes payable 49,000 49,000
Accounts payable 1,562,652 3,472,411
Accrued expenses 1,270,985 671,651
---------------- -----------------
4,043,549 5,517,012
Long-term debt and notes payable 8,963,226 8,782,967
Acquisition notes payable 151,000 151,000
Commitments and contingencies (Notes 2 and 9)
Shareholders' equity:
Common stock ($.01 par value; 20,000,000 shares
authorized; 9,387,279 issued and outstanding) 93,873 93,873
Additional paid-in capital 16,025,620 16,025,620
Accumulated deficit (1,058,673) (1,155,272)
---------------- -----------------
15,060,820 14,964,221
Cost of common stock held in Treasury
(129,961 and 111,583 shares in 1998 and 1999, respectively) (176,007) (151,118)
---------------- -----------------
14,884,813 14,813,103
---------------- -----------------
Total Liabilities and Shareholders' Equity $ 28,042,588 $ 29,264,082
================ =================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Consolidated Statement of Operations (unaudited)
Page 2
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<TABLE>
<CAPTION>
For the three months
ended January 31,
1998 1999
<S> <C> <C>
Net sales $ 7,636,129 $ 7,740,705
Cost of sales 5,686,946 5,498,295
Gross profit 1,949,183 2,242,410
Selling, general and administrative expenses 2,089,135 2,101,927
Research and development 45,806 46,866
---------------- -----------------
Income (loss) from operations (185,758) 93,617
Interest expense (183,474) (191,145)
Other income (expense) 2,468 (57,696)
---------------- -----------------
Loss before income tax benefit (366,764) (155,224)
Income tax benefit 141,204 58,625
---------------- -----------------
Net loss $ (225,560) $ (96,599)
================ =================
Basic loss per share $ (.02) $ (.01)
================ =================
Diluted loss per share $ (.02) $ (.01)
================ =================
Basic shares outstanding 9,313,927 9,268,053
================ =================
Diluted shares outstanding 9,313,927 9,268,053
================ =================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Consolidated Statement of Cash Flows (unaudited)
Page 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months
ended January 31,
1998 1999
<S> <C> <C>
Operating activities
Net loss from continuing operations $ (225,560) $ (96,599)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:-
Depreciation and amortization 264,349 286,929
Changes in operating assets and liabilities:
Increase in accounts receivable (623,506) (310,392)
Increase in inventories (152,477) (629,302)
Increase in prepaid expenses and other (504,476) (560,189)
Increase in accounts payable 221,413 1,909,759
Decrease in accrued expense (665,126) (599,334)
---------------- -----------------
Net cash (used in) provided by operating activities (1,685,383) 872
---------------- -----------------
Investing activities
Purchase of property, plant and equipment (125,035) (83,008)
---------------- -----------------
Net cash used in investing activities (125,035) (83,008)
---------------- -----------------
Financing activities
Proceeds from (repayment of) long-term debt and notes payable, net 1,752,530 (17,221)
Issuance of common stock to directors and officers 18,750
Issuance of treasury stock to directors 24,889
---------------- -----------------
Net cash provided by financing activities 1,771,280 7,668
---------------- -----------------
Decrease in cash and cash equivalents (39,138) (74,468)
Cash and cash equivalents, beginning of period 145,505 97,971
---------------- -----------------
Cash and cash equivalents, end of period $ 106,367 $ 23,503
================ =================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
VIRBAC CORPORATION (formerly Agri-nutrition Group Limited)
Consolidated Statement of Shareholders' Equity (unaudited)
Page 4
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<TABLE>
<CAPTION>
Common Stock in
Common Stock Treasury, at Cost
Number Additional Number
of Par Paid in of Accumulated
Shares Value Capital Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 1,
1998 9,387,279 $ 93,873 $ 16,025,620 (129,961) $ (176,007) $ (1,058,673) $ 14,884,813
Issuance of treasury
stock to directors 18,378 24,889 24,889
Net loss (96,599) (96,599)
Balance, January 31,
1999 9,387,279 $ 93,873 $ 16,025,620 (111,583) $ (151,118) $ (1,155,272) $ 14,813,103
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Notes to Consolidated Financial Statements (unaudited)
Page 5
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1. Unaudited consolidated financial statements
The consolidated balance sheet as of January 31, 1999, the
consolidated statement of operations for the three-month periods ended
January 31, 1998 and 1999, the consolidated statement of cash flows for
the three-month periods ended January 31, 1998 and 1999 and the
consolidated statement of shareholders' equity for the three-month period
ended January 31, 1999 have been prepared by Agri-Nutrition Group Limited
(the "Company") without audit. In the opinion of management, all
adjustments (which include only normal, recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at and for the periods ended January 31, 1998 and 1999 have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted where inapplicable.
The results of operations for the periods ended January 31, 1998 and
1999, respectively, are not necessarily indicative of the operating
results for the full year.
2. Organization
See Note 10 regarding the Company's merger with Virbac, Inc.
("Virbac"), which was consummated on March 5, 1999 (the "Merger").
Agri-Nutrition Group Limited, a Delaware corporation, was
organized on July 20, 1993, to acquire and operate businesses in the
domestic and international food, agriculture and pet industries. In
September 1993, through its wholly owned subsidiary, PM Resources, Inc.
("Resources"), the Company acquired certain assets and assumed certain
liabilities of the Health Industries Business (the "Business") of Purina
Mills, Inc. ("Purina"). See Notes 13 and 16 to the Company's Consolidated
Financial Statements included in the Company's 1998 Form 10-K as filed
with the SEC for the year ended October 31, 1998 ("1998 Form 10-K") for
further discussion of related matters involving Purina. Resources
commenced operations on September 9, 1993, the effective date of the
acquisition of the Business. Resources formulates, manufactures and
distributes feed additives, medicated treatments, anthelmetics,
nutritional supplements, cleaners and disinfectants, pest control
products, home, lawn and garden products, and specialty compounds.
Effective March 31, 1995, the Company purchased substantially all
of the net assets and business of Zema Corporation ("Zema"). The Company
also purchased substantially all of the net assets and business of St.
JON Laboratories, Inc. ("St. JON") effective August 31, 1995. In
September 1997, the Company acquired Mardel Laboratories, Inc.
("Mardel"). Zema, St. JON and Mardel formulate, package, market and
distribute pet health care, veterinary and grooming products domestically
and abroad.
See Note 2 to the Company's Consolidated Financial Statements
included in the 1998 Form 10-K for additional information related to the
acquisitions of Zema, St. JON and Mardel, including information regarding
the additional purchase price which must be paid to the former owner of
Zema if Zema achieves certain financial goals. In addition, see Note 3 to
the Company's Consolidated Financial Statements included in the 1998 Form
10-K for information about the Company's acquisition of the worldwide
patents, active ingredient inventory, registrations and rights to
Bromethalin(R) (the
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Notes to Consolidated Financial Statements (unaudited)
Page 6
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"Bromethalin Assets"), a highly effective and proprietary rodenticide
serving agricultural and Pest Control Operator ("PCO") markets. As
described in Note 16 to the Company's consolidated financial statements
included in the 1998 Form 10-K, the Company and Purina have agreed to
waive the provision regarding additional consideration to be paid based
on shipments of Bromethalin(R) to Purina over a five-year period.
3. Summary of significant accounting policies
The accounting policies followed by the Company are set forth in
Note 5 to the Consolidated Financial Statements included in the 1998 Form
10-K. The financial statements included herein should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in such report.
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1998 1999
<S> <C> <C>
Raw materials $ 4,679,508 $ 4,634,134
Work-in-process 301,354 357,016
Finished goods 2,562,608 3,530,073
---------------- -----------------
7,543,470 8,521,223
Less: reserve for excess and obsolete inventories (393,428) (741,879)
---------------- -----------------
$ 7,150,042 $ 7,779,344
================ =================
</TABLE>
5. Financing
The Company has revolving credit facilities which aggregated $9.55
million at January 31, 1999. On February 1, 1999 the Company amended its
existing credit line extending the maturity date of a $500,000 loan
reduction that was to occur on January 31, 1999 to March 31, 1999. The
facility consists of $4.5 million in revolving credit lines, the
available amount being based upon specified percentages of qualified
accounts receivable and inventory, and a $5.05 million revolving credit
line with available amounts being reduced $150,000 per quarter with the
next such reduction on February 28, 1999. On March 5, 1999, in
conjunction with the Merger, as discussed in Note 10, the Company again
amended its credit facilities with its bank, decreasing the amount of
borrowing to $7.0 million, revising its debt covenants to accommodate the
merged entity, establishing an interest rate at the bank's prime rate of
interest and accelerating the facilities' maturities to July 31, 2000.
Also in conjunction with the Merger, the Company became a party to Virbac
credit facilities aggregating $6.8 million, unsecured, but guaranteed by
the Company's majority owner, Virbac, S.A. ("VBSA"). See Note 10 and the
Company's
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Notes to Consolidated Financial Statements (unaudited)
Page 7
- --------------------------------------------------------------------------------
Proxy Statement for its 1999 Annual Meeting of Stockholders, as filed
with the SEC, for a discussion of Virbac's business and its related
financing agreements ("1999 Proxy").
At January 31, 1999, the Company and its subsidiaries were in
compliance with all covenants related to its various financing
arrangements, as amended. Approximately $0.3 million was available under
these facilities at January 31, 1999.
6. Common stock transactions
During the three months ended January 31, 1999, the Company issued
18,378 shares held in Treasury, primarily to the Chairman of the Company,
in conjunction with amounts due under the Company's compensation plan for
officers and directors. As a condition of the merger agreement with
Virbac (see Note 10), the Company has suspended its stock repurchase
program and sold its remaining shares held in Treasury to a third party
at fair value in February 1999 in a transaction that was exempt from
registration under the Securities Act of 1933.
7. Related party transactions
See Note 12 to the Company's Consolidated Financial Statements in
the 1998 Form 10-K for a discussion regarding related party transactions.
Also see Notes 5 and 6 above.
8. Employee benefit plans
During the three months ended January 31, 1999, no shares, nor
options to purchase shares, of the Company's common stock were granted to
employees in connection with the Company's 1996 Incentive Stock Plan,
1995 Incentive Stock Plan or the Company's 1994 Incentive Stock Plan. See
Note 11 to the Company's financial statements in the 1998 Form 10-K for a
discussion of the Company's incentive stock plans.
9. Commitments and contingencies
From time to time, the Company becomes party to various claims and
legal actions arising during the ordinary course of business. Management
believes that the Company's costs and any potential judgments resulting
from such claims and actions will be covered by the Company's product
liability insurance, except for deductible limits. The Company intends to
defend such claims and actions in cooperation with its insurers. It is
management's opinion that, in any event, their outcome would not have a
material effect on the Company's financial position, cash flows or
results of operations.
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Notes to Consolidated Financial Statements (unaudited)
Page 8
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10. Merger Agreement with Virbac, Inc.
On March 5, 1999, the Company consummated a definitive merger
agreement with Virbac, a U.S. subsidiary of the French veterinary
pharmaceutical manufacturer VBSA pursuant to which VBSA now holds
approximately 60% of the outstanding stock of the combined companies. The
transaction will be accounted for as an acquisition of the Company by
Virbac pursuant to the purchase method of accounting. Interest income and
other during the first quarter of 1999 includes approximately $60,000 of
expenses relative to legal, accounting and other costs related to the
transaction with Virbac. See the 1999 Proxy for a detailed description of
the Merger, the cash infusion from VBSA to Virbac, immediately prior to
the consummation of the Merger, of approximately $15.7 million, the
subsequent tender offer to be commenced by the Company for 1,000,000
shares of the Company's common stock at $3.00 per share, a description of
the assets and liabilities obtained by the Company in connection with the
Merger and the pro forma results of the Company.
As a result of the Merger, the Company will adopt the December 31
fiscal year end of Virbac. Commencing with the quarter ending March 31,
1999, periodic reports will be filed with the SEC based on Virbac's
fiscal year end. The financial statements filed for post-Merger periods
will depict the acquisition of the Company by Virbac, and will include
financial statements of Virbac for pre-Merger comparable periods.
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 9
- --------------------------------------------------------------------------------
Overview
Organized in 1993, the Company manufactures and distributes animal
health and pet care products. In September 1993, the Company, through its PM
Resources, Inc. subsidiary ("Resources"), acquired the Health Industries
Business of Purina Mills, Inc. which formulates, manufacturers and distributes
animal health products and to a lesser extent, home, lawn and garden, and other
products. In July 1994, the Company completed its initial public offering of
Common Stock ("IPO"), the net proceeds of which were approximately $12.1
million. Effective March 31, 1995, the Company purchased substantially all of
the net assets and business of Zema Corporation ("Zema"), a formulator,
manufacturer and supplier of health care and grooming products to the pet
industry. Effective August 31, 1995, the Company purchased substantially all of
the net assets and business of St. JON Laboratories, Inc. ("St. JON"), a
developer, manufacturer and marketer of oral hygiene, dermatological and
gastrointestinal products for dogs and cats. In September 1997, the Company
purchased substantially all of the net assets and business of Mardel
Laboratories, Inc. ("Mardel"). Mardel is a developer, manufacturer and marketer
of high quality care products to the pet industry with expertise extending to
fresh water and marine fish, birds, dogs, cats, small animals and pond
accessories. On March 5, 1999, the Company consummated a definitive merger
agreement (the "Merger Agreement") with Virbac, Inc. ("Virbac"), a U.S.
subsidiary of the French veterinary pharmaceutical manufacturer Virbac S.A.
("VBSA"), whereby Virbac was merged with and into the Company (the "Merger") and
VBSA was issued approximately 60% of the outstanding stock of the combined
companies. Virbac is one of the leading manufacturers of dermatological products
for companion animals.
The Company's results of operations presented and discussed herein do
not include the results of Virbac's operations, since the effective date of the
Merger is subsequent to the period reported on herein. Because VBSA, the former
parent of Virbac, received 60% of the voting equity of the Company, Virbac will
be considered the acquiror for financial statement purposes. Accordingly, the
Merger will be accounted for as a reverse purchase of the Company by Virbac
using the purchase method. As a result of the Merger, the Company will adopt the
December 31 fiscal year end of Virbac. Commencing with the quarter ending March
31, 1999, periodic reports will be filed with the SEC based on Virbac's fiscal
year end. The financial statements filed for post-Merger periods will depict the
acquisition of the Company by Virbac, and will include financial statements of
Virbac for pre-Merger comparable periods.
In the fourth quarter of 1997, the Company formed the Pet Health Care
Division, which is comprised of St. JON, St. JON VRx, Zema and Mardel. The
integration of these companies is expected to produce certain operating
synergies, creating a platform for continued expansion. The benefits from such
integration started to impact the Company's operating results in the third
quarter of fiscal 1998. During the first six months of fiscal 1998 production
shifted from Zema's Raleigh facility to the Company's other manufacturing
locations. The distribution functions within the Pet Health Care Division were
consolidated by the end of the fourth quarter of fiscal 1998. During August
1998, the Raleigh facility was effectively shut down and the lease related to
this facility was terminated in March 1999. The shut down and lease termination
related to this facility has not had, and is not anticipated to have in the
future, a material adverse impact on the Company's consolidated financial
position, results of operations, or cash flows. Consolidation of the sales and
administration functions of the Pet Health Care Division was completed during
the third quarter of fiscal 1998. The Company has incurred certain incremental
costs associated with the integration, but such costs, in the aggregate, have
not been nor are expected to be material to the Company's consolidated results
of operations. The Company will continue to pursue selective complementary
acquisitions, alignments and/or licenses in support of its core businesses.
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 10
- --------------------------------------------------------------------------------
Three Months Ended January 31, 1998 Compared to Three Months Ended January 31,
1999
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C> <C> <C>
Net sales................................... $ 7,636 100.0% $ 7,741 100.0%
Cost of sales............................... 5,687 74.5 5,499 71.0
Gross profit................................ 1,949 25.5 2,242 29.0
Selling, general and
administrative expense.................... 2,089 27.3 2,102 27.2
Research and development.................... 46 .6 47 .6
Operating (loss) income .................... (186) (2.4) 94 1.2
</TABLE>
Total net sales increased 1.5% from $7.6 million in fiscal 1998 to $7.7
million for 1999. This increase reflects a 10% increase in net sales of the Pet
Health Care Division due primarily to the pet oral hygiene product category and
continued strength in the broad products offered by the consolidated Pet Health
Care Division. The increase was partially offset by a 13% decline in sales of PM
Resources' contract manufacturing/private label business, reflecting continued
weakness in the agriculture portion of its business.
Gross profit increased from $1.9 million in 1998 (25.5% of net sales)
to $2.2 million in 1999 (29.0% of net sales), primarily due to changes in the
Company's sales mix, which consisted of an increased proportion of sales of the
Pet Health Care Division, and which generally has higher margins as compared to
sales of the Company's private label/contract manufacturing business. The higher
margins also reflect an increase in margins of the Pet Health Care Division of
four percentage points due to lower indirect costs resulting from the fiscal
1998 consolidation of the operating companies with the Pet Health Care Division,
as described above, and changes in product mix. PM Resources' margins also
improved due primarily to changes in both product mix and customer mix. In
February 1999, the production workers at PM Resources, which are represented by
the International Longshoremen's Association (the ILA), initiated a strike at PM
Resources principal facility. The Company continues to negotiate in good faith
with the ILA and hopes to reach a prompt resolution with the ILA. Management
does not anticipate that the labor situation at PM Resources, nor the resolution
thereof, will have a material adverse impact on the Company's financial
position, results of operations, or cash flows.
Selling, general and administrative expenses remained relatively the
same at $2.1 million in 1998 and 1999. The anticipated increase in expenses due
to the 10% sales increase in the Pet Health Care Division were partially offset
by the cost savings realized by the consolidation of marketing and overhead
functions in 1998.
The factors discussed above resulted in an operating income of
approximately $0.1 million during the three months ended January 31, 1999,
compared to operating loss of approximately $0.2 million for the three months
ended January 31, 1998.
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 11
- --------------------------------------------------------------------------------
Interest expense was approximately $0.18 million in 1998 and $0.19
million in 1999, reflecting increased debt balances that resulted from the
Company's investment in working capital.
During the first quarter of fiscal 1999, the Company incurred
approximately $60,000 of expenses related to the Merger. Such amounts were
included in interest income and other on the Company's Consolidated Statement of
Operations.
The effective income tax rate of the Company was 38.5% for 1998 and
1999. The aggregate amount of the deferred tax asset valuation allowance at
January 31, 1999 was approximately $0.1 million. This valuation allowance
reflects management's view of the portion of deferred tax assets for which it is
more likely than not that tax benefits will not be realized. The primary factor
affecting management's view in this regard are the Company's losses for
operations in certain prior years.
Liquidity and Capital Resources
The Company's existing capital requirements are primarily to fund equipment
purchases and working capital needs. During April 1995, the Company completed
the acquisition of Zema, which required utilization of approximately $3.2
million of net proceeds from its July 1994 IPO for the acquisition and related
expenses in 1995 and an additional payment of $300,000 plus interest, which was
paid in April 1998. In August 1995, the Company acquired the net assets of St.
JON, which required approximately $3.5 million of cash, the assumption of
certain liabilities aggregating approximately $1.5 million which were paid
within four months of closing, and an additional $2.0 million plus interest to
be paid in annual installments over six years commencing March 31, 1997. During
fiscal 1997, the Company utilized approximately $1.0 million of cash for payment
of this obligation and related accrued interest, and in May 1998, paid
approximately $1.1 million, the remaining amounts outstanding under this note in
conjunction with the refinancing of its debt as discussed below. Effective May
1996, the Company acquired the worldwide patents and other assets and rights to
Bromethalin(R), which required payments of $1.0 million including related
expenses at closing. As described in Note 16 to the Company's consolidated
financial statements included in the 1998 Form 10-K, the Company and Purina have
agreed to waive the provision regarding additional consideration to be paid
based on shipments of Bromethalin(R) to Purina over a five-year period. In
September 1997, the Company acquired Mardel for cash of approximately $1.1
million and stock valued at approximately $1.1 million. As additional
consideration for the acquisition of Mardel, the Company also issued a note
payable of $300,000 to the former owners of the acquired company to be paid in
cash and stock over a period of three years. With the acquisition of Mardel, the
Company utilized its remaining proceeds from the IPO.
During the three months ended January 31, 1998, cash used by operations
approximated $1.7 million, which was primarily related to funding seasonal
working capital requirements. Minor amounts of cash were provided by operations
during the three months ended January 31, 1999, as most of the seasonal working
capital requirements were funded by increases in accounts payable during the
period.
The Company has revolving credit facilities which aggregated $9.55
million at January 31, 1999. On February 1, 1999 the Company amended its
existing credit line extending the maturity date of a $500,000 loan reduction
that was to occur on January 31, 1999 to March 31, 1999. The facility consists
of $4.5 million in revolving credit lines, the available amount being based upon
specified percentages of qualified accounts receivable and inventory, and a
$5.05 million revolving credit line with available amounts being reduced
$150,000 per quarter with the next such reduction on February 28, 1999. On March
5, 1999, in conjunction with the Merger, as discussed in Note 10, the Company
again amended its credit facilities with its bank, decreasing the amount of
borrowing to $7.0 million, revising its debt
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 12
- --------------------------------------------------------------------------------
covenants to accommodate the merged entity, establishing an interest rate at the
bank's prime rate of interest and accelerating the facilities' maturities to
July 31, 2000. Also in conjunction with the Merger, the Company became a party
to Virbac's credit facilities aggregating $6.8 million, unsecured, but
guaranteed by the Company's majority owner, VBSA. See Note 10 and the Company's
Proxy Statement for its 1999 Annual Meeting of Stockholders, as filed with the
SEC ("1999 Proxy"), for a discussion of Virbac's business and its related
financing agreements.
At January 31, 1999, the Company and its subsidiaries were in
compliance with all covenants related to its various financing arrangements, as
amended. Approximately $0.3 million was available under these facilities at
January 31, 1999.
The Company's board of directors authorized the repurchase of up to
500,000 shares of the Company's Common Stock. During the three months ended
January 31, 199, approximately 18,000 shares of treasury stock were issued to a
director of the Company in conjunction with the Company's compensation program
for outside directors. No shares were repurchased under this program during this
period. As of January 31, 1999, 111,583 shares had been repurchased under this
program at an aggregate cost of $151,118. As a condition of the Merger Agreement
with Virbac, the Company has suspended its stock repurchase program and sold its
remaining shares held in Treasury to a third party at fair value in February
1999 in a transaction that was exempt from the registration requirements of the
Securities Act of 1933.
Management believes that the Company will generally have sufficient
cash to meet the needs of the current operations for the foreseeable future from
cash flows from current operations, available funds, and existing financing
facilities. In conjunction with the Merger Agreement in March 1999, the combined
company received a cash infusion of approximately $15.7 million from VBSA (the
"Cash Infusion"). See the 1999 Proxy for a detailed description of the Merger,
the Cash Infusion, the subsequent tender offer to be commenced by the Company
for 1,000,000 shares of the Company's common stock at $3.00 per share, a
description of the assets and liabilities obtained by the Company in connection
with the Merger and the pro forma results of the Company.
The Company has no plans to significantly increase any of its operating
subsidiaries' plant facilities capacity. Capital expenditures for the three
months ended January 31, 1999 were approximately $0.1 million. Future capital
expenditures for the Company's operating subsidiaries are not expected to
significantly exceed historical amounts, which in prior periods approximated
current depreciation expense.
In January 1999, the Company acquired certain assets, primarily
inventories, related to Purina Mill's animal health products business. The
amount paid for such inventory aggregated $400,000, less future amounts that
would have been due to Purina Mills related to the acquisition of Bromethalin
assets. Purina's "additional consideration" due for the five-year period
subsequent to the acquisition of Bromethalin(R) was waived in conjunction with
this purchase of inventories, as described in Note 16 to the Company's
consolidated financial statements included in the 1998 Form 10-K. Prior to the
inventory acquisition, the Company manufactured and supplied products to Purina
Mills for this business. The Company will now supply animal health products
directly to Purina's dealers. Management does not anticipate any material
adverse impact on its financial position, cash flows or results of operations as
a result of this change in customer relationships.
Quarterly Effects and Seasonality
Seasonal patterns of Resources' operations are highly dependent on
weather, feeding economics and the timing of customer orders. The results of
operations of the Pet Health Care Division historically
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 13
- --------------------------------------------------------------------------------
have been seasonal with a relatively lower volume of its sales and earnings
being generated during AGNU's first fiscal quarter. In addition, consolidation
of certain functions within the Pet Health Care Division during fiscal 1998 will
impact the comparative results of the Company between quarters and in future
periods.
New Accounting Standards
See Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's 1998 Form 10-K.
Year 2000 Compliance
See Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's 1998 Form 10-K.
Euro Conversion Issues
See Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's 1998 Form 10-K.
<PAGE>
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
Part II - Other Information
Page 14
- --------------------------------------------------------------------------------
Item 4. Submission of Matter to a Vote of Security Holders.
On March 1, 1999, the Company held its annual meeting of stockholders. At
the meeting, the stockholders voted to (i) (a) approve the merger agreement
between the Company, Virbac S.A. ("VBSA"), a French Corporation, Interlab S.A.S.
("Interlab"), a French Corporation and wholly owned subsidiary of VBSA and
Virbac, Inc. ("Virbac"), a subsidiary of Interlab and the transactions
contemplated by said merger agreement (see 1999 Proxy), and (b) an amendment of
the Company's Certificate of Incorporation to, among other things, change the
Company's name to Virbac Corporation and increase its authorized common stock
from 20 million shares to 38 million shares; and (ii) elect W. M. Jones, Jr. and
Robert E Hormann as Class 1 Directors. However, upon consummation of the merger
of Virbac and the Company on March 5, 1999, Messrs. Jones and Hormann, together
with Robert Schlutz, a Class 2 Director, resigned from the Board of Directors
and the remaining Directors appointed three persons designated by VBSA to fill
their positions. The following table summarizes the voting:
<TABLE>
<CAPTION>
For Against/Withheld Abstentions/Nonvotes
<S> <C> <C> <C>
Merger Agreement 5,951,138 51,200 3,384,941
W. M. Jones, Jr. 8,087,821 390,955 908,503
Robert E. Hormann 8,426,509 52,267 908,503
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
10.19 Third amendment to amended and restated revolving credit
agreement by and between PM Resources, Inc., Agri-Nutrition
Group Limited, St. JON Laboratories, Inc. and First Bank,
dated February 1, 1999.
b. Reports of Form 8-K.
1. On November 17, 1998, a Current Report on Form 8-K was filed
to report, pursuant to Item 2 thereof, the Agreement and Plan
of Merger with Virbac S.A., a French corporation, and Virbac,
Inc., a Delaware corporation ("Virbac"), pursuant to which
Virbac will be merged with and into the Company with the
Company being the surviving corporation.
Signature
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.
VIRBAC CORPORATION (formerly Agri-Nutrition Group Limited)
/s/ Robert J. Elfanbaum
- -----------------------------------------------------
Robert J. Elfanbaum
Vice President and Chief Financial Officer
March 17, 1999
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT, made and entered
into as of the 1st day of February, 1999, by and between PM RESOURCES, INC., a
Missouri corporation ("PM"), AGRI-NUTRITION GROUP LIMITED, a Delaware
corporation ("Agri-Nutrition"), and ST. JON LABORATORIES, INC., a California
corporation ("St. JON," and collectively with PM and Agri-Nutrition referred to
herein as "Borrowers") and FIRST BANK, a Missouri state banking corporation
("Bank").
WITNESSETH:
WHEREAS, Borrowers heretofore jointly and severally executed
and delivered to Bank a Revolving Credit Note dated May 14, 1998, in the
principal amount of up to Nine Million Two Hundred Thousand Dollars
($9,200,000.00), payable to the order of Bank as therein set forth, which
Revolving Credit Note was most recently amended and restated by Borrowers in a
Revolving Credit Note dated as of October 2, 1998 in the principal amount of up
to Nine Million Seven Hundred Thousand Dollars ($9,700,000.00) made by Borrowers
payable to the order of Bank as therein set forth (as amended and restated, the
"Note"); and
WHEREAS, the Note is described in a certain Credit Agreement
dated May 14, 1998 made by and among Borrowers and Bank as previously amended by
an Amendment to Credit Agreement dated as of August 6, 1998 made by and among
Borrowers and Bank and by a Second Amendment to Credit Agreement dated as of
October 2, 1998 made by and among Borrowers and Bank (as amended, the "Loan
Agreement"); and
WHEREAS, Borrowers and Bank desire to further amend the Loan
Agreement and the Note to extend the Five Hundred Thousand Dollars ($500,000.00)
temporary increase in the maximum available principal amount thereunder until
March 31, 1999 (subject to the Borrowing Base, the scheduled periodic principal
reductions set forth in Section 3.1(b) of the Loan Agreement and other terms and
conditions of the Loan Agreement) and to make certain other amendments thereto
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual provisions and agreements hereinafter set forth, the parties hereto do
hereby mutually promise and agree as follows:
1. The Note shall be amended and restated in the form of that
certain Revolving Credit Note attached hereto as Exhibit C, to extend the
increase in the maximum principal amount thereof to Nine Million Five Hundred
Fifty Thousand Dollars ($9,550,000.00) for the period of time up to and
including February 27, 1999, reducing automatically on February 28, 1999 to the
new maximum amount of Nine Million Four Hundred Thousand Dollars ($9,400,000.00)
pursuant to Section 3.1(b) of the Loan Agreement for the period up to March 31,
1999, reducing automatically on March 31, 1999 to the new maximum amount of
Eight Million Nine Hundred Thousand Dollars
- 1 -
<PAGE>
($8,900,000.00) and thereafter reducing as set forth in Section 3.1(b) of the
Loan Agreement, and to make certain amendments as set forth therein. All
references in the Loan Agreement to the "Note," the "Revolving Credit Note" and
other references of similar import shall hereafter be amended and deemed to
refer to the Note in the form of the Revolving Credit Note, as amended and
restated in the form attached hereto as Exhibit C. Borrowers hereby agree that
on or before 5:00 p.m. (St. Louis time) on February 28, 1999, Borrowers shall
jointly and severally repay to Bank, without any requirement of demand or notice
from Bank, an amount equal to amount by which the outstanding principal balance
of the Note exceeds Nine Million Four Hundred Thousand Dollars ($9,400,000.00),
together with all other amounts then due under the terms of the Loan Agreement
and the Note and that on or before 5:00 p.m. (St. Louis time) on March 31, 1999,
Borrowers shall jointly and severally repay to Bank, without any requirement of
demand or notice from Bank, an amount equal to amount by which the outstanding
principal balance of the Note exceeds Eight Million Nine Hundred Thousand
Dollars ($8,900,000.00), together with all other amounts then due under the
terms of the Loan Agreement and the Note.
2. The fourth paragraph beginning with the word "WHEREAS" on
the first page of the Loan Agreement shall be deleted in its entirety and in its
place shall be substituted the following:
WHEREAS, Borrowers have requested the consolidation
of the above described credit facilities under one borrowing base for
Agri-Nutrition and its Subsidiaries on a joint and several basis and an
extension of such joint and several loan facility from Bank in an
aggregate principal amount of up to Nine Million Five Hundred Fifty
Thousand Dollars ($9,550,000.00) for a period of time from February 1,
1999 up to and including February 27, 1999, Five Million Dollars
($5,000,000.00) of which shall be subject to a Borrowing Base (as set
forth herein) ("Facility A"), and the remaining Four Million Five
Hundred Fifty Thousand Dollars ($4,550,000.00) of which shall be a
reducing revolving credit line from Bank ("Facility B"), that on
February 28, 1999 the maximum principal amount of such loan facility
and Facility B shall reduce automatically as set forth in Section
3.1(b) herein, and on March 31, 1999 the maximum principal amount of
such loan facility shall be further reduced automatically to an
aggregate principal amount of up to Eight Million Nine Hundred Thousand
Dollars ($8,900,000.00), reducing thereafter pursuant to Section 3.1(b)
herein during the period of time from April 1, 1999 up to and including
March 31, 2001 (as of March 31, 1999, Four Million Five Hundred
Thousand Dollars ($4,500,000.00) of which shall be subject to the
Borrowing Base under Facility A, and the remaining Four Million Four
Hundred Thousand Dollars ($4,400,000.00) of which shall constitute the
reducing revolving credit line from Bank under Facility B); and
3. Subpart (n) of the definition of "Eligible Accounts" in
Section 2 of the Loan Agreement shall be deleted in its entirety and in its
place shall be substituted the following:
(n) Accounts which are not subject to a first priority perfected security
- 2 -
<PAGE>
interest in favor of Bank and Accounts which have been factored by any
of the Borrowers, including without limitation, the outstanding Account
of St. JON due from Petsmart Inc. in an amount of up to $1,000,000.00
which may be factored by such Borrower with FB Commercial Finance, Inc.
4. The second sentence of Section 3.1(a) of the Loan Agreement
shall be deleted in its entirety and in its place shall be substituted the
following:
The maximum aggregate principal amount of Loans plus the face amount of
issued and outstanding Letters of Credit which Bank, cumulatively, may
be required to have outstanding under this Facility A at any one time
shall not exceed the lesser of (i) for the period from the execution of
that certain Third Amendment to Credit Agreement dated as of February
1, 1999 made by and among Borrowers and Bank (the "Third Amendment") to
and including March 31, 1999 the amount of Five Million Dollars
($5,000,000.00), or from and after March 31, 1999 an amount of Four
Million Five Hundred Thousand Dollars ($4,500,000.00), or (ii) the
Borrowing Base (as hereinafter defined).
5. The second sentence of Section 3.1(b) of the Loan Agreement
shall be deleted in its entirety and in its place shall be substituted the
following:
The aggregate principal amount of Facility B Loans which Bank,
cumulatively, shall be required to have outstanding hereunder at any
one time shall not exceed Four Million Five Hundred Fifty Thousand
Dollars ($4,550,000.00) from the date of the Third Amendment until
February 27, 1999, which amount shall thereafter be reduced by One
Hundred Fifty Thousand Dollars ($150,000.00) on each February 28, May
31, August 31 and November 30, with the first such reduction on
February 28, 1999.
6. The last sentence of Section 3.2 of the Loan Agreement
shall be deleted in its entirety and in its place shall be substituted the
following:
Contemporaneously with the execution of the Third
Amendment, Borrowers shall execute and deliver to Bank a Note of
Borrowers dated as of February 1, 1999 and payable jointly and
severally to the order of Bank in the original principal amount of Nine
Million Five Hundred Fifty Thousand Dollars ($9,550,000.00) in the form
attached as Exhibit C to the Third Amendment and incorporated herein by
reference (as the same may from time to time be amended, modified,
extended or renewed, the "Note").
7. The Borrowing Base Certificate shall be amended and
restated in the form of that certain Borrowing Base Certificate attached hereto
as Exhibit A to incorporate the above changes. All references in the Loan
Agreement to the "Borrowing Base Certificate" and other references of similar
import shall hereafter be amended and deemed to refer to the Borrowing Base
certificate in the form attached hereto as Exhibit A.
- 3 -
<PAGE>
8. The agreements of Bank contained herein are expressly
conditioned upon deliver by Borrowers of the following:
(a) the executed original of this Third Amendment to Credit
Agreement;
(b) the executed original of the amended and restated Note;
(c) a copy of resolutions of the Board of Directors of each of the
Borrowers, duly adopted, which authorize the execution, delivery and
performance of this Third Amendment to Credit Agreement and the amended
and restated Note and the other Transaction Documents, certified by the
Secretary of each such Borrower;
(d) the Consent of Agri-Nutrition and St. JON in the form attached
hereto, acknowledging the amendments contained herein and the continuing
effectiveness of the Pledge Agreements, duly executed respectively by
Agri-Nutrition and St. JON;
(e) such other documents as Bank may reasonably request; and
(f) payment by Borrowers of the amendment fee required under
paragraph 14 above.
9. Borrowers hereby represent and warrant to Bank that:
(a) The execution, delivery and performance by Borrowers of this
Third Amendment to Credit Agreement and the amended and restated
Revolving Credit Note are within the corporate powers of Borrowers, have
been duly authorized by all necessary corporate action and require no
action by or in respect of, or filing with, any governmental or
regulatory body, agency or official. The execution, delivery and
performance by Borrowers of this Third Amendment to Credit Agreement and
the amended and restated Revolving Credit Note do not conflict with, or
result in a breach of the terms, conditions or provisions of, or
constitute a default under or result in any violation of, and none of the
Borrowers is now in default under or in violation of, the terms of the
Articles of Incorporation or Bylaws of such Borrower, any applicable law,
any rule, regulation, order, writ, judgment or decree of any court or
governmental or regulatory agency or instrumentality, or any agreement or
instrument to which any of the Borrowers is a party or by which any of
them is bound or to which any of them is subject;
(b) This Third Amendment to Credit Agreement and the amended and
restated Revolving Credit Note have been duly executed and delivered and
constitute the legal, valid and binding obligations of Borrowers
enforceable in accordance with their terms; and
(c) As of the date hereof, all of the covenants, representations
and warranties of Borrowers set forth in the Loan Agreement are true and
correct and no "Event of Default" (as defined therein) under or within
the meaning of the Loan Agreement has occurred and is continuing.
- 4 -
<PAGE>
10. All references in the Loan Agreement to "this Loan
Agreement" and any other references of similar import shall henceforth mean the
Loan Agreement as amended by this Third Amendment to Credit Agreement.
11. This Third Amendment to Credit Agreement and the amended
and restated Revolving Credit Note shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that Borrowers may not assign, transfer or delegate any of their rights
or obligations hereunder.
12. This Third Amendment to Credit Agreement shall be governed
by and construed in accordance with the internal laws of the State of Missouri.
13. In the event of any inconsistency or conflict between this
Third Amendment to Credit Agreement and the Loan Agreement, the terms,
provisions and conditions of this Third Amendment to Credit Agreement shall
govern and control.
14. The Loan Agreement, as hereby amended and modified, and
the amended and restated Revolving Credit Note, as hereby amended and restated,
are and shall remain the binding obligations of Borrowers and all of the
provisions, terms, stipulations, conditions, covenants and powers contained
therein shall stand and remain in full force and effect, except only as the same
are herein and hereby specifically varied or amended, and the same are hereby
ratified and confirmed. If any installment of principal or interest on the
amended and restated Revolving Credit Note shall not be paid when due as
provided in the amended and restated Revolving Credit Note, the holder of the
amended and restated Revolving Credit Note shall be entitled to and may exercise
all rights and remedies under the amended and restated Revolving Credit Note and
the Loan Agreement, as amended.
15. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO
EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWERS AND BANK
FROM ANY MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWERS
AND BANK COVERING SUCH MATTERS ARE CONTAINED IN THE LOAN AGREEMENT, AS AMENDED
BY THIS AGREEMENT, WHICH CONSTITUTES A COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENTS BETWEEN BORROWERS AND BANK EXCEPT AS BORROWERS AND BANK MAY LATER
AGREE IN WRITING TO MODIFY. THE LOAN AGREEMENT, AS AMENDED BY THIS AGREEMENT,
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND
SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO
THE SUBJECT MATTER HEREOF.
IN WITNESS WHEREOF, the parties hereto have executed this
instrument as of the date first written above on this 1st day of February, 1999.
- 5 -
<PAGE>
PM RESOURCES, INC.
By:
Robert J. Elfanbaum, Vice President and Treasurer
AGRI-NUTRITION GROUP LIMITED
By:
Robert J. Elfanbaum, Secretary
ST. JON LABORATORIES, INC.
By:
Robert J. Elfanbaum, Vice President,
Secretary and Treasurer
FIRST BANK
By:
Ted H. Kraizer, Vice President
- 6 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 25,503
<SECURITIES> 0
<RECEIVABLES> 5,123,234
<ALLOWANCES> 0
<INVENTORY> 7,779,344
<CURRENT-ASSETS> 14,813,157
<PP&E> 5,398,369
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,264,082
<CURRENT-LIABILITIES> 5,517,012
<BONDS> 0
0
0
<COMMON> 93,873
<OTHER-SE> 16,025,620
<TOTAL-LIABILITY-AND-EQUITY> 29,264,082
<SALES> 7,740,705
<TOTAL-REVENUES> 7,740,705
<CGS> 5,498,295
<TOTAL-COSTS> 5,498,295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,145
<INCOME-PRETAX> (155,224)
<INCOME-TAX> 58,625
<INCOME-CONTINUING> (96,599)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (96,599)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
