Filed On 10/11/01 · SEC File 333-64641 · Accession Number 891092-1-500762
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
10/11/01 Phibro Animal Health Corp 10-K 6/30/01 6:136 Doremus Fin..Printing/FA
Document/Exhibit Description Pages Size
1: 10-K Annual Report 90 388K
2: EX-3.1 Composite Certificate of Incorporation 28 119K
3: EX-4.1.1 Supplemental Indenture 3 9K
4: EX-10.1.1 First Amendment to Agreement 6 22K
5: EX-10.27 Management and Advisory Services Agreement 7 28K
6: EX-21 List of Subsidiaries 2 8K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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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Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act: none
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant computed by reference to the price at which such voting stock was
sold was $0 as of June 30, 2001.
The number of shares outstanding of the Registrant's Common Stock as of June 30,
2001: 24,488.50
Class A Common Stock, $.10 par value: 12,600.00
Class B Common Stock, $.10 par value: 11,888.50
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PHILIPP BROTHERS CHEMICALS, INC.
TABLE OF CONTENTS
Page
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PART I................................................................... 1
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 21
Item 3. Legal Proceedings............................................. 23
Item 4. Submission of Matters to a Vote of Security Holders........... 24
PART II.................................................................. 25
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................. 25
Item 6. Selected Financial Data....................................... 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 27
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 37
Item 8. Financial Statements and Supplementary Data................... 37
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 37
PART III................................................................. 38
Item 10. Directors and Executive Officers of the Registrant............ 38
Item 11. Executive Compensation........................................ 39
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................................... 43
Item 13. Certain Relationships and Related Transactions................ 43
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K......................................... 46
Index to Financial Statements............................................ F-1
Report of Independent Accountants........................................ F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2001 and 2000............... F-3
Consolidated Statements of Operations and Comprehensive
Income for the years ended June 30, 2001, 2000 and 1999.............. F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1999, 2000 and 2001.............. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 2001, 2000 and 1999......................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidating Financial Statements
Consolidating Balance Sheet as of June 30, 2001........................ F-29
Consolidating Income Statement for the year ended June 30, 2001........ F-30
Consolidating Statement of Cash Flows for the year
ended June 30, 2001.................................................. F-31
Consolidating Balance Sheet as of June 30, 2000........................ F-32
Consolidating Income Statement for the year ended June 30, 2000........ F-33
Consolidating Statement of Cash Flows for the year
ended June 30, 2000.................................................. F-34
Consolidating Income Statement for the year ended June 30, 1999........ F-35
Consolidating Statement of Cash Flows for the year
ended June 30, 1999.................................................. F-36
SIGNATURES............................................................... II-1
PART I
Item 1. Business.
General
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 health and nutrition, agricultural,
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 believes it has
leading positions in certain of its end markets, and has global marketing and
manufacturing capabilities. Approximately 38% of the Company's fiscal 2001 net
sales consisted of sales made by the Company outside the United States. During
fiscal 2001, the Company's products were manufactured at eleven facilities in
the United States, five facilities in Europe, two facilities in Israel, and two
facilities in South America. Unless the context otherwise requires, references
in this Report to the "Company" refer to the Company and/or one or more of its
subsidiaries, as applicable.
The Company manufactures and markets more than 550 specialty agricultural
and industrial chemicals, of which 50 products accounted for approximately 80%
of fiscal 2001 net sales. The Company focuses on specialty agricultural and
industrial chemicals for which it has a strong market position or an advantage
in product development, manufacturing or distribution. Many of the Company's
products provide critical performance attributes to its customers' products,
while representing a relatively small percentage of total end-product costs.
On November 30, 2000, the Company purchased the medicated feed additives
business of Pfizer, Inc. Operating results of this business, Phibro Animal
Health ("PAH"), are included in operating results from the date of acquisition
and are reflected in the Animal Health and Nutrition segment. PAH produces and
sells a broad range of medicated feed additive products to the global poultry
and livestock industries, either directly to large integrated livestock
producers or through a network of independent distributors.
On May 4, 2001, the Company sold its Agtrol U.S. business, a division of
the Company's Phibro-Tech, Inc. ("Phibro-Tech") subsidiary, to Nufarm, Inc.
("Nufarm"), the U.S. subsidiary of Nufarm Limited, a publicly listed Australian
based company. On June 14, 2001, the Company sold its Agtrol international
business to Nufarm. Agtrol developed, manufactured and marketed crop protection
products, including copper fungicides. The sale included inventory and
intangible assets to Nufarm but did not include plant, equipment, or other
manufacturing assets. Phibro-Tech also entered into agreements to supply copper
fungicide products to Nufarm from its Sumter, South Carolina plant for five
years, and from its Bordeaux, France plant for three years. The operating
results of Agtrol are included in the Company's consolidated statements of
operations, up to the date of sale, and are reflected in the All Other segment
for all periods presented.
The Company has four operating segments--Animal Health and Nutrition,
Industrial Chemicals, Distribution and All Other. The Company's Animal Health
and Nutrition segment manufactures and markets a broad range of feed additive
products including trace minerals, anticoccidials, antibiotics, vitamins,
vitamin premixes and other animal health products to the animal feed, poultry
and pet food industries. The Company distributes its products through major
multinational life science and animal health companies.
The Company's Industrial Chemicals segment manufactures and markets
pigments and other mineral products for use in the chemical, catalyst,
pharmaceutical, construction, concrete, wood treatment, automotive, aerospace,
glass and coal mining industries. Certain of these products are produced from
the Company's recycling operations, including copper oxide, which is used in the
production of water-borne wood preservatives. In addition to copper oxide, the
Company supplies other mineral oxides, such as iron and manganese compounds,
which are used as colorants and for other purposes in the brick, masonry, glass
and other industries. The Company
1
also manufactures and recycles alkaline etchants in the United States and sells
fresh etchant to printed circuit board manufacturers.
The Company's Distribution segment markets a variety of industrial,
specialty and fine organic chemicals and intermediates. Most of these products
are manufactured by third parties, with certain products being purchased from
affiliates.
The Company's All Other segment manufactures and markets a variety of
specialty custom chemicals, primarily for the polymer and pharmaceutical
industries as well as copper-based fungicides and other agricultural products
for the United States, French and other international markets. In addition, the
Company provides management and recycling of coal combustion residues, including
fly ash and bottom ash, and also mineral processing residues. Typically, these
products are provided to customers directly from a utility's site or through the
Company's terminals.
2
ANIMAL HEALTH AND NUTRITION
Through its subsidiary, Phibro Animal Health, Inc., the Company
manufactures and markets a broad range of medicated feed additive products to
the global poultry and livestock industries, either directly to large integrated
producers or through a network of independent distributors. PAH products include
anticoccidials, antibacterials, anthelmintics and other feed additives.
The anticoccidial products are marketed under the Aviax(R), Coxistac(R)
and Posistac(R) brand names and are sold to integrated poultry producers and
feed companies. Carbadox antibacterial is sold under the brand name Mecadox(R),
for use in swine feeds to control salmonellosis and swine dysentry in young and
growing swine. Virginiamycin, an antibiotic marketed under the Stafac(R),
Eskalin(R) and V-Max(R) brand names, is used to prevent and control diseases in
poultry, swine and cattle, including necrotic enteritis in poultry and swine and
liver abcesses in cattle. Antibacterials, including Terramycin(R), and
Neo-Terramycin(R) which are derived from the active ingredient oxytetracycline,
are effective against a range of diseases including: fowl cholera in chickens;
airsacculitis in turkeys; bacterial enteritus in swine; and bacteria diarrhea
and liver abcesses in cattle. Banmith(R), Oxibendazole(R) and Rumatel(R) are
anthelmintics that are used to control internal parasites in cattle, sheep and
goats. The use of these medicated feed additives assists the producer in
maintaining healthy and productive animals which ensure the consumer of a safe,
healthy and wholesome meat supply.
PAH manufactures bulk active ingredients at facilities located in
Guarulhos, Brazil and Rixensart, Belgium. Other active ingredients are being
supplied by Pfizer to PAH under a transition supply agreement. Alternate sources
of these products have been identified and are being qualified. Also under a
transition agreement, for many markets, Pfizer is formulating these active
ingredients into the lower concentration products that are sold to feed mills
and producers. PAH is in the process of transferring these operations to
alternate sites. This effort is expected to be completed during calendar
2002/2003.
PAH has established sales and technical offices in 18 countries including:
US, Canada, Mexico, Costa Rica, Venezuela, Colombia, Brazil, Argentina, Chile,
Peru, Australia, Japan, Hong Kong, China, Thailand, Malaysia, South Africa and
Belgium. Additional offices will be opened as the business grows. The top five
markets in terms of sales in fiscal 2001 (7 months of operation) are the U.S.,
Brazil, China, Japan and Mexico. These countries accounted for 77% of PAH's
global sales in fiscal 2001. The business is not dependent on any one customer.
The use of medicated feed additives are controlled by regulatory
authorities that are specific to each country (i.e., the FDA in the US; Health
Canada in Canada, etc.). Each product is registered separately. In most
countries, these registrations have already been transferred from Pfizer to the
Company. The transfers are continuing in several countries and under the asset
purchase agreement, Pfizer will continue to support the registration transfer
effort.
Currently, new product development at PAH is focused on geographical
expansion of the present product line, new label claims and applications for
existing active ingredients and new formulations. This effort is coordinated by
product development personnel located in Belgium, Brazil, and the U.S. PAH also
has an active program to identify and license new products and new technologies.
Through its subsidiary, Prince Agriproducts, Inc. ("Prince Agri"), the
Company manufactures and markets trace minerals, trace mineral and selenium
premixes and other ingredients to the animal and poultry feed and pet food
industries, predominantly in the United States. These products generally
fortify, enhance or make more nutritious or palatable the animal and poultry
feeds and pet foods with which they are mixed. The Company is a basic producer
of trace minerals for the U.S. animal feed industry. The majority of the other
ingredients the Company sells are nutrients which are used as supplement for
animal feed. The Company serves customers in major feed segments, including
swine, dairy, poultry and beef as well as pet food and aquaculture. The
Company's foundation and strength in the animal feed industry have come from its
basic position in several trace minerals. The Company customizes trace mineral
and selenium premixes at its blending facilities in Marion, Iowa, Bremen,
Indiana and Bowmanstown, Pennsylvania, and markets a diverse line of other trace
minerals and macro-minerals. The Company's major customers for these products
are medium to large feed companies, co-ops,
3
blenders, integrated poultry operations and pet food companies. The Company
sells other ingredients, such as buffers, yeast, palatants, vitamin K and amino
acids, including lysine, tryptophan and threonine. The Company also markets
copper sulfate as an animal feed supplement.
The Company's Israeli subsidiary, Koffolk (1949) Ltd. ("Koffolk Israel"),
is a producer and distributor of vitamins and premixes for the animal feed and
poultry industries in Israel, and also sells such products worldwide. Koffolk
Israel also provides a wide range of services to the animal feed industry in
Israel including mobile computer units for on-the-spot feed information,
comprehensive feed laboratory services for both chemical and microbiological
assay, and an experimental farm for field testing of feed additives and animal
health products.
Koffolk Israel also produces fine chemicals and other intermediates used
in the manufacture of certain pharmaceuticals, cosmetics and films. Koffolk
Israel's plant in Ramat Hovav, Israel operates under the FDA's GMP regulations,
and has received FDA approval for some of its processes and production
operations.
Through Koffolk Israel and its Brazilian subsidiary, Planalquimica
Industrial Ltda. ("Planalquimica"), the Company produces nicarbazin, and through
Koffolk Israel the Company also produces amprolium for distribution to the
world-wide poultry industry through major multinational life science and
veterinary companies. The Company believes it is the sole world-wide producer of
amprolium, and the largest volume world-wide producer of nicarbazin through its
facilities in Israel and Brazil. The Company is the sole Latin American producer
of nicarbazin. Modern, large scale poultry production is based on intensive
animal management practices. This type of animal production requires routine
prophylactic medications in order to prevent health problems. Coccidiosis is one
of the critical disease challenges which poultry producers face, globally.
Coccidiosis is an infection of coccidia, a microscopic parasite which routinely
infects chickens. Nicarbazin and amprolium are among the most effective
medications for the prevention of coccidiosis in chickens when used in rotation
with other coccidiostats. In the United States, PAH distributes nicarbazin for
Koffolk Israel under the trademark Nicarb(R), and amprolium under the trademark
of Amprol(R).
INDUSTRIAL CHEMICALS
The Company manufactures and markets a number of inorganic and organic
specialty chemicals for use in the chemical catalyst, construction, printed
circuit board, automotive, aerospace, glass and coal mining industries. Some of
these products are produced from raw materials derived from the Company's
recycling operations. The Company also purchases crude inorganic minerals in the
form of ores and processes these in various grades to produce chemicals for sale
to manufacturers. These manufacturers incorporate the resultant products into
their finished products in various industrial markets, including construction,
with end-use applications in clay brick, ceramic, masonry colorant, coatings,
heavy media, foundry, glass, electrodes, abrasives, dust control, and as an
intermediate to various chemical applications.
Through its U.S. subsidiaries comprising The Prince Manufacturing Group
("Prince"), the Company manufactures and markets various mineral oxides,
including iron compounds and manganese compounds. The Company's iron compounds
include red iron oxide (Hematite) (sold to the brick, masonry, glass, foundry,
electrode, abrasive, feed, and various other chemical industries); black iron
oxide (Magnetite) (sold under the Magna Float brand name to the heavy media,
coal, steel foundry, electrode, abrasive, colorant, fertilizer, and various
other chemical industries); iron chromite (sold under the Chromox brand as a
colorant or additive to the glass industry). The Company's manganese compounds
include manganese dioxide (sold under the Brickox brand name, which is
considered a standard color in many applications, to the brick, masonry, glass,
and various other chemical industries); and manganous oxide (sold to customers
requiring an acid soluble form of manganese, such as animal feed, fertilizer and
chemical manufacturers).
Through Phibro-Tech, the Company manufactures and recycles alkaline
etchants in the United States. Of the Company's five facilities involved with
these products, four have final RCRA Part B hazardous waste treatment and
storage permits and one is in an interim permit status. See "Environmental
Matters." The Company's etchants are used to remove copper from printed circuit
boards, leaving the desired circuit pattern. The Company sells fresh etchant to
printed circuit board manufacturers and recycles spent etchants. Phibro-Tech
generates revenue
4
from the sale of fresh etchants as well as the recovery of the dissolved copper
contained in the spent etchants, which are processed into saleable copper-based
products. The Company believes that it is the only national recycler of spent
etchants generated principally from the printed circuit board industry, with an
etchant plant in every major geographic area except New England. These plants
generally allow the Company to distribute product and transport spent etchant, a
freight intensive product which is classified as hazardous waste, over
relatively short distances.
Phibro-Tech also manufactures and sells the following major products:
Copper Oxide. Copper oxide is used as an ingredient in the production of
water-borne wood preservatives ("CCA"). Due to its recycling capabilities, the
Company believes that it is a low cost supplier of copper oxide to the CCA
market. The Company also sells copper oxide to the catalyst, dye, ceramic and
feed industries.
Copper Sulfate. The Company sells a high purity copper sulfate to
worldwide producers of electroless copper. Industrial uses of copper sulfate
include the manufacturing of pigments, electroplating, catalysts and chemical
intermediates in water treatment. The Company markets copper sulfate solution to
the mining and wood treatment industries.
Phibro-Tech is a leading recycler in the United States of hazardous
chemical waste streams that contain copper or nickel. Four of its facilities are
permitted to handle hazardous waste and one is operating on an interim permit.
These waste streams are generated principally by printed circuit board
manufacturers and metal finishers. The metal finishing and printed circuit board
industries also generate other spent chemicals, which are raw material sources
of acid, copper and nickel, and the Company charges fees for processing such
materials based on metal content. The Company also recycles a variety of other
metal-containing chemical waste, including spent catalysts, pickling solutions
and metal strippers containing brass, cobalt, copper, nickel, iron, tin and
zinc, in liquid, solid or slurry form. The Company also uses these recovered
materials to produce copper and nickel chemicals for use as raw materials in
certain of its products.
Metal-containing waste is either collected by the Company or delivered
directly to one of its facilities by the waste generator. The Company collects
and transports chemical waste in its specially-constructed tankers and
semi-trailers and drum transporting trailers. In some locations, rail
transportation by tank cars or piggyback trailers is also utilized. Upon arrival
at one of the Company's recycling and processing facilities, and prior to
unloading, a representative sample of the delivered waste is tested and analyzed
to ensure that it conforms to the customer's contracted waste profile
specifications. The Company recycles and processes metal-containing hazardous
chemical waste streams using hydrometallurgical technology. This technology
involves the reclamation of various metals and the production of finished
chemical products using chemical reactions such as leaching, extraction and
precipitation. The Company determines the precise chemical process required to
treat each batch of hazardous waste based on the type and amount of the waste as
well as the proportion of useful raw materials it contains.
Through its Norwegian subsidiary, Odda Smelteverk AS ("Odda"), which it
acquired in October 1998 together with certain related distribution business
assets, the Company manufactures and distributes calcium carbide and
dicyandiamide. The principal uses of calcium carbide are in the production of
acetylene for welding and cutting, as a desulphurization agent in the steel and
foundry industry, and in the manufacture of chemicals. Dicyandiamide is used in
several applications, including as a fire retardant for fiber, wood and paint,
for producing epoxy laminates for circuit boards and adhesives, for producing
paper chemicals, and as a dye fixative for textiles.
During 2000, Odda completed construction of a plant and began commercial
production of hydrogen cyanimide ("CY-50"). CY-50 is a product that, like
dicyandiamide, is derived from calcium carbide. CY-50 is marketed by the
chemical industry as a nutritional supplement and in the production of
intermediates, herbicides, fungicides and insecticides. It is also used by the
life science industry for anticeptives and antiulceratives.
5
DISTRIBUTION
The Company's PhibroChem division markets and distributes fine and
specialty chemicals to manufacturers of health and personal care products. Among
the Company's major products for such applications are sodium fluoride and
stannous fluoride, DL Panthenol and selenium disulfide. Sodium fluoride is the
active anti-cavity ingredient in fluoride toothpaste, powders and mouthwashes.
Selenium disulfide is used as a dandricide in shampoo and hair care
preparations.
Through its U.K. subsidiary, Ferro Metal & Chemical Ltd. ("Ferro"), the
Company markets dicyandiamides and calcium carbides. Ferro also markets fine and
specialty chemicals to customers in the steel, gas production, chemical
intermediates, health and personal care industries.
ALL OTHER
Through its subsidiary, Mineral Resource Technologies, L.L.C. ("MRT"), the
Company manages combustion and mineral by-products. MRT provides management and
recycling of coal combustion residues, including fly ash and bottom ash, and
also mineral processing residues. Fly ash is the fine residue and bottom ash is
the heavier particles that result from the combustion of coal in the electric
power industry. Fly ash is a pozzolan, i.e. a mixture that, in the presence of
water, combines with an activator, such as portland cement, to produce a
cement-like material. This allows fly ash to be used as a less expensive
substitute for other cementious materials, primarily portland cement. MRT
typically provides these products to its customers directly from a utility's
site or through its own terminals.
Through the MRT Technology Center in Atlanta, MRT seeks to develop new
products consisting substantially of these combustion by-products. In March of
1998, MRT's research and development activity resulted in two U.S. patents being
issued involving proprietary value-added products. These patents provide for the
production of a family of hydraulic blended cements, a series of masonry and
stucco cement products, and rapid hardening cement products. Since the initial
success in development of these unique products, five additional patents have
been issued for enhancement of these initial patents and for other future
marketable value-added products. MRT introduced the first of the new cement
products as EZ Joint Masonry Cement(TM) into the Georgia market beginning late
in fiscal 2001. Performance in the field has been uniformly satisfactory with
applications meeting all ASTM standards. Continued evaluation by MRT is underway
and plans are being developed for introduction of these products into other
major markets.
In connection with its fly ash management operations, MRT has entered into
and will seek to enter long-term sales and distribution agreements with
utilities providing for minimum payments and/or purchase obligations by MRT of
varying durations. Certain of these contracts also require MRT to construct (at
its expense) facilities to store and/or process ash. MRT's ability to achieve
long-term revenue growth and profitability is dependent upon securing additional
long-term ash management contracts with utilities and developing fly ash
processing facilities. Consistent with industry practice, in connection with its
long-term contracts, the Company has furnished and expects to furnish
performance bonds or guarantees to such utilities.
Through its English subsidiary, Wychem Limited, the Company develops and
markets a wide range of halogenated organic compounds, mainly brominated and
fluorinated. These chemical intermediates are sold primarily into the
pharmaceutical industry as building blocks for further synthesis. Wychem is able
to tailor the quality and supply characteristics of its chemicals to those
desired by its customers by close coordination with the customer at an early
stage in the customer's product development. In certain cases the product
supplied by Wychem is novel and included in the customer's regulatory
submissions.
On May 4, 2001, the Company sold its Agtrol U.S. business, a division of
the Company's Phibro-Tech, Inc. subsidiary ("Phibro-Tech"), to Nufarm, Inc., the
U.S. subsidiary of Nufarm Limited, a publicly listed Australian based company.
On June 14, 2001, the Company sold its Agtrol international business to Nufarm.
Agtrol developed, manufactured and marketed crop protection products, including
copper fungicides. The sale included inventory and intangible assets to Nufarm
but did not include plant, equipment, or other manufacturing assets. Phibro-Tech
also entered into agreements to supply copper fungicide products to Nufarm from
its Sumter, South
6
Carolina plant for five years, and from its Bordeaux, France plant for three
years. The operating results of Agtrol are included in the Company's
consolidated statements of operations, up to the date of sale, and are reflected
in the All Other segment for all periods presented.
Nufarm is obligated to purchase all of its requirements for products and
substitute products, up to the capacity of the facilities during the terms of
the agreements. During the terms of the agreements, the product price will be
the Company's full standard cost plus margin, as defined in the agreements. The
agreements provide for minimum payments to the Company during each contract year
equal to 70% of base volume multiplied by the product price.
Sales, Marketing And Distribution
The Company sells specialty chemicals to manufacturers who incorporate the
Company's products into their finished goods. The Company has more than 3,500
customers. Sales to the top ten customers represented approximately 14% of the
Company's 2001 net sales and no single customer represented more than 4% of the
Company's 2001 net sales.
The Company's sales and marketing network consists of approximately 163
employees, 73 independent agents and 142 distributors who specialize in
particular markets.
The Company's products are often critical to the performance of its
customers' products while representing a relatively small percentage of the
total end-product cost. Management believes that the three key factors to
marketing its products successfully are high quality products, a highly trained
and technical sales force, and customer service.
Raw Materials
The raw materials used in the Company's business consist chiefly of copper
metal and a wide variety of organic intermediates and inorganic chemicals which
are purchased from manufacturers in the United States, Europe and Asia. In
fiscal 2001, no single raw material accounted for more than 8% of the Company's
cost of goods sold. Total raw materials cost was approximately $153 million or
43% of net sales in 2001.
The Company believes that for most of its raw materials alternate sources
of supply are available to the Company at competitive prices. In addition, the
Company's ability to recycle hazardous waste streams allows the Company to
recover certain metals and other raw materials that it substitutes in its
products for virgin materials, thereby reducing the Company's cost of goods and
its reliance on suppliers of certain virgin materials.
Research and Development
Research, development and technical service efforts are conducted by over
100 chemists and technicians at the various facilities of the Company. The
Company operates a Research and Development Center in Sumter, South Carolina,
relating to inorganic chemicals and crop protection products, and at
Stradishall, England, relating to organic chemical intermediates. In addition,
Koffolk Israel conducts substantial research and development at its Ramat Hovav
facility. The Company also conducts research and development at its MRT
Technology center in Atlanta, GA for concrete and cement products. Finally,
Phibro Animal Health's Rixensart, Belgium facility provides a base for
fermentation development in the areas of microbiological strain improvement as
well as process scale-up. Most of the Company's plants have chemists and
technicians on staff involved in product development, quality assurance, quality
control and also providing technical services to customers. Technical assurance
is an important aspect of the Company's overall sales effort.
Technology is an important component of the Company's competitive
position, providing the Company with a low cost position and enabling the
Company to produce high quality products. Patents protect some of the Company's
technology, but a great deal of the Company's competitive advantage revolves
around know-how built up over many years of commercial operation.
7
The Company entered into a research and development joint venture
agreement with IMI (TAMI) Institute for R&D Ltd. ("IMI") to develop custom made
specialty fine chemicals. As part of the agreement, the parties have also
entered into an agreement with the Israel-U.S. Binational Industrial Research
and Development ("BIRD") Foundation, whereby development costs, subject to a cap
of $1.7 million, are reimbursed 50%. On commercialization of developed products,
royalties will be due to BIRD based on achieved sales levels. Should
commercialization not occur, receipts from BIRD need not be returned.
The Company and its predecessors have over 20 years experience in the use
of hydrometallurgical technology for recycling metal-containing by-products and
a strong technological position in the production of metal-containing chemicals.
Patents and Trademarks
The Company owns certain patents, tradenames and trademarks and uses
know-how, trade secrets, formulae and manufacturing techniques which assist in
maintaining the competitive positions of certain of its products. Formulae and
know-how are of particular importance in the manufacture of a number of the
products sold in the Company's specialty chemical business. The Company believes
that no single patent or trademark is of material importance to its business,
and, accordingly, that the expiration or termination thereof would not
materially affect its business. See "Government Regulation."
Customers
The Company does not consider its business to be dependent on a single
customer or a few customers, and the loss of any of its customers would not have
a material adverse effect on the Company's results. No single customer accounted
for more than 4% of the Company's 2001 net sales. The Company typically does not
enter into long-term contracts with its customers. However, the Company has
entered into certain long-term contracts with respect to nicarbazin and
amprolium, as well as its ferric chloride recycling and fly ash management
activities.
Competition
The Company is engaged in highly competitive industries and, with respect
to all of its major products, faces competition from a substantial number of
global and regional competitors. Some of the companies with which the Company
competes have greater financial, research and development, production and other
resources than the Company. The Company's competitive position is based
principally on customer service and support, product quality, manufacturing
technology, facility location and price.
The Company has competitors in every market in which it participates. Many
of the Company's products face competition from products which may be used as an
alternative or substitute. The Company competes with several regional companies
of varying sizes and financial resources in the hazardous metal-containing
chemical waste recycling industry. The Company also competes with large national
companies which offer alternative methods of treatment or disposal of hazardous
metal-containing chemical waste and which have substantially greater financial
resources than the Company. While these national companies do not currently
offer recycling services similar to those offered by the Company, their entry
into the recycling business could have a material adverse effect on the Company.
In addition, the Company competes with several large chemical companies in the
chemical production business, none of which obtains a significant portion of its
raw materials from recycling. To the extent these companies, or new entrants
into the market, offer comparable finished chemical products at lower prices,
the Company's business could be adversely affected.
Employees
As of June 30, 2001, the Company had approximately 1,550 employees
worldwide. Of these, 324 employees were in management and administration, 163 in
sales and marketing, 112 were chemists or technicians
8
and 956 were in production. Approximately 3% of the Company's domestic employees
were covered by collective bargaining agreements with two unions. These
agreements expire from 2002 through 2005. Certain employees are covered by
individual employment agreements. Koffolk Israel continues to operate under the
terms of Israel's national collective bargaining agreement, portions of which
expired in 1994. In Norway, approximately 80% of employees are covered by
collective bargaining agreements.
The Company considers its relations with both its union and non-union
employees to be good.
Environmental Matters
Like similar companies, the Company and its subsidiaries are subject to a
wide variety of complex and stringent federal, state, local and foreign
environmental laws and regulations, including those governing the use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
certain materials and wastes, the manufacture, sale and use of pesticides and
the health and safety of employees. Pursuant to environmental laws, subsidiaries
of the Company are required to obtain and retain numerous governmental permits
and approvals to conduct various aspects of their operations, any of which may
be subject to revocation, modification or denial under certain circumstances.
Under certain circumstances, the Company or any of its subsidiaries might be
required to curtail operations until a particular problem is remedied. Known
costs and expenses under environmental laws incidental to ongoing operations are
generally included within operating budgets. Potential costs and expenses may
also be incurred in connection with the repair or upgrade of facilities to meet
existing or new requirements under environmental laws or to investigate or
remediate potential or actual contamination and from time to time the Company
establishes reserves for such contemplated investigation and remediation costs.
In many instances, the ultimate costs under environmental laws and the time
period during which such costs are likely to be incurred are difficult to
predict.
Subsidiaries of the Company have from time to time implemented procedures
at their facilities designed to respond to obligations to comply with
environmental laws. The Company believes that its operations are currently in
material compliance with such environmental laws, although at various sites the
Company's subsidiaries are engaged in continuing investigation and/or
remediation efforts to address contamination associated with their historic
operations. As many environmental laws impose a strict liability standard,
however, there can be no assurance that future environmental liability will not
arise.
In addition, the Company cannot predict the extent to which any future
environmental laws may affect any market for the Company's products or services
or its costs of doing business. For instance, if governmental enforcement
efforts should lessen, the market for Phibro-Tech's recycling services could
decline. Alternatively, changes in environmental laws might increase the cost of
the Company's products and services by imposing additional requirements on the
Company. States that have received authorization to administer their own
hazardous waste management programs may also amend their applicable statutes or
regulations, and may impose requirements which are stricter than those imposed
by U.S. Environmental Protection Agency (the "EPA"). No assurance can be
provided that such changes will not adversely affect the Company's ability to
provide products and services at competitive prices and thereby reduce the
market for the Company's products and services.
As such, the nature of the current and former operations of the Company
and its subsidiaries exposes them to the risk of claims with respect to such
matters and there can be no assurance that material costs and liabilities will
not be incurred in connection with such claims. Based upon its experience to
date, the Company believes that the future cost of compliance with existing
environmental laws, and liability for known environmental claims pursuant to
such environmental laws, will not have a material adverse effect on the Company.
However, future events, such as new information, changes in existing
environmental laws or their interpretation, and more vigorous enforcement
policies of regulatory agencies, may give rise to additional expenditures or
liabilities that could be material. For all purposes of the discussion under
this caption, under "--Litigation," and elsewhere in this Report, it should be
noted that the Company takes and has taken the position that neither the parent
company, Philipp Brothers Chemicals, Inc., nor any of its subsidiaries is liable
for environmental or other claims made against one or more of its other
subsidiaries or for which any of such other subsidiaries may ultimately be
9
responsible. References to the Company should accordingly not be read or
interpreted as a statement or admission that Philipp Brothers or any of its
subsidiaries is liable for activities of or claims made against any of its other
subsidiaries.
Regulation
The following summarizes the principal federal environmental laws
affecting the business of the Company:
Resource Conservation and Recovery Act of 1976, as amended ("RCRA").
Congress enacted RCRA to regulate, among other things, the generation,
transportation, treatment, storage and disposal of solid and hazardous wastes.
RCRA required the EPA to promulgate regulations governing the management of
hazardous wastes, and to allow individual states to administer and enforce their
own hazardous waste management programs as long as such programs were equivalent
to and no less stringent than the federal program.
The EPA's regulations, and most state regulations in authorized states,
establish categories of regulated entities and set standards and procedures
those entities must follow in their handling of hazardous wastes. The three
general categories of waste handlers governed by the regulations are hazardous
waste generators, hazardous waste transporters, and owners and operators of
hazardous waste treatment, storage and/or disposal facilities. Generators are
required, among other things, to obtain identification numbers and to arrange
for the proper treatment and/or disposal of their wastes by licensed or
permitted operators and all three categories of waste handlers are required to
utilize a document tracking system to maintain records of their activities.
Transporters must obtain permits, transport hazardous waste only to properly
permitted treatment, storage or disposal facilities, and maintain required
records of their activities. Treatment, storage and disposal facilities are
subject to extensive regulations concerning their location, design and
construction, as well as the operating methods, techniques and practices they
may use. Such facilities are also required to demonstrate their financial
responsibility with respect to compliance with RCRA, including closure and
post-closure requirements.
The Federal Water Pollution Control Act, as amended (the "Clean Water
Act"). The Clean Water Act prohibits the discharge of pollutants to the waters
of the United States without governmental authorization. Like RCRA, the Clean
Water Act provides that states with programs approved by the EPA may administer
and enforce their own water pollution control programs. Pursuant to the mandate
of the Clean Water Act, the EPA has promulgated "pretreatment" regulations,
which establish standards and limitations for the introduction of pollutants
into publicly owned treatment works.
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA" or "Superfund"). Under CERCLA and similar state laws,
the Company and its subsidiaries may have strict and, under certain
circumstances, joint and several liability for the investigation and remediation
of environmental pollution and natural resource damages associated with real
property currently and formerly owned or operated by the Company or a subsidiary
and at third-party sites at which the Company's subsidiaries disposed of or
treated, or arranged for the disposal of or treatment of, hazardous substances.
Federal Insecticide, Fungicide and Rodenticide Act, as amended ("FIFRA").
FIFRA governs the manufacture, sale and use of pesticides, including the
copper-based fungicides sold by the Company. FIFRA requires such products and
the facilities at which they are formulated to be registered with the EPA before
they may be sold. If the product in question is generic in nature (i.e.,
chemically identical or substantially similar to a previously registered
product), the new applicant for registration is entitled to cite and rely on the
test data supporting the original registrant's product in lieu of submitting
data of its own. Should the generic applicant choose this citation option, it
must offer monetary compensation to the original registrant and must agree to
binding arbitration if the parties are unable to agree on the terms and amount
of compensation. The Company has elected this citation option in the past and
intends to use the citation option in the future should it conclude it is
economically desirable to do so. While there are cost savings associated with
the opportunity to avoid one's own testing and demonstration to the EPA of test
data, there is, in each instance, a risk that the level of compensation
ultimately required to be paid to the original registrant will be substantial.
10
Under FIFRA, the EPA also has the right to "call in" additional data from
existing registrants of a pesticide, should the EPA determine, for example, that
the data already in the file need to be updated or that a specific issue or
concern needs to be addressed. The existing registrants have the option of
submitting data separately or by joint agreement. Alternatively, if one
registrant agrees to generate and submit the data, the other(s) may meet their
obligations under the statute by making a statutory offer to jointly develop or
share in the costs of developing the data. In that event, the offering party
must, again, agree to binding arbitration to resolve any dispute as to the terms
of the data development arrangement.
The Clean Air Act. The federal Clean Air Act of 1970 ("Clean Air Act") and
Amendments to the Clean Air Act ("Clean Air Act Amendments"), and corresponding
state laws regulate the emissions of materials into the air.
Such laws affect the coal industry both directly and indirectly and,
therefore, MRT. The coal industry is directly affected by Clean Air Act
permitting requirements and/or emissions control requirements relating to
particulate matter (such as "fugitive dust"), and may also be impacted by future
regulation of fine particulate matter. Every five years, the EPA reviews and
revises, if necessary, its National Ambient Air Quality Standards ("NAAQS"),
which is a set of national air quality standards relating to fine particulate
matter and ozone, among other criteria air pollutants. In July 1997, the EPA
adopted stringent new NAAQS, and the impact of such new standards on the coal
industry will depend on the policies and control strategies associated with the
state implementation process under the Clean Air Act, as well as on pending
legislative proposals to delay or eliminate aspects of the new NAAQS.
The Clean Air Act indirectly affects operations of the Company and its
subsidiaries by extensively regulating the air emissions of sulfur dioxides and
other compounds emitted by coal-fired utility power plants. Title IV of the
Clean Air Act Amendments places limits on sulfur dioxide emissions from electric
power generation plants, setting baseline emission standards for such
facilities. The effect of the Clean Air Act Amendments on MRT cannot be
completely ascertained at this time.
The Clean Air Act Amendments also require utilities that currently are
major sources of nitrogen oxides in moderate or higher ozone NAAQS nonattainment
areas to install reasonably available control technology for nitrogen oxides,
which are precursors to the atmospheric formation of ozone. In October 1998, the
EPA released a ruling (the "NOx SIP Call") requiring 22 eastern states to revise
their state implementation plans to substantially reduce emissions of nitrogen
oxide. The EPA expects that states will achieve these reductions by requiring
power plants to make substantial reductions in their nitrogen oxide emissions.
Installation of reasonably available control technology and additional control
measures required under the NOx SIP Call will make it more costly to operate
coal-fired utility power plants and, depending on the requirements of individual
state implementation plans and the development of revised new source performance
standards, could make coal a less attractive fuel alternative in the planning
and building of utility power plants in the future. Numerous states,
municipalities, industry trade groups, manufacturers and utilities have filed
petitions in federal court challenging the NOx SIP Call. The effect of the NOx
SIP Call and other regulations or requirements that may be imposed in the future
on the coal industry in general and on MRT in particular cannot be predicted
with certainty. No assurance can be given that the implementation of the Clean
Air Act Amendments, state implementation plans or any future regulatory
provisions will not materially adversely affect MRT.
In addition, the Clean Air Act Amendments require a study of utility power
plant emissions of certain toxic substances, including mercury, and direct the
EPA to regulate these substances, if warranted. Future federal or state
regulatory or legislative activity may seek to reduce mercury emissions and such
requirements, if enacted, could result in reduced use of coal if utilities
switch to other sources of fuel.
Phibro-Tech is also impacted by the Clean Air Act and has various air
quality permits, including a Title V operating air permit at its Sumter, South
Carolina facility.
11
State and Local Regulation
In addition to those federal programs described above, a number of states
and some local governments have also enacted laws and regulations similar to the
federal laws described above governing hazardous waste generation, handling and
disposal, emissions to the water and air and the design, operation and
maintenance of recycling facilities.
Foreign Regulation
The Company's foreign subsidiaries are subject to a variety of foreign
environmental laws relating to pollution and protection of the environment,
including the generation, handling, storage, management, transportation,
treatment and disposal of solid and hazardous materials and wastes, the
manufacture and processing of pesticides and animal feed additives, emissions to
the air, discharges to land, surface water and subsurface water, human exposure
to hazardous and toxic materials and the remediation of environmental pollution
relating to their past and present properties and operations.
Regulation of Recycling Activities
The Company's recycling activities may be broken down into the following
segments for purposes of regulation under RCRA or equivalent state programs: (i)
transport of wastes to the Company's facilities, (ii) storage of wastes prior to
processing, (iii) treatment and/or recycling of wastes, and (iv) corrective
action at its RCRA facilities. Although all aspects of the treatment and
recycling of waste at its recycling facilities are not currently the subject of
federal RCRA regulation, subsidiaries of the Company made decisions to permit
its recycling facilities as RCRA regulated facilities. Final RCRA "Part B"
permits to operate as hazardous waste treatment and storage facilities have been
issued at its facilities in Santa Fe Springs, California; Garland, Texas;
Joliet, Illinois; Sumter, South Carolina; and Sewaren, New Jersey. Part B
renewal applications have been submitted for the Santa Fe Springs and Sumter
sites. The applications are being reviewed. Phibro-Tech has also obtained an
interim status RCRA permit from the California Department of Health Services and
has filed a Part B permit application with the Department for its Union City,
California facility.
In connection with RCRA Part B permits for the waste storage and treatment
units of various facilities, the Company's subsidiaries have been required to
perform extensive site investigations at such facilities to identify possible
contamination and to provide regulatory authorities with plans and schedules for
remediation. Soil and groundwater contamination has been identified at several
plant sites and has required and will continue to require corrective action and
monitoring over future years. In order to maintain compliance with RCRA Part B
permits, which are subject to suspension, revocation, modification or denial
under certain circumstances, the Company has been, and in the future may be,
required to undertake additional capital improvements or corrective action.
Subsidiaries of the Company are required by RCRA and their Part B permits
to develop and incorporate in their Part B permits estimates of the cost of
closure and post-closure monitoring for their operating facilities. In general,
in order to close a facility which has been the subject of a RCRA Part B permit,
a RCRA Part B closure permit is required which approves the investigation,
remediation and monitoring closure plan, and requires post-closure monitoring
and maintenance for up to 30 years. Accordingly, additional costs are incurred
in connection with any such closure. These cost estimates are updated annually
for inflation, developments in available technology and corrective actions
already undertaken. The Company has in most instances chosen to provide the
regulatory guarantees required in connection with these matters by means of its
coverage under an environmental impairment liability insurance policy. There can
be no assurance that such policy will continue to be available in the future at
economically acceptable rates, in which event other methods of financial
assurance will be necessary.
In addition to certain operating facilities, the Company or its
subsidiaries have been and will be required to investigate and remediate certain
environmental contamination at shutdown plant sites. The Company or its
subsidiaries are also required to monitor such sites and continue to develop
controls to manage these sites within the requirements of RCRA corrective action
programs.
12
Based upon available information, accruals for management estimates of the
cost of further environmental investigation and remediation at operating,
curtailed and closed sites are approximately $2.2 million as of June 30, 2001.
Waste Byproducts
In connection with the Company's subsidiaries' production of finished
chemical products, limited quantities of waste by-products are generated
primarily in the form of sludge. Depending on the contents of the sludge, the
subsidiaries of the Company either send it to smelters for metal recovery or
send it for treatment or disposal to regulated facilities.
Particular Facilities
The following is a description of certain environmental matters relating
to certain facilities of certain subsidiaries of the Company. References
throughout to the Company are intended to refer only to the applicable
subsidiary unless the context otherwise requires. These matters should be read
in conjunction with the description of litigation matters below under Item 3,
certain of which involve such facilities, and Note 12 to the Company's
Consolidated Financial Statements.
In 1984, Congress enacted certain amendments to RCRA under which
facilities with RCRA permits were required to have RCRA facility assessments
("RFA") by the EPA or the authorized state agency. Following an RFA, a RCRA
facility investigation, a corrective measures study, and corrective measure
implementation must, if warranted, be developed and implemented. As indicated
below, the Company's subsidiaries are in the process of developing or completing
various actions associated with these regulatory phases at certain of their
facilities.
Sewaren, New Jersey. In April 1989, the New Jersey Department of
Environmental Protection, Division of Waste Management and Division of Water
Resources (collectively the "DEP"), issued an Administrative Order and Notice of
Civil Administrative Penalty Assessment against C.P. Chemicals, Inc. ("CP"), a
subsidiary of the Company, relating to CP's recycling and manufacturing facility
in Sewaren, New Jersey. This proceeding resulted in an Administrative Consent
Order (the "ACO"), effective March 11, 1991. The ACO mandates the development
and implementation of an environmental remediation plan and requires payment of
a penalty in the amount of $2.2 million plus interest calculated at 8.57% per
annum, to be paid in ten yearly installments. This charge was previously
reflected in the Company's consolidated financial statements. In addition, the
ACO sets forth stipulated penalties for specified violations of the ACO and
requires reimbursement by CP to the DEP for prior costs and future oversight
costs. CP has posted $500,000 in financial assurances which amount may be
modified based on cost reviews which CP is required to submit annually as part
of its investigation and remediation program. CP has substantially completed its
investigation and remediation efforts which include installation of a hydraulic
control system and pre-treatment of ground water on the site and capping to
address soil contamination concerns and satisfy storm water management
requirements. Such efforts remain subject to continuing review by the DEP. In
1998, operations at the Sewaren facility were curtailed.
In June 2000, CP transferred title to the Sewaren property to the local
township. At the same time, CP entered into a 10-year lease with the township,
providing for lease payments aggregating $2,000,000, and covering certain areas
of the property, in order to allow it to conduct operations relating to its RCRA
Part B Facility Permit. While the township took title to the property and
assumed basic property related obligations, including the operation and
maintenance of the ground water control system called for by the ACO, the
Company retained other environmental obligations under the ACO and also entered
into an indemnification agreement with the township regarding environmental
conditions existing at the time of the transfer.
Sumter, South Carolina. In 1991, in connection with the RCRA Part B permit
for its Sumter, South Carolina facility, Phibro-Tech undertook the closure of
certain waste water treatment impoundments pursuant to RCRA closure requirements
and installed a waste water treatment system at the plant and is engaged in an
additional phase of facility investigation at the site. Phibro-Tech has
completed remedial action to remove material from an area used by a former owner
of the site. The South Carolina Department of Health and Environmental Control
13
("SCDHEC") has requested additional sampling in this area. Separately,
Phibro-Tech and certain adjacent land owners have entered into a consent
agreement to conduct an environmental investigation regarding certain property
located next to the Sumter facility, including a small portion of the Sumter
facility property, which has been identified as containing debris, and to remove
such debris. An engineering firm has been hired to investigate the situation and
to make recommendations. Phibro-Tech has also received certain notices of
violations from SCDHEC alleging certain permit violations. Phibro-Tech does not
believe that these claims are material and fully expects these claims to be
resolved in a mutually acceptable manner.
Santa Fe Springs, California. In connection with its request for renewal
of its RCRA Part B permit for its Santa Fe Springs, California facility, and the
administrative order noted below for this facility, Phibro-Tech has implemented
various phases of environmental investigation and corrective measure study and
assessments. It is currently in a continuing investigation and corrective
measure phase, which will involve additional sampling to determine the level of
corrective action. At this time it is anticipated that this will involve a pump
and treat system through an existing on-site pre-treatment plant. Phibro-Tech is
also subject to an investigative and enforcement order, the ultimate scope and
disposition of which is currently being discussed with the California Department
of Toxic Substances Control ("DTSC"). The principal outstanding issue under the
order was the requirement of further soil investigation and the development of a
remediation plan, if necessary, beyond that already covered by the facility
investigation originally conducted. The study has been completed and
Phibro-Tech's consulting environmental engineers have recommended to DTSC no
further action in this regard. Separately, Phibro-Tech has reached an accord
with Communities for a Better Environment regarding allegations that Phibro-Tech
violated Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of
1985, and the California Health and Safety Code.
Phibro-Tech has also received a summary of violations from the DTSC for
its Santa Fe Springs facility alleging certain permit violations as well as
violations of the California Health and Safety Code and corresponding
regulations. Phibro-Tech is in contact with the DTSC with regard to these
claims, in an attempt to determine whether they can be resolved through a
mutually acceptable compliance schedule.
Union City, California. Phibro-Tech's Union City, California facility is
an interim status facility with an application for a RCRA Part B permit pending.
In lieu of conducting investigation activities under a final Part B permit,
Phibro-Tech entered into a consent order with the California DTSC requiring the
assessment and investigation of soil and ground water quality and remediation,
if required, similar to that which would be required under a Part B permit.
Phibro-Tech completed the first phase of the investigation process and has
submitted reports and assessments to the DTSC which are currently under review.
Further limited characterization has been requested but Phibro-Tech and its
consulting engineers do not currently anticipate any extensive ongoing
corrective measures. This facility is also the subject of a DTSC summary of
violations alleging certain permit violations and violations of the California
Health and Safety Code and corresponding regulations. Phibro-Tech is in contact
with the DTSC with regard to this matter in an attempt to determine whether it
can be resolved through a mutually acceptable compliance schedule.
Joliet, Illinois. In connection with the RCRA Part B permit for this
facility, Phibro-Tech completed an initial RCRA facility investigation and an
additional sampling and investigative phase. The results of such sampling and
investigation were submitted to the Illinois Environmental Protection Agency,
and, based on the agency's response, Phibro-Tech will develop a plan for further
investigation or monitoring, or, if necessary, corrective action.
Garland, Texas. In connection with the RFA for its Garland, Texas
facility, no action was recommended. However, during a subsequent inspection
some discoloration of soil was noted. Accordingly, Phibro-Tech developed a
corrective action plan to address discolored top soil at the site. The project
included the upgrading of pollution control equipment. The next phase is
additional site characterization, which is presently being undertaken.
Powder Springs, Georgia. Phibro-Tech's facility in Powder Springs, Georgia
has been operationally closed since 1985. Phibro-Tech retains environmental
compliance responsibility for this facility and has effected a
14
RCRA closure of the regulated portion of the facility, a surface impoundment.
Post-closure monitoring and the implementation of a corrective measures plan are
required. Phibro-Tech has submitted and received Georgia Department of
Environmental Protection approval for a remedial investigation plan, and has
granted Phibro-Tech's Part B permit renewal application. The permit calls for a
Phase II work plan for corrective action.
Rixensart, Belgium and Guarulhos, Sao Paulo, Brazil. In connection with
the acquisition of the medicated feed additives business from Pfizer, Inc., the
Company acquired manufacturing and laboratory facilities in Rixensart, Belgium
and Guarulhos, Sao Paulo, Brazil. Both of these facilities operate pursuant to
the environmental and related laws of their respective countries as well as, in
the case of Rixensart, the EU. Although the Company has operated these
facilities for less than a year, the Company is not aware of any material
environmental liabilities in connection with these sites and further believes
that indemnification agreements from Pfizer, Inc. are adequate to protect the
Company in the event of discovery of covered environmental liabilities at the
respective sites.
Union, Illinois. Phibro-Tech's facility in Union, Illinois has also been
operationally closed since 1986. Phibro-Tech has performed additional soil
sampling and submitted a closure plan to the Illinois EPA, which is under
review.
Third Party Sites. The Company has, and certain of the Company's
subsidiaries have, sent products to customers at chemical processing or
manufacturing sites and sent wastes from their operations to various third party
waste disposal sites. In addition to the litigation described below with respect
to the Jericho, South Carolina site and the Casmalia, California site, from time
to time the Company or a subsidiary receives notice from representatives of
governmental agencies and private parties, or is named as a potentially
responsible party in legal proceedings, in which claims are made that it is
potentially liable for a portion of the investigation and remediation costs and
natural resource damages at such third party sites. Such claims are for strict
liability and carry with them the possibility of joint and several liability
under applicable Environmental Laws such as CERCLA, regardless of the relative
fault or level of involvement of the Company and other potentially responsible
parties. Although there can be no assurance, the Company does not believe that
liabilities in connection with such third party sites as to which claims have
been received to date will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
Ramat Hovav, Israel. Koffolk Israel's Ramat Hovav plant produces a wide
range of organic chemical intermediates for the chemical, pharmaceutical,
fragrance and veterinary industries. Israeli legislation enacted in 1997 amended
certain environmental laws by authorizing the relevant administrative and
regulatory agencies to impose certain sanctions, including issuing an order
against any person that violates such environmental laws to remove the
environmental hazard. In addition, such law imposes criminal liability on the
officers and directors of a corporation that violates such environmental related
laws, and increases the monetary sanctions that such officers, directors and
corporations may be ordered to pay as a result of such violations. The Ramat
Hovav plant operates under the supervision of the Ministry of Environment of the
State of Israel. The sewage system of the plant is connected to the Ramat Hovav
Local Industrial Council's central installation, where Koffolk Israel's sewage
is treated together with sewage of other local plants. Owners of the plants in
the area, including Koffolk Israel, have been required by the Israeli Ministry
of Environment to build facilities for pre-treatment of their sewage.
Odda, Norway. Like other Norwegian companies, Odda has to ensure that the
activities of the enterprise are planned, organized, performed and maintained in
conformity with requirements laid down in or pursuant to Norwegian health,
environmental and safety legislation. Norwegian law requires the person
responsible for an enterprise to ensure compliance with the requirements of,
among other laws, the Working Environment Act, the Pollution Control Act, the
Products Control Act, the Civil Defense Act and the Electrical Installations and
Electrical Equipment Act.
The applicable supervisory authority pursuant to such legislation is
responsible for supervising and providing guidance on implementation of and
compliance with such regulations. The supervisory authorities can
15
respond to violations of health, environmental and safety legislation with
various sanctions, including orders, fines, pollution charges and/or
notification to the police.
Norwegian legislation requires that Odda produce its products according to
its discharge permit and implementation system for environmental control and
improvements. Both local and central authorities are now focusing on the
environmental situation in the fjord at Odda and on waste disposal there by the
three primary manufacturers in the area, including Odda. In Odda's case, the
focus has been on the discharge of polynucleated aromatic hydrocarbons ("PAHY")
from the Venturi scrubber in the calcium carbide plant and the nitrogen content
in the filtercake (1%) discharge from the dicyandiamide plant. In a meeting
between Odda and SFT (Norwegian Pollution Control Authority) in June 1998, SFT
indicated that Odda should make a diligent effort to develop a commercial use
for filtercake within three years, and consider the reduction of discharges of
PAHY from existing levels (which discharges are in compliance with Odda's
permits). Projects involving a new filter to reduce emissions of soluble
nitrogen and a facility to dry and bulk ship filtercake are being pursued in
consultation with the SFT.
Government Regulation
Certain agricultural feed products offered by the Company, namely
nicarbazin and amprolium products, require licensing by a governmental agency
before marketing. In the United States, governmental oversight of animal
nutrition and health products is shared primarily by the United States
Department of Agriculture ("USDA") and the Food and Drug Administration. A third
agency, the Environmental Protection Agency, has jurisdiction over certain
products applied topically to animals or to premises to control external
parasites.
The FDA is responsible for the safety and wholesomeness of the human food
supply. It regulates foods intended for human consumption and, through The
Center for Veterinary Medicine, regulates the manufacture and distribution of
animal drugs, including feed additives and drugs that will be given to animals
from which human foods are derived, as well as feed additives and drugs for pet
(or companion) animals.
To protect the food and drug supply for animals, the FDA develops
technical standards for animal drug safety and effectiveness and evaluates data
bases necessary to support approvals of veterinary drugs. The USDA monitors the
food supply for animal drug residues.
The Office of New Animal Drug Evaluation ("NADE") is responsible for
reviewing information submitted by drug sponsors who wish to obtain approval to
manufacture and sell animal drugs. A new animal drug is deemed unsafe unless
there is an approved new animal drug application ("NADA"). Virtually all animal
drugs are "new animal drugs" within the meaning of the term in the Federal Food,
Drug, and Cosmetic Act. Although the procedure for licensing products by the
USDA are formalized, the acceptance standards of performance for any product are
agreed upon between the manufacturer and the NADE. An NADA in animal health is
analogous to a New Drug Application ("NDA") in human pharmaceuticals. Both are
administered by the FDA. The drug development process for human therapeutics can
be more involved than that for animal drugs. However, for food-producing
animals, food safety residue levels are an issue, making the approval process
longer than for animal drugs for non-food producing animals, such as pets.
The FDA may deny a NADA if applicable regulatory criteria are not
satisfied, require additional testing or information, or require postmarketing
testing and surveillance to monitor the safety or efficacy of a product. There
can be no assurances that FDA approval of any NADA will be granted on a timely
basis or at all. Moreover, if regulatory approval of a product is g