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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 September 30, 2002
Commission File Number: 0-24312
VIRBAC CORPORATION
State of Incorporation: Delaware I.R.S. Employer I.D. 43-1648680
3200 Meacham Boulevard
Fort Worth, TX 76137
(817) 831-5030
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 November 8, 2002 is
22,100,965 shares.
VIRBAC CORPORATION
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets -
September 30, 2002 and December 31, 2001 3
Consolidated Statements of Income -
Three months and nine months ended September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 2002 and 2001 5
Consolidated Statement of Shareholders' Equity -
Nine months ended September 30, 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Qualitative And Quantitative Disclosures About Market Risk 21
Item 4. Disclosure Controls and Procedures 21
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature and Certifications 22
Exhibit 10 - Fourth Amendment to Credit Agreement dated as of August 7, 2002 25
Exhibit 99.1 - Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of The United States Code 46
Exhibit 99.2 - Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of The United States Code 47
VIRBAC CORPORATION
PART I - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (UNAUDITED) PAGE 3
- --------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
(in thousands except per share amounts) 2002 2001
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 244 $ 477
Accounts receivable, (net of an allowance of $194 and $124,
respectively) 13,718 12,905
Accounts receivable - Virbac SA 566 1,170
Inventories, net 12,606 13,932
Deferred income taxes 953 2,535
Prepaid expenses and other assets 1,511 1,338
------------- -------------
Total current assets 29,588 32,357
Property, plant and equipment, net 12,766 12,659
Goodwill and other intangibles, net 8,159 7,152
Deferred income taxes 1,885 1,885
Other assets 306 315
------------- -------------
Total assets $ 52,704 $ 54,368
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4 $ 600
Accounts payable
Trade 4,034 5,059
Virbac SA 21 982
Accrued property taxes 284 198
Accrued expenses 2,650 1,597
------------- -------------
Total current liabilities 6,993 8,436
Long-term debt 6,249 9,700
Unearned product license fees 6,000 5,395
Commitments and contingencies (Note 5)
Shareholders' equity:
Common stock ($.01 par value; 38,000 shares
authorized; 22,116 and 22,055, respectively issued) 221 221
Additional paid-in capital 35,132 34,938
Treasury stock at cost (18 and 28 shares, respectively) (67) (105)
Accumulated deficit (1,824) (4,217)
------------- -------------
33,462 30,837
------------- -------------
Total liabilities and shareholders' equity $ 52,704 $ 54,368
============= =============
The accompanying notes are an integral part
of these consolidated financial statements.
VIRBAC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) PAGE 4
- --------------------------------------------------------------------------------
(in thousands except per share data) FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net revenues $ 15,883 $ 14,695 $ 47,421 $ 45,656
Cost of goods sold 9,153 8,518 27,001 26,969
---------- ---------- ---------- ----------
Gross profit 6,730 6,177 20,420 18,687
Operating Expenses:
Selling, general and administrative 3,949 4,335 12,422 12,048
Research and development 630 791 2,067 2,240
Warehouse and distribution 527 544 1,706 1,695
---------- ---------- ---------- ----------
Total operating expenses 5,106 5,670 16,195 15,983
Income from operations 1,624 507 4,225 2,704
Interest expense (80) (150) (278) (490)
Other income (expense) (1) 3 6 43
---------- ---------- ---------- ----------
Income before income tax expense 1,543 360 3,953 2,257
Income tax expense (596) (154) (1,560) (974)
---------- ---------- ---------- ----------
Net income $ 947 $ 206 $ 2,393 $ 1,283
========== ========== ========== ==========
Earnings Per Share:
Basic income per share $ 0.04 $ 0.01 $ 0.11 $ 0.06
========== ========== ========== ==========
Diluted income per share $ 0.04 $ 0.01 $ 0.10 $ 0.06
========== ========== ========== ==========
Basic shares outstanding 22,116 22,040 22,098 22,033
Diluted shares outstanding 22,886 22,645 22,877 22,651
The accompanying notes are an integral part
of these consolidated financial statements.
VIRBAC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) PAGE 5
- --------------------------------------------------------------------------------
(in thousands) FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
2002 2001
---------- ----------
OPERATING ACTIVITIES
Net income $ 2,393 $ 1,283
Adjustments to reconcile net income to net cash provided by, (used
in) operating activities:
Depreciation and amortization 988 1,263
Provision for excess and obsolete inventories 586
Recognition of unearned product license fees (45)
Deferred income tax expense 1,582 974
Issuance of stock to directors as compensation 63 21
Changes in operating assets and liabilities:
Increase in accounts receivable (199) (4,065)
Decrease in inventories 740 153
Increase, (decrease) in prepaid expenses and other (173) 56
Decrease in accounts payable (1,162) (243)
Increase, (decrease) in accrued expenses 1,139 (605)
---------- ----------
Net cash provided by, (used in) operating activities 5,912 (1,163)
---------- ----------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,077) (432)
Purchase of product licenses (1,025) (606)
Receipt of product license fees 650 150
Other 9 (195)
---------- ----------
Net cash used in investing activities (1,443) (1,083)
---------- ----------
FINANCING ACTIVITIES
Proceeds from long-term debt 7,959 9,792
Repayment of long-term debt (12,006) (8,345)
Change in outstanding checks in excess of funds on deposit (824) 522
Issuance of common stock 169 24
---------- ----------
Net cash (used in), provided by financing activities (4,702) 1,993
---------- ----------
Decrease in cash and cash equivalents (233) (253)
Cash and cash equivalents, beginning of period 477 272
---------- ----------
Cash and cash equivalents, end of period $ 244 $ 19
========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
VIRBAC CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) PAGE 6
- --------------------------------------------------------------------------------
In thousands Common Stock Treasury Stock
------------------------- --------------------------
Additional
Number Par Paid-In Number Accumulated
of Shares Value Capital of Shares Amount Deficit Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at
December 31, 2001 22,055 $ 221 $ 34,938 28 $ (105) $ (4,217) $ 30,837
Shares issued to directors 6 43 (5) 20 $ 63
Shares issued for stock
compensation plans 55 151 (5) 18 $ 169
Net Income 2,393 $ 2,393
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at
September 30, 2002 22,116 $ 221 $ 35,132 18 $ (67) $ (1,824) $ 33,462
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
VIRBAC CORPORATION PAGE 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Virbac Corporation (the "Company") manufactures and distributes
companion animal health products. The Company is a leader in dermatological and
oral hygiene products for companion animals, or pets, and provides a broad array
of health care products to its customers under the C.E.T., Allerderm, St. JON,
Iverhart, Mardel, Pet Tabs, and Preventic brand names.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
information and footnotes required by accounting standards generally accepted in
the United States of America for complete financial statements. In the opinion
of management, these statements include all adjustments (which consist of
normal, recurring adjustments) necessary to present fairly the financial
position as of September 30, 2002 and December 31, 2001 and the results of
operations and cash flows for the three and nine months ended September 30, 2002
and 2001. The results of operations for the three and nine months ended
September 30, 2002 and 2001 are not necessarily indicative of the operating
results for the full year. This interim report should be read in conjunction
with the Company's consolidated financial statements and notes related thereto
included in the 2001 Form 10-K as filed with the Securities and Exchange
Commission.
REVENUE RECOGNITION
The Company recognizes revenue when the risks of ownership have
transferred to the Company's customers. See the discussion in Note 9 regarding a
change in accounting principle in 2000.
Revenue related to certain contract manufacturing customers, for whom
the Company provides warehousing and/or distribution services, is contractually
recognized upon the completion of the manufacturing process.
2. INVENTORIES (in thousands)
Inventories consist of the following:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
Raw materials $ 4,184 $ 7,437
Finished goods 8,962 6,940
------------- -------------
13,146 14,377
Less: reserve for excess and obsolete inventories (540) (445)
------------- -------------
$ 12,606 $ 13,932
============= =============
VIRBAC CORPORATION PAGE 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM DEBT (in thousands)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
Revolving credit facility with a financial institution based upon specified
percentages of qualified accounts receivable and inventory, collateralized by
accounts receivable, inventory, equipment, intangibles, and certain real estate,
with interest varying based upon covenant ratios (3.62% as of September 30, 2002) $ 6,237 $ 10,300
Installment credit loan due September 2006, secured by an automobile with no
interest 16
------------- -------------
6,253 10,300
Less: current maturities (4) (600)
------------- -------------
$ 6,249 $ 9,700
============= =============
The revolving credit facility contains financial covenants including,
but not limited to, tangible net worth and interest coverage ratios, and
restricts the payment of dividends. At September 30, 2002, the Company was in
compliance with these covenants.
On August 7, 2002, the revolving credit facility was amended to extend
the expiration date to July 31, 2005 and increase the amount available under the
facility from $10.8 million to $12.0 million. There are no principal payments
due until July 2005 when the full amount outstanding will be due and payable. At
September 30, 2002, $5.8 million was available under the credit facility and the
interest rate was 3.62%.
4. STOCK OPTIONS AND COMMON STOCK TRANSACTIONS
Under terms of the Company's Incentive Stock Option Plans, officers and
certain other employees may be granted options to purchase the Company's common
stock at the closing market price on the date that the option is granted.
Options generally vest over three years and have a maximum term of ten years.
On February 25, 2002, the Board of Directors granted 86,000 options to
employees at the exercise price of $5.00, which was the market value of the
Company's stock on February 25, 2002. These options vest ratably over three
years from the dates of grant and will expire ten years from the grant date. For
the nine months ended September 30, 2002, 60,000 options were exercised. Of the
options exercised, 55,000 were issued from previously unissued shares and 5,000
shares were reissued from treasury shares.
During the nine months ended September 30, 2002, 6,000 shares were
issued from previously unissued shares and 5,000 shares were reissued from
treasury shares as compensation to non-employee directors of the Company.
Compensation expense of approximately $63,000 was recorded based on the market
price of the Company's shares at the date of issuance.
VIRBAC CORPORATION PAGE 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is subject to certain litigation and claims arising out of
the conduct of its business. While the final outcome of any litigation or claim
cannot be determined with certainty, management believes that the final outcome
of any current litigation or claim will not have a material adverse effect on
the Company's financial position, cash flows or results of operations.
ADJUSTMENT OF MERGER SHARES
The Company is the result of the March 5, 1999 merger of Virbac, Inc.,
a subsidiary of Virbac SA ("VBSA"), a French veterinary pharmaceutical
manufacturer, and Agri-Nutrition Group Limited ("AGNU"), a publicly held
company. In order to maintain VBSA's 60% ownership interest in the Company until
the expiration, termination or exercise of all options to purchase the Company's
common stock outstanding as of the date of the merger and until the Company's
last issuance of common stock pursuant to the "Mardel Merger Agreement", the
Company will contemporaneously, with the issuance of common stock upon the
exercise of pre-merger AGNU options or pursuant to the Mardel Merger Agreement,
issue to VBSA a number of additional shares of common stock equal to the product
of (a) the aggregate number of shares of common stock issued upon the exercise
of such AGNU options or pursuant to the Mardel Merger Agreement and (b) 1.5.
Each such post-merger adjustment will dilute the voting power of current
stockholders. As of September 30, 2002, 274,000 pre-merger options were
outstanding. During the first nine months of 2002, 5,000 shares were issued for
pre-merger options exercised; however, since these shares were issued from
treasury stock, no shares were issued to VBSA. No newly issued shares will be
issued to VBSA as long as treasury shares are available to satisfy these
pre-merger obligations.
ACQUISITION OF LICENSING RIGHTS
In 1999, the Company acquired the rights to manufacture and sell
products under development by a third party for a period of 15 years. The
Company has made milestone payments totaling $3.2 million for such rights.
Depending upon the third party reaching certain milestones with respect to
obtaining U. S. Food and Drug Administration ("FDA") approval to sell such
products, the Company was committed to paying in fiscal 2001 and 2002
approximately $0.8 million and $0.7 million, respectively. During 2001, the
Company entered into an agreement with the third party whereby the Company
acquired ownership of all rights and data for the products and the Company's
future royalty payments under the agreement were reduced in exchange for the
Company assuming all remaining costs of registering the products. The Company
estimates those costs to be approximately $1.4 million and they will be recorded
as research and development expense in the periods in which they are incurred.
The Company began to amortize its payments to the third party over the period of
expected future benefit in the second quarter of 2001.
Upon adoption of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangibles, the Company determined that the $3.2 million
previously paid to the third party has an indefinite life and will not be
amortized. Instead, these costs will be reviewed for impairment each year in
accordance with the Company's policy.
PFIZER AGREEMENT
In 2000, the Company reached an agreement to sublicense to Pfizer Inc.
the Company's North American distribution rights for two equine products. Under
the terms of the agreement, the Company received an initial cash payment of
$5.25 million, some or all of which is subject to repayment if the Company has
not obtained FDA approval to sell the products or certain other conditions are
not met by December 31, 2003. In September 2002, the Company received an
additional payment of $0.7 million because a regulatory milestone had been
achieved. These product license fees will be recognized over the longer of the
contract period, 15 years, or the expected period of future benefits. The
expected period of future benefits has not yet been determined, and payments
received have been reflected as unearned product license fees in the September
30, 2002 and December 31, 2001 Balance Sheet.
VIRBAC CORPORATION PAGE 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SEGMENT AND RELATED INFORMATION
The Company has three reportable segments. The Veterinary segment
distributes pet health products mainly to veterinarian offices. The Consumer
Brands segment manufactures and distributes pet health products to pet stores,
farm and feed stores, and the mass retail market. PM Resources manufactures and
distributes animal health and specialty chemicals under private label brands and
for third parties.
The accounting policies of the reportable segments are the same as
those described in Note 3 of the Company's annual report 10-K. In evaluating
segment performance (excluding PM Resources), management focuses on income from
operations excluding depreciation, amortization, interest, other expenses
(income), and taxes. All intercompany sales and transfers to the reportable
segments are at cost. Such sales are eliminated in consolidation. Total assets
are monitored by the Company's corporate personnel (except for accounts
receivable which is reviewed by Veterinary and Consumer Brands segments).
Management separately monitors PM Resources' results and total assets. The
Company's reportable segments utilize different channels of distribution. They
are managed separately because each business distributes different products and
each has different marketing strategies. Summarized financial information
concerning the Company's reportable segments is shown in the following tables:
Consumer PM Consolidated
(in thousands) Veterinary Brands Resources Administration Total
---------- -------- --------- -------------- ------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
Net revenues 7,524 3,892 4,467 15,883
Income (loss) from operations 2,449 174 891 (1,890) 1,624
Interest expense, other income, and tax expense, net (677)
Net income 947
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
Net revenues 5,829 3,899 4,967 14,695
Income (loss) from operations 1,370 101 1,053 (2,017) 507
Interest expense, other income, and tax expense, net (301)
Net income 206
Consumer PM Consolidated
(in thousands) Veterinary Brands Resources Administration Total
---------- -------- --------- -------------- ------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
Net revenues $ 24,273 $ 12,231 $ 10,917 $ 47,421
Income (loss) from operations 7,607 757 1,618 (5,757) 4,225
Interest expense, other income, and tax expense, net (1,832)
Net income 2,393
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Net revenues $ 18,760 $ 14,033 $ 12,863 $ 45,656
Income (loss) from operations 4,964 1,671 1,232 (5,163) 2,704
Interest expense, other income, and tax expense, net (1,421)
Net income 1,283
VIRBAC CORPORATION PAGE 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. OUTSTANDING CHECKS IN EXCESS OF FUNDS ON DEPOSIT
The Company uses a revolving credit facility to fund working capital
needs. Under terms of this facility, the bank automatically sweeps the Company's
checking accounts and either increases or reduces the amount outstanding under
the revolving line of credit. At any given point in time, the Company has checks
outstanding that have not been presented to the bank for payment. The Company's
outstanding checks are classified as accounts payable-trade in the amounts of
$0.8 million and $1.1 million at September 30, 2002 and December 31, 2001,
respectively.
8. INCOME TAXES
As of September 30, 2002, the Company has available net operating loss
carryforwards totaling approximately $0.8 million, which expire in the years
2011 to 2019. The Company also has available general business tax credit and
alternative minimum tax credit carryforwards totaling approximately $0.1
million. The general business tax credits expire in the years 2010 to 2020; the
alternative minimum tax carryforwards may be carried forward indefinitely.
9. CHANGE IN ACCOUNTING PRINCIPLE
On December 3, 1999, the United States Securities and Exchange
Commission issued Staff Accounting Bulletin 101 ("SAB 101"), which became
effective for the Company during the fourth quarter of 2000. This pronouncement
required a change in the way in which the Company recorded revenues. Prior to
the implementation of SAB 101, the Company recognized revenues when the product
was shipped from the Company's distribution facility due to the transfer of the
risk of loss.
Because of the accounting change discussed above, the Company recorded
$1.8 million of sales and diluted earnings per share of $0.02 in the first
quarter of 2001 when the risk of ownership had passed to its customers, while
the product had shipped in the fourth quarter of 2000. During 2001, the Company
changed its shipping terms with its customers so that the risk of ownership
transferred at the time of shipment. Therefore, there was not a similar
offsetting amount in the fourth quarter of 2001 to be carried over to 2002.
10. INTANGIBLE ASSETS AND GOODWILL
Effective July 1, 2001, the Company adopted certain provisions of
Statement of Financial Accounting Standard ("FAS") No. 141, and effective
January 1, 2002, the Company adopted the full provisions of FAS No. 141 and FAS
No. 142. FAS No. 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets apart from goodwill. The Company
evaluated its goodwill acquired prior to June 30, 2001 using the criteria of FAS
No. 141, which resulted in no changes in the classification of goodwill at
January 1, 2002. FAS No. 142 requires that purchased goodwill and certain
indefinite-lived intangibles no longer be amortized, but instead be tested for
impairment at least annually. The Company evaluated its intangible assets and
determined that patents have determinable lives and product rights and other
intangibles have indeterminate lives.
FAS No. 142 requires a transitional goodwill impairment test and an
annual goodwill impairment test. The Company completed the first phase of the
transitional goodwill impairment test during the first quarter of 2002 and found
no instances of impairment of its recorded goodwill; accordingly, the second
phase is not necessary. The Company anticipates performing its annual goodwill
and indefinite-lived intangibles impairment tests during the fourth quarter of
2002.
In accordance with FAS No. 142, the effect of this accounting change is
reflected prospectively. Supplemental comparative disclosure as if the change
had been retroactively applied to the prior year period is as follows (in
thousands, except per share amounts):
VIRBAC CORPORATION PAGE 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands) THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2001
------------- -------------
Net income:
Reported net income $ 206 $ 1,283
Goodwill amortization 25 120
Indefinite-lived asset amortization 29 51
Adjusted net income 260 1,454
Basic earnings per share:
Reported earnings per share $ 0.01 $ 0.06
Goodwill amortization $ 0.00 $ 0.01
Intangible assets not amortized $ 0.00 $ 0.00
Adjusted earnings per share $ 0.01 $ 0.07
Diluted earnings per share:
Reported earnings per share $ 0.01 $ 0.06
Goodwill amortization $ 0.00 $ 0.00
Intangible assets not amortized $ 0.00 $ 0.00
Adjusted earnings per share $ 0.01 $ 0.06
For the nine months ended September 30, 2002, no goodwill or other
intangible assets were impaired or disposed. Goodwill and other intangibles, net
consisted of the following:
Acquired Intangible Assets:
(in thousands) AS OF SEPTEMBER 30, 2002 AS OF DECEMBER 31, 2001
----------------------------- ------------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------- ------------ -------- ------------
Amortized intangible assets:
Patents $ 372 $79 $ 347 $61
Unamortized intangible assets:
Product rights and other $4,600 $3,600
Goodwill:
(in thousands) CONSUMER
VETERINARY BRANDS TOTAL
Goodwill, net at December 31, 2001 $ 2,254 $ 1,012 $ 3,266
Goodwill, net at September 30, 2002 $ 2,254 $ 1,012 $ 3,266
Amortization expense for patents is expected to be $23,000 per year for
each of the next five years.
VIRBAC CORPORATION PAGE 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted SFAS No. 144 ("FAS
144"), "Accounting for the Impairment of Long-Lived Assets", which establishes
accounting and reporting standards for impairment and disposition of long-lived
assets (except unidentifiable intangibles), including discontinued operations.
Additionally, FAS 144 expands the scope of discontinued operations to include
all components of an entity with operations that (1) can be distinguished from
the rest of the entity and (2) will be eliminated from the ongoing operations of
the entity in a disposal transaction. The implementation of FAS 144 did not have
an impact on the Company's consolidated financial position, consolidated results
of operations or cash flows.
In September 2001, the Financial Accounting Standards Board concluded
deliberations and unanimously voted to issue SFAS No. 143 ("FAS 143"),
"Accounting for Asset Retirement Obligations." FAS 143 requires that obligations
associated with the retirement of a tangible long-lived asset to be recorded as
a liability when those obligations are incurred, with the amount of the
liability initially measured at fair value.
FAS 143 will be effective for financial statements for the year
beginning January 1, 2003. The Company has determined that the effect of FAS 143
is expected to be immaterial to its consolidated financial position,
consolidated results of operations or cash flows.
Effective June 2002, the Financial Accounting Standards Board (FASB)
approved for issuance SFAS No. 146 ("FAS 146"), "Accounting for Exit or Disposal
Activities", effective for exit or disposal activities that are initiated after
December 31, 2002. FAS 146 addresses issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and/or
disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
(EITF) has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)", and the SEC has set forth in the
Staff Accounting Bulletin (SAB) 100, "Restructuring and Impairment Charges". The
initial adoption of this accounting requirement is expected to be immaterial to
its consolidated financial position, consolidated results of operations or cash
flows.
VIRBAC CORPORATION PAGE 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Virbac Corporation (the "Company") manufactures and distributes
companion animal health products. The Company is a leader in dermatological and
oral hygiene products for companion animals, or pets, and provides a broad array
of health care products to its customers under the C.E.T., Allerderm, St. JON,
Iverhart, Mardel, Pet Tabs, and Preventic brand names.
The Management's Discussion and Analysis that follows, and the other
documents incorporated by reference, contain forward-looking information made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements involve a number of risks, uncertainties
and other factors that could cause actual results to differ materially from
those stated, including without limitation:
o Inaccurate projections relating to introductions of new
competitive products or technological entries into the market
could adversely affect sales forecasts.
o A lack of acceptance of the Company's products by the market
could adversely affect sales projections.
o Projections of future revenues related to products not yet
registered with certain governmental agencies, particularly
the FDA, could differ significantly if those registrations are
not received in the time periods anticipated.
o Interest rates and changes to those rates could differ
significantly from Company projections.
o The Company receives significant support from its majority
owner, VBSA. This support includes product development,
research expenditures made that benefit the Company,
short-term borrowings, and worldwide distribution of the
Company's products.
o The Company could experience a decrease in the demand for its
products, which could result in reduced funding available
under the Company's lines of credit.
o Effects of other strategic initiatives, including
acquisitions, divestitures, and restructurings.
RESULTS OF OPERATIONS
The consolidated financial statements of the Company are prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of these consolidated financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent liabilities and the reported
amounts of revenues and expenses. On an ongoing basis, management evaluates its
estimates and judgements, including those related to customer incentives,
product returns, bad debts, inventories, intangible assets, income taxes,
contingencies and litigation. Management bases its assumptions on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgements
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgements and estimates used in the
preparation of its consolidated financial statements:
o The Company records estimated reductions in revenue for
product returns. Should a greater proportion of product be
returned in later periods than was estimated, additional
reductions to revenue may be required.
o The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments. If the financial condition of the
Company's customers were to deteriorate, resulting in
impairment in their ability to make payments,
VIRBAC CORPORATION PAGE 15
additional provisions may be required.
o The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference
between cost of the inventory and the estimated market value
based upon assumptions about future demand and market
conditions. If actual market conditions or demand is less
favorable than management projected, additional write-downs
may be required.
o The Company records a valuation allowance to reduce its
deferred tax assets to the amount that it believes is more
likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the
valuation allowance, in the event that the Company were to
determine that it would not be able to realize all or part of
its net deferred tax assets in the future, an adjustment to
the deferred tax assets would be charged to income in the
period such determination was made.
o The Company has recorded unearned income related to its
distribution agreement with Pfizer. The ability of the Company
to recognize this as income is dependent upon the Company
obtaining registrations permitting it to sell these products
from the appropriate governmental agencies. The Company also
will record the income based upon estimates of when the sales
of these products will occur. If the registrations are not
received in a timely manner, or certain other conditions are
not met, the Company would be required to repay some or all of
the unearned income to Pfizer.
o The Company is required to assess the carrying values of
goodwill and intangible assets with indeterminate lives
annually, or when circumstances dictate that the carrying
value might be impaired. Intangibles that are subject to
amortization are also reviewed in each reporting period to
determine if the carrying value might be impaired. The method
for determining if impairment has occurred requires estimates
of future cash flows and the Company's weighted average cost
of capital. In the event that an impairment is determined to
have occurred, the Company will reduce the carrying value of
the asset and earnings in that period.
(In thousands of dollars) FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net revenues $ 15,883 $ 14,695 $ 47,421 $ 45,656
Gross profit 6,730 6,177 20,420 18,687
Gross profit % 42% 42% 43% 41%
Operating expenses 5,106 5,670 16,195 15,983
Operating expense % 32% 39% 34% 35%
Interest and other expense (81) (147) (272) (447)
Income before taxes 1,543 360 3,953 2,257
Income tax expense (596) (154) (1,560) (974)
Net income $ 947 $ 206 $ 2,393 1,283
QUARTER ENDED SEPTEMBER 30, 2002 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001
Net Revenues: Net revenues increased by approximately $1.2 million or 8% for the
quarter ended September 30, 2002 compared with the quarter ended September 30,
2001 due to increased sales in the Veterinary segment, which were partially
offset by decreased sales in the Consumer Brands and PM Resources segments.
Specifically, net revenues by segment were as follows:
VIRBAC CORPORATION PAGE 16
FOR THE THREE MONTHS
(In thousands of dollars) ENDED SEPTEMBER 30,
2002 CHANGE
-------------------- ------------------
2002 2001 DOLLARS %
------- ------- ------- -------
Veterinary $ 7,524 $ 5,829 $ 1,695 29%
Consumer Brands 3,892 3,899 (7) 0%
PM Resources 4,467 4,967 (500) (10)%
------- ------- -------
Totals $15,883 $14,695 $ 1,188 8%
======= ======= =======
o Veterinary net revenues were up mostly due to higher sales of
parasiticide and dermatology products. Dermatology product
sales were driven by growth in new products such as Allermyl;
revenues in this category rose by $0.5 million or 20%.
Parasiticide products were up by 84% or $0.9 million. This
category's growth also comes from new products such as
Iverhart Plus and the Company's flea and tick control
products.
o Consumer Brands net revenues were down due to lower sales in
all product categories except Pet Tabs which almost completely
offset the other sales shortfalls. This segment is
experiencing extreme competitive pressures within the pet
store sales channel and from competing products sold by
mass-market stores. The Company is in the process of seeking
new profitable sales opportunities outside the pet store sales
channel. In particular, the Company will be seeking sales
opportunities in mass-market stores such as grocery, drug and
discount channels.
o PM Resources net revenues were down because of the initial
introduction of the livestock pour-on product, which occurred
in 2001. Typically, when a new product is launched, the
distributors buy an amount for normal inventory plus an extra
amount to fill immediate demand. As a result, net revenues in
the third quarter 2001 were about $0.4 million higher than in
the same quarter of 2002.
Gross Profit: Gross profit increased by $553,000 or 9%. The increase in gross
profit increase was attributable to increased net revenues and a more favorable
mix of products sold. Gross profit as a percentage of net revenues remained
unchanged at 42%. Specifically, gross profit by segment was as follows:
(In thousands of dollars) FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------
GROSS GROSS DOLLAR
2002 PROFIT % 2001 PROFIT % CHANGE
-------- -------- -------- -------- --------
Veterinary $ 4,422 59% $ 3,425 59% $ 997
Consumer Brands 1,135 29% 1,391 36% (256)
PM Resources 1,173 26% 1,361 27% (188)
-------- -------- --------
Totals $ 6,730 42% $ 6,177 42% $ 553
======== ======== ========
o Veterinary gross profit increased almost entirely due to increases in
sales volume in the parasiticide and dermatology categories. Gross
margins in these categories are typically 65% to 70% and are higher
than the other veterinary categories.
o Consumer Brands gross profit decreased almost entirely due to higher
price competition in this segment. The Company expects the Consumer
Brands gross profit to range between 30% and 33% for
VIRBAC CORPORATION PAGE 17
the remainder of the year.
o PM Resources gross profit decreased due to lower sales volume and an
unfavorable mix of products sold. The lower volume accounted for
$131,000 of the variance and the poor mix accounted for $57,000 of the
variance. The Company expects gross profits to range between 15% and
20% for the fourth quarter 2002 due to an unfavorable mix of products
expected to be sold.
Operating Expenses: Operating expenses have decreased $564,000 or 10% for the
quarter ended September 30, 2002 compared to the quarter ended September 30,
2001. As a percent of sales, operating expenses decreased to 32% compared to 39%
in the year earlier quarter. Selling, general and administrative expenses
("SGA") accounted for $386,000 of the decrease in the operating expenses for the
quarter. In 2001, the Company incurred large launch costs associated with
Iverhart Plus of about $500,000; similar costs were not incurred in 2002. In
addition, amortization expense for goodwill and indefinite-lived assets
decreased by $126,000, due to the adoption of Statements of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets", on January 1, 2002.
Research and development expenses decreased by $161,000 compared to the
corresponding quarter in 2001, due to the Company canceling a project that did
not hold the promise of an appropriate return for the investment. Research and
development expenses in the fourth quarter will be higher, as the Company will
focus on other more promising projects. The Company expects research and
development expenses to be approximately 6% to 7% of sales for the next several
quarters. Warehouse and distribution expenses were down by $17,000 compared to
the corresponding quarter in 2001. The decreased distribution costs were due to
increased efficiency.
Interest Expense and Other Income (Expense): Interest expense was lower for the
quarter than the prior year due to lower interest rates and borrowings in 2002
as compared with 2001. The interest rate on the Company's debt agreement was
5.25% at September 30, 2001 as compared with 3.62% at September 30, 2002.
Taxes: The Company has available net operating loss carryforwards totaling
approximately $0.8 million, which expire in the years 2011 to 2019. The Company
also has available general business tax credit and alternative minimum tax
credit carryforwards totaling approximately $0.1 million. The general business
tax credits expire in the years 2010 to 2020; the alternative minimum tax
carryforwards may be carried forward indefinitely. The Company has recorded
income tax expense in the quarter ended September 30, 2002 and September 30,
2001 of $596,000 and $154,000, respectively, which reflects a 39% effective tax
rate for 2002 and a 43% tax rate for 2001. The effective tax rate has declined
in 2002 because the Company no longer amortizes goodwill or indefinite-lived
intangible assets for financial reporting purposes.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2001
NET REVENUES: Net revenues increased by approximately $1.8 million, or 4% for
the nine months ended September 30, 2002 compared with the nine months ended
September 30, 2001 due to increased Veterinary sales, which were partially
offset by decreased sales in the Consumer Brands and PM Resources segments.
Specifically, net revenues by segment were as follows:
VIRBAC CORPORATION PAGE 18
FOR THE NINE MONTHS
(In thousands of dollars) ENDED SEPTEMBER 30,
2002 CHANGE
--------------------- ----------------------
2002 2001 DOLLARS %
-------- -------- -------- --------
Veterinary $ 24,273 $ 18,760 $ 5,513 29%
Consumer Brands 12,231 14,033 (1,802) (13)%
PM Resources 10,917 12,863 (1,946) (15)%
-------- -------- --------
Totals $ 47,421 $ 45,656 $ 1,765 4%
======== ======== ========
o Veterinary net revenues were up due to higher sales of parasiticide
products, which increased by 73%; dermatology products, which increased
by 11%; and dental products, which increased by 5%.
o Consumer Brand net revenues were down due to lower sales in all product
categories. This segment is experiencing extreme competitive pressures
within the pet store sales channel and from competing products sold by
mass-market stores. The Company is in the process of seeking new
profitable sales opportunities outside the pet store sales channel.
Namely, the Company will be seeking sales opportunities in mass-market
stores such as grocery, drug and discount channels.
o PM Resources net revenues were down because the Company's strategy has
been to eliminate low margin contract manufacturing products and
transfer the available production capacity to internal products, which
has reduced sales. In addition, in the third quarter 2001, the
livestock pour-on product was launched for sale. Typically, when a new
product is launched, the distributors buy an amount for normal
inventory plus an extra amount to fill immediate demand. As a result,
the net revenues in the third quarter 2001 were about $0.4 million
higher than in the same quarter 2002.
Gross Profit: Gross profit increased by $1.7 million or 9%. The increase in
gross profit was attributable to increased net revenues and a more favorable mix
of products sold, partially offset by lower sales volumes in Consumer Brands and
PM Resources, an increase in the Company's obsolescence reserve, and higher
production costs in the Consumer Brands segment. Gross profit as a percentage of
net revenues increased from 41% to 43%. Specifically, gross profit by segment
was as follows:
(In thousands of dollars) FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------
GROSS GROSS DOLLAR
2002 PROFIT % 2001 PROFIT % CHANGE
-------- -------- -------- -------- --------
Veterinary $ 14,138 58% $ 10,667 57% $ 3,471
Consumer Brands 3,865 32% 5,263 38% (1,398)
PM Resources 2,417 22% 2,757 21% (340)
-------- -------- --------
Totals $ 20,420 43% $ 18,687 41% $ 1,733
======== ======== ========
o Veterinary gross profit increased primarily due to increases in sales
volume in the parasiticide category. This category delivers higher
gross margins than the other veterinary categories.
o Consumer Brands gross profit decreased due to lower net revenues and
higher production costs. The lower volume accounted for $569,000 of the
decreased gross profit. In addition, the Company
VIRBAC CORPORATION PAGE 18
increased its obsolescence and excess inventory reserve in this segment
by $401,000, principally due to reduced demand for some of the
segment's pesticide products. The gross profit further decreased due to
higher production costs that were not passed on to the Company's
customers. The Company expects the Consumer Brands gross profit
percentage to range between 30% and 33% for the remainder of the year.
o PM Resources gross profit decreased due to lower sales that were
somewhat offset by a favorable mix of products sold. The lower volume
accounted for $431,000 of the variance and the more favorable mix
accounted for $91,000 of the variance.
Operating Expenses: Operating expenses increased $212,000 or 1% for the nine
months ended September 30, 2002 compared to the nine months ended September 30,
2001. As a percent of sales, operating expenses decreased from 35% in the year
earlier period to 34%. Selling, general and administrative expenses ("SGA")
increased by $374,000. Of this increase, $200,000 was incurred as a result of an
effort to purchase the animal health business of a competitor. After careful due
diligence and preliminary negotiations, the parties could not reach an agreement
and the transaction was abandoned. Offsetting this increase was decreased
amortization expense of $300,000 for goodwill and indefinite-lived assets, which
is due to the adoption of Statements of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets", on January 1, 2002. The remaining SGA
variance was primarily due to sales and marketing costs associated with the
launch of new products. Research and development expenses decreased by $173,000
for the nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001, due to the Company canceling a project that did not hold the
promise of an appropriate return for the investment. Research and development
expenses in the fourth quarter will be higher, as the Company will begin work on
future products. The Company expects research and development expenses to be
approximately 6% to 7% of sales for the remainder of fiscal 2002.
Interest Expense and Other Income (Expense): Interest expense was lower for the
nine months ended September 30, 2002 than the prior year due to lower interest
rates and borrowings in 2002 as compared with 2001.
Taxes: The Company has available net operating loss carryforwards totaling
approximately $0.8 million, which expire in the years 2011 to 2019. The Company
also has available general business tax credit and alternative minimum tax
credit carryforwards totaling approximately $0.1 million. The general business
tax credits expire in the years 2010 to 2020; the alternative minimum tax
carryforwards may be carried forward indefinitely. The Company has recorded
income tax expense for the nine months ended September 30, 2002 and September
30, 2001 of $1.6 million and $974,000, respectively, which reflects a 39%
effective tax rate for 2002 and a 43% tax rate for 2001. The effective tax rate
has declined in 2002 because the Company no longer amortizes goodwill or
indefinite-lived intangible assets for financial reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2002, $5.9 million of cash
was provided by operations. Of this amount, $2.4 million came from net income,
$0.6 million from a provision for inventory obsolescence, $1.0 million from
depreciation and amortization, and $1.6 million from the recognition of deferred
tax assets. The remaining operating cash flow items tended to offset each other.
Working capital provided $0.3 million of operating cash flows with reduced
inventories providing most of this cash flow. The Company has made an effort
this year to reduce its raw materials inventory and it will continue to focus on
this area for improvement. Because it is difficult to predict demand for new
products when they are first launched and the Company does not want to
experience stock-outs, the Company typically carries larger inventories for new
products for one year after their launch. This policy for new products could
tend to offset future raw materials inventory reductions the Company may
achieve.
Cash flows used in investing activities during the nine months ended
September 30, 2002 include capital improvements at the Company's St. Louis and
Fort Worth facilities. The Company also invested in new products to be
licensed-in from third parties. The Company received a milestone payment from
Pfizer for the registration of Equell. This payment was received under the
licensing agreement from August 2000.
VIRBAC CORPORATION PAGE 20
Cash flows used in financing activities during the nine months ended
September 30, 2002 primarily reflect net repayments of the revolving credit
facility. This credit facility is used to fund the growth in accounts receivable
and inventory.
The Company's revolving credit facility contains financial covenants
including, but not limited to, tangible net worth and interest coverage ratios,
and restricts the payment of dividends. At September 30, 2002, the Company was
in compliance with such covenants.
On August 7, 2002, the Company and the financial institution entered
into an amendment of the revolving credit facility that extended the expiration
date of the agreement until July 31, 2005, increased the amount available under
the facility from $10.8 million to $12.0 million and reduced the interest rate
by 0.25%. At September 30, 2002, $5.8 million was available under the revolving
credit facility and the interest rate was 3.62%.
Management believes that the Company will have sufficient cash to meet
the needs of its current operations for at least the next twelve months from
cash flows from current operations and from existing financing facilities. In
addition, the Company will be placing particular emphasis on reducing
inventories and receivables through the end of 2002.
The Company has no current plans to significantly increase capacity of
any of its plant facilities or to expend significant capital in modifying them.
The Company expects capital expenditures to be approximately $450,000 for the
remainder of the year.
In 2000, the Company reached an agreement to sublicense to Pfizer Inc.
the Company's North American distribution rights for two equine products. Under
the terms of the agreement, the Company received an initial cash payment of
$5.25 million, some or all of which is subject to repayment if the Company has
not obtained FDA approval to sell the products or certain other conditions are
not met by December 31, 2003. This product license fee will be recognized over
the longer of the contract period, 15 years, or the expected period of future
benefits. The expected period of future benefits has not yet been determined,
and the payments received have been reflected as unearned product license fees
in the March 31, 2002 and December 31, 2001 Balance Sheet.
The Company has no plans to pay dividends to stockholders in the
foreseeable future.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted SFAS No. 141 and 142
("FAS 141" and "FAS 142"). FAS 141 requires all business combinations be
accounted for using the purchase method of accounting. FAS 141 also defines
acquired intangible assets and requires a reassessment of a company's
pre-existing acquired intangible assets and goodwill be evaluated and adjusted
to conform with that definition. The adoption of FAS 141 did not have a
significant impact on our consolidated financial position, consolidated results
of operations and/or our consolidated cash flows. FAS 142 requires goodwill no
longer be amortized under any circumstances. Instead, all goodwill (including
goodwill associated with acquisitions consummated prior to the adoption of FAS
142) is to be evaluated for impairment annually or when events or circumstances
occur indicating that goodwill might be impaired. FAS 142 requires a
transitional goodwill impairment test and an annual goodwill impairment test.
The Company completed the first phase of the transitional goodwill impairment
test during the first quarter of 2002 and found no instances of impairment of
its recorded goodwill; accordingly, the second phase is not necessary. The
Company anticipates performing its annual goodwill and indefinite-lived
intangibles impairment tests during the fourth quarter of 2002.
Effective January 1, 2002, the Company adopted SFAS No. 144 ("FAS
144"), "Accounting for the Impairment of Long-Lived Assets", which establishes
accounting and reporting standards for impairment and disposition of long-lived
assets (except unidentifiable intangibles), including discontinued operations.
Additionally, FAS 144 expands the scope of discontinued operations to include
all components of an entity with operations that (1) can be distinguished from
the rest of the entity and (2) will be eliminated from the ongoing operations of
the entity in a disposal transaction. The implementation of FAS 144 did not have
an impact on our consolidated financial position, consolidated results of
operations or cash flows.
VIRBAC CORPORATION PAGE 21
In June 2001, the Financial Accounting Standards Board concluded
deliberations and unanimously voted to issue SFAS No. 143 ("FAS 143"),
"Accounting for Asset Retirement Obligations." FAS 143 requires that obligations
associated with the retirement of a tangible long-lived asset to be recorded as
a liability when those obligations are incurred, with the amount of the
liability initially measured at fair value.
FAS 143 will be effective for financial statements for the year
beginning January 1, 2003. The Company has determined that the effect of FAS 143
is expected to be immaterial to its consolidated financial position, results of
operations or cash flows.
Effective June 2002, the Financial Accounting Standards Board (FASB)
approved for issuance SFAS No. 146 ("FAS 146"), "Accounting for Exit or Disposal
Activities", effective for exit or disposal activities that are initiated after
December 31, 2002. FAS 146 addresses issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and/or
disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
(EITF) has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)", and the SEC has set forth in the
Staff Accounting Bulletin (SAB) 100, "Restructuring and Impairment Charges". The
initial adoption of this accounting requirement is expected to be immaterial to
its consolidated financial position, results of operations or cash flows.
QUARTERLY EFFECTS AND SEASONALITY
The results of operations of certain products in the Veterinary product
line, including Virbac's flea and tick collars, have been seasonal with a lower
volume of its sales and earnings being generated during the Company's first and
fourth fiscal quarters. The results of operations of the Company's Consumer
Brands segment have also been seasonal with a relatively lower volume of its
sales and earnings being generated during the Company's fourth quarter. PM
Resources operations are highly dependent on weather, livestock economics and
the timing of orders.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any derivative instruments that materially
increase its exposure to market risks for interest rates, foreign currency
rates, commodity prices or other market price risks. In addition, the Company
does not use derivatives for speculative purposes.
The Company's exposure to market risks results from changes in interest
rates. Interest rate risk exists principally with respect to long-term
indebtedness, which bears interest at floating rates. At September 30, 2002, the
Company had $6.2 million of indebtedness bearing interest at floating rates. If
an unfavorable change of 100 basis points in the interest rate applicable to the
Company's floating-rate indebtedness had occurred in the three-month period
ended September 30, 2002, the Company would have experienced additional interest
expense of $16,000 for this three-month period. This assumes no change in the
principal or a reduction of such indebtedness.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES.
Within 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our principal
executive officers and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, our principal executive officers and principal financial officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our periodic
reports filed with the Securities and Exchange Commission. In addition, we
reviewed our internal controls, and there have been no significant changes in
our internal controls or in other factors that could significantly affect those
internal controls subsequent to the date we carried out our last evaluation.
VIRBAC CORPORATION PAGE 22
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
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
/s/ Joseph A. Rougraff
- ------------------------------------------
Joseph A. Rougraff
Vice President and Chief Financial Officer
November 13, 2002
VIRBAC CORPORATION PAGE 23
OTHER INFORMATION
CERTIFICATION
I, Thomas L. Bell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Virbac
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Thomas L. Bell
- ---------------------------
Thomas L. Bell
Chief Executive Officer
November 13, 2002
VIRBAC CORPORATION PAGE 24
OTHER INFORMATION
CERTIFICATION
I, Joseph A. Rougraff, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Virbac
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Joseph A. Rougraff
- ------------------------------
Joseph A. Rougraff
Chief Financial Officer
November 13, 2002
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10 Fourth Amendment to Credit Agreement
99.1 Certification Pursuant to Section 1350 of Chapter 63 of Title 18
of the United States Code - Chief Executive Officer
99.2 Certification Pursuant to Section 1350 of Chapter 63 of Title 18
of the United States Code - Chief Financial Officer