-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SsIHTlDbBSFDphmLgoG1DgkHrUDkrUdQQgcoMu7X6z6cFM/tAPNZRUnxEq5PCTky zjGOsb1ilhn227jtOi4HeQ== 0001021408-01-505363.txt : 20010815 0001021408-01-505363.hdr.sgml : 20010815 ACCESSION NUMBER: 0001021408-01-505363 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010531 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEO SPECIALTY CHEMICALS INC CENTRAL INDEX KEY: 0001072548 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 341708689 STATE OF INCORPORATION: OH FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 333-70011 FILM NUMBER: 1713210 BUSINESS ADDRESS: STREET 1: 28601 CHAGRIN BLVD., STE., 210 CITY: CLEVELAND STATE: OH ZIP: 44122 BUSINESS PHONE: 2164645564 8-K/A 1 d8ka.txt AMENDED CURRENT REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________ FORM 8-K/A AMENDED CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): May 31, 2001 GEO SPECIALTY CHEMICALS, INC. (Exact Name of Registrant as Specified in Its Charter) Ohio 333-70011 34-1708689 (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.) 28601 CHAGRIN BOULEVARD, SUITE 210 CLEVELAND, OHIO 44122 (Address, including Zip Code, of Principal Executive Offices) 216-464-5564 (Registrant's Telephone Number, Including Area Code) N/A (Former Name or Former Address, if Changed Since Last Report) ================================================================================ ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On May 31, 2001, GEO acquired substantially all of the assets and rights associated with the peroxides business unit of Hercules Incorporated, a Delaware corporation ("Hercules"), for $92.2 million, subject to a post-closing working capital adjustment. GEO assumed certain liabilities of the acquired business, exclusive of pre-closing environmental liabilities. The acquired business is engaged primarily in the manufacture and sale of various organic peroxide products used in the vulcanization, catalysis and processing of polymers and elastometric compounds (the "Peroxides Business"). The purchase price of the acquired business was arrived at through arms-length negotiations between GEO and Hercules. In connection with the acquisition, GEO acquired certain production facilities from Hercules located in Franklin, Virginia and entered into a long- term lease with Hercules for the real property underlying such facilities, and GEO and Hercules entered into a Plant Operating Agreement, pursuant to which Hercules will provide labor and other services in support of GEO's operation of such acquired facilities. GEO also entered into a lease with Hercules relating to certain production facilities and real property located in Gibbstown, New Jersey, subject to Hercules' post-closing obligation to split such real property from a larger lot owned by it and transfer full title to such facilities and real property to GEO. GEO and Hercules also entered into two Tolling Agreements, pursuant to which Hercules will produce the ECHO(R) A vulcanizing agent and other peroxide products at Hercules' Brunswick, Georgia and Beringen, Belgium facilities for GEO on a tolling basis, for an initial term of one year with an option in favor of GEO for two additional one year terms. In addition, GEO was granted an option to purchase for $1.00 certain machinery and equipment associated with the Peroxides Business located at Hercules' production facilities in Beringen, Belgium. GEO intends to utilize the acquired and leased production facilities to produce substantially the same organic peroxide products manufactured by the Peroxides Business prior to closing. To fund the acquisition, GEO entered into an Amended and Restated Credit Agreement with Bankers Trust Company, Salomon Smith Barney Inc. and various other financial institutions, which is described under Item 5 below. ITEM 5. OTHER EVENTS. In connection with the acquisition of the Peroxides Business, GEO entered into an Amended and Restated Credit Agreement with Bankers Trust Company, Salomon Smith Barney Inc. and various other financial institutions (the "Lenders"), pursuant to which the Lenders have extended credit facilities in the amount of $145.0 million (the "Credit Facilities") to GEO, consisting of (i) a Term Loan B Facility in the amount of $105.0 million, maturing on December 31, 2007 and bearing interest, at GEO's option, at a Reserve Adjusted Eurocurrency Rate plus 3.25% to 4.00%, depending on GEO's leverage ratio, or a Base Rate plus 2.25% to 3.00%, depending on GEO's leverage ratio, and (ii) a $40.0 million Revolving Credit Facility, maturing on June 30, 2005 and bearing interest, at GEO's option, at a Reserve Adjusted Eurocurrency Rate plus 2.25% to 3.50%, depending on GEO's leverage ratio, or a Base Rate plus 1.25% to 2.50%, depending on GEO's leverage ratio. The Term B Loan Facility was made available to GEO to refinance its existing revolving credit facility, to fund the acquisition of the Peroxides Business and the expenses incurred in connection with the acquisition, and for working capital and general corporate purposes. The Revolving Credit Facility will be available to GEO for ongoing working capital and general corporate purposes. GEO's ability to draw funds under the Revolving Credit Facility is subject to, in addition to the customary restrictions contained in the Amended and Restated Credit Agreement, a number of restrictions contained in the Indenture governing GEO's currently outstanding $120.0 million in aggregate principal amount of 10 1/8% Senior Subordinated Notes due 2008. The obligations of GEO under the Credit Facilities are secured by a first priority security interest on all tangible and intangible assets of GEO, including GEO's ownership interests in its subsidiaries. The Credit Facilities are senior in right of payment to GEO's outstanding Senior Subordinated Notes. On April 19, 2001, GEO sold its paper chemicals business to ONDEO Nalco Company, a subsidiary of Suez Lyonnaise des Eaux. GEO retained all its manufacturing facilities, and will supply paper coating products to ONDEO Nalco Company under a long-term supply agreement. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) The following financial statements of the Peroxides Business are filed in Exhibit 99.1 to this Form 8-K/A Amended Report: Report of Independent Auditors Balance Sheets as of December 31, 2000 and 1999 and March 31, 2001 Statements of Income for the years ended December 31, 2000, 1999, and 1998 and the three month periods ended March 31, 2001 and March 31, 2000 Statements of Business Unit Equity for the years ended December 31, 2000, 1999, and 1998 the three month periods ended March 31, 2001 and March 31, 2000 Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998 and the three months periods ended March 31, 2001 and 2000. Notes to Financial Statements (b) The following unaudited pro forma financial information of GEO, reflecting the acquisition of the Peroxides Business and the disposition of the paper chemicals business is filed in Exhibit 99.2 to this Form 8-K/A Amended Report: Unaudited Pro Forma Condensed Balance Sheet as of March 31, 2001. Unaudited Pro Forma Condensed Statement of Income for the year ended December 31, 2000. Unaudited Pro Forma Condensed Statement of Income for the period ended March 31, 2001. The unaudited pro forma condensed Balance sheet and Statements of Income should be read in conjunction with the historical financial statements of GEO and the notes thereto, which are included in GEO's Annual Report on Form 10-K for the year ended December 31, 2000, and the historical financial statements of the Peroxides Business and the notes thereto, which are included in Exhibit 99.1 to this Form 8-K/A Amended Report. The unaudited pro forma condensed combined statements of income are not necessarily indicative of the results that would have occurred in the periods shown if GEO's acquisition of the Peroxides Business had been effected on the dates assumed in such statements or that will occur in the current year or any future period. (c) The following are filed as exhibits to this Form 8-K/A Amended Report: 2.1 Sale and Purchase Agreement, dated as of March 27, 2001, by and between GEO Specialty Chemicals, Inc. and Hercules Incorporated (incorporated by reference to Exhibit 2.1 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 2.2 Asset Purchase Agreement, dated as of April 10, 2001, by and between GEO Specialty Chemicals, Inc. and ONDEO Nalco Company (incorporated by reference to Exhibit 2.2 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.1 Amended and Restated Credit Agreement, dated as of May 31, 2001, by and among GEO Specialty Chemicals, Inc. and Bankers Trust Company, Salomon Smith Barney Inc. and various other financial institutions (incorporated by reference to Exhibit 10.1 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.2 Lease Agreement (Franklin, Virginia), dated May 31, 2001, by and between GEO Specialty Chemicals, Inc. and Hercules Incorporated (incorporated by reference to Exhibit 10.2 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.3 Lease Agreement (Gibbstown, New Jersey), dated May 31, 2001, by and between GEO Specialty Chemicals, Inc. and Hercules Incorporated (incorporated by reference to Exhibit 10.3 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.4 Plant Operating Agreement, dated May 31, 2001, by and between GEO Specialty Chemicals, Inc. and Hercules Incorporated (incorporated by reference to Exhibit 10.4 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.5 Supply Agreement, dated April 19, 2001, by and between GEO Specialty Chemicals, Inc. and ONDEO Nalco Company (incorporated by reference to Exhibit 10.5 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 99.1 Financial Statements listed under Item 7(a) of this Form 8-K/A Amended Report, including the report of Crowe, Chizek and Company LLP. 99.2 Unaudited Pro Forma Financial Information listed under Item 7(b) of this Form 8-K/A Amended Report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GEO SPECIALTY CHEMICALS, INC. Date: August 14, 2001 By: /s/ William P. Eckman ------------------------------------- William P. Eckman, Executive Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Number Exhibit Description - ------ ------------------- 2.1 Sale and Purchase Agreement, dated as of March 27, 2001, by and between GEO Specialty Chemicals, Inc. and Hercules Incorporated (incorporated by reference to Exhibit 2.1 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 2.2 Asset Purchase Agreement, dated as of April 10, 2001, by and between GEO Specialty Chemicals, Inc. and ONDEO Nalco Company (incorporated by reference to Exhibit 2.2 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.1 Amended and Restated Credit Agreement, dated as of May 31, 2001, by and among GEO Specialty Chemicals, Inc. and Bankers Trust Company, Salomon Smith Barney Inc. and various other financial institutions (incorporated by reference to Exhibit 10.1 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.2 Lease Agreement (Franklin, Virginia), dated May 31, 2001, by and between GEO Specialty Chemicals, Inc. and Hercules Incorporated (incorporated by reference to Exhibit 10.2 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.3 Lease Agreement (Gibbstown, New Jersey), dated May 31, 2001, by and between GEO Specialty Chemicals, Inc. and Hercules Incorporated (incorporated by reference to Exhibit 10.3 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.4 Plant Operating Agreement, dated May 31, 2001, by and between GEO Specialty Chemicals, Inc. and Hercules Incorporated (incorporated by reference to Exhibit 10.4 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 10.5 Supply Agreement, dated April 19, 2001, by and between GEO Specialty Chemicals, Inc. and ONDEO Nalco Company (incorporated by reference to Exhibit 10.5 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on June 15, 2001). 99.1 Financial Statements listed under Item 7(a) of this Form 8-K/A Amended Report, including the report of Crowe, Chizek and Company LLP. 99.2 Unaudited Pro Forma Financial Information listed under Item 7(b) of this Form 8-K/A Amended Report. EX-99.1 3 dex991.txt FINANCIAL STATEMENTS LISTED UNDER ITEM 7(A) EXHIBIT 99.1 HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED Wilmington, Delaware FINANCIAL STATEMENTS HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED Wilmington, Delaware FINANCIAL STATEMENTS
CONTENTS REPORTS OF INDEPENDENT AUDITORS......................................... 1 FINANCIAL STATEMENTS BALANCE SHEETS........................................................ 2 STATEMENTS OF INCOME.................................................. 3 STATEMENTS OF BUSINESS UNIT EQUITY.................................... 4 STATEMENTS OF CASH FLOWS.............................................. 6 NOTES TO FINANCIAL STATEMENTS......................................... 7
REPORT OF INDEPENDENT AUDITORS Board of Directors Board of Directors GEO Specialty Chemicals, Inc. Hercules Incorporated Cleveland, Ohio Wilmington, Delaware We have audited the accompanying balance sheets of Hercules Peroxides, a Business Unit of Hercules Incorporated ("Hercules Peroxides") as of December 31, 2000 and 1999 and the related statements of income, business unit equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These financial statements are the responsibility of Hercules Peroxides' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hercules Peroxides, a Business Unit of Hercules Incorporated as of December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As explained in Note 1, these financial statements include significant costs and expenses of Hercules Incorporated allocated to Hercules Peroxides, a Business Unit of Hercules Incorporated. Crowe, Chizek and Company LLP Oak Brook, Illinois July 13, 2001 1. HURCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED BALANCE SHEETS (In thousands) ________________________________________________________________________________
December 31, March 31, ------------------ 2000 1999 2001 ---- ---- ---- (Unaudited) ASSETS Current assets Trade accounts receivable, net $ 5,030 $ 6,338 $ 5,600 Inventory 6,158 6,269 5,765 Deferred taxes 174 224 162 ------- ------- ------- Total current assets 11,362 12,831 11,527 Property, plant, and equipment, net 12,777 12,020 12,552 Deferred taxes 394 1,147 314 Other 33 13 54 ------- ------- ------- 427 1,160 368 ------- ------- ------- $24,566 $26,011 $24,447 ======= ======= ======= LIABILITIES AND BUSINESS UNIT EQUITY Current liabilities Accounts payable $ 2,223 $ 2,661 $ 2,097 Accrued expenses 2,439 4,344 2,442 ------- ------- ------- Total current liabilities 4,662 7,005 4,539 Other long-term liabilities 2,586 2,763 2,586 Deferred taxes 1,817 1,549 1,780 Business unit equity 15,173 14,192 15,221 Accumulated other comprehensive income 328 502 321 ------- ------- ------- 15,501 14,694 15,542 ------- ------- ------- $24,566 $26,011 $24,447 ======= ======= =======
__________________________________________________________________________ See accompanying notes to financial statements. 2. HURCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED STATEMENTS OF INCOME (In thousands) ________________________________________________________________________________
Years Ended Three Months Ended December 31, March 31, -------------------------------------- 2000 1999 1998 2001 2000 ------- ------- ------- ------- ------- (Unaudited) Net sales $43,760 $49,637 $48,892 $10,597 $12,058 Cost of sales 25,859 28,663 28,032 7,014 6,843 ------- ------- ------- ------- ------- Gross profit 17,901 20,974 20,860 3,583 5,215 Selling, general, administrative, research and development expenses 7,037 7,336 7,174 1,269 1,759 Restructuring and asset impairment - 2,958 3,581 - - ------- ------- ------- ------- ------- Income from operations 10,864 10,680 10,105 2,314 3,456 Other income (expense) Interest expense (449) (419) (461) (101) (103) Other, net (27) (8) (75) (2) 11 ------- ------- ------- ------- ------- Income before income taxes 10,388 10,253 9,569 2,211 3,364 Provision for income taxes 3,984 3,870 3,581 840 1,273 ------- ------- ------- ------- ------- Net income $ 6,404 $ 6,383 $ 5,988 $ 1,371 $ 2,091 ======= ======= ======= ======= =======
_____________________________________________________________________________ See accompanying notes to financial statements. 3. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED STATEMENTS OF BUSINESS UNIT EQUITY (In thousands) - --------------------------------------------------------------------------------
Accumulated Business Other Compre- Unit Comprehensive hensive Equity Income Total Income --------- -------------- --------- --------- Balance, January 1, 1998 $ 19,551 $ 539 $ 20,090 Comprehensive income Net income 5,988 - 5,988 $ 5,988 Translation adjustment 310 310 310 --------- Total comprehensive income $ 6,298 ========= Net distributions to Hercules Incorporated (9,371) - (9,371) --------- -------------- --------- Balance, December 31, 1998 16,168 849 17,017 Comprehensive income Net income 6,383 - 6,383 $ 6,383 Translation adjustment (347) (347) (347) --------- Total comprehensive income $ 6,036 ========= Net distributions to Hercules Incorporated (8,359) - (8,359) --------- -------------- --------- Balance, December 31, 1999 14,192 502 14,694 Comprehensive income Net income 6,404 - 6,404 $ 6,404 Translation adjustment (174) (174) (174) --------- Total comprehensive income $ 6,230 ========= Net distributions to Hercules Incorporated (5,423) - (5,423) --------- -------------- --------- Balance, December 31, 2000 $ 15,173 $ 328 $ 15,501 ========= ============== =========
- -------------------------------------------------------------------------------- (Continued) 4. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED STATEMENTS OF BUSINESS UNIT EQUITY (In thousands) - --------------------------------------------------------------------------------
Accumulated Business Other Compre- Unit Comprehensive hensive Equity Income Total Income --------- -------------- --------- --------- Balance, December 31, 1999 $ 14,192 $ 502 $ 14,694 Comprehensive income Net income /(a)/ 2,091 - 2,091 2,091 Translation adjustment /(a)/ 15 15 15 --------- Total comprehensive income /(a)/ $ 2,106 ========= Net distributions to Hercules Incorporated /(a)/ (1,017) - (1,017) --------- -------------- --------- Balance, March 31, 2000 /(a)/ $ 15,266 $ 517 $ 15,783 ========= ============== ========= Balance, December 31, 2000 $ 15,173 $ 328 $ 15,501 Comprehensive income Net income /(a)/ 1,371 - 1,371 $ 1,371 Translation adjustment /(a)/ (7) (7) (7) --------- Total comprehensive income /(a)/ $ 1,364 ========= Net distributions to Hercules Incorporated /(a)/ (1,323) - (1,323) --------- -------------- --------- Balance, March 31, 2001 /(a)/ $ 15,221 $ 321 $ 15,542 ========= ============== =========
(a) Unaudited information - -------------------------------------------------------------------------------- See accompanying notes to financial statements. 5. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED STATEMENTS OF CASH FLOWS (In thousands) - --------------------------------------------------------------------------------
Years Ended Three Months Ended December 31, March 31, ----------------------------------- --------------------- 2000 1999 1998 2001 2000 ------- ------- ------- ------- ------- (Unaudited) --------------------- Cash flows from operating activities Net income $ 6,404 $ 6,383 $ 5,988 $ 1,371 $ 2,091 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 1,178 1,334 1,360 333 300 Asset impairment - - 3,581 - - Deferred income taxes 1,071 (1,061) (337) 55 719 Change in assets and liabilities Accounts receivable 1,194 984 (228) (640) (504) Inventory (8) 146 822 284 (124) Accounts payable and accrued expenses (2,092) 3,084 (816) (85) (757) Other noncurrent assets and liabilities (197) (112) (302) (21) (229) ------- ------- ------- ------- ------- Net cash from operating activities 7,550 10,758 10,068 1,297 1,496 Cash flows from investing activities Purchases of property, plant, and equipment (1,935) (2,117) (1,059) (107) (479) ------- ------- ------- ------- ------- Net cash from investing activities (1,935) (2,117) (1,059) (107) (479) Cash flows from financing activities Net capital distributions to Hercules Incorporated (5,423) (8,359) (9,371) (1,323) (1,017) ------- ------- ------- ------- ------- Net cash from financing activities (5,423) (8,359) (9,371) (1,323) (1,017) ------- ------- ------- ------- ------- Effect of exchange rate changes on cash (192) (282) 362 133 - Net change in cash - - - - - Cash at beginning of period - - - - - ------- ------- ------- ------- ------- Cash at end of period $ - $ - $ - $ - $ - ======= ======= ======= ======= =======
- -------------------------------------------------------------------------------- See accompanying notes to financial statements. 6. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED STATEMENTS OF CASH FLOWS (In thousands) - -------------------------------------------------------------------------------- NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of Business: Hercules Peroxides ("the Company") operates as a business - ------------------- unit of Hercules Incorporated. The Company's manufacturing process produces organic peroxides used to cure selected rubber and plastic materials. The Company sells these products to customers located throughout the United States and in European markets. The Company operates in an environment with many financial and operating risks including, but not limited to, intense competition, fluctuations in cost and supply of raw materials, technological changes, and environmental matters. Basis of Presentation: The financial statements of the Company include - --------------------- specifically identified assets and accounts payable relating exclusively to the Company as well as liabilities allocated to the Company. Allocated liabilities, while reasonable under the circumstances, may not represent those liabilities of similar activities on a separate entity basis. Revenue Recognition: Revenues are recognized upon shipment of goods and passage - ------------------- of title. Use of Estimates in the Preparation of Financial Statements: The preparation of - ----------------------------------------------------------- financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments: The Company's financial instruments are - ----------------------------------- comprised of trade accounts receivable, accounts payable, accrued expenses, and long-term liabilities. The carrying value of all instruments approximates fair value. Inventory: Inventory is stated at the lower of cost or market and is valued on - --------- the average cost method, with cost being determined on a first-in, first-out (FIFO) basis. Property, Plant, and Equipment: Property, plant, and equipment are depreciated - ------------------------------ on a straight-line method. Property and equipment are being depreciated using the following estimated lives: Asset Lives in Years -------------------- Buildings 30 Machinery and equipment 15 Other machinery and equipment 3 to 15 - -------------------------------------------------------------------------------- (Continued) 7. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED STATEMENTS OF CASH FLOWS (In thousands) - -------------------------------------------------------------------------------- NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes: The Company does not file separate tax returns in each of the - ------------ various countries in which it operates. For purposes of calculating taxes on income, the Company's operating results, along with the allocated overhead costs, have generally been reallocated to the jurisdictions where the Company has manufacturing operations. The accompanying financial statements reflect tax computations as if the Company filed separate returns in each of these jurisdictions and reflect the application of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Foreign Currency Translation: The Company's foreign operations use the local - ---------------------------- currency as their functional currency. Assets and liabilities of the foreign operations are translated at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average rates prevailing during the period. Translation adjustments are included in accumulated other comprehensive income, a separate component of business unit equity. The currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in the non-United States operations of the Company. Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in the statement of income. Transaction gains and losses were immaterial for the years ended December 31, 2000, 1999, 1998, and the three months ended March 31, 2001 and 2000. Corporate Overhead and Other Allocations: The financial statements include - ---------------------------------------- allocations by Hercules Incorporated ("Hercules") for certain home office corporate administrative and benefit costs incurred for the benefit of all operating divisions. Additionally, Hercules' operating divisions allocate support costs to the business units conducting business through such respective division. Allocations to the Company are based on the following methods: a. Specific identification--based on estimates of time and services provided. b. Relative identification--based on relevant criteria that establish the Company's relationship to the entire pool of beneficiaries. c. Formula driven--nonidentifiable to a business unit but incurred for the benefit of all business units. - -------------------------------------------------------------------------------- (Continued) 8. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED STATEMENTS OF CASH FLOWS (In thousands) - -------------------------------------------------------------------------------- NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Corporate costs include executive, legal, tax, auditing, cash management, purchasing, safety, health and environmental, and employee benefits. For the years ended December 31, 2000, 1999, and 1998 and the three months ended March 31, 2001 and 2000, such corporate costs allocated to the Company totaled $2,648, $2,698, $2,644, $558, and $652, respectively. Costs allocated to the Company by Hercules' Resins division include accounting, information management, human resources, and office services. For the years ended December 31, 2000, 1999, and 1998 and the three months ended March 31, 2001 and 2000, costs allocated to the Company by Hercules' Resins division totaled $2,261, $2,376, $2,530, $221, and $505, respectively. Allocated costs included in selling, general, and administrative costs, while reasonable under the circumstances, may not represent the cost of similar activities on a separate entity basis. Allocated Interest Expense: Interest expense is allocated to the Company at the - -------------------------- rate Hercules charges its business units in its annual business plan. Interest expense is calculated using a formula based on the business unit's average net assets at a rate determined by Hercules' Treasurer's Department (6.22%, 7%, 7%, 6.22%, and 6.22% in 2000, 1999, and 1998 and the three months ended March 31, 2001 and 2000, respectively). Research and Development Expense: Research and development costs are expensed - -------------------------------- as incurred and approximate $220, $200, $180, $58, and $55 and for the years ended December 31, 2000, 1999, and 1998 and the three months ended March 31, 2001 and 2000, respectively. Environmental Expenditures: The Company's policy is to accrue for environmental - -------------------------- expenditures when the costs have been incurred or are probable and reasonably be estimated. Interim Results: The accompanying balance sheet at March 31, 2001 and the - --------------- statements of income and cash flows for the three-month periods ended March 31, 2001 and 2000 are interim financial statements. In the opinion of management, these statements have been prepared on the same basis as the annual financial statements and include all of the adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the results of the interim periods. The result of operations for the three-month periods ended March 31, 2001 and 2000 are not necessarily indicative of the results expected for the full calendar year. - -------------------------------------------------------------------------------- (Continued) 9. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED STATEMENTS OF CASH FLOWS (In thousands) - -------------------------------------------------------------------------------- NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable, net, consists of: December 31, ------------------ 2000 1999 ------ ------ Trade $5,215 $6,506 Other 37 57 ------ ------ Total 5,252 6,563 Less allowance for doubtful accounts 222 225 ------ ------ $5,030 $6,338 ====== ====== NOTE 3 - INVENTORY Inventory consists of the following components: December 31, ------------------ 2000 1999 ------ ------ Raw materials $1,112 $1,874 Work-in-process 1,256 915 Finished goods 3,067 2,690 Equipment spares 723 790 ------ ------ $6,158 $6,269 ====== ====== NOTE 4 - PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment consists of the following major classifications: December 31, ------------------ 2000 1999 -------- -------- Land $ 485 $ 485 Building 1,820 1,820 Equipment 33,151 31,635 -------- -------- 35,456 33,940 Accumulated depreciation (22,679) (21,920) -------- -------- $ 12,777 $ 12,020 ======== ======== - -------------------------------------------------------------------------------- (Continued) 10. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED NOTES TO FINANCIAL STATEMENTS (In thousands) - -------------------------------------------------------------------------------- NOTE 5 - DEFINED BENEFIT PENSION AND POSTRETIREMENT BENEFIT PLANS Hercules provides a defined benefit pension plan as well as a postretirement benefit plan covering substantially all of its employees. Benefits are based on average final pay and years of service or are pursuant to local country requirements. Defined Benefit Pension Plan: Summarized information about the Hercules defined - ---------------------------- benefit pension plan for the years ended December 31, 2000, 1999, and 1998 is noted in the table below. The Company's benefit for the years ended December 31, 2000, 1999, and 1998 was $107, $202, and $92, respectively. The Company recorded no prepaid benefit or liability in its December 31, 2000 and 1999 balance sheets. Postretirement Benefit Plan: Summarized information about the Hercules - --------------------------- postretirement benefit plan for the years ended December 31, 2000, 1999, and 1998 is noted in the table below. The Company's expense for the years ended December 31, 2000, 1999, and 1998 was $240, $240, and $125, respectively. As of December 31, 2000 and 1999, the Company's allocated share of the accrued postretirement liabilities was $2,484 and $2,581, respectively. The Company has no rights to the plan assets.
Pension Benefits Other Postretirement ---------------- -------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Hercules information -------------------- Change in benefit obligation Benefit obligation at January 1 $ 1,343 $ 1,499 $ 181 $ 154 Service cost 26 30 1 2 Interest cost 101 97 14 13 Amendments - 6 (7) 20 Assumption changes 71 (147) 8 (9) Settlements (6) - - - Translation difference (16) (19) - - Actuarial loss (gain) 11 (8) 15 22 Benefits paid from plan assets (103) (115) (4) (2) Benefits paid by Company - - (20) (19) ---------- ---------- --------- --------- Benefit obligation at December 31 $ 1,427 $ 1,343 $ 188 $ 181 ========== ========== ========= =========
- -------------------------------------------------------------------------------- (Continued) 11. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED NOTES TO FINANCIAL STATEMENTS (In thousands) - -------------------------------------------------------------------------------- NOTE 5 - DEFINED BENEFIT PENSION AND POSTRETIREMENT BENEFIT PLANS (Continued)
Pension Benefits Other Postretirement ---------------- -------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Hercules information -------------------- Change in plan assets Fair value of plan assets at January 1 $ 1,732 $ 1,589 $ 7 $ 8 Actual return on plan assets (44) 275 - 1 Asset transfer and receivables 4 - - - Settlements (4) - - - Company contributions 2 2 - - Translation difference (19) (19) - - Benefits paid from plan assets (103) (115) (4) (2) ---------- ---------- --------- --------- Fair value of plan assets at December 31 $ 1,568 $ 1,732 $ 3 $ 7 ========== ========== ========= ========= Funded status of the plans $ 142 $ 389 $ (186) $ (174) Unrecognized actuarial loss (gain) 71 (197) 66 44 Unrecognized prior service cost (benefit) 32 36 (22) (19) Unrecognized net transition obligation 1 (11) - - Amount included in accrued expenses - other - - 20 20 ---------- ---------- --------- --------- Prepaid (accrued) benefit cost $ 246 $ 217 $ (122) $ (129) ========== ========== ========= ========= Amounts recognized in the statement of financial position consist of Prepaid benefit cost $ 246 $ 217 $ - $ - Accrued benefit liability - - (122) (129) ---------- ---------- --------- --------- $ 246 $ 217 $ (122) $ (129) ========== ========== ========= ========= Assumptions as of December 31 Weighted average discount rate 7.50% 8.00% 7.50% 8.00% Expected return on plan assets 9.25 9.25 9.25 9.25 Rate of compensation increase 4.50 4.50 4.50 4.50
- -------------------------------------------------------------------------------- (Continued) 12. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED NOTES TO FINANCIAL STATEMENTS (In thousands) - -------------------------------------------------------------------------------- NOTE 5 - DEFINED BENEFIT PENSION AND POSTRETIREMENT BENEFIT PLANS (Continued)
Pension Benefits Other Postretirement ---------------- -------------------- 2000 1999 1998 2000 1999 1998 --------- --------- --------- ---------- --------- --------- Hercules information -------------------- Service cost $ 26 $ 30 $ 20 $ 1 $ 2 $ 1 Interest cost 101 97 83 14 13 10 Return on plan assets (expected) (142) (134) (114) (1) (1) (1) Amortization and deferrals 3 3 12 3 (2) (4) Amortization of transition asset (11) (14) (14) (5) - - --------- --------- --------- --------- -------- --------- Benefit cost (credit) $ (23) $ (18) $ (13) $ 12 $ 12 $ 6 ========= ========= ========= ========= ======== =========
The assumed health care cost trend rate was 8.0% for the year ending December 31, 2000. The assumed health care cost trend rate was 4.5% at December 31, 1999, and was 5% for those under age 65 and 4.75% for those over age 65 at December 31, 1998. The assumed health care cost trend rate will be 7% in 2001, decreasing to 4.5% by 2004 and for all subsequent years. A one percentage point increase or decrease in the assumed health care cost trend rate would increase or decrease the postretirement benefit obligation by $6 or $4, respectively, and would not have a material effect on aggregate service and interest cost components. NOTE 6 - RELATED PARTY TRANSACTIONS In addition to the corporate overhead and other allocation of expenses noted in Note 1 of these financial statements, the Company also relied on Hercules for the administration of its cash collections and disbursements throughout 2000, 1999, and 1998 and the three months ended March 31, 2001 and 2000. The net cash disbursed in excess of the net cash received is classified as net distributions from business unit equity. NOTE 7 - INCOME TAXES The income tax provision is comprised of the following: Years Ended ------------December 31,------ 2000 1999 1998 ------ ------ ------- Current payable United States $3,387 $5,035 $ 5,284 Foreign (474) (104) (1,366) ------ ------ ------- 2,913 4,931 3,918 - -------------------------------------------------------------------------------- (Continued) 13. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED NOTES TO FINANCIAL STATEMENTS (In thousands) - -------------------------------------------------------------------------------- NOTE 7 - INCOME TAXES (Continued)
Years Ended December 31, -------------------------------------- 2000 1999 1998 ---- ---- ---- Deferred income taxes United States $ 318 $ 86 $ (313) Foreign 753 (1,147) (24) ------ ------- ------ 1,071 (1,061) (337) ------ ------- ------ Total $3,984 $ 3,870 $3,581 ====== ======= ======
The difference between the effective tax rate and the statutory rate is reconciled below:
Years Ended December 31, -------------------------------------- 2000 1999 1998 ---- ---- ---- Tax provision at United States statutory rate of 34% $3,532 $ 3,486 $3,253 Increase resulting from Permanent items and state taxes 391 363 339 Effect of foreign operations 61 21 (11) ------ ------- ------ Total $3,984 $ 3,870 $3,581 ====== ======= ======
Significant components of the deferred tax assets and liabilities are as follows:
December 31, ----------------------- 2000 1999 ---- ---- Deferred tax liabilities Depreciation $ 2,811 $ 2,581 Deferred tax assets Restructuring costs 394 1,147 Postretirement 994 1,032 Other assets 174 224 ------- ------- 1,562 2,403 ------- ------- Net deferred tax liability $ 1,249 $ 178 ======= =======
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $666 and $1,678 as of December 31, 2000 and 1999, respectively. It is not practicable to calculate the unrecognized deferred tax liability on those earnings. - -------------------------------------------------------------------------------- (Continued) 14. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED NOTES TO FINANCIAL STATEMENTS (In thousands) - ------------------------------------------------------------------------------- NOTE 8 - GEOGRAPHIC SEGMENTS The Company sells its products throughout the United States and in European markets. Following is financial information relating to geographic areas:
Years Ended Three Months Ended December 31, March 31, --------------------------------- -------------------- 2000 1999 1998 2001 2000 ---- ---- ---- ---- ---- (Unaudited) Revenues United States $37,064 $39,640 $37,266 $ 8,917 $10,111 Other geographic areas 6,696 9,997 11,626 1,680 1,947 ------- ------- ------- ------- ------- Total revenues $43,760 $49,637 $48,892 $10,597 $12,058 ======= ======= ======= ======= =======
Primarily all long-lived assets that are comprised of property, plant, and equipment and other long-term assets are located within the United States. NOTE 9 - LITIGATION The Company is involved in various lawsuits and claims of a character considered normal to its business. In the opinion of management, based on representation by counsel, any liability resulting from the amount of uninsured damages for outstanding lawsuits and claims will not have a material adverse effect on the Company's financial position and results of operations. Hercules is a defendant in numerous lawsuits, as described in their public filings, that arise out of and are incidental to the conduct of its business. The ultimate outcome of these lawsuits and the effects, if any, as they relate to the Company are not determinable and, therefore, have not been recorded. NOTE 10 - CONCENTRATIONS The Company sells a significant portion of its products to three customers. Sales to these customers approximated 44%, 44%, 43%, 46%, and 46% of total sales in 2000, 1999, and 1998 and the three months ended March 31, 2001 and 2000, respectively. Amounts due from those customers totaled $1,707, $1,900, and $2,127 at December 31, 2000 and 1999 and March 31, 2001, respectively, and are included in accounts receivable. - -------------------------------------------------------------------------------- (Continued) 15. HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED NOTES TO FINANCIAL STATEMENTS (In thousands) - -------------------------------------------------------------------------------- NOTE 10 - CONCENTRATIONS (Continued) The Company purchases a significant portion of its raw materials from two suppliers. Amounts purchased from these vendors totaled $5,107, $5,239, $4,420, $1,047, and $1,321 for the years ended December 31, 2000, 1999, and 1998 and for the three months ended March 31, 2001 and 2000, respectively. Amounts due to those vendors totaled $701, $296, and $242 at December 31, 2000 and 1999 and March 31, 2001, respectively, and are included in accounts payable. NOTE 11 - COMMITMENTS AND CONTINGENCIES The Company is primarily self-funding its business, health, and welfare insurance risks. Specific stop loss insurance limits the Company's liability on individual claims and on aggregate claims. NOTE 12 - RESTRUCTURING AND ASSET IMPAIRMENT In 1998 the Company recorded $3,581 in asset impairment charges at their production facility in Beringen, Belgium. These charges were the result of the Company's decision to shut down production at this facility. On December 17, 1999, the Company formalized and announced their plan to shut down the production operation in Beringen, Belgium. In connection with this shutdown, the Company recorded the costs of employee severance related to a reduction in the workforce of 20 production employees. In addition, the Company recorded the estimated costs to idle production equipment and soil remediation. At December 31, 2000 and 1999 and March 31, 2001, the Company had accrued restructuring reserves of $985, $2,900, and $785, respectively. Cash payments charged to the accrual in 2000 and for the three-month period ended March 31, 2001 were $2,005 and $200, respectively. NOTE 13 - SUBSEQUENT EVENT On May 31, 2001, Hercules sold specific assets of the Company to GEO Specialty Chemicals, Inc. ("GEO") for approximately $92,200, plus the assumption of specified liabilities by GEO. - -------------------------------------------------------------------------------- 16. EX-99.2 4 dex992.txt UNAUDITED PRO FORMA FINANCIAL INFORMATION Exhibit 99.2 Pro Forma Financial Information On April 19, 2001, GEO sold to ONDEO Nalco Company (Nalco) certain assets of its Paper Chemicals business for $8,500 in cash plus the assumption by Nalco of certain liabilities associated with the Paper Chemicals business. On May 31, 2001 GEO Specialty Chemicals purchased specific assets of Hercules for approximately $92,200, plus the assumption of specified liabilities. The accompanying Pro Forma financial information presents the Pro Forma effects of the above terminations as of March 31, 2001 and for the three months ended March 31, 2001 and the year ended December 13, 2000, as if the transactions had occurred as of the beginning of the periods. Unaudited Pro Forma Condensed Balance Sheet March 31, 2001 (In thousands)
Hercules GEO Peroxy Pro Forma Pro Forma Historical Historical Adjustments Combined -------------- -------------- ------------- -------------- ASSETS Current assets Cash and cash equivalents $ 11,746 $ - $ 8,487 (E) $ 28,733 8,500 (F) 16,987 Accounts receivable 32,250 5,600 (3,390) (F) 34,460 Inventory 17,051 5,765 (484) (F) 22,332 Prepaid expenses and other current assets 1,856 - 100 (E) 1,956 Deferred taxes 1,103 162 (162) (C) 1,103 -------------- -------------- ------------- -------------- Total current assets 64,006 11,527 88,584 Property and equipment, net 93,846 12,552 8,771 (B) 113,517 (1,652) (F) ------------- 7,119 Other assets Intangible assets, net 5,093 - 4,400 (D) 9,493 Goodwill, net 32,798 - 60,365 (A) 93,163 Deferred taxes - 314 (314) (C) - Other 176 54 230 -------------- -------------- -------------- Total other assets 38,067 368 102,886 -------------- -------------- -------------- Total assets $ 195,919 $ 24,447 $ 304,987 ============== ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 18,032 $ 2,097 $ (2,097) (C) $ 18,032 Income taxes payable 3,951 - 3,951 Accrued expenses and other current liabilities 6,450 2,442 (2,442) (C) 7,817 343 (F) 1,024 (A) ------------- (1,075) ------------------------------- -------------- Total current liabilities 28,433 4,539 29,800 Revolving line-of-credit 10,000 - 10,000 Senior subordinated notes 120,000 - 120,000 Long-term debt - - 105,000 (A) 105,000 Other long-term liabilities 5,401 2,586 (2,516) (C) 5,471 Deferred taxes 3,102 1,780 (1,780) (C) 3,102 -------------- -------------- -------------- Total other liabilities 138,503 4,366 243,573 Shareholders' equity Class A voting common stock - - - Class B nonvoting common stock - - - Additional paid-in-capital 20,901 - 20,901 Retained earnings 9,901 - 2,631 (F) 12,532 Accumulated other comprehensive loss (1,819) 321 (321) (A) (1,819) Business unit equity - 15,221 (15,221) (A) - -------------- -------------- -------------- Total equity 28,983 15,542 31,614 -------------- -------------- -------------- Total liabilities and equity $ 195,919 $ 24,447 $ 304,987 ============== ============== ==============
Notes to Pro Forma Condensed March 31, 2001 Balance Sheet ---------------------------- (In thousands) (A) Reflects the effects of GEO acquiring certain United States and European Peroxides Business Unit assets, net of certain liabilities, of Hercules as if the acquisition had occurred on March 31, 2001. GEO acquired the assets with 100% leveraged financing via a $105,000 long-term loan. Goodwill in the amount of $60,400 was recorded, which represents the difference between the total consideration of $93,000 and the estimated fair market value of Hercules' net assets acquired of $32,600. (B) Reflects the step-up of Peroxy property and equipment to fair market value. (C) Reflects liabilities retained by Hercules. (D) Reflects financing related fees incurred in financing the purchase of Peroxy. (E) Reflects excess cash from long-term loan after payment of consideration for net assets and financing costs. (F) Reflects the effects of GEO selling the paper chemicals customer list and non-production assets to Nalco for $8,500 as if the divestiture had occurred on March 31, 2001. Unaudited Pro Forma Condensed Statement of Income For the three months ended March 31, 2001 (In thousands)
GEO Peroxy Pro Forma Pro Forma Historical Historical Adjustments Combined ---------- ---------- ----------- --------- Net sales $ 50,534 $ 10,597 $ (1,845) (EE) $ 59,286 Cost of sales 36,214 7,014 90 (BB) 43,082 ---------- ---------- --------- 147 (DD) (383) (EE) ----------- (146) Gross profit 14,320 3,583 (1,699) 16,204 Selling, general, and administrative expenses 5,844 1,269 (779) (AA) 6,464 ---------- ---------- --------- 273 (CC) 1,106 (DD) (1,249) (EE) ----------- (649) Income from operations 8,476 2,314 (1,050) 9,740 Other expense Net interest expense (3,409) (101) (2,458) (FF) (5,968) Other (100) (2) (102) ---------- ---------- ----------- --------- Income before taxes 4,967 2,211 (3,508) 3,670 Provision for income taxes 2,170 840 (1,471) 1,539 ---------- ---------- ----------- --------- Net income $ 2,797 $ 1,371 $ (2,037) $ 2,131 ========== ========== =========== =========
Notes to Pro Forma Condensed Income Statement for the three month period ended March 31, 2001 ---------------------------------------------------------------- (In thousands) (AA) Reflects the elimination of the following from the historical operating results of Peroxy: . Allocated corporate indirect selling, general, and administrative expenses of $558 of corporate allocated indirect costs and $221 of divisional operations indirect costs. (BB) Reflects adjustments to the operating results of Peroxy for estimated incremental costs that would have been incurred by GEO had Peroxy been managed by GEO during the year: . Elimination of soil and groundwater contamination costs for Peroxy's Virginia plant of $11. Hercules has retained the obligation for these costs. . Elimination of a pension plan benefit of $101 created by the over funded status of Hercules pension plans. (CC) Reflects adjustments to the operating results of Peroxy for estimated incremental costs that would have been incurred by GEO had Peroxy been managed by GEO during the year: . Increase of $40 in insurance costs to increase coverage levels to GEO existing levels. . Incremental costs of $233 estimated by GEO for research and development and selling, and general, and administration costs. (DD) Reflects depreciation and amortization for the fair value of assets purchased (excluding current assets) in conjunction with the Peroxy acquisition. Additional depreciation and amortization for the period is calculated as follows:
- ------------------------------------------------------------------------------------------------------ Years Fair Value Depreciation/ ----- ---------- --------------- (in thousands) Amortization -------------- (in thousands) - ------------------------------------------------------------------------------------------------------ Land N/A $ 300 - ------------------------------------------------------------------------------------------------------ Land improvements 20 394 $ 5 - ------------------------------------------------------------------------------------------------------ Buildings 40 1,918 12 - ------------------------------------------------------------------------------------------------------ Machinery and equipment 12 18,354 382 - ------------------------------------------------------------------------------------------------------ Office, computer, and laboratory equipment 6-10 209 7 - ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------ Excess cost over fair value 15 59,163 986 - ------------------------------------------------------------------------------------------------------ Intangible assets 7 4,400 157 ------ - ------------------------------------------------------------------------------------------------------ 1,549 - ------------------------------------------------------------------------------------------------------ Less: depreciation and amortization included in historical Peroxy financial statements (296) ------ - ------------------------------------------------------------------------------------------------------ Pro forma adjustment for depreciation and amortization $1,253 ====== - ------------------------------------------------------------------------------------------------------
(EE) Reflects gross margin on sales of paper chemicals and reduction in selling, general, and administrative expenses for GEO operations divested to Nalco subsequent to March 31, 2001. (FF) Reflects interest expense on a pro forma basis for interest costs associated with proceeds from new long-term debt sourced primarily to acquire Peroxy. Interest was computed assuming an average annual interest rate of 8.85%. Unaudited Pro Forma Condensed Statement of Income For the year ended December 31, 2000 (In thousands)
GE0 Peroxy Pro Forma Pro Forma Historical Historical Adjustments Combined ------------ ------------ ------------- ----------- Net sales $188,216 $ 43,760 $ (6,845) (DD) $ 225,131 Cost of sales 138,952 25,859 363 (BB) 164,067 -------- -------- --------- 587 (DD) (1,694) (EE) --------- (744) Gross profit 49,264 17,901 (6,101) 61,064 Selling, general, and administrative expenses 24,542 7,037 (4,909) (AA) 26,803 -------- -------- --------- 1,094 (CC) 4,581 (DD) (5,542) (EE) --------- (4,776) Income from operations 24,722 10,864 (1,325) 34,261 Other expense Net interest expense (14,806) (449) (9,975) (FF) (25,230) Other (1,348) (27) - (1,375) -------- -------- --------- --------- Income before taxes 8,568 10,388 (11,300) 7,656 Provision for income taxes 3,484 3,984 (4,452) 3,016 -------- -------- --------- --------- Net income $ 5,084 $ 6,404 $ (6,848) $ 4,640 ======== ======== ========= =========
Notes to Proforma Condensed Income Statement for the year ended December 31, 2000 ---------------------------------------------------- (in thousands) (AA) Reflects the elimination of the following from the historical operating results of Peroxy: . Allocated corporate indirect selling, general, and administrative expenses of $2,648 of corporate allocated indirect costs and $2,047 of divisional operations indirect costs. . Amortization of management information software costs of $214 as GEO did not acquire rights to such software. (BB) Reflects adjustments to the operating results of Peroxy for estimated incremental costs that would have been incurred by GEO had Peroxy been managed by GEO during the year: . Elimination of soil and groundwater contamination costs for Peroxy's Virginia plant of $44. Hercules has retained the obligation for these costs. . Elimination of a pension plan benefit of $407 created by the over funded status of Hercules pension plans. (CC) Reflects adjustments to the operating results of Peroxy for estimated incremental costs that would have been incurred by GEO had Peroxy been managed by GEO during the year: . Increase of $161 in insurance costs to increase coverage levels to GEO existing levels. . Incremental costs of $933 estimated by GEO for research and development and selling, and general, and administration costs. (DD) Reflects depreciation and amortization for the fair value of assets purchased (excluding current assets) in conjunction with the Peroxy acquisition. Additional depreciation and amortization for the period is calculated as follows:
---------------------------------------------------------------------------------------------- Years Fair Value Depreciation/ ----- ---------- ------------- (in thousands) Amortization ------------ (in thousands) ---------------------------------------------------------------------------------------------- Land N/A $ 300 ---------------------------------------------------------------------------------------------- Land improvements 20 394 $ 20 ---------------------------------------------------------------------------------------------- Buildings 40 1,918 48 ---------------------------------------------------------------------------------------------- Machinery and equipment 12 18,354 1,529 ----------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------- Office, computer, and laboratory equipment 6-10 209 28 ---------------------------------------------------------------------------------------------- Excess cost over fair value 15 59,163 3,944 ---------------------------------------------------------------------------------------------- Intangible assets 7 4,400 629 ------- ---------------------------------------------------------------------------------------------- 6,198 ---------------------------------------------------------------------------------------------- Less: depreciation and amortization included in historical Peroxy financial statements (1,030) ------- ---------------------------------------------------------------------------------------------- Pro forma adjustment for depreciation and amortization $ 5,168 ======= ----------------------------------------------------------------------------------------------
(EE) Reflects gross margin on sales of paper chemicals and reduction in selling, general, and administrative expenses for GEO operations divested to Nalco subsequent to December 31, 2000. (FF) Reflects interest expense on a pro forma basis for interest costs associated with proceeds from new long-term debt sourced primarily to acquire Peroxy. Interest was computed assuming an average annual interest rate of 9.5%. -----END PRIVACY-ENHANCED MESSAGE-----