<PAGE> 1
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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 March 31, 1999
Commission File Number: 333-70011
GEO SPECIALTY CHEMICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-1708689
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
GEO Specialty Chemicals, Inc.
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)
Indicate by check mark whether the registrant: (l) has filed all reports
required to be filed by Section 13 or l5(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of Class A Voting Common Stock, $1.00 par value, as of June 2, 1999:
135.835
Shares of Class B Nonvoting Common Stock, $1.00 par value, as of June 2,
1999: none
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BALANCE SHEETS
GEO SPECIALTY CHEMICALS, INC.
<TABLE>
<CAPTION>
(IN THOUSANDS)
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash $ 3,233 $ 1,645
Trade accounts receivable, net of allowance of $368 and $335
at March 31, 1999 and December 31, 1998, respectively 20,680 19,612
Other receivables 1,563 862
Inventory 8,123 9,476
Prepaid expenses and other current assets 663 792
Refundable income taxes 0 441
Deferred taxes 571 418
--------- ---------
Total current assets 34,833 33,246
Property and equipment, net 92,289 92,669
Other assets
Intangible assets, net 5,522 5,614
Goodwill, net 31,106 31,743
Other accounts receivable 546 589
Other 604 664
--------- ---------
Total other assets 37,778 38,610
Total assets $ 164,900 $ 164,525
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 760 $ 760
Accounts payable 10,663 7,564
Other accounts payable 448 448
Accrued expenses and other current liabilities 4,805 7,664
--------- ---------
Total current liabilities 16,676 16,436
Long-term liabilities
Revolving line of credit 0 0
Long-term debt 120,000 120,000
Other long-term liabilities 4,128 4,196
Other accounts payable 561 580
Deferred taxes 1,684 1,471
--------- ---------
Total long-term liabilities 126,373 126,247
Total liabilities $ 143,049 $ 142,683
Shareholders' equity
Class A Voting Common Stock, $1.00 par value,
1,035 shares authorized, 136 shares issued
and outstanding at March 31, 1999 and
December 31, 1998
Class B Nonvoting Common Stock, $1.00 par value,
205 authorized, 0 outstanding at March 31, 1999
and December 31, 1998
Additional paid-in capital $ 20,901 $ 20,901
Retained earnings 950 941
--------- ---------
Total shareholders' equity 21,851 21,842
Total liabilities and shareholders' equity $ 164,900 $ 164,525
========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 3
STATEMENT OF OPERATIONS (UNAUDITED)
GEO SPECIALTY CHEMICALS, INC.
<TABLE>
<CAPTION>
(IN THOUSANDS)
JANUARY 1 THROUGH JANUARY 1 THROUGH
MARCH 31, 1999 MARCH 31, 1998
------------------ ----------------
<S> <C> <C>
Net sales $ 34,194 $ 30,205
Cost of sales 26,628 24,937
-------- --------
Gross profit 7,566 5,268
Selling, general and administrative expenses 4,406 2,866
-------- --------
Income from operations 3,160 2,402
Other income (expense)
Net interest expense (3,086) (1,394)
Other (5) (20)
Income before taxes 69 988
Provision for taxes 60 316
-------- --------
Net income $ 9 $ 672
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
STATEMENT OF CASH FLOWS (UNAUDITED)
GEO SPECIALTY CHEMICALS, INC.
<TABLE>
<CAPTION>
(IN THOUSANDS)
JANUARY 1 THROUGH JANUARY 1 THROUGH
MARCH 31, 1999 MARCH 31, 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 9 $ 672
Adjustments to reconcile net income to net cash from
operating activities
Depreciation, depletion and amortization 2,621 1,562
Deferred income tax expenses 60 0
Change in assets and liabilities
Trade accounts receivable (1,068) (2,756)
Other accounts receivable (260) (34)
Inventories 1,353 (253)
Prepaid expenses and other assets 169 (138)
Accounts payable 210 (1,713)
Other liabilities (56) 0
------- --------
Net cash from operating activities 3,038 (2,660)
Cash flows from investing activities
Purchases of property, plant and equipment (1,386) (1,249)
Cash flows from financing activities
Revolving lines of credit borrowings (payments), net 0 4,000
Proceeds from bank borrowing 0 (775)
Payments on deferred financing costs (64) 0
------- --------
Net cash from financing activities (64) 3,225
Net change in cash 1,588 (684)
Cash at beginning of period 1,645 696
------- --------
Cash at end of period $ 3,233 $ 12
======= ========
Supplemental disclosure of cash flow information
Cash paid for
Interest $ 6,109 $ 1,427
Taxes 0 140
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
GEO SPECIALTY CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE DATA)
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: GEO Specialty Chemicals, Inc. was incorporated in
the state of Ohio for the purpose of owning and operating specialty chemical
businesses. GEO produces a variety of specialty chemical products for use in
various major chemical markets. GEO produces more than 300 products which are
used primarily in the construction, paper, water treatment and oil field
industries. GEO sells these products to customers located throughout the United
States and in some European markets.
GEO 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.
INTERIM RESULTS (UNAUDITED): The accompanying balance sheet at March 31,
1999 and the statements of operations for the three month period ended March 31,
1999 and 1998 are unaudited. In the opinion of management, these statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting of only normal recurring adjustments, necessary for
the fair presentation of the results of the interim periods. The data disclosed
in these notes to the financial statements for those interim periods are also
unaudited. The results of operations for the three months ended March 31, 1999
are not necessarily indicative of the results expected for the full calendar
year. Because all of the disclosures required by generally accepted accounting
principles are not included, these interim statements should be read in
conjunction with GEO's financial statements for the year ended December 31,
1998, and the notes thereto, which are included in GEO's Registration Statement
on Form S-1 filed with, and declared effective by, the Securities and Exchange
Commission on May 14, 1999.
NOTE 2 -- ACQUISITIONS
On July 31, 1998, pursuant to an acquisition agreement dated June 29,
1998, GEO purchased substantially all of the assets of the TRIMET Technical
Products Division of Mallinckrodt Inc. from Mallinckrodt Inc. and its
affiliates. The TRIMET business produces specialty chemicals used primarily in
the coatings industry by customers located in the United States and Europe. The
contractual purchase price was $60,000, adjusted by $1,106 to reflect TRIMET's
actual working capital amount at closing. The acquisition has been accounted for
as a purchase and, accordingly, the results of operations of TRIMET have been
included in GEO's financial statements from the date of acquisition. The
purchase price has been allocated to the assets acquired based upon fair values
using independent appraisals.
NOTE 3 -- INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Raw materials..................................... $ 3,214 $ 3,065
Work in progress.................................. 199 341
Finished goods.................................... 4,710 6,070
--------- ----------
$ 8,123 $ 9,476
========= ==========
</TABLE>
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
On July 31, 1998, GEO acquired the TRIMET Technical Products Division of
Mallinckrodt Inc. for approximately $61.1 million. To fund this acquisition as
well as to refinance GEO's existing indebtedness, GEO issued $120.0 million of
10 1/8% Senior Subordinated Notes and issued additional Common Stock for $6.0
million. As a result of this refinancing, GEO did not have any senior secured
indebtedness as of March 31, 1999. The impact of the refinancing on GEO's
balance sheet as of March 31, 1999 compared to GEO's balance sheet as of March
31, 1998 was increases in Senior Subordinated Notes of $120.0 million and
shareholders' equity of $6.0 million, a decrease in senior term loans of $57.2
million, of which $2.8 million was due within twelve months, and a decrease in
the balance of the senior revolving credit facility of $7.6 million. As of March
31, 1999, GEO had $25.0 million available under its new senior revolving credit
facility.
RESULTS OF OPERATIONS
The following table sets forth certain operations data of GEO for the
first quarter of 1998 and the first quarter of 1999 expressed in millions of
dollars and as a percentage of net sales for the respective period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1999
---------------------- ---------------------
$ % $ %
------ ----- ------ ------
<S> <C> <C> <C> <C>
Net sales $ 30.2 100.0% $ 34.2 100.0%
Gross profit 5.3 17.5 7.6 22.1
Operating income 2.4 7.9 3.2 9.2
Net income 0.7 2.2 0.0 0.0
EBITDA 4.0 13.2 5.8 17.0
Net interest expense 1.4 4.6 3.1 9.0
Capital expenditures 1.2 4.0 1.4 4.1
</TABLE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
Net Sales. Net sales for the first quarter of 1999 were $34.2 million,
representing a $4.0 million or 13.3% increase compared to net sales of $30.2
million during the first quarter of 1998. The increase in net sales was
attributable to the impact of the TRIMET acquisition which occurred on July 31,
1998. Net sales of TRIMET, which produces additives used in the coatings and
resins industries, were $7.7 million in the first quarter of 1999. Excluding
the impact of this acquisition, GEO's net sales declined by $3.7 million or
12.4% compared to the same period of 1998. Sales of additives and clay products
to the oil and gas industry declined by $1.8 million and sales to the paper
industry declined by $1.4 million. The remainder of the decrease in net sales
was attributable primarily to a decline in shipments of aluminum compounds to
the water treatment industry.
Gross Profit. Gross profit for the first quarter of 1999 was $7.6 million,
or 22.1% of net sales, representing a $1.6 million or 43.6% increase compared
to a gross profit of $5.3 million, or 17.5% of net sales, during the first
quarter of 1998. The increase in gross profit was primarily attributable to the
TRIMET acquisition. The increase in gross margin as a percent of net sales
reflects the effect of (a) lower raw material costs experienced by all of GEO's
product groups, (b) improved product mix due to the TRIMET acquisition, and (c)
lower plant operating expenses.
Operating Income. Operating income for the first quarter of 1999 was $3.2
million, or 9.2% of net sales, representing a $0.8 million or 31.6% increase
compared to operating income of $2.4 million, or 7.9% of net sales, during the
first quarter of 1998. The increase in operating income was primarily
attributable to the TRIMET acquisition. Operating income was negatively impacted
by (a) $0.6 million due to amortization of goodwill and intangible assets
associated with the TRIMET acquisition and (b) a $0.3 million or 12.9% increase
in selling, general and administrative expenses excluding the impact of the
TRIMET acquisition.
Net Income. Net income for the first quarter of 1999 was zero, representing
a $0.7 million decline compared to net income of $0.7 million, or 2.2% of net
sales, during the first quarter of 1998. The decrease in net income was due
primarily to a $1.7 million increase in net interest expense reflecting the
refinancing of GEO's senior debt in connection with the TRIMET acquisition
(i.e., additional net debt of $52.2 million and higher overall interest rate).
Partially offsetting the higher interest charges was (a) a $0.2 million
reduction in income taxes compared to the same period in 1998 and (b) the $0.8
million increase in operating income. The income tax provision in the statement
of operations is higher than the expected rate due to nondeductible expenditures
which are treated as permanent differences for tax purposes.
<PAGE> 7
EBITDA. EBITDA for the first quarter of 1999 was $5.8 million, or 16.9% of
net sales, representing a $1.8 million or 44.6% increase compared to an EBITDA
of $4.0 million, or 13.2% of net sales, during the first quarter of 1998. The
increase in EBITDA was attributable to the TRIMET acquisition, which generated
$2.8 million in EBITDA during the first quarter of 1999. This increase was
partially offset by reduced sales of additives and clay products to the oil and
gas industry and reduced sales to the paper industry, as noted above.
Net Interest Expense. Net interest expense for the first quarter of
1999 was $3.1 million, or 9.0% of net sales, representing a $1.7 million
increase compared to a net interest expense of $1.4 million, or 4.6% of net
sales, for the first quarter of 1998. The increase in net interest expense was
due to the additional debt incurred to fund the TRIMET acquisition and the
higher borrowing costs associated with GEO's 10 1/8% Senior Subordinated Notes.
LIQUIDITY AND CAPITAL RESOURCES
GEO's primary cash needs are working capital, capital expenditures and debt
service. GEO has financed these needs from internally generated cash flow, in
addition to periodic draws on its existing senior revolving credit facility. As
of March 31, 1999, GEO had no material commitments for capital expenditures.
Capital expenditures for the first quarter of 1999 were $1.4 million, an
increase of $0.2 million compared to capital expenditures of $1.2 million during
the first quarter of 1998. The increase in capital expenditures was primarily
attributable to the TRIMET acquisition.
Net cash provided from operations for the first quarter of 1998 was ($2.7
million) and for the first quarter of 1999 was $3.0 million. The $5.7 million
improvement in net cash provided from operations was generated primarily by
lower inventories ($1.6 million), increased non-cash costs ($1.1 million) and
higher payables ($1.9 million). The latter two items reflect the impact of the
TRIMET acquisition.
In connection with the TRIMET acquisition, GEO refinanced its senior debt
by issuing $120.0 million of 10 1/8% Senior Subordinated Notes and amending its
credit facility to include $25.0 million of borrowing availability under a new
senior revolving credit facility. The $25.0 million amended credit facility has
a five year duration and no interim amortization requirements. As of March 31,
1999, GEO had no draws outstanding on the new senior revolving credit facility.
GEO believes that cash generated from operations, together with amounts
available under its senior revolving credit facility, will be adequate to meet
its debt service requirements, capital expenditures and working capital needs
for the foreseeable future, although no assurance can be given in this regard.
"YEAR 2000" COMPLIANCE
Information Technology Systems. In May 1997, GEO initiated a program to
upgrade its information technology systems. The major components of this program
include enterprise level integrated applications software, communications
software and wide area network and server computers. These components were
acquired from leading vendors, including Digital Equipment Corporation, Oracle
Corporation, International Business Machines Corporation, Ross Systems, Inc. and
MCI Communications Corporation. Each purchased component was represented as
being "Year 2000" compliant. GEO currently plans to complete its information
technology systems upgrade by the middle of 1999 and will conduct further
testing and validation in late 1999. Since "Year 2000" compliance was a
selection criteria for all newly purchased information and auxiliary systems,
GEO believes that its information systems, which include its financial,
manufacturing and distribution systems, and the majority of its auxiliary
systems, which include its labeling and quality control systems, are compliant.
GEO has initiated a program to upgrade its remaining auxiliary systems, which
include its invoicing and bar coding systems. GEO will be upgrading and
performing internal system testing during the second quarter of 1999 for its
invoicing system, which it expects to complete by June 1999. GEO will also be
testing its bar coding systems during the second quarter of 1999 and will
perform any necessary upgrades by June 1999.
<PAGE> 8
All of GEO's servers and associated operating systems are relatively
new and, therefore, believed to be "Year 2000" compliant. GEO anticipates that
its remaining systems will require ROM upgrades only. GEO plans to complete
these upgrades by the end of the second quarter of 1999. GEO also has engaged
Compaq Computer Corporation to perform "Year 2000" compliance assessments on
all of its Compaq and Digital Equipment Corporation servers during the second
quarter of 1999. Although GEO plans to complete its information technology
systems upgrade according to this schedule, it can provide no assurance that
the process will occur without unexpected difficulty, delay or expense.
Currently, GEO believes it has upgraded and tested approximately 75% of its
information technology systems.
Non-Information Technology Systems. GEO believes that its
administrative/business applications are "Year 2000" compliant. In light of its
current business/administrative project to upgrade selected non-"Year 2000"
compliant computers and convert all office automation tools to a Microsoft
Office 97 platform, GEO believes that it will be "Year 2000" compliant in the
area of office automation by the end of May 1999. Approximately 40 personal
computers purchased during 1997 require software upgrades. Currently, GEO has
accomplished 98% of these upgrades as part of the office automation conversion
project. Sixty computers will also be replaced as part of this project.
GEO's communication infrastructure is comprised of wide and local area
networks, which connect 19 locations, and local telephone hardware and service
providers. GEO is currently contacting local and wide area network service
providers and hardware vendors to determine any "Year 2000" issues. GEO has
received responses from all six of the vendors solicited. Three have responded
that they are "Year 2000" compliant, one has responded that it will be compliant
by the end of 1999, and two have stated that the equipment that they have
provided GEO will require operating system upgrades, which GEO plans to complete
by the middle of the third quarter of 1999. GEO has also begun contacting all
local telephone service providers to determine their "Year 2000" readiness. To
date, GEO has contacted nineteen local telephone hardware and service providers.
Eight have responded that their equipment is "Year 2000" compliant and that
their service will be compliant by the end of 1999. GEO is soliciting follow-up
responses from the remaining eleven providers and will complete this inquiry by
the end of the second quarter of 1999. Any hardware or service provider that is
not compliant will be upgraded or replaced by the end of the third quarter of
1999.
GEO has conducted internal "Year 2000" compliance audits of its
manufacturing facilities and has found no technical infrastructure,
manufacturing and warehousing equipment or environmental systems that have the
potential to create business interruptions. Approximately 75% of the
non-compliant systems, such as phone systems and distribution control systems,
have been tested and upgraded. GEO engaged an outside consultant to verify the
results of the internal "Year 2000" compliance audit of its Cedartown, Allentown
and Harrison facilities, since these facilities have the most significant
financial impact on GEO. These evaluations were completed at the end of April
1999, and GEO expects to receive the results of these evaluations by June 15,
1999. GEO believes that its manufacturing facilities are 85-90% "Year 2000"
compliant and that such facilities will be 100% compliant by June 1999.
Third Party Communications. GEO is currently in the process of soliciting
written responses from all suppliers of products and transportation services
regarding their "Year 2000" readiness. The major chemical suppliers have either
recently converted to enterprise business software that is certified to be
compliant or have informed GEO that they will do so by the end of the third
quarter of 1999. GEO has solicited responses from the 61 most significant raw
material suppliers out of its 104 total raw material suppliers. GEO has also
solicited all 58 of its transportation service carriers. To date, GEO has
received 30 responses from its raw material suppliers and 21 responses from its
transportation service carriers. All respondents have indicated that they are
"Year 2000" compliant. GEO will send second requests during the second quarter
of 1999 to those suppliers and carriers who have not responded and will evaluate
the responses early in the third quarter of 1999. GEO will arrange for
alternative suppliers and carriers if necessary. GEO has not conducted
compliance audits of its utility service providers, including its providers of
electricity, natural gas and water. However, GEO has solicited all of its
utility service providers for "Year 2000" compliance, and all of its providers
have responded with expectations of full compliance by December 1999.
"Year 2000" Worst Case Scenario. GEO's worst case scenario with respect
to "Year 2000" issues is the loss of utility services at its manufacturing
facilities. GEO could adjust its inventory levels to compensate for any
manufacturing interruption at all facilities except Allentown. The risk at
Allentown is that alternate manufacturers or manufacturing sites and/or
capacity increase projects may not be in place in time. Interruption of utility
service is a concern of GEO but, based upon the "Year 2000" readiness efforts
of the utility companies that serve GEO, is not considered a significant risk.
<PAGE> 9
"Year 2000" Expenditures. GEO's total "Year 2000" expenditures are
projected to be $0.2 million. Approximately $0.1 million has been spent through
February of 1999, and the remaining $0.1 million is projected to be spent during
the remainder of 1999. The majority of these expenditures has been in the form
of upgrades to existing systems which were not "Year 2000" compliant.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report, including statements
containing the words "believes," "anticipates," "intends," "expects," "should,"
"may," "will," "continue" and "estimate," and similar words, constitute
"forward-looking statements" under the federal securities laws. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
GEO or its industry to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Important factors that could cause actual results to differ
materially from GEO's expectations include the following: loss of key customers
or increased competitive pressures; changes in customer spending levels;
increases in interest rates or GEO's cost of borrowing or a default under any
material debt agreement; unavailability of funds for capital expenditures or
research and development; changes in governmental, environmental or other
regulations; or changes in general economic conditions. Given these
uncertainties, you should not place undue reliance upon such forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The fair value of GEO's fixed rate long-term notes is sensitive to changes
in interest rates. Interest rate changes would result in gains/losses in the
fair value of the notes due to differences between the market interest rates and
rates at the date of the note's issuance. Based on a hypothetical immediate 100
basis point increase in interest rates at March 31, 1999, the fair value of
GEO's fixed rate long-term notes would be impacted by a net decrease of $10.8
million. Conversely, a 100 basis point decrease in interest rates would result
in a net increase in the fair value of GEO's fixed rate long-term notes at
March 31, 1999 of $11.8 million.
GEO is subject to foreign currency exchange rate risk relating to receipts
from customers in foreign currencies. Less than 2% of receipts are contracted
with foreign currencies, and GEO does not consider the market risk exposure
relating to currency exchange to be material.
GEO is subject to commodity price risk relative to the purchase of
commodity chemicals as raw materials in its manufacturing processes. These raw
materials are generally available from several suppliers and are purchased
under agreements negotiated annually with two or more vendors per raw material.
Historically, GEO has been able to pass on price increases to its customers
within 90 to 120 days. Based upon GEO's agreements with multiple vendors and
its ability to pass along price increases, the exposure to commodity price risk
is not considered to be material.
<PAGE> 10
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a)-(c) Not applicable.
(d) GEO's Registration Statement on Form S-1 (Securities and Exchange
Commission File Number 333-70011) with respect to the registration of its $120.0
million in aggregate principal amount of 10 1/8% Senior Subordinated Notes due
2008, Series B (the "Exchange Notes"), to be exchanged for its currently
outstanding $120.0 million in aggregate principal amount of 10 1/8% Senior
Subordinated Notes due 2008, Series A (the "Outstanding Notes"), was declared
effective by the Securities and Exchange Commission on May 14, 1999. The
Exchange Notes are identical to the Outstanding Notes, except that the Exchange
Notes have been registered under the Securities Act of 1933, and will be issued
under the same indenture. GEO's exchange offer with respect to the exchange of
Exchange Notes for Outstanding Notes was commenced on May 14, 1999 and will
expire on June 11, 1999, unless it is extended by GEO in accordance with the
terms of the exchange offer. GEO anticipates that the exchange offer will expire
and the Exchange Notes will be exchanged for the Outstanding Notes on June 11,
1999.
GEO will not receive any cash proceeds from the exchange offer. GEO is
effecting the exchange offer to comply with its obligations under the
Registration Rights Agreement, dated July 31, 1998, by and between GEO and BT
Alex.Brown Incorporated, the initial purchaser of the Outstanding Notes. GEO
used the proceeds of $120.0 million from the July 31, 1998 offering of the
Outstanding Notes, along with approximately $2.4 million obtained from its
senior credit facility and $6.0 million in equity contributions from its
shareholders, to:
- complete the July 31, 1998 acquisition of substantially all of the
assets of the TRIMET Technical Products Division of Mallinckrodt Inc.
for approximately $61.1 million;
- refinance approximately $62.2 million of indebtedness, incurred by GEO
primarily in its March 25, 1997 acquisition of the paper, construction
and process chemicals business of Henkel Corporation and Henkel Canada
Limited; and
- pay the fees and expenses of approximately $5.1 million incurred in
connection with the issuance of the Outstanding Notes, the TRIMET
acquisition and the execution of the new senior revolving credit
facility.
No portion of the TRIMET purchase price, the debt refinancing or the
payment of fees and expenses in connection with such transactions and the
issuance of the Outstanding Notes was made, directly or indirectly, to any of
GEO's directors, officers or shareholders or the affiliates or associates of any
such persons or entities.
The fees and expenses incurred by GEO, in the form of direct payments to
persons or entities other than GEO's directors, officers and shareholders and
the affiliates and associates of any such persons and entities, in connection
with the registration, issuance and distribution of the Exchange Notes are
estimated (other than with respect to the SEC registration fee) to be as
follows:
<PAGE> 11
<TABLE>
<S> <C>
SEC Registration Fee................................... $ 33,360
Exchange Agent Fees and Expenses....................... 1,000
Printing Fees and Expenses............................. 100,000
Accounting Fees and Expenses........................... 400,000
Legal Fees and Expenses................................ 75,000
Miscellaneous.......................................... $ 5,000
-----------
Total................................ $ 614,360
</TABLE>
The net proceeds to GEO from the issuance of the Outstanding Notes and the
Exchange Notes, after deducting the fees and expenses incurred in connection
with the issuance of the Outstanding Notes and the estimated expenses incurred
in connection with the issuance of the Exchange Notes, is approximately $115.0
million.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
As of May 25, 1999, GEO executed a Written Declaration of Sole Member in
respect of a newly formed, wholly owned Ohio limited liability company named GEO
Specialty Chemicals Limited. GEO formed the new entity to operate a sales office
in Cheltenham, England. The sales office will focus on servicing GEO's customers
located in Europe, most of which purchase products from GEO's TRIMET division,
and will, initially, be staffed by two full time employees. The membership
interest of GEO in the newly formed limited liability company has been pledged
to GEO's senior lenders and the new entity has become a party to a subsidiary
guarantee with the senior lenders. The new entity will also be subject to
numerous operating restrictions contained in the indenture governing GEO's
Senior Subordinated Notes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial data schedule for the three months ended March 31, 1999.
(b) Reports on Form 8-K.
GEO filed no Current Reports on Form 8-K with the Securities and Exchange
Commission during the three month period ended March 31, 1999.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEO SPECIALTY CHEMICALS, INC.
Date: June 2, 1999 By: /s/ William P. Eckman
------------------------------------
William P. Eckman
Executive Vice President and
Chief Financial Officer
(duly authorized officer and
principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF GEO SPECIALTY CHEMICALS, INC AS OF MARCH 31, 1999
AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE FIRST THREE MONTHS OF 1999.
EXCEPT FOR THE DATES AND EPS NUMBERS, ALL AMOUNTS ARE IN THOUSANDS OF DOLLARS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,233
<SECURITIES> 0
<RECEIVABLES> 21,048
<ALLOWANCES> 368
<INVENTORY> 8,123
<CURRENT-ASSETS> 34,834
<PP&E> 103,731
<DEPRECIATION> 11,442
<TOTAL-ASSETS> 164,900
<CURRENT-LIABILITIES> 16,676
<BONDS> 120,000
0
0
<COMMON> 0
<OTHER-SE> 20,901
<TOTAL-LIABILITY-AND-EQUITY> 164,900
<SALES> 34,194
<TOTAL-REVENUES> 34,194
<CGS> 26,628
<TOTAL-COSTS> 31,034
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 32
<INTEREST-EXPENSE> 3,086
<INCOME-PRETAX> 69
<INCOME-TAX> 60
<INCOME-CONTINUING> 9
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9
<EPS-BASIC> 62.55
<EPS-DILUTED> 62.55
</TABLE>
