<PAGE>
===============================================================================
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): September 8, 1999
__________
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 of Principal Executive Offices) (Zip Code)
216-464-5564
__________________________________________________
(Registrant's Telephone Number, Including Area Code)
N/A
____________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
===============================================================================
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 8, 1999, GEO acquired, through its newly-formed and
wholly-owned French subsidiary GEO Holdings (Europe) SARL, a gallium extraction
and purification business from Rhodia Chimie S.A. ("Rhodia") for the French
franc equivalent of approximately US $23,300,000, less the amount of debt for
borrowed money of the acquired business. The purchase price is subject to a
post-closing adjustment based on the change in equity of the business from
December 31, 1998 until September 1, 1999. The acquired business provides
various grades of gallium to the semi-conductor market for applications in
optoelectronics (light emitting diodes) systems and telecommunications. The
purchase price of the acquired business was arrived at through arms-length
negotiations between GEO and Rhodia.
The acquisition was structured as a purchase of the shares of a French
subsidiary of Rhodia, named Rhod Six S.A., which owns both the French operating
assets of a gallium purification business located in Salindres, France and the
shares of a German corporation, named Ingal Stade GmbH, with gallium extraction
operations in Stade, Germany. The name of Rhod Six S.A. was changed on the date
of the closing to GEO Gallium S.A. The management team of GEO Gallium S.A. will
be headquartered in Paris, France.
The source of the funds used to purchase the acquired business was GEO's
existing senior revolving credit facility, with various financial institutions
and Bankers Trust Company, as the administrative agent, which was amended on
September 3, 1999 in order to facilitate the acquisition. The funds obtained by
GEO from its senior revolving credit facility were advanced to GEO Holdings
(Europe) SARL through a number of inter-company transactions.
As part of the acquisition, GEO was also granted a three year option to
acquire an Australian subsidiary of Rhodia, named Rhodia Pinjarra Pty Ltd.,
which owns a currently dormant gallium extraction facility near Pinjarra,
Australia. The exercise price under the option is the French franc equivalent of
approximately US $1,600,000. The exercise price is subject to a post-closing
adjustment based on the change in equity of the Australian business from
December 31, 1998 until the closing of the purchase of the shares.
ITEM 5. OTHER EVENTS.
In connection with the consummation of the acquisition described above, GEO
entered into an amended and restated credit agreement with its existing senior
lenders, which includes various financial institutions and Bankers Trust
Company, as the administrative agent, increasing the availability under its
senior revolving credit facility from $25.0 million to $45.0 million. GEO's
ability to draw funds under the senior revolving credit facility is subject to,
in addition to the 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 senior
revolving credit facility remain secured by a first priority security interest
on all tangible and intangible assets of GEO, including GEO's ownership
interests in its subsidiaries. In addition, the senior revolving credit facility
remains senior in right of payment to GEO's outstanding Senior Subordinated
Notes.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) The following financial statements of Rhodia Gallium, a business
unit of Rhodia Chimie S.A., are filed in Exhibit 99.1 to this Form 8-K/A
Amended Report:
Report of Independent Auditors
Combined Balance Sheets of Rhodia Gallium as of December 31, 1998 and
1997 and August 31, 1999
Combined Statements of Operations of Rhodia Gallium for the years
ended December 31, 1998 and 1997 and the periods ended August 31, 1999
and 1998
Combined Statements of Equity and Comprehensive Income of Rhodia
Gallium for the years ended December 31, 1998 and 1997 and the period
ended August 31, 1999
Combined Statements of Cash Flows of Rhodia Gallium for the years
ended December 31, 1998 and 1997 and the periods ended August 31, 1999
and 1998
Notes to Combined Financial Statements of Rhodia Gallium
(b) The following unaudited pro forma financial information of GEO, reflecting
the acquisition of the Rhodia Gallium business on September 8, 1999 and the
TRIMET Technical Products Division of Mallinckrodt Inc. on July 31, 1998,
is filed in Exhibit 99.2 to this Form 8-K/A Amended Report:
Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1998.
Unaudited Pro Forma Condensed Combined Statement of Operations for the
nine months ended September 30, 1999.
The unaudited pro forma condensed combined statements of operations should
be read in conjunction with the historical financial statements of GEO and
TRIMET 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, and the historical financial statements of Rhodia
Gallium and the notes thereto included in Exhibit 99.1 to this Form 8-K/A
Amended Report.
The unaudited pro forma condensed combined statements of operations are not
necessarily indicative of the results that would have occurred in the periods
shown if the TRIMET and Rhodia Gallium acquisitions 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 Stock Purchase Agreement, dated August 6, 1999, by and between GEO
Specialty Chemicals, Inc. and Rhodia Chimie S.A. (incorporated by reference to
Exhibit 2.1 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on September
23, 1999).
10.1 Credit Agreement, dated March 25, 1997 and amended and restated as
of July 31, 1998 and further amended and restated as of September 3, 1999, by
and among GEO Specialty Chemicals, Inc., various financial institutions and
Bankers Trust Company, as the administrative agent (incorporated by reference
to Exhibit 10.1 of the Form 8-K of GEO Specialty Chemicals, Inc. filed on
September 23, 1999).
23.1 Consent of Crowe, Chizek and Company LLP, independent auditors.
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.
<PAGE>
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: November 22, 1999 By: /s/ William P. Eckman
----------------------------------
William P. Eckman, Executive Vice
President and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------- --------------------------
2.1 Stock Purchase Agreement, dated August 6, 1999, by and
between GEO Specialty Chemicals, Inc. and Rhodia Chimie S.A.
(incorporated by reference to Exhibit 2.1 of the Form 8-K of GEO
Specialty Chemicals, Inc. filed on September 23, 1999).
10.1 Credit Agreement, dated March 25, 1997 and amended and restated as of
July 31, 1998 and further amended and restated as of September 3,
1999, by and among GEO Specialty Chemicals, Inc., various financial
institutions and Bankers Trust Company, as the administrative agent
(incorporated by reference to Exhibit 10.1 of the Form 8-K of GEO
Specialty Chemicals, Inc. filed on September 23, 1999).
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.
<PAGE>
Exhibit 99.1
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED FINANCIAL STATEMENTS
December 31, 1998 and 1997
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED FINANCIAL STATEMENTS
December 31, 1998 and 1997
CONTENTS
REPORT OF INDEPENDENT AUDITORS................................................ 1
FINANCIAL STATEMENTS
COMBINED BALANCE SHEETS................................................. 2
COMBINED STATEMENTS OF OPERATIONS....................................... 3
COMBINED STATEMENTS OF EQUITY........................................... 4
COMBINED STATEMENTS OF CASH FLOWS....................................... 6
NOTES TO COMBINED FINANCIAL STATEMENTS.................................. 7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
GEO Specialty Chemicals, Inc.
Cleveland, Ohio
We have audited the accompanying combined balance sheets of Rhodia Gallium, a
business unit of Rhodia Chimie S.A., (the Company) as of December 31, 1998 and
1997 and the related combined statements of operations, equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Rhodia Gallium, a business unit
of Rhodia Chimie S.A., as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As explained in Note 1, the financial statements include significant costs and
expenses of Rhodia Chimie S.A. allocated to Rhodia Gallium.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
November 12, 1999
1
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED BALANCE SHEETS (in 000's)
<TABLE>
<CAPTION>
December 31, August 31,
----------- ---------
1998 1997 1999
---- ---- ----
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash $ 25 $ 2 $ 86
Trade accounts receivable 5,082 6,141 3,714
Inventories 9,054 10,255 9,958
Prepaid expenses and other current assets 606 719 501
------- ------- -------
Total current assets 14,767 17,117 14,259
Plant and equipment, net 2,534 2,684 2,032
Other assets
Deferred taxes 163 589 626
Other 1 1 1
------- ------- -------
Total other assets 164 590 627
------- ------- -------
$17,465 $20,391 $16,918
======= ======= =======
LIABILITIES AND BUSINESS UNIT EQUITY
Current liabilities
Current portion of long-term debt $ - $ 155 $ -
Cash pool borrowings 1,634 1,378 1,162
Accounts payable 554 1,230 268
Other accounts payable 169 161 561
Social benefits and taxes payable 1,876 1,057 1,385
------- ------- -------
Total current liabilities 4,233 3,981 3,376
Long-term liabilities 175 244 188
Business unit equity
Share capital 32 32 72
Accumulated other comprehensive loss (380) (984) (1,100)
Divisional equity/retained earnings 13,405 17,118 14,382
------- ------- -------
Total business unit equity 13,057 16,166 13,354
------- ------- -------
$17,465 $20,391 $16,918
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED STATEMENTS OF OPERATIONS (in 000's)
<TABLE>
<CAPTION>
December 31, August 31,
------------ ----------
1998 1997 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Net sales $15,380 $16,560 $ 8,071 $10,803
Cost of sales 10,476 13,510 4,548 7,403
------- ------- ------- -------
Gross profit 4,904 3,050 3,523 3,400
Selling, general, and administrative expenses 1,000 889 831 879
------- ------- ------- -------
Income from operations 3,904 2,161 2,692 2,521
Other income (expense)
Net interest expense (52) (60) (30) (35)
Gain (loss) on foreign currency
translation 155 155 175 (40)
Other 16 7 12 19
------- ------- ------- -------
119 102 157 (56)
Income before taxes 4,023 2,263 2,849 2,465
Provision for income taxes 1,673 944 1,158 1,028
------- ------- ------- -------
Net income $ 2,350 $ 1,319 $ 1,691 $ 1,437
======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED STATEMENTS OF EQUITY
(Dollars in 000's)
<TABLE>
<CAPTION>
Unrealized
Unrealized Divisional Gain (Loss)
Gain Equity/ on Foreign
On Pension Retained Currency Comprehensive
Capital Obligation Earnings Translation Total Income
------- ---------- -------- ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 $ 32 $ - $12,038 $ - $12,070
Comprehensive income
Net income - - 1,319 - 1,319 $ 1,319
Adjustment for unrealized
gain on pension obligation,
net of tax of $29. - 46 - - 46 46
Cumulative translation
adjustment for foreign currency
translation loss, net of
tax benefit of $658. - - - (1,030) (1,030) (1,030)
-------
Total comprehensive income $ (335)
=======
Dividends declared - - (96) - (96)
Net capital contributions
from Rhodia Chimie S.A. - - 3,857 3,857
------- ------- ------- ------- -------
Balance at
December 31, 1997 32 46 17,118 (1,030) 16,166
Comprehensive income
Net income - - 2,350 - 2,350 $ 2,350
Adjustment for unrealized
gain on pension obligation,
net of tax of $47. - 72 - - 72 72
Adjustment for foreign currency
translation gain, net of
deferred tax of $340. - - - 532 532 532
-------
Total comprehensive income $ 2,954
=======
Dividends declared - - (30) - (30)
Net capital distributions
from Rhodia Chimie S.A. - - (6,033) - (6,033)
------- ------- ------- ------- -------
Balance at
December 31, 1998 $ 32 $ 118 $13,405 $ (498) $13,057
======= ======= ======= ======= =======
</TABLE>
(Continued)
4
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED STATEMENTS OF EQUITY (in 000's)
<TABLE>
<CAPTION>
Unrealized
Unrealized Gain (Loss)
Gain (Loss) on Foreign
On Pension Divisional Currency Comprehensive
Capital Obligation Equity Translation Total Income
------- ---------- ------ ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 $ 32 $ 118 $13,405 $ (498) $13,057
Comprehensive income (a)
Net income - - 1,691 - 1,691 $ 1,691
Adjustment for foreign currency
translation loss, net of
tax benefit of $460 (a) - - - (720) (720) (720)
-------
Total comprehensive income (a) $ 968
=======
Capital contribution to new subsidiary
for future contribution of Gallium business (a) 40 - - - 40
Net capital contributions (distributions)
from (to) Rhodia Chimie S.A. (a) - - (714) - (714)
-------- ------- ------- ------- -------
Balance at
August 31, 1999 (a) $ 72 $ 118 $14,382 $(1,218) $13,354
======== ======= ======= ======= =======
</TABLE>
(a) unaudited information
See accompanying notes to combined financial statements.
5
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED STATEMENTS OF CASH FLOWS (in 000's)
<TABLE>
<CAPTION>
December 31, August 31,
------------ ----------
1998 1997 1999 1998
---- ---- ---- ----
(unaudited)
Cash flows from operating activities
<S> <C> <C> <C> <C>
Net income $ 2,350 $ 1,319 $ 1,691 $ 1,437
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 466 521 301 287
Deferred income tax expense (benefit) 33 (3) 5 10
Pension expense 22 30 30 17
Loss (gain) on sale of assets 230 11 - 101
Change in assets and liabilities
Accounts receivable - trade 877 (2,424) 1,520 1,713
Inventories 1,902 (285) 1,941 2,286
Accounts payable and accrued expenses (311) (3,594) (209) 32
Tax payable (48) 69 34 (13)
Other assets and liabilities 1,001 302 (312) (247)
------- ------- ------- -------
Net cash from operating activities 6,522 (4,054) 1,119 6,117
Cash flows from investing activities
Purchases of plant and equipment (380) (36) (25) (32)
------- ------- ------- -------
Net cash from investing activities (380) (36) (25) (32)
Cash flows from financing activities
Cash pool borrowings (payments), net 148 178 (327) (58)
Payment on seller note (155) - - -
Division capital contributed
(distributions paid), net (6,113) 3,893 (702) (5,995)
------- ------- ------- -------
Net cash from financing activities 6,120 4,071 (1,029) (6,053)
Effect of exchange rate changes in cash 1 (1) (4) 2
Net change in cash 23 (20) 61 34
Cash at beginning of period 2 22 25 2
------- ------- ------- -------
Cash at end of period $ 25 $ 2 $ 86 $ 36
======= ======= ======= =======
Non-cash financing activities:
Dividends declared $ 96 $ 30 $ 0 $ 74
Supplemental disclosures of cash flow information
Cash paid (received) for
Interest 52 60 30 35
Taxes 929 (35) 1,599 914
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by Rhodia Gallium
a business unit of Rhodia Chimie S.A., (the Company), are as follows:
Principles of Combination: The combined financial statements include the Rhodia
Chimie S.A. Gallium business and its facilities in Salindres, France and Stade,
Germany. The scope of the Gallium business is described in the Stock Purchase
Agreement, dated August 6, 1999 (see Note 10). Rhodia Chimie S.A. operates the
French Gallium business of Rhodia Chimie S.A. located at the Salindres plant
site (the Division). Rhodia Chimie S.A. owns the shares of Rhodia Deutschland
GmbH which owns the capital of Ingal Stade GmbH, a company whose entire
activities are the operation of the Gallium business in Germany. Rhodia Chimie
S.A.'s sales agents activities relating to gallium sales and a dormant gallium
extraction facility in Australia are not included in the combination. All
significant transactions between the combined companies are eliminated.
Description of Business: The Company extracts, purifies, and sells gallium to
sales agent companies that are subsidiaries of Rhodia Chimie S.A. or to various
other customers. The Company operates in only one segment. The sales agents
resell the gallium to customers throughout the world, primarily in the
electronics industry. Sales are concentrated with customers located principally
in Japan, the United States, and Germany. The Company operates in an environment
with many financial and operating risks, including, but not limited to, intense
competition, limitations on the supply of raw materials, commodity sales price
fluctuations, and technological changes.
Interim Results (Unaudited): The accompanying balance sheet at August 31, 1999
and statement of equity for the eight months ended August 31, 1999 and the
statements of operations and cash flows for the eight months ended August 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.
Revenue Recognition: Revenues are recognized upon shipment.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
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 cash, trade accounts receivable, accounts payable, other accounts
payable, other current liabilities, cash pool borrowings, and long-term
liabilities. The carrying value of all instruments approximates fair value.
Allowance for Doubtful Accounts: The Company is on the reserve method for bad
debts. For the years ended December 31, 1998 and 1997, management determined
that no reserve was required, as the majority of the receivable balances are due
from other business units of Rhodia Chimie, S.A.
(Continued)
7
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
December 31, 1998 and 1997
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Plant and Equipment: Plant and equipment are carried at cost and depreciated
on straight-line and accelerated methods. Plant and equipment are being
depreciated using the following estimated lives:
Asset Lives in Years
Buildings and improvements 10 - 40
Machinery and equipment 5 - 15
Office furniture and fixtures 10 - 15
Other equipment 3 - 15
Inventories: Inventories are stated at the lower of average costs or replacement
value (for purchased goods), manufacturing costs (for manufactured goods),
or market, with cost being determined on a first-in, first-out (FIFO) basis.
Income Taxes: Income taxes are computed on the same basis as if the Company had
filed separate income tax returns in the respective countries of operations.
Deferred taxes are computed based on the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, using enacted tax rates.
Research and Development Expense: Research and development costs are charged to
expense as incurred. Such expenses amounted to $273 and $337 for the years ended
December 31, 1998 and December 31, 1997, respectively.
Foreign Currency Translation: The Company's French and German operations use the
French Franc currency as their functional currency; assets and liabilities are
translated at exchange rates in effect at the balance sheet date. The effect of
foreign currency remeasurement to the functional currency is immaterial.
Foreign denominated transactions are translated into the functional currency at
the exchange rate in effect on the date of the transaction. Exchange differences
arising from foreign currency transactions are included in the statement of
operations. Rhodia Chimie S.A. hedges foreign currency risks on a company-wide
basis. The effects of Rhodia Chimie S.A.'s hedging of foreign currency
commitments are allocated on the Company on a percentage of Rhodia Chimie S.A.'s
net gain or loss from hedging for each respective currency.
Environmental Liabilities: The Company recognizes losses and accrues
liabilities relating to environmental liability matters if available information
indicates that the event of loss is probable and can reasonably be estimated.
The losses are estimated on a case by case basis, using available information.
(Continued)
8
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
December 31, 1998 and 1997
Allocations: During the years ended December 31, 1998 and 1997, the Company
was allocated certain operational and administrative expenses from Rhodia Chimie
S.A. Allocations were based on various methods including relative sales volume,
headcount, and estimates of time spent. Management believes that these
allocations are based on reasonable methods. Sales, returns, material cost and
direct labor and production costs were specifically identified to the Company
and were not based on allocations.
(Continued)
9
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in 000's)
NOTE 2 - INVENTORIES
Inventories consist of the following components:
December 31, August 31, 1999
----------- ---------------
1998 1997 (unaudited)
---- ----
Raw materials $3,325 $ 3,763 $ 5,637
Work in progress 343 373 378
Finished goods 5,416 6,395 3,828
Equipment maintenance parts 170 149 130
Less valuation allowances 200 425 15
------ ------- -------
$9,054 $10,255 $ 9,958
====== ======= =======
NOTE 3 - PLANT AND EQUIPMENT
Plant and equipment consists of the following major classifications:
December 31,
-----------
1998 1997
---- ----
Buildings and improvements $2,249 $2,132
Equipment 6,028 5,763
Office equipment 29 27
Construction in progress 25 -
------ ------
8,331 7,922
Accumulated depreciation and depletion 5,797 5,238
------ ------
$2,534 $2,684
====== ======
(Continued)
10
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in 000's)
NOTE 4 - LONG-TERM DEBT
The Company's long-term debt obligations consist of the following as of
December 31, 1998 and 1997:
1998 1997
---- ----
Note payable to seller of Ingal Stade business, payable
in annual installments with interest; final payment due
January 1, 1998 $ - $ 155
Current portion - (155)
------ ------
Long-term portion $ - $ -
====== ======
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company has been allocated certain operational and administrative costs from
Rhodia Chimie S.A. $655 and $194 for the years ended December 31, 1998 and 1997,
respectively. During the years indicated, the costs were allocated to the
Company as discussed in Note 1.
The Company purchased material from Rhodia Chimie S.A. business units not
included in the combination in 1997 for an amount of $3,512.
The Company had sales to other business units of Rhodia Chimie S.A. Sales to
these other business units were $11,167 and $13,319 for the years ended
December 31, 1998 and 1997, respectively. The sale prices are based on the value
of the sale to the other business unit customer less an agreed commission
percentage.
Accounts receivable from other business units of Rhodia Chimie S.A. amounted
to approximately $5,034 and $5,761 as of December 31, 1998 and 1997,
respectively.
Accounts payable to other business units of Rhodia Chimie S.A. amounted to
approximately $301 and $247 as of December 31, 1998 and 1997, respectively.
(Continued)
11
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
The cash collections and cash disbursements of the French operations of the
Company are administered by Rhodia Chimie S.A. The overall net amount of cash
received and cash disbursed is included in the statements of equity and cash
flows reflected as net capital contributions (distributions) .
The working capital cash collections and cash disbursements of Ingal Stade GmbH
are transacted from a cash pooling arrangement with Ingal Stade's parent
company, Rhodia Deutschland GmbH, a subsidiary of Rhodia Chimie, S.A. The net
current liability at December 31, 1998 and 1997 amounted to $1,634 and $1,378,
respectively, and bore interest at 3.25% and 3.51% at December 31, 1998 and
1997, respectively.
Ingal Stade GmbH entered into a Controlling and Profit Transfer Agreement with
its parent company requiring all net income to be distributed to the parent on
an annual basis.
NOTE 6 - EMPLOYEE DEFINED BENEFIT PENSION PLAN
The Company has a defined benefit pension plan which covers the majority of the
employees in France. The benefit paid is based on number of years of service and
salary at retirement date.
Actuarial evaluations of benefits have been computed as of December 31, 1998 and
1997. Significant actuarial assumptions include:
. Turnover assumptions for current personnel and mortality assumptions for
all participants.
. An assumed retirement age of 60 to 65 years.
. A discount rate used to determine the present value of the future benefit
obligation. The rates used in 1998 and 1997 were 6.5% and 7.0%,
respectively.
. A rate of compensation increase to determine the present value of the
future benefit obligation. The rate was 3% in both years.
Information about the pension plans is as follows:
December 31,
-----------
1998 1997
---- ----
Change in benefit obligation
Projected benefit obligation at beginning of year $ 244 $ 324
Transfer of employees to other businesses (104) (70)
Service cost 10 9
Interest and actuarial costs 12 21
Other costs 13 (40)
------ ------
Benefit obligation at end of year $ 175 $ 244
====== ======
(Continued)
12
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
NOTE 6 - EMPLOYEE DEFINED BENEFIT PENSION PLAN (Continued)
The components of pension expense and related actuarial assumptions
and methods were as follows:
1998 1997
---- ----
Service cost $ 10 $ 9
Interest and actuarial costs 12 21
------- ------
Net periodic benefit cost $ 22 $ 30
======= ======
NOTE 7 - INCOME TAXES
The income tax provision is comprised of the following:
December 31,
-----------
1998 1997
---- ----
Current payable $ 1,640 $ 947
Deferred income (benefit) 33 (3)
------- ------
$ 1,673 $ 944
======= ======
The difference between the effective tax rate and the statutory rates
is reconciled below:
December 31,
-----------
1998 1997
---- ----
Dollars Tax Rate Dollars Tax Rate
------- -------- ------- --------
Statutory rates $1,664 41.3% $ 924 40.8%
Permanent items and local taxes 9 .3% 20 .9%
----- ---- ----- ----
$1,673 41.6% $ 944 41.7%
===== ==== ===== ====
13
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
NOTE 7 - INCOME TAXES (Continued)
Significant components of the deferred tax assets and liabilities
are as follows:
December 31,
-----------
1998 1997
---- ----
Deferred tax assets
Pension obligations 64 90
Other assets 4 -
Unrealized foreign
currency translation loss 318 658
------ ------
386 748
------ ------
Deferred tax liabilities
Plant and equipment $ 147 $ 130
Unrealized gain on
pension liability 76 29
------ ------
223 159
------ ------
Net deferred tax asset $ 163 $ 589
====== ======
The Company's operations are included in the tax filings of the respective
Rhodia Chimie S.A. parent company in each country. All tax payments and benefits
are transacted with and all receivables and liabilities are due from or to such
parent entity.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Contracts: On December 10, 1998, Rhodia Chimie S.A. signed a purchase agreement
with an international purveyor of gallium. Pursuant to this agreement, Rhodia
Chimie S.A. agreed to purchase pure gallium metal from this purveyor in three
lots during the course of 1999. As of August 31, 1999, the remaining commitment
amounts to approximately $5,000. The expected sales prices exceed the purchase
commitment prices.
The Company has a long-term contract for the supply of aluminate liquor from a
vendor on whose property the German gallium extraction plant is located. The
Company has in place a long-term supply agreement with this vendor.
Litigation: The Company believes that there are no disputes or exceptional items
which, taken individually or as a group, could have a significant negative
impact on its activity, financial position, or results.
NOTE 9 - CONCENTRATION OF CREDIT RISK
At December 31, 1998 and 1997, the Company had account receivables from other
non-gallium Rhodia Chimie S.A. companies that represented 100% and 97%,
respectively, of total accounts receivable. Sales to these non-gallium Rhodia
Chimie S.A. companies represented 78% and 84% of total sales for the years ended
December 31, 1998 and 1997, respectively.
NOTE 10 - SUBSEQUENT EVENTS
On September 3, 1999, Rhodia Chimie S.A. contributed the assets and liabilities
of the Rhodia Gallium business unit to a newly formed subsidiary, Rhod Six S.A.
Also on September 3, 1999, the ownership of Ingal Stade GmbH was transferred
from Rhodia Deutschland GmbH to Rhod Six S.A. The Controlling and Profit
Transfer Agreement between Ingal Stade GmbH and Rhodia Deutschland GmbH was
terminated effective January 1, 1999.
On September 8, 1999, Rhodia Chimie S.A. sold the stock of Rhod Six S.A.
liabilities, of the Company to GEO Specialty Chemicals, Inc. for approximately
$21,500.
(Continued)
14
<PAGE>
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
December 31, 1998 and 1997
In September 1999, Rhodia Gallium received the second lot of pure gallium
purchased from an international purveyor (see Note 8) pursuant to an agreement
signed in December 1998, for an approximate amount of $2,300.
15
<PAGE>
Exhibit 99.2
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
GEO Rhodia Gallium TRIMET
Historical Historical Historical
January 1, 1998 January 1, 1998 January 1, 1998 Pro Forma Pro Forma
through through through Adjustments Combined
December 31, 1998 December 31, 1998 (1) July 31, 1998 (1)
----------------- --------------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 126,560 $ 15,380 $ 18,089 $ 578 (2) $ 160,607
Cost of goods sold 101,638 10,476 11,166 3,002 (3) 127,952
------------- ----------- ----------- ---------
1,670 (4)
------
4,672
Gross margin 24,922 4,904 6,923 (4,094) 32,655
Selling & administrative
costs 14,092 1,000 2,482 (933)(5) 16,641
------------- ----------- ----------- -------- ---------
Operating income 10,830 3,904 4,441 (3,161) 16,014
Other income (expense)
Interest expense (9,097) (52) - (5,550)(6) (14,699)
Other (118) 171 (30) - 23
------------- ----------- ----------- --------- ----------
Total other expense (9,215) 119 (30) (5,550) (14,676)
------------- ----------- ----------- --------- ----------
Income before taxes and
extraordinary items 1,615 4,023 4,411 (8,711) 1,338
Provision for income
taxes 667 1,673 1,791 (3,609)(7) 522
------------- ----------- ----------- --------- ----------
Income before
extraordinary loss $ 948 $ 2,350 $ 2,620 $ (5,102) $ 816
============= =========== =========== ========= ==========
</TABLE>
(1) GEO acquired the TRIMET Technical Products Division of Mallinckrodt Inc. on
July 31, 1998. The TRIMET acquisition was accounted for as a purchase. GEO
acquired the stock of Rhod Six S.A., a subsidiary of Rhodia Chimie S.A., on
September 8, 1999, retroactive to August 31, 1999. The Rhodia Gallium
acquisition was accounted for as a purchase.
(2) With respect to Rhodia Gallium, reflects the net difference in the
commissions paid to related party sales agents during the historical period
presented and the new sales agreement with an unrelated third party, as if
the agreement with the third party had been in effect since January 1, 1998.
(3) Reflects depreciation and amortization for the fair value of assets
purchased (excluding current assets and liabilities) in conjunction with the
Rhodia Gallium acquisition. The cash purchase price of $21.5 million was
allocated as follows: $6.3 million of property and equipment, $10.1 million
of current assets net of assumed current liabilities, $0.1 million of other
assets and $1.3 million of other long-term liabilities, resulting in excess
of cost over fair value of assets acquired of $6.3 million. Additional
depreciation and amortization for the period from January 1, 1998 through
December 31, 1998 (assuming the Rhodia Gallium acquisition was consummated
on January 1, 1998) for the Rhodia Gallium assets (excluding current assets
and liabilities) is as follows:
<TABLE>
<CAPTION>
Depreciation/
Years Fair Value Amortization
----- -------------- ------------
(in thousands)
<S> <C> <C> <C>
Industrial buildings and improvements 40 1,690 $ 42
Infrastructure 40 508 13
Technical equipment 12 4,006 334
Office equipment 10 59 6
Construction in progress N/A 32 -
Know how 15 812 54
Patents 3-10 4,058 2,922
Excess cost over fair value 15 1,453 97
------
3,468
Less: Depreciation and amortization included in historical
Rhodia Gallium financial statements 466
------
Pro forma adjustment for depreciation and amortization $3,002
======
</TABLE>
<PAGE>
(4) Reflects depreciation and amortization for the fair value of assets
purchased (excluding current assets and liabilities) in conjunction with the
TRIMET acquisition. The cash purchase price of $61.1 million was allocated
as follows: $24.5 million of property and equipment, $4.7 million of
current assets net of assumed current liabilities, and $0.2 million of other
assets, resulting in excess of cost over fair value of assets acquired of
$31.7 million. Additional depreciation and amortization for the period from
January 1, 1998 through July 31, 1998 (assuming the TRIMET acquisition was
consummated on January 1, 1998) for the TRIMET assets (excluding current
assets and liabilities) is calculated as follows:
<TABLE>
<CAPTION>
Depreciation/
Years Fair Value Amortization
----- -------------- ------------
(in thousands)
<S> <C> <C> <C>
Building 40 $ 1,590 $ 23
Land N/A 1,150 -
Land improvements 20 460 14
Machinery and equipment 12 21,041 1,023
Office furniture and equipment 6-10 256 23
Excess cost over fair value 15 31,721 1,241
------
2,324
Less: Depreciation and amortization included in historical
TRIMET financial statements (654)
------
Pro forma adjustment for depreciation and amortization $ 1,670
=======
</TABLE>
(5) The only asset not acquired in the purchase price of TRIMET was certain
real estate with known ground water and soil contamination. Mallinckrodt
Inc. has indemnified GEO for future remediation costs with respect to the
TRIMET property which arise out of acts that occurred prior to the closing.
In connection therewith, the pro forma adjustments reflect a reduction of
selling, general and administrative costs relating to environmental
remediation expenditures which were incurred by TRIMET during the period on
the property not acquired.
(6) Reflects interest expense on a pro forma basis for (a) interest costs
associated with the issuance of $120.0 million of senior subordinated notes;
(b) interest costs associated with draws outstanding under GEO's senior
credit facility; (c) interest costs associated with an existing $0.8 million
subordinated note payable; and (d) amortization of $5.1 million deferred
financing costs related to the offering of the senior subordinated notes.
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Interest expense on the senior subordinated notes $12,150
Interest expense on senior credit facility 1,588
Interest expense on the subordinated note payable 78
Interest expense on cash pool of Ingal Stade 52
Amortization of debt issuance costs and senior credit facility fees 631
Bank fees related to the senior subordinated notes and senior credit facility 200
-------
Pro forma interest expense $14,699
=======
</TABLE>
<PAGE>
Interest on the senior subordinated notes is based on the rate of 10.125%
per annum. The senior credit facility has a floating rate which was 7.3125%
at December 31, 1998. Interest on the subordinated note payable is 2% above
the prime lending rate, which was 9.75% at December 31, 1998. The debt
issuance costs are amortized over the ten year term of the senior
subordinated notes, and the financing fees related to the senior credit
facility are amortized over the five year term of the senior credit
facility.
(7) Reflects the tax effect of the pro forma adjustments as well as the effect
of the combined companies effective tax rate of 39%.
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the nine months ended September 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
GEO Rhodia Gallium
Historical Historical
January 1, 1999 January 1, 1999
through through Pro Forma Pro Forma
September 30, 1999 August 31, 1999 (1) Adjustments Combined
------------------ ------------------ ------------- ----------
<S> <C> <C> <C> <C>
Net sales $ 108,152 $ 8,071 $ 283 (2) $116,506
Cost of goods sold 82,172 4,548 2,011 (3) 88,731
------------ ----------- --------- ---------
Gross margin 25,980 3,523 (1,728) 27,775
Selling & administrative
costs 13,788 831 - 14,619
------------ ----------- --------- ---------
Operating income 12,192 2,692 (1,728) 13,156
Other income (expense)
Interest expense (9,802) (30) (1,084)(4) (10,916)
Other (28) 187 - 159
------------ ----------- --------- ---------
Total other expense (9,830) 157 (1,084) (10,757)
------------ ----------- --------- ---------
Income before taxes and
extraordinary items 2,362 2,849 (2,812) 2,399
Provision for income
taxes 1,006 1,158 (1,228)(5) 936
------------ ----------- --------- ---------
Income before
extraordinary loss $ 1,356 $ 1,691 $ (1,584) $ 1,463
============ =========== ========= =========
</TABLE>
(1) GEO acquired the stock of Rhod Six S.A., a subsidiary of Rhodia Chimie S.A.,
on September 8, 1999, effective retroactively to August 31, 1999. The
Rhodia Gallium acquisition was accounted for as a purchase.
(2) With respect to Rhodia Gallium, reflects the net difference in the
commissions paid to a related party sales agent during the historical period
presented and the new sales agreement with an unrelated third party, as if
the agreement with the third party had been in effect since January 1, 1998.
(3) Reflects depreciation and amortization for the fair value of assets
purchased (excluding current assets and liabilities) in conjunction with the
Rhodia Gallium acquisition. The cash purchase price of $21.5 million was
allocated as follows: $6.3 million of property and equipment, $10.1 million
of current assets net of assumed current liabilities, $0.1 million of other
assets and $1.3 million of other long-term liabilities, resulting in excess
of cost over fair value of assets acquired of $6.3 million. Additional
depreciation and amortization for the period from January 1, 1998 through
December 31, 1998 (assuming the Rhodia Gallium acquisition was consummated
on January 1, 1998) for the Rhodia Gallium assets (excluding current assets
and liabilities) is as follows:
<TABLE>
<CAPTION>
Depreciation/
Years Fair Value Amortization
----- ---------- ------------
(in thousands)
<S> <C> <C> <C>
Industrial buildings and improvements 40 $1,690 $ 28
Infrastructure 40 508 8
Technical equipment 12 4,006 223
Office equipment 10 59 4
Construction in progress N/A 32 -
Know how 15 812 36
Patents 3-10 4,058 1,948
Excess cost over fair value 15 1,453 65
------
2,312
Less: Depreciation and amortization included in historical
Rhodia Gallium financial statements 301
------
Pro forma adjustment for depreciation and amortization $2,011
======
</TABLE>
(4) Reflects interest expense on a pro forma basis for (a) interest costs
associated with the issuance of $120.0 million of senior subordinated notes;
(b) interest costs associated with draws outstanding under GEO's senior
credit facility; and (d) amortization of $5.1 million deferred financing
costs related to the offering of the senior subordinated notes.
<TABLE>
<CAPTION>
<S> <C>
Interest expense on the senior subordinated notes 9,130
Interest expense on senior credit facility 1,249
Interest expense on cash pool of Ingal Stade 30
Amortization of debt issuance costs and senior credit facility fees 355
Bank fees related to the senior subordinated notes and senior credit facility 152
-------
Pro forma interest expense $10,916
=======
</TABLE>
Interest on the senior subordinated notes is based on the rate of 10.125%
per annum. The senior credit facility has a floating rate which was 7.75% at
September 30, 1999. The debt issuance costs are amortized over the ten year
term of the senior subordinated notes, and the financing fees related to the
senior credit facility are amortized over the five year term of the senior
credit facility.
(5) Reflects the tax effect of the pro forma adjustments as well as the effect
of the combined companies effective tax rate of 39%.
