<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 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 (I.R.S. Employer
of 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)
Registrant's telephone number, including area code: (216) 464-5564
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant cannot be computed, since the registrant's
equity is not traded on any public market.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Shares of Class A Voting Common Stock, $1.00 par value, as of March 30,
2000: 135.835
Shares of Class B Nonvoting Common Stock, $1.00 par value, as of March
30, 2000: none
===============================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
Introduction to GEO's Business
GEO Specialty Chemicals, Inc., an Ohio corporation which commenced business
in 1993, develops, manufactures and markets a wide variety of specialty
chemicals. Through the implementation of a "buy and build" strategy, GEO has
successfully positioned itself as a leading supplier of a broad variety of niche
products sold to a diverse customer and market base. GEO manufactures over 300
products sold to major industrial customers for such diverse end-use
applications as water treatment, pulp and paper processing, oil and gas
production, coatings, construction and electronics.
GEO manages its products within three primary operating groups: process
additives, performance chemicals and inorganic specialties. Process additives
are primarily chemical components that improve the properties of customers'
products. GEO is a leading U.S. producer of a number of process additives that
are used in a variety of construction, oil field and coating applications.
Process additives represented approximately 39.9% of GEO's total net sales on a
pro forma basis for the year ended December 31, 1999.
Performance chemicals are primarily products used by customers to enhance
the productivity of their operations and decrease their operating costs. GEO's
performance chemicals consist principally of chemicals used in the water
treatment and pulp and paper processing markets. GEO is a leading U.S. producer
and marketer of several performance chemicals sold in these markets.
Performance chemicals represented approximately 40.3% of GEO's total net sales
on a pro forma basis for the year ended December 31, 1999.
GEO's inorganic specialties group was created after its recent acquisition
of a gallium extraction and purification business from Rhodia Chimie S.A. The
inorganic specialties group consists of sales of virgin gallium to various
sectors of the electronics market for applications in telecommunications and
optoelectronics. These sales represented approximately 8.7% of GEO's total net
sales on a pro forma basis for the year ended December 31, 1999.
In addition to process additives, performance chemicals and inorganic
specialties, GEO manufactures and supplies numerous raw materials and
intermediates under a long-term reciprocal supply agreement with Henkel
Corporation. GEO also produces by-products, which it sells in the merchant
market, and raw materials for internal consumption. These activities
represented approximately 11.1% of GEO's total net sales on a pro forma basis
for the year ended December 31, 1999.
The pro forma sales percentages set forth above for the year ended December
31, 1999 assume that the acquisition of Rhodia's gallium business was effected
as of January 1, 1999.
GEO was formed by George P. Ahearn and William P. Eckman to build,
primarily through acquisitions, a specialty chemical business targeted in
strategic markets. GEO's initial acquisition occurred on February 3, 1993 with
the purchase of Rhone-Poulenc, Inc.'s Gulf Coast aluminum sulfate business, a
manufacturer and supplier of paper processing chemicals and processed clays
located in the Southeastern United States, for $3.6 million. On July 15, 1994,
GEO acquired the assets of Courtney Industries, Inc., a manufacturer of
aluminum-based chemicals used in water treatment and industrial applications,
for $5.1 million. The acquisition of Courtney Industries also provided GEO with
complementary products to its existing aluminum sulfate business. On June 30,
1995, GEO purchased the customer list relating to the dry aluminum sulfate
business of Rhone-Poulenc, Inc. for an aggregate $375,000. GEO acquired seven
plants comprising the business and assets of the aluminum sulfate business of
Cytec Industries Inc. on December 5, 1996 for $7.3 million. The acquisition of
Cytec
1
<PAGE>
Industries further improved GEO's position in the aluminum sulfate market and
expanded its network of strategically located plants in the Southeastern United
States.
On March 25, 1997, GEO purchased from Henkel Corporation two modern ISO
9002 certified manufacturing plants located in the United States and involved in
the development, manufacture and supply of specialty paper chemicals and
construction and process additive chemicals, for $54.2 million. Through the
Henkel acquisition, GEO became one of the most diversified specialty chemical
suppliers to the paper industry with over 200 products. The Henkel acquisition
also provided GEO with over 100 products sold to the construction, oil and gas,
and ceramic industries.
On July 31, 1998, GEO acquired substantially all of the assets of the
TRIMET Technical Products Division of Mallinckrodt Inc., for approximately $61.1
million. As a result of the acquisition of TRIMET, GEO became the leading
global supplier of dimethylolpropionic acid, marketed under the brand name
DMPA(R), and trimethylolethane, marketed under the brand name TRIMET(R),
specialty chemicals used primarily in the production of specialty paints and
coatings.
On September 8, 1999, GEO acquired a gallium extraction and purification
business from Rhodia Chimie S.A. for the French franc equivalent of
approximately $23.3 million. The acquired business provides various grades of
gallium to the electronics market for applications in telecommunications and
optoelectronics. The acquisition included a gallium purification facility in
Salindres, France and a gallium extraction facility in Stade, Germany. As part
of the acquisition, GEO was also granted a three year option to acquire a
currently dormant gallium extraction facility near Pinjarra, Australia.
Competitive Strengths
GEO believes that its market leadership positions and significant
opportunities for continued growth and increased profitability are primarily
attributable to the following strengths:
Leader in Targeted Markets. GEO is a market leader in a number of
specialty chemicals sold to targeted markets. GEO is the U.S. market leader in
liquid calcium stearate used in paper coating, which it markets under the brand
name NOPCOTE(R). GEO is also a U.S. market leader in the production of
naphthalene sulfonate condensates used as additives in the production of
concrete and plaster board, which it markets under the brand name LOMAR(R). GEO
is also the leading global supplier of dimethylolpropionic acid, marketed under
the brand name DMPA(R), and trimethylolethane, marketed under the brand name
TRIMET(R), specialty chemicals used primarily in the production of specialty
paints and coatings. As a result of its recent acquisition of Rhodia's gallium
business, GEO is the world's leading producer of virgin gallium, which is used
primarily in integrated circuits and chips for mobile telephones, wireless
communications and optoelectronics (light emitting diodes).
Broad Product Portfolio and Strong Customer Base. GEO manufactures over
300 products used in a wide variety of applications, and sells these products to
approximately 1,000 customers. For the year ended December 31, 1999 on a pro
forma basis, excluding sales under GEO's supply agreement with Henkel
Corporation, GEO's top ten customers accounted for approximately 27% of its net
sales and no
2
<PAGE>
single customer accounted for more than 5% of its net sales. GEO sells its
products to a base of large multinational companies with which it has a
longstanding relationship, including International Paper Company, Georgia-
Pacific Corporation, Agilent Technologies, Master Builders, Inc., United States
Gypsum Company, Zeneca Inc., PPG Industries, Inc., Baker Hughes Incorporated and
Westvaco Corporation. GEO believes that the diversity of its customer base,
products and end markets provides it with a broad base to grow sales, expand
customer relationships and minimize exposure to any particular customer or
economic cycle.
Strong Manufacturing Capability. GEO's major manufacturing facilities have
the ability to produce and formulate multiple products, allowing it to meet
changing customer requirements for customized products. In addition, GEO has
strategically acquired nine small plants located in the Southeast in close
proximity to the major U.S. paper mills. The location of these plants provides
GEO with key supply points for its pulp and paper chemicals customers and other
major industrial accounts. GEO believes that this network decreases its
customers' shipping and warehouse costs and provides GEO with a distinct
advantage over other suppliers.
Proven Acquisition Expertise. GEO's senior management has developed
significant expertise in identifying and effecting acquisitions within targeted
markets. Since GEO's formation in 1993, management has successfully completed
six acquisitions. Through these acquisitions, GEO has gained significant
experience in integrating acquired companies' plants, personnel and customers
into its business. Management believes that its acquisition expertise will
allow it to continue to successfully acquire and integrate businesses within
targeted markets of the specialty chemicals industry.
Experienced Management Team. GEO's senior management led by George P.
Ahearn and William P. Eckman has an average of 25 years of operating experience
in the chemical industry, primarily in specialty chemicals. In addition, GEO
has assembled a strong and experienced management team as a result of its
acquisitions and has actively worked at developing a unified culture of
participative management. Senior management owns approximately 20.72% of GEO's
equity.
Business Strategy
GEO's management has developed a business strategy designed to increase
GEO's sales, profitability and share within targeted markets. The key
components of GEO's business strategy include:
Continue Focus on Innovative Products. Consistent with its history, GEO
will continue to focus on manufacturing or acquiring businesses which produce
innovative products for targeted markets. In particular, GEO will continue to
work with its customers to develop specialized products. For example, by working
closely with the two leading suppliers of clay proppants used in the stimulation
of oil and natural gas wells, GEO has established the leading position in the
manufacture of several intermediates used in the manufacture of clay proppants.
In addition, GEO supplies "prototype" products to several major construction
companies due to its broad product range and technological expertise, as well as
its cooperative marketing efforts with these key customers. Based upon its
historical accomplishments, GEO believes that it will continue to be successful
in developing innovative products for targeted markets.
Utilize Strong Manufacturing Capability. GEO's plants are strategically
located near key customers and have the ability to produce a broad range of
products. GEO intends to use this network of plants to capitalize on a growing
trend among the major suppliers to the water treatment, pulp and paper and oil
field markets to outsource part of their manufacturing. This trend is being
driven in part by the efforts of these suppliers to focus greater resources on
their product development, technical, and sales
3
<PAGE>
and servicing businesses as opposed to their manufacturing operations. GEO has
focused part of its marketing and sales efforts on these suppliers.
Pursue Strategic Acquisitions. GEO has successfully grown through
acquisitions and intends to pursue additional strategic acquisitions that will
allow it to further improve its market position in targeted markets. GEO also
intends to pursue acquisitions in other high growth specialty chemicals markets.
GEO will evaluate potential acquisition candidates based upon the ability of GEO
to:
. expand its product offerings;
. gain access to complementary raw materials, customers and markets;
. enhance its manufacturing capabilities; and
. extend its geographic reach both domestically and internationally.
Maximize Operating Efficiencies. GEO has historically been successful in
achieving operating efficiencies with each of its acquisitions. GEO believes
that it can continue to create efficiencies which result in reduced raw material
and manufacturing costs and improved cash flow by:
. cross-selling its expanded product line across a broader distribution
and customer network;
. consolidating raw material purchases to increase purchasing
efficiency;
. minimizing expenses; and
. consolidating manufacturing and distribution operations.
4
<PAGE>
Products and Markets Overview
The following table shows on a pro forma basis GEO's principal operating
groups by product line, primary end-markets and as a percentage of sales for the
years 1997, 1998 and 1999. The pro forma sales percentages assume that the
Henkel, TRIMET and Rhodia gallium acquisitions were each effected on January 1,
1997.
<TABLE>
<CAPTION>
Percentage of Sales
-------------------
Operating Group Product Line Primary End-Markets 1997 1998 1999
- ----------------------- --------------------- ------------------- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Performance Chemicals Aluminum Products Pulp & Paper, Water 21.2 22.6 24.0
Treatment
Formulated Products Pulp & Paper 15.9 13.6 10.1
Stearates Pulp & Paper 4.4 4.5 6.2
---- ---- ----
Total Performance Chemicals ............................... 41.5 40.7 40.3
Process Additives Naphthalene Sulfonate Construction, Oil 20.3 20.8 22.1
Condensates/Other Field
Chemicals
Polyols Coatings 15.0 15.4 16.4
Clay Products Oil Field 3.6 3.6 1.4
---- ---- ----
Total Process Additives ................................... 38.9 39.8 39.9
Inorganic Specialties Gallium Electronics 9.9 9.6 8.7
Other(1) 9.7 9.9 11.1
---- ---- ----
Total 100% 100% 100%
</TABLE>
- -------------------------
(1) Comprised of formaldehyde, calcium formate and sales pursuant to GEO's
reciprocal supply agreement with Henkel Corporation.
Performance Chemicals
Pulp & Paper. Specialty pulp and paper chemicals include a wide range of
chemicals, most of which are proprietary formulations that require extensive
customer support. Unlike commodity pulp and paper chemicals that are sold on
the basis of a specification and are the same for every manufacturer, specialty
pulp and paper chemicals are unique products made to accomplish a specific
application. In addition, some pulp and paper chemicals are classified as
specialty chemicals because of the targeted markets they serve and the high
barriers of entry in those markets. Specialty pulp and paper chemicals are
generally sold based upon performance considerations. In particular, their
value in the marketplace stems from the degree to which the products are
tailored to meet the needs of the customer.
Specialty pulp and paper chemicals are used to increase the strength of
printed paper, improve paper printability and enhance the manufacturing process.
The pulp and paper specialty chemical market is primarily driven by:
. the overall growth of the pulp and paper industry;
5
<PAGE>
. trends to improve paper mill efficiencies;
. developments in paper production technology; and
. environmental regulations and mandated paper recycling.
Within the pulp and paper specialty chemical industry, GEO markets over 200
products in the following major areas: defoamers, coatings and lubricants,
flocculants and coagulants, and other specialty pulp and paper chemicals.
Defoamers. GEO's defoamers are used to prevent excess foaming in equipment
and to eliminate air bubbles during various stages of the papermaking process.
The product type and amount used vary by paper mill depending on the type of
pulp used and operating conditions. GEO markets approximately 80 defoamers.
GEO's large product line and its sales and marketing strategy of selling to
paper mill suppliers as well as paper mills directly has resulted in significant
sales and market share. GEO competes primarily with Callaway Chemical Company, a
chemical company of Vulcan Materials Company, Nalco Chemical Company, Vinings
Industries, Inc. and Betz-Dearborn Incorporated in this segment of the pulp and
paper industry.
Coatings/Lubricants. GEO's specialty pulp and paper chemicals are also
used in the coating and lubricating aspects of the papermaking process,
primarily to improve the efficiency and performance of the manufacturing
process. GEO markets approximately 40 products which provide enhanced
printability, surface smoothness, glossing ease and processing efficiency.
Within this segment, GEO has focused on calcium stearate lubricants, which it
markets under the trade name NOPCOTE(R). GEO believes that it is the market
leader for this product. GEO's brand recognition and its reputation for quality
has created strong customer relationships and a resulting strong market share in
this segment. GEO competes primarily with BASF Corporation and Sequa Corporation
in this segment of the pulp and paper industry.
Flocculants/Coagulants. GEO's flocculants and coagulants are used in the
paper formation process and the treatment of pulp and paper mill wastewater. GEO
believes it is a leading seller of these products, including polyaluminum
chloride and aluminum sulfate, to the U.S. pulp and paper industry. GEO competes
primarily with General Chemical Corporation, Gulbrandsen Co., Inc. and Southern
Ionics, Inc. in this segment of the pulp and paper industry.
Other. GEO also supplies sizing agents, cleaners, dry and wet strength
resins, wetting and re-wetting agents, and deposit control agents to the
specialty pulp and paper chemical market. These products have such diverse
applications as maintaining the integrity of paper fibers, improving the ability
of paper to withstand various temperature conditions, and ensuring an efficient
manufacturing process. GEO markets approximately 75 of these products and
competes with various companies, including Huntsman Corporation, Hercules
Incorporated and Buckman Laboratories International Inc.
Water Treatment. The U.S. specialty chemical water treatment market is
comprised of two segments: industrial water treatment and municipal water
treatment. The industrial water treatment segment uses specialty chemicals
primarily to purify water for manufacturing processes, since the use of
untreated water results in low product quality and accelerated equipment
degradation. The industrial segment is also required by environmental
regulations to treat its wastewater. Demand in this segment is therefore driven
by both the level of industrial production and environmental regulations.
6
<PAGE>
The municipal water treatment segment uses specialty chemicals primarily to
purify water sources into a consumable form. Municipalities must also comply
with environmental regulations. The following factors are expected to result in
continued growth for specialty water treatment chemicals:
. increased industrial production;
. more stringent environmental regulations;
. increased scarcity of consumable water; and
. population growth.
Within the specialty chemical water treatment industry, GEO markets
products in the following major areas: flocculants and coagulants.
Flocculants/Coagulants. Flocculants and coagulants remove suspended matter
from water and are essential to the treatment of industrial processing water,
wastewater and drinking water. Coagulants are used to achieve primary
separation of fine particles. Flocculants are added after the primary coagulant
to cause the separated particles to clump together and settle out more rapidly.
GEO is a leading U.S. manufacturer of several flocculants and coagulants,
including aluminum sulfate which is used as both a flocculant and coagulant for
the treatment of water in the industrial and municipal markets. GEO markets
over 70 products in this segment.
GEO derives its strong market position from the strategic location of its
plants and its status as a low cost producer. The close proximity of GEO's nine
small plants to its customer base, most notably its pulp and paper customers,
provides GEO with a distinct advantage over its competitors, allowing it to
deliver its products in a more timely and cost effective manner. GEO's source
of kaolin clay, which is used in the production of aluminum sulfate, provides a
strategic raw material enabling GEO to be a low cost supplier in the market.
These factors along with the low quality of water in the Southeastern U.S.,
where GEO primarily operates, has resulted in strong market share for GEO.
In this segment, GEO competes with General Chemical Corporation, Gulbrandsen
Co., Inc., Summit Research Labs, Kemwater North America Company, a subsidiary
of Pioneer Companies, Inc., and Delta Chemical Corp.
Process Additives
Construction. GEO competes primarily in two segments of the construction
industry: concrete additives and plaster board.
Concrete Additives. GEO's naphthalene sulfonate condensates and the other
specialty chemicals that it sells in this segment of the construction market are
used as additives to increase the strength and workability of concrete. These
products also improve the ability of concrete to withstand deterioration due to
temperature variations and corrosive agents. Major markets for these products
include roadway construction and repair and residential and commercial
construction. GEO markets approximately 30 products in this market. GEO competes
in this
7
<PAGE>
segment with the Hampshire Division of The Dow Chemical Company and Handy
Chemicals Ltd., a subsidiary of Rutgers Organics GmbH.
Plaster Board. GEO's naphthalene sulfonate condensates and the other
specialty chemicals that it sells in this segment of the construction market are
used to shorten the drying time and expedite the manufacture of plaster board.
Demand for GEO's products in this market is primarily a function of the level of
residential and commercial construction. GEO is the leading U.S. manufacturer of
naphthalene sulfonate condensates to the plaster board market. GEO markets
approximately 10 products for plaster board use. GEO developed the application
of naphthalene sulfonate condensates in this market and is considered to be the
technology leader. GEO is also a leading manufacturer of foaming agents and
defoamers to the plaster board industry. Major customers include the four
leading plaster board producers: United States Gypsum Company, Georgia-Pacific
Corporation, National Gypsum and James Hardie. GEO competes primarily with the
Hampshire Division of The Dow Chemical Company and Handy Chemicals Ltd., a
subsidiary of Rutgers Organics GmbH.
Coatings. Primarily concentrated in the United States, Western Europe and
Japan, the global market for paint and coating chemicals is split primarily into
two applications: construction, primarily new home construction, and consumer
durables, including motor vehicles, home furnishings, outdoor equipment and
household appliances. Demand for paint and coating chemicals is largely a
function of construction expenditures, motor vehicle production and general
consumer spending.
In addition, environmental concerns have resulted in increased demand for
more environmentally-friendly water-based paints and coatings and the specialty
chemicals used in their production. This increase has been most pronounced in
the construction industry, where most household paints now use water-based paint
and coatings. In the 1990s, the shift towards water-based paints and coatings
spread to the consumer durables sector and other industrial sectors as well,
resulting in continued growth in the paint and coating chemicals market.
Within the specialty paint and coating chemicals market, GEO manufacturers
and supplies two products: DMPA(R) and TRIMET(R).
DMPA(R). GEO's DMPA(R) is used in the production of such products as
wood varnishes, leather coatings, adhesives and automotive parts. GEO believes
that its DMPA(R) product, with its environmentally-friendly profile and
superior performance, will benefit from the worldwide trend towards more
stringent environmental standards for many paint and coating products. GEO is
the only producer of DMPA(R) in the world and supplies such major
manufacturers as Zeneca Corp., PPG Industries, Inc. and Reichhold Chemicals,
Inc.
TRIMET(R). GEO's TRIMET(R) product is used in the production of such
products as: automotive finishes, where it improves gloss and hardness; outdoor
equipment, where ultra-violet resistance is enhanced; and decorative finishes
for home furnishings, where it improves water resistance. TRIMET(R) is also
used as a surface treatment in the production of can coatings and architectural
paints. GEO believes that its TRIMET(R) product, with its environmentally-
friendly profile and superior properties, will also benefit from the worldwide
trend towards more stringent environmental standards for many paint and coating
products. GEO has no direct competition for its TRIMET(R) product and
supplies such major manufacturers as McWorter Corporation, Reichhold Chemicals,
Inc., Cook Composites Company and Kerr-McGee Chemical Corporation.
8
<PAGE>
Oilfield. The North American oilfield chemical market uses many specialty
chemicals for cementing, stimulation and production. Demand for oilfield
specialty chemicals is a function of exploration expenditures, oil and gas
production and crude oil and gas prices. The increased exploration efforts in
the Gulf of Mexico, particularly at deeper depths, and increased oil production
in Canada and Mexico will drive demand in North America for oilfield specialty
chemicals.
Within the oilfield specialty chemicals market, GEO markets approximately
25 products in the following major areas: cementing, stimulation and
production.
Cementing. In the cementing market, GEO's naphthalene sulfonate
condensates are used to enhance the physical properties of cement used for well
casings. GEO's naphthalene sulfonate condensates allow for improved handling of
cement, resulting in reduced energy requirements for pumping at greater depths.
In this market, GEO competes with the Hampshire Division of The Dow Chemical
Company and several alternative specialty chemicals.
Stimulation. GEO manufactures calcined clay and bauxite used as an
intermediate in the manufacturing of clay proppants. Clay proppants are used in
the stimulation of oil and natural gas wells. GEO markets 12 products, and
competes primarily with CE Minerals, Inc., in this segment.
Production. GEO also manufactures its naphthalene sulfonate condensates
for oil production. These products are used primarily to facilitate the de-
watering of crude-oil. GEO competes primarily with Witco Corporation in this
market.
Inorganic Specialties
Gallium. As a result of its recent acquisition of Rhodia's gallium
business, GEO is the world's leading producer of virgin gallium, which is used
primarily in integrated circuits and chips for mobile telephones, wireless
communications and optoelectronics (light emitting diodes).
Competition
GEO competes with a variety of specialty chemical manufacturers. Certain
of GEO's principal competitors are less highly leveraged and have greater
financial resources than GEO. As a result, these competitors may be better able
to withstand volatility within the industry or the economy as a whole while
maintaining greater operating and financial flexibility than GEO. This
advantage could allow these competitors to invest more resources than GEO in
technological and product development, sales and marketing and other areas and,
therefore, to gain market share against GEO. In addition, a number of GEO's
product applications are customized or sold into specialized markets. These
specialized markets might attract additional competitors with greater financial,
technological or manufacturing resources than GEO. Any entrants into these
specialized markets could take market share from GEO.
Sales and Marketing
GEO markets its products through a variety of strategies, depending upon
the nature of the product being sold. Performance chemicals are generally
marketed through direct, on-site visits to process industry manufacturers, such
as pulp and paper manufacturers. These on-site visits typically include trial
applications and demonstrations of the cost-effectiveness of the performance
chemicals and
9
<PAGE>
involve follow-up on-site visits and ongoing technical assistance. In these
direct, on-site marketing efforts GEO succeeds by demonstrating the superior
performance of its product.
Process additives are generally marketed through a cooperative effort with
customers at the research and development phase of the manufacturing process.
Representatives of GEO work with customers in developing a desired product by
providing up-front technical assistance. This marketing method involves GEO's
process additives being included in the customers' formulations, thereby
allowing GEO to establish long-term relationships with customers in this product
segment.
GEO also relies upon more traditional methods of marketing for a number of
its products. GEO markets to distributors through purchasing agents for the
sale of many products in its aluminum flocculants line. GEO also sells numerous
products to indirect suppliers and distributors, including such products as
aluminum chlorhydrate, aluminum chloride solutions and liquid and dry aluminum
sulfate. The use of purchasing agents, indirect suppliers and distributors has
enabled GEO to market its products on a wide geographic scale, including the
West Coast and other locations where GEO has no regional sales coverage, and
into smaller markets that are not economically feasible for GEO to target
directly.
GEO markets certain products by participating in formal bid procedures,
most commonly in connection with the supply of specialty chemicals to
municipalities that operate water treatment, recirculation and effluent
treatment facilities and manufacturers in the pulp and paper industry.
GEO is able to market a number of its products through brand recognition
and industry leadership. GEO is the largest domestic producer of calcium
stearate, which it sells under its trade name NOPCOTE(R), and naphthalene
sulfonate condensates products, which are used as dispersants in the concrete,
plaster board, oilfield and other industries and are sold by GEO under its trade
name LOMAR(R). GEO is also the second largest domestic producer and technical
marketer of aluminum sulfate, a leader in the market for aluminum-based
flocculants and coagulants used in the treatment of water, sold by GEO under the
trade name ULTRAFLOC(R), and a recognized leader in the manufacture of
defoamers used in papermaking, sold by GEO under the trade name GEO FM.
GEO's TRIMET products are marketed through several sales representatives
and one distributor that were retained as part of the TRIMET acquisition. The
TRIMET sales representatives include a manager and two direct salesmen located
in the United States and a direct salesman located in Europe. GEO plans to
improve the marketing of TRIMET products through the addition of customer
service and technical support personnel dedicated to the TRIMET customer base.
Gallium, an inorganic specialty used primarily in electronics applications,
is sold based on its purity and form. GEO markets and sells gallium worldwide
through a network of agents and distributors.
GEO's global net sales for fiscal 1999 were $147.1 million. Domestic U.S.
Sales of $126.4 million represented approximately 85.9% of total net sales and
overseas sales of $20.7 million represented approximately 14.1% of total net
sales.
Reciprocal Supply Agreements with Henkel Corporation
In the Henkel acquisition, GEO entered into reciprocal supply agreements
with Henkel. Under these agreements, Henkel supplies GEO with various raw
materials, intermediates and toll products and GEO supplies Henkel with numerous
products made by Henkel prior to the acquisition. The agreements require GEO
and Henkel to purchase all of their requirements for the covered products from
the other party. However, GEO and Henkel are not required to supply products
exceeding 110% of the volume
10
<PAGE>
supplied under the agreements during the previous year. The prices charged by
GEO, or by Henkel for toll products, may be increased quarterly, but only to the
extent of changes in the price of raw materials or overhead costs. Henkel may
adjust its prices on non-toll products quarterly based on market prices. The
term of the supply agreements is three or five years, depending on the product
supplied.
The aggregate price of products purchased by GEO from Henkel under the
supply agreements for the year ended December 31, 1999 was approximately $9.6
million, of which $3.9 million was for toll products and $5.7 million was for
raw materials and intermediates. The aggregate price of products purchased by
Henkel from GEO for the same period was approximately $8.8 million. More than
1,000 product formulations are subject to the terms of the supply agreements.
The primary products supplied by GEO to Henkel include defoamers, softeners and
naphthalene sulfonate condensates. The primary products supplied by Henkel to
GEO include fatty acids used as raw materials and toll products such as wet
strength resins and polyacrylates.
Raw Materials
GEO uses a variety of specialty and commodity chemicals in its
manufacturing processes. These raw materials are generally available from
several suppliers and are typically purchased by GEO under agreements negotiated
annually with two or more vendors per raw material. GEO currently has in place
multiple long-term supply contracts ranging in duration from 3 to 6 years for
key raw materials, including fatty acids, kaolin and bauxite clay and
propoxylated butanols. GEO is vertically integrated with its own source of
kaolin clay used in the manufacture of certain of its aluminum and clay products
and formaldehyde used in the manufacture of DMPA(R) and TRIMET(R).
At its Stade, Germany facility, GEO extracts gallium from bauxite provided
under a long-term agreement with a vendor located at a neighboring facility.
Although GEO has historically passed on raw material price increases to its
customers within 90 to 120 days, GEO can provide no assurance that it will be
able to do so in the future. If material price increases cannot be passed on to
customers in a reasonable time, GEO's financial condition could be adversely
affected.
Intellectual Property
GEO believes that trademarks are important competitive factors in a number
of the markets in which it competes. The use of trademarks often represents
quality and performance as well as industry leadership. A number of GEO's
principal products are sold under registered trademarks, including liquid
calcium stearate used as coatings and lubricants in the papermaking process
(NOPCOTE(R)), trimethylolethane (TRIMET(R)) and dimethylolpropionic acid
(DMPA(R)) used in the coatings and resins markets, naphthalene sulfonate
condensates used as dispersants in the concrete, plaster board, oilfield and
other industries (LOMAR(R)), aluminum-based flocculants and coagulants used in
the treatment of water (ULTRAFLOC(R)), and defoamers used in papermaking (GEO
FM). GEO's trademarks should remain protected under federal law as long as they
are commercially used by GEO.
In the acquisition of Rhodia's gallium business, GEO was assigned various
patents relating to the extraction and purification of gallium. These patents
have expiration dates ranging between 2000 and 2010. Although GEO considers
these patents to be important to its gallium business, there can be no assurance
that any of these patents will provide adequate protection for the process or
technology that it covers.
11
<PAGE>
Employees
As of December 31, 1999, GEO employed approximately 470 persons, the
majority of whom are involved in production and operations, with the balance
engaged in administration, research and development, sales, customer service and
clerical work. Approximately 71 employees located at the Cedartown, Georgia
facility, 59 employees at the Allentown, Pennsylvania facility, 19 employees at
the Bastrop, Louisiana facility, 9 employees at the Baltimore, Maryland
facility, 4 employees at the Georgetown, South Carolina facility, and 2
employees at the Chattanooga, Tennessee facility are unionized and covered by
collective bargaining agreements. These collective bargaining agreements have
expiration dates ranging between December 2000 and March 2002. The unionized
employees of GEO located at the Allentown, Bastrop and Baltimore facilities are
represented by the International Chemical and Atomic Workers, those located at
the Cedartown facility by the United Food Workers, those located at the
Georgetown facility by the United Paper Workers, and those located at the
Chattanooga facility by the United Steel Workers. In Europe, GEO has
approximately 18 employees at its Salindres, France plant and 12 employees at
its Stade, Germany plant. Most of the employees at these European sites are
part of national labor unions. GEO believes that its relationship with its
employees is good. GEO has experienced no work stoppages at any of its
facilities since its inception in 1993.
Environmental Matters
GEO believes that it is in substantial compliance with the environmental
laws applicable to its facilities. GEO has no reason to believe that the
discovery of presently unknown environmental conditions or changes in the scope,
interpretation or enforcement of any environmental laws will have a material
adverse effect on GEO's business or financial condition.
Aluminum Sulfate Facilities. Six of GEO's facilities use aluminum-bearing
clay as the basic raw material in the manufacture of aluminum sulfate. These
facilities generate a by-product known as process silica. GEO has historically
managed this by-product in on-site impounds. These impounds have impacted
groundwater quality by affecting the level and flow of groundwater, and by
producing elevated levels of aluminum, sulfates and acidity in the groundwater.
GEO currently operates seven of these impounds and is addressing the groundwater
issues at each of these facilities. Most of these facilities are working with
their respective state environmental protection agencies to address the
potential groundwater contamination through periodic monitoring.
The cost of closing these impounds varies by facility, depending on state
requirements, the size and age of the facilities, the extent of the
contamination, and whether impounded water must be transported off-site.
Estimates for the closure of an impound range from $200,000 to $700,000.
Monitoring and reporting typically would be required for twenty to fifty years
following closure, and the associated costs range from $10,000 to $25,000
annually per facility. As of March 30, 2000, GEO had completed the closure of
one such impound, at a cost of $674,000.
12
On February 10, 1998, GEO's Bastrop, Louisiana facility received a
compliance order from the Louisiana Department of Environmental Quality
regarding the design and capacity of its five acre impound. The state agency
directed the facility to improve the structure of the impound to enable the
impound to withstand significant rainfalls without breaching or spilling over
the dikes. The facility was not fined in connection with this order. On March
10, 1999, the state agency issued a compliance order and notice of potential
penalty for alleged violations of the facility's water pollution permit in
response to events occurring in December 1998 and January 1999. The state agency
alleged the unauthorized discharge of wastewater from the impound and storm
water contamination. On April 1, 1999, the state agency issued a compliance
order arising out of the same events that occurred in December 1998 and January
1999 relating to alleged solid waste violations. Both of theses orders were
consolidated into one action and all issues raised by the state agency have been
addressed, there were no fines or penalties assessed in connection with either
order and GEO has been advised that it will receive an "all violations clear"
letter from the state agency for both orders.
Former Henkel Facilities. GEO's Harrison, New Jersey facility is subject
to a 1994 declaration of environmental restrictions. This deed restriction
relates to a portion of the facility that has been capped due to contamination
from prior operations. As of March 30, 2000, GEO had not incurred any material
costs in connection with this matter.
Former operators of GEO's Cedartown, Georgia facility buried at the
facility approximately 1,500 gallons of tall oil and 700 drums of obsolete
products and raw materials. As a result, in 1990 a portion of the Cedartown
facility was listed as a "Superfund" site on the National Priorities List
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980. Henkel Corporation and the U.S. Environmental Protection Agency
entered an administrative order on consent related to the Superfund site. On
behalf of Henkel, GEO conducts all groundwater and surface water monitoring and
complies with the reporting obligations under the administrative order. Under
the asset purchase agreement between the parties, Henkel is responsible for
paying, and must indemnify GEO for, all such compliance costs. Pursuant to its
indemnification obligation, Henkel had either paid or reimbursed GEO for all
expenses arising from the Cedartown's status as a Superfund site as of March 30,
2000.
GEO's Cedartown, Georgia facility is also subject to a 1993 corrective
action consent order between Henkel and the Georgia Department of Natural
Resources. The consent order relates to the remediation of surface and
groundwater contamination from prior operations at the facility. The facility is
listed in the State of Georgia Master Sites List for Hazardous Waste Sites. On
behalf of Henkel, GEO conducts the groundwater and surface water remediation and
also complies with the monitoring and reporting requirements under the consent
order. Under the asset purchase agreement between the parties, Henkel is
responsible for paying, and must indemnify GEO for, these compliance costs.
Pursuant to its indemnification obligation, Henkel had either paid or reimbursed
GEO for all such compliance costs as of March 30, 2000.
Little Rock Mining Facility. Upon completion of mining activities at GEO's
Little Rock, Arkansas facility, two impounded pits must be reclaimed. GEO will
comply with all reclamation requirements, but does not anticipate that it will
incur material costs in connection with these requirements.
13
TRIMET Properties. In the acquisition of TRIMET, GEO acquired
approximately 95 acres of an approximately 385 acre site. Mallinckrodt Inc.
continues to own the larger site, of which GEO will lease a very small portion,
consisting of a warehouse and wastewater treatment system. There is groundwater
and soil contamination on the larger site from former explosive manufacturing
operations. The larger site has at times been the subject of federal and state
investigations. The site that GEO will own is subject to extensive air, water,
solid waste and hazardous substance regulations. Prior to the acquisition,
Mallinckrodt installed modern pollution control equipment throughout the smaller
site to comply with these requirements. Mallinckrodt will indemnify GEO for all
pre-closing environmental liabilities associated with the larger site.
Mallinckrodt will also indemnify GEO for the following amounts of any pre-
closing liabilities associated with the smaller site:
- during the first year after the closing date, 80% of all liabilities in
excess of $3.0 million;
- during the second year after the closing date, 60% of all liabilities in
excess of $2.4 million;
- during the third year after the closing date, 40% of all liabilities in
excess of $1.8 million;
- during the fourth year after the closing date, 20% of all liabilities in
excess of $1.2 million; and
- during the fifth year after the closing date, 10% of all liabilities in
excess of $600,000.
Pursuant to its indemnification obligation, Mallinckrodt has reimbursed GEO
for approximately $20,000 of monitoring costs incurred by GEO as of March 30,
2000 at the larger site. With respect to the smaller site, as of March 30, 2000
GEO has incurred less than $50,000 in environmental expenses. Because of the
applicable deductible, Mallinckrodt was not required to reimburse GEO for any of
these expenses incurred at the smaller site.
Environmental Reserves. At December 31, 1999, GEO had reserves of
$1,941,191 for environmental liabilities.
14
<PAGE>
ITEM 2. PROPERTIES
GEO's manufacturing operations are conducted at the facilities described
below.
<TABLE>
<CAPTION>
Approximate
Capacity
Location Products Manufactured Tons/Year Owned/Leased
- -------- --------------------- ----------- ------------
<S> <C> <C> <C>
Allentown, Pennsylvania DMPA(R), TRIMET(R), formaldehyde 69,500 Owned(1)
and calcium formate
Baltimore, Maryland aluminum chlorhydrate, aluminum variable Owned
chloride solutions and polyaluminum
chloride
Bastrop, Louisiana aluminum sulfate -- liquid, dry and 60,500 Owned
anhydrous, aluminum chloride and
polyaluminum chloride
Cedartown, Georgia over 200 formulated products 66,500 Owned
Chattanooga, Tennessee aluminum sulfate 25,000 Owned
Coosa Pines, Alabama aluminum sulfate 40,000 Owned(2)
Counce, Tennessee aluminum sulfate blended products 20,000 Owned
Demopolis, Alabama aluminum sulfate 21,000 Owned
DeRidder, Louisiana aluminum sulfate 45,000 Owned(3)
Georgetown, South Carolina aluminum sulfate 45,000 Owned
Harrison, New Jersey calcium stearate and defoamers 18,000 Owned
Little Rock, Arkansas calcined bauxite and kaolin 100,000 Owned(4)
Monticello, Mississippi aluminum sulfate 32,000 Owned
Naheola, Alabama aluminum sulfate 24,000 Owned(3)
Plymouth, North Carolina aluminum sulfate 38,000 Owned
Salindres, France gallium purification, gallium oxide 50 Owned
Stade, Germany gallium extraction 24 Owned(5)
</TABLE>
_____________
(1) Although GEO owns the 95.56 acres on which the Allentown facility is
located, it leases a warehouse and a sludge processing facility on an
adjacent parcel (apart from the real property on which it is located).
(2) The Coosa Pines facility is held 4.9 acres in fee and 15.8 acres in
leasehold.
(3) The DeRidder and Naheola facilities are located on leased land.
(4) The Little Rock facility is held 512 acres in fee and 29.9 acres under land
contract.
(5) The Stade, Germany facility is located on leased real property.
GEO's executive offices are located in Cleveland, Ohio. GEO maintains
sales offices in Little Rock, Arkansas; Baltimore, Maryland; Charlotte, North
Carolina; and Horsham, Pennsylvania. GEO also has financial and treasury staff
located in Lafayette, Indiana, administrative and technical support facilities
located in Horsham, Pennsylvania and Charlotte, North Carolina, and a sales and
administrative office in Paris, France. GEO believes that its facilities are in
good operating condition and adequate to meet anticipated requirements in the
near future.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, GEO is periodically named as a
defendant in a variety of lawsuits. GEO believes that its pending cases will
not have a material adverse effect on its business or financial condition.
During 1999, GEO entered into a settlement with respect to a toxic tort
lawsuit commenced in Harrison County, Texas against 102 named defendants. The
plaintiffs in the action were employees, former employees and the families of
such employees of the Monarch Tile Company tile plant in Marshall, Texas. The
plaintiffs alleged that they were exposed to hazardous substances in the course
of their employment at the Monarch plant and that GEO or its predecessor was a
manufacturer of one of those substances. GEO disputed that its substances were
hazardous or responsible for the plaintiffs' alleged injuries. GEO settled this
case with no material adverse effects to the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the fourth
quarter of 1999.
16
<PAGE>
PART II
ITEM 5. MARKET FOR GEO'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There is no established public trading market for GEO's equity securities.
GEO has not paid any dividends on its common shares since its inception and
does not expect to pay any dividends in the near future. GEO's senior credit
facility and the indenture that governs GEO's senior subordinated notes limit
GEO's ability to pay dividends. GEO's senior credit facility prohibits GEO from
paying any dividends to its shareholders other than in the form of its capital
stock. The indenture prohibits GEO from paying any cash dividend at any time
that its fixed charge coverage ratio is less than 2.0 to 1.0 or any default
exists under the indenture. In addition, GEO may not pay cash dividends in an
amount exceeding 50% of its cumulative net income from the date of issuance of
the notes plus 100% of the proceeds received by GEO from the sale of its capital
stock or an equity contribution by its shareholders. GEO may, under the
indenture, pay dividends in the form of its capital stock.
As of March 30, 2000 there were six holders of GEO's class A voting common
stock and no holders of its class B nonvoting common stock.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The table shown on the next page includes the following summary financial
data of GEO:
. historical operating and other data of GEO's predecessor for the years
ended December 31, 1995 and 1996;
. historical operating and other data of GEO's predecessor for the period
from January 1, 1997 through March 24, 1997 and of GEO for the period
from March 25, 1997 through December 31, 1997;
. historical operating and other data of GEO for the years ended
December 31, 1998 and 1999; and
. balance sheet data as of December 31, 1995, 1996, 1997, 1998 and 1999.
GEO is referred to as the "predecessor" for the period from January 1, 1995
through March 24, 1997. GEO is referred to as the "successor" for the period
from March 25, 1997 through December 31, 1999. This reflects the purchase of a
79% interest in GEO by Charter Oak Partners on March 25, 1997, which was
accounted for as a purchase of GEO to the extent of the ownership change.
The period-to-period comparability of the summary financial data shown
below is materially affected by the four acquisitions that GEO has completed
from 1995 through 1999. See "Introduction to GEO's Business."
The summary financial data shown below for the period from January 1, 1997
through March 24, 1997, the period from March 25, 1997 through December 31, 1997
and the years ended December 31, 1998 and 1999 and as of December 31, 1998 and
1999 has been derived from the financial statements of GEO and its predecessor,
which are included in Exhibit 99.1 to this Annual Report. The summary financial
data for the years ended December 31, 1995 and 1996 and as of December 31, 1995,
1996 and 1997 has been derived from the financial statements of GEO and its
predecessor which are not included in this Annual Report.
You should read the summary financial data presented below along with the
financial statements of GEO and its predecessor and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
18
<PAGE>
Selected Historical Financial Data
(dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Successor
-------------------------------- -------------------------------
Jan. 1 March 25
Years Ended Dec. 31, through through Years Ended Dec.31,
------------------- March 24, Dec. 31, ------------------
1995 1996 1997 1997 1998 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales........................................... $21,187 $23,869 $ 9,109 $ 91,727 $126,560 $147,080
Cost of sales....................................... 18,112 20,649 8,542 72,626 101,638 112,669
------- ------- ------- -------- -------- --------
Gross profit........................................ 3,075 3,220 567 19,101 24,922 34,411
Selling, general and administrative expenses........ 2,071 2,191 808 11,078 14,092 18,906
------- ------- ------- -------- -------- --------
Income (loss) from operations....................... 1,004 1,029 (241) 8,023 10,830 15,505
Other income (expense):
Net interest expense................................ (1,164) (1,118) (420) (5,004) (9,097) (13,376)
Other............................................... 369 136 (15) (26) (118) (27)
------- ------- ------- -------- -------- --------
(795) (982) (435) (5,030) (9,215) (13,403)
Income (loss) before taxes and
extraordinary loss................................. 209 47 (676) 2,993 1,615 2,102
Provision for income taxes.......................... -- -- -- 999 667 1,023
------- ------- ------- -------- -------- --------
Income (loss) before extraordinary loss............. 209 47 (676) 1,994 948 1,079
Extraordinary loss on early extinguishment of
debt, net.......................................... -- (113) -- (505) (1,496) --
------- ------- ------- -------- -------- --------
Net income (loss)................................... $ 209 $ (66) $ (676) $ 1,489 $ (548) $ 1,079
======= ======= ======= ======== ======== ========
Other Financial Data:
EBITDA(1)........................................... $ 1,630 $ 1,846 $ 107 $ 11,783 $ 18,077 $ 26,156
Capital expenditures................................ 531 559 127 3,177 6,755 6,223
Net cash from operating activities.................. 788 1,410 (1,515) 5,629 9,606 11,608
Net cash from investing activities.................. (187) (8,103) (127) (57,387) (67,861) (29,448)
Net cash from financing activities.................. (601) 6,693 1,642 52,454 59,204 21,683
Depreciation, depletion and amortization............ 792 1,022 363 4,334 7,905 11,315
Ratio of earnings to fixed charges(2)............... 1.2x 1.0x -- 1.6x 1.2x 1.2x
</TABLE>
<TABLE>
<CAPTION>
Predecessor Successor
-------------------- ---------------------------------
As of Dec. 31, As of Dec. 31,
-------------------- ---------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................... $ -- $ -- $ 696 $ 1,645 $ 4,696
Total assets........................................ 14,484 25,458 98,312 164,525 198,166
Total debt, excluding current portion............... 5,801 13,456 58,814 120,000 143,000
Shareholders' equity................................ 1,443 1,377 16,390 21,842 22,305
</TABLE>
- --------------
(1) EBITDA represents income (loss) before income taxes, net interest expense,
depreciation, depletion, amortization and other non-recurring items such as
gains or losses on sales of property, extraordinary items, acquisition
purchase price adjustments and professional fees incurred for failed or
aborted acquisitions. EBITDA does not represent net income or cash flows
from operations as those terms are defined by generally accepted accounting
principles and does not necessarily indicate whether cash flows will be
sufficient to fund cash needs. GEO's measure of EBITDA may not be
comparable to those reported by other companies.
19
<PAGE>
Components of GEO's EBITDA are as follows:
<TABLE>
<CAPTION>
Predecessor Successor
----------------------------------- -----------------------------------
Years Ended Jan. 1, 1997 March 25, 1997 Years Ended
Dec. 31, through through Dec. 31,
1995 1996 March 24, 1997 Dec. 31, 1997 1998 1999
---- ---- -------------- ----------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)................... $ 209 $ (66) $ (676) $ 1,489 $ (548) $ 1,079
Net interest expense................ 1,164 1,118 420 5,004 9,097 13,376
Taxes -- -- -- 999 667 1,023
Depreciation, depletion and
amortization expense............. 592 817 363 3,786 7,247 10,651
Other non-recurring items
Extraordinary losses due to write
off of financing fees.............. -- 113 -- 505 1,496 --
Acquisition purchase price
adjustments....................... -- (136) -- -- -- --
Professional fees incurred for
failed or aborted acquisitions.... -- -- -- -- 118 27
Loss (gain) on sale of fixed assets. (335) -- -- -- -- --
------ ------ ----- ------- ------- -------
EBITDA.............................. $1,630 $1,846 $ 107 $11,783 $18,077 $26,156
====== ====== ===== ======= ======= =======
</TABLE>
(2) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of net interest expense and the portion of
operating rental expense which management believes is representative of
the interest component of rent expense, less amounts that represent
amortization of deferred financing fees and debt issuance costs. The
deficiency in the amount of earnings compared to fixed charges was
$676 for the period ended March 24, 1997.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Sales and Cost of Sales
GEO's fiscal 1999 net sales were generated by a mix of sales to various
industries, including:
. pulp and paper processing (32%);
. construction-related applications (13%);
. water treatment (9%);
. oil and gas production (4%);
. coatings (18%);
. electronics (4%); and
. miscellaneous (20%), which includes sales pursuant to GEO's
reciprocal supply agreement with Henkel Corporation (6%).
Generally, the demand for the type of products supplied by GEO exceeds
the basic growth rate for the industries it supplies due to the increasing use
of specialty chemicals. In several applications, such as papermaking and water
treatment, tighter environmental restrictions have prompted greater use of the
types of products supplied by GEO.
GEO's cost of sales is primarily comprised of:
. the cost of raw materials (57%);
. freight (9%);
. depreciation (6%); and
. normal operating expenses (28%), which include personnel costs,
ongoing maintenance materials and services, utilities, operating
supplies, property and casualty insurance, property taxes and leasing
expenses.
The raw materials required to produce GEO's products are generally
available from several suppliers and are typically purchased under agreements
negotiated annually with two or more vendors per raw material. The raw
materials which comprise a majority of these purchases include sulfuric acid,
naphthalene, formaldehyde, paraffin oils, glycols, aluminum/aluminas, fatty
acids, methanol and propionic acid. Additionally, GEO has an agreement with
Henkel to purchase various products previously purchased by the acquired
business from Henkel plants which were excluded from the acquisition. Purchases
under the supply agreement, depending upon the particular product, are made at
market prices or at prices tied to standard costs as of December 1996. The
duration of the supply agreement, depending upon the classification of the
product, is three or five years from March 25, 1997. Purchases under this
agreement were less than 10% of GEO's total raw material costs in fiscal 1999.
GEO's selling, general and administrative expenses include all operating
costs unrelated to plant operations. Approximately 40% of these expenses are
incurred by the pulp and paper chemicals
21
<PAGE>
business, which includes approximately 35 sales, marketing and technical support
employees. These expenses also include typical expenses such as office rent,
general management, finance and accounting, information systems, human
resources, legal, purchasing, certain types of corporate liability insurance and
amortization of deferred charges.
Results of Operations
The following table shows certain income statement data for GEO expressed
in millions of dollars and as a percentage of net sales for the fiscal years
1997, 1998 and 1999. Fiscal 1997 data includes the predecessor for the period
January 1, 1997 through March 24, 1997 and the successor for the period March
25, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- --------------
$ % $ % $ %
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net sales ..... $100.8 100.0% $126.6 100.0% $147.1 100.0%
Cost of sales.. 81.1 80.5 101.7 80.3 112.7 76.6
Gross profit... 19.7 19.5 24.9 19.7 34.4 23.4
SG&A expenses.. 11.9 11.8 14.1 11.1 18.9 12.9
EBITDA......... 11.9 11.8 18.1 14.3 26.1 17.7
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Net Sales. Net sales for fiscal 1999 were $147.1 million, representing a
$20.5 million or 16.2% increase compared with net sales of $126.6 million in
fiscal 1998. Most of the increase in net sales was attributable to two
acquisitions. The full year effect of owning TRIMET, acquired from Mallinckrodt
in August 1998, contributed $19.5 million of additional revenue in fiscal 1999.
The second acquisition, the gallium business acquired from Rhodia Chimie S.A. in
September 1999, contributed $5.7 million of additional revenue in fiscal 1999.
Partially offsetting the increase in net sales from these acquisitions was a
$4.6 million decrease in revenues from products sold primarily to the paper
industry.
Cost of Sales. Cost of sales was $112.7 million in fiscal 1999,
representing a $11.0 million or 10.8% increase from fiscal 1998. This increase
was attributable to the TRIMET acquisition and the acquisition of Rhodia's
gallium business. As a percent of net sales, cost of sales decreased from 80.3%
in fiscal 1998 to 76.6% in fiscal 1999. This reflects lower raw material costs
for most all of GEO's products. Excluding the impact of the acquisitions, cost
of sales decreased by $5.6 million to $96.1 million, reflecting mainly lower raw
material costs as well as slightly lower production costs.
Gross Profit. Gross profit for fiscal 1999 was $34.4 million,
representing a $9.5 million or a 38.2% increase compared to fiscal 1998. As a
percent of net sales, gross profit increased from 19.7% in fiscal 1998 to 23.4%
in fiscal 1999. The improvement was attributable to lower raw material costs and
a better sales mix resulting from the TRIMET acquisition and the acquisition of
Rhodia's gallium business. Excluding the impact of the acquisitions, gross
profit increased by $0.9 million or 3.6% and improved as a percent of net sales
to 21.2% in fiscal 1999.
Selling, General & Administrative Expenses. SG&A expenses in fiscal 1999
were $18.9 million, representing a $4.8 million or a 34.0% increase compared to
fiscal 1998. As a percent of net sales,
22
<PAGE>
SG&A expenses increased from 11.1% in fiscal 1998 to 12.9% in 1999. The TRIMET
acquisition and the acquisition of Rhodia's gallium business accounted for $3.8
million of the increase, including $1.5 million attributable to higher
amortization charges, primarily goodwill, related to the acquisitions.
EBITDA. EBITDA for fiscal 1999 was $26.1 million, representing an
$8.0 million or 44.2% increase compared to fiscal 1998. As a percent of net
sales, EBITDA improved in fiscal 1999 to 17.7% from 14.3% in fiscal 1998. The
TRIMET acquisition and the acquisition of Rhodia's gallium business contributed
$7.7 million of the increase, with the full year impact of TRIMET contributing
$5.6 million and the four months of the gallium business contributing $2.1
million. Excluding the impact of the acquisitions, EBITDA increased by $0.3
million and improved to 15.1% of net sales.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales for fiscal 1998 were $126.6 million, representing a
$25.8 million or 25.6% increase over fiscal 1997. The increase in net sales was
primarily attributable to the impact of the Henkel and TRIMET acquisitions. The
additional three month impact of the March 25, 1997 Henkel acquisition
contributed $18.2 million of the increase. The July 31, 1998 TRIMET acquisition
contributed $12.2 million of the increase. Excluding the impact of these
acquisitions, GEO's Aluminum Products group experienced a $1.2 million increase
in net sales due to increases in both volume, particularly clay products sold to
the oil and gas industry, and price. Offsetting this increase was a $5.2 million
decline in sales to the paper industry due largely to the discontinuance of
certain products acquired from Henkel and reduced demand in the paper industry
in the last half of 1998.
Cost of Sales. Cost of sales was $101.7 million in fiscal 1998,
representing a $20.6 million or 25.4% increase over fiscal 1997. As a percent
of net sales, cost of sales decreased from 80.5% in fiscal 1997 to 80.3% in
fiscal 1998. The additional three month impact of the Henkel acquisition
contributed $14.5 million of the increase in cost of sales. The TRIMET
acquisition contributed $7.7 million of the increase. Excluding the impact of
these acquisitions, cost of sales declined by $1.7 million. This decline was due
largely to the decrease in sales to the paper industry.
Gross Profit. Gross profit for fiscal 1998 was $24.9 million,
representing a $5.2 million or a 26.4% increase over fiscal 1997. As a
percent of net sales, gross profit increased from 19.5% in fiscal 1997 to
19.7% in fiscal 1998. The increase in gross profit was primarily attributable to
the Henkel and TRIMET acquisitions. The increase in gross profit as a percent of
net sales reflects the effect of lower raw material costs, especially in the
fourth quarter of 1998, and the favorable gross margins on TRIMET products.
Selling, General and Administrative Expenses. SG&A expenses for fiscal
1998 were $14.1 million, representing a $2.2 million or 18.5% increase over
fiscal 1997. As a percent of net sales, SG&A expenses decreased from 11.8% in
fiscal 1997 to 11.1% in fiscal 1998. The increase in SG&A expenses was
attributable entirely to the Henkel and TRIMET acquisitions. The Henkel
acquisition contributed $1.7 million of the increase. The TRIMET acquisition
contributed $0.5 million of the increase.
EBITDA. EBITDA for fiscal 1998 was $18.1 million, representing a $6.2
million or 52.1% increase over fiscal 1997. As a percent of net sales, EBITDA
increased from 11.8% in fiscal 1997 to 14.3% in fiscal 1998. The additional
three month impact of the Henkel acquisition contributed $1.9 million of the
increase in EBITDA. The TRIMET acquisition contributed $4.7 million of the
increase. Excluding the impact of these acquisitions, EBITDA declined slightly
by $0.4 million due in part to the decrease in sales to the paper industry.
23
<PAGE>
Liquidity and Capital Resources
GEO's primary cash needs are working capital, capital expenditures and
debt service. GEO has financed, and intends to continue to finance, these needs
from internally generated cash flow, in addition to periodic draws on its senior
credit facility. Net cash from operations for the year ended December 31, 1999
was $11.6 million, for the year ended December 31, 1998 was $9.6 million, and
for the year ended December 31, 1997 was $4.1 million.
Net cash used in investing activities for the year ended December 31,
1999 was $29.4 million, for the year ended December 31, 1998 was $67.9 million,
and for the year ended December 31, 1997 was $57.5 million. Capital expenditures
for the same periods were $6.2 million, $6.8 million, and $3.3 million,
respectively. GEO currently has no material commitments for capital
expenditures.
GEO completed the acquisition of Rhodia's gallium business in 1999 for a
purchase price of approximately $23.3 million, the TRIMET acquisition in 1998
for a purchase price of approximately $61.1 million, and the Henkel acquisition
in 1997 for a purchase price of $54.2 million.
The acquisition of Rhodia's gallium business was financed through a
combination of draws on its senior revolving credit facility and internal cash
flow. In order to insure sufficient liquidity for GEO, the senior revolving
credit facility was amended at the time of the acquisition of Rhodia's gallium
business to increase the availability under the facility from $25.0 million to
$45.0 million. The TRIMET acquisition made in 1998 and the Henkel acquisition
made in 1997 were financed through a combination of equity contributions,
issuance of senior subordinated notes and bank borrowings.
The 1996 credit facility was refinanced in 1997 at the time of the Henkel
acquisition, through the issuance of two $30.0 million tranche loans, a new
$15.0 million revolving line of credit and proceeds of $14.7 million from the
issuance of common stock to Charter Oak Partners. GEO wrote off as an
extraordinary item the remaining net deferred financing costs of $0.5 million
which related to the 1996 credit agreement. In addition to the Henkel
acquisition, the bank and stock issuance proceeds were utilized to redeem all of
the common stock owned by Key Equity Capital Corporation and Key Equity
Partners. The total consideration paid to the Key entities was $5.8 million.
In connection with the TRIMET acquisition in 1998, GEO refinanced its
existing senior debt by issuing $120.0 million of 10 1/8% senior subordinated
notes due 2008 and amending its credit facility to include $25.0 million of
available borrowings under a new senior revolving credit facility. Net deferred
financing costs of $1.5 million related to the 1997 credit facility were charged
off as an extraordinary item. Additional proceeds came from an equity
contribution of $6.0 million from GEO's shareholders. Interest on the notes is
due semi-annually in arrears on February 1 and August 1 of each year, commencing
in 1999.
GEO's senior revolving credit facility, amended in September 1999,
expires in 2003 and has no interim amortization requirements. As of December 31,
1999, GEO had $22.0 million available for borrowing under the facility.
Borrowings under the senior credit facility bear interest, at GEO's option, at:
. 1.25% above the higher of an adjusted certificate of deposit
rate plus 0.5% or the prime lending rate of Bankers Trust Company; or
. an adjusted Eurodollar rate plus 2.25%.
24
<PAGE>
As of December 31, 1999, GEO's interest rate under the senior credit
facility was 8.375%. The senior credit facility contains customary covenants
which include the maintenance of certain financial ratios.
Net interest expense for the year ended December 31, 1999 was $13.4
million, which includes $0.7 million of amortization of deferred financing
expenses. For the year ended December 31, 1998 net interest expense was $9.1
million, and for the year ended December 31, 1997 net interest expense was $5.4
million. The accrued interest for the notes was $5.1 million at December 31,
1999.
Cash paid for interest for the year ended December 31, 1999 was $12.8
million, for the year ended December 31, 1998 was $4.3 million, and for the year
ended December 31, 1997 was $4.9 million.
GEO received a cash refund for taxes for the year ended December 31, 1999
in the amount of $0.3 million. GEO's cash paid for income taxes for the year
ended December 31, 1998 was $0.4 million, and for the year ended December 31,
1997 was $0.2 million.
GEO believes that cash generated from operations, together with amounts
available under its senior 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.
The overall effects of inflation on GEO's business during the periods
discussed have not been significant. GEO monitors the prices it charges for its
products on an ongoing basis and believes that it will be able to adjust those
prices to take into account any future changes in the rate of inflation.
25
<PAGE>
Limits Imposed on GEO's Acquisition Strategy by the Indenture and Senior Credit
Facility
GEO's senior credit facility and the indenture that governs its senior
subordinated notes limit GEO's ability to make acquisitions and to incur
indebtedness in connection with acquisitions. The senior credit facility
provides that GEO may not make acquisitions in excess of $10.0 million in value
during the term of the credit agreement. The senior credit facility allows GEO
to incur only permitted indebtedness, which includes its senior subordinated
notes, up to $5.0 million pursuant to GEO's obligations under its shareholders
agreement, and up to $10.0 million of additional general indebtedness. The
indenture limits the amount of acquisition debt that GEO may incur to: $25.0
million under its senior credit facility; amounts that would allow it to
maintain a fixed charge coverage ratio greater than 2.0 to 1.0; and other debt
not to exceed $10.0 million at any time outstanding. The senior credit facility
and indenture also restrict GEO's ability to:
. acquire businesses different than GEO's existing business;
. merge or consolidate with other entities;
. enter into transactions with its affiliates;
. create or incur liens on its assets; and
. make investments.
If GEO is unable to complete additional acquisitions because of the
restrictions imposed by its senior credit facility and the indenture, it might
not otherwise be able to increase its product offerings or revenue base. Such a
result could place GEO at a competitive disadvantage and could threaten its
ability to make payments on the senior subordinated notes.
Limits Imposed on GEO by Interest Coverage and Maximum Leverage Requirements in
its Senior Credit Facility
GEO's senior credit facility requires it to maintain a minimum interest
coverage ratio and a maximum leverage ratio. The interest coverage ratio is the
ratio, for the most recent quarterly period, of GEO's earnings before interest
expense, taxes, depreciation and amortization to GEO's total interest expense
minus total interest income. The interest coverage ratio that GEO is required to
maintain is currently 1.50 to 1.00 and will increase periodically until April 1,
2003 when it will remain fixed at 2.40 to 1.00. The leverage ratio is the ratio,
for the most recent quarterly period, of GEO's total indebtedness less cash-on-
hand to GEO's earnings before interest expense, taxes, depreciation and
amortization. The leverage ratio that GEO may not exceed is currently 5.75 to
1.00 and will be lowered periodically until April 1, 2003 when it will remain
fixed at 4.00 to 1.00.
GEO's failure to maintain these financial ratios could result in a default
under its senior credit facility. Such a default would permit the lenders to
declare all amounts outstanding under the senior credit facility to be
immediately due and payable and terminate any commitments to extend additional
credit. In addition, GEO's compliance with these ratios could prevent it from
making acquisitions and capital improvements. GEO's ability to comply with such
ratios and tests may be affected by events beyond its control, including
prevailing economic, financial and industry conditions.
26
<PAGE>
Market Risk Exposure
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 issuance of the notes. Based on a hypothetical
immediate 100 basis point increase in interest rates at December 31, 1999, the
fair value of GEO's fixed rate long-term notes would be impacted by a net
decrease of $9.2 million. Conversely, a 100 basis point decrease in interest
rates at December 31, 1999 would result in a net increase in the fair value of
GEO's fixed rate long-term notes of $10.0 million.
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 the agreements with multiple vendors and GEO's
ability to pass along future price increases, the exposure to commodity price
risk is not considered to be material.
Foreign Operations
GEO's foreign operations are subject to the usual risks that may affect
such operations. These include, among other things, exchange controls and
currency restrictions, currency fluctuations, changes in local economic
conditions, unsettled political conditions, and foreign government-sponsored
boycotts of GEO's products or services for noncommercial reasons. Most of the
identifiable assets associated with foreign operations are located in countries
where GEO believes such risks to be minimal. In addition, GEO does not consider
the market risk exposure relating to currency exchange to be material. For
certain financial information regarding GEO's international operations, see Note
15 of GEO's financial statements (included in Exhibit 99.1 to this Annual
Report) which is hereby incorporated by reference.
Forward-Looking Statements
Some of the statements made in this Annual Report, including statements
containing the words "believes," "intends," "expects" or 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. Some of the factors that could cause or contribute to such a
difference include:
. changes in general economic or market conditions that impact the
demand for GEO's products;
. loss of key customers, increased competitive pressures or 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;
. GEO's inability to fund acquisitions or find suitable acquisition
candidates; and
. changes in governmental, environmental or other regulations.
27
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GEO does not engage in hedging or other market structure derivative
trading activities. Additionally, GEO's debt obligations are primarily fixed
rate in nature and, as such, are not sensitive to changes in interest rates.
However, GEO's senior credit facility bears interest at a variable rate. GEO is
a party to an agreement, expiring on June 26, 2000, which provides for financial
stability in the event of fluctuations in exchange rates in respect of $15
million under GEO's senior credit facility. The floor and cap under this
arrangement are based upon U.S. Dollar three-month LIBOR (as fixed by the
British Bankers Association) of 5.25% and 7.75%, respectively. If these
thresholds are breached, the arrangement will allow GEO to continue to cover its
interest obligations, in respect of up to $15 million under its senior credit
facility, at the cap or floor level, notwithstanding the prevailing market
interest rate at that time. GEO does not believe that its market risk financial
instruments on December 31, 1999 would have a material effect on future
operations or cash flow.
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 issuance of the notes. Based on a hypothetical
immediate 100 basis point increase in interest rates at December 31, 1999, the
fair value of GEO's fixed rate long-term notes would be impacted by a net
decrease of $9.2 million. Conversely, a 100 basis point decrease in interest
rates at December 31, 1999 would result in a net increase in the fair value of
GEO's fixed rate long-term notes of $10.0 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
GEO's financial statements are included in Exhibit 99.1 to this Annual
Report and are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF GEO
The following table shows certain information regarding each of GEO's
directors, officers and operating management.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
George P. Ahearn 64 President, Chief Executive Officer and Director
William P. Eckman 48 Executive Vice President, Chief Financial Officer and Director
Dennis S. Grandle 50 Vice President/General Manager, Aluminum Products
David B. Heller, Jr. 46 Vice President/General Manager, Process Industries
Michael B. Linscott 45 Vice President/General Manager, Performance Chemicals
Robert S. Zacker 42 Vice President/General Manager, TRIMET Products
Jorge J. Tena 53 Vice President, Manufacturing
Serge M. Perineau 46 Vice President/General Manager, Gallium Products
Donald D. Smith 65 Manufacturing Manager, Aluminum Products
Anatole G. Penchuk 46 Director
George W. Rapp, Jr. 68 Director
A. Elliott Archer 56 Director
</TABLE>
- ----------------
George P. Ahearn has been President, Chief Executive Officer and Director
of GEO since its inception in 1993. Prior to that time, Mr. Ahearn was
President and Chief Operating Officer of Hall Chemical Company, a maker of
specialty metal-based chemicals. Prior to that, Mr. Ahearn was employed for 28
years by Exxon Corporation and Exxon Chemical, holding various executive
positions including Division Manager of Exxon Chemical's Energy Chemicals
Business and Worldwide Manager of Exxon Chemical's Specialty Chemicals
Technology Organization. Mr. Ahearn was also a founder, owner and director of
Pharmaceutical Fine Chemicals, S.A., a Luxembourg fine chemicals company built
through acquisition. Mr. Ahearn divested his interest in Pharmaceutical Fine
Chemicals, S.A. when the business was sold to DLJ Merchant Banking Fund Group,
an affiliate of Donaldson Lufkin & Jenrette Securities Corporation, in September
1997. Mr. Ahearn was formerly a director of Chemtech Industries of St. Louis,
Missouri and President of SSC Industries of Atlanta, Georgia. Since 1995 Mr.
Ahearn has been a director of The Flood Company of Hudson, Ohio, a privately-
held company in the coatings and wood stains and preservatives business. Mr.
Ahearn received his B.A. in chemistry from the City University of New York and
M.S. and Ph.D. in chemistry from Rutgers University.
William P. Eckman has been Executive Vice President, Chief Financial
Officer and Director of GEO since its inception in 1993. Prior to that time,
Mr. Eckman was involved in acquisitions, joint venture development, product
management and strategic planning for Exxon Chemical's specialty chemical
business in Latin America and Mexico. Mr. Eckman was also a corporate treasurer
for Exxon Chemical Americas with responsibility for Latin America. Mr. Eckman
also served in the Controller's department at Exxon Chemical's Baton Rouge,
Louisiana plant. Mr. Eckman was a founder and owner of Pharmaceutical Fine
Chemicals, S.A. and a director of certain of its affiliates. Mr. Eckman
divested his interest to DLJ Merchant Banking Fund Group in September 1997. Mr.
Eckman received his B.A. in business administration from Marian College and
M.B.A. and economics degrees from New York University. Mr. Eckman also pursued
studies in international economics at the University of Paris.
29
<PAGE>
Dennis S. Grandle has been Vice President/General Manager, Aluminum
Products of GEO since 1996. Mr. Grandle has over 25 years of experience in the
chemical and oil industries, primarily at Exxon Chemical, where he worked in the
specialty chemicals area in sales and product management, both in the United
States and overseas. Mr. Grandle also has considerable overseas experience with
ARAMCO in oil field chemicals. Mr. Grandle received his B.S. in chemistry from
the University of California.
David B. Heller, Jr. has been Vice President/General Manager, Process
Industries of GEO since 1997. With more than 20 years of experience in the
chemicals industry, Mr. Heller has held various management positions at Henkel
Corporation, D.B. Western, Melamine Chemicals, W.R. Grace and Johnson Matthey.
Mr. Heller received his B.S. in chemistry from Bucknell University and his
M.B.A. from the University of Pennsylvania.
Michael B. Linscott joined GEO as Vice President/General Manager,
Performance Chemicals in August 1998. Prior to joining GEO, Mr. Linscott was
Director of Marketing and Sales for National Starch and Chemical's Papermaking
Chemicals business, after a career with them in the paper chemicals area of more
than 20 years during which he held a variety of marketing, sales and technical
management positions within the United States and Europe. Mr. Linscort received
his B.S. in chemical engineering from the University of Maine-Orono.
Robert S. Zacker has been Vice President/General Manager, TRIMET Products
of GEO since July 1998 and General Manager of the TRIMET facility in Allentown,
Pennsylvania since 1996. From 1981 to 1996, Mr. Zacker held various positions
with Mallinckrodt Chemical, Inc., including Process Engineer, Regional Sales
Representative, Senior Product Engineer, Production Supervisor and Plant
Manager. Mr. Zacker received his B.S. in chemical engineering from Clemson
University.
Jorge J. Tena has held various positions with Henkel Corporation and
Diamond Shamrock since 1974. Mr. Tena has served as Process Engineer, Group
Leader and Production Manager, as well as Manager of the Harrison, New Jersey
plant. Mr. Tena has also been a management team member for the Paper Coatings
business, which has involved extensive travel to Central and South America. Mr.
Tena received his B.S. in chemical engineering from New York University.
Serge M. Perineau has been Vice President/General Manager, Gallium Products
of GEO since September 1999. Mr. Perineau was with Rhodia Chimie S.A. for 15
years, holding various management positions during that time in sales,
manufacturing and general management. From 1996 to 1999, Mr. Perineau was the
General Manager of Rhodia's Gallium Department. Mr. Perineau received his M.S.
from Ecole Polytechnique in Paris and his M.B.A. from Institut Superieur des
Affaires and the University of Pennsylvania.
Donald D. Smith has been Manufacturing Manager, Aluminum Products of GEO
since 1996. From 1994 to 1996, Mr. Smith served GEO in various positions,
including Plant Manager of GEO's Baltimore, Maryland facility and Manager of the
Gulf Coast alum plants and the Cytec plants. With 30 years of experience in
chemical manufacturing management, Mr. Smith has also served as district
manufacturing manager at General Chemical Corporation's northern district
aluminum sulfate plants. Mr. Smith received his B.S. from Penn State University.
Anatole G. Penchuk has been a Director of GEO since August 1998. Mr.
Penchuk is currently the Managing Director of Charter Oak Partners, a
Connecticut partnership and the majority shareholder of GEO, and has served in
that position since April 1998. Prior to joining Charter Oak Partners, Mr.
Penchuk held various positions from 1992 to 1998 with The CIT Group, including
Team Leader and Vice President of the Chemicals, Plastics and Forestry Products
Group in its Industrial Finance-Corporate
30
<PAGE>
Lending Group, Vice President and Industry Specialist to the chemicals and
plastics industries in its Capital Equipment Finance Group, and Vice President
in its Business Credit Group. Prior to that, Mr. Penchuk held various management
and technical positions with the Climax Specialty Chemicals and Climax Metals
Divisions of Amax, Inc. and the National Starch and Chemical Division of
Unilever Corporation. Mr. Penchuk received his B.S. in chemistry from the
Stevens Institute of Technology, his M.S. in chemistry from the University of
Illinois, and his M.B.A. from Columbia University.
George W. Rapp, Jr. has been a Director of GEO since 1997. Mr. Rapp is
currently Chairman of the Board of ITM Corporation and a member of the
Management Committee of Metal Power Products, LLC. In the past, Mr. Rapp has
held such positions as Vice President of Marketing & Sales of Brinly Hardy
Company, Advanced Process Systems and Anaconda Aluminum, Senior Vice President
of Arco Metals, President of American Brass and Vice Chairman of the Board of
Simcala, Inc. Mr. Rapp received his B.S. in industrial administration from Yale
University and his M.B.A. from the University of Louisville.
A. Elliott Archer has been a Director of GEO since 1997. Mr. Archer is
currently the President and Chief Executive Officer of Metal Powder Products,
LLC and the President and Chief Executive Officer of Archer Industries Group, a
company formed by him to provide equity capital to businesses. In the past, Mr.
Archer held such positions as President of the Chemicals Division of Church and
Dwight Company, Inc., Manager of Strategic Planning for Mobil Chemical Company,
General Manager of the Styrenics business of United States Steel Corp. and
Analytical Chemist for Mobay Chemical Company. Mr. Archer received his B.S. in
chemistry from Marshall University and in 1986 completed the executive program
at Stanford University.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows certain information concerning the compensation
paid by GEO during the last three fiscal years to its Chief Executive Officer
and its four other most highly compensated executive officers and managers.
<TABLE>
<CAPTION>
All Other
Name and Principal Position Year Salary Bonus Compensation (1)
- ------------------------------------ ---- --------- ---------- ----------------
<S> <C> <C> <C> <C>
George P. Ahearn 1999 $268,750 $ - (2) $32,374
President and Chief 1998 264,062 92,428 25,593
Executive Officer 1997 231,286 50,000 22,956
William P. Eckman 1999 $209,625 $ - (2) $20,936
Executive Vice President 1998 205,969 72,089 18,421
and Chief Financial Officer 1997 179,399 38,250 13,523
Dennis S. Grandle 1999 $129,003 $12,000 $11,505
Vice President/General 1998 137,833 14,784 10,239
Manager, Aluminum Products 1997 115,000 - 8,725
Michael B. Linscott (3) 1999 $130,000 $ 7,700 $ 7,008
Vice President/General Manager, 1998 62,736 35,000 975
Performance Chemicals 1997 - - -
Robert S. Zacker (4) 1999 $117,333 $ 7,000 $ 9,387
Vice President/General 1998 46,250 - 1,388
Manager, TRIMET Products 1997 - - -
</TABLE>
- -----------------------
(1) Includes contributions made by GEO to its 401(k) retirement plan and
defined contribution retirement plan and, in the case of Messrs. Ahearn and
Eckman, life insurance premiums paid by GEO on behalf of each executive
officer.
(2) Bonus compensation of Messrs. Ahearn and Eckman has not yet been determined
for 1999.
(3) Mr. Linscott joined GEO as Vice President/General Manager, Performance
Chemicals on August 31, 1998.
(4) Mr. Zacker joined GEO as Vice President/General Manager, TRIMET Products on
July 31, 1998.
Employment Agreements
GEO has entered into employment agreements with George P. Ahearn, the
President and Chief Executive Officer of GEO, and William P. Eckman, the
Executive Vice President and Chief Financial Officer of GEO. Each of these
agreements was executed on March 25, 1997, extends for a period of five years
from that date and, unless notice is provided by GEO or the employee to the
other party, will be automatically extended for additional one year periods
after the initial term. The respective employment agreements provide that Mr.
Ahearn will be the Chairman, and Mr. Eckman will be a member, of the Board of
Directors of GEO.
Mr. Ahearn's employment agreement entitles him to a base salary of $250,000
per year, which is subject to annual increase based upon the review of the Board
of Directors, bonus compensation, in the first year of the employment term based
on the earnings of GEO and thereafter to be determined by the Board of
Directors, and certain other benefits, including medical and life insurance and
participation in
32
<PAGE>
GEO's standard retirement plans. For 1998, Mr. Ahearn received bonus
compensation in the amount of $92,428. The Board of Directors has not yet
determined the bonus compensation of Mr. Ahearn for 1999. If Mr. Ahearn is
terminated by GEO other than for "cause," he is entitled to receive his annual
base salary and benefits for the remainder of the employment term or one year,
whichever period is greater. Mr. Ahearn is prohibited by certain non-competition
provisions, for the duration of the employment term or one year after
termination of his employment, whichever period is greater, from either
soliciting business from or competing with GEO for the business of any customer
of GEO or becoming involved in any business that competes with GEO.
The terms of Mr. Eckman's employment agreement are substantially identical
to the terms of Mr. Ahearn's employment agreement, except that Mr. Eckman is
entitled to receive an initial base salary of $190,000 per year. Pursuant to
the terms of his employment agreement, for 1998 Mr. Eckman received bonus
compensation in the amount of $72,089. The Board of Directors has not yet
determined the bonus compensation of Mr. Eckman for 1999.
GEO has also entered into an employment agreement with Dennis S. Grandle,
the Vice President/General Manager, Aluminum Products of GEO. Mr. Grandle's
employment agreement was executed on May 20, 1996, extended for an initial two
year term from such date and was automatically renewed thereafter for an
indefinite period, subject to either party's right to terminate the agreement
upon thirty days notice. Mr. Grandle's employment agreement entitles him to a
base salary of $115,000 per year, bonus compensation in an amount determined
annually in accordance with GEO's Management Incentive Program and the right to
participate in the general employee benefit programs of GEO. If Mr. Grandle is
terminated by GEO without "cause," he is entitled to receive three months base
salary and certain moving benefits as severance pay. Mr. Grandle is prohibited
by certain proprietary information and non-competition provisions from
disclosing any confidential information of GEO during the employment term and
within five years thereafter and from competing with GEO or soliciting GEO's
customers or employees for a period of one year after termination of the
employment term.
Report of the Board of Directors on Executive and Management Compensation
The Board of Directors is responsible for the following compensation
matters:
. determination of the compensation and bonus arrangements of Messrs.
Ahearn and Eckman;
. approval of the compensation policies and programs for the operating
management and other employees of GEO; and
. administration of the benefit plans in which the executive officers,
operating management and other employees of GEO participate.
The Board of Directors believes that GEO's compensation program should
support the goals and objectives of GEO. These goals and objectives seek to
balance the importance of annual financial performance with long-term growth and
profitability. The Board believes that executive compensation should be
strongly correlated with the overall performance of GEO as well as the
compensation paid by comparable companies. The Board currently uses salary,
bonus and various benefit plans to compensate and motivate its executive
officers. The manner of application of these compensation tools by the Board
for individual executive officers and operating management is based upon the
nature and scope of the particular employee's responsibilities.
33
<PAGE>
The compensation arrangements of Messrs. Ahearn and Eckman are governed by
employment agreements approved by the Board of Directors in 1997. These
employment agreements provide for (a) annual base salary for Mr. Ahearn in the
amount of $250,000 and for Mr. Eckman in the amount of $190,000, subject in each
case to annual increase based upon the review of the Board, and (b) bonus
compensation for Messrs. Ahearn and Eckman in amounts established annually by
the Board. During 1998, the Board increased Mr. Ahearn's annual base salary to
$268,750 and Mr. Eckman's annual base salary to $209,625. These salaries
remained in effect throughout 1999. For 1998, Mr. Ahearn was paid $92,428 and
Mr. Eckman was paid $72,089 in bonus compensation. In setting these bonus
amounts, the Board took into account GEO's 1998 earnings, which on a pro forma
basis exceeded both 1997 earnings and the 1998 budget, the individual
contributions of Messrs. Ahearn and Eckman to those earnings and the overall
performance of the officers. The Board has not yet determined the bonus
compensation of Messrs. Ahearn and Eckman for 1999, but will make this
determination using substantially similar criteria as was used for 1998.
The base salary and bonus compensation arrangements of Messrs. Ahearn and
Eckman are determined based upon the compensation history of these employees,
their expected individual contribution to GEO and the compensation paid to the
executive officers of similar companies. The compensation arrangements of the
operating management of GEO for 1998 are determined by GEO in accordance with
these same factors.
The bonus compensation payable to the operating management of GEO is
determined in accordance with GEO's Management Incentive Program. The
Management Incentive Program provides for the payment of certain ranges of bonus
compensation depending upon corporate, business unit and individual performance
levels during the applicable year. GEO awards bonuses when the pre-tax earnings
of GEO and an individual manager's business unit exceed the prior year's pre-tax
earnings. The size of the manager's award is determined by the manager's
contribution to corporate and business unit earnings and achievement of specific
position requirements. The contributions and achievements of GEO's managers,
for purposes of the Management Incentive Program, are determined by the
President and Executive Vice President of GEO based upon the recommendations of
each manager's immediate supervisor. Under the Management Incentive Program,
the managers of GEO are eligible to receive bonus compensation in ranges from
5%-10% to as high as 10%-30% of base salary. The aggregate amount of bonus
compensation paid to GEO's managers for 1999 under the Management Incentive
Program was $95,700.
The Board administers a number of other benefit plans for its executive
officers and operating management, including a 401(k) retirement plan (which was
amended on December 31, 1999 to include profit sharing features in replace of
GEO's defined contribution retirement plan which was terminated on the same
date). The Board monitors the benefits provided to GEO's officers and managers
under these plans in order to further the goals and objectives of GEO's
compensation program.
Members of the Board of Directors:
George P. Ahearn
William P. Eckman
Anatole G. Penchuk
George W. Rapp, Jr.
A. Elliott Archer
March 30, 2000
34
Indemnification of Directors and Officers
GEO's Code of Regulations requires GEO to indemnify its directors and
officers against expenses, judgments, fines and amounts paid in settlement in
connection with any proceeding, whether civil, criminal, administrative or
investigative, arising by reason of the fact that such person is or was a
director or officer of GEO. These indemnification provisions apply only where
the director or officer acted in good faith and in a manner that the director or
officer reasonably believed to be in or not opposed to GEO's best interests.
Indemnification is not required if the actions of the director or officer were
taken with intent to cause injury to GEO. Indemnification is also not required
if there is a finding of negligence or misconduct on the part of the director or
officer. In criminal actions, indemnification is required only if the director
or officer had no reasonable cause to believe his conduct was unlawful.
GEO's Code of Regulations further provides that GEO will pay in advance of
the final determination of any such proceeding any expenses incurred by the
director or officer in their defense. However, upon any such advance the
director or officer must provide an undertaking to GEO that such director or
officer will repay the amount of the advance if it is ultimately determined that
the director or officer is not entitled to be indemnified by GEO. GEO's Code of
Regulations also allows GEO to purchase liability insurance covering any
liability that might be asserted against any director or officer of GEO as a
result of their status as such. Accordingly, GEO maintains director's and
officer's liability insurance in favor of each of the directors and officers of
GEO.
Key Person Life Insurance
GEO currently maintains two term life insurance policies on the life of
George P. Ahearn in the aggregate amount of $2,000,000, and one term life
insurance policy on the life of William P. Eckman in the amount of $600,000. GEO
is the sole beneficiary under each of these insurance policies.
Compensation of Directors
GEO pays directors who are not employees of GEO or Charter Oak Partners,
which currently includes George W. Rapp, Jr. and A. Elliott Archer, a fee of
$10,000 per year for service on the Board of Directors. GEO reimburses each of
its directors for reasonable out-of-pocket expenses incurred in connection with
their travel to and attendance at meetings of the Board of Directors.
Board of Director Interlocks and Insider Participation
The Board of Directors of GEO determines the salaries and bonus
compensation of GEO's executive officers. George P. Ahearn, the President and
Chief Executive Officer of GEO, and William P. Eckman, the Executive Vice
President and Chief Financial Officer of GEO, are members of the Board of
Directors and participate in the deliberations concerning executive
compensation. However, Messrs. Ahearn and Eckman do not vote with respect to the
determination of their own compensation. See also "Certain Relationships and
Related Transactions" below.
35
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number and percent of GEO's common shares
beneficially owned by each shareholder of GEO as of March 30, 2000. GEO
believes that the persons and entities listed in the table have sole voting and
investment power as to all common shares shown as beneficially owned by them,
subject to community property laws, where applicable.
<TABLE>
<CAPTION>
Beneficial Ownership
of GEO's Common
Shares
------------------------
Name and Address Number of
of Beneficial Owner Shares Percent
- ------------------- ------------ ----------
<S> <C> <C>
Charter Oak Partners (1)........................................... 85.431 62.89%
Building B, 10 Wright Street
Westport, Connecticut 06880
Charter Oak Capital Partners, L.P. (2)............................. 21.478 15.81%
Building B, 10 Wright Street
Westport, Connecticut 06880
GEO Chemicals, Ltd. (3)............................................ 25.994 19.14%
28601 Chagrin Boulevard
Cleveland, Ohio 44122
George P. Ahearn................................................... 2.146 1.58%
28601 Chagrin Boulevard
Cleveland, Ohio 44122
George W. Rapp, Jr................................................. 0.608 0.45%
Building B, 10 Wright Street
Westport, Connecticut 06880
A. Elliott Archer.................................................. 0.178 0.13%
Building B, 10 Wright Street
Westport, Connecticut 06880
Directors and executive officers as a group (4 persons) (4)........ 28.926 21.30%
</TABLE>
- ---------------
(1) Charter Oak Partners is a Connecticut partnership with four partners, each
of which is an individual. Mr. Jerrold N. Fine is the Managing Partner of
and holds a majority interest in Charter Oak Partners. Mr. Fine's business
address is Building B, 10 Wright Street, Westport, Connecticut 06880.
(2) Charter Oak Capital Partners, L.P. is a Delaware limited partnership with
42 partners, none of which holds an interest in the limited partnership
greater than 17.5%. The general partner of Charter Oak Capitol Partners,
L.P. is North Fairfield LLC, which has two members. Mr. Jerrold N. Fine is
the Managing Member of and holds a majority interest in North Fairfield
LLC. Mr. Fine's business address is Building B, 10 Wright Street, Westport,
Connecticut 06880.
(3) George P. Ahearn and William P. Eckman are the sole members of GEO
Chemicals, Ltd., which is an Ohio limited liability company. Mr. Ahearn
holds a percentage interest in GEO Chemicals, Ltd. of approximately 62%,
and Mr. Eckman holds a percentage interest in GEO Chemicals, Ltd. of
approximately 38%.
(4) Includes the shares beneficially owned by Messrs. Ahearn and Eckman as the
sole members of GEO Chemicals, Ltd.
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Shareholders Agreement
GEO's shareholders are bound by a shareholders agreement which governs the
relationships between the shareholders and GEO. Under the shareholders
agreement, the shareholders may not transfer their shares to any third-party
unless they first offer such shares to the existing shareholders. In no case
may shares be transferred to any of GEO's competitors. Upon the death,
disability or termination of employment of Messrs. Ahearn or Eckman, GEO has the
right to repurchase the shares held by these employees directly or indirectly
through GEO Chemicals, Ltd. Upon their death, disability or termination without
cause, Messrs. Ahearn and Eckman have the right to require GEO to repurchase the
shares held by them. GEO's ability to make such repurchases is limited by both
the indenture that governs its senior subordinated notes and its senior credit
facility. The indenture provides that such repurchases may not exceed $750,000
in any calendar year plus the aggregate cash proceeds from any applicable life
insurance policies for which GEO is the beneficiary. The senior credit facility
provides that GEO may not issue more than $5.0 million of promissory notes to
Messrs. Ahearn and Eckman in connection with all such repurchases.
The shareholders agreement provides that Charter Oak Partners may not
transfer more than 50% of GEO's stock without the approval of four of the five
directors of GEO. If Charter Oak Partners obtains such approval, it can compel
the other shareholders to transfer their shares as part of the same transaction
on the same terms. If Charter Oak Partners obtains such approval but does not
invoke its "drag-along" rights, the other shareholders may elect to sell their
shares in the same transaction as Charter Oak Partners.
If GEO decides to sell any stock in a public offering under the federal
securities laws, the shareholders have the right to have their shares registered
as part of the offering. Upon the issuance of any new stock by GEO, the
shareholders have the right to purchase a portion of such stock equal to their
percentage ownership of GEO.
The shareholders agreement provides that GEO's Board of Directors shall
consist of five members. Three members are to be designees of Charter Oak
Partners. The remaining two members are to be Mr. Ahearn, for as long as he is
an employee of GEO or a shareholder after being terminated without cause, and
Mr. Eckman, for as long as he is employed by GEO. Mr. Ahearn may designate his
successor on the board as long as he remains President and Chief Executive
Officer of GEO. The current designees of Charter Oak Partners serving on the
Board are Anatole G. Penchuk, George W. Rapp, Jr. and A. Elliott Archer.
Warrants
On March 25, 1997, GEO issued to Charter Oak Partners and Chemical
Specialties Enterprises, Inc. (whose successor-in-interest by merger is GEO
Chemicals, Ltd.) warrants to purchase common shares of GEO. The warrant granted
to Charter Oak Partners allows it to purchase over four years, upon the failure
of GEO to achieve certain specified earnings targets in such years, common
shares in an amount equal to a maximum of 8% of the outstanding equity of GEO.
The warrant held by GEO Chemicals, Ltd. (the owners of which are George P.
Ahearn and William P. Eckman) allows it to purchase, upon the achievement by
Charter Oak Partners of a certain rate of return on its investment in GEO,
common shares in an amount equal to a maximum of 5% of the outstanding equity
of GEO. The agreements underlying these warrants were amended and restated on
July 31, 1998.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements
The financial statements included in this Annual Report are listed in the
"Index to Financial Statements" which appears in Exhibit 99.1 of this Annual
Report and is hereby incorporated by reference.
Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
Exhibits
2.1 Asset Purchase Agreement, dated June 29, 1998, by and among GEO Specialty
Chemicals, Inc., Mallinckrodt Inc. (a Delaware corporation) and
Mallinckrodt Inc. (a New York corporation) (incorporated by reference to
Exhibit 2.1 of GEO's Registration Statement on Form S-1 filed with the SEC
on December 31, 1998)
2.2 Asset Sale and Purchase Agreement, dated February 10, 1997, by and among
GEO Specialty Chemicals, Inc., Henkel Corporation and Henkel Canada Limited
(incorporated by reference to Exhibit 2.2 of GEO's Registration Statement
on Form S-1 filed with the SEC on December 31, 1998)
2.3 Asset Purchase Agreement, dated December 5, 1996, by and between GEO
Specialty Chemicals, Inc. and Cytec Industries Inc. (incorporated by
reference to Exhibit 2.3 of GEO's Registration Statement on Form S-1 filed
with the SEC on December 31, 1998)
2.4 Amended and Restated Asset Sale Agreement, dated July 15, 1994, by and
among GEO Specialty Chemicals, Inc., Courtney Industries, Inc. and C
Associates (incorporated by reference to Exhibit 2.4 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
2.5 Asset Purchase Agreement, dated June 5, 1992, by and between GEO Specialty
Chemicals, Inc. and Rhone-Poulenc Basic Chemicals Co. (incorporated by
reference to Exhibit 2.5 of GEO's Registration Statement on Form S-1 filed
with the SEC on December 31, 1998)
2.6 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 GEO's Current Report on Form 8-K filed with the SEC on
September 23, 1999)
3.1 Amended Articles of Incorporation of GEO Specialty Chemicals, Inc.
(incorporated by reference to Exhibit 3.1 of GEO's Registration Statement
on Form S-1 filed with the SEC on December 31, 1998)
3.2 Amended Code of Regulations of GEO Specialty Chemicals, Inc. (incorporated
by reference to Exhibit 3.2 of GEO's Registration Statement on Form S-1
filed with the SEC on December 31, 1998)
4.1 Indenture, dated July 31, 1998, by and between GEO Specialty Chemicals,
Inc. and Chase Manhattan Trust Company, National Association, as the
trustee (incorporated by reference to Exhibit 4.1 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
4.2 Form of Senior Subordinated Note (included in Exhibit 4.1)
10.1 Share Purchase Agreement, dated March 25, 1997, by and between GEO
Specialty Chemicals, Inc. and Charter Oak Partners (incorporated by
reference to Exhibit 10.1 of GEO's Registration Statement on Form S-1 filed
with the SEC on December 31, 1998)
10.2 Amended and Restated Shareholders Agreement, dated July 31, 1998, by and
among GEO Specialty Chemicals, Inc., Charter Oak Partners, Charter Oak
Capital Partners, L.P., GEO Chemicals, Ltd., George P. Ahearn, William P.
Eckman, George W. Rapp, Jr. and A. Elliott Archer
38
<PAGE>
(incorporated by reference to Exhibit 10.2 of GEO's Registration Statement
on Form S-1 filed with the SEC on December 31, 1998)
10.3 Amended and Restated Warrant Agreement, dated July 31, 1998, by and
between GEO Specialty Chemicals, Inc. and Charter Oak Partners
(incorporated by reference to Exhibit 10.3 of GEO's Registration Statement
on Form S-1 filed with the SEC on December 31, 1998)
10.4 Amended and Restated Warrant Agreement, dated July 31, 1998, by and
between GEO Specialty Chemicals, Inc. and GEO Chemicals, Ltd.
(incorporated by reference to Exhibit 10.4 of GEO's Registration Statement
on Form S-1 filed with the SEC on December 31, 1998)
10.5 Employment Agreement, dated March 25, 1997, by and between GEO Specialty
Chemicals, Inc. and George P. Ahearn (incorporated by reference to Exhibit
10.5 of GEO's Registration Statement on Form S-1 filed with the SEC on
December 31, 1998)
10.6 Employment Agreement, dated March 25, 1997, by and between GEO Specialty
Chemicals, Inc. and William P. Eckman (incorporated by reference to
Exhibit 10.6 of GEO's Registration Statement on Form S-1 filed with the
SEC on December 31, 1998)
10.7 Employment Agreement, dated May 20, 1996, by and between GEO Specialty
Chemicals, Inc. and Mr. Dennis S. Grandle (incorporated by reference to
Exhibit 10.7 of GEO's Registration Statement on Form S-1 filed with the
SEC on December 31, 1998)
10.8 Supply Agreement (Supply to Buyer), dated March 25, 1997, by and between
GEO Specialty Chemicals, Inc. and Henkel Corporation (incorporated by
reference to Exhibit 10.8 of GEO's Registration Statement on Form S-1
filed with the SEC on December 31, 1998)
10.9 Supply Agreement (Supply to Henkel), dated March 25, 1997, by and between
GEO Specialty Chemicals, Inc. and Henkel Corporation (incorporated by
reference to Exhibit 10.9 of GEO's Registration Statement on Form S-1
filed with the SEC on December 31, 1998)
10.10 Purchase Agreement, dated July 31, 1998, by and between GEO Specialty
Chemicals, Inc. and BT Alex.Brown Incorporated (incorporated by reference
to Exhibit 10.10 of GEO's Registration Statement on Form S-1 filed with
the SEC on December 31, 1998)
10.11 Registration Rights Agreement, dated July 31, 1998, by and between GEO
Specialty Chemicals, Inc. and BT Alex.Brown Incorporated (incorporated by
reference to Exhibit 10.11 of GEO's Registration Statement on Form S-1
filed with the SEC on December 31, 1998)
10.12 Provisional Lease Agreement, dated July 29, 1998, by and between GEO
Specialty Chemicals, Inc. and Mallinckrodt Inc. (a Delaware corporation)
(incorporated by reference to Exhibit 10.12 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
10.13 Lease Agreement, dated July 29, 1998, by and between GEO Specialty
Chemicals, Inc. and Mallinckrodt Inc. (a Delaware corporation)
(incorporated by reference to Exhibit 10.13 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
10.14 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 GEO's Current Report on Form 8-K filed with
the SEC on September 23, 1999)
39
10.15 GEO Specialty Chemicals, Inc. 1997 Management Incentive Program
(incorporated by reference to Exhibit 10.15 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
10.16 Employment letter agreement, dated July 16, 1998, by and between GEO
Specialty Chemicals, Inc. and Michael B. Linscott
12.1 Computation of ratio of earnings to fixed charges
21.1 Subsidiaries of GEO Specialty Chemicals, Inc.
24.1 Power of Attorney
27.1 Financial Data Schedule
99.1 Financial Statements Required by Item 8 of Part II of this Annual Report
40
<PAGE>
Reports on Form 8-K
On September 23, 1999, GEO filed with the SEC a Current Report on Form 8-K
relating to the purchase, by its newly formed and wholly owned French subsidiary
GEO Holdings (Europe) SARL, of a gallium extraction and purification business
from Rhodia Chimie S.A. Financial statements and pro forma financial information
were filed, pursuant to the provisions of Item 7(a)(4) of Form 8-K, in an
amendment to the Current Report on Form 8-K filed with the SEC on November 22,
1999.
41
<PAGE>
SIGNATURE
Pursuant to the requirements of Sections 13 or 15(d) 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.
By: /s/ WILLIAM P. ECKMAN
-------------------------
William P. Eckman
Executive Vice President and
Chief Financial Officer
March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
GEORGE P. AHEARN, President, Chief Executive Officer and Director (principal
executive officer); WILLIAM P. ECKMAN, Executive Vice President, Chief Financial
Officer and Director (principal financial and accounting officer); ANATOLE G.
PENCHUK, Director; GEORGE W. RAPP, JR., Director; and A. ELLIOTT ARCHER,
Director.
GEO SPECIALTY CHEMICALS, INC.
By: /s/ WILLIAM P. ECKMAN
-------------------------
William P. Eckman
Attorney-in-fact
March 30, 2000
42
<PAGE>
EXHIBIT INDEX
2.1 Asset Purchase Agreement, dated June 29, 1998, by and among GEO Specialty
Chemicals, Inc., Mallinckrodt Inc. (a Delaware corporation) and
Mallinckrodt Inc. (a New York corporation) (incorporated by reference to
Exhibit 2.1 of GEO's Registration Statement on Form S-1 filed with the SEC
on December 31, 1998)
2.2 Asset Sale and Purchase Agreement, dated February 10, 1997, by and among
GEO Specialty Chemicals, Inc., Henkel Corporation and Henkel Canada Limited
(incorporated by reference to Exhibit 2.2 of GEO's Registration Statement
on Form S-1 filed with the SEC on December 31, 1998)
2.3 Asset Purchase Agreement, dated December 5, 1996, by and between GEO
Specialty Chemicals, Inc. and Cytec Industries Inc. (incorporated by
reference to Exhibit 2.3 of GEO's Registration Statement on Form S-1 filed
with the SEC on December 31, 1998)
2.4 Amended and Restated Asset Sale Agreement, dated July 15, 1994, by and
among GEO Specialty Chemicals, Inc., Courtney Industries, Inc. and C
Associates (incorporated by reference to Exhibit 2.4 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
2.5 Asset Purchase Agreement, dated June 5, 1992, by and between GEO Specialty
Chemicals, Inc. and Rhone-Poulenc Basic Chemicals Co. (incorporated by
reference to Exhibit 2.5 of GEO's Registration Statement on Form S-1 filed
with the SEC on December 31, 1998)
2.6 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 GEO's Current Report on Form 8-K filed with the SEC on
September 23, 1999)
3.1 Amended Articles of Incorporation of GEO Specialty Chemicals, Inc.
(incorporated by reference to Exhibit 3.1 of GEO's Registration Statement
on Form S-1 filed with the SEC on December 31, 1998)
3.2 Amended Code of Regulations of GEO Specialty Chemicals, Inc. (incorporated
by reference to Exhibit 3.2 of GEO's Registration Statement on Form S-1
filed with the SEC on December 31, 1998)
4.1 Indenture, dated July 31, 1998, by and between GEO Specialty Chemicals,
Inc. and Chase Manhattan Trust Company, National Association, as the
trustee (incorporated by reference to Exhibit 4.1 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
4.2 Form of Senior Subordinated Note (included in Exhibit 4.1)
10.1 Share Purchase Agreement, dated March 25, 1997, by and between GEO
Specialty Chemicals, Inc. and Charter Oak Partners (incorporated by
reference to Exhibit 10.1 of GEO's Registration Statement on Form S-1 filed
with the SEC on December 31, 1998)
10.2 Amended and Restated Shareholders Agreement, dated July 31, 1998, by and
among GEO Specialty Chemicals, Inc., Charter Oak Partners, Charter Oak
Capital Partners, L.P., GEO Chemicals, Ltd., George P. Ahearn, William P.
Eckman, George W. Rapp, Jr. and A. Elliott Archer (incorporated by
reference to Exhibit 10.2 of GEO's Registration Statement on Form S-1 filed
with the SEC on December 31, 1998)
10.3 Amended and Restated Warrant Agreement, dated July 31, 1998, by and between
GEO Specialty Chemicals, Inc. and Charter Oak Partners (incorporated by
reference to Exhibit 10.3 of GEO's Registration Statement on Form S-1 filed
with the SEC on December 31, 1998)
10.4 Amended and Restated Warrant Agreement, dated July 31, 1998, by and between
GEO Specialty Chemicals, Inc. and GEO Chemicals, Ltd. (incorporated by
reference to Exhibit 10.4 of GEO's Registration Statement on Form S-1 filed
with the SEC on December 31, 1998)
43
<PAGE>
10.5 Employment Agreement, dated March 25, 1997, by and between GEO Specialty
Chemicals, Inc. and George P. Ahearn (incorporated by reference to Exhibit
10.5 of GEO's Registration Statement on Form S-1 filed with the SEC on
December 31, 1998)
10.6 Employment Agreement, dated March 25, 1997, by and between GEO Specialty
Chemicals, Inc. and William P. Eckman (incorporated by reference to
Exhibit 10.6 of GEO's Registration Statement on Form S-1 filed with the
SEC on December 31, 1998)
10.7 Employment Agreement, dated May 20, 1996, by and between GEO Specialty
Chemicals, Inc. and Mr. Dennis S. Grandle (incorporated by reference to
Exhibit 10.7 of GEO's Registration Statement on Form S-1 filed with the
SEC on December 31, 1998)
10.8 Supply Agreement (Supply to Buyer), dated March 25, 1997, by and between
GEO Specialty Chemicals, Inc. and Henkel Corporation (incorporated by
reference to Exhibit 10.8 of GEO's Registration Statement on Form S-1
filed with the SEC on December 31, 1998)
10.9 Supply Agreement (Supply to Henkel), dated March 25, 1997, by and between
GEO Specialty Chemicals, Inc. and Henkel Corporation (incorporated by
reference to Exhibit 10.9 of GEO's Registration Statement on Form S-1
filed with the SEC on December 31, 1998)
10.10 Purchase Agreement, dated July 31, 1998, by and between GEO Specialty
Chemicals, Inc. and BT Alex.Brown Incorporated (incorporated by reference
to Exhibit 10.10 of GEO's Registration Statement on Form S-1 filed with
the SEC on December 31, 1998)
10.11 Registration Rights Agreement, dated July 31, 1998, by and between GEO
Specialty Chemicals, Inc. and BT Alex.Brown Incorporated (incorporated by
reference to Exhibit 10.11 of GEO's Registration Statement on Form S-1
filed with the SEC on December 31, 1998)
10.12 Provisional Lease Agreement, dated July 29, 1998, by and between GEO
Specialty Chemicals, Inc. and Mallinckrodt Inc. (a Delaware corporation)
(incorporated by reference to Exhibit 10.12 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
10.13 Lease Agreement, dated July 29, 1998, by and between GEO Specialty
Chemicals, Inc. and Mallinckrodt Inc. (a Delaware corporation)
(incorporated by reference to Exhibit 10.13 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
10.14 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 GEO's Current Report on Form 8-K filed with
the SEC on September 23, 1999)
10.15 GEO Specialty Chemicals, Inc. 1997 Management Incentive Program
(incorporated by reference to Exhibit 10.15 of GEO's Registration
Statement on Form S-1 filed with the SEC on December 31, 1998)
10.16 Employment letter agreement, dated July 16, 1998, by and between GEO
Specialty Chemicals, Inc. and Michael B. Linscott.
12.1 Computation of ratio of earnings to fixed charges
21.1 Subsidiaries of GEO Specialty Chemicals, Inc.
24.1 Power of Attorney
27.1 Financial Data Schedule
99.1 Financial Statements Required by Item 8 of Part II of this Annual Report
44
<PAGE>
Exhibit 10.16
[LOGO OF GEO SPECIALTY CHEMICALS]
July 16, 1998
Mr. Michael B. Linscott
25 Schuler Lane
Easton, Pennsylvania 18042
Dear Mike:
It is my pleasure to offer you the position of Vice President/General Manager,
Performance Chemicals for GEO Specialty Chemicals effective August 1, 1998. The
starting base salary will be $130,000 per annum. GEO Specialty Chemicals will
grant you a starting bonus of $10,000 upon your start of work in Charlotte.
Additionally, we will guarantee you a bonus payment for performance against
mutually agreed upon goals of $25,000 which will be payable in 1999 at the time
our regular Management Incentive Bonuses (MIP's) are awarded.
You also will receive all of the standard GEO Specialty Chemicals employee
benefits including pension plan, matching 401(k), medical and dental insurance,
disability, life insurance and participation in GEO's MIP at the Tier I level of
30% maximum. We will begin your vacation participation at the level of three
weeks instead of the normal two weeks.
The position is located in Charlotte, North Carolina and we would expect you to
relocate to the Charlotte area as soon as possible. I would suggest that you
plan to utilize your initial visits to Charlotte as regular business trips. To
assist you with your move, you will participate in GEO's moving policy at the
regular employee level as indicated in our internal policy. Additionally, we
will gross up your taxable moving expenses to cover the tax consequences of your
move. This will also include a miscellaneous expenses amount of $5,000 which is
also grossed up for tax purposes. During your temporary living status while your
home is being sold and the move taking place, we will provide you full use of a
leased vehicle which we currently have in our fleet.
Our 401(k) vesting provisions are set by an IRS approved plan that we are not
allowed to, by law, make special exceptions to for individuals.
This offer is contingent upon your satisfactorily passing a standard physical
and drug test, verification of degree and a reference check. Upon commencement
of employment you will be expected to sign a one year noncompete and a five-year
confidentiality agreement.
<PAGE>
Mike, we are excited that you have decided to join the GEO Specialty Chemicals
team and will support you in any way possible to assist you in achieving the
goals of turning the Performance Chemicals Business around and significantly
improving its profitability. I am sure we will work well together and personally
look forward to your participation as a member of the GEO Management Team. We
can have fun in an entrepreneurial team environment that challenges all of us to
achieve more then we could possibly do as individuals. Attached is a copy of
GEO's values which represent the spirit and environment in which we work.
Please sign the two originals of this letter to indicate your acceptance of the
position under the terms outlined above. Keep one of your files and return the
other to me.
Best regards,
/s/ Joseph A. Boelter /s/ Michael B. Linscott
- --------------------- -----------------------
Joseph A. Boelter Michael B. Linscott,
Chief Operating Officer Agreed and Accepted
JAB/mb
Enclosure: GEO Values
cc: G. P. Ahearn w/o att.
W. P. Eckman w/o att.
J. M. Payne w/o att.
<PAGE>
Exhibit 12.1
<TABLE>
<CAPTION>
Predecessor Successor
---------------------------------------- --------------------------------------
January 1 March 25,
Years Ended December 31, through through Years Ended December 31,
------------------------ March 24, Dec. 31, ------------------------
1995 1996 1997 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) before
taxes 209 47 (676) 2,993 1,615 2,102
Fixed charges 1,164 1,118 420 5,180 8,439 13,376
-------- -------- -------- -------- -------- --------
Earnings 1,373 1,165 (256) 8,173 10,054 15,478
Fixed charges 1,164 1,118 420 5,180 8,439 13,376
Fixed charge coverage 1.2x 1.0x - 1.6x 1.2x 1.2x
======== ======== ======== ======== ======== ========
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes plus fixed charges. Fixed charges
consist of net interest expense and the portion of operating rental expense
which management believes is representative of the interest component of rent
expense, less amounts that represent amortization of deferred financing fees and
debt issuance costs. The deficiency in the amount of earnings compared to fixed
charges was $676 for the period ended March 24, 1997.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF GEO SPECIALTY CHEMICALS, INC.
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
GEO Specialty Chemicals Limited Ohio
GEO Holdings (Europe) SARL France
GEO Gallium S.A. France
Ingal Stade GmbH Germany
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
Each person whose name is signed hereto has made, constituted and
appointed, and does hereby make, constitute and appoint, WILLIAM P. ECKMAN as
his true and lawful attorney, for him and in his name, place and stead to affix,
as attorney-in-fact, his signature as a director or officer or both, as the case
may be, of GEO Specialty Chemicals, Inc., an Ohio corporation ("GEO"), to GEO's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
and all amendments or modifications to such annual report to be filed with the
Securities and Exchange Commission, giving and granting unto such attorney-in-
fact full power and authority to do and perform every act and thing whatsoever
necessary to be done in connection with any such filing, as fully as he might or
could do if personally present, hereby ratifying and confirming all that such
attorney-in-fact shall lawfully do or cause to be done by virtue hereof.
In witness whereof, this Power of Attorney, which may be executed in two
or more counterparts, each of which shall be deemed an original but all of
which shall together constitute one and the same instrument, has been signed
on March 27, 2000.
/s/ George P. Ahearn President and Chief Executive Officer;
- ----------------------- Principal Executive Officer; Director
George P. Ahearn
/s/ William P. Eckman Executive Vice President; Chief Financial Officer;
- ----------------------- Principal Financial and Accounting Officer; Director
William P. Eckman
/s/ Anatole G. Penchuk Director
- -----------------------
Anatole G. Penchuk
/s/ George W. Rapp, Jr. Director
- -----------------------
George W. Rapp, Jr.
/s/ A. Elliott Archer Director
- -----------------------
A. Elliott Archer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF GEO SPECIALTY CHEMICALS, INC. AS OF DECEMBER 31,
1999 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1999. EXCEPT FOR THE DATES AND PER SHARE DATA, ALL AMOUNTS ARE IN THOUSANDS OF
DOLLARS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,696
<SECURITIES> 0
<RECEIVABLES> 27,145
<ALLOWANCES> 249
<INVENTORY> 23,788
<CURRENT-ASSETS> 58,366
<PP&E> 114,497
<DEPRECIATION> 17,869
<TOTAL-ASSETS> 198,166
<CURRENT-LIABILITIES> 26,002
<BONDS> 120,000
0
0
<COMMON> 0
<OTHER-SE> 22,305
<TOTAL-LIABILITY-AND-EQUITY> 198,166
<SALES> 147,080
<TOTAL-REVENUES> 147,080
<CGS> 112,669
<TOTAL-COSTS> 131,575
<OTHER-EXPENSES> 27
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,376
<INCOME-PRETAX> 2,102
<INCOME-TAX> 1,023
<INCOME-CONTINUING> 1,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,079
<EPS-BASIC> 7,943
<EPS-DILUTED> 7,943
</TABLE>
<PAGE>
Exhibit 99.1
GEO SPECIALTY CHEMICALS, INC.
AND SUBSIDIARIES
Cleveland, Ohio
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
<PAGE>
GEO SPECIALTY CHEMICALS, INC.
AND SUBSIDIARIES
Cleveland, Ohio
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
CONTENTS
REPORT OF INDEPENDENT AUDITORS..................... F-1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS...................... F-2
CONSOLIDATED STATEMENTS OF OPERATIONS............ F-3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY.. F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS............ F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....... F-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
GEO Specialty Chemicals, Inc. and Subsidiaries
Cleveland, Ohio
We have audited the accompanying consolidated balance sheets of GEO Specialty
Chemicals, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended December 31, 1999 and 1998 and for the periods March 25, 1997
through December 31, 1997 and January 1, 1997 through March 24, 1997. Our audits
also include the financial statement schedule listed at Part IV Item 14. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 1999 and 1998 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of GEO
Specialty Chemicals, Inc. and Subsidiaries as of December 31, 1999 and 1998 and
the results of its operations and its cash flows for the years ended December
31, 1999 and 1998 and for the periods March 25, 1997 through December 31, 1997
and January 1, 1997 through March 24, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
March 9, 2000
F-1
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
- --------------------------------------------------------------------------------
<TABLE>
December 31,
-------------------
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current assets
Cash $ 4,696 $ 1,645
Trade accounts receivable, net of allowance for doubtful accounts of
$249 in 1999 and $336 in 1998 26,896 19,612
Other accounts receivables 1,619 862
Inventory 23,788 9,476
Prepaid expenses and other current assets 553 792
Refundable income taxes - 441
Deferred taxes 814 418
-------- --------
Total current assets 58,366 33,246
Property and equipment, net 96,628 92,669
Other assets
Intangible assets, net 6,099 5,941
Goodwill, net 36,515 31,743
Other accounts receivable 334 589
Other 224 337
-------- --------
43,172 38,610
-------- --------
$198,166 $164,525
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ - $ 760
Accounts payable 14,085 7,564
Other accounts payable 2,386 448
Income taxes payable 604 -
Accrued expenses and other current liabilities 8,927 7,664
-------- --------
Total current liabilities 26,002 16,436
Revolving line-of-credit 23,000 -
Senior subordinated notes 120,000 120,000
Other long-term liabilities 4,621 4,196
Other accounts payable 592 580
Deferred taxes 1,646 1,471
-------- --------
149,859 126,247
Shareholders' equity
Class A voting common stock, $1 par value, 1,035 shares authorized;
136 shares issued and outstanding at December 31, 1999 and 1998 $ - $ -
Class B nonvoting common stock, $1 par value, 215 shares authorized;
0 shares issued and outstanding at December 31, 1999 and 1998 - -
Additional paid-in capital 20,901 20,901
Retained earnings 2,020 941
Accumulated other comprehensive loss (616) -
-------- --------
22,305 21,842
-------- --------
$198,166 $164,525
======== ========
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Successor Predecessor
(See Note 2) (See Note 2)
------------ ------------
Period Period
March 25 to Jan. 1 to
Dec. 31, March 24,
1999 1998 1997 1997
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $147,080 $126,560 $91,727 $9,109
Cost of sales 112,669 101,638 72,626 8,542
-------- -------- ------- ------
Gross profit 34,411 24,922 19,101 567
Selling, general, and administrative
expenses 18,906 14,092 11,078 808
-------- -------- ------- ------
Income (loss) from operations 15,505 10,830 8,023 (241)
Other income (expense)
Net interest expense (13,376) (9,097) (5,004) (420)
Other (27) (118) (26) (15)
-------- -------- ------- ------
(13,403) (9,215) (5,030) (435)
Income (loss) before taxes and
extraordinary item 2,102 1,615 2,993 (676)
Provision for income taxes 1,023 667 999 -
-------- -------- ------- ------
Income (loss) before extraordinary
item 1,079 948 1,994 (676)
Extraordinary loss on early
extinguishment of debt, net of tax - (1,496) (505) -
-------- -------- ------- ------
Net income (loss) $ 1,079 $ (548) $ 1,489 $ (676)
======== ======== ======= ======
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except for share data information)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Number Accumulated
of of Retained Other
Class A Class B Additional Earnings Compre- Compre-
Common Common Paid-In (Accumulated hensive hensive
Shares Shares Capital Deficit) Loss Total Income/(loss)
------- ------- ---------- ------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Predecessor
- -----------
Balance
January 1, 1997 42 104 $ 1,757 $ (380) $ - $ 1,377 $ -
Net loss - - - (676) - (676) (676)
------- ------- ---------- ------------ ----------- ------- -------
Total compre-
hensive loss $ (676)
=======
Balance
March 24, 1997 42 104 $ 1,757 $ (1,056) $ - $ 701
======= ======= ========== ============ =========== =======
Successor
- ---------
Stock issued 104 - $ 14,901 $ - $ - $14,901 $ -
Net income for
period March 25,
1997 through
December 31,
1997 - - - 1,489 - 1,489 1,489
------- ------- ---------- ------------ ----------- ------- -------
Total compre-
hensive income $ 1,489
=======
Balance December 31,
1997 104 - 14,901 1,489 - 16,390 -
Stock issued 32 - 6,000 - - 6,000 -
Net loss - - - (548) - (548) (548)
------- ------- ---------- ------------ ----------- ------- -------
Total compre-
hensive loss $ (548)
=======
Balance December 31,
1998 136 - 20,901 941 - 21,842 -
Compre-
hensive income
Translation
adjustment,
net of income
tax of $592 - - - - (616) (616) (616)
Net income - - - 1,079 - 1,079 1,079
------- ------- ---------- ------------ ----------- ------- -------
Total compre-
hensive income $ 463
=======
Balance December 31,
1999 136 - $ 20,901 $ 2,020 $ (616) $22,305
======= ======= ========== ============ =========== =======
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Successor Predecessor
(See Note 2) (See Note 2)
------------ ------------
Period Period
March 25 to Jan. 1 to
Dec. 31, March 24,
1999 1998 1997 1997
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 1,079 $ (548) $ 1,489 $ (676)
Adjustments to reconcile net income
(loss) to net cash from operating activities
Depreciation, depletion, and
amortization 11,315 7,905 4,334 363
Extraordinary loss on early
extinguishment of debt - 2,266 505 -
Deferred income tax expense (benefit) 372 (6) 389 -
Change in assets and liabilities
net of effects from acquisitions
Accounts receivable - trade (7,414) (1,241) (1,591) (1,367)
Other accounts receivable (142) (356) 854 (494)
Inventories (4,205) 670 (1,422) (179)
Prepaid expenses and other assets 377 (197) (344) (30)
Accounts payable and accrued
expenses 9,003 1,344 2,495 416
Other accounts payable and
other liabilities 1,223 (231) - (110)
Checks written in excess of
bank balance - - (1,080) 562
-------- -------- -------- -------
Net cash from operating
activities 11,608 9,606 5,629 (1,515)
Cash flows from investing activities
Purchases of property, plant,
and equipment (6,223) (6,755) (3,177) (127)
Acquisition of paper and construction
processing businesses from Henkel
Corporation, net of assumed liabilities - - (54,210) -
Acquisition of TRIMET business from
Mallinckrodt Inc., net of assumed
liabilities (184) (61,106) - -
Acquisition of gallium business from
Rhodia Chimie, S.A., net of assumed
liabilities (23,041) - - -
-------- -------- -------- -------
Net cash from investing activities (29,448) (67,861) (57,387) (127)
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-5
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Successor Predecessor
(See Note 2) (See Note 2)
------------ ------------
Period Period
March 25 to Jan. 1 to
Dec. 31, March 24,
1999 1998 1997 1997
-------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from financing activities
Revolving line of credit borrowings
(payments), net $ - $ (3,640) $ 139 $ 2,017
Borrowings from long-term line of credit 25,500 - - -
Payments made on long-term line of credit (2,500) - - -
Proceeds from bank borrowing - - 65,500 -
Proceeds from issuance of subordinated
notes - 120,000 - -
Payments made on long-term
borrowing (760) (57,975) (20,963) (372)
Payments on capital leases - - (23) (3)
Proceeds from stock issuance - 6,000 14,754 -
Payment of deferred financing costs (557) (5,181) (3,731) -
Cash consideration paid to predecessor
shareholder - - (3,222) -
------- -------- -------- -----------
Net cash from financing
activities 21,683 59,204 52,454 1,642
------- -------- -------- -----------
Effect of exchange rates changes on cash (792) - - -
------- -------- -------- -----------
Net change in cash 3,051 949 696 -
Cash at beginning of period 1,645 696 - -
------- -------- -------- -----------
Cash at end of period $ 4,696 $ 1,645 $ 696 $ -
======= ======== ======== ===========
Supplemental disclosures of cash flow
information
Cash paid (refunded) for
Interest $12,778 $ 4,346 $ 3,706 $ 1,147
Taxes (298) 440 242 -
Supplemental schedule of noncash
investing and financing activities
In conjunction with the acquisition
of Henkel Corporation, liabilities
were assumed as follows:
Fair value of assets acquired $ - $ - $ 59,884 $ -
Cash paid - - (54,210) -
------- -------- -------- -----------
Liabilities assumed - - 5,674 -
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-6
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Successor Predecessor
(See Note 2) (See Note 2)
------------ ------------
Period Period
March 25 to Jan. 1 to
Dec. 31, March 24,
1999 1998 1997 1997
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
In conjunction with the change in
control of the Company on March 24,
1997, liabilities were assumed
as follows:
Fair market value of assets $ - $ - $ 30,917 $ -
Predecessor basis of
shareholder's equity - - (105) -
Cash received - - (14,754) -
--------- -------- ----------- -----------
Liabilities assumed - - 16,058 -
In conjunction with the
acquisition the TRIMET from
Mallinckrodt Inc., liabilities
were assumed as follows:
Fair value of assets acquired - 62,393 - -
Cash paid - (61,106) - -
--------- -------- ----------- -----------
Liabilities assumed - 1,287 - -
Assumed liabilities in acquisition
of aluminum sulfate business and
Andersonville mining facility of
Cytec Industries Inc. - - - 1,000
In conjunction with the
acquisition of the gallium business from
Rhodia Chimie, S.A., liabilities
were assumed as follows:
Fair value of assets acquired 24,370 - - -
Cash paid (23,041) - - -
Due to Rhodia Chimie, S.A. (304) - - -
--------- -------- ----------- -----------
Liabilities assumed 1,025 - - -
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: GEO Specialty Chemicals, Inc. (the Company) was
- -------------------
incorporated in the state of Ohio for the purpose of owning and operating
specialty chemical businesses. The Company's manufacturing process produces a
variety of specialty chemical products for use in various major chemical
markets. The Company produces more than 300 products. These products are used
primarily in the construction, paper, water treating, electronic, and oil field
industries. 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. As
discussed in Notes 7 and 8, the Company has a high level of indebtedness which
creates liquidity and debt service risks.
Principles of Consolidation: The accompanying consolidated financial statements
- ---------------------------
include the accounts of GEO and its wholly-owned subsidiaries, GEO Specialty
Chemicals Ltd., GEO Holdings (Europe) SARL, GEO Gallium S.A., and Ingal Stade
GmbH. All significant intercompany balances and transactions have been
eliminated.
Revenue Recognition: Revenues are recognized upon transfer of the goods to the
- -------------------
customer.
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. Reclamation reserves and mineral reserves are
particularly subject to change.
Fair Value of Financial Instruments: The Company's financial instruments are
- -----------------------------------
comprised of cash, trade accounts receivable, other accounts receivable,
accounts payable, other accounts payable, other current liabilities, long-term
debt, revolving line of credit, and other long-term liabilities. The carrying
value of all instruments except long-term debt approximates fair value. The
fair value of the Company's long-term debt, as of December 31, 1999 and 1998,
based upon quoted market values is approximately $111,000 and $115,800,
respectively.
Property and Equipment: Property and equipment are depreciated on a straight-
- ----------------------
line method. Mineral reserves are depleted on a units-of-production basis.
Property and equipment are being depreciated using the following estimated
lives:
- --------------------------------------------------------------------------------
(Continued)
F-8
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Asset Lives in Years
----------------------
Land improvements 20
Buildings 40
Machinery and equipment 12
Office furniture and fixtures 10
Computer equipment 6
Vehicles 6
Inventories: Inventories are stated at the lower of cost or market, with cost
- -----------
being determined on a first-in, first-out (FIFO) basis.
Income Taxes: The provision for income taxes is based on income recognized for
- ------------
financial statement purposes and includes the effects of temporary differences
between such income and that recognized for tax return purposes. The Company
files a United States federal income tax return. Certain subsidiaries which are
consolidated for financial reporting are not eligible to be included in the
United States federal income tax return and separate provisions for income taxes
have been determined for these entities. The Company accounts for its income
taxes based on the amount of taxes due on its tax return plus deferred taxes
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. The Company also recognizes the deferred tax asset for the
benefit of operating loss carryforwards.
Intangible Assets: Intangible assets, which consist principally of deferred
- -----------------
financing costs, are amortized on a straight-line basis over the term of the
respective financing agreements.
Goodwill: Goodwill is amortized on a straight-line basis over 15 years. The
- --------
Company periodically assesses whether a change in circumstances has occurred
subsequent to an acquisition which would indicate whether the future useful life
of an asset should be revised. The Company considers the future earnings
potential of the acquired business in assessing the recoverability of goodwill.
Foreign Currency Translation: The Company's foreign subsidiaries use the French
- ----------------------------
franc as their functional currency. Assets and liabilities of the foreign
subsidiaries 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 shareholders' equity. Transaction
gains and loses arising from transaction denominated in a currency other than
the functional currency of the entity involved are included in the consolidated
statement of operations.
- --------------------------------------------------------------------------------
(Continued)
F-9
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Environmental Expenditures: The Company accrues for environmental expenses
- --------------------------
resulting from existing conditions that relate to past operations when costs are
probable and reasonably estimable.
Reclassification: Certain reclassifications were made to the 1998 financial
- ----------------
statements to conform to the 1999 presentation.
Accounting Standards: During 1999, the Company adopted Statement of Financial
- --------------------
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which
establishes standards for the reporting and display of comprehensive income.
Comprehensive income consists of reported net income and other comprehensive
income, which reflects revenues, expenses, and gains and losses that generally
accepted accounting principles exclude from net income. The only items of
comprehensive income (loss) that the Company currently reports are foreign
currency translation adjustments.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
financial reports issued to shareholders. The Company has adopted SFAS No. 131
for the year ended December 31, 1998. The Company monitors its sales of product
by process additives and performance chemicals; however, for purposes of
internal reporting, considers the Company to be in one segment.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 132,
"Employers' Disclosures About Pensions and Other Postretirement Benefits,"
effective January 1, 1998. SFAS No. 132 requires additional information to be
disclosed on pensions and other postretirement benefit plans including changes
in the benefit obligations and fair values of plan assets.
In June 1998, the Financial Accounting Standards Board issued FAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company is
required to adopt FAS 133 for all fiscal years beginning after June 15, 2000.
Thus the Company will need to adopt as of January 1, 2001. FAS 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Because the Company holds no derivative financial instruments and does not
currently engage in hedging activities, adoption of FAS 133 is expected to have
no material impact on the Company's financial position or results of operations.
- --------------------------------------------------------------------------------
(Continued)
F-10
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 2 - ACQUISITIONS
On September 8, 1999, the Company purchased from Rhodia Chimie, S.A. the former
chemical unit of the French multinational corporation Rhone-Poulenc, all the
outstanding shares of its wholly-owned French subsidiary. This subsidiary owns
both the French operating assets of the gallium purification business and the
outstanding stock of a German corporation that carries on a gallium extraction
operation in Stade, Germany. These products are sold to customers worldwide.
The purchase price of $23,345 was allocated as follows:
Current asset $10,868
Property and equipment 6,270
Other assets 936
Liabilities (1,025)
-------
Net assets acquired 17,049
Excess of cost over fair value 6,296
-------
Purchase price $23,345
=======
As part of the acquisition, the Company was also granted a three year option to
acquire a currently dormant gallium extraction facility near Pinjarra, Australia
for approximately $1,600,000.
On July 31, 1998, pursuant to an acquisition agreement dated June 29, 1998, the
Company purchased substantially all of the assets of TRIMET Technical Products,
a Division of Mallinckrodt Inc. (TRIMET) 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.
A summary of the assets acquired and liabilities assumed is as follows:
Current assets $ 5,975
Property and equipment 24,497
Other assets 200
Current liabilities (1,287)
-------
Net assets acquired 29,385
Excess of cost over fair value
of assets acquired 31,721
-------
Purchase price $61,106
=======
Concurrently with the acquisition of TRIMET, the Company refinanced its debt
structure. The purchase price of TRIMET and refinancing of the Company's debt
was funded through the offering of $120,000, 10 1/8% Senior Subordinated Notes
due 2008, and an equity contribution of $6,000 from the Company's shareholders.
- -------------------------------------------------------------------------------
(Continued)
F-11
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 2 - ACQUISITIONS (Continued)
On March 25, 1997, the Company purchased certain assets and assumed certain
liabilities of the Paper Chemicals and Construction and Processing Chemicals
Businesses of Henkel Corporation and Henkel Canada Limited (collectively,
Henkel). The contractual purchase price was $55,000, adjusted by $790 to
reflect Henkel's actual working capital amount at closing. The purchase price
was funded through the refinancing of the Company's debt and proceeds received
from the issuance of common stock.
A summary of the assets acquired and liabilities assumed is as follows:
Current assets $12,816
Property and equipment 46,396
Current liabilities (4,499)
Long-term liabilities (1,175)
-------
Net assets acquired 53,538
Excess of cost over fair value of assets acquired 672
-------
Purchase price $54,210
=======
In conjunction with the Henkel acquisition, the Company redeemed all of the
Class A voting common stock and Class B nonvoting common stock owned by the
shareholders, Key Equity Capital Corporation (Key), and Key Equity Partners
(KEPI) and repaid the subordinated debt, together with accrued interest thereon,
owed to Key and KEPI for total consideration of $5,754. The purchased shares
were immediately retired. Simultaneously, the Company sold 82.31 shares of
Class A voting common stock, representing a 79% interest, to Charter Oak
Partners (Charter Oak) for $14,754.
A summary of the assets acquired and liabilities assumed is as follows:
Fair market value of assets $30,917
Predecessor basis of shareholders' equity (105)
Liabilities assumed (16,058)
-------
Equity contributed $14,754
=======
Goodwill of $373 was recorded as a result of the above transaction.
- -------------------------------------------------------------------------------
(Continued)
F-12
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 2 - ACQUISITIONS (Continued)
In conjunction with the above acquisition of Henkel and the change of ownership
of the Company, the Company accounted for both transactions as a purchase and,
accordingly, the purchase price was allocated to 100% of the assets acquired and
liabilities assumed from Henkel and 79% of the assets and liabilities assumed of
the Company, in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," and the Emerging Issues Task Force Issue Number 88-16.
As a result, all assets including inventories and property, plant, and equipment
of Henkel were stated at fair value and the property, plant, and equipment of
the Company were stated at fair value and allocated based upon the ownership
percentage change at March 25, 1997. The total goodwill associated with the
above transactions was approximately $1,045 (see Note 5). Additionally, the
Company incurred approximately $3,731 of financing costs associated with the
above acquisitions, which are being amortized over the life of the respective
loans.
NOTE 3 - INVENTORY
Inventory consists of the following components:
December 31,
---------------
1999 1998
------- ------
Raw materials $12,633 $3,065
Work in progress 2,688 341
Finished goods 8,467 6,070
------- ------
$23,788 $9,476
======= ======
NOTE 4 - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following major classifications:
December 31,
------------------
1999 1998
--------- --------
Land $ 4,892 $ 4,892
Mineral reserves 2,136 2,136
Building and improvements 17,850 15,390
Equipment 85,128 77,497
Construction in progress 4,491 2,431
-------- --------
114,497 102,346
Accumulated depreciation and depletion (17,869) (9,677)
-------- --------
$ 96,628 $ 92,669
======== ========
- -------------------------------------------------------------------------------
(Continued)
F-13
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 5 - INTANGIBLE ASSETS AND GOODWILL
Costs incurred in obtaining financing have been deferred and are being amortized
on a straight-line basis over the terms of the related credit agreements.
Accumulated amortization of deferred financing costs was $928 and $263 at
December 31, 1999 and 1998, respectively. Amortization expense related to
deferred financing costs of $662, $658, $548, and $0 is included in interest
expense in the accompanying statements of operations for the years ended
December 31, 1999 and 1998 and the periods ended December 31, 1997 and March 24,
1997, respectively. The Company refinanced its bank credit and secured
additional financing to purchase the assets of Henkel Corporation and TRIMET
Technical Products as discussed in Notes 2 and 8. The 1998 refinancing replaced
the Tranche A and Tranche B notes refinancing that occurred in March 1997, as
discussed in Note 8. In 1998, the Company charged off the remaining $2,266, net
of taxes of $770, of costs related to these two 1997 credit facilities. In the
period ended December 31, 1997, the Company charged off the remaining $765, net
of taxes of $260, of deferred financing costs which related to the 1996 credit
agreement. The charge incurred in each year is included as an extraordinary loss
in the accompanying statements of operations.
The excess purchase price of acquiring the fair value of net assets of Henkel
Corporation and TRIMET Technical Products was recorded as goodwill and is being
amortized on a straight-line basis over 15 years. Additionally, goodwill of
$373 was recorded in relation to the Company's 79% change of ownership.
Accumulated amortization at December 31, 1999 and 1998 amounted to $3,140 and
$1,023, respectively.
The excess purchase price of acquiring the fair value of the stock of the
Gallium business from Rhodia Chimie, S.A. was recorded as goodwill and is being
amortized on a straight-line basis over 15 years. Other intangibles acquired
during this transaction are for registered patents related to the trade business
and are being amortized over the life of the patents. Total accumulated
amortization for the above items amounted to $139 at December 31, 1999.
In 1999 and 1998, other deferred costs include covenant not to compete costs and
deferred land stripping costs. These costs are being amortized either on a
units-of-production basis or on a straight-line basis over one to five years.
Accumulated amortization of other deferred costs was $466 and $306 at December
31, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
(Continued)
F-14
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 6 - OTHER ACCOUNTS RECEIVABLE AND OTHER ACCOUNTS PAYABLE
At December 31, 1999 and 1998, the Company held options to purchase, at a fixed
price, a certain raw material from a vendor. Total payments made to the vendor
for the purchase of options that were unexercised at December 31, 1999 and 1998
were $749 and $1,004, respectively, and are included in other accounts
receivable in the accompanying balance sheets. When exercised, the option
payments will be applied as a reduction of the fixed purchase price of the raw
material.
In connection with the above, at December 31, 1999 and 1998, the Company had
sold to a customer options of equal quantities and prices for the sale, at a
fixed price, of a certain product. The product to be sold is made from the raw
material that the Company purchases pursuant to the options discussed in the
previous paragraph. Total payments received by the Company from the customer
for options which were unexercised at December 31, 1999 and 1998, were $729 and
$1,028, respectively, and are included in other accounts payable in the
accompanying balance sheets. When the options are exercised by the customer,
the purchase price of the options will be applied as a reduction of the sales
price of the related product.
NOTE 7 - REVOLVING LINE OF CREDIT
In connection with the March 25, 1997 transaction discussed in Note 2, the
Company entered into a $15 million revolving line of credit agreement that
subsequently was amended with the purchase of TRIMET on July 31, 1998 to
increase the amount available to $25,000, expiring on July 31, 2003. In
connection with the September 8, 1999 transaction discussed in Note 2, the
agreement was amended to increase the amount available from $25,000 to $45,000.
The loan bears interest, at the Company's option, at either (a) 1.25% above the
higher of (i) .5% in excess of the adjusted certificate of deposit rate, as
defined in the agreement, or (ii) the prime lending rate or (b) 2.25% above the
Eurodollar rate, as defined in the agreement. At December 31, 1999, the rate
was 8.375%. The note is secured by virtually all of the Company's assets and is
subject to affirmative and negative covenants as described in Note 8. The
Company pays .5% for the amount of unused credit available during the year. At
December 31, 1999 and 1998, the Company had borrowed $23,000 and $0,
respectively, under the agreement.
- -------------------------------------------------------------------------------
(Continued)
F-15
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT
The Company's long-term debt obligations consist of the following as of December
31, 1999 and 1998:
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Senior Subordinated Notes - Series A bearing fixed interest
at 10.125%. Unsecured, subordinated to all existing and
future senior debt. Due August 1, 2008; interest payments
are semi-annual beginning February 1, 1999. The Company
may redeem the offered notes after August 1, 2003 at
redemption prices set forth in the agreement. $120,000 $120,000
Subordinated note payable to the seller of Courtney which
bears interest at 2% above the prime lending rate, 9.75%
at December 31, 1998. The Company deferred its required
July 1997 payment until a dispute between the Company and
Courtney was resolved, at which time the forgone principal
and accrued interest was due. The entire principal balance
was shown as current on the 1998 financial statements.
Final payment was made in 1999. - 760
-------- --------
120,000 120,760
Current portion - 760
-------- --------
Long-term portion $120,000 $120,000
======== ========
</TABLE>
The credit agreement requires the Company to meet certain affirmative and
negative covenants, which include certain restrictions on future indebtedness,
capital expenditures, and dividend payments, as well as meeting certain
interest-coverage and leverage ratios. At December 31, 1999, the Company was in
compliance with these financial covenants.
- --------------------------------------------------------------------------------
(Continued)
F-16
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 9 - SUPPLY AND PURCHASE CONTRACTS
The Company has entered into two supply contract agreements with Henkel
effective March 25, 1997. One agreement calls for the Company to supply
products to Henkel on a cost basis at prices as indicated in the supply
agreement. The Company has no obligation to sell or manufacture more than one
hundred ten percent (110%) of the annual sales volume to Henkel in the previous
year. The cost basis of the products may be adjusted on the first day of each
calendar quarter based on changes in the purchase price of raw materials used to
produce the products. In addition, the overhead component may be increased
annually to reflect an increase in energy costs and labor costs, as measured by
a percentage of the increase in the energy component of the Producer Price Index
for Finished Goods and the Employment Cost Index, respectively. In general, the
price to be paid by Henkel will, at a minimum, be equal to the raw material and
overhead costs associated with the production. The Company sold $8.8 million,
$10.3 million, and $8.1 million to Henkel during 1999 and 1998 and the period
March 25, 1997 through December 31, 1997, respectively.
The second agreement calls for the Company to purchase raw materials from Henkel
at market prices and finished products that are manufactured by Henkel will be
sold to the Company on a cost basis at prices as indicated in the supply
agreement. Henkel has no obligation to sell or manufacture more than one
hundred ten percent (110%) of the previous year's purchases by GEO. The cost
basis of the finished products may be adjusted on the first day of each calendar
quarter based on changes in the purchase price of raw materials used to produce
the products. In addition, the overhead component may be increased annually to
reflect an increase in energy costs and labor costs, as measured by a percentage
of the increase in the energy component of the Producer Price Index for Finished
Goods and the Employment Cost Index, respectively. In general, the prices paid
by GEO were not in excess of current market prices. The Company purchased
approximately $9.6 million and $9.8 million from Henkel during 1999 and 1998,
respectively.
The agreements will remain in effect for a term of three to five years depending
on the product. Upon termination of the initial contracts, both are renewable
annually thereafter until written termination is provided one year in advance of
either party's intent to terminate the agreement. The Company believes that the
above transaction will not result in any losses.
The Company also has a supplier purchase agreement which requires the Company to
purchase a minimum amount of raw material through December 2001. Prices are
based on amounts agreed upon in the contract with adjustments for inflationary
measures. The Company is required to purchase a minimum of approximately $2,500
in each of the years 2000 and 2001.
NOTE 10 - 401(k) PLAN AND DEFINED CONTRIBUTION PLAN
The Company sponsors a qualified 401(k) plan and a defined contribution money
purchase plan which cover all eligible employees except those who are members of
the Cedartown, Georgia and Allentown, Pennsylvania plant unions (see Note 11).
The Company also sponsors a qualified savings plan for the Allentown,
Pennsylvania plant union employees.
- -------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 10 - 401(k) PLAN AND DEFINED CONTRIBUTION PLAN (Continued)
At December 31, 1999, under the terms of the 401(k) plan, which was amended once
during 1998 and twice during 1997, all eligible employees can elect to defer up
to 12% of their annual salary. In 1999 and 1998, the Company elected to match
50% of the employee's deferred contribution up to 6% of the employee's salary.
In 1999 and 1998, the Company could elect, on a discretionary basis, to
contribute an additional amount to be distributed to plan participants as
outlined in the plan document. The Company made no discretionary contributions
in 1999 and 1998. The plan was amended subsequent to December 31, 1999 as
described in Note 18.
Under the terms of the savings plan for the Allentown, Pennsylvania plant union
employees, eligible employees can elect to defer up to 10% of their annual
after-tax salary. The Company's percentage match ranges from 50% of the first
4% of optional contributions to 50% of the first 6% of optional contributions
based upon years of service. Total 401(k) and savings plan expense for the
years ended December 31, 1999 and 1998 and the periods ended December 31, 1997
and March 24, 1997 approximated $357, $322, $200, and $0, respectively
Under the terms of the money purchase plan, the Company will contribute to the
plan on behalf of each eligible participant an amount equal to 5% of the
participant's qualifying compensation. The Company's contribution requirement
for the years ended December 31, 1999 and 1998 and the periods ended December
31, 1997 and March 24, 1997 were $590, $538, $453, and $51, respectively. The
plan was subsequently terminated on January 1, 2000 and all assets were rolled
into the 401(k) plan as described in Note 18.
NOTE 11 - UNION EMPLOYEE DEFINED BENEFIT PENSION PLAN
The Company has a defined benefit pension plan covering substantially all of its
Cedartown, Georgia and Allentown, Pennsylvania union employees. The benefits
are based on years of service through the date of retirement, multiplied by a
predetermined amount payable in a monthly annuity for life, vested over a five-
year period with reductions for early retirement. The Cedartown benefits are
also reduced by the accrued benefit as of March 25, 1997 under the Henkel
Corporation Consolidated Union Retirement Plan. The Company's funding policy is
to contribute amounts sufficient to satisfy regulatory funding standards.
- --------------------------------------------------------------------------------
(Continued)
F-18
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 11 - UNION EMPLOYEE DEFINED BENEFIT PENSION PLAN (Continued)
Information about the pension plans was as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- --------------
Change in benefit obligation
<S> <C> <C>
Benefit obligation at beginning of period $ 335 $ 229
Service cost 166 116
Interest cost 18 14
Actuarial (gain)/loss (77) (19)
Benefits paid (2) (5)
----- -----
Benefit obligation at end of period 440 335
Change in plan assets
Fair value of plan assets at beginning of period 102 -
Actual return on plan asset 4 1
Employer contribution 173 106
Benefits paid (2) (5)
----- -----
Fair value of plan assets at end of period 277 102
----- -----
Funded status (163) (233)
Unrecognized net actuarial gain (76) (7)
Unrecognized prior service cost 131 146
----- -----
Accrued benefit cost $(108) $ (94)
===== =====
The components of pension expense and related actuarial assumptions and methods
were as follows:
1999 1998
----- -----
Service cost $ 166 $ 116
Interest cost 18 15
Expected return on plan asset (12) (4)
Amortization of transition (asset)/obligation - (10)
Amortization of prior service cost 15 15
----- -----
Net periodic benefit cost $ 187 $ 132
===== =====
Discount rate on benefit obligation 6.50% 5.50%
Long-term expected rate of return on plan assets 8.00 8.00
Rate of compensation increase N/A N/A
Amortization method Straight-line Straight-line
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-19
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 11 - UNION EMPLOYEE DEFINED BENEFIT PENSION PLAN (Continued)
The provisions of Statement of Financial Accounting Standards (SFAS) No. 87,
"Employers' Accounting for Pensions," require recognition in the balance sheet
of an additional minimum liability and related intangible asset for pension
plans with accumulated benefits in excess of plan assets. At December 31, 1999
and 1998, an additional liability of $243 and $229, respectively, which is
included in accrued expenses and other current liabilities and an intangible
asset of $135 and $135, respectively, are reflected in the accompanying
consolidated balance sheets.
NOTE 12 - POSTRETIREMENT BENEFIT PLANS
The Company sponsors two postretirement benefit plans that cover substantially
all union employees of the Cedartown, Georgia plant who have attained age 55 and
have 5 years of service and their spouses. One plan provides medical benefits
and the other provides life insurance benefits. The postretirement health care
plan is contributory. The life insurance plan is noncontributory.
The Company also maintains two postretirement benefit plans that cover
substantially all employees of the Allentown, Pennsylvania plant who have
attained age 55 and have 5 years of service and their spouses. One plan
provides medical benefits and the other provides life insurance benefits. The
postretirement health care plan is contributory. The life insurance plan is
noncontributory.
<TABLE>
<CAPTION>
1999 1998
----------------------------- --------
Change in benefit obligation
<S> <C> <C>
Benefit obligation at beginning of period $ 1,911 $ 1,269
Benefit obligation assumed with TRIMET acquisition - 502
Service cost 140 57
Interest cost 156 89
Actuarial loss 22 11
Benefits paid (34) (17)
------- -------
Benefit obligation at end of period 2,195 1,911
Change in plan assets
Employer contribution 34 17
Participant benefits paid (34) (17)
------- -------
Fair value of plan assets at end of period - -
Funded status (2,336) (2,198)
Unrecognized net actuarial gain 141 287
------- -------
Accrued benefit cost $(2,195) $(1,911)
======= =======
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-20
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 12 - POSTRETIREMENT BENEFIT PLANS (Continued)
The components of postretirement health costs and related actuarial assumptions
were as follows:
1999 1998
----- -----
Service cost $ 140 $ 57
Interest cost 156 89
Recognized net actuarial gain 22 11
----- -----
Net periodic benefit cost $ 318 $ 157
===== =====
For measurement purposes, an 8% and 8.25% annual rate of increase in the per
capita cost of covered health care benefits was assumed for the periods ended
December 31, 1999 and 1998; respectively; the rate was assumed to decrease
gradually to 4.75% in 2005 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1999 and 1998 by $299 and $351, respectively, and the aggregate of
the service and interest cost components of postretirement expense for the years
then ended by $43 and $53, respectively. Decreasing the assumed health care
cost trend rates by one percentage point in 1999 and 1998 would decrease the
accumulated postretirement benefit by $252 and $290, respectively, and service
and interest cost components on postretirement expense for the years then ended
by $36 and $44, respectively.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 6.5% at December 31, 1999 and
1998, respectively.
NOTE 13 - LEASE COMMITMENTS
The Company has entered into numerous noncancelable operating lease agreements
for various autos, trucks, railroad cars, land, and office facilities with lease
terms expiring at various dates through the year 2005. Rent expense under
these leases for the years ended December 31, 1999 and 1998 and the periods
ended December 31, 1997 and March 24, 1997 approximated $1,034, $863, $688, and
$37, respectively. Total minimum rentals under noncancelable operating leases
as of December 31, 1999 over future years are:
- --------------------------------------------------------------------------------
(Continued)
F-21
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 13 - LEASE COMMITMENTS (Continued)
2000 $1,011
2001 820
2002 637
2003 264
2004 130
Thereafter 10
------
$2,872
======
NOTE 14 - INCOME TAXES
The income tax provision is comprised of the following:
<TABLE>
<CAPTION>
Period Period
Ended Ended
Dec. 31, March 24,
1999 1998 1997 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Current payable
United States $ - $ 873 $ 610 $ -
Foreign 585 - - -
------- ------- -------- ---------
585 873 610 -
Benefit of net operating loss carryover
United States (2,237) (7,994) - -
Foreign - - - -
------- ------- -------- ---------
(2,237) (7,994) - -
Deferred income taxes
United States 2,603 7,788 389 -
Foreign 72 - - -
------- ------- -------- ---------
2,675 - 389 -
------- ------- -------- ---------
Total $ 1,023 $ 667 $ 999 $ -
======= ======= ======== =========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-22
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 14 - INCOME TAXES (Continued)
The difference between the effective tax rate and the statutory rate is
reconciled below:
<TABLE>
<CAPTION>
Period Period
Ended Ended
Dec. 31, March 24,
1999 1998 1997 1997
------ ----- ------------- ----------
<S> <C> <C> <C> <C>
Tax provision at United States
statutory rate of 34% $ 715 $ 549 $ 1,026 $ (230)
Increase (decrease) resulting from
Permanent items and state
taxes 136 118 69 -
Valuation allowance - - (96) 230
Effect of foreign operations 172 - - -
------ ----- ------------ ---------
Total $1,023 $ 667 $ 999 $ -
====== ===== ============ =========
Significant components of the deferred tax assets and liabilities are as follows:
December 31,
------------
1999 1998
------- ------
Deferred tax liabilities
Property, plant, and equipment $16,885 $13,863
Other liabilities 51 132
-------- --------
16,936 13,995
Deferred tax assets
Net operating loss carryforwards 12,007 9,770
Postretirement benefit 960 823
Pond closure reserve 858 884
Other assets 1,687 1,465
Unrealized foreign currency translation loss 592 -
-------- --------
16,104 12,942
-------- --------
Net deferred tax liability $ (832) $(1,053)
======== =======
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-23
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 14 - INCOME TAXES (Continued)
Income tax carryforwards approximated and consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Net operating loss carryforward $27,867 $22,670
======= =======
AMT credit carryforwards $ 251 $ 251
======= =======
</TABLE>
As of December 31, 1999, net operating loss carryforwards listed above
expire as indicated below:
<TABLE>
<S> <C> <C>
Year Amount
---- -------
2008 $ 211
2009 974
2010 534
2011 954
2012 3,604
2018 13,710
2019 7,880
</TABLE>
NOTE 15 - GEOGRAPHIC SEGMENTS
The Company sells its products throughout the United States and in European
markets.
Following is financial information relating to geographic areas:
<TABLE>
<CAPTION>
Period Period
Year Ended Year Ended Ended Ended
December 31, December 31, December 31, March 24,
1999 1998 1997 1997
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues
United States $126,361 $ 121,246 $ 91,727 $ 9,109
Other geographic areas 20,719 5,314 - -
-------- --------- --------- -------
Total revenues $147,080 $ 126,560 $ 91,727 $ 9,109
======== ========= ========= =======
<CAPTION> December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Long-lived assets
United States 121,176 $125,500
Other geographic areas 12,660 -
-------- --------
Total long-lived assets $133,863 $125,500
======== ========
Net assets of European operations $ 21,329 $ -
======== ========
</TABLE>
Long-lived assets are comprised of property, plant, and equipment, goodwill,
intangible assets, and other long-term assets. No customers exceeded 10% of
total Company sales in 1999 and 1998.
- --------------------------------------------------------------------------------
(Continued)
F-24
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Qtr. Qtr. Qtr. Qtr.
------- ------- -------- --------
Quarter Ended 1999
- ------------------
Net sales $34,194 $36,352 $37,606 $38,928
Gross profit 7,566 8,944 9,470 8,431
Operating income 3,160 4,011 4,714 3,620
Income before income taxes 69 914 1,379 (260)
Net income 9 488 860 (278)
First Second Third Fourth
Qtr. Qtr. Qtr. Qtr.
----- ------ ----- ------
Quarter Ended 1998
- ------------------
Net sales $30,205 $29,226 $33,023 $34,106
Gross profit 5,268 5,307 6,389 7,958
Operating income 2,402 2,289 2,678 3,461
Income before income taxes 988 780 (277) 124
Net income 672 513 (1,693) (40)
NOTE 17 - COMMITMENTS AND CONTINGENCIES
Contracts: Pursuant to the terms of a shareholder's agreement and employment
- ---------
agreements with certain individuals who are partners in GEO Chemicals, Ltd.
(GCL) and members of the key management of the Company, the Company has the
right and, in certain cases, the obligation to repurchase specified percentages
of the stock held by GCL in the event of termination of employment of these
individuals. The redemption prices are based on the higher of fair value or
original cost. The agreement also obligates the Company to maintain disability
insurance and specified levels of life insurance coverage on these individuals
to fund any such redemption. The current life insurance coverage for these
management members is $2,600.
During 1995, the Company purchased the customer list relating to the Houston,
Texas dry alum business of Rhone-Poulenc, Inc. (Rhone-Poulenc). In accordance
with the purchase agreement, the Company is required to pay a 7.5% commission on
its gross sales of dry alum product until such time as the cumulative commission
payments equal $375, plus an additional lump sum payment based on a formula
calculation, as defined, of the increase in dry alum sales over a specified
period of time. The lump sum payment cannot exceed $120. For the years ended
December 31, 1999 and 1998 and the periods ended December 31, 1997 and March 24,
1997, the Company charged $0, $4, $103, and $23, respectively, against
operations for commissions applicable to dry alum sales. The formula in the
purchase agreement calculates that no additional payment is due Rhone-Poulenc.
- -------------------------------------------------------------------------------
(Continued)
F-25
<PAGE>
GEO SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(In thousands except share data)
- -------------------------------------------------------------------------------
NOTE 17 - COMMITMENTS AND CONTINGENCIES (Continued)
In conjunction with the purchase of the Gallium business from Rhodia Chimie,
SA, the Company has assumed a long-term contract for the supply of aluminate
liquor from a vendor on whose property the German gallium extraction plant is
located.
Litigation: In the ordinary course of business, the Company is periodically
- ----------
named as a defendant in a variety of lawsuits. During 1998, the Company was one
of 102 named defendants in a toxic tort lawsuit commended in Harrison County,
Texas. The plaintiffs in the action were employees, former employees, and the
families of such employees of the Monarch Tile Company tile plant in Marshall,
Texas. The plaintiffs alleged that they were exposed to hazardous substances in
the course of their employment at the Monarch plant and that the Company or its
predecessor was a manufacturer of one of those substances. This suit was settled
in 1999 with no material adverse effects to the Company.
During 1999, a former employee filed suit against the Company in relation to his
discharge from the Company. The plaintiff is seeking compensatory damages,
punitive damages, and attorney fees. Management believes this case is without
merit and will vigorously defend the case. The Company believes that this
pending case will not have a material adverse effect on its business, financial
condition, or results of operations.
NOTE 18 - SUBSEQUENT EVENTS
Effective December 31, 1999, the Company terminated its full indemnity group
health and welfare insurance coverage with its insurance provider and
established a partially self-funded health and welfare insurance plan. Specific
stop loss insurance limits the plan's liability on individual claims and on
aggregate claims. Per employee, the stop loss for the plan is $75 annually.
The minimum and maximum aggregate amounts that the plan will pay is
approximately $2,100 and $2,400, respectively. These amounts include premiums
to be paid for catastrophic health coverage, other employee benefits insurance
coverages, and fees paid to a third party administrator of the plan.
Effective December 31, 1999, the defined contribution money purchase plan was
terminated. All participants automatically became 100% vested regardless of the
period of employment with the Company. On January 1, 2000, all funds in the
plan were rolled over into the Company's existing 401(k) plan. The 401(k) plan
was amended to include profit sharing features for the Company to make annual
profit sharing contributions. The plan was also amended to increase the
Company's match contribution from 50% up to the first 6% of employee
contributions to 100% up to the first 4% of employee contributions.
- --------------------------------------------------------------------------------
F-26
<PAGE>
Geo Speciality Chemicals, Inc. and Subsidaries
Schedule II
Valuation and Qualifying Accounts
For the three years in the period ended December 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at the Balance at the
beginning of the Charged to Charged to end of the
Description period Costs and Expense Other Accounts Write offs period
- ----------- --------------- ----------------- -------------- ---------- --------------
($) ($) ($) ($) ($)
Allowance for
doubtful accounts:
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1999 336 (67) - 20 249
Year Ended December 31,
1998 186 114 60 (a) 24 336
Period ended December 31,
1997 123 40 23 (a) - 186
Period ended March 24,
1997 112 11 - - 123
Environmental Reserves:
Year Ended December 31,
1999 2,052 - 40 (a) 110 1,982
Year Ended December 31,
1998 3,355 - - 1,303 2,052
Period ended December 31,
1997 1,015 - 2,340 (a) - 3,355
Period ended March 24,
1997 1,015 - - - 1,015
</TABLE>
(a) Amounts represent reserves acquired through acquisitions and revaluations.
