<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
FOR QUARTERLY REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________ TO ___________.
COMMISSION FILE NUMBER 33-79532
-------------
LAROCHE INDUSTRIES INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3341472
(State (I.R.S. Employer
of Incorporation) Identification No.)
1100 JOHNSON FERRY ROAD N.E.
ATLANTA, GEORGIA 30342
(Address of principal executive offices)
(404) 851-0300
(Registrant's telephone number, including area code)
---------------
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 at least the past 90 days. Yes. [X] No. [ ].
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
CLASS OUTSTANDING AS OF JULY 14, 1999
----- -------------------------------
Common Stock, $.01 par value 429,633 Shares
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<PAGE> 2
LAROCHE INDUSTRIES INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at May 31, 1999 and February 28, 1999 1
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
for the three months ended May 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for the three months ended May
31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
<PAGE> 3
LAROCHE INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1999 1999
----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,605 $ 5,380
Receivables:
Trade, net of allowances of $491 and $527 as of
May 31, 1999 and February 28, 1999,
respectively 52,393 54,527
Other 7,428 8,233
Inventories 18,835 22,105
Net assets of discontinued operations 27,114 27,080
Other current assets 3,730 3,468
--------- ---------
Total current assets 114,105 120,793
Investments and advances to affiliates 47,665 48,082
Property, plant and equipment, at cost 315,219 310,092
Less accumulated depreciation (111,868) (106,497)
--------- ---------
Net property, plant and equipment 203,351 203,595
Other assets 16,688 17,307
--------- ---------
Total assets $ 381,809 $ 389,777
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Revolving credit facility $ 72,077 $ 55,388
Accounts payable 40,938 48,166
Accrued compensation 4,417 5,039
Other accrued liabilities 23,474 34,864
Current portion of long-term debt 4,375 4,375
--------- ---------
Total current liabilities 145,281 147,832
Long-term debt 201,539 202,221
Deferred income taxes 5,153 4,044
Other noncurrent liabilities 41,318 45,757
Commitments and contingencies
Redeemable common stock 528 528
Stockholders' deficit:
10% cumulative, voting preferred stock, $.01 par
value, 200,000 shares authorized, no shares outstanding -- --
Common stock, $.01 par value, 1,200 shares
authorized, 425 non-redeemable shares issued 4 4
Capital in excess of par value 630 630
Retained deficit (11,868) (10,491)
Accumulated other comprehensive loss (776) (748)
--------- ---------
Total stockholders' deficit (12,010) (10,605)
--------- ---------
Total liabilities and stockholders' deficit $ 381,809 $ 389,777
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
LAROCHE INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
-------------------------
1999 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net sales $ 90,615 $ 119,231
Cost of sales 81,233 99,832
-------- ---------
Gross profit 9,382 19,399
Selling, general and administrative expenses 7,830 8,255
-------- ---------
Income from continuing operations 1,552 11,144
Interest and amortization of debt expense (5,570) (4,728)
Income from equity investments 1,560 471
Other income (expense), net 1,893 (350)
-------- ---------
(Loss) income from continuing operations before income taxes (565) 6,537
Provision for income taxes (993) (3,205)
-------- ---------
(Loss) income from continuing operations (1,558) 3,332
(Loss) income from operations of Alumina Chemical
division, net of tax provision (benefit) of $117 and ($60) 181 (90)
-------- ---------
Net (loss) income (1,377) 3,242
Other comprehensive (loss):
Foreign currency translation adjustments, net of tax benefits of
$15 and $38, respectively (28) (71)
-------- ---------
Comprehensive (loss) income $ (1,405) $ 3,171
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
LAROCHE INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
--------------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (1,377) $ 3,242
Depreciation and amortization 7,695 5,389
Net change in operating assets and liabilities:
Receivables 2,939 (7,801)
Inventories 3,270 6,202
Other assets (208) 1,063
Accounts payable and other liabilities (19,090) (9,280)
Noncurrent liabilities and other (3,332) 2,138
Loss (income) from discontinued operations and loss on disposal -- 90
Equity income, net of distributions (1,559) (953)
-------- --------
Net cash (used for) provided by continuing operating activities (11,662) 90
-------- --------
Net cash provided by (used for) discontinued operating activities 126 (4,782)
-------- --------
INVESTING ACTIVITIES
Capital expenditures (4,946) (8,430)
Investments in and advances to affiliates (67) (913)
Plant turnarounds (1,376) --
Proceeds from the sale of facilities -- 770
-------- --------
Net cash used by investing activities of continuing operations (6,389) (8,573)
-------- --------
Net cash used by investing activities of discontinuing operations (488) (446)
-------- --------
FINANCING ACTIVITIES
Net borrowings under revolving credit facility 16,689 9,000
Sales of common stock with redemption features -- 50
Repayments of long-term debt (682) (2,510)
Dividends paid -- (365)
-------- --------
Net cash provided by financing activities 16,007 6,175
-------- --------
Effect of exchange rate changes on cash 1,631 (71)
-------- --------
Net decrease in cash (775) (7,607)
Cash at beginning of period 5,380 12,884
-------- --------
Cash at end of period $ 4,605 $ 5,277
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All significant
intercompany transactions and balances have been eliminated in consolidation.
Operating results for the three months ended May 31, 1999 may not be indicative
of the results that may be expected for the full fiscal year. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended February
28, 1999.
2. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("the Statement" or "SFAS 133"). The Statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on the derivative designation. Based on the
June, 1999 exposure draft issued by the FASB extending the effective date of the
Statement, the Company will be required to adopt this Statement in fiscal 2001.
The Company has not yet determined the impact on its financial position or
results of operations from adoption .
3. INVENTORIES
Components of inventory from continuing operations are as follows (in
thousands):
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1999 1999
------- -------
<S> <C> <C>
Finished goods and in-progress..... $ 5,230 $ 7,695
Inventory purchased for resale..... 3,175 3,122
Raw materials...................... 1,807 1,358
Supplies and catalysts............. 9,163 10,470
------- -------
19,375 22,645
Less LIFO reserve.................. (540) (540)
------- -------
$18,835 $22,105
======= =======
</TABLE>
An actual valuation of inventory under the LIFO method can be made only at
the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs and are subject to
change based on the final year-end LIFO inventory valuation.
4
<PAGE> 7
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. DISCONTINUED OPERATIONS
During November 1998, the Company adopted plans for the sale of its
Alumina Chemicals business ("Aluminas") and accounted for the financial
results, net assets and cash flow of the business unit as a discontinued
operation. Accordingly, previously reported financial results for all periods
have been restated to reflect the business as a discontinued operation. The sale
was completed on June 3, 1999 with no significant adjustments required to the
estimated loss recorded at February 28, 1999.
5. PROPERTY, PLANT AND EQUIPMENT
Components of the Company's property, plant and equipment used in
continuing operations are as follows (in thousands):
<TABLE>
<CAPTION>
MAY 31, February 28,
1999 1999
--------- ---------
<S> <C> <C>
Land and land improvements ..................... $ 10,084 $ 9,984
Buildings ...................................... 16,651 16,651
Machinery and equipment ........................ 267,098 266,991
Equipment under capital leases ................. 3,876 3,875
Construction in progress ....................... 17,510 12,591
--------- ---------
Property, plant and equipment, at cost... 315,219 310,092
Accumulated depreciation ....................... (111,868) (106,497)
--------- ---------
Property, plant and equipment, net ...... $ 203,351 $ 203,595
========= =========
</TABLE>
6. BORROWING ARRANGEMENTS
The Company's borrowings include the following (in thousands):
<TABLE>
<CAPTION>
MAY 31, February 28,
1999 1999
--------- ---------
<S> <C> <C>
Revolving credit facilities ........... $ 72,077 $ 55,388
========= =========
Term debt:
9 1/2% senior subordinated notes... $ 174,374 $ 174,327
13% senior subordinated notes ..... 915 915
Term loan ......................... 30,625 31,354
--------- ---------
Total ........................ 205,914 206,596
Less current portion .................. (4,375) (4,375)
--------- ---------
Long-term debt ........................ $ 201,539 $ 202,221
========= =========
</TABLE>
5
<PAGE> 8
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of February 28, 1999, the Company was not in compliance with certain
financial covenants, and its bank credit facility was amended and restated
effective as of that date to bring the Company into compliance. As part of the
amendment and restatement, certain interest coverage and leverage ratios were
adjusted to levels that, based on the Company's financial projections at that
time, would allow the Company to remain in compliance through February 29,
2000. As of May 31, 1999, the Company was in compliance with all covenants
included in the Amended and Restated Credit Facility. Current financial
projections indicate that the Company may not be able to comply with all
financial covenants after February 29, 2000, and accordingly, management
expects to seek additional modifications to the facility before the end of the
current fiscal year. In addition, if market conditions are worse than expected,
or if other events adversely effect the results of operations, the Company may
not achieve projected financial results prior to February 29, 2000, and
consequently, modifications to the credit facility may be required sooner than
planned. While the Company believes that it would be able to obtain such
modifications should they become necessary, no assurances can be made.
Availability under the Amended and Restated Revolving Credit Facility was
limited to $80 million until the Company's purchase of the remaining 50% of
ChlorAlp on June 7, 1999. After that date, the amount available is based on a
percentage of domestic trade receivables, inventory and certain property plant
and equipment, as defined, not to exceed $90,000. At May 31, 1999, $64,000 was
outstanding with an additional $26,000 available without violating any
covenants under the Revolving Credit Facility or the Notes Indenture. The
weighted average borrowing rate at May 31, 1999 was approximately 8.4%.
Approximately $8,077 was outstanding under the German Credit Facility at May
31, 1999 with an additional availability of $1,157.
The amended and restated Credit Facility imposes restrictions on
investments, acquisitions, repurchases of stock, borrowing and sales of assets.
It also imposes cumulative and annual limits on capital spending, as well as a
prohibition on the payment of dividends without the consent of the lenders.
7. COMMITMENTS AND CONTINGENCIES
In December 1997, the Company was named as a defendant in three civil
antitrust actions, two of which were the same cases brought in separate
jurisdictions, one of which was subsequently dismissed. In June, 1999, the
Company reached an agreement with the plaintiff to settle all claims against
the Company. Under the terms of that settlement, the Company made an initial
payment of $.75 million and will make additional payments not to exceed $3.75
million, based in part on the Company's net earnings, over the next five years.
Minimum payments of $.5 million are required on the first three anniversaries
of execution of the settlement and payments of $.3 million are required on the
last two anniversaries with an aggregate minimum, inclusive of the initial
payment, of $3 million. At May 31, 1999, the Company had accrued the net
present value of this settlement.
On June 21, 1999, Elf Atochem North America ("Elf Atochem") filed an action
in U.S. District Court against the Company alleging the Company infringed an Elf
Atochem patent in connection with the Company's manufacture of HCFC products.
The action seeks to enjoin the Company from continuing to infringe Elf Atochem's
rights, treble damages for lost profits, costs, prejudgment interest and
attorney fees. Prior to commencement of the action, the Company informed Elf
Atochem that it did not believe its production process infringed valid patent
rights of Elf Atochem. Having recently obtained a copy of the compliant in this
action and retained defense counsel, the Company is assessing the potential
impact on its financial position and the results of operations.
6
<PAGE> 9
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In addition to the matters discussed above, the Company is involved in
certain other legal actions and claims arising in the ordinary course of
business. The amounts asserted in these matters are material to the Company's
financial statements, and certain claimants have not yet asserted an amount.
Although it is inherently impossible to predict with any degree of certainty
the outcome of such legal actions and claims, in the opinion of management the
resolution of these matters are not likely to have a material adverse effect on
the Company's financial position and results of operations. It is possible,
however, that the resolution of certain matters could be material to the
results of operations of any single fiscal quarter.
8. INCOME TAXES
Reconciliation of the differences between income taxes computed at the
federal statutory rate and the Company's consolidated income tax (provision)
benefit from continuing operations follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MAY 31,
1999 1998
------- -------
<S> <C> <C>
Tax benefit (provision) at federal statutory rate .......... $ 198 $ (2,288)
State income taxes, net of federal income tax benefit ...... 184 (215)
Foreign tax provision in excess of federal statutory rate... 301 (743)
Increase in valuation allowance ............................ (1,709) --
Other ...................................................... 33 41
------- -------
Total ............................................ $(993) $ (3,205)
======= =======
</TABLE>
The Company has not recognized any benefit from the future use of current
domestic operating loss carryforwards because management's evaluation of
available evidence in assessing the current realizability of the related tax
benefits indicates that the underlying assumptions of future domestic
profitability contain risks that do not provide sufficient assurance (based on
generally accepted accounting principles) to recognize such tax benefits. The
Company will continue to assess the valuation allowance and make adjustments as
appropriate in future periods.
9. FINANCIAL INSTRUMENTS
The Company is exposed to the impact of interest and foreign exchange rate
changes. With an objective of managing the impact of such changes on earnings
and cash flow, the Company is a party to three cross-currency interest rate swap
contracts. At May 31 and February 28, 1999, the fair value of the French franc
contract was approximately $108 and ($2,871), respectively. The combined fair
value of the two German mark contracts at May 31 and February 28, 1999 was
($262) and ($2,302), respectively.
At May 31, 1999 the Company has commitments outstanding under their natural
gas fixed price purchase contracts to purchase approximately $5,521 of natural
gas during fiscal 2000. If the Company settled these contracts at May 31, 1999,
a $1,014 gain would have been recognized.
7
<PAGE> 10
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following sets forth the open positions and the fair value of the
Company's natural gas collar positions, which mature in the current fiscal year,
as of May 31 and February 28, 1999:
<TABLE>
<CAPTION>
QUANTITY FAIR VALUE CARRYING VALUE
-------- ----------- --------------
(IN MMBTUS)
<S> <C> <C> <C>
MAY 31, 1999
Purchased Call Options................................ 150 $ 48 $ --
Written Put Options................................... 150 -- --
FEBRUARY 28, 1999
Purchased Call Options................................ 5,002 $ 106 $ --
Written Put Options................................... 5,002 (39) --
</TABLE>
The fair values are based on quoted market prices. Approximately 20% of the
Company's estimated requirements for fiscal 2000 are subject to forward or
collar agreements.
During the quarter ended May 31, 1999, the Company recorded an unrealized
gain of $2,783 on the spread oil swap agreement associated with natural gas
purchases in France.
10. SEGMENT INFORMATION
The Company's continuing operations are comprised of three principal
business segments: Nitrogen Products, Electrochemical Products -- North America
("Electrochemicals -- NA") and Electrochemical Products -- Europe
("Electrochemicals -- Europe"). The Nitrogen Products segment consists of
facilities that manufacture and distribute agricultural and industrial nitrogen
products and distribute other agricultural fertilizers in North America. The
Electrochemical -- NA segment consists of caustic soda, chlorine and
fluorocarbons production facilities. The Electrochemical -- Europe segment
consists of caustic soda, chlorine and chlorinated methane compound production
facilities located in France and Germany. There is no overlap in operational
management reporting of or decision-making authority over Electrochemicals -- NA
and Electrochemicals -- Europe. Operating profit includes all costs and expenses
directly related to the segment involved. Following is a tabulation of business
segment information for continuing operations for each of the quarters ended May
31, 1999 and 1998, respectively (in thousands).
8
<PAGE> 11
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MAY 31,
-------------------------
1999 1998
-------- ---------
<S> <C> <C>
Net sales:
Nitrogen products ..................................... $ 50,406 $ 66,789
Electrochemical products -- North America ............. 14,968 21,200
Electrochemical products -- Europe .................... 25,241 31,242
-------- ---------
Total ......................................... $ 90,615 $ 119,231
======== =========
Income (loss) from continuing operations:
Nitrogen products ..................................... $ 4,129 $ 7,376
Electrochemical products -- North America ............. (3,970) 1,572
Electrochemical products -- Europe .................... 3,110 3,881
Corporate expense ..................................... (1,717) (1,685)
-------- ---------
Income from continuing operations ....................... 1,552 11,144
Interest and amortization expense ....................... (5,570) (4,728)
Income from equity investments .......................... 1,560 471
Other income, net ....................................... 1,893 (350)
-------- ---------
(Loss) income from continuing operations before income
taxes and other items ................................... $ (565) $ 6,537
======== =========
EBITDA:
Nitrogen products..................................... $ 6,978 $ 10,606
Electrochemical products -- North America............. (1,552) 3,277
Electrochemical products -- Europe.................... 5,598 6,204
Corporate expense..................................... (1,817) (2,275)
-------- ---------
Total......................................... $ 9,207 $ 17,812
======== =========
</TABLE>
EBITDA represents income from operations plus cash received from equity
investments, plus depreciation, amortization and other non-cash and
non-recurring transactions reflected in income from operations. In addition,
EBITDA includes the Company's share of ChlorAlp's EBITDA generated during the
quarter. EBITDA should not be considered as an alternative measure of net income
or cash flow provided by operating activities (both as determined in accordance
with generally accepted accounting principles), but is presented to provide
additional information related to the Company's debt service capability. EBITDA
should not be considered in isolation or as a substitute for other measures of
financial performance or liquidity. The primary difference between EBITDA and
cash flows provided by operating activities relates primarily to changes in
working capital requirements and payments made for interest and income taxes.
9
<PAGE> 12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. SUBSEQUENT EVENTS
On June 7, 1999, the Company, through its wholly-owned subsidiary, LII
Europe, acquired all the capital stock and equity interest of ChlorAlp, the
chlor-alkali operation in Pont-de-Claix, France in which the Company previously
held a 50% joint venture interest. The purchase price for the remaining 50%
interest was approximately $27.5 million, subject to final adjustment.
As discussed more fully in Note 7, "Commitments and Contingencies", on
June 21, 1999, Elf Atochem filed an action against the Company alleging the
Company infringed an Elf Atochem patent in connection with the Company's
manufacture of HCFC products.
On July 5, 1999, an explosion at an adjacent manufacturing plant owned
by Kaiser Aluminum and Chemical Corp. shut down production at the Company's
Electrochemical products - N.A. facility in Gramercy, Louisiana. The Gramercy
plant shares a variety of services with Kaiser including electricity and steam.
Access to the shared power facility has been restricted due to ongoing
investigations. Resumption fluorocarbon and chlor-alkali production is dependent
upon restoration of those services. Management is currently assessing the extent
of the damage and has not yet determined the impact on the financial position or
results of operation from the incident.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the unaudited condensed consolidated financial statements and notes thereto
included in this quarterly report on Form 10-Q and with the Company's
consolidated audited financial statements and notes thereto included in its
annual report on Form 10-K for the year ended February 28, 1999.
SIGNIFICANT DEVELOPMENTS
During the quarter ended May 31, 1999, the Company continued to make
progress on strategic initiatives outlined in the 1999 fiscal year-end
discussion while addressing the continuing weak domestic market conditions. For
the quarter ended May 31, 1999, domestic pricing for the Company's ammonia and
chlor-alkali products remained near recent historic lows and resulted in
operating losses during the period.
On June 3, 1999, the Company completed the sale of the manufacturing
facilities, real estate and related assets comprising its Aluminas business
("Aluminas") for approximately $39.5 million in cash plus working capital. On
June 7, 1999, the Company, through its wholly-owned subsidiary, LII Europe,
acquired all the capital stock and equity interest of ChlorAlp, the chlor-alkali
operation in Pont-de-Claix, France in which the Company previously held a 50%
joint venture interest. The purchase price for the remaining 50% interest was
approximately $27.5 million, subject to final adjustment.
On July 5, 1999, an explosion at an adjacent manufacturing site owned by
Kaiser Aluminum and Chemical Corp. shut down production at the Company's
electrochemical facility in Gramercy, Louisiana. The Gramercy plant shares a
variety of services with Kaiser, including electricity and steam. Access to the
shared powerhouse facility has been restricted due to ongoing investigations.
Resumption of fluorocarbon and chlor-alkali production is dependent upon
restoration of those services. Management is currently assessing the extent of
the damage and has not yet determined the impact on the Company's financial
position or results of operation from the incident.
RESULTS FROM CONTINUING OPERATIONS - COMPARISON OF THREE MONTHS ENDED MAY 31,
1999 AND MAY 31, 1998
SUMMARY
The Company incurred losses from continuing operations of $1.5 million for
the three months ended May 31, 1999 ("current quarter") as compared to operating
income of $3.3 million generated by the same businesses for the three months
ended May 31, 1998 ("prior quarter"). The deterioration of results from the
prior quarter to the current quarter is primarily the result of continued weak
prices for the Company's North American ammonia and chlor-alkali products.
Losses from North American operations were partially offset by income from the
Company's European electrochemical operations.
11
<PAGE> 14
<TABLE>
<CAPTION>
QUARTER ENDED MAY 31,
---------------------
(AMOUNTS IN THOUSANDS) 1999 1998
---- ----
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
------- ----- -------- -----
<S> <C> <C> <C> <C>
NET SALES:
Nitrogen products ................... $50,406 55.6% $ 66,789 56.0%
Electrochemical products -- N.A .... 14,968 16.5 21,200 17.8
Electrochemical products -- Europe... 25,241 27.9 31,242 26.2
------- ----- -------- -----
Total ...................... $90,615 100.0% $119,231 100.0%
======= ===== ======== =====
INCOME (LOSS) FROM OPERATIONS:
Nitrogen products ................... $ 4,129 266.1% $ 7,376 66.2%
Electrochemical products--N.A ....... (3,970) (255.8) 1,572 14.1
Electrochemical products--Europe..... 3,110 200.4 3,881 34.8
Corporate ........................... (1,717) (110.7) (1,685) (15.1)
------- ------ -------- -----
Total ...................... $ 1,552 100.0% $ 11,144 100.0%
======= ====== ======== =====
EBITDA:
Nitrogen products ................... $ 6,978 75.8% $ 10,606 59.5%
Electrochemical products--N.A ....... (1,552) (16.9) 3,277 18.4
Electrochemical products--Europe..... 5,598 60.8 6,204 34.8
Corporate ........................... (1,817) (19.7) (2,275) (12.7)
------- ------ -------- -----
Total ...................... $ 9,207 100.0% $ 17,812 100.0%
======= ====== ======== =====
</TABLE>
NET SALES
Net sales for the current quarter decreased $28.6 million or 24% from sales
of $119.2 million for the quarter ended May 31, 1998. The decline was primarily
due to a decrease in realized prices on principal North American products during
the current period.
Nitrogen products' net sales in the quarter ended May 31, 1999 decreased
$16.4 million or 24% from the prior first quarter activity. Ammonia prices,
which impact both ammonia sales and derivative products, averaged approximately
$116 per ton for the current quarter compared to approximately $125 per ton in
the prior quarter with the decline resulting in a reduction in net sales of $2.9
million. In addition, volume loss associated with the disposal of two of
Nitrogen's warehouse operations in fiscal 1999 reduced net sales by $13.6
million.
Electrochemicals -- N.A.'s net sales for the current quarter decreased $6.2
million or 29% compared to the prior quarter. The decrease was primarily due to
depressed ECU prices for the Company's chlor-alkali products, which averaged
$177 per ECU ton in the current quarter compared to $360 per ECU ton in the
prior quarter. Industry forecasts continue to indicate that prices will remain
at depressed levels through most of fiscal 2000, with some improvement near
year-end. The decline in net sales of chlor-alkali products was partially offset
by increased prices and volumes for HCFC products as compared to the prior
period.
Electrochemicals -- Europe net sales for the quarter ended May 31, 1999
decreased $6.0 million or 19% from the comparable period in 1998. Sharply lower
prices for one of the Company's primary chlor-alkali derivative products
resulted in a reduction of approximately $2.0 million and volume loss of another
product purchased for resale subtracted approximately $1.8 million from the
Company's sales total. Increasing pressure is anticipated in the European market
for caustic soda in the near future; however, associated chlorine market pricing
has been significantly less volatile than in comparable U.S. markets and direct
chlorine sales from the French operation are expected to help stabilize the
impact of caustic price volatility on revenue.
12
<PAGE> 15
COSTS AND EXPENSES
The Company's costs and expenses decreased $19.0 million or 17.6% to $89.1
million for the quarter ended May 31, 1999 from the prior quarter. Improvement
in costs reflects the favorable impact of lower ammonia costs and cost-reduction
initiatives realized across all business lines.
In Nitrogen, costs and expenses decreased $13.1 million to $46.3 million in
the current quarter from $59.4 million in the quarter ended May 31, 1998. As a
percentage of sales, the totals comprised 92% and 89% for the same periods. The
monetary decline is due primarily to lower ammonia costs, 30% of which is
purchased from third parties. Lower volumes resulting from the sale of certain
warehouse operations also contributed to lower costs. Margins were negatively
impacted by higher natural gas prices than during the same period in fiscal
1999, as well as lower selling prices resulting from prevailing market
conditions. Selling, general and administrative expenses remained generally
constant between the two periods.
Electrochemicals -- N.A. costs and expenses decreased $.7 million between
the comparable periods to $19.4 million for the quarter ended May 31, 1999;
however, as a percent of sales, the costs rose approximately 30% due to lower
realized selling prices. Lower conversion costs of chlor-alkali products,
primarily as a result of improvements to the Company's shared powerhouse and
other cost reduction programs were the principal factors contributing to overall
lower costs. Lower chlor-alkali costs were partially offset by higher variable
costs for HCFC products resulting from increased sales and production volumes.
Electrochemicals -- Europe total costs and expenses decreased to $22.1
million during the quarter ended May 31, 1999 from $27.4 million during the
quarter ended May 31, 1998. The lower costs were primarily associated with lower
sales volumes. Relative to sales, costs remained relatively stable for the same
time periods.
OTHER ITEMS AFFECTING NET LOSS
Interest and amortization of debt expense. Interest and amortization of
debt expense increased to $5.6 million for the quarter ended May 31, 1999 from
$4.7 in the comparable quarter in the prior fiscal year. Higher average debt
balances over the prior quarter to fund capital investments and current year
operating requirements coupled with a 1% increase in interest rates on the
Company's bank credit facility resulted in the increased interest expense.
Income from equity investments. The Company has equity investments
in ChlorAlp and a nitrogen warehouse. Income derived from the equity investments
totaled $1.6 million for the quarter ended May 31, 1999, an increase of $1,089
over the comparable period in the prior year. The increase is primarily
comprised of equity income improvements reported from ChlorAlp over the
quarterly results for the period ended May 31, 1998 associated with lower
natural gas costs and other cost reductions.
Other income, net. The Company reported net other income of $1.9 million
for the quarter ended May 31, 1999 compared to net other expense of $.3 million
for the quarter ended May 31, 1998. The majority of the $1.6 million increase is
the result of unrealized net gains on cross-currency interest rate swap
contracts due to favorable foreign exchange rate movements in the current
quarter.
Benefit (provision) for income taxes. The net tax provision for the quarter
ended May 31, 1999 is primarily comprised of the expected liability on income
generated in the Company's European operations. Due to uncertainty as to the
timing of realization of tax benefits derived from current domestic operating
losses, the Company recorded a valuation allowance offsetting the domestic tax
benefit. For the quarter ended May 31, 1998, the effective tax rate on
continuing operations of 49% reflected the greater relative contribution of the
European operations with generally higher effective tax rates to the
consolidated pre-tax earnings.
13
<PAGE> 16
Discontinued operations. As more fully described in the section entitled
Strategic Transactions in the annual report on Form 10-K dated February 28,
1999, the Company sold its entire Aluminas operations in two transactions,
completed June 3, 1999. The Company accounted for the financial results of this
business segment as a discontinued operation and recorded a loss on the sale of
$5.7 million, net of income taxes of $3.6 million, as of February 28, 1999. The
results of the discontinued operation for the quarter ended May 31, 1999
approximated the results for the quarter ended May 31, 1998.
Below is a summary of operating results for Aluminas for the quarters ended
May 31, 1999 and 1998, in thousands:
<TABLE>
<CAPTION>
QUARTER ENDED MAY 31,
---------------------
1999 1998
---- ----
<S> <C> <C>
Net sales...................................................... $ 7,805 $ 8,469
Operating income (loss)........................................ 297 (150)
EBITDA......................................................... 1,911 1,024
</TABLE>
EBITDA
EBITDA represents income from operations plus cash received from equity
investments, plus depreciation, amortization and other non-cash and
non-recurring transactions reflected in income from operations. In addition,
EBITDA includes the Company's share of ChlorAlp's EBITDA. EBITDA should not be
considered as an alternative measure of net income or cash flow provided by
operating activities (both as determined in accordance with generally accepted
accounting principles), but is presented to provide additional information
related to the Company's debt service capability. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity. The primary difference between EBITDA and cash flows
provided by operating activities relates primarily to changes in working capital
requirements and payments made for interest and income taxes.
EBITDA from continuing operations for the quarters ended May 31, 1999 and
1998 was $9.2 million, and $17.8 million, respectively. The decrease in EBITDA
for the Nitrogen products segment of $3.6 million was due primarily to lower
realized agricultural prices. EBITDA for Electrochemical Products -- North
America decreased $4.8 million compared to the prior quarter as a result of
sharply lower ECU prices for chlor-alkali products. EBITDA for the
Electrochemical Products -- Europe decreased $.6 million in fiscal 1999 mainly
because of lower sales prices and volume.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. For the quarter ended May 31, 1999, continuing
operations used cash of $11.7 million compared with $.1 million provided in the
comparable quarter in the prior year. The decrease in net cash from operations
in fiscal 1999 was primarily the result of operating losses incurred during the
current quarter and the timing of working capital requirements as compared to
the prior quarter.
Investing Activities. Investing activities related to continuing operations
absorbed $6.4 million in the current quarter compared to $8.6 million in the
quarter ended May 31, 1998. The decrease is primarily attributable to lower
direct capital expenditures, offset by the timing of plant turnaround cash
outlays. The decrease in capital expenditure levels reflects the completion of
several large projects and is consistent with the Company's capital expenditure
plan for this fiscal year. The Company intends to use cash flows from operations
and borrowings under the Credit Facility as the source of funds for the future
capital projects.
14
<PAGE> 17
Financing Activities. During the quarter ended May 31, 1999, cash provided
by operations was insufficient to fund capital investment and scheduled
repayments of long-term debt. Liquidity was provided by the Company's revolving
credit facilities, which had outstanding borrowings of $72.1 million as of May
31, 1999 compared with $55.4 million at February 28, 1999. During the current
quarter, the Company made scheduled payments under long-term debt agreements of
$.7 million. Borrowings under the revolving credit facilities during the fiscal
quarter ended May 31, 1998 were $7.7 million lower than in the current quarter
due to higher levels of cash provided by operations during the earlier period.
Payments of long-term debt totaling $2.5 million during the quarter ended May
31, 1998 were comprised solely of scheduled reductions of debt.
As discussed in the Notes to the Consolidated Financial Statements, the
Company's principal bank credit facility was amended and restated effective
February 28, 1999. Under the amended and restated credit facility, certain
financial ratios were modified to levels which, based on financial projections
at that time, would afford the Company the ability to remain in compliance with
such ratios through February 29, 2000. In addition, the amount available under
the revolving credit facility was reduced from $125 million to $90 million,
subject to a borrowing base calculation. Management has evaluated the Company's
cash needs for the year ended February 29, 2000 giving consideration to amounts
expected to be available under its credit facilities and cash expected to be
generated from operations. Based on that evaluation, management believes that
the Company will have sufficient cash to fund planned capital expenditures and
otherwise meet its obligations through February 29, 2000. However, there is no
guarantee that the Company will be able to achieve expected results if market
conditions are worse than expected, or if other events have an adverse effect on
the Company's financial condition or results of its operations. In addition,
based on current projections, the Company may not be able to comply with the
financial covenants included in its credit facility after February 29, 2000.
Accordingly, management expects to seek additional modifications to the credit
facility prior to the end of the current fiscal year. Furthermore, if the
Company is unable to achieve projected financial results prior to February 29,
2000, modifications may be required sooner than expected. While the Company
believes that it will be able to obtain such modifications should they become
necessary, and by doing so, secure adequate liquidity to meet its future
obligations, no assurances can be made. In such case, the Company may be
required to seek capital from other sources.
RISK MANAGEMENT
The Company's exposure to and management of market risk from changes in interest
rates, exchange rates and commodity prices have not changed significantly from
the year ended February 28, 1999. For further information regarding the
Company's risk management, see "Management's Discussion and Analysis - Risk
Management" and "Item 7A. Quantitative and Qualitative Disclosures about Market
Risk" set forth in the Company's Annual Report on Form 10-K for the year ended
February 28, 1999 and "Item 3. Quantitative and Qualitative Disclosures about
Market Risk" in this Form 10-Q.
LEGAL MATTERS
In December 1997, the Company was named as a defendant in three civil
antitrust actions (two of which were the same suit filed in separate
jurisdictions with one subsequently dismissed). As of June 1999, the Company
finalized an agreement with the plaintiff to settle all claims against the
Company. Under the terms of that settlement, the Company made an initial payment
of $.75 million and will make additional payments not to exceed $3.75 million,
based in part on the Company's net earnings, over the next five years. Minimum
payments of $.5 million are required on the first three anniversaries of
execution of the settlement and payments of $.3 million are required on the last
two anniversaries with an aggregate minimum, inclusive of the initial payment,
of $3 million.
15
<PAGE> 18
On June 21, 1999, Elf Atochem North America ("Elf Atochem") filed an action
in U.S. District Court against the Company alleging the Company infringed an Elf
Atochem patent in connection with the Company's manufacture of HCFC products.
The action seeks to enjoin the Company from continuing to infringe Elf Atochem's
rights, treble damages for lost profits, costs, prejudgment interest and
attorney fees. Prior to commencement of the action, the Company informed Elf
Atochem that it did not believe its production process infringed valid patent
rights of Elf Atochem. Having recently obtained a copy of the compliant in this
action and retained defense counsel, the Company is assessing the potential
impact on its financial position and results of its operations.
The Company is a participant in certain other legal actions, claims and
remedial activities. Management of the Company believes that, except as
described above, based upon the information currently available, such other
legal actions, claims and remedial activities are likely to be resolved without
a material adverse effect upon the Company's financial condition and results of
operations. However, the aggregate cost of such legal actions, claims and
remedial activities are inherently impossible to predict and there can therefore
be no assurance that this will be the case. See "Legal Proceedings."
YEAR 2000 COMPLIANCE
The Company's Year 2000 project, which began in mid-1998, is a continuing
review and evaluation of business systems and process controls for the purpose
of identifying ways in which these systems and the Company could be adversely
affected by incorrectly processing date information on and after January 1, 2000
("Year 2000"). The Company is conducting its review and evaluation in four main
areas: Business Systems, Manufacturing Controllers and Processors, Third Party
Compliance, and Hardware. The process includes assessing the impact of the
calendar change to Year 2000 on all systems used by the Company and the
associated upgrade costs, upgrading systems that are not Year 2000 ready, and
testing and monitoring systems for Year 2000 readiness. A summary of the
Company's progress in each of these areas follows.
Business Systems. The implementation of a new enterprise-wide financial and
operational computer system during the past two years, completed in November
1998, has effectively eliminated exposure to any negative impact that Year 2000
may have had on the Company's ability to produce reliable information needed to
run its business. The software has been certified Year 2000 compliant by the
supplier, and critical components of the business system have been tested.
ChlorAlp, is also installing the same system, and expects to have completed its
implementation by August, 1999. These systems are critical for, among other
things, purchasing activities and payment, order processing and billing,
production management and inventory, payroll, and financial reporting.
Manufacturing Controllers and Processors. Certain of the Company's
manufacturing processes are dependent upon microprocessors and controllers, and
related software, to regulate and monitor the production of its principal
products. The Company has completed its assessment of these items, and did not
discover any instances where non-compliance would result in a disruption of
operations. The majority of instances of noncompliance involved certain
monitoring and data gathering functions. Replacements and upgrades of non-
compliant hardware and software are approximately 50% complete and are expected
to be finalized by September 1999. Testing for critical components will be
conducted during regularly scheduled plant shutdowns, and is expected to be
completed by September 1999.
Third Party. The Company has sent surveys to all significant vendors
inquiring about their Year 2000 readiness, and has received responses from
approximately 90%. Supplemental procedures are in process with critical raw
material and utility suppliers to verify their compliance and to develop
contingency plans if necessary. The Company has started surveying its key
customers for Y2K readiness to ensure minimal disruption of sales and revenue
streams.
16
<PAGE> 19
Hardware. Hardware includes the Company's computers, laptops, terminals,
and communications hardware such as routers and switches. In the course of
replacing its main business systems, the Company has upgraded much of its
hardware with systems that are Year 2000 compliant. The Company has completed
its assessment of the remaining hardware and has substantially completed
necessary upgrades. Testing and replacement of any remaining non-compliant
hardware is expected to be completed by September 1999.
Contingency Planning. The Company is currently assessing external sources
of risk and developing contingency plans through commercially reasonable
efforts.
Through May 31, 1999, costs of approximately $.4 million have been incurred
in identifying and correcting Year 2000 problems. The Company currently
estimates that the total cost of making its systems Year 2000 compliant will not
exceed $.8 million.
Based on the Company's efforts as described above, management believes that
it has identified and corrected all internal systems that could have had a
material adverse effect on the Company. Management also believes that it has
identified all significant external sources of risk, and is currently preparing
contingency plans to minimize any potential negative impact of such risks.
However, because certain of these risks are outside of the control of the
Company, there can be no assurance that the Company will be able to successfully
remedy problems that are discovered, and accordingly, there can be no assurance
that such non-compliance will not have a material adverse effect on the
Company's financial position and results of operation.
SEASONALITY
Demand for the Company's fertilizer products is seasonal. Such seasonality
of demand requires the Company to build its inventory in anticipation of periods
of peak demand and may adversely affect the Company's cash flow. The Company
typically realizes higher prices and margins for fertilizer during the spring
and, to a lesser extent, the fall planting seasons. Demand for the Company's
fertilizer is primarily dependent on United States agricultural conditions,
which can be volatile as a result of a number of factors, the most important of
which are weather patterns and conditions, current and projected grain stocks
and prices, and the governmental agricultural policy. In addition, the Company
periodically performs extended major maintenance on its manufacturing facilities
that results in periods of reduced production at such facilities. Due to
fertilizer seasonality, the timing of major maintenance activities and other
factors, interim results of operations may not be indicative of the results
expected for the full fiscal year.
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING INFORMATION
Certain statements and information set forth in this report contain
forward-looking statements regarding Management's current plans, objectives, and
expectations for the future, which are based on prevailing circumstances and
information available at this time. Accordingly, such statements and information
involve inherent risks and uncertainties, and actual results may differ
materially from those discussed therein. Forward-looking statements contained
herein include: (a) statements made concerning strategic plans for growth, (b)
statements made regarding future cash flows, compliance with debt covenants, and
the availability of funds to meet obligations and fund investments, (c)
statements made regarding price expectations in the Company's principal markets,
and (d) statements made regarding the outcome and impact on the Company's
business, financial condition, or results of operation of the Year 2000 issue
and pending litigation and other claims, disputes and legal proceedings. Factors
that could cause actual results to differ from those discussed in the
forward-looking statements include: fluctuations in commodity prices (including
chlor-alkali, ammonia, and natural gas), changes in domestic and international
market conditions, changes in competitive positions, government regulation,
changes in labor relations, the outcome of pending litigation and other claims,
changes in general economic conditions and other factors not enumerated herein
that are impossible to predict at this time.
17
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes in interest rates,
foreign currency exchange rates and commodity prices. To manage the volatility
relating to these exposures, the Company enters into derivative transactions.
The Company does not hold or issue derivative financial instruments for trading
purposes. At May 31, 1999, the Company's position in derivative instruments
intended to hedge market risk exposure to fluctuations in interest rates was
substantially the same as at February 28, 1999.
The Company has cross-currency interest rate swaps which provide a measure
of protection against interest rate changes and against the impact of
fluctuations in the foreign currency exchange rates on the Company's net
investment in foreign currency denominated assets. The fair value of the FRF
contract was $108 and of the combined DEM contacts was ($262) at May 31, 1999.
The Company relies upon the supply of natural gas in its production process
and has entered into fixed price purchase contracts, collars, swap agreements
and other contracts to manage the commodity based market risk exposure. All of
the natural gas contracts mature during fiscal 2000. Following is a summary of
key contract terms of each the natural gas derivative positions at May 31, 1999
(in thousands, except per MMBTU amounts):
<TABLE>
<CAPTION>
CONTRACT VOLUME CONTRACT PRICE
--------------- --------------
(in MMBTU's) (per MMBTU)
<S> <C> <C>
Fixed price purchase contracts..................... 14,535 $ 1.90
Collars............................................ 150 $ 1.60/$1.90
</TABLE>
Additionally, the Company participates in a spread oil swap agreement to
provide protection against other energy-based commodity price market exposures.
Gains or losses on the commodity based derivative contracts are recognized as a
component of the related transaction.
See Note 9 to the Condensed Consolidated Financial Statements on page 7 for
further discussion regarding these instruments.
18
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
General. The Company and its subsidiaries have been named as defendants in
a number of legal actions arising from normal business activities. Although
management believes, based upon the information currently available, that,
except as otherwise described in this section, such other legal actions are
likely to be resolved without a material adverse effect upon the financial
condition and results of operations of the Company, resolution of certain
matters could be material to the results of operations of any single fiscal
quarter. However, the aggregate cost of such legal actions are inherently
impossible to predict and there can therefore be no assurance that this will be
the case.
Recent Developments. As previously reported, in December 1997, the Company
was named as a defendant in three civil antitrust actions, two of which were the
same cases brought in separate jurisdictions, one of which was subsequently
dismissed. In June, 1999, the Company has reached an agreement with the
plaintiff to settle all claims against the Company. Under the terms of that
settlement, the Company made an initial payment of $.75 million and will make
additional payments not to exceed $3.75 million, based in part on the Company's
net earnings, over the next five years. Minimum payments of $.5 million are
required on the first three anniversaries of execution of the settlement and
payments of $.3 million are required on the last two anniversaries with an
aggregate minimum, inclusive of the initial payment, of $3 million. At February
28, 1999, the Company had accrued the net present value of this settlement.
On June 21, 1999, Elf Atochem North America ("Elf Atochem") filed an action
in U.S. District Court against the Company alleging the Company infringed an Elf
Atochem patent in connection with the Company's manufacture of HCFC products.
The action seeks to enjoin the Company from continuing to infringe Elf Atochem's
rights, treble damages for lost profits, costs, prejudgment interest and
attorney fees. Prior to commencement of the action, the Company informed Elf
Atochem that it did not believe its production process infringed valid patent
rights of Elf Atochem. Having recently obtained a copy of the complaint in this
action and retained defense counsel, the Company is assessing the potential
impact on its financial position and results of its operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- ------- ---------------------------------------------------------------------
<S> <C>
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
(B) REPORTS ON FORM 8-K
None
19
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAROCHE INDUSTRIES INC.
(Registrant)
Date: July 14, 1999 By: /s/ Harold W. Ingalls
---------------- -----------------------------------------
Harold W. Ingalls
President and Chief Executive Officer
(Principal Executive Officer)
Date: July 14, 1999 By: /s/ Gerald B. Curran
---------------- -----------------------------------------
Gerald B. Curran
Vice President, Chief Financial Officer
(Principal Accounting Officer)
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the years ended February 28, except for 1996 which is February 29
1st Qtr ---------------------------------------------------------------------
FY 2000 1999 1998 1997 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income before income taxes, minority interests
and extraordinary charge $ (269) $(42,612) $ (9,452) $ 1,076 $ 32,122
Less: Income from equity investments (1,862) (6,863) (2,698) (4,909) (2,647)
Distributions from equity investments -- 12,440 4,691 5,701 1,332
Fixed charges 6,624 26,584 21,346 17,992 17,853
Less: Capitalized Interest -- (516) (1,089) (860) --
------- -------- -------- -------- --------
Earnings $ 4,493 $(10,967) $ 12,798 $ 19,000 $ 48,660
======= ======== ======== ======== ========
FIXED CHARGES
Interest expense $ 6,326 $ 23,204 $ 17,510 $ 14,881 $ 15,973
Capitalized interest -- 516 1,089 860 --
Interest portion of rental expense * 298 2,864 2,747 2,251 1,880
======= ======== ======== ======== ========
Fixed charges $ 6,624 $ 26,584 $ 21,346 $ 17,992 $ 17,853
======= ======== ======== ======== ========
======= ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES -- x -- x -- x 1.06 x 2.73 x
======= ======== ======== ======== ========
</TABLE>
(1) For the year ended February 28, 1998, earnings are inadequate to cover fixed
charges by approximately $8.5 million.
(2) For the year ended February 28, 1999,
earnings are inadequate to cover fixed charges by approximately $37.6
million.
(3) For the first quarter ended May 31, 1999, earnings are inadequate to cover
fixed charges by approximately $2.4 million.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS -- MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q, 1ST QUARTER FISCAL 2000 -- LAROCHE INDUSTRIES INC.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 4,605
<SECURITIES> 0
<RECEIVABLES> 52,884
<ALLOWANCES> (491)
<INVENTORY> 18,835
<CURRENT-ASSETS> 114,105
<PP&E> 315,219
<DEPRECIATION> (111,868)
<TOTAL-ASSETS> 381,809
<CURRENT-LIABILITIES> 145,281
<BONDS> 201,539
0
0
<COMMON> 4
<OTHER-SE> (12,010)
<TOTAL-LIABILITY-AND-EQUITY> 381,809
<SALES> 90,615
<TOTAL-REVENUES> 90,615
<CGS> 81,233
<TOTAL-COSTS> 81,233
<OTHER-EXPENSES> 7,830
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,570
<INCOME-PRETAX> (565)
<INCOME-TAX> 993
<INCOME-CONTINUING> (1,558)
<DISCONTINUED> 181
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,377)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
