<PAGE>
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 NOVEMBER 30, 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 JANUARY 15, 2000
----- ----------------------------------
COMMON STOCK, $.01 PAR VALUE 428,935 SHARES
<PAGE>
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 November 30, 1999 and February 28, 1999 1
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three
months and nine months ended November 30, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for the nine months ended November 30,
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 10
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>
LAROCHE INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
----------------- -----------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,330 $ 5,380
Receivables:
Trade, net of allowances of $412 and $527 as of
November 30, 1999 and February 28, 1999, respectively 58,798 54,527
Other 8,894 8,233
Inventories 25,766 22,105
Net assets of discontinued operations - 27,080
Other current assets 7,064 3,468
----------------- -----------------
Total current assets 102,852 120,793
Investments in affliates 23,000 48,082
Property, plant and equipment, at cost 391,352 310,092
Less accumulated depreciation (139,549) (106,497)
----------------- -----------------
Net property, plant and equipment 251,803 203,595
Other assets 27,012 17,307
----------------- -----------------
Total assets $ 404,667 $ 389,777
================= =================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Revolving credit facilities $ 92,727 $ 55,388
Accounts payable 64,467 48,166
Other accrued liabilities 28,951 39,903
Current portion of long-term debt 6,198 4,375
Long-term debt reclassified as current 197,540 -
----------------- -----------------
Total current liabilities 389,883 147,832
Long-term debt - 202,221
Deferred income taxes 2,299 4,044
Other noncurrent liabilities 55,656 45,757
Commitments and contingencies - -
Redeemable common stock 449 528
Stockholders' deficit:
10% cumulative, voting preferred stock, $.01 par
value, 200 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 (41,802) (10,491)
Accumulated other comprehensive loss (2,452) (748)
----------------- -----------------
Total stockholders' deficit (43,620) (10,605)
----------------- -----------------
Total liabilities and stockholders' deficit $ 404,667 $ 389,777
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
LAROCHE INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Net sales $88,901 $82,470 $271,652 $294,764
Cost of sales 92,116 75,996 261,221 256,300
------------- ------------- ------------- -------------
Gross profit (loss) (3,215) 6,474 10,431 38,464
Selling, general and administrative expenses 10,369 10,024 26,592 26,990
------------- ------------- ------------- -------------
(Loss) income from continuing operations (13,584) (3,550) (16,161) 11,474
Interest and amortization of debt expense (7,084) (5,128) (19,385) (14,525)
(Loss) income from equity investments (6) 837 1,545 791
Other expense, net (503) (1,324) (185) (3,700)
------------- ------------- ------------- -------------
Loss from continuing operations before
income taxes (21,177) (9,165) (34,186) (5,960)
Income tax benefit 4,900 3,188 2,875 200
------------- ------------- ------------- -------------
Loss from continuing operations (16,277) (5,977) (31,311) (5,760)
Loss from operations of Alumina Chemicals
division, net of tax benefit 0 (755) 0 (1,837)
------------- ------------- ------------- -------------
Net loss (16,277) (6,732) (31,311) (7,597)
Other comprehensive loss:
Foreign currency translation adjustments, net of
tax benefits of $448, $368, $1,136 and $530, respectively (672) (552) (1,704) (795)
------------- ------------- ------------- -------------
Comprehensive loss $(16,949) $(7,284) $(33,015) $(8,392)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
LAROCHE INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended November 30,
-------------------------------------
1999 1998
----------------- -----------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (31,311) $ (7,597)
Depreciation and amortization 24,785 18,984
Net change in operating assets and liabilities:
Receivables 5,738 (4,134)
Inventories 141 3,091
Other assets 837 (1,874)
Accounts payable and other liabilities (15,354) (9,684)
Noncurrent liabilities and other 6,261 4,835
Loss from discontinued operations and loss on disposal - 1,177
Net loss (gain) on disposal of assets - (103)
Deferred Income Taxes (1,745) 2,408
Equity income, net of distributions (1,155) 689
----------------- -----------------
Net cash (used for) provided by continuing operating activities (11,803) 7,792
----------------- -----------------
Net cash (used for) provided by discontinued operating activities (149) 1,649
----------------- -----------------
INVESTING ACTIVITIES
Capital expenditures (17,905) (27,160)
Investments in and advances to affliates (377) (3,878)
Investment in ChlorAlp, net of cash acquired (23,034) -
Plant turnarounds (3,596) -
Proceeds from the sale of facilities 27,589 1,991
----------------- -----------------
Net cash used by investing activities of continuing operations (17,323) (29,047)
----------------- -----------------
Net cash used by investing activities of discontinued operations (307) (959)
----------------- -----------------
FINANCING ACTIVITIES
Net borrowings under revolving credit facility 29,262 22,688
Sales of common stock with redemption features - 128
Purchases of common stock with redemption features (80) (1,646)
Repayments of long-term debt (2,858) (7,808)
Dividends paid - (1,198)
----------------- -----------------
Net cash provided by financing activities 26,324 12,164
----------------- -----------------
Effect of exchange rate changes on cash 208 (2,413)
----------------- -----------------
Net decrease in cash (3,050) (10,814)
Cash at beginning of period 5,380 12,884
----------------- -----------------
Cash at end of period $ 2,330 $ 2,070
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
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 and nine months ended November 30, 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"). 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. The effective date of the
Statement was deferred by FASB Statement No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT NO. 133, and the Company will now be required to implement the
Statement in its fiscal year ended February 28, 2002. The Company has not yet
determined the impact that adoption of the Statement may have on its financial
position or the results of its operations.
3. ACQUISITIONS
On June 7, 1999, the Company, through its wholly owned subsidiary, LII
Europe, acquired all the capital stock and equity interest in ChlorAlp held by
Rhodia Chimie, S.A. for approximately $27.3 million in cash. The Company
previously held a 50% joint venture interest in ChlorAlp, which it acquired on
October 17, 1997 for approximately $35.5 million. The acquisition was accounted
for as a purchase; accordingly, the November 30, 1999 consolidated statement of
operations includes the results of operations of ChlorAlp from the acquisition
date through November 30, 1999. The purchase price was allocated based on the
estimated fair values of the assets acquired at the acquisition date. The
Company funded the purchase largely with proceeds received from the disposition
of its Aluminas production facilities in Baton Rouge, Louisiana.
ChlorAlp is a chlor-alkali operation located in Pont de Claix, France.
Its facilities include a diaphragm chlorine and caustic soda plant, a chlorine
vaporization and distribution operation, a bleach production facility, a brine
extraction operation and a 60% interest in GIE CEVco, a high efficiency 200MW
power plant. The Company intends to continue the operation of ChlorAlp
substantially in the manner operated prior to the acquisition.
The following unaudited pro forma information presents a summary of the
Company's consolidated results of operations for the three months and nine
months ended November 30, 1999 and 1998, as if the acquisition of ChlorAlp had
occurred on March 1, 1998. These unaudited pro forma results have been prepared
for comparative purposes only, and do not purport to be indicative of the
results of operations which would have actually resulted had the acquisition
been in effect on March 1, 1998, or of the future results of operations.
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
------------------------------------- -----------------------------------------
1999 1998 1999 1998
------------------ ----------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Net Sales $ 88,901 $ 108,921 $ 296,035 $ 362,684
Net Loss (16,277) (5,724) (30,168) (7,160)
</TABLE>
4
<PAGE>
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INVENTORIES
Components of inventory from continuing operations are as follows (in
thousands):
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
------------ ------------
<S> <C> <C>
Finished goods and in-progress.. $ 10,557 $ 7,695
Inventory purchased for resale... 1,829 3,122
Raw materials.................. 2,630 1,358
Supplies and catalysts............... 10,974 10,470
--------- -------
25,990 22,645
Less LIFO reserve............... (224) (540)
--------- -------
$ 25,766 $ 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.
5. 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.
6. PROPERTY, PLANT AND EQUIPMENT
Components of the Company's property, plant and equipment used in
continuing operations are as follows (in thousands):
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
------------ -----------
<S> <C> <C>
Land and land improvements $ 8,917 $ 9,984
Buildings 19,971 16,651
Machinery and equipment 336,961 266,991
Equipment under capital leases 3,876 3,875
Construction in progress 21,627 12,591
--------- --------
Property, plant and equipment, at cost 391,352 310,092
Accumulated depreciation (139,549) (106,497)
--------- --------
Property, plant and equipment, net $ 251,803 $ 203,595
--------- --------
--------- --------
</TABLE>
5
<PAGE>
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. BORROWING ARRANGEMENTS
The Company's borrowings include the following (in thousands):
<TABLE>
<CAPTION>
November 30 February 28,
1999 1999
------------ -----------
<S> <C> <C>
Revolving credit facilities $ 92,727 $ 55,388
----------- -----------
----------- -----------
Term debt:
9 1/2% senior subordinated notes $ 174,386 $ 174,327
13% senior subordinated notes 915 915
Term loan 28,437 31,354
----------- -----------
Total 203,738 206,596
Less current portion (6,198) (4,375)
Less long-term portion reclassified as current (197,540) -
----------- -----------
Long-term debt $ - $ 202,221
----------- -----------
----------- -----------
</TABLE>
As of February 28, 1999, the Company's senior bank credit facility (the
"Credit Facility") was amended and restated to bring the Company into compliance
with certain financial covenants. As part of the amendment and restatement,
availability under the revolving credit facility (the "Revolving Credit
Facility") was limited to the lesser of $90 million or a borrowing base (the
"Borrowing Base"), which is determined monthly based on a percentage of trade
receivables, inventory, and property plant and equipment, including
approximately $11 million of certain foreign assets (the "Deemed Foreign
Assets").
On September 14, 1999, the Company further amended the Credit Facility in
order to increase borrowing availability under the Revolving Credit Facility.
The amendment was necessary as a result of lower than expected cash flows and
receivable and inventory balances caused principally by the temporary suspension
of operations of the Company's chlor-alkali and fluorocarbons plants in
Gramercy, Louisiana and continued depressed market conditions for the Company's
nitrogen products. The amendment, among other things, permitted the inclusion of
certain non-trade receivables in the Borrowing Base through December 10, 1999,
and allowed the Company to maintain borrowing capacity of $90 million under the
Revolving Credit Facility. On December 10, 1999, the amendment excluded the
non-trade receivables, as well as, the Deemed Foreign Assets from the
determination of the Borrowing Base.
On December 10, 1999, the Credit Facility was amended to extend the
inclusion of the Deemed Foreign Assets and other non-trade receivables in the
Borrowing Base definition through January 10, 2000. On January 10, 2000, the
Credit Facility was further amended to extend the inclusion of the Deemed
Foreign Assets, but not the non-trade receivables, in the Borrowing Base through
January 20, 2000. Both amendments allowed the Company to maintain its borrowing
capacity under the Revolving Credit Facility at $90 million. In addition, the
amendments included waivers of certain financial covenants through January 20,
2000.
Under the amended terms of the Credit Facility, after January 20, 2000, the
Deemed Foreign Assets will not be included in the determination of the Borrowing
Base, which will result in an approximate $11 million reduction in amounts
available under the Revolving Credit Facility. Based on current projections,
cash available by January 20, 2000 will not be adequate to fund the scheduled
reductions in the Revolving Credit Facility, nor will the Company be in
compliance with the financial covenants included therein, unless the Credit
facility is further amended or an alternative source of financing becomes
available. Accordingly, the Company has reclassified all amounts due under the
Credit Facility, as well as other long-term debt subject to cross default
provisions, to current liabilities in the accompanying November 30, 1999 balance
sheet.
6
<PAGE>
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The weighted average borrowing rate under the Credit Facility as of
November 30, 1999 was 8.9%. As of January 12, 2000, the Company had
approximately $83.4 million in outstanding borrowings and letters of credit
under the Revolving Credit Facility, and approximately $6.6 million available
without violating any of the covenants of the Credit Facility or the Bonds
Indenture. Approximately $16.2 million was outstanding under German and French
credit agreements, with approximately $2.7 million available for additional
borrowings.
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.
8. COMMITMENTS AND CONTINGENCIES
On June 21, 1999, Elf Atochem North America ("Elf Atochem") filed an
action in U.S. District Court in Wilmington, Delaware against the Company
alleging the Company infringed an Elf Atochem patent in connection with the
Company's manufacture of HCFC 141b. The action seeks to enjoin the Company
from its alleged continuing infringement of Elf Atochem's patent, 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. The Company believes that, after having analyzed the claims in
conjunction with counsel engaged to assist in the defense of the matter,
valid and enforceable defenses and/or counter claims exist in favor of the
Company, and the Company is defending the matter accordingly. Although
management believes the matter will be resolved without a material adverse
effect, it is inherently impossible to predict with any degree of certainty
the outcome of the type claim that the Elf Atochem matter represents.
Accordingly, it is possible that the resolution of the matter could be
material to the Company's financial position or the results of operations.
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 in these matters are not necessarily, but could become
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 is 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.
9. INCOME TAXES
Reconciliation of the differences between income taxes computed at the
federal statutory rate and the Company's consolidated income tax benefit from
continuing operations follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended November 30, Ended November 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Tax benefit at federal statutory rate $ 7,412 $ 3,164 $ 11,965 $ 2,086
State income taxes, net of federal income tax benefit 563 318 1,139 228
Foreign tax provision in excess of federal statutory rate 997 (296) 294 (2,064)
Increase valuation allowance (4,107) - (10,728) -
Other 35 2 205 (50)
------- ------- ------- -------
Total $ 4,900 $ 3,188 $ 2,875 $ 200
------- ------- ------- -------
</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 contains 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.
7
<PAGE>
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. 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 previously had a French Franc (FRF) and two
Deutsche Mark (DEM) cross currency interest swaps which had a combined fair
market value of ($5,173) at February 28, 1999. The DEM contracts were liquidated
in July 1999 for a gain of approximately $1.1 million, and the FRF contract was
liquidated in November 1999 for a gain of approximately $.9 million.
At November 30, 1999, the Company has commitments outstanding under
natural gas fixed price purchase contracts to purchase approximately $3,544 of
natural gas during fiscal 2000 and 2001. If the Company settled these contracts
at November 30, 1999, a gain of $16 would have been recognized.
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 November 30 and February 28, 1999.
<TABLE>
<CAPTION>
Quantity Fair Value Carrying Value
-------- ---------- --------------
NOVEMBER 30, 1999 (In MMBTU'S)
<S> <C> <C> <C>
Purchased Call Options............... 1,820 50 ---
Written Put Options.................. 1,820 (562) ---
</TABLE>
<TABLE>
<CAPTION>
Quantity Fair Value Carrying Value
-------- ---------- --------------
FEBRUARY 28, 1999 (In MMBTU'S)
<S> <C> <C> <C>
Purchased Call Options............... 5,002 $106 ---
Written Put Options.................. 5,002 (39) ---
</TABLE>
The fair values are based on quoted market prices. Approximately 70% of
the Company's estimated requirements for the remainder of fiscal 2000 and
approximately 5% of its requirements for fiscal 2001 are subject to forward
purchase or collar agreements.
During the three months and nine months ended November 30, 1999, the
Company recorded realized gains of $525 and $900, respectively, on positions
maturing or liquidated, and had unrealized gains (losses) of $(100) and $2,706,
respectively, on remaining contracts under the spread oil swap agreement
associated with natural gas purchases in France. The fair market value of the
remaining open positions under the spread oil swap agreements is approximately
$.8 million at November 30,1999.
11. 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 in
North America. The Electrochemicals - NA segment consists of caustic soda,
chlorine and fluorocarbons production facilities. The Electrochemicals - 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 November 30, 1999 and 1998, respectively (in thousands).
8
<PAGE>
<TABLE>
<CAPTION>
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Nine Months
Ended November 30, Ended November 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales:
Nitrogen products $ 37,998 $ 39,135 $ 125,909 $ 148,946
Electrochemical products - North America 12,073 14,199 36,789 53,536
Electrochemical products - Europe 38,830 29,136 108,954 92,282
--------- --------- --------- ---------
Total $ 88,901 $ 82,470 $ 271,652 $ 294,764
--------- --------- --------- ---------
--------- --------- --------- ---------
(Loss) income from continuing operations:
Nitrogen products $ (1,373) $ 1,078 $ 3,117 $ 10,730
Electrochemical products - North America (1,167) (3,766) (9,583) (1,278)
Electrochemical products - Europe (8,387) 1,413 (3,510) 7,144
Corporate expense (2,657) (2,275) (6,185) (5,122)
--------- --------- --------- ---------
(Loss) income from continuing operations (13,584) (3,550) (16,161) 11,474
Interest and amortization expense (7,084) (5,128) (19,385) (14,525)
Income from equity investments (6) 837 1,545 791
Other income, net (503) (1,324) (185) (3,700)
--------- --------- --------- ---------
(Loss) income from continuing operations
before income taxes and other items $ (21,177) $ (9,165) $ (34,186) $ (5,960)
--------- --------- --------- ---------
--------- --------- --------- ---------
EBITDA:
Nitrogen products $ 1,624 $ 4,278 $ 12,423 $ 20,245
Electrochemical products - North America 2,028 (843) (1,524) 4,629
Electrochemical products - Europe (2,691) 3,823 7,288 13,030
Corporate expense (2,678) (2,035) (6,315) (4,484)
--------- --------- --------- ---------
Total $ (1,717) $ 5,223 $ 11,872 $ 33,420
--------- --------- --------- ---------
--------- --------- --------- ---------
</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,
prior to its acquisition in June 1999, EBITDA also included the Company's equity
interest in the EBITDA of ChlorAlp. 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>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
FROM 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
Continued weak domestic markets for chlor-alkali and nitrogen
products, as well as a downturn in European caustic prices, led to continued
operating losses for the quarter ended November 30, 1999. However, U.S.
chlor-alkali markets are recovering, as prices have increased significantly
in the past few months, and producers have announced further price increases
for early 2000. During the quarter, production at the Company's Gramercy,
Louisiana plant, which had been shut down as a result of an explosion at an
adjacent site since July, was resumed. Management expects this plant to
generate positive cash flow and operating results by the first quarter of the
next fiscal year due to improved market conditions.
Operating losses over the past year coupled with reductions in the
Company's senior credit facility have significantly impacted the Company's
liquidity. During the quarter the Company engaged PricewaterhouseCoopers and
other financial advisors to review and evaluate its business strategy and
capital structure. Together with these advisors, the Company is evaluating a
number of alternatives to address its current and long-term cash needs.
Simultaneously, the Company has worked with its lenders over the past few
months to ensure that availability under its senior secured credit facility
(the "Credit Facility") is adequate to meet its cash needs until alternative
financing is in place. To this end, the Company and its lenders have
implemented a series of amendments to the Credit Facility over the past few
months, which are more fully discussed under the heading "Liquidity and
Capital Resources" herein and in the Notes to the Condensed Consolidated
Financial Statements under "Borrowing Arrangements" included in "Item 1.
Financial Information". Under its current terms, the Company's borrowing
capacity under the Credit Facility will be reduced by approximately $11
million on January 20, 2000. In addition, the Company is not in compliance
with certain financial covenants for which it has received waivers through
January 20, 2000. Based on current projections, cash available by January 20,
2000 will not be adequate to fund the Company's cash needs after the
scheduled reductions in the Credit Facility, nor will the Company be in
compliance with the financial covenants included therein, unless the Credit
facility is further amended or an alternative source of financing becomes
available. While the Company is working toward obtaining the necessary
amendments or financing to meet its cash needs, no assurances can be made
that it will be successful in these efforts.
The Company's chlor-alkali manufacturing facility in Gramercy, Louisiana,
which had been idle since an explosion at an adjacent site forced its closure on
July 5, 1999, was shut down for almost all of the third quarter. The plant
temporarily resumed operations in mid-November upon the restoration of services
from a shared power plant, but was unable to sustain production due to
mechanical failures that resulted from the effects of the explosion. The plant
began operating again in mid-December, and has sustained operations at
approximately 90% capacity since that date. Fluorocarbon production was resumed
in mid-August. Through November 30, 1999 the Company estimates that it has
incurred approximately $7.0 million in lost profit margin from product sales and
increased costs as a result of the shut down, and will incur approximately $.6
million of additional losses between December 1, 1999 and the resumption of
chlor-alkali operations. In addition, physical damages are expected to be
approximately $2.0 million to restore the plant facilities to their condition
before the explosion. The Company expects to recover all of these losses and
increased costs from insurance proceeds, net of deductibles of approximately
$1.6 million. Through November 30, 1999, the Company recorded approximately $6.2
million of receivables for business interruption claims, which represent the
amount of recovery the Company expects to receive through that date. As of
January 13, 2000, the Company has received $3.9 million of insurance proceeds,
and expects to receive the remaining amounts during the first half of 2000.
In November 1999, the Company's board of directors elected current
director Robert L. Yohe to the position of chairman of the board. Victoria E.
LaRoche was re-elected vice chairman of the board, and W. Walter LaRoche III,
who had served as chairman of the board since 1994, was re-elected as a
director. Two previous board members, Johnnie Lou LaRoche and Louanne C.
LaRoche, chose not to stand for re-election. The Company's other board members
remained unchanged.
10
<PAGE>
RESULTS OF OPERATIONS
SUMMARY
The Company incurred losses from continuing operations of $13.6 and $16.2
million for the three months and nine months ended November 30, 1999 as compared
to operating losses of $3.6 and operating income of $11.5 million generated by
the same businesses for the three months and nine months ended November 30,
1998. The deterioration of results from the prior periods to the current periods
is primarily the result of lower prices for the Company's domestic chlor-alkali
and derivative nitrogen products, and lower third quarter prices and volumes in
the Company's European electrochemical operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- -----------------------------------------
(AMOUNTS IN THOUSANDS) November 30, 1999 November 30, 1998 November 30, 1999 November 30, 1998
------------------- ------------------ ------------------- ------------------
Percent Percent Percent Percent
Amount Of Total Amount Of Total Amount Of Total Amount Of Total
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES:
Nitrogen products $37,998 42.7% $ 39,135 47.5% $ 125,909 46.4% $ 148,946 50.5%
Electrochemical-N. A. 12,073 13.6% 14,199 17.2% 36,789 13.5% 53,536 18.2%
Electrochemical-Europe 38,830 43.7% 29,136 35.3% 108,954 40.1% 92,282 31.3%
--------- ----- -------- ----- -------- ----- -------- -----
Total $ 88,901 100.0% $ 82,470 100.0% 271,652 100.0% $ 294,764 100.0%
--------- ----- -------- ----- -------- ----- -------- -----
--------- ----- -------- ----- -------- ----- -------- -----
INCOME (LOSS) FROM
OPERATIONS:
Nitrogen products $ (1,373) 10.1% $ 1,078 -30.4% $ 3,117 -19.3% $ 10,730 93.5%
Electrochemical-N. A. (1,167) 8.6% (3,766) 106.1% (9,583) 59.3% (1,278) -11.1%
Electrochemical-Europe (8,387) 61.7% 1,413 -39.8% (3,510) 21.7% 7,144 62.2%
Corporate (2,657) 19.6% (2,275) 64.1% (6,185) 38.3% (5,122) -44.6%
--------- ----- -------- ----- -------- ----- -------- -----
Total $(13,584) 100.0% $ (3,550) 100.0% $ (16,161) 100.0% $ 11,474 100.0%
--------- ----- -------- ----- -------- ----- -------- -----
--------- ----- -------- ----- -------- ----- -------- -----
EBITDA:
Nitrogen products $ 1,624 -94.6% $ 4,278 81.9% $ 12,423 104.6% $ 20,245 60.5%
Electrochemical-N. A. 2,028 -118.1% (843) -16.1% (1,524) -12.8% 4,629 13.9%
Electrochemical-Europe (2,691) 156.7% 3,823 73.2% 7,288 61.4% 13,030 39.0%
Corporate (2,678) 156.0% (2,035) -39.0% (6,315) -53.2% (4,484) -13.4%
--------- ----- -------- ----- -------- ----- -------- -----
Total $ (1,717) 100.0% $ 5,223 100.0% $ 11,872 100.0% $ 33,420 100.0%
--------- ----- -------- ----- -------- ----- -------- -----
--------- ----- -------- ----- -------- ----- -------- -----
</TABLE>
COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 1999 AND NOVEMBER 30, 1998
NET SALES
Consolidated net sales of $88.9 million for the quarter ended November
30, 1999 ("current quarter") increased $6.4 million or 8% from sales of $82.5
million for the quarter ended November 30, 1998 ("prior quarter"). The increase
was primarily due to the inclusion of ChlorAlp sales during the current quarter,
offset by lower prices on European caustic and certain chlorinated methane
products and on derivative nitrogen products in North America.
Nitrogen products' net sales in the current quarter decreased $1.1
million or 3% from the prior quarter activity. Continued declines in nitrogen
pricing in both agricultural and industrial grade products resulted in a $5.0
million reduction in sales as compared to the prior quarter. The availability of
low-priced import product from Russia and other factors contributed to lower
prices for agricultural products. Industrial grade ammonia prices have
experienced a gradual decline due to general market pressures. These price
declines were offset by increased sales volumes for agricultural products as
compared to the prior quarter.
11
<PAGE>
Electrochemicals - N.A.'s net sales for the current quarter decreased
$2.1 million or 15% compared to the prior quarter. The chlor-alkali plant, which
had been shut down since an explosion at an adjacent site on July 5, 1999 (see
"Significant Developments"), did not produce any product in September and
October, and only resumed partial production in November. The Company did
purchase and resell some caustic soda during this period, but these transactions
represented only one third of the volume of the prior quarter. As a result of
the lower production and sales volumes, net sales were approximately $6.7
million lower in the current quarter than in the prior quarter. The margins lost
as a result of the shut down are covered under business interruption policies,
and during the current quarter, the Company recorded in net sales approximately
$4.2 million representing anticipated recoveries under this claim. In addition,
fluorocarbon sales increased in the current quarter as compared to the prior
quarter as a result of increased sales volume.
Electrochemicals - Europe net sales in the current quarter increased $9.7
million or 33% compared to the prior quarter. The consolidation of the results
of operations for the Company's ChlorAlp facility, which was acquired in June
1999, resulted in a $17.2 million increase in net sales over the prior quarter.
A 25% decline in caustic pricing and lower pricing for chlorinated methane
products resulted in a $2.8 million reduction in sales compared to the prior
quarter. Lost volume on other products, including lost volume related to an
explosion at a customer's plant, accounted for an additional $2.4 million
reduction in sales. In addition, the German facility significantly reduced its
purchase and resale of hydrochloric acid ("HCL") which resulted in an
approximate $3.0 million in lost sales, but had minimal impact on gross margins.
The Company expects European caustic pricing to recover during 2000. Major
suppliers have recently announced significant price increases. In addition,
prices for chlorinated methane products, which have been depressed for over a
year, are beginning to improve.
OPERATING EXPENSES
The Company's operating expenses increased $16.5 million or 19.1% over
the prior quarter, primarily as the result of the consolidation of the ChlorAlp
facility, which was acquired in June 1999. These increases were partially offset
by reduced costs in North American operations, primarily as a result of the
Gramercy plant shut down.
In Nitrogen products, operating expenses increased $1.3 million or 3.5%
compared to the prior quarter to $39.4 million. Cost increases resulted from
higher ammonia and natural gas prices and increased sales volume of agricultural
products during the quarter. These increased costs were partially offset by
lower fixed manufacturing spending and selling and administrative costs.
Electrochemicals - N.A. operating expenses decreased $4.7 million or 26%
to $13.2 million in the current quarter. Decreased costs resulted primarily from
the suspension of operations at the Gramercy plant following a July 5, 1999
explosion at an adjacent site owned by Kaiser Aluminum (see "Significant
Developments" for further discussion). Reductions in selling and administrative
expenses were also realized over the prior quarter related to the Company's
reorganization completed in January 1999.
Electrochemicals - Europe total operating expenses increased $19.5
million or 70% to $47.2 million during the current quarter from $27.7 million
during the prior quarter. The consolidation of operating results for the
Company's ChlorAlp facility purchased in June 1999 resulted in a $20.0
million increase in costs over the prior quarter. Offsetting this increase
was a reduction in costs in the German facility due to overall cost savings
initiatives and the reduction in purchases and resale of HCL.
OTHER ITEMS AFFECTING NET LOSS
INTEREST AND AMORTIZATION OF DEBT EXPENSE. Interest and amortization of
debt expense increased $2.0 million over the prior quarter to $7.1 million.
Higher average debt balances over the prior quarter to fund capital investments
and current year operating requirements coupled with an increase in interest
rates on the Company's bank credit facility resulted in the increased interest
expense.
(LOSS) INCOME FROM EQUITY INVESTMENTS. Income from equity investments
decreased $.8 million over the prior quarter primarily due to the consolidation
of the ChlorAlp production facility in the current quarter, which was previously
held as an equity investment, and had positive net income in the prior quarter.
12
<PAGE>
OTHER EXPENSE, NET. The Company reported net other expense of $.5
million for the current quarter compared to net other expense of $1.3 million
in the prior quarter. The majority of the $.9 million decrease in other
expense is primarily the result of favorable foreign exchange rate movements
of in the current quarter as compared to the prior quarter, which impact the
values of cross currency interest rate swap agreements. The prior quarter
included the gain on the sale of a warehouse facility, which partially offset
the favorable change in the current period.
BENEFIT (PROVISION) FOR INCOME TAXES. The net tax benefit for the current
quarter is primarily comprised of the expected net benefit on losses 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.
COMPARISON OF NINE MONTHS ENDED NOVEMBER 30, 1999 AND NOVEMBER 30, 1998
NET SALES
Consolidated net sales of $271.7 million for the nine months ended
November 30, 1999 ("current period") decreased $23.1 million or 8% from net
sales of $294.8 million for the nine months ended November 30, 1998 ("prior
period"). The decrease in the current period compared to the prior period was
primarily due to a decrease in prices on principal North American products and
German caustic and certain chlorinated methane products, as well as a
significant reduction of warehouse sales in the Nitrogen products segment. These
reductions were offset by the inclusion of ChlorAlp sales in consolidated net
sales since its purchase on June 7, 1999.
Nitrogen products' net sales in the current period decreased $23.0
million or 15% from the prior period activity. Decreased volumes of agricultural
resale product related to the sale of the Company's Caruthersville warehouse
facility in September 1998 resulted in a $15.9 million decline in net sales
compared to the prior period. An 8% decline in the average market value of
ammonia to $112 per ton in the current period as compared to the prior period
average value of $122 per ton, resulted in a $1.9 million reduction in net
sales. Continued declines in nitrogen pricing in both agricultural products,
partially as a result of Russian imports, and in industrial grade products, due
to general market pressures, resulted in an $9.6 million decrease in net sales
over the prior period. Offsetting these declines is an increase in net revenues
over the previous period related to additional sales volumes of ammonia and
low-density ammonium nitrate.
Electrochemicals - N.A.'s net sales for the current period decreased
$16.8 million or 31% compared to the prior period. Depressed prices for the
Company's chlor-alkali products, which averaged $196 per ECU ton for the
industry in the current period compared to $315 per ECU ton in the prior period,
resulted in a $12.4 million decline in net sales. Additionally, an explosion at
an adjacent site, which occurred on July 5, 1999 (see "Significant
Developments"), resulted in a $10.7 million decline related to chlor-alkali
volumes, offset by business interruption insurance recoveries of $5.2 million.
Fluorocarbons net sales declined by $.9 million as compared to the prior period
primarily as a result of lower prices and production outages as a result of the
explosion referenced above.
Electrochemicals - Europe's net sales in the current period increased
$16.7 million or 18% compared to the prior period. The consolidation of the
ChlorAlp facility purchased in June 1999 (see "Significant Developments" section
for further discussion) resulted in a $38.3 million increase in net sales over
the prior period. Offsetting this increase was a decline in the net sales of the
Company's German facility. Market prices for caustic declined 11% compared to
the prior period and resulted in a $3.4 million decline in sales. Market price
reduction for some chlorinated methane products, in particular methylene
chloride, reduced sales by almost $5.4 million. Also, lost volume related to
reduced purchases and resale of HCL reduced sales by $6.5 million.
OPERATING EXPENSES
The Company's operating expenses increased $4.5 million or 2% over the
prior period. Increased costs were the result of the inclusion of ChlorAlp's
costs and expenses in the Company's consolidated operating results since its
acquisition on June 7, 1999. The addition of ChlorAlp's expenses were offset by
the favorable impact of lower ammonia prices, reduction of warehouse operations,
suspended chlor-alkali operations, and cost reduction initiatives on overall
operating costs.
In Nitrogen, operating expenses decreased $15.4 million or 11% to $122.8
million from $138.2 million in the prior period. Cost reductions of $15.5
million were realized as a result of decreased volumes in agricultural resale
13
<PAGE>
products related to the sale of the Company's Caruthersville warehouse in
September 1998. Decreased gas and ammonia costs during the current period were
more than offset by increased costs associated with additional sales volumes.
Selling and administrative expenses as compared to the prior also declined due
to the Company's reorganization completed in January 1999.
Electrochemicals - N.A.'s costs and expenses decreased $8.4 million or
15.4% to $46.4 million from $54.8 million in the prior period. Decreased costs
as a result of the temporary suspension of chlor-alkali and fluorocarbon
operations which occurred on July 5, 1999 (see "Significant Developments")
resulted in lost volumes of both chlor-alkali and fluorocarbon products and a
$5.1 million reduction in costs compared the prior period. Reductions in selling
and administrative expenses were also realized over the prior period related to
the Company's reorganization completed in January 1999.
Electrochemicals - Europe's costs and expenses increased $30.0 million in
the current period or 35.2% to $115.1 million from $85.1 million in the prior
period. The consolidation of operating results for the Company's ChlorAlp
facility purchased in June 1999 (see "Significant Developments" section for
further discussion) resulted in a $38.2 increase in costs over the prior period.
Offsetting this increase was a reduction in costs in the German facility due
overall cost savings initiatives and the reduction in purchases and resale of
HCL.
OTHER ITEMS AFFECTING NET LOSS
INTEREST AND AMORTIZATION OF DEBT EXPENSE. Interest and amortization of
debt expense increased $4.9 million over the prior period to $19.4 million.
Higher average debt balances to fund capital investments, current year operating
requirements and an increase in interest rates on the Company's bank credit
facility resulted in the increased interest expense.
INCOME FROM EQUITY INVESTMENTS. Income from equity investments in the
current period includes $1.2 million of equity income recorded for ChlorAlp for
the three months prior to its acquisition in June 1999 compared to equity income
of $.8 million for the prior period.
OTHER EXPENSE, NET. The Company reported net other expense of $.2
million for the current period compared to net other expense of $3.7 million
in the prior period. The majority of the $3.5 million decrease in net other
expense is the result of net gains on cross-currency interest swap contracts
due to favorable foreign exchange rate movements in the current period.
The net tax benefit for the current quarter is primarily comprised of the
expected net benefit on losses 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.
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,
prior to its acquisition in June 1999, EBITDA also included the Company's equity
interest in the EBITDA of ChlorAlp. 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 November 30,
1999 and 1998 was $(1.7) million and $5.2 million, respectively. The decrease in
EBITDA for the Nitrogen products segment of $2.7 million was due primarily to
lower realized nitrogen prices. EBITDA for Electrochemical Products - NA
increased $2.6 million compared to the prior quarter as a result of improved ECU
prices for chlor-alkali products and higher volume for fluorocarbon products.
EBITDA for Electrochemical Products - Europe decreased $6.5 million in the
current quarter due a sharp decline in European caustic prices and lost volume
due to the temporary shutdown of a plant for which the German facility is a
supplier.
14
<PAGE>
EBITDA from continuing operations for the nine months ended November 30,
1999 and 1998 was $11.9 million and $33.4 million, respectively. The decrease in
EBITDA for the Nitrogen products segment of $7.8 million was due primarily to
lower realized prices. EBITDA for Electrochemical Products - NA decreased $6.2
million compared to the prior period as a result of sharply lower ECU prices for
chlor-alkali products, as well as losses incurred as a result of the plant
outage previously mentioned. EBITDA for the Electrochemical Products - Europe
decreased $5.7 million in the current period as compared to the prior period
primarily due to sharp decline in European caustic prices in the third quarter
of the current fiscal year, and lower chorinated methane prices for the
Company's German facility.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. For the nine months ended November 30, 1999
("current period"), continuing operations used cash of $11.8 million compared
with $7.8 million provided in the nine months ended November 30, 1998 ("prior
period"). The decrease in net cash from operations in fiscal 1999 was primarily
the result of operating losses incurred during the current period, the
suspension of operations at the Gramercy electrochemicals manufacturing plant,
and the timing of working capital requirements as compared to the prior period.
INVESTING ACTIVITIES. During the period, the Company used proceeds from
the sale of its Aluminas Chemical division to purchase the 50% interest in
ChlorAlp held by its former joint venture partner. Capital spending and plant
turnaround costs absorbed $21.9 million in the current period compared to $31.0
million in the prior period ended August 31, 1998. The decrease is primarily
attributable to lower capital expenditures in the Company's domestic operations,
offset by higher expenditures from the European operations, which include the
capital expenditures of ChlorAlp since its acquisition in June 1999. 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.
FINANCING ACTIVITIES. During the current period, cash provided by
operations was insufficient to fund capital investment and scheduled repayments
of long-term debt. Liquidity was provided by the Company's U.S. and European
revolving credit facilities, which had combined borrowings of $92.7 million as
of November 30, 1999 compared with $55.4 million at February 28, 1999. During
the period, the Company made scheduled payments under long-term debt agreements
of $2.9 million. Borrowings under the revolving credit facilities during the
prior period were $15.3 million lower than in the current period due to higher
levels of cash provided by operations during the earlier period.
As discussed in the Notes to the Condensed Consolidated Financial
Statements and under the heading "Significant Developments" herein, the
Company's Credit Facility was amended and restated effective February 28, 1999.
Under the amended Credit Facility, the amount of available credit under the
Revolving Credit Facility was reduced from $125 million to $90 million, subject
to a borrowing base (the "Borrowing Base") calculation. As a result of lower
than expected cash flows during the first six months of fiscal 2000, additional
modifications to the Credit Facility were required in September 1999. These
modifications included a temporary increase in the Borrowing Base by permitting
the inclusion of certain non-trade receivables, and allowed the Company to
maintain available credit under the Revolving Credit Facility of $90 million.
These temporary increases in the Borrowing Base, along with the inclusion of
certain deemed foreign assets (the "Deemed Foreign Assets"), initially expired
on December 10, 1999. On December 10, however, an amendment extended the date
for reduction of the Borrowing Base and waived certain financial covenants until
January 10, 2000. Another amendment on January 10, 2000 permitted the continued
inclusion of the Deemed Foreign Assets, but not the non-trade receivables, in
the Borrowing Base and continued the waiver of certain financial covenants
through January 20, 2000.
Under its current terms, availability under the Credit Facility will
be reduced by approximately $11 million on January 20, 2000, at which time
the Deemed Foreign Assets will no longer be available for inclusion in the
Borrowing Base. Based on current projections, cash available by January 20,
2000 will not be adequate to fund the Company's cash needs after the
scheduled reductions in the Credit Facility, nor will the Company be in
compliance with the financial covenants included therein, unless the Credit
facility is further amended or an alternative source of financing becomes
available. While the Company is working toward obtaining the necessary
amendments or financing to meet its cash needs, no assurances can be made
that it will be successful in these efforts.
15
<PAGE>
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 "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
On June 21, 1999, Elf Atochem North America ("Elf Atochem") filed an
action in U.S. District Court in Wilmington, Delaware against the Company
alleging the Company infringed an Elf Atochem patent in connection with the
Company's manufacture of HCFC 141b. The action seeks to enjoin the Company
from continuing an alleged infringement of Elf Atochem's patent, 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. The Company believes that, after having analyzed the claims in
conjunction with counsel engaged to assist in the defense of the matter, that
valid and enforceable defenses and/or counter claims exist in favor of the
Company, and the Company is defending the matter accordingly. Although
management believes the matter will be resolved without a material adverse
effect, it is inherently impossible to predict with any degree of certainty
the outcome of the type claim that the Elf Atochem matter represents.
Accordingly, it is possible that the resolution of the matter could be
material to the Company's financial position or the 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 conducted its review and evaluation in four main
areas: Business Systems, Manufacturing Controllers and Processors, Third Party
Compliance, and Hardware. The process included assessing the impact of the
calendar change to Year 2000 on all systems used by the Company, upgrading
systems that were not Year 2000 ready, testing and monitoring systems for Year
2000 readiness, and developing contingency plans for events beyond the Company's
control.
The Company completed all of the major components of its Year 2000
project prior to January 1, 2000, and did not experience any significant
disruptions or costs as a result of the calendar change. The Company will
continue to monitor business and manufacturing systems and hardware for
potential problems that could arise in the first few months of calendar year
2000. However, based on the Company's preparations prior to January 1, 2000 and
the absence of any problems subsequent to January 1, no significant disruptions
or costs are anticipated. In the fiscal years ended February 28, 1998 and 1999,
the Company incurred approximately $ .8 million to make its systems Year 2000
compliant.
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
16
<PAGE>
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 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>
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 periodically enters into
derivative transactions. The Company does not hold or issue derivative financial
instruments for trading purposes. At November 30, 1999, the Company held no
derivative instruments intended to hedge market risk exposure to fluctuations in
interest or foreign currency rates.
The Company relies upon the supply of natural gas in its production
process and has entered into fixed price purchase contracts and other contracts
to manage the commodity based market risk exposure. All of the natural gas
contracts mature before May 2000. Following is a summary of key contract terms
of each the natural gas derivative positions at November 30, 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.................. 1,375 $ 2.58
</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 10 to the Condensed Consolidated Financial Statements on page 8
for further discussion regarding these instruments.
18
<PAGE>
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. Nonetheless, the resolution
of certain matters could be material to the results of operations of any single
fiscal quarter and further, with the aggregate cost of such legal actions being
inherently impossible to predict, there can therefore be no assurance that this
will be the case.
RECENT DEVELOPMENTS. On June 21, 1999, Elf Atochem North America ("Elf
Atochem") filed an action in U.S. District Court in Wilmington, Delaware against
the Company alleging the Company infringed an Elf Atochem patent in connection
with the Company's manufacture of HCFC 141b. The action seeks to enjoin the
Company from the alleged continuing infringement of Elf Atochem's patent, 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. The
Company believes that, after having analyzed the claims in conjunction with
counsel engaged to assist in the defense of the matter, that valid and
enforceable defenses and/or counter claims exist in favor of the Company, and
the Company is defending the matter accordingly. Although management believes
the matter will be resolved without a material adverse effect, it is
inherently impossible to predict with any degree of certainly the outcome of
the type claim that the Elf Atochem matter represents. Accordingly, it is
possible that the resolution of the matter could be material to the Company's
financial position or the results of is operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<S> <C>
10.46 Amendment dated as of February 28, 1999 and amended as of May 31, 1999,
September 14, 1999, November 15, 1999, and December 10, 1999.
12 Statements Regarding Computation of Ratio of Earnings to Fixed
Changes
27 Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
(b) REPORTS OF FORM 8-K
A Current Report on Form 8-K was filed on September 15, 1999 to provide
information about amendments to the Company's senior credit facility.
A Current Report on Form 8-K was filed on October 4, 1999 to provide
information about financial advisors engaged to review the Company's capital
structure and business strategy.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAROCHE INDUSTRIES INC.
(Registrant)
Date: January 13, 2000 By: /s/ Harold W. Ingalls
------------------------------------------
Harold W. Ingalls
President and Chief Executive Officer
(Principal Executive Officer)
Date: January 13, 2000 By: /s/ Gerald B. Curran
------------------------------------------
Gerald B. Curran
Vice President, Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
Exhibit 10.46
EXECUTION COPY
AMENDMENT NO. 5 TO CREDIT AGREEMENT
AMENDMENT dated as of January 10, 2000 (the "AMENDMENT") to the Amended
and Restated Credit Agreement dated as of February 28, 1999 and amended as of
May 31, 1999, September 14, 1999, November 15, 1999 and December 10, 1999 (as
amended, the "CREDIT AGREEMENT") among LAROCHE INDUSTRIES INC. (the "BORROWER"),
the LENDERS party thereto (the "LENDERS") and THE CHASE MANHATTAN BANK, as
Administrative Agent (the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Lenders agree (i) to amend
certain of the provisions of the Credit Agreement requiring certain reductions
in the Borrowing Base scheduled to occur on January 10, 2000 and (ii) to waive
the Borrower's obligation to comply with certain covenants solely for the period
January 10, 2000 through January 20, 2000; and
WHEREAS, subject to the terms and conditions set forth herein, the
Lenders have agreed to make certain amendments and waivers as provided for
herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein that is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, from and after Amendment No. 5
Effective Date (defined below), refer to the Credit Agreement as amended hereby.
SECTION 2. SECTION 1.01. Section 1.01 of the Credit Agreement is
amended:
(a) by amending the definition of "BORROWING BASE" to read in its
entirety as follows:
"BORROWING BASE" means, at any date, the amount of the Borrowing
Base as of the date of the Borrowing Base Certificate then most
recently delivered by the Borrower pursuant to Section 5.01(l) (the
"BORROWING BASE
<PAGE>
DATE"), determined by calculating the sum of (i) 85% of the aggregate
amount of Eligible Receivables at the Borrowing Base Date PLUS (ii)
50% of the aggregate amount of Eligible Inventory at the Borrowing
Base Date PLUS (iii) the Facilities Domestic Amount at the Borrowing
Base Date PLUS (iv) (A) as of any Borrowing Base Date occurring on or
prior to January 20, 2000, the greater of the Deemed Foreign Assets
Amount or the Facilities Foreign Amount and (B) as of any Borrowing
Base Date occurring subsequent to January 20, 2000, the Facilities
Foreign Amount.
and (b) by inserting therein in appropriate alphabetical order
the following defined term:
"AMENDMENT NO. 5 EFFECTIVE DATE" means the date of
effectiveness of Amendment No. 5 to this Agreement.
SECTION 3. SECTION 4.03. Solely with respect to any Loan to be
made on the occasion of any Borrowing occurring on or after the
Amendment No. 5 Effective Date and on or prior to January 20, 2000 or
any Letter of Credit to be issued, amended, renewed or extended on or
after the Amendment No. 5 Effective Date and on or prior to January 20,
2000, the Lenders waive any failure by the Borrower to satisfy the
condition precedent set forth in Section 4.03(b) of the Credit
Agreement solely with respect to the truth and correctness of the
representation and warranty contained in Section 3.04(c) of the Credit
Agreement, but solely to the extent that such representation and
warranty is not true and correct because of facts, conditions or events
that have been disclosed in writing by the Borrower to the
Administrative Agent and the Lenders prior to January 5, 2000.
SECTION 4. SECTIONS 6.12, 6.13 AND 6.14. The Lenders hereby
waive, solely for the period from and including the Amendment No. 5
Effective Date and to and including January 20, 2000 (the "Waiver
Period") (i) the requirement that the Borrower comply with Sections
6.12, 6.13 and 6.14 of the Credit Agreement and (ii) any Default
arising under clause (d) of Article 7 of the Credit Agreement as a
result of the Borrower's failure to comply with Sections 6.12, 6.13 and
6.14 during the Waiver Period.
SECTION 5. NO OTHER WAIVERS. Other than as specifically
provided herein, nothing contained herein and no action by, or
inaction on the part of, any Lender or the Administrative Agent shall,
or shall be deemed to, operate as a waiver of any right, remedy, power
or privilege of the Administrative Agent or of any Lender under the
Credit Agreement or any other Loan Document or of
2
<PAGE>
any other term or condition of the Credit Agreement or any other Loan
Document.
SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants that, on and as of the Amendment No. 5
Effective Date and after giving effect to this Amendment, (i) the
representations and warranties of the Obligors set forth in the Loan
Documents, including but not limited to the representation and warranty
contained in Section 3.12 of the Credit Agreement but excluding the
representation and warranty contained in section 3.04(c) of the Credit
Agreement, are true and correct and (ii) no Default has occurred and is
continuing.
SECTION 7. GOVERNING LAW. This Amendment shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 8. COUNTERPARTS. This Amendment may be signed in any
number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
SECTION 9. EFFECTIVENESS. This Amendment shall become
effective on the date (the "AMENDMENT NO. 5 EFFECTIVE DATE") on which
the Administrative Agent shall have received:
(i) from each of the Borrower and the Required Lenders a
counterpart hereof signed by such party or facsimile or other written
confirmation (in form satisfactory to the Administrative Agent) that
such party has signed a counterpart hereof;
(ii) a certificate of the Chief Financial Officer certifying
that the representations and warranties made by the Borrower pursuant
to Section 7 of this Amendment are true and correct on and as of the
Amendment No. 5 Effective Date; and
(iii) evidence satisfactory to it that the Borrower has paid
in full all fees and expenses of the Administrative Agent payable
pursuant to Section 9.03(a) of the Credit Agreement with respect to
which the Borrower shall have received any invoice delivered to the
Borrower at least one Business Day prior to the Amendment No. 5
Effective Date, it being understood that the failure of the
Administrative Agent to have provided invoices with respect to such
fees and expenses prior to the Amendment No. 5 Effective Date does not
constitute
3
<PAGE>
a waiver of, or otherwise affect, the Administrative Agent's right to
reimbursement for such fees and expenses.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to be duly executed as of the date first above written.
LAROCHE INDUSTRIES INC.
By:
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
By:
---------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK
By:
---------------------------------
Name:
Title:
WACHOVIA BANK, N.A.
By:
---------------------------------
Name:
Title:
5
<PAGE>
THE BANK OF NOVA SCOTIA
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
---------------------------------
Name:
Title:
AMSOUTH BANK
By:
---------------------------------
Name:
Title:
BHF (USA) CAPITAL CORPORATION
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
6
<PAGE>
COMERICA BANK
By:
---------------------------------
Name:
Title:
NATIONAL BANK OF CANADA
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
PARIBAS
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
7
<PAGE>
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
Nine months ended -----------------------------------------------------
November 30, 1999 1999 1998 1997 1996
-------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income before income taxes, minority interests
and extraordinary charge $ (33,889) $ (42,612) $ (9,452) $ 1,076 $ 32,122
Less: Income from equity investments (1,847) (6,863) (2,698) (4,909) (2,647)
Distributions from equity investments - 12,440 4,691 5,701 1,332
Fixed charges 20,838 26,584 21,346 17,992 17,853
Less: Capitalized Interest - (516) (1,089) (860) -
==================== ========== ========== ========== ==========
Earnings $ (14,898) $ (10,967) $ 12,798 $ 19,000 $ 48,660
==================== ========== ========== ========== ==========
FIXED CHARGES
Interest expense $ 20,141 $ 23,204 $ 17,510 $ 14,881 $ 15,973
Capitalized interest - 516 1,089 860 -
Interest portion of rental expense * 697 2,864 2,747 2,251 1,880
==================== ========== ========== ========== ==========
Fixed charges $ 20,838 $ 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 nine months ended November 30, 1999, earnings are inadequate to
cover fixed charges by approximately $35.7 million.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS -- NOVEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q, 3RD QUARTER FISCAL 2000 -- LAROCHE INDUSTRIES INC.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 2,330
<SECURITIES> 0
<RECEIVABLES> 59,210
<ALLOWANCES> (412)
<INVENTORY> 25,766
<CURRENT-ASSETS> 102,852
<PP&E> 391,352
<DEPRECIATION> (139,549)
<TOTAL-ASSETS> 404,667
<CURRENT-LIABILITIES> 389,883
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> (43,620)
<TOTAL-LIABILITY-AND-EQUITY> 404,667
<SALES> 271,652
<TOTAL-REVENUES> 271,652
<CGS> 261,221
<TOTAL-COSTS> 261,221
<OTHER-EXPENSES> 26,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,385
<INCOME-PRETAX> (34,186)
<INCOME-TAX> (2,875)
<INCOME-CONTINUING> (31,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,311)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
