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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-11634
TRANS-RESOURCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 36-2729497
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
375 Park Avenue, New York, NY 10152
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 888-3044
9 West 57th Street, New York, NY 10019
(Former address, if changed since last report)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether 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 registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock
held by non-affiliates of registrant.
None held by non-affiliates
Indicate the number of shares outstanding of each of registrant's classes of
common stock, as of the latest practicable date.
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<CAPTION>
Class Outstanding at March 29, 2000
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<S> <C>
Common Stock, par value $.01 per share 3,000 shares
(Owned by TPR Investment Associates, Inc.)
</TABLE>
Documents incorporated by reference.
None
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TABLE OF CONTENTS
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Page
PART I
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Item 1. Business.................................................................................... 1
Item 2. Properties.................................................................................. 13
Item 3. Legal Proceedings........................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......................................... 15
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters..................................................................... 16
Item 6. Selected Financial Data..................................................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 24
Item 8. Financial Statements and Supplementary Data................................................. 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................................... 24
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 25
Item 11. Executive Compensation...................................................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 30
Item 13. Certain Relationships and Related Transactions.............................................. 30
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.............................. 31
Signatures ............................................................................................ 32
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PART I
ITEM 1. Business
Trans-Resources, Inc., a privately-owned Delaware corporation ("TRI")
operating through its independently managed and financed direct and indirect
subsidiaries, is a leading global developer, producer and marketer of specialty
chemical products. As used herein, the term "the Company" means TRI, together
with its direct and indirect subsidiaries. The Company is the world's largest
producer and distributor of agricultural grade potassium nitrate, which is a
leading specialty plant nutrient. Potassium nitrate is utilized in specialized
agricultural applications for the growth of high-value crops such as fruits,
vegetables, flowers and tobacco. The Company is also: (i) the largest global and
sole U.S. producer of propanil, which is a leading rice herbicide; (ii) the
world's largest producer of technical grade potassium nitrate, used in a variety
of industrial applications; (iii) the sole supplier to the U.S. Air Force of
nitrogen tetroxide, an aerospace fuel additive; and (iv) the only North American
producer of 3,4 dichloroanaline ("DCA"), the principal raw material in the
production of propanil and diuron, a broad use herbicide. The Company also
produces a variety of other chemical products used in agricultural, industrial
and pharmaceutical markets. In addition, the Company utilizes its organic
chemicals production capacity and manufacturing expertise to provide contract
manufacturing services for other chemical companies. The Company sells its
products through an established global sales, marketing and distribution network
to customers throughout the world. The Company has grouped its revenues into
three general product categories: Specialty Plant Nutrients, Industrial
Chemicals and Organic Chemicals, which during 1999 contributed approximately
64%, 22% and 14%, respectively, of the Company's total revenues. Effective
January 1, 2000, the Company implemented a new organizational structure (see
below). For the year ended December 31, 1999, approximately 34% and 35% of the
Company's total revenues were derived from sales in the United States and
Europe, respectively, with the remainder derived from sales in other regions.
TRI's principal direct and indirect wholly-owned subsidiaries include
Haifa Chemicals Ltd. ("HCL"), an Israeli corporation, and HCL's wholly-owned
subsidiary, Haifa Chemicals South, Ltd., an Israeli corporation ("HCSL"); Cedar
Chemical Corporation, a Delaware corporation ("Cedar"), and Cedar's wholly-owned
subsidiary, Vicksburg Chemical Company, a Delaware corporation ("Vicksburg");
Na-Churs Plant Food Company ("Na-Churs"), a Delaware corporation; Plant Products
Company Ltd. ("Plant Products"), an Ontario corporation, and EMV Kft. ("EMV"), a
Hungarian corporation. TRI was incorporated in Delaware in 1971 under the name
Trans-Pacific Resources, Inc.
During 1998 and 1999, the Company completed several small acquisitions.
The Company acquired: effective January 1, 1998, a Spanish company engaged in
the manufacturing and distribution of specialty plant nutrients; effective May
1, 1998, EMV, which manufactures and markets organic chemicals; effective
October 30, 1998, Plant Products, headquartered in Ontario, Canada, which
manufactures and markets specialty plant nutrients for commercial horticulture,
specialty high value crops and retail markets; effective December 18, 1998,
Alpine Plant Foods, Inc. (including its Canadian subsidiary; together "Alpine"),
which manufactures and distributes high purity liquid fertilizers; and effective
February 19, 1999, the Company acquired a majority interest in V-J Growers
Supply, Inc. ("VJ"), which markets specialty plant nutrients and other products
for commercial horticulture. The Company acquired the balance of VJ during March
2000.
In addition, effective February 4, 1998, a subsidiary of HCL purchased a
42% equity interest in Lego Irrigation, Ltd. ("Lego"), an Israeli developer,
manufacturer and marketer of drip irrigation systems. On March 9, 1999, as
provided in the terms of the initial purchase of the Lego shares, the subsidiary
of HCL purchased, pursuant to an option, an additional 35% equity interest in
Lego. The remaining 23% equity interest in Lego is publicly traded on the Tel
Aviv (Israel) stock exchange.
Each of the described acquisitions has been accounted for using the
purchase method of accounting. The aggregate purchase price paid for these
acquisitions was approximately $46.5 million and the associated goodwill was
approximately $15.4 million (which is generally being amortized over a 20 year
period). The described acquisitions are collectively referred to as the
"Acquired Businesses".
Effective January 1, 2000, the Company implemented a new organizational
structure comprised of three sectors: Specialty Plant Nutrients, Horticulture
and Organic Chemicals, and commencing with the fiscal year ending December 31,
2000, will group its operations into these three general categories. The
Specialty Plant Nutrients Sector includes the
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agricultural and industrial lines of HCL (including HCSL) and Vicksburg and the
irrigation products of Lego. The Horticulture Sector includes Na-Churs, Plant
Products, VJ and Tri-Pro, Inc. The Organic Chemicals Sector includes Cedar's
West Helena organic operations, EMV and Riceco, LLC ("Riceco"; see "Riceco"
below).
For information regarding: (1) the conditional settlement of litigation
(the "Bogalusa Litigation") arising out of an October 23, 1995 chemical release
from a tank car at a Bogalusa, Louisiana plant of a Vicksburg customer and the
resulting $36.2 million charge included in the accompanying December 31, 1998
Consolidated Statement of Operations, see Item 3 - "Legal Proceedings;" and (2)
the Company's unrealized loss relating to its investment in the shares of ESC
Medical Systems Ltd. ("ESC") included in the accompanying December 31, 1998 and
December 31, 1999 Consolidated Balance Sheets, see Part II - Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" - "Investment in Laser/ESC".
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical facts included in this Report are
forward-looking statements, including, but not limited to, statements concerning
future revenues (e.g., impact of the HCL Labor Dispute (as hereinafter defined);
expenses (e.g., labor savings resulting from HCL's new Specific Collective
Agreement ("SCA"), future environmental costs); capital expenditures; access to
lending sources and Israeli Government entitlements; inflation in Israel;
outcomes of legal proceedings and statements identified or qualified by words
such as "likely," "will," "suggests," "may," "would," "could," "should,"
"expects," "anticipates," "estimates," "plans," "projects," "believes," or
similar expressions (and variants of such words or expressions). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors ("Cautionary Factors") which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The Cautionary Factors include, among others, the
following: political stability, inflation and currency rates in those foreign
countries (including, without limitation, Israel) in which the Company generates
a significant portion of its production, sales and earnings; current or future
environmental developments or government regulations which would require the
Company to make substantial expenditures, and changes in, or the failure of the
Company to comply with, such government regulations; the potentially hazardous
nature of certain of the Company's products; the ability to achieve and sustain
anticipated labor cost reductions at HCL; the Company's ability to continue to
service and refinance its debt; new plant start-up costs; competition; changes
in business strategy or expansion plans; agricultural trends; raw material costs
and availability; the final outcome of the legal proceedings to which the
Company is a party and the conditional settlement of the Bogalusa Litigation,
including satisfaction by the parties of the terms and numerous conditions of
such conditional settlement (see Item 3- "Legal Proceedings"); and other factors
referenced in this Report.
Given these uncertainties, investors and prospective investors are
cautioned not to place undue reliance on such forward-looking statements. All
subsequent forward-looking statements attributable to the Company or persons
acting on behalf of the Company are expressly qualified in their entirety by the
Cautionary Factors.
PRODUCTS
The Company develops, produces and markets a range of specialty chemical
products for a variety of agricultural and industrial end-uses. For the fiscal
year ended December 31, 1999 the Company has grouped its revenues into three
general product categories that reflect the different product uses: Specialty
Plant Nutrients, Industrial Chemicals and Organic Chemicals. As described
above, effective for periods after January 1, 2000 the Company will group its
operations differently pursuant to a new organizational structure which has been
implemented.
Specialty Plant Nutrients. The Company's Specialty Plant Nutrients
consist of high-value nutrients designed for intensive agriculture, including
greenhouses, nurseries and orchards. The Company's flagship product is potassium
nitrate, which is marketed principally under the brand names K-Power
domestically and Multi-K internationally (collectively referred to as
"K-Power"). Potassium nitrate provides potassium and nitrogen, two of the three
essential plant nutrients, is water soluble and does not contain chlorine or
other environmentally harmful chemical residues that are generally found in
commodity fertilizers. The unique combination of these performance
characteristics allows
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potassium nitrate to command a price premium over other potassic plant nutrients
and fertilizers and has led to a compound annual growth rate in tons shipped of
approximately 6% for the industry over the past five years. With current annual
production capacity of approximately 755,000 tons, the Company is the world's
largest producer of potassium nitrate. The Company believes that it currently
accounts for approximately 60% of the world's production of potassium nitrate
and all of North American production of potassium nitrate.
The Company's other Specialty Plant Nutrients include those designed for
highly specialized horticultural applications. These include: (i) Polyfeed, a
fully soluble and chlorine-free blend of varying combinations of plant nutrients
containing the three essential plant nutrients, nitrogen, phosphorus and
potassium; (ii) Magnisal, which acts as a magnesium supplement; (iii)
monoammonium phosphate, or Multi-MAP, a fully soluble, chlorine-free source of
nitrogen and phosphorus; (iv) monopotassium phosphate, or Multi-MKP, a fully
soluble, chlorine-free source of potassium and phosphorus; and (v) Multicote, a
polymer coated specialty plant nutrient which provides for the controlled
release of nutrients over specific periods of time ranging from four to 12
months, which optimizes plant feeding and minimizes labor requirements. The
Company, through Na-Churs, is the largest U.S. producer and marketer of high
purity liquid fertilizers, which are sold under Na-Churs Alpine Solutions brand
names, and are used as a starter nutrient in growing corn and soybeans, in
foliar applications and for fertigation in growing high-value crops such as
fruits, vegetables and flowers. The Company, through Plant Products, is the
leading distributor of various inputs to the horticulture industry in Canada
including water soluble fertilizers, agrochemicals and insects for biological
control. Specialty Plant Nutrients revenues were approximately $318.7 million in
1999.
The following table sets forth the Company's principal Specialty Plant
Nutrients products, markets and applications:
<TABLE>
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Principal Products Primary Markets Applications
- ------------------------------------- ------------------------------------ ---------------------------------
<S> <C> <C>
Potassium Nitrate - Fruits, vegetables, - Fertigation, foliar
(K-Power) flowers, cotton and tobacco sprays and soil applications
Polyfeed, Plant-Prod - Horticulture - Fertigation and foliar
sprays
Multi-MAP - Horticulture - Fertigation and foliar
sprays
Multi-MKP - Horticulture - Fertigation and foliar
sprays
Magnisal - Vegetables, citrus, - Fertigation and foliar
tropical fruits and flowers sprays
Multicote - Vegetables, turf, fruit - Time release nutrients
trees and potted plants
Na-Churs Alpine Solutions - Corn, soybeans, wheat and - Furrow applied starter, foliar
high-value crops sprays and fertigation
</TABLE>
Industrial Chemicals. The Company's Industrial Chemicals consist of a
variety of specialty and other chemicals with applications in multiple end-use
markets. The Company's Industrial Chemicals products are generally produced as
co-products in the Company's potassium nitrate manufacturing processes. These
products provide the Company with the ability to diversify its revenue base
while maintaining its leadership position in potassium nitrate and to allocate
its fixed costs over a broader base of revenues and products. The Company is the
world's largest manufacturer and marketer of technical grade potassium nitrate,
a high purity product used for many industrial applications, including the
production of television picture tubes, computer screens, other specialty
glasses, ceramics, food additives and explosives. The Company is also a
manufacturer of potassium carbonate, marketed under the brand name K-Carb.
K-Carb is used in the production of television picture tubes, computer screens,
ceramics, detergents, in agricultural applications, and in the production of
other potassic chemicals. In addition, the Company is the sole supplier to the
U.S. Air Force of nitrogen tetroxide, an aerospace fuel ingredient.
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Additional Industrial Chemicals produced by the Company include
phosphoric acid, with approximately 110,000 tons of current annual production
capacity, used for metal treatment, industrial cleaning solutions, fermentation
and in the food and fertilizer industries; and a variety of phosphate products
including: sodium tripolyphosphate ("STPP"), the active ingredient in
detergents; monoammonium phosphate ("MAP"), used in fire extinguishers and fire
retardants; monopotassium phosphate ("MKP"), used in the fermentation process;
monosodium phosphate ("MSP") and disodium phosphate ("DSP"), which are used by
food processing companies as emulsifiers for cheese processing and as a buffer
in foodstuffs; and sodium acid pyrophosphate ("SAPP"), used by food processing
companies in baking powders and potato processing. The Company also produces
chlorine sold to industrial and chemical manufacturing companies for water
purification and production of paper pulp and PVC pipe. Industrial Chemicals
revenues were approximately $109.5 million in 1999.
The following table sets forth the Company's principal Industrial
Chemicals products, markets and applications:
<TABLE>
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Principal Products Primary Markets Applications
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<S> <C> <C>
Technical Grade Potassium - Glass, ceramics, explosives, - Oxidation and source for
Nitrate metal, petrochemical and heat potassium
treatment industries
Potassium Nitrate USP Grade - Pharmaceutical and food - Ingredient in certain
industries toothpaste
Potassium Carbonate (K-Carb) - Glass, detergents and - Oxidation and cleansing
fertilizer industries
Phosphoric Acid - Industrial chemical - Metal treatment,
manufacturing, food and fertilizer industrial cleaning and
industries fermentation
Sodium Tripolyphosphate Food - Food processing companies - Meat and seafood
Grade processing
Sodium Tripolyphosphate - Soap and detergent industry - Cleansing ingredient
Monoammonium Phosphate - Chemical manufacturers - Fire retardant
formulations
Monopotassium Phosphate - Food processing companies - Fermentation process
Monosodium Phosphate - Food processing companies - Emulsifiers and buffers
Disodium Phosphate - Food processing companies - Emulsifiers and buffers
Sodium Acid Pyrophosphate - Food processing companies - Baking powders and
potato processing
Chlorine - Chemical companies - Water purification,
production of paper pulp and
PVC pipe
Nitrogen Tetroxide - United States Government - Aerospace fuel ingredient
</TABLE>
Organic Chemicals. The Company's Organic Chemicals consist primarily of
a variety of herbicides and chemical intermediaries requiring expertise in
complex organic synthesis. The Company's Organic Chemicals products include
propanil, the world's leading rice herbicide, and diuron, a leading herbicide
used on a variety of crops, as well as 3,4 -Dichloroanaline ("DCA"), the
principal intermediate for the production of propanil and diuron. The Company is
the sole U.S. producer, and the largest integrated, worldwide producer of
propanil, and is the sole producer of DCA and diuron in the U.S. Other Organic
Chemicals include Butoxone, a leading peanut and soybean herbicide. The Company
increased its ability to supply a variety of crop protection chemicals
throughout the world as a result of the acquisition of EMV. EMV's products
include molinate, diuron, acetochlor, EPTC, alachlor, fluometuron and a number
of smaller volume products used on a variety of crops. The Company also produces
and sells trishydroxyaminomethane ("THAM"), a proprietary buffering agent used
in pharmaceutical applications, including contact lens cleaning solutions. In
addition, the Company utilizes its manufacturing expertise and capacity to serve
as a contract manufacturer of organic chemicals for other chemical companies.
The Company, through sales to Riceco and others, markets propanil, combination
rice herbicides and other rice-related products (other than fertilizers) on a
worldwide basis (see "Riceco" below). Organic Chemicals revenues were
approximately $68.9 million in 1999.
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The following table sets forth the Company's principal Organic Chemicals
products, markets and applications:
<TABLE>
<CAPTION>
Principal Products Primary Markets Applications
- ---------------------------------------- --------------------------------------- -------------------------------
<S> <C> <C>
Propanil - Rice - Broad spectrum herbicide
3,4-Dichloroanaline - Propanil and diuron - Key intermediate
Butoxone - Peanuts and soybeans - Herbicide
Diuron - Plantation crops and - Broad use herbicide
industrial sites
EPTC - Corn and potatoes - Broad use herbicide
Fluometuron - Cotton - Herbicide
Acetochlor - Corn, orchards, and soybeans - Broad use herbicide
Alachlor - Corn, beans and soybeans - Broad use herbicide
Molinate - Rice - Residual herbicide
THAM - Pharmaceutical companies - Buffering agent
Contract Manufacturing - Other chemical companies - Various organic syntheses
</TABLE>
SALES AND MARKETING
The Company's sales and marketing network consists of a direct sales
force of approximately 100 professionals as well as over 80 independent agents,
distributors and brokers who market and distribute the Company's products in
particular markets in which the Company does not have a significant direct sales
and marketing presence. The Company's sales efforts are complemented by its
product development and technical support staff, who work with customers to
demonstrate the performance of the Company's existing products under specific
climatic, soil and growing conditions and to develop new products and markets
based on customer needs. Currently, the Company maintains resident development
and technical support staff in the United States, Israel, Italy, Spain, France,
the United Kingdom, Greece, Hungary, Mexico, South Africa, China, Japan,
Thailand, India, Canada, Brazil, Argentina and the Benelux countries.
The Industrial Chemicals produced by the Company are generally marketed
through the Company's marketing network and through the Company's subsidiaries
throughout the world. Nitrogen tetroxide is primarily sold under a long-term
contract to the U.S. Air Force. Contract manufacturing business is generally
secured on the basis of reputation for quality, efficiency and speed of
execution and promotional activity, such as participation in trade shows.
In order to provide prompt and responsive service to its customers the
Company uses warehouse and distribution facilities which are strategically
located throughout the Company's global network.
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CUSTOMERS AND MARKETS
The Company's customers include blenders, distributors, retail dealers,
professional growers, agrichemical companies, governmental agencies, and
manufacturers throughout the world. The following chart sets forth the breakdown
of the Company's sales by geographic market for the three year period ended
December 31, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- --------------------- ---------------------
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
Europe ................. $148 39% $168 40% $175 35%
United States .......... 128 34 145 34 170 34
Canada and Latin America 22 6 33 8 70 14
Asia ................... 29 8 28 7 35 7
Israel ................. 19 5 19 4 21 4
Australia .............. 6 2 8 2 7 2
Africa and other ....... 25 6 23 5 19 4
---- --- ---- --- ---- ---
Total .............. $377 100% $424 100% $497 100%
==== === ==== === ==== ===
</TABLE>
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The Company's customers are diversified across each of the Company's
product groups. Specialty Plant Nutrients are generally sold through the
Company's network of representative offices and through its sales, technical
support and distribution affiliates who in turn generally sell to blenders,
growers or other end-users. The Company sells its Industrial Chemicals
principally through its own worldwide network of representative offices and
through its sales, support and distribution affiliates to various industrial
consumers. The Company's Organic Chemicals Group sells its products through
distributors (including Riceco), co-operatives, regional dealers, international
brokers and multinationals, as well as to Riceco. In addition, the Company sells
its Organic Chemicals directly to some customers domestically and
internationally. During the year ended December 31, 1999, no customer accounted
for more than 3% of consolidated revenues and the Company's 10 largest customers
accounted for less than 15% of consolidated revenues.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 1997, 1998 and 1999, the Company spent
approximately $2.4 million, $2.7 million and $2.1 million, respectively, on the
development and evaluation of process technologies, efficiencies and quality
control which have been charged to current operations. The Company's extensive
agronomic data base, which consists of the results of thousands of experiments
under a wide range of soil and climatic conditions, enhances the Company's
ability to develop and introduce new products, as horticultural and agricultural
growers generally require substantial testing under their own specific climatic,
soil and growing conditions before they will adopt a new plant nutrient. The
Company also utilizes cooperative agronomic research and development
partnerships with universities to further develop new products and applications.
RAW MATERIALS
The Company's raw materials consist primarily of ammonia, potash and
phosphate rock. Other raw materials include orthodichlorobenzene, propionic acid
and various other chemicals. In the United States, all of the Company's raw
materials are readily available from multiple suppliers. A minimum of
approximately 50% of Vicksburg's potash requirements are required to be
purchased pursuant to a five year contract entered into in 1996 with the
purchaser of the Company's previously owned potash operations. Under the
contract, such purchaser has the right to supply Vicksburg's remaining potash
requirements if it can meet market prices and specified quality standards. The
remainder of Vicksburg's potash requirements are available from multiple
suppliers. Ammonia is generally purchased from a supplier under a renewable one
year contract, which expires in August, 2000, at negotiated prices and is also
available from multiple sources.
HCL (including HCSL) purchases its potash exclusively from Dead Sea Works
Ltd. ("DSW"), under a long-term contract which expires in 2005, and purchases
its phosphate rock principally from Rotem Amfert Negev Ltd. ("Rotem") according
to the terms of a contract which expires in 2001. The potash contract provides
for prices to be established quarterly, based on the weighted average of the FOB
Israeli port prices paid to DSW by its overseas customers during the preceding
quarter plus certain adjustments. The phosphate rock contract provides for
prices to be established quarterly, based on the average price paid to Rotem by
its non-affiliated customers during the preceding quarter plus certain
adjustments. HCL (including HCSL) is negotiating a new long-term contract with
DSW for potash. DSW and Rotem are both subsidiaries of a large Israeli chemical
company. While the Company believes that alternative sources of supply for raw
materials supplied by Rotem and DSW are available, the loss of supply from DSW
could have an adverse impact on the Company's financial performance. Ammonia is
currently purchased from a U.S. supplier under a variable price two year
contract, renewable for additional two year periods. Ammonia is also available
from a number of alternative suppliers. Approximately 65% of HCL's energy
requirements and approximately 60% of its steam requirements at its Haifa
facility are provided by a co-generation plant owned and operated by a third
party under a three year contract expiring in 2001 and renewable for an
additional two years. The remainder of HCL's steam requirements in Haifa are
supplied by HCL's own steam facility and from Oil Refineries Ltd. ("ORL"), under
an agreement which expires in 2003, but is terminable by HCL upon one year prior
notice and by ORL upon two years prior notice. The above mentioned third party
also operates HCL's steam facility at prices generally below those available
from alternative steam sources other than the co-generation plant. All of HCSL's
steam requirements and approximately 70% of its electrical requirements are
produced at a cogeneration plant owned and operated by HCSL.
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The Company has historically experienced fluctuations in the price of
ammonia. The Company has not generally passed on ammonia price changes to its
customers as price changes have generally been temporary.
MANUFACTURING
The production of Specialty Plant Nutrients, Organic Chemicals and
Industrial Chemicals are each integrated multi-stage processes, which in some
cases involve chemical synthesis, formulation and mixing. Following these
processes, the product is packaged based upon customer requirements.
The Company utilizes two unique synthetic manufacturing processes in
producing Specialty Plant Nutrients and Industrial Chemicals. HCL utilizes a
"solvent extraction" process in Israel and Vicksburg utilizes a "direct
reaction" process in the United States. The solvent extraction process is based
on reacting potassium chloride with nitric acid in the presence of an aqueous
recycled brine and an organic solvent, producing potassium nitrate and
hydrochloric acid as co-products. The hydrochloric acid is used on-site to
acidulate phosphate rock and produce phosphoric acid, which in turn is used to
manufacture a variety of phosphate products. The direct reaction process is
based on the reaction of potassium chloride and nitric acid, which produces
potassium nitrate, chlorine and nitrogen tetroxide as co-products.
In the production of the Company's Organic Chemicals and contract
manufacturing products, major processes and chemistries include the complex
synthesis of organic chemicals to produce agrichemicals and pharmaceutical
chemicals. Propanil is produced at Cedar's West Helena, Arkansas facility by
reacting DCA with propionic acid to produce propanil technical, the active
ingredient in all propanil products. Propanil technical is formulated into
emulsifiable concentrate and water based flowables and then sold. Cedar also
sells propanil technical in molten form and flake form. Other products follow a
similar route, i.e., synthesis and purification, followed by direct sales of
technical product or formulation into various packaged products or sale directly
into the market.
RICECO
During August, 1997, Cedar and a subsidiary of Westrade, Inc., a
privately-held Cayman Islands corporation ("Westrade"), formed Riceco to market
propanil, combination rice herbicides and other rice-related chemicals (other
than fertilizers) on a worldwide basis. Westrade produces and markets various
agricultural chemicals. Westrade's interest in Riceco is now held by a
corporation (the "Westrade Member") which is 50% owned by E.I. DuPont de Nemours
and Company and 50% by the private investment group which also owns 50% of
Westrade.
The Company and the Westrade Member each have a 50% equity interest in
Riceco and each exercises equal voting rights. Riceco's profits and losses are
currently allocated 60% to the Company and 40% to the Westrade Member, but under
specified conditions would be adjusted to 50% to each. Both members contributed
product registrations, labels and customer lists to Riceco. Under a long-term
supply agreement, the Company produces all of the propanil required by Riceco.
INTELLECTUAL PROPERTY
The Company seeks to protect the confidentiality of its manufacturing
processes by maintaining these processes as trade secrets, and accordingly, has
generally not sought patent protection. In addition, the Company has
differentiated its products in the marketplace by pursuing a branded strategy.
The Company has developed several brand names, such as K-Power, Magnisal,
Polyfeed, Plant-Prod, Multicote, K-Carb and Na-Churs Alpine Solutions.
COMPETITION
In Specialty Plant Nutrients, the Company primarily competes with
Sociedad Quimica y Minera de Chile, S.A., a Chilean corporation, and to a lesser
extent with other producers. Competition among producers of agricultural grade
potassium nitrate is primarily driven by customer preferences for quality,
reliability, custom specifications and price.
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In Industrial Chemicals, the Company competes with various specialty and
commodity chemical companies. The primary competitive factors in the industrial
chemicals market are product quality, technical services and specifications and
price.
In Organic Chemicals, the Company primarily competes with specialty and
commodity chemical companies. Competitive factors in the production of organic
chemicals primarily consist of manufacturing expertise in specific complex
chemical processes, vertical integration, flexible manufacturing facilities and
price.
FACILITIES
The Company's principal operating assets are located in the United States
and Israel, the most significant of which are described below. In addition, the
Company has operating assets in Spain, France, Hungary and Canada.
Vicksburg owns the property, plant and equipment located at its
Vicksburg, Mississippi facility and Cedar owns the property, plant and equipment
located at its West Helena, Arkansas facility. The Vicksburg plant consists of
three manufacturing plants situated on 600 acres. The West Helena facility is
ISO 9002 certified and is located on a 60 acre site. EMV owns a production
facility in Hungary on a 50 acre site. The plants are encumbered by first
mortgages and security interests securing long-term bank indebtedness. The
Company's corporate office in New York City and administrative office in
Memphis, Tennessee are in leased facilities.
HCL owns its machinery and equipment and leases the land for its Haifa,
Israel operations from ORL, a corporation which is majority-owned by the Israeli
Government. The leases expire at various dates, primarily in the years 2015 and
2016. HCSL owns the machinery and equipment and leases the land for its Mishor
Rotem, Israel operations from the Israeli Land Administration Authority under a
49 year lease which commenced in 1994. All of such lease payments for the Mishor
Rotem land have already been paid and were included in the construction costs
for this facility. HCL also owns ammonia terminal facilities located on leased
property in the port in Haifa and operates a pipeline which transports ammonia
from the port in Haifa to HCL's plant. Substantially all of these assets are
subject to security interests in favor of the State of Israel or banks.
Lego owns its machinery and equipment and leases the land for its
Natanya, Israel operation from the Israeli Government under a 49 year lease
which expires in 2022, with an option to extend the lease. All of such lease
payments pursuant to this lease through 2022 have been paid.
Management believes that its facilities are in good operating condition
and adequate for its current needs.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 1,700 people.
Except for certain employees at the Company's Israeli operations, none of the
Company's employees are represented by any collective bargaining unit.
During the fourth quarter of 1996 and during 1997, primarily in the first
half of such year, the Company's operations were adversely impacted by a labor
dispute at HCL commencing in October, 1996 and resulting in work stoppages and
an HCL plant shut-down from December 3, 1996 to March 10, 1997 (the "HCL Labor
Dispute").
Most HCL employees are members of the "Histadrut," the Israeli national
labor federation, and are represented by collective bargaining units. Terms of
employment of many HCL employees are currently governed predominantly by an SCA
negotiated by HCL with the Histadrut, the respective unions representing the
employees and representatives of the employees.
In 1994, HCL signed an agreement with the unions and representatives of
the technicians and engineers for the three year period ended December 31, 1996.
In 1995, an SCA was signed with the unions and representatives of the other
employees for the two year period ended December 31, 1996. In September, 1996,
the Company announced the
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<PAGE> 12
cancellation of such agreements effective upon their expiration dates and its
intention to negotiate a new SCA aimed at reducing labor costs and enhancing
operating flexibility for the period following December 31, 1996.
As a result of the announced cancellation of the labor agreements, HCL
suffered several work stoppages and other job actions which adversely affected
productivity during October and November 1996, including a period of temporary
plant shut-down. On December 3, 1996 the plant was shutdown until March 10, 1997
when a new SCA providing for certain wage freezes and reductions in benefits was
signed for the three year period ending December 31, 1999. A new agreement is
currently being negotiated. Subsequent to March 10, 1997, the HCL plant
re-opened and gradually began production. By the end of May, 1997 and subsequent
thereto through the early part of 1998, the HCL plant was generally operating at
approximately full capacity; however, due to the need for increased maintenance
for certain equipment resulting from the lengthy period of shut-down, there were
several periods of operations at less than full capacity and production
efficiencies were also adversely impacted.
The new SCA has resulted in cost savings for the Company compared to the
costs that it would otherwise have incurred had HCL merely renewed the terms of
the prior SCAs and continued the earlier pattern of increased costs. Further,
management believes that the aggregate amount of such cost savings subsequent to
the settlement of the HCL Labor Dispute will be substantially higher than the
extraordinary costs experienced during the HCL Labor Dispute.
Following the settlement of the HCL Labor Dispute, HCL achieved the
following objectives: (i) a reduction in absenteeism; (ii) greater ability to
freely transfer employees between departments and production units; (iii)
increased flexibility regarding the ability to promote employees and incentivize
them based on performance measures and evaluations developed and implemented by
management; (iv) greater ability to dismiss employees on the basis of poor
performance; (v) on-going and more effective communication between management
and employees; and (vi) increased freedom to use sub-contractors. In addition,
following the settlement of the HCL Labor Dispute, HCL restructured its
workforce with the result being an approximate 18% reduction in the number of
its employees, and a reduction in the average cost per employee. See Part II -
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Special Note Regarding Forward Looking Statements"
above.
An unaffiliated third party provides operating and management services
for HCSL's Mishor Rotem, Israel facility as a subcontractor, and is reimbursed
for costs based on an approved budget plus a management fee designed to increase
efficiency, volumes produced and quality of production.
ENVIRONMENTAL MATTERS
Cedar and Vicksburg.Vicksburg's plant located in Vicksburg, Mississippi
and Cedar's West Helena, Arkansas plant discharge process waste water and storm
water pursuant to permits issued in accordance with the Federal Clean Water Act
and related state statutes. Air emissions at each plant are regulated by permits
issued pursuant to the Federal Clean Air Act and related state statutes.
The Federal Environmental Protection Agency ("EPA") notified the Company
in 1989 that unspecified corrective action will be required under the Federal
Resource Conservation and Recovery Act of 1976, as amended, to protect against
the release of contaminants allegedly present at the Vicksburg plant as a result
of previous pesticide manufacturing operations. As a result of the notice, an
agreement was reached with the EPA and the Department of Justice on the terms of
a Consent Decree which was filed in the United States District Court at Jackson,
Mississippi in January, 1992. Pursuant to the Consent Decree, a facility
investigation work plan was submitted to the EPA. Following its approval,
Vicksburg intends to undertake a site investigation and corrective measures
study, followed by implementation of appropriate corrective action. Compliance
with the Consent Decree is expected to occur over a five to six year period
following the EPA's approval of the facility investigation work plan.
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<PAGE> 13
Cedar's West Helena plant utilizes a surface impoundment for biological
treatment of non-hazardous waste streams which was the subject of an enforcement
proceeding initiated by the Arkansas Department of Pollution Control and Ecology
(now known as the Arkansas Department of Environmental Quality; the "ADPCE") in
1986 which required Cedar to carry out various studies, ultimately leading to
the implementation of a groundwater monitoring system. Based in part on the
results of groundwater monitoring and in part on the discovery of a drum burial
area on the West Helena plant site, the ADPCE requested Cedar to initiate an
expanded plant-wide investigation pursuant to a Consent Administrative Order
entered in 1991 (the "Order"). In December, 1997, the ADPCE accepted the final
facility investigation report and requested Cedar to initiate a corrective
measures study to address eight separate locations on Cedar's West Helena plant
site which the ADPCE believes may require remedial action. In addition, the
ADPCE requested a plan for interim measures to address groundwater contamination
on and adjacent to the West Helena plant. Cedar removed the buried drums from
the West Helena site in accordance with a work plan incorporated in the Order
and, shortly thereafter, filed a suit against a former operator of the plant
site for contribution for the costs incurred. In October, 1994, Cedar reached a
settlement pursuant to which it recovered a substantial portion of its
previously incurred drum removal and investigative costs. The settlement also
provides for binding arbitration among Cedar and two former operators at the
plant site to apportion future investigative and remedial costs required under
the Order.
The Company believes that the future costs required to complete the site
investigation and corrective measures studies at Vicksburg and any supplemental
plant-wide investigation (if required) and the corrective measures studies at
West Helena will be between $0.5 million and $1.0 million and will be expended
over two to three years. Interim corrective measures may also be implemented at
one or both of these locations. As of December 31, 1999, the Company has accrued
an aggregate of $1.3 million for these matters. Until these investigations are
completed, it is not possible to determine the costs of any final corrective
actions which will be required. Any such corrective action costs will be
expended over a period of years. There can be no assurance that such costs will
not be material.
HCL. As a result of the production of phosphoric acid, HCL generates
acidic sludge and liquid acidic effluents. In accordance with the Plan described
below, as of January 1, 1999 HCL is operating a new purifying plant, and
disposes of the neutralized sludge in a designated land site approved by the
Ministry of Environment (the "Ministry") for the period ending December 31,
2000.
HCL currently disposes of its liquid acidic effluents to the Haifa Bay
through a local river in accordance with a permit issued pursuant to the Law for
the Prevention of Sea Pollution from Land Sources of 1988, which was effective
until September 30, 1998. The Ministry has approved a two-year extension for
this permit through December 31, 2000. However discussions are being held
regarding the quantities and concentrations of effluents.
Both above-mentioned approvals contain restrictions on quantities and
concentrations, inspection, reporting duties and certain other conditions.
During July 1996 the Ministry approved a proposed comprehensive land
solution plan for the handling and disposal of the sludge and effluents produced
by HCL's plant (the "Plan"). The Plan was based on the joint work of HCL and
representatives of the Ministry. In general, the Plan consists of two
objectives: (i) decreasing the quantities and concentrations of the effluents,
and (ii) a permanent land solution for the sludge previously disposed of in the
Mediterranean Sea, by filtering and purifying it in a purifying plant, and the
disposal thereof at a land site to be approved by the Ministry. The overall time
frame for the complete execution of the Plan is four and one-half years, with up
to an additional one and one-half year grace period available under certain
conditions, with estimated capital expenditures of up to $15.0 million which
commenced in 1997.
In November, 1996 HCL signed a settlement agreement (the "Agreement") for
resolution of a private criminal complaint, alleging violation of specified
Israeli environmental laws as a result of HCL's dumping of chemical waste into a
local river without adequate permits. The complaint was submitted against HCL
and its directors on December 21, 1994 by Man, Nature and Law, an Israeli
fellowship for the protection of the environment (the "Society") and six fishing
companies (collectively, the "Petitioners") before the Magistrate's Court of
Haifa. On November 26, 1996, the court approved the Agreement and the
Petitioners withdrew the complaint.
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<PAGE> 14
While the Agreement is consistent with the Plan, it is more specific
regarding prescribed time schedules, concentrations of effluents and the
maintenance of such concentrations. It also established a Supervising Committee
to review and supervise HCL's progress in complying with the Agreement and
prescribes enforcement penalty provisions. In addition, HCL compensated the
Petitioners and reimbursed the Society for certain legal expenses and agreed to
contribute to an educational and monitoring fund to be established under the
Agreement.
The Society recently notified HCL of alleged breaches of the Agreement,
demanding liquidated damages (approximately US$ 300,000) and compliance with the
prescribed concentration of effluents. HCL requested an extension for
compliance, advising the Society of technical and administrative measures being
taken in that respect. On December 30, 1999 the Society notified the Ministry of
Environment of HCL's noncompliance with the Agreement and of the Society's
intention to initiate criminal complaint proceedings under the Water Law, 1959
and the Law for Prevention of Sea Pollution from Land Sources, 1998. Discussions
are being held between the Society and HCL in an attempt to grant the
Supervising Committee the authority to review HCL's assertion regarding its
difficulties in implementing the Agreement.
On October 14, 1999 the State of Israel initiated criminal proceedings
against HCL, one of its managers and HCL's former subcontractor, alleging water
pollution in contravention of various laws and HCL's permit to dispose of waste
in the sea. HCL submitted to the Attorney General a motion to stay the
proceedings, based on the contention that such proceedings were initiated by
attorneys from the private sector, who are not authorized to represent the State
in such proceedings. The motion to stay the proceedings was denied and HCL is
considering an appeal. The arraignment is scheduled for May 20, 2000. HCL
intends to deny the charges.
On October 28, 1999 the State of Israel initiated criminal proceedings
against HCL pursuant to the Law of the Sources of Energy. HCL submitted to the
Attorney General a motion to stay the proceedings, based on the contention that
such proceedings were initiated by attorneys from the private sector, who are
not authorized to represent the State in such proceedings. HCL is awaiting the
Attorney General's response. The arraignment is scheduled for November 20, 2000.
HCL intends to deny the charges.
HCL believes that even if the proceedings described in the two
paragraphs immediately above were adversely decided, the penalty would most
likely be limited to a fine which would not have an adverse effect on HCL's
operations or financial condition.
HCSL stores its liquid effluents in plastic lined evaporation ponds in
accordance with a business license issued under the Business Licenses Act of
1968. Based on new regulations for evaporation ponds and the Ministry's
requirements, HCSL has submitted an updated strategic plan for the treatment of
wastes, which was approved by the Ministry in December, 1998. In general , the
plan is based on (i) segregation of streams, (ii) recovery of products and water
and (iii) disposal of treated liquid waste in the Dead Sea. The overall time
schedule for the complete execution of the plan is the latter part of 2000, with
estimated capital expenditures of approximately $5.4 million, which commenced in
1999. The Ministry has approved the issuance to HCSL of a three-year permit
pursuant to the Law for Prevention of Sea Pollution (Disposing of Wastes) of
1983 for the disposal of liquid waste in the Dead Sea. The approval sets forth
restrictions on concentrations, provides for inspection, and includes reporting
duties and certain other conditions.
HCSL has recently joined the treaty for implementation of standards
regarding the prevention of discharging contaminating materials to the
atmosphere, between the Ministry and the Manufacturers Association of Israel.
The Ministry committed itself not to apply more stringent standards of air
contamination to parties that consented to the treaty.
Appropriate provisions have been made in the consolidated financial
statements with respect to the above matters. See Notes A and P of Notes to
Consolidated Financial Statements.
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<PAGE> 15
ITEM 2. Properties
Reference is made to "Facilities" in Item 1 above, "Business," for
information concerning the Company's properties. See also Note D of Notes to
Consolidated Financial Statements for additional information.
ITEM 3. Legal Proceedings
Beginning in April 1993 a number of class action lawsuits were filed in
several United States District Courts against the major Canadian and United
States potash producers, including Eddy Potash, Inc. ("EDP"), a direct
subsidiary of the Company whose name was changed to EDP, Inc. upon completion of
the sale of its potash business in August 1996, and New Mexico Potash
Corporation ("NMPC"), an indirect subsidiary of the Company whose name was
changed to NMPC, Inc. upon completion of the sale of its potash business in
August 1996, and "unnamed co-conspirators." The purported class actions were
filed on behalf of all direct United States purchasers of potash from any of the
named defendants or their respective affiliates, at any time during the period
from April 1987 to the present, and alleged that the defendants conspired to
fix, raise, maintain and stabilize the prices of potash in the United States
purchased by the plaintiffs and the other members of the class in violation of
the United States antitrust laws. The complaints sought unspecified treble
damages, attorneys' fees and injunctive relief against the defendants. Pursuant
to an order of the Judicial Panel for Multidistrict Litigation, all of the
Federal District Court actions were consolidated for pretrial purposes in the
United States District Court for Minnesota and captioned In Re Potash Antitrust
Litigation. On or about January 12, 1995 the Court granted plaintiffs' motion to
certify the plaintiff class. On or about December 21, 1995, the defendants filed
motions for summary judgement. On September 13, 1996, Magistrate Judge Erickson
issued a Report and Recommendation recommending that U.S. District Court Judge
Kyle grant the motions filed by NMPC, EDP and the other defendants for summary
judgment as to all of the plaintiffs' claims. Plaintiffs filed objections to the
Report and Recommendation. On January 2, 1997, Judge Kyle issued an order
accepting and adopting Magistrate Judge Erickson's Report and Recommendation and
ordering that the motions filed by NMPC, EDP and the other defendants for
summary judgment as to all of the plaintiffs' claims be granted. Plaintiffs
appealed Judge Kyle's order to the U.S. Court of Appeals for the Eighth Circuit.
On May 7, 1999, a three judge panel of the Court of Appeals affirmed the grant
of summary judgement as to all of the plaintiffs' claims against NMPC, EDP and
two other defendants but reversed the grant of summary judgement as to the
claims against the remaining defendants. Thereafter, defendants against whom
summary judgement was reversed moved for a rehearing before the entire Court of
Appeals. The plaintiffs did not seek a rehearing of the decision of the three
judge panel. On July 16, 1999, the Court of Appeals vacated the opinion of the
three judge panel (as to all defendants, including NMPC and EDP) and scheduled a
rehearing before the entire Court. The rehearing took place on September 13,
1999. On February 17, 2000, the Court of Appeals affirmed the summary judgement
which had been granted by the U.S. District Court dismissing all the claims
against all of the defendants (including NMPC and EDP).
On or about May 27, 1993 a purported class action captioned Angela
Coleman v. New Mexico Potash Corp., et al. was filed against the major Canadian
and United States potash producers, including EDP and NMPC, and unnamed
co-conspirators in the Superior Court of the State of California for the County
of Los Angeles. The Coleman action was commenced by Angela Coleman on behalf of
a class consisting of all California indirect purchasers of potash, and alleges
that the defendants conspired to fix, raise, maintain and stabilize the prices
of potash indirectly purchased by the members of the class in violation of
specified California antitrust and unfair competition statutes. The complaint in
Coleman seeks unspecified treble damages, attorneys' fees and injunctive relief
against the defendants. In addition, on or about March 29, 1994, a purported
class action captioned Neve Bros. et al. v. Potash Corporation of Saskatchewan,
et. al., was commenced in the Superior Court of the State of California for the
City and County of San Francisco against the major Canadian and United States
potash producers and unnamed co-conspirators. EDP, NMPC, NMPC's parent, Cedar,
Cedar's parent corporation, Nine West Corporation ("Nine West"), and the Company
are among the named defendants in the Neve action. The Neve action, also brought
on behalf of a class of indirect purchasers of potash in California, makes
substantially the same allegations as made in the Coleman action and seeks
substantially the same legal and equitable remedies and relief. Nine West and
the Company have been dismissed from the Neve action for lack of personal
jurisdiction. Cedar, EDP and NMPC have served and filed answers in the Neve
action, and EDP and NMPC have served and filed answers in the Coleman action, in
each case denying all material allegations of the respective
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complaint. The Coleman action has been consolidated with the Neve action in the
Superior Court of the State of California for the City and County of San
Francisco. By stipulation, this consolidated action has been stayed.
Management has no knowledge of any conspiracy of the type alleged in
these complaints.
On October 24, 1995 several suits were filed in both the State Court in
Bogalusa, Louisiana and in the United States District Court for the Eastern
District of Louisiana, each purporting to be class actions arising out of an
October 23, 1995 chemical release from a tank car at a Bogalusa, Louisiana plant
of a Vicksburg customer, Gaylord Chemical Company ("Gaylord"). The tank car
contained nitrogen tetroxide which had been produced and sold by Vicksburg.
Subsequently, approximately 146 suits were filed in the State Court for the 22nd
Judicial District, Washington Parish, Louisiana (the "Louisiana Court"). The
cases have been consolidated in the Louisiana Court and certified as a class
action (the "Louisiana Class Action"). The class is estimated to contain more
than 8,000 claimants (the "Class"). Vicksburg, Cedar and the Company are
included among the defendants in the Louisiana Class Action. In addition, two
later suits, one on behalf of the City of Bogalusa, have been filed in the
Louisiana Court naming, among the defendants, Vicksburg, Cedar and the Company.
Also, 10 separate suits naming an aggregate of approximately 4,000 plaintiffs
(the "Mississippi Plaintiffs") were filed in the Circuit Court of Hinds County,
Mississippi naming, among the defendants, Vicksburg, Cedar and the Company.
Among other defendants included in the Louisiana Class Action and in the
Mississippi suits are Gaylord and its parent corporation, Gaylord Container
Corporation; Union Tank Car Company; Illinois Central Railroad Company; and
Kansas City Southern Railway Company. The plaintiffs in these suits seek
unspecified damages arising out of the alleged exposure to toxic fumes and the
City of Bogalusa seeks reimbursement of expenses allegedly resulting from the
chemical release. The suits were tendered to the Company's liability insurance
carriers for defense and indemnification. Certain of the carriers have denied
coverage. Vicksburg and Cedar have commenced an action in the Louisiana Court
against their insurance carriers (whose insurance policies also included the
Company as an additional named insured) seeking a declaratory judgement that
Vicksburg and Cedar are entitled to defense costs and indemnification with
respect to these claims.
During August, 1998, conditional agreements to settle the claims in the
Louisiana Class Action and the claims of the Mississippi Plaintiffs were entered
into on behalf of TRI, Vicksburg, Cedar and other affiliates of the Company
named as defendants (collectively the "Entities") and on behalf of the
plaintiffs. During March, 1999, amended and restated conditional agreements to
settle the claims (the "Amended Agreements") were executed by the parties.
The Company recorded a charge of $36.2 million in 1998 (included in the
caption "Interest and other income (expense) - net" in the accompanying December
31, 1998 Consolidated Statement of Operations) in connection with the
conditional settlement and the related legal expenses.
If the numerous conditions to the settlement are satisfied, the Entities'
funding obligation under the Amended Agreements would be an aggregate of
approximately $32.4 million plus (i) approximately$4.6 million, which is the
amount which one of the Settling Insurers (as defined below) shall have paid to
the Entities for reimbursement of defense costs (the "Defense Depletion Amount")
and (ii) interest payments on $17 million, as described below. The initial $10
million of the funding obligation was deposited in an escrow account on August
31, 1998 and, upon execution of the Amended Agreements, was transferred to
another escrow account (the "Preliminary Escrow Account") established to hold
the money in escrow until the settlement is finalized or terminated. The
Entities made a further deposit of $5 million into the Preliminary Escrow
Account on March 31, 1999. In addition, on or about April 1, 1999, two settling
insurance carriers (the "Settling Insurers") contributed to the Preliminary
Escrow Account an aggregate of $25 million, less the Defense Depletion Amount.
If the Settlement is finalized, the Entities will assign to the plaintiffs their
rights under their remaining $26 million of insurance coverage.
The Entities are to make further deposits into the Preliminary Escrow
Account totaling $17 million as follows: (i) $6.8 million on December 31, 2000;
(ii) $5.1 million on June 30, 2001; and (iii) $5.1 million on December 31, 2001.
The Entities are also to make interest payments on the balance of the $17
million which has not been deposited into escrow at 6.25% per annum, which
commenced on April 1, 1999. The Entities are required to deposit the interest
payments into the escrow account on the following dates: (i) September 30, 1999;
(ii) January 31, 2000; (iii) June 30, 2000; (iv) September 30, 2000; (v)
December 31, 2000; (vi) June 30, 2001; and (vii) December 31, 2001. Within one
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<PAGE> 17
business day after the Louisiana Court gives its preliminary approval of the
Class settlement, the Entities are to deposit into the Preliminary Escrow
Account an amount equal to (i) the Defense Depletion Amount and (ii) the
additional sum of approximately $0.4 million, which is the portion of the
anticipated settlement payment from another insurance company that the Entities
have agreed to contribute to the Class settlement.
After: (a) (i) plaintiffs' counsel has obtained settlements and
releases from all plaintiffs who are not in the Class because they have opted
out (e.g., the Mississippi Plaintiffs have indicated that they will opt out of
the Class) or fall outside of the definition of the Class (the "Opt-Outs") or
(ii) the Entities have agreed to go forward with the settlement without such
settlements and releases from the Opt-Outs; and (b) the Louisiana Court gives
its preliminary approval of the settlement respecting the Class, the funds in
the Preliminary Escrow Account (including earned interest), less (x) the sums
needed to settle the claims of all Opt-Outs who settle, and (y) the sums to be
set aside for the Opt-Outs who do not settle (the "Non-Settling Opt-Outs
Escrow") and to cover certain claims (the "Uncovered Claims") which may not be
covered by the settlement (the "Uncovered Claims Escrow"), will be transferred
to a subaccount of the Preliminary Escrow Account which is to be used to fund
the settlement with the Class.
If the Entities fail to timely make the required payments and such
failure is not cured within a reasonable time (at least 30 days) after notice,
the plaintiffs' sole remedy under the Amended Agreements is to terminate the
settlement. In addition, the Entities can terminate the settlement and the
Entities and the Settling Insurers can recover the escrowed amounts plus earned
interest (less a fixed amount which is to be paid to a small group of the
Mississippi Plaintiffs, who (through their counsel) have advised that they will
opt out of the Louisiana Class Action (the "Fixed Mississippi Settlement
Amount") ) if any of the following conditions, among numerous others, do not
occur: (a) the courts in Mississippi and Louisiana enter orders staying all
claims and cross claims against the Entities; (b) all the claims of the Opt-Outs
(including the 4,000 Mississippi Plaintiffs that opt-out) are settled by a
specified deadline; (c) the Louisiana courts give final approval to the
settlement with the Class; and (d) all Class members and all Opt-Outs agree to
reduce judgments against non-settling defendants to the extent necessary to
eliminate all cross claims and claims for contribution or indemnity against the
Entities and to indemnify the Entities against all such claims and cross claims.
No money will be disbursed to any plaintiffs from the escrow accounts unless and
until all of the conditions have been met or waived by the Entities.
If the Entities elect to go forward without the releases from all of
the Opt-Outs and the Non-Settling Opt-Outs Escrow is insufficient to satisfy the
remaining claims of the Opt-Outs and pay for the Entities' defense thereof or
the Uncovered Claims Escrow is insufficient to pay the Uncovered Claims, the
Entities are responsible for the shortfall.
If all the conditions have not been met or waived and the settlement
terminates, the parties revert to their respective positions before the
settlement was entered into, the litigations will probably resume and the monies
deposited in escrow plus earned interest (less escrow fees and authorized
charges) will be returned to the Entities and the Settling Insurers, except only
that Fixed Mississippi Settlement Amount must be paid within 30 days after the
later of the Entities' receipt of a demand for such payment and the return of
the escrowed amounts to the Entities and the Settling Insurers.
There are several other legal proceedings pending against the Company and
certain of its subsidiaries arising in the ordinary course of its business which
management does not consider material.
Management of the Company believes, based upon its assessment of the
actions and claims outstanding against the Company and certain of its
subsidiaries, and after discussion with counsel, that the eventual disposition
of the matters described or referred to above should not have a material adverse
effect on the financial position, future operations or liquidity of the Company.
However, management of the Company cannot predict with certainty the outcome of
the potash and Bogalusa Litigation matters described above.
For information relating to certain environmental proceedings affecting
the Company, see "Environmental Matters" in Item 1 above, "Business."
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1999.
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PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
All of the Company's equity securities are owned by TPR Investment
Associates, Inc. ("TPR"). See Part III - Item 12 - "Security Ownership of
Certain Beneficial Owners and Management." In addition, see Note G of Notes to
Consolidated Financial Statements for information regarding certain restrictions
on the Company's payment of dividends. During 1997, 1998 and 1999, the Company
paid or declared cash dividends on its Common Stock in the amounts of $3.7
million, $12.6 million and $2.6 million, respectively.
ITEM 6. Selected Financial Data
The following table presents selected consolidated financial data of
the Company for the five year period ended December 31, 1999. This data has been
derived from the consolidated financial statements of the Company and should be
read in conjunction with the notes thereto.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues .................................... $ 385,564 $ 412,305 $ 376,531 $ 423,558 $ 497,075
Operating costs and expenses:
Cost of goods sold ........................ 323,126 343,930 305,588 336,544 394,401
General and administrative ................ 43,193 46,419 42,622 51,221 67,911
--------- --------- --------- --------- ---------
Operating income ............................ 19,245 21,956 28,321 35,793 34,763
Interest expense ............................... (34,498) (32,195) (29,475) (37,605) (47,776)
Interest and other income (expense) - net (1) 9,128 25,448 5,550 (8,624) 142
--------- --------- --------- --------- ---------
Income (loss) before income taxes,
extraordinary item and change in
accounting principle ...................... (6,125) 15,209 4,396 (10,436) (12,871)
Income tax provision ........................ 733 4,016 2,952 3,882 2,994
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item
and change in accounting principle ........ (6,858) 11,193 1,444 (14,318) (15,865)
Extraordinary item - net .................... (103) (553) -- (11,328) --
Cumulative effect of change in
accounting principle - net ................ -- -- -- (1,253) --
--------- --------- --------- --------- ---------
Net income (loss) ........................... $ (6,961) $ 10,640 $ 1,444 $ (26,899) $ (15,865)
========= ========= ========= ========= =========
Dividends:
Preferred stock ............................. $ 851 $ 851 $ 850 $ 850 $ 850
Common stock ................................ 856 5,208 3,736 13,376 2,606
</TABLE>
(1) Includes (a) gains of $1,700,000 in the year ended December 31, 1995
representing the excess of insurance proceeds over the carrying value of
certain HCL property destroyed in a fire, (b) security gains (losses) of
($413,000), $341,000, $2,713,000, $1,948,000 and $320,000 for the years
ended December 31, 1995, 1996, 1997, 1998 and 1999, respectively, (c)
foreign currency gains (losses) of $5,400,000 and ($1,600,000) for the
years ended December 31, 1995 and 1996, respectively, (d) a gain of
$22,579,000 in the year ended December 31, 1996 relating to the Company's
sale of its potash operations, and (e) in the year ended December 31,
1998, (i) a gain of $22,946,000 relating to the Company's investment in
Laser Industries Limited ("Laser") and its share exchange with ESC, and
(ii) a loss of $36,204,000 relating to the Company's settlement of the
Bogalusa Litigation. See Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes A and K of Notes
to Consolidated Financial Statements.
16
<PAGE> 19
<TABLE>
<CAPTION>
December 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Financial Position:
Cash and cash equivalents ........ $ 32,872 $ 29,112 $ 19,757 $ 12,387 $ 9,354
Working capital .................. 82,011 86,986 73,597 110,134 108,112
Total assets ..................... 467,102 426,631 462,016 599,286 706,699
Short-term debt, including current
maturities of long-term debt ... 46,848 32,829 49,660 49,248 69,619
Long-term debt, excluding current
maturities and subordinated debt 174,506 152,539 154,726 414,432 496,016
Senior subordinated debt - net ... 114,074 114,175 114,288 -- --
Stockholder's equity (deficit) ... 20,675 26,254 23,607 (38,843) (60,212)
</TABLE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
See Part I - Item 1 - "Business" - "Special Note Regarding Forward-Looking
Statements".
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain items
appearing in the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Percentage of Revenues
----------------------
Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues:
Specialty Plant Nutrients .................. 58.6% 57.3% 64.2%
Industrial Chemicals ....................... 28.9 29.5 21.9
Organic Chemicals .......................... 12.5 13.2 13.9
----- ----- -----
Total revenues ......................... 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold ......................... 81.2 79.4 79.3
General and administrative ................. 11.3 12.1 13.7
----- ----- -----
Operating income ................................ 7.5 8.5 7.0
Interest expense ........................... (7.8) (8.9) (9.6)
Interest and other income (expense) - net .. 1.5 (2.1) --
----- ----- -----
Income (loss) before income taxes,
extraordinary item and change in
accounting principle ....................... 1.2 (2.5) (2.6)
Income tax provision ............................ 0.8 0.9 0.6
----- ----- -----
Income (loss) before extraordinary item
and change in accounting principle ......... 0.4 (3.4) (3.2)
Extraordinary item - net ........................ -- (2.7) --
Cumulative effect of change in accounting
principle - net ............................ -- (0.3) --
----- ----- -----
Net income (loss) ............................... 0.4% (6.4)% (3.2)%
===== ===== =====
</TABLE>
17
<PAGE> 20
1999 Compared with 1998
Revenues increased by 17.4% to $497.1 million in 1999 from $423.6 million
in 1998, an increase of $73.5 million. The increase resulted from (i) increased
sales of Specialty Plant Nutrients of approximately $76 million principally due
to an increase in quantities sold in 1999 versus the prior year, primarily as a
result of the Acquired Businesses, and (ii) increased Organic Chemicals revenues
of approximately $13 million (which primarily relates to one of the Acquired
Businesses); partially offset by a decline in sales of Industrial Chemicals. See
Part I - Item 1 - "Business" - above.
Cost of goods sold as a percentage of revenues decreased to 79.3% in 1999
compared with 79.4% in 1998. Gross profit was $102.7 million in 1999, or 20.7%
of revenues, compared with $87.0 million in 1998, or 20.6% of revenues, an
increase of $15.7 million. The primary factors resulting in the increased gross
profit in 1999 were (i) increased Specialty Plant Nutrients and Organic
Chemicals quantities sold as compared to the 1998 period, including the gross
profits relating to the Acquired Businesses, (ii) increased production
efficiencies at HCL in the 1999 period as compared to the corresponding period
in the prior year and (iii) improved margins of Organic Chemicals. These
increases were partially offset by (i) less favorable currency exchange rates in
1999 and (ii) increased competition which caused decreases in the selling price
of chlorine, one of the Company's industrial chemical products.
General and administrative expense increased to $67.9 million in 1999
from $51.2 million in 1998, an increase of $16.7 million (13.7% of revenues in
1999 compared to 12.1% of revenues in 1998). This increase was principally due
to the additional general and administrative expenses of the Acquired
Businesses, some of which are more marketing intensive (see Part I - Item 1 -
"Business" above).
As a result of the matters described above, the Company's operating
income decreased by $1.0 million to $34.8 million in 1999 as compared with $35.8
million in 1998. As a percentage of revenues operating income decreased to 7.0%
in 1999 from 8.5% in 1998.
Interest expense increased by $10.2 million to $47.8 million in 1999
compared with $37.6 million in 1998 primarily as a result of (i) the issuance by
the Company of its 10 3/4% Senior Notes and 12% Senior Discount Notes, partially
offset by the Company's repurchase of all of its 11 7/8% Senior Subordinated
Notes in 1998 (see "Refinancing" below) and (ii) certain increased borrowings
relating to the Company's investment and capital expenditure program, including
borrowings related to the acquisition of the Acquired Businesses. Interest and
other income (expense) - net was higher in 1999 by $8.8 million, principally due
to the 1998 provision for loss relating to the conditional settlement of the
Bogalusa Litigation, partially offset by the 1998 gain related to the Laser/ESC
combination (see Part I - Item 3 - "Legal Proceedings" above and "Investment in
Laser/ESC" below).
As a result of the above factors, loss before income taxes,
extraordinary item and cumulative effect of change in accounting principle
increased by $2.4 million in 1999. The Company's provisions for income taxes are
impacted by the mix between domestic and foreign earnings and vary from the U.S.
Federal statutory rate principally due to the impact of foreign operations and
certain losses for which there is no current tax benefit.
In the 1998 period, the Company acquired the total amount outstanding
($115.0 million principal amount) of its 11 7/8% Senior Subordinated Notes,
which resulted in a loss of $11.3 million (see "Refinancing" below). Such loss
(which had no tax benefit) is classified as an extraordinary item in the
accompanying Consolidated Statement of Operations. No such debt was acquired in
the 1999 period.
In the 1998 period, the Company changed its method of accounting for
start-up costs incurred relating to the start-up of newly constructed
manufacturing facilities to conform with AICPA Statement of Position No. 98-5
("SOP 98-5"), "reporting on the Costs of Start-up Activities"' which requires
that such costs be currently charged to operations. This change in accounting
principle resulted in a net charge of approximately $1.3 million, net of income
tax benefit.
18
<PAGE> 21
1998 Compared with 1997
Revenues increased by 12.5% to $423.6 million in 1998 from $376.5 million
in 1997, an increase of $47.1 million. The increase resulted from (i) increased
sales of Specialty Plant Nutrients and Industrial Chemicals of approximately
$38.0 million principally due to an increase in quantities sold in 1998 versus
the prior year, which year was adversely affected by the HCL Labor Dispute, with
such increased sales partially offset by less favorable currency exchange rates
in 1998 and (ii) an increase in revenues of Organic Chemicals of approximately
$9.1 million. See Part I - Item 1 - "Business" - "Employees" above.
Cost of goods sold as a percentage of revenues decreased to 79.4% in 1998
compared with 81.2% in 1997. Gross profit was $87.0 million in 1998, or 20.6% of
revenues, compared with $70.9 million in 1997, or 18.8% of revenues, an increase
of $16.1 million. The primary factors resulting in the increased gross profit in
1998 were (i) increased Specialty Plant Nutrients and Industrial Chemicals
quantities sold as compared to 1997 primarily resulting from the adverse effect
of the HCL Labor Dispute, (ii) lower raw material and energy costs and certain
selling price increases and (iii) improved margins of Organic Chemicals. These
increases were partially offset by less favorable currency exchange rates in
1998 and by certain increased costs relating to production interruptions and
inefficiencies at HCL in 1998 resulting from (i) certain unscheduled maintenance
to equipment required due to the lengthy period of shut-down during the HCL
Labor Dispute and (ii) the impact of power interruptions associated with the
installation of a new electrical co-generation facility at HCL's plant.
General and administrative expense increased to $51.2 million in 1998
from $42.6 million in 1997, an increase of $8.6 million (12.1% of revenues in
1998 compared to 11.3% of revenues in 1997). This increase was due to (i)
increased sales volume in 1998, and (ii) the general and administrative expenses
recorded by the businesses acquired by the Company in 1998 (see Part I - Item 1
- - "Business" above).
As a result of the matters described above, the Company's operating
income increased by $7.5 million to $35.8 million in 1998 as compared with $28.3
million in 1997. As a percentage of revenues operating income increased to 8.5%
in 1998 from 7.5% in 1997.
Interest expense increased by $8.1 million to $37.6 million in 1998
compared with $29.5 million in 1997 primarily as a result of (i) the March, 1998
issuance by the Company of its 10 3/4% Senior Notes and 12% Senior Discount
Notes, partially offset by the Company's repurchase of all of its 11 7/8% Senior
Subordinated Notes (see "Refinancing" below) and (ii) certain increased
borrowings relating to the Company's investment and capital expenditure program.
Interest and other income (expense) - net decreased in 1998 by $14.2 million,
principally as the result of the settlement of the Bogalusa Litigation,
partially offset by the gain related to the Laser/ESC combination (see Part I -
Item 3 - "Legal Proceedings" above and "Investment in Laser/ESC" below).
As a result of the above factors, income before income taxes,
extraordinary item and cumulative effect of change in accounting principle
decreased by $14.8 million in 1998. The Company's provisions for income taxes
are impacted by the mix between domestic and foreign earnings and vary from the
U.S. Federal statutory rate principally due to the impact of foreign operations
and certain losses for which there is no current tax benefit.
In 1998, the Company acquired the total amount outstanding ($115.0
million principal amount) of its 11 7/8% Senior Subordinated Notes, which
resulted in a loss of $11.3 million (see "Refinancing" below). Such loss (which
has no tax benefit) is classified as an extraordinary item in the accompanying
Consolidated Statement of Operations. No such debt was acquired in 1997.
In 1998, the Company changed its method of accounting for start-up costs
incurred relating to the start-up of newly constructed manufacturing facilities
to conform with SOP 98-5. This change in accounting method resulted in a net
charge of approximately $1.3 million.
19
<PAGE> 22
INVESTMENT IN LASER/ESC
On November 9, 1997, Laser, a publicly traded manufacturer of lasers for
medical use in which the Company had an ownership interest accounted for by the
equity method, and ESC signed a definitive agreement (the "Agreement") to
combine the two companies through an exchange of shares. The transaction closed
on February 23, 1998. ESC develops, manufactures, and markets medical devices
utilizing both state-of-the-art lasers and proprietary intense pulsed light
source technology for non-invasive treatment of varicose veins and other benign
vascular lesions, as well as for hair removal, skin cancer, skin rejuvenation
and other clinical applications. ESC shares are traded in the United States on
the NASDAQ National Market System. The Company's investment in ESC is accounted
for pursuant to Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
As of December 31, 1997, the Company carried its investment in the Laser
shares at approximately $9.1 million. Based on the quoted market value of the
ESC shares ($35.00 per share), as of February 20, 1998, the last day of trading
before the combination, the Company recognized a pre-tax gain of approximately
$22.9 million during the first quarter of 1998, which gain is included in the
caption "Interest and other income (expense) net" in the accompanying December
31, 1998 Consolidated Statement of Operations. Subsequent to the exchange of
shares, the Company carries its investment in the ESC shares in "Other current
assets" in the accompanying December 31, 1998 and December 31, 1999 Consolidated
Balance Sheets. As of December 31, 1998 and December 31, 1999, the quoted market
value of the ESC shares was approximately $10.50 per share and $9.56 per share,
respectively, resulting in the Company recording an unrealized loss as of
December 31, 1998 and December 31, 1999 of approximately $18.3 million and $20.2
million, respectively. The unrealized loss relating to ESC is included in the
caption "Unrealized gains (losses) on marketable securities" in the accompanying
December 31, 1998 and December 31, 1999 Consolidated Balance Sheets. With
respect to the Company's investment in ESC, Management of the Company is not
aware of any events that have occurred regarding ESC that would indicate
anything other than a temporary impairment of the Company's investment in ESC.
On March 21, 2000 the closing market price of ESC shares was $14.00.
In addition to the ownership of the Laser shares described above, the
Company also owned a warrant (the "Laser Warrant") which enabled the Company to
purchase 250,000 Laser shares. The Laser Warrant, which had a carrying value of
$0.75 million, was distributed as a dividend in February, 1998.
CAPITAL RESOURCES AND LIQUIDITY
The Company's consolidated working capital at December 31, 1999 and 1998
was $108.1 million and $110.1 million, respectively.
Operations for the years ended December 31, 1999, 1998 and 1997, after
adding back non-cash items, and changes in working provided (used) net cash of
approximately $10.0 million, ($7.7) million and $9.7 million, respectively.
Investment activities during the years ended December 31, 1999, 1998
and 1997 used cash of approximately ($97.4) million, ($95.5) million and ($33.5)
million, respectively. These amounts include: (i) additions to property in 1999,
1998 and 1997 of $77.0 million, $63.4 million and $26.9 million, respectively;
(ii) purchases of marketable securities and other short-term investments in
1999, 1998 and 1997 of $25.7 million, $33.6 million and $7.7 million,
respectively; (iii) sales of marketable securities and other short-term
investments in 1999, 1998 and 1997 of $21.5 million, $22.2 million and $8.0
million, respectively; (iv) net assets acquired of operating businesses in 1999
and 1998 of $6.8 million and $9.3 million, respectively, and (v) other items
providing (using) cash in 1999, 1998 and 1997 of ($9.3) million, ($11.4) million
and ($6.9) million, respectively (including purchases of equity interests in
Lego of approximately $10 million and $11 million in 1999 and 1998,
respectively.) The property additions in the 1999 and
20
<PAGE> 23
1998 periods relate primarily to the Company's expansion of its potassium
nitrate and food grade phosphates capacity in the United States and Israel and
the construction of a plant in the United States to produce MAP and MKP.
The Company has received investment grants from the Israeli Government
for certain capital investments made by HCL. The Company initially records these
grants as a reduction of the capitalized asset which is then amortized over the
estimated useful life of the respective asset. From 1986 through December 31,
1999 the Company received cumulative gross investment grants of approximately
$72,400,000. If the Company had instead recorded the capitalized assets at their
cost, the Company's Stockholder's Equity at December 31, 1999 would have been
increased by approximately $52,500,000 ($72,400,000 less accumulated
depreciation of $19,900,000) as a result of these grants. The following table
details, on a proforma basis, the effect these grants would have had on
stockholder's equity:
<TABLE>
<CAPTION>
1998 1999
(in thousands)
<S> <C> <C>
Stockholder's equity (deficit) ........ $(38,843) $(60,212)
Effect of investment grants ........... 44,563 52,500
-------- --------
Proforma stockholder's equity (deficit) $ 5,720 $ (7,712)
======== ========
</TABLE>
Financing activities during the years ended December 31, 1999, 1998
and 1997 provided cash of approximately $84.3 million, $95.8 million and $14.4
million, respectively. The 1998 amount relates primarily to the refinancing
described below; the 1999 amount relates primarily to borrowings in connection
with the Company's investment and capital expenditure program.
As of December 31, 1999, the Company had outstanding long-term debt
(excluding current maturities) of $496.0 million. The Company's primary sources
of liquidity are cash flows generated from operations, sales of marketable
securities and its unused credit lines described in Note E of Notes to
Consolidated Financial Statements.
REFINANCING
On March 16, 1998, the Company completed a private placement of $100.0
million principal amount of 10 3/4% Senior Notes due 2008 (the "Senior Notes")
and $135.0 million principal amount at maturity of 12% Senior Discount Notes due
2008 (the "Senior Discount Notes"). The Senior Discount Notes provided gross
proceeds to the Company of approximately $75.4 million. A substantial portion
(approximately $118.0 million) of the net proceeds from the sale was used in
March 1998 to purchase (pursuant to a tender offer and consent solicitation)
approximately $110.0 million principal amount of the Company's 11 7/8% Senior
Subordinated Notes (the "11 7/8 % Notes") (the "Refinancing"). In addition, in
the four month period ended July 1998, the Company repurchased or redeemed the
remaining $5.0 million principal amount of its 11 7/8% Notes. As a result of the
Refinancing and the subsequent repurchases or redemptions of the 11 7/8% Notes,
combined with the write-off of certain unamortized issuance costs associated
with the 11 7/8% Notes, the Company recognized an extraordinary charge for the
early extinguishment of debt of approximately $11.3 million which is classified
as an extraordinary item in the accompanying December 31, 1998 Consolidated
Statement of Operations.
The Senior Notes and the Senior Discount Notes are unsecured
obligations of the Company and are pari passu in right of payment with all
existing and future unsecured and unsubordinated indebtedness of TRI and senior
in right to payment to all subordinated indebtedness of TRI. Interest on the
Senior Notes is payable semi-annually. Interest on the Senior Discount Notes
accretes and compounds semi-annually but is not payable until 2003, after which
interest on the accreted principal amount will be payable semi-annually.
See Note G of Notes to Consolidated Financial Statements.
21
<PAGE> 24
FORWARD-LOOKING LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Senior Notes and interest and principal
repayments under other indebtedness represent significant obligations of the
Company and its subsidiaries. For a description of the amortization required on
the Company's other indebtedness see Note G of Notes to Consolidated Financial
Statements. During the years ended December 31, 1999, 1998 and 1997, the Company
incurred significant capital expenditures pursuant to its plan to increase
capacity for potassium nitrate, food grade phosphates and the construction of a
plant to manufacture MAP and MKP (the "Plan"). The Company completed the Plan
during 1999. During the years ended December 31, 1999, 1998 and 1997, the
Company spent approximately $77.0 million, $63.4 million and $26.9 million,
respectively, on capital projects, of which the majority related to the Plan.
Ongoing maintenance capital expenditures are expected to be approximately $16.0
million per year.
The Company's primary sources of liquidity are cash flows from
operations, borrowings under the credit facilities of the Company and sales of
marketable securities. As of December 31, 1999, the Company had approximately
$47.0 million of borrowing availability, consisting of $15.0 million of
borrowing availability to the Company and the remainder at the Company's
subsidiaries. In addition, during 1998 HCL entered into $80.0 million in credit
facilities which has been used to finance its capacity expansion at its Mishor
Rotem, Israel facility. Dividends and other distributions from the Company's
subsidiaries are, in part, a source of cash flow available to the Company. The
Company believes that, based on current and anticipated financial performance,
cash flow from operations, borrowings under the Company's credit facilities,
dividends and other distributions available from the Company's subsidiaries and
proceeds from sales of marketable securities will be adequate to meet
anticipated requirements for capital expenditures, working capital and scheduled
interest and principal payments. However, the Company's capital requirements may
change. The ability of the Company to satisfy its capital requirements and to
repay or refinance its indebtedness will be dependent upon the future financial
performance of the Company, which in turn will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond the Company's control. See Part I - Item 1 - "Business" "Special Note
Regarding Forward-Looking Statements".
FOREIGN CURRENCIES
The Company has no significant foreign currency denominated revenues
except at HCL. Approximately $169.0 million (59%) of HCL's total sales for the
year ending December 31, 1999 were made outside of Israel in currencies other
than the U.S. dollar (principally Western European currencies). Accordingly, to
the extent that the U.S. dollar weakens or strengthens versus the applicable
corresponding foreign currency, HCL's results are favorably or unfavorably
affected. In order to mitigate the impact of currency fluctuations against the
U.S. dollar, the Company may from time to time hedge a portion of its foreign
sales denominated in Western European currencies by entering into forward
exchange contracts. A portion of these contracts qualify as hedges pursuant to
SFAS No. 52 and, accordingly, applicable unrealized gains and losses arising
therefrom are deferred and accounted for in the subsequent year as part of
sales. Unrealized gains and losses for the remainder of the forward exchange
contracts are recognized in operations currently. If the Company had not
followed such a policy of entering into forward exchange contracts in order to
hedge its foreign sales, and instead recognized income based on the then
prevailing foreign currency rates, the Company's income before income taxes for
the years ended December 31, 1999, 1998 and 1997 would have decreased by
approximately $5.5 million, $1.4 million and $7.0 million, respectively. At
December 31, 1999 and 1998, there were outstanding contracts to purchase $85,000
and $24.1 million, respectively, in various currencies, principally Deutsche
Marks and Spanish Pesetas in 1998 and Japanese Yen in 1999.
The Company determines when to enter into hedging transactions (and the
extent of its foreign currency denominated sales it wishes to hedge) based on
its ongoing review of the currency markets. The principal purpose of the
Company's hedging program (which is for other than trading purposes) is to
mitigate the impact of fluctuations against the U.S. dollar, as well as to
protect against significant adverse changes in exchange rates. Accordingly, the
gains and losses recognized relating to the hedging program in any particular
period and the impact on revenues had the Company not had such a program are not
necessarily indicative of its effectiveness.
22
<PAGE> 25
On January 1, 1999, eleven of fifteen member countries of the European
Union established fixed conversion rates between their existing currencies
("legacy currencies") and one common currency - the Euro. On January 1, 1999 the
Euro began trading on currency exchanges and may be used in business
transactions. The conversion to the Euro will eliminate currency exchange rate
risk between the member countries. Beginning in January, 2002, new
Euro-denominated bills and coins will be issued, and legacy currencies will be
withdrawn from circulation. HCL, the principal subsidiary of TRI that will be
affected by the Euro conversion, has established plans to address the issues
raised by the Euro currency conversion. These issues include, among others, the
need to adapt computer and financial systems, the competitive impact of
cross-border price transparency which may make it more difficult for businesses
to charge different prices for the same products on a country-by-country basis,
recalculating currency risk and recalibrating derivatives and other financial
instruments. The Company does not expect any required system conversion costs to
be material. Due to numerous uncertainties, the Company cannot reasonably
estimate the effects one common currency will have on pricing and the resulting
impact, if any, on the Company's financial condition or its results of
operations.
INFLATION
Inasmuch as approximately $90.0 million of HCL's annual operating costs are
denominated in New Israeli Shekels ("NIS"), HCL is exposed to inflation in
Israel to a limited extent. The combination of price increases coupled with
devaluation of the NIS have in the past generally enabled HCL to avoid a
material adverse impact from inflation in Israel. However, HCL's earnings could
increase or decrease to the extent that the rate of future NIS devaluation
differs from the rate of Israeli inflation. For the years ended December 31,
1999, 1998 and 1997, the inflation rate of the NIS as compared to the U.S.
dollar was less than the devaluation rate in Israel by 1.3%, 9.0% and 1.8%,
respectively.
ENVIRONMENTAL MATTERS
See Part I - Item 1 - "Business" - "Environmental Matters" above and Note P
of Notes to Consolidated Financial Statements for information regarding
environmental matters relating to the Company's various facilities.
YEAR 2000 ISSUE
The term "Year 2000 ("Y2K") Issue" was a general term used to describe the
various problems that might have resulted from the improper processing of dates
and date-sensitive calculations by computers and other machinery for dates
subsequent to December 31, 1999. These problems generally could have arisen from
the fact that most of the world's computer hardware and software have
historically used only two digits to identify the year in a date, often meaning
that the computer could fail to distinguish dates in the "2000's" from dates in
the "1900's." These problems could have also arisen from other sources as well,
such as the use of special codes and conventions in software that make use of
the date field. The Y2K computer software compliance issues were anticipated to
have a possible adverse affect on the Company and most companies in the world.
The failure to correct a material Y2K problem could have resulted in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could have had an adverse affect on the Company's
results of operations, liquidity and financial condition.
The Company had begun preparing itself for potential Y2K problems in
1997. As of December 31, 1999 the Company had completed all aspects of its Y2K
readiness program and to date had not experienced any significant problems
related to the Y2K issue. Through December 31, 1999 the Company estimates that
it had spent approximately $1.5 million to be Y2K Compliant. The Company will
continue to require periodic reports from its operating units to insure that it
is compliant.
OTHER MATTERS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities and measure those instruments at fair value. Depending on
the intended use of the derivative, changes in derivative fair values may be
charged to operations unless the derivative qualifies as a hedge under certain
23
<PAGE> 26
requirements. The Company will adopt SFAS 133 on January 1, 2000 and is
evaluating the impact, if any, of SFAS 133 on its consolidated financial
statements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to certain market risks which are inherent in the
Company's normal course of business. The Company may enter into derivative
financial instrument transactions in order to manage or reduce market risk. The
Company does not enter into derivative financial instrument transactions for
speculative purposes. A discussion and sensitivity analysis of the Company's
primary market risk exposures is presented below.
INTEREST RATE RISK
Since approximately $315 million of the Company's long-term debt at
December 31, 1999 is at variable interest rates, the Company is exposed to
changes in interest rates. Accordingly, based on the amount of variable rate
debt outstanding at December 31, 1999, every one percent change in interest
rates would impact the Company by approximately $3.1 million on an annualized
basis. From time-to-time, the Company has entered into financial instruments to
convert a portion of its variable rate debt to fixed, thereby managing, to such
extent, its credit risk. See Note N of Notes to Consolidated Financial
Statements.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company has no significant foreign currency denominated revenues except
at HCL. Approximately $169.0 million of HCL's total sales for the year ended
December 31, 1999 were made outside of Israel in currencies other than the U.S.
dollar (principally in Western European currencies). Accordingly, to the extent
the U.S. dollar weakens or strengthens by one percent from its level of December
31, 1999 versus all foreign currencies as a group, (with all other variables,
including interest rates, held constant) HCL's results would be favorably or
unfavorably affected by approximately $1.7 million on an annualized basis for
each such one percent change. In order to mitigate the impact of currency
fluctuations against the U.S. dollar from time to time the Company may hedge a
portion of its next twelve month's foreign sales denominated in Western European
currencies by entering into foreign exchange contracts. See Note A of Notes to
Consolidated Financial Statements
Since the Company does not plan to repatriate foreign assets and considers
foreign earnings to be permanently invested overseas, the exposure to changes in
foreign currency exchange rates with respect to such assets is primarily limited
to cumulative translation adjustment, which has been reported in Comprehensive
Income.
MARKETABLE EQUITY SECURITIES
At December 31, 1999 the Company's portfolio of marketable equity
securities was recorded at $28.2 million and included net unrealized losses of
$20.9 million. Accordingly, to the extent quoted market values relating to the
Company's portfolio of marketable equity securities at December 31, 1999 change
by one percent, the Company's valuation of such portfolio would be impacted by
approximately $0.3 million for each such one percent change.
ITEM 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements and Schedule on page F-1.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
24
<PAGE> 27
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Arie Genger 54 Chairman of the Board and Chief Executive Officer
Thomas G. Hardy 54 Vice Chairman of the Board
Randall Blank 56 Executive Vice President-Horticulture
Gabriel Politzer 50 Executive Vice President-Specialty Plant Nutrients
J. Randal Tomblin 57 Executive Vice President -Organic Chemicals
John J. Lewandowski 44 Executive Vice President-Cedar
William Dowd 50 Vice President and Chief Financial Officer
Thomas M. Murphy 42 Vice President-Human Resources
Michael P. Oravec 48 Vice President-Corporate Taxation
Avi D. Pelossof 53 Director and Chairman of the Board of HCL
Martin A. Coleman 69 Director
Sash A. Spencer 68 Director
</TABLE>
The Financial Advisory Committee advises the Board of Directors
regarding financial matters and, when the Committee deems appropriate, makes
recommendations to the Board of Directors. The members of the Financial Advisory
Committee are Mr. Lawrence M. Small and Messrs. Hardy and Spencer.
The following are descriptions of the directors and executive officers of
the Company. The titles of Messrs. Politzer, Blank and Tomblin reflect their
positions as sector heads for the three business sectors in the organizational
structure implemented by the Company effective January 1, 2000 (see Part I-Item
1-"Business").
Arie Genger has been a director and Chairman of the Board of Directors
and Chief Executive Officer of the Company since 1986, the sole member of the
Executive Committee since June 1988, and was President of the Company from 1986
to December 1993.
Thomas G. Hardy has been Vice Chairman of the Board of Directors of the
Company since January 1, 2000. He was President and Chief Operating Officer of
the Company from December 1993 to December 1999, was Executive Vice President of
the Company from June, 1987 to December, 1993 and has been a director and member
of the Financial Advisory Committee since October 1992. He was a director of
Laser from January 1990 until February 1998 and has
25
<PAGE> 28
been a director of ESC since February 1998 (see Part II - Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" -
"Investment in Laser/ESC"). Mr. Hardy has advised the Company that he intends to
resign as an officer and employee of the Company, effective March 31, 2000.
Randall Blank has been Executive Vice President-Horticulture of the
Company since January 1, 2000. He was Chief Executive Officer of NaChurs/Alpine
Solutions from 1998 to December 1999. He was President and Chief Executive
Officer of Specialty Agricultural Products, formerly the parent company of
Alpine, from 1996 to 1998. From 1983 to 1996, he was a Vice President of Alpine.
Prior to joining Alpine, he served for 17 years with General Electric Co., most
recently in several management positions.
Gabriel Politzer has been Executive Vice President-Specialty Plant
Nutrients of the Company since January 1, 2000. He was Senior Vice President of
the Company from January, 1998 to December 1999 and was Executive Vice President
of Vicksburg from September 1993 to January 1998. From January 1989 through
September 1993, he was Vice President of Sales and Marketing at HCL. From 1983
to 1989 he was Chief Financial Officer of Negev Phosphates (a major subsidiary
of Israel Chemicals Ltd.).
J. Randal Tomblin has been Executive Vice President-Organic Chemicals of
the Company since January 1, 2000. From March 1999 to the present he has been a
Director, President and CEO of Cedar and Chairman of TRI-Chemical Vegyimuvek Rt.
(the direct parent corporation of EMV) ("TRI-Chem"), in Hungary. He was Senior
Vice President of Cedar and President of its Organics Division from 1989 to
March 1999. He was Vice President of NMPC from 1985 to 1986, President and Chief
Executive Officer of Vertac Chemical Corporation from 1986 to 1987 and was in
private business for a period between 1987 and 1989. Prior to joining NMPC, he
served for 20 years with Hoechst Celanese Corporation, most recently as a
Director of Manufacturing with Hoechst Celanese Chemical Company, and Director
of Strategic Planning and Director of New Business Development with Hoechst
Celanese Fibers Division.
John J. Lewandowski has been Executive Vice President of Cedar since
August 1, 1999 and President of TRI-Chem since January 1999. He was Vice
President - Corporate Development of the Company from September 1996 to August
1999. From September 1995 until August 1996 he served as the President of the
Company's then owned Potash Group. From January 1995 (when he accepted a
position with the Company) until September 1995 he served as the
Company's Director of Business Development. From 1991 through 1994 he served in
a variety of consulting and business advisory roles for several chemical
producers in the United States and Eastern Europe. From 1983 to 1990 he was
employed by Arcadian Corporation in positions of increasing responsibility, his
last position being Director-Nitrogen Products.
William Dowd has been Vice President and Chief Financial Officer since
February 2000. He was Vice President-Finance and Chief Financial Officer of
Asarco, Incorporated from April 1999 to December 1999. From April 1995 to April
1999, he was Controller of Asarco and for six years prior thereto he was
Assistant Controller-Taxes.
Thomas M. Murphy has been Vice President-Human Resources of the Company
since July 1999. He served as President of The Harwich Group (human resources
consulting) from December 1998 to June 1999. He was Director of Human
Resources-Technical Operations of Schering-Plough Corporation from January 1998
to December 1998. He was Director of Human Resources - The Americas of Ingersoll
Dresser Pump Company from January 1994 to January 1998, and prior thereto
Ingersoll's Divisional Human Resource Manager from April 1992 to December 1993.
Michael P. Oravec has been Vice President-Corporate Taxation of the
Company since January 1997. From December 1994 (when he accepted a position with
the Company) until December 1996 he served as the Company's Director of Taxes.
From 1980 to 1994 he was employed by The Mennen Company, in positions of
increasing responsibility, his last position being Director of Taxes.
Avi D. Pelossof has been a director of the Company since February 1999.
In addition, he has been the Chairman of the Board of Directors of HCL since
April 1998, was Active Co-Chairman of the Board of HCL from November 1997 to
April 1998, was Deputy Chairman of the Board of HCL from May 1997 to November
1997 and has been a director of HCL since March 1997. He has been a member of
the law firm of Zellermayer & Pelossof, general counsel to HCL, since 1987. He
was a director of Laser from 1996 to February 1998 and has been a director of
Nilit Ltd., a nylon yarn
26
<PAGE> 29
producer, since 1995. From 1980 to 1986 he was Managing Director and Chief
Executive Officer of Elite Food Industries Ltd. He was a member of the Israeli
Securities Authority in the 1970's, a director of the Tel Aviv Stock Exchange
Ltd. in the 1980's and was its Acting Chairman of the Board in 1996. He was a
director of Israel Aircraft Industries Ltd. from 1984 and was Chairman of the
Board in 1987.
Martin A. Coleman has been a director since March 1993. Since January
1991 he has been a private investor. Prior to that he was a member of the law
firm of RubinBaum LLP, general counsel to the Company, for more than five
years.
Sash A. Spencer has been a director since October 1992 and a member of
the Financial Advisory Committee since March, 1993. He is a private investor and
has been Chairman of Holding Capital Management, LLC., a private investment
firm, for more than five years and is on the board of directors of several
companies. He has been a director of ESC since June 1999.
Lawrence M. Small, 58, has been Chairman of the Financial Advisory
Committee of the Board of Directors since October 1992. Mr. Small is the
Secretary of the Smithsonian Institution, the world's largest combined museum
and research complex, a position to which he was elected in September 1999.
Prior to becoming the 11th Secretary, he served as President and Chief Operating
Officer of Fannie Mae, the nation's largest housing finance company, since 1991.
Before joining Fannie Mae, Mr. Small had served as Vice Chairman and Chairman of
the Executive Committee of the Board of Directors of Citicorp and Citibank,
N.A., since January 1990. He had been associated with Citibank since 1964. He is
also a director of The Chubb Corporation, Marriott International, Inc., New York
City's Spanish Repertory Theatre, the John F. Kennedy Center for the Performing
Arts, the National Gallery, the Woodrow Wilson Center for International Scholars
and Mt. Sinai-NYU Medical Center and Health System.
Directors hold office until the next annual meeting of stockholders or
until their successors are elected and qualified. There are no arrangements or
understandings between any director or executive officer of the Company and any
other person pursuant to which such person was elected as a director or
executive officer. The executive officers serve at the discretion of the Board
of Directors.
There are no family relationships among any directors, executive officers
or key employees of the Company.
27
<PAGE> 30
ITEM 11. Executive Compensation
The following table sets forth the aggregate compensation paid or accrued
by the Company for the past three fiscal years to its Chief Executive Officer
and to its next four most highly compensated executive officers serving as such
at the end of the 1999 fiscal year:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(a) ALL OTHER
----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(b)
- --------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Arie Genger................................. 1999 $780,000 $ - $ 802,000
Chairman of the Board and Chief Executive 1998 750,000 - 802,000
Officer 1997 750,000 400,000 797,000
Thomas G. Hardy............................. 1999 468,000 - 2,007,000
President and Chief Operating Officer and 1998 450,000 - 7,000
Director 1997 425,000 150,000 5,000
Gabriel Politzer............................ 1999 325,000 100,000 6,000
Senior Vice President 1998 300,000 100,000 6,000
John J. 1999 146,000 32,500 5,000
Lewandowski......................... 1998 130,000 35,000 6,000
Executive Vice President of Cedar and 1997 125,000 35,500 4,000
President of Tri-Chem
1999 133,000 25,000 7,000
Michael P. Oravec........................... 1998 118,000 18,000 6,000
Vice President-Corporate 1997 109,000 22,500 5,000
Taxation
</TABLE>
(a) During the period covered by the table, the Company did not make any
restricted stock awards and did not have in effect any stock option or stock
appreciation rights plan. See "Compensation Agreements" for Mr. Hardy's bonus
arrangement. Mr. Politzer became an executive officer in 1998.
(b) For 1999 includes in the case of Mr. Genger the cost to the Company of
split-dollar life insurance policies on the life of Mr. Genger (the
"Split-Dollar Policies"). The Company paid premiums on the Split-Dollar Policies
of $289,000 in 1999. Additionally, for 1999, includes: (i) in the case of Mr.
Genger, $250,000 for an annual premium on ordinary life insurance, $250,000 for
related income tax gross-up, $6,000 for the Company's matching contribution to a
profit sharing thrift plan, and $7,000 for the premium on term life insurance;
(ii) in the case of Messrs. Hardy, Politzer and Oravec, $6,000 each for the
Company's matching contribution to a profit sharing thrift plan and in the case
of Mr. Lewandowski $5,000 for such matching contribution; and (iii) $1,000 each
for Messrs. Hardy and Oravec for the premium on term life and disability
insurance. In the case of Mr. Hardy, also includes $2,000,000 deposited
in trust for Mr. Hardy. See "Compensation Agreements".
For 1998 includes in the case of Mr. Genger the cost to the Company of
the Split-Dollar Policies. The Company paid premiums on the Split-Dollar
Policies of $289,000 in 1998. Additionally, for 1998, includes: (i) in the case
of Mr. Genger, $250,000 for an annual premium on ordinary life insurance,
$250,000 for related income tax gross-up, $6,000 for the Company's matching
contribution to a profit sharing thrift plan, and $7,000 for the premium on term
life insurance (ii) in the case of Messrs. Hardy, Politzer and Lewandowski
$6,000 each for the Company's matching
28
<PAGE> 31
contribution to a profit sharing thrift plan and in the case of Mr. Oravec
$5,000 for such matching contribution; and (iii) $1,000 for Messrs. Hardy and
Oravec for the premium on term life and disability insurance.
For 1997 includes in the case of Mr. Genger the cost to the Company of
the Split-Dollar Policies. The Company paid premiums on the Split-Dollar
Policies of $286,000 in 1997. Additionally, for 1997, includes: (i) in the case
of Mr. Genger, $250,000 for an annual premium on ordinary life insurance,
$250,000 for related income tax gross-up, $4,000 for the Company's matching
contribution to a profit sharing thrift plan, and $7,000 for the premium on term
life insurance; (ii) in the case of Messrs. Hardy, Lewandowski and Oravec,
$4,000 for the Company's matching contribution to a profit sharing thrift plan;
and (iii) $1,000 for the premium on term life and disability insurance in the
case of Messrs. Hardy and Oravec.
The Company is entitled to a refund of the cumulative annual premiums
paid by it to the insurers pursuant to the Split-Dollar Policies before any
benefits are paid by the insurers to the owner or beneficiaries of the policies.
COMPENSATION AGREEMENTS
Pursuant to an Agreement entered into in March 1994, which modified and
superseded a 1988 bonus arrangement under which no payments had been made, the
Company irrevocably deposited in trust for the benefit of Mr. Hardy an aggregate
of $2,800,000, of which $1,400,000 was deposited in March 1994 upon execution of
the Agreement, and the remaining $1,400,000 was deposited in March 1996. As of
April 1999, the Company deposited an additional $2,000,000 of assets in trust
for the benefit of Mr. Hardy, representing prepaid salary and bonus for the
period ending May 31, 2004. See Item 13 - " Certain Relationships and Related
Transactions". The deposited property is held under a Trust Agreement as amended
(the "Trust Agreement"), which provides that the assets held thereunder are
subject to the claims of the Company's general creditors in the event of
insolvency of the Company. The Trust Agreement provides that the assets are
generally payable in a lump sum to Mr. Hardy or his beneficiaries upon the
earlier of December 1, 2008 or the termination of his employment with the
Company (with, in the case of Mr. Hardy's voluntary termination before June 1,
2004, assets having a value of approximately $2,000,000 to remain in the trust).
In the event that Mr. Hardy voluntarily terminates his employment prior to May
31, 2004, he is obligated to provide consulting services to the Company through
May 31, 2004.
An employment agreement between the Company and Mr. Hardy, effective as
of June 1, 1993, as amended, having a primary term of seven years, renewable for
10 additional years, provided for an annual salary of $400,000, subject to
negotiated annual increases commencing in the year 2000. Upon Mr. Hardy's
anticipated resignation as an employee and officer of the Company effective
March 31, 2000 the employment agreement will terminate.
The Company is also a party to certain agreements relating to the
Split-Dollar Policies on the life of Mr. Genger as described above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not have a Compensation Committee. Executive
officer compensation matters were determined by the Board of Directors, whose
five members currently include Mr. Genger, Chairman of the Board and Chief
Executive Officer of the Company, and Mr. Hardy, Vice Chairman of the Board. No
director has a relationship that would constitute an interlocking relationship
with executive officers or directors of another entity.
COMPENSATION OF DIRECTORS
Officers of the Company who serve as directors do not receive any
compensation for serving as directors. Martin A. Coleman and Sash A. Spencer
each receive $20,000 annually for serving as directors.
29
<PAGE> 32
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of March 29, 2000,
as to the beneficial ownership of the Common Stock of the Company, which is the
only outstanding class of voting security of the Company:
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENT OF CLASS
<S> <C> <C>
Common Stock, $.01 par value(a):
TPR(b)
375 Park Avenue
New York, NY 10152................................... 3,000 100%
All executive officers and directors
as a group(b)........................................ 3,000 100%
</TABLE>
(a) All of the shares of the Common Stock of the Company are pledged by TPR to
secure a TPR note in the principal amount of $7,000,000 issued to a former
indirect stockholder and director of the Company. TPR also owns all outstanding
shares of a non-voting preferred stock of the Company. See Note M of Notes to
Consolidated Financial Statements.
(b) Mr. Genger and members of his family own all of the capital stock of TPR.
ITEM 13. Certain Relationships and Related Transactions
During 1999, the Company sold to Thomas G. Hardy 151,515 of its ESC shares
for $1,000,000, the approximate market value of the shares on the effective date
of sale. Mr. Hardy's obligation to pay the purchase price was evidenced by his
$1,000,000 negotiable promissary note due December 31, 2008, bearing interest at
5.28% (the then mid-term applicable Federal rate). The Company deposited Mr.
Hardy's note in the trust maintained for his benefit in satisfaction of
$1,000,000 of the $2,000,000 in prepaid compensation payable to Mr. Hardy. See
Item 11 "Executive Compensation - Compensation Agreements".
The Company is, for Federal income tax purposes, a member of a
consolidated tax group of which TPR is the common parent. The Company, TPR, EDP,
Cedar, Na-Churs and certain other subsidiaries are parties to a tax sharing
agreement, dated as of December 30, 1991, under which, among other things, the
Company and such other parties have each agreed to pay TPR amounts equal to the
amounts of Federal income taxes that each such party would be required to pay if
it filed a Federal income tax return on a separate return basis (or in the case
of Cedar, a consolidated Federal income tax return for itself and its eligible
subsidiaries), computed without regard to net operating loss carrybacks and
carryforwards. However, TPR may, at its discretion, allow tax benefits for such
losses. See Note A of Notes to Consolidated Financial Statements.
During 1994, as a result of the settlement of certain litigation with a
former indirect stockholder and director of the Company, TPR (in addition to
acquiring certain financial assets) assumed a $4,000,000 obligation that was
previously owed to the Company by the wife of the former indirect stockholder
and director. Such obligation, which is included in "Other assets" in the
accompanying Consolidated Balance Sheets, bears interest at the rate of 8.75%
per year and is due in the year 2005.
30
<PAGE> 33
PART IV
ITEM 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) (1)-(2) See Index to Consolidated Financial Statements and Schedule on
Page F-1.
(3) See Index to Exhibits on Page E-1.
(b) No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 1999.
31
<PAGE> 34
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Trans-Resources, Inc.
(Registrant)
By /s/ William Dowd
----------------------------
William Dowd
Vice President and Chief Financial Officer
Dated: March 29, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED:
PRINCIPAL EXECUTIVE OFFICER:
ARIE GENGER
Chairman of the Board and Chief Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
WILLIAM DOWD
Vice President and Chief Financial Officer
By /s/ William Dowd
----------------------------
William Dowd
For Himself and As Attorney-In-Fact
Directors:
Arie Genger Dated: March 29, 2000
Thomas G. Hardy
Avi D. Pelosoff
Martin A. Coleman
Sash A. Spencer
POWERS OF ATTORNEY AUTHORIZING WILLIAM DOWD TO SIGN THIS REPORT AND ANY
AMENDMENTS HERETO ON BEHALF OF THE PRINCIPAL EXECUTIVE OFFICER AND THE DIRECTORS
ARE BEING FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITH THIS REPORT.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT:
No annual report or proxy materials have been sent to the Company's
security holders. This Annual Report on Form 10-K will be furnished to the
holders of the Company's 10 3/4% Senior Notes and 12% Senior Discount Notes.
32
<PAGE> 35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS
Independent Auditors' Report ....................................... F-2
Report of Independent Accountants .................................. F-3
Consolidated Balance Sheets, December 31, 1998 and 1999 ............ F-4
Consolidated Statements of Operations,
for the Years Ended December 31, 1997, 1998 and 1999 ............ F-5
Consolidated Statements of Stockholder's Equity and Comprehensive
Income for the Years Ended December 31, 1997, 1998 and 1999 ..... F-6
Consolidated Statements of Cash Flows,
for the Years Ended December 31, 1997, 1998 and 1999 ............ F-7
Notes to Consolidated Financial Statements ......................... F-8
SCHEDULE
Schedule I - Condensed Financial Information of Registrant,
for the Years Ended December 31, 1997, 1998 and 1999 ............ S-1
</TABLE>
F-1
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of Trans-Resources, Inc.
New York, New York
We have audited the accompanying consolidated financial statements and financial
statement schedule of Trans-Resources, Inc. (a wholly-owned subsidiary of TPR
Investment Associates, Inc.) and Subsidiaries (the "Company") listed in the
foregoing Index. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits. We did not audit the consolidated financial statements of Cedar
Chemical Corporation, a wholly-owned subsidiary, which statements reflect total
assets constituting 19 percent and 19 percent of consolidated total assets as of
December 31, 1999 and 1998, respectively, and total revenues constituting 23
percent, 28 percent and 31 percent of consolidated total revenues for the years
ended December 31, 1999, 1998 and 1997, respectively. Such financial statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Cedar Chemical
Corporation, is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Trans-Resources, Inc. and Subsidiaries as of December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles. Also, in our opinion, based on our
audits and (as to the amounts included for Cedar Chemical Corporation) the
report of other auditors, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note A to the consolidated financial statements, the Company
changed its method of accounting for the costs of start-up activities in 1998.
Deloitte & Touche LLP
March 24, 2000
F-2
<PAGE> 37
Report of Independent Accountants
- ---------------------------------
To the Board of Directors and Shareholder of
CEDAR CHEMICAL CORPORATION
In our opinion, the consolidated balance sheets and the related consolidated
statements of operations and retained earnings (accumulated deficit) and of cash
flows (not presented separately herein) present fairly, in all material
respects, the financial position of Cedar Chemical Corporation (a wholly-owned
subsidiary of Trans-Resources, Inc.) and its subsidiaries ("Cedar") at December
31, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of Cedar's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
February 4, 2000
F-3
<PAGE> 38
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 12,387 $ 9,354
Accounts receivable ............................ 90,998 102,942
Inventories .................................... 95,442 121,064
Other current assets ........................... 63,608 65,646
Prepaid expenses ............................... 16,477 21,867
--------- ---------
Total Current Assets ...................... 278,912 320,873
PROPERTY, PLANT AND EQUIPMENT - net ................ 260,585 325,463
OTHER ASSETS ....................................... 59,789 60,363
--------- ---------
Total ................................. $ 599,286 $ 706,699
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ........... $ 10,183 $ 11,288
Short-term debt ................................ 39,065 58,331
Accounts payable ............................... 76,306 84,321
Accrued expenses and other current liabilities . 43,224 58,821
--------- ---------
Total Current Liabilities ................. 168,778 212,761
--------- ---------
LONG-TERM DEBT - net ............................... 414,432 496,016
--------- ---------
OTHER LIABILITIES ................................. 54,919 58,134
--------- ---------
STOCKHOLDER'S EQUITY:
Preferred stock, $1.00 par value, 100,000 shares
authorized, issued and outstanding .......... 7,960 7,960
Common stock, $.01 par value, 3,000 shares
authorized, issued and outstanding .......... -- --
Additional paid-in capital ..................... 8,682 8,682
Accumulated deficit ............................ (34,922) (54,243)
Cumulative translation adjustment .............. (1,462) (1,704)
Unrealized losses on marketable securities ..... (19,101) (20,907)
--------- ---------
Total Stockholder's Equity (Deficit) ........ (38,843) (60,212)
--------- ---------
$ 599,286 $ 706,699
Total ................................... ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 39
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
REVENUES ........................................ $ 376,531 $ 423,558 $ 497,075
OPERATING COSTS AND EXPENSES:
Cost of goods sold ............................ 305,588 336,544 394,401
General and administrative .................... 42,622 51,221 67,911
--------- --------- ---------
OPERATING INCOME ................................ 28,321 35,793 34,763
Interest expense .............................. (29,475) (37,605) (47,776)
Interest and other income (expense) - net ..... 5,550 (8,624) 142
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CHANGE IN
ACCOUNTING PRINCIPLE .......................... 4,396 (10,436) (12,871)
INCOME TAX PROVISION ............................ 2,952 3,882 2,994
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM
AND CHANGE IN ACCOUNTING PRINCIPLE ............ 1,444 (14,318) (15,865)
EXTRAORDINARY ITEM - Loss on repurchase
of debt (no income tax benefit) ............... -- (11,328) --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, net of income tax benefit of $80,000 -- (1,253) --
--------- --------- ---------
NET INCOME (LOSS) ............................... $ 1,444 $ (26,899) $ (15,865)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 40
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ADDITIONAL CUMULATIVE ON COMPREHENSIVE
PREFERRED COMMON PAID-IN RETAINED TRANSLATION MARKETABLE INCOME
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT SECURITIES TOTAL (LOSS)
-------- ---- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 ........ $ 7,960 $ -- $ 8,682 $ 9,345 $ (367) $ 634 $ 26,254
Net income ................... 1,444 1,444 $ 1,444
Dividends:
Common stock ............ (3,736) (3,736)
Preferred stock ......... (850) (850)
Net change during year ....... 300 195 495 495
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 ....... 7,960 -- 8,682 6,203 (67) 829 23,607 $ 1,939
========
Net loss ..................... (26,899) (26,899) $(26,899)
Dividends:
Common stock, including
non-cash dividend of
$750,000............ (13,376) (13,376)
Preferred stock ......... (850) (850)
Net change during year ....... (1,395) (19,930) (21,325) (21,325)
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE DECEMBER 31, 1998 ........ 7,960 -- 8,682 (34,922) (1,462) (19,101) (38,843) $(48,224)
========
Net loss ..................... (15,865) (15,865) $(15,865)
Dividends:
Common stock ............ (2,606) (2,606)
Preferred stock ......... (850) (850)
Net change during year ....... (242) (1,806) (2,048) (2,048)
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1999 ....... $ 7,960 $ -- $ 8,682 $(54,243) $ (1,704) $(20,907) $(60,212) $(17,913)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 41
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- --------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Operations:
Net income (loss) ................................................ $ 1,444 $ (26,899) $(15,865)
Items not requiring (providing) cash:
Depreciation and amortization of property, plant and
equipment and other assets .............................. 21,208 22,086 25,895
Amortization of deferred financing costs and accretion
of interest expense ..................................... 891 8,618 11,131
Gain on Laser/ESC share exchange ............................ -- (22,946) --
Extraordinary item - loss on repurchase of debt ............. -- 11,328 --
Cumulative effect of change in accounting principle ......... -- 1,253 --
Provision for loss on settlement of Bogalusa Litigation ..... -- 36,204 --
Deferred taxes and other - net .............................. (762) 1,400 4,093
Working capital management:
Accounts receivable and other current assets ................ (20,153) (8,274) 6,949
Inventories ................................................. (8,919) (28,896) (18,678)
Prepaid expenses ............................................ (1,487) (650) (5,347)
Accounts payable ............................................ 20,629 10,826 (432)
Accrued expenses and other current liabilities .............. (3,106) (11,759) 2,251
-------- --------- --------
Cash provided by (used in) operating activities ......... 9,745 (7,709) 9,997
-------- --------- --------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment ......................... (26,862) (63,425) (76,973)
Sales of marketable securities and short-term investments .......... 7,982 22,195 21,497
Purchases of marketable securities and short-term investments ...... (7,743) (33,572) (25,695)
Net assets acquired (excluding cash and cash equivalents) .......... -- (9,265) (6,845)
Other- net, including approximately $11.0 million and $10.0 million
relating to the purchase of equity investments in Lego in 1999
and 1998, respectively ........................................ (6,909) (11,439) (9,347)
-------- --------- --------
Cash used in investment activities ...................... (33,532) (95,506) (97,363)
-------- --------- --------
FINANCING ACTIVITIES:
Increase in long-term debt ......................................... 12,000 258,862 82,370
Repurchases, payments and current maturities of long-term debt ..... (14,214) (151,470) (10,562)
Increase in short-term debt ........................................ 21,232 1,929 15,981
Dividends to stockholder ........................................... (4,586) (13,476) (3,456)
-------- --------- --------
Cash provided by financing activities ................... 14,432 95,845 84,333
-------- --------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ................................ (9,355) (7,370) (3,033)
CASH AND CASH EQUIVALENTS:
Beginning of year .................................................. 29,112 19,757 12,387
-------- --------- --------
End of year ........................................................ $ 19,757 $ 12,387 $ 9,354
======== ========= ========
</TABLE>
F-7
<PAGE> 42
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES AND OTHER ITEMS
Principles of Consolidation and Basis of Presentation
The consolidated financial statements of Trans-Resources, Inc. ("TRI"),
include TRI and its independently managed and financed direct and indirect
subsidiaries, after elimination of intercompany accounts and transactions. TRI's
principal subsidiaries are Cedar Chemical Corporation ("Cedar"), and Cedar's
wholly-owned subsidiary, Vicksburg Chemical Company ("Vicksburg"); Na-Churs
Plant Food Company ("Na-Churs"); Haifa Chemicals Ltd. ("HCL") and HCL's
wholly-owned subsidiary, Haifa Chemicals South, Ltd. ("HCSL"); Plant Products
Company Ltd. ("Plant Products") and EMV Kft. ("EMV"). TRI is a wholly-owned
subsidiary of TPR Investment Associates, Inc. ("TPR"). As used herein, the term
"the Company" means TRI together with its direct and indirect subsidiaries.
Investment in Laser/ESC
On November 9, 1997, Laser Industries Limited ("Laser"), a publicly traded
manufacturer of lasers for medical use in which the Company had an ownership
interest accounted for by the equity method, and ESC Medical Systems Ltd.
("ESC"), signed a definitive agreement (the "Agreement") to combine the two
companies through an exchange of shares. The transaction closed on February 23,
1998. ESC develops, manufactures, and markets medical devices utilizing both
state-of-the-art lasers and proprietary intense pulsed light source technology
for non-invasive treatment of varicose veins and other benign vascular lesions,
as well as for hair removal, skin cancer, skin rejuvenation and other clinical
applications. ESC shares are traded in the United States on the NASDAQ National
Market System. The Company's investment in ESC is accounted for pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115").
As of December 31, 1997, the Company carried its investment in the Laser
shares at approximately $9,100,000, which amount was included in the caption
"Other assets" in the December 31, 1997 Consolidated Balance Sheet. Based on the
quoted market value of the ESC shares ($35.00 per share), as of February 20,
1998, the last day of trading before the combination, the Company recognized a
pre-tax gain of approximately $22,900,000 during the first quarter of 1998,
which gain is included in the caption "Interest and other income (expense) -
net" in the accompanying December 31, 1998 Consolidated Statement of Operations
(see Note K). Subsequent to the exchange of shares, the Company carries its
investment in the ESC shares in "Other current assets" in the accompanying
December 31, 1998 and December 31, 1999 Consolidated Balance Sheets. As of
December 31, 1998 and December 31, 1999, the quoted market value of the ESC
shares was approximately $10.50 per share and $9.56 per share, respectively,
resulting in the Company recording an unrealized loss as of December 31, 1998
and December 31, 1999 of approximately $18,300,000 and $20,200,000,
respectively. The unrealized loss relating to ESC is included in the caption
"Unrealized gains (losses) on marketable securities" in the accompanying
December 31, 1998 and December 31, 1999 Consolidated Balance Sheets. With
respect to the Company's investment in ESC, Management of the Company is not
aware of any events that have occurred regarding ESC that would indicate an
other than temporary impairment of the Company's investment in ESC.
In addition to the ownership of the Laser shares described above, the
Company also owned a warrant (the "Laser Warrant") which if exercised would
result in the purchase of 250,000 Laser shares. The Laser Warrant, which had a
carrying value of $750,000, was distributed as a dividend in February, 1998.
During the year ended December 31, 1997, the Company recorded equity in
Laser's earnings, inclusive of goodwill amortization, of $1,558,000. Such amount
is included in "Interest and other income (expense) - net" in the accompanying
Consolidated Statements of Operations (see Note K).
F-8
<PAGE> 43
Acquisitions
During 1998 and 1999, Company subsidiaries completed several small
acquisitions. Effective January 1, 1998, the Company acquired a Spanish company
engaged in the manufacturing and distribution of specialty plant nutrients;
effective May 1, 1998, the Company acquired EMV, a Hungarian business engaged in
the manufacturing and marketing of organic chemicals; effective October 30,
1998, the Company acquired Plant Products, headquartered in Ontario, Canada,
which manufactures and markets specialty plant nutrients for commercial
horticulture, specialty high value crops and retail markets; effective December
18, 1998, the Company acquired Alpine Plant Foods, Inc. (including its Canadian
subsidiary; together "Alpine"), which manufactures and distributes high purity
liquid fertilizers; and effective February 19, 1999, the Company acquired a
majority interest in V-J Growers Supply, Inc., which markets specialty plant
nutrients and other products for commercial horticulture.
In addition, effective February 4, 1998, a subsidiary of HCL purchased
approximately a 42% equity interest in Lego Irrigation, Ltd ("Lego"), an Israeli
developer, manufacturer and marketer of drip irrigation systems. On March 9,
1999, as contemplated by the terms of the initial purchase of the Lego shares,
the subsidiary of HCL purchased, pursuant to an option, an additional 35% equity
interest in Lego. The remaining 23% equity interest in Lego is publicly traded
on the Tel Aviv (Israel) stock exchange.
Each of the acquisitions described in the above two paragraphs have been
accounted for using the purchase method of accounting. The aggregate purchase
price paid for these acquisitions was approximately $46,500,000 and resulted in
approximately $15,400,000 in goodwill, which is generally being amortized over a
20 year period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Management believes that the
estimates used are reasonable.
Operating Data
Substantially all of the companies' revenues, operating profits and
identifiable assets are related to the chemical industry. The Company is a
global developer, producer and marketer of specialty plant nutrients and
specialty industrial and agricultural chemicals and distributes its products
internationally.
The Company's revenues by region for the years ended December 31, 1997,
1998 and 1999 are set forth below:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(in millions)
<S> <C> <C> <C>
Europe ................. $148 $168 $175
United States .......... 128 145 170
Canada and Latin America 22 33 70
Asia ................... 29 28 35
Israel ................. 19 19 21
Australia .............. 6 8 7
Africa and other ....... 25 23 19
---- ---- ----
Total ............. $377 $424 $497
==== ==== ====
</TABLE>
F-9
<PAGE> 44
The Company has grouped its revenues into general product categories that
reflect the different product uses. These product groups are: Specialty Plant
Nutrients, Industrial Chemicals and Organic Chemicals, which contributed the
following revenues for the years ended December 31, 1997,
1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(in millions)
<S> <C> <C> <C>
Specialty Plant Nutrients.. $221 $243 $319
Industrial Chemicals ...... 109 125 109
Organic Chemicals ......... 47 56 69
---- ---- ----
Total ............ $377 $424 $497
==== ==== ====
</TABLE>
As of December 31, 1998 and 1999, approximately 34% and 33%, respectively,
of the Company's assets were located in the United States with approximately 66%
and 67%, respectively, located abroad (principally Israel). The Company has no
single customer accounting for more than 3% of its revenues.
Functional Currency and Transaction Gains and Losses
The Company has no significant foreign currency denominated revenues
except at HCL. Approximately $169,000,000 (59%) of HCL's total sales for the
year ended December 31, 1999 were made outside of Israel in currencies other
than the U.S. dollar (principally in Western European currencies). Accordingly,
to the extent the U.S. dollar weakens or strengthens versus the applicable
corresponding currency, HCL's results are favorably or unfavorably affected. In
order to mitigate the impact of currency fluctuations against the U.S. dollar,
from time to time the Company may hedge a portion of its foreign sales
denominated in Western European currencies by entering into forward exchange
contracts. A portion of these contracts qualify as hedges pursuant to SFAS No.
52 and, accordingly, applicable unrealized gains and losses arising therefrom
are deferred and accounted for in the subsequent year as part of sales.
Unrealized gains and losses for the remainder of the forward exchange contracts
are recognized in operations currently. At December 31, 1998 and 1999, there
were outstanding contracts to purchase $24,100,000 and $85,000, respectively, in
various European currencies, principally Deutsche Marks and Spanish Pesetas in
1998 and Japanese Yen in 1999.
If the Company had not followed such a policy of entering into forward
exchange contracts in order to hedge its foreign sales, and instead recognized
income based on the then prevailing foreign currency rates, the Company's
operating income for the years ended December 31, 1997, 1998 and 1999 would have
decreased by approximately $7,000,000, $1,400,000 and $5,500,000, respectively,
and income before income taxes would have decreased accordingly.
The Company determines when to enter into hedging transactions (and the
extent of its foreign currency denominated sales it wishes to hedge) based on
its ongoing review of the currency markets. The principal purpose of the
Company's hedging program (which is for other than trading purposes) is to
mitigate the impact of fluctuations against the U.S. dollar, as well as to
protect against significant adverse changes in exchange rates. Accordingly, the
gains and losses recognized relating to the hedging program in any particular
period and the impact on revenues had the Company not had such a program are not
necessarily indicative of its effectiveness.
Raw materials purchased in Israel are mainly quoted at prices linked to
the U.S. dollar. The U.S. dollar is the functional currency and accordingly the
financial statements of HCL are prepared, and the books and records of HCL
(except for certain subsidiaries included in the following paragraph) are
maintained, in U.S. dollars.
The assets, liabilities and operations of certain foreign subsidiaries of
the Company are measured using the currency of the primary economic environment
in which the respective subsidiary operates. Assets and liabilities are
translated at the exchange rate as of the balance sheet date. Revenues,
expenses, gains and losses are translated at the weighted average exchange rate
for the period. Translation adjustments, resulting from the process of
translating such
F-10
<PAGE> 45
subsidiaries' financial statements from their respective currencies into U.S.
dollars, are recorded as a separate component of stockholder's equity.
Inventories
Inventories are carried at the lower of cost or market. Cost is determined
on the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation is recorded under the straight-line
method at generally the following annual rates:
<TABLE>
<S> <C>
Buildings........................... 3 - 8%
Machinery, plant and equipment...... 5 - 25%
Office furniture and equipment...... 6 - 25%
</TABLE>
Expenditures for maintenance and repairs are charged to expense as
incurred. Investment grants from the Israeli Government are initially recorded
as a reduction of the capitalized asset and the resulting amount is amortized
over the estimated useful life of the respective asset. HCL recorded investment
grants for the years ended December 31, 1997, 1998 and 1999 amounting to
$1,646,000, $16,692,000 and $12,390,000, respectively.
Investments In Marketable Securities and Other Short-Term Investments
In accordance with SFAS 115, the Company classifies its equity and fixed
maturity securities as available-for-sale and reports such securities at fair
value, with unrealized gains and losses recorded as a separate component of
stockholder's equity.
Income Taxes
The Company is included in the consolidated Federal income tax return of
TPR. Under the tax allocation agreement with TPR, the annual current Federal
income tax liability for the Company and each of its domestic subsidiaries
reporting profits is determined as if such entity had filed a separate Federal
income tax return; no tax benefits are given for companies reporting losses.
However, TPR may, at its discretion, allow tax benefits for such losses.
For purposes of the consolidated financial statements, taxes on income
have been computed as if the Company and its domestic subsidiaries filed their
own consolidated Federal income tax return without regard to the tax allocation
agreement. Payments to TPR, if any, representing the excess of amounts
determined under the tax allocation agreement over amounts determined for the
purposes of consolidated financial statements are charged to retained earnings.
During the three years in the period ended December 31, 1999, TPR did not
require payment of amounts different from that which was computed as if the
Company and its consolidated subsidiaries filed their own consolidated income
tax returns.
The Company accounts for income taxes under the asset and liability
method. Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates that are
expected to be in effect when the differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities are
expected to reverse. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-11
<PAGE> 46
Environmental Costs
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations (including fines levied under environmental laws,
reclamation costs and litigation costs), and which do not contribute to current
or future revenue generation ("environmental clean-up costs"), are expensed.
Such environmental clean-up costs do not encompass ongoing operating costs
relating to compliance with environmental laws, including disposal of waste.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, the cost can be reasonably estimated and the Company's
responsibility is established. Generally, the timing of these accruals coincides
with the earlier of completion of a feasibility study or the Company's
commitment to a formal plan of action. Accruals relating to costs to be
incurred, if any, at the end of the useful life of equipment, facilities or
other assets are made over the useful life of the respective assets.
During 1997, 1998 and 1999 the Company incurred environmental clean-up
costs of approximately $400,000, $900,000 and $200,000, respectively. In
addition, at December 31, 1998 and 1999, the Company has accrued approximately
$2,700,000 and $2,200,000, respectively, related to the estimated costs to be
incurred for environmental liabilities.
Research and Development Costs
Research and development costs are charged to expense as incurred and
amounted to $2,421,000, $2,661,000 and $2,146,000 for the years ended December
31, 1997, 1998 and 1999, respectively.
Risk Management Derivatives
Amounts receivable or payable under interest rate swap agreements are
recognized as interest expense.
Long-Lived Assets
Management evaluates the recoverability of its long-lived assets whenever
events or changes in circumstances indicate that a recorded asset might not be
recoverable by taking into consideration such factors as recent operating
results, projected undiscounted cash flows and plans for future operations. At
December 31, 1998 and 1999 there were no impairments of the Company's assets.
Cash and Cash Equivalents
Investments with original maturities of three months or less are
classified as cash equivalents by the Company.
Concentration of Credit Risk
The Company believes no significant concentration of credit risk exists
with respect to investments and accounts receivable. The Company places its cash
investments with high quality financial institutions, and the Company's
receivables are diversified across a diverse customer base and geographical
regions.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities and measure those instruments at fair value. Depending on
the intended use of the derivative,
F-12
<PAGE> 47
changes in derivative fair values may be charged to operations unless the
derivative qualifies as a hedge under SFAS 133 requirements. The Company will
adopt SFAS 133 on January 1, 2001 and is evaluating the impact, if any, of SFAS
133 on its consolidated financial statements.
Bogalusa Litigation
The Company is a party to litigation arising out of an October 23, 1995
release of nitrogen tetroxide at a Bogalusa, Louisiana plant of a Vicksburg
customer. The nitrogen tetroxide had been produced and sold by Vicksburg. The
plaintiffs in these suits seek unspecified damages arising out of the alleged
exposure to toxic fumes. The Louisiana class action and the Mississippi suits
(collectively referred to herein as the "Bogalusa Litigation") named a number of
other defendants, in addition to TRI and certain of its subsidiaries. During
August, 1998 the Company entered into conditional agreements to settle the
claims in the Bogalusa Litigation. During March, 1999, amended and restated
conditional agreements to settle the claims were executed by the parties.
If the conditions to the settlement are satisfied, the Company's funding
obligation would be an aggregate of approximately $32,400,000 plus (i)
$4,569,531, which is the amount which one of the settling insurance companies
shall have paid to the Company for reimbursement of defense costs (the "Defense
Depletion Amount") and (ii) interest payments at 6.25% per annum which commenced
on April 1, 1999 on the not as yet escrowed portion of $17,000,000, as described
below. The initial $10,000,000 of the funding obligation was deposited in escrow
on August 31, 1998 and an additional $5,000,000 was deposited in escrow on March
31, 1999. In addition, on or about April 1, 1999 two settling insurance
companies contributed an aggregate of $25,000,000, less the Defense Depletion
Amount. If the settlement is finalized, the Company will assign to the
plaintiffs its rights under another $26,000,000 of insurance coverage. The
Company is scheduled to escrow an additional $6,800,000 on December 31, 2000,
$5,100,000 on June 30, 2001 and $5,100,000 on December 31, 2001.
In 1998, the Company recorded a charge of approximately $36,200,000
(included in the caption "Interest and other income (expense) - net" in the
accompanying December 31, 1998 Consolidated Statement of Operations - See Note
K) to cover the cost of the conditional settlement and the related legal
expenses.
For further information regarding the Bogalusa Litigation and the
conditional settlement relating thereto see Part I - Item 3 - "Legal
Proceedings".
Reclassifications
Certain prior year amounts have been reclassified to conform to the manner
of presentation in the current year.
Change in Accounting Principle
Effective January 1, 1998, the Company changed its method of accounting
for start-up costs incurred relating to the start-up of newly constructed
manufacturing facilities to conform with AICPA Statement of Position No. 98-5
("SOP 98-5"), "Reporting on the Costs of Start-Up Activities", which requires
that such costs be currently charged to operations. As of January 1, 1998, the
Company has reported the cumulative effect of the change in the method of
accounting for start-up costs in the Consolidated Statement of Operations. The
effect of adopting SOP 98-5 in 1998 was the write-off of unamortized start-up
costs of $1,333,000 and a reduction in net income for the cumulative effect of
the change in accounting principle of $1,253,000 (net of income taxes).
F-13
<PAGE> 48
B. OTHER CURRENT ASSETS
Other current assets consist of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
---- ----
(in thousands)
<S> <C> <C>
Marketable securities (carried at market) ......................... $28,009 $28,162
Miscellaneous receivables, other securities,
deferred tax assets, etc ....................................... 35,599 37,484
------- -------
Total ...................................................... $63,608 $65,646
======= =======
</TABLE>
The Company classifies all of its marketable securities (including U.S.
Government obligations) as available-for-sale securities as of December 31, 1998
and 1999:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------- ----------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1998
Common stocks and mutual funds
investing primarily therein . $47,110 $ 297 $19,398 $28,009
======= =========== ======= =======
December 31, 1999
Common stocks and mutual funds
investing primarily therein . $49,069 $ -- $20,907 $28,162
======= =========== ======= =======
</TABLE>
Gross realized gains and gross realized losses on sales of securities are
set forth below for the years ended December 31, 1997, 1998 and 1999 (see Note
K):
<TABLE>
<CAPTION>
Gains Losses
----- ------
<S> <C> <C>
1997 ........................... $3,052,000 $ 339,000
1998 ........................... 3,365,000 1,417,000
1999 ........................... 1,077,000 757,000
</TABLE>
C. INVENTORIES
Inventories consist of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---- ----
(in thousands)
<S> <C> <C>
Raw materials ............ $21,301 $ 29,515
Finished goods ........... 74,141 91,549
------- --------
Total ................ $95,442 $121,064
======= ========
</TABLE>
F-14
<PAGE> 49
D. PROPERTY, PLANT AND EQUIPMENT - NET
Property, plant and equipment - net at December 31, 1998 and 1999 consist
of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Land ................................................. $ 5,186 $ 8,475
Buildings ............................................ 28,157 33,385
Machinery, plant and equipment ....................... 316,379 411,328
Office furniture and equipment ....................... 10,310 12,371
Construction-in-progress ............................. 51,502 33,259
-------- --------
Total ............................................ 411,534 498,818
Less accumulated depreciation and amortization ....... 150,949 173,355
-------- --------
Property, plant and equipment - net ....... $260,585 $325,463
======== ========
</TABLE>
The Company capitalized interest costs aggregating $35,000, $896,000 and
$1,823,000 during the years ended December 31, 1997, 1998 and 1999,
respectively, with respect to several construction projects. Certain property,
plant and equipment has been pledged as collateral for long-term debt (see Note
G).
E. SHORT-TERM DEBT AND UNUSED CREDIT LINES
The weighted average interest rates for short-term debt outstanding at
December 31, 1998 and 1999 were 5.7% and 6.3%, respectively.
As of December 31, 1999, the Company and its subsidiaries have unused
revolving loan commitments and other credit lines from banks aggregating
approximately $47,000,000.
F. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Compensation and payroll taxes ............................ $ 9,123 $13,852
Interest .................................................. 6,645 8,258
Other, including $5,000,000 and $6,800,000 relating to
the Bogalusa Litigation in 1998 and 1999, respectively.. 27,456 36,711
------- -------
Total ................................................. $43,224 $58,821
======= =======
</TABLE>
F-15
<PAGE> 50
G. LONG-TERM DEBT - NET
Long-term debt consists of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
Payable
Description Interest Rate * Through 1998 1999
----------- --------------- ------- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
TRI:
Bank loans (1) .................................. Various 2007 $ 14,000 $ 25,000
$100,000,000 principal amount of 10.75%
Senior Notes (2) ............................ 10.75% 2008 100,000 100,000
$135,000,000 principal amount of 12%
Senior Discount Notes, net of unamortized debt
discount of $52,296,000 and $42,075,000,
respectively (2) ............................. 12.0% 2008 82,704 92,925
Subsidiaries:
Bank loans and other financing .................. Various 2020 227,911 289,379
-------- --------
Total ........................................ 424,615 507,304
Less current portion ......................... 10,183 11,288
-------- --------
Long-term debt - net ......................... $414,432 $496,016
======== ========
</TABLE>
- ---------
*As prevailing on respective balance sheet dates. Such rates (other than
the senior and senior discount debt) generally "float" according to changes in
the Prime or LIBOR rates. At December 31, 1999 such rates were approximately
8.5% and 6.2%, respectively.
(1) As of December 29, 1995 and as amended, the Company entered into a
Loan Agreement with a bank for borrowings upon the Company's request prior to
June 30, 2000 in the aggregate principal amount not to exceed $40,000,000. The
loan matures on June 30, 2007. The Company pledged all of the capital stock of
HCL to secure its obligations under the Loan Agreement.
(2) On March 16, 1998, the Company completed a private placement of
$100,000,000 principal amount of 10 3/4% Senior Notes due 2008 (the "Senior
Notes") and $135,000,000 principal amount at maturity of 12% Senior Discount
Notes due 2008 (the "Senior Discount Notes"). The Senior Discount Notes provided
gross proceeds to the Company of approximately $75,400,000. A substantial
portion (approximately $118,000,000) of the net proceeds from the sale was used
in March, 1998 to purchase (pursuant to a tender offer and consent solicitation)
approximately $110,000,000 principal amount of the Company's 11 7/8% Senior
Subordinated Notes (the "11 7/8% Notes") (the "Refinancing"). In addition, in
the four month period ended July, 1998 the Company repurchased or redeemed the
remaining $5,000,000 principal amount of its 11 7/8% Notes. As a result of the
Refinancing and the subsequent repurchases or redemptions of the 11 7/8% Notes,
combined with the write-off of certain unamortized issuance costs associated
with the 11 7/8% Notes, the Company recognized an extraordinary charge for the
early extinguishment of debt of $11,328,000 (no tax effect) which is classified
as an extraordinary item in the accompanying December 31, 1998 Consolidated
Statement of Operations.
F-16
<PAGE> 51
The Senior Notes and the Senior Discount Notes are unsecured obligations
of the Company and are pari passu in right of payment with all existing and
future unsecured and unsubordinated indebtedness of TRI and senior in right to
payment to all subordinated indebtedness of TRI. Interest on the Senior Notes is
payable semi-annually. Interest on the Senior Discount Notes accretes and
compounds semi-annually but is not payable until 2003, after which interest on
the accreted principal amount will be payable semi-annually.
Certain of the Company's and its subsidiaries' loan agreements and its
Indentures require the Company and/or the respective subsidiaries to, among
other things, maintain various financial ratios including minimum net worth,
ratios of debt to net worth, interest and fixed charge coverage tests and
current ratios. In addition, there are certain limitations on the Company's
ability to make certain Restricted Payments and Restricted Investments (each as
defined), etc. In the event of a Change in Control (as defined), the Company is
required to offer to purchase all the Senior Notes and Senior Discount Notes as
well as to repay certain bank loans. Certain of the respective instruments also
limit the payment of dividends, capital expenditures and the incurring of
additional debt and liens by both the Company and its subsidiaries. As of
December 31, 1999, the Company and its subsidiaries are in compliance with the
covenants of each of the respective loan agreements and the Indentures then in
effect.
The aggregate maturities of long-term debt at December 31, 1999 are set
forth below.
<TABLE>
<CAPTION>
Years Ending
December 31, (in thousands)
------------
<S> <C>
2000................ $ 11,288
2001................ 41,154
2002................ 51,270
2003................ 59,664
2004................ 28,901
Thereafter.......... 315,027
----------
Total........... $ 507,304
==========
</TABLE>
Substantially all of the assets of HCL and HCSL are subject to security
interests in favor of the State of Israel and/or banks. In addition,
substantially all of the assets of the Company's United States subsidiaries are
subject to security interests in favor of banks pursuant to loan agreements. The
capital stock of HCL, Cedar and Plant Products have also been pledged to the
banks pursuant to these agreements. The Company's common stock is pledged to
secure the repayment obligations of TPR under a note issued by it to a former
indirect shareholder of the Company.
Interest paid, net of capitalized interest, totaled $28,193,000,
$33,034,000 and $34,407,000 for the years ended December 31, 1997, 1998 and
1999, respectively.
H. OTHER LIABILITIES
Under Israeli law and labor agreements, HCL is required to make severance
and pension payments to dismissed employees and to employees leaving employment
in certain other circumstances. These liabilities are covered by regular
deposits to various severance pay funds and by payment of premiums to an
insurance company for officers and non-factory personnel under approved plans.
"Other liabilities" in the Consolidated Balance Sheets as of December 31, 1998
and 1999 include accruals of $1,330,000 and $1,921,000, respectively, for the
estimated unfunded liability of complete severance of all HCL employees. Costs
incurred were approximately $1,912,000, $2,100,000 and $2,573,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
No information is available regarding the actuarial present value of HCL's
pension plans and the plans' net assets available for benefits, as these plans
are multi-employer, external and independent of HCL.
F-17
<PAGE> 52
Cedar has a defined benefit pension plan which covers all of the full-time
employees of Cedar and Vicksburg. Funding of the plan is made through payment to
various funds managed by a third party and is in accordance with the funding
requirements of the Employee Retirement Income Security Act of 1974 ("ERISA").
The change in the benefit obligation based on an actuarial valuation for
Cedar's defined benefit pension plan is as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Benefit obligation, beginning of year $ 18,215 $ 21,195
Service cost ........................ 904 936
Interest cost ....................... 1,287 1,371
Amendments .......................... 64 --
Actuarial (gain)/loss ............... 1,254 (4,237)
Benefits paid ....................... (448) (586)
Expenses paid ....................... (81) (82)
-------- --------
Benefit obligation, end of year ..... $ 21,195 $ 18,597
======== ========
</TABLE>
The following details the change in plan assets for Cedar's defined
benefit pension plan:
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Fair value of plan assets, beginning of year .............. $ 14,239 $ 16,309
Actual return ............................................. 1,890 2,419
Employer contribution ..................................... 709 682
Benefits paid ............................................. (448) (587)
Expenses paid ............................................. (81) (82)
-------- --------
Fair value of plan assets, end of year .................... $ 16,309 $ 18,741
======== ========
</TABLE>
The reconciliation of the funded status for Cedar's benefit plan is as
follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Vested benefit obligation ......................................... $(15,097) $(13,965)
Accumulated benefit obligation .................................... (15,977) (14,581)
Projected benefit obligation ("PBO") .............................. $(21,195) $(18,597)
Plan assets at fair value ......................................... 16,309 18,741
-------- --------
Plan assets greater (lesser) than PBO ...................... (4,886) 144
Unrecognized net loss/(gain) ...................................... 2,991 (2,232)
Prior service costs not yet recognized ............................ 684 571
Unrecognized net transition obligation ............................ 176 117
-------- --------
Accrued benefit cost .............................................. $ (1,035) $ (1,400)
======== ========
</TABLE>
F-18
<PAGE> 53
Cedar's net periodic benefit cost for the years ended 1997, 1998 and 1999
was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Service cost ...................................... $ 819 $ 904 $ 937
Interest cost ..................................... 1,133 1,287 1,370
Expected return on plan assets .................... (1,119) (1,276) (1,457)
Transition obligation recognition ................. 59 59 59
Prior service cost amortization ................... 109 114 114
Net loss recognition .............................. 29 65 25
------- ------- -------
Net periodic benefit cost ......................... $ 1,030 $ 1,153 $ 1,048
======= ======= =======
</TABLE>
Actuarial assumptions used at December 31, 1997, 1998 and 1999 were as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Discount rate - projected benefit obligation 7.0% 6.8% 8.0%
Rate of increase in compensation levels .... 5.0% 5.0% 5.0%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
</TABLE>
Certain of the Company's United States subsidiaries have profit sharing
thrift plans designed to conform to Internal Revenue Code Section 401(k) and to
the requirements of ERISA. In addition, certain of the Company's Canadian
subsidiaries have contributory pension plans designed to conform with Canadian
regulatory requirements. These plans, which cover all full-time employees (and
one of which includes Company headquarters employees), allow participants to
contribute as much as 15% of their annual compensation, up to a maximum
permitted by law, through salary reductions. The companies' contributions to the
plans are based on a percentage of the participant's contributions, and the
companies may make additional contributions to the plans at the discretion of
their respective Boards of Directors. The Company's contribution expense
relating to these plans totaled $202,000, $298,000 and $404,000 for the years
ended December 31, 1997, 1998 and 1999, respectively
I. OPERATING LEASES
The Company and its subsidiaries are obligated under non-cancelable
operating leases covering principally land, office facilities and equipment. At
December 31, 1999, minimum annual rental commitments under these leases are:
<TABLE>
<CAPTION>
Years Ending
December 31, (in thousands)
- ----------------
<S> <C>
2000...................... $ 5,727
2001...................... 4,651
2002...................... 3,659
2003...................... 2,458
2004...................... 1,949
Thereafter................ 6,760
--------
Total.................. $ 25,204
========
</TABLE>
F-19
<PAGE> 54
Rent expense for 1997, 1998 and 1999 was $4,489,000, $6,016,000 and
$6,200,000, respectively, covering land, office facilities and equipment.
J. INCOME TAXES
The Company's income tax provision for the years ended December 31, 1997,
1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -------
(in thousands)
<S> <C> <C> <C>
Current expense:
Federal ................................. $ -- $ -- $ --
Foreign ................................. 652 904 951
State ................................... 570 394 409
------ ------ -------
Total current ....................... 1,222 1,298 1,360
------ ------ -------
Deferred expense (benefit):
Foreign ................................. 1,647 2,466 1,741
State ................................... 83 118 (107)
------ ------ -------
Total deferred ...................... 1,730 2,584 1,634
------ ------ -------
Total ......................... $2,952 $3,882 $ 2,994
====== ====== =======
</TABLE>
The provision for income taxes for the years ended December 31, 1997, 1998
and 1999 amounted to $2,952,000, $3,882,000 and $2,994,000, respectively,
representing effective income tax rates of 67.2%, 37.2% and 23.3%, respectively.
These amounts differ from the amounts of $1,539,000, $(3,653,000) and
(4,421,000), respectively, computed by applying the statutory Federal income tax
rates to income (loss) before income taxes, extraordinary item and change in
accounting principle. The reasons for such variances from statutory rates were
as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Statutory Federal rates .................................... 35.0% (35.0)% (35.0)%
Increase (decrease) in income tax rate resulting from:
Foreign operations - net impact of foreign statutory
rates, effects of Israeli "inflation allowances",
withholding taxes, etc ........................... (33.9) (74.7) (16.5)
Net losses without current tax benefit and other ........ 56.5 143.7 73.3
State and local income taxes - net ...................... 9.6 3.2 1.5
------ ------ ------
Effective income tax rates ................................. 67.2% 37.2% 23.3%
====== ====== ======
</TABLE>
F-20
<PAGE> 55
At December 31, 1998 and 1999, deferred tax assets (liabilities) consisted
of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Depreciation and property and equipment basis differences ... $(39,873) $(41,819)
Nondeductible reserves ...................................... 5,565 5,453
Net operating losses ........................................ 37,916 46,711
Foreign tax credits ......................................... 3,865 203
Alternative minimum tax credits ............................. 5,401 5,401
Investment tax credits ...................................... 200 200
Provision for settlement of lawsuit ......................... 12,147 13,656
Deferred interest ........................................... 3,061 7,602
Other ....................................................... 2,862 2,625
-------- --------
Deferred taxes - net, exclusive of valuation allowance ...... 31,144 40,032
Valuation allowance ......................................... (56,656) (67,178)
-------- --------
Deferred taxes - net ........................................ $(25,512) $(27,146)
======== ========
</TABLE>
At December 31, 1998, deferred tax assets of $5,320,000 were classified as
"other current assets" and deferred tax liabilities of $30,832,000 were
classified as "other liabilities". At December 31, 1999, deferred tax assets of
$5,455,000 were classified as "other current assets" and deferred tax
liabilities of $32,601,000 were classified as "other liabilities".
At December 31, 1999, the Company had various tax loss and credit
carryovers which expire as follows:
<TABLE>
<CAPTION>
U.S. Federal
----------------------------------------------------------------
Net Alternative State Net Foreign Net
Foreign Investment Operating Minimum Operating Operating
Expiration Tax Credit Tax Credit Loss Tax Credit Loss Loss
- ---------- ---------- ---------- ---- ---------- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
2000 .......... $ 41
2001 .......... 32 $ 200
2002 .......... 36
2003 .......... 55 $ 4,165
2004 .......... 39
2010 .......... $22,208 $15,600
2011 .......... 17,442 11,200
2012 .......... 10,501 9,600
2013 .......... 13,920
2014 .......... 11,520
2018 .......... 17,344
2019 .......... 18,449
Unlimited ..... $ 5,401 21,743
---- ------- ------- ------- ------- -------
Total ......... $203 $ 200 $85,944 $ 5,401 $61,840 $25,908
==== ======= ======= ======= ======= =======
</TABLE>
Income taxes paid, including prepaid amounts, totaled approximately
$3,800,000, $425,000 and $1,700,000, respectively, during the years ended
December 31, 1997, 1998 and 1999.
F-21
<PAGE> 56
No taxes on income have been provided on approximately $45,000,000 of
undistributed earnings of foreign subsidiaries as of December 31, 1999, since
management believes these amounts to be permanently invested.
K. INTEREST AND OTHER INCOME (EXPENSE) - NET
Interest and other income (expense) - net for the years ended December 31,
1997, 1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------ -------- -----
(in thousands)
<S> <C> <C> <C>
Interest and dividend income ............................ $1,131 $ 2,201 $ 884
Security gains - net (see Note B) ....................... 2,713 1,948 320
Gain on Laser/ESC share exchange (see Note A) ........... -- 22,946 --
Loss on Bogalusa legal settlement (see Note A) .......... -- (36,204) (525)
Equity in earnings of Laser - net (see Note A) ......... 1,558 -- --
Other ................................................... 148 485 (537)
------ -------- -----
Total ........................................... $5,550 $ (8,624) $ 142
====== ======== =====
</TABLE>
L. INVESTMENT GRANTS
The Company has received investment grants from the Israeli Government for
certain capital investments made by HCL. The Company initially records these
grants as a reduction of the capitalized asset which is then amortized over the
estimated useful life of the respective asset. From 1986 through December 31,
1999 the Company received cumulative gross investment grants of approximately
$72,400,000. If the Company had instead recorded the capitalized assets at their
cost, the Company's Stockholder's Equity at December 31, 1999, would have been
increased by approximately $52,500,000 ($72,400,000 less accumulated
depreciation of $19,900,000) as a result of these grants.
M. PREFERRED STOCK
The preferred shares are non-voting and have a cumulative dividend, at the
rate of $8.50 per share per annum. The preferred shares are redeemable, at the
option of the Company, at any time, at a redemption price of $79.60 per share,
plus an amount equal to cumulative dividends, accrued and unpaid thereon up to
the date of redemption.
N. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In connection with a credit agreement, Cedar has entered into two interest
rate swap agreements with a bank to effectively convert a portion of its
floating rate debt to fixed rate debt. An interest rate swap generally involves
the exchange of fixed for floating rate interest payment streams on specified
notional principal amounts for an agreed upon period of time, without the
exchange of the underlying principal amounts. Notional amounts often are used to
express the volume of these transactions, but the amounts potentially subject to
credit risk are much smaller. No collateral requirements are imposed.
Cedar entered into the following interest rate swap agreements which are
used to manage its interest-rate risk. Cedar receives variable rate payments and
pays fixed rate payments. The following is a summary of the contracts
outstanding (in thousands of dollars) at December 31, 1999:
<TABLE>
<CAPTION>
Variable
Notional Fixed Rate Rate Maturity
Amount Paid Received Date
------ ---- -------- ----
<S> <C> <C> <C>
$ 25,000 5.65% 6.07% May 2001
15,000 6.70% 6.21% October 2001
</TABLE>
The variable rate received is tied to the three-month LIBOR rate.
F-22
<PAGE> 57
O. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
------------------------- ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Assets:
Marketable securities (included within
"Other current assets") ............... $ 28,009 $ 28,009 $ 28,162 $ 28,162
Investments in certain securities
(included within "Other assets"
and accounted for by the equity method) 9,262 7,901 -- --
Liabilities:
Long-term debt ............................... 424,615 412,961 507,304 465,479
Off-balance sheet financial instruments:
Foreign currency contracts ................... 172 172 -- --
Risk management derivatives .................. -- (685) -- 258
</TABLE>
Cash and Cash Equivalents, Accounts Receivable, Short-Term Debt and
Accounts Payable - The carrying amounts of these items are a reasonable estimate
of their fair value.
Investments in Securities - The fair value of these securities is
estimated based on quoted market prices.
Long-Term Debt - Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining maturities are
used on a discounted cash flow basis to estimate fair value for debt issues for
which no market quotes are available.
Foreign Currency Contracts - The fair value of foreign currency purchase
contracts is estimated by obtaining quotes from brokers.
Risk Management Derivatives - The fair value generally reflects the
estimated amounts that the Company would receive or pay to terminate the
contracts at the reporting date.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1998 and 1999. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.
F-23
<PAGE> 58
P. CONTINGENT LIABILITIES AND OTHER MATTERS
For a description of certain pending legal proceedings, see Part I Item 3
- - "Legal Proceedings", which is an integral part of these financial statements.
The Company is vigorously defending against the allegations described therein.
Management of the Company believes, based upon its assessment of the
actions and claims outstanding against the Company and certain of its
subsidiaries, and after discussion with counsel, that the eventual disposition
of the matters referred to above should not have a material adverse effect on
the financial position, future operations or liquidity of the Company. However,
management of the Company cannot predict with certainty the outcome of the
potash and Bogalusa Litigation matters described in Part I - Item 3 - "Legal
Proceedings".
The production of fertilizers and chemicals involves the use, handling and
processing of materials that may be considered hazardous within the meaning of
applicable environmental or health and safety laws. Accordingly, the Company's
operations are subject to extensive Federal, state and local regulatory
requirements in the United States and regulatory requirements in Israel and
other foreign jurisdictions relating to environmental matters. Operating permits
are required for the operation of the Company's facilities, and these permits
are subject to revocation, modification and renewal. Government authorities have
the power to enforce compliance with these regulations and permits, and
violators are subject to civil and criminal penalties, including civil fines,
injunctions or both. The Company has entered into consent decrees and
administrative orders with certain governmental authorities which are expected
to result in unspecified corrective actions - see Part I - Item 1 - "Business" -
"Environmental Matters". There can be no assurance that the costs of such
corrective actions will not be material.
The Company has accrued for the estimated costs of facility
investigations, corrective measures studies and known remedial measures relating
to environmental clean-up costs. However, the Company has been unable to
ascertain the range of reasonably possible costs that may be incurred for
environmental clean-up costs pending completion of investigations and studies.
Based on currently available information, Management believes that the
Company's expenditures for environmental capital investment and remediation
necessary to comply with present regulations governing environmental protection
and other expenditures for the resolution of environmental actions will not have
a material adverse effect on the Company's liquidity and capital resources,
competitive position or financial statements. However, Management cannot assess
the possible effect of compliance with future requirements.
HCL leases land and buildings from Oil Refineries Ltd. ("ORL"), a
corporation which is majority-owned by the Israeli Government. The leases expire
at various dates, principally in the years 2015 and 2016. HCL also has a lease
from ORL of a pipeline which transports ammonia from the port in Haifa to HCL's
plant. HCSL leases its land from the Israeli government under a 49 year lease
which commenced in 1994.
HCL obtains its major raw materials, potash and phosphate rock, in Israel.
Potash is purchased solely from Dead Sea Works, Ltd. ("DSW") in accordance with
a long-term contract which expires in 2005. HCL currently purchases phosphate
rock principally from Rotem Amfert Negev Ltd. ("Rotem") according to the terms
of a contract which expires in 2001. DSW and Rotem are subsidiaries of Israel
Chemicals Ltd., a large Israeli chemical company, and are the sole suppliers in
Israel of potash and phosphate rock, respectively. While management views its
current relationships with both of its principal suppliers to be good, the loss
of supply from DSW could have an adverse effect on the Company.
F-24
<PAGE> 59
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANS-RESOURCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 5,826 $ 4,623
Receivables and other assets ............................... 26,712 32,383
Prepaid expenses ........................................... 2,408 1,482
--------- ---------
Total Current Assets .................................. 34,946 38,488
INVESTMENTS IN SUBSIDIARIES .................................... 98,434 100,205
DUE FROM SUBSIDIARIES - net .................................... 2,887 6,919
OTHER ASSETS ................................................... 30,583 31,440
--------- ---------
Total ................................................. $ 166,850 $ 177,052
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES -
Accrued expenses and other current liabilities ............. $ 5,881 $ 19,034
--------- ---------
LONG-TERM DEBT - net (Note)-
Senior indebtedness, notes payable and other obligations ... 196,704 217,650
--------- ---------
OTHER LIABILITIES .............................................. 3,108 580
--------- ---------
STOCKHOLDER'S EQUITY:
Preferred stock, $1.00 par value, 100,000 shares
authorized, issued and outstanding .................... 7,960 7,960
Common stock, $.01 par value, 3,000 shares authorized,
issued and outstanding ................................ -- --
Additional paid-in capital ................................. 8,682 8,682
Accumulated deficit ........................................ (34,922) (54,243)
Cumulative translation adjustment .......................... (1,462) (1,704)
Unrealized losses on marketable securities ................. (19,101) (20,907)
--------- ---------
Total Stockholder's Equity (Deficit) .................. (38,843) (60,212)
--------- ---------
Total ............................................. $ 166,850 $ 177,052
========= =========
</TABLE>
Note - The aggregate maturities of long-term debt during the next five years is
approximately as follows: 2000 - $275,000; 2001 - $1,050,000; 2002 - $1,250,000;
2003 - $1,250,000 and 2004 - $1,250,000.
S-1
<PAGE> 60
SCHEDULE I
(continued)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANS-RESOURCES, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
REVENUES - EQUITY IN NET
EARNINGS (LOSSES) OF SUBSIDIARIES:
Dividends from subsidiaries ............................ $ 13,400 $ 14,650 $ 13,875
Undistributed (dividends in excess of)
earnings of subsidiaries ............................ 1,693 (11,160) (1,432)
-------- -------- --------
Total .......................................... 15,093 3,490 12,443
COSTS AND EXPENSES ......................................... (6,142) (7,451) (7,432)
INTEREST EXPENSE ........................................... (14,324) (19,894) (22,446)
INTEREST AND OTHER INCOME - Net ............................ 3,666 7,823 637
-------- -------- --------
LOSS BEFORE INCOME TAXES,
EXTRAORDINARY ITEM, AND CHANGE IN
ACCOUNTING PRINCIPLE ........................... (1,707) (16,032) (16,798)
INCOME TAX BENEFIT ......................................... 3,151 1,714 933
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM
AND CHANGE IN ACCOUNTING PRINCIPLE .................. 1,444 (14,318) (15,865)
EXTRAORDINARY ITEM - Loss on repurchase
of debt (no income tax benefit) ........................ -- (11,328) --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE - Net of income tax benefit of $80,000 ....... -- (1,253) --
-------- -------- --------
NET INCOME (LOSS) .......................................... $ 1,444 $(26,899) $(15,865)
======== ======== ========
</TABLE>
S-2
<PAGE> 61
SCHEDULE 1
(concluded)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANS-RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- --------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Operations:
Net income (loss) ............................... $ 1,444 $ (26,899) $(15,865)
Items not requiring (providing) cash:
Unremitted earnings of subsidiaries ........... (1,693) 11,160 1,432
Depreciation and amortization of property,
plant and equipment ................. 710 778 253
Amortization of deferred financing costs
and accretion of interest expense .... 653 8,291 10,768
Gain on Laser/ESC share exchange .............. -- (4,738) --
Extraordinary item - loss or repurchase of debt -- 11,328 --
Cumulative effect of change in accounting
principle ................................. -- 1,253 --
Deferred taxes and other - net ................ (1,113) (235) 833
Working capital management:
Receivables and other current assets .......... (312) 237 4,285
Prepaid expenses .............................. (2,275) 333 926
Accrued expenses and other current liabilities (2,696) (1,697) 7,943
-------- --------- --------
Cash provided by (used in) operations and
working capital management ................. (5,282) (189) 10,575
-------- --------- --------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment ...... (29) (59) (107)
Sales of marketable securities and
short-term investments ........................ 8,035 20,481 21,497
Purchases of marketable securities and short-
term investments .............................. (7,652) (33,572) (25,695)
Other - net, principally additional investment
in subsidiaries in 1998 ................... (823) (37,280) (14,231)
-------- --------- --------
Cash used in investment activities ......... (469) (50,430) (18,536)
-------- --------- --------
FINANCING ACTIVITIES:
Increase in long-term debt ...................... 3,000 193,997 10,489
Repurchases, payments and current maturities of
long-term debt ............................... -- (137,000) (275)
Dividends to stockholder ........................ (4,586) (13,476) (3,456)
-------- --------- --------
Cash provided by (used in) financing
activities ................................. (1,586) 43,521 6,758
-------- --------- --------
DECREASE IN CASH AND
CASH EQUIVALENTS ................................... (7,337) (7,098) (1,203)
CASH AND CASH EQUIVALENTS:
Beginning of year .................................. 20,261 12,924 5,826
-------- --------- --------
End of year ........................................ $ 12,924 $ 5,826 $ 4,623
======== ========= ========
Interest paid ........................................ $ 13,666 $ 15,846 $ 11,920
======== ========= ========
Income taxes paid .................................... $ 3,339 $ -- $ --
======== ========= ========
</TABLE>
S-3
<PAGE> 62
TRANS-RESOURCES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Page No.
- ------- ----------- --------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, as amended (in restated from), *
filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (the "1994 Form 10-K"), which is incorporated herein
by reference.
3.2 By-laws of the Company, filed as Exhibit 3.2 to the Company's Annual Report on *
Form 10-K for the year ended December 31, 1991 (the "1991 Form 10-K"), which
is incorporated herein by reference.
4.1 Indenture, dated as of March 16, 1998, between the Company and State Street *
Bank and Trust Company ("State Street"), as Trustee, relating to the 10 3/4%
Senior Notes due 2008 (the "10 3/4% Notes"), filed as Exhibit 4.4 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the
"1997 Form 10-K"), which is incorporated herein by reference.
4.2 Form of 10 3/4% Senior Notes due 2008, Series B (contained in Exhibit 4.1 as *
Exhibit B thereto).
4.3 Indenture, dated as of March 16, 1998, between the Company and State Street as *
Trustee, relating to the 12% Senior Discount Notes due 2008 (the "12% Notes"),
filed as Exhibit 4.6 to the 1997 Form 10-K, which is incorporated herein by
reference.
4.4 Form of 12% Senior Discount Notes due 2008, Series B (contained in Exhibit 4.3 *
as Exhibit B thereto).
4.5 Credit Agreement, dated as of November 3, 1995 and Amended and Restated as of *
July 31, 1997 (the "Cedar Credit Agreement"), among Cedar Chemical
Corporation, the Lenders listed on the signature pages thereof and The Chase
Manhattan Bank, as Administrative Agent (exhibits and schedules omitted),
filed as Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997, which is incorporated herein by
reference.
4.6 Amendment No. 1, dated as of February 26, 1998, to the Cedar Credit Agreement, *
filed as Exhibit 4.11 to the 1997 Form 10-K, which is incorporated herein by
reference.
Certain instruments which define the rights of holders of long-term debt of
the Company and its consolidated subsidiaries have not been filed as Exhibits
to this Report since the total amount of securities authorized under any such
instrument does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis, as of December 31, 1999. For a
description of such indebtedness see Note G of Notes to Consolidated Financial
Statements. The Company agrees to furnish copies of such instruments to the
Securities and Exchange Commission upon its request.
</TABLE>
E-1
<PAGE> 63
<TABLE>
<CAPTION>
Exhibit Description Page No.
- ------- ----------- --------
<S> <C> <C>
10.1 Potash Sales Agreement between Haifa Chemicals Ltd. and Dead Sea Works *
Limited, dated as of January 1, 1990 concerning the supply of potash, filed as
Exhibit 10.1 to the 1997 Form 10-K, which is incorporated herein by reference.
10.2 Agreement of Use of Ammonia Pipeline between Haifa Chemicals Ltd. and Oil *
Refineries Ltd., dated August 7, 1977, as amended, concerning the use of an
ammonia pipeline, filed as Exhibit 10.8 to the Registration Statement of the
Company on Form S-1, filed on January 30, 1987, as amended, Registration No.
33-11634 (the "1987 Form S-1"), which is incorporated herein by reference.
10.3 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated December 20, *
1968, concerning real property, filed as Exhibit 10.9 to the 1987 Form S-1,
which is incorporated herein by reference.
10.4 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated March 31, *
1974, concerning real property, filed as Exhibit 10.10 to the 1987 Form S-1,
which is incorporated herein by reference.
10.5 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated April 5, *
1978, concerning real property, filed as Exhibit 10.11 to the 1987 Form S-1,
which is incorporated herein by reference.
10.6 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated June 25, *
1978, concerning real property, filed as Exhibit 10.12 to the 1987 Form S-1,
which is incorporated herein by reference.
10.7 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated September *
25, 1986, concerning real property, filed as Exhibit 10.13 to the 1987 Form
S-1, which is incorporated herein by reference.
10.8 Agreement between the Company and Thomas G. Hardy, dated March 22, 1994, *
concerning incentive bonus compensation, including, as Exhibit A thereto, the
related Trust Agreement, filed as Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, which is incorporated
herein by reference. (1)
10.9 Employment Agreement between the Company and Thomas G. Hardy, dated as of June *
1, 1993, filed as Exhibit 10.11 to the 1994 Form 10-K, which is incorporated
herein by reference. (1)
10.10 Tax Sharing Agreement, dated as of December 30, 1991, among TPR Investment *
Associates, Inc., the Company, EDP, Inc., Nine West Corporation, TR Media
Corporation and Cedar Chemical Corporation, filed as Exhibit 10.23 to the 1991
Form 10-K, which is incorporated herein by reference.
10.11 Split Dollar Insurance Agreement, entered into as of August 26, 1988, between *
the Company and Arie Genger, filed as Exhibit 10.27 to the Registration
Statement of the Company on Form S-1, filed on October 20, 1992, as amended,
Registration No. 33-53486, which is incorporated herein by reference. (1)
</TABLE>
E-2
<PAGE> 64
<TABLE>
<CAPTION>
Exhibit Description Page No.
- ------- ----------- --------
<S> <C> <C>
10.12 Split Dollar Agreement and Collateral Assignment, made as of December 31, *
1996, between the Company and the trustees of the Arie Genger 1995 Life
Insurance Trust, filed as Exhibit 10.13 to the 1997 Form 10-K, which is
incorporated herein by reference. (1)
10.13 Lease contract between Haifa Chemicals South, Ltd. ("HCSL") and Israel Land *
Administration Authority, dated as of March 6, 1995, concerning real property,
filed as Exhibit 10.14 to the 1997 Form 10-K, which is incorporated herein by
reference.
10.14 Potash Sales Agreement between HCSL and Dead Sea Works Limited, dated April *
24, 1995, concerning the supply of potash, filed as Exhibit 10.15 to the 1997
Form 10-K, which is incorporated herein by reference.
10.15 Supply Agreement, dated as of January 3, 1999, between Haifa Chemicals Ltd. , *
HCSL and Rotem Amfert Negev Ltd., filed as Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the Year ended December 31, 1998 (the "1998
Form 10-K"), which is incorporated herein by reference.
10.16 Amended and Restated Conditional Agreement to Settle the Louisiana Class *
Action, dated as of August 21, 1998, relating to the Bogalusa Litigation,
filed as Exhibit 10.17 to the 1998 Form 10-K, which is incorporated herein by
reference.
10.17 Amended and Restated Conditional Agreement to Settle the Claims by the *
Mississippi Plaintiffs, dated as of August 20, 1998, relating to the Bogalusa
Litigation, filed as Exhibit 10.18 to the 1998 Form 10-K, which is
incorporated herein by reference.
21 Subsidiaries of the Company. E-4
24 Power of Attorney authorizing William Dowd to sign this report and any
amendments hereto on behalf of the principal executive officer and the E-5
directors.
27 Financial Data Schedule. E-6
</TABLE>
- ----------------
* Incorporated by reference
(1) Management contract or compensatory plan or arrangement
E-3
<PAGE> 1
EXHIBIT 21
The following table sets forth certain information, as of March 29, 2000,
with respect to the subsidiaries of the Company, other than certain subsidiaries
which, if considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
<TABLE>
<CAPTION>
Percentage of
voting securities State or other
owned by its jurisdiction in
immediate parent which incorporated
---------------- ------------------
<S> <C> <C>
Subsidiaries of the Company:
Haifa Chemicals Ltd. 100% (1) Israel
Haifa Chemicals South, Ltd. 100% Israel
Haifa Chemicals Holding Ltd. 100% Israel
Haifa Gardening and Irrigation Ltd. 100% Israel
Lego Irrigation, Ltd. 77% Israel
Hi-Chem (UK) Ltd. 100% United Kingdom
Hi-Chem S.A. 100% Belgium
Hi-Chem Holdings B.V. 100% Netherlands
Fertilizantes Quimicos, S.A. 100% Spain
Hi-Agri S.R.L. 100% (2) Italy
Haifa Quimica De Mexico 80% Mexico
Duclos International S.A. 100% France
Almat, Inc. 100% Delaware
Na-Churs Plant Food Company 100% Delaware
Alpine Plant Foods Corporation 100% Ontario, Canada
Plant Products Company, Ltd. 100% Ontario, Canada
V-J Growers Supply, Inc. 100% Delaware
Nine West Corporation 100% Delaware
Cedar Chemical Corporation 100% Delaware
Vicksburg Chemical Company 100% Delaware
TRI Pro, Inc. 100% Delaware
TRI Organic Chemicals, Inc. 100% Delaware
TRI-Chemical Vegyimuvek Rt.. 100% Hungary
EMV Kft. 100% Hungary
EDP 100% Delaware
</TABLE>
(1) Including approximately 7% owned by Trans-Resources (Israel) Ltd.
(2) Including approximately 5% owned by Haifa Chemicals South, Ltd.
E-4
<PAGE> 1
POWER OF ATTORNEY
Each of the undersigned officers and directors of Trans-Resources, Inc., a
Delaware corporation (the "Company"), does hereby constitute and appoint Arie
Genger and William Dowd, and each of them, as the undersigned's true and lawful
attorney-in-fact, with full power to each of them to act without the other, to
execute in the name and on behalf of the undersigned, individually and in the
capacity stated below, the Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 1999 and any and all amendments thereto, which
amendments may make such changes in such Form 10-K as either such
attorney-in-fact may deem appropriate.
Each of the undersigned does further hereby ratify and confirm all that either
said attorney-in-fact may do or cause to be done pursuant to the power granted
hereby.
Dated: March 24, 2000
/s/ Arie Genger
-------------------------------------------
Arie Genger
Director, Chairman of the Board and
Chief Executive Officer
(principal executive officer)
/s/ William Dowd
-------------------------------------------
William Dowd
Vice President and
Chief Financial Officer (principal financial
and accounting officer)
/s/ Thomas G. Hardy
-------------------------------------------
Thomas G. Hardy
Director
/s/ Martin A. Coleman
-------------------------------------------
Martin A. Coleman
Director
/s/ Sash A. Spencer
-------------------------------------------
Sash A. Spencer
Director
/s/ Avi Pelossof
-------------------------------------------
Avi Pelossof
Director
E-5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,354
<SECURITIES> 0
<RECEIVABLES> 102,942
<ALLOWANCES> 0
<INVENTORY> 121,064
<CURRENT-ASSETS> 320,873
<PP&E> 498,818
<DEPRECIATION> 173,355
<TOTAL-ASSETS> 706,699
<CURRENT-LIABILITIES> 212,761
<BONDS> 496,016
0
7,960
<COMMON> 0
<OTHER-SE> (68,172)
<TOTAL-LIABILITY-AND-EQUITY> 706,699
<SALES> 497,075
<TOTAL-REVENUES> 497,075
<CGS> 394,401
<TOTAL-COSTS> 394,401
<OTHER-EXPENSES> 67,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,776
<INCOME-PRETAX> (12,871)
<INCOME-TAX> 2,994
<INCOME-CONTINUING> (15,865)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,865)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
