<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MARCH 6, 1997
------------------------
POTASH CORPORATION OF SASKATCHEWAN INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
SASKATCHEWAN
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
1-10351
(COMMISSION FILE NO.)
N/A
(I.R.S. EMPLOYER IDENTIFICATION NO.)
122 - 1ST AVENUE SOUTH, SUITE 500
SASKATOON, SASKATCHEWAN, CANADA S7K 7G3
306-933-8500
(ADDRESS AND TELEPHONE NUMBER OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
N/A
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
================================================================================
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The financial statements of Arcadian Corporation ("Arcadian") required by
this item are attached.
(B) PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
On March 6, 1997, the Company acquired all of the outstanding shares of
Arcadian for cash of $555,145,002 and the issuance of 8,030,236 common shares
valued at $573,278,000. The cash consideration was financed by debt. Arcadian is
based in Memphis, Tennessee and is a producer of nitrogen and nitrogen products.
The acquisition was completed through the merger of Arcadian into a wholly-owned
subsidiary of the Company, PCS Nitrogen, Inc.
The unaudited pro forma consolidated statement of income presented herein
gives effect to the acquisition of Arcadian as if the acquisition had occurred
on January 1, 1996.
The unaudited pro forma consolidated statement of income for the year ended
December 31, 1996 was prepared by combining the consolidated statement of income
of Potash Corporation of Saskatchewan Inc. ("PCS") for the year ended December
31, 1996 with the consolidated statement of income of Arcadian for the year
ended December 31, 1996 (both in accordance with US generally accepted
accounting principles).
In addition to the combination of the historical financial statements
referred to above, the unaudited pro forma consolidated statement of income
reflects certain adjustments to give effect to the acquisition of Arcadian as if
it had occurred on January 1, 1996. It also reflects adjustments to give effect
to the issuance of long-term debt by PCS in order to finance the acquisition and
the prepayment of the First Mortgage Notes and the retirement of the Senior
Notes.
Certain figures from the Arcadian consolidated statement of income have
been reclassified to conform to the basis of presentation used in the PCS
consolidated statement of income.
Pro forma adjustments are based on the purchase method of accounting and a
preliminary allocation of the purchase price. However, changes to the
adjustments included in the unaudited pro forma consolidated statement of income
are expected as evaluations of assets and liabilities are completed and
additional information becomes available. Accordingly, the final allocated
values will differ from the amounts used to calculate the adjustments in the
unaudited pro forma consolidated statement of income.
The unaudited pro forma consolidated statement of income is intended for
informational purposes only and is not necessarily indicative of the future
results of operations of the combined company that would have actually occurred
had the acquisition been in effect for the period presented.
1
<PAGE> 3
POTASH CORPORATION OF SASKATCHEWAN INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PCS ARCADIAN NOTE ADJUSTMENTS CONSOLIDATED
---------- ---------- ---- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $1,516,394 $1,223,832 8 (20,372) $ 2,719,854
Cost of goods sold................. 1,073,828 884,777 4,8 (25,709) 1,932,896
---------- ---------- ----------
Gross Margin....................... 442,566 339,055 786,958
---------- ---------- ----------
Research and development........... 1,347 -- 1,347
Selling and administrative......... 108,175 48,533 5 10,886 167,594
Provincial mining and other
taxes............................ 40,197 -- 40,197
Other income....................... (6,645) (13,785) 2 17,578 (2,852)
---------- ---------- ----------
143,074 34,748 206,286
---------- ---------- ----------
Operating Income................... 299,492 304,307 580,672
Interest Expense................... 46,761 59,723 2,3 (3,361) 103,123
---------- ---------- ----------
Income Before Income Taxes......... 252,731 244,584 477,549
Income Taxes....................... 50,911 83,719 6 (3,552) 131,078
---------- ---------- ----------
Net Income......................... $ 201,820 $ 160,865 $ 346,471
========== ========== ==========
Net Income per Share (Note 7)...... $ 4.39 $ 6.41
========== ==========
</TABLE>
2
<PAGE> 4
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
NOTE 1:
The unaudited pro forma consolidated statement of income for the year ended
December 31, 1996 was prepared by combining the consolidated statement of income
of Potash Corporation of Saskatchewan Inc. ("PCS") for the year ended December
31, 1996 with the consolidated statement of income of Arcadian Corporation
("Arcadian") for the year ended December 31, 1996 (both in accordance with US
generally accepted accounting principles).
Certain figures from the Arcadian consolidated statement of income have
been reclassified to conform to the basis of presentation used in the PCS
consolidated statement of income.
In addition to the combination of the historical financial statements
referred to above, the unaudited pro forma consolidated statement of income
reflects certain adjustments to give effect to the acquisition of Arcadian as if
it had occurred on January 1, 1996. It also reflects adjustments to give effect
to the issuance of long-term debt by PCS in order to finance the acquisition and
the prepayment of the First Mortgage Notes and the retirement of the Senior
Notes.
Pro forma adjustments are based on the purchase method of accounting and a
preliminary allocation of the purchase price. However, changes to the
adjustments included in the unaudited pro forma consolidated statement of income
are expected as evaluations of assets and liabilities are completed and
additional information becomes available. Accordingly, the final allocated
values will differ from the amounts used to calculate the adjustments in the
unaudited pro forma consolidated statement of income.
The unaudited pro forma consolidated statement of income is intended for
informational purposes only and is not necessarily indicative of the future
results of operations of the combined company, or the results of operations of
the combined company that would have actually occurred had the acquisition been
in effect for the period presented.
NOTE 2:
The adjustments to interest income and interest expense as a result of the
prepayment of the First Mortgage Notes and the retirement of the Senior Notes
are as follows:
<TABLE>
<S> <C>
Reduction in interest expense.................................... $59,723
Reduction in interest income..................................... 17,578
</TABLE>
NOTE 3:
The adjustment to record the increased interest expense relating to the
issuance of long-term debt was calculated based on additional debt of $939,372
bearing interest at 6%. The resulting increase in interest expense is as
follows:
<TABLE>
<S> <C>
Additional interest expense...................................... $56,362
</TABLE>
3
<PAGE> 5
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
NOTE 4:
Depreciation expense has been revised to reflect the values allocated under
the purchase method of accounting and an increase in the estimated useful lives.
The decrease in depreciation expense is as follows:
<TABLE>
<S> <C>
Reduction in depreciation........................................ $ 5,337
</TABLE>
NOTE 5:
Amortization expense has been revised to reflect the value allocated to
goodwill under the purchase method of accounting. The amount allocated to
goodwill is $532,820 and it is being amortized over 40 years. The increase in
amortization expense is as follows:
<TABLE>
<S> <C>
Increase in amortization......................................... $10,886
</TABLE>
NOTE 6:
The provision for income taxes has been revised to reflect the above noted
adjustments (except the adjustment to amortization of goodwill). The tax effect
has been calculated at an assumed average tax rate of 40%. The reduction in
income taxes is as follows:
<TABLE>
<S> <C>
Decrease in income taxes......................................... $ 3,552
</TABLE>
NOTE 7:
Earnings per share have been calculated based on the assumption that the
8.030 million shares issued on the acquisition were outstanding for the full
period presented.
<TABLE>
<S> <C>
PCS average outstanding shares (in thousands)................... 45,994
Shares issued on acquisition (in thousands)..................... 8,030
--------
Total average outstanding shares (in thousands)................. 54,024
========
</TABLE>
NOTE 8:
To eliminate inter-company sales in the amount of $20,372.
NOTE 9:
A description of the accounting principles which differ significantly from
generally accepted accounting principles in Canada (Canadian GAAP) follows:
Earnings per share: In computing primary earnings per share, under Canadian
GAAP, the stock options are not included in the calculation.
Deferred income taxes: Deferred tax assets have been recognized when their
realization is more likely than not. Canadian GAAP would require that deferred
tax assets be recognized only to the extent of reducing deferred tax
liabilities.
4
<PAGE> 6
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
The application of Canadian GAAP, as described above, would have had the
following approximate effects on net income and net income per share:
<TABLE>
<S> <C>
Net income as reported in the pro forma consolidated statement
of income..................................................... $346,471
Item increasing reported net income
Deferred income taxes......................................... 5,874
--------
Approximate net income -- Canadian GAAP......................... $352,345
========
Weighted average shares outstanding -- Canadian GAAP............ 53,567
========
Net income per share -- Canadian GAAP........................... $ 6.58
========
</TABLE>
5
<PAGE> 7
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
POTASH CORPORATION OF
SASKATCHEWAN INC.
By: /s/ JOHN L.M. HAMPTON
-------------------------
Name: John L.M. Hampton
Title: Senior Vice President,
General Counsel and Secretary
Date: May 15, 1997
6
<PAGE> 8
INDEPENDENT AUDITORS' REPORT
ARCADIAN CORPORATION AND SUBSIDIARIES
The Board of Directors
Arcadian Corporation:
We have audited the consolidated balance sheet of Arcadian Corporation and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits. We did not audit the financial statements of Arcadian Trinidad Limited,
a wholly-owned subsidiary. Those statements reflect total assets at December 31,
1996 and 1995 constituting approximately 30%, and total revenues for each of the
years in the three-year period ended December 31, 1996 constituting less than
1%, of the respective consolidated totals, after elimination of intercompany
balances and transactions. These statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to the
amounts included for Arcadian Trinidad Limited, is based solely on the reports
of the 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 provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Arcadian Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Memphis, Tennessee
February 12, 1997
F-1
<PAGE> 9
AUDITORS' REPORT
To the Members of
ARCADIAN TRINIDAD LIMITED
We have audited the accompanying balance sheet of Arcadian Trinidad Limited
as of 31st December, 1996 and 1995, and the related profit and loss account,
shareholders' equity and cash flow statements for the years then ended. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards prevailing in the United States of America. 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 statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arcadian Trinidad Limited as
of 31st December, 1996 and 1995 and the results of its operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles prevailing in the United States of America.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
CHARTERED ACCOUNTANTS
PORT OF SPAIN
TRINIDAD, W.I.
10TH JANUARY, 1997
F-2
<PAGE> 10
ARCADIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PAR VALUE AND SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
($000) ($000)
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 207,222 $ 202,738
Restricted reserve accounts....................................... 67,842 50,450
Accounts receivable:
Trade, net..................................................... 157,512 103,685
Other.......................................................... 11,637 5,811
Inventories:
Finished products.............................................. 49,671 70,459
Raw materials and supplies..................................... 81,594 66,308
---------- ----------
Total inventories......................................... 131,265 136,767
Other............................................................. 9,675 6,569
---------- ----------
Total current assets...................................... 585,153 506,020
---------- ----------
Property, plant and equipment, net.................................. 603,244 606,410
Goodwill, net....................................................... 93,958 96,393
Other, net.......................................................... 80,511 61,831
---------- ----------
$1,362,866 $1,270,654
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................................ $ 108,543 $ 89,373
Accrued compensation.............................................. 18,094 33,273
Accrued income taxes.............................................. 13,727 3,541
Other accrued expenses and liabilities............................ 32,617 44,621
Current portion of long-term debt................................. 15,000 15,000
---------- ----------
Total current liabilities................................. 187,981 185,808
---------- ----------
Long-term debt, less current portion................................ 510,000 525,000
Deferred income taxes............................................... 106,666 100,621
Other long-term liabilities......................................... 20,601 22,806
---------- ----------
637,267 648,427
---------- ----------
Commitments and contingencies (note 11)
Stockholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized;
5,541,281 shares issued and outstanding in 1996; 13,812,500
shares issued and outstanding in 1995.......................... 85,999 214,195
Common stock, $.01 par value; 150,000,000 shares authorized;
issued shares (40,452,844 in 1996; 30,489,967 in 1995)
outstanding shares (38,799,844 in 1996; 30,489,967 in 1995).... 405 305
Additional paid-in capital........................................ 356,436 223,190
Retained earnings (deficit)....................................... 131,293 (1,271)
Treasury stock, at cost; 1,653,000 common shares in 1996.......... (36,515) --
---------- ----------
Total stockholders' equity................................ 537,618 436,419
---------- ----------
$1,362,866 $1,270,654
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 11
ARCADIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
($000) ($000) ($000)
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................... $1,314,003 $1,266,887 $1,100,301
Cost of sales........................................... 965,681 909,338 915,363
---------- ---------- ----------
Gross profit.................................. 348,322 357,549 184,938
Selling, general and administrative expenses............ 57,800 65,208 52,166
Provision for plant shut-down........................... -- -- 15,500
---------- ---------- ----------
Operating income.............................. 290,522 292,341 117,272
Interest expense........................................ 59,723 67,217 66,389
Interest income......................................... (17,578) (13,090) (9,951)
Losses on investments................................... -- 138 15,109
Other, net.............................................. 3,793 732 1,300
---------- ---------- ----------
Income before non-controlling interest and
income tax provision........................ 244,584 237,344 44,425
---------- ---------- ----------
Non-controlling interest................................ -- (82,270) (43,971)
---------- ---------- ----------
Income before income tax provision............ 244,584 155,074 454
Income tax provision (benefit).......................... 83,719 66,824 (9,539)
---------- ---------- ----------
Net income.................................... $ 160,865 $ 88,250 $ 9,993
========== ========== ==========
Net income applicable to common shares........ $ 147,089 $ 80,227 $ 8,843
========== ========== ==========
Net income per common share................... $ 3.48 $ 3.08 $ 0.55
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 12
ARCADIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
($000) ($000) ($000)
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $160,865 $ 88,250 $ 9,993
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization........................... 69,979 66,647 61,630
Amortization of deferred financing costs................ 2,154 3,290 2,571
Losses on disposals of property, plant and equipment.... 4,395 3,108 397
Non-controlling interest................................ -- 82,270 43,971
Deferred income taxes................................... 6,045 27,240 (23,143)
Provision for plant shut-down........................... -- -- 15,500
Losses on investments................................... -- 138 15,109
Net changes in operating assets and liabilities:
Accounts receivable................................... (59,653) 15,959 (37,907)
Inventories........................................... 5,502 30,012 (4,582)
Other current assets.................................. (3,106) 170 (438)
Accounts payable, accrued expenses and other
liabilities........................................ (32) 7,066 33,189
Other, net............................................ 1,257 1,598 707
-------- -------- -------
Net cash provided by (used for) operating
activities....................................... 187,406 325,748 116,997
-------- -------- -------
Cash flows from investing activities:
Cash portion of merger consideration....................... -- (214,205) --
Purchase of property, plant and equipment.................. (57,272) (53,255) (59,234)
Proceeds from disposals of property, plant and equipment... 2,081 4,157 315
Rotational plant maintenance costs......................... (18,141) (8,305) (18,107)
Purchases of investments................................... -- (36,237) (33,160)
Proceeds on sales of investments........................... -- 49,406 72,853
Increase in restricted reserve accounts.................... (17,392) (13,819) (7,369)
Release of MQD reserve..................................... -- 35,750 --
Investment in joint venture................................ (11,000) -- --
-------- -------- -------
Net cash provided by (used for) investing
activities....................................... (101,724) (236,508) (44,702)
-------- -------- -------
Cash flows from financing activities:
Revolving credit facility, net............................. -- (61,000) (7,000)
Repayment of debt.......................................... (15,000) (35,886) (4,158)
Transaction and financing fees............................. (700) (11,872) (5)
Proceeds from issuance of common stock..................... 11,531 232,882 2,008
Cash paid to repurchase common and preferred stock......... (48,352) (11) --
Cash distributions to non-controlling interest............. -- (30,786) (35,750)
Cash dividends on common stock and preferred stock......... (28,677) (30,922) (7,274)
-------- -------- -------
Net cash provided by (used for) financing
activities....................................... (81,198) 62,405 (52,179)
-------- -------- -------
Total increase (decrease) in cash and cash
equivalents...................................... 4,484 151,645 20,116
Cash and cash equivalents at beginning of period........... 202,738 51,093 30,977
-------- -------- -------
Cash and cash equivalents at end of period................. $207,222 $202,738 $51,093
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 13
ARCADIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------ ADDITIONAL RETAINED TREASURY
PREFERRED COMMON PREFERRED COMMON PAID-IN EARNINGS STOCK
STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) AT COST
---------- ---------- --------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............ -- 15,568,653 $ -- $157 $ 37,747 $(57,582) $(37,948)
Accretion of discount on preferred
stock............................... -- -- -- -- (29) -- --
Preferred stock dividends............. -- -- -- -- (1,121) -- --
Issuance of common stock.............. -- 165,000 -- 1 1,599 -- --
Cash dividends on common stock
($0.33/share)....................... -- -- -- -- -- (5,924) --
Exercise of warrants and stock
options............................. -- 123,750 -- 1 407 -- --
Net income for 1994................... -- -- -- -- -- 9,993 --
---------- ---------- --------- ------ -------- -------- --------
Balance at December 31, 1994............ -- 15,857,403 -- 159 38,603 (53,513) (37,948)
Issuance of common stock.............. -- 15,791,451 -- 157 219,671 -- --
Issuance of preferred stock........... 13,812,500 -- 214,195 -- -- -- --
Preferred stock dividends............. -- -- -- -- -- (8,023) --
Cash dividends on common stock
($1.72/share)....................... -- -- -- -- -- (27,985) --
Exercise of stock options............. -- 486,451 -- 5 2,859 -- --
Repurchase of 1,500 shares of common
stock............................... -- -- -- -- -- -- (11)
Retirement of 1,645,338 shares of
common stock held in treasury....... -- (1,645,338) -- (16) (37,943) -- 37,959
Net income for 1995................... -- -- -- -- -- 88,250 --
---------- ---------- --------- ------ -------- -------- --------
Balance at December 31, 1995............ 13,812,500 30,489,967 214,195 305 223,190 (1,271) --
Issuance of common stock.............. -- 1,774,855 -- 18 12,128 -- --
Preferred stock dividends............. -- -- -- -- -- (13,776) --
Cash dividends on common stock
($0.35/share)....................... -- -- -- -- -- (11,856) --
Exercise of stock options............. -- 508,845 -- 5 2,167 -- --
Repurchase of 1,653,000 shares of
common stock........................ -- -- -- -- -- -- (36,515)
Repurchase of 592,042 shares of
preferred stock..................... (592,042) -- (9,168) -- -- (2,669) --
Exchange of preferred for common...... (7,679,177) 7,679,177 (119,028) 77 118,951 -- --
Net income for 1996................... -- -- -- -- -- 160,865 --
---------- ---------- --------- ------ -------- -------- --------
Balance at December 31, 1996............ 5,541,281 40,452,844 $ 85,999 $405 $356,436 $131,293 $(36,515)
========== ========== ========= ====== ======== ======== ========
<CAPTION>
TOTAL
--------
<S> <C>
Balance at December 31, 1993............ $(57,626)
Accretion of discount on preferred
stock............................... (29)
Preferred stock dividends............. (1,121)
Issuance of common stock.............. 1,600
Cash dividends on common stock
($0.33/share)....................... (5,924)
Exercise of warrants and stock
options............................. 408
Net income for 1994................... 9,993
--------
Balance at December 31, 1994............ (52,699)
Issuance of common stock.............. 219,828
Issuance of preferred stock........... 214,195
Preferred stock dividends............. (8,023)
Cash dividends on common stock
($1.72/share)....................... (27,985)
Exercise of stock options............. 2,864
Repurchase of 1,500 shares of common
stock............................... (11)
Retirement of 1,645,338 shares of
common stock held in treasury....... --
Net income for 1995................... 88,250
--------
Balance at December 31, 1995............ 436,419
Issuance of common stock.............. 12,146
Preferred stock dividends............. (13,776)
Cash dividends on common stock
($0.35/share)....................... (11,856)
Exercise of stock options............. 2,172
Repurchase of 1,653,000 shares of
common stock........................ (36,515)
Repurchase of 592,042 shares of
preferred stock..................... (11,837)
Exchange of preferred for common...... --
Net income for 1996................... 160,865
--------
Balance at December 31, 1996............ $537,618
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 14
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Arcadian Corporation ("Corporation") was created in 1989 with the
acquisition of five previously separate nitrogen fertilizer businesses. From
April 1992 to August 1995, the Corporation conducted substantially all of its
operations through a master limited partnership, Arcadian Partners, L.P.
("Partners") and its subsidiaries (collectively "Partnership"). The Corporation
created the Partnership and held a 2% general partner interest as well as a 43%
limited partner interest; a 55% limited partner interest ("Non-Controlling
Interest") was represented by publicly traded preference units. As more fully
described in Note 2, the Corporation effectively acquired all of the preference
units of Partners in August 1995 as part of a series of transactions referred to
as the "1995 Merger". For all periods presented, Partners and its subsidiaries,
including its operating partnership, Arcadian Fertilizer, L.P. ("Fertilizer"),
along with other less significant subsidiaries of the Corporation, have been
consolidated with the Corporation and are collectively referred to herein as
"Arcadian". All intercompany balances and transactions have been eliminated in
consolidation.
Arcadian produces a variety of nitrogen and phosphate fertilizers and
nitrogen chemicals and sells product throughout the United States and
internationally. Arcadian's customers vary in size and typically participate in
agricultural and intermediate industrial chemical businesses. Credit is extended
based on an evaluation of the customer's financial condition, and generally,
collateral or other forms of security are not required. Expected credit losses
have been provided for in the financial statements.
Arcadian's management has made a number of estimates and assumptions
(relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities) to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Cash Equivalents
Arcadian considers highly liquid investments with an original maturity of
three months or less to be cash equivalents, except for those which are part of
the restricted reserve accounts.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using principally the first-in, first-out (FIFO) method. The cost of finished
goods includes raw materials, direct labor, plant operating overhead, certain
plant to terminal freight and terminal distribution costs. Finished goods also
include the net effect of product exchange agreements with other fertilizer
producers. Raw materials inventories also include spare parts, maintenance
supplies, catalyst, and margin requirements related to derivative financial
instruments ("derivatives") discussed below.
Arcadian uses derivatives for a portion of its natural gas requirements to
manage its exposure to commodity price risk in the purchases of natural gas,
Arcadian's primary raw material. These activities have been designated as
hedging activities by Arcadian and are accounted for as such. Arcadian hedges
for both committed and anticipated purchases of natural gas. Increases
(decreases) in the fair value of derivatives generally offset changes in the
spot market prices of natural gas, and therefore allow Arcadian to establish a
determinable fixed cost for this raw material.
Gains or losses resulting from changes in the fair value of hedging
transactions which have not yet been settled are not recognized as they
generally relate to changes in the spot price of anticipated natural gas
purchases. Gains or losses arising from settled hedging transactions are
deferred as a component of finished goods inventory until the product containing
the hedged item is sold, at which time both the natural gas purchase cost and
the related hedging deferral are recorded as cost of sales. Arcadian regularly
evaluates its
F-7
<PAGE> 15
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unrecognized or deferred gains and losses on derivatives from a net realizable
value of inventory perspective and establishes appropriate reserves, if
necessary.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Normal maintenance and
repairs are charged to expense as incurred. Major improvements and betterments
are capitalized.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from five to 20 years. Leasehold
improvements are amortized over their estimated useful lives or the related
primary lease terms, whichever are shorter.
Goodwill
Goodwill is amortized on a straight-line basis over 40 years. The
Corporation assesses the recoverability of this intangible asset based on
estimated undiscounted future operating cash flows.
Other Assets
Rotational plant maintenance costs, which consist primarily of planned
major maintenance projects performed on a periodic basis (also known as
"turnarounds"), are capitalized when incurred and are amortized over the
anticipated periods until the next scheduled rotational plant maintenance which
ranges from two to four years.
Financing costs are capitalized and amortized over the terms of the related
debt.
Income Taxes
Income taxes have been provided for in accordance with the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that deferred
tax assets will be realized through the generation of future taxable income.
Foreign withholding taxes, which relate to Trinidad taxes on interest
payments by Trinidad subsidiaries on intercompany debt for which foreign tax
credits are not allowed, are included in income tax provision in the
accompanying consolidated statement of operations.
Net Income Per Common Share
For purposes of computing net income per common share in 1996 and 1995, the
conversion of Preferred Stock, which is a common stock equivalent because of its
mandatory conversion feature, is assumed when such conversion is dilutive. If
such conversion is antidilutive, the conversion of such shares is not assumed,
and net income applicable to common shares is therefore reduced by dividends on
the Preferred Stock. The assumed conversion in 1996 and 1995 of the Preferred
Stock had a dilutive effect. Warrants and options are common stock equivalents.
Common and common equivalent shares outstanding were 46,165,555; 28,676,102; and
16,148,586 for years ended December 31, 1996, 1995 and 1994, respectively.
F-8
<PAGE> 16
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation
The functional currency of Arcadian's Trinidad operations is the U.S.
dollar. Monetary assets and liabilities denominated in local currency are
translated at year-end exchange rates and monetary income and expense accounts
denominated in local currency are translated at average exchange rates for the
period. Adjustments resulting from translating local currency denominated
accounts are included in results of operations. Aggregate foreign currency gains
and losses recognized during the periods presented were immaterial.
New Accounting Pronouncements
Arcadian adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on Arcadian's
financial position, results of operations, or liquidity.
Prior to January 1, 1996, Arcadian accounted for its stock-based
compensation plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, Arcadian adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock-based compensation
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. Arcadian has elected to continue to apply the
provisions of APB Opinion No. 25; the pro forma disclosure provisions of SFAS
No. 123 are not presented herein because the pro forma effects on earnings and
earnings per share were not material.
Reclassifications
Certain amounts have been reclassified to conform to current year
presentation.
(2) 1995 MERGER
On August 9, 1995, the Corporation completed its acquisition of all of the
outstanding preference units of Partners by means of the merger of the
Corporation with and into Partners ("1995 Merger"). In exchange for each
outstanding preference unit, the holders received consideration consisting of
(1) cash in the amount of $14.50, (2) 0.935 share of the Corporation's Preferred
Stock, and (3) the accrued but unpaid minimum quarterly distribution ("MQD") on
the preference units from July 1 through August 9, 1995, in the amount of $.269
per preference unit. The 1995 Merger was accounted for using the purchase method
of accounting. The excess of the aggregate consideration ($428 million) over the
Corporation's carrying value for Non-Controlling Interest at the date of the
1995 Merger ($331 million) was recorded as goodwill. The cash portion of the
consideration paid by the Corporation was provided primarily by a concurrent
public offering of 15,558,824 shares of its Common Stock at a price of $15.50
per share. Net sales and net income on a pro forma basis, assuming the 1995
Merger and public offering had occurred as of January 1, 1994, would have been
$1.1 billion and $45 million for 1994 and $1.3 billion and $143 million for
1995, respectively.
F-9
<PAGE> 17
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) RESERVE ACCOUNTS
At December 31, 1996, restricted reserve accounts of $68 million were
comprised of a $31 million Cash Collateral Account for the benefit of the
holders of the First Mortgage Notes, a $19 million Debt Service Reserve Account
for the benefit of the holders of the 10 3/4% Series B Notes due 2005 ("Senior
Notes"), a $2 million Cash Reserve Account maintained by Fertilizer for the
benefit of the First Lessor (see Note 11), and a $16 million Cash Reserve
Account maintained by Fertilizer for the benefit of the Second Lessor (see Note
11). At December 31, 1996, restricted reserve accounts consisted of $68 million
in mutual funds which invest primarily in commercial paper and money market
instruments.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
($000) ($000)
-------- --------
<S> <C> <C>
Land and improvements.......................................... $ 18,525 $ 18,531
Buildings and improvements..................................... 44,556 44,812
Machinery and equipment........................................ 770,975 699,945
Furniture and equipment........................................ 6,391 5,938
Construction in progress....................................... 28,692 54,090
-------- --------
869,139 823,316
Less accumulated depreciation.................................. 265,895 216,906
-------- --------
$603,244 $606,410
======== ========
</TABLE>
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
($000) ($000)
-------- --------
<S> <C> <C>
First Mortgage Notes........................................... $185,000 $200,000
Senior Notes................................................... 340,000 340,000
Revolving credit facility...................................... -- --
-------- --------
525,000 540,000
Less current portion........................................... 15,000 15,000
-------- --------
$510,000 $525,000
======== ========
</TABLE>
The First Mortgage Notes are payable in varying annual principal
installments beginning in 1996, have a final maturity in 2012, and bear
interest, which is payable quarterly, at rates ranging from 9.09% to 10.10% per
annum (with a weighted average interest rate in 1996 of 9.66%). The First
Mortgage Notes are secured by substantially all of the property, plant and
equipment of Fertilizer, as well as by the Cash Collateral Account. See Note 14
regarding the 1997 Merger.
The Senior Notes rank pari passu in right of payment with all other
existing and future senior debt of the Partnership and senior in right of
payment of any future subordinated debt of the Partnership. Because the
Partnership conducts operations through its subsidiaries, the Senior Notes are
structurally subordinated to all debt and other obligations of the subsidiaries.
The Senior Notes are redeemable, in whole or in part, beginning on May 1, 1998.
A sinking fund will provide for the mandatory redemption of the Senior Notes, at
the annual
F-10
<PAGE> 18
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rate of 20% of the aggregate principal amount of the Senior Notes, beginning on
May 1, 2001, and continuing until the entire issue is retired on May 1, 2005. In
addition, the Senior Noteholders effectively have a put option, triggered by a
change in control (as defined), which if exercised, would require the repurchase
of the Senior Notes at 101% of par. The Senior Notes indenture contains certain
covenants that, among other things, restrict the ability of Partners and certain
of its subsidiaries, under certain circumstances, to create liens, incur or
guarantee debt, make distributions, sell certain equity interests or assets, and
engage in certain other transactions. See Note 14 regarding the 1997 Merger.
Fertilizer has a $100 million revolving credit facility from a commercial
bank. Fertilizer uses the revolving credit facility to provide working capital
and credit support for operating activities in the form of letters of credit
(see Note 11). At December 31, 1996, there was no outstanding balance on the
revolving credit facility, and the amount available for borrowing in the form of
loans and letters of credit, after considering outstanding and committed letters
of credit of $43 million, was $57 million. The revolving credit facility is
secured primarily by inventories and accounts receivable, and bears interest,
which is payable quarterly, based on reserve-adjusted LIBOR plus a margin of
1.25%. An alternative interest rate is available based on the agent's base
lending rate. The revolving credit facility matures in 1999 but can be extended
annually for one-year periods at the option of the bank.
Maturities of long-term debt as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Years Ending December 31, ($000)
--------
<S> <C>
1997...................................................................... $ 15,000
1998...................................................................... 15,000
1999...................................................................... 17,500
2000...................................................................... 17,500
2001...................................................................... 85,500
Thereafter................................................................ 374,500
--------
$525,000
========
</TABLE>
(6) PREFERRED STOCK
The Corporation has 50 million shares of $.01 par value preferred stock
authorized, 16,500,000 of which have been designated as Mandatorily Convertible
Preferred Stock, Series A ("Preferred Stock"). On August 9, 1995, in conjunction
with the 1995 Merger, the Corporation issued 13,812,500 shares of Preferred
Stock.
In 1996, the Corporation repurchased approximately 592,000 shares of
Preferred Stock at an aggregate cost of approximately $12 million, including an
aggregate premium of approximately $3 million above their original issue price.
In 1996, approximately 7,679,000 shares of Preferred Stock were converted
into a like number of shares of Common Stock pursuant to a charter amendment
that gave the holders of Preferred Stock the opportunity to convert their shares
into Common Stock. Shares of Preferred Stock not converted continue to have
exactly the same rights as they had prior to the optional conversion period.
The Preferred Stock ranks senior to the Common Stock in the payment of
dividends and liquidation, has voting rights, pays a cumulative quarterly
dividend at an annual rate of $1.4725 per share until August 9, 1998 ("Mandatory
Conversion Date"), and has a liquidation preference of approximately $86 million
($15.50 per share) plus any accrued but unpaid dividends thereon. The Preferred
Stock converts automatically into Common Stock, on a share-for-share basis, on
the Mandatory Conversion Date. The Corporation may also cause the conversion of
the outstanding Preferred Stock into Common Stock upon certain mergers or
consolidations of the Corporation. The Corporation has the option to redeem the
Preferred Stock, in whole or
F-11
<PAGE> 19
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in part, in exchange for a combination of cash and/or shares of Common Stock
having a value equal to the sum of $22.475 per share and an amount equal to
$1.3175 per share per annum from the date of the redemption to the Mandatory
Conversion Date. See Note 14 regarding the 1997 Merger.
(7) COMMON STOCK
In February 1996, the Corporation completed an underwritten public offering
of 2.4 million shares of Common Stock on behalf of certain holders of Common
Stock and warrants to purchase Common Stock. The Corporation received net
proceeds of $4 million from the exercise of warrants and $5 million from the
issuance of an additional 0.2 million shares upon the exercise of the
underwriters' over-allotment option.
Arcadian has a Stock Option Plan for key employees which provides for the
granting of incentive and nonqualified options to purchase up to 2,025,000
shares of Common Stock. The options have effective dates ranging from May 1990
to June 1996, vest ratably over the three years following the effective date,
and will expire ten years from their respective effective dates. At December 31,
1996, there were approximately 54,000 shares available for grant under the Stock
Option Plan.
The following table summarizes option activity for the years 1994, 1995 and
1996:
<TABLE>
<CAPTION>
AVERAGE
PER SHARE
SHARES OPTION PRICE
--------- ------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1994................................... 1,491,201 $ 4.37
Options granted.............................................. 336,000 7.04
Options exercised............................................ (105,000) 3.33
Options terminated........................................... (75,003) 7.10
---------
BALANCE AT DECEMBER 31, 1994................................. 1,647,198 4.86
Options granted.............................................. 69,000 10.33
Options exercised............................................ (486,451) 3.61
Options terminated........................................... (18,501) 7.59
---------
BALANCE AT DECEMBER 31, 1995................................. 1,211,246 5.63
Options granted.............................................. 87,500 20.78
Options exercised............................................ (508,845) 4.27
Options terminated........................................... (1,000) 10.33
---------
BALANCE AT DECEMBER 31, 1996................................. 788,901 8.18
=========
Exercisable at December 31, 1994............................. 1,324,500 $ 3.76
Exercisable at December 31, 1995............................. 973,749 $ 4.56
Exercisable at December 31, 1996............................. 598,401 $ 5.97
</TABLE>
The following table summarizes options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED-AVERAGE OPTIONS EXERCISABLE
RANGE YEARS OF ----------------------------
OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- -------------------------- ------- ---------------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
$3.33..................... 303,050 3.3 $ 3.33 303,050 $ 3.33
$5.03 -- $7.33............ 62,851 5.3 $ 5.23 62,851 $ 5.23
$8.33 -- $10.33........... 335,500 6.9 $ 9.83 232,500 $ 9.61
$19.75 -- $22.50.......... 87,500 9.6 $20.78 -- --
------- --- ------ ------- ------
$3.33 -- $22.50........... 788,901 5.7 $ 8.18 598,401 $ 5.97
======= === ====== ======= ======
</TABLE>
F-12
<PAGE> 20
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Arcadian has reserved approximately 5.5 million shares of Common Stock for
issuance upon the conversion of the Preferred Stock, approximately .8 million
shares for issuance upon the exercise of options granted under the Stock Option
Plan, approximately .5 million shares for issuance upon the exercise of
warrants, and approximately .5 million shares for issuance under a restricted
stock plan.
(8) FOREIGN OPERATIONS
Geographic segment information, in millions of dollars, is as follows:
<TABLE>
<CAPTION>
U.S. TRINIDAD CONSOLIDATED
------ -------- ------------
<S> <C> <C> <C>
1996
Sales to unaffiliated customers....................... $1,310 $ 4 $1,314
Sales between geographic areas........................ -- 228 --
Operating income...................................... 208 83 291
Identifiable assets................................... 927 436 1,363
1995
Sales to unaffiliated customers....................... $1,263 $ 4 $1,267
Sales between geographic areas........................ -- 227 --
Operating income...................................... 198 94 292
Identifiable assets................................... 906 365 1,271
1994
Sales to unaffiliated customers....................... $1,096 $ 4 $1,100
Sales between geographic areas........................ -- 151 --
Operating income...................................... 72 45 117
Identifiable assets................................... 815 304 1,119
</TABLE>
Transfer prices for sales between geographic affiliates approximate prices
charged to unaffiliated customers less Fertilizer's estimated costs for
marketing and distribution efforts.
(9) INCOME TAXES
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
($000) ($000) ($000)
-------- ------- -------
<S> <C> <C> <C>
Current:
U.S. Federal......................................... $ 45,430 $18,768 $10,002
U.S. State........................................... 6,547 2,757 1,363
Foreign.............................................. 25,697 18,059 2,238
-------- ------- -------
77,674 39,584 13,603
-------- ------- -------
Deferred:
U.S. Federal......................................... 16,607 22,217 (15,778)
Foreign.............................................. (10,562) 5,023 (7,364)
-------- ------- -------
6,045 27,240 (23,142)
-------- ------- -------
$ 83,719 $66,824 $(9,539)
======== ======= =======
</TABLE>
F-13
<PAGE> 21
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes in 1996, 1995 and 1994, differed from the amount calculated using
the U.S. statutory rate (35%, 35% and 34%, respectively) for the following
reasons:
<TABLE>
<CAPTION>
1996 1995 1994
($000) ($000) ($000)
------- ------- -------
<S> <C> <C> <C>
Income tax at U.S. statutory rate....................... $85,605 $54,276 $ 154
Domestic state income taxes, net of federal benefit..... 5,266 1,792 18
Foreign subsidiaries -- withholding taxes and rate
differentials......................................... 2,239 4,446 5,020
Non-controlling interest share of foreign income
taxes................................................. -- 7,238 10,219
Adjustment to deferred taxes for decrease in foreign tax
rate.................................................. (4,586) -- (8,635)
Change in valuation allowance........................... 97 (6,326) (9,990)
Other, net.............................................. (4,902) 5,398 (6,325)
------- ------- -------
$83,719 $66,824 $(9,539)
======= ======= =======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the net deferred tax liability as of December 31, 1996 and 1995, are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
($000) ($000)
-------- --------
<S> <C> <C>
Deferred tax asset:
Loss and credit carryforwards................................ $ 5,219 $ 3,864
Compensation related......................................... 10,923 5,355
Other........................................................ 9,096 4,464
-------- --------
Gross deferred tax asset..................................... 25,238 13,683
Less valuation allowance..................................... (3,101) (3,004)
-------- --------
Net deferred tax asset....................................... 22,137 10,679
-------- --------
Deferred tax liability:
Basis difference in fixed assets............................. 93,309 83,564
Other........................................................ 35,494 27,736
-------- --------
Gross deferred tax liability................................. 128,803 111,300
-------- --------
Net deferred tax liability................................... $106,666 $100,621
======== ========
</TABLE>
Of the December 31, 1996 and 1995, net deferred tax liability amounts above
$40 million and $50 million, respectively, related to Trinidad.
Arcadian has not recognized a deferred tax liability for foreign
withholding taxes on undistributed earnings of the Trinidad subsidiaries, as it
is currently management's intent not to repatriate Trinidad profits in the
foreseeable future. Cumulative undistributed earnings total approximately $133
million at December 31, 1996; the related withholding tax would approximate $13
million. Arcadian's intention is to permanently reinvest these earnings at least
until such time as they can be repatriated without a material incremental tax
cost.
(10) EMPLOYEE BENEFIT PLANS
Pension Plans
Arcadian has defined benefit pension plans covering essentially all
employees. Participation and benefit accrual are based on future service, with
past service counting for purposes of vesting and eligibility for benefits.
Pension cost is funded at amounts equal to the minimum funding requirements of
the Employee Retirement Income Security Act of 1974.
F-14
<PAGE> 22
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding the pension plans for Arcadian's Trinidad employees
is included following the information on Arcadian's domestic pension plans.
The following table sets forth the funded status under the U.S. pension
plans:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
($000) ($000)
-------- --------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$24,310 and $24,802 at December 31, 1996 and 1995............ $ 27,001 $ 27,324
-------- --------
Projected benefit obligation for service rendered to date...... 37,488 36,738
Plan assets at fair value...................................... (31,801) (26,096)
-------- --------
Projected benefit obligation in excess of plan assets.......... 5,687 10,642
Unrecognized net gain (loss)................................... (3,458) (7,507)
Unrecognized prior service cost................................ 392 459
Additional minimum liability................................... 23 47
-------- --------
Unfunded accrued pension cost.................................. $ 2,644 $ 3,641
======== ========
</TABLE>
Pension plan assets are invested in a master investment fund which has
various investments consisting primarily of domestic and foreign equity
securities and corporate bonds.
At December 31, 1996 and 1995, the settlement rate used in determining the
actuarial present value of the projected benefit obligation was 7.5%. At
December 31, 1996 and 1995, the weighted average rate of increase in future
compensation levels was approximately 6%.
The following table sets forth amounts recognized in Arcadian's financial
statements under the U.S. pension plans:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995 1994
($000) ($000) ($000)
------- ------- ------
<S> <C> <C> <C>
Net pension cost included the following components:
Service cost -- benefits earned during the period.... $ 2,466 $ 2,127 $2,475
Interest cost on projected benefit obligation........ 2,708 2,241 2,013
Actual return on plan assets......................... (2,992) (3,227) (645)
Net amortization and deferral........................ 818 1,157 (977)
------- ------- ------
Net pension cost.................................. $ 3,000 $ 2,298 $2,866
======= ======= ======
</TABLE>
The following sets forth assumptions used in developing the pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Settlement rate............................................ 7.50% 8.25% 7.25%
Expected long-term rate of return.......................... 9.00% 9.00% 9.00%
Weighted average rate of increase in future compensation
levels.................................................. 6.00% 6.00% 6.00%
</TABLE>
The Trinidad operations have contributory defined benefit pension plans
covering essentially all employees. Participation and benefit accrual are based
essentially on future service, with past service counting for purposes of
vesting and eligibility for benefits.
At December 31, 1996 and 1995, the accumulated benefit obligation of the
Trinidad pension plans was $6 million and $5 million, respectively, with such
benefits being nearly fully vested. Plan assets at fair value as
F-15
<PAGE> 23
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of December 31, 1996 and 1995, were approximately $22 million and $19 million,
respectively, and were invested primarily in local government and other bonds,
local mortgages and mortgage-backed securities, fixed income deposits and cash.
The projected benefit obligation for service rendered to date at December 31,
1996 and 1995, was approximately $11 million and $9 million, respectively, and
unrecognized net gains and losses were negligible. At December 31, 1996 and
1995, the settlement rate used in determining the actuarial present value of the
projected benefit obligation was 8.5%, and for the periods ended December 31,
1996 and 1995, the expected long-term rate of return on assets was 9.5%. Prepaid
pension assets of $10 million and $9 million at December 31, 1996 and 1995,
respectively, are classified as other assets in the accompanying consolidated
balance sheet. Net pension cost (credit) during the periods ended December 31,
1996, 1995 and 1994, was approximately $(0.4) million, $(0.4) million and $(0.5)
million, respectively.
Postretirement Plans
Arcadian provides certain health care and life insurance benefits for
retired employees. The cost of postretirement benefits is recognized on an
accrual basis as employees perform services to earn the benefits.
The following table sets forth the funded status under the postretirement
plans:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
($000) ($000)
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................................ $ 4,384 $ 3,606
Active plan participants eligible to retire..................... 3,395 2,986
Other active plan participants.................................. 6,275 5,550
------- -------
14,054 12,142
Unrecognized prior service cost................................... (61) --
Unrecognized net gain (loss)...................................... (3,484) (2,784)
Unrecognized transition obligation................................ (4,395) (4,670)
------- -------
Unfunded accrued post retirement cost............................. $ 6,114 $ 4,688
======= =======
</TABLE>
At December 31, 1996 and 1995, the settlement rate used in determining the
actuarial present value of the accumulated postretirement benefit obligation
("APBO") was 7.5%. For measurement purposes, a 6.0% annual rate of increase in
per capita cost of covered health care benefits was assumed for 1996 and 1995;
the rate was assumed to decrease gradually to 4.5% for 2000 and remain at that
level thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported, and increasing the assumed health care cost
trend rates by 1% in each year would increase the APBO as of December 31, 1996,
by $2 million and the aggregate of the service and interest cost components of
net periodic cost for the year then ended by $.2 million.
F-16
<PAGE> 24
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth amounts recognized in Arcadian's financial
statements under the postretirement plans:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995 1994
($000) ($000) ($000)
------ ------ ------
<S> <C> <C> <C>
Net postretirement cost included the following components:
Service cost -- benefits earned during the period....... $ 484 $ 396 $ 544
Interest cost on accumulated postretirement benefit
obligation........................................... 991 847 944
Amortization of net loss from prior periods............. 155 21 102
Amortization of unrecognized prior service cost......... 5 -- --
Amortization of transition obligation................... 275 275 433
------ ------ ------
Net postretirement cost......................... $1,910 $1,539 $2,023
====== ====== ======
</TABLE>
The following sets forth assumptions used in developing the net
postretirement cost:
<TABLE>
<CAPTION>
1996 1995 1994
($000) ($000) ($000)
------ ------ ------
<S> <C> <C> <C>
Settlement rate............................................. 7.50% 8.25% 7.25%
Subsequent rate of increase in per capita cost of
covered health care benefits.............................. 6.00% 6.00% 6.00%
</TABLE>
Employee Stock Ownership Plan
Arcadian has an Employee Stock Ownership Plan ("ESOP") in which essentially
all employees participate. Arcadian is committed to making annual contributions
to the ESOP at least equal to 4% of covered compensation. ESOP expense has been
approximately $2 million for all years presented.
SAR Plan
Arcadian has a Stock Appreciation Rights Plan ("SAR Plan") for key
employees which authorizes the granting of 825,000 units of stock appreciation
rights ("SARs"). The SARs generally vest over a three-year period and are
generally exercisable for ten years. The SARs have effective dates ranging from
January 1993 to June 1996.
The following table summarizes SAR activity:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
SARs outstanding January 1............................ 812,787 812,787 375,000
SARs granted.......................................... 10,000 -- 450,000
SARs exercised........................................ (595,990) -- --
SARs cancelled........................................ (7,190) -- (12,213)
-------- ------- -------
SARs outstanding December 31.......................... 219,607 812,787 812,787
======== ======= =======
SARs vested December 31............................... 199,607 521,858 125,000
======== ======= =======
</TABLE>
SARs exercised during 1996 were priced at $3.33 per unit (300,000 units),
$5.03 per unit (75,000 units) and $6.67 per unit (220,990 units). SARs
outstanding at December 31, 1996 were priced at $6.67 per unit (209,607 units)
and $10.00 per unit (10,000 units). As a result of the August 1995 initial
public offering, a triggering event occurred under the SAR Plan allowing the
exercise of SARs. During 1996 and during 1995 (following the triggering event),
Arcadian accrued $4 million and $12 million of compensation expense,
respectively, for the SAR Plan.
F-17
<PAGE> 25
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Profit Sharing Plan
Arcadian has a Profit Sharing Plan covering essentially all employees which
is based primarily on annual financial performance of Arcadian, performance
measures of employees, and certain other conditions. Annual profit sharing plan
targets, pay-out thresholds and other components are determined at the
discretion of the Compensation Committee of the Board of Directors. During 1996,
1995 and 1994, profit sharing expenses totaled $12 million, $22 million and $6
million, respectively; the amounts are included in accrued expenses at the
respective year-ends.
(11) COMMITMENTS AND CONTINGENCIES
Leases
Arcadian leases certain of its office space, certain ammonia plants in
Trinidad, storage terminals, ocean-going transportation vessels, railcars and
equipment. Total rental expense for the years ended December 31, 1996, 1995, and
1994, was approximately $35 million, $25 million and $24 million, respectively.
In June 1995, Arcadian entered into a lease agreement with an unaffiliated
entity ("First Lessor") with respect to an ammonia plant constructed at the
Trinidad plant site. The annual lease payments are approximately $6 million. The
initial five-year lease term is renewable for an additional five-year term,
subject to certain conditions. If the lease is not renewed in 2000 or is
otherwise terminated, a subsidiary of Arcadian may be required to make a
residual termination payment equal to 85% of the estimated $79 million total
cost of the project. Arcadian is required, during the initial lease term, to
make semi-annual deposits aggregating approximately $13 million to a cash
reserve account maintained for the benefit of the First Lessor. Also, Arcadian
is required to maintain an approximate $35 million letter of credit for the
benefit of the First Lessor during the initial lease term. In addition, the
Corporation has an option to purchase the plant during the term of the lease for
a price approximating its fair market value at the date of exercise. The plant
became operational in the second quarter of 1996.
In March 1996, Arcadian entered into a lease agreement with an unaffiliated
entity ("Second Lessor") with respect to an ammonia plant to be constructed at
the Trinidad plant site ("Second Trinidad Plant Lease"). Upon completion of
construction, the Second Lessor will lease the plant to a subsidiary of
Arcadian. The annual lease payments under the Second Trinidad Plant Lease are
expected to be approximately $21 million. The initial seven-year lease term is
renewable for an additional five-year term, subject to certain conditions. If
the Second Trinidad Plant Lease is not renewed or is otherwise terminated, a
subsidiary of Arcadian may be required to make a residual termination payment
equal to 84.5% of the estimated $285 million total cost of the project. Arcadian
is required, during the construction period, to maintain a cash reserve account
for the benefit of the Second Lessor equal to 10% of the construction costs
incurred. Upon completion of construction, Arcadian will be required to make
additional semi-annual deposits to the cash reserve account, through the end of
the initial lease term, aggregating 40% of the estimated $285 million cost of
the plant. In addition, Arcadian has an option to purchase the plant during the
term of the Second Trinidad Plant Lease for a price approximating its fair
market value at the date of exercise. The plant is expected to be operational in
early 1998. The expected annual lease payments are not included in the following
minimum commitments information.
F-18
<PAGE> 26
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum commitments under noncancellable operating leases and
noncancellable storage and handling agreements as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Years Ending December 31, ($000)
--------
<S> <C>
1997..................................................................... $ 35,699
1998..................................................................... 32,000
1999..................................................................... 30,130
2000 (excluding the possible termination payment to the First Lessor).... 25,466
2001..................................................................... 12,846
Thereafter............................................................... 18,390
--------
$154,531
========
</TABLE>
Derivatives
In addition to physical spot and term purchases, Arcadian at times employs
futures, swaps and option agreements to establish the cost on a portion of its
natural gas requirements. These instruments are intended to hedge the future
cost of committed and anticipated natural gas purchases for its domestic plants.
Under these arrangements, Arcadian receives or makes payments based on the
differential between a specified price and the actual spot price of natural gas.
Arcadian has certain available lines of credit which are utilized to reduce cash
margin requirements to maintain the derivatives. At December 31, 1996, available
off-balance sheet lines of credit totaled approximately $43 million and
approximately $5 million of such lines of credit were utilized at that date.
Cash margin requirements in excess of available lines of credit which have been
advanced as of December 31, 1996 and 1995, totaled $12 million and $5 million,
respectively, and are included in inventory.
As of December 31, 1996, Arcadian had derivatives qualifying for deferral
in the form of futures and swaps. The futures represented a notional amount of
19 million MMBtus with maturities in 1997 through 1998. The swaps represented a
notional amount of 64 million MMBtus with maturities in 1997 through 2001. As of
December 31, 1996, Arcadian had deferred approximately $5.3 million in gains
arising from settled hedging transactions which are included as a component of
finished goods inventory.
During the years ended December 31, 1996, 1995, and 1994, the net cost of
natural gas (which is included in cost of sales) has been increased (decreased)
from the use of derivatives by $(41) million, $15 million and $37 million,
respectively.
Arcadian is exposed to credit losses in the event of nonperformance by the
counterparties to its natural gas swap agreements. Arcadian anticipates,
however, that counterparties will be able to fully satisfy their obligations
under the contracts. Arcadian does not obtain collateral to support financial
instruments but monitors the credit standing of the counterparties.
Lake Charles Plant
In connection with an incident at its Lake Charles plant in 1992, Arcadian
is contesting penalties proposed by the United States Occupational Safety and
Health Administration ("OSHA") totaling $4.35 million. On February 19, 1997, an
administrative law judge of the Occupational Safety and Health Review Commission
issued a decision finding that Arcadian had committed a willful violation of the
federal Occupational Safety and Health Act and assessing a penalty of $50,000.
Arcadian is studying the judge's decision and has not yet determined whether to
appeal. Other phases of the OSHA proceeding have generally been favorable to
Arcadian. While Arcadian and legal counsel anticipate that any civil penalty
ultimately paid will be substantially less than the remaining $4.35 million
penalty proposed by OSHA, they cannot predict with certainty the outcome of this
proceeding.
F-19
<PAGE> 27
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1996, Arcadian's liability insurers negotiated preliminary
settlements of substantially all of the civil litigation arising from the Lake
Charles incident. The settlements, which in the aggregate are within the policy
limits of Arcadian's liability insurance, are subject to the negotiation and
execution of definitive settlement agreements and, with respect to the class
action civil litigation, approval as to fairness by the court. There remain
three lawsuits against Arcadian arising from the incident, which were brought by
former employees at the Lake Charles plant who allege that they were wrongfully
terminated following the incident. Management and legal counsel believe that
these lawsuits are without merit, and that there will be no material adverse
effect on Arcadian upon their resolution.
Port Authority of New York and New Jersey
On March 13, 1996, Arcadian, two other nitrogen producers, and up to 30
unidentified parties were named as defendants in a lawsuit filed in the name of
the Port Authority of New York and New Jersey (the "Port Authority") in New
Jersey state court. The lawsuit was actually filed by attorneys hired by the
Port Authority's subrogated insurance carriers. The Port Authority's insurers
are seeking to recover damages allegedly incurred as a result of the explosion
at the World Trade Center in New York City on February 26, 1993. The Port
Authority's insurers allege in their complaint that the two other named
defendants and one or more unidentified parties (as manufacturers of ammonium
nitrate), Arcadian and one or more unidentified parties (as producers of urea),
and one or more unidentified makers of nitric acid are liable under various tort
theories for unspecified property damages, business interruption losses, lost
rent and other damages allegedly incurred by the Port Authority as a result of
the World Trade Center explosion. Arcadian and the other defendants have removed
the case to federal court in New Jersey. On February 7, 1997, the defendants
filed a motion to dismiss the suit for failure to state a claim upon which
relief could be granted. Although neither the Port Authority nor its subrogated
insurers have alleged or otherwise revealed the amount of damages sought from
Arcadian in the lawsuit, the Port Authority stated in an affidavit submitted to
the court that as of April 9, 1996, the Port Authority had submitted to its
insurers claims relating to the explosion totaling approximately $340 million,
of which the insurers had paid approximately $160 million. Arcadian is unaware
of any basis for liability and intends to vigorously defend the lawsuit.
Stockholders Litigation
Following the public announcement on August 7, 1996, of Arcadian's
execution of a non-binding letter of intent concerning a potential business
combination with Freeport-McMoRan Inc., five lawsuits were filed in Delaware
state court on behalf of a purported class of all stockholders of Arcadian other
than the defendants and their affiliates. Arcadian and some or all of its
directors (including one former director, who was subsequently dismissed from
the lawsuits) were named as defendants in the lawsuits. On September 5, 1996,
following the public announcement of the proposed Merger (see Note 14) on
September 3, 1996, an amended complaint (the "Amended Complaint") was filed in
two of the five lawsuits. PCS is named as an additional defendant in the Amended
Complaint, but PCS has not yet received service of process. The Amended
Complaint alleges generally that the defendants acted improperly in causing
Arcadian to enter into the Merger Agreement, and seeks an injunction preventing
the Merger, unspecified monetary damages, and other relief. On September 16,
1996, the court signed an order consolidating all five lawsuits and ordering
that the Amended Complaint serve as the complaint in the consolidated action.
The defendants believe the lawsuit is without merit. Nevertheless, Arcadian
and the other defendants have entered into a memorandum of understanding (the
"Memorandum of Understanding") with the plaintiffs providing for the conditional
settlement of the litigation. In so doing, the defendants denied that they
violated the law and agreed to settle the suit solely to eliminate the burden
and expense of any further litigation relating to the Merger. In the Memorandum
of Understanding, Arcadian and PCS agreed to modify and enhance the terms of the
Merger in certain respects. Arcadian and PCS also have agreed to pay the fees
and expenses, if any, awarded by the court to the plaintiffs' counsel up to
$450,000. The Memorandum of
F-20
<PAGE> 28
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Understanding provides that the parties will attempt in good faith to agree upon
and enter into a stipulation of settlement of all claims asserted in the suit
and all other claims, if any, arising out of or relating to the Merger (the
"Stipulation"). The Stipulation will provide for, among other things, (a) the
dismissal of all claims asserted in the lawsuit with prejudice; (b) class
certification of a class of plaintiffs consisting of all persons other than
defendants who owned Common Stock or Preferred Stock on August 7, 1996, and
their successors in interest and transferees, immediate and remote, through and
including the consummation of the Merger; and (c) the release by the plaintiffs
of any and all claims relating to the Merger that they may have against the
defendants and related persons. The release will not affect stockholders'
appraisal rights. The consummation of the settlement is subject to certain
conditions, including (a) the completion of confirmatory discovery by the
plaintiffs to verify that the terms of the settlement are fair and reasonable;
(b) the approval of a stipulation of settlement by the Delaware court; and (c)
the consummation of the Merger.
DOJ Investigations
In 1993, Arcadian learned that the Antitrust Division of the Department of
Justice (the "DOJ") had initiated a grand-jury investigation of pricing
practices in the explosives industry. In response to a subpoena issued in that
investigation, Arcadian produced to the DOJ in 1994 and 1995 documents
concerning ammonium nitrate sold to explosives manufacturers. In late 1996 and
early 1997, Arcadian learned that the DOJ had begun contacting current and
former Arcadian employees seeking information concerning Arcadian's pricing of
ammonium nitrate in 1992. Arcadian is cooperating fully with the DOJ
investigation and has been informed by the DOJ that, based on currently
available information, neither Arcadian nor any of its current or former
directors, officers and employees is a target of the investigation. Arcadian
believes that neither it nor its employees have violated the antitrust laws and
that the DOJ investigations are unlikely to result in a material adverse effect
on Arcadian.
Trinidad Operations
Arcadian's Trinidad operations have entered into long-term natural gas
contracts with a gas company in Trinidad. The contracts provide for prices which
vary with ammonia market prices, escalating floor prices, and minimum purchase
quantities.
Ohio Operations
BP Chemicals Inc. ("BPC") operates the Lima plant on behalf of Arcadian
pursuant to a contract providing for the reimbursement of expenses incurred by
BPC in providing such operating services.
Environmental Matters
In the normal course of business, Arcadian monitors its operations and
makes expenditures for environmental protection. In addition, Arcadian's
operations generally are subject to the environmental standards and regulations
of various regulatory agencies. Environmental expenditures that related to
current operations are expensed or capitalized as appropriate. Expenditures
resulting from remediation of an existing condition caused by past operations
are generally expensed. Liabilities are recognized for remedial activities when
the efforts are probable and the cost is reasonably estimated.
As of December 31, 1996, management has accrued for its known environmental
liabilities, which are not considered to be material to Arcadian's financial
condition or results of operations. While current and future environmental laws
and regulations will potentially subject Arcadian to corrective costs and
expenses, management is not aware of any such matters which it considers to be
of a material nature.
F-21
<PAGE> 29
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of financial instruments:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
SEE AMOUNT FAIR VALUE AMOUNTS FAIR VALUE
NOTE ($/MILLIONS) ($/MILLIONS) ($/MILLIONS) ($/MILLIONS)
---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Financial liabilities:
Long-term debt................ 5 $525 $545 $540 $575
Natural gas derivatives....... 11 $ -- $ (3) -- --
</TABLE>
The fair values for long-term debt are based on quoted market prices for
similar issues or by discounting expected cash flows at the rates currently
available for debt of similar terms and maturities. The fair values for natural
gas derivatives are based on quoted market prices at the reporting date for
those or similar instruments.
The carrying amount of all other assets and liabilities not listed above
approximate their estimated fair values.
(13) SUBSEQUENT EVENTS
Cash Dividends and Distribution
In January 1997, the Corporation declared a cash dividend on the Common
Stock in the amount of $0.10 per share or approximately $4 million in the
aggregate, and a cash distribution on the AAC Warrants of $0.10 per share of
Common Stock purchasable upon exercise of the AAC Warrants or approximately
$23,000 in the aggregate. The dividend on the Common Stock and the distribution
on the AAC Warrants were paid on February 14, 1997, to holders of record at the
close of business on February 3, 1997.
In January 1997, the Corporation declared a cash dividend on the Preferred
Stock in the amount of $.3682 per share or approximately $2 million in the
aggregate. The dividend on the Preferred Stock was paid on February 14, 1997, to
holders of record at the close of business on February 3, 1997.
(14) 1997 MERGER
On September 2, 1996 Arcadian entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Potash Corporation of Saskatchewan Inc. ("PCS")
and its wholly owned subsidiary, PCS Nitrogen Inc. ("PCS Nitrogen"). The Merger
Agreement provides that, subject to the satisfaction or waiver of certain
conditions, PCS will acquire Arcadian through the merger of Arcadian with and
into PCS Nitrogen (the "Merger"). In the Merger, subject to adjustment and to
certain exceptions, each outstanding share of Common Stock, including shares
resulting from the mandatory conversion of the Preferred Stock immediately prior
to the Merger, will be converted into the right to receive $12.25 in cash and a
fraction of a common share of PCS expected to have a market value of between
$12.75 and $14.75 (collectively the "Merger Consideration"). Consequently, the
Merger Consideration payable with respect to each outstanding share of Common
Stock is expected to have a market value of between $25 and $27. The obligations
of Arcadian and PCS to consummate the Merger are subject to various conditions,
including the condition that the holders of a majority of the outstanding shares
of Common Stock and Preferred Stock, voting together as a single class, vote to
approve the Merger Agreement. Arcadian plans to hold a special meeting of its
stockholders (the "Special Meeting") on March 4, 1997, at which the stockholders
will consider and vote upon the Merger Agreement. If the necessary stockholder
vote is obtained and all other conditions to the Merger are satisfied or waived,
Arcadian expects that the Merger will be consummated on March 6, 1997.
In February 1997, PCS Nitrogen, Inc. commenced a tender offer to purchase
for cash all of Arcadian's outstanding Senior Notes, together with a related
consent solicitation to delete certain covenants in the
F-22
<PAGE> 30
ARCADIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indenture governing the Senior Notes (collectively the "Senior Notes Tender
Offer and Consent Solicitation"). The Senior Notes Tender Offer and Consent
Solicitation is conditioned upon, among other things, the consummation of the
1997 Merger, and is expected to close on or about the consummation of the 1997
Merger.
Immediately after an affirmative vote at the Special Meeting, Arcadian
intends, at the request of PCS, to redeem all $185 million principal amount of
its outstanding First Mortgage Notes pursuant to the note agreement governing
the First Mortgage Notes (the "First Mortgage Notes Redemption"). The First
Mortgage Notes Redemption will entail the payment by Arcadian of an additional
make-whole premium of approximately $25 million to the holders of the First
Mortgage Notes. Arcadian intends to pay the total cost of the First Mortgage
Notes Redemption of approximately $210 million with funds obtained from existing
cash.
(15) CASH FLOW SUPPLEMENTAL INFORMATION
The following is supplemental cash flow information:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995 1994
($000) ($000) ($000)
------- -------- -------
<S> <C> <C> <C>
Interest paid........................................ $55,728 $ 63,976 $63,222
Income taxes paid.................................... 67,274 36,122 9,411
Non-cash items:
Capital contribution to joint venture in the form
of property, plant and equipment................ -- 3,662 --
Exchange of preferred stock for junior subordinated
debentures...................................... -- -- 33,734
Non-cash portion of merger consideration (issuance
of preferred stock)............................. -- 214,195 --
Accrued dividends on preferred stock............... 2,040 5,085 --
</TABLE>
(16) SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended December 31,
1996 and 1995, is as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
($000) ($000) ($000) ($000)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996
Net sales............................... $297,396 $344,322 $293,526 $378,759
Gross profit............................ 87,430 101,816 60,397 98,679
Operating income........................ 76,190 88,447 44,925 80,960
Net income.............................. 41,030 51,634 23,236 44,965
Net income per common share(a).......... $ 0.87 $ 1.10 $ 0.51 $ 1.00
1995
Net sales............................... $340,838 $350,240 $269,523 $306,286
Gross profit............................ 87,574 110,402 70,994 88,399
Operating income........................ 71,638 97,382 54,205 69,116
Net income.............................. 13,745 21,531 19,774 33,200
Net income per common share(a).......... $ 0.83 $ 1.28 $ 0.58 $ 0.71
</TABLE>
- ---------------
(a) Net income per common share for each quarter has been computed based on the
weighted average number of common and common equivalent shares during the
respective quarter; therefore, quarterly amounts may not sum to the year
totals.
F-23
