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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, 1995
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)
Delaware 36-2729497
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization) 10019
9 West 57th Street, New York, NY (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 888-3044
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.
Class Outstanding at March 25, 1996
----- -----------------------------
Common Stock, par value $.01 per share 3,000 shares
(Owned by TPR Investment Associates, Inc.)
Documents incorporated by reference.
None
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business............................................................... 1
Item 2. Properties............................................................. 10
Item 3. Legal Proceedings...................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.................... 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................................. 12
Item 6. Selected Financial Data................................................ 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 14
Item 8. Financial Statements and Supplementary Data............................ 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................. 18
PART III
Item 10. Directors and Executive Officers of the Registrant.................... 18
Item 11. Executive Compensation................................................ 20
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 22
Item 13. Certain Relationships and Related Transactions........................ 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 22
Signatures .................................................................. 23
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PART I
ITEM 1. Business
Trans-Resources, Inc., a privately owned Delaware corporation ("the
Company"), is a multinational manufacturer of specialty plant nutrients, organic
chemicals, industrial chemicals and potash and distributes its products in over
80 countries. The Company is the world's largest producer of potassium nitrate,
which is marketed principally under the brand names K-Power domestically and
Multi-K internationally (collectively, referred to as K-ower). The Company is
also the world's largest producer of propanil, a leading rice herbicide. In
addition, the Company is the largest United States producer of potash. During
1995, specialty plant nutrients, organic chemicals, industrial chemicals and
potash contributed approximately 49%, 12%, 25% and 14%, respectively, of the
Company's total revenues. The following table sets forth the primary markets and
applications for each of the Company's principal products:
Principal Products Primary Markets Applications
SPECIALTY PLANT NUTRIENTS
K-Power - Fresh fruits and vegetables, - Fertigation and foliar sprays
flowers, cotton and tobacco (fully soluble, readily absorbed,
Polyfeed Horticulture no harmful residues)
Multi-MAP Horticulture
Multi-MKP Horticulture
Magnisal Vegetables, citrus, tropical fruits
and flowers
Multicote - Vegetables, turf, fruit trees and - Time release of nutrients (to
potted plants optimize plant feeding and
minimize labor requirements)
ORGANIC CHEMICALS
Propanil - Rice - Broad spectrum weed control
Dichloroaniline - Organic chemical manufacturers - Intermediate propanil product
Butoxone - Peanuts - Weed control
Diuron - Food crops, alfalfa and cotton - Broad use herbicide
Pluck - Cotton, fruit and vegetables - Plant growth regulator
Custom Manufacturing - Various industrial companies - Various organic synthesis
INDUSTRIAL CHEMICALS
Technical Grade Potassium - Glass, ceramics, food, explosives, - Oxidization and ion exchange
Nitrate metal, petrochemical and heat
treatment industries
Potassium Carbonate - Glass, detergents and horticulture - Oxidization and cleansing
Phosphoric Acid - Industrial production, food and - Metal treatment, industrial
fertilizer industries cleaning and fermentation
Sodium Tripolyphosphate - Soaps and detergents - Cleansing ingredient
Monoammonium Phosphate - Chemical manufacturers - Fire extinguishing powders
Diammonium Phosphate Chemical manufacturers and fire retardant formulations
Monopotassium Phosphate - Food processing companies - Fermentation process
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 additive
POTASH
Agricultural Grade - Corn, wheat, rice, soybeans - Fertilizer
Industrial Grade - Various industrial companies - Intermediate production of
chemicals and lubricants
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Of the Company's total revenues for the year ended December 31, 1995,
approximately 35% and 38% were derived from sales in the United States and
Europe, respectively, with the remainder derived from sales in many other
countries.
On February 7, 1994, the smaller of the two potassium nitrate
production units of the Company's Israeli subsidiary, Haifa Chemicals Limited
("HCL"), was damaged by a fire, causing a temporary reduction of the Company's
potassium nitrate production capacity. The impact of the loss of the production
unit, including the effect of business interruption, was substantially covered
by insurance. The insurance proceeds for the property damage is for replacement
value, which substantially exceeded the recorded carrying value of the damaged
assets. See Note D of Notes to Consolidated Financial Statements for additional
information. The Company completed the replacement of the damaged production
unit during 1995.
Management is not aware of any independent, authoritative source of
information about sizes, growth rates or shares for the Company's markets. The
market size, market growth rate and market share estimates contained herein have
been developed by the Company from internal sources and reflect the Company's
current estimates. However, no assurance can be given regarding the accuracy of
such estimates.
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries which include HCL, and HCL's wholly-owned subsidiary,
Haifa Chemicals South, Ltd., an Israeli corporation ("HCS"); Cedar Chemical
Corporation, a Delaware corporation ("Cedar"), and Cedar's wholly-owned
subsidiaries, Vicksburg Chemical Company, a Delaware corporation ("Vicksburg"),
and New Mexico Potash Corporation, a New Mexico corporation ("NMPC"); Na-Churs
Plant Food Company ("Na-Churs"), a Delaware corporation (Na-Churs was acquired
in March, 1995); and Eddy Potash, Inc., a Delaware corporation ("Eddy"). The
Company was incorporated in Delaware in 1971 under the name Trans-Pacific
Resources, Inc.
SPECIALTY PLANT NUTRIENTS
The Company is a multinational manufacturer of a range of specialty
plant nutrients, which contributed approximately $189,000,000 to the Company's
revenues for the year ended December 31, 1995, of which K-Power contributed a
substantial portion.
Products and Markets. K-Power, Polyfeed (a fully soluble plant nutrient
containing nitrogen, phosphate and potassium), Magnisal (magnesium nitrate),
Multi-MAP (monoammonium phosphate) and Multi-MKP (monopotassium phosphate) are
suitable for intensive high value crops such as fresh fruit and vegetables,
flowers, cotton and tobacco, since they are fully soluble, easily absorbed and
leave no harmful residues such as chloride, sodium or sulfate. Because of their
solubility, these products can be used with modern drip irrigation systems,
which are increasingly being employed to conserve water. The Company produces
several grades of agricultural potassium nitrate, including standard and
prilled. The Company is the world's largest producer of potassium nitrate.
Worldwide demand for potassium nitrate has been growing steadily since
potassium nitrate was introduced in the 1960s. The market for K-Power has
enjoyed steady volume growth because it increases plant yields, improves crop
quality and shortens growing cycles. As a result, potassium nitrate commands a
price premium over other potassic plant nutrients such as potassium sulfate and
sulfate of potash magnesia, used in combination with ammonium nitrate.
After a multi-year research and development effort, the Company
developed a technology for the coating of potassium nitrate and other specialty
plant nutrients which promotes the controlled release of nutrients over time.
These products increase nutrient uptake by plants while minimizing fertilizer
runoff into the soil, thus satisfying growing environmental concerns, and
reducing labor requirements. The Company is marketing these controlled release
plant nutrients products under the Multicote brand name.
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Marketing and Sales. As part of the Company's market development and
sales efforts, resident agronomists are located in the United States, Italy,
France, the United Kingdom, Greece, Mexico, South Africa, China, Japan and the
Benelux countries. The steady growth in demand for the Company's specialty plant
nutrients has been supported by agronomic activities in many countries which
have demonstrated the benefits of using K-Power. 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 has developed application expertise which has produced a growing number
of applications and users.
To market its specialty plant nutrients, the Company has established a
worldwide network of agents and distributors and uses storage facilities in
certain countries to provide prompt and responsive customer service. However,
depending on the conditions prevailing in the particular market, certain large
users are serviced directly and certain products are covered by product managers
who have worldwide responsibility for such products. In order to further improve
service to its customers in Western Europe, the Company has established
subsidiaries in the United Kingdom, Belgium, Spain and Italy. The Company also
has established a subsidiary in Mexico. A French subsidiary engaged in the
fertilizer business and having its own sales and distribution network also
markets the Company's specialty plant nutrients. For United States sales, the
Company utilizes its own sales force and also works in selected areas through
brokers.
In general, in the United States, the Company sells K-Power to blenders
who produce mixed fertilizers containing potassium nitrate, which is then sold
to growers. Internationally, the Company's distributors usually sell directly to
growers.
Manufacturing. The Company believes it accounts for approximately 65%
of the world's production of potassium nitrate and its current annual potassium
nitrate production capacity is approximately 510,000 metric tons. To meet the
anticipated continued growing demand of the market, in late 1994 the Company
expanded its production capacity by constructing a new facility (the "K3 Plant")
in Israel, with capacity to produce approximately 100,000 metric tons of
potassium nitrate annually. Capacity of the K3 Plant may be expanded in
subsequent years. See "Facilities and Suppliers" below.
Competition. The Company's only significant competitor in the
production and sale of potassium nitrate is Sociedad Quimica Y Minera De Chile,
S.A., a Chilean company. The principal methods of competition are product
quality, customer service, agronomic expertise and price.
ORGANIC CHEMICALS
The Company's organic chemicals business has grown by building upon its
capabilities in specialized areas of complex organic synthesis. Its sales were
approximately $44,000,000 in 1995, with sales of propanil representing
approximately 60% thereof.
Products and Markets. The Company's organic chemicals products include
propanil (a leading rice herbicide, which Cedar markets principally under the
Cedar label and the brand names "Wham! EZ" and "Super Wham!"), dichloroanaline
("DCA," the principal raw material for the production of propanil), Butoxone (a
peanut herbicide), Diuron (a broad use herbicide used on food crops, alfalfa and
cotton) and Pluck, a cotton, fruit and vegetable growth regulator. The Company
also produces and sells "Tham" (trishydroxyaminomethane), a proprietary
buffering agent used in industrial and pharmaceutical applications. The Company
estimates that it currently produces approximately 85% of the propanil sold in
the United States. The Company has also developed several new propanil
formulations which offer various advantages
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in terms of ease of application and improved environmental impact in an effort
to expand the propanil market. The Company is currently the only producer of DCA
in North America.
Although the United States is currently the largest propanil market,
representing approximately 35% of the world market, the United States contains
only a small proportion of the world's rice acreage. Accordingly, the Company
believes there is significant potential for propanil growth internationally. The
Company has established an international market development program to introduce
propanil to additional markets around the world. As the largest propanil
producer in the world and a low cost producer, the Company believes it is
positioned to benefit from growth in the international propanil market.
The Company also produces other organic chemicals as a contract
manufacturer for various chemical companies. Through this contract
manufacturing, the Company has developed certain techniques for the synthesis of
complex organic chemicals which has been beneficial to it in both its contract
manufacturing activities as well as its own developmental efforts for
proprietary products.
Marketing and Sales. The Company produces and sells propanil under its
own brand name and supplies propanil to other agrichemical companies under
long-term supply contracts. Sales by the Company of propanil and DCA under a
long-term supply contract with a major agrichemical company represented
approximately 25% of the Company's sales of organic chemicals in 1995.
The Company sells propanil and its other organic chemical products
through its own sales force, distributors, regional dealers, cooperatives and
international brokers.
Manufacturing. The Company is a low cost producer of propanil as a
result of its 1991 acquisition, relocation and upgrading of a DCA manufacturing
plant. The Company intends to continue to expand its organic chemicals business
by developing and/or distributing new products that draw upon its skills in
organic chemical synthesis and/or its sales organization.
Competition. In the United States market, the Company competes
primarily with two other propanil suppliers, while in international markets the
Company competes with several producers. Propanil competes with several other
rice herbicides, but is currently the most commonly used rice herbicide. Diuron
and Pluck compete with other products supplied by several multi-national
companies. In contract manufacturing, the Company competes with various other
producers and the basis of competition is generally the quality and range of
production capabilities, service and price.
INDUSTRIAL CHEMICALS
The Company's industrial chemical products include technical grade
potassium nitrate, technical and food grade sodium tripolyphosphate ("STPP"),
technical and food grade phosphoric acid, technical grade monoammonium phosphate
and diammonium phosphate ("MAP" and "DAP"), technical and food grade
monopotassium phosphate ("MKP"), potassium carbonate, food grade sodium acid
pyrophosphate ("SAPP"), chlorine, nitrogen tetroxide and food grade salts.
Industrial chemicals contributed approximately $98,000,000 to the Company's
revenues for the year ended December 31, 1995.
Products and Markets. Technical grade potassium nitrate is used in the
glass industry for making fine tableware glass, TV tubes and crystal glass; in
the metal industry for heat treatment; in the ceramics industry for the glazing
process; for making explosives and for the production of heat transfer salts in
the petrochemical industry; and for solar energy systems.
Phosphoric acid is used in metal treatment, industrial cleaning
solutions, fermentation processes and for carbonated drinks in the food
industry. STPP is used primarily in the manufacturing of detergents and
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specialty cleaning compounds and in the textile and ceramic clay industry; MAP
and DAP are used for fire extinguishing powders and fire retardant functions;
MKP is used for the fermentation process; and SAPP is an ingredient in baking
powders and is used for potato processing. Chlorine is used in the pulp and
paper industry and as a swimming pool disinfectant. Nitrogen tetroxide is an
aerospace fuel additive. Food grade salts are used in food processing. Potassium
carbonate is used primarily in the glass industry.
Marketing and Sales. The Company sells its industrial chemicals through
its own sales force and brokers in the United States and internationally through
a worldwide network of agents and distributors. Nitrogen tetroxide is primarily
sold under a long-term contract to the United States Government. The Company
utilizes storage facilities in certain countries.
Production. Many of these industrial products are co-products of the
Company's potassium nitrate manufacturing process. Given its production
flexibility, the Company can vary the relative proportion of the various
phosphate chemicals (STPP, MAP, MKP, DAP and SAPP) to optimize its product mix
in light of then prevailing market conditions.
Competition. Certain of the Company's industrial chemicals products,
such as STPP and phosphoric acid, compete in large industrial chemical markets
in which the Company has a small position. Others, such as technical grade
potassium nitrate, MAP, MKP and nitrogen tetroxide have relatively significant
competitive positions in their respective niche markets. The nature of
competition for the various industrial chemicals sold by the Company varies by
product. However, in general, the principal methods of competition are product
quality, customer service and price.
POTASH
The Company is the largest United States producer of potash, producing
approximately 750,000 short tons in 1995, primarily for agricultural use as
fertilizer. During 1995, the Company's share of total potash production in the
United States was approximately 31% and its share of total North American potash
production was approximately 5%. Potash provides potassium, an essential
nutrient for a wide range of crops, including wheat, soybeans and corn. The
Company, through Eddy and NMPC, mines, refines and distributes potash from two
mines and related refineries located in New Mexico. Potash sales in 1995,
excluding intercompany sales to Vicksburg, amounted to approximately
$54,000,000.
Products and Markets. During 1995, approximately 71% of the Company's
potash production was sold as fertilizer and the balance was sold for industrial
uses or used by Vicksburg as a raw material in the production of potassium
nitrate and potassium carbonate.
Marketing and Sales. In the United States, the Company's sales force
sells potash to blenders for fertilizer material and to industrial customers.
Agricultural export sales are handled by a sales subsidiary of Potash
Corporation of Saskatchewan. During 1995, the Company sold approximately 77% of
its potash production domestically and 23% internationally.
The level of average selling prices for potash in the United States are
in part the result of the United States Government's preliminary findings in a
Canadian potash antidumping investigation and the subsequent 1987 Canadian
potash antidumping agreement. If such agreement is terminated or violated by the
Canadian producers, then depending on the actions taken by the United States
Government, the production and pricing decisions of Canadian producers, and
other market factors, it is possible that the current price levels for potash
could decline substantially, which would adversely affect the Company's results
of operations. See Item 3 - "Legal Proceedings" below.
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Production. The Company's potash is mined from approximately 90,000
acres which are under long-term lease, principally from the United States
Government and the State of New Mexico. Such leases cover estimated ore
reserves, as of December 31, 1995, of approximately 137,000,000 short tons of
recoverable ore, at thicknesses ranging from four to eight feet. At average
recovery rates these ore reserves are estimated to be sufficient to yield
approximately 18,200,000 short tons of potash concentrate with an average grade
of 60% to 62% "K2O" (a common standard of measurement established by the
industry of defining a product's potassium content in terms of equivalent
percentages of potassium oxide). As of December 31, 1995 and based on current
rates of production in 1996 (aggregating approximately 870,000 short tons
annually) and depending on market conditions and production costs, these ore
reserves are estimated to be sufficient to support the mining operations of NMPC
and Eddy for approximately 25 years and 14 years, respectively.
Competition. Potash is available from various sources, both domestic
and foreign, including very large Canadian sources of supply. As a result, the
market is highly competitive. Since potash is a commodity product, the most
significant competitive factor affecting sales is price.
FACILITIES AND SUPPLIERS
Vicksburg owns the property, plant and equipment located at its
Vicksburg, Mississippi site and Cedar owns the property, plant and equipment
located at its West Helena, Arkansas site. The Vicksburg plant consists of two
adjacent manufacturing plants situated on 600 contiguous acres. Vicksburg
recently completed the construction of a third manufacturing plant on its
property, which is being used for the production of potassium carbonate. The
West Helena plant is located on a 60 acre site. The plants are encumbered by
first mortgages and security interests securing long-term bank indebtedness.
Cedar's corporate offices are located in leased premises in Memphis, Tennessee.
The major raw materials required by Vicksburg for production of
potassium nitrate are potash supplied primarily by NMPC and nitric acid which is
produced at the Vicksburg plant. Ammonia, the principal raw material required
for production of nitric acid, is supplied by a third party in close proximity
to the Vicksburg facility. The major raw material for the production of propanil
is DCA. The principal raw material for the production of DCA is provided to the
Company under a supply contract. Such raw material is available from multiple
sources.
NMPC owns the property, plant and equipment located at its 320 acre
site near Hobbs, New Mexico. The property, plant and equipment is encumbered by
a first mortgage and security interest securing long-term Cedar bank
indebtedness.
Eddy owns the property, plant and equipment located at its 680 acre
site in Eddy County, New Mexico. The property, plant and equipment is encumbered
by a first mortgage and security interest securing certain long-term
indebtedness.
HCL owns its machinery and equipment and leases its 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 20 years.
Substantially all of the assets of HCL are subject to security interests in
favor of the State of Israel or banks. HCL also has a contract with ORL for
steam and processed water which expires on June 30, 1997 and a lease from ORL of
a pipeline which transports ammonia from the port in Haifa to HCL's plant. HCS
leases its land from the Israeli Government under a 49 year lease which
commenced in 1994, with the payments for such lease paid in advance and included
in the K3 Plant construction costs.
HCL recently expanded its production capacity by constructing the K3
Plant, with the capacity to produce annually approximately 100,000 metric tons
of potassium nitrate and 15,000 metric tons of phosphoric
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acid. Capacity of the K3 Plant may be expanded in subsequent years. Provided it
complies with the conditions specified in the applicable certificate of
approval, HCL will receive, with respect to taxable income derived from the K3
Plant, certain benefits accorded under Israel's Investments Law.
HCL obtains its major raw materials, potash and phosphate rock, in
Israel. HCL purchases potash solely from Dead Sea Works, Ltd. ("DSW") in
accordance with a supply contract expiring December 31, 1999. The 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 thereto. HCL purchases phosphate rock
solely from Rotem Deshanim ("Rotem") (formerly known as Negev Phosphates, Ltd.)
pursuant to a supply agreement expiring on June 30, 1996. Based on a letter of
intent between Rotem and HCL, a long-term contract is being negotiated. DSW and
Rotem are companies that are majority-owned by the Israeli Government and the
sole suppliers in Israel of potash and phosphate rock, respectively. While HCL
views its current relationships with both of its principal suppliers to be good,
the loss of supply from either of these sources would have an adverse effect on
the Company.
Ammonia, which is used to produce nitric acid (which in turn is used to
produce potassium nitrate), is manufactured in Israel as well as imported. The
ammonia used by HCL is currently imported from a producer under supply
agreements expiring on December 31, 1996. HCL owns ammonia terminal facilities
located on leased property in the port of Haifa which have the capacity to store
an amount of ammonia sufficient to meet HCL's requirements.
Management believes that its facilities are in good operating condition
and adequate for its current needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations Capital Expenditures".
RESEARCH AND DEVELOPMENT
The Company has developed and patented certain manufacturing processes
and has submitted other applications for patents for additional processes. As of
December 31, 1995, the Company employed 71 research and development scientists,
engineers and technicians, who are involved in the development and evaluation of
process technologies, efficiencies and quality control. For the years ended
December 31, 1993, 1994 and 1995, the Company spent approximately $3,206,000,
$3,978,000 and $3,158,000, respectively, on these efforts, which have been
charged to current operations.
PERSONNEL AND LABOR RELATIONS
As of December 31, 1995 the Company employed approximately 1,500
people. Approximately 280 employees have advanced technical and academic
qualifications.
Except for Eddy and HCL, none of the Company's employees are
represented by any collective bargaining unit. Eddy's hourly work force is
represented by three labor unions, with its collective bargaining agreements
expiring in August 1998. Eddy has enjoyed generally good relations with its
labor unions and has not had a significant work stoppage for many years, except
for a work stoppage of approximately three weeks during 1995 related to the
negotiations of the three year contract expiring in August 1998.
Technicians and engineers of HCL are members of the Union of
Technicians and Engineers, which operates throughout Israel, and substantial
terms of their employment (e.g. salaries and promotions) are governed by a
general collective agreement which HCL does not negotiate directly with such
employees. The other employees of HCL are members of the "Histadrut", the
dominant labor union in Israel, and their terms of employment are governed by a
Specific Collective Agreement ("SCA") negotiated by HCL with the Histadrut and
the representatives of the employees. In 1994, an agreement was signed with the
technicians
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and engineers for the three year period ending December 31, 1996. In 1995, an
SCA was signed with the Histadrut and the representatives of the employees for
the two year period ending December 31, 1996.
HCL's last major labor dispute took place in July 1991 and related to
negotiations of the SCA for 1990 and 1991. As a result of this dispute, HCL's
employees went on strike for approximately four weeks during the third quarter
of 1991. Prior to that, the last major labor dispute took place in 1983, which
resulted in a strike of approximately two weeks.
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. While the plants have
generated solid waste regulated by the Federal Resource Conservation and
Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of
1984 ("RCRA") and related state statutes, the Company believes that such waste
is currently handled and disposed of in a manner which does not require the
Company to have permits under RCRA or any related state statute.
The Environmental Protection Agency's (the "EPA") Regional Office in
Atlanta notified Cedar in 1989 that unspecified corrective action will be
required 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, Cedar reached agreement 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, Cedar submitted a report of current conditions. Upon agency approval of
this report and of the facility investigation work plan to be thereafter
submitted for the Vicksburg plant, Vicksburg will 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 approval of the facility investigation work
plan.
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
(the "ADPCE") in 1986. The proceeding resulted in a Consent Administrative Order
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. The Order
was entered in the third quarter of 1991. Implementation is expected to occur
over a three year period following completion and approval of the facility
investigation.
Cedar removed the buried drums from the West Helena site in accordance
with a work plan incorporated in the Consent Administrative 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 $1,580,000 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. Cedar
recovered an additional $286,000 of investigation costs in 1995.
The Company believes that the future costs required to complete the
site investigation and corrective measures studies at Vicksburg and the
plant-wide investigation at West Helena will be between $500,000 and
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$1,000,000 and will be expended over two to three years. Interim corrective
measures may also be implemented at one or both of these locations during this
same period. As of December 31, 1994 and 1995, the Company has accrued an
aggregate of $1,250,000 for these matters. Until these investigations are
completed, it is not possible to definitively 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.
In November 1992, Cedar entered into an agreement with the ADPCE to
resolve alleged violations of Cedar's National Pollutant Discharge Elimination
System permit (issued to its West Helena Plant in accordance with the Federal
Clean Water Act and related state statutes) by agreeing to enter into an
additional Consent Administrative Order which will require implementation of
additional corrective measures intended to assure future compliance with the
requirements of the permit and which required the payment of a penalty of
$80,000. As of December 31, 1994, Cedar had substantially completed
implementation of all measures required under this Order.
In 1987, Cedar entered into a cost sharing agreement with 55 other
companies to fund costs associated with the clean-up of an abandoned waste
disposal site located near Bayou Sorrel, Louisiana. The sharing agreement was
the basis for a consent decree to which Cedar and the other companies are
parties, settling claims brought by the EPA pursuant to the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended. The
sharing agreement allocates approximately 4% of the clean-up costs to Cedar. The
remedy selected by the EPA for this site has been successfully implemented and
the participating parties' respective shares for cost of future monitoring and
maintenance activities on the site until the year 2022 was redetermined. Cedar's
share of such future costs has been paid in full.
Eddy and NMPC
The Company's potash operations are subject to various Federal, state
and local environmental laws. The Company does not believe significant
expenditures will be required for the potash operations in the near future or
that its ongoing environmental operating costs will be material.
HCL
As a result of the production of phosphoric acid, HCL generates acid
sludge and liquid acid effluent. HCL had previously disposed of its acid sludge
in designated approved sites. In accordance with a permit issued by the Israeli
Agency for Environmental Preservation of the Ministry of Interior (the "Agency")
pursuant to the Law for the Prevention of Sea Pollution (Disposing of Wastes) of
1983 and 1984, HCL is now disposing of the acid sludge in a designated site in
the Mediterranean Sea, situated 20 nautical miles from the Israeli coast. The
permit allows for the disposal of a quantity which is sufficient to satisfy
HCL's needs. The permit is valid until March 31, 1996. The Agency has expressed
objections to extending the permit in its present form for an additional period.
The Company is in the process of negotiations with the Agency to extend the term
of the existing permit for an additional period in order to find a mutually
acceptable permanent solution to the sludge disposal.
HCL currently disposes of its liquid acid effluents in a local river
(the "River"). On December 21, 1994, Man, Nature and Law, an Israeli fellowship
for the protection of the environment, together with six fishing companies,
filed a private criminal complaint in the Magistrate's Court of Haifa against
HCL and its directors, alleging violation of specified Israeli environmental
laws as a result of HCL's dumping of chemical waste into the River without
adequate permits. The evidence hearing began in December, 1995, and will
continue in May, 1996. HCL's defense is based on certain defenses granted under
the specified environmental laws. In addition, HCL is attempting to obtain
temporary permits for its continuing disposal of liquid acid effluents in the
River until an agreed-upon permanent solution is formulated between HCL and the
Agency for the disposal of the effluents. Furthermore, HCL has applied to the
Israeli Attorney General
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for a suspension of the proceedings in the complaint on the grounds that the
authorities have failed in the last several years to respond to HCL's proposed
solution (described below) for the disposal of the liquid acid effluents and
therefore, under such circumstances, the continuation of the private criminal
proceedings against it is inappropriate. The Attorney General has the right
under the Israeli law to suspend a private criminal complaint. No assurance can
be given that the defense in the complaint and/or the request for suspension or
other administrative action taken by HCL will prove successful.
The alternative solution proposed by HCL was to dispose of the liquid
acid waste two and one half kilometers into Haifa Bay utilizing a marine
pipeline. This proposal was submitted for approval by the Committee for permits
under the Law for the Prevention of Pollution of the Sea From Continental
Sources 1988 ("the Committee"). In 1991 the Committee gave HCL permission to
proceed with the initial design of the marine pipeline, subject to HCL
fulfilling a number of requirements, including studies of the marine environment
in the area of the proposed pipeline and of the effect of the acid waste on the
surrounding marine environment. The HCL study was completed and submitted to the
Committee on January 20, 1995, with the finding that the proposed marine
solution contemplated by HCL would have no damaging effect on the marine
environment. The Ministry for Environmental Protection (the "Ministry")
commissioned a study of its own which was completed in February, 1996 with
certain identified contradictory conclusions, which have been responded to and
resolved by the Company.
Nevertheless, the Ministry has recently declared that HCL should pursue
a search for a land solution (rather than a marine solution) to be based on
pre-treatment of HCL liquid acid effluents. Discussions will be held between HCL
and Ministry representatives to determine whether such solution is available and
practical and to agree upon the criteria required for its implementation.
The Company estimated that HCL would have been required to invest
approximately $8,000,000 over the next two years if the proposed marine solution
was adopted and annual operating costs, after completion of the project, would
have been approximately $800,000. The Company is now in the process of studying
certain possible land pre-treatment solutions and evaluating the related
investment and operating costs required in order to adopt such a solution.
Appropriate provisions have been made in the consolidated financial
statements with respect to the above matters. See Notes A and O of Notes to
Consolidated Financial Statements.
ITEM 2. Properties.
Reference is made to "Facilities and Suppliers" 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.
1. Beginning in April 1993 a number of class of action lawsuits were
filed in several United States District Courts against the major Canadian and
United States potash producers, including Eddy and NMPC. 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 allege 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 seek 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 have been consolidated for pretrial purposes
in the United States District Court for Minnesota and captioned In Re Potash
Antitrust Litigation. Several additional and/or amended
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complaints were filed in the Minnesota Federal District Courts making
substantially the same allegations as the earlier complaints. These complaints
have been superseded by or deemed included in the Third Amended and Consolidated
Class Action Complaint, to which NMPC and Eddy served and filed answers denying
all the material allegations thereof on or about July 22, 1994. On or about
January 12, 1995 this Court granted plaintiffs' motion to certify the plaintiff
class. On or about December 21, 1995, the defendants filed motions for summary
judgement. Oral arguments on the motions are scheduled for April 18, 1996. The
trial is now scheduled to commence in August, 1996.
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 Eddy 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. Eddy, NMPC, NMPC's parent, Cedar,
and Cedar's parent, Nine West Corporation, 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 Corporation and the Company
have been dismissed from the Neve action, in each case for lack of personal
jurisdiction. Cedar, Eddy and NMPC have served and filed answers in the Neve
action, and Eddy and NMPC have served and filed answers in the Coleman action,
in each case denying all material allegations of the respective 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.
On or about August 2, 1994, a purported class action on behalf of
indirect purchasers of potash outside of California, David B. Gaebler v. New
Mexico Potash Corporation, et al., was commenced against the major Canadian and
United States potash producers, including Eddy and NMPC, in the Circuit Court of
Cook County, Illinois, under the Illinois consumer fraud statute. The Gaebler
action makes substantially the same allegations made in the Neve and Coleman
actions and seeks unspecified compensatory and punitive damages and an award of
attorneys' fees and costs. On or about June 22, 1995, the Court dismissed the
Gaebler action and on or about July 14, 1995 the Court denied the Gaebler motion
to amend the complaint.
The Gaebler plaintiffs have appealed the dismissal.
Management has no knowledge of any conspiracy of the type alleged in
these complaints.
On or about November 26, 1993, Eddy and NMPC (and other major United
States potash producers) were served with subpoenas issued by the United States
District Court for the Northern District of Ohio to produce documents to a grand
jury authorized by the U.S. Department of Justice Antitrust Division ("DOJ") to
investigate possible violations of the antitrust laws in connection with the
allegations made in the civil actions described above. Personnel presently or
formerly employed by the sales group for Eddy and NMPC have been subpoenaed to
testify before the grand jury, some of whom have already testified. Eddy and
NMPC are cooperating with DOJ in connection with the subpoenas.
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2. 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 explosion of a tank car at a plant of a customer of Vicksburg located in
Bogalusa, Louisiana. The tank car contained nitrogen tetroxide which had been
produced and sold by Vicksburg. More than seventy such suits were subsequently
filed. Vicksburg and/or Cedar is named a defendant in over thirty of the suits,
together with numerous other defendants. The plaintiffs seek unspecified damages
arising out of their alleged exposure to toxic fumes which were released as a
result of the explosion. The suits have been tendered to Cedar's liability
insurance carriers for defense and indemnification. On March 20, 1996, Cedar
commenced an action in the United States District Court for the Eastern District
of Louisiana against their principal insurance carriers seeking a declaratory
judgement that Cedar and Vicksburg are entitled to defense costs and
indemnification with respect to these claims under their insurance policies.
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 Louisiana 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, 1995.
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 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 1993, 1994 and 1995 the Company
paid or declared dividends on its Common Stock in the amounts of $7,508,000,
$4,466,000 and $856,000, respectively.
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ITEM 6. Selected Financial Data.
The following table presents selected consolidated financial data of
the Company for the five year period ended December 31, 1995. This data has been
derived from the consolidated financial statements of the Company and should be
read in conjunction with the notes thereto.
Year Ended December 31,
1991 1992 1993 1994 1995
------ ------ ------ ------ -----
(in thousands)
Results of Operations:
Revenues....................................... $309,068 $345,356 $326,315 $334,107 $385,564
Operating costs and expenses:
Cost of goods sold......................... 238,489 266,770 255,563 265,795 323,126
General and administrative................. 33,262 36,270 38,375 37,780 43,193
--------- --------- --------- -------- --------
Operating income............................... 37,317 42,316 32,377 30,532 19,245
Interest expense............................... (31,210) (27,542) (27,405) (28,369) (34,498)
Interest and other income - net (1)............ 14,159 8,476 6,014 15,056 9,128
--------- --------- --------- -------- --------
Income (loss) before income taxes,
extraordinary item and change
in accounting principle...................... 20,266 23,250 10,986 17,219 (6,125)
Income tax provision........................... 2,582 11,231 7,920 14,669 733
-------- -------- -------- -------- --------
Income (loss) before extraordinary item
and change in accounting principle........... 17,684 12,019 3,066 2,550 (6,858)
Extraordinary item - net....................... 1,186 - (8,830) - (103)
Cumulative effect on prior years of
change in accounting for income taxes........ - 1,130 - - -
----------- -------- --------- ----------- --------
Net income (loss).............................. $ 18,870 $ 13,149 $ (5,764) $ 2,550 $ (6,961)
========= ========= ========= ========= =========
Dividends:
Preferred stock................................ $ 214 $ - $ - $ - $ 851
Common stock................................... 2,850 13,136 7,508 4,466 856
- ------------------
(1) Includes (a) gains of $10,000,000, $18,100,000 and $1,700,000 in the years
ended December 31, 1991, 1994 and 1995, respectively, representing the
excess of insurance proceeds over the carrying value of certain HCL
property destroyed in a fire, (b) security gains (losses) of $2,865,000,
$2,261,000, ($1,178,000) and ($413,000) in the years ended December 31,
1992, 1993, 1994 and 1995, respectively, and (c) foreign currency gains
(losses) of $4,000,000, $850,000, ($3,800,000) and $5,400,000 in the years
ended December 31, 1992, 1993, 1994 and 1995, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note K of Notes to Consolidated Financial Statements.
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December 31,
1991 1992 1993 1994 1995
-------- -------- -------- -------- ------
(in thousands)
Financial Position:
Cash and cash equivalents...................... $ 39,276 $ 54,745 $ 25,742 $ 15,571 $ 32,872
Working capital................................ 130,072 107,850 103,776 66,294 82,011
Total assets................................... 381,841 341,055 365,865 550,954 467,102
Short-term debt, including current
maturities of long-term debt................. 50,105 42,666 47,282 157,986(a) 46,848
Long-term debt, excluding current
maturities and subordinated debt............. 84,132 71,318 61,328 102,059 174,506
Senior subordinated debt - net ................ 110,716 103,689 140,133 140,385 114,074
Junior subordinated debt - net................. 14,735 15,089 15,495 7,981 -
Stockholder's equity .......................... 28,772 28,882 15,794 20,550 20,675
(a) Was collateralized, in part, by $100,000,000 of certificates of deposit,
which were included in "other current assets" in the accompanying December 31,
1994 Consolidated Balance Sheet. See Note G of Notes to Consolidated Financial
Statements.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
The following table sets forth as a percentage of revenues and the
percentage change of those items as compared to the prior period, certain items
appearing in the Consolidated Financial Statements.
PERCENTAGE OF REVENUES YEAR-TO-YEAR CHANGES
1994 1995
YEAR ENDED DECEMBER 31, VS. VS.
1993 1994 1995 1993 1994
Revenues............................................... 100.0% 100.0% 100.0% 2.4% 15.4%
----- ----- -----
Cost and expenses:
Cost of goods sold................................ 78.3 79.5 83.8 4.0 21.6
General and administrative........................ 11.8 11.3 11.2 (1.6) 14.3
----- ----- -----
Operating income....................................... 9.9 9.2 5.0 (5.7) (37.0)
Interest expense.................................. (8.4) (8.5) (8.9) 3.5 21.6
Interest and other income - net .................. 1.9 4.5 2.3 150.4 (39.4)
----- ----- -----
Income (loss) before income taxes and
extraordinary item ............................... 3.4 5.2 (1.6) 56.7 (135.6)
Income tax provision................................... 2.5 4.4 .2 85.2 (95.0)
----- ----- -----
Income (loss) before extraordinary item ............... .9 .8 (1.8) (16.8) (368.9)
Extraordinary item - net............................... (2.7) - - 100.0 -
----- ----- -----
Net income (loss)...................................... (1.8)% .8% (1.8)% 144.2% (373.0)%
===== ===== =====
1995 Compared with 1994
Revenues increased by 15.4% to $385,564,000 in 1995 from $334,107,000 in
1994, an increase of $51,457,000, resulting from increased sales of specialty
plant nutrients and industrial chemicals ($49,300,000) (including $12,900,000
relating to the acquisition of Na-Churs) and organic chemicals ($5,900,000),
which were partially offset by lower potash sales ($3,700,000).
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17
Cost of goods sold as a percentage of revenues increased during the period
(83.8% in 1995 compared with 79.5% in 1994), primarily due to (i) certain raw
material and utility cost increases, which were partially offset by increases in
the selling prices of the Company's products, and, to a lesser extent, (ii) the
customary costs associated with the initial run-in periods of the Company's
newly-constructed manufacturing facilities and (iii) a 1994 refund of $1,800,000
received from a utility supplier related to prior years. In addition, effective
July 1, 1994 and January 1, 1995, the Company revised the estimate of
depreciable lives of its property, plant and equipment at HCL and Eddy,
respectively, to more closely approximate the economic lives of those assets.
The effect of these changes in estimate was to decrease depreciation expense
(and cost of sales) in 1994 and 1995 by approximately $1,800,000 and $2,800,000,
respectively. As a result of the foregoing, gross profit was $62,438,000 in 1995
compared with $68,312,000 in 1994 (16.2% of revenues in 1995 compared with 20.5%
of revenues in 1994), a decrease of $5,874,000. General and administrative
expense increased to $43,193,000 in 1995 (including approximately $2,800,000
relating to Na-Churs) from $37,780,000 in 1994, but declined slightly as a
percentage of revenues (11.2% of revenues in 1995 compared with 11.3% of
revenues in 1994). Pursuant to an agreement during 1995, the Company recorded a
$750,000 reimbursement of certain general and administrative expenses incurred
in prior years on behalf of an entity in which the Company has an investment,
which is accounted for by the equity method.
As a result of the matters described above, the Company's operating income
decreased by $11,287,000 to $19,245,000 in 1995 as compared with $30,532,000 in
1994.
Interest expense increased by $6,129,000 ($34,498,000 in 1995 compared with
$28,369,000 in 1994) primarily as a result of interest on the long-term debt
that financed the construction of the K3 Plant. Interest and other income - net
decreased in 1995 by $5,928,000, principally as the result of the 1994 period
including a gain of approximately $18,100,000 relating to the February 1994 fire
at HCL as compared to a $1,700,000 gain in the 1995 period relating to such
fire, with the remainder of the decrease in the 1995 period being partially
offset primarily by (i) the net adjustments relating to the marking-to-market of
forward exchange contracts which do not qualify as hedges and (ii) interest
income related to a prior year's tax refund.
As a result of the above factors, income before income taxes and
extraordinary item decreased by $23,344,000 in 1995. 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 addition, during the 1995 period HCL recorded a tax benefit for a $1,100,000
tax refund related to prior years. See Note J of Notes to Consolidated Financial
Statements for information regarding effective tax rates.
1994 Compared with 1993
Revenues increased by 2.4% to $334,107,000 in 1994 from $326,315,000 in
1993, an increase of $7,792,000, resulting from (i) increased sales of specialty
plant nutrients and industrial chemicals ($7,300,000), primarily relating to
potassium nitrate, which includes the unfavorable effect ($9,900,000) of certain
weakened European currencies in relation to the U.S. dollar (including those
covered by forward exchange contracts) in 1994 as compared to the prior year,
and (ii) increased sales of organic chemicals ($200,000) and potash ($300,000).
Cost of goods sold as a percentage of revenues increased to 79.5% in 1994
compared with 78.3% in 1993, primarily due to the adverse effects of (i) the
above-mentioned weakened European currencies, (ii) cancellation of the program
of exchange rate insurance by the Israeli Government in August 1993 (which
contributed $1,600,000 in revenues in 1993) and (iii) lower margins realized in
the potash business, with these items being partially offset by certain cost
reductions and the receipt of a $1,800,000 refund from a utility supplier. Gross
profit was $68,312,000 in 1994 compared with $70,752,000 in 1993, a decrease of
$2,440,000, with such decrease primarily being the net result of the increase in
revenues as well as the net effect of the items described in the previous
sentence. General and administrative expense decreased slightly to $37,780,000
in 1994 from $38,375,000 in 1993 (11.3% and 11.8% of revenues in 1994 and 1993,
respectively).
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18
As a result of the matters described above, the Company's operating income
decreased by $1,845,000 to $30,532,000 in 1994 as compared with $32,377,000 in
1993.
Interest expense increased by $964,000 ($28,369,000 in 1994 compared with
$27,405,000 in 1993), primarily as a result of (i) higher interest rates in 1994
and (ii) the June 30, 1994 Loan Agreement described below (see Note G of Notes
to Consolidated Financial Statements). Interest and other income - net increased
in 1994 by $9,042,000, principally as the result of a gain relating to the
February, 1994 fire at HCL ($18,100,000), partially offset by several factors
during the 1994 period including (i) lower investment income and security gains
($4,300,000) and (ii) a provision for loss on certain foreign currency
transactions ($3,800,000) - see Notes D and K of Notes to Consolidated Financial
Statements.
As a result of the above factors, income before income taxes and
extraordinary item increased by $6,233,000 in 1994. 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.
See Note J of Notes to Consolidated Financial Statements for information
regarding effective tax rates.
In the 1993 period the Company acquired $65,497,000 principal amount of its
13 1/2% Senior Subordinated Debentures and $21,500,000 principal amount of its
Senior Subordinated Reset Notes, which resulted in a loss of $8,830,000. Such
loss (which has no current tax benefit) is classified as an extraordinary item
in the accompanying Consolidated Statements of Operations. No such debt was
acquired in the 1994 period. See Note G of Notes to Consolidated Financial
Statements.
CAPITAL RESOURCES AND LIQUIDITY
The Company's consolidated working capital at December 31, 1995 and
1994 was $82,011,000 and $66,294,000, respectively.
Operations for the years ended December 31, 1995 and 1994, after
adding back non-cash items, provided cash of approximately $16,100,000 and
$26,900,000, respectively. During such periods other changes in working capital
provided (used) cash of approximately ($14,300,000) and $13,000,000,
respectively, resulting in net cash being provided from operating activities and
working capital management of approximately $1,800,000 and $39,900,000,
respectively.
Investment activities during the years ended December 31, 1995 and
1994 provided (used) cash of approximately $84,800,000 and ($201,000,000),
respectively, including additions to property in 1995 and 1994 of approximately
$35,700,000 and $93,300,000, respectively, net purchases of marketable
securities and short-term investments of approximately $4,400,000 and
$134,800,000, respectively, and sales of marketable securities and other
short-term investments of approximately $132,300,000 and $33,500,000,
respectively. The 1994 property additions principally relate to (i) the
construction of the K3 Plant, (ii) the replacement of the HCL production unit
damaged in the fire in February, 1994 and (iii) the construction of a new
potassium carbonate manufacturing facility (see "Capital Expenditures" below).
The 1994 purchases and the 1995 sales of marketable securities and short-term
investments relate principally to the purchase in 1994, and the liquidation in
1995, of the pledged certificates of deposit ("CD's") relating to the Loan
Agreement described below.
Financing activities during the years ended December 31, 1995 and 1994
provided (used) cash of approximately ($69,300,000) and $150,900,000,
respectively (principally relating to the increase of certain long-term debt in
1994 and the prepayment of such debt in 1995, which is described below). During
1994 the Company entered into the Loan Agreement which resulted in new bank
loans aggregating $140,000,000 and the repayment of bank loans of approximately
$19,000,000; during 1995 a significant portion of such debt was prepaid. During
1994, the Company dividended certain short-term investments to its parent. The
carrying value of these investments on the dividend date ($4,241,000)
approximated market value.
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19
On June 30, 1994, the Company entered into the Loan Agreement with a
bank and borrowed $40,000,000 (repayable quarterly over a four year period) and
utilized a portion of the proceeds to prepay approximately $19,000,000 then owed
to such bank. Pursuant to the Loan Agreement, the Company also borrowed an
additional $100,000,000, repayable in January, 1996. Under certain specified
circumstances prior to such date, the Company could have converted such loan
into a term loan maturing five years from the date of conversion. The Company
pledged CD's with a principal amount of $100,000,000 as collateral for such loan
(such CD's were included in "other current assets" in the accompanying December
31, 1994 Consolidated Balance Sheet). In addition, the Company pledged 79% of
the capital stock of HCL to secure its obligations under the Loan Agreement. On
January 5, 1995, the Company liquidated the pledged CD's and prepaid the
$100,000,000 loan. See Notes B, E and G of Notes to Consolidated Financial
Statements.
As of December 31, 1995, the Company had outstanding long-term debt
(excluding current maturities) of $288,580,000. The Company's primary source of
liquidity is cash flow generated from operations and the unused credit lines
described in Note E of Notes to Consolidated Financial Statements.
During 1995, TPR assumed the Company's obligation for the remaining
outstanding 9.5% junior subordinated debentures and the Company's liability
thereon was extinguished. The Company recorded such assumed obligation as an
$8,177,000 capital contribution by TPR, the amount equivalent to the then net
carrying value of the 9.5% debentures. See Note G of Notes to Consolidated
Financial Statements.
Approximately 90% of HCL's sales are made outside of Israel in various
currencies, of which approximately 38% are in U.S. dollars, with the remainder
principally in Western European currencies. In order to mitigate the impact of
currency fluctuations against the U.S. dollar, the Company has a policy of
hedging a significant 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 Statement of Financial Accounting
Standards No. 52 and accordingly, 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 income 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, 1995 and 1994 would have increased by approximately $11,200,000 in
each year.
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.
CAPITAL EXPENDITURES
During 1995 (excluding the K3 Plant described below and the reconstruction
of the production unit damaged by fire in February 1994) the Company invested
approximately $19,900,000 in capital expenditures. During 1993 the Company
commenced construction of the K3 Plant. The Company has completed the
construction of the K3 Plant and the reconstruction of the damaged HCL
production unit. See Note D of Notes to Consolidated Financial Statements.
The Company currently anticipates that capital expenditures for the year
ending December 31, 1996 will aggregate approximately $20,000,000. The Company's
capital expenditures will be used primarily for increasing certain production
capacity and efficiency, product diversification and for ecological matters. The
Company expects to be able to finance its capital expenditures from internally
generated funds, borrowings from traditional lending sources and, where
applicable, Israeli Government grants and entitlements.
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20
INFLATION
Inasmuch as only approximately $45,000,000 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,
1995 and 1994, the inflation rate of the NIS as compared to the U.S. Dollar
exceeded the devaluation rate in Israel by 4.2% and 13.4%, respectively.
ENVIRONMENTAL MATTERS
See Item 1 - "Business - Environmental Matters" above and Note O of Notes
to Consolidated Financial Statements for information regarding environmental
matters relating to the Company's various facilities.
ITEM 8. Financial Statements and Supplementary Data.
See Index to Consolidated Financial Statements and Schedules on page F-1.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
Arie Genger................... 50 Chairman of the Board and Chief Executive Officer
Thomas G. Hardy............... 50 President and Chief Operating Officer; Director
Martin A. Coleman............. 65 Director
Sash A. Spencer............... 64 Director
Lester W. Youner.............. 50 Vice President, Treasurer and Chief Financial Officer
FINANCIAL ADVISORY COMMITTEE
Lawrence M. Small
Thomas G. Hardy
Sash A. Spencer
18
21
The By-laws of the Company provide for at least one director. 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 or executive
officers of the Company.
The following are descriptions of the directors and executive officers
of the Company and the members of the Financial Advisory Committee. The
Financial Advisory Committee advises the Board of Directors regarding financial
matters and, when the Committee deems appropriate, make recommendations to the
Board of Directors.
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 President and Chief Operating Officer of the
Company since December 1993, 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 has been a director of Laser
Industries Limited (a manufacturer and distributor of surgical lasers and other
medical technology in which the Company has an ownership interest) since January
1990.
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 Rubin Baum Levin Constant & Friedman, 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 has been a private
investor and Chairman of Holding Capital Management Corp., a private investment
firm, for more than five years. He has been a director of Empire Energy Corp., a
corporation engaged in the propane gas business, since 1983.
Lester W. Youner has been Vice President, Treasurer and Chief Financial
Officer of the Company since October 1987. From June 1979 until October 1987 he
was a Partner of Deloitte & Touche, a public accounting firm.
Lawrence M. Small, 54, has been Chairman of the Financial Advisory
Committee of the Board of Directors since October 1992. Mr. Small is President
and Chief Operating Officer of Fannie Mae (Federal National Mortgage Association
- - the country's largest investor in home mortgages and issuer of mortgage-
backed securities) headquartered in Washington, DC, which he joined in September
1991. Prior to that, he was Vice Chairman and Chairman of the Executive
Committee of the Boards of Directors of Citicorp and Citibank, N.A., where he
was employed for 27 years. He serves as a director of Fannie Mae, The Chubb
Corporation (an insurance company) and Marriott International, Inc. (a lodging
and food service management company).
19
22
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 other executive officers whose annual compensation exceeded
$100,000 for the year ended December 31, 1995:
SUMMARY COMPENSATION TABLE
Annual Compensation (1) Compen-
Name and Principal Position Year Salary (2) Bonus sation (3)
- --------------------------- ---------- ---------- --------- ----------
Arie Genger...................................... 1995 $675,000 $ - $ 510,000
Chairman of the Board 1994 750,000 - 509,000
and Chief Executive Officer 1993 750,000 92,000 519,000
Thomas G. Hardy.................................. 1995 360,000 130,000 5,000
President and Chief Operating Officer 1994 400,000 - 1,406,000
and Director 1993 350,000 50,000 8,000
Lester W. Youner................................. 1995 241,000 65,000 5,000
Vice President, Treasurer and 1994 241,000 55,000 6,000
Chief Financial Officer 1993 226,000 70,000 8,000
(1) 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.
(2) Amounts shown for 1993 do not include in the case of Messrs. Genger, Hardy
and Youner $500,000, $275,000 and $20,000, respectively, of 1994 salary
which was prepaid in 1993. Amounts shown for 1994 include such
prepayments.
(3) For 1995, consists of: (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 $6,000 for the premium on term life insurance;
(ii) in the case of Messrs. Hardy and Youner, $4,000 each for the
Company's matching contribution to a profit sharing thrift plan; and (iii)
$1,000 each for Messrs. Hardy and Youner for the premium on term life
insurance.
For 1994, consists of: (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 $5,000 for the premium on term life insurance;
(ii) in the case of Messrs. Hardy and Youner, $4,000 each for the
Company's matching contribution to a profit sharing thrift plan; and (iii)
$2,000 each for Messrs. Hardy and Youner for the premium on term life
insurance. In the case of Mr. Hardy, also includes $1,400,000 deposited in
trust for Mr. Hardy. See "Compensation Agreements".
For 1993, consists of: (i) in the case of Mr. Genger, $250,000 for an
annual premium on ordinary life insurance, $258,000 for related income tax
gross-up, $6,000 for the Company's matching contribution to a profit
sharing thrift plan, and $5,000 for the premium on term life insurance;
(ii) in the case of Messrs. Hardy and Youner, $6,000 each for the
Company's matching contribution to a profit sharing thrift plan; and (iii)
$2,000 each for Messrs. Hardy and Youner for the premium on term life
insurance.
20
23
COMPENSATION AGREEMENTS
Pursuant to an Agreement entered into in March 1994 (the "New Agreement"),
which modified and superseded a 1988 bonus arrangement under which no payments
had been made, the Company is required to irrevocably deposit in trust for the
benefit of Mr. Hardy an aggregate of $2,800,000, of which $1,400,000 was
deposited upon execution of the New Agreement, and the remaining $1,400,000 was
deposited in March, 1996. The deposited funds are held under a Trust Agreement
(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
payable in a lump sum to Mr. Hardy or his beneficiaries upon the earlier of
December 1, 2001 or the termination of his employment with the Company.
An employment agreement between the Company and Mr. Hardy, effective as of
June 1, 1993, having a primary term of seven years, renewable for 10 additional
years unless either party gives at least 12 months' prior written notice of
termination, provides for an annual salary of $400,000, subject to negotiated
annual increases commencing in the year 2000. With certain restrictions, Mr.
Hardy will be entitled to receive a bonus (the "Bonus") based on a percentage of
the fair market value (the "Value") of the Company's equity at December 31st of
the year Mr. Hardy's employment terminates, he turns 65 or certain acceleration
events, including a change of control of the Company, occur. If the Company and
Mr. Hardy cannot agree on the Value, each may propose an amount. If only one
makes a proposal, that would constitute the Value. If each makes a proposal, an
investment banker would choose between them. The Bonus, generally payable in
installments, would be equal to the excess over $2,800,000 (the aggregate amount
Mr. Hardy is to receive under the New Agreement) of specified percentages of
different ranges of Value. Mr. Hardy is not entitled to the Bonus if he
voluntarily terminates his employment during the primary term (other than by
death or disability) or if Mr. Hardy's employment is terminated for cause (as
defined).
Pursuant to a salary continuation agreement between the Company and Lester
W. Youner, the Company is obligated to pay Mr. Youner a retirement allowance
("Allowance") of $100,000 per year for life commencing at age 65. In the event
of Mr. Youner's death after the commencement of the payment of the Allowance,
Mr. Youner's designated beneficiary is to receive the Allowance until 10 annual
payments shall have been made to Mr. Youner and his beneficiary. Mr. Youner will
be 25% vested in the Allowance on December 31, 1996 and shall continue to vest
at the rate of 5% per year thereafter provided that he remains in the employ of
the Company. Notwithstanding the foregoing, the Allowance will become 100%
vested on the earlier of Mr. Youner's 65th birthday or the occurrence of an
acceleration event, including a change of control of the Company. Mr. Youner
forfeits the Allowance if his employment is terminated for cause (as defined)
or, if within two years after the voluntary termination of his employment, Mr.
Youner engages directly or indirectly in any activity competitive with the
Company or any of its subsidiaries. The agreement further provides that in the
event of Mr. Youner's death prior to his 65th birthday while in the active
employ of the Company, his designated beneficiary is to receive an annual death
benefit of $100,000 for 10 years. Mr. Youner's death benefit is currently 50%
vested and will become 100% vested on the earlier of December 31, 1996 or the
occurrence of an acceleration event.
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
four members currently include Mr. Genger, Chairman of the Board and Chief
Executive Officer of the Company, and Mr. Hardy, President and Chief Operating
Officer of the Company. 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 $15,000 annually for serving as directors.
21
24
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of March 25, 1996, as
to the beneficial ownership of the Common Stock of the Company, which is the
only outstanding class of voting security of the Company:
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OWNED CLASS
Common Stock, $.01 par value (1):
TPR (2)
9 West 57th Street
New York, NY 10019.......................... 3,000 100%
All executive officers and directors as a group
(five persons)(2)........................... 3,000 100%
- ---------------------
(1) All of the shares of the Common Stock of the Company are pledged to
secure an outstanding TPR note of $7,000,000 issued to a former
indirect stockholder and director of the Company.
(2) Mr. Genger and members of his family own all of the capital stock of
TPR.
ITEM 13. Certain Relationships and Related Transactions.
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,
Eddy, Cedar 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.
See Notes G and L of Notes to Consolidated Financial Statements for a
description of a 1994 transaction pursuant to which TPR acquired the Company's
$9,000,000, 9 1/2% junior subordinated debentures due 2005 (the "9.5%
Debentures") and became the obligor on an outstanding 8 3/4%, $4,000,000 note
due 2005 payable to the Company. Upon TPR's acquisition of the 9.5% Debentures,
TPR exchanged the 9.5% Debentures for a new preferred stock of the Company
described in said Note L. In addition, as described in Note G, during 1995 TPR
assumed the Company's obligation for $9,000,000 principal amount of outstanding
9.5% Debentures due in 1998 and Company's liability thereon was extinguished.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1)-(2) See Index to Consolidated Financial Statements and
Schedules 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, 1995.
22
25
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 Lester W. Youner
Lester W. Youner
Vice President, Treasurer
and Chief Financial Officer
Dated: March 25, 1996
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:
LESTER W. YOUNER
Vice President, Treasurer and Chief Financial Officer
By Lester W. Youner
Lester W. Youner
For Himself and As Attorney-In-Fact
Directors:
Arie Genger Dated: March 25, 1996
Thomas G. Hardy
Martin A. Coleman
Sash A. Spencer
POWERS OF ATTORNEY AUTHORIZING LESTER W. YOUNER 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 11 7/8% Notes and Reset Notes.
23
26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS Page
Independent Auditors' Report............................................... F-2
Report of Independent Accountants.......................................... F-3
Consolidated Balance Sheets, December 31, 1994 and 1995.................... F-4
Consolidated Statements of Operations,
for the Years Ended December 31, 1993, 1994 and 1995................... F-5
Consolidated Statements of Stockholder's Equity,
for the Years Ended December 31, 1993, 1994 and 1995................... F-6
Consolidated Statements of Cash Flows,
for the Years Ended December 31, 1993, 1994 and 1995................... F-7
Notes to Consolidated Financial Statements................................. F-8
SCHEDULE
Schedule I - Condensed Financial Information of Registrant,
for the Years Ended December 31, 1993, 1994 and 1995................... S-1
F - 1
27
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 TransResources, Inc. (a wholly-owned subsidiary of TPR
Investment Associates, Inc.) and Subsidiaries 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 26 percent and 21 percent of consolidated total assets as of
December 31, 1995 and 1994, respectively, and total revenues constituting 34
percent, 38 percent and 35 percent of consolidated total revenues for the years
ended December 31, 1995, 1994 and 1993, 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,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, based on our
audits and 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.
Deloitte & Touche LLP
New York, N.Y.
March 19, 1996
F - 2
28
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 income and retained earnings 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, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. 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
audit of these statements in accordance with generally accepted auditing
standards 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.
Price Waterhouse LLP
Memphis, Tennessee
February 9, 1996
F - 3
29
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1994 1995
---- ----
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 15,571 $ 32,872
Accounts receivable .................................................... 66,106 75,630
Inventories ............................................................ 51,313 66,474
Other current assets ................................................... 168,200 19,364
Prepaid expenses ....................................................... 18,852 19,316
--------- ---------
Total Current Assets ............................................... 320,042 213,656
PROPERTY, PLANT AND EQUIPMENT - net ......................................... 202,085 220,191
OTHER ASSETS ................................................................ 28,827 33,255
--------- ---------
Total ......................................................... $ 550,954 $ 467,102
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................................... $ 124,465 $ 40,703
Short-term debt ........................................................ 33,521 6,145
Accounts payable ....................................................... 57,077 51,383
Accrued expenses and other current liabilities ......................... 38,685 33,414
--------- ---------
Total Current Liabilities .......................................... 253,748 131,645
--------- ---------
LONG-TERM DEBT - net:
Senior indebtedness, notes payable and other obligations ............... 102,059 174,506
Senior subordinated debt - net ......................................... 140,385 114,074
Junior subordinated debt - net ......................................... 7,981 --
--------- ---------
Long-Term Debt - net ............................................... 250,425 288,580
--------- ---------
OTHER LIABILITIES ........................................................... 26,231 26,202
--------- ---------
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 ............................................. 505 8,682
Retained earnings ...................................................... 13,432 4,764
Cumulative translation adjustment ...................................... (360) (594
Unrealized losses on marketable securities ............................. (987) (137
--------- ---------
Total Stockholder's Equity ......................................... 20,550 20,675
--------- ---------
Total ......................................................... $ 550,954 $ 467,102
========= =========
See notes to consolidated financial statements.
4
30
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995
(IN THOUSANDS)
REVENUES .............................. $ 326,315 $ 334,107 $ 385,564
OPERATING COSTS AND EXPENSES:
Cost of goods sold ................ 255,563 265,795 323,126
General and administrative ........ 38,375 37,780 43,193
--------- --------- ---------
OPERATING INCOME ...................... 32,377 30,532 19,245
Interest expense .................. (27,405) (28,369) (34,498)
Interest and other income - net ... 6,014 15,056 9,128
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ................ 10,986 17,219 (6,125)
INCOME TAX PROVISION .................. 7,920 14,669 733
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 3,066 2,550 (6,858)
EXTRAORDINARY ITEM - Loss on repurchase
of debt (no income tax benefit) ....... (8,830) -- (103)
--------- --------- ---------
NET INCOME (LOSS) ..................... $ (5,764) $ 2,550 $ (6,961)
========= ========= =========
See notes to consolidated financial statements.
F - 5
31
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended December 31, 1993, 1994 and 1995
ADDITIONAL CUMULATIVE UNREALIZED
PREFERRED COMMON PAID-IN RETAINED TRANSLATION (LOSSES) ON
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT SECURITIES TOTAL
(IN THOUSANDS)
BALANCE, JANUARY 1, 1993 ................. $ -- $ -- $ 500 $ 28,620 $(238) $-- $28,882
Net loss ............................. (5,764) (5,764)
Dividends - common stock ............. (7,508) (7,508)
Net change during year ............... 184 184
------- ------- ------- -------- ----- ---- -------
BALANCE, DECEMBER 31, 1993 ............... -- -- 500 15,348 (54) -- 15,794
Net income ........................... 2,550 2,550
Dividends - common stock, including
non-cash dividend of $4,241,000 .. (4,466) (4,466)
Issuance of preferred stock upon
conversion of 9 1/2% junior
subordinated debentures .......... 7,960 7,960
Net change during year ............... 5 (306) (987) (1,288)
------- ------- ------- -------- ----- ---- -------
BALANCE, DECEMBER 31, 1994 ............... 7,960 -- 505 13,432 (360) (987) 20,550
Net loss ............................. (6,961) (6,961)
Dividends:
Common stock ..................... (856) (856)
Preferred stock .................. (851) (851)
Capital contribution by parent company
upon assumption of 9 1/2% junior
subordinated debentures .......... 8,177 8,177
Net change during year ............... (234) 850 616
------- ------- ------- -------- ----- ---- -------
BALANCE, DECEMBER 31, 1995 ............... $ 7,960 $ -- $ 8,682 $ 4,764 $(594) $(137) $ 20,675
======= ======= ======= ======== ===== ==== =======
See notes to consolidated financial statements.
F - 6
32
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995
---- ---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES AND WORKING CAPITAL
MANAGEMENT:
Operations:
Net income (loss) .............................. $ (5,764) $ 2,550 $ (6,961)
Items not requiring cash:
Depreciation and amortization ............. 24,490 20,859 22,409
Increase (decrease) in other liabilities .. 725 509 (37)
Deferred taxes and other - net ............ (2,494) 2,986 688
--------- --------- ---------
Total ................................. 16,957 26,904 16,099
Working capital management:
Accounts receivable and other current assets ... (9,222) (26,105) 15,585
Inventories .................................... (9,872) 9,616 (11,274)
Prepaid expenses ............................... (2,187) (1,367) (443)
Accounts payable ............................... 9,842 22,153 (7,753)
Accrued expenses and other current liabilities . 1,323 8,658 (10,381)
--------- --------- ---------
Cash provided by operations and
working capital management ................ 6,841 39,859 1,833
--------- --------- ---------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment ......... (29,056) (93,314) (35,661)
Sales of marketable securities and short-term
investments, including in 1995 liquidation
of CD's securing a bank loan (see Note G) ...... 15,825 33,543 132,260
Purchases of marketable securities and short-
term investments, including in 1994 purchase
of CD's securing a bank loan (see Note G) ...... (34,118) (134,790) (4,371)
Other - net ........................................ (6,087) (6,403) (7,441)
--------- --------- ---------
Cash provided by (used in) investment activities (53,436) (200,964) 84,787
--------- --------- ---------
FINANCING ACTIVITIES:
Increase in long-term debt ......................... 124,660 183,330 101,616
Repurchases, payments and current maturities of
long-term debt ................................. (109,286) (43,211) (141,452)
Increase (decrease) in short-term debt ............. 9,726 11,040 (27,776)
Dividends to stockholders .......................... (7,508) (225) (1,707)
--------- --------- ---------
Cash provided by (used in) financing activities 17,592 150,934 (69,319)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................... (29,003) (10,171) 17,301
CASH AND CASH EQUIVALENTS:
Beginning of year .................................. 54,745 25,742 15,571
--------- --------- ---------
End of year ........................................ $ 25,742 $ 15,571 $ 32,872
========= ========= =========
See notes to consolidated financial statements.
F - 7
33
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of Trans-Resources, Inc. ("TRI"
or the "Company"), include the Company and its subsidiaries, after elimination
of intercompany accounts and transactions. The Company's principal subsidiaries
are Cedar Chemical Corporation ("Cedar"), and Cedar's two wholly-owned
subsidiaries - New Mexico Potash Corporation ("NMPC") and Vicksburg Chemical
Company ("Vicksburg"); Eddy Potash, Inc. ("Eddy"); Na-Churs Plant Food Company
("Na-Churs"); and Haifa Chemicals Ltd. ("HCL") and HCL's wholly-owned
subsidiary, Haifa Chemicals South, Ltd. ("HCS"). The Company is a wholly-owned
subsidiary of TPR Investment Associates, Inc. ("TPR").
Effective March 31, 1995 the Company acquired the assets of Na-Churs, a
company headquartered in Ohio and engaged in the specialty plant nutrient
business. The acquisition was accounted for as a purchase. Such acquisition did
not have a significant effect on the Company's results of operations.
Substantially all of the companies' revenues, operating profits and
identifiable assets are related to the chemical industry. The Company is a
multinational manufacturer of specialty plant nutrients, organic chemicals,
industrial chemicals and potash and distributes its products internationally.
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
The Company's revenues by region for the years ended December 31,
1993, 1994 and 1995 are set forth below:
1993 1994 1995
---- ---- ----
(IN MILLIONS)
Western Hemisphere:
United States .................... $121 $122 $136
Other ............................ 30 23 22
Europe ............................... 119 117 146
Asia and Australia ................... 30 41 40
Israel ............................... 17 18 21
Africa and other ..................... 9 13 21
---- ---- ----
Total ............................ $326 $334 $386
==== ==== ====
As of December 31, 1994 and 1995, the Company's assets were located in
the United States (44% and 40%, respectively) and abroad (principally Israel)
(56% and 60%, respectively). The Company has no single customer accounting for
more than 10% of its revenues.
F - 8
34
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 20 years. HCL also has a contract with ORL for
steam and processed water which expires on June 30, 1997 and a lease from ORL of
a pipeline which transports ammonia from the port in Haifa to HCL's plant. HCS
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 supply contract expiring December 31, 1999. Phosphate rock is
purchased solely from Rotem Deshanim ("Rotem") pursuant to a supply agreement
expiring on June 30, 1996. DSW and Rotem are companies that are majority-owned
by the Israeli Government and are the sole suppliers in Israel of potash and
phosphate rock, respectively. While management believes its current
relationships with both of its principal suppliers to be good, the loss of
supply from either of these sources would have an adverse effect on the Company.
Contracts and Revenue Recognition
Under the terms of a long-term contract with the U.S. Government for
the manufacture of an industrial chemical, revenues are recognized ratably for
the duration of the contract and billings are rendered as product is shipped.
Current deferred revenue of $2,541,000 at December 31, 1994 represents billings
in excess of revenues recognized under the contract. Such amount is classified
within "accrued expenses and other current liabilities" in the accompanying
Consolidated Balance Sheet.
Functional Currency and Transaction Gains and Losses
Approximately 90% of HCL's sales are made outside of Israel in various
currencies, of which approximately 38% are in U.S. dollars, with the remainder
principally in Western European currencies. In order to mitigate the impact of
currency fluctuations against the U.S. dollar, the Company has a policy of
hedging a significant 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 Statement of Financial Accounting
Standards No. 52 and, accordingly, 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, 1994 and 1995, there
were outstanding contracts to purchase $117 million and $148 million,
respectively, in various European currencies, principally Deutsche Marks and
Japanese Yen. In addition, at December 31, 1995 there were outstanding contracts
to purchase 95 million Deutsche Marks, and to sell a corresponding amount of
Italian Lira and Spanish Pesetas. Gains (losses) of approximately ($2,300,000)
and $900,000 were deferred at December 31, 1994 and 1995, respectively, for
forward exchange contracts which qualify as hedges.
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, 1993, 1994 and 1995 would have
increased (decreased) by ($5,250,000), $7,400,000 and $16,600,000, respectively,
and income before taxes would have increased (decreased) by approximately
($6,100,000), $11,200,000, and $11,200,000, respectively.
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 a subsidiary described below) are maintained, in U.S. dollars.
F - 9
35
The assets, liabilities and operations of one of HCL's foreign
subsidiaries are measured using the currency of the primary economic environment
in which the 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 subsidiary's
financial statements from its currency into U.S. dollars, are recorded directly
as a separate component of stockholder's equity.
Exchange Rate Insurance
In 1981, HCL joined a program of exchange rate insurance of the Israeli
Government designed to protect participating Israeli exporters from losses
resulting from the widening of the gap between the inflation rate in Israel and
the rate of devaluation of the New Israeli Shekel against a weighted basket of
currencies of Israel's major trading partners. The net benefits received by HCL
for the year ended December 31, 1993 were $1,616,000, which benefits have been
included in revenues. As part of various economic measures adopted in Israel
subsequent to December 31, 1988, the Israeli Government gradually reduced the
insurance proceeds granted under its program of exchange rate insurance, with
the program having been fully eliminated on August 31, 1993.
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. Depreciation is
recorded under the straight-line method at generally the following annual rates:
Buildings................................... 5-8%
Machinery, plant and equipment.............. 7-25%
Office furniture and equipment.............. 6-20%
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 are recognized in income over the
estimated useful life of the respective asset. HCL recorded investment grants
for the years ended December 31, 1993, 1994 and 1995 amounting to $10,952,000,
$22,708,000 and $995,000, respectively.
Effective July 1, 1994 and January 1, 1995, the Company revised the
estimate of depreciable lives of its property, plant and equipment at HCL and
Eddy, respectively, to more closely approximate the economic lives of those
assets. The effect of these changes in estimate was to decrease depreciation
expense in 1994 and 1995 by approximately $1,800,000 and $2,800,000,
respectively.
Investments In Marketable Securities and Other Short-Term Investments
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). The adoption of this Statement,
which was not required until 1994, required the Company to classify its equity
and fixed maturity securities as available-for-sale and reported at fair value,
with unrealized gains and losses included as a separate component of
stockholder's equity. Effective January 1, 1994, the Company adopted SFAS No.
115. The initial adoption of SFAS No. 115 did not have a material effect on the
Company's consolidated financial position or results of operations.
F - 10
36
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 its 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, 1995, TPR did not
require payment of amounts different from that which was computed as if the
Company and its consolidated subsidiaries filed its 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 applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
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 1993, 1994 and 1995 the Company incurred environmental clean-up
costs of approximately $900,000, $600,000 and $300,000, respectively. In
addition, at both December 31, 1994 and 1995, the Company has accrued
approximately $1,600,000 related to the estimated costs to be incurred for
various environmental liabilities.
Research and Development Costs
Research and development costs are charged to expense as incurred and
amounted to $3,206,000, $3,978,000 and $3,158,000 for the years ended December
31, 1993, 1994 and 1995, respectively.
Risk Management Derivatives
Amounts receivable or payable under interest rate swap agreements are
recognized as interest expense.
Statements of Cash Flows
Investments with original maturities of three months or less are
classified as cash equivalents by the Company.
F - 11
37
Concentration of Credit Risk
The Company believes no significant concentration of credit risk exists
with respect to investments and accounts receivable.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
manner of presentation in the current year.
B. OTHER CURRENT ASSETS
Other current assets consist of the following at December 31, 1994 and
1995:
1994 1995
---- ----
(IN THOUSANDS)
Marketable securities (carried at market)...................... $ 22,923 $ 2,393
Miscellaneous receivables, other securities,
deferred income taxes, etc................................ 45,237 16,971
Certificates of deposit pledged as collateral (see Note G)..... 100,040 -
-------- ------
Total .................................................. $168,200 $19,364
======== =======
The Company classifies all of its marketable securities (including U.S.
Government obligations) as available-for-sale securities. The following
is a summary of available-for-sale securities as of December 31, 1994
and 1995:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(IN THOUSANDS)
December 31, 1994:
U.S. Government obligations................. $ 1,989 $ 2 $ - $ 1,991
Foreign Government obligations.............. 989 34 - 1,023
------- -------- --------- -------
Total debt securities.................. 2,978 36 - 3,014
------- -------- --------- -------
Common stocks and mutual funds
investing primarily therein............... 10,418 31 637 9,812
Mutual funds investing in U.S.
government bonds and investment
grade corporate bonds .................... 9,970 - 318 9,652
Preferred stocks............................ 544 - 99 445
-------- --------- -------- --------
Total equity securities................ 20,932 31 1,054 19,909
------- -------- ------- -------
Total ............................... $23,910 $ 67 $ 1,054 $22,923
======= ======== ======= =======
F - 12
38
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(IN THOUSANDS)
December 31, 1995:
Foreign Government obligations $ 877 $ 21 $-- $ 898
Other debt securities ........ 393 9 -- 402
Total debt securities ... 1,270 30 -- 1,300
------ ---- ------ ------
Common stocks and mutual funds
investing primarily therein 872 25 129 768
Preferred stocks ............. 388 -- 63 325
------ ---- ------ ------
Total equity securities . 1,260 25 192 1,093
------ ---- ------ ------
Total ................... $2,530 $ 55 $ 192 $2,393
====== ==== ====== ======
The cost and estimated fair value of debt securities at December 31,
1995, by contractual maturity, are as follows:
Estimated
Cost Fair Value
(IN THOUSANDS)
Due in one year or less .............. $ 277 $ 283
Due after one year through three years 382 390
Due after three years ................ 611 627
------ ------
Total ............................ $1,270 $1,300
====== ======
During 1994, the gross realized gains on sales of securities totaled
approximately $66,000 and the gross realized losses totaled approximately
$1,244,000; during 1995 such gross realized gains totaled approximately $555,000
and gross realized losses totaled approximately $968,000 (see Note K).
C. INVENTORIES
Inventories consist of the following at December 31, 1994 and 1995:
1994 1995
---- ----
(IN THOUSANDS)
Raw materials .......................... $17,566 $20,444
Finished goods ......................... 33,747 46,030
------- -------
Total .............................. $51,313 $66,474
======= =======
F - 13
39
D. PROPERTY, PLANT AND EQUIPMENT - NET
Property, plant and equipment at December 31, 1994 and 1995 consists of
the following:
1994 1995
---- ----
(IN THOUSANDS)
Land ................................................. $ 2,116 $ 4,328
Buildings ............................................ 21,753 28,413
Machinery, plant and equipment ....................... 181,364 304,228
Office furniture, equipment and water rights ......... 10,750 10,955
Construction-in-progress ............................. 102,494 8,823
-------- --------
Total, at cost ................................... 318,477 356,747
Less accumulated depreciation and amortization ....... 116,392 136,556
-------- --------
Property, plant and equipment - net .............. $202,085 $220,191
======== ========
During 1993 the Company commenced construction of the K3 Plant, a new
facility in Israel, with initial capacity to produce approximately 100,000
metric tons of potassium nitrate annually. The Company substantially completed
the construction of the K3 Plant in the fourth quarter of 1994. During 1993,
1994 and 1995 capital expenditures in connection with the K3 Plant (net of
aggregate Israeli Government grants of approximately $35,000,000) amounted to
approximately $19,000,000, $43,000,000 and $4,000,000, respectively. Product
sales from the K3 Plant commenced in 1995. The capacity of the new plant may be
expanded in subsequent years.
The Company capitalized interest costs aggregating $352,000, $3,360,000
and $953,000 during the years ended December 31, 1993, 1994 and 1995,
respectively, with respect to several construction projects. Certain property,
plant and equipment has been pledged as collateral for long-term debt - see Note
G.
On February 7, 1994, the smaller of HCL's two potassium nitrate
production units was damaged by a fire, causing a temporary reduction of the
Company's potassium nitrate production capacity. The Company completed the
replacement of the damaged unit during 1995. The impact of the loss of the
facility, including the effect of business interruption, was substantially
covered by insurance. The insurance proceeds relating to the property damage was
for replacement value, which was greater than the recorded carrying value of the
damaged assets. Accordingly, during the years ended December 31, 1994 and 1995,
HCL has recorded pre-tax gains of approximately $18,100,000 and $1,700,000,
respectively. Such pre-tax gains are included in the caption "interest and other
income-net" in the accompanying Consolidated Statements of Operations - see Note
K.
E. SHORT-TERM DEBT AND UNUSED CREDIT LINES
The weighted average interest rates for short-term debt outstanding at
December 31, 1994 and 1995 were 8.8% and 6.5%, respectively.
As of December 31, 1995, the Company and its subsidiaries have unused
revolving loan commitments and other credit lines from banks aggregating
approximately $87,000,000.
F - 14
40
F. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the
following at December 31, 1994 and 1995:
1994 1995
(in thousands)
Compensation and payroll taxes ................. $ 9,625 $10,159
Interest ....................................... 11,437 11,020
Income taxes ................................... 3,127 1,518
Other .......................................... 14,496 10,717
------- -------
Total ...................................... $38,685 $33,414
======= =======
G. LONG-TERM DEBT - NET
Long-term debt consists of the following at December 31, 1994 and 1995:
Payable
Description Interest Rate* Through 1994 1995
(in thousands)
TRI:
Bank loans (1)................................ Various 1998 $137,500 $ 27,500
Senior subordinated reset notes, net of
unamortized debt discount of $349,000 and
$150,000 (effective interest rate of 15.4%)(2).... 14.5% 1996 26,401 23,350
11.875% Senior subordinated notes, net of
unamortized debt discount of $1,016,000 and
$926,000 (effective interest rate of 12.1%)(3).... 11.875% 2002 113,984 114,074
9.5% Junior subordinated debentures, net of
unamortized debt discount of $1,019,000 at
December 31, 1994 (effective interest rate of
14.1%)(4)......................................... 9.5% 1998 7,981 --
Subsidiaries:
Bank loans and other financing..................... Various 2020 89,024 164,359
-------- --------
Total.......................................... 374,890 329,283
Less current portion........................... 124,465 40,703
-------- --------
Long-term debt-net............................. $250,425 $288,580
======== ========
- -----------
* As prevailing on respective balance sheet dates. Such rates (other than the
subordinated debt) generally "float" according to changes in the Prime or LIBOR
rates. At December 31, 1995 such rates were approximately 8.5% and 6.0%,
respectively.
1. On June 30, 1994, the Company entered into a Loan Agreement with a bank and
borrowed $40,000,000 (repayable quarterly over a four year period) and utilized
a portion of the proceeds to prepay approximately $19,000,000 then owed to such
bank. Pursuant to the Loan Agreement, the Company also borrowed an additional
$100,000,000, repayable in January, 1996. Under certain specified circumstances
prior to such date, the Company could have converted such loan into a term loan
maturing five years from the date of conversion. At December 31, 1994 the
Company pledged certificates of deposit ("CD's") with a principal amount of
$100,000,000 as collateral for such loan (such CD's are included in "other
current assets" in the
F - 15
41
accompanying December 31, 1994 Consolidated Balance Sheet). The Company pledged
79% of the capital stock of HCL to secure its obligations under the Loan
Agreement. On January 5, 1995, the Company liquidated the pledged CD's and
prepaid, in full, the $100,000,000 loan. Such loan is included in current
maturities of long-term debt at December 31, 1994.
2. The Senior Subordinated Reset Notes (the "Reset Notes") bear interest at
14.5% and mature on September 1, 1996. The Reset Notes are not subject to any
mandatory sinking fund requirement. During 1995, the Company acquired $3,250,000
principal amount of the Reset Notes. In connection with such acquisition of the
Reset Notes, the Company has recorded an extraordinary loss of $103,000. Such
loss had no current tax benefit.
3. On March 30, 1993, the Company privately placed $115,000,000 principal amount
of the 11 7/8% Notes due 2002, Series A (the "11 7/8% Notes") at 99% of
principal amount (the "Offering"). The net proceeds to the Company from the
Offering were approximately $109,700,000. Approximately $24,200,000 of such
proceeds were used to acquire $21,500,000 principal amount of the Company's
Reset Notes. In addition, approximately $63,900,000 of the proceeds were used in
May, 1993 to acquire all of the Company's $60,997,000 then outstanding principal
amount of 13.5% Senior Subordinated Debentures (the "Debentures") through
utilization of the applicable sinking fund and optional redemption provisions of
the Debentures. As a result of the redemptions and purchases described above, as
well as the Company's acquisition of $4,500,000 principal amount of the
Debentures in January 1993, the Company has recorded an extraordinary loss of
$8,830,000 during 1993, including the write-off of applicable deferred debt
issuance costs. Such loss had no current tax benefit.
On May 6, 1993, to satisfy its obligations with respect to the registration of
the 11 7/8% Notes, the Company commenced an offer (the "Exchange Offer") to
exchange up to $115,000,000 principal amount of its registered 11 7/8% Senior
Subordinated Notes due 2002, Series B (the "New 11 7/8% Notes") for a like
principal amount of the 11 7/8% Notes. The terms of the 11 7/8% Notes and the
New 11 7/8% Notes were identical in all material respects. Pursuant to the
Exchange Offer, which expired on June 9, 1993, all outstanding 11 7/8% Notes
were tendered and exchanged for the New 11 7/8% Notes.
The New 11 7/8% Notes mature on July 1, 2002 and are redeemable at the option of
the Company at any time after July 1, 1998 at stipulated redemption prices.
There are no mandatory sinking fund requirements.
4. On November 28, 1986, the Company issued junior subordinated debentures (the
"9.5% Debentures") in the aggregate principal amount of $9,000,000, with
interest payable quarterly. The 9.5% Debentures were initially recorded at
$6,700,000, the estimated value on the date of issue, and were scheduled to
mature in 1998.
During 1991, the Company's then outstanding redeemable preferred stock was
converted into another $9,000,000 principal amount of the Company's 9.5%
Debentures. Subsequently, during 1991, the then holder of this $9,000,000
principal amount of 9.5% Debentures agreed to extend the maturity date of such
principal amount by seven years to the year 2005. The carrying value of the 9.5%
Debentures issued upon conversion of the redeemable preferred stock was
equivalent to the previous carrying value of the preferred stock. During 1994,
as a result of the settlement of certain litigation with a former indirect
stockholder and director of the Company, TPR acquired the 9.5% Debentures then
held by the wife of such stockholder. Upon TPR's acquisition of such 9.5%
Debentures, TPR exchanged these 9.5% Debentures for a new Company preferred
stock - see Note L. Also as part of the settlement of such litigation, TPR
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.
During 1995, TPR assumed the Company's obligation for the remaining outstanding
9.5% Debentures and the Company's liability thereon was extinguished. The
Company recorded such assumed obligation as an
F - 16
42
$8,177,000 capital contribution by TPR, the amount equivalent to the then net
carrying value of the 9.5% Debentures.
The Reset Notes are pari passu with the New 11 7/8% Notes and are
subordinated in right of payment to all Senior Indebtedness (as defined) of the
Company.
Certain of the Company's and its subsidiaries' loan agreements and
Indentures require the Company and/or the respective subsidiary 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 make certain
Restricted Payments and Restricted Investments (each as defined), etc. The
Company is also required to offer to purchase a portion of the New 11 7/8% Notes
and the Reset Notes if it fails to maintain minimum amounts of Junior
Subordinated Capital (as defined). In the event of a Change in Control (as
defined), the Company is required to offer to purchase all the New 11 7/8% Notes
and Reset 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.
As of December 31, 1995, the Company and its subsidiaries are in
compliance with the covenants of each of the respective loan agreements and
Indentures.
The aggregate maturities of long-term debt are set forth below, which
data is shown after giving effect to the Company's refinancing of certain bank
debt as of January 2, 1996.
Years Ending
December 31, (in thousands)
1996........................................ $ 40,703
1997........................................ 15,851
1998........................................ 17,607
1999........................................ 14,448
2000........................................ 11,600
Thereafter.................................. 229,074
--------
Total.................................... $329,283
========
Substantially all of the assets of HCL and HCS 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 and the Company's other subsidiaries (except for Eddy) 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 $21,852,000,
$24,089,000 and $33,445,000 for the years ended December 31, 1993, 1994 and
1995, 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, 1994
and 1995 include accruals of $2,596,000 and $2,528,000, respectively, for the
estimated unfunded liability of complete severance of all HCL employees. Costs
incurred were approximately $1,974,000, $2,648,000 and $2,060,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
F - 17
43
No information is available regarding 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.
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").
Cedar's net pension cost for the years ended December 31, 1993, 1994
and 1995 included the following benefit and cost components:
1993 1994 1995
------ ------ -----
(in thousands)
Service cost......................................................... $552 $657 $603
Interest cost........................................................ 659 756 844
Amortization of unrecognized prior service cost...................... 120 109 109
Actual return on plan assets......................................... (592) (751) (793)
Amortization of unrecognized net transition obligation............... 58 58 59
----- ----- -----
Net pension cost................................................ $797 $829 $822
==== ==== ====
The funded status and the amounts recognized in the Company's December
31, 1994 and 1995 Consolidated Balance Sheets for Cedar's benefit plan is as
follows:
1994 1995
(in thousands)
Plan assets at market value.................................. $ 8,604 $10,059
Actuarial present value of projected benefit obligation...... 10,210 12,910
------- -------
Funding status............................................... (1,606) (2,851)
Unrecognized net transition obligation....................... 410 351
Unrecognized prior service cost.............................. 1,061 952
Unrecognized net loss........................................ 475 1,065
------- -------
Prepaid (accrued) pension cost............................... $ 340 $ (483)
======= =======
At December 31, 1994 and 1995 the actuarial present value of Cedar's
vested benefit obligation was $7,512,000 and $9,493,000 and the accumulated
benefit obligation was $7,922,000 and $9,949,000, respectively.
Actuarial assumptions used at December 31, 1994 and 1995 were as
follows:
1994 1995
------ -----
Discount rate - projected benefit obligation................. 8.2% 7.5%
Rate of increase in compensation levels...................... 5.0% 5.0%
Expected long-term rate of return on assets.................. 9.0% 9.0%
The unrecognized net transition obligation is being amortized on a
straight-line basis over fifteen years beginning January 1, 1987.
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. The 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
F - 18
44
respective Boards of Directors. The contribution expense relating to the profit
sharing thrift plans totaled $595,000, $538,000 and $559,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
I. COMMITMENTS
Operating Leases
The Company and its subsidiaries are obligated under non-cancelable
operating leases covering principally land, office facilities and equipment. At
December 31, 1995, minimum annual rental commitments under these leases are:
Years Ending
December 31,
(in thousands)
1996................................................................ $ 4,084
1997................................................................ 3,782
1998................................................................ 3,709
1999................................................................ 3,018
2000................................................................ 2,198
Thereafter.......................................................... 10,440
-------
Total........................................................... $27,231
=======
Rent expense for 1993, 1994 and 1995 was $3,835,000, $3,485,000 and
$5,308,000, respectively, covering land, office facilities and equipment.
Purchase Commitment
HCL has an agreement for the purchase of potash which expires in 1999. The
terms of the agreement require HCL to purchase a minimum quantity at the
weighted average of the FOB Israeli port prices received by the seller for the
immediately preceding quarter plus certain adjustments thereto. Based upon
current prices and at current capacity, the annual commitment is approximately
$26,000,000. There are currently no purchase commitments in excess of market
prices.
J. INCOME TAXES
The Company's income tax provision for the years ended December 31, 1993,
1994 and 1995 consist of the following:
1993 1994 1995
---- ---- ----
(in thousands)
Currently payable (refundable):
Federal................................................ $ - $ 2,193 $ -
Foreign................................................ 7,939 4,872 (364)
State.................................................. 301 432 392
------ -------- ----
Total current .................................... 8,240 7,497 28
------ ------- ----
Deferred (benefit):
Foreign................................................ (472) 7,135 507
State.................................................. 152 37 198
------- -------- ----
Total deferred.................................... (320) 7,172 705
------- -------- ----
Total............................................. $7,920 $14,669 $733
====== ======= ====
F - 19
45
The provision for income taxes for the years ended December 31, 1993,
1994 and 1995 amounted to $7,920,000, $14,669,000 and $733,000, respectively,
representing effective income tax rates of 72.1%, 85.2% and 12.0%, respectively.
These amounts differ from the amounts of $3,845,000, $6,027,000 and
($2,144,000), respectively, computed by applying the statutory Federal income
tax rates to income (loss) before income taxes. The reasons for such variances
from statutory rates were as follows:
1993 1994 1995
---- ---- ----
Statutory Federal rates ................................ 35.0% 35.0% (35.0)%
Increase (decrease) in income tax rate resulting from:
Israeli operations - net impact of Israeli statutory
rate, effects of "inflation allowances",
withholding taxes, etc ........................ (10.1) (6.1) (53.5)
Net losses without current tax benefit,
Alternative Minimum Tax ("AMT") and other ..... 47.4 56.1 96.1
Additional depletion expense ....................... (2.9) (1.6) (1.9)
State and local income taxes - net ................. 2.7 1.8 6.3
---- ---- ----
Effective income tax rates ............................. 72.1% 85.2% 12.0%
==== ==== ====
At December 31, 1994 and 1995, deferred taxes (liabilities) consisted
of the following:
1994 1995
(in thousands)
Depreciation and property and equipment basis differences........... $(19,841) $(23,360)
Contract revenue recognition method................................. 965 -
Nondeductible reserves.............................................. 3,976 4,429
Net operating loss carryforwards.................................... - 10,665
Capital loss and capital loss carryforwards......................... 3,762 4,112
Foreign tax credit carryovers....................................... 2,517 2,507
AMT credit carryovers............................................... 3,886 6,313
Investment tax credit carryovers.................................... 200 200
Other............................................................... 140 879
-------- --------
Deferred taxes - net, exclusive of valuation allowance.............. (4,395) 5,745
Valuation allowance................................................. (13,968) (25,506)
-------- --------
Deferred taxes - net................................................ $(18,363) $(19,761)
======== ========
At December 31, 1994, deferred tax assets of $1,050,000 are classified
as "other current assets" and deferred tax liabilities of $19,413,000 are
classified as "other liabilities". At December 31, 1995, deferred tax assets of
$1,227,000 are classified as "other current assets" and deferred tax liabilities
of $20,988,000 are classified as "other liabilities".
F - 20
46
At December 31, 1995, the Company had various tax loss and credit
carryovers which expire as follows:
U.S. Federal
--------------------------------------------------------------
Investment Net Alternative State Net Foreign Net
Capital Foreign Tax Operating Minimum Operating Operating
Expiration Loss Tax Credit Credit Loss Tax Credit Loss Loss
- ---------- ------- ---------- ---------- --------- ------------ --------- -----------
(in thousands)
1997 ......... $9,867
1998 ......... $2,466
1999 .........
2000 ......... 41
2001 ......... $200
2010 ......... $20,000 $14,400
Unlimited .... $6,313 $10,253
------ ------- ---- ------- ------- ------- -------
Total ........ $9,867 $2,507 $200 $20,115 $6,313 $14,400 $10,253
====== ====== ==== ======= ====== ======= =======
Income taxes paid totalled approximately $11,600,000, $7,300,000 and
$3,700,000, respectively, during the years ended December 31, 1993, 1994 and
1995. These amounts are exclusive of a prior year tax refund received by HCL in
1995 of approximately $4,000,000.
K. INTEREST AND OTHER INCOME - NET
Interest and other income - net for the years ended December 31, 1993,
1994 and 1995 consists of the following:
1993 1994 1995
---- ---- ----
(in thousands)
Interest and dividend income................................ $3,258 $ 2,442 $2,459
Security gains (losses) - net............................... 2,261 (1,178) (413)
Gain on involuntary conversion (see Note D)................. - 18,100 1,700
Other, including gains (losses) of $850,000, $(3,800,000)
and $5,400,000 in 1993, 1994 and 1995, respectively,
relating to foreign currencies (see Note A)............. 495 (4,308) 5,382
------ ------- ------
Total................................................... $6,014 $15,056 $9,128
====== ======= ======
L. PREFERRED STOCK
As discussed in Note G, preferred stock was issued to TPR in December,
1994. The dividend on the preferred stock is cumulative at the rate of $8.50 per
share per annum. The preferred shares are non-voting and were recorded at
$7,960,000, TRI's carrying value of the 9.5% Debentures held by TPR on the date
of conversion. 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.
M. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In connection with a credit agreement, Cedar has entered into several
three-year interest rate swap agreements with a bank to effectively convert a
portion of its floating rate debt to fixed, thereby managing its credit risk. 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
F - 21
47
these transactions, but the amounts potentially subject to credit risk are much
smaller. Cedar's credit risk involves the possible default of the counterparty
(the bank). No collateral requirements are imposed.
During 1995, 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, 1995, all
of which mature in October, 1998:
Nominal Fixed Rate Variable Rate
Amount Paid Received
------- ---------- -------------
$10,000 6.17% 5.94%
10,000 6.04% 5.94%
7,500 5.99% 5.94%
The variable rate received is tied to the three-month LIBOR
rate. The quarterly repricing dates for each of these agreements are as of
month-end, beginning January, 1996.
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the requirements of Statement
of Financial Accounting Standards 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.
December 31, 1994 December 31, 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(in thousands)
Assets:
Marketable securities (included within
"other current assets") ............ $ 22,923 $ 22,923 $ 2,393 $ 2,393
Investments in certain securities
(included within "other assets" and
accounted for by the equity method) 3,335 5,855 3,607 12,355
Liabilities:
Long-term debt .......................... 374,890 366,731 329,283 320,832
Off-balance sheet financial instruments:
Foreign currency contracts .............. (3,800) (6,100) 1,600 2,500
Risk management derivative .............. -- -- -- (109)
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.
F - 22
48
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. The
contractual amount of these contracts totals approximately $117,000,000 and
$214,000,000 as of December 31, 1994 and 1995, respectively.
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, 1994 and 1995. 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.
O. CONTINGENT LIABILITIES AND OTHER MATTERS
For a description of certain pending legal proceedings, see 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 Louisiana matters described in Item 3.
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 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 "Environmental Matters" in Item 1 - "Business". 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.
F - 23
49
Except for Eddy and HCL, none of the Company's employees are
represented by any collective bargaining unit. Eddy's hourly work force is
represented by three labor unions, with its collective bargaining agreements
expiring in August, 1998. Eddy has enjoyed generally good relations with its
labor unions and has not had a significant work stoppage for many years, except
for a work stoppage of approximately three weeks during 1995 related to the
negotiations of the three year contract expiring in August, 1998.
Technicians and engineers of HCL are members of the Union of
Technicians and Engineers, which operates throughout Israel, and substantial
terms of their employment (e.g. salaries and promotions) are governed by a
general collective agreement which HCL does not negotiate directly with such
employees. The other employees of HCL are members of the "Histadrut", the
dominant labor union in Israel, and their terms of employment are governed by a
Specific Collective Agreement ("SCA") negotiated by HCL with the Histadrut and
the representatives of the employees. In 1994, an agreement was signed with the
technicians and engineers for the three year period ending December 31, 1996. In
1995, an SCA was signed with the Histadrut and the representatives of the
employees for the two year period ending December 31, 1996.
HCL's last major labor dispute took place in July 1991 and related to
negotiations of the SCA for 1990 and 1991. As a result of this dispute, HCL's
employees went on strike for approximately four weeks during the third quarter
of 1991. Prior to that, the last major labor dispute took place in 1983, which
resulted in a strike of approximately two weeks.
F - 24
50
CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I
TRANS-RESOURCES, INC.
BALANCE SHEETS
December 31,
1994 1995
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 9,570 $ 17,760
Receivables and other current assets ................................. 133,492 1,012
Prepaid expenses ..................................................... 40 291
--------- ---------
Total Current Assets ........................................ 143,102 19,063
INVESTMENTS IN SUBSIDIARIES ............................................... 143,324 152,731
DUE FROM SUBSIDIARIES - net ............................................... 17,324 6,359
OTHER ASSETS .............................................................. 16,221 18,614
--------- ---------
Total ............................................... $ 319,971 $ 196,767
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................................. $ 110,000 $ 23,350
Accrued expenses and other current liabilities ....................... 10,583 9,565
--------- ---------
Total Current Liabilities ................................... 120,583 32,915
--------- ---------
LONG-TERM DEBT - net:
Senior indebtedness, notes payable and other obligations ............. 27,500 27,500
Senior subordinated debt - net ....................................... 140,385 114,074
Junior subordinated debt - net ....................................... 7,981 --
--------- ---------
Long-Term Debt - net (Note) ................................. 175,866 141,574
--------- ---------
OTHER LIABILITIES ......................................................... 2,972 1,603
--------- ---------
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 ........................................... 505 8,682
Retained earnings .................................................... 13,432 4,764
Cumulative translation adjustment .................................... (360) (594)
Unrealized losses on marketable securities ........................... (987) (137)
--------- ---------
Total Stockholder's Equity .................................. 20,550 20,675
--------- ---------
Total ............................................... $ 319,971 $ 196,767
========= =========
- -----------------
Note - The aggregate maturities of long-term debt during the next five years
is approximately as follows (after giving effect to the Company's
refinancing of certain bank debt as of January 2, 1996): 1996 -
$23,350,000; 1997 - $0; 1998 - $0; 1999 - $0 and 2000 - $0. Also, see
Note G of Notes to Consolidated Financial Statements.
S-1
51
CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I
(continued)
TRANS-RESOURCES, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995
(in thousands)
REVENUES - EQUITY IN NET
EARNINGS OF SUBSIDIARIES:
Dividends received from subsidiaries ....................... $ 34,932 $ 17,005 $ 8,609
Undistributed earnings of subsidiaries ..................... (12,474) 11,764 7,021
-------- -------- --------
Total ...................................................... 22,458 28,769 15,630
COSTS AND EXPENSES ............................................. (4,111) (3,674) (4,148)
INTEREST EXPENSE ............................................... (22,121) (23,243) (22,250)
INTEREST AND OTHER INCOME - net ................................ 5,797 1,392 1,868
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ......................................... 2,023 3,244 (8,900)
INCOME TAX BENEFIT (PROVISION) ................................. 1,043 (694) 2,042
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................... 3,066 2,550 (6,858)
EXTRAORDINARY ITEM - Loss on repurchase
of debt (no income tax benefit) ............................ (8,830) -- (103)
-------- -------- --------
NET INCOME (LOSS) .............................................. $ (5,764) $ 2,550 $ (6,961)
======== ======== ========
S - 2
52
CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I
(concluded)
TRANS-RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995
(in thousands)
OPERATING ACTIVITIES AND WORKING CAPITAL
MANAGEMENT:
Operations:
Net income (loss) .................................. $ (5,764) $ 2,550 $ (6,961)
Items not requiring cash:
Unremitted earnings of subsidiaries ............ 12,474 (11,764) (7,021)
Depreciation and amortization .................. 3,985 1,226 1,147
Increase in other liabilities .................. 744 29 31
Deferred taxes and other - net ................. (1,048) 242 (1,064)
--------- --------- ---------
Total ............................................... 10,391 (7,717) (13,868)
Working capital management:
Receivables and other current assets ................ 4,926 (3,064) 6,115
Prepaid expenses .................................... (155) 851 (251)
Accrued expenses and other current liabilities ...... 3,816 2,778 (4,118)
--------- --------- ---------
Cash provided by (used in) operations and
working capital management .......................... 18,978 (7,152) (12,122)
--------- --------- ---------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment .............. (75) (70) (3)
Sales of marketable securities and
short-term investments, including in 1995 liquidation
of CD's securing a bank loan (see Note G) ........... 12,435 33,543 132,436
Purchases of marketable securities and
short-term investments, including in 1994 purchase
of CD's securing a bank loan (see Note G) ........... (34,118) (133,396) (4,371)
Other - net ............................................. (4,539) (3,464) 7,207
--------- --------- ---------
Cash provided by (used in) investment activities ........ (26,297) (103,387) 135,269
--------- --------- ---------
FINANCING ACTIVITIES:
Increase in long-term debt .............................. 109,166 139,574 --
Payments and current maturities of long-term debt ....... (90,457) (29,040) (113,250)
Dividends to stockholders ............................... (7,508) (225) (1,707)
--------- --------- ---------
Cash provided by (used in) financing activities ......... 11,201 110,309 (114,957)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ........................................ 3,882 (230) 8,190
CASH AND CASH EQUIVALENTS:
Beginning of year ....................................... 5,918 9,800 9,570
--------- --------- ---------
End of year ............................................. $ 9,800 $ 9,570 $ 17,760
========= ========= =========
---------
Interest paid ............................................... $ 16,557 $ 19,913 $ 23,289
========= ========= =========
Income taxes paid ........................................... $ 2,100 $ 1,113 $ 3,255
========= ========= =========
S - 3
53
TRANS-RESOURCES, INC.
INDEX TO EXHIBITS
Exhibit Description Page No.
- ------- -----------
3.1 Certificate of Incorporation of the Company, as amended (in
restated form), 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 1, 1989, between the Company and
First Alabama Bank, as Trustee, relating to the Senior
Subordinated Reset Notes due 1996, filed as Exhibit 4.3 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1988, which is incorporated herein by reference. *
4.2 Indenture, dated as of March 30, 1993 between the Company and
First Alabama Bank, as Trustee, relating to the 11 7/8%
Senior Subordinated Notes due 2002, filed as Exhibit 4.1 to
the Registration Statement of the Company on Form S-1, filed
on April 16, 1993, as amended, Registration No. 33-61158,
which is incorporated herein by reference. *
10.1 Potash Sales Agreement between Haifa Chemicals Ltd. and Dead
Sea Works Limited, dated January 1, 1980 (termination date
extended to December 31, 1999), concerning the supply of
potash, filed as Exhibit 10.2 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. *
10.2 Manufacturing Processes Agreement between Haifa Chemicals
Ltd. and Oil Refineries Ltd., dated December 28, 1981,
concerning the supply of steam and water, filed as Exhibit
10.6 to the 1987 Form S-1, which is incorporated herein by
reference. *
10.3 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 1987 Form S-1, which is incorporated
herein by reference. *
10.4 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. *
10.5 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. *
E - 1
54
Exhibit Description Page No.
- ------- -----------
10.6 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. *
10.7 Lease between Haifa Chemical 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. *
10.8 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. *
10.9 Agreement between Haifa Chemicals Ltd. and The Port
Authorities, dated January 31, 1980 (termination date
extended to June 1996), concerning real property, filed as
Exhibit 10.15 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.10 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) *
10.11 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) *
10.12 Salary Continuation Agreement between the Company and Lester
W. Youner, dated as of August 24, 1994, filed as Exhibit
10.12 to the 1994 Form 10-K, which is incorporated herein by
reference. (1) *
10.13 Credit Agreement, dated as of November 3, 1995, among Cedar
Chemical Corporation, the Lenders listed on the signature
pages thereof and The Chase Manhattan Bank (National
Association), as Administrative Agent (exhibits and schedules
omitted), filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 1995, which is incorporated herein by reference. *
10.14 Loan Agreement, dated as of December 29, 1995, between the
Company and Bank Hapoalim (certain exhibits and schedules
omitted). E - 4
10.15 Tax Sharing Agreement, dated as of December 30, 1991, among
TPR Investment Associates, Inc., the Company, Eddy Potash,
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. *
E - 2
55
Exhibit Description Page No.
- ------- -----------
10.16 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) *
21 Subsidiaries of the Company. E - 5
24 Power of Attorney authorizing Lester W. Youner to sign this
report and any amendments hereto on behalf of the principal
executive officer and the directors. E - 6
27 Financial Data Schedule. E - 7
* Incorporated by reference
(1) Management contract or compensatory plan or arrangement E - 3
E-3