EXHIBIT 99.1
HERCULES PEROXIDES,
A BUSINESS UNIT OF
HERCULES INCORPORATED
Wilmington, Delaware
FINANCIAL STATEMENTS
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
Wilmington, Delaware
FINANCIAL STATEMENTS
CONTENTS
REPORTS OF INDEPENDENT AUDITORS......................................... 1
FINANCIAL STATEMENTS
BALANCE SHEETS........................................................ 2
STATEMENTS OF INCOME.................................................. 3
STATEMENTS OF BUSINESS UNIT EQUITY.................................... 4
STATEMENTS OF CASH FLOWS.............................................. 6
NOTES TO FINANCIAL STATEMENTS......................................... 7
REPORT OF INDEPENDENT AUDITORS
Board of Directors Board of Directors
GEO Specialty Chemicals, Inc. Hercules Incorporated
Cleveland, Ohio Wilmington, Delaware
We have audited the accompanying balance sheets of Hercules Peroxides, a
Business Unit of Hercules Incorporated ("Hercules Peroxides") as of December 31,
2000 and 1999 and the related statements of income, business unit equity, and
cash flows for each of the years in the three-year period ended December 31,
2000. These financial statements are the responsibility of Hercules Peroxides'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hercules Peroxides, a Business
Unit of Hercules Incorporated as of December 31, 2000 and 1999 and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
As explained in Note 1, these financial statements include significant costs and
expenses of Hercules Incorporated allocated to Hercules Peroxides, a Business
Unit of Hercules Incorporated.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
July 13, 2001
1.
HURCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
BALANCE SHEETS
(In thousands)
________________________________________________________________________________
December 31, March 31,
------------------
2000 1999 2001
---- ---- ----
(Unaudited)
ASSETS
Current assets
Trade accounts receivable, net $ 5,030 $ 6,338 $ 5,600
Inventory 6,158 6,269 5,765
Deferred taxes 174 224 162
------- ------- -------
Total current assets 11,362 12,831 11,527
Property, plant, and equipment, net 12,777 12,020 12,552
Deferred taxes 394 1,147 314
Other 33 13 54
------- ------- -------
427 1,160 368
------- ------- -------
$24,566 $26,011 $24,447
======= ======= =======
LIABILITIES AND BUSINESS UNIT EQUITY
Current liabilities
Accounts payable $ 2,223 $ 2,661 $ 2,097
Accrued expenses 2,439 4,344 2,442
------- ------- -------
Total current liabilities 4,662 7,005 4,539
Other long-term liabilities 2,586 2,763 2,586
Deferred taxes 1,817 1,549 1,780
Business unit equity 15,173 14,192 15,221
Accumulated other comprehensive income 328 502 321
------- ------- -------
15,501 14,694 15,542
------- ------- -------
$24,566 $26,011 $24,447
======= ======= =======
__________________________________________________________________________
See accompanying notes to financial statements.
2.
HURCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
STATEMENTS OF INCOME
(In thousands)
________________________________________________________________________________
Years Ended Three Months Ended
December 31, March 31,
--------------------------------------
2000 1999 1998 2001 2000
------- ------- ------- ------- -------
(Unaudited)
Net sales $43,760 $49,637 $48,892 $10,597 $12,058
Cost of sales 25,859 28,663 28,032 7,014 6,843
------- ------- ------- ------- -------
Gross profit 17,901 20,974 20,860 3,583 5,215
Selling, general, administrative,
research and development
expenses 7,037 7,336 7,174 1,269 1,759
Restructuring and asset
impairment - 2,958 3,581 - -
------- ------- ------- ------- -------
Income from operations 10,864 10,680 10,105 2,314 3,456
Other income (expense)
Interest expense (449) (419) (461) (101) (103)
Other, net (27) (8) (75) (2) 11
------- ------- ------- ------- -------
Income before income taxes 10,388 10,253 9,569 2,211 3,364
Provision for income taxes 3,984 3,870 3,581 840 1,273
------- ------- ------- ------- -------
Net income $ 6,404 $ 6,383 $ 5,988 $ 1,371 $ 2,091
======= ======= ======= ======= =======
_____________________________________________________________________________
See accompanying notes to financial statements.
3.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
STATEMENTS OF BUSINESS UNIT EQUITY
(In thousands)
- --------------------------------------------------------------------------------
Accumulated
Business Other Compre-
Unit Comprehensive hensive
Equity Income Total Income
--------- -------------- --------- ---------
Balance, January 1, 1998 $ 19,551 $ 539 $ 20,090
Comprehensive income
Net income 5,988 - 5,988 $ 5,988
Translation adjustment 310 310 310
---------
Total comprehensive income $ 6,298
=========
Net distributions to Hercules Incorporated (9,371) - (9,371)
--------- -------------- ---------
Balance, December 31, 1998 16,168 849 17,017
Comprehensive income
Net income 6,383 - 6,383 $ 6,383
Translation adjustment (347) (347) (347)
---------
Total comprehensive income $ 6,036
=========
Net distributions to Hercules Incorporated (8,359) - (8,359)
--------- -------------- ---------
Balance, December 31, 1999 14,192 502 14,694
Comprehensive income
Net income 6,404 - 6,404 $ 6,404
Translation adjustment (174) (174) (174)
---------
Total comprehensive income $ 6,230
=========
Net distributions to Hercules Incorporated (5,423) - (5,423)
--------- -------------- ---------
Balance, December 31, 2000 $ 15,173 $ 328 $ 15,501
========= ============== =========
- --------------------------------------------------------------------------------
(Continued)
4.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
STATEMENTS OF BUSINESS UNIT EQUITY
(In thousands)
- --------------------------------------------------------------------------------
Accumulated
Business Other Compre-
Unit Comprehensive hensive
Equity Income Total Income
--------- -------------- --------- ---------
Balance, December 31, 1999 $ 14,192 $ 502 $ 14,694
Comprehensive income
Net income /(a)/ 2,091 - 2,091 2,091
Translation adjustment /(a)/ 15 15 15
---------
Total comprehensive income /(a)/ $ 2,106
=========
Net distributions to Hercules Incorporated /(a)/ (1,017) - (1,017)
--------- -------------- ---------
Balance, March 31, 2000 /(a)/ $ 15,266 $ 517 $ 15,783
========= ============== =========
Balance, December 31, 2000 $ 15,173 $ 328 $ 15,501
Comprehensive income
Net income /(a)/ 1,371 - 1,371 $ 1,371
Translation adjustment /(a)/ (7) (7) (7)
---------
Total comprehensive income /(a)/ $ 1,364
=========
Net distributions to Hercules Incorporated /(a)/ (1,323) - (1,323)
--------- -------------- ---------
Balance, March 31, 2001 /(a)/ $ 15,221 $ 321 $ 15,542
========= ============== =========
(a) Unaudited information
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
5.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
Years Ended Three Months Ended
December 31, March 31,
----------------------------------- ---------------------
2000 1999 1998 2001 2000
------- ------- ------- ------- -------
(Unaudited)
---------------------
Cash flows from operating activities
Net income $ 6,404 $ 6,383 $ 5,988 $ 1,371 $ 2,091
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 1,178 1,334 1,360 333 300
Asset impairment - - 3,581 - -
Deferred income taxes 1,071 (1,061) (337) 55 719
Change in assets and liabilities
Accounts receivable 1,194 984 (228) (640) (504)
Inventory (8) 146 822 284 (124)
Accounts payable and
accrued expenses (2,092) 3,084 (816) (85) (757)
Other noncurrent assets and
liabilities (197) (112) (302) (21) (229)
------- ------- ------- ------- -------
Net cash from operating
activities 7,550 10,758 10,068 1,297 1,496
Cash flows from investing activities
Purchases of property, plant, and
equipment (1,935) (2,117) (1,059) (107) (479)
------- ------- ------- ------- -------
Net cash from investing activities (1,935) (2,117) (1,059) (107) (479)
Cash flows from financing activities
Net capital distributions to Hercules
Incorporated (5,423) (8,359) (9,371) (1,323) (1,017)
------- ------- ------- ------- -------
Net cash from financing activities (5,423) (8,359) (9,371) (1,323) (1,017)
------- ------- ------- ------- -------
Effect of exchange rate changes on cash (192) (282) 362 133 -
Net change in cash - - - - -
Cash at beginning of period - - - - -
------- ------- ------- ------- -------
Cash at end of period $ - $ - $ - $ - $ -
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
6.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Hercules Peroxides ("the Company") operates as a business
- -------------------
unit of Hercules Incorporated. The Company's manufacturing process produces
organic peroxides used to cure selected rubber and plastic materials. The
Company sells these products to customers located throughout the United States
and in European markets. The Company operates in an environment with many
financial and operating risks including, but not limited to, intense
competition, fluctuations in cost and supply of raw materials, technological
changes, and environmental matters.
Basis of Presentation: The financial statements of the Company include
- ---------------------
specifically identified assets and accounts payable relating exclusively to the
Company as well as liabilities allocated to the Company. Allocated liabilities,
while reasonable under the circumstances, may not represent those liabilities of
similar activities on a separate entity basis.
Revenue Recognition: Revenues are recognized upon shipment of goods and passage
- -------------------
of title.
Use of Estimates in the Preparation of Financial Statements: The preparation of
- -----------------------------------------------------------
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities 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.
Fair Value of Financial Instruments: The Company's financial instruments are
- -----------------------------------
comprised of trade accounts receivable, accounts payable, accrued expenses, and
long-term liabilities. The carrying value of all instruments approximates fair
value.
Inventory: Inventory is stated at the lower of cost or market and is valued on
- ---------
the average cost method, with cost being determined on a first-in, first-out
(FIFO) basis.
Property, Plant, and Equipment: Property, plant, and equipment are depreciated
- ------------------------------
on a straight-line method. Property and equipment are being depreciated using
the following estimated lives:
Asset Lives in Years
--------------------
Buildings 30
Machinery and equipment 15
Other machinery and equipment 3 to 15
- --------------------------------------------------------------------------------
(Continued)
7.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes: The Company does not file separate tax returns in each of the
- ------------
various countries in which it operates. For purposes of calculating taxes on
income, the Company's operating results, along with the allocated overhead
costs, have generally been reallocated to the jurisdictions where the Company
has manufacturing operations. The accompanying financial statements reflect tax
computations as if the Company filed separate returns in each of these
jurisdictions and reflect the application of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
Foreign Currency Translation: The Company's foreign operations use the local
- ----------------------------
currency as their functional currency. Assets and liabilities of the foreign
operations are translated at exchange rates in effect at the balance sheet date,
and revenues and expenses are translated at average rates prevailing during the
period. Translation adjustments are included in accumulated other comprehensive
income, a separate component of business unit equity. The currency translation
adjustments are not adjusted for income taxes as they relate to indefinite
investments in the non-United States operations of the Company. Transaction
gains and losses arising from transactions denominated in a currency other than
the functional currency of the entity involved are included in the statement of
income. Transaction gains and losses were immaterial for the years ended
December 31, 2000, 1999, 1998, and the three months ended March 31, 2001 and
2000.
Corporate Overhead and Other Allocations: The financial statements include
- ----------------------------------------
allocations by Hercules Incorporated ("Hercules") for certain home office
corporate administrative and benefit costs incurred for the benefit of all
operating divisions. Additionally, Hercules' operating divisions allocate
support costs to the business units conducting business through such respective
division.
Allocations to the Company are based on the following methods:
a. Specific identification--based on estimates of time and services provided.
b. Relative identification--based on relevant criteria that establish the
Company's relationship to the entire pool of beneficiaries.
c. Formula driven--nonidentifiable to a business unit but incurred for the
benefit of all business units.
- --------------------------------------------------------------------------------
(Continued)
8.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Corporate costs include executive, legal, tax, auditing, cash management,
purchasing, safety, health and environmental, and employee benefits. For the
years ended December 31, 2000, 1999, and 1998 and the three months ended March
31, 2001 and 2000, such corporate costs allocated to the Company totaled $2,648,
$2,698, $2,644, $558, and $652, respectively. Costs allocated to the Company by
Hercules' Resins division include accounting, information management, human
resources, and office services. For the years ended December 31, 2000, 1999, and
1998 and the three months ended March 31, 2001 and 2000, costs allocated to the
Company by Hercules' Resins division totaled $2,261, $2,376, $2,530, $221, and
$505, respectively.
Allocated costs included in selling, general, and administrative costs, while
reasonable under the circumstances, may not represent the cost of similar
activities on a separate entity basis.
Allocated Interest Expense: Interest expense is allocated to the Company at the
- --------------------------
rate Hercules charges its business units in its annual business plan. Interest
expense is calculated using a formula based on the business unit's average net
assets at a rate determined by Hercules' Treasurer's Department (6.22%, 7%, 7%,
6.22%, and 6.22% in 2000, 1999, and 1998 and the three months ended March 31,
2001 and 2000, respectively).
Research and Development Expense: Research and development costs are expensed
- --------------------------------
as incurred and approximate $220, $200, $180, $58, and $55 and for the years
ended December 31, 2000, 1999, and 1998 and the three months ended March 31,
2001 and 2000, respectively.
Environmental Expenditures: The Company's policy is to accrue for environmental
- --------------------------
expenditures when the costs have been incurred or are probable and reasonably be
estimated.
Interim Results: The accompanying balance sheet at March 31, 2001 and the
- ---------------
statements of income and cash flows for the three-month periods ended March 31,
2001 and 2000 are interim financial statements. In the opinion of management,
these statements have been prepared on the same basis as the annual financial
statements and include all of the adjustments, consisting of only normal
recurring adjustments, necessary for the fair presentation of the results of the
interim periods. The result of operations for the three-month periods ended
March 31, 2001 and 2000 are not necessarily indicative of the results expected
for the full calendar year.
- --------------------------------------------------------------------------------
(Continued)
9.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable, net, consists of:
December 31,
------------------
2000 1999
------ ------
Trade $5,215 $6,506
Other 37 57
------ ------
Total 5,252 6,563
Less allowance for doubtful accounts 222 225
------ ------
$5,030 $6,338
====== ======
NOTE 3 - INVENTORY
Inventory consists of the following components:
December 31,
------------------
2000 1999
------ ------
Raw materials $1,112 $1,874
Work-in-process 1,256 915
Finished goods 3,067 2,690
Equipment spares 723 790
------ ------
$6,158 $6,269
====== ======
NOTE 4 - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following major classifications:
December 31,
------------------
2000 1999
-------- --------
Land $ 485 $ 485
Building 1,820 1,820
Equipment 33,151 31,635
-------- --------
35,456 33,940
Accumulated depreciation (22,679) (21,920)
-------- --------
$ 12,777 $ 12,020
======== ========
- --------------------------------------------------------------------------------
(Continued)
10.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(In thousands)
- --------------------------------------------------------------------------------
NOTE 5 - DEFINED BENEFIT PENSION AND POSTRETIREMENT BENEFIT PLANS
Hercules provides a defined benefit pension plan as well as a postretirement
benefit plan covering substantially all of its employees. Benefits are based on
average final pay and years of service or are pursuant to local country
requirements.
Defined Benefit Pension Plan: Summarized information about the Hercules defined
- ----------------------------
benefit pension plan for the years ended December 31, 2000, 1999, and 1998 is
noted in the table below. The Company's benefit for the years ended December
31, 2000, 1999, and 1998 was $107, $202, and $92, respectively. The Company
recorded no prepaid benefit or liability in its December 31, 2000 and 1999
balance sheets.
Postretirement Benefit Plan: Summarized information about the Hercules
- ---------------------------
postretirement benefit plan for the years ended December 31, 2000, 1999, and
1998 is noted in the table below. The Company's expense for the years ended
December 31, 2000, 1999, and 1998 was $240, $240, and $125, respectively. As of
December 31, 2000 and 1999, the Company's allocated share of the accrued
postretirement liabilities was $2,484 and $2,581, respectively. The Company has
no rights to the plan assets.
Pension Benefits Other Postretirement
---------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
Hercules information
--------------------
Change in benefit obligation
Benefit obligation at January 1 $ 1,343 $ 1,499 $ 181 $ 154
Service cost 26 30 1 2
Interest cost 101 97 14 13
Amendments - 6 (7) 20
Assumption changes 71 (147) 8 (9)
Settlements (6) - - -
Translation difference (16) (19) - -
Actuarial loss (gain) 11 (8) 15 22
Benefits paid from plan assets (103) (115) (4) (2)
Benefits paid by Company - - (20) (19)
---------- ---------- --------- ---------
Benefit obligation at December 31 $ 1,427 $ 1,343 $ 188 $ 181
========== ========== ========= =========
- --------------------------------------------------------------------------------
(Continued)
11.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(In thousands)
- --------------------------------------------------------------------------------
NOTE 5 - DEFINED BENEFIT PENSION AND POSTRETIREMENT BENEFIT PLANS
(Continued)
Pension Benefits Other Postretirement
---------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
Hercules information
--------------------
Change in plan assets
Fair value of plan assets at January 1 $ 1,732 $ 1,589 $ 7 $ 8
Actual return on plan assets (44) 275 - 1
Asset transfer and receivables 4 - - -
Settlements (4) - - -
Company contributions 2 2 - -
Translation difference (19) (19) - -
Benefits paid from plan assets (103) (115) (4) (2)
---------- ---------- --------- ---------
Fair value of plan assets at
December 31 $ 1,568 $ 1,732 $ 3 $ 7
========== ========== ========= =========
Funded status of the plans $ 142 $ 389 $ (186) $ (174)
Unrecognized actuarial loss (gain) 71 (197) 66 44
Unrecognized prior service cost (benefit) 32 36 (22) (19)
Unrecognized net transition obligation 1 (11) - -
Amount included in accrued expenses -
other - - 20 20
---------- ---------- --------- ---------
Prepaid (accrued) benefit cost $ 246 $ 217 $ (122) $ (129)
========== ========== ========= =========
Amounts recognized in the statement
of financial position consist of
Prepaid benefit cost $ 246 $ 217 $ - $ -
Accrued benefit liability - - (122) (129)
---------- ---------- --------- ---------
$ 246 $ 217 $ (122) $ (129)
========== ========== ========= =========
Assumptions as of December 31
Weighted average discount rate 7.50% 8.00% 7.50% 8.00%
Expected return on plan assets 9.25 9.25 9.25 9.25
Rate of compensation increase 4.50 4.50 4.50 4.50
- --------------------------------------------------------------------------------
(Continued)
12.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(In thousands)
- --------------------------------------------------------------------------------
NOTE 5 - DEFINED BENEFIT PENSION AND POSTRETIREMENT BENEFIT
PLANS
(Continued)
Pension Benefits Other Postretirement
---------------- --------------------
2000 1999 1998 2000 1999 1998
--------- --------- --------- ---------- --------- ---------
Hercules information
--------------------
Service cost $ 26 $ 30 $ 20 $ 1 $ 2 $ 1
Interest cost 101 97 83 14 13 10
Return on plan assets
(expected) (142) (134) (114) (1) (1) (1)
Amortization and deferrals 3 3 12 3 (2) (4)
Amortization of transition
asset (11) (14) (14) (5) - -
--------- --------- --------- --------- -------- ---------
Benefit cost (credit) $ (23) $ (18) $ (13) $ 12 $ 12 $ 6
========= ========= ========= ========= ======== =========
The assumed health care cost trend rate was 8.0% for the year ending December
31, 2000. The assumed health care cost trend rate was 4.5% at December 31,
1999, and was 5% for those under age 65 and 4.75% for those over age 65 at
December 31, 1998. The assumed health care cost trend rate will be 7% in 2001,
decreasing to 4.5% by 2004 and for all subsequent years.
A one percentage point increase or decrease in the assumed health care cost
trend rate would increase or decrease the postretirement benefit obligation by
$6 or $4, respectively, and would not have a material effect on aggregate
service and interest cost components.
NOTE 6 - RELATED PARTY TRANSACTIONS
In addition to the corporate overhead and other allocation of expenses noted in
Note 1 of these financial statements, the Company also relied on Hercules for
the administration of its cash collections and disbursements throughout 2000,
1999, and 1998 and the three months ended March 31, 2001 and 2000. The net cash
disbursed in excess of the net cash received is classified as net distributions
from business unit equity.
NOTE 7 - INCOME TAXES
The income tax provision is comprised of the following:
Years Ended
------------December 31,------
2000 1999 1998
------ ------ -------
Current payable
United States $3,387 $5,035 $ 5,284
Foreign (474) (104) (1,366)
------ ------ -------
2,913 4,931 3,918
- --------------------------------------------------------------------------------
(Continued)
13.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(In thousands)
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES (Continued)
Years Ended
December 31,
--------------------------------------
2000 1999 1998
---- ---- ----
Deferred income taxes
United States $ 318 $ 86 $ (313)
Foreign 753 (1,147) (24)
------ ------- ------
1,071 (1,061) (337)
------ ------- ------
Total $3,984 $ 3,870 $3,581
====== ======= ======
The difference between the effective tax rate and the statutory rate is
reconciled below:
Years Ended
December 31,
--------------------------------------
2000 1999 1998
---- ---- ----
Tax provision at United States statutory
rate of 34% $3,532 $ 3,486 $3,253
Increase resulting from
Permanent items and state taxes 391 363 339
Effect of foreign operations 61 21 (11)
------ ------- ------
Total $3,984 $ 3,870 $3,581
====== ======= ======
Significant components of the deferred tax assets and liabilities are as
follows:
December 31,
-----------------------
2000 1999
---- ----
Deferred tax liabilities
Depreciation $ 2,811 $ 2,581
Deferred tax assets
Restructuring costs 394 1,147
Postretirement 994 1,032
Other assets 174 224
------- -------
1,562 2,403
------- -------
Net deferred tax liability $ 1,249 $ 178
======= =======
Undistributed earnings of foreign subsidiaries and related companies that are
deemed to be permanently invested amounted to $666 and $1,678 as of December 31,
2000 and 1999, respectively. It is not practicable to calculate the
unrecognized deferred tax liability on those earnings.
- --------------------------------------------------------------------------------
(Continued)
14.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(In thousands)
- -------------------------------------------------------------------------------
NOTE 8 - GEOGRAPHIC SEGMENTS
The Company sells its products throughout the United States and in European
markets.
Following is financial information relating to geographic areas:
Years Ended Three Months Ended
December 31, March 31,
--------------------------------- --------------------
2000 1999 1998 2001 2000
---- ---- ---- ---- ----
(Unaudited)
Revenues
United States $37,064 $39,640 $37,266 $ 8,917 $10,111
Other geographic areas 6,696 9,997 11,626 1,680 1,947
------- ------- ------- ------- -------
Total revenues $43,760 $49,637 $48,892 $10,597 $12,058
======= ======= ======= ======= =======
Primarily all long-lived assets that are comprised of property, plant, and
equipment and other long-term assets are located within the United States.
NOTE 9 - LITIGATION
The Company is involved in various lawsuits and claims of a character considered
normal to its business. In the opinion of management, based on representation
by counsel, any liability resulting from the amount of uninsured damages for
outstanding lawsuits and claims will not have a material adverse effect on the
Company's financial position and results of operations.
Hercules is a defendant in numerous lawsuits, as described in their public
filings, that arise out of and are incidental to the conduct of its business.
The ultimate outcome of these lawsuits and the effects, if any, as they relate
to the Company are not determinable and, therefore, have not been recorded.
NOTE 10 - CONCENTRATIONS
The Company sells a significant portion of its products to three customers.
Sales to these customers approximated 44%, 44%, 43%, 46%, and 46% of total sales
in 2000, 1999, and 1998 and the three months ended March 31, 2001 and 2000,
respectively. Amounts due from those customers totaled $1,707, $1,900, and
$2,127 at December 31, 2000 and 1999 and March 31, 2001, respectively, and are
included in accounts receivable.
- --------------------------------------------------------------------------------
(Continued)
15.
HERCULES PEROXIDES, A BUSINESS UNIT OF HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(In thousands)
- --------------------------------------------------------------------------------
NOTE 10 - CONCENTRATIONS (Continued)
The Company purchases a significant portion of its raw materials from two
suppliers. Amounts purchased from these vendors totaled $5,107, $5,239, $4,420,
$1,047, and $1,321 for the years ended December 31, 2000, 1999, and 1998 and for
the three months ended March 31, 2001 and 2000, respectively.
Amounts due to those vendors totaled $701, $296, and $242 at December 31, 2000
and 1999 and March 31, 2001, respectively, and are included in accounts payable.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is primarily self-funding its business, health, and welfare
insurance risks. Specific stop loss insurance limits the Company's liability on
individual claims and on aggregate claims.
NOTE 12 - RESTRUCTURING AND ASSET IMPAIRMENT
In 1998 the Company recorded $3,581 in asset impairment charges at their
production facility in Beringen, Belgium. These charges were the result of the
Company's decision to shut down production at this facility.
On December 17, 1999, the Company formalized and announced their plan to shut
down the production operation in Beringen, Belgium. In connection with this
shutdown, the Company recorded the costs of employee severance related to a
reduction in the workforce of 20 production employees. In addition, the Company
recorded the estimated costs to idle production equipment and soil remediation.
At December 31, 2000 and 1999 and March 31, 2001, the Company had accrued
restructuring reserves of $985, $2,900, and $785, respectively. Cash payments
charged to the accrual in 2000 and for the three-month period ended March 31,
2001 were $2,005 and $200, respectively.
NOTE 13 - SUBSEQUENT EVENT
On May 31, 2001, Hercules sold specific assets of the Company to GEO Specialty
Chemicals, Inc. ("GEO") for approximately $92,200, plus the assumption of
specified liabilities by GEO.
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16.