EXHIBIT 99.3
SIRATSA LLC AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2005 and 2004
(With Report of Independent Registered Public Accounting Firm Thereon)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Managers
Siratsa LLC:
We have audited the accompanying consolidated balance sheets of Siratsa LLC
(a Delaware limited liability company, formerly Astaris LLC) and
subsidiaries (the Company) as of December 31, 2005 and 2004, and the related
consolidated statements of operations, changes in members' equity (deficit),
and cash flows for each of the years in the three-year period ended December
31, 2005. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Siratsa
LLC and subsidiaries as of December 31, 2005 and 2004, and the results of
their operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
March 30, 2006
SIRATSA LLC AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2005 and 2004
(Dollars in thousands)
ASSETS 2005 2004
------------------- -------------------
Current assets:
Cash and cash equivalents $ 2,374 8,047
Restricted cash 3,652 --
Receivables:
Trade, net of allowance of $-0- and $849, respectively -- 41,269
Other 566 519
Inventories -- 25,955
Deposits held in escrow 24,810 --
Due from affiliates -- 1,189
Prepaid expenses and other current assets 362 1,441
------------------- -------------------
Total current assets 31,764 78,420
Property, plant, and equipment, net -- 85,793
Investment in joint venture -- 11,781
Other assets 232 191
------------------- -------------------
Total assets $ 31,996 176,185
=================== ===================
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Bank overdrafts $ -- 695
Accounts payable and accrued expenses 2,296 58,349
Due to affiliates 12,573 38,667
------------------- -------------------
Total current liabilities 14,869 97,711
Long-term debt, less current maturities -- --
Accrued restructuring reserve -- 32,765
Other long-term liabilities -- 31,678
------------------- -------------------
Total liabilities 14,869 162,154
Members' equity 17,127 14,031
------------------- -------------------
Total liabilities and members' equity $ 31,996 176,185
=================== ===================
See accompanying notes to consolidated financial statements.
2
SIRATSA LLC AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2005, 2004, and 2003
(Dollars in thousands)
2005 2004 2003
------------------- ------------------- -------------------
Net sales $ 320,209 350,872 384,511
Cost of sales 278,873 310,776 384,431
Selling, general, and administration expenses 22,495 26,810 28,377
Restructuring and other expenses (note 4) 831 21,087 185,920
------------------- ------------------- -------------------
Operating income (loss) 18,010 (7,801) (214,217)
------------------- ------------------- -------------------
Other income (expense):
Equity in earnings of joint venture 1,350 796 601
Gain on sale of assets (note 3) 125,909 -- --
Interest expense (2,770) (2,864) (14,600)
Interest income 167 641 1,085
Other, net (1,622) (1,669) (2,529)
------------------- ------------------- -------------------
Total other income (loss) 123,034 (3,096) (15,443)
------------------- ------------------- -------------------
Net income (loss) before income
tax expense (benefit) 141,044 (10,897) (229,660)
Income tax expense (benefit) 126 (47) 745
------------------- ------------------- -------------------
Net income (loss) $ 140,918 (10,850) (230,405)
=================== =================== ===================
See accompanying notes to consolidated financial statements.
3
SIRATSA LLC AND SUBSIDIARIES
Consolidated Statements of Changes in Members' Equity (Deficit)
Years ended December 31, 2005, 2004, and 2003
(Dollars in thousands)
ACCUMULATED
MEMBERS' OTHER TOTAL
EQUITY COMPREHENSIVE MEMBERS' COMPREHENSIVE
(DEFICIT) INCOME EQUITY (DEFICIT) INCOME (LOSS)
------------------ --------------- ----------------- -----------------
Balance, December 31, 2002 $ 55,289 (11,045) 44,244
Contributions from owners 131,494 -- 131,494
Unrealized gain on derivative instruments -- 5,712 5,712 $ 5,712
Foreign currency adjustment -- 2,165 2,165 2,165
Net loss (230,405) -- (230,405) (230,405)
-----------------
Comprehensive loss $(222,528)
------------------ --------------- ----------------- =================
Balance, December 31, 2003 (43,622) (3,168) (46,790)
Contributions from owners 71,126 -- 71,126
Foreign currency adjustment -- 545 545 $ 545
Net loss (10,850) -- (10,850) (10,850)
-----------------
Comprehensive loss $ (10,305)
------------------ --------------- ----------------- =================
Balance, December 31, 2004 16,654 (2,623) 14,031
Distributions to owners (140,445) -- (140,445)
Foreign currency adjustment -- 2,623 2,623 $ 2,623
Net income 140,918 -- 140,918 140,918
-----------------
Comprehensive income $ 143,541
=================
------------------ --------------- -----------------
Balance, December 31, 2005 $ 17,127 -- 17,127
================== =============== =================
See accompanying notes to consolidated financial statements.
4
SIRATSA LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2005, 2004, and 2003
(Dollars in thousands)
2005 2004 2003
---------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ 140,918 (10,850) (230,405)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation 7,254 9,236 18,784
Amortization 357 283 703
Gain on sale of assets (125,909) -- --
Loss on disposals of property, plant, and equipment 533 492 628
Noncash restructuring expenses (283) (630) 152,792
Equity in earnings of joint venture (1,350) (796) (601)
Changes in operating assets and liabilities:
Restricted cash (3,652) -- --
Receivables, net (5,027) 2,029 5,681
Inventories (5,105) 1,994 4,802
Deposits held in escrow (24,810) -- --
Due from affiliates 1,097 1,764 (259)
Prepaid expenses and other current assets (13) 2,869 2,489
Bank overdrafts (445) (154) (888)
Accounts payable and accrued expenses 1,647 (905) 517
Due to affiliates (35,892) 31,240 4,377
Other long-term liabilities (69,781) (29,122) 17,017
---------------- -------------- --------------
Net cash (used in) provided by operating activities (120,461) 7,450 (24,363)
---------------- -------------- --------------
Cash flows from investing activities:
Additions to property, plant, and equipment (9,396) (11,123) (8,200)
Proceeds from sale of assets, net of transaction costs and cash sold 253,610 -- --
Cash distributions from joint venture 252 137 1,053
---------------- -------------- --------------
Net cash provided by (used in) investing activities 244,466 (10,986) (7,147)
---------------- -------------- --------------
Cash flows from financing activities:
Proceeds from revolver 144,554 3,900 22,900
Repayment of revolver (144,554) (74,751) (119,949)
Deferred loan fees (1,447) -- --
Cash distributions to owners (127,672) -- --
Cash contributions from owners:
Keepwells -- 70,943 125,600
Other contributions -- 183 5,894
---------------- -------------- --------------
Net cash (used in) provided by financing activities (129,119) 275 34,445
Effect of exchange rate changes on cash (559) 126 765
---------------- -------------- --------------
Net change in cash and cash equivalents (5,673) (3,135) 3,700
Cash and cash equivalents, beginning of year 8,047 11,182 7,482
---------------- -------------- --------------
Cash and cash equivalents, end of year $ 2,374 8,047 11,182
================ ============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 3,103 3,928 11,057
Cash paid for taxes 65 -- 793
Non-cash distributions to owners 12,773 -- --
See accompanying notes to consolidated financial statements.
5
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
(1) OPERATIONS AND ORGANIZATION
ORGANIZATION AND BASIS OF PRESENTATION
Siratsa LLC, formerly Astaris LLC, and subsidiaries (Siratsa or the
Company) was, prior to the sale transaction described below, a
diversified chemical producer of phosphates and phosphoric acid
products headquartered in St. Louis, Missouri. The Company produced
and marketed phosphorus and derivative products ranging from food
ingredients, industrial phosphates, dental phosphates, and phosphoric
acid (food and industrial grades) to phosphorus pentasulfide,
phosphorus trichloride, fire retardants, and elemental phosphorus. A
partial listing of end uses for the phosphate products includes: food
and beverages, toothpaste, detergents, metal treating, drilling
fluids, elastomer processing, water treatment, refractories,
electronics, glass and ceramics, fire fighting and flame-proofing,
lubricating oil additives, agricultural insecticides, and herbicides.
The Company's production and distribution facilities were located in
North America, Brazil, and Europe, and the Company marketed and
distributed its products throughout the world. Currently, the Company
conducts no operations.
Effective April 1, 2000, FMC Corporation (FMC) and Solutia, Inc.
(Solutia) (collectively, the Owners or Parents) formed a joint
venture called Astaris LLC (Astaris), a Delaware limited liability
company. The joint venture arrangement between Astaris, FMC, and
Solutia is governed by a joint venture agreement and other associated
agreements (collectively, the Joint Venture Agreement). The Owners
contributed their phosphorus chemical operations in North America and
Brazil, resulting in a 50% ownership for each company. On February 1,
2002, the Company and Solutia transferred their ownership interests
in Astaris Idaho LLC to FMC. Also in 2002, the Company created a new
subsidiary called Astaris International, Inc., which is 100% owned by
Astaris. An additional subsidiary was formed as a 100% wholly owned
subsidiary of Astaris International, Inc., Astaris Canada Ltd.
Astaris Canada Ltd. was formed to develop new markets in Canada for
the Company's fire safety business. In 2003, a subsidiary was
created, Astaris SRL, which was 95% owned by Astaris and 5% owned by
Astaris International Inc. Astaris SRL was located in Milan, Italy
and was formed to conduct business as a European entity and as a
distributor of Astaris products in Europe. Astaris Brazil owned a 44%
interest in FosBrasil, a joint venture, that was accounted for under
the equity method.
On September 1, 2005, the Company, Solutia and FMC entered into an
asset purchase agreement with Israel Chemical Limited (ICL) and one
of its subsidiaries, pursuant to which the Company agreed to sell
substantially all of its foreign and domestic operating assets to ICL
for $255,000 in cash, subject to certain purchase price adjustments,
and the assumption by ICL of certain related liabilities. The
transaction closed on November 4, 2005. Subsequent to the closing of
the transaction, certain of the assets and liabilities of the Company
that were not included in the sale to ICL were transferred to Solutia
and FMC. Generally, these assets and liabilities consisted of cash,
property originally contributed to the joint venture by Solutia and
FMC, as well as certain pre-closing liabilities, including certain
environmental liabilities. Certain non-operating assets and
liabilities remained with the Company (see note 3 for further details
of the sale transaction).
As part of the sale transaction, $12,500 of the sales proceeds was
deposited in escrow to be held for one year to secure Solutia's
indemnification obligations as defined in the Asset Purchase
Agreement. This amount and the accumulated interest are included in
deposits held in escrow in the consolidated balance sheets. This
amount will be paid pursuant to the indemnification provisions of the
Asset Purchase
(Continued)
6
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
Agreement, no later than the one-year anniversary of the closing of
the sale transaction. Therefore, an equal amount is recorded as a
liability in Due to affiliates in the consolidated balance sheets as
of December 31, 2005.
Effective December 2, 2005, the Company changed its name to Siratsa
LLC.
The accompanying consolidated financial statements include the
accounts of Siratsa LLC and subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
On December 17, 2003, Solutia, Inc. announced that it and its 14 U.S.
subsidiaries have filed voluntary petitions for reorganization under
Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court
for the Southern District of New York (Case No. 0317949). Solutia and
its subsidiaries remain in possession of their assets and properties
and continue to operate their businesses and manage their properties
as "debtors-in-possession" pursuant to Sections 1107(a) and 1108 of
the U.S. Bankruptcy Code.
On February 14, 2006, Solutia filed with the U.S. bankruptcy Court
their Plan of Reorganization (the Plan) and Disclosure Statement (the
Disclosure Statement). The Plan and Disclosure Statement set forth
the terms of a global settlement between Solutia, the Official
Committee of Unsecured Creditors, Monsanto Company and Pharmacia. In
general, it provides for, among other things, the reallocation of
certain legacy liabilities among Solutia, Monsanto and Pharmacia and
the treatment of various constituencies in the Chapter 11 cases will
receive under the Plan. The Plan and Disclosure Statement are subject
to U.S. Bankruptcy Court approval, the approval of various
constituencies in the Chapter 11 cases and the satisfaction of other
contingencies.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
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 that affect revenues and expenses during the period
reported. Actual results are likely to differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, with original
maturities of three months or less, to be cash equivalents, except
that any such investments purchased with funds held in escrow or
similar accounts are classified as restricted cash. These investments
are carried at cost, which approximates market value. As of December
31, 2005, $3,652 is classified as restricted cash. These monies are
on deposit to cover claims paid by the workers' compensation
administrator.
RECEIVABLES
Trade receivables were recorded net of allowance for doubtful
accounts, disputed invoices and other credits.
(Continued)
7
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
INVENTORIES
Inventories were stated at the lower of cost or market value and
included the cost of raw materials, labor and overhead. All domestic
inventories, excluding spare parts and supplies (representing 93% of
total inventories in 2004), were determined by the last-in, first-out
(LIFO) method, which generally reflects the effects of inflation or
deflation on cost of goods sold sooner than other inventory cost
methods. The cost of other inventories generally was determined by
the first-in, first-out (FIFO) method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, including capitalized interest, was
recorded at cost. Depreciation, for financial reporting purposes, was
provided principally on the straight-line basis over the estimated
useful lives of the assets (land improvements--20 years,
buildings--20 to 50 years, and machinery and equipment--3 to 18
years). Gains or losses were reflected in income upon sale or
retirement of assets. Expenditures that extended the useful lives of
property, plant and equipment or increased productivity were
capitalized. Ordinary repairs and maintenance were expensed as
incurred through operating expense.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the Company periodically assesses impairment of long-lived
assets when conditions indicate a possible loss. Such impairment
tests are generally based on a comparison of undiscounted cash flows
to the recorded value of the asset. If an impairment is indicated,
the asset value is written down to its fair value based upon market
prices or, if not available, upon discounted cash value at an
appropriate discount rate. See note 4(a) for a discussion of the
impairment expense recorded on certain fixed assets related to
restructuring and note 3 for a discussion of the impairment expense
recorded on certain fixed assets related to the distribution of those
assets after the sale transaction.
CAPITALIZED INTEREST
During 2005 and 2004, interest of $153 and $259, respectively,
associated with the construction of certain long-lived assets, was
capitalized as part of the cost of those assets and amortized over
the estimated useful lives of the related assets.
INTERNAL USE SOFTWARE
Software costs were amortized over expected lives ranging from three
to seven years.
DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs associated with the September 2000
Credit Agreement (see note 8) were amortized using the straight-line
method, which approximated the effective interest method, over the
estimated life of the related loan. The remaining debt issuance costs
were written off to interest expense in 2004 upon the Company
accelerating the payoff of the term and line of credit facilities
(see note 8).
Deferred debt issuance costs associated with the February 2005 credit
facility (see note 8) were amortized using the straight-line method,
which approximated the effective interest method, over the estimated
life of the related loan. The remaining debt issuance costs were
written off in 2005 upon the Company
(Continued)
8
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
accelerating the payoff of the credit facility in conjunction with
the sale of assets (see note 3). The write-off of $1,090 is included
in the gain on sale of assets in the 2005 consolidated statement of
operations.
REVENUE RECOGNITION
Revenue was recognized upon completion of the earnings process, which
was upon shipment. Net sales included billings to customers for
shipping and handling, and the related shipping and handling costs
were classified as cost of sales. Rebates due to customers were
provided in the same period that the related sales were recorded
based on the contract terms.
ENVIRONMENTAL REMEDIATION
Costs for remediation of waste disposal at current operating sites
were accrued in other long-term liabilities in the accounting period
in which the obligation was probable and when the cost was reasonably
estimable. Environmental liabilities were not discounted, and they
were not reduced for any claims for recoveries from insurance or
third parties.
DERIVATIVE INSTRUMENTS
The Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133,
and SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, on April 1, 2000. SFAS No. 133
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value and that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive
hedge accounting.
Historically, the Company managed fluctuations in interest rates by
using an interest rate swap agreement as required by certain debt
agreements. The Company's interest rate swap agreement required the
Company to pay a fixed rate and receive a floating rate, thereby
creating fixed-rate debt on the notional amount of $100,000 relative
to the term loan discussed in note 8. The effective portion of the
gain or loss on the Company's interest rate swap agreement was
reported in accumulated other comprehensive income in 2002. However,
in 2003, the hedge accounting treatment on the interest rate swap was
deemed ineffective and, as such, the entire amount of unrealized gain
on derivative instruments included in accumulated other comprehensive
income was recorded to interest expense at December 31, 2003. In 2005
and 2004, the change in fair market value during the year of $76 and
$2,058, respectively, was recorded as a credit to interest expense.
The Company no longer holds any interest rate swaps (see note 9).
INCOME TAXES
No provision for United States Federal income taxes has been made in
the accompanying consolidated financial statements since any
liability for such income taxes is that of the Owners and not of the
Company. The Company's income tax provision relates to certain
foreign, state and local income taxes.
(Continued)
9
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
SELF-INSURANCE
Until November 4, 2005, the Company assumed the risk of losses up to
certain limits for the employee group dental plan and workers'
compensation and general liability claims. Accrued expenses and other
long-term liabilities include the Company's estimates of such claims
payable. In 2004, the Company changed its insurance carrier and
coverage on group medical and no longer assumes the risk of losses up
to certain limits on that plan.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currency were
translated at current exchange rates, and profit-and-loss accounts
were translated at weighted average exchange rates. Resulting
translation gains and losses were included as a separate component of
members' equity in accumulated other comprehensive income. As part of
the sale transaction, all foreign currency denominated assets and
liabilities were sold to ICL. As such, the balance of accumulated
other comprehensive loss on the transaction date of $1,144 was
recorded as a component of the gain on sale in the 2005 consolidated
statement of operations.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, Inventory Costs,
which amends the guidance in Accounting Research Bulletin No. 43,
Chapter 4, Inventory Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted
material. SFAS No. 151 requires that those items be recognized as
current period expense. In addition, SFAS No. 151 requires the
allocation of fixed production overheads to the costs of conversion
be based on the normal capacity of the production facilities. The
Company adopted the provisions of this statement for inventory costs
in 2005. The adoption of SFAS No. 151 did not have a material impact
on the overall results of operations or financial position.
(3) SALE OF ASSETS
The Company and its Owners entered into an Asset Purchase Agreement
with ICL, dated September 1, 2005, to sell substantially all of the
Company's assets, including $925 in cash for $255,000 cash and the
assumption of certain liabilities. The sale price of the transaction
was based on a purchased net working capital balance of $58,000, with
any difference on the date of close to be reflected as an adjustment
to the purchase price. The estimated purchased working capital at
closing was $70,243, which resulted in a preliminary purchase price
of $267,243. The Asset Purchase Agreement required that cash equal to
the estimated working capital excess on November 4, 2005 of $12,243
be deposited in an escrow account to be released from escrow upon
verification of actual working capital on the transaction date. As of
December 31, 2005, the final working capital adjustment to the
purchase price was undetermined. Final determination of the working
capital adjustment is anticipated to be made in the 2nd quarter of
2006. The Company recorded a gain on the sale of $125,909, net of
transaction costs of $12,708 and other items.
Immediately following the sale, the Company repaid its $53,618 in
borrowings under the 2005 Credit Agreement. Then, most of the
remaining assets and liabilities were transferred to the Owners
pursuant to the Owners' Agreement dated September 1, 2005. The
remaining available proceeds were distributed to the Owners pursuant
to the Joint Venture Agreement.
(Continued)
10
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
Certain fixed assets were excluded from the sale to ICL, including
certain assets from the Company's operations in Sauget, Illinois.
These assets were determined to be fully impaired after the
transaction and were written -off prior to distribution to the
Owners. The amount of this impairment was $9,653 and is included in
the gain on sale of assets in the 2005 consolidated statement of
operations. The remaining excluded assets were distributed at net
book value on the date of distribution.
Siratsa ceased operations when the transaction was completed on
November 4, 2005.
(4) RESTRUCTURING AND OTHER EXPENSES
The Company historically performed strategic reviews to assess the
returns on their operations, which sometimes resulted in a plan to
restructure the operations of a business. The following represents
the restructuring activities of the Company up to and including the
date of the sale transaction:
2001 RESTRUCTURING ACTIVITIES
In October 2001, the Company announced the closing of its Pocatello
plant (elemental phosphorus production facility) and the Kemmerer,
Wyoming plant used to produce coke, which was used in the elemental
phosphorus manufacturing process. The closings resulted in
approximately $116,268 of restructuring expenses and $3,186 of
inventory write-downs recorded in the fourth quarter of 2001.
2003 RESTRUCTURING ACTIVITIES
In December 2002, the Company ceased mining ore at its Dry Valley,
Idaho facility. The mine and all the assets were reduced to a
mothball status in 2003. During 2003, the Company began operating the
Trenton, Michigan facility in a campaign mode. The impact of these
restructurings resulted in an expense of $6,992 in 2003. These
activities and corresponding cash payments were completed as of
December 31, 2003.
In September 2003, the Company announced a restructuring plan to
optimize fixed costs through product asset rationalization and
selective product rationalization resulting in a charge of $831,
$21,087 and $178,928 to restructuring and other expenses in 2005,
2004 and 2003, respectively. These expenses will be described in more
detail below (see (a) through (d)). Also in 2003, a noncash expense
of $13,179 was recorded to cost of sales to write down inventory to
fair value (see (e)). Key aspects of the restructuring plan included
the following:
o Consolidation of the Company's food and technical phosphate
salts production into facilities located in St. Louis,
Missouri; Carteret, New Jersey; and Lawrence, Kansas.
o Closure of the Company's plants in Conda, Idaho; Green River,
Wyoming; and Trenton, Michigan. The Conda facility was closed
in October 2003, the Green River facility was closed in
January 2004, and the Trenton facility was closed in April
2004. In addition, trans-loading, repackaging, and warehousing
operations at the Company's leased facility in Bedford Park,
Illinois were terminated in March 2004.
o Implement a product strategy that optimizes market driven
end-user demand for elemental and purified phosphoric acid
derivative products.
The above Restructuring Activities resulted in the Company recording
the following:
(Continued)
11
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
(a) WRITE-DOWN OF FIXED ASSETS
As a result of the 2003 restructuring activities, the net book value
of the fixed assets at all the facilities impacted was written down
to market value. These actions resulted in a noncash expense of
$139,613 in 2003 to write down certain assets to fair market value.
During 2004, certain assets at the Conda, Dry Valley, and Green River
facilities were disposed of as part of settlement agreements (see
note 4(c) below).
Also during 2004, the Company determined that elemental phosphorous
would no longer be purchased in quantities to profitably support its
restructured phosphoric acid burning assets as the Company increased
its purchases of purified phosphoric acid. In accordance with SFAS
No. 144, the Company recorded an impairment expense of $3,600 related
to its phosphoric acid burning assets based upon an assessment of the
discounted cash flows.
The settlement agreements, combined with the impairment expense and
other noncash expenses identified, resulted in a net recovery of $255
and $242 in 2005 and 2004, respectively.
(b) EMPLOYEE RELATED COSTS
There were approximately 30 Astaris employees and approximately 170
employees from FMC and Solutia affected by the 2003 restructuring
activities. In accordance with the Joint Venture Agreement between
FMC, Solutia, and Astaris, the Company must bear the severance and
training costs in accordance with the existing agreements at both
owner facilities.
The total expense related to these strategic actions was $1,286,
$4,697 and $10,430 in 2005, 2004 and 2003, respectively, while
$2,480, $7,915 and $4,608 was utilized in 2005, 2004 and 2003,
respectively, as a result of these activities. As of December 31,
2005, 2004 and 2003, $ -0-, $2,015 and $5,233, respectively, remained
as accruals for future payments.
(c) CONTRACT SETTLEMENTS AND PROFESSIONAL FEES
As a result of the 2001 restructuring activities, contracts for such
items as railcars, nitrogen, electrodes, natural gas, silica, and
coal were terminated resulting in an expense of $23,773. As of
December 31, 2005, 2004 and 2003, $-0-, $13,671 and $15,459,
respectively, remained as accruals for future payments.
As a result of the 2003 restructuring activities, shipping contracts
for such items as railcars and trucking leases associated with the
related facilities were terminated and charged to expense along with
costs incurred to mothball the Dry Valley Mine and professional fees
incurred related to consulting for legal, finance, marketing, and
operational restructuring activities.
These items amounted to $(496), $8,465 and $8,936 in 2005, 2004 and
2003, respectively. As of December 31, 2005, 2004 and 2003, $18,
$1,707 and $3,029, respectively, remained as accruals for future
payments.
In accordance with the Joint Venture Agreement between FMC, Solutia,
and Astaris, the Company must bear certain fixed costs, such as
corporate and plant overhead allocations, for any plant shutdown by
Astaris that is a guest site at an Owner facility for a period
between notification and
(Continued)
12
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
shutdown of the facility and for an additional 18 months after the
shutdown. As previously discussed above, the Green River facility,
which was a guest site at an FMC facility, was closed in January
2004, and the Trenton facility, which was a guest site at a Solutia
facility, was closed in April 2004. As such, the Company expensed
$-0-, $7,346 and $17,140 to restructuring and other expenses in 2005,
2004 and 2003, respectively. At December 31, 2005, 2004 and 2003,
$-0-, $15,085 and $17,140, respectively, remained as accruals for
future payments. The Company settled these claims with the Owners as
part of the sale transaction.
As part of the 2003 restructuring, the Company negotiated a
settlement with a major competitor to settle a breach of contract
lawsuit that was filed in August 2002. The settlement included a cash
payment of $1,700 and the agreement to continue to provide certain
products for an agreed-to price over a two-year period of time. At
December 31, 2005, 2004 and 2003, the Company expensed $596, $1,112
and $3,407, respectively, to restructuring and other expenses for
this settlement. Payments under this settlement were completed in
2005.
During February 2004, the Company reached an agreement with FMC to
return approximately 150 railcars and their monthly lease commitments
to FMC for FMC's own use. The railcars were being subleased from FMC
for Green River distribution requirements. As part of the agreement,
Astaris continued to pay for certain repair costs, which were
included in the above accrual at December 31, 2004. On November 4,
2005 the sublease agreement with FMC was terminated.
As discussed above, the Company ceased operations at the Conda, Idaho
facility, which was being operated by Nu-West, a subsidiary of
Agrium, Inc. (Agrium), under a stand-alone operating agreement. In
February 2004, Astaris and Agrium entered into an agreement to
resolve all the outstanding issues related to this closing. On March
5, 2004, Astaris paid Agrium a cash settlement in the amount of
$8,000 (as a contract settlement) and transferred certain assets to
Agrium as part of the termination of the agreement with Agrium, Inc.
(d) DEMOLITION AND OTHER ENVIRONMENTAL
As a result of the 2001 restructuring activities, costs to demolish
and rectify land represented $40,244. Included in this amount is an
expense totaling $36,500 related to an agreement between Solutia,
FMC, and Astaris, whereby Astaris will make annual payments over five
years to FMC for certain environmental restructuring activities that
will be performed by FMC. In 2005, 2004, and 2003, $15,731, $8,760,
and $8,030, respectively, had been paid as a result of this
agreement, and $-0- and $16,060 remained as accruals for future
payments in 2005 and 2004, respectively.
In 2003, pursuant to SFAS No. 143, Accounting for Asset Retirement
Obligations, the Company began accruing for certain demolition and
other legal commitments associated with the 2003 restructuring
activities at the Green River, Wyoming and Trenton, Michigan
facilities in accordance with estimated costs prescribed under
formation contracts with both Owners. As of December 31, 2004 and
2003, $3,478 and $6,394, respectively, was recognized as expense to
accrue for future costs. There were no additional accruals made in
2005.As of December 31, 2005 and 2004, the Company utilized $1,060
and $3,267, respectively for dismantling and decontamination costs at
these sites. During 2004, the Company pursued and ultimately reached
a legal settlement with FMC in October resulting in the transfer and
disposal of all its assets at its Green River, Wyoming facility.
(Continued)
13
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
The settlement resulted in the Company reducing the previously
provided accrual by $3,228, which was the remaining reserve related
to the dismantlement of those assets that is no longer required as
part of the settlement. Also during 2004, the Company revised its
forecast to dismantle and decontaminate its Trenton, Michigan
facility. As a result of these developments, the Company revised its
SFAS No. 143 calculation and adjusted the remaining accrual by $541
at December 31, 2004 to $3,092.
Pursuant to the Owner's Agreement, after the closing of the sale
transaction, the remaining restructuring liabilities were assumed by
the Owners. The Owners settled for $16,169 in cash the liabilities
related to the Trenton plant shutdown, Pocatello environmental
activities, a rail car lease and a coal contract. The Owners
Agreement and settlement eliminated future payment obligations
related to the 2003 restructuring. As such, the remaining
restructuring reserves were eliminated, resulting in an increase to
income of $17,510 that is included in the gain on sale in the 2005
statement of operations.
A restructuring table for the above activity is as follows:
CASH RESERVE
------------------------------------------------------
CONTRACT
SETTLEMENTS
EMPLOYEE- AND DEMOLITION
WRITE-DOWN OF RELATED PROFESSIONAL AND OTHER CASH RESERVE
FIXED ASSETS COSTS FEES ENVIRONMENTAL TOTAL TOTAL
------------- --------- ------------ -------------- ------------ -----------
Balance at December 2002 $ -- (589) 16,709 33,225 49,345 49,345
Charges taken to expense 139,613 10,430 29,483 6,394 46,307 185,920
Amount utilized (139,613) (4,608) (10,564) (8,149) (23,321) (162,934)
-------------- ----------- ------------- ------------ ------------ -----------
Balance at December 2003 -- 5,233 35,628 31,470 72,331 72,331
Charges taken to expense (242) 4,697 16,923 (291) 21,329 21,087
Amount utilized 242 (7,915) (22,088) (12,027) (42,030) (41,788)
-------------- ----------- ------------- ------------ ------------ -----------
Balance at December 2004 -- 2,015 30,463 19,152 51,630 51,630
Charges taken to expense (255) 1,286 (305) 105 1,086 831
Amount utilized 255 (2,480) (6,615) (9,924) (19,019) (18,764)
Payment to Owners -- -- (7,165) (9,004) (16,169) (16,169)
Reversed to income -- (821) (16,360) (329) (17,510) (17,510)
-------------- ----------- ------------- ------------ ------------ -----------
Balance at December 2005 $ -- -- 18 -- 18 18
============== =========== ============= ============ ============ ===========
(e) INVENTORY
As a result of the restructuring activities in 2003 to cease
production at certain facilities, related inventories needed for
production were written down to fair value. This resulted in a
noncash expense to cost of sales of $13,179 in 2003.
(Continued)
14
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
(5) INVENTORIES
The components of inventories as of December 31, 2005 and 2004 are as
follows:
2005 2004
------------------- -------------------
Raw materials $ -- 4,473
Work-in-process -- 16,193
Finished goods -- 23,442
Supplies and packaging materials -- 5,143
------------------- -------------------
Total -- 49,251
Less LIFO reserve -- (23,296)
------------------- -------------------
$ -- 25,955
=================== ===================
Inventories at FIFO approximated current cost. Due to LIFO pool
decrements, annual earnings increased by approximately $2,046 and
$16,578 in 2004 and 2003, respectively.
(6) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 2005 and 2004 consists
of the following:
2005 2004
------------------- -------------------
Land and land improvements $ -- 8,630
Buildings -- 45,400
Machinery and equipment -- 221,187
Construction in progress -- 2,847
------------------- -------------------
-- 278,064
Less accumulated depreciation -- 192,271
------------------- -------------------
$ -- 85,793
=================== ===================
Depreciation expense was $7,254, $9,236 and $18,784 for 2005, 2004,
and 2003, respectively, and is included in cost of sales and selling,
general, and administration expenses.
(Continued)
15
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 2005 and 2004
consists of the following:
2005 2004
------------------- -------------------
Accounts payable $ -- 19,273
Accrued rebates -- 3,802
Accrued compensation and benefits 170 7,070
Current portion of OPEB liability (note 11) -- 4,000
Current portion of accrued restructuring
reserve (note 4) 18 18,865
Other accrued liabilities 2,108 5,339
------------------- -------------------
$ 2,296 58,349
=================== ===================
(8) LONG-TERM DEBT
On November 4, 2005, the Credit Facility was repaid in full,
including all accrued interest, with proceeds from the sale of the
Company's assets (see note 3).
In September 2000, the Company entered into a credit agreement
(Credit Agreement) that had maximum borrowings of $275,000 with a
maturity date of September 2005, payable in quarterly installments
that began on December 31, 2002. Subsequent amendments entered into
by the Company resulted in an accelerating repayment schedule and a
reduction in maximum borrowings to $20,000 by the end of 2004. As of
December 31, 2004, the unused availability, net of $6,341 in
outstanding letters of credit, was $13,659. The aggregate amount of
debt outstanding under the Credit Agreement at December 31, 2004 was
$0 . The Company was in compliance with its debt covenants as of
December 31, 2004 and 2003.
On February 8, 2005, the Company entered into a new asset-based
revolving Credit Facility replacing the September 2000 Credit
Agreement. The new Credit Facility had maximum borrowings up to $75
million under a revolver with a $25 million uncommitted expansion
option and an original maturity date of February 2008. The Credit
Facility was secured by certain assets of the Company. Borrowings
under the Credit Facility bore interest at the base rate or the
Eurodollar rate, as defined, plus a margin up to 2.5%.
The Credit Facility contained a number of positive and negative
covenants that are common in Credit Agreements of this type. The
primary financial covenant was a fixed charge coverage ratio that was
only applicable if the minimum availability fell below $15.0 million.
In addition, if the minimum availability fell below a 30 day average
of $17.5 million, certain payments to FMC and Solutia were to be
deferred until such time availability exceeded this threshold. As
part of the closing of the New Credit Facility, the deferred payment
balances to the Owners discussed in note 14 were paid.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has no long-term debt at December 31, 2005 or 2004.
(Continued)
16
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
The fair value of the interest rate swap agreement of $255 is
included in other long-term liabilities at December 31, 2004,
reflecting the estimated amount that the Company would pay (excluding
accrued interest) to terminate the contracts on the reporting date,
thereby taking into account the current unrealized losses of open
contracts. In February 2005, a portion of the swap was cancelled with
a payment of $185. In June 2005, the remaining portion expired.
In accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, the hedge accounting treatment on
the interest rate swap was deemed ineffective in 2003 and, as such,
the entire amount of unrealized gain on derivative instruments
included in accumulated other comprehensive income was recorded to
interest expense at December 31, 2003. In 2005 and 2004 , the change
in fair market value during the year of $76 and $2,058, respectively,
was recorded to interest expense.
(10) COMMITMENTS AND CONTINGENCIES
Pursuant to the Asset Purchase Agreement and the Owner's Agreement,
responsibility for all contingent liabilities and commitments,
including all lease commitments, was assumed by either ICL or the
Owners.
The Company leased office space, plants, facilities, and various
types of manufacturing, data processing, and transportation
equipment. Leases of real estate generally provided for payment of
property taxes, insurance and repairs by the Company. Capital leases
were not significant. Rent expense under operating leases was $2,448,
$7,259 and $9,026 in 2005, 2004, and 2003, respectively. Siratsa has
no operating lease agreements at December 31, 2005
The Company has certain contingent liabilities arising from
litigation related to the sale of assets described in Note 3. Based
on information currently available and established reserves, the
ultimate resolution of the Company's known contingencies is not
expected to have a material adverse effect on its financial position,
results of operations or liquidity.
(11) EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT BENEFITS
Prior to the sale of the Company's assets, (see note 3), the
Company's employees had the option to participate in 401(k) plans
(the 401(k) Plans). Employees that qualified for participation could
contribute up to 60% of their salary on a before-tax basis, subject
to a maximum contribution limit as determined by the Internal Revenue
Service, or 100% of their salary on an after-tax basis. The Company
matched 80% of the first 5% of participant contributions. The Company
made matching contributions to the 401(k) Plans totaling $1,157,
$1,284, and $1,280 in 2005, 2004, and 2003, respectively. In
addition, the Company also contributed a percentage of employees'
eligible earnings to a money purchase plan (the Money Purchase Plan)
regardless of employees' 401(k) Plan participation. For the first two
months of 2003, this contribution rate was 6%. Effective March 1,
2003, this rate was reduced to 3% for the remainder of 2003 and for
the years 2004 and 2005. The Company made contributions to the Money
Purchase Plan totaling $990, $1,089, and $1,344 in 2005, 2004, and
2003, respectively.
(Continued)
17
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
Under the Joint Venture Agreement, the Company had a liability to the
Owners for the reimbursement of postemployment benefits (OPEB)
provided to certain retired employees accrued under the Owners'
postemployment benefit plans, as defined. All of the OPEB liabilities
were assumed by the Parents in equal amounts after the sale
transaction (see note 3). The following table sets forth the
Company's obligations:
POSTRETIREMENT BENEFITS
-----------------------------------------
2005 2004
------------------- -------------------
Benefit obligation at December 31 $ -- 32,572
Fair value of plan assets at December 31 -- --
------------------- -------------------
Funded status -- (32,572)
Unrecognized net actuarial loss -- 258
Unrecognized prior service cost -- (2,752)
------------------- -------------------
Accrued benefit cost recognized in the
consolidated balance sheets $ -- (35,066)
=================== ===================
Weighted average assumptions the measurement date:
Discount rate 5.00% 6.00%
Rate of compensation increase -- 3.00%
The measurement date for the plan was September 30 for 2005 and
December 31 for 2004. For measurement purposes, an 8% and 9% annual
rate of increase in the per-capita cost of covered healthcare
benefits was assumed for 2005 and 2004, respectively. The rate was
assumed to decrease gradually to 5% through 2008 and remain at that
level thereafter.
POSTRETIREMENT BENEFITS
-----------------------------------------
2005 2004
------------------- -------------------
Service cost $ 79 78
Interest cost 1,550 1,834
Other (400) (552)
------------------- -------------------
Net periodic benefit cost $ 1,229 1,360
=================== ===================
At December 31, 2004, $3,468 was accrued in due to affiliates for the
2004 year obligation as the payment was deferred and subsequently
paid in 2005. Benefits paid were $4,183 and $3,961 in 2005 and 2004,
respectively. Net periodic benefit cost primarily relates to retired
employees and is included in other net in the consolidated statement
of operations.
Solutia adopted the provisions of FSP 106-2 in the quarter ended June
30, 2004 and; as such, this adoption is reflected in the Company's
accounting for postretirement benefits.
During the third quarter 2004, Solutia amended its U.S.
postretirement plan for nonunion, active participants. These changes,
effective September 1, 2004, include discontinuation of all
postretirement
(Continued)
18
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
benefits for a retiree or spouse after such person attains age 65,
changes to certain eligibility requirements for pre-65 postretirement
benefits with the eventual elimination of these benefits by 2016, and
elimination of retiree life insurance benefits to future retirees. As
a result, Solutia recorded a curtailment gain due to the reduction in
anticipated future service of nonunion participants in Solutia's U.S.
postretirement plan, which has been ratably passed on to Astaris and
is reflective of the unrecognized prior service cost at December 31,
2005 and 2004 in the table above. The unrecognized prior service cost
was being amortized over five years.
(12) ENVIRONMENTAL OBLIGATIONS
Pursuant to the Asset Purchase Agreement and the Owner's Agreement,
all environmental liabilities have been transferred to either ICL or
the Owners.
Prior to the transaction, the Company was subject to various federal,
state, and local environmental laws and regulations that govern
emissions of air pollutants, discharges of water pollutants, and the
manufacture, storage, handling, and disposal of hazardous substances,
hazardous wastes, and other toxic materials. U.S. environmental
legislations that had a particular impact on the Company include the
Toxic Substances Control Act; the Resource Conservation and Recovery
Act; the Clean Air Act; the Clean Water Act; the Safe Drinking Water
Act; and the Comprehensive Environmental Response, Compensation, and
Liability Act (commonly known as Superfund). The Company was also
subject to the Occupational Safety and Health Act and regulations of
the Occupational Safety and Health Administration (OSHA) concerning
employee safety and health matters. The U.S. Environmental Protection
Agency (EPA), OSHA, and other federal agencies have the authority to
promulgate regulations that have an impact on the Company's
operations.
In addition to these federal activities, various states have been
delegated certain authority under several of the aforementioned
federal statutes. Many state and local governments have adopted
environmental and employee safety and health laws and regulations,
some of which are similar to federal requirements. State and federal
authorities may seek fines and penalties for violation of these laws
and regulations.
The Joint Venture Agreement between Astaris, FMC, and Solutia states
that FMC and Solutia are responsible for preinception existing
environmental conditions at their respective facilities. The Company
is proportionally responsible for any existing environmental
conditions that it exacerbated and was solely responsible for
environmental conditions arising solely out of postinception
operations.
As a result of the restructuring activities in 2003 (see note 4),
Astaris executed the shutdown of operations at the Green River,
Wyoming; the Bedford Park, Illinois; and the Trenton, Michigan
facilities and decontamination efforts began in 2004. The Green River
assets and related environmental liabilities were transferred to FMC
in 2004. The Bedford Park assets were removed and the lease
relinquished in 2004, resulting in no known remaining environmental
obligations as of December 31, 2004 or 2005. The Trenton assets were
decontaminated and mothballed for demolishment at a later date and
the Company continued to perform ongoing environmental activities as
needed, through November 4, 2005.
As a result of the March 5, 2004 settlement agreement with NuWest
Industries, Inc., previously discussed in note 4, certain assets
related to the Conda and Dry Valley mines were transferred to NuWest,
along with related environmental liabilities.
(Continued)
19
SIRATSA LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Dollars in thousands)
(13) CONCENTRATIONS
Sales to one customer represented approximately 11%, 12%, and 11% of
sales in 2005, 2004, and 2003, respectively. Purchases from two
vendors represented approximately 18% and 16% in 2005, 18% and 17% in
2004 and 19% and 11% of purchases in 2003.
(14) RELATED PARTIES
The Company and the Owners provided and received various services to
and from each other. Amounts included in the consolidated statements
of operations related to these services for 2005, 2004, and 2003 are
as follows:
2005 2004 2003
------------------ ------------------- -------------------
Administrative services provided by the
Owners and billed to the Company $ 221 640 2,562
Manufacturing services and related
infrastructure support provided by the
Owners and billed to the Company 13,759 12,068 38,375
Environmental remediation services,
dismantlement, and other restructuring
charges billed by the Owners
to the Company 626 17,888 1,731
Raw materials and finished goods
purchased by the Company from
the Owners 6,609 4,151 4,373
Net sales by the Company to the Owners 1,740 3,479 3,999
As a result of the transactions with the Owners, the Company has a
receivable from the Owners of $-0- and $1,189 and a payable to the
Owners of $-0- and $6,950 at December 31, 2005 and 2004,
respectively. These amounts were recorded as due from affiliates and
due to affiliates, respectively.
As part of entering into an amendment of the Credit Agreement, both
Owners agreed to defer payments from Astaris for certain costs,
primarily related to the restructuring, through September 2005. The
total payments deferred and recognized as due to affiliates on the
consolidated balance sheets totaled $31,717 at December 31, 2004 (See
note 8).
The Company purchased raw materials from its former 44% joint venture
investment in FosBrasil. These purchases were approximately $9,514,
$9,450 and $8,108 for 2005, 2004, and 2003, respectively. As a result
of the transactions with the Company's joint venture, the Company has
a payable of $-0- and $869, included in accounts payable and accrued
expenses at December 31, 2005 and 2004, respectively.
20