Exhibit 99.1
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED FINANCIAL STATEMENTS
December 31, 1998 and 1997
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED FINANCIAL STATEMENTS
December 31, 1998 and 1997
CONTENTS
REPORT OF INDEPENDENT AUDITORS................................................ 1
FINANCIAL STATEMENTS
COMBINED BALANCE SHEETS................................................. 2
COMBINED STATEMENTS OF OPERATIONS....................................... 3
COMBINED STATEMENTS OF EQUITY........................................... 4
COMBINED STATEMENTS OF CASH FLOWS....................................... 6
NOTES TO COMBINED FINANCIAL STATEMENTS.................................. 7
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
GEO Specialty Chemicals, Inc.
Cleveland, Ohio
We have audited the accompanying combined balance sheets of Rhodia Gallium, a
business unit of Rhodia Chimie S.A., (the Company) as of December 31, 1998 and
1997 and the related combined statements of operations, equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Rhodia Gallium, a business unit
of Rhodia Chimie S.A., as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As explained in Note 1, the financial statements include significant costs and
expenses of Rhodia Chimie S.A. allocated to Rhodia Gallium.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
November 12, 1999
1
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED BALANCE SHEETS (in 000's)
December 31, August 31,
----------- ---------
1998 1997 1999
---- ---- ----
(unaudited)
ASSETS
Current assets
Cash $ 25 $ 2 $ 86
Trade accounts receivable 5,082 6,141 3,714
Inventories 9,054 10,255 9,958
Prepaid expenses and other current assets 606 719 501
------- ------- -------
Total current assets 14,767 17,117 14,259
Plant and equipment, net 2,534 2,684 2,032
Other assets
Deferred taxes 163 589 626
Other 1 1 1
------- ------- -------
Total other assets 164 590 627
------- ------- -------
$17,465 $20,391 $16,918
======= ======= =======
LIABILITIES AND BUSINESS UNIT EQUITY
Current liabilities
Current portion of long-term debt $ - $ 155 $ -
Cash pool borrowings 1,634 1,378 1,162
Accounts payable 554 1,230 268
Other accounts payable 169 161 561
Social benefits and taxes payable 1,876 1,057 1,385
------- ------- -------
Total current liabilities 4,233 3,981 3,376
Long-term liabilities 175 244 188
Business unit equity
Share capital 32 32 72
Accumulated other comprehensive loss (380) (984) (1,100)
Divisional equity/retained earnings 13,405 17,118 14,382
------- ------- -------
Total business unit equity 13,057 16,166 13,354
------- ------- -------
$17,465 $20,391 $16,918
======= ======= =======
See accompanying notes to combined financial statements.
2
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED STATEMENTS OF OPERATIONS (in 000's)
December 31, August 31,
------------ ----------
1998 1997 1999 1998
---- ---- ---- ----
(unaudited)
Net sales $15,380 $16,560 $ 8,071 $10,803
Cost of sales 10,476 13,510 4,548 7,403
------- ------- ------- -------
Gross profit 4,904 3,050 3,523 3,400
Selling, general, and administrative expenses 1,000 889 831 879
------- ------- ------- -------
Income from operations 3,904 2,161 2,692 2,521
Other income (expense)
Net interest expense (52) (60) (30) (35)
Gain (loss) on foreign currency
translation 155 155 175 (40)
Other 16 7 12 19
------- ------- ------- -------
119 102 157 (56)
Income before taxes 4,023 2,263 2,849 2,465
Provision for income taxes 1,673 944 1,158 1,028
------- ------- ------- -------
Net income $ 2,350 $ 1,319 $ 1,691 $ 1,437
======= ======= ======= =======
See accompanying notes to combined financial statements.
3
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED STATEMENTS OF EQUITY
(Dollars in 000's)
Unrealized
Unrealized Divisional Gain (Loss)
Gain Equity/ on Foreign
On Pension Retained Currency Comprehensive
Capital Obligation Earnings Translation Total Income
------- ---------- -------- ----------- ----- ------
Balance at
January 1, 1997 $ 32 $ - $12,038 $ - $12,070
Comprehensive income
Net income - - 1,319 - 1,319 $ 1,319
Adjustment for unrealized
gain on pension obligation,
net of tax of $29. - 46 - - 46 46
Cumulative translation
adjustment for foreign currency
translation loss, net of
tax benefit of $658. - - - (1,030) (1,030) (1,030)
-------
Total comprehensive income $ (335)
=======
Dividends declared - - (96) - (96)
Net capital contributions
from Rhodia Chimie S.A. - - 3,857 3,857
------- ------- ------- ------- -------
Balance at
December 31, 1997 32 46 17,118 (1,030) 16,166
Comprehensive income
Net income - - 2,350 - 2,350 $ 2,350
Adjustment for unrealized
gain on pension obligation,
net of tax of $47. - 72 - - 72 72
Adjustment for foreign currency
translation gain, net of
deferred tax of $340. - - - 532 532 532
-------
Total comprehensive income $ 2,954
=======
Dividends declared - - (30) - (30)
Net capital distributions
from Rhodia Chimie S.A. - - (6,033) - (6,033)
------- ------- ------- ------- -------
Balance at
December 31, 1998 $ 32 $ 118 $13,405 $ (498) $13,057
======= ======= ======= ======= =======
(Continued)
4
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED STATEMENTS OF EQUITY (in 000's)
Unrealized
Unrealized Gain (Loss)
Gain (Loss) on Foreign
On Pension Divisional Currency Comprehensive
Capital Obligation Equity Translation Total Income
------- ---------- ------ ----------- ----- ------
Balance at
December 31, 1998 $ 32 $ 118 $13,405 $ (498) $13,057
Comprehensive income (a)
Net income - - 1,691 - 1,691 $ 1,691
Adjustment for foreign currency
translation loss, net of
tax benefit of $460 (a) - - - (720) (720) (720)
-------
Total comprehensive income (a) $ 968
=======
Capital contribution to new subsidiary
for future contribution of Gallium business (a) 40 - - - 40
Net capital contributions (distributions)
from (to) Rhodia Chimie S.A. (a) - - (714) - (714)
-------- ------- ------- ------- -------
Balance at
August 31, 1999 (a) $ 72 $ 118 $14,382 $(1,218) $13,354
======== ======= ======= ======= =======
(a) unaudited information
See accompanying notes to combined financial statements.
5
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
COMBINED STATEMENTS OF CASH FLOWS (in 000's)
December 31, August 31,
------------ ----------
1998 1997 1999 1998
---- ---- ---- ----
(unaudited)
Cash flows from operating activities
Net income $ 2,350 $ 1,319 $ 1,691 $ 1,437
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 466 521 301 287
Deferred income tax expense (benefit) 33 (3) 5 10
Pension expense 22 30 30 17
Loss (gain) on sale of assets 230 11 - 101
Change in assets and liabilities
Accounts receivable - trade 877 (2,424) 1,520 1,713
Inventories 1,902 (285) 1,941 2,286
Accounts payable and accrued expenses (311) (3,594) (209) 32
Tax payable (48) 69 34 (13)
Other assets and liabilities 1,001 302 (312) (247)
------- ------- ------- -------
Net cash from operating activities 6,522 (4,054) 1,119 6,117
Cash flows from investing activities
Purchases of plant and equipment (380) (36) (25) (32)
------- ------- ------- -------
Net cash from investing activities (380) (36) (25) (32)
Cash flows from financing activities
Cash pool borrowings (payments), net 148 178 (327) (58)
Payment on seller note (155) - - -
Division capital contributed
(distributions paid), net (6,113) 3,893 (702) (5,995)
------- ------- ------- -------
Net cash from financing activities 6,120 4,071 (1,029) (6,053)
Effect of exchange rate changes in cash 1 (1) (4) 2
Net change in cash 23 (20) 61 34
Cash at beginning of period 2 22 25 2
------- ------- ------- -------
Cash at end of period $ 25 $ 2 $ 86 $ 36
======= ======= ======= =======
Non-cash financing activities:
Dividends declared $ 96 $ 30 $ 0 $ 74
Supplemental disclosures of cash flow information
Cash paid (received) for
Interest 52 60 30 35
Taxes 929 (35) 1,599 914
See accompanying notes to combined financial statements.
6
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by Rhodia Gallium
a business unit of Rhodia Chimie S.A., (the Company), are as follows:
Principles of Combination: The combined financial statements include the Rhodia
Chimie S.A. Gallium business and its facilities in Salindres, France and Stade,
Germany. The scope of the Gallium business is described in the Stock Purchase
Agreement, dated August 6, 1999 (see Note 10). Rhodia Chimie S.A. operates the
French Gallium business of Rhodia Chimie S.A. located at the Salindres plant
site (the Division). Rhodia Chimie S.A. owns the shares of Rhodia Deutschland
GmbH which owns the capital of Ingal Stade GmbH, a company whose entire
activities are the operation of the Gallium business in Germany. Rhodia Chimie
S.A.'s sales agents activities relating to gallium sales and a dormant gallium
extraction facility in Australia are not included in the combination. All
significant transactions between the combined companies are eliminated.
Description of Business: The Company extracts, purifies, and sells gallium to
sales agent companies that are subsidiaries of Rhodia Chimie S.A. or to various
other customers. The Company operates in only one segment. The sales agents
resell the gallium to customers throughout the world, primarily in the
electronics industry. Sales are concentrated with customers located principally
in Japan, the United States, and Germany. The Company operates in an environment
with many financial and operating risks, including, but not limited to, intense
competition, limitations on the supply of raw materials, commodity sales price
fluctuations, and technological changes.
Interim Results (Unaudited): The accompanying balance sheet at August 31, 1999
and statement of equity for the eight months ended August 31, 1999 and the
statements of operations and cash flows for the eight months ended August 31,
1999 and 1998 are unaudited. In the opinion of management, these statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting of only normal recurring adjustments, necessary for
the fair presentation of the results of the interim periods.
Revenue Recognition: Revenues are recognized upon shipment.
Use of Estimates in the Preparation of Financial Statements: 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 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 cash, trade accounts receivable, accounts payable, other accounts
payable, other current liabilities, cash pool borrowings, and long-term
liabilities. The carrying value of all instruments approximates fair value.
Allowance for Doubtful Accounts: The Company is on the reserve method for bad
debts. For the years ended December 31, 1998 and 1997, management determined
that no reserve was required, as the majority of the receivable balances are due
from other business units of Rhodia Chimie, S.A.
(Continued)
7
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
December 31, 1998 and 1997
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Plant and Equipment: Plant and equipment are carried at cost and depreciated
on straight-line and accelerated methods. Plant and equipment are being
depreciated using the following estimated lives:
Asset Lives in Years
Buildings and improvements 10 - 40
Machinery and equipment 5 - 15
Office furniture and fixtures 10 - 15
Other equipment 3 - 15
Inventories: Inventories are stated at the lower of average costs or replacement
value (for purchased goods), manufacturing costs (for manufactured goods),
or market, with cost being determined on a first-in, first-out (FIFO) basis.
Income Taxes: Income taxes are computed on the same basis as if the Company had
filed separate income tax returns in the respective countries of operations.
Deferred taxes are computed based on the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, using enacted tax rates.
Research and Development Expense: Research and development costs are charged to
expense as incurred. Such expenses amounted to $273 and $337 for the years ended
December 31, 1998 and December 31, 1997, respectively.
Foreign Currency Translation: The Company's French and German operations use the
French Franc currency as their functional currency; assets and liabilities are
translated at exchange rates in effect at the balance sheet date. The effect of
foreign currency remeasurement to the functional currency is immaterial.
Foreign denominated transactions are translated into the functional currency at
the exchange rate in effect on the date of the transaction. Exchange differences
arising from foreign currency transactions are included in the statement of
operations. Rhodia Chimie S.A. hedges foreign currency risks on a company-wide
basis. The effects of Rhodia Chimie S.A.'s hedging of foreign currency
commitments are allocated on the Company on a percentage of Rhodia Chimie S.A.'s
net gain or loss from hedging for each respective currency.
Environmental Liabilities: The Company recognizes losses and accrues
liabilities relating to environmental liability matters if available information
indicates that the event of loss is probable and can reasonably be estimated.
The losses are estimated on a case by case basis, using available information.
(Continued)
8
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
December 31, 1998 and 1997
Allocations: During the years ended December 31, 1998 and 1997, the Company
was allocated certain operational and administrative expenses from Rhodia Chimie
S.A. Allocations were based on various methods including relative sales volume,
headcount, and estimates of time spent. Management believes that these
allocations are based on reasonable methods. Sales, returns, material cost and
direct labor and production costs were specifically identified to the Company
and were not based on allocations.
(Continued)
9
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in 000's)
NOTE 2 - INVENTORIES
Inventories consist of the following components:
December 31, August 31, 1999
----------- ---------------
1998 1997 (unaudited)
---- ----
Raw materials $3,325 $ 3,763 $ 5,637
Work in progress 343 373 378
Finished goods 5,416 6,395 3,828
Equipment maintenance parts 170 149 130
Less valuation allowances 200 425 15
------ ------- -------
$9,054 $10,255 $ 9,958
====== ======= =======
NOTE 3 - PLANT AND EQUIPMENT
Plant and equipment consists of the following major classifications:
December 31,
-----------
1998 1997
---- ----
Buildings and improvements $2,249 $2,132
Equipment 6,028 5,763
Office equipment 29 27
Construction in progress 25 -
------ ------
8,331 7,922
Accumulated depreciation and depletion 5,797 5,238
------ ------
$2,534 $2,684
====== ======
(Continued)
10
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in 000's)
NOTE 4 - LONG-TERM DEBT
The Company's long-term debt obligations consist of the following as of
December 31, 1998 and 1997:
1998 1997
---- ----
Note payable to seller of Ingal Stade business, payable
in annual installments with interest; final payment due
January 1, 1998 $ - $ 155
Current portion - (155)
------ ------
Long-term portion $ - $ -
====== ======
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company has been allocated certain operational and administrative costs from
Rhodia Chimie S.A. $655 and $194 for the years ended December 31, 1998 and 1997,
respectively. During the years indicated, the costs were allocated to the
Company as discussed in Note 1.
The Company purchased material from Rhodia Chimie S.A. business units not
included in the combination in 1997 for an amount of $3,512.
The Company had sales to other business units of Rhodia Chimie S.A. Sales to
these other business units were $11,167 and $13,319 for the years ended
December 31, 1998 and 1997, respectively. The sale prices are based on the value
of the sale to the other business unit customer less an agreed commission
percentage.
Accounts receivable from other business units of Rhodia Chimie S.A. amounted
to approximately $5,034 and $5,761 as of December 31, 1998 and 1997,
respectively.
Accounts payable to other business units of Rhodia Chimie S.A. amounted to
approximately $301 and $247 as of December 31, 1998 and 1997, respectively.
(Continued)
11
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
The cash collections and cash disbursements of the French operations of the
Company are administered by Rhodia Chimie S.A. The overall net amount of cash
received and cash disbursed is included in the statements of equity and cash
flows reflected as net capital contributions (distributions) .
The working capital cash collections and cash disbursements of Ingal Stade GmbH
are transacted from a cash pooling arrangement with Ingal Stade's parent
company, Rhodia Deutschland GmbH, a subsidiary of Rhodia Chimie, S.A. The net
current liability at December 31, 1998 and 1997 amounted to $1,634 and $1,378,
respectively, and bore interest at 3.25% and 3.51% at December 31, 1998 and
1997, respectively.
Ingal Stade GmbH entered into a Controlling and Profit Transfer Agreement with
its parent company requiring all net income to be distributed to the parent on
an annual basis.
NOTE 6 - EMPLOYEE DEFINED BENEFIT PENSION PLAN
The Company has a defined benefit pension plan which covers the majority of the
employees in France. The benefit paid is based on number of years of service and
salary at retirement date.
Actuarial evaluations of benefits have been computed as of December 31, 1998 and
1997. Significant actuarial assumptions include:
. Turnover assumptions for current personnel and mortality assumptions for
all participants.
. An assumed retirement age of 60 to 65 years.
. A discount rate used to determine the present value of the future benefit
obligation. The rates used in 1998 and 1997 were 6.5% and 7.0%,
respectively.
. A rate of compensation increase to determine the present value of the
future benefit obligation. The rate was 3% in both years.
Information about the pension plans is as follows:
December 31,
-----------
1998 1997
---- ----
Change in benefit obligation
Projected benefit obligation at beginning of year $ 244 $ 324
Transfer of employees to other businesses (104) (70)
Service cost 10 9
Interest and actuarial costs 12 21
Other costs 13 (40)
------ ------
Benefit obligation at end of year $ 175 $ 244
====== ======
(Continued)
12
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
NOTE 6 - EMPLOYEE DEFINED BENEFIT PENSION PLAN (Continued)
The components of pension expense and related actuarial assumptions
and methods were as follows:
1998 1997
---- ----
Service cost $ 10 $ 9
Interest and actuarial costs 12 21
------- ------
Net periodic benefit cost $ 22 $ 30
======= ======
NOTE 7 - INCOME TAXES
The income tax provision is comprised of the following:
December 31,
-----------
1998 1997
---- ----
Current payable $ 1,640 $ 947
Deferred income (benefit) 33 (3)
------- ------
$ 1,673 $ 944
======= ======
The difference between the effective tax rate and the statutory rates
is reconciled below:
December 31,
-----------
1998 1997
---- ----
Dollars Tax Rate Dollars Tax Rate
------- -------- ------- --------
Statutory rates $1,664 41.3% $ 924 40.8%
Permanent items and local taxes 9 .3% 20 .9%
----- ---- ----- ----
$1,673 41.6% $ 944 41.7%
===== ==== ===== ====
13
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
NOTE 7 - INCOME TAXES (Continued)
Significant components of the deferred tax assets and liabilities
are as follows:
December 31,
-----------
1998 1997
---- ----
Deferred tax assets
Pension obligations 64 90
Other assets 4 -
Unrealized foreign
currency translation loss 318 658
------ ------
386 748
------ ------
Deferred tax liabilities
Plant and equipment $ 147 $ 130
Unrealized gain on
pension liability 76 29
------ ------
223 159
------ ------
Net deferred tax asset $ 163 $ 589
====== ======
The Company's operations are included in the tax filings of the respective
Rhodia Chimie S.A. parent company in each country. All tax payments and benefits
are transacted with and all receivables and liabilities are due from or to such
parent entity.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Contracts: On December 10, 1998, Rhodia Chimie S.A. signed a purchase agreement
with an international purveyor of gallium. Pursuant to this agreement, Rhodia
Chimie S.A. agreed to purchase pure gallium metal from this purveyor in three
lots during the course of 1999. As of August 31, 1999, the remaining commitment
amounts to approximately $5,000. The expected sales prices exceed the purchase
commitment prices.
The Company has a long-term contract for the supply of aluminate liquor from a
vendor on whose property the German gallium extraction plant is located. The
Company has in place a long-term supply agreement with this vendor.
Litigation: The Company believes that there are no disputes or exceptional items
which, taken individually or as a group, could have a significant negative
impact on its activity, financial position, or results.
NOTE 9 - CONCENTRATION OF CREDIT RISK
At December 31, 1998 and 1997, the Company had account receivables from other
non-gallium Rhodia Chimie S.A. companies that represented 100% and 97%,
respectively, of total accounts receivable. Sales to these non-gallium Rhodia
Chimie S.A. companies represented 78% and 84% of total sales for the years ended
December 31, 1998 and 1997, respectively.
NOTE 10 - SUBSEQUENT EVENTS
On September 3, 1999, Rhodia Chimie S.A. contributed the assets and liabilities
of the Rhodia Gallium business unit to a newly formed subsidiary, Rhod Six S.A.
Also on September 3, 1999, the ownership of Ingal Stade GmbH was transferred
from Rhodia Deutschland GmbH to Rhod Six S.A. The Controlling and Profit
Transfer Agreement between Ingal Stade GmbH and Rhodia Deutschland GmbH was
terminated effective January 1, 1999.
On September 8, 1999, Rhodia Chimie S.A. sold the stock of Rhod Six S.A.
liabilities, of the Company to GEO Specialty Chemicals, Inc. for approximately
$21,500.
(Continued)
14
RHODIA GALLIUM,
A BUSINESS UNIT OF RHODIA CHIMIE S.A.
NOTES TO COMBINED FINANCIAL STATEMENTS (in 000's)
December 31, 1998 and 1997
In September 1999, Rhodia Gallium received the second lot of pure gallium
purchased from an international purveyor (see Note 8) pursuant to an agreement
signed in December 1998, for an approximate amount of $2,300.
15