**Exhibit 99.2**

 

 

**PQCORPORATIONUnaudited Condensed ConsolidatedFinancial Statements and FootnotesFor the Periods Ended:   September 30,2005**

 

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**EXPLANATORYNOTE**

Theseunaudited condensed consolidated financial statements are being filed torestate previously issued condensed consolidated financial statements includedin Form S-4 as filed with the SEC (“Original Report”) to reflect thecorrection of accounting errors related to purchase accounting. See Note 1 tothe condensed consolidated financial statements for the Successor three monthand thirty-three week periods ended September 30, 2005 for a discussion ofthe nature of these errors and the impact on the restated condensedconsolidated financial statements.

Exceptfor matters related to the aforementioned restatement and for changes tofinancial statement footnotes 3, 4, 5, 6, 10, 14 and 16, this amendment doesnot modify or update other disclosures in the Original Report, including thenature and character of such disclosure to reflect events occurring after thefiling date of the Original Report. Accordingly, these unaudited financialstatements and footnotes should be read in conjunction with our filings madesubsequent to the Original Report.

**INDEX**
|                             |                                                                  |   |
|----------------------------------|-----------------------------------------------------------------------|--------|
|                             |                                                                  |   |
| Financial Statements (unaudited) |
|                             |                                                                  |   |
|                             | CONDENSED CONSOLIDATED BALANCE SHEETS                                 |
|                             |                                                                  |   |
|                             | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS —  THIRD QUARTER |
|                             |                                                                  |   |
|                             | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — NINE  MONTHS   |
|                             |                                                                  |   |
|                             | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                       |
|                             |                                                                  |   |
|                             | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                  |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |   |
|                             |                                                                  |
|                                  |                                                                       |        |  |

 

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PQ CORPORATION ANDSUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)(unaudited)

 
| ** **                                              | ** ** | **Successor**          | ** ** | **Predecessor**       | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                              | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                                              | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| ** **                                              | ** ** | **(as restated)** | ** ** | ** **            | ** ** |
| ASSETS                                                  |       |                   |       |                  |       |
| Cash and cash  equivalents                              |       | $                      | 49,137     |                  | $          | 12,809 |   |
| Receivables, net                                        |       | 103,949                |       | 89,331                |       |
| Inventories                                             |       | 76,683                 |       | 62,926                |       |
| Prepaid and  other current assets                       |       | 37,259                 |       | 15,918                |       |
| Total current assets                                    |       | 267,028                |       | 180,984               |       |
|                                                    |       |                   |       |                  |       |
| Investments in  affiliated companies                    |       | 65,875                 |       | 27,305                |       |
| Property, plant  and equipment, net                     |       | 323,438                |       | 233,986               |       |
| Goodwill                                                |       | 240,890                |       | 28,993                |       |
| Tradenames                                              |       | 53,000                 |       | —                |       |
| Other intangible  assets, net                           |       | 85,178                 |       | 2,805                 |       |
| Other long-term  assets                                 |       | 54,512                 |       | 35,440                |       |
| Total assets                                            |       | $                      | 1,089,921  |                  | $          | 509,513 |   |
|                                                    |       |                   |       |                  |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY              |       |                   |       |                  |       |
| Notes payable  and current maturities of long-term debt |       | $                      | 6,303      |                  | $          | 17,673 |   |
| Cash overdraft                                          |       | 2,430                  |       | 4,653                 |       |
| Accounts payable                                        |       | 46,779                 |       | 42,993                |       |
| Accrued  liabilities                                    |       | 57,294                 |       | 48,955                |       |
| Total current liabilities                               |       | 112,806                |       | 114,274               |       |
|                                                    |       |                   |       |                  |       |
| Long-term debt                                          |       | 605,038                |       | 53,391                |       |
| Deferred income  taxes                                  |       | 144,363                |       | 5,111                 |       |
| Other long-term  liabilities                            |       | 74,606                 |       | 52,408                |       |
| Minority  interest in equity of subsidiaries            |       | 6,395                  |       | 4,038                 |       |
| Commitments and  contingencies                          |       |                   |       |                  |       |
| Shares subject  to mandatory redemption                 |       | —                 |       | 6,361                 |       |
| Stockholders’  equity                              |       | 146,713                |       | 273,930               |       |
| Total  liabilities and stockholders’ equity        |       | $                      | 1,089,921  |                  | $          | 509,513 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

1

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PQ CORPORATION ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands)(unaudited)

 
| ** **                                       | ** ** | **Successor**          | ** ** | ** ** | ** ** | **Predecessor**        | ** ** |
|--------------------------------------------------|------------|------------------------|------------|------------|------------|------------------------|------------|
| ** **                                       | ** ** | **Three months**  | ** ** | ** ** | ** ** | **Three months**  | ** ** |
| ** **                                       | ** ** | **ended**              | ** ** | ** ** | ** ** | **ended**              | ** ** |
| ** **                                       | ** ** | **September 30,** | ** ** | ** ** | ** ** | **September 30,** | ** ** |
| ** **                                       | ** ** | **2005**               | ** ** | ** ** | ** ** | **2004**               | ** ** |
| ** **                                       | ** ** | **(as restated)** | ** ** | ** ** | ** ** | ** **             | ** ** |
| Sales                                            |       | $                      | 170,974    |       |       |                   | $          | 163,655 |   |
| Cost of goods  sold                              |       | 135,803                |       |       |       | 118,783                |       |
| Gross profit                                     |       | 35,171                 |       |       |       | 44,872                 |       |
|                                             |       |                   |       |       |       |                   |       |
| Selling, general  and administrative expenses    |       | 19,820                 |       |       |       | 23,749                 |       |
| Other operating  (income) expense                |       | (2,075                 | )          |       |       | 2,732                  |       |
|                                             |       |                   |       |       |       |                   |       |
| Operating income                                 |       | 17,426                 |       |       |       | 18,391                 |       |
|                                             |       |                   |       |       |       |                   |       |
| Equity in net  income of affiliated companies    |       | 2,277                  |       |       |       | 2,591                  |       |
| Interest  expense, net                           |       | 10,716                 |       |       |       | 1,723                  |       |
| Other expense  (income)                          |       | 255                    |       |       |       | (357                   | )          |
| Income before income taxes and minority interest |       | 8,732                  |       |       |       | 19,616                 |       |
|                                             |       |                   |       |       |       |                   |       |
| Provision for  income taxes                      |       | 9,820                  |       |       |       | 2,395                  |       |
| Minority interest                                |       | 106                    |       |       |       | 169                    |       |
| Net (loss)  income                               |       | $                      | (1,194     | )          |       |                   | $          | 17,052 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

2

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PQ CORPORATION ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands)(unaudited)

 
| ** **                                              | ** ** | **Successor**          | ** ** | ** ** | ** ** | **Predecessor**       | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|------------|------------|-----------------------|------------|
| ** **                                              | ** ** | **Thirty-three**       | ** ** | ** ** | ** ** | **Six weeks**    | ** ** | **Nine months** | ** ** |
| ** **                                              | ** ** | **weeks ended**   | ** ** | ** ** | ** ** | **ended**             | ** ** | **ended** | ** ** |
| ** **                                              | ** ** | **September 30,** | ** ** | ** ** | ** ** | **February 11,** | ** ** | **September 30,** | ** ** |
| ** **                                              | ** ** | **2005**               | ** ** | ** ** | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                              | ** ** | **(as restated)** | ** ** | ** ** | ** ** | ** **            | ** ** | ** ** | ** ** |
| Sales                                                   |       | $                      | 422,282    |       |       |                  | $          | 64,195 |   | $ | 466,622 |   |
| Cost of goods  sold                                     |       | 339,799                |       |       |       | 48,576                |       | 346,000 |   |
|                                                    |       |                   |       |       |       |                  |       |   |   |
| Gross profit                                            |       | 82,483                 |       |       |       | 15,619                |       | 120,622 |   |
|                                                    |       |                   |       |       |       |                  |       |   |   |
| Selling, general  and administrative expenses           |       | 56,335                 |       |       |       | 11,221                |       | 67,455 |   |
| Other operating  expense                                |       | 17,031                 |       |       |       | 12,267                |       | 3,958 |   |
|                                                    |       |                   |       |       |       |                  |       |   |   |
| Operating income (loss)                                 |       | 9,117                  |       |       |       | (7,869                | )          | 49,209 |   |
|                                                    |       |                   |       |       |       |                  |       |   |   |
| Equity in net  income (loss) of affiliated companies    |       | 2,706                  |       |       |       | (265                  | )          | 6,659 |   |
| Interest  expense, net                                  |       | 26,370                 |       |       |       | 771                   |       | 5,182 |   |
| Other expense                                           |       | 7,528                  |       |       |       | 356                   |       | 713 |   |
|                                                    |       |                   |       |       |       |                  |       |   |   |
| Income (loss) before income taxes and minority interest |       | (22,075                | )          |       |       | (9,261                | )          | 49,973 |   |
|                                                    |       |                   |       |       |       |                  |       |   |   |
| Provision  (benefit) for income taxes                   |       | 4,606                  |       |       |       | (2,522                | )          | 12,565 |   |
| Minority  interest                                      |       | 243                    |       |       |       | 59                    |       | 414 |   |
| Net (loss)  income                                      |       | $                      | (26,924    | )          |       |                  | $          | (6,798 | ) | $ | 36,994 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

3

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 PQ CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS (in thousands) (unaudited)

 
| ** **                                                    | ** ** | **Successor**               | ** ** | ** ** | ** ** | **Predecessor**       | ** ** |
|---------------------------------------------------------------|------------|-----------------------------|------------|------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **Thirty-three weeks** | ** ** | ** ** | ** ** | **Six weeks**    | ** ** | **Nine months** | ** ** |
| ** **                                                    | ** ** | **ended**                   | ** ** | ** ** | ** ** | **ended**             | ** ** | **ended** | ** ** |
| ** **                                                    | ** ** | **September 30,**      | ** ** | ** ** | ** ** | **February 11,** | ** ** | **September 30,** | ** ** |
| ** **                                                    | ** ** | **2005**                    | ** ** | ** ** | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                                                          |       |                        |       |       |       |                  |       |   |   |
| Net cash  provided by (used in) operating activities          |       | $                           | 6,137      |       |       |                  | $          | (6,965 | ) | $ | 54,543 |   |
| Cash flows from  investing activities:                        |       |                        |       |       |       |                  |       |   |   |
| Proceeds from sale of capital assets                          |       | —                      |       |       |       | —                |       | 3 |   |
| Investment in affiliates                                      |       | 107                         |       |       |       | —                |       | — |   |
| Purchases of property, plant and equipment                    |       | (15,563                     | )          |       |       | (2,358                | )          | (21,032 | ) |
| Merger consideration                                          |       | (626,000                    | )          |       |       | —                |       | — |   |
| Merger costs, capitalized                                     |       | (6,485                      | )          |       |       | —                |       | — |   |
| Net cash used for investing activities                        |       | (647,941                    | )          |       |       | (2,358                | )          | (21,029 | ) |
|                                                          |       |                        |       |       |       |                  |       |   |   |
| Cash flows from  financing activities:                        |       |                        |       |       |       |                  |       |   |   |
| Notes payable and cash overdrafts, net                        |       | 2,624                       |       |       |       | 44,857                |       | (4,720 | ) |
| Issuance of long-term debt                                    |       | 335,000                     |       |       |       | —                |       | — |   |
| Issuance of senior notes                                      |       | 275,000                     |       |       |       | —                |       | — |   |
| Debt acquisition costs                                        |       | (16,503                     | )          |       |       | —                |       | — |   |
| Repayments of long-term debt                                  |       | (115,949                    | )          |       |       | —                |       | (10,308 | ) |
| Proceeds from issuances of treasury stock                     |       | —                      |       |       |       | 1,161                 |       | 711 |   |
| Purchases of stock                                            |       | —                      |       |       |       | (47                   | )          | (4,153 | ) |
| Equity contribution                                           |       | 164,188                     |       |       |       | —                |       | — |   |
| Distributions to minority interest                            |       | (185                        | )          |       |       | —                |       | (271 | ) |
| Dividend distribution                                         |       | —                      |       |       |       | —                |       | (10,762 | ) |
| Net cash provided by (used in) financing activities           |       | 644,175                     |       |       |       | 45,971                |       | (29,503 | ) |
|                                                          |       |                        |       |       |       |                  |       |   |   |
| Effect of  exchange rate changes on cash and cash equivalents |       | (1,991                      | )          |       |       | (700                  | )          | (739 | ) |
|                                                          |       |                        |       |       |       |                  |       |   |   |
| Net change in  cash and cash equivalents                      |       | 380                         |       |       |       | 35,948                |       | 3,272 |   |
|                                                          |       |                        |       |       |       |                  |       |   |   |
| Cash and cash  equivalents at beginning of period             |       | 48,757                      |       |       |       | 12,809                |       | 10,784 |   |
|                                                          |       |                        |       |       |       |                  |       |   |   |
| Cash and cash  equivalents at end of period                   |       | $                           | 49,137     |       |       |                  | $          | 48,757 |   | $ | 14,056 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

4

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PQ CORPORATION &SUBSIDIARIES

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

(unaudited)

**1.****                  Statement ofInformation Furnished:**

On December 15, 2004, PQ Corporation (“Company”)and Niagara Acquisition, Inc. and its parent company, Niagara Holdings, Inc.(“Holdings”), entered into an Agreement and Plan of Merger, pursuant to whichNiagara Acquisition, Inc. merged with and into PQ Corporation, with PQCorporation continuing as the surviving entity and a wholly-owned subsidiary ofHoldings (the “Merger”). Holdings is a Delaware corporation, a substantialmajority of the outstanding capital stock of which is owned by JPMorganPartners LP and certain affiliated funds (“Sponsors”). The Merger wasconsummated on February 11, 2005. The total merger consideration paid,excluding fees and expenses, consists of the stated purchase price of $626,000and capitalized acquisition costs of $6,485.

In connection with the Merger, substantially allexisting debt of the Company, $120,849 as of February 11, 2005, wasrepaid, including interest and make-whole payments of $5,185 for the earlyretirement of debt. The Merger was financed through borrowings under a$335,000 term loan, the issuance of $275,000 of senior subordinatednotes, a $163,600 equity contribution from the Sponsors and existing cash onhand.

The Company refers to the Merger and the relatedfinancings described above, collectively, as the Transactions. For purposes ofidentification and description, the Company is referred to as the Predecessor forthe period prior to the Transactions on February 11, 2005, and theSuccessor for the period subsequent to the Transactions.

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financialinformation. In the opinion of management, all adjustments of a normal andrecurring nature necessary to present fairly the financial position and resultsof operations have been included. The results of operations are not necessarilyindicative of the results to be expected for the full year. The accompanyingcondensed consolidated financial statements should be read in conjunction withthe audited consolidated financial statements and notes thereto for the yearended December 31, 2004.

***Restatement***

In connection with our year-end close, the Companydetermined a portion of the amount allocated to inventory through our initialpurchase accounting for inventory acquired in the Transactions was incorrectlycharged to cost of goods sold in the Successor’s Condensed ConsolidatedStatement of Operations. Given the Company accounts for certain of itsinventory under the last-in, first-out (“LIFO”) method of inventory accounting,the portion of the fair value allocation relating to LIFO inventory should nothave been charged to the Statement of Operations but instead, should haveremained on the Company’s Balance Sheet.

The primary effects of the restatement on the September 30,2005 financial statements are summarized below:

On the Consolidated Balance Sheet inventory wasunderstated by $10,391, total current assets was understated by $10,391,retained earnings was understated by $6,416 and total stockholders’ equity wasunderstated by $6,416.

On the Consolidated Statement of Operations for thethirty-three weeks ended September 30, 2005, cost of good sold wasoverstated by $10,391, benefit for income taxes was overstated by $3,975, andnet loss was overstated by $6,416. For the three months ended September 30,2005, cost of goods sold was overstated by $114, provision for income taxes wasunderstated by $44, and net income was understated by $70.

In addition, in connection with the preparation of itsyear end 2005 financial statements, the Company determined that its deferredtax liability on the undistributed earnings of non-U.S. subsidiaries was notproperly calculated for the prior interim periods during 2005. Given that theSuccessor’s management does not consider the earnings of non-U.S. subsidiariesto be permanently reinvested, as had the Predecessor, the impact of this changeis being recorded as a purchase accounting adjustment to the February 11,2005 opening balance sheet. The impact of this restatement on the September 30,2005 financial statements is an increase to deferred income taxes and goodwillof $33,661 compared to the amounts previously recorded. Also, in theConsolidated Statement of Operations for thirty-three weeks ended September 30,2005, the benefit for income taxes was overstated and net loss was understatedby $1,581. For the three months ended September 30, 2005, the provisionfor income taxes was understated and net income was overstated by $1,033.

5

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In addition, the Company made certain other immaterialreclassifications and purchase accounting related adjustments to the restatedfinancial statements. There is no impact on the net cash used in operatingactivities, net cash used for investing activities, or on net cash provided byfinancing activities as reported on the condensed consolidated statements ofcash flows.

The following schedules reconcile the amountoriginally reported in the Company’s financial statements included inForm S-4 to corresponding amounts which have been revised to reflectthe matters described above.
| ** **                                               | ** ** | **Successor**                    | ** ** | **Successor**                          | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|----------------------------------------|------------|
| ** **                                               | ** ** | **Three months ended** | ** ** | **Thirty-three weeks ended** | ** ** |
| ** **                                               | ** ** | **September 30, 2005** | ** ** | **September 30, 2005**       | ** ** |
| ** **                                               | ** ** | **As Reported**             | ** ** | **As Restated**                   | ** ** | **As Reported** | ** ** | **As Restated** | ** ** |
| Cost of goods  sold                                      |       | $                                | 133,584    |                                   | $          | 135,803 |   | $ | 344,665 |   | $ | 339,799 |   |
| Gross profit                                             |       | 35,057                           |       | 35,171                                 |       | 72,092 |   | 82,483 |   |
| Operating income  (loss)                                 |       | 17,645                           |       | 17,426                                 |       | (941 | ) | 9,117 |   |
| Equity in net  income (loss) of affiliated companies     |       | 2,532                            |       | 2,277                                  |       | 3,344 |   | 2,706 |   |
| Interest  expense, net                                   |       | 10,716                           |       | 10,716                                 |       | 27,460 |   | 26,370 |   |
| Income (loss)  before income taxes and minority interest |       | 9,206                            |       | 8,732                                  |       | (32,585 | ) | (22,075 | ) |
| Provision  (benefit) for income taxes                    |       | 2,547                            |       | 9,820                                  |       | (6,972 | ) | 4,606 |   |
| Net income (loss)                                        |       | 6,553                            |       | (1,194                                 | )          | (25,856 | ) | (26,924 | ) |
|                                                          |            |                                  |            |                                        |            |  |  |  |  |  |  |  |  |

 
| ** **                                       | ** ** | **Successor**                    | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|
| ** **                                       | ** ** | **September 30, 2005** | ** ** |
| ** **                                       | ** ** | **As Reported**             | ** ** | **As Restated** | ** ** |
| Inventories                                      |       | $                                | 66,292     |   | $ | 76,683 |   |
| Total current  assets                            |       | 256,637                          |       | 267,028 |   |
| Investments in  affiliated companies             |       | 66,513                           |       | 65,875 |   |
| Goodwill                                         |       | 206,139                          |       | 240,890 |   |
| Total assets                                     |       | 1,045,417                        |       | 1,089,921 |   |
| Accrued  liabilities                             |       | 49,403                           |       | 57,294 |   |
| Total current  liabilities                       |       | 104,915                          |       | 112,806 |   |
| Deferred income  taxes                           |       | 106,681                          |       | 144,363 |   |
| Total  liabilities                               |       | 891,240                          |       | 936,813 |   |
| Stockholders’  equity                       |       | 147,782                          |       | 146,713 |   |
| Total liabilities and  stockholders’ equity |       | 1,045,417                        |       | 1,089,921 |   |
|                                                  |            |                                  |            |  |  |  |  |

 

In accordance with the Emerging Issues Task Force (“EITF”)No. 00-10 “Accounting for Shipping and Handling Revenues and Costs,”costs related to shipping and handling of products shipped to customers areclassified as cost of goods sold. The Company reclassed freight costs whichwere previously netted against sales to cost of goods sold of $2,333 and$5,526, respectively, for the Successor thirteen and thirty-three weeks ended September 30,2005, $780 for the Predecessor six weeks ended February 11, 2005 and$1,465 and $4,090, respectively, for the Predecessor thirteen and thirty-nineweeks ended September 30, 2004 in order to present sales for all periodsshown on a consistent basis.

**2.****                Recently IssuedAccounting Standards:**

In December 2004, Statement of FinancialAccounting Standards (“SFAS”) No. 123(R), “Share-Based Payment”, wasissued. The amendment requires companies to recognize in the income statementthe grant-date fair value of stock options and other equity-based compensationto employees. It also provides guidance for determining whether an award is aliability-classified award or an equity-classified award, and for determininggrant-date fair value. In April 2005, the Securities and ExchangeCommission (“SEC”) approved a rule that delayed the effective date ofadoption for the Company until the first quarter of 2006. In March 2005,the SEC issued Staff Accounting Bulletin (“SAB”) No. 107 which expressedthe views of the SEC regarding the interaction between SFAS No. 123(R) andcertain SEC rules and regulations. SAB No. 107 provides guidancerelated to the valuation of share-based payment arrangements

6

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for public companies, including assumptions such asexpected volatility and expected term. Management is examining itsshared-based-programs and is still evaluating the impact of adopting SFAS No. 123(R) and SAB No. 107, if any.

In November 2004,SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43,Chapter 4,” was issued. SFAS No. 151 is the result of efforts toconverge U.S. accounting standards for inventories with International AccountingStandards. SFAS No. 151 requires abnormal amounts of idle facilityexpense, freight, handling costs and spoilage to be recognized ascurrent-period charges. It also requires that allocation of fixed productionoverheads to the costs of conversion be based on the normal capacity of theproduction facilities. SFAS No. 151 will be effective for inventory costsincurred during fiscal years beginning after June 15, 2005. The Company isin the process of evaluating the impact, if any, of SFAS No. 151.

In December 2004,two FASB Staff Positions (“FSPs”) were issued to address accounting issuesresulting from the enactment of the American Jobs Creation Act of 2004 (“JobsCreation Act”), which occurred on October 22, 2004. The first, FSP 109-1,“Application of FASB Statement No. 109, ‘Accounting for Income Taxes,’ tothe Tax Deduction on Qualified Production Activities Provided by the AmericanJobs Creation Act of 2004,” was issued to address whether a deduction forqualified production activities income should be accounted for as a deductionunder SFAS No. 109 or as a tax rate reduction. This FSP is not expected tohave a material impact on the Company’s financial position or results ofoperations. The second, FSP 109-2, “Accounting and Disclosure Guidancefor the Foreign Earnings Repatriation Provision within the American JobsCreation Act of 2004,” addresses whether an enterprise should be allowedadditional time beyond the 2004 financial reporting period to evaluate theimpact of the Jobs Creation Act and plans for unremitted foreign earningsrepatriation. The FSP provides an entity with additional time to evaluate theeffect of the Jobs Creation Act, which is an exception to the provisions ofSFAS No. 109 that require an entity to adjust its deferred tax assets andliabilities for the effects of a change in tax laws or rates in the period thatincludes the enactment date. A provision of the Act allows United Statescompanies to repatriate foreign earnings at a substantially reduced tax rateuntil December 2005. The Company has decided to avail itself of thisprovision of the Act. However, it is still in the process of determining towhat extent the Act will be utilized and the total amount of funds to berepatriated. Refer to the income taxes footnote for additional discussion.

In March 2005, FASBInterpretation No. 47, “Accounting for Conditional Asset RetirementObligations” (“FIN 47”), was issued. This statement clarifies the term “conditionalasset retirement obligation”**asused in SFAS No. 143, “Accounting for Asset Retirement Obligations” whichrefers to a legal obligation to perform an asset retirement activity in whichthe timing and/or method of settlement are conditional on a future event thatmay or may not be within the control of the entity. FIN 47 requires an entityto recognize a liability for the fair value of a conditional asset retirementobligation if the fair value of the liability can be reasonably estimated. FIN47 will be effective for the fourth quarter of 2005. The Company does notexpect that the adoption of FIN 47 will have a material impact on its financial condition, results of operations orstatements of cash flows.

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections—a replacement of APB Opinion No. 20 and FASBStatement No. 3.”  This Statementreplaces APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3,“Reporting Accounting Changes in Interim Financial Statements”, and changes therequirements for the accounting for and reporting of a change in accountingprinciple. This Statement applies to all voluntary changes in accountingprinciple. It also applies to changes required by an accounting pronouncementin the unusual instance that the pronouncement does not include specifictransition provisions. When a pronouncement includes specific transitionprovisions, those provisions should be followed. The provisions of SFAS No. 154are effective for fiscal years beginning after December 15, 2005. TheCompany does not expect that the adoption of SFAS No. 154 will have amaterial impact on its financial condition,results of operations or statements of cash flows.

**3.      Business Combination:**

SFAS No. 141, “Business Combinations,” andSFAS No. 142, “Goodwill and Other Intangible Assets,” govern the accountingand reporting for business combinations. SFAS No. 141 requires allbusiness combinations be accounted for using the purchase method of accounting.SFAS No. 142 provides that goodwill and other intangible assets withindefinite lives will not be amortized, but will be tested for impairment on atleast an annual basis. The Successor has accounted for the Transactions inaccordance with these standards. The Merger is being treated as a purchase withHoldings (whose sole asset is its investment in the common stock of theCompany) as the accounting acquirer in accordance with SFAS No. 141.

7

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Immediately prior to closing, pursuant to theiroriginal terms, all of the Predecessor’s outstanding stock options and awardsvested and the Predecessor exercised its option to purchase, at fair value, allof the shares of common stock to be acquired by exercise of options and awardsheld by employees pursuant to the Stock Option and Award Plan. As a result,immediately before the Transactions, compensation expense of approximately$2,400 was recorded in selling, general and administrative expenses in theConsolidated Statement of Operations for the six weeks ended February 11,2005 for the unvested portion of the options and awards.

The closing of the Transactions represented a changein control under certain executives’ employment agreements. As a result, theCompany recorded a charge in other expense of approximately $5,600 forseverance provided to certain executives terminated before the closing of theTransactions in the Predecessor’s Statement of Operations. In addition, theSuccessor is required to pay $3,929 pursuant to these agreements to executiveswho resigned subsequent to the Transactions and recorded a charge for suchamount in the Successor’s Consolidated Statement of Operations.

The Company incurred other costs relating to theTransactions, primarily for sponsor fees, broker fees, legal and consulting ofapproximately $6,158 and $12,808 that were recorded in other operating expensein the Predecessor’s and Successor’s Statements of Operations, respectively. Theportion of Transaction expenses incurred during the three months ended September 30,2005 was $159.

The table below summarizes the allocation of the totalcost of the Merger to the assets acquired and liabilities assumed. The purchaseprice was allocated first to tangible and identifiable intangible assetsacquired and liabilities assumed based upon their estimated fair values. Theremaining excess of the purchase price over the fair value of assets acquiredand liabilities assumed was then recorded as goodwill. The allocation ofpurchase price is based, in part, on appraisals and is subject to furtheranalysis and completion. Any revision to the estimated fair values of assetsacquired and liabilities assumed will result in an adjustment to goodwill. 
| ** **                                                  | ** ** | **(as restated)** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|
| Net cash paid to  acquire stock                             |       | $                      | 626,000    |   |
| Transaction  costs, capitalized                             |       | 6,485                  |       |
|                                                        |       |                   |       |
| Total purchase price                                        |       | $                      | 632,485    |   |
|                                                        |       |                   |       |
| The purchase  price was preliminarily allocated as follows: |       |                   |       |
| Cash                                                        |       | $                      | 48,756     |   |
| Receivables                                                 |       | 91,651                 |       |
| Inventories                                                 |       | 98,444                 |       |
| Prepaid and other current assets                            |       | 16,385                 |       |
| Property, plant and equipment                               |       | 337,442                |       |
| Investments in affiliated companies                         |       | 68,742                 |       |
| Goodwill                                                    |       | 240,890                |       |
| Other intangible assets                                     |       | 157,595                |       |
| Other assets                                                |       | 30,805                 |       |
|                                                        |       |                   |       |
| Fair value of assets acquired                               |       | 1,090,710              |       |
| Current liabilities                                         |       | (146,955               | )          |
| Long-term debt                                              |       | (80,665                | )          |
| Deferred income taxes                                       |       | (144,067               | )          |
| Other liabilities                                           |       | (86,538                | )          |
|                                                        |       |                   |       |
| Purchase price                                              |       | $                      | 632,485    |   |
|                                                        |       |                   |       |

The Company believes that its leading market positionsand diverse range of industrial, consumer and governmental applications inwhich its products are used were the primary reasons that contributed to atotal purchase price that resulted in the recognition of goodwill. The total otherintangible assets amounted to $157,595, of which $53,000 was assigned to tradenames that are not subject to amortization. In addition, total other intangibleassets included $3,338

8

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of capitalized in-process research and developmentthat was immediately written off to selling, general and administrativeexpenses in the Successor’s Statement of Operations.

In accordance with the requirements of the purchasemethod of accounting for acquisitions, inventories as of February 11, 2005were recorded at net realizable value (which is defined as estimated sellingprices less the sum of (a) costs of disposal and (b) a reasonableprofit allowance for the selling effort of the acquiring entity) which, in thecase of finished products, was $24,555 higher than the Predecessor’s historicalmanufacturing cost. The Successor’s cost of products sold include a pre-taxcharge of $418 and $9,992 for the portion of finished product sold during thethree months and thirty-three weeks ended September 30, 2005,respectively.

In addition, certain raw material inventory purchasedunder favorable supply agreements was revalued to fair market value, which was$2,473 higher than historical cost. The Successor’s cost of products soldinclude a pre-tax charge of $356 and $944 for the portion of raw materials usedin finished products that were sold during the three months andthirty-three weeks ended September 30, 2005, respectively.

In May 2005, management finalized plans toterminate certain employees in the United States and at certain foreignsubsidiaries. Employees terminated under this plan are entitled to receiveseverance pay and benefits totaling approximately $4,900 which was included inaccrued liabilities in the opening balance sheet of the Successor. Cashexpenditures toward this program of $2,448 have been made through September 30,2005 and charged against the reserve.

**4.      ProForma Information:**

The following schedule includes statements ofoperations data for the unaudited results as if the Transactions had occurredas of January 1 of each respective year. The pro forma informationincludes the actual results with adjustments for the pro forma effect of thechange in interest expense related to the changes in capital structureresulting from the financings discussed in Note 9, purchase accountingadjustments resulting in changes to depreciation and amortization expenses, therevaluation of inventory to fair market value, amortization of the step up ofinvestment in affiliates and the reduction in pension and postretirement benefitexpense resulting from the elimination of the unamortized actuarial losses andprior service costs and the unamortized transition obligation.

The unaudited pro forma information is provided forillustrative purposes only. It does not purport to represent what the resultsof operations would have been had the Transactions occurred on the datesindicated above, nor does it purport to project the results of operations forany future period. 
| ** ** | ** ** | **Pro forma nine months**

**ended September 30,** | ** ** |
|------------|------------|-----------------------------------------------------------------------------|------------|
| ** ** | ** ** | **2005**                                                                    | ** ** | **2004** | ** ** |
| ** ** | ** ** | **(as restated)**                                                      | ** ** |
| Net sales  |       | $                                                                           | 486,477    |   | $ | 466,622 |   |
| Net loss   |       | (6,851                                                                      | )          | (2,106 | ) |
|            |            |                                                                             |            |  |  |  |  |

 

9

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**5.      Comprehensive (Loss) Income:**

Thefollowing table summarizes comprehensive (loss) income:
| ** **                                                | ** ** | **Successor**          | ** ** | **Predecessor**       | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                | ** ** | **Thirty-three**       | ** ** | **Six weeks**    | ** ** | **Nine months** | ** ** |
| ** **                                                | ** ** | **weeks ended**   | ** ** | **ended**             | ** ** | **ended** | ** ** |
| ** **                                                | ** ** | **September 30,** | ** ** | **February 11,** | ** ** | **September 30,** | ** ** |
| ** **                                                | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                                | ** ** | **(as restated)** | ** ** | ** **            | ** ** | ** ** | ** ** |
| Net (loss)  income                                        |       | $                      | (26,924    | )                     | $          | (6,798 | ) | $ | 36,994 |   |
|                                                      |       |                   |       |                  |       |   |   |
| Gains in fair values of derivatives qualifying as  hedges |       | 20,373                 |       | 785                   |       | 6,739 |   |
| Foreign currency translation losses, net of tax           |       | (11,014                | )          | (4,676                | )          | (2,043 | ) |
|                                                      |       |                   |       |                  |       |   |   |
| Comprehensive (loss)  income                              |       | $                      | (17,565    | )                     | $          | (10,689 | ) | $ | 41,690 |   |

 

**6.       Inventories:**

Inventories were classified and valued asfollows:
| ** **                            | ** ** | **Successor**          | ** ** | **Predecessor**       | ** ** |
|---------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                            | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| ** **                            | ** ** | **(as restated)** | ** ** | ** **            | ** ** |
| By type:                              |       |                   |       |                  |       |
| Finished products and work in process |       | $                      | 55,860     |                  | $          | 47,493 |   |
| Raw materials and containers          |       | 20,823                 |       | 15,433                |       |
|                                  |       |                   |       |                  |       |
|                                  |       | $                      | 76,683     |                  | $          | 62,926 |   |
|                                  |       |                   |       |                  |       |
| Valued at lower  of cost or market:   |       |                   |       |                  |       |
| LIFO basis                            |       | $                      | 46,493     |                  | $          | 30,675 |   |
| FIFO basis                            |       | 4,851                  |       | 5,218                 |       |
| Average cost basis                    |       | 25,339                 |       | 27,033                |       |
|                                  |       |                   |       |                  |       |
|                                  |       | $                      | 76,683     |                  | $          | 62,926 |   |

 

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**7.       Property,Plant and Equipment:**

 

A summary of property, plant and equipment, atcost, and related accumulated depreciation and depreciation expense is asfollows:

 
| ** **                      | ** ** | **Successor**          | ** ** | **Predecessor**       | ** ** |
|---------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                      | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Land                            |       | $                      | 57,380     |                  | $          | 26,406 |   |
| Buildings                       |       | 87,640                 |       | 122,216               |       |
| Machinery and equipment         |       | 182,354                |       | 517,799               |       |
| Construction in  progress       |       | 20,486                 |       | 10,911                |       |
|                            |       | 347,860                |       | 677,332               |       |
| Less: accumulated  depreciation |       | 24,422                 |       | 443,346               |       |
|                            |       | $                      | 323,438    |                  | $          | 233,986 |   |

 

Depreciation expense was $24,422 for thethirty-three weeks ended September 30, 2005, $4,290 for the six weeksended February 11, 2005, and $25,809 for the nine months ended September 30,2004.

** **

**8.        Other Intangible Assets:**

 

Gross carrying amounts and accumulated amortization forintangible assets with estimable useful lives are as follows:

 
| ** **                           | ** ** | **Gross Amounts** | ** ** | **Accumulated Amortization** | ** ** |
|--------------------------------------|------------|------------------------|------------|-----------------------------------|------------|
| ** **                           | ** ** | **Successor**          | ** ** | **Predecessor**                   | ** ** | **Successor** | ** ** | **Predecessor** | ** ** |
| ** **                           | ** ** | **September 30,** | ** ** | **December 31,**             | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                           | ** ** | **2005**               | ** ** | **2004**                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| Formulations and product  technology |       | $                      | 53,200     |                              | $          | 1,570 |   | $ | (2,845 | ) | $ | (722 | ) |
| Non compete agreements               |       | 3,900                  |       | 1,150                             |       | (824 | ) | (750 | ) |
| Raw material contracts               |       | 43,648                 |       | —                            |       | (12,256 | ) | — |   |
| Railcar leases                       |       | 509                    |       | —                            |       | (154 | ) | — |   |
| Customer lists and  rights to sell   |       | —                 |       | 2,631                             |       | — |   | (1,074 | ) |
|                                 |       |                   |       |                              |       |   |   |   |   |
| Total                                |       | $                      | 101,257    |                              | $          | 5,351 |   | $ | (16,079 | ) | $ | (2,546 | ) |

 

Theamortization periods for formulations and product technology, non-competeagreements and railcar leases are twelve years, three years and five years,respectively. The amortization period for raw material contracts is based onthe terms of the contracts; the longest of which is three years in duration.

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**9.        Long-termDebt:**

** **

The summary of long-term debt is as follows:

 
| ** **                                                                                                         | ** ** | **Successor**          | ** ** | **Predecessor**       | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                         | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Senior secured  term loans with interest at 5.50% as of September 30, 2005                                    |       | $                      | 333,325    |                  | $          | — |   |
| 7.50% Senior  subordinated notes due 2013                                                                          |       | 275,000                |       | —                |       |
| Senior notes  Series B with interest 7.06% as of December 31, 2004                                       |       | —                 |       | 32,727                |       |
| Senior notes due  2007 with interest at 7.84% as of December 31, 2004                                         |       | —                 |       | 21,428                |       |
| Revolving credit  agreements                                                                                       |       | —                 |       | 5,078                 |       |
| Adjustable  Tender Industrial Refunding Revenue Bonds due 2015with interest at 1.36% as  of December 31, 2004 |       | —                 |       | 9,600                 |       |
| Other                                                                                                              |       | 3,016                  |       | 2,231                 |       |
|                                                                                                               |       | 611,341                |       | 71,064                |       |
| Less: current  portion                                                                                             |       | (6,303                 | )          | (17,673               | )          |
|                                                                                                               |       | $                      | 605,038    |                  | $          | 53,391 |   |

 

In connection with the Transactions, substantially all existing debt asof February 11, 2005 was repaid in the amount of $120,849, includinginterest and make-whole payments.

On February 11, 2005, the Company issued $275,000of 7.5% senior subordinated notes due 2013 in transactions exempt from or notsubject to registration under the Securities Act pursuant to Rule 144Aunder the Securities Act and received cash proceeds of $267,781 after deductinginitial purchases discounts and expenses. The notes are senior subordinatedobligations of the Company and rank junior to all other senior indebtedness ofthe Company that does not contain similar subordination provisions. Theindenture relating to the notes contains various limitations on the Company’sability to incur additional indebtedness, pay dividends, sell assets and createliens, among other things. Interest on the notes is payable on February 15and August 15 of each year. No principal payments are required withrespect to the notes prior to their final maturity. Pursuant to a registrationrights agreement for the benefit of the holders of the notes, the Company hasfiled a registration statement with the Securities and Exchange Commission relatingto an offer to exchange the notes for registered notes having substantiallyidentical terms. The registration statement has not yet been declaredeffective.

On February 11,2005, the Company entered into a senior secured credit facility (“Senior CreditFacility”) having a term loan in the amount of $335,000 with a maturity date ofFebruary 11, 2012, and received cash proceeds of approximately $324,950after deducting underwriting fees and expenses. Interest on the term loan isvariable and is equal to LIBOR plus a margin of 2.0%. The Senior CreditFacility requires minimum quarterly principal payments of $838 on the termloan, as well as prepayments from all “net proceeds” received and “excess cashflow,” if applicable. In accordance with the Senior Credit Facility, netproceeds generally relate to proceeds received from the issuance or incurrenceof certain indebtedness or proceeds received on the disposition of assets,adjusted for certain costs and expenses, and are payable promptly upon receiptsubject, in the case of net proceeds from asset dispositions, to meeting thethresholds described below. Net proceeds prepayments in respect of assetdispositions are not payable unless they are in excess of certain minimumamounts, both on an individual basis for any given disposition and in theaggregate for dispositions that, individually, would not meet the threshold.Excess cash flow is to be calculated annually and is defined as earning beforeinterest, taxes, depreciation and amortization (“EBITDA”) adjusted for variousexpenditures and/or proceeds commencing with the 2005 fiscal year. Prepaymentswith respect to excess cash flow, if any, are to be made on an annual basis,with the first payment due March 31, 2006. The detailed calculationssupporting those two prepayments are defined in the credit agreement. Theremaining principal balance of the term loan is due upon maturity.

 

The Senior CreditFacility also provides for up to $100,000 in revolving credit borrowings.Borrowings under the revolving facility bear interest at a rate equal to thebase or LIBOR rate elected by the Company at the time of

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borrowing plus amargin which can range from 0.75% to 2.25%, based on the rate elected and theconsolidated leverage ratio of the Company. In addition, there is an annualcommitment fee equal to 0.5% of the unused revolving credit borrowingsavailable under the Senior Credit Facility. Revolving credit borrowings arepayable at the option of the Company throughout the term of the Senior CreditFacility with the balance due February 11, 2011. There were no outstandingrevolving credit borrowings under the Senior Credit Facility as of September 30,2005.

 

We have cross-country interest rate swapagreements denominated in euros that mature in 2009. These swap agreements aredesignated as a hedge of the net investment in our European operations. Thefair value of the net liability was recorded in other long-term liabilitieswith an offset, after taxes to foreign currency translation adjustments, acomponent of stockholders’ equity for $6,704 at September 30, 2005. In theevent the euro strengthens against the U.S. dollar the fair value of theliability will increase.

 

On June 30, 2005, we entered into across-currency interest rate swap agreement denominated in Canadian dollarswith a five year term. This swap agreement is designated as a hedge of the netinvestments in our Canadian operations. The fair value of the liability wasrecorded in other long-term liabilities with a related offset to foreigncurrency translation adjustments, net of taxes, for $3,258 at September 30,2005. In the event the Canadian dollar strengthens against the U.S. dollar thefair value of the liability will increase.

 

We have entered into forward contracts withrespect to the purchase of natural gas in our domestic operations. Thesecontracts had a fair value of $40,500 and $10,100 at September 30, 2005and September 30, 2004, respectively. The respective current andnon-current balances are recorded in prepaid and other current assets and otherlong-term assets. The related offset is recorded in other comprehensive income(loss), net of tax. Gains and losses are reclassified to production costs asthe natural gas is produced and used in the manufacturing process.

** **

**10.      IncomeTaxes (as restated):**

 

The effective tax provision rate of 20.9% and27.2% on the Company’s consolidated pre-tax loss for the thirty-three weeksended September 30, 2005 and six weeks ended February 11, 2005,respectively, differ from the U.S. statutory tax rate of 35.0% principally dueto non-deductible and partially deductible costs incurred related to thepurchase of the Company. The Successor period is also affected by the U.S. taxeffects on the earnings of non-U.S. subsidiaries.

 

The Company has incurred significant expensesrelating to the Transactions and increased interest expense from acquisitionindebtedness in 2005. These expenses are projected to substantially reduce itsdomestic taxable income for the year. These expenses will also significantlylimit the Company’s ability to use foreign tax credits to offset U.S. tax ondividends from foreign affiliates, and may result in the Company’s electing todeduct foreign income and withholding taxes rather than claim them as creditsfor U.S. tax purposes in 2005.

 

The American JobsCreation Act of 2004 (the “Act”) was signed into law in October 2004. Aprovision of the Act allows U.S. companies to repatriate foreign earnings at asubstantially reduced tax rate in 2005. The Company is currently evaluating towhat extent it will use this provision with regard to the repatriation offoreign earnings in 2005. A final determination on the extent of use of therepatriation provision will occur in the fourth quarter of 2005. At that time,the amount of funds to be repatriated and the financial statement impact shouldbe finalized. The amount of foreign earnings that might be repatriated underthe provision is not expected to exceed $41,000. Management of the Successorconsiders certain earnings in non-US subsidiaries to be available fordistribution. These same earnings had previously been considered permanentlyreinvested by management of the Predecessor. The resulting taxes have beenaccounted for as deferred tax liabilities in purchase accounting.

13

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**11.      Pensionand Post Retirement Benefits:**

 

Net periodic pension expense is as follows:

 
| ** **                 | ** ** | **U.S. and Canada** | ** ** | **Other**             | ** ** |
|----------------------------|------------|-------------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **Successor**                 | ** ** | **Predecessor**       | ** ** | **Successor** | ** ** | **Predecessor** | ** ** |
| ** **                 | ** ** | **Thirty-three weeks**   | ** ** | **Six weeks**    | ** ** | **Nine months** | ** ** | **Thirty-three** | ** ** | **Six weeks** | ** ** | **Nine months** | ** ** |
| ** **                 | ** ** | **ended**                     | ** ** | **ended**             | ** ** | **ended** | ** ** | **weeks ended** | ** ** | **ended** | ** ** | **ended** | ** ** |
| ** **                 | ** ** | **September 30,**        | ** ** | **February 11,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **February 11,** | ** ** | **September 30,** | ** ** |
| ** **                 | ** ** | **2005**                      | ** ** | **2005**              | ** ** | **2004** | ** ** | **2005** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost               |       | $                             | (2,348     | )                     | $          | (403 | ) | $ | (2,228 | ) | $ | (1,907 | ) | $ | (408 | ) | $ | (2,312 | ) |
| Interest cost              |       | (4,493                        | )          | (890                  | )          | (5,269 | ) | (678 | ) | (154 | ) | (852 | ) |
| Expected return  on assets |       | 5,636                         |       | 1,016                 |       | 6,542 |   | 303 |   | 64 |   | 353 |   |
| Net amortization           |       | —                        |       | (333                  | )          | (2,024 | ) | — |   | (64 | ) | (401 | ) |
| Net periodic expense       |       | $                             | (1,205     | )                     | $          | (610 | ) | $ | (2,979 | ) | $ | (2,282 | ) | $ | (562 | ) | $ | (3,212 | ) |

 

Net periodicretiree health cost is as follows:

 
| ** **           | ** ** | **Successor**          | ** ** | **Predecessor**       | ** ** |
|----------------------|------------|------------------------|------------|-----------------------|------------|
| ** **           | ** ** | **Thirty-three**       | ** ** | **Six weeks**    | ** ** | **Nine months** | ** ** |
| ** **           | ** ** | **weeks ended**   | ** ** | **ended**             | ** ** | **ended** | ** ** |
| ** **           | ** ** | **September 30,** | ** ** | **February 11,** | ** ** | **September 30,** | ** ** |
| ** **           | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Service cost         |       | $                      | (291       | )                     | $          | (51 | ) | $ | (313 | ) |
| Interest cost        |       | (697                   | )          | (127                  | )          | (907 | ) |
| Net amortization     |       | —                 |       | (28                   | )          | (133 | ) |
| Net periodic expense |       | $                      | (988       | )                     | $          | (206 | ) | $ | (1,353 | ) |

 

The Predecessormade contributions of $41 and $121 to the U.S. and Canadian pension plans andother pension plans, respectively, for the six weeks ended February 11,2005. The Successor made contributions of $327 and $3,687 to the U.S. andCanadian pension plans and other pension plans, respectively, for thethirty-three weeks ended September 30, 2005. For the retiree health plans,the Company made payments of $290 and $1,465 for the six weeks ended February 11,2005 and the thirty-three weeks ended September 30, 2005, respectively. Inaddition, the Company made contributions of approximately $185 and $925 to the401(k) savings plan for the six weeks ended February 11, 2005 and thethirty-three weeks ended September 30, 2005, respectively.

During the quarter ended September 30, 2005, theCompany’s Board of Directors approved an amendment to the U.S. defined benefitpension plan. As a result, credited service as of January 1, 2007 will befrozen under the plan and employees will instead receive a new discretionaryCompany contribution based on a percentage of pay to the 401(k) definedcontribution plan. The change to the plan qualified as a curtailment underSFAS No. 88 “Employers’ Accounting for Settlement and Curtailments ofDefined Benefit Pension Plans and for Termination Benefits.”  Accordingly, a pretax curtailment gain of$6,541 was recognized in the third quarter. In addition, the Company’s Board ofDirectors approved an amendment to the U.S. retiree health plan which willeliminate postretirement benefits for employees retiring after January 1,2007. This resulted in the recognition of a curtailment loss of $561 in thirdquarter, due to the expected accelerated retirement of certain activeemployees. Both curtailments were recorded in other operating expense in theSuccessor’s Statements of Operations.

**12.      Commitmentsand Contingencies:**

 

There is a risk ofenvironmental impact in chemical manufacturing operations. The Company’senvironmental policies and practices are designed to ensure compliance withexisting laws and regulations and to minimize the possibility of significantenvironmental impact. The Company is also subject to various other lawsuits andclaims with respect to

14

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matters such as governmental regulations, labor, and other actionsarising out of the normal course of business. No accrual for these matterscurrently exists because management believes that the ultimate liabilitiesresulting from such lawsuits and claims will not materially affect the resultsof operations, financial position or cash flow of the Company.

The Company is subject tovarious laws and regulations regarding emissions from its plant locations.These laws and regulations may limit the amount and types of emissions that canbe released into the atmosphere. In 2003, following an incident at the KansasCity, Kansas plant in which an emission control device failed, we were issued adraft Consent Agreement from the Kansas Department of Health and Environment (“KDHE”)for operating the plant without such emission control device in place. TheCompany currently is in discussions with KDHE regarding historical emissionscompliance at this facility and is awaiting a new draft of the proposed ConsentAgreement for further discussion. Although the final Consent Agreement mayimpose a fine in excess of $100, the Company does not anticipate that theConsent Agreement will otherwise have a material impact on its business. TheCompany has a reserve in the amount of $250 to cover any fines or capitalexpenditures imposed or required under the Consent Agreement.

 

The Company is subject to a cash deficiency agreement related to the$15,000 revolving credit agreement of one of its equity affiliates, in which itis a general partner. This agreement requires the Company to make certaincontributions in order to ensure the affiliate’s compliance with debtcovenants. At September 30, 2005, the affiliate had no outstanding balanceunder its revolving credit agreement and was in compliance with all covenants.

 

The Company and its subsidiaries have entered into various leaseagreements for the rental of office and plant facilities and equipment, themajority of which are classified as operating leases.

 

The Company and the committee that administers the Company’s ProfitSharing Plan have been advised that certain transactions under the Planinvolving the Predecessor’s common stock, series B, previously held by the Planmay have violated certain ERISA guidelines which govern sales of securities tothe Company. Prior to December 31, 2004, the value of common stock, seriesB was calculated based on a formula as defined in the Plan agreement. In 2005,it was determined that the calculated value, which was used as the basis forany stock fund transactions between the Company and the Plan, was not asufficient basis to represent fair value. The Company is currently takingcorrective action which requires additional cash contribution to the Plan andpayments of excise taxes and interest under ERISA and the Internal Revenue Code.As a result, the Company has increased its reserve for contingent liabilitiesfrom $328 at December 31, 2004 to $6,100 as of September 30, 2005.This incremental amount, net of applicable taxes, was accounted for as anadjustment to goodwill. The Company expects to make the corrective paymentto the Plan and file the applicable excise tax returns in the fourth quarter of2005. Based upon the advice from legal counsel, we believe $6,100 is adequateto fund all required contributions to the Plan and settle any penalties andaccrued interest under ERISA and the Internal Revenue Code.

 

We receivedcorrespondence dated January 14, 2005 from King County, Washington and theKing County International Airport (collectively, the “Airport”) reporting thatthe Boeing Company (“Boeing”) alleged that paint and reflective glass beadsused by the Airport in routine taxiway stripe repainting were ingested into thejet turbine engines of several of Boeing’s new, ready-for-customer delivery,aircraft. Boeing claimed that as a result of the incident it had to replaceengines on fourteen aircraft and that there were additional replacementspending. The Airport asserted that its own maintenance personnel performed therepainting operations and alleged that the maintenance personnel used productsfrom four firms, including our Potters division. Based upon the facts disclosedin correspondence received to date, we see the likelihood of a material loss tothe Company as remote. It is not possible at this time to estimate a liability,if any, that may be incurred and any claim would be vigorously defended.

** **

**13.      RelatedParty Transactions:**

In connection with the Transactions, JP MorganPartners, LLC (“JPMP”) and the Company agreed that JPMP would provide certainfinancial and strategic advisory services and consulting services. The Companypaid a one-time fee in the amount of $10,000 on February 11, 2005 forstructuring the Transactions. In addition, the Company agreed to pay to theSponsors an annual monitoring fee equal to $2,000 commencing in 2006. Themanagement agreement will also provide for reimbursement of fees payable byHoldings for the maintenance of its corporate existence, corporate overheadexpenses and for salaries and other compensation of certain employees whoperform services for both Holdings and the Company.

15

----

**14.      BusinessSegments:**

 

The Company’s reportable segments are organizedbased on the operating divisions within the Company:  Chemicals and Engineered Glass Materials(which is referred to as Potters). Chemicals develops, manufactures and sellssilicate-based specialty chemicals to mainly large industrial and consumerproduct companies. Potters manufactures highly engineered solid and hollowglass spheres that are mainly sold to contractors, governmental agencies andmanufacturing companies.

Thetable below presents information about the reported segments:

 
| ** **                | ** ** | **Successor**          | ** ** | **Predecessor**        | ** ** | **Successor**          | ** ** | **Predecessor**       | ** ** |
|---------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                | ** ** | **Three months**  | ** ** | **Three months**  | ** ** | **Thirty-three**       | ** ** | **Six weeks**    | ** ** | **Nine months** | ** ** |
| ** **                | ** ** | **ended**              | ** ** | **ended**              | ** ** | **weeks ended**   | ** ** | **ended**             | ** ** | **ended** | ** ** |
| ** **                | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **February 11,** | ** ** | **September 30,** | ** ** |
| ** **                | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                | ** ** | **(as restated)** | ** ** | ** **             | ** ** | **(as restated)** | ** ** | ** **            | ** ** | ** ** | ** ** |
| Net Sales:                |       |                   |       |                   |       |                   |       |                  |       |   |   |
| Chemicals                 |       | $                      | 105,329    |                   | $          | 101,048                |       | $                     | 266,150    |   | $ | 48,264 |   | $ | 301,175 |   |
| Potters                   |       | 65,645                 |       | 62,607                 |       | 156,132                |       | 15,931                |       | 165,447 |   |
| Total                     |       | $                      | 170,974    |                   | $          | 163,655                |       | $                     | 422,282    |   | $ | 64,195 |   | $ | 466,622 |   |
| Adjusted EBITDA  (1):     |       |                   |       |                   |       |                   |       |                  |       |   |   |
| Chemical Groups           |       | $                      | 25,315     |                   | $          | 27,035                 |       | $                     | 65,860     |   | $ | 10,440 |   | $ | 73,906 |   |
| Potters                   |       | 14,381                 |       | 14,191                 |       | 34,193                 |       | 2,992                 |       | 35,235 |   |
| Segments adjusted  EBITDA |       | $                      | 39,696     |                   | $          | 41,226                 |       | $                     | 100,053    |   | $ | 13,432 |   | $ | 109,141 |   |

----

(1)             Adjustedearnings before interest, income taxes, depreciation and amortization (“AdjustedEBITDA”) consists of EBITDA adjusted for items such as impairment charges,environmental and other expenses, purchase accounting impacts, severance andmerger related costs. Management evaluates the performance of its segments andallocates resources based on several factors, of which the primary measure isAdjusted EBITDA. Adjusted EBITDA does not represent cash flow for periodspresented and should not be considered as an alternative to net income as anindicator of the Company’s operating performance or as an alternative to cashflows as a source of liquidity. Adjusted EBITDA as defined by the Company maynot be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

16

----

Areconciliation from Segments Adjusted EBITDA to pre-tax income follows:
| ** **                                | ** ** | **Successor**          | ** ** | **Predecessor**        | ** ** | **Successor**          | ** ** | **Predecessor**       | ** ** |
|-------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **Three months**  | ** ** | **Three months**  | ** ** | **Thirty-three**       | ** ** | **Six weeks**    | ** ** | **Nine months** | ** ** |
| ** **                                | ** ** | **ended**              | ** ** | **ended**              | ** ** | **weeks ended**   | ** ** | **ended**             | ** ** | **ended** | ** ** |
| ** **                                | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **February 11,** | ** ** | **September 30,** | ** ** |
| ** **                                | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2005**               | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                | ** ** | **(as restated)** | ** ** | ** **             | ** ** | **(as restated)** | ** ** | ** **            | ** ** | ** ** | ** ** |
| Segments adjusted  EBITDA                 |       | $                      | 39,696     |                   | $          | 41,226                 |       | $                     | 100,053    |   | $ | 13,432 |   | $ | 109,141 |   |
| Less:                                     |       |                   |       |                   |       |                   |       |                  |       |   |   |
| Interest expense                          |       | 10,716                 |       | 1,726                  |       | 26,370                 |       | 771                   |       | 5,185 |   |
| Depreciation and  amortization            |       | 10,685                 |       | 8,698                  |       | 27,251                 |       | 4,436                 |       | 26,459 |   |
| Corporate expenses                        |       | 6,172                  |       | 9,325                  |       | 15,321                 |       | 3,228                 |       | 24,251 |   |
| Impairment/disposal of  long-lived assets |       | 177                    |       | 88                     |       | 11                     |       | —                |       | 788 |   |
| Environmental and other                   |       | 2,013                  |       | 1,023                  |       | 2,481                  |       | —                |       | 791 |   |
| Benefit plan  curtailments                |       | (5,979                 | )          | —                 |       | (5,979                 | )          | —                |       | — |   |
| Write off of in-process  R&D          |       | —                 |       | —                 |       | 3,338                  |       | —                |       | — |   |
| Raw material contracts                    |       | 6,208                  |       | —                 |       | 12,058                 |       | —                |       | — |   |
| Investment in  affiliates step-up         |       | 255                    |       | —                 |       | 5,889                  |       | —                |       | — |   |
| Inventory step-up                         |       | 418                    |       | 73                     |       | 10,937                 |       | —                |       | 562 |   |
| Severance                                 |       | 333                    |       | 316                    |       | 4,262                  |       | 5,604                 |       | 1,016 |   |
| Merger related costs                      |       | 72                     |       | 530                    |       | 20,432                 |       | 8,713                 |       | 530 |   |
| Minority interest                         |       | (106                   | )          | (169                   | )          | (243                   | )          | (59                   | )          | (414 | ) |
| Income before taxes and minority interest |       | $                      | 8,732      |                   | $          | 19,616                 |       | $                     | (22,075    | ) | $ | (9,261 | ) | $ | 49,973 |   |

 

**15.    Subsequent Event:**

In October 2005,the Company announced that it was seeking an amendment to its Senior CreditFacility, the primary purpose of which would be to permit the payment of adividend to Holdings of up to $85,000 by mid-December. Funding of the dividendwould consist of approximately $30,000 of cash on hand, $30,000 of additionalterm loan borrowings and approximately $25,000 of revolving loan borrowingsunder the Senior Credit Facility. The requisite consents for the amendment werereceived on November 7, 2005, and the amendment expands the Senior Creditfacility to provide for an additional $30,000 of term loan borrowings and alsopermits the Company to dividend up to an additional $4,000 per year to Holdingsfor the purpose of servicing the interest expense on a new Holdings debtinstrument issued in the amount of $23,000. In addition, the amendment providesfor an increase to the effective interest rate on our Senior Credit Facility by25 basis points in the event our debt rating is downgraded and stipulates aprepayment fee equal to 1.0% of any voluntary prepayments made within one yearof the effective date of the amendment with the proceeds of certain types ofindebtedness and based on certain other conditions. The amendment does notchange any of the other existing covenants in the Senior Credit Facility. Uponreceipt of the dividend from the Company and the funding of the new Holdingsdebt instrument, Holdings declared and paid a dividend to its stockholders inan aggregate amount of approximately $110,000.

17

----

**16.    Guarantor and Nonguarantor Statements:**

In connection with the Transactions described inNote 1 and as a part of the related financings, the Company issued$275,000 of 7.5% senior subordinated notes due 2013 in transactions exemptfrom or not subject to the Securities Act pursuant to Rule 144A andRegulation S under the Securities Act. The notes are general unsecuredobligations of the Company, subordinated in right of payment to all existingand future senior indebtedness of the Company that does not contain similarsubordination provisions, and guaranteed on a full, unconditional, joint andseveral basis by the Company’s 100% owned domestic subsidiaries.

The following consolidating financial informationpresents:

·                  Consolidatingbalance sheets as of September 30, 2005 for the Successor and December 31,2004 for the Predecessor, statements of operations for the three months andthirty-three weeks ended September 30, 2005 for the Successor and the sixweeks ended February 11, 2005 and the three and nine months ended September 30,2004 for the Predecessor, and statements of cash flows for the thirty-threeweeks ended September 30, 2005 for the Successor and the six weeks ended February 11,2005 and nine months ended September 30, 2004 for the Predecessor.

·                Eliminationentries necessary to consolidate the Predecessor and Successor, with theirrespective guarantor subsidiaries and nonguarantor subsidiaries. The principalelimination entries eliminate investments in subsidiaries and intercompanybalances and transactions.

18

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PQ CORPORATION ANDSUBSIDIARIES

CONDENSED CONSOLIDATINGBALANCE SHEET - SUCCESSOR

September 30, 2005

(in thousands)

(unaudited)

(as restated)

 
| ** **                                              | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|---------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
| ASSETS                                                  |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash and cash  equivalents                              |       | $                   | 10,548     |                        | $          | 4,942                          |       | $                | 33,647     |                    | $          | — |   | $ | 49,137 |   |
| Receivables, net                                        |       | 28,720              |       | 21,921                      |       | 53,308                         |       | —           |       | 103,949                 |       |
| Intercompany  receivable                                |       | —              |       | 175,507                     |       | —                         |       | (175,507         | )          | —                  |       |
| Inventories                                             |       | 21,204              |       | 14,898                      |       | 40,581                         |       | —           |       | 76,683                  |       |
| Prepaid and  other current assets                       |       | 27,837              |       | 130                         |       | 9,292                          |       | —           |       | 37,259                  |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Total current assets                                    |       | 88,309              |       | 217,398                     |       | 136,828                        |       | (175,507         | )          | 267,028                 |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Investments in  subsidiaries                            |       | 459,471             |       | 142,698                     |       | —                         |       | (602,169         | )          | —                  |       |
| Investments in  affiliated companies                    |       | 63,022              |       | 2,853                       |       | —                         |       | —           |       | 65,875                  |       |
| Property, plant  and equipment, net                     |       | 112,928             |       | 36,307                      |       | 174,203                        |       | —           |       | 323,438                 |       |
| Goodwill                                                |       | 182,973             |       | 57,917                      |       | —                         |       | —           |       | 240,890                 |       |
| Tradenames                                              |       | 32,400              |       | 20,600                      |       | —                         |       | —           |       | 53,000                  |       |
| Other intangible  assets                                |       | 57,760              |       | 22,953                      |       | 4,465                          |       | —           |       | 85,178                  |       |
| Other long-term  assets                                 |       | 41,677              |       | 426                         |       | 12,409                         |       | —           |       | 54,512                  |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Total assets                                            |       | $                   | 1,038,540  |                        | $          | 501,152                        |       | $                | 327,905    |                    | $          | (777,676 | ) | $ | 1,089,921 |   |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Notes payable and  current maturities of long-term debt |       | $                   | 3,350      |                        | $          | —                         |       | $                | 2,953      |                    | $          | — |   | $ | 6,303 |   |
| Cash overdraft                                          |       | 1,855               |       | 575                         |       | —                         |       | —           |       | 2,430                   |       |
| Accounts payable                                        |       | 11,321              |       | 6,671                       |       | 28,787                         |       | —           |       | 46,779                  |       |
| Intercompany  payable                                   |       | 94,675              |       | —                      |       | 80,832                         |       | (175,507         | )          | —                  |       |
| Accrued  liabilities                                    |       | 35,027              |       | 9,065                       |       | 13,202                         |       | —           |       | 57,294                  |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Total current liabilities                               |       | 146,228             |       | 16,311                      |       | 125,774                        |       | (175,507         | )          | 112,806                 |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Long-term debt                                          |       | 604,975             |       | —                      |       | 63                             |       | —           |       | 605,038                 |       |
| Deferred income  taxes                                  |       | 88,219              |       | 25,370                      |       | 30,774                         |       | —           |       | 144,363                 |       |
| Other long-term  liabilities                            |       | 52,405              |       | —                      |       | 22,201                         |       | —           |       | 74,606                  |       |
| Minority  interest in equity of subsidiaries            |       | —              |       | —                      |       | 6,395                          |       | —           |       | 6,395                   |       |
| Commitments and  contingencies                          |       |                |       |                        |       |                           |       |             |       |                    |       |
| Stockholders’  equity                              |       | 146,713             |       | 459,471                     |       | 142,698                        |       | (602,169         | )          | 146,713                 |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Total  liabilities and stockholders’ equity        |       | $                   | 1,038,540  |                        | $          | 501,152                        |       | $                | 327,905    |                    | $          | (777,676 | ) | $ | 1,089,921 |   |

 

19

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PQCORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATINGBALANCE SHEET - PREDECESSOR

December 31, 2004

(in thousands)

(unaudited)

 
| ** **                                              | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|---------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| ASSETS                                                  |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash and cash  equivalents                              |       | $                   | 2,035      |                        | $          | 348                            |       | $                | 10,426     |                    | $          | — |   | $ | 12,809 |   |
| Receivables, net                                        |       | 28,519              |       | 11,012                      |       | 49,800                         |       | —           |       | 89,331                  |       |
| Intercompany  receivable                                |       | —              |       | 150,732                     |       | —                         |       | (150,732         | )          | —                  |       |
| Inventories                                             |       | 15,140              |       | 15,535                      |       | 32,251                         |       | —           |       | 62,926                  |       |
| Prepaid and  other current assets                       |       | 8,345               |       | 152                         |       | 7,421                          |       | —           |       | 15,918                  |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Total current assets                                    |       | 54,039              |       | 177,779                     |       | 99,898                         |       | (150,732         | )          | 180,984                 |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Investments in  subsidiaries                            |       | 332,871             |       | 129,240                     |       | —                         |       | (462,111         | )          | —                  |       |
| Investments in  affiliated companies                    |       | 20,765              |       | 4,090                       |       | 2,450                          |       | —           |       | 27,305                  |       |
| Property, plant  and equipment, net                     |       | 100,822             |       | 21,854                      |       | 111,310                        |       | —           |       | 233,986                 |       |
| Goodwill                                                |       | 6,344               |       | 7,000                       |       | 15,649                         |       | —           |       | 28,993                  |       |
| Other intangible  assets, net                           |       | 857                 |       | 400                         |       | 1,548                          |       | —           |       | 2,805                   |       |
| Other long-term  assets                                 |       | 15,312              |       | 425                         |       | 19,703                         |       | —           |       | 35,440                  |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Total assets                                            |       | $                   | 531,010    |                        | $          | 340,788                        |       | $                | 250,558    |                    | $          | (612,843 | ) | $ | 509,513 |   |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Notes payable  and current maturities of long-term debt |       | $                   | 11,234     |                        | $          | —                         |       | $                | 6,439      |                    | $          | — |   | $ | 17,673 |   |
| Cash overdraft                                          |       | 3,675               |       | 978                         |       | —                         |       | —           |       | 4,653                   |       |
| Accounts payable                                        |       | 12,694              |       | 3,188                       |       | 27,111                         |       | —           |       | 42,993                  |       |
| Intercompany  payable                                   |       | 105,662             |       | —                      |       | 45,070                         |       | (150,732         | )          | —                  |       |
| Accrued  liabilities                                    |       | 27,984              |       | 3,327                       |       | 17,644                         |       | —           |       | 48,955                  |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Total current liabilities                               |       | 161,249             |       | 7,493                       |       | 96,264                         |       | (150,732         | )          | 114,274                 |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Long-term debt                                          |       | 52,522              |       | —                      |       | 869                            |       | —           |       | 53,391                  |       |
| Deferred income  taxes                                  |       | 2,870               |       | 424                         |       | 1,817                          |       | —           |       | 5,111                   |       |
| Other long-term  liabilities                            |       | 34,078              |       | —                      |       | 18,330                         |       | —           |       | 52,408                  |       |
| Minority  interest in equity of subsidiaries            |       | —              |       | —                      |       | 4,038                          |       | —           |       | 4,038                   |       |
| Commitments and  contingencies                          |       |                |       |                        |       |                           |       |             |       |                    |       |
| Shares subject  to mandatory redemption                 |       | 6,361               |       | —                      |       | —                         |       | —           |       | 6,361                   |       |
| Stockholders’  equity                              |       | 273,930             |       | 332,871                     |       | 129,240                        |       | (462,111         | )          | 273,930                 |       |
|                                                    |       |                |       |                        |       |                           |       |             |       |                    |       |
| Total liabilities and stockholders’ equity         |       | $                   | 531,010    |                        | $          | 340,788                        |       | $                | 250,558    |                    | $          | (612,843 | ) | $ | 509,513 |   |

 

20

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PQ CORPORATION ANDSUBSIDIARIES

CONDENSED CONSOLIDATINGSTATEMENT OF OPERATIONS - SUCCESSOR

For the three months ended September 30,2005

(in thousands)

(unaudited)

(as restated)

 
| ** **                                           | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Sales                                                |       | $                   | 59,993     |                        | $          | 38,898                         |       | $                | 72,083     |                    | $          | — |   | $ | 170,974 |   |
| Cost of goods  sold                                  |       | 49,401              |       | 30,014                      |       | 56,388                         |       | —           |       | 135,803                 |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Gross profit                                         |       | 10,592              |       | 8,884                       |       | 15,695                         |       | —           |       | 35,171                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Selling, general  and administative expenses         |       | 8,555               |       | 3,764                       |       | 7,501                          |       | —           |       | 19,820                  |       |
| Other operating  (income) expense                    |       | (2,772              | )          | 561                         |       | 136                            |       | —           |       | (2,075                  | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Operating income                                     |       | 4,809               |       | 4,559                       |       | 8,058                          |       | —           |       | 17,426                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Equity in net  income (loss) of affiliated companies |       | 6,728               |       | (1,463                      | )          | 22                             |       | (3,010           | )          | 2,277                   |       |
| Interest expense  (income), net                      |       | 11,006              |       | (2,038                      | )          | 1,748                          |       | —           |       | 10,716                  |       |
| Other (income)  expense                              |       | (405                | )          | (4,933                      | )          | 5,593                          |       | —           |       | 255                     |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Income (loss) before taxes and minority interest     |       | 936                 |       | 10,067                      |       | 739                            |       | (3,010           | )          | 8,732                   |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Provision for  income taxes                          |       | 2,130               |       | 5,566                       |       | 2,124                          |       | —           |       | 9,820                   |       |
| Minority  interest                                   |       | —              |       | —                      |       | 106                            |       | —           |       | 106                     |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net (loss)  income                                   |       | $                   | (1,194     | )                           | $          | 4,501                          |       | $                | (1,491     | )                       | $          | (3,010 | ) | $ | (1,194 | ) |

 

 

21

----

PQ CORPORATION ANDSUBSIDIARIES

 CONDENSED CONSOLIDATING STATEMENT OF INCOME -PREDECESSOR

For the three months ended September 30,2004

(in thousands)

(unaudited)

 
| ** **                                           | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Sales                                                |       | $                   | 63,193     |                        | $          | 38,508                         |       | $                | 61,954     |                    | $          | — |   | $ | 163,655 |   |
| Cost of goods sold                                   |       | 47,130              |       | 30,205                      |       | 41,448                         |       | —           |       | 118,783                 |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Gross profit                                         |       | 16,063              |       | 8,303                       |       | 20,506                         |       | —           |       | 44,872                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Selling, general and  administative expenses         |       | 9,801               |       | 6,336                       |       | 7,612                          |       | —           |       | 23,749                  |       |
| Other operating expense  (income)                    |       | 2,962               |       | —                      |       | (230                           | )          | —           |       | 2,732                   |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Operating income                                     |       | 3,300               |       | 1,967                       |       | 13,124                         |       | —           |       | 18,391                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Equity in net income  (loss) of affiliated companies |       | 17,060              |       | 5,503                       |       | 145                            |       | (20,117          | )          | 2,591                   |       |
| Interest expense  (income), net                      |       | 3,416               |       | (1,756                      | )          | 63                             |       | —           |       | 1,723                   |       |
| Other (income) expense                               |       | (608                | )          | (7,616                      | )          | 7,867                          |       | —           |       | (357                    | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Income (loss)  before taxes and minority interest    |       | 17,552              |       | 16,842                      |       | 5,339                          |       | (20,117          | )          | 19,616                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Provision (benefit) for  income taxes                |       | 500                 |       | 2,243                       |       | (348                           | )          | —           |       | 2,395                   |       |
| Minority interest                                    |       | —              |       | —                      |       | 169                            |       | —           |       | 169                     |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net income  (loss)                                   |       | $                   | 17,052     |                        | $          | 14,599                         |       | $                | 5,518      |                    | $          | (20,117 | ) | $ | 17,052 |   |

 

22

----

 

PQ CORPORATION ANDSUBSIDIARIES

CONDENSED CONSOLIDATINGSTATEMENT OF OPERATIONS - SUCCESSOR

For the thirty-three weeksended September 30, 2005

(in thousands)

(unaudited)

(asrestated)

 
| ** **                                           | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Sales                                                |       | $                   | 151,290    |                        | $          | 84,064                         |       | $                | 186,928    |                    | $          | — |   | $ | 422,282 |   |
| Cost of goods sold                                   |       | 124,312             |       | 58,042                      |       | 157,445                        |       | —           |       | 339,799                 |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Gross profit                                         |       | 26,978              |       | 26,022                      |       | 29,483                         |       | —           |       | 82,483                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Selling, general and  administative expenses         |       | 26,609              |       | 9,432                       |       | 20,294                         |       | —           |       | 56,335                  |       |
| Other operating expense                              |       | 15,613              |       | 1,288                       |       | 130                            |       | —           |       | 17,031                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Operating (loss)  income                             |       | (15,244             | )          | 15,302                      |       | 9,059                          |       | —           |       | 9,117                   |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Equity in net income  (loss) of affiliated companies |       | 19,113              |       | (1,865                      | )          | 218                            |       | (14,760          | )          | 2,706                   |       |
| Interest expense  (income), net                      |       | 27,149              |       | (4,970                      | )          | 4,191                          |       | —           |       | 26,370                  |       |
| Other expense (income)                               |       | 7,051               |       | (5,832                      | )          | 6,309                          |       | —           |       | 7,528                   |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Income (loss)  before taxes and minority interest    |       | (30,331             | )          | 24,239                      |       | (1,223                         | )          | (14,760          | )          | (22,075                 | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Provision (benefit) for  income taxes                |       | (3,407              | )          | 7,584                       |       | 429                            |       | —           |       | 4,606                   |       |
| Minority interest                                    |       | —              |       | —                      |       | 243                            |       | —           |       | 243                     |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net (loss)  income                                   |       | $                   | (26,924    | )                           | $          | 16,655                         |       | $                | (1,895     | )                       | $          | (14,760 | ) | $ | (26,924 | ) |

 

23

----

 

PQ CORPORATION ANDSUBSIDIARIES

CONDENSED CONSOLIDATINGSTATEMENT OF OPERATIONS - PREDECESSOR

For the six weeks ended February 11,2005

(in thousands)

(unaudited)

 
| ** **                                           | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Sales                                                |       | $                   | 25,193     |                        | $          | 7,445                          |       | $                | 31,557     |                    | $          | — |   | $ | 64,195 |   |
| Cost of goods  sold                                  |       | 19,177              |       | 5,526                       |       | 23,873                         |       | —           |       | 48,576                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Gross profit                                         |       | 6,016               |       | 1,919                       |       | 7,684                          |       | —           |       | 15,619                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Selling, general  and administative expenses         |       | 5,740               |       | 1,689                       |       | 3,792                          |       | —           |       | 11,221                  |       |
| Other operating  expense                             |       | 12,142              |       | 12                          |       | 113                            |       | —           |       | 12,267                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Operating (loss) income                              |       | (11,866             | )          | 218                         |       | 3,779                          |       | —           |       | (7,869                  | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Equity in net  income (loss) of affiliated companies |       | 2,127               |       | 3,980                       |       | 75                             |       | (6,447           | )          | (265                    | )          |
| Interest expense  (income), net                      |       | 615                 |       | (930                        | )          | 1,086                          |       | —           |       | 771                     |       |
| Other expense  (income)                              |       | 131                 |       | 2,462                       |       | (2,237                         | )          | —           |       | 356                     |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Income (loss) before taxes and minority interest     |       | (10,485             | )          | 2,666                       |       | 5,005                          |       | (6,447           | )          | (9,261                  | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Provision  (benefit) for income taxes                |       | (3,687              | )          | 204                         |       | 961                            |       | —           |       | (2,522                  | )          |
| Minority  interest                                   |       | —              |       | —                      |       | 59                             |       | —           |       | 59                      |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net (loss) income                                    |       | $                   | (6,798     | )                           | $          | 2,462                          |       | $                | 3,985      |                    | $          | (6,447 | ) | $ | (6,798 | ) |

 

24

----

 

PQ CORPORATION ANDSUBSIDIARIES

 CONDENSED CONSOLIDATING STATEMENT OF INCOME -PREDECESSOR

For the nine months ended September 30,2004

(in thousands)

(unaudited)

 
| ** **                                           | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Sales                                                |       | $                   | 174,760    |                        | $          | 87,172                         |       | $                | 204,690    |                    | $          | — |   | $ | 466,622 |   |
| Cost of goods  sold                                  |       | 129,955             |       | 67,196                      |       | 148,849                        |       | —           |       | 346,000                 |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Gross profit                                         |       | 44,805              |       | 19,976                      |       | 55,841                         |       | —           |       | 120,622                 |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Selling, general  and administative expenses         |       | 29,896              |       | 13,423                      |       | 24,136                         |       | —           |       | 67,455                  |       |
| Other operating  expense                             |       | 3,908               |       | 50                          |       | —                         |       | —           |       | 3,958                   |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Operating income                                     |       | 11,001              |       | 6,503                       |       | 31,705                         |       | —           |       | 49,209                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Equity in net  income (loss) of affiliated companies |       | 36,500              |       | 18,377                      |       | 450                            |       | (48,668          | )          | 6,659                   |       |
| Interest expense  (income), net                      |       | 10,150              |       | (5,190                      | )          | 222                            |       | —           |       | 5,182                   |       |
| Other (income)  expense                              |       | (3,821              | )          | (5,455                      | )          | 9,989                          |       | —           |       | 713                     |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Income (loss) before taxes and minority interest     |       | 41,172              |       | 35,525                      |       | 21,944                         |       | (48,668          | )          | 49,973                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Provision for  income taxes                          |       | 4,178               |       | 4,980                       |       | 3,407                          |       | —           |       | 12,565                  |       |
| Minority  interest                                   |       | —              |       | —                      |       | 414                            |       | —           |       | 414                     |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net income (loss)                                    |       | $                   | 36,994     |                        | $          | 30,545                         |       | $                | 18,123     |                    | $          | (48,668 | ) | $ | 36,994 |   |

 

25

----

 

PQ CORPORATION ANDSUBSIDIARIES

CONDENSED CONSOLIDATINGSTATEMENT OF CASH FLOWS - SUCCESSOR

For the thirty-three weeksended September 30, 2005

(in thousands)

(unaudited)

 
| ** **                                           | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net cash (used)  provided by operating activities    |       | $                   | (34,418    | )                           | $          | 1,824                          |       | $                | 38,731     |                    | $          | — |   | $ | 6,137 |   |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash flows from  investing activities:               |       |                |       |                        |       |                           |       |             |       |                    |       |
| Investment in  affiliates                            |       | —              |       | 107                         |       | —                         |       | —           |       | 107                     |       |
| Purchases of  property, plant and equipment          |       | (6,988              | )          | (1,670                      | )          | (6,905                         | )          | —           |       | (15,563                 | )          |
| Merger  consideration                                |       | (626,000            | )          | —                      |       | —                         |       | —           |       | (626,000                | )          |
| Merger costs                                         |       | (6,485              | )          | —                      |       | —                         |       | —           |       | (6,485                  | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net cash used  for investing activities              |       | (639,473            | )          | (1,563                      | )          | (6,905                         | )          | —           |       | (647,941                | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash flows from  financing activities:               |       |                |       |                        |       |                           |       |             |       |                    |       |
| Notes payable  and cash overdrafts, net              |       | 3,034               |       | (408                        | )          | (2                             | )          | —           |       | 2,624                   |       |
| Issuance of  long-term debt                          |       | 335,000             |       | —                      |       | —                         |       | —           |       | 335,000                 |       |
| Issuance of  senior notes                            |       | 275,000             |       | —                      |       | —                         |       | —           |       | 275,000                 |       |
| Debt acquisition  costs                              |       | (16,503             | )          | —                      |       | —                         |       | —           |       | (16,503                 | )          |
| Repayments of  long-term debt                        |       | (115,142            | )          | —                      |       | (807                           | )          | —           |       | (115,949                | )          |
| Equity  Contribution                                 |       | 164,188             |       | —                      |       | —                         |       | —           |       | 164,188                 |       |
| Distributions to  minority shareholders              |       | —              |       | —                      |       | (185                           | )          | —           |       | (185                    | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net cash provided  by (used in) financing activities |       | 645,577             |       | (408                        | )          | (994                           | )          | —           |       | 644,175                 |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Effect of exchange rate  changes on cash             |       | —              |       | —                      |       | (1,991                         | )          | —           |       | (1,991                  | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net change in cash and  cash equivalents             |       | (28,314             | )          | (147                        | )          | 28,841                         |       | —           |       | 380                     |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash and cash  equivalents at beginning of period    |       | 33,214              |       | 346                         |       | 15,197                         |       | —           |       | 48,757                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash and cash equivalents at end of period           |       | $                   | 4,900      |                        | $          | 199                            |       | $                | 44,038     |                    | $          | — |   | $ | 49,137 |   |

 

26

----

 

PQ CORPORATION ANDSUBSIDIARIES

CONDENSED CONSOLIDATINGSTATEMENT OF CASH FLOWS - PREDECESSOR

For the six weeks ended February 11,2005

(in thousands)

(unaudited)

 
| ** **                                        | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|---------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
|                                              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net cash (used)  provided by operating activities |       | $                   | (13,627    | )                           | $          | 71                             |       | $                | 6,591      |                    | $          | — |   | $ | (6,965 | ) |
|                                              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash flows from  investing activities:            |       |                |       |                        |       |                           |       |             |       |                    |       |
| Purchases of  property, plant and equipment       |       | (1,165              | )          | (73                         | )          | (1,120                         | )          | —           |       | (2,358                  | )          |
|                                              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net cash used  for investing activities           |       | (1,165              | )          | (73                         | )          | (1,120                         | )          | —           |       | (2,358                  | )          |
|                                              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash flows from  financing activities:            |       |                |       |                        |       |                           |       |             |       |                    |       |
| Notes payable  and cash overdrafts, net           |       | 44,857              |       | —                      |       | —                         |       | —           |       | 44,857                  |       |
| Proceeds from  issuance of treasury stock         |       | 1,161               |       | —                      |       | —                         |       | —           |       | 1,161                   |       |
| Purchase of  stock                                |       | (47                 | )          | —                      |       | —                         |       | —           |       | (47                     | )          |
|                                              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net cash provided by  financing activities        |       | 45,971              |       | —                      |       | —                         |       | —           |       | 45,971                  |       |
|                                              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Effect of exchange rate  changes on cash          |       | —              |       | —                      |       | (700                           | )          | —           |       | (700                    | )          |
|                                              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net change in cash and  cash equivalents          |       | 31,179              |       | (2                          | )          | 4,771                          |       | —           |       | 35,948                  |       |
|                                              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash and cash  equivalents at beginning of period |       | 2,035               |       | 348                         |       | 10,426                         |       | —           |       | 12,809                  |       |
|                                              |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash and cash  equivalents at end of period       |       | $                   | 33,214     |                        | $          | 346                            |       | $                | 15,197     |                    | $          | — |   | $ | 48,757 |   |

 

27

----

 

PQ CORPORATION ANDSUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTOF CASH FLOWS - PREDECESSOR

For nine months ended September 30,2004

(in thousands)

(unaudited)

 
| ** **                                           | ** ** | **Parent  company** | ** ** | **Guarantor  subsidiaries** | ** ** | **Nonguarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  total** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------|------------|
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net cash  provided by operating activities           |       | $                   | 36,170     |                        | $          | 1,698                          |       | $                | 16,675     |                    | $          | — |   | $ | 54,543 |   |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash flows from  investing activities:               |       |                |       |                        |       |                           |       |             |       |                    |       |
| Proceeds from  sale of capital assets                |       | —              |       | —                      |       | 3                              |       | —           |       | 3                       |       |
| Purchases of  property, plant and equipment          |       | (10,535             | )          | (1,743                      | )          | (8,754                         | )          | —           |       | (21,032                 | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net cash used in  investing activities               |       | (10,535             | )          | (1,743                      | )          | (8,751                         | )          | —           |       | (21,029                 | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash flows from  financing activities:               |       |                |       |                        |       |                           |       |             |       |                    |       |
| Notes payable  and cash overdrafts, net              |       | (9,039              | )          | —                      |       | 4,319                          |       | —           |       | (4,720                  | )          |
| Repayments of  long-term debt                        |       | (3,107              | )          | —                      |       | (7,201                         | )          | —           |       | (10,308                 | )          |
| Proceeds from  issuance of treasury stock            |       | 711                 |       | —                      |       | —                         |       | —           |       | 711                     |       |
| Purchase of  stock                                   |       | (4,153              | )          | —                      |       | —                         |       | —           |       | (4,153                  | )          |
| Distributions to  minority shareholders              |       | —              |       | —                      |       | (271                           | )          | —           |       | (271                    | )          |
| Dividend  distribution                               |       | (10,761             | )          | —                      |       | (1                             | )          | —           |       | (10,762                 | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net cash (used  in) provided by financing activities |       | (26,349             | )          | —                      |       | (3,154                         | )          | —           |       | (29,503                 | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Effect of  exchange rate changes on cash             |       | —              |       | —                      |       | (739                           | )          | —           |       | (739                    | )          |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Net change in  cash and cash equivalents             |       | (714                | )          | (45                         | )          | 4,031                          |       | —           |       | 3,272                   |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash and cash  equivalents at beginning of year      |       | 1,377               |       | 64                          |       | 9,343                          |       | —           |       | 10,784                  |       |
|                                                 |       |                |       |                        |       |                           |       |             |       |                    |       |
| Cash and cash  equivalents at end of year            |       | $                   | 663        |                        | $          | 19                             |       | $                | 13,374     |                    | $          | — |   | $ | 14,056 |   |

 

28

----