UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10 - K

                                   (Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                    For the fiscal year ended March 29, 1997
                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                    For the transition period from ___ to ___

                         Commission file number 33-67546

                       HARRIS CHEMICAL NORTH AMERICA, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                               48-1135402
     (State or other jurisdiction of               (I.R.S. Employer
      incorporation or organization)             Identification Number)

                           399 Park Avenue, 32nd Floor
                            New York, New York 10022
               (Address of principal executive offices)(Zip Code)

                                 (212) 207-6400
              (Registrant's telephone number, including area code)

               Securities registered pursuant to Section 12(b) of the Act:     
                                     None
               Securities registered pursuant to Section 12(g) of the Act:    
                                     None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes (X) No ( )

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The number of shares  outstanding of the registrant's  common stock at March 29,
1997 was 1,000 shares.  All of such shares are owned by Harris  Chemical  Group,
Inc.

This document consists of 60 sequentially  numbered pages. The exhibit index can
be found on page 56 of the sequential numbering system.
                                        1


<PAGE>



<TABLE>
<CAPTION>
                                        HARRIS CHEMICAL NORTH AMERICA, INC.

                                FORM 10-K For the Fiscal Year ended March 29, 1997

                                                       Index


<S>               <C>                                                                            <C>    
Part I            Description                                                                    Page #
------            -----------                                                                    ------
Item 1.           Business....................................................................       3

Item 2.           Properties..................................................................      13

Item 3.           Legal Proceedings...........................................................      15

Item 4.           Submission of Matters to a Vote of Security Holders.........................      16

Part II
Item 5.           Market for Registrant's Common Equity and Related
                  Stockholder Matters.........................................................      16

Item 6.           Selected Historical Consolidated Financial Information......................      17

Item 7.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations...................................................      18

Item 8.           Financial Statements........................................................      24

Item 9.           Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure.........................................      48

Part III
Item 10.          Directors and Executive Officers of the Registrant..........................      48

Item 11.          Executive Compensation and Other Information................................      51

Item 12.          Security Ownership of Certain Beneficial Owners and Management..............      53

Item 13.          Certain Relationships and Related Transactions..............................      54

Part IV
Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K.............      56

Signatures        ............................................................................      59

</TABLE>


                                                       2


<PAGE>



                       HARRIS CHEMICAL NORTH AMERICA, INC.

                                    FORM 10-K

                                     PART I

Item 1             BUSINESS1

General

     Harris Chemical North America,  Inc. ("Harris") was formed in July 1993 for
the  purpose  of  becoming  a holding  company  for its  principal  wholly-owned
subsidiaries:  North American Chemical Company ("NACC"),  NAMSCO Inc. ("NAMSCO")
and its subsidiaries  North American Salt Company ("NASC") and Sifto Canada Inc.
("Sifto"),  and GSL  Corporation  ("GSL")  and its  subsidiary  Great  Salt Lake
Minerals Corporation ("GSLMC").  Harris and its direct and indirect subsidiaries
are collectively referred to as the "Company."

     The  Company  is a  major  producer  and  marketer  of  inorganic  chemical
products,  including  principally  salt,  soda  products,  boron  chemicals  and
specialty potash  fertilizers.  The Company markets its products  throughout the
United States and Canada as well as in Asia,  the Pacific Rim  countries,  Latin
America and Europe.  Revenues  derived from markets outside the United States in
FY 1997 were approximately $184.7 million or 36.3% of total revenues.

Harris is a wholly owned subsidiary of Harris Chemical Group, Inc. ("HCG").  HCG
was formed in 1992. On September 24, 1993 the  stockholders of NACC,  NAMSCO and
GSL  exchanged  their  shares in those  companies  for  shares in HCG.  HCG then
contributed its shares in NACC, NAMSCO and GSL to Harris. Those transactions are
referred to as the "Consolidation."

     Subsequent  to  the  Consolidation,  the  Company  was  recapitalized  (the
"Recapitalization"). As part of the Recapitalization, Harris issued $250 million
of 10.25% Senior Secured Discount Notes due July 15, 2001 (the "Discount Notes")
and $335 million of 10.75% Senior  Subordinated  Notes due October 15, 2003 (the
"Senior  Subordinated  Notes")  and Sifto  issued  $100  million of 8.5%  Senior
Secured Notes due July 15, 2000 (the "Sifto  Notes").  The Discount  Notes,  the
Senior  Subordinated  Notes and the Sifto  Notes are  collectively  referred  to
herein  as the  "Notes."  The  Discount  Notes  were  issued  for  net  proceeds
aggregating $200.4 million. NACC, NAMSCO and GSL,  collectively,  and Sifto have
also entered into revolving credit agreements (the "Bank Agreements")  providing
for borrowings of up to $130 million and $20 million,  respectively,  secured by
inventory and accounts receivable.

     The Company  intends to continue  its strategy of growth  through  internal
reinvestment   and   development,   as  well  as  through  joint   ventures  and
acquisitions,  particularly  in product  markets in which the Company  currently
competes  or in  similar  areas of the  inorganic  chemical  industry  where the
Company's existing expertise in technology,  process  capabilities and marketing
can be used to strengthen  and improve the acquired  business or joint  venture.
The  Bank  Agreements  restrict  the  Company's  ability  to  make  investments,
including  acquisitions  and entering into joint ventures,  without the lenders'
consent.

     In addition,  the Company continually reviews its businesses and asset base
in light of its cash  requirements and strategic plans.  Based on these reviews,
the  Company  may  determine  that it is in its best  interest to (i) enter into
strategic  business  alliances,  including through the possible  contribution of
assets to joint  ventures  and/or  (ii) offer for sale  assets  deemed not to be
strategic.  In July  1996,  NACC  entered  into an  agreement  for the  sale and
leaseback  of an electric  and steam  generating  facility  associated  with its
Searles  Valley  Soda  Ash  Facility  ("Argus  Utilities").  See  Note  7 to the
Financial Statements.

     Statements in this report that are  forward-looking  statements are subject
to  various  risks and  uncertainties  including  but not  limited to changes in
economic conditions,  weather, product demand and industry capacity, competitive
products and pricing, price and availability of freight transportation,  changes
in interest rates and capital markets, manufacturing efficiencies,  availability
and price of raw materials and critical manufacturing equipment, plant expansion
efforts, the international regulatory
--------
     1Unless otherwise stated,  all references herein to "dollars" or "$" are to
U.S. dollars.  References to any particular fiscal year ("FY") mean the 52 or 53
week fiscal year ending on the last Saturday in March of the indicated year.


                                                       3


<PAGE>



and trade  environment  and other risks  indicated  in this report and other SEC
filings.  These factors could cause actual results to differ materially from the
forward-looking statements set forth herein.

Products

     The Company's net sales (in  thousands) by product line and the  percentage
of net sales represented by such sales during the last three fiscal years are as
follows:

<TABLE>
<CAPTION>
Product Line                             FY 1995                       FY 1996                        FY 1997
---------------------------     -------------------------     --------------------------     --------------------------
<S>                                  <C>           <C>              <C>           <C>              <C>            <C>  
Salt ......................          $191,917       44.0%           $224,500       47.2%           $235,899        46.4%
Soda products .............           103,247       23.7             115,978       24.4             119,800        23.6
Boron chemicals ...........            67,479       15.5              67,979       14.3              63,051        12.4
Specialty potash
   fertilizers ............            61,453       14.1              55,459       11.7              71,547        14.1
Other .....................            11,768        2.7              11,558        2.4              18,325         3.5
                                -------------   --------      --------------  ---------        ------------    --------
   Net sales ..............          $435,864      100.0%           $475,474      100.0%           $508,622       100.0%
                                =============   ========      ==============  =========        ============    =========
</TABLE>


Salt

     Salt is used in a variety of  applications,  including as a deicer for both
highway and consumer use, an ingredient in the production of chemicals for paper
bleaching and plastic production, a flavor enhancer and preservative in food, an
ingredient  and  nutrient  in  animal  feeds,  and an  essential  item  in  both
industrial and consumer water  softeners.  The demand for salt has  historically
remained  relatively  stable during  economic cycles due to the large variety of
uses.  However,  demand in the highway  deicing market is affected by changes in
winter weather.

     According to industry  data  published  in 1995,  the Company is the second
largest  producer of salt in North  America.  The Company  expects that its rank
will be changed to third upon  completion  of the proposed  acquisition  of Akzo
Nobel Salt Inc.  ("Akzo") by Cargill  Inc.  ("Cargill").  The  Company  produced
approximately  9.5 million tons of salt in FY 1997  compared to 8.5 million tons
in FY 1996.  Production  activities  are  conducted  at eight  facilities,  four
located  primarily  in the  western  United  States and four  located in Canada.
Canadian sales  represented  approximately  31% of the Company's  total sales of
salt in FY 1997.

     Markets/Customers.  The  Company  separates  sales of salt into three major
market segments:  general trade, highway deicing and chemical. The general trade
segment is the Company's  largest segment and accounted for approximately 55% of
FY 1997 salt sales.  This segment includes  consumer  applications such as table
salt,  water  conditioning,   home  ice  control,   food  and  meat  processing,
agricultural  applications,  including  feed mixes,  and a variety of industrial
applications such as oil refining and drilling, metal processing and tanning.

     Highway deicing  constitutes  the Company's  second largest segment of salt
sales  accounting  for  approximately  34%  of FY  1997  salt  sales.  Principal
customers are states,  provinces and municipalities  that purchase bulk salt for
ice control on public  roadways.  Highway salt is sold mostly via a tendered bid
contract  system  with  price,  product  quality  and  deliverability  being the
overriding market factors.  Since distribution cost is one of the largest single
costs in this  segment,  the  location of the source of supply and  distribution
outlets in relation to the customer is  important.  The Company has an extensive
network of  approximately  80 depots for  storage  and  distribution  of highway
deicing  salt.  The  majority of these depots are located on the Great Lakes and
the Mississippi River system.

     Winter  weather  variability  is a factor  affecting salt sales for deicing
applications  because mild winters reduce the need for salt used in ice and snow
control.  During the past five years annual highway deicing sales by the Company
ranged  from 3.2  million  tons to 5.9  million  tons per year.  Unusually  mild
weather  occurring in the Company's  principal  deicing  markets would adversely
affect the  Company's  sales and  earnings.  The vast  majority of the Company's
deicing sales are made in Canada and the northern  United  States,  where winter
weather is generally harsher than in other parts of North America.

     The chemical  industry  accounted for approximately 11% of the Company's FY
1997 salt sales.  Principal  customers  are producers of  intermediate  chemical
products  used in pulp  bleaching  and  plastic  production  that do not  have a
captive source of brine.

                                                       4


<PAGE>



     Sales and Marketing.  The general trade market is driven by strong customer
relationships. Sales in the general trade business occur through retail channels
such as grocery,  building supply and hardware stores,  automotive stores,  feed
suppliers, and industrial  manufacturers in various industries.  Distribution in
the U.S. general trade market is channelled through a direct sales force located
in various  parts of the  United  States,  who sell  products  to  distributors,
dealers and end users.  The Company also maintains a network of brokers who sell
table salt,  consumer  deicing and water  conditioning  products.  These brokers
service  wholesale and chain grocery  headquarters  and retail stores as well as
the food service industry.

     The Company has  maintained  a stable  presence in the U.S.  general  trade
market over recent years due to its strong focus on the mid-western  region, its
distribution  network to the grocery trade and its relationships  with the large
distributors  of water  conditioning  salt.  In order to  continue to expand its
volume and  profitability  in the general trade market,  the Company has focused
its efforts on improving  its  marketing  programs in both the Canadian and U.S.
markets.   These  programs   include:   (i)   consolidating  its  various  water
conditioning brand names under one umbrella brand name, the "North American Salt
Company",  (ii) developing a new line of consumer deicing products,  sold as the
"Guardian"  brand name and (iii)  differentiating  the  Company's  various brand
names through promotional activities.

     The  highway  deicing  customer  base  consists  of states,  provinces  and
municipalities  that purchase  bulk salt for ice control.  Contracts are awarded
annually on the basis of tendered  bids once the  purchaser  is assured that the
minimum  requirements  for purity,  service and delivery can be met. The bidding
process  eliminates the need to invest  significant time and effort in marketing
and  advertising.  Since the highway deicing business  requires little,  if any,
personal  contact  with the buyers,  the Company  maintains a  relatively  small
marketing team for this segment.

     Distribution  into the  chemical  market is made through  one-to-five  year
supply agreements, which are negotiated privately. Price, service and quality of
product are the major market requirements.

     Competition.  In Canada,  the Company's  "Sifto" name is well recognized in
the general trade market.  Competition  in the Canadian  general trade  business
comes   principally  from  Windsor  Salt,  the  Canadian   operation  of  Morton
International, Inc.
("Morton").

     Competition in the U.S. general trade market is regional in nature.  Morton
is the only  nationally  recognized  brand name and the majority of sales in the
United States are lower priced, nonbranded or "private label" products.  Cargill
Inc.  ("Cargill")  and Morton,  which both have  facilities  in Kansas,  are the
principal  competitors with respect to the Company's Kansas facilities.  Cargill
and Morton,  which also operate solar facilities on the Great Salt Lake, present
competition to the Company's solar salt business.

     Competition in the Canadian  highway deicing market comes  principally from
Morton and  Cargill.  Morton  competes  with the Company  throughout  the entire
Canadian market area, principally from its rock salt plant in Ojibway,  Ontario.
Cargill, with its mine in Cleveland,  Ohio, competes in the Toronto and Montreal
metropolitan  areas.  In the U.S.  Great  Lakes  deicing  market and in the U.S.
deicing market adjacent to the Mississippi River system, both Morton and Cargill
compete with the Company.
In the  chemical  market,  Morton and Cargill are also the  Company's  two major
competitors.

     Production  Techniques  and  Facilities.  Summarized  below  are the  three
processing methods used to produce salt. The Company utilizes all three methods.

     Rock Salt Mining. The Company employs a drill and blast mining technique at
its Cote Blanche, Louisiana and Goderich, Ontario rock salt mines.

     Mechanical   Evaporation.   The  mechanical   evaporation  method  involves
subjecting salt-saturated brine to vacuum pressure and heat to precipitate salt.
The resulting product has both a high purity and an attractive physical shape.

     Solar Evaporation.  The solar evaporation method is a cost effective method
of salt  production  used in areas of the  world  where  high  salinity  and low
rainfall are common.  Water with above average salt content is pumped into large
open ponds where sun and wind  evaporate the water and dry the salt into a solid
which is then harvested mechanically.

     The  Company  produces  salt at  eight  different  locations.  Mechanically
evaporated  salt  for the  Canadian  market  is  produced  at  three  facilities
strategically located throughout Canada: Amherst, Nova Scotia in eastern Canada,
Goderich,  Ontario in central Canada and Unity,  Saskatchewan in western Canada.
From the Goderich  rock salt mine,  the Company also serves the highway  deicing
market within the Great Lakes region of the United States.


                                                       5


<PAGE>



     The  Company's  central and  midwest  U.S.  customer  base is served by two
mechanical  evaporation  plants located in Kansas.  The Cote Blanche,  Louisiana
rock salt mine serves  chemical  customers  in the  southern  and  western  U.S.
markets  as well as the  highway  deicing  markets  through  a series  of depots
located along the Mississippi and Ohio Rivers.  The Company's solar  evaporation
facility located at Ogden, Utah is the largest solar salt production site in the
United  States.  This  facility  principally  serves the western  general  trade
markets, but also provides salt for chemical applications and highway deicing.

     Control of Resources.  Based on the geological  characteristics of the salt
deposits that provide the  Company's  raw  materials and the current  production
rates, the Company believes there are sufficient sources of readily  recoverable
salt for the foreseeable future.

Soda Products

     Soda products include soda ash, sodium sulfate and sodium bicarbonate. Soda
ash is used in the production of glass, sodium-based chemicals, detergents, pulp
and  paper and for water  treatment  and  numerous  other  applications.  Sodium
sulfate  is  used  as an  ingredient  in  many  laundry  detergents  and  in the
processing of wood pulp into paper.  Sodium  bicarbonate  is used as a buffering
agent in animal feeds, as a chemical  additive and in  pharmaceutical,  food and
other consumer applications.

Soda Ash

     There are  currently two  production  processes for soda ash. The principal
production process,  the "ammonia-soda" or "synthetic"  process, is raw material
(using coke, salt, and limestone) and energy-intensive and generates by-products
such as calcium chloride and aluminum chloride. Today, roughly two-thirds of the
worldwide  production  uses a variation of this process.  The other one-third of
worldwide production uses a newer production process,  developed only within the
past  30  years,  which  refines  naturally  occurring  trona  deposits  and  is
considerably  less  costly  than the  synthetic  process.  Outside of the United
States,  production of soda ash using trona deposits occurs  currently in Kenya,
Botswana  and China.  The six U.S.  producers,  by using the natural  production
process,  are regarded as the world's lowest cost producers of high quality soda
ash.

     Of the six  U.S.  soda ash  producers,  five are  located  in Green  River,
Wyoming. The Green River suppliers produce soda ash by conventional  underground
mining techniques and mechanical  separation.  The Company is the other domestic
producer and produces soda ash from the  carbonation of brine by solution mining
rather than by underground mining. The Company is the only domestic producer not
located in Green River,  Wyoming.  The Company's  California location results in
reduced  transportation costs to the California soda ash market and to ports for
export.

     Prior to April 1996,  the Company had higher costs of  production  than the
Green River producers,  but in the Company's opinion these production costs were
largely  offset  by  reduced  transportation  costs for sales of soda ash in the
western U.S., European and faster growing Asian,  Pacific Rim and Latin American
markets.  As of April 1996, the Company completed the first phase of a two-phase
strategic capital  expenditure  program (Long Range Process Plan or "LRPP").  By
employing   newly   developed   technology   which  has  increased  the  mineral
concentration of the brine and by modifying the existing  manufacturing process,
the Company has reduced production costs and increased capacity by 300,000 tons.
See "--Production Techniques and Facilities."

     Markets/Customers.  Soda ash produced by the Company is used principally in
the  production  of container  glass,  flat glass,  sodium-based  chemicals  and
detergents. Container glass and flat glass include bottles and other containers,
windows for  buildings  and  automobiles,  mirrors,  lighting  ware,  tableware,
glassware and laboratory  ware. The chemical  industry uses soda ash as a source
of sodium ions and to synthesize  value-added products. lt is mainly used in the
production of sodium bicarbonate, sodium phosphates, sodium silicates and chrome
chemicals.  Soda ash is also a component of powdered detergents and is often the
prime  alkali  used  to  make   phosphates   and  silicates  for  dry  detergent
applications.

     The Company,  along with other U.S.  producers of natural soda ash, exports
soda ash through the American Natural Soda Ash Corporation ("ANSAC"),  an export
sales and  marketing  association  organized in 1983 which is  authorized by the
Webb-Pomerene  Act.  ANSAC  represents  the Company and the five other  domestic
producers  for export  sales to  customers  in all parts of the world other than
Canada and the European  Union  ("EU").  ANSAC rules require the Company and the
other  five  domestic  producers  to sell  exclusively  through  ANSAC  in ANSAC
territories, with limited exceptions for sales to affiliates.

     The  Company  resumed  exports of soda ash to Europe in 1991,  after the EU
removed an antidumping  duty that had been placed on U.S.  producers of soda ash
in 1983, which had effectively  precluded the U.S. producers from serving the EU
soda ash  market.  All of the  production  of soda ash  within  the EU is by the
higher cost synthetic method.  The antidumping duty had allowed the EU producers
to pass along  these  higher  costs to  customers.  In 1993,  the EU  Commission
initiated an antidumping

                                                       6


<PAGE>



action against American producers of soda ash exported to the EU, including soda
ash  manufactured  by the Company.  In October 1995,  the EU Commission  imposed
definitive  duties on  imports  ranging  from  0-8.9%.  The duty  imposed on the
Company's  customers was 7.1%. The duty is in effect for a maximum of five years
with a review expected near the end of the first year. The Company is vigorously
resisting  maintaining  duties on the  basis  that the EU  Commission  must find
injury in order to maintain  the duties.  The Company  continues  to sell in the
European  market  primarily  to  customers  who are  subject to a duty  drawback
provision  that allows them to  purchase a portion of their raw  materials  duty
free.  Sales  to the  European  market  represented  approximately  3.7%  of the
Company's FY 1997 soda ash sales.

     Sales and Marketing.  The Company's  domestic sales are concentrated in the
western U.S. glass market,  where the Company's soda ash production  facility is
located. The Company's strategy for increasing soda ash sales in the U.S. market
is to target the pulp  processing,  water treatment and chemical market segments
as well as to increase sales into the  southeastern  United States.  The Company
expects  demand  in these  segments  to grow  faster  than  demand  in the glass
segment.  The Company  will  continue to  participate  in ANSAC for sales in all
export  markets  where they are  allowed to operate,  which  include all foreign
markets other than Canada and the EU. ANSAC's strategy is to continue to service
these relatively faster growing  developing  markets with low cost, high quality
soda ash from the U.S. producers.

     Competition. Competition in the worldwide soda ash market varies in each of
the major geographical  regions.  Solvay S.A. ("Solvay"),  a large Belgium-based
producer  of  chemicals,  is the  world's  largest  producer  of soda ash.  With
substantial  synthetic  soda ash  capacity  in Europe  and 2.0  million  tons of
natural soda ash capacity in Green River, Wyoming,  through its U.S. subsidiary,
Solvay  Minerals Inc.,  Solvay accounts for an estimated 14% of the world's soda
ash  production  capacity.  Solvay has  announced a  three-part  1.2 million ton
expansion.  The timing of these  expansions  will be based on market demand with
the first increment available no later than the end of 1998. In the U.S. market,
the Company  competes  with the five Green River produc ers of natural soda ash,
which  include  FMC   Corporation,   Solvay,   OCI  Chemical   Corp.   (formerly
Rhone-Poulenc),   General  Chemical  Corporation  and  TG  Soda  Ash,  Inc.  FMC
Corporation  has announced that it expanded its Wyoming  facility in the fall of
1996 by 600,000 tons in an effort to lower its production costs and maintain its
capacity  leadership  position.  In FY 1997,  OCI  announced a 600,000  plus ton
expansion  project to be completed in the first quarter of 1999. A large portion
of this new volume is  expected  to displace  the  forecasted  shutdown of OCI's
Korean  synthetic  plant.  Imports  of soda  ash  into  the  United  States  are
insignificant due to the low cost, high quality soda ash offered by the domestic
producers.

     In the EU,  the  Company  competes  with  EU  producers,  including  the EU
operations of Solvay and Rhone-Poulenc,  producers from Eastern Europe and other
American  producers.  HCG has two wholly owned subsidiaries in the EU, Matthes +
Weber GmbH  ("M&W"),  a soda ash producer in Germany,  and Harris Soda  Products
Europe  ("HSPE"),  which is based in France and markets and sells soda products.
The Company  markets its soda products in Europe through HSPE. For sales of soda
ash to Pacific Rim countries and Latin  America,  the Company is  represented by
ANSAC. ANSAC's principal  competition in these markets is from local production,
Solvay's European  operations and, in the case of Latin America,  producers from
Eastern Europe.

     Production Techniques and Facilities.  The Company produces soda ash at one
facility located at Searles Valley, California ("Searles Valley"). At the end of
FY 1997, the plant had a rated production  capacity of 1.5 million tons per year
and accounted for approximately 12.0% of total U.S. soda ash production.  In the
Company's  process,  brine containing  carbonate is reacted with carbon dioxide,
cooled to precipitate sodium bicarbonate, and calcined to yield an intermediate,
low-density  grade of sodium  carbonate.  The  low-density  sodium  carbonate is
dissolved and  recrystallized,  separated by centrifuge,  dried,  and stored for
sale as dense soda ash.

     The Company commenced in FY 1993 the LRPP, a two-phase capital  expenditure
program, which could cost up to $132.0 million,  intended to lower the Company's
soda ash and boron unit production costs and to increase its soda ash production
capacity. The initial phase of the LRPP utilizes newly developed technology that
increases the mineral  concentration  of the brine from which soda ash and boron
chemicals are produced and changes the  production  process,  by including  more
efficient drying and processing  equipment.  As a result, the Company's soda ash
rated production  capacity is 1.5 million tons annually and production costs for
soda ash and boron  chemicals have been reduced and further cost  reductions are
expected  in FY 1998.  The second  phase of the  program is designed to increase
soda ash rated production  capacity to between 1.8-2.0 million tons annually and
reduce costs further.  The Company plans to market the increased soda ash volume
both  domestically  and  in  the EU  and,  through  an  increase  in  its  ANSAC
allocation,  in other world markets. The Company spent $68.0 million on the LRPP
from FY 1993  through FY 1997.  The  implementation  of the second  phase of the
capital  expenditure program which is divided into two increments and the timing
of the spending of the remaining estimated capital requirements of approximately
$64.0 million will depend upon the growth of future market demand for soda ash.

     Control of Resources. The Company produces soda ash at its California plant
by  processing  naturally  occurring  brines that the Company mines from its own
property  as well as under  leases  with the U.S.  Department  of the  Interior,
Bureau of Land
                                                       7


<PAGE>



Management (the "BLM"). The Company's supply of brine for the production of soda
ash is extensive.  The Company  believes that it has adequate  deposits,  at the
Company's current and projected production rates, for the foreseeable future.

Sodium Bicarbonate

     In November  1992,  the Company  acquired a 50% interest in a joint venture
processing plant with NaTec Resources,  Inc. ("NRI") to provide the Company with
access to a low cost source of sodium  bicarbonate.  In August 1995, the Company
acquired the remaining 50% interest in its joint venture  processing  plant from
NRI. The sodium  bicarbonate  is produced at a facility  approximately  48 miles
northwest of Rifle, Colorado.  Commercial production at the plant was started in
July 1991. Located on sodium leases in Rio Blanco County, Colorado, the facility
uses  proprietary  technology  involving  solution  mining  and  crystallization
techniques to produce natural sodium bicarbonate.

     During FY 1994 the joint venture experienced a number of operating problems
at  its  plant.  As a  result,  production  of  the  various  food-grade  sodium
bicarbonate  products  was  delayed,  resulting  in less  than  expected  market
penetration.  By the  end of FY  1994,  production  of  the  various  food-grade
products was resolved by revising  certain  production  methods,  but volume was
still insufficient to achieve expected market penetration. In the second quarter
FY 1996,  the  Company  spent $1.2  million on various  innovations  to increase
capacity,  improve product quality and ensure consistent supply. Since that time
the facility has reliably and  consistently  produced the quality and quantities
necessary to sustain the marketing  strategy.  Improved production volumes in FY
1997  resulted  in a 47%  and  59%  increase  in  sales  volumes  and  revenues,
respectively,  versus FY 1996. The Bureau of Land  Management  approved in March
1996 a new mine plan that  includes  mine  field  innovations  and allows for an
extraction  level of  sodium  bicarbonate  that is five  times  higher  than was
previously allowed.

     The Company's  sodium  bicarbonate  sales are targeted for all major sodium
bicarbonate  markets. The Company's marketing strategy for sodium bicarbonate is
to:  (i)  continue  sales  to the  animal  feed  market  through  a  distributor
arrangement with a recognized leader in animal nutrition products;  (ii) develop
market specific programs for industrial segments such as swimming pool and water
treatment,  fire  extinguishers  and  paper  processing  through  the  Company's
existing  secondary   distribution  network  and  sales  force;  (iii)  continue
promotion of a natural,  high quality,  sodium  bicarbonate in food and consumer
segments  through the  Company's  sales force and become a recognized  leader in
distribution  to  the  food  industry;   and  (iv)  leverage  export  logistical
advantages to supply international  markets.  Implementation of the strategy and
improved  production  volumes in FY 1997  resulted in a 47% and 59%  increase in
sales volumes and revenues,  respectively,  versus FY 1996. The Company believes
that the food  processing  and  selected  consumer  segments  continue  to offer
opportunities for growth and improved margins.

Sodium Sulfate

     The Company is the largest domestic producer of naturally  occurring sodium
sulfate  which is used as an  inactive  ingredient  in dry  detergents  and as a
source of sulfur in pulp  processing.  Recent strong demand worldwide for sodium
sulfate,  particularly  from  detergent  manufacturers,  has resulted in Company
sales at  capacity  with  significant  margin  improvements.  Sodium  sulfate is
currently produced at Searles Valley.

Boron Chemicals

     Boron  chemicals  include boric acid,  several sodium borate products and a
number of related specialty compounds intended for specific applications.  Boron
compounds are used in a wide range of applications.  Approximately  60% of their
use is in glass and ceramic products to improve chemical and thermal  stability.
The remaining 40% is used in fire retardants, fertilizers, soaps, detergents and
pesticides.

     Boric acid is used  primarily in the  production of textile  fiberglass and
other  borosilicate  glasses where it improves strength and imparts chemical and
thermal  stability.  Sodium  borates  are used in a  broader  range of glass and
ceramic products to enhance manufacturing processes.  They also improve chemical
resistance and thermal stability in products such as frits, ceramics, fiberglass
insulation and specialty glasses such as Pyrex(R) and automobile headlights.

     According to industry  data  published  in 1995,  the Company is the second
largest  producer of boron  chemicals in the United States and the third largest
producer in the world after the U.K. based RTZ  Corporation  plc and the Turkish
state-owned producer, Etibank.

     Markets/Customers.  The  Company's  sales of boron  chemicals  are  divided
between  domestic and foreign market  segments.  In FY 1997, a majority of sales
were derived from domestic sales to producers of textile  fiberglass,  porcelain
frits, high quality

                                                       8


<PAGE>



glasses, fiberglass insulation and chemical distributors.  The remaining FY 1997
sales were  derived from  international  sales,  with  western  Europe and Japan
representing the Company's two largest markets.

     Sales and Marketing.  The Company's  sales of boric acid and sodium borates
are handled  domestically  through its own national sales staff  complemented by
approved local or regional chemical  distributors.  International sales are made
by both commissioned  agents and  distributors,  whose activities are managed by
the  Company's  marketing  staff.  The  Company's  marketing  strategy for boron
chemicals  is to expand its sales of high  margin  products in  specialty  niche
markets,  enter into exclusive  sales  agreements,  build a strong  distribution
network and emphasize customer service.

     Boric acid is used in the production of textile fiberglass and borosilicate
glass where it improves tensile strength and hardness, respectively. The Company
has  traditionally  been a strong  competitor  in this market due to its product
quality.  For  instance,  the Company  introduced  to the market  during FY 1994
anhydrous  boric  acid,  which  is a  high  purity  specialty  product  used  in
borosilicate  glass  and  specialty  ceramic  frits.  Other  specialty  products
marketed by the Company  include  nuclear  grade and high purity  boric acid for
laboratory  chemicals,  which are  produced at Societa  Chimica  Larderello  SpA
("SCL").  SCL is an Italian  producer of  specialty  boric acid  products and an
affiliate  of HCNA.  In FY 1994 the Company  entered into an agreement to become
the distributor of SCL products to the U.S. market.  See "Certain  Relationships
and Related Transactions--Agreements with Affiliates."

     The Company's  most  important  sodium borate  products  include  anhydrous
borax,  decahydrate and pentahydrate  borax, which are used in the production of
frits,  ceramics and  borosilicate  glass where the borate  improves the thermal
resistance of the glass. Historically,  the Company's strategy has been to focus
on the sale of anhydrous borax, which has been its most profitable sodium borate
product.  The  Company  continues  to focus  marketing  efforts  to  maintain  a
leadership  position in this segment and to selectively  market  decahydrate and
pentahydrate in niche segments.

     Competition. The Company's principal competition comes from RTZ Corporation
plc,  which  is  the  world's  largest  boron  chemicals  producer  through  its
subsidiaries  U.S. Borax,  Borax  Consolidated  Ltd. (U.K.),  Borax Francais and
Borax Argentina.  Other worldwide  competitors are located in Turkey  (Etibank),
Chile, Russia and the Commonwealth of Independent States.

     Production  Techniques and Facilities.  Prior to April 1, 1996, the Company
produced  its boron  chemicals  at two  separate  facilities  located in Searles
Valley. Both plants utilized solution mining and chemical processing  techniques
to recover  borax  minerals  from the ore bodies and to refine them further into
finished products.

     At one site,  boric acid is produced by  extracting  crude borax from brine
through a proprietary solvent extraction process. After extraction, the solution
is  concentrated  in an  evaporator  and the  boric  acid is  recovered  through
crystallization.  At the other site,  sodium  borates were produced by a cooling
process in which  borax-enriched  brines  were cooled to  crystallize  a line of
sodium  borate  products.  Effective  April 1,  1996,  as part of the  strategic
capital  expenditure  program designed to lower the cost of soda ash production,
the Company enhanced its feedstock  process to improve sodium borate  production
consistency.  The Company believes this will ultimately  result in a significant
reduction in production costs.

     Control of Resources.  The Company produces boric acid and sodium borate by
processing at its California  plant naturally  occurring brines that the Company
mines from its own  property as well as under  leases with the BLM.  The Company
believes  that its supply of brine for the  production  of boric acid and sodium
borate is adequate for the foreseeable future.

Specialty Potash Fertilizers

     Sulfate of potash ("SOP") is a specialty  potash  fertilizer  used for high
value crops such as fruits,  vegetables  and nuts and  chloride-sensitive  crops
such as  tobacco.  The  Company is the largest  American  producer  of SOP.  The
Company markets SOP products both domestically and overseas.  Potash fertilizers
come in various forms with differing  levels of potassium  content.  The Company
offers seven grades of SOP, while its competitors produce primarily two grades.

     Markets/Customers.  The annual worldwide  consumption of potash fertilizers
approaches 50 million tons. Muriate of potash ("MOP"), or potassium chloride, is
the most common  source of potassium and accounts for  approximately  92% of all
potash  consumed in fertilizer  production.  SOP  represents  about 6% of potash
consumption.  The  remaining 2% is supplied in the forms of potassium  magnesium
sulfate  and  potassium   nitrate.   All  of  these  products   contain  varying
concentrations  of potassium  expressed as potassium  oxide (K20) and  different
combinations of co-nutrients.


                                                       9


<PAGE>



     MOP  is  the  least  expensive  form  of  potash  fertilizer  based  on the
concentration  of K20. It is the preferred  potassium  source for most crops and
contains  about 60% K20.  However,  MOP also  contains a  substantial  amount of
chloride,  an element which in excessive  amounts can be harmful,  especially to
chloride-sensitive plants.

     SOP's retail prices are  approximately  twice those of MOP.  Because SOP is
virtually  chloride  free,  it is a preferred  potassium  source when  agronomic
conditions  favor a  non-chloride  fertilizer.  Examples  of crops  where SOP is
preferred include tobacco, tea, potatoes,  citrus fruits, grapes,  almonds, some
vegetables and on turfgrass for golf courses. Approximately 50% of the Company's
annual SOP sales are made to domestic customers, which include retail fertilizer
dealers and distributors of professional  turf care products.  These dealers and
distributors combine or blend SOP with other fertilizers and minerals to produce
fertilizer blends tailored to individual requirements.

     Approximately 69% of the world SOP production is located in Europe,  18% in
the  United  States  and the  remaining  13% in  various  countries.  The  world
consumption of SOP totals about 3.5 million tons. Based on studies  conducted by
industry  analysts,  the  Company  expects  consumption  of SOP in Asia  and the
Pacific Rim countries to grow considerably through the end of the century.  This
anticipated growth is a result of increased production of high value cash crops,
for which SOP is a preferred  potassium source. The Company has focused on sales
to Asia and Pacific  Rim  countries  where its inland and marine  transportation
costs are at or below competitors' costs.

     Sales and Marketing.  The Company's  domestic sales of SOP are concentrated
in the  western  states  of  California,  Oregon,  Washington  and Idaho and the
central,  tobacco belt area where the crops and soil  conditions  favor SOP. The
Company employs trained  agronomic  sales personnel and fertilizer  agents,  who
contact dealers and growers in the United States.

     The  Company's  strategy for  increasing  SOP sales in the United States is
twofold.  First,  the Company is targeting  specific crops where the benefits of
using SOP versus other potassium sources are identified by research  consultants
in agricultural  testing  programs.  The Company  believes that these activities
have  encouraged  the  increased  use  of  SOP  on  potatoes,   vegetables,  and
professionally  managed  turf and golf  courses.  Second,  the Company  plans to
differentiate itself through unique products  specifically designed for targeted
markets. These SOP products vary in particle size and product quality to provide
marketing strength in bulk fertilizer blending programs where particle sizing is
important,  as well as direct SOP application where solubility is important.  In
addition,  the Company continues to test market unique SOP-based products,  with
which the Company has targeted the substantial liquid and suspension  fertilizer
markets previously served by non-SOP potassium sources.

     The Company generally exports SOP through major trading  companies.  Export
SOP sales volumes in FY 1997 were 50% of the Company's annual SOP sales.

     Competition.  The Company's major competition for SOP sales into the United
States include IMC Fertilizer  Group Inc.  ("IMC"),  the only other  significant
domestic  producer  of SOP,  and imports  from large  European  producers  which
compete primarily on the East Coast and in markets along the Mississippi  River.
For exports into Asia, the Pacific Rim countries and Latin America,  the Company
competes  with IMC,  local  production  and  European  production.  The European
producers,  the largest in the world,  include Kali und Salz, A.G.,  Tessenderlo
Chemie and  Kemira Oy. A new  venture  in Chile was  announced  with  annual SOP
capacity of 250,000 tons.  The new  production is expected to begin in 1998. SOP
also competes with other forms of potash and other fertilizers.

     Production  Techniques and Facilities.  Prior to April 1, 1996, the Company
produced  SOP at two  facilities.  The largest  facility is located on the Great
Salt Lake in Ogden  Utah  ("Ogden"),  while a smaller  50,000 ton  facility  was
located in Searles  Valley,  California.  During FY 1992 and FY 1993 the Company
invested  approximately  $13.0  million  at its  Ogden  facility  to  match  its
production of raw materials  from the  evaporation  ponds with its present plant
capacity  of  approximately  550,000  tons of SOP.  This  project  consisted  of
construction of a new 17,500 acre preconcentration pond and a 22 mile underwater
canal on the  bottom of the  Great  Salt  Lake.  The  preconcentration  pond and
related canal are operational and supplying  increasing levels of potassium each
year to the primary pond system,  resulting  in  increased  production.  Further
investment  in the  expansion  is planned  for FY 1998,  as  additional  cooling
capacity will be constructed at a cost of $3.0 million.

     In April 1996, the Company discontinued production of SOP at its California
facility.  The  shutdown  was an  element  of the  Company's  strategic  capital
expenditure  program to increase soda ash production,  reduce its boron products
production cost and discontinue  production of its potash  co-products.  Another
element  of this plan was the  discontinuance  of  100,000  tons per year of MOP
production at Searles Valley. The Company plans to purchase its requirements for
MOP to serve strategic  Western United States markets and has negotiated  supply
arrangements.


                                                       10


<PAGE>



     Record levels of rain from 1982 to 1984 at Ogden, and the resulting rise in
the  level of the Great  Salt  Lake,  caused a breach in the dike  system at the
facilities in May 1984. A large portion of the evaporation pond area was flooded
and the pond floors dissolved. As a result, GSLMC was unable to produce SOP from
1984  through the  beginning of 1989.  Following  the flood,  $26.0  million was
invested to repair the pond system.  As part of this project the perimeter dikes
were raised to a height three feet over the historic  peak flood level.  The new
dikes  employ  interior  berms to increase  their load bearing  capability,  and
utilize stronger building  materials which are designed to retard erosion due to
wave  action,  a  principal  cause of the 1984 dike  breach.  The dikes are also
designed such that they can be raised further without  weakening the foundation.
Also,  following the flood,  the State of Utah  constructed  and implemented the
West Desert  Pumping  Project  which could be utilized to lower the level of the
Great  Salt  Lake by up to twelve  inches  per year  thus  reducing  the risk of
flooding.  The Company  believes that the subsequent dike  improvements  and the
West Desert Pumping  Project have virtually  eliminated the likelihood of future
pond  flooding.   The  Company  maintains  both  property  damage  and  business
interruption insurance policies for this risk.

     Control  of  resources.  The  Company  obtains  its SOP  minerals  from the
potassium  rich  brines  of the  Great  Salt  Lake in Utah.  Based on  estimated
deposits of potassium and the current forecast for production requirements,  the
Company believes it has adequate deposits for the foreseeable future.

Other Products

     The Company also produces  several other products which are  by-products of
the various manufacturing processes conducted by the Company.

Seasonality and Backlogs

     Sales of salt for highway deicing are quite seasonal,  and vary with winter
conditions  in areas  where that  product  is used.  In  keeping  with  industry
practice,  ice control salt is stockpiled  both by the Company and its customers
in sufficient  quantities to meet  estimated  requirements  for the next season.
Sales of soda ash to the glass container  industry are somewhat seasonal because
sales of beverage  containers are stronger in the summer. SOP sales are seasonal
as most of the Company's  sales are made between  December and March in order to
meet the spring fertilizer season. Due to the nature of the Company's  business,
there are no  significant  backlogs.  For a further  discussion of the financial
effects of seasonality on the Company, see "Management's Discussion and Analysis
of Financial  Condition  and Results of  Operations--Seasonality  and  Quarterly
Financial Data (Unaudited)."

Employees

     At the  end of FY  1997  the  Company  had  approximately  2,400  full-time
employees,  of which approximately 800 are represented by unions. Two collective
bargaining  agreements  covering  approximately 450 employees will expire at the
end of FY 1998. The Company considers its labor relations to be good.

SIFTO

     According  to  industry  data  published  in 1995,  Sifto,  a wholly  owned
subsidiary of NASC, is the fourth largest salt producer in North America.  Sifto
produced  approximately  5.4  million  tons of salt in FY 1997  compared  to 4.3
million tons in FY 1996.  Sifto sells salt to the full range of end-users in the
highway deicing,  general trade and chemical markets.  Sifto's major business is
in the North American  highway  deicing  market.  General trade  products,  sold
predominantly  in Canada  under the  Sifto  brand  name,  include  table,  water
conditioning, livestock feed, and deicing salt.

     Highway  deicing salt is sold  primarily  through a public tender  process.
Sifto uses a computer-pricing  system to determine its bid prices. General trade
and chemical sales contracts are negotiated  privately.  Sifto  distributes salt
through an extensive network of warehouses and depots located within, or closely
linked to, all its key markets.

     Sifto  operates  a  large-scale  underground  rock salt  mine in  Goderich,
Ontario and evaporator  plants at Goderich,  Ontario,  Amherst,  Nova Scotia and
Unity,  Saskatchewan.  All  distribution  facilities are leased or operated on a
contract  basis.  Sifto is managed from the  Company's  headquarters  located in
Overland Park, Kansas.






                                                       11


<PAGE>



Markets

     Highway  Deicing  Segment.  Sifto's  largest  market  overall  is in  North
American  highway  deicing  sales,  which in FY 1997 were 56% of  Sifto's  total
revenue.  Sifto sells  approximately  55% of its highway deicing volume into the
United  States  and 45%  into  Canada.  Sifto's  competitive  strengths  are its
efficient mining and distribution of rock salt in large volumes at low cost, and
the  well-located,  high-quality  salt deposits in its rock salt mines. The vast
majority of Sifto's  deicing  sales are made in Canada and the  northern  United
States,  where winter weather is generally  harsher than in other parts of North
America.

     General Trade Segment.  In FY 1997,  the general trade segment  contributed
38% of Sifto's total  revenue.  Sifto's direct general trade business is focused
in Canada, where it has established brand-name recognition.

     Chemical  Segment.  In FY 1997,  the  chemical  segment  contributed  6% of
Sifto's total revenue.  Consumption of salt by the chemical  industry is largely
dependent on the demand for chlor-alkali  products,  especially chlorine gas and
caustic soda.

Production

     Sifto  produces  salt at four  locations.  Its rock salt mine is located in
Goderich,  Ontario and as of March 1997 was the largest  rock salt mine in North
America.  Sifto  uses the bench  mining  method to  extract  salt.  The  Company
believes that the Goderich mine  operating cost structure is among the lowest in
the North American salt industry.

     Sifto's  evaporated  salt  plants are  located  in  Amherst,  Nova  Scotia,
Goderich,  Ontario and Unity,  Saskatchewan.  The Amherst  plant serves the east
coast of Canada and the United States. The Goderich plant serves Ontario, Quebec
and the  Great  Lakes  states.  The  Unity  plant  serves  western  Canada.  See
"Properties."

Competition

     Sifto's  competition  in the highway  deicing  market is  principally  from
Morton and Cargill.  Morton  competes with Sifto  throughout the entire Canadian
market  area,  principally  from its rock salt plant in Ojibway,  Ontario.  Akzo
competes with Sifto from its mine located in Cleveland,  Ohio. In general trade,
Sifto competes with Windsor Salt, the Canadian operation of Morton.



                                                       12


<PAGE>



Item 2.           PROPERTIES

Facilities

The table below presents  certain  information  relating to facilities owned and
leased by the Company.

<TABLE>
<CAPTION>

Location                                  Description                                                         Status
<S>                                       <C>                                                                 <C>    
The Company:
Searles Valley, California ............   Soda Ash, Boron Chemicals and Sodium Sulfate processing
                                             plant totalling 11,000 acres                                     Owned
                                          24,000 acres of mineral leases                                      Leased
Ogden, Utah ...........................   SOP Processing Plant totalling 35,000 square feet                   Owned
                                          Salt Plant totalling 95,000 square feet                             Owned
                                          Solar Ponding Operations located on 37,000 acres                    Leased
                                          Solar Ponding Operations located on 1,500 acres                     Owned
                                          117,000 acres of mineral leases                                     Leased
Cote Blanche, Louisiana ...............   Rock Salt Production Facility totalling 11,000 square feet          Owned
                                          Rock Salt Mine totalling 200 acres of leased land                   Leased
                                          Various mineral leases                                              Leased
Lyons, Kansas .........................   Salt Evaporation Plant totalling 134,000 square feet located
                                             on 997 acres                                                     Owned
Hutchinson, Kansas ....................   Salt Evaporation Plant totalling 165,000 square feet located
                                             on 326 acres                                                     Owned
Chicago, Illinois .....................   Salt Packaging Facility totalling 20,000 square feet located
                                             on 12 acres                                                      Owned
Humphreys County, Tennessee ...........   Shipping and Storage Facility totalling 50,000 square feet
                                             on 2.5 acres                                                     Leased
San Diego, California .................   Shipping and Storage Facility totalling 24,000 square feet
                                             on 93,000 square feet of land                                    Leased
Boron, California .....................   Transloader Facility located on 75,000 square feet of land          Leased

Rifle, Colorado .......................   Sodium Bicarbonate Processing Plant totalling
                                             30,000 square feet                                               Owned
                                          8,200 acres of mineral leases                                       Leased

Sifto:
Goderich, Ontario .....................   Salt Evaporation Plant totalling 85,000 square feet located
                                             on 97 acres                                                      Owned
                                          Rock    Salt    Production    Facility
                                          totalling  250,000  square feet                                     Leased
                                          Rock Salt Mine  totalling  50 acres of
                                          leased land                                                         Leased
Amherst, Nova Scotia ..................   Salt Evaporation Plant totalling 90,000 square feet located
                                             on 249 acres                                                     Owned
                                          Various mineral leases                                              Leased
Unity, Saskatchewan ...................   Salt Evaporation Plant totalling 94,000 square feet located
                                             on 484 acres                                                     Owned
                                          Various mineral leases                                              Leased
Montreal, Quebec ......................   Salt Packaging Facility totalling 18,000 square feet located
                                             on 4 acres                                                       Owned

</TABLE>

     In addition to the above  properties,  the Company  leases or owns numerous
warehouses and depots and various sales and administrative offices. It also owns
fresh and brackish water systems,  including  extensive  pipelines and wells, in
conjunction with the Mojave Desert plants in Searles Valley,  and track,  office
and service areas related to its two  short-line  common  carriers which connect
the Company facilities with commercial railroads. The Searles Valley facility is
supplied by two on-site power generation facilities which sell excess power to a
local  utility.  In July 1996,  NACC entered into an agreement  for the sale and
leaseback of one of these facilities (See Note 7 to the Financial Statements).


                                                       13


<PAGE>



Encumbrances

     The Argus plant,  which is part of the Searles Valley  property,  serves as
steam host for, and receives back-up power from, the on-site  cogeneration plant
owned by ACE Cogeneration  Company.  The Company's Searles Valley properties are
subject to a ground  lease and  various  easements  granted to ACE  Cogeneration
Company for its cogeneration  plant and related utility services,  parking lots,
access roads and similar requirements.

     Substantially  all of the assets of Sifto are pledged as  security  for the
Sifto Notes.

Mineral Rights

     In connection  with its Searles Valley plants,  the Company holds 30 leases
from the BLM covering  approximately  24,000 acres of the dry lakebed of Searles
Lake.  The leases are  subject to a royalty fee and have terms of 10 or 20 years
with varying expiration dates and preferential rights for renewal.

     In connection with its Goderich,  Ontario plant,  Sifto holds three mineral
leases from the Ontario  Ministry  of  Northern  Development  and Mines for salt
deposits  located  under Lake Huron and one lease for  surface  rights  from the
Canada Department of Transport. Two of the mineral leases expire in 1999 and one
expires in 2003, but Sifto has an option to renew each of the leases for another
21-year  term. A rental  charge and royalty are paid to the Ontario  Ministry of
Northern  Development  and Mines for each ton of salt mined under the lake.  The
surface lease expires in 1998 but is renewable for an additional 21 years. Sifto
also holds a Mining  License of  Occupation  for salt  deposits  lying under the
Maitland  River in Ontario.  The license was issued in 1960 and does not have an
expiration date.

     In connection with its Cote Blanche,  Louisiana rock salt mine, the Company
holds a private lease for surface  facilities and an underlying  salt dome which
expires in 2060. A royalty is paid to the owners according to a formula based on
the tons of salt shipped and the selling  price of the salt for the  immediately
preceding calendar year.

     In connection with its Ogden plant, the Company holds 9 mineral leases from
the State of Utah. The leases continue in effect so long as salt is produced and
the State of Utah receives a minimum royalty and rent. See "Legal Proceedings --
Royalty Matter."

     In connection  with its Amherst,  Nova Scotia plant,  Sifto leases the salt
mineral  rights from the Province of Nova Scotia and pays a royalty for each ton
mined.  The  leases  expire in July  2003 and are  renewable  for an  additional
20-year period.

     In connection  with its Unity,  Saskatchewan  plant,  Sifto leases the salt
mineral rights from the Saskatchewan provincial government under a 21-year lease
which expires at the end of December 2009. This lease is renewable for a further
21-year  period.  These  mineral  rights are  subject to a royalty  for each ton
extracted and refined.

     In connection with its Rifle, Colorado plant, the Company holds four leases
from the BLM covering  approximately  8,200  acres.  The leases are subject to a
royalty  fee and have an  expiration  of July 1,  2001 with  successive  10 year
renewal options provided that sodium is being produced in paying quantities.

Railway Companies

     Trona Railway Company  ("TRC"),  a 31-mile common carrier which is a wholly
owned  subsidiary  of  the  Company,   provides  the  Company's  Searles  Valley
facilities  with rail access to  Southern  Pacific  Railroad's  track at Searles
Station, California,  approximately 30 miles from the Company's plants. The rail
cars and locomotives used by TRC are currently leased. The Hutchinson & Northern
Railway Company ("H&N"), a wholly owned subsidiary of the Company,  connects the
Company's  Hutchinson,  Kansas properties with the Santa Fe Railroad,  six miles
away.

North American Terminals, Inc.

     North American Terminals,  Inc. ("NATI"),  a wholly owned subsidiary of the
Company,  operates  a leased  bulk  cargo  terminal  at the  Port of San  Diego,
California,  from  which  products  produced  at the  Company's  Searles  Valley
facilities  are exported.  Its  facilities  consist of a  transloader  in Boron,
California  ("Boron")  and a leased bulk  loading  and  storage  facility in San
Diego.  Products are shipped  from the Searles  Valley  production  facility via
truck to Boron where they are transloaded onto the Santa Fe Railroad and shipped
to the port in San Diego.  In  addition,  products  are shipped  directly by the
Southern  Pacific  Railroad from the Searles Valley  facilities to the San Diego
terminal for export. The Company formed NATI in order to reduce rail and loading
costs while providing soda ash, SOP and sodium sulfate storage capacity.

                                                       14


<PAGE>



Searles Domestic Water Company

     In connection  with its  acquisition of the Searles Valley  facilities from
Kerr-McGee  Chemical   Corporation   ("KMCC"),   KMCC  transferred  all  of  the
outstanding  stock of Searles Domestic Water Company  ("SDWC"),  a water utility
serving a small  number of  residential  customers in Trona,  California  to the
Company.  The transfer of the stock was completed in March 1994 when approval of
the California Public Utility Commission was received.

Licenses, Trademarks and Patents

     The  Company has a  licensing  agreement  with  Culligan  International  to
package and sell water  conditioning  salt under the Culligan  brand name to all
classes of retail  trade.  The Company is currently  marketing the Culligan name
under the brand  "Care  Cubes."  This  product is  currently  available  in most
states. Sifto considers the "Sifto" trademark to be valuable because of its name
brand recognition.

     On March 28, 1989, a patent was granted to a predecessor of the Company for
a nacholite  solution  mining  process at its sodium  bicarbonate  operation  in
Rifle,  Colorado.  The Company believes it is the low cost domestic  producer of
sodium  bicarbonate  as a  result  of this  exclusive  right  to  practice  this
technology.


Item 3.           LEGAL PROCEEDINGS

General

     The Company is involved in legal and administrative  proceedings and claims
of various types from normal business activities.  While any litigation contains
an element of uncertainty,  management,  based upon the opinion of the Company's
counsel,  presently  believes that the outcome of each such  proceeding or claim
which is pending or known to be threatened,  or all of them  combined,  will not
have a  material  adverse  effect on the  Company's  results  of  operations  or
financial position.

Environmental Issues

     The Company's  operations  are subject to federal,  state,  provincial  and
local environmental laws and regulations in the United States and Canada,  which
govern  the  discharge  of  pollutants  into the air and  water,  as well as the
handling and disposal of solid and hazardous  wastes.  The Company believes that
its operations are currently in substantial compliance with environmental permit
conditions and applicable laws and regulations.

     Air  Issues.  From  time to time,  the  Company  has  received  notices  of
violation  from the San  Bernardino  County Air Quality  Control  District  (the
"Local District"),  relating to the operation of equipment for which its Searles
Valley  facility has air permits.  In July 1992,  the  California  Air Resources
Board  ("CARB"),  which has  oversight  jurisdiction  over the  Local  District,
conducted  an  inspection  of the Searles  Valley  facility.  CARB  reported its
findings to the Local District and to the U.S.  Environmental  Protection Agency
("EPA")  and in 1994,  the EPA served the  Company  with a Finding and Notice of
Violation  ("NOV") issued  pursuant to the Clean Air Act. On April 26, 1997, the
United States  District Court for the Central  District of California  entered a
Consent Decree settling in full the NOV. The Consent Decree requires the Company
to install pollution controls (selective catalytic reduction), estimated to cost
$2.3  million,  on a gas turbine at the Company's  West End  facility,  to pay a
civil penalty of $320,000 and to spend $140,000 on a supplemental  environmental
project to pave  certain  roads to reduce dust  emissions.  The  majority of the
funds will be spent in FY 1998.

EU Antidumping Proceeding

     In 1993, the EU Commission initiated an antidumping action against American
producers of soda ash exported to the EU, including soda ash manufactured by the
Company. In October 1995, the EU Commission imposed definitive duties on imports
ranging from 0-8.9%.  The duty imposed on the Company's  customers was 7.1%. The
duty is in effect for a maximum of five  years with a review  expected  near the
end of the first year. The Company is vigorously resisting maintaining duties on
the basis  that the EU  Commission  must find  injury in order to  maintain  the
duties.  The Company  continues  to sell in the  European  market  primarily  to
customers  which are subject to a duty  drawback  provision  that allows them to
purchase a portion of their raw materials duty free. See "Business - Soda Ash."




                                                       15


<PAGE>



Royalty Matter

     On May 4, 1993,  the Company  received a letter  from the Utah  Division of
State Lands and  Forestry  (the "Utah  Division")  stating that the Company owed
additional  royalties,  including  interest,  in  the  amount  of  approximately
$730,000 for 1992 relating to its Ogden  facility.  The Utah Division  based its
calculations on an  interpretation  of a royalty agreement and price assumptions
that the Company believes are incorrect. Effective February 1, 1997, the Company
executed  an  amendment  to its royalty  agreement  with the State of Utah which
changed the  royalty on salt from an ad valorem  rate to a fixed rate per ton of
dry salt sold.  Concurrent with the Company's  execution of this amendment,  the
Utah  Division  agreed to waive any claim to increased  royalties for any period
prior to February 1, 1997.


 Item 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not Applicable.


                                                       PART  II


Item 5.           MARKET FOR REGISTRANT'S COMMON EQUITY
                                 AND RELATED STOCKHOLDER MATTERS

     Not Applicable.


                                                       16


<PAGE>



Item 6.  SELECTED  HISTORICAL  CONSOLIDATED  FINANCIAL INFORMATION

     The following selected historical consolidated financial information should
be read in conjunction with the audited Consolidated Financial Statements of the
Company as of March 29, 1997 and March 30, 1996 and for the three  fiscal  years
ended March 29, 1997,  included in the financial  statement section of this Form
10-K.


<TABLE>
<CAPTION>

                                                             FY 1993       FY 1994        FY 1995        FY 1996        FY 1997
                                                           -----------   ------------   ------------   -----------    -----------
                                                                               (Dollars in thousands)
<S>                                                        <C>           <C>            <C>            <C>            <C>          
Statement of Operations Data:
   Net sales (1) ........................................  $  434,678    $  427,588     $  435,864     $  475,474     $  508,622 
   Cost of sales (1) ....................................     315,154       325,690        331,949        351,040        374,137
                                                           -----------   -----------    -----------    -----------    -----------
      Gross profit ......................................     119,524       101,898        103,915        124,434        134,485
   Selling, general and administrative expenses .........      44,168        50,578         55,578         64,273         57,508
   Recapitalization expenses ............................         --         68,753            --             --             --
   Asset impairment charge ..............................         --            --             --           7,044            --
                                                           -----------   -----------    -----------    -----------    ----------- 
      Operating income (loss) ...........................      75,356       (17,433)        48,337         53,117         76,977
   Interest expense .....................................     (44,600)      (55,664)       (78,526)       (84,938)       (91,925)
   Foreign currency exchange gain (loss) ................      (3,096)       (6,078)        (1,743)         2,039         (1,301)
   Other income .........................................         975         5,290          5,944          6,240          3,916
                                                           -----------   -----------    -----------    -----------    -----------
      Income (loss) before taxes and extraordinary item .      28,635       (73,885)       (25,988)       (23,542)       (12,333)
   Provision (benefit) for income taxes .................      13,464       (11,093)         5,308          5,200          9,100
                                                           -----------   -----------    -----------    -----------    -----------
         Income (loss) from continuing operations .......      15,171       (62,792)       (31,296)       (28,742)       (21,433)
   Extraordinary items, net of taxes ....................         --        (71,371)           --             --             --
                                                           -----------   -----------    -----------    -----------    -----------
         Net income (loss) ..............................  $   15,171    $ (134,163)    $  (31,296)    $  (28,742)    $  (21,433)
                                                           ===========   ===========    ===========    ===========    ===========
Other Data:
   Operating income (loss) ..............................  $   75,356    $  (17,433)    $   48,337     $   53,117     $   76,977
   Depreciation and amortization in operating income ....      46,631        49,097         53,295         56,930         54,496
   Capital additions (includes capital leases) ..........      36,882        79,863         52,044         45,915         39,270

Net Sales by Product Line:
   Salt (1) .............................................  $  185,156    $  199,345     $  191,917     $  224,500     $  235,899
   Soda products ........................................     115,560       100,160        103,247        115,978        119,800
   Boron chemicals ......................................      72,010        69,179         67,479         67,979         63,051
   Specialty potash fertilizers .........................      56,336        48,289         61,453         55,459         71,547
   Other ................................................       5,616        10,615         11,768         11,558         18,325

Balance Sheet Data (end of period):
   Total assets .........................................  $  607,130    $  661,619     $  651,658     $  677,973     $  665,394
   Working capital (2) ..................................     105,711       110,671         91,286        117,668        119,363
   Total debt ...........................................     345,645       736,650        740,715        792,258        783,775
   Mandatorily redeemable preferred stock ...............      15,315           --             --             --             --
   Common stockholder's equity (deficit) ................      98,016      (216,841)      (249,137)      (280,930)      (306,431)

</TABLE>


(1) Certain  reclassifications  were made to the prior years' net sales and cost
of sales to  conform to the  current  year  presentation.  
(2) Working capital represents current assets less current liabilities excluding
the current portion of long-term debt.

                                                       17


<PAGE>



Item 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL CONDITION AND
           RESULTS  OF  OPERATIONS

     The  following  discussion  of the  results  of  operations  and  financial
condition should be read in conjunction with the Company's Financial  Statements
and related Notes thereto.

Introduction2

     The  Company  is a  major  producer  and  marketer  of  inorganic  chemical
products.  Its principal products include salt, sodium products  (including soda
ash,  sodium sulfate and sodium  bicarbonate),  boron  chemicals,  and specialty
potash  fertilizers.  The highway  deicing salt business is highly  dependent on
weather.  Consequently,  the extent of snowfall in the Company's primary deicing
markets in Canada and the Upper Midwest can result in  significant  fluctuations
in the  Company's  sales,  earnings  and  liquidity.  See Item 1 - Products  and
Seasonality for additional  discussion of the Company's products and the effects
of weather and seasonality on the Company's results of operations.

Results of Operations

     The following  table sets forth,  in both dollars and as percentages of net
sales, selected components of the consolidated  statements of operations as well
as net sales by product line,  for the fiscal years ended March 25, 1995,  March
30, 1996 and March 29, 1997.

<TABLE>
<CAPTION>

                                                       FY 1995                   FY 1996                    FY 1997
                                                ---------------------     ---------------------      ---------------------
                                                                          (Dollars in thousands)
                                                                          
<S>                                              <C>          <C>          <C>          <C>           <C>          <C>          
Net sales (1) .................................  $  435,864   100.0%       $  475,474   100.0%        $  508,622   100.0%
Cost of sales (1) .............................     331,949    76.2           351,040    73.8            374,137    73.6
                                                 -----------  -------      -----------  -------       -----------  -------
   Gross profit ...............................     103,915    23.8           124,434    26.2            134,485    26.4
Selling, general and administrative expenses ..      55,578    12.8            64,273    13.5             57,508    11.3
Asset impairment charge .......................         --      0.0             7,044     1.5                --      0.0
                                                 -----------  -------      -----------  -------       -----------  -------
   Operating income ...........................      48,337    11.0            53,117    11.2             76,977    15.1
Interest expense ..............................     (78,526)  (18.0)          (84,938)  (17.9)           (91,925)  (18.1)
Foreign currency exchange gain (loss) .........      (1,743)   (0.4)            2,039     0.4             (1,301)   (0.3)
Other income ..................................       5,944     1.4             6,240     1.3              3,916     0.8
                                                 -----------  -------      -----------  -------       -----------  -------
   Income (loss) before taxes .................     (25,988)   (6.0)          (23,542)   (5.0)           (12,333)   (2.5)
Provision for income taxes ....................       5,308     1.2             5,200     1.0              9,100     1.7
                                                 -----------  -------      -----------  -------       -----------  -------
      Net income (loss) .......................  $  (31,296)   (7.2)%      $  (28,742)   (6.0)%       $  (21,433)   (4.2%)
                                                 ===========  =======      ===========  =======       ===========  =======
Net sales by product line:
   Salt (1) ...................................  $  191,917    44.0%       $  224,500    47.2%        $  235,899    46.4%
   Soda products ..............................     103,247    23.7           115,978    24.4            119,800    23.6
   Boron chemicals ............................      67,479    15.5            67,979    14.3             63,051    12.4
   Specialty potash fertilizers ...............      61,453    14.1            55,459    11.7             71,547    14.1
   Other ......................................      11,768     2.7            11,558     2.4             18,325     3.5
                                                 -----------  -------      -----------  -------       -----------  -------
      Total ...................................  $  435,864   100.0%       $  475,474   100.0%        $  508,622   100.0%
                                                 ===========  =======      ===========  =======       ===========  =======
</TABLE>
(1) Certain  reclassifications  were made to the prior years' net sales and cost
of sales to conform to the current year presentation.
                                              




--------
     2Parenthetical  references herein to a "Note" followed by a number refer to
the notes accompanying the consolidated financial statements.

                                                         18


<PAGE>



FY 1997 Compared With FY 1996

     Net sales for FY 1997 were $508.6 million compared to $475.5 million for FY
1996.

     Salt sales  increased  $11.4  million for FY 1997 versus FY 1996 because of
greater volumes partially offset by unfavorable  price/mix variances compared to
the prior year.  Total  volumes  were up 9% compared to last year  because of an
increase in highway  deicing tons,  partly offset by lower  chemical and general
trade volumes. The increased highway deicing tons sold were the result of record
production  combined with  increased  sales  resulting  from heavy  snowfalls in
Canada and the Upper Midwest,  the Company's  primary highway  deicing  markets.
Highway  deicing sales  experienced  slight price  declines due to mix offset by
favorable price/mix variances in chemical and general trade salt.

     FY 1997 soda products  (soda ash,  sodium  sulfate and sodium  bicarbonate)
sales increased $3.8 million or 3% versus FY 1996. Soda ash volumes decreased 2%
compared to the prior year and averages  sales prices per ton  increased 3%. Net
unfavorable soda ash volume variances were due to decreased sales volume in both
domestic and non-ANSAC export markets partially offset by increased sales volume
in the ANSAC market.  Domestic soda ash pricing was higher than in FY 1996 while
export and ANSAC pricing was slightly  lower than in FY 1996  resulting in a net
favorable price  variance.  Domestic demand in FY 1997 was impacted by a decline
in caustic soda pricing,  a drop of 7% in demand for container glass and a delay
in the start-up of a major soda ash consumption project at DuPont,  coupled with
a capacity  expansion by another soda ash  manufacturer.  Sodium sulfate volumes
were down 28%  partially  offset by an increase  in prices and a more  favorable
mix. As a result of production volume  constraints for sodium sulfate related to
the  start up of the Long  Range  Process  Plan  ("LRPP")  project  and  reduced
inventory  carryover from FY 1996, the Company  selectively reduced sales to its
lower margin markets and improved  overall  pricing.  Sodium  bicarbonate  sales
increased 59% over the prior year. Increased production at the White River plant
allowed the Company to  increase  sales  volumes by 47%.  Average  sales  prices
increased 8% compared to the prior year because of increased sales to the higher
margin food and chemical processing segments.

     In the aggregate,  boron chemical sales were $4.9 million lower for FY 1997
compared to FY 1996. The unfavorable  variance is due to net unfavorable  volume
variances partially offset by net favorable price variances and improved product
mix. The unfavorable  volume variances result from a shortfall in the production
of crude borax during the start up phase of the LRPP project.

     The Company's  specialty potash fertilizer sales in FY 1997 increased $16.1
million or 29% compared to FY 1996.  Volumes were up 28% and average pricing was
up 1% compared to FY 1996.  The  increased  volumes  were due to greater  export
shipments in FY 1997 compared to FY 1996.

     Other  product  sales  increased by $6.8 million in FY 1997 versus FY 1996.
Other product sales include magnesium chloride,  crude trona and the revenues of
other service  subsidiaries  of the Company.  Approximately  $4.4 million of the
increase in FY 1997 versus FY 1996 is related to magnesium chloride sales.

     Cost of sales was $374.1  million or 73.6% of sales in FY 1997  compared to
$351.0 million or 73.8% of sales in FY 1996. The $23.1 million  increase in cost
of sales was  primarily  due to increased  sales  volumes in salt and  specialty
potash fertilizer products.  The slight decline in cost of sales as a percentage
of sales was largely due to price  improvements in sodium and boron products and
reduced  production  costs as a result of increased  production  volumes of rock
salt and soda ash partially  offset by decreased  production  of boron  chemical
products and sodium sulfate.

     Gross profit  increased  by $10.1  million in FY 1997 versus FY 1996 due to
the improvement in sales and cost of sales discussed above.

     Selling, general and administrative expenses were $57.5 million or 11.3% of
sales in FY 1997  compared  to $64.3  million or 13.5% of sales in FY 1996.  The
decrease was due principally to lower incentive compensation,  payroll,  selling
expenses and professional fees.

     The  asset  impairment  charge  of $7.0  million  in FY 1996 is a  non-cash
write-down  arising  out of the shut down in March  1996 of the  Company's  Main
Plant Cycle at the Searles  Valley  plant in  California.  The shut down was the
result of the implementation of the strategic LRPP at the Searles Valley plant.


                                                         19


<PAGE>



     Operating  income  of $77.0  million  in FY 1997  increased  $23.9  million
compared to FY 1996 for the reasons discussed above. Excluding the effect of the
asset  impairment  charge,  operating  income increased $16.8 million in FY 1997
compared to FY 1996.

     Interest  expense was $7.0 million  higher in FY 1997  compared to FY 1996.
The increase was due to higher average long-term debt balances in FY 1997 versus
FY 1996, higher interest costs recorded for the Argus Utilities transaction (see
Note 7) and interest  capitalized on  construction in process being $3.0 million
lower in FY 1997 compared to FY 1996.

     An  exchange  loss of $1.3  million  related to the  translation  of United
States dollar-denominated debt of Sifto into Canadian dollars was recorded in FY
1997 compared to a gain of $2.0 million in FY 1996.

     Other income principally  consists of ground lease and maintenance  income,
gains and losses on  disposals of property,  plant and  equipment  and equity in
earnings on investments. Other income was $2.3 million lower in FY 1997 compared
to FY 1996. The decrease was due to $0.8 million higher losses on disposition of
assets in FY 1997  compared  to FY 1996 and an equity  loss of $0.4  million  on
investments in FY 1997 compared to equity income of $0.5 million in FY 1996.

     A  provision  for income  taxes of $9.1  million  was  recorded  in FY 1997
primarily relating to Sifto's Canadian income tax, Ontario mining taxes, current
U.S. alternative minimum tax and state income taxes. Greater income in Canada in
FY 1997  utilized all of the  Canadian  net  operating  loss  carryforwards  and
resulted in a higher tax  provision  in FY 1997. A $5.2  million  provision  for
income taxes was recorded in FY 1996.  Income tax benefits  associated  with the
U.S. FY 1997 loss have not been  recognized as future  realization  is uncertain
(see Note 5).

     A net loss of $21.4 million was recorded for FY 1997 compared to a net loss
of $28.7 million in FY 1996 due to the factors described above.


FY 1996 Compared With FY 1995

     Net sales for FY 1996 were $475.5 million compared to $435.9 million for FY
1995.

     Salt  sales  increased  $32.6  million  or 17% for FY 1996  versus FY 1995.
Volume  increases  accounted for a  significant  portion of the variance as tons
sold increased by 15.5%.  Favorable  price/mix variances also contributed to the
increase.  The majority of the volume  increase was from higher highway  deicing
salt sales as a harsh winter increased  highway deicing salt sales compared to a
mild winter in FY 1995.  General trade  volumes  increased  slightly  because of
increased  contractor bulk and consumer deicing sales brought on by higher sales
of bulk food grade  products  and the stronger  winter  weather.  The  favorable
price/mix  variance  was due to higher  prices in highway and  consumer  deicing
products and favorable mix in the general trade business.

     FY 1996 soda products  (soda ash,  sodium  sulfate and sodium  bicarbonate)
sales increased $12.7 million or 12% versus FY 1995. Soda ash volumes were up 1%
compared  to the prior year and prices  were up an average of 9%. The  worldwide
soda ash price  increases  experienced  in the second  half of FY 1996  compared
favorably to depressed  prices in FY 1995.  Favorable soda ash volume  variances
were due to increased sales volume in both domestic and export markets. Sales of
sodium  sulfate  increased  30% in FY 1996  because of volume  increases  of 41%
partially  offset by an 8% decrease in average prices.  The  unfavorable  sodium
sulfate prices were due to increased  volumes sold to export customers at higher
transportation  costs  resulting in lower  netbacks.  Sodium  bicarbonate  sales
volumes and price  variances were $0.8 million  favorable in FY 1996 compared to
FY 1995.

     In the aggregate, boron chemical sales were $0.5 million higher for FY 1996
compared to FY 1995. The favorable variance is due to favorable volume and price
variances of $0.4 million and $0.1  million,  respectively.  Both the  favorable
volume and price variances were due to mix.

     The  Company's  specialty  potash  fertilizer  sales in FY 1996  were  $6.0
million  lower  than FY 1995.  The  lower  sales  were due to  decreased  export
shipments in FY 1996 compared to export shipments in FY 1995, which  contributed
an unfavorable  $12.0 million volume  variance.  The lower export shipments were
partially  offset by higher  domestic  shipments  in FY 1996 which  generated  a
favorable $4.7 million volume variance.  Export sales were lower due to the lack
of shipments to China during FY 1996.  Favorable domestic sales were largely due
to the alfalfa market and the timing of fertilizer seasons,  which in the fourth
quarter  of FY  1995  were  delayed  due to bad  weather.  Export  and  domestic
price/mix variances were favorable

                                                         20


<PAGE>



due to mix. The larger export  shipments in FY 1995  resulted in lower  netbacks
compared to the  shipments  into other export  areas with higher  netbacks in FY
1996.  Increased  competitive domestic pricing was more than offset by favorable
overall customer mix.

     Other  product  sales  decreased by $0.2 million in FY 1996 versus FY 1995.
Other product sales include magnesium chloride,  crude trona and the revenues of
other service subsidiaries of the Company.

     Cost of sales was $351.0  million or 73.8% of sales in FY 1996  compared to
$331.9 million or 76.2% of sales in FY 1995. The $19.1 million  increase in cost
of sales was primarily due to increased  sales volume in salt, soda products and
boron products.  The favorable decline in cost of sales as a percentage of sales
was largely caused by favorable sales price  variances and increased  production
of soda products and specialty  potash  fertilizers,  which  resulted in reduced
costs  per  ton.   Increased   production  was  partially  offset  by  increased
manufacturing costs in labor and processed chemical usage.

     Gross profit  increased  by $20.5  million in FY 1996 versus FY 1995 due to
the improvement in sales and cost of sales discussed above.

     Selling, general and administrative expenses were $64.3 million or 13.5% of
sales in FY 1996  compared  to $55.6  million or 12.8% of sales in FY 1995.  The
increase was due principally to increased incentive  compensation costs based on
performance,  increased  professional  and consulting  services,  reorganization
costs and the resignation of a company officer,  and the FY 1996 Canadian dollar
increase versus the United States dollar.

     The  asset  impairment  charge  of $7.0  million  in FY 1996 is a  non-cash
write-down  arising  out of the shut down in March  1996 of the  Company's  Main
Plant Cycle at the Searles Valley plant in California.

     Operating  income  of  $53.1  million  in FY 1996  increased  $4.8  million
compared to FY 1995 for the reasons discussed above. Excluding the effect of the
assets impairment  charge,  operating income increased $11.8 million compared to
FY 1995.

     Interest  expense was $6.4 million  higher in FY 1996  compared to FY 1995.
The increase was due to higher revolver balances, higher interest rates compared
to  FY  1995  and  higher  amortization  of  deferred  finance  costs.  Interest
capitalized  on  construction  in  process  was $1.2  million  higher in FY 1996
compared to FY 1995, which partially offset the increase in interest expense.

     An  exchange  gain of $2.0  million  related to the  translation  of United
States dollar-denominated debt of Sifto into Canadian dollars was recorded in FY
1996 compared to a loss of $1.7 million in FY 1995.  This favorable  variance is
due to an increase in FY 1996 in the value of the  Canadian  dollar  relative to
the United States dollar versus a decrease in FY 1995.

     A  provision  for income  taxes of $5.2  million  was  recorded  in FY 1996
primarily relating to Sifto's operating income and Canadian  provincial taxes on
mining profits,  and to U.S.  alternative  minimum tax. A $5.3 million provision
for income taxes was recorded in FY 1995 relating to Sifto's Canadian provincial
taxes on mining profits and non-deductible, noncash foreign currency translation
losses.  Income tax benefits associated with the U.S. FY 1996 loss have not been
recognized as future realization is uncertain (see Note 5).

     A net loss of $28.7 million was recorded for FY 1996 compared to a net loss
of $31.3 million in FY 1995 due to the factors described above.


Liquidity, Capital Resources and Financial Condition

Seasonality and Cash Flows

     The Company's accounts  receivable and inventory levels can vary by as much
as $60.0 million during the year. Generally, inventories build in the second and
third fiscal quarters and accounts  receivable  increase in the third and fourth
fiscal  quarters.  During the third quarter highway deicing salt inventories are
increased in  preparation  for the winter  season.  The  harvesting of the solar
ponds at the Ogden  facility also takes place in the third quarter adding to the
inventory  levels.  Inventories  begin to  decline  in the  fourth  quarter  and
accounts  receivable  increase  as  highway  salt  sales  and  specialty  potash
fertilizer sales peak during this period. Cash requirements rapidly decline near
the end of the fourth fiscal  quarter and the early part of the next fiscal year
first fiscal quarter as accounts receivable are converted into cash.

                                                         21


<PAGE>



     FY 1997 operating activities provided $38.3 million in net cash compared to
$34.2  million  in FY 1996 and  $67.2  million  in FY 1995.  One of the  primary
changes in the use of cash for  operating  activities  relates to the accrual of
cash  interest  on the  Senior  Secured  Discount  Notes in FY 1997  versus  the
accretion  of $19.4  million and $21.9  million of noncash  interest  expense on
these  Notes  in FY  1996  and  FY  1995,  respectively.  After  a  build  up of
inventories in FY 1995 and FY 1996, the Company liquidated  specialty potash and
boron  inventories  in FY 1997 and generated  $16.4  million in cash.  Increased
specialty potash sales in FY 1997 resulted in further increased  receivables and
a use of cash of $8.5  million in FY 1997.  Other  assets used $3.7 million more
cash in FY 1997 versus FY 1996 because of prepaid  interest  expense  related to
the Argus Utilities transaction. Improved liquidity in FY 1997 resulted in a use
of cash of $10.0  million to decrease  accounts  payable  and  accrued  expenses
versus  increases  or sources of cash from these  accounts of $16.4  million and
$5.3 million in FY 1995 and FY 1996, respectively.

     FY 1997 investing  activities  used $33.3 million of cash compared to a use
of $47.1  million  in FY 1996 and $43.6  million  in FY 1995.  Capital  spending
(including  capitalized  interest on  construction  in progress)  decreased from
$45.1  million in FY 1995 and $45.6  million  in FY 1996 to $34.0  million in FY
1997.  The decreased  capital  spending is because of lower capital  spending on
strategic  projects,  primarily the LRPP at Searles Valley, a multi-year project
which was substantially completed in FY 1996.

     FY 1997 financing  activities  provided a source of cash of $3.1 million in
FY 1997  compared to $16.2 million in FY 1996.  In FY 1997,  the Company  issued
$75.0  million in debt by entering  into an agreement for the sale and leaseback
of an electric and steam generating  facility associated with the Searles Valley
soda ash facilities  (See Note 7). In addition,  a steam provider  prepaid $23.2
million for contractual  amounts due to the Company over an 18 year period.  The
prepayment  was recorded as deferred  revenue to be amortized over the remaining
life of the contract. Proceeds from the Argus Utilities transaction and deferred
revenue were used to pay down  borrowings  under the Company's Bank  Agreements.
Net  revolver  payments or  borrowings  fluctuate  based on cash  provided  from
operations,  cash used in investing activities,  principal payments on long-term
debt and  proceeds  from the  issuance of new debt.  As a result,  net  revolver
payments were $79.0  million in FY 1997  compared to net revolver  borrowings of
$32.0 million in FY 1996 and net revolver  payments of $18.0 million in FY 1995.
Capitalized  finance costs were $6.8 million or $5.7 million higher than FY 1996
due to fees and costs incurred related to the Argus Utilities transaction.

Bank Agreements and Liquidity

     At March 29, 1997, the Company had revolving lines of credit under its Bank
Agreements  totalling  $150 million,  including a commitment of $130 million for
its U.S.  subsidiaries  (NACC,  NAMSCO and GSL) and a Canadian commitment of $20
million for Sifto.  Availability of the revolving credit facilities is generally
based on 85% of eligible  accounts  receivable  outstanding  and 50% of eligible
inventories  (65% of eligible  inventory  for NASC and Sifto from July 1 through
January 31 of each fiscal year). These revolving credit facilities  terminate on
February  15, 2001,  unless no Discount  Notes are  outstanding  on such date in
which case the  termination  date is February 28, 2002.  Indebtedness  under the
revolving  credit  facilities is secured by a lien on  inventories  and accounts
receivable.  Under the Bank  Agreements,  the Company  must comply with  certain
covenants including maintaining certain minimum interest coverage,  fixed charge
and net funded debt coverage ratios, all of which were met for FY 1997.

     As of May 24, 1997,  the Company had $59.5  million of available  borrowing
capacity  under its revolving  credit  agreements  and $16.2 million of cash. No
significant long term debt payments are due until FY 2001. Capital  expenditures
for FY 1998 are estimated to be approximately $35 million.  The Company believes
that internal cash generated  from  operations  plus  liquidity  provided by its
revolving credit  facilities will be adequate to meet the Company's  anticipated
working capital needs in FY 1998.

Impact of Year 2000

     The Year 2000 is not  expected to have a material  impact on the  Company's
information  systems or results of operations  because software currently in use
is Year 2000 compliant or can readily be modified to be Year 2000 compliant. The
Company has a plan in FY 1998 to modify and test its  hardware  and software for
compatibility  with the Year 2000.  The impact of the Year 2000 on the Company's
customers and vendors is not known.





                                                         22


<PAGE>



Impact of Inflation

     Inflation  has not had a  significant  impact on the  Company's  operations
during the three fiscal years ended March 29, 1997.

Environmental Matters

     Due to the nature of the Company's  business,  it must continually  monitor
compliance with all applicable environmental laws and regulations.  At March 29,
1997,  the Company had recorded  $3.8 million of current  liabilities  and $11.3
million  of  non-current  liabilities  to reflect  the  estimated  future  costs
associated with environmental matters.  Environmental costs, other than those of
a capital nature,  are accrued at the time the exposure  becomes known and costs
can reasonably be estimated.  Management  believes that the outcome of presently
known environmental contingencies will not have a material adverse effect on the
operations, financial condition or liquidity of the Company.

     Amounts expensed for environmental costs were $1.6 million in FY 1997, $1.8
million in FY 1996 and $1.9 million in FY 1995.

Seasonality and Quarterly Financial Data (Unaudited)

     The Company experiences a substantial amount of seasonality in sales of the
various products. The result of this seasonality is that net sales and operating
income are generally higher in the third and fourth fiscal quarters and lower in
the first and second fiscal quarters of each fiscal year.

     Sales of  highway  deicing  salt in  particular,  are  seasonal  in nature,
varying with the winter conditions in areas where the product is used. Following
industry practice, the Company and its customers stockpile sufficient quantities
of ice  control  salt in the  first  three  fiscal  quarters  to meet  estimated
requirements  for the  winter  season.  Soda ash  sales to the  glass  container
industry  tend  to be  somewhat  seasonal  due to  stronger  summer  demand  for
beverages  packaged in glass  bottles.  Most of the Company's  specialty  potash
sales are made between  December and March in order to meet the spring  planting
season requirements.

     The table below  reflects  the  seasonality  of the  Company's  business by
fiscal quarter.


<TABLE>
<CAPTION>
                                               Fiscal 1996                                        Fiscal 1997
                             -----------------------------------------------    ------------------------------------------------
                                   1st         2nd         3rd          4th            1st         2nd         3rd          4th 
                                   ---         ---         ---          ---            ---         ---         ---          ---
                                                                         (in thousands)
<S>                               <C>         <C>         <C>          <C>            <C>         <C>         <C>          <C> 
Operating Data:
   Net sales .................... $87,379     $93,016     $133,464     $161,615       $99,581     $92,337     $151,068     $165,636
   Gross profit .................  10,483      19,101       40,131       54,719        18,103      17,854       46,715       51,813
   Operating income (loss) ......  (3,749)      5,796       24,882       26,188         4,138       4,841       32,217       35,781
   Interest expense .............  20,042      20,910       21,479       22,507        20,533      22,293       24,485       24,614
   Net income (loss) ............ (21,146)    (12,426)       1,957        2,873       (15,092)    (17,589)       5,763        5,485
Sales by Product:
   Salt .........................  31,644      35,965       69,033       87,858        35,287      35,141       72,124       93,347
   Soda products ................  23,965      29,190       30,472       32,351        31,186      28,302       31,179       29,133
   Boron chemicals ..............  16,315      15,706       16,951       19,007        17,214      14,743       14,417       16,677
   Specialty potash fertilizers..  13,002       9,694       13,803       18,960        12,465      11,068       23,484       24,530
   Other ........................   2,453       2,461        3,205        3,439         3,429       3,083        9,864        1,949

</TABLE>


                                                         23


<PAGE>



Item 8.           FINANCIAL  STATEMENTS

Index

<TABLE>
<CAPTION>

Description                                                                                      Page #
   <S>                                                                                            <C>    

   Report of Coopers & Lybrand L.L.P., Independent Certified Public Accountants                   25

   Consolidated Balance Sheets as of March 30, 1996 and March 29, 1997                            26

   Consolidated Statements of Operations for the three fiscal years ended March 29, 1997          27

   Consolidated Statements of Common Stockholder's Equity (Deficit) for the three fiscal
   years ended March 29, 1997                                                                     28

   Consolidated Statements of Cash Flows for the three fiscal years ended March 29, 1997          29

   Notes to Consolidated Financial Statements                                                     31

</TABLE>


                                                        24


<PAGE>




REPORT OF COOPERS & LYBRAND L.L.P. INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors of Harris Chemical North America, Inc. and
Subsidiaries

We have audited the consolidated  financial  statements of Harris Chemical North
America, Inc. and Subsidiaries listed in the index on page 56 of this Form 10-K.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Harris Chemical
North America, Inc. and Subsidiaries as of March 29, 1997 and March 30, 1996 and
the  consolidated  results of their  operations and their cash flows for each of
the three fiscal years in the period ended March 29, 1997,  in  conformity  with
generally accepted accounting principles.






                                                   /s/  Coopers & Lybrand L.L.P.
                                                  ------------------------------
Kansas City, Missouri                                   COOPERS & LYBRAND L.L.P.
May 22, 1997





























                                                         25


<PAGE>


<TABLE>
<CAPTION>

                                 HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
                                              CONSOLIDATED BALANCE SHEETS
                                        as of March 30, 1996 and March 29, 1997
                                                    (in thousands)



                                                                            March 30,                March 29,
                                                                              1996                      1997
                                                                      --------------------     ------------------
<S>                                                                     <C>                      <C>   
                                          ASSETS
Current assets:
  Cash and cash equivalents ..........................................  $        9,093           $        17,076
  Trade accounts receivable, less allowance for doubtful
    accounts of $2,336 at March 30, 1996 and $1,716 at March
    29, 1997 .........................................................         109,542                   117,726
  Other receivables ..................................................           9,572                     9,916
  Inventories ........................................................         103,255                    86,818
  Deferred income taxes ..............................................           6,235                     6,019
  Other ..............................................................           4,787                     6,938
                                                                      ------------------       -------------------
      Total current assets ...........................................         242,484                   244,493

Property, plant and equipment, net ...................................         403,286                   388,011
Deferred financing costs, net ........................................          23,840                    25,553
Other ................................................................           8,363                     7,337
                                                                      ------------------       -------------------
      Total assets ...................................................  $      677,973           $       665,394
                                                                      ==================       ===================
            LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
  Current portion of long-term debt ..................................  $        6,788           $         9,403
  Accounts payable ...................................................          66,301                    59,526
  Accrued expenses ...................................................          19,442                    25,259 
  Accrued interest ...................................................          24,234                    23,250
  Accrued salaries and wages .........................................          13,658                    14,613
  Income taxes payable ...............................................           1,181                     2,483
                                                                      ------------------       -------------------
      Total current liabilities ......................................         131,604                   134,534

Long-term debt, net of current portion ...............................         785,470                   774,372
Deferred income taxes ................................................          22,865                    26,417
Other noncurrent liabilities .........................................          18,964                    36,502
Commitments and contingencies
Common stockholder's deficit:
  Common stock, at par ...............................................             -                         -
  Additional paid-in capital .........................................         103,441                    99,941
  Cumulative translation adjustment ..................................          (3,343)                   (3,532)
  Common stockholder's receivable ....................................          (3,083)                   (3,462)
  Accumulated deficit ................................................        (377,945)                 (399,378)
                                                                      ------------------       -------------------   
      Total common stockholder's deficit .............................        (280,930)                 (306,431)
                                                                      ------------------       -------------------
      Total liabilities and stockholder's deficit ....................  $      677,973           $       665,394
                                                                      ==================       ===================
</TABLE>


                       The  accompanying  notes  are  an  integral  part  of the
financial statements.


                                                         26


<PAGE>


<TABLE>
<CAPTION>

                                 HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                    for the three fiscal years ended March 29, 1997
                                                    (in thousands)








                                                                 FY 1995                  FY 1996                 FY 1997
                                                        --------------------     --------------------   ---------------------
<S>                                                     <C>                      <C>                    <C>                    
Net sales ............................................  $        435,864         $        475,474       $         508,622
Cost of sales ........................................           331,949                  351,040                 374,137
                                                        ------------------       ------------------     -------------------
   Gross profit ......................................           103,915                  124,434                 134,485

Selling, general and administrative expenses .........            55,578                   64,273                  57,508
Asset impairment charge ..............................               -                      7,044                     -
                                                        ------------------       ------------------     -------------------
   Operating income ..................................            48,337                   53,117                  76,977

Other income (expense):
   Interest expense ..................................           (78,526)                 (84,938)                (91,925)
   Foreign currency transaction gain (loss) ..........            (1,743)                   2,039                  (1,301)
   Other, net ........................................             5,944                    6,240                   3,916
                                                        ------------------       ------------------     -------------------
   Income (loss) before taxes ........................           (25,988)                 (23,542)                (12,333)

Provision for income taxes ...........................             5,308                    5,200                   9,100
                                                        ------------------       ------------------     -------------------
   Net income (loss) .................................  $        (31,296)        $        (28,742)      $         (21,433)
                                                        ==================       ==================     ===================
</TABLE>






















                       The  accompanying  notes  are  an  integral  part  of the
financial statements.


                                                         27


<PAGE>


<TABLE>
<CAPTION>

                                 HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY (DEFICIT)
                                    for the three fiscal years ended March 29, 1997
                                                    (in thousands)



                                                                                         Common
                                   Common        Additional       Cumulative      Stockholder's       Retained
                                   Stock,         Paid-in        Translation          Notes           Earnings
                                   at Par         Capital         Adjustment       Receivable         (Deficit)        Total
<S>                              <C>          <C>               <C>              <C>               <C>             <C>    
Balance, March 26, 1994 ........ $    -       $   107,253       $   (3,602)     $    (2,585)       $  (317,907)    $  (216,841)
   Translation adjustment ......                                       207                                                 207
   Receivable from HCG .........                                                     (1,207)                            (1,207)
   Net loss ....................                                                                       (31,296)        (31,296)
                                 -----------  -------------     ------------    -------------      -------------   -------------
Balance, March 25, 1995 ........      -           107,253           (3,395)          (3,792)          (349,203)       (249,137)
   Translation adjustment ......                                        52                                                  52
   Receivable from HCG .........                                                     (3,103)                            (3,103)
   Noncash capital
      distribution to HCG ......                   (1,812)                            1,812                                  0
   Harris Chemical Australia
      rights (Note 11) .........                   (2,000)                            2,000                                  0
   Net loss ....................                                                                       (28,742)        (28,742)
                                 -----------  ------------     ------------    -------------      -------------   -------------
Balance, March 30, 1996 ........      -           103,441           (3,343)          (3,083)          (377,945)       (280,930)
   Translation adjustment ......                                      (189)                                               (189)
   Receivable from HCG .........                                                     (1,129)                            (1,129)
   Noncash capital
      distribution to HCG ......                     (750)                              750                                  0
   Purchase of patents
      from affiliate ...........                   (2,750)                                                              (2,750)
   Net loss ....................                                                                       (21,433)        (21,433)
                                 -----------  -------------     ------------    -------------      -------------   -------------
Balance, March 29, 1997 ........ $    -       $    99,941       $   (3,532)     $    (3,462)       $  (399,378)    $  (306,431)
                                 ===========  =============     ============    =============      =============   =============
</TABLE>



















                       The  accompanying  notes  are  an  integral  part  of the
financial statements.




                                                         28


<PAGE>


<TABLE>
<CAPTION>

                                 HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    for the three fiscal years ended March 29, 1997
                                                    (in thousands)



                                                                                      FY 1995         FY 1996         FY 1997
                                                                                   -------------   --------------  --------------
<S>                                                                                <C>             <C>             <C>   
Cash flows from operating activities:
   Net loss .....................................................................  $   (31,296)    $   (28,742)    $   (21,433)
   Adjustments to reconcile net loss to net cash flows from operating activities:
      Depreciation ..............................................................       52,588          56,187          53,242
      Finance fee amortization ..................................................        4,854           5,749           5,342
      Operating amortization ....................................................          707             743           1,254
      Accreted interest .........................................................       21,882          19,362             -
      Deferred income taxes .....................................................        2,696           3,778           3,768
      Unrealized foreign currency transaction loss (gain) .......................        1,921          (2,317)           (232)
      Loss (gain) on disposal of property, plant and equipment ..................         (171)             47             895
      Asset impairment charge ...................................................          -             7,044             -
      Other .....................................................................       (1,487)           (959)            440
      Changes in operating assets and liabilities:
         Receivables ............................................................       10,630         (17,796)         (8,527)
         Inventories ............................................................      (12,530)        (15,201)         16,437
         Other assets ...........................................................        1,012           1,067          (2,597)
         Accounts payable .......................................................        3,465           6,409          (6,775)
         Accrued expenses and other noncurrent liabilities ......................       12,972          (1,156)         (3,499)
                                                                                   -------------   -------------   -------------
            Net cash provided by operating activities ...........................       67,243          34,215          38,315
                                                                                   -------------   -------------   -------------
Cash flows from investing activities:
   Capital expenditures .........................................................      (42,069)        (41,382)        (32,719)
   Capitalized interest .........................................................       (3,037)         (4,230)         (1,244)
   Proceeds from sales of property, plant and equipment .........................        1,330             171             679
   Other ........................................................................          171          (1,650)            -
                                                                                   -------------   -------------   -------------
           Net cash used in investing activities ................................      (43,605)        (47,091)        (33,284)
                                                                                   -------------   -------------   -------------
Cash flows from financing activities:
   Revolver borrowings ..........................................................      169,873         152,287         206,745
   Revolver payments ............................................................     (187,873)       (120,287)       (285,745)
   Principal payments on other long-term debt, including capital leases .........       (4,687)        (11,645)         (8,155)
   Issuance of long-term debt ...................................................          -               -            75,000
   Capitalized finance costs ....................................................         (964)         (1,049)         (6,794)
   Proceeds from deferred revenue ...............................................          -               -            23,152
   Other ........................................................................       (1,207)         (3,103)         (1,129)
                                                                                   -------------   -------------   -------------    
            Net cash provided by (used in) financing activities .................      (24,858)         16,203           3,074
                                                                                   -------------   -------------   -------------
Effect of exchange rate changes on cash .........................................          (27)            118            (122)
                                                                                   -------------   -------------   -------------
            Net increase (decrease) in cash .....................................       (1,247)          3,445           7,983
Cash and cash equivalents, beginning of period ..................................        6,895           5,648           9,093
                                                                                   -------------   -------------   -------------
Cash and cash equivalents, end of period ........................................  $     5,648     $     9,093     $    17,076
                                                                                   =============   =============   =============
</TABLE>


                       The  accompanying  notes  are  an  integral  part  of the
financial statements.


                                                         29


<PAGE>


<TABLE>
<CAPTION>

              HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                for the three fiscal years ended March 29, 1997
                                 (in thousands)



                                                                                      FY 1995         FY 1996         FY 1997
                                                                                   -------------   --------------  --------------
<S>                                                                                <C>             <C>             <C>   
Supplemental cash flow information:
   Interest paid including capitalized interest .................................  $    53,574     $    60,009     $    91,578
   Income taxes paid ............................................................        1,863           1,695           3,007

Supplemental disclosure of noncash activities:
   Assets acquired under capital leases .........................................  $     4,937     $     4,533     $     6,551
   Acquisition of White River Nahcolite L.L.C. ..................................          -             9,008             -
   Noncash capital distribution .................................................          -             1,812             750
   Harris Chemical Australia rights .............................................          -             2,000             -
   Purchase of patents from affiliate ...........................................          -               -             2,750

</TABLE>




































                       The  accompanying  notes  are  an  integral  part  of the
financial statements.

                                                         30


<PAGE>



              HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Organization:

The consolidated  financial  statements  include the  consolidated  accounts of:
Harris   Chemical   North  America,   Inc.   ("Harris")  and  its  wholly  owned
subsidiaries,  North American Chemical Company ("NACC"),  NAMSCO Inc. ("NAMSCO")
and its wholly owned subsidiaries North American Salt Company ("NASC") and Sifto
Canada  Inc.  ("Sifto"),  and  GSL  Corporation  ("GSL")  and its  wholly  owned
subsidiary Great Salt Lake Minerals Corporation ("GSLMC"). Harris and its direct
and indirect  subsidiaries are collectively referred to as the "Company." Harris
is a wholly owned subsidiary of Harris Chemical Group, Inc. ("HCG").  The common
stockholder's  equity of  Harris  consists  of a single  class of $.01 par value
common stock with 1,000 shares  authorized,  issued and outstanding at March 29,
1997.

Harris is a producer and marketer of inorganic  chemical and extractive  mineral
products with manufacturing  sites in North America.  Its principal products are
salt, sodium-based chemicals including soda ash and sodium bicarbonate,  sulfate
of potash,  and boron chemicals.  Together,  these businesses serve a variety of
markets, including agriculture,  food processing, the chemical process industry,
glass manufacturing and highway de-icing.

2.  Summary of Significant Accounting Policies:

 a. Management Estimates:  The preparation of financial statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

     b. Basis of Consolidation:  The consolidated  financial  statements include
the  consolidated  accounts  of Harris and its wholly  owned  subsidiaries.  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

     c. Foreign Currency Translation: Assets and liabilities are translated into
U.S.  dollars at year-end  exchange rates.  Revenues and expenses are translated
using the average rates of exchange for the year. Adjustments resulting from the
translation  of a  foreign  currency  financial  statement  into  the  reporting
currency,  U.S.  dollars,  are made  directly to a separate  component of common
stockholder's equity. Exchange gains and losses from transactions denominated in
a currency other than a company's functional currency are included in income.

     d. Fiscal Year-End: The Company has adopted a 52-53 week fiscal year ("FY")
ending on the last Saturday in March.  FYs 1997 and 1995 include 52 weeks and FY
1996 includes 53 weeks.

     e. Cash and Cash  Equivalents:  The Company  considers all investments with
original maturities of three months or less to be cash equivalents.  The Company
maintains the majority of its cash in bank deposit  accounts with two commercial
banks with high  credit  ratings in the U.S.  and Canada.  The Company  does not
believe it is exposed to any significant credit risk on cash and equivalents.

     f. Inventories:  Inventories are stated at the lower of cost or market. Raw
materials  and supply costs are  determined  by either the  first-in,  first-out
(FIFO) or the average cost method. Finished goods costs are determined by either
the last-in, first-out (LIFO) or average cost method.

     g.  Revenue  Recognition:  Revenue is  recognized  by the Company  upon the
transfer of title to the  customer,  which is  generally  at the time product is
shipped.

 h. Property,  Plant and  Equipment:  Property,  plant and equipment,  including
assets under capital  leases,  are stated at cost and include  interest on funds
borrowed to finance  construction.  The costs of  replacements or renewals which
improve or extend the life of existing property are capitalized. Maintenance and
repairs  are  expensed  as  incurred.  The costs of  certain  major  maintenance
projects  are  accrued  ratably  over the  periods  prior to the next  scheduled
maintenance   project.   Depreciation  and  amortization  are  provided  on  the
straight-line method over the following estimated useful lives:





                                                         31


<PAGE>



         Land improvements........................................ 5 to 25 years
         Buildings and improvements...............................10 to 40 years
         Machinery and equipment.................................. 3 to 18 years
         Solar ponds complex......................................10 to 20 years
         Rolling stock and track..................................15 to 25 years
         Furniture and fixtures................................... 3 to 10 years


     i.  Deferred   Financing  Costs:   Deferred  financing  costs  are  net  of
accumulated  amortization  of $13,428,000 in FY 1996 and $18,727,000 in FY 1997.
Deferred  financing costs are amortized using the effective interest rate method
over the term of the related debt.

j. Income Taxes: HCG files  consolidated  federal income tax returns with Harris
and its U.S.  subsidiaries.  Under the Tax Sharing  Agreement,  Harris generally
agrees to reimburse HCG in amounts  designed to approximate the amount of income
taxes that Harris and its wholly  owned  subsidiaries  (other than Sifto)  would
have paid had they filed consolidated  federal income tax returns (and analogous
state and local  returns)  separate  from HCG.  Sifto files a separate  Canadian
income tax return.

The Company  accounts for income taxes using the liability  method in accordance
with the  provisions  of Statement of Financial  Accounting  Standards No. 109 -
Accounting for Income Taxes ("SFAS 109").  Under the liability method,  deferred
taxes are determined  based on the differences  between the financial  statement
and the tax basis of assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.

     k. Research and Development Expenses: Research and development expenditures
are  expensed  as  incurred  and were  approximately  $941,000,  $1,041,000  and
$1,010,000 in FYs 1995, 1996 and 1997, respectively.

l.  Environmental  Costs:  Environmental  costs,  other  than those of a capital
nature,  are  accrued  at the time the  exposure  becomes  known  and  costs can
reasonably be estimated.  Costs are accrued based upon management's estimates of
all direct  costs,  after taking into  account  reimbursement  by third  parties
(primarily  the sellers of  acquired  businesses),  and are  reviewed by outside
consultants. Environmental costs are charged to expense unless a settlement with
an  indemnifying  party  has been  reached.  Reimbursement  of costs  previously
expensed is recorded as a reduction of operating  expense when  settlement  with
the indemnifying  party is reached.  The Company does not accrue liabilities for
unasserted  claims that are not probable of  assertion,  nor does it provide for
environmental  clean-up  costs,  if any,  at the end of the useful  lives of its
facilities  because,  given the long lives of its  mineral  deposits,  it is not
practical to estimate such costs.

     m. Reclassifications: Certain reclassifications have been made to the prior
years' financial statements to conform with the current year presentation.

3.  Inventories:

Inventories  are  stated  at the lower of cost or  market,  and  consist  of the
following (in thousands):

                                    March 30, 1996             March 29, 1997
                                 --------------------       --------------------
Finished goods ..................       $68,951                    $54,820
Raw materials and supplies ......        34,304                     31,998
                                 --------------------       --------------------
                                       $103,255                    $86,818
                                 ====================       ====================

As of March 30, 1996 and March 29, 1997 approximately 49% and 52%, respectively,
of finished goods  inventories are valued at LIFO. The excess of LIFO costs over
the current cost of  inventories  based upon the LIFO method (and after lower of
cost or market  adjustments)  was $2,819,000 at March 30, 1996 and $3,402,000 at
March 29, 1997.









                                                         32


<PAGE>



4.  Property, Plant & Equipment:

Property, plant and equipment consists of the following (in thousands):

                                     March 30, 1996             March 29, 1997
                                   ------------------         ------------------
Land and improvements ............       $27,589                    $30,992
Buildings and improvements .......        49,826                     76,764
Machinery and equipment ..........       461,785                    523,295
Solar ponds complex ..............        32,923                     33,233
Rolling stock and track ..........         7,332                      7,464
Furniture and fixtures ...........         8,578                      8,724
Construction in progress .........        78,962                     22,472
                                   ------------------         ------------------
                                         666,995                    702,944
Less accumulated depreciation ....       263,709                    314,933
                                   ------------------         ------------------
                                        $403,286                   $388,011
                                   ==================         ==================

In April, 1996, the Company discontinued production at a section of its facility
located  in  Searles  Valley,  California.  The  shutdown  was an element of the
Company's  strategic capital expenditure program to increase soda ash production
and reduce boron and soda ash  production  costs.  The amount of the loss due to
the  discontinued  production  was $7.0  million  which is reflected as a charge
against operating income as of March 30, 1996. To the extent that assets were no
longer of any use to other production facilities at the Searles Valley location,
they were written off in their entirety as they represent no additional value to
the Company. For those assets which can be used by other production  facilities,
the values were  transferred  to those  facilities at their net book value as of
March 30, 1996.

In connection with Argus Utilities  Financing (see Note 7), the Company extended
the useful lives of Argus Utilities plant and equipment with a net book value of
$28.2  million to 15 years to match the terms of the  lease.  This  revision  in
useful lives reduced depreciation expense and the net loss by $6.5 million in FY
1997.

5.  Income Taxes:

The income tax provisions  for FYs 1995,  1996 and 1997 consist of the following
(in thousands):


                                       FY 1995         FY 1996         FY 1997
                                     -----------     -----------     -----------
Current:
  Federal .........................  $      -        $      50       $     545
  State ...........................         -              150             760
  Foreign income ..................        221             438             645
  Foreign mining ..................      2,391             984           3,050
                                     -----------     -----------     -----------
    Total current .................      2,612           1,622           5,000
                                     -----------     -----------     -----------
Deferred:
  Federal .........................    (11,350         (14,362)        (13,577)
  State ...........................     (2,620)         (3,314)         (3,133)
  Foreign income ..................      1,367           2,403           3,366
  Foreign mining ..................        767           1,032             532
  Change in valuation allowance ...     14,532          17,819          16,912
                                     -----------     -----------     -----------
    Total deferred ................      2,696           3,578           4,100
                                     -----------     -----------     -----------
Total provision for income taxes ..  $   5,308       $   5,200       $   9,100
                                     ===========     ===========     ===========







                                                         33


<PAGE>



The sources of income (loss) before taxes are as follows (in thousands):


                                       FY 1995         FY 1996         FY 1997
                                     -----------     -----------     -----------
United States .....................  $ (31,939)      $ (31,877)      $ (27,821)
Foreign ...........................      5,951           8,335          15,488
                                     -----------     -----------     -----------
Income (loss) before taxes ........  $ (25,988)      $ (23,542)      $ (12,333)
                                     ===========     ===========     ===========

The Company does not provide U.S. federal income taxes on undistributed earnings
of foreign  subsidiaries that are not currently taxable in the United States. No
undistributed  earnings of foreign  subsidiaries were subject to U.S. income tax
in FY 1995, FY 1996 or FY 1997.  Total  undistributed  earnings on which no U.S.
federal  income tax has been  provided  were $28.8 million at March 29, 1997. If
these earnings are  distributed,  foreign tax credits may become available under
current  law to reduce or  possibly  eliminate  the  resulting  U.S.  income tax
liability.

     Reconciliation  of the  U.S.  statutory  federal  income  tax  rate  to the
effective income tax rate is as follows:

<TABLE>
                                                      FY 1995              FY 1996             FY 1997
                                                   -------------        -------------       -------------
<S>                                                <C>                  <C>                 <C>  
U.S. federal statutory tax rate ..................       35.0%                35.0%               35.0%
U.S. statutory depletion .........................       18.9                 22.9                39.4
State income taxes, net of federal tax benefit ...        6.1                  9.2                12.5
Foreign income tax rate differential .............       (6.1)                 0.3                11.4
Foreign mining taxes .............................      (12.5)                (8.6)              (29.0)
Change in valuation allowance.....................      (55.9)               (75.7)             (137.2)
Other, net .......................................       (5.9)                (5.2)               (5.9)
                                                   -------------        -------------       -------------
    Effective tax rate ...........................      (20.4)%              (22.1)%             (73.8)%
                                                   =============        =============       =============
</TABLE>

Under SFAS 109,  deferred  tax assets and  liabilities  are  recognized  for the
estimated future tax effects, based on enacted tax law, of temporary differences
between the values of assets and  liabilities  recorded for financial  reporting
and for tax purposes and of net operating loss and other carryforwards.  The tax
effects of the types of temporary  differences and carryforwards  that give rise
to deferred tax assets and liabilities are as follows (in thousands):

                                                     March 30,       March 29,
                                                       1996            1997
                                                    -----------     -----------
Deferred tax liabilities:
    Fixed assets and depreciation ................  $  53,025       $  40,385
    Inventories ..................................        598             521
    Other ........................................      8,761           7,924
                                                    -----------     -----------
                                                       62,384          48,830
                                                    -----------     -----------
Deferred tax assets:
    Inventories ..................................        202             202
    Accrued reserves and liabilities .............     10,276           7,640
    Interest on high yield debt ..................     19,853          19,795
    Prepaid income ...............................          0           9,627
    Net operating loss carryforwards .............     77,973          72,946
    Alternative minimum tax credit carryforwards .      2,228           2,720
    Other ........................................      8,711           5,902
                                                    -----------     -----------
                                                      119,243         118,832
Less valuation allowance .........................     73,489          90,401
                                                    -----------     -----------
                                                       45,754          28,431
                                                    -----------     -----------
Net deferred tax liabilities .....................     16,630          20,399
Less net current deferred tax assets .............      6,235           6,019
                                                    -----------     -----------
Net long-term deferred tax liabilities ...........  $  22,865       $  26,418
                                                    ===========     ===========
                                                         34
<PAGE>

SFAS 109 requires a valuation allowance against deferred tax assets if, based on
available evidence,  it is more likely than not that some or all of the deferred
tax assets will not be  realized.  The Company  believes  that some  uncertainty
exists  with  respect  to  the  future   utilization   of  net  operating   loss
carryforwards and foreign currency  translation losses;  therefore,  the Company
carried  a  valuation  allowance  relating  to such  items  of  $73,489,000  and
$90,401,000 as of March 30, 1996 and March 29, 1997, respectively.

At March 29, 1997, net operating loss  carryforwards for U.S. federal income tax
purposes  available  to  offset  future  taxable  income  for  the  Company  are
approximately  $186,700,000.  If not utilized, these carryforwards expire in the
FYs 2005  through  2012.  As of March 29,  1997,  Sifto has fully  utilized  its
Canadian federal and provincial net operating loss carryforwards.

In addition,  the Company has an alternative  minimum tax credit carryforward at
March 29, 1997 of approximately  $2,720,000.  These credit  carryforwards may be
carried forward  indefinitely to offset any excess of regular tax liability over
alternative   minimum  tax  liability   subject  to  certain   separate  company
limitations.  To the  extent  not  offset by a  valuation  allowance,  these net
operating  loss and  alternative  minimum  tax  credit  carryforwards  have been
reflected as a reduction  of  noncurrent  deferred  income tax  liabilities  for
financial reporting purposes.

6.  Other Income:

Other income, net consists of the following (in thousands):

<TABLE>
                                                               FY 1995                 FY 1996                 FY 1997
                                                           ----------------        ----------------        ----------------
<S>                                                             <C>                     <C>                     <C>   
Land lease and revenue sharing - cogeneration facility ...      $3,062                  $4,033                  $4,774
Interest income ..........................................         187                     379                     213
Equity income (loss) in Harris Chemical Europe Ltd. ......         625                     513                    (399)
Other ....................................................       2,070                   1,315                    (672)
                                                           ----------------        ----------------        ----------------
   Other income, net .....................................      $5,944                  $6,240                  $3,916
                                                           ================        ================        ================
</TABLE>


7.  Long-term Debt:

Long-term debt consists of the following (in thousands):

<TABLE>
                                                                        March 30, 1996              March 29, 1997

                                                                    ----------------------      -----------------------
<S>                                                                       <C>                         <C>    
Senior debt:
       Notes payable, 8.5%, due July 15, 2000 ....................        $  100,000                  $   100,000
       Notes payable, 10.25%,  due July 15, 2001 .................           250,000                      250,000
Senior subordinated debt:
       Notes payable, 10.75%, due October 15, 2003 ...............           335,000                      335,000
Revolving lines of credit ........................................            79,000                          -
Argus utilities notes payable, 12.3%, due through 2011 ...........               -                         71,502
Other, including capital lease obligations .......................            28,258                       27,273

                                                                    ----------------------      -----------------------
                                                                             792,258                      783,775
Less current portion                                                          (6,788)                      (9,403)
                                                                    ----------------------      -----------------------  
                                                                            $785,470                     $774,372
                                                                    ======================      =======================
</TABLE>


Contractual  maturities  of long-term  debt are as follows (in  thousands):
$9,403 in FY 1998; $9,224 in FY 1999; $5,065 in FY 2000; $104,080 in FY 2001;
$253,829 in FY2002 and $402,174 thereafter.

In FY 1994,  Harris issued $250 million of 10.25% Senior Secured  Discount Notes
due July 15,  2001  (the  "Discount  Notes"),  $335  million  of  10.75%  Senior
Subordinated  Notes due October 15, 2003 (the "Senior  Subordinated  Notes") and
Sifto  issued $100 million of 8.5% Senior  Secured  Notes due July 15, 2000 (the
"Sifto Notes").  The Discount Notes, the Senior Subordinated Notes and the Sifto
Notes  are  collectively  referred  to herein as the  "Notes."  The Sifto  Notes
require interest  payments each January 15 and July 15. The Discount Notes began
accruing  cash interest  January 15, 1996 with interest  payable each January 15
and July 15  starting  July 15,  1996.  The Senior  Subordinated  Notes  require
interest payments each April 15 and October 15.


                                                         35


<PAGE>



The Discount Notes and Senior  Subordinated  Notes are redeemable at any time on
or after  October 15,  1998 and prior to  maturity  at the option of Harris,  in
whole or in part, at the following  redemption  prices (expressed as percentages
of  principal  amount)  plus  accrued  interest if redeemed  during the 12-month
periods beginning October 15 of the years indicated:

                                                         Senior Subordinated
                                   Senior Notes                 Notes
                              ----------------------   ------------------------
1998 ........................         103.0%                   104.05%
1999 ........................         101.5%                   102.70%
2000 ........................         100.0%                   101.35%
2001 and thereafter .........         100.0%                   100.00%

Harris has pledged the common  stock of NACC,  NAMSCO and GSL for the benefit of
the Discount Notes and the Sifto Notes. The stock of Sifto has not been pledged.
All trade accounts  receivable and product  inventories  have been pledged under
the  revolving  lines of credit.  All other  assets of Sifto are pledged for the
benefit of the Sifto Notes.

At March 29, 1997,  the Company had  revolving  lines of credit  totalling  $150
million,  including a commitment  of $130 million for its U.S.  entities  (NACC,
NAMSCO and GSL) and a Canadian  commitment of $20 million for Sifto.  These Bank
Agreements  terminate  the earlier of February 28, 2002 or February 15, 2001, if
any  Discount  Notes are  outstanding  on such date.  These lines of credit bear
interest,  at Harris' option, at either a defined U.S. Base Rate (or in the case
of Sifto's Canadian Dollar borrowings, a defined Canadian Prime Rate) plus 1.50%
or the London Interbank Offered Rate (LIBOR) (or in the case of Sifto's Canadian
Dollar borrowings, a defined BA Loan Rate) plus 2.75%. Commitment fees of 0.375%
per year of the unused  portion of the lines are  payable  quarterly.  Borrowing
capacity  under  these  lines of credit is  reduced  by  outstanding  letters of
credit, which were $29.0 million at March 29, 1997 for NACC, NAMSCO and GSL. The
Company had $78.9 million of available  borrowing  capacity  under its revolving
credit agreements at March 29, 1997.

The  Notes and Bank  Agreements  described  above  contain  various  restrictive
covenants  which limit among other  things,  indebtedness,  dividends  and stock
repurchases,  transactions with affiliates and related persons,  liens, sale and
leaseback transactions,  mergers and consolidations,  dividend and other payment
restrictions affecting restricted subsidiaries  disposition of proceeds of asset
sales and capital expenditures.  In addition, the Bank Agreements require Harris
to maintain certain minimum interest coverage,  fixed charge and net funded debt
coverage ratios, all of which were met for fiscal year 1997.

In July 1996,  NACC entered into an agreement  for the sale and  leaseback of an
electric and steam generating  facility  associated with its Searles Valley soda
ash  facilities  (the "Argus  Utilities").  Under the terms of the agreement the
Argus  Utilities  were  sold to two  institutional  investors  for $75  million,
approximately  $70.0  million in cash,  net of related  expenses and taxes.  The
initial  term of the lease is 13 years with a  two-to-fifteen  year reduced rate
renewal  option.  After  expiration of the reduced rate renewal period there are
three  fair  market  renewal  options of up to 5 years  each.  The  Company  has
provided a guarantee for the performance of NACC's  obligations  under the lease
and related agreements.  In addition,  during the initial term of the lease NACC
is  required  to  provide  letters  of credit of  approximately  $15  million as
additional  credit  support.  The Company has also agreed to certain  covenants,
including  maintaining access to adequate working capital,  meeting fixed charge
and interest  coverage  ratios,  and  restrictions  on assets  dispositions  and
mergers.  The  transaction  is being  accounted  for as a financing  transaction
during  the  initial  and  reduced  rate  rental  periods.  Proceeds  from  this
transaction were used to reduce the outstanding revolving credit balance.

8.  Employee Benefit Plans:

The  Company  has a 401(k)  retirement  savings  and  investment  plan  covering
substantially all employees. Contributions are made to this plan by participants
through  voluntary  salary  deferral and by the Company in  accordance  with the
terms  of the  plan.  Company  contributions  to  the  plan  were  approximately
$4,184,000, $6,295,000 and $6,199,000 in FYs 1995, 1996 and 1997, respectively.

NAMSCO and GSL have  defined  benefit  pension  plans that cover  certain of its
hourly  employees.  Benefits  are  based on  years  of  service  and  levels  of
compensation.  NAMSCO  and GSL fund an  amount  equal to the  maximum  allowable
deduction  for tax  purposes.  Net periodic  pension cost (income) for FYs 1995,
1996 and 1997 was  $(471,000),  $95,000 and $86,000,  respectively.  The Company
froze  the  benefits  and  future  participation  of the GSL plan in FY 1995 and
recognized a curtailment gain of approximately $577,000. The Company distributed
the  assets of this plan to the  vested  participants  in FY 1997.  At March 29,
1997,  the NAMSCO plan is fully  funded and has a net accrued  pension  asset of
$218,000.


                                                         36


<PAGE>



The  Company  offers a variety of health  and  welfare  benefit  plans to active
employees. No Company-sponsored  health and welfare benefit plans are offered to
retirees.

9.  Commitments  and Contingencies:

The Company is involved in legal and  administrative  proceedings  and claims of
various types from normal business activities.  While any litigation contains an
element of  uncertainty,  management,  based upon the  opinion of the  Company's
counsel,  presently  believes that the outcome of each such  proceeding or claim
which is pending or known to be threatened,  or all of them  combined,  will not
have a  material  adverse  effect on the  Company's  results  of  operations  or
financial position.

Leases:  The Company leases certain property and equipment under  non-cancelable
operating leases for varying periods.  The Company also leases various equipment
under capital  leases with a net book value of  $17,240,000  and  $16,828,000 at
March 30, 1996 and March 29, 1997, respectively,  that are included in property,
plant, and equipment in the accompanying consolidated balance sheet.

The aggregate minimum annual rentals under lease arrangements are as follows (in
thousands):


Fiscal                                                 Capital        Operating
Year                                                    Leases          Leases
--------------------------------------------------   -----------     -----------
1998 ..........................................        $ 8,973        $ 15,606
1999 ..........................................          6,290          14,473
2000 ..........................................          3,987          13,512
2001 ..........................................          2,251          13,106
2002 ..........................................          1,812          12,764
Thereafter ....................................         45,475         126,236
                                                     -----------     -----------
      Total ...................................         68,788        $195,697
                                                                     ===========
Less amounts representing interest ............        (50,090)
                                                     -----------
Present value of net minimum lease payments ...        $18,698
                                                     ===========

Rental  expense,  net of  sublease  income,  for FYs  1995,  1996  and  1997 was
$14,752,000, $16,514,000 and $16,603,000, respectively.

Royalties: A substantial portion of the land used in the Company's operations at
the Searles Valley facility is owned by the U.S. government.  The Company pays a
royalty  to  the  U.S.  government  of 5% on the  sales  value  of the  minerals
extracted from  government  land.  The leases  generally have a term of 10 years
with  preferential  renewal  options.  Total royalty  expense was  approximately
$5,623,000,  $6,732,000 and $4,675,000 in FYs 1995, 1996 and 1997, respectively.
In addition,  the Company has various  private,  state and  Canadian  provincial
leases associated with the salt and specialty potash  businesses.  Total royalty
expense  related to these leases was  approximately  $3,403,000,  $2,018,000 and
$3,459,000 in FYs 1995, 1996 and 1997, respectively.

Purchase  Commitments:  NACC  is  committed  under  a  contract  to  purchase  a
percentage  of tons of coal based on total coal  purchases  per year,  at agreed
upon prices,  for operations at its Searles Valley  facility in California.  The
contract continues through December 1999, with an option to extend the agreement
an additional five years.

Environmental  Matters:  At March 29, 1997, the Company has recorded accruals of
$15.1  million ($3.8  million  classified in accrued  expenses and $11.3 million
classified in other  noncurrent  liabilities)  for future costs  associated with
existing  environmental  exposures  at certain of its  facilities.  The  Company
estimates  that a  significant  portion of these  accruals will be used over the
next five  years.  It is the  opinion of  management  that the  outcome of known
environmental  contingencies  will not have a  material  adverse  effect  on the
operations, financial position or liquidity of the Company.

10. Acquisition:

On August 24, 1995, NACC and NaTec Resources, Inc. ("NRI") executed an agreement
regarding the  acquisition  by NACC of the remaining 50% interest in White River
Nahcolite  Limited  Liability Co. ("White River") owned by NRI. Pursuant to that
agreement,  the consideration paid to NRI totalled $9,508,000  consisting of (i)
$500,000 in cash paid by NACC to NRI,

                                                         37


<PAGE>



(ii) a $4.0  million  non-interest  bearing  promissory  note of NACC payable in
installments  through  the third  anniversary  of the closing  date  (discounted
balance  $3,236,000) and (iii) a $6.0 million  non-interest  bearing  promissory
note of White  River  which was paid on January  12,  1996  (discounted  balance
$5,772,000).  The remaining note is collateralized by substantially all of White
River's assets.

As a result  of the  acquisition,  NACC owns 100% of White  River.  The  Company
accounted for the  acquisition  as a purchase and beginning  August 24, 1995 the
accounts  of  White  River  were  consolidated  in  the  accompanying  financial
statements.  The effect of the purchase on the  Company's  consolidated  balance
sheet was a decrease to  investments of $12.2 million (to eliminate the original
50% equity  investment which is now  consolidated) and an increase in assets and
liabilities of $24.7 million and $3.0 million,  respectively (to consolidate the
accounts of White River). If the acquisition had occurred at the beginning of FY
95, the Company's  results of operations would not be materially  different than
those reflected in the accompanying financial statements.

11. Related Party Transactions:

HCG's wholly owned  subsidiaries  include  Harris (see Note 1), Harris  Chemical
Europe,  Ltd.  ("HCEL") and Harris  Chemical Group Europe,  Inc.  ("HCGE").  The
principal wholly owned  subsidiaries of HCEL include NAMSCO (UK), Ltd.  ("NUK"),
with salt operations in the United Kingdom (Salt Union Ltd. or "SUL"), Matthes +
Weber GmbH ("M&W"), with soda operations in Germany, Harris Soda Products Europe
("HSPE") which is based in France and markets and sells soda products in Europe,
and Societa  Chimica  Larderello  ("SCL"),  with boron  operations in Italy.  In
addition,  certain  stockholders  of HCG have  minority  ownership  interests in
Penrice Soda Products Pty Ltd.  ("Penrice"),  U.S.  Silica and Harris  Specialty
Chemical Company. These entities are collectively referred to as HCG affiliates.

The  Company  has  management  services  agreements  with HCG and certain of its
affiliates  and the Company  occasionally  purchases  and sells  products to HCG
affiliates in the ordinary course of business.  The following  table  summarizes
the revenues  (expenses)  with HCG  affiliates  in FY's 1995,  1996 and 1997 (in
thousands):

<TABLE>
                                                                     FY 1995            FY 1996             FY 1997
                                                              --------------      -------------      --------------
<S>                                                                     <C>                <C>                 <C> 
Harris services agreement with HCG                                      $408               $408                $408
NAMSCO services agreement with NUK                                       388                403                 378
NAMSCO fee to HCGE for services to NUK                                  (274)              (282)               (378)
NACC technical services agreement with SCL                               -                  -                  (105)
NACC inventory sales to SCL                                            1,345              1,852                 217
GSL inventory sales to SCL                                               639                911                 356
NACC inventory sales to HSPE                                             -                  -                    66
NACC inventory sales to Penrice                                          -                  -                   118
NACC inventory purchases from SCL                                      4,031              2,643               2,963
GSL inventory purchases from SCL                                         -                  -                   343
</TABLE>

Pursuant to the credit agreements, Harris is allowed to pay to HCG an amount not
to exceed  $750,000  per fiscal year for the purpose of enabling  HCG to pay its
actual operating  expenses in the ordinary course of business.  The total amount
paid by Harris to HCG was  $750,000  in FY's 1995,  1996 and 1997.  At March 30,
1996 and March 29, 1997, the Company has a balance due from HCG of approximately
$3,083,000   and   $3,462,000   respectively,   classified  as  a  reduction  in
stockholder's equity. Such amount consists of advances to HCG for the repurchase
of common shares of HCG from employees who terminated  their  relationship  with
the Company and the services agreement with Harris (see above).

The Company has net  receivables  from HCG  affiliates  totalling  $740,000  and
$458,000 at March 30, 1996 and March 29, 1997, respectively.

In FY 1996,  NAMSCO  exchanged  its 5.6%  economic  ownership in NUK for a 6.51%
economic  ownership in Harris  Chemical Europe Limited  ("HCEL"),  a corporation
organized  under the laws of the United  Kingdom.  NAMSCO has recorded an equity
investment in NUK of  $1,520,000  at March 25, 1995 and an equity  investment in
HCEL of $1,961,000 at March 30, 1996 and $1,674,000 at March 29, 1997.

The Company  entered into an agreement in FY 1994 to become a distributor of SCL
products  to the  U.S.  market.  SCL also  distributes  certain  boron  chemical
products of the Company in Europe.  The Company  prepaid to SCL  $1,345,000  and
$1,300,000 in FY's 1995 and 1997,  respectively,  for boron containing  minerals
used in SCL's  production  process.  In FY 1997,  NACC  entered into a technical
services  agreement  with  SCL  for  $250,000  annually  to  compensate  SCL for
providing

                                                         38


<PAGE>



technical  expertise  and  assistance  to NACC in  specialty  boron  production.
Additionally,  in FY 1997,  an  agreement  was reached  whereby  NACC  purchased
patents from SCL for $2,750,000. The $2,750,000 is reflected as a payable to SCL
and a  reduction  to paid in  capital  in the  accompanying  balance  sheet  and
statement of common  stockholder's  equity.  The Company had net receivables due
from SCL of $665,000, $241,000 and $91,000 at March 25, 1995, March 30, 1996 and
March 29, 1997, respectively.

In FY 1996,  certain  stockholders  of HCG  purchased  a  minority  interest  in
Penrice, an Australian  enterprise engaged in the production and distribution of
soda ash products.  In connection  therewith,  HCG obtained an option  agreement
that  permits  HCG to  purchase  Penrice  at fair  market  value  under  certain
circumstances.  HCG  transferred  this option to the Company.  In addition,  HCG
permitted  the  Company to enter into a services  agreement  with  Penrice.  The
agreement  provides that Penrice will pay the Company 200,000 Australian dollars
per year  beginning in FY 1997 for management  consulting and operating  support
services.  Management  believes this agreement will also open up new markets for
certain of the Company's  products.  The Company agreed to consideration of $2.0
million to HCG which is the  estimated  fair  market  value to HCNA of the above
agreements.  The $2.0 million is reflected as a reduction of both  stockholder's
receivable and paid in capital in the  accompanying  balance sheet and statement
of common stockholder's equity.

In 1993, NACC entered into an agreement to sell its port facilities in San Diego
to SDT Capital,  Inc.  ("SDT") for $5.5 million,  and lease such facilities back
from SDT.  SDT's  president is a relative of a former officer of Harris who is a
shareholder in HCG. Annual rentals under the agreement are $1.7 million per year
payable  quarterly  for the  initial  four-year  period and the first and second
five-year  option  periods.  The annual  rentals for the first and second option
periods will be increased for any increases in the seven-year U.S. Treasury note
rate.  Additional rents are due at $3 per ton for shipments in excess of 850,000
tons per year  through the end of the second  option  period.  Three  additional
five-year  option  periods and a final  six-year  option  period will have rents
based on fair  market  value  rents as  agreed  to by SDT and the  Company.  The
Company has the option to  repurchase  the  facilities  at the end of either the
initial lease period  (December  31, 1997) or any renewal  option period for the
greater of $7.0 million or fair market value. However, the Company must purchase
the  facility for the greater of $7.0 million or fair market value at the end of
any lease period in which the lease is not extended.  This  transaction is being
accounted  for as a financing  with the  difference  between the initial  stated
value of $5.5 million and the minimum  repurchase  value of $7.0  million  being
accrued through the term of lease. The Company has begun  negotiations  with SDT
to possibly repurchase the facilities at December 31, 1997. The agreement states
that fair market  value  shall be  mutually  agreed upon by the Company and SDT.
However,  if the Company and SDT are unable to agree,  then fair market value is
determined through an appraisal process.

12. Fair Value of Financial Instruments:

The  carrying  amounts  and  estimated  fair values of the  Company's  financial
instruments at March 29, 1997 are as follows (in thousands):

                                               Carrying             Estimated
                                                Value               Fair Value
                                            --------------        --------------
Senior debt:
    Notes payable, 8.5% ..................     $100,000               $99,875
    Notes payable, 10.25% ................      250,000               255,000
Subordinated debt:
    Notes payable, 10.75% ...............       335,000               337,513
Revolving lines of credit ................         -                      -
Argus utilities notes payable, 12.3% .....       71,502                71,502
Other, including capital leases ..........       27,273                27,273



The following  methods and  assumptions  were used to estimate the fair value of
the financial instruments:

     Senior  debt:  The fair  value is based on the quoted  market  price at the
close of trading on March 28, 1997.

     Subordinated  debt:  The fair value is based on the quoted  market price at
the close of trading on March 28, 1997.

     Revolving Lines of Credit:  The interest rate is variable,  based on either
     the bank's base rate plus 1.50% or LIBOR plus 2.75%.  Under the  assumption
     that the interest rate,  including the  applicable  margin  percentage,  is
     reflective  of  current   interest  rates  available  to  the  Company  for
     obligations with similar terms and maturities,  the fair value approximates
     carrying value.

                                                         39


<PAGE>




     Argus utilities and other,  including capital leases:  Under the assumption
     that the interest rate,  including the  applicable  margin  percentage,  is
     reflective  of  current   interest  rates  available  to  the  Company  for
     obligations with similar terms and maturities,  the fair value approximates
     carrying value.


13.  Export Sales:

Export sales from the United States were as follows (in millions):

                                FY 1995           FY 1996            FY 1997
                              -----------       -----------        -----------
Asia/Pacific rim ........       $ 60.0             $51.9             $ 58.3
Latin America ...........         17.3              21.5               25.9
Europe ..................         15.5              14.9               11.2
Canada ..................          3.8               4.5                4.2
Other ...................          6.3               6.1                7.0
                              -----------       -----------        -----------
      Total .............       $102.9             $98.9             $106.6
                              ===========       ===========        ===========


14.  Valuation and Qualifying Accounts:

Activity in the valuation and qualifying  accounts for the years ended March 25,
1995, March 30, 1996 and March 29, 1997 is as follows:


<TABLE>
                                                             Additions         Additions
                                                              Charged           Charged
                                           Balance at            to                to                              Balance at
                                           Beginning         Costs and           Other                               End of
                                           of Period          Expenses          Accounts         Deductions          Period
                                            (000's)           (000's)           (000's)           (000's)           (000's)
                                         --------------    --------------    --------------    --------------    --------------
<S>                                        <C>               <C>               <C>               <C>               <C>
Year ended March 25, 1995:
Allowance for doubtful accounts.......     $     1,707       $       (61)      $       494       $       985       $     1,155
Inventory obsolescence reserves ......           1,833               400               235               946             1,522
Accumulated amortization:
   Deferred financing costs ..........           2,704             4,755               -                 -               7,459
   Deferred organization costs .......             240               530               -                 -                 770
Year ended March 30, 1996:
Allowance for doubtful accounts.......     $     1,155       $     1,381       $        65       $       265       $     2,336
Inventory obsolescence reserves ......           1,522               985               201             1,259             1,449
Accumulated amortization:
   Deferred financing costs ..........           7,459             5,888                81               -              13,428
   Deferred organization costs .......             770               553               406               -               1,729
Year ended March 29, 1997:
Allowance for doubtful accounts.......     $     2,336       $     2,909       $        71       $     3,600       $     1,716
Inventory obsolescence reserves ......           1,449             1,804                 1               997             2,257
Accumulated amortization:
   Deferred financing costs ..........          13,428             5,336               -                  37            18,727
   Deferred organization costs .......           1,729               545               -                 -               2,274
</TABLE>







                                                         40


<PAGE>



15.  Condensed Consolidating Financial Statements:

Separate condensed consolidating financial statements of certain subsidiaries of
the Company are presented below. Except for Sifto, which is domiciled in Canada,
all  subsidiaries  of Harris are  domiciled  in the United  States.  In order to
present the financial  statements of Sifto separately,  the financial statements
of NAMSCO present the investment in Sifto using the cost method.

Separate  financial   statements  of  the  subsidiaries  of  Harris  which  have
guaranteed  Harris' and  Sifto's  outstanding  public  debt (the  "Guarantors"),
including  NACC,  North  American  Terminals,  Inc.,  NAMSCO,  NASC,  Carey Salt
Company, The Hutchinson & Northern Railway Company, GSL, GSLMC, and White River,
are not included for the  following  reasons:  (i) pursuant to their  respective
guarantees,  the  Guarantors  are jointly and  severally  liable with respect to
Harris'  and  Sifto's  outstanding  public  debt,  (ii)  the  aggregate  assets,
liabilities,  earnings and equity of the Guarantors and Sifto are  substantially
equal  to  the  assets,  liabilities,   earnings  and  equity  of  Harris  on  a
consolidated basis and (iii) accordingly,  Harris does not believe that separate
full  financial  statements  concerning the Guarantors and Sifto are material to
investors.  Financial  statements  of the  subsidiaries  of Harris which are not
Guarantors are not presented separately as these companies are immaterial.


                                                         41


<PAGE>



<TABLE>
<CAPTION>
                            HARRIS  CHEMICAL  NORTH  AMERICA,  INC.  AND  SUBSIDIARIES
                           NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS - (Continued)


                                      CONDENSED CONSOLIDATING BALANCE SHEETS
                                                  March 30, 1996
                                                  (in thousands)

                                  NACC         GSL        NAMSCO       Sifto        HCNA     Eliminations Consolidated
                              ----------------------------------------------------------------------------------------
<S>                           <C>          <C>          <C>          <C>         <C>         <C>          <C>         
Cash and cash equivalents.... $     -      $     -      $     -      $   9,093   $   2,411   $  (2,411)   $   9,093
Receivables, net ............    49,797       12,700       35,440       20,439         738         -        119,114
Inventories .................    46,195       22,924       21,662       12,886         -          (412)     103,255
Other current assets ........     8,681          336          761          813         431         -         11,022
Property, plant and
  equipment, net ............   236,218       40,874       62,087       64,107         -           -        403,286
Investment in Sifto .........       -            -          2,513          -           -        (2,513)         -
Other .......................     5,308           56        2,189        2,948     362,512    (340,810)      32,203
                              ---------------------------------------------------------------------------------------  
Total assets ................ $ 346,199    $  76,890    $ 124,652    $ 110,286   $ 366,092   $(346,146)   $ 677,973
                              =======================================================================================
Total current liabilities.... $  54,636    $  13,918    $  23,932    $  15,802   $  25,727   $  (2,411)   $ 131,604
Long-term debt, net of
  current portion ...........    48,769        8,722       42,108      100,871     585,000         -        785,470
Other noncurrent liabilities.    98,930       (8,449)     (50,142)     (13,234)     36,295     (21,571)      41,829
Total common stockholder's
  equity (deficit) ..........   143,864       62,699      108,754        6,847    (280,930)   (322,164)    (280,930)
                              ---------------------------------------------------------------------------------------
Total liabilities and
  common stockholder's
  equity (deficit) .......... $ 346,199    $  76,890    $ 124,652    $ 110,286   $ 366,092   $(346,146)   $ 677,973
                              =======================================================================================


                                      CONDENSED CONSOLIDATING BALANCE SHEETS
                                                  March 29, 1997
                                                  (in thousands)

                                  NACC         GSL        NAMSCO       Sifto        HCNA     Eliminations Consolidated
                              ----------------------------------------------------------------------------------------
Cash and cash equivalents.... $     -      $     -      $  (3,980)   $   5,561   $  15,495   $     -      $  17,076
Receivables, net ............    49,298       24,502       30,630       22,754         458         -        127,642
Inventories .................    39,403       15,389       20,663       11,983         -          (620)      86,818
Other current assets ........     9,539          185        1,979          752         502         -         12,957
Property, plant and
  equipment, net ............   216,334       42,828       65,206       63,643         -           -        388,011
Investment in Sifto .........       -            -          2,513          -           -        (2,513)         -
Other .......................    10,006           46        1,833        2,410     413,250    (394,655)      32,890
                              ---------------------------------------------------------------------------------------
Total assets ................ $ 324,580    $  82,950    $ 118,844    $ 107,103   $ 429,705   $(397,788)   $ 665,394
                              =======================================================================================
Total current liabilities.... $  52,129    $  14,020    $  21,936    $  20,797   $  25,599   $      53    $ 134,534
Long-term debt, net of
  current portion ...........    83,234        1,440        2,878      101,820     585,000         -        774,372
Other noncurrent liabilities.    43,718       (5,629)     (32,875)     (30,001)    125,537     (37,831)      62,919
Total common stockholder's
  equity (deficit) ..........   145,499       73,119      126,905       14,487    (306,431)   (360,010)    (306,431)
                              ---------------------------------------------------------------------------------------     
Total liabilities and
  common stockholder's
  equity (deficit) .......... $ 324,580    $  82,950    $ 118,844    $ 107,103   $ 429,705   $(397,788)   $ 665,394
                              =======================================================================================
</TABLE>


                                                         42


<PAGE>



<TABLE>
<CAPTION>
                            HARRIS  CHEMICAL  NORTH  AMERICA,  INC.  AND  SUBSIDIARIES
                           NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS - (Continued)


                                 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                                     For the Fiscal Year Ended March 25, 1995
                                                  (in thousands)

                                  NACC         GSL        NAMSCO       Sifto        HCNA     Eliminations Consolidated
                              ----------------------------------------------------------------------------------------
<S>                           <C>          <C>          <C>          <C>         <C>         <C>          <C>              
Net sales ................... $ 193,920    $  70,936    $ 133,305    $  91,027   $     -     $ (53,324)   $ 435,864
Cost of sales ...............   173,839       58,297       89,813       62,669         -       (52,669)     331,949
                              ---------------------------------------------------------------------------------------
  Gross profit ..............    20,081       12,639       43,492       28,358         -          (655)     103,915
Selling, general and
   administrative expenses...    21,538        5,399       15,219       10,751       2,671         -         55,578
                              ---------------------------------------------------------------------------------------
   Operating income (loss) ..    (1,457)       7,240       28,273       17,607      (2,671)       (655)      48,337
Interest expense ............      (456)         (91)      (1,055)      (9,641)    (67,283)        -        (78,526)
Other income (expense) ......     4,939        7,380       (6,103)      (2,015)     38,658      (38,658)      4,201
                              ---------------------------------------------------------------------------------------
   Income (loss) before
   provision for income
   taxes ....................     3,026       14,529       21,115        5,951     (31,296)     (39,313)    (25,988)
Provision (benefit) for
   income taxes .............       -          4,423        8,083        4,833         -        (12,031)      5,308
                              ---------------------------------------------------------------------------------------
   Net income (loss) ........ $   3,026    $  10,106    $  13,032    $   1,118   $ (31,296)  $  (27,282)  $ (31,296)
                              =======================================================================================


                                 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                                     For the Fiscal Year Ended March 30, 1996
                                                  (in thousands)

                                  NACC         GSL        NAMSCO       Sifto        HCNA     Eliminations Consolidated
                              ----------------------------------------------------------------------------------------
Net sales ................... $ 202,797    $  67,943    $ 154,840    $  94,023   $     -     $ (44,129)   $ 475,474
Cost of sales ...............   172,192       54,574      104,268       64,208         -       (44,202)     351,040
                              ---------------------------------------------------------------------------------------
  Gross profit ..............    30,605       13,369       50,572       29,815         -            73      124,434
Selling, general and
   administrative expenses ..    25,197        5,302       18,908       11,818       3,048         -         64,273
Write down of assets ........     7,044          -            -            -           -           -          7,044
                              ---------------------------------------------------------------------------------------
   Operating income (loss) ..    (1,636)       8,067       31,664       17,997      (3,048)         73       53,117
Interest expense ............       284         (218)         443      (11,696)    (73,751)        -        (84,938)
Other income (expense) ......     5,853        6,956       (6,564)       2,034      48,176     (48,176)       8,279
                              ---------------------------------------------------------------------------------------
   Income (loss) before
   provision for income
   taxes ....................     4,501       14,805       25,543        8,335     (28,623)    (48,103)     (23,542)
Provision (benefit) for
   income taxes .............       -          2,991        4,891        4,300         119      (7,101)       5,200
                              ---------------------------------------------------------------------------------------
   Net income (loss) ........ $   4,501    $  11,814    $  20,652    $   4,035   $ (28,742)  $ (41,002)   $ (28,742)
                              =======================================================================================
</TABLE>


                                                         43


<PAGE>



<TABLE>
<CAPTION>
                            HARRIS  CHEMICAL  NORTH  AMERICA,  INC.  AND  SUBSIDIARIES
                           NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS - (Continued)

                                 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                                     For the Fiscal Year Ended March 29, 1997
                                                  (in thousands)

                                  NACC         GSL        NAMSCO       Sifto        HCNA     Eliminations Consolidated
                              ----------------------------------------------------------------------------------------
<S>                           <C>          <C>          <C>          <C>         <C>         <C>          <C>          
Net sales ................... $ 197,717    $  84,490    $ 159,606    $ 105,080   $     -     $ (38,271)   $ 508,622
Cost of sales ...............   172,508       69,068      106,602       64,021         -       (38,062)     374,137
                              ---------------------------------------------------------------------------------------
  Gross profit ..............    25,209       15,422       53,004       41,059         -          (209)     134,485
Selling, general and
   administrative expenses ..    17,598        5,542       16,795       13,146       4,427         -         57,508
                              ---------------------------------------------------------------------------------------
   Operating income (loss) ..     7,611        9,880       36,209       27,913      (4,427)       (209)      76,977
Interest expense ............   (11,293)        (284)         462      (11,110)    (69,700)        -        (91,925)
Other income (expense) ......     5,442        6,525       (8,037)      (1,315)     54,034     (54,034)       2,615
                              ---------------------------------------------------------------------------------------
   Income (loss) before
   provision for income
   taxes ....................     1,760       16,121       28,634       15,488     (20,093)    (54,243)     (12,333)
Provision (benefit) for
   income taxes .............       125        5,701       10,594        7,547       1,340     (16,207)       9,100
                              ---------------------------------------------------------------------------------------
   Net income (loss) ........ $   1,635    $  10,420    $  18,040    $   7,941   $ (21,433)  $ (38,036)   $ (21,433)
                              =======================================================================================
</TABLE>




                                                         44


<PAGE>



<TABLE>
<CAPTION>
                            HARRIS  CHEMICAL  NORTH  AMERICA,  INC.  AND  SUBSIDIARIES
                           NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS - (Continued)


                                 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                                     For the Fiscal Year Ended March 25, 1995
                                                  (in thousands)


                                  NACC         GSL        NAMSCO       Sifto        HCNA     Eliminations Consolidated
                              ----------------------------------------------------------------------------------------
<S>                           <C>          <C>          <C>          <C>         <C>         <C>          <C>   
Net cash provided by (used
   in) operating activities.. $  78,249    $  18,878    $  22,991    $   5,470   $  (6,717)  $ (51,628)   $  67,243
                              ---------------------------------------------------------------------------------------
Cash flows from investing:
   Capital expenditures .....   (25,305)      (3,456)      (7,077)      (6,231)        -           -        (42,069)
   Capitalized interest .....    (3,037)         -            -            -           -           -         (3,037)
   Proceeds from sales ......       896          315            8          111         -           -          1,330
   Other ....................       189          -            (18)         -        20,440     (20,440)         171
                              ---------------------------------------------------------------------------------------
Net cash used in
   investing activities ..... $ (27,257)      (3,141)      (7,087)      (6,120)     20,440     (20,440)     (43,605)
                              ---------------------------------------------------------------------------------------
Cash flows from financing:
   Gross borrowings .........     3,000        6,200      126,900       33,773         -           -        169,873
   Gross repayments .........   (12,619)     (12,369)    (133,321)     (34,251)        -           -       (192,560)
   Recapitalization costs ...       -            -            -            (92)       (872)        -           (964)
   Other ....................   (41,373)      (9,568)      (9,483)         -        (1,000)     60,217       (1,207)
                              ---------------------------------------------------------------------------------------
Net cash provided by (used
   in) financing activities .   (50,992)     (15,737)     (15,904)        (570)     (1,872)     60,217      (24,858)
                              ---------------------------------------------------------------------------------------
Effect of exchange rate
   changes on cash ..........       -            -            -            (27)        -           -            (27)
                              ---------------------------------------------------------------------------------------
Net decrease in cash and
   cash equivalents .........       -            -            -         (1,247)     11,851     (11,851)      (1,247)
Cash and cash equivalents:
   Beginning of period ......       -            -            -          6,895         -           -          6,895
                              ---------------------------------------------------------------------------------------
   End of period ............ $     -      $     -      $     -      $   5,648   $  11,851   $ (11,851)   $   5,648
                              =======================================================================================
</TABLE>



                                                         45


<PAGE>



<TABLE>
<CAPTION>
                               HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


                                 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                                     For the Fiscal Year Ended March 30, 1996
                                                  (in thousands)


                                  NACC         GSL        NAMSCO       Sifto        HCNA     Eliminations Consolidated
                              ----------------------------------------------------------------------------------------
<S>                           <C>          <C>          <C>          <C>         <C>         <C>          <C>
Net cash provided by (used
   in) operating activities.. $  63,388    $   1,107    $ (10,998)   $   6,306   $  13,149   $ (38,737)   $  34,215
                              ---------------------------------------------------------------------------------------
Cash flows from investing:
   Capital expenditures .....   (32,369)      (2,767)      (3,704)      (2,542)        -           -        (41,382)
   Capitalized interest .....    (4,230)         -            -            -           -           -         (4,230)
   Proceeds from sales ......       111           59          -              1         -           -            171
   Other ....................    (1,679)         -             29          -       (18,489)     18,489       (1,650)
                              ---------------------------------------------------------------------------------------
Net cash used in
   investing activities .....   (38,167)      (2,708)      (3,675)      (2,541)    (18,489)     18,489      (47,091)
                              ---------------------------------------------------------------------------------------
Cash flows from financing:
   Gross borrowings .........    19,643       25,184       75,342       32,118         -           -        152,287
   Gross repayments .........   (24,617)     (18,644)     (56,115)     (32,556)        -           -       (131,932)
   Other ....................   (20,247)      (4,939)      (4,554)         -        (4,100)     29,688       (4,152)
                              ---------------------------------------------------------------------------------------
Net cash provided by (used
   in) financing activities .   (25,221)       1,601       14,673         (438)     (4,100)     29,688       16,203
                              ---------------------------------------------------------------------------------------
Effect of exchange rate
   changes on cash ..........       -            -            -            118         -           -            118
                              ---------------------------------------------------------------------------------------
Net decrease in cash and
   cash equivalents .........       -            -            -          3,445      (9,440)      9,440        3,445
Cash and cash equivalents:
   Beginning of period ......       -            -            -          5,648      11,851     (11,851)       5,648
                              ---------------------------------------------------------------------------------------
   End of period ............ $     -      $     -      $     -      $   9,093   $   2,411   $  (2,411)   $   9,093
                              =======================================================================================
</TABLE>
























                                                         46


<PAGE>



<TABLE>
<CAPTION>
                               HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


                                 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                                     For the Fiscal Year Ended March 29, 1997
                                                  (in thousands)


                                  NACC         GSL        NAMSCO       Sifto        HCNA     Eliminations Consolidated
                              ----------------------------------------------------------------------------------------
<S>                           <C>          <C>          <C>          <C>         <C>         <C>          <C>
Net cash provided by (used
   in) operating activities.. $  29,690    $  16,933    $  38,177    $  24,134   $ (16,246)  $ (54,373)   $  38,315
                              ---------------------------------------------------------------------------------------
Cash flows from investing:
   Capital expenditures .....    (9,638)      (6,574)      (9,975)      (6,532)        -           -        (32,719)
   Capitalized interest .....    (1,244)         -            -            -           -           -         (1,244)
   Proceeds from sales ......        24          -            503          152         -           -            679
   Other ....................       -            -            -            -       (53,845)     53,845          -
                              ---------------------------------------------------------------------------------------
Net cash used in
   investing activities .....   (10,858)      (6,574)      (9,472)      (6,380)    (53,845)     53,845      (33,284)
                              ---------------------------------------------------------------------------------------
Cash flows from financing:
   Gross borrowings .........    99,986       21,995      108,502       51,262         -           -        281,745
   Gross repayments .........   (63,493)     (29,746)    (148,530)     (52,131)        -           -       (293,900)
   Other ....................   (55,325)      (2,608)       7,343      (20,295)     83,175       2,939       15,229
                              ---------------------------------------------------------------------------------------
Net cash provided by (used
   in) financing activities .   (18,832)     (10,359)     (32,685)     (21,164)     83,175       2,939        3,074
                              ---------------------------------------------------------------------------------------
Effect of exchange rate
   changes on cash ..........       -            -            -           (122)        -           -           (122)
                              ---------------------------------------------------------------------------------------
Net decrease in cash and
   cash equivalents .........       -            -         (3,980)      (3,532)     13,084       2,411        7,983
Cash and cash equivalents:
   Beginning of period ......       -            -            -          9,093       2,411      (2,411)       9,093
                              ---------------------------------------------------------------------------------------
   End of period ............ $     -      $     -      $  (3,980)   $   5,561   $  15,495   $     -      $  17,076
                              =======================================================================================
</TABLE>



                                                         47


<PAGE>



Item 9.           CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS
                  ON  ACCOUNTING  AND  FINANCIAL  DISCLOSURE

   Not applicable


                                                     Part III

Item 10.          DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

   The  following  table sets forth the name,  age and  position  with Harris or
Sifto of each person who is currently an executive officer or director of Harris
or Sifto.

<TABLE>
   Name                                 Age       Position
<S>                                      <C>      <C>                                                        
   D. George Harris...................   64       Chairman, Chief Executive Officer and Director of Harris
   Anthony J. Petrocelli..............   59       Vice Chairman and Director of Harris
   Michael R. Boyce...................   49       President, Chief Operating Officer and Director of Harris
   Emanuel J. Di Teresi...............   52       Senior Vice President and Chief Financial Officer of Harris
   Richard J. Donahue.................   53       Senior Vice President - Corporate Development of Harris
   Donald G. Kilpatrick...............   42       Senior Vice President, Secretary and General Counsel of Harris
   Richard J. Nick....................   53       Senior Vice President - Finance and Treasurer of Harris
   James T. Beale, Jr.................   53       Director of Harris
   Fred W. Broling....................   61       Director of Harris
   John D. Burns......................   64       Director of Harris
   Archibald Cox, Jr..................   56       Director of Harris
   Peter J. Savage....................   53       Director of Harris
   Heinn F. Tomfohrde II..............   63       Director of Harris
   Jeffrey C. Walker..................   41       Director of Harris
   Robert F. Clark....................   55       President of GSL
   John F. Tancredi...................   54       President of NACC
   Gary R. Noseworthy.................   44       Director of Sifto
   Alan Hamilton......................   45       Director of Sifto
</TABLE>

   The Certificate of Incorporation and By-Laws of Harris provide for a Board of
Directors of not less than three or more than fifteen directors, with the number
of directors currently set at 11. There is currently one vacancy.  Directors are
elected at the annual  meeting of the  stockholders.  Each director holds office
until a successor is elected and  qualified,  or until such  director's  earlier
resignation or removal. Vacancies on the Board of Directors may be filled as set
forth in the Stockholders Agreement.  Officers of Harris serve at the discretion
of the Board of  Directors.  See Item 13,  "Certain  Relationships  and  Related
Transactions--The Stockholders Agreement."

   D.  George  Harris  has been the  Chairman,  Chief  Executive  Officer  and a
director of Harris  since 1993 and has served as an officer  and/or  director of
various  subsidiaries of Harris and HCG. Mr. Harris has also been a director and
Chairman  of DGHA since 1989 and has served as an  officer  and/or  director  of
various affiliated companies including Harris Specialty Chemicals,  Penrice Soda
Products Pty Ltd.,  and U.S.  Silica.  From 1981 through  1986,  Mr.  Harris was
President of SCM Chemicals (1981-1985) and SCM Corporation (1985-1986),  a major
producer of consumer and industrial  products with  approximately  $2 billion of
annual   revenues.   From  1975  through  1981,  Mr.  Harris  was  President  of
Rhone-Poulenc  U.S.A.,  Rhone-Poulenc's U.S. subsidiary.  From 1987 to 1988, Mr.
Harris  was a Senior  Advisor in the  Investment  Banking  Department  of Robert
Fleming  & Co.,  Ltd.  where  he  was  involved  in  global  investment  banking
activities  covering Europe, the Far East and the United States. He is currently
a director of McWhorter  Technologies,  Inc., a major  coatings  company,  and a
trustee of the Tax-Free Fund for Utah, one of the Aquila group of funds.

   Anthony J.  Petrocelli  has been Vice Chairman and a director of Harris since
1993, and has served as an officer and/or  director of various  subsidiaries  of
Harris and HCG. Mr.  Petrocelli  has also been Vice  Chairman of DGHA since 1989
and has served as an officer  and/or  director of various  affiliated  companies
including Harris Specialty  Chemicals,  Penrice Soda Products Pty Ltd., and U.S.
Silica. From 1984 to 1986, Mr. Petrocelli was the President of Crystal Greeting,
Inc., a manufacturer and distributor of greeting cards.



                                                         48


<PAGE>



     Michael R. Boyce has been President and Chief  Operating  Officer of Harris
since 1993, and has served as an officer and/or director of various subsidiaries
of Harris and HCG. He is also Chief Executive  Officer of Penrice and a Managing
Director of DGHA.  From 1987 to 1989,  Mr. Boyce was Vice  President and General
Manager of the Industrial Chemicals Division at General Chemical Corporation.

     Emanuel J. Di Teresi has been Senior  Vice  President  and Chief  Financial
Officer of Harris  since  September  1994 and has  served as an  officer  and/or
director of various  subsidiaries of Harris and HCG. From 1991 until 1994, Mr Di
Teresi was Vice  President and Controller of Olin  Corporation  and from 1988 to
1991, Mr. Di Teresi was the Chief Financial  Officer of the Chemical Division of
Olin Corporation.

     Richard J.  Donahue has been a Senior Vice  President of Harris since 1993,
and has served as an officer and/or  director of various  subsidiaries of Harris
and HCG. Mr. Donahue has also been a Managing Director of DGHA since 1989. Prior
to joining DGHA, Mr. Donahue was in the investment  banking department of Robert
Fleming & Co., Ltd. from 1987 to 1988.  From 1978 through 1986, he held a series
of financial and corporate development positions at SCM Corporation.

     Donald G.  Kilpatrick has been Senior Vice  President,  General Counsel and
Secretary of Harris since 1993, and has served as an officer and/or  director of
various subsidiaries of Harris and HCG. Since 1992, Mr. Kilpatrick has also been
a Managing  Director of DGHA. From 1981 to 1992, Mr.  Kilpatrick was an attorney
with  Winthrop,  Stimson,  Putnam &  Roberts  ("Winthrop"),  where he was made a
member of the firm in 1990.  Mr.  Kilpatrick  is currently on a leave of absence
from  Winthrop.  Winthrop  provides  legal services to the Company and HCG on an
ongoing basis.

     Richard J. Nick has been a Senior Vice  President  and  Treasurer of Harris
since 1993, and has served as an officer and/or director of various subsidiaries
of Harris  and HCG.  Mr.  Nick has also been a Managing  Director  of DGHA since
1989. From 1987 to 1989, Mr. Nick was Vice  President--Finance  & Administration
of Baltimore Spice, Inc., a subsidiary of Hanson Industries.

     James T. Beale, Jr. became a director of Harris in 1993 and has served as a
director of various  subsidiaries  of Harris.  Mr. Beale is currently a managing
director  of Chase  Manhattan  Bank and has been a director  of Chase  Manhattan
Investment Holdings, Inc. (1986-1993) and Chase Capital (1986-1993).

     Fred W.  Broling  became a  director  of Harris in 1993 and has served as a
director  of various  subsidiaries  of Harris.  Mr.  Broling is the  Chairman of
PureTec  Corporation.,  a manufacturer  of plastic  products.  In addition,  Mr.
Broling is a Director of Morton Metalcraft, a steel fabrication company.

   John D.  Burns  became a  director  of  Harris  in 1993 and has  served  as a
director of various  subsidiaries of Harris. From 1986 until 1992, Mr. Burns was
Chairman,  Chief  Executive  Officer and  President  of Vista  Chemical  Company
("Vista"), a petrochemical  manufacturer.  Prior to joining Vista, Mr. Burns was
Executive  Vice  President of Conoco Inc.,  in charge of  operations  for Conoco
Chemicals Company.

     Archibald  Cox,  Jr.  became a director of Harris in 1996.  Mr. Cox founded
Sextant Group,  Inc., a financial advisory firm in 1993 and is Vice Chairman and
President of Magnequench  International,  Inc., an international manufacturer of
magnetic material. Previously, Mr. Cox was President and Chief Executive Officer
of The First  Boston  Corporation  and a  Managing  Director  of Morgan  Stanley
International.

   Peter J.  Savage  became a  director  of Harris in 1996.  He is a  management
consultant  and a director of Inspec Group plc.,  Kelsey  Industries  plc.,  and
United  Industries plc. and a number of other smaller unlisted  companies in the
U.K. From 1987 until 1994,  Mr.  Savage  served as Managing  Director of Harcros
Chemicals Group and as a director of its parent company,  Harrisons & Crossfield
plc. Prior to joining Harcros,  Mr. Savage served as European  Business Director
of Rohm & Haas Company.

     Heinn F. Tomfohrde II became a director of Harris in 1996.  From 1987 until
1991, Mr. Tomfohrde served as President, Chief Operating Officer and director of
International  Specialty Products Inc. and its predecessor company GAF Chemicals
Corp.  Before joining GAF, he served as President and Chief Operating Officer of
the  Consumer  and  Industrial  Products  and  Services  Group of Union  Carbide
Corporation.  Mr.  Tomfohrde is presently a director of McWhorter  Technologies,
Inc. and Sybron Chemicals, Inc.

     Jeffrey  C.  Walker  became a  director  of Harris in 1996.  Mr.  Walker is
currently a Senior  Managing  Director of Chase  Manhattan Bank and the Managing
Partner of Chase Capital Partners. Mr. Walker previously served in similar roles
at Chemical Bank and Chemical Venture Capital Partners, respectively, before the
merger  between  Chemical and Chase.  Mr.  Walker was a  co-founder  of Chemical
Venture Capital Partners in 1984.
                                                         49


<PAGE>



     Robert F. Clark has been  President  and a director  of GSL and GSLMC since
1993.  Previously,  Mr. Clark served as Vice President of NACC (1991 - 1993) and
from 1964 until 1991 he was employed by the General Electric Company.

     John F. Tancredi has been  President of NACC since April 1996.  Previously,
since 1989, Mr. Tancredi was Vice President-Chief  Technical and Quality Officer
of International Specialty Products.

   Gary R. Noseworthy has been a director of Sifto since October 1994. From 1990
to 1992, Mr.  Noseworthy was Ontario  Regional Sales Manager for Sifto and since
1992 he has been Sifto's National Sales Manager.

   Alan  Hamilton has been a director of Sifto since  August 1995.  From 1989 to
1995,  Mr.  Hamilton was the Mine Manager at the Goderich Mine and since 1995 he
has been Sifto's Chemical Business Manager.

   Directors who are officers of the Company receive no additional  compensation
for serving on the Board of  Directors.  The Company  has  authorized  an annual
retainer to unaffiliated  Directors of $15,000 plus $1,000 for each day on which
they attend a Board meeting and/or one or more Board  Committee  meetings,  with
any  director  who  serves as a chair of such  Committee  meeting  receiving  an
additional $250.



                                                         50


<PAGE>



Item 11.    EXECUTIVE  COMPENSATION  AND  OTHER  INFORMATION

     The following table sets forth the HCNA related  compensation earned by the
Chief  Executive  Officer  and the four next most highly  compensated  executive
officers of the Company in FY 1997 and their HCNA  related  compensation  for FY
1996 and FY 1995.

<TABLE>
<CAPTION>
                                             Summary Compensation Table


                                                                                Long Term Compensation (1)                         
                                       Annual Compensation                            Awards Payouts
                         ------------------------------------------------  ------------------------------------
                                                               Other       Restricted  Securities
                                                               Annual      Stock       Underlying                All Other
Name and                                                       Compen-     Awards      Options/      LTIP        Compen-
Principal Position       Year       Salary        Bonus        sation                  SARs          Payouts     sation (3)
------------------------ ---------  ------------- -----------  ----------  ----------- ------------  ----------  -----------
<S>                      <C>           <C>            <C>          <C>          <C>         <C>          <C>       <C>
D. George Harris         1997          $1,150,000         (2)      -            -           -            -           $55,707
   Chairman              1996           1,150,000         (2)      -            -           -            -           135,845
                         1995           1,040,000         (2)      -            -           -            -         (174,527)

Anthony J. Petrocelli    1997             758,000         (2)      -            -           -            -            48,323
   Vice Chairman         1996             775,000         (2)      -            -           -            -            98,206
                         1995             725,000         (2)      -            -           -            -           132,716

Michael R. Boyce         1997             550,000     441,784      -            -           -            -            22,410
   Chief Operating Office1996             550,000     279,043      -            -           -            -            65,284
                         1995             500,000     284,043      -            -           -            -            58,561

Donald G. Kilpatrick     1997             400,000     271,095      -            -           -            -            21,128
   General Counsel       1996             370,000     157,532      -            -           -            -            14,682
                         1995             370,000     162,532      -            -           -            -            28,590

Richard J. Donahue       1997             275,000     160,649      -            -           -            -            21,838
   Senior Vice President 1996             275,000      71,470      -            -           -            -            16,152
                         1995             250,000     106,470      -            -           -            -          (16,685)
</TABLE>


(1)  The named executive officers do not participate in any of the Long Term
     Compensation plans offered by HCG.

(2)  No bonus  awarded  based on the joint  compensation  agreement  (see "Joint
     Compensation Agreement").

(3)  All Other  Compensation  in FY 1997  consists of Company  contributions  to
     defined  contribution  plans on behalf of the  executive  officer,  imputed
     income on excess  Company-paid  life insurance  premiums and automobile and
     personal  tax  return  allowances.   The  following  table  identifies  and
     quantifies these amounts for the named executive officers in FY 1997:


                              401(K)                             Automobile and
                             Company         Excess Life           Tax Return
Name                       Contribution        Insurance           Allowances
------------------------   ------------     --------------       ---------------
D. George Harris              $19,591            $7,722               $28,394
Anthony J. Petrocelli          18,600             5,974                23,749
Michael R. Boyce               15,057             3,827                 3,526
Donald G. Kilpatrick           16,302             1,931                 2,895
Richard J. Donahue             16,477             2,931                 2,430









                                                         51


<PAGE>



Aggregated Warrants/Exercises in FY 1997

     There were no warrants exercised in FY 1997.

Compensation Committee Interlocks and Insider Participation

     The Harris Board of Directors has a  Compensation  Committee  consisting of
six directors,  two of whom are designated by the Chairman and three of whom are
designated  by  The  Prudential   Insurance  Company  of  America   ("Prudential
Insurance"),  Chase Manhattan  Capital  Corporation  ("Chase Capital") and First
Plaza Group Trust ("First Plaza") (collectively, the "Institutional Investors").
Pursuant to the terms of the Stockholders  Agreement which became effective with
the completion of the Recapitalization  among HCG, the Institutional  Investors,
certain  members  of  management  of HCG  and  other  stockholders  of HCG  (the
"Stockholders  Agreement"),  any  increase  in  compensation  of officers of the
Company  must be  approved by the  compensation  committee.  During FY 1997,  D.
George  Harris,  the chief  executive  officer of the  Company,  James T. Beale,
Michael R.  Boyce,  Fred W.  Broling,  John D. Burns and Heinn F.  Tomfohrde  II
served as members of the Compensation Committee.

Joint Compensation Agreement

     D. George Harris,  Anthony J. Petrocelli and Richard J. Donahue are parties
to a joint compensation agreement (the "Joint Compensation Agreement") with HCG,
Harris and certain  subsidiaries  of Harris.  The Joint  Compensation  Agreement
contains customary  employment terms and provides for a base annual salary and a
bonus  based  on  the  earnings  of  the  Company  before  interest,  taxes  and
depreciation.  The Joint  Compensation  Agreement  expires at the end of FY 1998
unless terminated earlier for cause, by certain events  constituting a change in
control, or by the death,  permanent disability or resignation of the respective
employee. In the event of death or permanent disability,  the Joint Compensation
agreement  provides that termination  shall not become effective for a period of
one year from such event and that all amounts  otherwise  payable shall continue
to be paid to the respective employee or his estate.

                                                         52


<PAGE>



Item 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                                  AND MANAGEMENT

   Harris is a wholly owned  subsidiary of HCG. The  following  table sets forth
the  beneficial  ownership of the HCG Common  Stock as of June 13, 1997,  by (i)
each director of Harris and Sifto,  (ii) each executive officer named in Item 11
hereof,  and (iii) all directors and executive officers of Harris and Sifto as a
group.

<TABLE>
<CAPTION>
                                    Number of
                                     Shares
Name and Address of                                                    Beneficially     Percent of
   Beneficial Owner                                                        Owned              Class
-----------------------                                                -------------    -----------
<S>                                                                   <C>                  <C>           <C> 
D. George Harris (1)........................................          187,398              14.9
Anthony J. Petrocelli (2)...................................          135,007              10.8
Michael R. Boyce............................................           79,393               6.3
Richard J. Donahue..........................................           60,617               4.8
Richard J. Nick.............................................           27,095               2.2
Donald G. Kilpatrick (1) (2)................................           13,554               1.1
John D. Burns...............................................            1,786              --            (4)
Fred W. Broling.............................................            1,837              --            (4)
James T. Beale, Jr. (3).....................................            --                 --            (4)
Archibald Cox, Jr...........................................            --                 --            (4)
Emanuel J. Di Teresi........................................              300              --            (4)
Heinn F. Tomfohrde, II......................................            2,845              --            (4)
Peter J. Savage.............................................              200              --            (4)
Jeffrey C. Walker (3).......................................            --                 --            (4)
Robert F. Clark.............................................            2,904              --            (4)
John F. Tancredi............................................            --                 --            (4)
Alan Hamilton...............................................              835              --            (4)
Gary R. Noseworthy..........................................            --                 --            (4)
Directors and executive officers of Harris and Sifto as a group
  (18 persons)..............................................          513,771              41.0
</TABLE>


     (1) Does not include 33,005 shares over which Mr. Harris and Mr. Kilpatrick
may exercise voting control as co-trustees of a trust under Agreement of Anthony
J. Petrocelli dated October 29, 1990.
     (2) Does not  include  51,259  shares  over  which Mr.  Petrocelli  and Mr.
Kilpatrick  may exercise  voting control as co- trustees of several trusts under
Agreement of D. George Harris.
     (3) Excludes  190,345 shares owned by Chase Capital and its affiliates,  as
to which Mr. Beale and Mr. Walker disclaim beneficial ownership.
     (4) Less than 1%.

                                                         53


<PAGE>



Item 13.          CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     For descriptions of certain  continuing  transactions with affiliates,  see
Note 11.

     HCG's  wholly  owned  subsidiaries  include  Harris  (see  Note 1),  Harris
Chemical Europe,  Ltd. ("HCEL") and Harris Chemical Group Europe, Inc. ("HCGE").
The  principal  wholly  owned  subsidiaries  of HCEL include  NAMSCO (UK),  Ltd.
("NUK"),  with salt operations in the United Kingdom (Salt Union Ltd. or "SUL"),
Matthes + Weber GmbH  ("M&W"),  with soda  operations  in  Germany,  Harris Soda
Products  Europe ("HSPE") is based in France and markets and sells soda products
in Europe,  and Societa Chimica  Larderello  ("SCL"),  with boron  operations in
Italy.  In  addition,  certain  stockholders  of  HCG  have  minority  ownership
interests in Penrice Soda Products Pty Ltd. ("Penrice"),  U.S. Silica and Harris
Specialty Chemical Company.  These entities are collectively  referred to as HCG
affiliates.

Services Agreement with HCG

     Upon consummation of the  Recapitalization,  Harris entered into a services
agreement  with HCG  pursuant to which  Harris  provides to HCG office space and
certain corporate tax, treasury,  legal and other  administrative  services from
time to time. As compensation  for such services,  Harris receives a fee for the
services  provided.  The total  amount of  compensation  to  Harris  under  this
agreement was $408,000 in FY 1997.

Management Agreement with HCG

     Pursuant  to the  credit  agreements,  Harris is  allowed  to pay to HCG an
amount not to exceed $750,000 per fiscal year for the purpose of enabling HCG to
pay its actual operating expenses in the ordinary course of business.  The total
amount paid by Harris to HCG in FY 1997 was $750,000.

Arrangements with Affiliates

     SCL is an  Italian  producer  of  specialty  boric  acid and  caustic  soda
products,  and is a subsidiary of HCEL,  which is a subsidiary of HCG. During FY
1994,  the Company  entered  into an agreement  to become a  distributor  of SCL
products in North America.  SCL also distributes certain boron chemical products
of the Company in Europe.  In FY 1997,  NACC entered  into a technical  services
agreement  with  SCL for  $250,000  annually  to  compensate  SCL for  providing
technical  expertise  and  assistance  to NACC in  specialty  boron  production.
Additionally,  in FY 1997,  an  agreement  was reached  whereby  NACC  purchased
patents from SCL for $2,750,000. See "Business--Boron Chemicals."

     In FY 1996,  the HCG entered  into a services  agreement  with Penrice Soda
Products  Pty Ltd.  ("Penrice").  Certain  stockholders  of HCG,  including  the
principals of DGHA, own a minority interest in Penrice.  The agreement  provides
that Penrice will pay the HCG 200,000 Australian dollars per year for management
consulting and operating support services.
HCG received $184,000 in FY 1997.

     The Company markets its soda products in Europe through HSPE. Sales to HSPE
in FY 1997 were $66,000.

North American Terminals, Inc. Asset Sale

     In 1993,  NACC entered into an agreement to sell its port facilities in San
Diego to SDT Capital,  Inc. ("SDT") for $5.5 million,  and lease such facilities
back from SDT.  SDT's  president is a relative of a former officer of Harris who
is a shareholder in HCG. Annual rentals under the agreement are $1.7 million per
year payable quarterly for the initial four-year period and the first and second
five-year  option  periods.  The annual  rentals for the first and second option
periods will be increased for any increases in the seven-year U.S. Treasury note
rate.  Additional rents are due at $3 per ton for shipments in excess of 850,000
tons per year  through the end of the second  option  period.  Three  additional
five-year  option  periods and a final  six-year  option  period will have rents
based on fair  market  value  rents as  agreed  to by SDT and the  Company.  The
Company has the option to  repurchase  the  facilities  at the end of either the
initial lease period  (December  31, 1997) or any renewal  option period for the
greater of $7.0 million or fair market value. However, the Company must purchase
the  facility for the greater of $7.0 million or fair market value at the end of
any  lease  period in which the lease is not  extended.  The  Company  has begun
negotiations  with SDT to possibly  repurchase  the  facilities  at December 31,
1997. The agreement  states that fair market value shall be mutually agreed upon
by the  Company  and SDT.  However,  if the Company and SDT are unable to agree,
then fair market value is determined through an appraisal process.



                                                         54


<PAGE>



Tax Sharing Agreement

     Pursuant to a Tax Sharing  Agreement  entered into in  connection  with the
Consolidation,  HCG agreed to file consolidated  federal income tax returns with
Harris and its U.S. subsidiaries. According to the Tax Sharing Agreement, Harris
agreed  generally to reimburse HCG in amounts designed to approximate the amount
of income taxes that Harris and its wholly owned subsidiaries (other than Sifto)
would have paid had they filed  consolidated  federal  income tax  returns  (and
analogous state and local returns) separate from HCG.

The Stockholders Agreement

     Pursuant to the terms of the Stockholders  Agreement,  until the earlier of
an initial public offering of HCG Common Stock and the tenth  anniversary of the
Recapitalization,  each party to the  Stockholders  Agreement has agreed to vote
all of the  shares  of HCG  Common  Stock  owned  by  such  party  (i)  for  the
maintaining  of the  number  of  directors  of HCG at  eleven  and  (ii) for the
election of a slate of  directors  so that at all times five  directors  will be
designated by D. George Harris, three directors will be designated by Anthony J.
Petrocelli and two directors will be designated by the Institutional  Investors,
provided that if Mr. Harris is unable to designate  such  directors,  one of the
directors otherwise to be designated by Mr. Harris will be designated by Michael
R. Boyce and four of the directors otherwise to be designated by Mr. Harris will
be designated by certain members of management of HCG, and provided further that
if Mr.  Petrocelli is unable to designate such  directors,  the three  directors
otherwise to be  designated  by Mr.  Petrocelli  will be  designated  by certain
members  of  management  of HCG.  If any  vacancy  is  created  on the  Board of
Directors  of  HCG,  it  will  be  filled  in  accordance   with  the  foregoing
designations.

     The Stockholders  Agreement  contains certain rights and obligations of HCG
and  the  stockholders  thereof  with  respect  to HCG  Common  Stock,  such  as
preemptive  rights of the stockholders  with respect to certain issuances of HCG
capital stock, rights of first offer of HCG and the stockholders with respect to
certain  sales  of HCG  Common  Stock  by any  stockholder,  rights  of  certain
stockholders  to sell  HCG  Common  Stock  to HCG at  certain  times or upon the
occurrence  of certain  events,  rights of HCG to purchase HCG Common Stock from
certain HCG  stockholders  at certain  times or upon the  occurrence  of certain
events and rights of the stockholders to cause the sale of HCG Common Stock held
by other  stockholders,  or  participate in the sale of HCG Common Stock held by
other  stockholders,  upon the occurrence of certain  events.  The  Stockholders
Agreement also contains certain covenants which prohibit HCG from taking certain
actions,  such as amending  HCG's  Certificate of  Incorporation,  entering into
certain  transactions with affiliates of HCG,  disposing of significant  assets,
incurring  indebtedness  above specified  levels and entering into  transactions
which would  cause a change of control of HCG,  or require  HCG to take  certain
actions,  unless the consent of the holders of specified  percentages of the HCG
Common Stock is  obtained.  Such rights and  obligations  are subject to various
restrictions,   limitations  and  exceptions  set  forth  in  the   Stockholders
Agreement.

The Registration Rights Agreement

   Certain of the parties to the  Stockholders  Agreement  are also parties to a
Registration  Rights  Agreement  (the  "Registration  Rights  Agreement")  which
provides that upon the earlier of an initial public offering of HCG Common Stock
and the fourth anniversary of the Recapitalization,  the Institutional Investors
holding  10% of the HCG  Common  Stock  will  have the  right,  for  five  years
thereafter,  to demand that HCG  register  at least 10% of the HCG Common  Stock
held by them under the  Securities  Act of 1933,  as amended.  Such right may be
exercised  six times (no more than three times for long form  registrations  and
the remainder for short form  registrations)  in which HCG pays all registration
expenses. The Institutional Investors also have rights to an unlimited number of
"piggyback"  registrations.  All of such  registration  rights  are  subject  to
various  restrictions,  limitations and exceptions set forth in the Registration
Rights Agreement.



                                                         55


<PAGE>



Item 14.          EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES  AND
                  REPORTS  ON  FORM  8-K

(a)  Set forth below is a list of documents filed as part of this report.

1.   Financial Statements included in Item 8.

<TABLE>
   Description                                                                                   Page No.
<S>                                                                                                 <C>    

     Report of Coopers & Lybrand L.L.P., Independent Certified Public Accountants                   25

     Consolidated Balance Sheets as of March 30, 1996 and March 29, 1997                            26

     Consolidated Statements of Operations for the three fiscal years ended March 29, 1997          27

     Consolidated Statements of Common Stockholder's Equity (Deficit) for the three fiscal
     years ended March 29, 1997                                                                     28

     Consolidated Statements of Cash Flows for the three fiscal years ended March 29, 1997          29

     Notes to Consolidated Financial Statements                                                     31
</TABLE>



2.   The following exhibits are required by Item 601 of Regulation S-K.

<TABLE>
Exhibit No.   Description of Exhibit
   <S>        <C>                                  
    2.1       Consolidation Agreement among Harris Chemical Group, Inc. ("HCG"), Harris, NAMSCO Inc. ("NAMSCO"),
              NAMSCO Acquisition Corp., GSL Corporation ("GSL"), GSL Acquisition Corp., North American Chemical
              Company ("NACC"), and NACC Acquisition Corp., dated as of August 5, 1993. (1)
    2.2       Agreement of Merger dated as of August 5, 1993 among HCG, NACC Acquisition Corp. and NACC. (1)
    2.3       Agreement of Merger dated as of August 5, 1993 among HCG, NAMSCO Acquisition Corp. and NAMSCO.
              (1)
    2.4       Agreement of Merger dated as of August 5, 1993 among HCG, GSL Acquisition Corp. and GSL. (1)
    2.5       Certificate of Ownership and Merger, merging GSL Holdings, Inc. into GSL Corporation. (4)
    3.1       Certificate of Incorporation of Harris together with amendments thereto. (1)
    3.2       Certificate of Incorporation of Sifto together with amendments thereto. (1)
    3.3       Restated Certificate of Incorporation of NAMSCO. (1)
    3.4       Restated Certificate of Incorporation of North American Salt Company ("NASC") together with amendments
              thereto. (1)
    3.5       Restated Certificate of Incorporation of NACC. (1)
    3.6       Restated Certificate of Incorporation of GSL. (1)
    3.7       Restated Certificate of Incorporation of Great Salt Lake Minerals Corporation ("GSLMC") together with
              amendments thereto. (1)
    3.8       Certificate of Incorporation of Carey Salt Company ("Carey") together with amendments thereto. (1)
    3.9       Certificate of Incorporation of The Hutchinson & Northern Railway Company ("H&N") together with
              amendments thereto. (1)
    3.10      Articles of Incorporation of North American Terminals, Inc. ("NATI") together with amendments thereto.(1)
    3.11      By-Laws of Sifto. (1)
    3.12      By-Laws of NAMSCO. (1)
    3.13      By-Laws of NASC (formerly American Salt Company). (1)
    3.14      By-Laws of NACC. (1)
    3.15      By-Laws of GSL. (1)
    3.16      By-Laws of GSLMC. (1)
    3.17      By-Laws of Carey (formerly Carey Louisiana Inc.). (1)
    3.18      By-Laws of H&N. (1)
    3.19      By-Laws of NATI. (1)
    3.20      By-Laws of Harris as amended June 28, 1996

                                                         56


<PAGE>




Exhibit No.   Description of Exhibit
    4.1       Senior Secured Indenture dated as of October 15, 1993 by and between Harris, the Subsidiary Guarantors named
              therein and the Bank of New York. as trustee. (2)
    4.2       Senior Subordinated Indenture dated as of October 15, 1993 by and between Harris, the Subsidiary Guarantors
              named therein and the IBJ Schroder Bank & Trust Company. as trustee. (2)
    4.3       Senior Secured Indenture dated as of October 15, 1993 by and between Sifto, Harris, the Subsidiary Guarantors
              named therein and Chemical Bank, as trustee. (2)
    4.4       Deed of Trust and Mortgage dated as of October 15, 1993 between Sifto and TD Trust Company, as trustee. (2)
   10.1       Recapitalization Agreement dated as of October 18, 1993, between Harris, HCG Recapitalization Corp. and the
              other persons named therein. (2)
   10.2       Recapitalization Merger Agreement dated as of October 18, 1993, between HCG and the HCG Recapitalization
              Corp. (2)
   10.3       Services Agreement dated as of October 28, 1993 between Harris and HCG. (2)
   10.4       Joint Compensation Agreement with certain employees of Harris dated as of October 28, 1993. (2) (3)
   10.5       Tax Sharing Agreement dated as of September 24, 1993 among HCG, Harris and other signatories thereto. (2)
   10.6       NACC Annual Bonus Incentive Plan. (1) (3)
   10.7       NASC Annual Bonus Incentive Plan. (1) (3)
   10.8       GSLMC Annual Bonus Incentive Plan. (1) (3)
   10.9       NASC, NACC, GSLMC Shared Employees Annual Bonus Plan. (1) (3)
   10.10      Lease dated June 17, 1985 between Minister of Natural Resources for the Province of Ontario and Domtar Inc.
              (predecessor in interest to Sifto) together with amendments thereto. (1)
   10.11      Lease dated June 17, 1985 between Minister of Natural Resources for the Province of Ontario and Domtar Inc.
              (predecessor in interest to Sifto) together with amendments thereto. (1)
   10.12      Lease dated April 16, 1986 between Minister of Northern Development and Mines for the Province of Ontario
              and Domtar Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
   10.13      Sodium Chloride Agreement dated December 1, 1988 between Minister of Energy and Mines for the Province
              of Saskatchewan and Domtar Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
   10.14      Lease dated July 2, 1983 between Minister of Mines and Energy for the Province of Nova Scotia and Domtar
              Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
   10.15      Lease dated July 2, 1983 between Minister of Mines and Energy for the Province of Nova Scotia and Domtar
              Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
   10.16      Salt and Surface Lease dated June 21, 1961 between John Taylor Caffery, et al., and Carey with amendments
              thereto. (1)
   10.17      Distribution Agreement dated December 18, 1988 between Cargill, Incorporated and Domtar Industries Inc.,
              Sifto Salt Division (predecessor in interest to Sifto). (1)
   10.18      Master Purchase and Lease Agreement between NACC and KENETECH Energy Systems, Inc. dated October
              29, 1993, Equipment Schedule No.1 dated November 4, 1993 and Equipment Schedule No. 2 dated February
              28, 1994. (4)
   10.19      San Diego Port Facilities  Acquisition  Agreement between NACC and
              SDT Capital,  Inc.  dated June 25, 1993,  as amended  December 10,
              1993, Bill of Sale dated as of December 10, 1993,  Equipment Lease
              dated December 10, 1993, as amended December 10, 1993,  Assignment
              of Ground Lease dated as of December 10, 1993,  Sublease of Leased
              Real Estate  dated  December 10, 1993 and Guaranty of Harris dated
              December 10, 1993.
              (4)
   10.20      Acquisition Agreement between NACC and NaTec Resources, Inc. dated April 5, 1995. (5)
   10.21      Amendment No. 1 to Acquisition Agreement between NACC and NaTec Resources, Inc. dated July 31,
              1995. (7)
   10.22      Form of Participation Agreement dated as of July 15, 1996 among NACC, Harris, [Owner/Participant]/[Owner
              Participant, OP Guarantor] and U.S. Trust Company of California, N.A., as Owner Trustee (8)
   10.23      Form of Annex A to Participation Agreement (8)
   10.24      Form of Facility Lease dated as of July 15, 1996 between U.S. Trust Company of California, N.A., as Owner
              Trustee as Lessor, and NACC, as Lessee (8)
   10.25      Form of Guaranty Agreement dated as of July 15, 1996 by Harris for the benefit of [Owner
              Participant]/[Owner Participant, OP Guarantor] and U.S. Trust Company of California, N.A., as Owner Trustee
              (8)
   10.26      US $130,000,000 Credit and Guarantee Agreement dated as of October 15, 1993, as amended and restated
              as of February 27, 1997. (9)

                                                         57


<PAGE>



   10.27      US $20,000,000 Multi-Currency Credit and Guarantee Agreement dated as of October 15, 1993, as amended
              and restated as of February 27, 1997. (9)

   21         Subsidiaries of Harris.
-----------------------------------------------------------------------------------------------------------------------


   (1)        Incorporated by reference from the registration statement on Form S-1, as amended (Registration No. 33-67546) filed by
              Harris and Sifto.

   (2)        Incorporated by reference from the quarterly report on Form 10-Q for the second quarter ended September 23, 1993 filed
              by Harris.

   (3)        Exhibits  10.9,  10.11,  10.12,  10.13 and 10.14,  which include a
              management  contract and other compensatory plans or arrangements,
              are filed pursuant to Item 14(c) of this report.  A description of
              Exhibit  10.9,  the  Joint  Compensation  Agreement,  is set forth
              herein under item 11.

   (4)        Incorporated by reference from the annual report on Form 10-K for the fiscal year ended March 26, 1994.

   (5)        Incorporated by reference from the annual report on Form 10-K for the fiscal year ended March 25, 1995.

   (6)        Incorporated by reference from the quarterly report on Form 10-Q for the first quarter ended June 24, 1995 filed by 
              Harris.

   (7)        Incorporated by reference from the quarterly report on Form 10-Q for the second quarter ended September 23, 1995 filed
              by Harris.

   (8)        Incorporated by reference from the quarterly report on Form 10-Q for the first quarter ended June 29, 1996 filed by 
              Harris.

   (9)        Incorporated by reference from the current report on Form 8-K dated February 27, 1997 filed by Harris.

(b)  A report on Form 8-K dated February 27, 1997 was filed reporting on the Company's execution of new Bank Agreements.
</TABLE>



                                                         58


<PAGE>



                                    SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                            Harris Chemical North America, Inc.
                                            (Registrant)



      June 27, 1997                          /s/  D. George Harris
                                            -------------------------------
                                                  D. George Harris
                                            Chairman and Chief Executive Officer
                                                (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated:

<TABLE>
     <S>              <C>                                              <C>              <C>    

     June 27, 1997           /s/  D. George Harris                     June 27, 1997           /s/  Anthony J. Petrocelli
                      ------------------------------------------                        ---------------------------------
                               D. George Harris                                                  Anthony J. Petrocelli
                       Chairman, Chief Executive Officer                                  Vice Chairman and Director
                                 and Director


     June 27, 1997           /s/  James T. Beale, Jr.                  June 27, 1997           /s/  Archibald Cox, Jr.
                      -----------------------------------------                         ---------------------------------
                              James T. Beale, Jr.                                              Archibald Cox, Jr.
                                   Director                                                          Director


     June 27, 1997           /s/  Michael R. Boyce                     June 27, 1997           /s/  Peter J. Savage
                      -----------------------------------------                         ---------------------------------
                               Michael R. Boyce                                                     Peter J. Savage
                      President, Chief Operating Officer                                                 Director
                                 and Director


     June 27, 1997          /s/  Fred W. Broling                       June 27, 1997           /s/  Heinn F. Tomfohrde II
                      -----------------------------------------                         ---------------------------------
                                Fred W. Broling                                                     Heinn F. Tomfohrde II
                                   Director                                                              Director


     June 27, 1997          /s/  John D. Burns                         June 27, 1997           /s/  Jeffrey C. Walker
                      -----------------------------------------                         ---------------------------------
                                 John D. Burns                                                      Jeffrey C. Walker
                                   Director                                                              Director


     June 27, 1997          /s/  Emanuel J. Di Teresi
                      -----------------------------------------
                             Emanuel J. Di Teresi
                           Senior Vice President and
                            Chief Financial Officer
                         (Chief Financial Officer and
                              Accounting Officer)
</TABLE>







                                                         59


<PAGE>


SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

No  annual  report  covering  FY 1997  or  proxy  materials  have  been  sent to
security-holders.

                                                         60


<PAGE>