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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                   FORM 10-K
                       FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

<TABLE>
<C>               <S>
   (MARK ONE)
      [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
                                               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 ____________.
</TABLE>

                        COMMISSION FILE NUMBER: 33-79532
                             ---------------------
                         (LAROCHE INDUSTRIES INC. LOGO)
             (Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      13-3341472
       (State or Other Jurisdiction of                        (I.R.S. Employer
        Incorporation or Organization)                      Identification No.)
</TABLE>

                            1100 JOHNSON FERRY ROAD
                             ATLANTA, GEORGIA 30342
                    (Address of principal executive offices)

                                 (404) 851-0300
              (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 at least 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.  Yes [X]  No [ ] (Not applicable to Registrant.)

     Aggregate market value of voting stock held by non-affiliates of the
Registrant: None. (See Part II, Item 5.)

     Number of shares of Common Stock outstanding as of May 27, 1999 was
429,633.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     Certain statements in the "Business," "Legal Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections of this Annual Report on Form 10-K regarding, among other things, (i)
competition in the markets served by the Company, including the competitive
factors expected to influence such markets, raw material costs and the Company's
competitive positioning, (ii) the Company's facility and production expansion
plans and (iii) the effect of certain environmental regulations on the Company's
operations and the costs of compliance with such regulations or remediation of
existing environmental problems are "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. As forward-looking
statements, they are necessarily based upon various uncertain factors,
including, but not limited to, management's current knowledge and perception of
the competitive conditions in the markets served by the Company, projections of
the Company's future production capacity requirements and estimates of
environmental compliance and remediation costs. Because of such uncertainties,
the actual results may differ significantly from the forward-looking statements
contained herein.

                                     PART I

ITEM 1.  BUSINESS

THE COMPANY

     LaRoche Industries Inc., a Delaware corporation (the "Company"), is an
international diversified producer and distributor of inorganic and organic
chemicals and operates six production facilities, 22 customer service
distribution centers and three warehouses throughout the United States and in
Western Europe. The Company's products are divided into three business segments:
Nitrogen Products ("Nitrogen"), Electrochemical Products -- North America
("Electrochemicals -- N.A.") and Electrochemical Products -- Europe
("Electrochemicals -- Europe"). The Company produces and distributes various
nitrogen products, including nitrogen-based fertilizers essential for crop
growth and nitrogen-based blasting agents for industrial explosives. In its
Electrochemical Products -- North America segment, the Company is a merchant
producer and marketer of chlor-alkali chemicals, including chlorine and caustic
soda, which are fundamental building blocks for products used in the
construction, pulp and paper, water treatment, detergent, pesticide and
pharmaceutical industries. In addition, the Company produces fluorocarbon
blowing agents and derivatives used in production of insulating foam materials.
The Electrochemical Products -- Europe segment produces and markets chlor-alkali
chemicals throughout Western Europe.

     The Company was formed in a 1986 management buyout of the nitrogen, mixed
fertilizers and retail business operations of United States Steel Corporation
("USX"), followed by a 1988 acquisition of certain chemical production
operations of Kaiser Aluminum and Chemical Corporation ("Kaiser"). The Company
has focused on reconfiguring its asset base by disposing of various businesses
and assets which were not integral to the Company's long-term business
activities and reinvesting the proceeds derived from such dispositions into
businesses in which it believes it has strong competitive positions. In fiscal
1998, the Company expanded into Western Europe by purchasing a 50% joint venture
interest in a chlor-alkali operation in Pont-de-Claix, France ("ChlorAlp") and
another chlor-alkali plant near Frankfurt, Germany (the "Frankfurt facility")
from Hoechst Celanese. In November 1998, the Company announced a plan to sell
its Alumina chemicals business segment ("Aluminas"). The sale was completed in
June 1999 for approximately $39.5 million plus working. Negotiations are
currently underway to purchase the remaining 50% interest in ChlorAlp and the
Company expects to complete the transaction in the second quarter of fiscal
2000.

INDUSTRY OVERVIEW

  NITROGEN PRODUCTS

     Ammonia is produced from natural gas and is used primarily as a direct
application fertilizer, an ingredient in a number of industrial chemicals and
the basic building block to produce a variety of nitrogen-based products.
Ammonia is upgraded into a number of products including ammonium nitrate and
nitric acid.

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These upgraded products are used in a variety of applications including
fertilizers and as a key ingredient in industrial explosives.

     In the production of ammonium nitrate, ammonia gas and air are burned in
the presence of a catalyst to form nitric acid. Additional ammonia is then used
to neutralize the nitric acid, forming ammonium nitrate liquor. This liquor is
either solidified and converted into granular pellets (or prilled) to produce
high density ammonium nitrate ("HDAN"), a solid fertilizer, or low density
ammonium nitrate ("LDAN"), a blasting grade ammonium nitrate.

     The Company believes that the market for ammonium nitrate in the United
States is characterized as mature with industry experts forecasting relatively
stable demand growth of 1% per annum ("p.a.") through 2000, driven by demand for
ammonium nitrate for the fertilizer markets and slightly increasing demand for
ammonium nitrate primarily from the coal mining industry. Management believes
that, in general, the increased demand for ammonium nitrate, driven by the
factors discussed below, will keep pace with expected capacity increases, which
may help to keep ammonium nitrate prices relatively stable over time. However,
temporary over or under supply conditions are likely to occur, which may
significantly impact pricing. In fiscal 1999, prices were negatively impacted by
capacity increases in the global ammonia market.

     Fertilizer

     Nitrogen fertilizer demand in the United States depends on a number of
factors, including total planted acreage of corn and wheat, the primary crops
which utilize nitrogen fertilizer, crop mix and fertilizer application rates.
Planted acreage and fertilizer application rates are determined primarily by the
planting decisions of farmers who are influenced by, among other things, the
profit that they expect to make on the investment to plant, grow and harvest
their crops. These profit expectations are in turn influenced by current and
projected grain stocks and prices, United States government agricultural
policies (including subsidy and acreage set-aside programs) and weather. The
type of crops planted and local soil conditions also affects nitrogen fertilizer
application rates.

     The Company believes that Mississippi Chemical Corporation is the leading
North American producer of HDAN with an approximate 28% share of installed
capacity followed by the Company (11%), Unocal Corporation (9%), and El Dorado
Chemical Company (9%). Because the main competitive factor affecting price is
cost of transportation, the geographic area which a production facility can
competitively supply tends to be restricted.

     Blasting Grade Ammonium Nitrate

     The Company believes that approximately 70% of ammonium nitrate-based
blasting agents and explosive tonnage are used in the mining of coal, the volume
of which is largely determined by electric power demand. Metals mining, quarry
and road construction activity also affect demand for these blasting products.
According to an industry consultant, the Company believes that ICI Explosives
USA Inc. is the leading North American producer of LDAN with an approximate 21%
share of industry capacity, followed by Potash Corporation of Saskatchewan Inc.
(17%), Dyno Nobel Inc. (16%), and the Company (16%). Overall demand tends to be
cyclical reflecting the economic sensitivity of industries consuming explosives.

     Freight charges typically account for a significant percentage of the
selling price of blasting grade ammonium nitrate, which limits the geography to
which manufacturers can deliver on a competitive basis. Competition is generally
divided between the Eastern and Western regions of the United States and is
based on price and product quality.

     Industrial Ammonia

     Anhydrous and aqua ammonia have a variety of industrial applications,
including the removal of nitrogen oxide pollutant gases from boiler and
incinerator emissions, refrigeration, fermentation, chemical processing, water
treatment, heat treating and waste acid neutralization. In response to the
amendments (the "Clean Air Act Amendments") to the federal Clean Air Act (the
"Clean Air Act"), which severely restrict the discharge

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of certain pollutants into the environment, domestic demand for ammonia used in
the treatment of sulfur and nitrogen oxide gases has grown rapidly. These
provisions call for additional restrictions in the next several years. Because
the market for industrial ammonia is fragmented and regional in nature, the
share of industry capacity and other market data is not readily available.

  ELECTROCHEMICAL PRODUCTS

     Chlor-alkali

     Chlorine and caustic soda are produced as co-products of salt brine
electrolysis in a fixed weight ratio of 1 to 1.12. In salt brine electrolysis,
an electric current is passed through a salt crystal dissolved in water between
immersed conductors, causing the brine solution to break down into chlorine,
caustic soda and hydrogen by-product.

     Chlorine is a critical intermediate used in the production of several
thousand derivative commercial chemicals, including polyvinyl chloride ("PVC"),
polyurethane foams, titanium dioxide and pesticides. The primary
direct-application uses of chlorine are in municipal water treatment, in the
manufacture of household and industrial bleach and in the pulp and paper
industry. Caustic soda is a basic commodity chemical with even more diverse
end-market applications than chlorine. It is sold to manufacturers of aluminum,
alumina chemicals, soaps, detergents and petrochemicals, processors of pulp and
paper and for water treatment.

     Historically, domestic chlorine production has fluctuated over the economic
cycles, but has experienced a long-term average growth rate of approximately
1.2% per annum during the period from 1973 to 1999. Chlorine is difficult and
dangerous to store in its elemental form, whereas caustic soda is comparatively
safe and stable and readily capable of being stored in large quantities. As a
result, demand for chlorine, generally dictated by the construction industry, is
the key driver for overall production volume of chlorine and caustic soda.
Generally, when demand for chlorine is high, production levels and prices
increase. This tends to be offset by over-supply of caustic soda and weak
caustic soda pricing. On the contrary, when chlorine demand is weak, production
levels and pricing decrease, causing caustic soda to be in a tight supply
position with attendant rising prices. The volatility in the caustic soda market
tends to be exacerbated by end-users building inventories ahead of forecast
shortages and price increases, running down inventories ahead of forecast over-
supply and price weakness. As a result, an inverse, although not perfectly
correlated, price relationship exists between chlorine and caustic soda. The
price of one ton of chlorine plus the price of the accompanying 1.12 tons of
caustic soda, known as an electrochemical unit ("ECU"), therefore tends to be
somewhat less volatile than the price of either commodity individually.

     The Company believes that nearly one-third of the world's chlor-alkali
production capacity is located in North America, with approximately 70% situated
along the United States Gulf Coast. Chlor-alkali producers along the United
States Gulf Coast are among the lowest-cost industry producers, due to excellent
feedstock logistics and close proximity to downstream producers of products that
consume chlorine and caustic soda. According to industry consultants, the three
largest chlor-alkali producers in North America are Dow Chemical Co., Occidental
Chemical Corporation and PPG Industries Inc. with capacity shares of
approximately 25%, 21%, and 13%, respectively. Most of the major United States
Gulf Coast producers are fully downstream integrated into products that involve
the processing of chlorine. As a result, there are relatively few merchant
producers of chlorine. According to a market study commissioned by the Company,
of the approximate 45 chlor-alkali producers in Western Europe, the three
biggest producers are Solvay S.A., Dow Chemical Company and Imperial Chemical
Industries PLC with 15%, 12% and 9% market share, respectively. The Company
believes its European operations comprise approximately 4% of the Western
European chlor-alkali market.

     Technology used in the manufacture of chlorine and caustic soda is based on
either diaphragm, membrane or mercury cells. Of these, the diaphragm cell
process is predominant in the United States with the mercury cell process used
primarily in Europe.

     The profitability of the industry as a whole and relative profitability
between producers is significantly affected by energy efficiency and the cost of
energy, since energy represents by far the largest cost component

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in the production of chlorine and caustic soda (the Company believes that energy
accounts for an average of 37% of manufacturing costs for a diaphragm cell based
producer). Historically, market fluctuations in natural gas prices have had a
significant impact on industry profitability. Other key components in relative
profitability between producers are brine costs and logistics and transport
costs, largely driven by proximity to customers.

     Fluorocarbons

     Fluorocarbons are used as refrigerants, blowing agents, raw materials for
fluoropolymers, elastomers and aerosol propellants in a wide variety of end-use
applications. In 1987, the United States signed the Montreal Protocols
(international environmental treaties) which, for environmental reasons related
to ozone depletion, mandated the total phase-out of chlorofluorocarbons
("CFCs"), their temporary replacement by hydrochlorofluorocarbons ("HCFCs") and
their ultimate replacement by hydrofluorocarbons ("HFCs"), or other products.
Demand for HCFC's is declining as users begin to convert to alternative
products.

BUSINESS PRODUCT SEGMENTS

  NITROGEN PRODUCTS

     The Company's Nitrogen Products consist of three product lines: (i)
ammonium nitrate and nitrogen solution fertilizers; (ii) blasting-grade ammonium
nitrate; and (iii) industrial anhydrous and aqua ammonia. The Company's primary
nitrogen-based fertilizers are HDAN with total production capacity of 290,000
tons p.a. at its Cherokee, Alabama and Crystal City, Missouri facilities. The
Company believes that it is the second largest North American supplier of HDAN
with approximately 11% of industry capacity. The Company manufactures
blasting-grade LDAN and 83% ammonium nitrate solution ("83% Solution") used by
the coal mining, metal mining and quarry industries. The Company has total LDAN
capacity of 440,000 tons p.a. at its Crystal City, Seneca, Illinois and Geneva,
Utah facilities. The Company believes that it is the fourth largest North
American supplier of LDAN to the blasting products market, representing
approximately 16% of industry capacity. The Company also believes that it is
currently the largest merchant distributor in the United States of premium grade
anhydrous and aqua ammonia used for water treatment pollution control,
refrigeration, and for the manufacture of other chemical products. For fiscal
year 1999, Nitrogen Products accounted for $188.8 million of net sales from
continuing operations (48.5% of Company total) and $17.1 million of EBITDA from
continuing operations before unallocated corporate expenses (51.6% of Company
total).

<TABLE>
<CAPTION>
                                                               NAMEPLATE CAPACITY (TONS P.A.)*
                                                       ------------------------------------------------
                                       TYPICAL                    CRYSTAL
COMPANY PRODUCT                     APPLICATIONS       CHEROKEE    CITY     SENECA    GENEVA    FORTIER
---------------                 ---------------------  --------   -------   -------   -------   -------
<S>                             <C>                    <C>        <C>       <C>       <C>       <C>
FERTILIZER
HDAN..........................  Fertilizers            145,000    140,000        --        --        --
UAN solution..................  Fertilizers            250,000         --        --        --        --
EXPLOSIVES
LDAN..........................  Explosives                  --    110,000   230,000   100,000        --
83% solution..................  Explosives             175,000         --        --        --        --
AMMONIA
Anhydrous & aqua ammonia......  Fertilizer, Feedstock  175,000         --        --        --   440,000(1)
                                & Water Treatment
</TABLE>

---------------

*   total production capacity output from the facility
(1) The Fortier, Louisiana facility is owned by Avondale Ammonia, a joint
    venture with Cytec in which the Company has a 50% interest. The Company
    receives one half of the plant's production, approximately 220,000 tons
    p.a., and may be required to purchase any excess production not consumed by
    Cytec.

     The Company has developed an extensive system of production and
distribution facilities located close to their target markets and often in areas
where competitors do not have local operations. Accordingly, due to the high
costs associated with the transportation of certain nitrogen products, the
Company believes that it has located its facilities where it enjoys a freight
advantage over many other competitors. The Company has

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maintained competitiveness through back-integration into ammonia, efficient
management of natural gas feedstock costs and some capacity expansions.

     Fertilizer Grade Ammonium Nitrate.  The Company primarily markets
fertilizer grade HDAN to distributors, dealers, national farm retail chains,
regional farm cooperatives and other fertilizer producers located near its
plants or distribution warehouses for ultimate sale and delivery to farmers.

     The Company's fertilizer customers are concentrated mainly in the Midsouth
and Midwest regions of the United States, where their location allows the
Company to supply its customers with lower freight costs and more reliable
delivery rates than certain of its competitors. The Company historically has
sold more fertilizer grade ammonium nitrate than it had the capacity to produce,
thus allowing it to operate its fertilizer plants at or near capacity
year-round. Due to the high fixed costs associated with fertilizer production,
the Company believes that this strategy provides it with a delivered cost
advantage over certain competitors in its favored markets.

     Blasting Grade Ammonium Nitrate.  As in its fertilizer business, the
Company is committed to selling a greater volume of blasting grade LDAN than it
produces. Unlike other ammonium nitrate producers that tend to de-emphasize the
blasting market during periods of high fertilizer demand, the Company strategy
is to maintain product quality and availability irrespective of conditions in
the fertilizer market.

     In December 1995, the Company acquired the Seneca facility, a 230,000 tons
p.a. blasting grade LDAN manufacturing facility and related assets for an
aggregate purchase price of approximately $38 million. The facility manufactures
and sells LDAN only in the blasting market. Blasting grade LDAN is also
manufactured at the Company's 110,000 ton p.a. Geneva facility. The Company also
purchases blasting grade LDAN on a contract basis from third parties. Sales to
manufacturers, distributors and end users are made through contracts and open
market sales.

     In May 1995, as a result of the Oklahoma City bombing and the Company's
commitment to the community under Responsible Care(R), the Company adopted a new
policy severely limiting the sale of blasting grade LDAN to any entity outside
the explosives industry. The Company announced in May 1996 that it had suspended
production of LDAN at the Crystal City facility due to the lack of demand for
explosives from the surrounding coal mining industry. As a result of improved
market conditions, the Company has entered into a multi-year sales contract for
the LDAN capacity of the Crystal City facility and resumed LDAN production at
this facility in October 1997.

     Freight charges typically account for a significant percentage of the
selling price of blasting grade LDAN, which somewhat limits the geographic areas
in which manufacturers can compete. Competition generally is divided between the
Eastern and Western regions of the United States and is based on price and
product quality. Because of the location of its three plants and two
distribution centers, the Company is able to compete in both regions. The
Company believes that no competitor maintains a significant technological or
quality advantage over the others.

     Industrial Ammonia.  The Company supplies the merchant market for anhydrous
and aqua ammonia through 22 customer service centers located throughout the
country and sells products and services nationally. Approximately 50% of the
Company's industrial ammonia sales are for chemical processing applications and
environmental processes, for which demand has been increasing. The Company is
experiencing an increasing demand for aqua ammonia as a result of new
environmental regulations that restrict sulfur and nitrogen oxide emissions. The
Company converts anhydrous ammonia into aqua ammonia at ten distribution
centers.

     The Company's competitors include both ammonia manufacturers and merchant
distributors. The ammonia manufacturers serve primarily the large bulk commodity
users and the merchant distributors serve the smaller volume specialty users of
anhydrous and aqua ammonia, who are the focus of the Company's marketing
efforts. The Company has only one national competitor, Tanner Industries. Other
competitors in the industrial ammonia merchant market generally distribute only
in local market areas.

     The Company has its own fleet of trucks and trailers for delivering these
products to customers' locations. Sales are made in cylinders, less than truck
load quantities, full truck load and railcar loads. The Company

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also sells equipment, replacement parts, safety seminars and videos, ammonia
clean-out and other services and equipment rentals to support the primary sale
of anhydrous and aqua ammonia.

     Raw Materials.  At the Cherokee facility, anhydrous ammonia is produced and
then upgraded into ammonium nitrate and UAN solutions. The Company purchases
anhydrous ammonia to produce ammonium nitrate at the Seneca, Crystal City and
Geneva facilities. The Company's investment in Avondale Ammonia reflects the
Company's strategy to vertically integrate where practical. The Company obtains
approximately 220,000 tons p.a. of ammonia feedstock from Avondale Ammonia,
either directly or through swapping arrangements, for its various Nitrogen
Products facilities. Ammonia produced by Avondale Ammonia is transferred at cost
to the joint venture partners relative to their respective ownership interests.
In the aggregate, the Company purchases approximately one-third of its ammonia
feedstock requirements from external ammonia manufacturers. Substantially all of
its purchased ammonia requirements are supplied pursuant to contracts at prices
that permit the Company to produce nitrogen products at a competitive cost. The
primary material purchased by the Company in connection with the production of
ammonia at its Cherokee and Avondale Ammonia facilities is natural gas. Natural
gas is supplied throughout the United States by large pipeline companies and
local distributors.

  ELECTROCHEMICAL PRODUCTS -- NORTH AMERICA

     The Company's Electrochemicals -- N.A. products consist of chlorine and
caustic soda (together, chlor-alkali) and fluorocarbons that are produced at its
Gramercy facility. Chlorine is sold for a variety of uses, including the
manufacture of PVC, household and industrial bleach, water treatment, titanium
dioxide and various other end-uses. Caustic soda is sold to manufacturers of
aluminum, organic and inorganic chemicals, detergents and petrochemicals, and to
pulp and paper processors and water treatment facilities. The predominant
fluorocarbon production is of HCFCs, the interim CFC replacement product. For
fiscal year 1999, Electrochemical Products -- N.A. accounted for $68.5 million
of net sales from continuing operations (17.6% of Company total sales) and $1.5
million of EBITDA from continuing operations (4.4% of Company total).

     The Gramercy facility has chlorine production capacity of 200,000 tons p.a.
and caustic soda production capacity of 224,000 tons p.a. Domestically, the
Company primarily competes in the Gulf Coast chlor-alkali market. Industry
consultants estimate approximately 70% of Gulf Coast chlorine capacity is used
by integrated producers for captive consumption in the production of downstream
products. As a result, despite accounting for only approximately 2.0% of overall
Gulf Coast chlorine capacity, the Company has developed a niche position in the
Gulf Coast merchant chlorine market. The Company's production capacity
represents an approximate 7.5% share of that 2.7 million ton p.a. market. The
Company has achieved this position by focusing on chlorine sales to downstream
producers of PVC, rigid urethane foam and titanium dioxide that prefer not to
deal with chlorine suppliers that also produce competing downstream products.
The Company believes that it has developed strong customer relationships by
capitalizing upon its secure brine supply, low-cost on-site electric power and
close customer proximity to consistently deliver a competitively priced product.
Over 50% of the Company's chlorine and caustic soda sales are currently made to
customers located within a 100-mile radius of the Gramercy facility.

     The Company employs the diaphragm cell technology at its manufacturing
facility. The manufacturing processes consist of the electrolysis of sodium
chloride brine (salt water), which produces free hydrogen, chlorine and caustic
soda solution. For safety reasons, only small quantities of chlorine are stored,
and production tends to be limited to the amount of chlorine the plant can sell
in a relatively short period of time. Although salt is the basic raw material
used in the production of chlorine and caustic soda, electricity is the largest
production cost component.

     At the Gramercy fluorocarbons facility, the Company has replaced its CFC
foam blowing agent (R-11) product line with the next generation foam blowing
agent, HCFC-141b, to comply with the federal government's mandated phaseout of
CFC. The Company has reduced its reliance on fluorocarbon products in general,
with expanded offerings and more intensive development of markets and facilities
for its other markets.

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     Raw Materials.  The primary raw material used in the production of chlorine
and caustic soda is salt. The Company has a long-term contract with Texaco Inc.
("Texaco"), which gives the Company the right to extract salt from a salt dome
located 15 miles from the Gramercy facility. The contract expires on May 3,
2007, subject to the Company's option to renew the contract until May 3, 2032.
The Company is currently negotiating a new agreement with Texaco that would give
Texaco the right to open additional wells in exchange for a contract extension
and certain other amendments. The Company operates a pipeline through which the
brine is transported from the Texaco salt dome to the Gramercy facility.

     Natural gas is the primary cost component in generating electricity for
chlorine and caustic soda production and is sold on the spot market, as well as
under long-term contracts. The Company makes spot purchases and generally has
contracts for up to twelve months; however, the Company also buys natural gas
contracts for future delivery and enters into natural gas hedging arrangements
with financial counterparties to hedge its natural gas price exposure.
Fluctuations in natural gas prices may affect the operating results of the
Electrochemicals -- N.A. business.

     Hydrogen fluoride ("HF") and chlorinated organic products are the primary
raw materials needed for the production of fluorocarbons. HF and the required
chlorinated organic products are considered by management to be readily
available for purchase domestically.

     Electrical Power.  At the Gramercy facility, Kaiser operates its alumina
plants adjacent to the Company's facility that produces electrochemical
products. Kaiser and the Company share a powerhouse complex, from which the
Company obtains electricity and steam for use in its domestic electrochemical
production, pursuant to certain lease and operating agreements that remain in
effect (if the Company exercises renewal options) until 2008. Kaiser owns and
operates the powerhouse complex that is located on Kaiser property. The costs of
operating the powerhouse and the utilization of electricity and steam generated
therefrom are shared in accordance with these agreements. During fiscal year
1996, the Company approved and began implementing certain capital improvements
at its powerhouse complex designed to reduce the electrical costs. These
improvements, which included the installation of a new back-up rectifier
assembly, refurbishment of generator turbine units and upgrading of the control
systems, were recently completed. The lower costs will benefit the Company as it
shares in the facility's output.

     Kaiser and the Company also have agreements relating to jointly operated or
administered environmental compliance matters at their Gramercy and Baton Rouge
facilities, other services, such as water, sewage, dock and rail, chemical,
telephone and emergency response services and other matters.

  ELECTROCHEMICAL PRODUCTS -- EUROPE

     The Electrochemicals -- Europe product base is comprised of chlorine,
chlorine derivative products and caustic soda produced at its Frankfurt and
ChlorAlp manufacturing facilities. The product markets for Electrochemical
Products -- Europe are similar to the chlorine and caustic markets for
Electrochemicals -- N.A. markets. For fiscal 1999, Electrochemical
Products -- Europe comprised $132.3 million of net sales from continuing
operations (34% of total sales) and $21.9 million of EBITDA from continuing
operations (66.4% of Company total) which includes the Company's interest in
ChlorAlp's EBITDA.

     The Frankfurt facility is situated in an industrial park and has permitted
chlorine production capacity of 160,000 metric tons p.a. and permitted caustic
soda production capacity of 181,000 metric tons p.a. The Frankfurt operation
also includes a chlorinated methane manufacturing facility that produces methyl
chloride, methylene chloride/chloroform, sodium hypochloride, calcium chloride
and hydrochloric acid. Methyl chloride is used in the production of silicones
and methyl cellulosis. Methylene chloride acts as a solvent for synthesis of
pharmaceuticals, agrichemicals and photo and film industry and as an extraction
medium in the food industry. Chloroform is used as feedstock in the production
of fluoropolymers and R-22 (an HCFC). This facility has a permitted methyl
chloride production capacity of 60,000 metric tons p.a. and permitted methylene
chloride/chloroform production capacity of 70,000 metric tons p.a.

     All of the Frankfurt facility's chlorine output is consumed by the
facility's methane chlorination plant and other on-site chemical production
companies. The caustic soda and hydrochloric acid produced by the

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Frankfurt facility are sold into an extensive customer base, located primarily
within Germany, and a wide variety of markets. The facility is the sole source
of caustic soda microprills that are primarily distributed throughout Western
Europe. The Frankfurt facility sells methylene chloride worldwide to numerous
customers for many different applications, while approximately 80% of the
chloroform output is sold to an on-site chemical company.

     ChlorAlp (see ChlorAlp joint venture discussion below) has chlorine
production capacity of 240,000 metric tons p.a. and caustic soda production
capacity of 269,000 metric tons p.a. Chlorine produced by ChlorAlp is sold in
both liquid and gaseous forms. Approximately 95,000 metric tons per year of
chlorine is sold in the gaseous form and is distributed to customers by
pipeline. The balance of chlorine production is sold in liquid form and is
distributed in rail tank cars to customers throughout France, Italy,
Switzerland, Germany and the Benelux countries. Caustic soda is distributed
throughout France with deliveries by pipeline, rail cars and tank trucks.

     The Company employs the diaphragm cell technology at its ChlorAlp facility
and mercury cell technology at its Frankfurt facility. While the manufacturing
process is substantially similar to that described for Electrochemicals -- N.A.,
statutory bans on diaphragms containing asbestos in France by 2002 have spurred
the ChlorAlp facility to develop an asbestos free diaphragm technology ("new
technology") over the last five years. The new technology has been employed in
approximately 15% of the processes and will totally replace the restricted
process technology before the deadline. In addition to removing asbestos from
the process, the Company expects to benefit from some electrical power savings
from the new technology.

     Raw Materials.  The primary raw material used in the production of chlorine
and caustic soda is salt. The Frankfurt facility obtains salt via river barge.
ChlorAlp receives salt from via a pipeline from a brine mine in Hauterives,
France, in which the Company, through ChlorAlp, has an ownership interest.

     Electrical Power.  The Frankfurt facility receives electric power from a
nearby plant. ChlorAlp receives its electric power from a powerhouse facility in
which it has an ownership interest and maintains management oversight (GIE CEVco
or "CEVco"). The Company feels this arrangement provides a strategic advantage
at the site.

     ChlorAlp Joint Venture

     In October 1997, the Company purchased a 50% interest in the French
chlor-alkali business ("the initial purchase arrangement") of Rhone-Poulenc
Chimie, S.A. (now known as Rhodia Chimie, "Rhodia"), a subsidiary of
Rhone-Poulenc, and entered into certain related arrangements with Rhodia (the
"Chlor-alkali Joint Venture"). The Company purchased, through LII Europe, its
wholly owned subsidiary, a 50% stock interest in ChlorAlp. The purchase price
for such interest was 42.5% of the agreed value of ChlorAlp (the "Initial
Purchase"), which was approximately equal to 447 million French francs ($76.3
million) which resulted in an initial investment by the Company of 190 million
French francs ("FRF") including a loan of FRF 66.3 million for an aggregate
initial investment of approximately $35.5 million, including acquisition costs.
The Company funded the Initial Purchase by drawing under the Term Loan (as
defined herein) portion of its Credit Facility (as defined herein). Three
members of the Company's executive management serve on the Board of Directors of
ChlorAlp.

     Prior to the closing, Rhodia contributed a 265,000 metric ton p.a.
chlor-alkali production facility to ChlorAlp (the "PCL Facility"), as well as
certain other related assets and liabilities. In connection with the joint
venture, ChlorAlp entered into market-priced long term contracts to sell to
Rhodia (or its affiliates) chlorine and caustic soda, the amounts of which
historically have been approximately 65% of the PCL Facility's production
output.

     In April, 1999, the Company announced its intention to purchase the
remaining 50% of the stock of ChlorAlp for approximately FRF 170 million
(approximately $28 million), subject to certain adjustments. Subject to terms
reached in the initial purchase arrangement, if the Company cannot or does not
purchase the remaining 50% of stock in ChlorAlp, Rhodia has the right to require
the Company to sell its 50% interest to

                                        8
<PAGE>   10

Rhodia in one year for approximately FRF 95 million (approximately $16 million),
subject to certain adjustments.

     The Company has agreed to reimburse, on a "stand-by" basis, Rhodia for the
Company's proportionate share of any amounts that Rhodia is ultimately required
to pay under its pre-existing guarantee of the obligations of CEVco, in respect
of steam turbines leased by CEVco under a certain operating lease (the "Turbine
Lease"). The Company's proportionate share under such arrangement was limited to
a term maximum of FRF 172 million. The remaining term of the Turbine Lease is
approximately four years. The Company's proportionate share of such lease
payments, based on current and expected ownership percentages, will not exceed
$2 million per year based upon current ownership percentages, increasing to $4
million per year should the Company purchase the remaining stock in ChlorAlp.

     The Company and Rhodia have also entered into a shareholders agreement (the
"Shareholders' Agreement") which provides for, among other things, governance of
ChlorAlp. The initial purchase arrangement also contains restrictions upon the
ability of the shareholders of ChlorAlp to compete with ChlorAlp during the term
of the Shareholders' Agreement and, with respect to an exiting shareholder, for
three years thereafter. In the event of a change of control of the Company,
Rhodia would be able to initiate discussions with the Company to purchase the
remaining stock in ChlorAlp.

     As part of the Chlor-alkali Joint Venture, ChlorAlp entered into agreements
with Rhodia and its affiliates and other third parties: (i) to own and operate
jointly a powerhouse complex (the "Powerhouse Complex") located at the PCL
Facility for the generation of electricity, steam and demineralized water for
the PCL Facility's operations; (ii) to own a brine mine, and the extraction
rights thereto, at Hauterives, France (the "Hauterives Facility"), and to
operate a brine pipeline to transport sodium chloride from the Hauterives
Facility to the PCL Facility; (iii) for the supply of certain products and
services by Rhodia to ChlorAlp; and (iv) to sell to Rhone-Poulenc (or its
affiliates) chlorine and caustic soda, the amounts of which historically have
been approximately 65% of the PCL Facility's production output. In addition,
ChlorAlp entered into long-term arrangements with Elf Atochem S.A., France's
second largest chemical company and a wholly owned subsidiary of Elf Acquitaine
S.A., which operates the Saint Fons chlorine vaporization, distribution and
bleach production facility that was transferred to ChlorAlp.

     Pursuant to the Chlor-alkali Joint Venture, ChlorAlp intends to declare
dividends to its shareholders of 100% of its distributable net income annually.
Under the terms of the Shareholders' Agreement, capital expenditures will be
funded from excess cash provided by operating income of ChlorAlp. There will be
no obligation on the Company or Rhodia to fund any capital expenditures. It is
anticipated that any debt facilities required by ChlorAlp will be borrowed
locally without support from either Rhodia or the Company.

RESEARCH AND DEVELOPMENT

     The Company has operated a research and development center at its Baton
Rouge facility since 1989 to develop and test new products and production
methods. This facility is being sold as part of the sale of the Alumina
Chemicals business segment. The Company had research and development
expenditures of approximately $1.8 million, $4.0 million and $3.8 million in
fiscal years 1999, 1998 and 1997, respectively. As the majority of the research
and development projects were related to the Alumina Chemicals business segment
and HCFC replacement (which ended in fiscal 1998), the Company does not
anticipate related expenditures will continue at this level.

PATENTS

     The Company owns, has applied for, or has an interest in approximately 30
patents and is licensed under other patents covering certain of its products and
processes. The Company generally applies for patents whenever it develops new
products or processes considered being commercially viable and, in appropriate
circumstances, seeks licenses when others develop such products or processes.
Although in the aggregate the rights under such patents are important to the
Company's operations, no significant segment of the Company's business or its
business as a whole is dependent on any particular patent or license.

                                        9
<PAGE>   11

SEASONALITY

     A portion of the Company's nitrogen business serves the agricultural
fertilizer market, which is seasonal with greater sales of such products
occurring in the spring and, to a lesser extent, in the fall planting seasons.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."

GOVERNMENTAL REGULATION

     The Company is subject to various U.S. federal, state and local
environmental laws and regulations, as well as various environmental laws and
regulations in Europe, governing the use, handling, transportation, discharge,
storage, and disposal of hazardous materials because the Company uses hazardous
substances and generates hazardous waste in the ordinary course of its
manufacturing processes. Environmental laws and regulations have evolved rapidly
over the last three decades typically becoming more restrictive of activities
that may impact the environment, such as emissions of pollutants to air and
water, generation and disposal of wastes and use and handling of chemical
substances. Consequently, the Company is required to obtain various permits for
the operation of its plants and related facilities, and these permits are
subject to revocation, modification and renewal. Governmental authorities
enforce compliance with these regulations and permits, impose excise taxes on
certain of the Company's products and implement environmental plans. Violators
of these regulations are subject to civil and criminal penalties, including
civil fines, injunctions or both. Accordingly, certain governmental regulation
compliance costs and potential liabilities are inherent in the Company's
operations and products. The Company cannot at this time assess with certainty
the degree of impact of future emissions standards and enforcement practices
upon its operations or capital expenditure requirements. The Company's
operations also are governed by laws and regulations relating to workplace
safety and worker health, principally the Occupational Safety and Health Act and
regulations thereunder which, among other things, regulate the use of hazardous
chemicals in the workplace. The Company uses asbestos in the manufacture of its
electrochemical products, and some of its operating facilities contain
structural asbestos that the Company believes is properly contained.

     The Company is subject to the Clean Air Act and comparable state statutes
regulating air emissions. The Clean Air Act contains provisions that may result
in the imposition of certain pollution control requirements with respect to air
emissions from the Company's operations. Depending upon requirements that may be
imposed by state and local regulatory authorities in the implementation of those
provisions and related regulations, the Company may be required to incur capital
expenditures for air pollution control equipment in connection with maintaining
or obtaining operating permits and approvals. Until such time as the
requirements of the new Clean Air Act Amendments are fully implemented, the
Company is unable to estimate the effect on earnings or operations or the amount
and timing of such required capital expenditures. At present, the Company does
not believe that such regulations will have a material effect on its financial
condition or results of operations.

     The Clean Air Act Amendments provided for the phase-out of the production
of CFCs (R-11 and R-12) as of January 1, 1996, followed by the phase-out of the
production of the HCFC-141b by January 1, 2003. The Clean Air Act also regulates
sulfur and nitrogen oxide removal from emissions and provides certain incentives
for the production of reformulated gasolines. These regulations may increase the
demand for certain of the Company's ammonia products.

     Chlorine use has been affected and may be affected further by certain
environmental regulations, both final and pending, particularly those relating
to the discharge of dioxins by pulp and paper producers. When chlorine is used
in the pulp bleaching process, dioxins are a by-product. From time to time
legislation is introduced proposing the elimination of discharges of chlorine
compounds into navigable waters and requiring zero discharge limits for certain
toxic substances, including certain chlorinated compounds.

     The Company voluntarily strives to adhere to the Guiding Principles of the
Responsible Care(R) initiative of the Chemical Manufacturers Association and its
six Codes of Management Practices. The Company believes that these codes
typically are more stringent than the legal requirements in the areas of process
safety,

                                       10
<PAGE>   12

employee safety, pollution prevention and chemical distribution. The Company has
achieved "Practice in Place" status under this program.

EMPLOYEES

     As of May 27, 1999, the Company had approximately 915 full-time employees
in continuing operations, approximately 335 who were represented by domestic
labor unions under various collective bargaining agreements and 360 represented
by European labor unions. Since 1986, the Company has had three domestic labor
disputes, none of which caused any material production delays. As of February
28, 1999, there were five labor union contracts expiring during fiscal 2000
covering 130 employees. Subsequent to that date, the Company reached agreement
with one of the unions representing 8 employees. The Company plans to seek
continued cooperation with the unions to set and achieve business objectives
while maintaining focus on both Company and union interests. The Company
considers its relations with its existing union and non-union employees to be
generally satisfactory.

ITEM 2.  PROPERTIES

     The Company has six facilities where its products are manufactured, 22
customer service centers from which it distributes anhydrous and aqua ammonia
and three warehouses that it uses for delivery and storage of fertilizer. The
Company owns electrochemical manufacturing facilities in or near Gramercy,
Louisiana and Frankfurt, Germany. The Company's four nitrogen manufacturing
facilities are located in Cherokee, Alabama; Crystal City, Missouri; Geneva,
Utah and Seneca, Illinois.

     The Company believes that its primary facilities are in suitable condition
and adequate for its current operations. The following table presents certain
information relating to the principal facilities owned by the Company.

<TABLE>
<CAPTION>
LOCATION                    DESCRIPTION AND BUSINESS LINE                 STATUS
--------                    -----------------------------                 ------
<S>                    <C>                                       <C>
Gramercy.............  Electrochemical products:                 Owned
                       hydrochlorofluorocarbons, caustic soda
                       and chlorine facility.
Frankfurt............  Electrochemical products: chlorine,       Equipment -- Owned
                       caustic soda and chlorinated methane      Building & Land -- Leased
                       compounds facility.
Cherokee.............  Nitrogen products: fertilizer and         Owned
                       blasting grade ammonium nitrate facility
                       and distribution center.
Crystal City.........  Nitrogen products: fertilizer and         Owned
                       blasting grade ammonium nitrate
                       facility.
Geneva...............  Nitrogen products: blasting grade         Owned
                       ammonium nitrate facility.
Seneca...............  Nitrogen products: blasting grade         Owned
                       ammonium nitrate facility.
</TABLE>

     The Company is an equity investor in two manufacturing joint ventures,
ChlorAlp and Avondale Ammonia. ChlorAlp is located near Grenoble in
Pont-de-Claix, France, the facility and the land interests of which are owned by
the Chlor-alkali Joint Venture. The Avondale Ammonia facility is located in
Westwego, LA, owned by Avondale Ammonia, and is situated on land leased from
Cytec.

     In addition, the Company owns or leases 22 customer service centers in 18
states, where it stores and distributes anhydrous ammonia. It produces and
distributes aqua ammonia products at ten of these centers. The Company also
sells related storage systems and equipment and provides certain customer
services at those centers. The Company owns or has joint venture interests in,
three agricultural warehouses located in Missouri, Illinois and Indiana, where
the Company stores and distributes phosphate fertilizer (DAP and

                                       11
<PAGE>   13

TSP), solid urea, potash, nitrate and UAN solutions. The Company also owns
several sites that were once used in the production or distribution of
agricultural products, which currently are surplus to its needs.

     The Credit Facility (as defined herein) is secured by an interest in
substantially all of the Company's domestic properties and assets granted to the
lenders thereunder.

ITEM 3.  LEGAL PROCEEDINGS

     General.  The Company and its subsidiaries have been named as defendants in
a number of legal actions arising from normal business activities. Although
management believes, based upon the information currently available, that,
except as otherwise described in this section, such other legal actions are
likely to be resolved without a material adverse effect upon the financial
condition and results of operations of the Company, resolution of certain
matters could be material to the results of operations of any single fiscal
quarter. However, the aggregate cost of such legal actions are inherently
impossible to predict and there can therefore be no assurance that this will be
the case. Additionally, the Company is involved, to the extent and with the
Company's assessment of the effect noted, in the proceedings set forth below and
in the Environmental Proceedings section which follows.

     Recent Developments.  As previously reported, in December 1997, the Company
was named as a defendant in three civil antitrust actions (two of which are the
same suit filed in two separate jurisdictions, one of which was subsequently
dismissed). These actions were brought predominantly by various mining concerns,
alleging that the Company violated the federal antitrust laws, various state
antitrust and unfair trade practice statutes, and common law fraud in connection
with the Company's blasting grade ammonium nitrate business as conducted in the
mid to late 1980's and early 1990's. The Company believes that the plaintiffs in
these cases have targeted the Company because of the Company's previously
disclosed plea agreement with the United States Department of Justice in which
the Company agreed to plead guilty to a one-count information charging the
Company with participating in a conspiracy to restrain competition in the
pricing of ammonium nitrate during May 1992. In that agreement, the Company did
not admit, and the Department of Justice did not contend, that the Company ever
implemented any such conspiracy. Accordingly, the Company has filed answers
denying liability in such civil actions. On or about May 5, 1998, the plaintiff
dismissed the Company as a defendant in one of such civil lawsuits. The Company
has reached an agreement in principle with the plaintiff to settle all claims
against the Company. Under the terms of that settlement, which will be reflected
in a definitive settlement agreement, the Company will make an initial payment
of $.75 million and will make additional payments not to exceed $3.75 million,
based in part on the Company's net earnings, over the next five years. Minimum
payments of $.5 million are required on the first three anniversaries of
execution of the settlement and payments of $.3 million are required on the last
two anniversaries with an aggregate minimum, inclusive of the initial payment,
of $3 million.

     Environmental Proceedings

     Gramercy, Louisiana.  On July 28, 1989, a 28,000 gallon mixture primarily
consisting of chloroform and carbon tetrachloride was spilled at the Company's
Gramercy plant during the off-loading of a barge. Although immediate corrective
action was initiated, the spill impacted the shallow soils and groundwater.
Expenditures for corrective action and to determine the extent of contamination
through February 28, 1999, have been approximately $4.4 million. The Company
estimates that the remaining cost to complete remediation could be up to an
additional $1.9 million over the next few years.

     On June 27, 1996, Marathon Oil Company and Marathon Pipeline Company
(together "Marathon") filed a complaint against the Company and one other
company in the United States District Court for the Eastern District of
Louisiana alleging that the Company or its agents damaged a gasoline pipeline
causing it to rupture and release gasoline into the Blind River and surrounding
area near Gramercy. Marathon's preliminary claim statement for damages incurred
totals $8.5 million. In connection with the gasoline release, a class action
petition was filed in the 23rd Judicial District Court for the Parish of St.
James, Louisiana against Marathon and the Company on behalf of persons and
entities allegedly sustaining direct and/or consequential damage as a result of
the gasoline release. On May 30, 1997, two additional plaintiffs filed suit

                                       12
<PAGE>   14

against Marathon, the Company and certain unnamed defendants alleging damages
suffered as a result of the gasoline spill and clean-up operations. Marathon's
lawsuit against the company was settled for $2 million in October 1998. The
Company has met its $1 million self-insured retention and its liability
insurance carrier has paid the balance. The Company has coverage for, and
continues to defend itself against, the two remaining claims. In March 1999,
plaintiffs accepted an offer by all defendants to settle the class action for a
lump sum of $1.5 million. The Company's allocated portion of the settlement is
$375,000, although, as stated above, the Company has insurance coverage for this
amount. The third claim has remained dormant since filing, and the Company,
although it believes it has meritorious defenses to the claim, believes that the
case can be settled for a nominal amount.

     In January 1997, the owner of the land over which the brine pipelines
serving the Company's Louisiana chlor-alkali facilities travel filed a lawsuit
seeking generally the removal of one of the pipelines and/or monetary damages,
based on its claims that the pipeline has suffered and continues to suffer
unpermitted leaks of brine. In connection with that lawsuit, the landowner
sought a preliminary injunction to stop the Company from using one of its brine
pipelines immediately. The court refused to grant such relief, and instead
required the Company to implement a written remediation policy and a continuous
leak monitoring program, and to agree to shut down the pipeline when and if
leaks are detected in the future until any necessary repairs are completed. The
Company complied with this order, and in January 1999, the Company completed
construction on a new pipeline which is now in service. The Company believes
that the landowner's lawsuit is without serious legal merit and is actively
defending it. The Company has developed appropriate strategies for ensuring a
continuous supply of brine to its Gramercy facility.

     Greensboro, North Carolina.  The Company acquired a Greensboro, North
Carolina fertilizer plant and warehouse that was formerly used by Armour to
produce sulfuric acid as part of the 1986 purchase from USX. After a fire
destroyed the plant and most of the warehouse in 1989, the Company began an
effort to assess the effects of historical contamination at the site. The
original assessment addressed several areas, including a former wastewater
holding pond. USX has retained substantial liability with respect to assessment
and remediation of this site. The Company believes that its portion of the
remedial costs, including the cost of soil remediation and off-site disposal of
waste material and building debris, are adequately accrued.

     Pursuant to the Asset Purchase Agreement dated April 30, 1986 between USX
and the Company, USX generally retains all environmental liabilities relating to
the acquired assets resulting from events occurring prior to the closing date.
The costs of any environmental liabilities arising due to both parties'
ownership or use of the purchased assets will be allocated in accordance with
each parties' contribution to the events or circumstances which gave rise to the
liabilities.

     Other.  In addition to the matters described above, the Company is also
involved, to varying degrees, in litigation, as well as remedial activities at
other facilities. Although management believes, based upon information currently
available, that such other litigation and activities are likely to be resolved
without a material adverse effect upon the financial condition and results of
operations of the Company, the aggregate cost of such litigation and remedial
activities cannot be precisely predicted, and there can be no assurance that
this will be the case.

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

     No matters were submitted to a vote of security-holders of the Company
during the fourth quarter of fiscal year 1999.

                                       13
<PAGE>   15

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

     There is no established public trading market for the Company's common
stock, $.01 par value per share (the "Common Stock"). As of May 27, 1999, the
Common Stock is held by 13 people, all of whom are affiliated with the Company.
No dividends were declared on the Common Stock until January 1996 when the
Company's Board of Directors declared its first quarterly dividend of $.50 per
share. The Company also paid quarterly dividends of $.50 per share during fiscal
year 1997 and through the first quarter of fiscal year 1998, and $.75 per share
for the second, third and fourth quarters of fiscal year 1998. Dividends of $.75
per share were declared and paid in each of the first two quarters and dividends
of $1.00 per share were declared and paid in the third quarter of fiscal 1999,
respectively, with no dividends declared for the fourth quarter. The payment of
dividends is a decision made by the Board of Directors from time to time based
on the Company's earnings, financial position and prospects, and such other
considerations, as the Board considers relevant. Accordingly, the Company's
dividend policy may change at any time. In addition, the Company's debt
instruments include restrictions that may limit future dividends.

     On September 23, 1997, the Company issued $175 million aggregate principal
amount of 9 1/2% Senior Subordinated Notes due 2007 (the "Notes"), in an
unregistered private placement to Chase Securities Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation (the "Initial Purchasers"). The aggregate
offering price for the Notes was $174,216,000, or 99.552% of par value, and the
Initial Purchasers received an aggregate discount of $5,250,000, or 3%. The
Initial Purchasers subsequently placed the Notes with certain qualified
institutional buyers in reliance upon Rule 144A under the Securities Act of
1933, as amended (the "Securities Act").

     Because the Notes were issued in a private transaction with only the two
Initial Underwriters, and not in connection with a public offering, the Company
relied upon an exemption from the registration requirements of the Securities
Act based upon Section 4(2) thereof.

                                       14
<PAGE>   16

ITEM 6.  SELECTED FINANCIAL DATA

     The following table sets forth certain selected historical financial
information of the Company's continuing operations. The following selected
historical consolidated financial information should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere
herein. Also see "Management's Discussion and Analysis of Financial Condition
and Results of Operations." In the opinion of management, all adjustments
(consisting of normally recurring accruals) considered necessary for a fair
presentation have been reflected therein.

<TABLE>
<CAPTION>
                                                                   FISCAL YEAR ENDED(A)
                                         ------------------------------------------------------------------------
                                         FEBRUARY 28,   FEBRUARY 28,   FEBRUARY 28,   FEBRUARY 29,   FEBRUARY 28,
                                             1999         1998(B)          1997         1996(C)          1995
                                         ------------   ------------   ------------   ------------   ------------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                      <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
Net sales..............................    $389,542       $342,570       $339,044       $387,079       $361,323
Cost of sales..........................     357,750        287,535        276,134        295,876        279,974
                                           --------       --------       --------       --------       --------
Gross profit...........................      31,792         55,035         62,910         91,203         81,349
Selling, general and administrative
  expenses.............................      45,431         49,742         48,376         46,470         46,340
                                           --------       --------       --------       --------       --------
(Loss) income from continuing
  operations...........................     (13,639)         5,293         14,534         44,733         35,009
Interest and amortization of debt
  expense..............................     (20,314)       (14,539)       (12,249)       (12,169)       (10,339)
Income (loss) from equity
  investments..........................       2,614           (619)            31            798           (362)
Other income (loss) net................       1,150            141            397           (243)         1,486
(Provision) benefit for income taxes...      (2,779)         3,762         (1,072)       (13,349)       (11,419)
                                           --------       --------       --------       --------       --------
          (Loss) income from continuing
            operations before
            extraordinary charges......    $(32,968)      $ (5,962)      $  1,641       $ 19,770       $ 14,375
                                           ========       ========       ========       ========       ========
          Net (loss) income............    $(40,518)      $(18,089)      $    659       $ 19,770       $ 11,452
                                           ========       ========       ========       ========       ========
OTHER FINANCIAL DATA:
EBITDA(d)..............................    $ 33,070       $ 30,540       $ 34,977       $ 61,754       $ 49,097
Cash flows from continuing
  operations...........................       7,503         36,441         23,187         57,857            225
Capital expenditures(e)................      44,191         33,362         32,657          9,663         12,255
Ratio of earnings to fixed
  charges(f)...........................          --             --            1.1x           2.7x           2.4x
Cash dividends.........................    $  1,198       $  1,095       $    912       $    233       $     --
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents..............    $  5,380       $ 12,884       $  1,165       $  3,265       $  5,900
Working capital........................     (27,039)        40,542          4,318         27,443         51,215
Total assets...........................     389,777        395,148        261,994        254,997        248,775
Total long-term debt(g)................     202,221        207,418        104,441        112,940        119,659
Total debt(h)..........................     261,984        237,075        144,881        125,764        117,695
Common stock with redemption
  features.............................         528          3,505          4,177         12,246         15,392
Stockholders' equity (deficit).........     (10,605)        31,648         50,906         51,296         34,478
</TABLE>

---------------

(a) In November 1998, the Company announced a plan to sell its Alumina chemicals
    business. Accordingly the results of operations, financial position and cash
    flows attributable to Aluminas have been segregated from that of continuing
    operations. See the consolidated financial statements and notes thereto for
    additional discussion.
(b) During 1998, the Company entered into the Credit Facility and repaid the
    existing revolving credit facility, refinanced the senior subordinated debt
    of the Company, invested in ChlorAlp and acquired the Frankfurt facility.
(c) Fiscal year 1996 reflects the results of operations of the Company's Seneca
    facility since December 1995, the date the Company acquired substantially
    all of the assets of such facility.
(d) EBITDA represents income from operations plus net cash received from equity
    investments plus depreciation, amortization and other non-cash charges
    reflected in income from operations. EBITDA

                                       15
<PAGE>   17

    should not be considered as an alternative measure of net income or cash
    flow provided by operating activities (both as determined in accordance with
    generally accepted accounting principles), but is presented to provide
    additional information related to the Company's debt service capability.
    EBITDA should not be considered in isolation or as a substitute for other
    measures of financial performance or liquidity. The primary difference
    between EBITDA and cash flows provided by operating activities relates
    primarily to changes in working capital requirements, and payments made for
    interest and income taxes.
(e) Capital expenditures exclude noncash additions through capital leases.
(f) For purposes of calculating the historical ratio of earnings to fixed
    charges, earnings consist of income before income taxes, minority interests
    and extraordinary charges plus fixed charges, adjusted to exclude the
    undistributed earnings from equity investments and the increase in
    redemption value of certain stock of a subsidiary held by minority
    stockholders included in such fixed charges but not deducted in the
    determination of income before minority interests. Fixed charges consist of
    interest expense, amortization of debt expense, such portion of rental
    expense deemed to be representative of the interest factor and the pretax
    earnings required to cover the increase in redemption value of certain stock
    of a subsidiary held by minority stockholders. For the year ended February
    28, 1999 and 1998, earnings were inadequate to cover fixed charges by
    approximately $37.6 million and $8.5 million, respectively.
(g) Total long-term debt includes term debt, excluding any current portion.
(h) Total debt includes the current and non-current portions of term debt and
    revolving credit facilities.

                                       16
<PAGE>   18

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

     The following discussion and analysis should be read in conjunction with
the Company's consolidated audited financial statements and notes thereto
included in this 10-K Annual Report.

INTRODUCTION

     The Company is an international producer of inorganic and organic chemicals
operating in three principal business segments: Nitrogen Products ("Nitrogen"),
Electrochemical Products -- North America ("Electrochemicals -- N.A.") and
Electrochemical Products -- Europe ("Electrochemicals -- Europe"). Nitrogen
products are manufactured in five plants located in the United States, and are
sold into domestic fertilizer, blasting and industrial markets.
Electrochemicals -- N.A. products consist of chlorine and caustic soda
(chlor-alkali products) and fluorocarbons, which are manufactured in a single
plant in Louisiana. Electrochemicals -- Europe manufactures chlor-alkali
products and derivatives in two European facilities located in France and
Germany. For a more detailed description of the Company's business, see Item 1,
"Business".

     The year ended February 28, 1999 was a challenging year for the Company.
The Company benefited from the strong performance of its European
electrochemical operations, acquired in the second half of fiscal 1998. However,
domestic prices for the Company's nitrogen and chlor-alkali products were at
trough levels for most of the year, resulting in a loss from continuing
operations of $13.6 million compared to income from operations of $5.3 million
in fiscal 1998.

     In the second half of fiscal 1999, the Company began a series of strategic
initiatives designed to strengthen the Company's financial condition, focus
resources on core businesses, and position the Company for future growth and
profitability. In November, the Company announced a plan to sell its Aluminas
chemical business. The sale was completed in two stages -- the first was the
sale of a joint venture that markets alumina hydrate for $9.5 million, which was
completed on February 26, 1999. The remaining assets, including the principal
manufacturing facility in Baton Rouge, Louisiana, were sold on June 3, 1999 for
approximately $30 million plus working capital.

     In January 1999, the Company announced a corporate restructuring that
involved decentralizing certain corporate functions and reducing the workforce
in the Atlanta corporate office by approximately 33%. Management expects the
restructuring to result in a more cost effective and responsive organization.

     Largely as a result of the negative impact of market pricing on its
financial performance, the Company was not in compliance with certain covenants
included in its senior credit facility at November 30, 1998 and February 28,
1999. In April 1999, the Company's bank group approved an amendment that
modified certain financial covenant ratios and established a borrowing base for
the availability of funds. Management believes that the modified credit facility
will provide the liquidity and support it needs to meet its obligations and to
execute its strategic plan.

     The fiscal year ended February 29, 2000 will continue to present challenges
to the Company. Domestic market prices are expected to remain at depressed
levels for most of the year. Consequently, the Company expects continuing
domestic operating losses during fiscal 2000. The electrochemical market in
Europe is forecasted to remain relatively stable in the coming year. In April
1999, the Company announced plans to acquire the remaining 50% of ChlorAlp,
which will strengthen the Company's European market position. The Company will
continue to focus internally on cost controls and efficient operations in order
to take full advantage of price recoveries when they do occur.

RESULTS FROM CONTINUING OPERATIONS

     The Company incurred losses from continuing operations before extraordinary
charges of $33.0 million for the year ended February 28, 1999, compared to
losses of $6.0 million for the year ended February 28, 1998 and income of $1.6
million for the year ended February 28, 1997. The increase in 1999 losses was
primarily the result of near historic low prices for the Company's principal
North American products; unrealized losses on

                                       17
<PAGE>   19

certain gas contracts of $4.3; accrual of expected settlement costs associated
with two lawsuits of $3.5 million; increased pension costs from early retirement
programs of $1.9 million; and net corporate restructuring costs of $.5 million.
Operating losses from North American operations were partially offset by income
from the Company's European electrochemical operations, acquired in the second
half of fiscal 1998.

     The loss from continuing operations before extraordinary charges for the
fiscal year ended February 28, 1998 was primarily the result of lower prices in
U.S. chlor-alkali and ammonia markets compared to fiscal 1997. The Company also
incurred additional interest expense as a result of additional debt incurred for
acquisitions and capital investments.

<TABLE>
<CAPTION>
                                                                FISCAL YEAR ENDED FEBRUARY 28,
                                    ---------------------------------------------------------------------------------------
                                               1999                          1998                          1997
                                    ---------------------------   ---------------------------   ---------------------------
                                                  PERCENT OF                    PERCENT OF                    PERCENT OF
                                     AMOUNT         TOTAL          AMOUNT         TOTAL          AMOUNT         TOTAL
                                    --------   ----------------   --------   ----------------   --------   ----------------
<S>                                 <C>        <C>                <C>        <C>                <C>        <C>
NET SALES:
Nitrogen products.................  $188,775         48.5%        $234,884         68.6%        $242,408         71.5%
Electrochemical products -- North
  America.........................    68,475         17.6           87,482         25.5           96,636         28.5
Electrochemical
  products -- Europe..............   132,292         33.9           20,204          5.9               --           --
                                    --------        -----         --------        -----         --------        -----
         Total....................  $389,542        100.0%        $342,570        100.0%        $339,044        100.0%
                                    ========        =====         ========        =====         ========        =====
(LOSS) INCOME FROM OPERATIONS:
Nitrogen products.................  $   (366)        (2.6)%       $ 11,303        213.5%        $ 11,710         80.6%
Electrochemical products -- North
  America.........................    (8,981)       (65.8)             202          3.8            8,562         58.9
Electrochemical
  products -- Europe..............     3,424         25.1           (1,383)       (26.1)              --           --
Corporate.........................    (7,716)       (56.7)          (4,829)       (91.2)          (5,738)       (39.5)
                                    --------        -----         --------        -----         --------        -----
         Total....................  $(13,639)       100.0%        $  5,293        100.0%        $ 14,534        100.0%
                                    ========        =====         ========        =====         ========        =====
EBITDA:
Nitrogen products.................  $ 17,075         51.7%        $ 26,783         87.7%        $ 26,446         75.6%
Electrochemical products -- North
  America.........................     1,454          4.3            7,125         23.3           14,269         40.8
Electrochemical
  products -- Europe..............    21,949         66.4            1,610          5.3               --           --
Corporate.........................    (7,408)       (22.4)          (4,978)       (16.3)          (5,738)       (16.4)
                                    --------        -----         --------        -----         --------        -----
         Total....................  $ 33,070        100.0%        $ 30,540        100.0%        $ 34,977        100.0%
                                    ========        =====         ========        =====         ========        =====
</TABLE>

NET SALES

     The Company generated net sales of $389.5 million for the year ended
February 28, 1999, compared with net sales of $342.6 and $339.0 million in 1998
and 1997, respectively. The increase during the current year was primarily due
to the inclusion of a full year of sales from the Frankfurt facility, acquired
in the fourth quarter of fiscal 1998. This increase was partially offset by
lower pricing in domestic chlor-alkali and ammonia markets compared to 1998 and
1997, as well as the disposition of certain nitrogen warehouse operations during
fiscal 1999.

     Nitrogen products' net sales in fiscal 1999 decreased $46.1 million (19.6%)
compared to the prior year. Nitrogen net sales are sensitive to ammonia pricing,
which impacts direct ammonia sales and derivative products. Ammonia prices
averaged $116 per ton in 1999 compared to $156 per ton in 1998 and $194 per ton
in 1997. Lower prices resulted in a $23.1 million reduction in net sales. In
addition, the Company sold one of its four warehouse operations, and contributed
a second to a joint venture during fiscal 1999, which resulted in lower volume
and reduced net sales by $19.9 million.

     Nitrogen sales for the year ended February 28, 1998 decreased 3.1% from the
preceding year as a result of lower ammonia prices and lower volumes caused by
unexpected outages at the Crystal City and Geneva facilities. These declines
were partially offset by higher sales volumes in the Company's warehouse
operations and higher prices for blasting grade ammonium nitrate.

                                       18
<PAGE>   20

     Electrochemicals -- N.A.'s net sales for the year ended February 28, 1999
decreased $19.0 million (21.7%) compared to fiscal 1998. The decrease was
primarily due to lower ECU pricing, which averaged $276 per ECU ton in fiscal
1999 compared to $318 and $343 per ECU ton in fiscal 1998 and 1997,
respectively. ECU prices dropped from approximately $365 per ton at the
beginning of fiscal 1999 to approximately $195 per ton in February 1999.
Industry forecasts indicate that prices will remain at depressed levels through
most of fiscal 2000, with some improvement near year end.

     In fiscal 1998, Electrochemicals -- N.A.'s sales decreased 9.5% compared to
fiscal 1997 mainly as a result of lower ECU pricing and lower fluorocarbon
pricing and volume as a result of the federally mandated phase out of certain
CFC products.

     Electrochemical products -- Europe sales consist of activity from the
Company's Frankfurt facility, which was acquired in December 1997. This facility
produces chlorine, most of which the Company further processes into chlorinated
methane and related derivative products. Caustic soda produced during the
production of chlorine is sold to the merchant market at prevailing market
prices.

COSTS AND EXPENSES

     The Company's costs and expenses increased to $403.2 million for the year
ended February 28, 1999 compared to $337.2 million in 1998 and $324.5 million in
1997. The increase was mainly attributable to the acquisition of the Frankfurt
facility in December 1997, offset by a decrease in costs due to lower volumes in
Nitrogen and cost improvements across all business lines.

     In Nitrogen, costs and expenses decreased from $223.6 million in 1998 to
$189.1 million in fiscal 1999 due to lower volumes resulting from the
divestiture of most of its warehouse business. In addition, Nitrogen purchases
approximately 30% of its ammonia requirements from third parties, and lower
ammonia prices compared to prior years also had a favorable impact on costs.
Selling, general and administrative expenses included a $2.5 million charge
related to the settlement of an ongoing civil suit (see discussion in the
section entitled "Environmental and Legal Actions" below). Fiscal 1998 costs and
expenses for Nitrogen decreased from fiscal 1997 as a result of lower ammonia
and natural gas prices, as well as labor and maintenance cost reductions
associated with cost saving initiatives.

     Fiscal 1999 Electrochemicals -- N.A. costs and expenses decreased due to
lower volumes as a result of scheduled plant maintenance and lower energy costs
from fiscal 1998. Cost and expenses of Electrochemicals-N.A. in fiscal 1998 did
not change significantly from fiscal 1997. Decreased profitability was primarily
a result of lower prices.

     Selling, general, and administrative costs for fiscal 1999 were $45.4
compared to $49.7 and 48.4 million in 1998 and 1997, respectively. Cost savings
initiatives in 1999 more than offset additional costs incurred as a result of
including the Frankfurt facility for the entire year, which added approximately
$9 million in selling, general and administrative costs.

OTHER ITEMS AFFECTING NET LOSS

     Interest and amortization of debt expense.  Interest and amortization of
debt expense increased to $20.3 million in fiscal 1999 from $14.5 million in
1998 and $12.2 million in 1997. The current year increase was due to higher
average debt balances incurred to fund acquisitions, capital investments and
current year operating losses. Amortization of debt issue costs associated with
the 1998 bond offering and bank credit facility also increased interest costs.
The increase from 1997 to 1998 was primarily due to debt incurred to fund
acquisitions in the fourth quarter of fiscal 1998.

     Income (loss) from equity investments.  The Company has equity investments
in ChlorAlp, an ammonia plant in Louisiana, and two nitrogen warehouses. The
Company had income from equity investments of $2.6 million for the year ended
February 28, 1999 compared to a loss in fiscal 1998 of $.6 million. The increase
was primarily due to operating income reported from ChlorAlp compared to a loss
in fiscal 1998 as a result of cost reduction programs and improved market
conditions. Joint venture activity was minimal for the year ended February 28,
1997.
                                       19
<PAGE>   21

     Other income, net.  The Company reported net other income of $1.2 million
for the year ended February 28, 1999 compared to net other income of $.1 million
and $.4 million for the years ended February 28, 1998 and 1997, respectively.
Other income, net in fiscal 1999 included gains on the sale of two Nitrogen
warehouses of $2.0 million, foreign exchange translation gains of $1.0 and
insurance recoveries of $.8 million. These gains were offset by unrealized
losses on cross currency interest rate swaps of $1.7 million and a write-off of
unamortized debt issuance costs of $1.0 million.

     Benefit (provision) for income taxes.  Increased losses from continuing
operations before income taxes resulted in a benefit (provision) for income
taxes for fiscal year 1999 of $(2.8) million, including a charge for a $15.0
million valuation allowance, compared to a benefit of $3.8 million in fiscal
1998 and a provision for income taxes of $1.1 million in fiscal 1997. As a
result of the uncertainty as to when benefits arising from the fiscal 1999 loss
will be realized, and based on generally accepted accounting principles for
recognition of tax benefits associated with operating loss carryforwards, at
February 28, 1999, the Company recorded valuation allowances against the tax
benefit from the domestic net operating loss carryforwards and AMT credit
carryforward of $8.3 and $6.1, respectively. The effective tax rates related to
continuing operations were (9.2%), 38.7% and 39.5% for fiscal years 1999, 1998
and 1997, respectively.

     Extraordinary charge.  For fiscal year 1998, net loss included an
extraordinary loss of $12.3 million (net of income tax benefit of $7.7 million)
as a result of the early extinguishment of the Company's senior indebtedness
including certain call and prepayment premiums.

     Discontinued operations.  As more fully described in the section entitled
strategic transactions below, the Company sold its entire Aluminas operations in
two transactions. The Company has accounted for the financial results of this
business segment as a discontinued operation, and accordingly, has recorded a
loss on the sale of $5.7 million, net of income taxes of $3.6 million as of
February 28, 1999. The Company received net proceeds from the sale of $39.5
million and retained most of the working capital. As of February 28, 1999, the
net book value of assets sold was $52.3 million.

     Below is a summary of operating results for Aluminas for the years ended
February 28, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                            FISCAL YEAR ENDED FEBRUARY 28,
                                                            ------------------------------
                                                              1999       1998       1997
                                                            --------   --------   --------
<S>                                                         <C>        <C>        <C>
Net sales.................................................  $30,365    $38,444    $40,241
Operating loss............................................   (4,957)      (115)    (3,897)
EBITDA....................................................    4,486      7,285      4,122
</TABLE>

EBITDA

     EBITDA represents income from operations plus cash received from equity
investments, plus depreciation, amortization and other non-cash and
non-recurring transactions reflected in income from operations. In addition,
EBITDA includes the Company's 50% share of ChlorAlp's EBITDA. EBITDA should not
be considered as an alternative measure of net income or cash flow provided by
operating activities (both as determined in accordance with generally accepted
accounting principles), but is presented to provide additional information
related to the Company's debt service capability. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity. The primary difference between EBITDA and cash flows
provided by operating activities relates primarily to changes in working capital
requirements and payments made for interest and income taxes.

     EBITDA from continuing operations for the years ended February 28, 1999,
1998 and 1997 was $33.1 million, $30.5 million and $35.0 million, respectively.
The decrease in EBITDA for the Nitrogen products segment of $9.7 million was due
primarily to lower agricultural prices caused by global increases in ammonia
production capacity. These decreases were somewhat offset partially by improved
margins primarily due to decreased ammonia raw material and natural gas costs.
EBITDA for Electrochemical Products -- North America decreased $5.7 million
(79.6%) primarily as a result of lower ECU prices for chlor-alkali products.
EBITDA for the Electrochemical Products -- Europe increased in fiscal 1999
mainly because of the inclusion

                                       20
<PAGE>   22

of both the Frankfurt facility's and ChlorAlp's operating results for the entire
year in fiscal 1999. The European chlor-alkali markets have not seen the price
erosion that has been prevalent in the U.S. during fiscal 1999, and as a result,
operating profits remain strong in this segment. EBITDA was lower in 1998 than
in 1997 due mainly to lower ECU pricing in the U.S. chlor-alkali markets.

STRATEGIC TRANSACTIONS

     The Company periodically implements strategic actions that it believes
affords it the opportunity to allocate resources to businesses that will enhance
profitability and growth. Significant strategic transactions during fiscal 1999
and fiscal 1998 are described below.

     Dispositions.  In November 1998, the Company announced a plan to sell its
Alumina Chemicals business segment as part of a strategic realignment aimed to
focus the Company's resources on its core commodity chemicals businesses, rather
than on specialty chemicals such as aluminas. On February 26, 1999 the Company
sold its 50% interest in a joint venture that manufactures alumina hydrate for
$9.5 million. The remaining assets were sold on June 3, 1999 for $30 million
plus working capital. The Company recorded a net loss after tax of $5.7 million
related to these sales for the year ended February 28, 1999.

     Acquisitions.  On December 31, 1997, the Company purchased certain
chlor-alkali and chlorinated methane manufacturing facilities located near
Frankfurt, Germany for a purchase price of $20.4 million. These facilities
produce chlorine, caustic soda, sodium hypochloride, calcium chloride, methyl
chloride, methylene chloride/chloroform and hydrochloric acid.

     In October 1997, the Company purchased a 50% interest in ChlorAlp, a joint
venture with Rhodia, for approximately $35.5 million. The joint venture
manufactures chlorine and caustic soda for sale to the plastics industry and
merchant markets. The investment also includes an interest in a power generation
facility that provides electricity to the manufacturing operation. In April
1999, the Company announced that it would commence with the acquisition of the
remaining 50% interest in accordance with the terms of the original joint
venture agreement. The Company expects this transaction to be completed in the
second quarter of fiscal 2000.

LIQUIDITY AND CAPITAL RESOURCES

     Operating Activities.  For the year ended February 28, 1999, continuing
operations provided cash of $7.5 million compared with $36.4 million and $23.2
million for the years ended February 28, 1998 and 1997, respectively. The
decrease in net cash from operations in fiscal 1999 was primarily the result of
operating losses incurred in the current year and the timing of working capital
requirements as compared to the prior year. In fiscal 1998, the increase in net
cash provided by operating activities compared with fiscal 1997, was primarily
the result of net decreases in working capital requirements, including a change
in the timing of interest payments on subordinated debt. For the year ended
February 28, 1997, net cash provided by operations decreased as a result of
lower net income caused by a reduction in ECU prices and higher natural gas
costs as compared to the prior year.

     Investing Activities.  Cash used by investing activities related to
continuing operations was $44.0 million for fiscal 1999 compared to $84.8
million in 1998 and $36.6 million in 1997. Capital expenditures increased to
$44.2 million in 1999 compared to $33.4 million and $32.6 million in 1998 and
1997, respectively. As described above in "Strategic Transactions", cash of
$35.5 million was invested in ChlorAlp and $17.6 million was used to purchase
the Frankfurt facility in fiscal 1998. Other asset sales provided cash of $4.0
million in fiscal 1999 compared to a minimal amount in fiscal 1998 and $3.7
million in fiscal 1997.

     Major capital expenditures during fiscal 1999 included a powerhouse project
and new brine supply line at the Gramercy facility, plant upgrades at the
Nitrogen division's Cherokee plant, and additional expenditures for the
Company's ongoing software implementation project. The Company intends to use
cash flows from operations and borrowings under the Credit Facility as the
source of funds for the future completion of projects mentioned above.

     Cash provided by disposition transactions and used for other investing
activities of discontinued operations of $3.5 million includes proceeds of $9.5
million on the sale of a joint venture interest held by

                                       21
<PAGE>   23

Aluminas (see section entitled "Strategic Transactions" above), net of capital
expenditures and plant turnarounds of approximately $6.0 million.

     Financing Activities.  During fiscal 1999, cash provided by operations was
not sufficient to fund capital investment and scheduled repayments of long-term
debt. Liquidity was provided by the Company's revolving credit facilities, which
had outstanding borrowings of $55.4 million as of February 28, 1999 compared
with $22.0 million as of February 28, 1998. During the year the Company made
payments under long-term debt agreements of $8.6 million, including an
accelerated fine payment of $1.2 million to the Department of Justice. The
Company also repurchased 8,344 shares of redeemable common stock for $2.3
million.

     During fiscal 1998, the Company raised approximately $170.0 million in cash
from a subordinated bond offering, net of financing costs, and $35.0 million
from a term loan under a bank credit facility. Proceeds were used to refinance
existing subordinated notes, repay borrowings under an existing credit facility,
and to fund the Company's investments in ChlorAlp and the Frankfurt facility.
The Company also made its final payment on certain indebtedness to USX (the "USX
Notes").

     In fiscal 1997, the Company had net borrowings of $32.9 million under a
bank credit facility. The Company repaid $11.7 million of long-term debt,
including pre-payments of $5.2 million and scheduled payments of $5.0 million on
the USX Notes. Activity for the year also included payments of $11.2 million to
repurchase common stock of the Company.

     The Company paid cash dividends to its common stockholders of $1.2, $1.1,
and $.9 million in the fiscal years ended February 28, 1999, 1998 and 1997,
respectively. However, there are presently no plans to pay dividends until the
Company returns to an appropriate level of profitability.

     On February 28, 1999 the Company was not in compliance with certain
financial covenants contained in its bank credit facility. As a result, the
Company sought and was granted a modification of the credit facility, effective
February 28, 1999. Under the terms of the amended and restated agreement,
certain financial ratios were modified and the amount of funds that may be
borrowed under the facility was reduced from $125 million to $110 million, not
to exceed an amount based on trade receivables, inventory, and certain plant and
equipment. The modification also places restrictions on payments of dividends,
repurchases of common stock, capital expenditures, and acquisitions and
divestitures. In addition, because earnings during the period were not
sufficient to meet certain fixed charge ratios, limitations on borrowings and
investments are also in effect under the Company's senior subordinated notes.

     Management has evaluated the Company's cash needs for the year ended
February 29, 2000, giving consideration to operating losses sustained in the
past two years and restrictions on the use of its credit facilities as described
above. Based on that evaluation, management believes that funds available under
its revolving credit facility, together with funds expected to be generated from
operations and sales of discontinued operations will be sufficient to fund
planned capital expenditures, strategic transactions, and otherwise meet its
cash obligations in the upcoming fiscal year. In addition, management believes
that the Company's operating results will be adequate to allow the Company to
comply with the modified terms of its credit agreement. However, there is no
guarantee that the Company will be able to achieve expected results if market
conditions are worse than expected. In such case, the Company may be required to
secure additional sources of capital, though there can be no assurances that the
Company will be able to secure additional capital on acceptable terms.

RISK MANAGEMENT

     The Company utilizes certain financial instruments in connection with its
risk management.

     Natural gas is the primary raw material used for the production of ammonia
in the Nitrogen Products segment and electricity in the Electrochemical Products
segments. The Company purchases its natural gas pursuant to market based
contracts with natural gas producers. The Company has a natural gas hedging
program designed to reduce the Company's exposure to natural gas price
volatility. To protect against the risk of increasing prices, the Company, at
its option, periodically fixes its cost under these contracts in accordance with
the pricing mechanisms included in the contracts. The Company also at times
utilizes option spread
                                       22
<PAGE>   24

agreements ("collars") to establish a range of cost on a portion of its natural
gas requirements. Fixed price purchase commitments pursuant to the contracts
aggregated $7.0 million and $6.8 million as of February 28, 1999 and 1998.

     In connection with its acquisition of ChlorAlp in fiscal 1998, the Company
indirectly obtained a joint venture interest in a power generation facility,
which uses natural gas to generate power for the manufacturing operation. Prices
for natural gas used in the facility are based on European fuel and gas oil
prices. In fiscal 1999, the Company, through a wholly owned European subsidiary,
entered into a spread oil swap agreement ("SOS agreement") for the purpose of
reducing its exposure to fluctuations in its natural gas prices. The contract
covers three years and is for a notional amount of 2,430,000 barrels. A portion
of the contract settles every six months in an amount determined on a monthly
basis, which is based on a defined spread between certain forward fuel and gas
oil prices multiplied by the notional quantity settled. As of February 28, 1999,
the market value of the SOS agreement was a $2.3 million unrealized loss as
determined by prevailing market prices.

     The Company also participates in two cross currency interest rate swaps,
one in French francs and the other in German marks. These swaps were entered in
order to take advantage of lower European interest rates, and to hedge the
Company's net investment in foreign currency assets. Under these contracts, the
Company remits quarterly interest payments to its exchange partners in the
designated foreign currency and, in exchange, receives quarterly interest
payments from its exchange partners in U.S. dollars at agreed upon rates.

ENVIRONMENTAL AND LEGAL MATTERS

     Due to the nature of the Company's business, it must continually monitor
compliance with all applicable environmental laws and regulations. As of
February 28, 1999, the Company had recorded $3.1 million in liabilities
associated with expected environmental obligations. A significant portion of the
recorded liabilities is attributable to a soil and groundwater contamination
incident at the Company's Gramercy facility in fiscal year 1990. Remediation at
such facility is being conducted in accordance with a work plan approved by the
Louisiana Department of Environmental Quality. Future expenditures for the
Gramercy facility are anticipated to be approximately $1.9 million and are
anticipated to be paid over the next several years. In addition, the Company has
recorded liabilities attributable to the Greensboro, North Carolina fertilizer
plant contamination for remedial costs, including the cost of soil redemption
and off-site disposal of waste material and building debris. See "Legal
Proceedings."

     Generally, under the asset purchase agreements for most of the Company's
operations, the former owners retained some liability under certain
circumstances for environmental matters that existed prior to the dates of the
respective transactions. In connection with the Company's sale of certain of the
businesses it originally bought from USX in 1986, the Company retains some
degree of liability for environmental matters that existed prior to the date of
sale. See "Environmental Proceedings" under Item 3. Legal Proceedings.

     Capital expenditures made to address environmental matters were
approximately $.9, $3.9 million and $7.8 million in fiscal years 1999, 1998 and
1997, respectively. Included in fiscal year 1997 expenditures is approximately
$5.9 million related to certain emissions abatement equipment at the Cherokee
facility that allows the Company to operate a nitric acid plant at a
substantially higher capacity than in recent years without exceeding limitations
on certain emissions.

     On June 27, 1996, Marathon Oil Company and Marathon Pipe Line Company
(together, "Marathon") initiated litigation against the Company and another
defendant in connection with a 1996 petroleum release near the Company's
Gramercy facility, and in connection therewith a class action lawsuit and one
other lawsuit were filed against the Company and Marathon. Marathon's lawsuit
against the company was settled for $2 million in October 1998. The Company has
met its $1 million self-insured retention and its liability insurance carrier
has paid the balance. The Company has coverage for, and continues to defend
itself against, the two remaining claims. In March 1999, plaintiffs accepted an
offer by all defendants to settle the class action for a lump sum of $1.5
million. The Company's allocated portion of the settlement is $375,000,
although, as stated above, the Company has insurance coverage for this amount.
The third claim has remained

                                       23
<PAGE>   25

dormant since filing, and the Company, although it believes it has meritorious
defenses to the claim, believes that the case can be settled for a nominal
amount. See "-- Environmental Proceedings."

     In December 1997, the Company was named as a defendant in three civil
antitrust actions (two of which were the same suit filed in separate
jurisdictions, one of which was subsequently dismissed). These actions were
brought predominantly by various mining concerns, alleging that the Company
violated federal antitrust laws, various state antitrust and unfair trade
practice statutes, and common law fraud in connection with the Company's
blasting grade ammonium nitrate business as conducted in the mid to late 1980's
and early 1990's. The Company believes that the plaintiffs in these cases have
targeted the Company because of the Company's previously disclosed plea
agreement with the United States Department of Justice in which the Company
agreed to plead guilty to a one-count information charging the Company with
participating in a conspiracy to restrain competition in the pricing of ammonium
nitrate during May 1992. In that agreement, the Company did not admit, and the
Department of Justice did not contend, that the Company ever implemented any
such conspiracy. Accordingly, the Company filed answers denying liability in
such civil actions. The Company has reached an agreement in principle with the
plaintiff to settle all claims against the Company. Under the terms of that
settlement, which will be reflected in a definitive settlement agreement, the
Company will make an initial payment of $.75 million and will make additional
payments not to exceed $3.75 million, based in part on the Company's net
earnings, over the next five years. Minimum payments of $.5 million are required
on the first three anniversaries of execution of the settlement and payments of
$.3 million are required on the last two anniversaries with an aggregate
minimum, inclusive of the initial payment, of $3 million.

     In January 1997, the owner of the land over which the brine pipelines
serving the Company's Gramercy, Louisiana chlor-alkali facilities travel filed a
lawsuit seeking generally the removal of one of the pipelines and/or monetary
damages, based on its claims that the pipeline has suffered and continues to
suffer unpermitted leaks of brine. In connection with that lawsuit, the
landowner sought a preliminary injunction to stop the Company from using one of
its brine pipelines. The court refused to grant such relief, and instead
required the Company to implement a written remediation policy and a continuous
leak monitoring program, and to agree to shut down the pipeline when and if
leaks are detected in the future until any necessary repairs are completed. In
January 1999, the Company completed construction of a new pipeline which is now
in service. The Company believes that the landowner's lawsuit is without serious
legal merit and is actively defending it. The Company has developed appropriate
strategies for ensuring a continuous supply of brine to its Gramercy facility.
See "Legal Proceedings."

     The Company is a participant in certain other legal actions, claims and
remedial activities. Management of the Company believes that, except as
described above, based upon the information currently available, such other
legal actions, claims and remedial activities are likely to be resolved without
a material adverse effect upon the Company's financial condition and results of
operations. However, the aggregate cost of such legal actions, claims and
remedial activities are inherently impossible to predict and there can therefore
be no assurance that this will be the case. See "Legal Proceedings."

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the FASB issued Statement of Financial Accounting Standard
No. 133, Accounting for Derivative Financial Instruments and Hedging Activities
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. The statement requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at their fair value. The
accounting for changes in the fair value of a derivative depends on the intended
use of the instrument and the resulting designation. SFAS 133 must adopted for
all fiscal quarters of all fiscal years beginning after June 15, 1999. The
Company has not yet determined the impact on the financial position or results
of operation from adoption of this standard.

                                       24
<PAGE>   26

YEAR 2000 COMPLIANCE

     The Company's Year 2000 project, which began in mid-1998, is a continuing
review and evaluation of business systems and process controls for the purpose
of identifying ways in which these systems and the Company could be adversely
affected by incorrectly processing date information on and after January 1, 2000
("Year 2000"). The Company is conducting its review and evaluation in four main
areas: Business Systems, Manufacturing Controllers and Processors, Third Party
Compliance, and Hardware. The process includes assessing the impact of the
calendar change to Year 2000 on all systems used by the Company and the
associated upgrade costs, upgrading systems that are not Year 2000 ready, and
testing and monitoring systems for Year 2000 readiness. A summary of the
Company's progress in each of these areas follows.

     Business Systems.  The implementation of a new enterprise-wide financial
and operational computer system during the past two years, completed in November
1998, has effectively eliminated exposure to any negative impact that Year 2000
may have had on the Company's ability to produce reliable information needed to
run its business. The software has been certified Year 2000 compliant by the
supplier, and critical components of the business system have been tested.
ChlorAlp, is also installing the same system, and expects to have completed its
implementation by July 1, 1999. These systems are critical for, among other
things, purchasing activities and payment, order processing and billing,
production management and inventory, payroll, and financial reporting.

     Manufacturing Controllers and Processors.  Certain of the Company's
manufacturing processes are dependent upon microprocessors and controllers, and
related software, to regulate and monitor the production of its principal
products. The Company has completed its assessment of these items, and did not
discover any instances where non-compliance would result in a disruption of
operations. The majority of instances of noncompliance involved certain
monitoring and data gathering functions. Replacements and upgrades of non-
compliant hardware and software are approximately 50% complete and are expected
to be finalized by July 1999. Testing for critical components will be conducted
during regularly scheduled plant shutdowns, and is expected to be completed by
September 1999.

     Third Party.  The Company has sent surveys to all significant vendors
inquiring about their Year 2000 readiness, and has received responses from
approximately 78%. Additional follow up procedures are planned for the first
half of 1999 to follow up on critical raw material and utility suppliers to
verify their compliance and to develop contingency plans if necessary. The
Company has not yet surveyed its key customers, but plans to begin this
assessment in mid 1999.

     Hardware.  Hardware includes the Company's computers, laptops, terminals,
and communications hardware such as routers and switches. In the course of
replacing its main business systems, the Company has upgraded much of its
hardware with systems that are Year 2000 compliant. The Company has completed
its assessment of the remaining hardware and has substantially completed
necessary upgrades. Testing and replacement of any remaining non-compliant
hardware are expected to be completed by June 1999.

     Contingency Planning.  The Company is currently assessing external sources
of risk and developing contingency plans through commercially reasonable
efforts.

     Through February 28, 1999, costs of approximately $.3 million have been
incurred in identifying and correcting Year 2000 problems. The Company currently
estimates that the total cost of making its systems Year 2000 compliant will not
exceed $.6 million.

     Based on the Company's efforts as described above, management believes that
it has identified and corrected all internal systems that could have had a
material adverse effect on the Company. Management also believes that it has
identified all significant external sources of risk, and is currently preparing
contingency plans to minimize any potential negative impact of such risks.
However, because certain of these risks are outside of the control of the
Company, there can be no assurance that the Company will be able to successfully
remedy problems that are discovered, and accordingly, there can be no assurance
that such non-compliance will not have a material adverse effect on the
Company's financial position and results of operation.

                                       25
<PAGE>   27

SEASONALITY

     Demand for the Company's fertilizer products is seasonal. Such seasonality
of demand requires the Company to build its inventory in anticipation of periods
of peak demand and may adversely affect the Company's cash flow. The Company
typically realizes higher prices and margins for fertilizer during the spring
and, to a lesser extent, the fall planting seasons. Demand for the Company's
fertilizer is primarily dependent on United States agricultural conditions,
which can be volatile as a result of a number of factors, the most important of
which are weather patterns and conditions, current and projected grain stocks
and prices, and the governmental agricultural policy. In addition, the Company
periodically performs extended major maintenance on its manufacturing facilities
that results in periods of reduced production at such facilities. Due to
fertilizer seasonality, the timing of major maintenance activities and other
factors, interim results of operations may not be indicative of the results
expected for the full fiscal year.

CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING INFORMATION

     Certain statements and information contained in this Annual Report on Form
10-K, including in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and under "Business" in Item 1 and under
"Legal Proceedings" in Item 3, are forward-looking statements regarding
Management's current plans, objectives, and expectations for the future, which
are based on prevailing circumstances and information available at this time.
Accordingly, such statements and information involve inherent risks and
uncertainties, and actual results may differ materially from those discussed
therein. Forward-looking statements contained herein include: (a) statements
made concerning strategic plans for growth, (b) statements made regarding future
cash flows, compliance with debt covenants, and the availability of funds to
meet obligations and fund investments, (c) statements made regarding price
expectations in the Company's principal markets, and (d) statements made
regarding the outcome and impact on the Company's business, financial condition,
or results of operation of the Year 2000 issue and pending litigation and other
claims, disputes and legal proceedings. Factors that could cause actual results
to differ from those discussed in the forward-looking statements include:
fluctuations in commodity prices (including chlor-alkali, ammonia, and natural
gas), changes in domestic and international market conditions, changes in
competitive positions, government regulation, changes in labor relations, the
outcome of pending litigation and other claims, changes in general economic
conditions and other factors not enumerated herein that are impossible to
predict at this time.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk, including changes in interest rates,
foreign currency exchange rates and commodity prices. To manage the volatility
relating to these exposures, the Company enters into derivative transactions.
The Company does not hold or issue derivative financial instruments for trading
purposes. At February 28, 1999, the Company held derivative instruments intended
to hedge market risk exposure in each of the areas noted.

     The Company generally manages its risk associated with interest rate
movements through a combination of variable and fixed rate debt and three
cross-currency interest rate swap agreements. The fair value of the variable
rate debt approximated the notional value, and the average interest rate for
fiscal 1999 was 7.5%. The fixed rate debt totaled $175,242 with a fair value of
approximately $104,165 and a weighted-average interest rate of 9.5%. See Note 7
to the Consolidated Financial Statements on page F-11. One of the cross-currency
interest rate swap contracts is a French franc ("FRF") agreement ("FRF
contract") maturing in fiscal 2003 which has a notional amount of $60,000 (FRF
372.4 million). The interest rate swap is based on the Company paying PIBOR plus
an agreed-upon spread (total rate of 3.81% at February 28, 1999) and receiving
LIBOR (5.25% at February 28, 1999). The two remaining cross-currency interest
rate swap agreements are German mark ("DEM") contracts ("DEM Contracts") each
maturing through 2004 and with original notional amounts of $25,000 (DEM 45
million). Principal notional value exchanges of $2,500 (DEM 4.5 million) are due
each fiscal year through the fiscal 2003 with the balance of $13,125 (DEM 23.6
million) due in fiscal 2004. The DEM interest swap is based on the Company
paying a fixed interest rate of 4.68% and receiving

                                       26
<PAGE>   28

LIBOR (5.25% at February 28, 1999). The interest benefit or expense is
recognized as a component of current interest expense. See Note 13 to the
Consolidated Financial Statements on page F-21.

     The cross-currency interest rate swaps also provide a measure of protection
against the impact of fluctuations in the foreign currency exchange rates on the
Company's net investment in foreign currency denominated assets. The implicit
contract rate of currency exchange in the FRF contract is 6.2 and in the DEM
contract is 1.8. The fair value of the FRF contract was ($2,871) and of the
combined DEM contacts was ($2,302) at fiscal 1999 year-end. Gains or losses
related to the portion of these agreements designated as hedges of the Company's
net foreign investment in accordance with generally accepted accounting
principles are included as a component of the accumulated comprehensive loss in
stockholder's (deficit) equity or as an offset to changes in values of advances
denominated in foreign currencies.

     The Company relies upon the supply of natural gas in its production process
and has entered into fixed price purchase contracts, collars, swap agreements
and other contracts to manage the commodity based market risk exposure. All of
the natural gas contacts mature during fiscal 2000. Following is a summary of
key contract terms of each the natural gas derivative instruments (in
thousands):

<TABLE>
<CAPTION>
                                                            CONTRACT VOLUME   CONTRACT PRICE
                                                            ---------------   --------------
                                                             (in MMBTU's)      (per MMBTU)
<S>                                                         <C>               <C>
Fixed price purchase contracts............................      24,255         $      1.95
Collars...................................................       5,002         $1.76/$2.01
Put options...............................................      44,940         $      2.10
</TABLE>

     Additionally, the Company participates in a spread oil swap agreement to
provide protection against other energy-based commodity price market exposures.
Gains or losses on the commodity based derivative contracts are recognized as a
component of the related transaction.

     See the Risk Management section of Management's Discussion and Analysis at
page 22 in this item and Note 13 to the Consolidated Financial Statements on
page F-21 for further discussion regarding these instruments.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Included herein beginning on page F-1.

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

     None.

                                       27
<PAGE>   29

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the name, age and position with the Company
of each person who is an executive officer or a director on the Board of
Directors (a "Director") of the Company.

<TABLE>
<CAPTION>
NAME                                         AGE                    POSITION
----                                         ---                    --------
<S>                                          <C>   <C>
W. Walter LaRoche, III.....................  47    Chairman of the Board
Victoria E. LaRoche........................  40    Vice Chairman of the Board
Harold W. Ingalls..........................  51    Chief Executive Officer
Gerald B. Curran...........................  51    Vice President and Chief Financial Officer
                                                   Vice President, General Counsel and
Robert P. Wolf.............................  55    Secretary
Vincent R. Gurzo...........................  50    Vice President
William G. Osborne, Ph.D...................  58    Vice President
David A. Lillback..........................  51    Vice President
Paul L. M. Beckwith, Ph.D. ................  41    Director (resigned effective May 4, 1999)
John R. Hall...............................  66    Director
Johnnie Lou LaRoche........................  70    Director
Louanne C. LaRoche.........................  43    Director
C. L. Wagner, Jr...........................  54    Director
George R. Wislar...........................  66    Director
Robert L. Yohe.............................  63    Director
</TABLE>

     W. Walter LaRoche, III.  Chairman of the Board. Mr. LaRoche joined the
Tennessee Valley Authority in 1976 as an attorney and served in that capacity
until 1988. In August 1988 he joined LaRoche Holdings Inc. ("LHI") as Vice
President of Planning and Business Development. He was appointed Executive Vice
President and Chief Operating Officer of the Company in January 1989 and
President and Chief Operating Officer of the Company and Vice President of
LaRoche Chemicals Inc. ("LCI") in March 1991. Mr. LaRoche was appointed Vice
Chairman of LHI, LCI and the Company in May 1993. He served as a member of the
Board of Directors of LHI, LCI and the Company from July 1988 until the
consolidation of LHI and LCI into the Company (the "Consolidation") and he has
continued to serve as a Director of the Company since the Consolidation. In
October 1994, Mr. LaRoche was appointed Chairman of the Board of the Company.
Mr. LaRoche's mother, Johnnie Lou LaRoche, and his sisters, Victoria E. LaRoche
and Louanne C. LaRoche also serve as directors of the Company.

     Victoria E. LaRoche.  Vice Chairman of the Board. Ms. LaRoche was elected
as a Director of LHI in August 1993 and has been a Director of the Company since
the Consolidation and Vice Chairman of the Board since October 1994. Ms. LaRoche
began working for the Company in 1987 and held many positions within the Company
in the Accounting, Environmental, Financial Analysis and Market Research
departments until March 1996.

     Harold W. Ingalls.  Chief Executive Officer. Mr. Ingalls joined the Company
as Vice President and Chief Financial Officer in July 1996 and was elected to
Chief Executive Officer in October 1998. Prior to joining the Company, Mr.
Ingalls served for approximately one year as the Vice President and Chief
Financial Officer of OHM Corporation Atlanta, an affiliate of WMX Technologies,
Inc., an environmental remediation company ("WMX"). Prior to 1995, Mr. Ingalls
served as the Chief Financial Officer, Treasurer and Vice President of two
subsidiaries of WMX and served other subsidiaries of WMX for over thirteen years
in various strategic and managerial capacities.

     Gerald B. Curran.  Vice President and Chief Financial Officer. Mr. Curran
joined the Company as Vice President and Chief Financial Officer in October 1998
after having served in a financial management consulting role from July 1998
through October 1998. Prior to joining the Company, Mr. Curran worked with Waste
Management Inc. where he held senior financial and management positions for over
ten years.

                                       28
<PAGE>   30

     Robert P. Wolf.  Vice President, General Counsel and Secretary. Mr. Wolf
joined the Company as Vice President, General Counsel and Secretary in November
1998. Prior to joining the Company, Mr. Wolf served as Senior Vice President and
General Counsel with Alumax Inc. from March 1997 through July 1998 and Vice
President and General Counsel from October 1989.

     Vincent R. Gurzo.  Vice President. Mr. Gurzo joined the Company as Vice
President of Specialty Chemicals in August 1996. Prior to joining the Company,
Mr. Gurzo worked for a year with The Mercer Hoyt Group, a group specializing in
training and sales development in the chemical industry and in publishing in the
health care industry. From 1989 to 1995, Mr. Gurzo served as Vice
President -- Business Unit General Manager Industrial Business and in other
sales and marketing positions for International Specialty Products (GAF).

     William G. Osborne, Ph.D.  Vice President. Dr. Osborne has been the
managing director of ChlorAlp since its formation in October 1997. Prior to
that, Dr. Osborne had been responsible for the Company's merger and acquisition
activity from May 1996 until October 1997 including negotiation of the Company's
European acquisitions. Prior to that, Dr. Osborne was responsible for the
Company's purchasing and distribution functions from March 1994 until May 1996.
Dr. Osborne was Vice President of Corporate Operations and Vice President and
General Manager, Performance Materials for LCI from April 1992 through March
1994, and was Vice President and General Manager -- Specialty Alumina Chemicals
for LCI from July 1988 through April 1992. He also held a number of positions
with Kaiser from 1969 through LCI's acquisition of Kaiser in 1988. From 1966 to
1969, Dr. Osborne was a Research Engineer with E.I. du Pont de Nemours and Co.

     David A. Lillback.  Vice President. Mr. Lillback was named Vice President
in charge of the Company's chlor-alkali business in March 1998 and Vice
President of the Company's North American operations in January 1999. Prior to
these appointments, Mr. Lillback has been employed with the Company in various
management capacities since 1988, including Plant Manager at the Company's Baton
Rouge facility, Director of Strategic Organizational Planning and Director of
Human Resources. Prior to his employment with the Company, Mr. Lillback served
in various capacities with Kaiser Aluminum & Chemical Corporation from 1980
though 1988.

     Paul L. M. Beckwith, Ph.D.  Director. Dr. Beckwith was elected as a
Director of LCI in 1988 and has been a Director of the Company since the
Consolidation. Dr. Beckwith became a Managing Director of Chase Securities Inc.
in May 1997, where he is the Group Executive of the Global Chemicals Group.
Prior to May 1997, Dr. Beckwith was a Managing Director of The Chase Manhattan
Bank, where he had been employed since 1982. Effective May 4, 1999, Dr. Beckwith
tendered his resignation from the Board of Directors.

     John R. Hall.  Director. Mr. Hall was elected to the Board of Directors of
the Company in September 1996. Most recently, Mr. Hall was employed by Ashland,
Inc. as Chairman of the Board and Chief Executive Officer. Mr. Hall served as
Ashland Inc.'s Chairman of the Board and Chief Executive Officer from 1981
through 1997. He is a member of the Board of Directors of Banc One Corporation,
the Canada Life Assurance Company, CSX Corporation, Humana Inc., Reynolds Metals
Company and UCAR International Inc. He is a member of the American Petroleum
Institute Board of Directors and Public Policy Committee and the National
Petroleum Counsel. Mr. Hall is past Chairman of the National Petroleum Refiners
Association.

     Johnnie Lou LaRoche.  Director. Mrs. LaRoche was elected as a Director of
LHI in August 1993 and of LCI in August 1989. She has been a Director of the
Company since the Consolidation. Mrs. LaRoche is the widow of the deceased
founder (and principal) of the Company, William W. LaRoche, Jr. W. Walter
LaRoche, III, Victoria E. LaRoche and Louanne C. LaRoche are siblings and are
the children of Johnnie Lou LaRoche and William W. LaRoche, Jr.

     Louanne C. LaRoche.  Director. Ms. LaRoche was elected as a Director of LHI
in August 1993 and has been a Director of the Company since the Consolidation.
As well as being an artist, she was owner and director of the Red Piano Art
Gallery in Hilton Head, South Carolina since 1979.

     C.L. Wagner, Jr.  Director. Mr. Wagner was elected as a Director of LCI in
1988 and has been a Director of the Company since the Consolidation. Mr. Wagner
has been a partner in the law firm of Hunton &
                                       29
<PAGE>   31

Williams since 1988. Prior to that time, Mr. Wagner was a partner with the law
firm of Hansell & Post in Atlanta, Georgia. Hunton & Williams has regularly
acted as counsel to LHI, LCI and the Company. Mr. Wagner is also a member of the
Board of Directors of Lummus Corporation, a textile equipment manufacturer, and
Alimenta (United States), Inc., an international food processor and distributor.

     George R. Wislar.  Director. Mr. Wislar has been a Director of the Company
since the Consolidation. Mr. Wislar is the founder, and retired Chairman of the
Board of Directors and Chief Executive Officer of Fountainhead Water Company,
Inc., Marietta, Georgia. Mr. Wislar's previous experience includes investment
banking at Alex Brown & Sons, Inc., The Robinson-Humphrey Company and Kidder,
Peabody & Co. Incorporated.

     Robert L. Yohe.  Director. Mr. Yohe has been a Director of the Company
since November 1996. Mr. Yohe retired as Vice Chairman of Olin Corporation in
1994, after 11 years of service. He served in many leadership capacities at Olin
Corporation including President of the Chemicals Group from 1985 to 1993 and
Vice President of Mergers and Acquisitions from 1983 to 1985. Prior to joining
Olin Corporation, Mr. Yohe worked in executive management for Uniroyal, and
Occidental Petroleum's Hooker Chemical Division. Mr. Yohe is a member of the
Board of Directors of Airgas, Inc., Calgon Carbon Corporation, Marsulex Inc. and
The Middleby Corporation. He is also a Trustee of Lafayette College.

ITEM 11.  EXECUTIVE COMPENSATION

     The following table provides the compensation earned for fiscal years 1999,
1998 and 1997 by the Company's Chief Executive Officer and its four other most
highly compensated executive officers serving at fiscal year-end ("Named
Executive Officers") as well as compensation earned by one other individual for
whom disclosure would have been provided except that he was not serving as an
executive officer at February 28, 1999.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                  ANNUAL COMPENSATION
                                      --------------------------------------------
                                                                    OTHER ANNUAL           ALL OTHER
NAME AND PRINCIPAL POSITION    YEAR     SALARY         BONUS       COMPENSATION(1)   COMPENSATION(2)(3)(4)
---------------------------    ----   ----------    -----------    ---------------   ---------------------
<S>                            <C>    <C>           <C>            <C>               <C>
Harold W. Ingalls........      1999   $  310,368    $    15,736(7)          --              $ 2,013
  Chief Executive Officer      1998      200,353             --             --                   --
                               1997      126,089(5)     376,456(8)    $274,104                   --
W. Walter LaRoche, III         1999      264,952             --             --                2,542
  Chairman of the              1998      252,247             --             --                  950
     Board                     1997      244,270         59,968             --                1,055
William G. Osborne.......      1999      153,033         60,115(9)          --               16,638
  Vice President               1998      141,570         73,111(9)          --               51,192
                               1997      128,071          5,836             --               64,691
David W. Lillback........      1999      136,680         78,678(7)      25,203               69,235
  Vice President
Gerald B. Curran.........      1999      126,960(6)          --         42,845                  667
  Chief Financial Officer
Grant O. Reed (11).......      1999      167,368             --             --                  417
  President and Chief          1998      341,131             --             --                  496
     Executive Officer         1997      331,683        241,704(10)     101,550                  --
</TABLE>

---------------

 (1) Amounts shown reflect the tax gross-up amounts paid by the Company in
     connection with the bonuses awarded to Mr. Ingalls and Mr. Reed pursuant to
     the Company's Management Stock Purchase Plan. Also see footnotes (7), (8),
     (9), and (10) below and "Management Stock Purchase Plan."
 (2) Amounts shown for fiscal year 1999 reflect (i) matching 401(k)
     contributions made by the Company to the Company's savings plan of $2,013,
     $2,542, $1,638, $1,613, $667 and $417 on behalf of Mr. Ingalls,

                                       30
<PAGE>   32

     Mr. LaRoche, Mr. Osborne, Mr. Lillback, Mr. Curran and Mr. Reed,
     respectively, (ii) a relocation expense and resettlement allowance of
     $67,621 paid to Mr. Lillback resulting from his move between the United
     States and Germany, (iii) foreign service allowance of $15,000 paid to Mr.
     Osborne and (iv) expatriate taxes of $7,984 paid to Mr. Osborne, also
     resulting from his move to France.
 (3) Amounts shown for fiscal year 1998 reflect (i) matching 401(k)
     contributions made by the Company to the Company's savings plan of $416,
     $950 and $496 on behalf of Mr. Osborne, Mr. LaRoche and Mr. Reed,
     respectively (ii) relocation expense and resettlement allowance of $50,776
     paid to Mr. Osborne resulting from his move to France and (iii) expatriate
     taxes of $7,984 paid to Mr. Osborne, also resulting from his move to
     France.
 (4) Amounts shown for fiscal year 1997 reflect (i) matching 401(k)
     contributions made by the Company to the Company's savings plan of $1,055
     and $377 on behalf of Mr. LaRoche and Mr. Osborne, respectively and (ii)
     relocation expenses of $64,314 paid to Mr. Osborne related to his move to
     Atlanta.
 (5) Amount shown reflects compensation for the approximately seven months of
     Mr. Ingalls' employment in fiscal year 1997.
 (6) Amount shown reflects direct and consulting compensation for approximately
     six months of Mr. Curran's employment in fiscal 1999.
 (7) Amount shown reflects a special nonrecurring bonus granted by the Company
     in fiscal 1999.
 (8) Amount shown reflects a profit sharing bonus of $75,000 and a $301,456
     signing bonus to purchase shares in accordance with the Company's
     Management Stock Purchase Plan.
 (9) Amount shown reflects a relocation bonus paid to Mr. Osborne resulting from
     his move to France.
(10) Amount shown reflects (i) a profit sharing bonus of $59,968 and (ii) a
     $181,736 bonus granted by the Company in fiscal year 1997 in accordance
     with the Company's Management Stock Purchase Plan (as defined).
(11) Mr. Reed was not serving as an executive officer at February 28, 1999.

PENSION AND INCENTIVE PLANS

     The Company maintains seven 401(k) savings plans ("401(k) plans"), one of
which is for salaried employees not subject to a collective bargaining agreement
and six of which are for employees subject to collective bargaining agreements.
Under each 401(k) plan, participating employees can make pre-tax deferrals.
During fiscal 1999, the 401(k) plans with provisions for Company matching
contributions covering salaried employees were amended to provide for immediate
eligibility and vesting of the non-discretionary Company matching contribution.
Where the 401(k) plan has no matching feature, the Company does not contribute
any of its own funds to the plan. Under certain of the 401(k) plans,
participating employees are able to make after-tax contributions. All of the
401(k) plans are designed to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and exempt from tax under Code
Section 501(a).

     The Company also maintains one qualified defined benefit Employee Pension
Benefits Plan, with separate rules for salaried employees (the "Salaried Pension
Plan Rules") and hourly employees (the "Hourly Pension Plan Rules"). Under the
pension plan normal retirement age is 65, though Participants may retire as
early as age 55 with 10 years of continuous service and receive a reduced
benefit. The benefit is reduced five percent for each year or fraction thereof
that retirement precedes age 65. Effective January 1, 1999, the Salaried Pension
Plan benefit calculation formula was amended to an average monthly earnings
basis multiplied by the years of service multiplied by a factor of 1.2%. Prior
to January 1, 1999, under the Salaried Pension Plan Rules, benefits were based
on the Final Earnings Benefit Formula and the Career Earnings Benefit Formula
(each defined therein). The Final Earnings Benefit Formula is the average of the
best five consecutive of the last 10 years of base monthly salary multiplied by
a factor obtained by multiplying the first 30 years of service by 1.1% and the
years of service over 30 by 1.2%. The monthly Career Earnings Benefit Formula is
1% of the total career compensation, including bonus, multiplied by 130% and
divided by 12. Under the Hourly Pension Plan Rules, the benefits are based on a
calculation of a specified hourly rate multiplied by years of credited service.
In addition, a non-qualified defined benefit Supplemental Employee Retirement
Plan is provided to recognize compensation in excess of the IRS limits under the
qualified plan.

                                       31
<PAGE>   33

     The estimated annual benefits payable upon retirement at normal retirement
age for each of the Named Executive Officers is as follows: Mr.
LaRoche -- $60,289; Mr. Ingalls -- $0; Mr. Osborne -- $36,942; Mr.
Lillback -- $26,761; Mr. Curran -- $0 and Mr. Reed -- $61,411.

     The Company has recently instituted certain executive and other key
employee benefit plans intended to provide incentives to those employees most
responsible for the Company's success. The 1997 Stock Option Plan provides
incentives in the form of grants of stock options and is intended to recognize
and reward outstanding individual performance. The 1998 Management Stock-Based
Incentive Plan enables key management employees to acquire financial interests
in the Company through the award of phantom stock interests tracking the
performance of the Company's common stock but with the appreciation benefit
payable in cash. The Annual Incentive Plan is intended to provide a cash bonus
incentive for key management employees to achieve targeted operational results
and individual goals. All such plans are to be administrated by the Compensation
Committee, which is empowered to determine those employees eligible to
participate, the type and amount of awards to be made and the various
restrictions applicable to such awards. In April 1999, the Compensation
Committee approved the implementation of a revised Profit Sharing Plan ("Revised
Plan"). The Revised Plan uses an established EBITDA goal as a benchmark for
Company performance coupled with individual achievement.

COMPENSATION OF DIRECTORS

     Directors who are officers or employees of the Company receive no
additional compensation for serving on the Board of Directors. The Company pays
an annual fee to all non-employee Directors of $50,000, plus $1,000 for each
board and committee meeting attended. The Company pays an additional annual fee
to all outside Directors who serve as the Chairman of the Board ($50,000),
Vice-Chairman of the Board ($25,000) and Committee Chairman ($5,000).

     Effective June 26, 1995, the Board of Directors approved the 1995 Board of
Directors Stock Purchase Plan (the "Directors Plan"). The Company has authorized
and reserved for issuance under the Directors Plan an aggregate of 5,000 shares
of the Company's common stock. The Directors Plan provides that outside
directors of the Company will be eligible to purchase shares of the Company's
common stock at fair market value (as determined by appraisal). In connection
with the Directors Plan, the Company may agree to guarantee loans used to
finance the purchase of such stock. Upon termination of directorship, the shares
must be sold to the Company at fair market value (based upon an appraisal). All
redemption provisions of the Company's shares expire upon a public offering of
the Company's common stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     During fiscal year 1999, the Company's compensation committee consisted of
C. L. Wagner, Jr. (Chairman), Paul L.M. Beckwith, Ph.D., George R. Wislar,
Robert L. Yohe and John R. Hall. During fiscal year 1999, Hunton & Williams, of
which C. L. Wagner is partner, provided various types of legal services to the
Company for which the Company was billed approximately $.3 million. Dr. Beckwith
is the Managing Director of Chase Securities Inc.

EMPLOYMENT CONTRACTS

     In June 1993, LHI entered into an employment and non-competition agreement
(the "Employment Agreement") with Mr. Reed who, at that time, was the President
and Chief Operating Officer of LHI. Although the term of the Employment
Agreement expired on July 18, 1996, Mr. Reed's employment continued on
substantially the same terms through August 1998, at which time Mr. Reed
tendered his resignation. Following that date, Mr. Reed continued to receive his
salary and benefits pursuant to his severance agreement with the Company. At
February 28, 1999, the Company had accrued approximately $233,000 for additional
payments and benefits due under that agreement.

                                       32
<PAGE>   34

MANAGEMENT STOCK PURCHASE PLAN

     In August 1994, the Company adopted a Management Stock Purchase Plan (the
"1994 Purchase Plan"), pursuant to which certain executive officers and
management employees of the Company (the "Eligible Employees") are, at the
discretion of the Board, eligible to purchase shares of the Company's common
stock at the then current fair market value of such shares as determined by
appraisal. Such Eligible Employees are also eligible to receive bonuses in the
form of cash, a portion of which must be applied to the purchase of shares of
the Company's common stock (the "Purchased Shares"). Certain bonuses were
granted to certain of the Eligible Employees at the time of the Consolidation to
purchase additional shares (the "Bonus Shares"). See "Security Ownership of
Certain Beneficial Owners and Management" for information concerning the
aggregate share ownership of the Company's Named Executive Officers and
directors. At the time of the Consolidation certain of the Eligible Employees
acquired shares of the Company's common stock with the proceeds from the
repurchase by LCI of their shares of LCI capital stock. See "Executive
Compensation -- Summary Compensation Table."

     In August 1995, the Board adopted the 1995 Amended and Restated Stock
Purchase Plan (the "1995 Purchase Plan," and together with the 1994 Purchase
Plan, the "Management Stock Purchase Plan"). The 1995 Purchase Plan eliminated
the distinction between Bonus Shares, Purchased Shares and Conversion Shares and
provides that the repurchase value of all such shares will be the fair market
value. Participants are required to sell and the Company is required to purchase
the shares upon termination of employment. The 1995 Purchase Plan provides that
in the event that an Eligible Employee finances his purchase of shares with a
bank loan, the Company may guarantee the repayment of such loan, such guarantee
to be secured by the shares acquired by the Eligible Employee. The 1995 Purchase
Plan is administered by the Company's Board.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     The following table sets forth the ownership of the Company's common stock
as of May 27, 1999 by directors, Named Executive Officers, persons known by the
Company to own more than 5% of the common stock and all executive officers and
directors of the Company as a group.

<TABLE>
<CAPTION>
                                                                  AGGREGATE
                                                               NUMBER OF SHARES    PERCENTAGE
                  NAME OF BENEFICIAL OWNER                    BENEFICIALLY OWNED     OWNED
                  ------------------------                    ------------------   ----------
<S>                                                           <C>                  <C>
Johnnie Lou LaRoche(1)......................................       297,500            69.2%
W. Walter LaRoche, III(1)...................................        42,500             9.9
Victoria E. LaRoche(1)......................................        42,500             9.9
Louanne C. LaRoche(1).......................................        42,500             9.9
Harold W. Ingalls...........................................         1,506               *
Paul L. M. Beckwith, Ph.D...................................           800               *
George R. Wislar............................................           550               *
C. L. Wagner, Jr............................................           400               *
Robert L. Yohe..............................................           300               *
John R. Hall................................................           200               *
David A. Lillback...........................................           279               *
Directors and executive officers as a group (15) Persons....       429,633             100%
</TABLE>

---------------

 *  Indicates that the percentage beneficially owned was less than 1.0%.
(1) The LaRoche Family may be deemed to be a "group" for purposes of Section
    13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
    Act"), although there is no agreement among them with respect to the
    acquisition, retention, disposition or voting of the Company's common stock.

                                       33
<PAGE>   35

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Pursuant to a Salary Continuation Agreement entered into by the Company and
her late husband beginning in 1989, Johnnie Lou LaRoche received death benefit
payments of $438,612 per year through June 1997. A portion of these payments was
funded by the proceeds of an insurance policy on the life of Mr. LaRoche of
which the Company was a beneficiary.

     On June 30, 1997, the Company entered into a Consulting Agreement with
Johnnie Lou LaRoche, a Director of the Company, pursuant to which Mrs. LaRoche
will provide various consulting services to the Company in exchange for a
consultant fee of $438,612 per year. The Consulting Agreement has an initial
term of one year expiring June 30, 1998, and is automatically renewed for
successive one year periods, until terminated by either party upon 30 days
notice after May 31, 1998. During fiscal 1999, the payments under this contract
were suspended indefinitely pending improved financial performance of the
Company.

                                       34
<PAGE>   36

                                    PART IV

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

(A) DOCUMENTS FILED AS PART OF THIS REPORT:

<TABLE>
<CAPTION>
                                                                    PAGE
                                                                   NUMBER
                                                                   ------
<S>  <C>                                                           <C>
(1)  Financial Statements
     Report of Independent Auditors..............................   F-1
     Consolidated Balance Sheets.................................   F-2
     Consolidated Statements of Operations and Comprehensive
     (Loss) Income...............................................   F-3
     Consolidated Statements of Stockholders' (Deficit) Equity...   F-4
     Consolidated Statements of Cash Flows.......................   F-5
     Notes to Consolidated Financial Statements..................   F-6
(2)  Financial Statement Schedules
     Schedule II Valuation and Qualifying Accounts...............   S-1
</TABLE>

   All other schedules for which provision is made in the applicable accounting
   regulations of the Securities and Exchange Commission are not required under
   the related instruction or are inapplicable and therefore have been omitted.

    (3) Exhibits

     The following exhibits are filed as part of this Report:

<TABLE>
<CAPTION>
EXHIBIT
  NO.                            DESCRIPTION OF EXHIBIT
-------                          ----------------------
<C>      <S>  <C>
 3.1     --   Certificate of Incorporation of the Company, together with
              amendments thereto(1).
 3.2     --   Bylaws of the Company(1).
 4.1     --   Indenture, dated as of August 17, 1994, between NationsBank
              of Georgia, National Association, as Trustee, and the
              Company(4).
 4.2     --   Form of Note (included in Exhibit 4.1)(4).
 4.3     --   Indenture, dated as of September 23, 1997, by and between
              the Company and State Street Bank and Trust Company, as
              Trustee(10).
 4.4     --   Form of Note (included in Exhibit 4.3)(10).
10.4     --   Shareholders Agreement (and amendment thereto), dated August
              1, 1997, by and among the Company, LII Europe S.A.R.L.,
              Rhone-Poulenc Chimie S.A. and Rhone L S.A.S.(10).
10.5     --   Put and Call Agreement (and amendment thereto), dated August
              1, 1997, by and among the Company, LII Europe S.A.R.L.,
              Rhone-Poulenc Chimie S.A. and Rhone L S.A.S.(10).
10.6++   --   Agreement for Purchase and Supply of Electricity, Steam and
              Other Products, dated October 17, 1997, by and among
              ChlorAlp S.A.S., CEVCO G.I.E., and Rhone-Poulenc Chimie
              S.A.(10).
10.7++   --   Supply and Purchase Agreement (Chlorine), dated October 17,
              1997, by and between Rhone-Poulenc Chimie and ChlorAlp
              S.A.S.(10).
10.8     --   Chlorine Side Letter, dated October 17, 1997, by and among
              ChlorAlp S.A.S., Rhone-Poulenc Chimie and the Company(10).
10.9++   --   Supply and Purchase Agreement (Caustic Soda), dated October
              17, 1997, by and between Rhone-Poulenc Chimie and ChlorAlp
              S.A.S.(10).
10.10++  --   Supply and Purchase Agreement (Hydrochloric Acid), dated
              October 17, 1997, by and between Rhone-Poulenc Chimie and
              ChlorAlp S.A.S.(10).
</TABLE>

                                       35
<PAGE>   37

<TABLE>
<CAPTION>
EXHIBIT
  NO.                            DESCRIPTION OF EXHIBIT
-------                          ----------------------
<C>      <S>  <C>
10.11++  --   Supply and Purchase Agreement (Hydrogene), dated October 17,
              1997, by and between Rhone-Poulenc Chimie and ChlorAlp
              S.A.S.(10).
10.12++  --   Supply and Purchase Agreement (Sulfuric Acid), dated October
              17, 1997, by and between Rhone-Poulenc Chimie and ChlorAlp
              S.A.S.(10).
10.13++  --   Supply and Purchase Agreement (Sodium Hypochlorite), dated
              October 17, 1997, by and between Rhone-Poulenc Agro Chimie
              and ChlorAlp S.A.S.(10).
10.14++  --   Supply and Purchase Agreement (Gaseous Chlorine-Caustic
              Soda), dated October 17, 1997, by and between Rhone-Poulenc
              Agro Chimie and ChlorAlp S.A.S.(10).
10.21    --   Credit Agreement, dated as of August 26, 1997, among the
              Company, the Lenders party hereto and the Chase Manhattan
              Bank, as Administrative Agent(9).
10.22    --   First Amendment to Credit Agreement, dated as of August 26,
              1997, among the Company, the Lenders party hereto and the
              Chase Manhattan Bank, as Administrative Agent(10).
10.23+   --   Consulting Agreement, dated as of June 30, 1997, between the
              Company and Johnnie Lou LaRoche(9).
10.24+   --   LaRoche Chemicals Inc. 1989 Key Management Stock
              Appreciation Bonus Plan(1).
10.25+   --   LaRoche Holdings Inc. Supplemental Employee Retirement
              Plan(1).
10.26+   --   LaRoche Executive Management Health Program(1).
10.27+   --   Management Stock Purchase Plan and forms of related
              agreements with executive officers(3).
10.28+   --   LaRoche Industries Inc. 1995 Board of Directors Stock
              Purchase Plan and form of agreement(5).
10.29    --   Hydrate Partnership Agreement, dated as of January 1, 1993,
              between Kaiser and LCI(1).
10.30    --   Amended and Restated Hydrate Sales Agreement, dated as of
              May 27, 1997 and effective as of August 1, 1995, between
              Kaiser and the Hydrate Partnership(8).
10.31    --   Powerhouse Operating Agreement, dated as of July 26, 1988,
              between Kaiser and LCI, as amended January 8, 1994(1).
10.32    --   Powerhouse Lease, dated as of July 26, 1988, between Kaiser
              and LCI(1).
10.35    --   Salt Agreement, dated as of May 3, 1957, between Texaco and
              Kaiser, as amended May 15, 1968(1).
10.36    --   Supply Agreement, dated as of April 1994, between
              AlliedSignal Inc. and LCI (portions redacted pursuant to a
              confidentiality request)(1).
10.37    --   Joint Venture Agreement, dated as of July 26, 1994, between
              Cytec Ammonia, Inc. and LaRoche Fortier Inc.(2).
10.38    --   Waiver and Amendment No. 2 to Credit Agreement, dated as of
              August 26, 1997, among the Company, the Lenders party
              thereto and the Chase Manhattan Bank, as Administrative
              Agent(10).
10.39+   --   Form of 1997 Stock Option Plan(10).
10.40+   --   Form of Management Stock-Based Incentive Plan(10).
10.41+   --   Form of Annual Incentive Plan(10).
10.42*   --   Amended and Restated Credit Agreement amending the Credit
              Agreement, dated as of August 26, 1997, among the Company,
              the Lenders party thereto and The Chase Manhattan Bank, as
              administrative agent.
12*      --   Statement regarding Computation of Ratios of Earnings to
              Fixed Charges.
</TABLE>

                                       36
<PAGE>   38

<TABLE>
<CAPTION>
EXHIBIT
  NO.                            DESCRIPTION OF EXHIBIT
-------                          ----------------------
<C>      <S>  <C>
21*      --   Subsidiaries of the Registrant.
27*      --   Financial Data Schedule (for SEC use only).
</TABLE>

---------------

   * Filed herewith.
   + Denotes a management contract or compensatory plan required to be filed
     pursuant to Item 601(b)(10)(iii) of Regulation S-K.
  ++ Portions of these documents have been omitted pursuant to a request for
     confidential treatment under Rule 406 of the Securities Act of 1933, as
     amended.
 (1) Previously filed as an exhibit to Registration Statement No. 33-79532 filed
     May 31, 1994 and incorporated herein by reference.
 (2) Previously filed as an exhibit to Amendment No. 3 to Registration Statement
     No. 33-79532 filed August 3, 1994 and incorporated herein by reference.
 (3) Previously filed as an exhibit to Amendment No. 4 to Registration Statement
     No. 33-79532 filed August 9, 1994 and incorporated herein by reference.
 (4) Previously filed as an exhibit to the Company's Quarterly Report on Form
     10-Q for the period ended August 31, 1994 and incorporated herein by
     reference.
 (5) Previously filed as an exhibit to the Company's Quarterly Report on Form
     10-Q for the period ended August 31, 1995 and incorporated herein by
     reference.
 (6) Previously filed as an exhibit to the Company's Quarterly Report on Form
     10-Q for the period ended November 30, 1996 and incorporated herein by
     reference.
 (7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
     for the period ended February 28, 1997 and incorporated herein by
     reference.
 (8) Previously filed as an exhibit to the Company's Quarterly Report on Form
     10-Q for the period ended May 31, 1997 and incorporated herein by
     reference.
 (9) Previously filed as an exhibit to the Company's Quarterly Report on Form
     10-Q for the period ended August 31, 1997 and incorporated herein by
     reference.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
     for the period ended February 28, 1998 and incorporated herein by
     reference.

(B) REPORTS ON FORM 8-K

     (1) Current Report on Form 8-K. None filed in the fourth quarter of fiscal
1999.

(C) REQUIRED EXHIBITS

     The exhibits required to be filed with this Report are listed in Item
14(a)(3) and on the Exhibit Index page immediately following the signature page
hereto.

(D) REQUIRED FINANCIAL STATEMENT SCHEDULES

     The financial statement schedule required to be filed with this Report is
listed in Item 14(a)(2) and appears on page S-1.

                                       37
<PAGE>   39

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the undersigned Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on May 29,
1998.

                                          LAROCHE INDUSTRIES INC.

                                          By:     /s/ GERALD B. CURRAN
                                            ------------------------------------
                                                      Gerald B. Curran
                                             Vice President and Chief Financial
                                                           Officer
                                            (Principal Financial and Accounting
                                                           Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated on May 29, 1999.

<TABLE>
<CAPTION>
                      SIGNATURE                                              TITLE
                      ---------                                              -----
<C>                                                      <S>

                /s/ HAROLD W. INGALLS                    President, Chief Executive Officer and
-----------------------------------------------------      Director
                  Harold W. Ingalls

                /s/ GERALD B. CURRAN                     Vice President and Chief Financial Officer
-----------------------------------------------------
                  Gerald B. Curran

             /s/ W. WALTER LAROCHE, III                  Chairman of the Board
-----------------------------------------------------
               W. Walter LaRoche, III

               /s/ VICTORIA E. LAROCHE                   Vice Chairman of the Board
-----------------------------------------------------
                 Victoria E. LaRoche

                  /s/ JOHN R. HALL                       Director
-----------------------------------------------------
                    John R. Hall

               /s/ JOHNNIE LOU LAROCHE                   Director
-----------------------------------------------------
                 Johnnie Lou LaRoche

               /s/ LOUANNE C. LAROCHE                    Director
-----------------------------------------------------
                 Louanne C. LaRoche

                /s/ C. L. WAGNER, JR.                    Director
-----------------------------------------------------
                  C. L. Wagner, Jr.

                /s/ GEORGE R. WISLAR                     Director
-----------------------------------------------------
                  George R. Wislar

                 /s/ ROBERT L. YOHE                      Director
-----------------------------------------------------
                   Robert L. Yohe
</TABLE>

                                       38
<PAGE>   40

                            LAROCHE INDUSTRIES INC.

                       CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended February 28, 1999, 1998 and 1997

                                    CONTENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Auditors..............................  F-1
Consolidated Balance Sheets.................................  F-2
Consolidated Statements of Operations and Comprehensive
  (Loss) Income.............................................  F-3
Consolidated Statements of Stockholders' (Deficit) Equity...  F-4
Consolidated Statements of Cash Flows.......................  F-5
Notes to Consolidated Financial Statements..................  F-6
</TABLE>
<PAGE>   41

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
LaRoche Industries Inc.

     We have audited the accompanying consolidated balance sheets of LaRoche
Industries Inc. as of February 28, 1999 and 1998, and the related consolidated
statements of operations and comprehensive (loss) income, stockholders'
(deficit) equity, and cash flows for each of the three years in the period ended
February 28, 1999. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule 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 LaRoche
Industries Inc. at February 28, 1999 and 1998, and the consolidated results of
its operations and comprehensive (loss) income and its cash flows for each of
the three years in the period ended February 28, 1999, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
financial information set forth therein.

                                                 /s/ ERNST & YOUNG LLP

Atlanta, Georgia
May 18, 1999
Except for Note 9, which is as of June 3, 1999

                                       F-1
<PAGE>   42

                            LAROCHE INDUSTRIES INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  FEBRUARY 28,
                                                              --------------------
                                                                1999        1998
                                                              ---------   --------
                                                                 (IN THOUSANDS,
                                                               EXCEPT SHARE DATA)
<S>                                                           <C>         <C>
                                      ASSETS
Current assets:
  Cash and cash equivalents.................................  $   5,380   $ 12,884
  Receivables (Notes 7 and 13):
     Trade, net of allowances of $499 and $527 in 1999 and
      1998, respectively....................................     54,527     46,386
     Refundable income taxes................................      5,037     11,495
     Other..................................................      3,196      2,961
  Inventories (Notes 2, 4 and 7)............................     22,105     27,613
  Net assets of discontinued operations (Notes 3 and 9).....     27,080     42,758
  Other current assets......................................      3,468      1,162
                                                              ---------   --------
          Total current assets..............................    120,793    145,259
Investments in and advances to affiliates (Note 5)..........     48,082     46,577
Property, plant and equipment, at cost (Notes 2 and 6)......    310,092    274,900
  Less accumulated depreciation.............................   (106,497)   (89,521)
                                                              ---------   --------
Net property, plant and equipment...........................    203,595    185,379
Other assets................................................     17,307     17,933
                                                              ---------   --------
          Total assets......................................  $ 389,777   $395,148
                                                              =========   ========
                  LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
  Revolving credit facility (Note 7)........................  $  55,388   $ 22,000
  Accounts payable..........................................     48,166     51,101
  Accrued compensation......................................      5,039      8,503
  Other accrued liabilities.................................     34,864     15,457
  Current portion of long-term debt (Note 7)................      4,375      7,657
                                                              ---------   --------
          Total current liabilities.........................    147,832    104,718
Long-term debt (Note 7).....................................    202,221    207,418
Deferred income taxes (Note 11).............................      4,044     10,025
Other noncurrent liabilities (Note 8).......................     45,757     37,834
Commitments and contingencies (Note 10).....................
Redeemable common stock (Note 12)...........................        528      3,505
Stockholders' (deficit) equity:
  10% cumulative, voting preferred stock, $.01 par value,
     200 shares authorized, no shares outstanding...........         --         --
  Common stock, $.01 par value, 1,200 shares authorized, 425
     non-redeemable shares issued...........................          4          4
  Capital in excess of par value............................        630        630
  Retained (deficit) earnings...............................    (10,491)    31,225
  Accumulated other comprehensive loss......................       (748)      (211)
                                                              ---------   --------
          Total stockholders' (deficit) equity..............    (10,605)    31,648
                                                              ---------   --------
          Total liabilities and stockholders' (deficit)
           equity...........................................  $ 389,777   $395,148
                                                              =========   ========
</TABLE>

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

                                       F-2
<PAGE>   43

                            LAROCHE INDUSTRIES INC.

     CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

<TABLE>
<CAPTION>
                                                                 YEARS ENDED FEBRUARY 28,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Net sales...................................................  $389,542   $342,570   $339,044
Cost of sales...............................................   357,750    287,535    276,134
                                                              --------   --------   --------
Gross profit................................................    31,792     55,035     62,910
Selling, general and administrative expenses................    45,431     49,742     48,376
                                                              --------   --------   --------
(Loss) income from continuing operations....................   (13,639)     5,293     14,534
Interest and amortization of debt expense...................   (20,314)   (14,539)   (12,249)
Income (loss) from equity investments (Note 5)..............     2,614       (619)        31
Other income, net...........................................     1,150        141        397
                                                              --------   --------   --------
(Loss) income from continuing operations before income taxes
  and extraordinary charge..................................   (30,189)    (9,724)     2,713
(Provision) benefit for income taxes (Note 11)..............    (2,779)     3,762     (1,072)
                                                              --------   --------   --------
(Loss) income from continuing operations before
  extraordinary charge......................................   (32,968)    (5,962)     1,641
Discontinued operations (Notes 3 and 9):
  (Loss) income from operations of Alumina Chemical
     Division, net of tax benefit (provision) of $1,227,
     ($109) and $655, respectively..........................    (1,899)       163       (982)
  (Loss) on disposal of Alumina Chemical Division including
     operating losses during phase-out period of $493 and
     loss on disposal of assets of $8,804, net of taxes of
     $3,646.................................................    (5,651)        --         --
                                                              --------   --------   --------
(Loss) income before extraordinary charge...................   (40,518)    (5,799)       659
Extraordinary charge from debt extinguishment in 1998, net
  of $7,740 tax benefit.....................................        --    (12,290)        --
                                                              --------   --------   --------
Net (loss) income...........................................  $(40,518)  $(18,089)  $    659
                                                              --------   --------   --------
Other comprehensive (loss), before tax:
  Foreign currency translation adjustments..................      (400)      (150)        --
  Minimum pension liability adjustments.....................      (496)        26       (211)
                                                              --------   --------   --------
Other comprehensive (loss) before tax.......................      (896)      (124)      (211)
Income tax benefit related to items of other comprehensive
  loss......................................................       359         50         74
                                                              --------   --------   --------
Other comprehensive loss....................................      (537)       (74)      (137)
                                                              --------   --------   --------
Comprehensive (loss) income.................................  $(41,055)  $(18,163)  $    522
                                                              ========   ========   ========
</TABLE>

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

                                       F-3
<PAGE>   44

                            LAROCHE INDUSTRIES INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

<TABLE>
<CAPTION>
                                                                                ACCUMULATED
                                                      CAPITAL IN   RETAINED        OTHER
                                             COMMON   EXCESS OF    (DEFICIT)   COMPREHENSIVE
                                             STOCK    PAR VALUE    EARNINGS        LOSS         TOTAL
                                             ------   ----------   ---------   -------------   --------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>      <C>          <C>         <C>             <C>
Balance at February 29, 1996...............    $4        $630      $ 50,662        $  --       $ 51,296
  Net income...............................    --          --           659           --            659
  Dividends paid, $2.50 per share..........    --          --          (912)          --           (912)
  Pension adjustments......................    --          --            --         (137)          (137)
                                               --        ----      --------        -----       --------
Balance at February 28, 1997...............     4         630        50,409         (137)        50,906
  Net loss.................................    --          --       (18,089)                    (18,089)
  Dividends paid, $2.50 per share..........    --          --        (1,095)                     (1,095)
  Foreign currency translation
     adjustments...........................    --          --            --          (90)           (90)
  Pension adjustments......................    --          --            --           16             16
                                               --        ----      --------        -----       --------
Balance at February 28, 1998...............     4         630        31,225         (211)        31,648
  Net loss.................................    --          --       (40,518)                    (40,518)
  Dividends paid, $2.75 per share..........    --          --        (1,198)                     (1,198)
  Foreign currency translation
     adjustments...........................    --          --            --         (240)          (240)
  Pension adjustments......................    --          --            --         (297)          (297)
                                               --        ----      --------        -----       --------
Balance at February 28, 1999...............    $4        $630      $(10,491)       $(748)      $(10,605)
                                               ==        ====      ========        =====       ========
</TABLE>

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

                                       F-4
<PAGE>   45

                            LAROCHE INDUSTRIES INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEARS ENDED FEBRUARY 28,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES
Net (loss) income...........................................  $(40,518)  $(18,089)  $    659
Adjustments to reconcile net (loss) income to net cash
  provided by operating activities:
     Depreciation and amortization..........................    27,796     19,594     20,785
     Deferred income taxes..................................    (5,981)    (4,737)     6,667
     Equity income, net of distributions....................    (2,637)       707        792
     Net (gain) loss on disposal of assets..................       (29)     1,573       (349)
     Loss (income) from discontinued operations and loss on
       disposal.............................................     7,550       (163)       982
     Extraordinary charge from debt extinguishment..........        --     12,290         --
     Changes in operating assets and liabilities (excluding
       acquisitions):
          Receivables.......................................    (1,918)   (10,670)     2,187
          Inventories.......................................     5,508      9,511       (399)
          Other assets......................................    (2,414)      (285)    (2,880)
          Accounts payable..................................    (2,935)    18,408     (1,778)
          Accrued liabilities...............................    15,927      7,323     (5,313)
          Noncurrent liabilities and other..................     7,154        979      1,834
                                                              --------   --------   --------
Net cash provided by continuing operating activities........     7,503     36,441     23,187
                                                              --------   --------   --------
Net cash provided by operating activities of discontinued
  operations................................................     4,653      7,048      2,145
                                                              --------   --------   --------
INVESTING ACTIVITIES
Capital expenditures........................................   (44,191)   (33,362)   (32,657)
Acquisition of businesses...................................        --    (17,622)        --
Investments in and advances to affiliates...................      (127)   (35,031)    (2,631)
Plant turnarounds...........................................    (3,723)    (1,179)    (5,038)
Proceeds from sale of facilities............................     4,051         36      3,708
                                                              --------   --------   --------
Net cash used by investing activities of continuing
  operations................................................   (43,990)   (84,800)   (36,618)
                                                              --------   --------   --------
Net cash provided by disposition and (used for) other
  investing activities of discontinued operation............     3,485     (6,885)    (3,127)
                                                              --------   --------   --------
FINANCING ACTIVITIES
Net proceeds (repayments) under revolving credit facility...    33,378    (15,605)    32,850
Proceeds from issuance of long-term debt....................        --    209,216         --
Repayments of long-term debt................................    (8,558)  (102,949)   (11,654)
Premium payments on the early extinguishment of debt and
  costs of refinancing......................................        --    (29,489)        --
Sales of common stock with redemption features..............       128        326      3,187
Purchases of common stock with redemption features..........    (2,336)      (750)   (11,158)
Dividends paid..............................................    (1,198)    (1,095)      (912)
                                                              --------   --------   --------
Net cash provided by financing activities...................    21,414     59,654     12,313
                                                              --------   --------   --------
Effect of exchange rate changes on cash.....................      (569)       261         --
Net (decrease) increase in cash.............................    (7,504)    11,719     (2,100)
Cash at beginning of year...................................    12,884      1,165      3,265
                                                              --------   --------   --------
Cash at end of year.........................................  $  5,380   $ 12,884   $  1,165
                                                              ========   ========   ========
</TABLE>

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

                                       F-5
<PAGE>   46

                            LAROCHE INDUSTRIES INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

     LaRoche Industries Inc. ("LII") is engaged in the manufacture, distribution
and sale of agricultural and industrial nitrogen products, bulk fertilizer
materials and electrochemical products in the United States and Europe. These
consolidated financial statements include the accounts of LaRoche Industries
Inc. and all majority-owned subsidiaries. Investments in 50%-or-less owned
entities are accounted for by the equity method. All significant inter-company
transactions and balances have been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, actual results
inevitably will differ from those estimates and such differences may be material
to the financial statements.

REVENUE RECOGNITION AND TRADE RECEIVABLES

     The Company generally recognizes revenue upon shipment to customers. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Terms on trade receivables
are granted in accordance with industry practice.

INVENTORIES

     Inventories are valued at the lower of cost or market. At February 28, 1999
and 1998, the cost of approximately 15.6% and 8.5%, respectively, of total
inventories was determined using the last-in, first-out ("LIFO") method. Costs
for other inventories are determined on a first-in, first-out ("FIFO") or
average cost basis.

TURNAROUND COSTS

     Costs related to the periodic, scheduled major maintenance of continuous
process production facilities ("turnaround costs") are capitalized when incurred
and are amortized on a straight-line basis over the period until the next
scheduled plant turnaround, generally ranging from one to three years.
Amortization of turnaround expenditures used in continuing operations totaled
$2,832, $3,240 and $3,530 for the fiscal years 1999, 1998 and 1997,
respectively. Expenditures for routine repair and maintenance are charged to
current operating expenses.

PROPERTY, PLANT AND EQUIPMENT

     Property, plant, and equipment, including amounts under capital leases
(Note 10), are depreciated using the straight-line method for financial
reporting purposes and accelerated methods for tax purposes over their estimated
useful lives as follows:

<TABLE>
<S>                                                          <C>
Buildings and improvements.................................  20 to 35 years
Machinery and equipment....................................   5 to 15 years
</TABLE>

     Depreciation expense from continuing operations totaled approximately
$22,772, $14,814 and $13,758 for fiscal years ended February 28, 1999, 1998 and
1997, respectively. Capitalized costs of certain long-term assets include
capitalized interest that is amortized over the estimated useful life of the
related asset. The Company

                                       F-6
<PAGE>   47
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

capitalized interest costs of $516, $1,089 and $860 on eligible projects during
fiscal 1999, 1998 and 1997, respectively.

OTHER ASSETS

     The Company amortizes its deferred debt issuance costs, goodwill,
non-compete agreements and other assets using the straight-line method over
lives ranging from two to twenty years. Accumulated amortization of other assets
used in continuing operations totaled $5,678 and $4,108 for the fiscal years
ended February 28, 1999 and 1998, respectively.

FOREIGN CURRENCY TRANSLATION

     Assets and liabilities of the Company's foreign operations are generally
translated from the foreign currency at the rate of exchange in effect as of the
balance sheet date. Revenues and expenses are generally translated at average
monthly exchange rates during the year. Resulting translation adjustments are
reflected in accumulated comprehensive loss in stockholders' (deficit) equity.

DERIVATIVES

     The Company enters into financial instruments to reduce its exposure to
foreign currency risk from its net investments in and expected cash flows from
its foreign operations. The Company includes in income the gains and losses
related to the portion of these agreements which are not designated as
accounting hedges based upon the market values of the instrument. Gains and
losses related to the portion of these agreements designated as accounting
hedges of the Company's net foreign investment are included as a component of
the accumulated comprehensive loss in stockholders' (deficit) equity.

     The Company also buys call options and sells put options to effectively
establish a range (or collar) of natural gas prices to hedge natural gas
purchases against rising prices. In addition, the Company has entered into a
spread oil swap agreement designed to hedge the Company's exposure to energy
costs associated with its investment in a French chlor-alkali joint venture.
Gains or losses on these contracts are recognized as a component of the related
transaction. The contracts are entered into with financial counter-parties. The
Company is exposed to risk of loss in the event of nonperformance by the
counter-parties; however, the Company does not anticipate such nonperformance.
See Note 13.

INCOME TAXES

     The Company accounts for income taxes in accordance with the liability
method of accounting. Accordingly, deferred tax liabilities and assets are
established based on the difference between the financial statement and income
tax bases of assets and liabilities using enacted tax rates. Deferred tax assets
are recognized to the extent that realization of the benefits therefrom are more
likely than not.

RESEARCH AND DEVELOPMENT COSTS

     Costs incurred in connection with research and development of new
technologies are charged to expense as incurred. Included in the accompanying
consolidated statements of operations are approximately $426, $2,791 and $2,856
of research and development costs for the years ending February 28, 1999, 1998
and 1997, respectively.

EARNINGS PER SHARE

     Per share data has not been presented since such data provides no useful
information as the shares of the Company are closely held.

                                       F-7
<PAGE>   48
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECLASSIFICATIONS

     Certain amounts for the 1998 and 1997 fiscal years have been reclassified
to conform to the 1999 presentation of discontinued operations. Other prior year
amounts have been reclassified to conform to current year presentation.

NEW ACCOUNTING STANDARDS

     Effective March 1, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130 -- Reporting Comprehensive Income, SFAS No.
131 -- Disclosures about Segments of an Enterprise and Related Information and
SFAS No. 132 -- Employers' Disclosure about Pensions and Other Postretirement
Benefits. These standards increased the financial reporting disclosures, but had
no impact on the Company's financial position or results of operations.
Reclassifications have been made to the previously reported financial statements
to conform with these financial reporting requirements.

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("the Statement" or "SFAS 133"). The Statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on the derivative designation. The Statement is
required to be adopted in fiscal 2000. The Company has not yet determined the
impact on the financial position or results of operation from adoption of this
standard. In February 1998, Statement of Position ("SOP") 98-1 (Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use) was issued
and is effective for fiscal years beginning after December 15, 1998. The Company
adopted this statement in fiscal 1999 and the impact on the financial position
and results of operations was insignificant.

STATEMENTS OF CASH FLOWS

     The Company considers all liquid investments with initial maturities of
three months or less to be cash equivalents. Additional cash flow and non-cash
investing and financing information follows:

<TABLE>
<CAPTION>
                                                             1999      1998      1997
                                                            -------   -------   -------
<S>                                                         <C>       <C>       <C>
Supplemental disclosures of cash flow information:
          Cash paid (received) during the year for:
          Interest........................................  $21,920   $ 9,763   $15,192
          Income taxes, net of amounts refunded...........   (8,561)   (1,827)     (809)
Non-cash investing and financing activities:
     Capital leases for new equipment.....................       --       313        90
     Liabilities assumed in business acquisition..........       --     2,677        --
</TABLE>

3. STRATEGIC TRANSACTIONS

     Dispositions.  In June 1999, the Company reached an agreement to sell
operating assets of the Alumina Chemicals business segment ("Aluminas") for
approximately $39,500 plus working capital. In anticipation of such sale, at
February 28, 1999, the Company recorded an after-tax loss on disposal of assets,
including operating losses during the phase-out period, of $5,651. See footnote
9 for additional discussion of the discontinued operations reporting.

     Acquisitions.  In October 1997, the Company acquired a 50% interest in
ChlorAlp S.A.S. ("ChlorAlp"), a joint venture company with Rhodia S.A.
("Rhodia"). ChlorAlp owns and operates, among other things, a chlorine, caustic
soda and bleach manufacturing and distribution facility in Pont-de-Claix,
France. The acquisition was accounted for as a purchase; accordingly, the
consolidated statement of operations

                                       F-8
<PAGE>   49
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

includes the Company's share of the results of operations of ChlorAlp since the
effective date of the acquisition using the equity method of accounting. The
total investment cost was approximately $35,500, including a French Franc loan
to ChlorAlp of approximately $10,900. The Company's loan to ChlorAlp is a
five-year loan at an interest rate of 6%, with a varying principal repayment
structure. The Company is currently in negotiations to purchase the remaining
50% interest in ChlorAlp. The purchase price is approximately 170 million French
Francs (approximately $28,000), subject to certain adjustments. Subject to terms
of an agreement reached upon the Company's purchase of the initial investment in
ChlorAlp, if the Company cannot or does not purchase the remaining 50% in
ChlorAlp, Rhodia would have the right to require the Company to sell its 50%
interest to Rhodia in one year for approximately 95 million French Francs
(approximately $16,000), subject to certain adjustments. As a condition of their
investment in ChlorAlp, the Company has agreed to reimburse Rhodia for the
Company's proportionate share of any amounts that Rhodia may be ultimately
required to pay under its pre-existing guarantee of certain steam turbine lease
obligations. The Company's proportionate share under such arrangement is limited
to a maximum of 172 million French Francs (approximately $29,000) over the
original lease term, of which approximately four years remain.

     On December 31, 1997, the Company, purchased chlor-alkali and chlorinated
methane compounds manufacturing facilities (the "Frankfurt Facilities") located
near Frankfurt, Germany from Celanese GmbH, a wholly-owned subsidiary of Hoechst
AG for a total cost of approximately $20,445, including assumption of certain
liabilities. The acquisition was accounted for as a purchase; accordingly, the
consolidated statement of operations includes the results of the operations of
the Frankfurt Facilities since the acquisition date. The Company funded the
purchase with funds drawn from the Revolving Credit Facility. The total cost of
the acquisition was allocated as follows:

<TABLE>
<S>                                                           <C>
Receivables.................................................  $ 2,677
Inventory...................................................    2,878
Plant, equipment and other..................................   20,444
Pension liability...........................................   (1,435)
Other liabilities assumed...................................   (4,119)
                                                              -------
                                                              $20,445
                                                              =======
</TABLE>

     Restructuring.  During the fourth quarter of fiscal 1999, the Company
announced a restructuring of its corporate headquarters designed to decentralize
certain corporate functions and reduce the workforce. A total of 34 employees
were terminated as a result of this action. The Company recorded a restructuring
charge of $2,054 for termination benefits, lease abandonment commitments and
related costs, offset by a $1,399 curtailment gain on retirement benefits. As of
February 28, 1999, 25 of the terminated employees had left the Company and $244
had been charged to the restructuring reserve. The remaining employees will
leave the Company during fiscal 2000 and the associated costs will be
substantially paid by September 1999.

4. INVENTORIES

     Components of inventory of continuing operations are as follows:

<TABLE>
<CAPTION>
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Finished goods and in-progress..............................  $ 7,695   $12,602
Inventory purchased for resale..............................    3,122     6,689
Raw materials...............................................    1,358       932
Supplies and catalysts......................................   10,470     7,796
                                                              -------   -------
                                                               22,645    28,019
Less LIFO reserve...........................................     (540)     (406)
                                                              -------   -------
                                                              $22,105   $27,613
                                                              =======   =======
</TABLE>

                                       F-9
<PAGE>   50
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. EQUITY INVESTMENTS

     The Company is an equity investor in several joint ventures that it
accounts for under the equity method of accounting. At February 28, 1999, the
primary investees include ChlorAlp (50% owned, electrochemical products),
Avondale Ammonia (50% owned, nitrogen products) and two nitrogen warehouses. At
February 28, 1998, the investees included ChlorAlp, Avondale Ammonia and two
interests held by Aluminas, Kaiser LaRoche Hydrate Partnership (45%) and CRILAR
(50%), as well as smaller holdings.

     Excluding Avondale Ammonia, all income generated by the equity investees is
distributed to the partners relative to their respective partnership interests.
Avondale Ammonia generally does not generate income or loss because all
production is transferred to the partners at Avondale Ammonia's cost. Each
partner in Avondale provides their respective portions of natural gas.

     Summarized financial information since the date of investment by the
Company for unconsolidated entities (excluding Avondale Ammonia) is as follows:

<TABLE>
<CAPTION>
                                                               1999       1998     1997
                                                             --------   --------   ----
<S>                                                          <C>        <C>        <C>
Summary of operations:
  Net sales................................................  $110,500   $ 37,209   $768
  Gross profit.............................................    23,085      4,301     87
  Net income (loss)........................................     6,002     (1,238)    62
  Company's equity in earnings (loss)......................     2,614       (619)    31
Summary of financial position:
  Current assets...........................................  $ 32,752   $ 27,440
  Noncurrent assets........................................    77,675     86,473
                                                             --------   --------
          Total............................................  $110,427   $113,913
                                                             ========   ========
Current liabilities........................................  $ 29,204   $ 26,210
                                                             ========   ========
Noncurrent liabilities.....................................  $ 25,824   $ 36,000
                                                             ========   ========
</TABLE>

     Purchases from Avondale Ammonia were approximately $4,000, $8,400 and
$8,800 for the years ended February 28, 1999, 1998 and 1997, respectively.

6. PROPERTY, PLANT AND EQUIPMENT

     Components of the Company's property, plant and equipment used in
continuing operations are as follows:

<TABLE>
<CAPTION>
                                                                1999        1998
                                                              ---------   --------
<S>                                                           <C>         <C>
Land and land improvements..................................  $   9,984   $ 13,001
Buildings...................................................     16,651     22,735
Machinery and equipment.....................................    266,991    205,088
Equipment under capital leases..............................      3,875      4,673
Construction in progress....................................     12,591     29,403
                                                              ---------   --------
Property, plant and equipment, at cost......................    310,092    274,900
Accumulated depreciation....................................   (106,497)   (89,521)
                                                              ---------   --------
Property, plant and equipment, net..........................  $ 203,595   $185,379
                                                              =========   ========
</TABLE>

                                      F-10
<PAGE>   51
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. BORROWING ARRANGEMENTS

     The Company's borrowings include the following:

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Revolving credit facilities.................................  $ 55,388   $ 22,000
                                                              ========   ========
Term debt:
  9 1/2% senior subordinated notes..........................  $174,327   $174,248
  13% senior subordinated notes.............................       915        915
  Term loan.................................................    31,354     34,271
  Other notes payable.......................................        --      5,641
                                                              --------   --------
          Total.............................................   206,596    215,075
Less current portion........................................    (4,375)    (7,657)
                                                              --------   --------
Long-term debt..............................................  $202,221   $207,418
                                                              ========   ========
</TABLE>

     In September 1997, the Company completed a refinancing of its principal
borrowings. In connection with this refinancing, the Company issued $175.0
million principal amount of its 9  1/2% Senior Subordinated Notes due 2007 (the
"Notes"). A portion of the proceeds from the Notes was applied to repurchase
$99.1 million of the Company's 13% senior subordinated Notes due 2004 (the 13%
Notes) and a portion was used to repay existing borrowings under the Company's
previous credit facility. In connection with redeeming the 13% Notes, the
Company paid prepayment premiums and incurred other costs of $17.3 million and
expensed unamortized issuance costs associated with the 13% Notes of $2.7
million. The total loss recognized as a result of this early extinguishment of
debt amounted to $12.3 million (net of income tax benefit of $7.7 million) and
is reflected in the Company's consolidated statement of operations and
comprehensive (loss) income as an extraordinary charge in the fiscal 1998
results.

     The Notes require semi-annual interest only payments on March 15 and
September 15 each year. Debt issuance costs are being amortized over the life of
the Notes. The Notes are unsecured obligations of the Company and are redeemable
at the Company's option, in whole or in part, at any time on or after September
15, 2002 at redemption prices set out in the Notes indenture (the "Indenture").
The Indenture contains, among other things, limitations on stock redemptions,
dividends, borrowings and investments, and restricts the Company from entering
into certain transactions, all as set forth therein. The Indenture also imposes
additional restrictions on borrowing if the Company does not maintain a minimum
fixed charge coverage ratio for the preceding twelve month period. As of
February 28, 1999, the Company had not achieved the minimum fixed charge
coverage ratio, and accordingly, such limitations were in effect.

     In August 1997, the Company entered into a six year, $160.0 million senior
secured credit facility ("Credit Facility"), which provided for a $35 million
term loan ("Term Loan") and a $125 million revolving credit facility ("Revolving
Credit Facility"). The Credit Facility includes financial covenants that require
the Company to maintain certain debt to earnings and interest coverage ratios.
At February 28, 1998, the Company was not in compliance with certain of these
covenants, and received amendments and waivers with respect to such
noncompliance. At February 28, 1999, the Company again was not in compliance
with certain financial covenants, and the Credit Facility was amended and
restated effective as of that date to bring the Company into compliance.

     The Credit Facility is secured by substantially all of the domestic assets
of the Company and each of its domestic subsidiaries. Debt issuance costs are
being amortized over the life of the Credit Facility. Prior to the February 28,
1999 amendment and restatement, interest was based on either the prime rate plus
up to .75% or LIBOR plus up to 2.00%. Under the terms of the amended and
restated Credit Agreement, interest rates were increased to the prime rate plus
1.75%, or LIBOR plus 3.00%. The Company also pays commitment fees, on a
quarterly basis, up to 0.75% per annum of average unused balances. Concurrent
with the February 1999
                                      F-11
<PAGE>   52
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amendment, unamortized debt issuance costs of $1,010, proportionate to the
effect of the revised terms on the Revolving Credit Facility, were written off.

     On October 17, 1997, the Company borrowed $35.0 million under the Term Loan
to fund the ChlorAlp acquisition. Principal and interest payments under the Term
Loan are due quarterly in varying amounts until October 17, 2002, as defined in
the agreement. The borrowing rates at February 28, 1999 and 1998 were
approximately 7.5% and 7.6%, respectively.

     Availability under the amended and restated Revolving Credit Facility is
limited to $80 million until the earlier of (a) July 15, 1999, or (b) the
Company's purchase of the remaining 50% of ChlorAlp (see Note 3). After that
date, the amount available will be based on a percentage of domestic trade
receivables, inventory and certain property plant and equipment, as defined not
to exceed $90,000. At February 28, 1999, $48,500 was outstanding and an
additional $31,500 was available without violating any covenants under the
Revolving Credit Facility or the Notes Indenture. The weighted average borrowing
rates at February 28, 1999 and 1998 were approximately 8.2% and 8.0%,
respectively.

     The amended and restated Credit Facility imposes restrictions on
investments, acquisitions, repurchases of stock, borrowing and sales of assets.
It also imposes cumulative and annual limits on capital spending, as well as a
prohibition on the payment of dividends without the consent of the lenders. The
Company is also required to maintain certain leverage and interest coverage
ratios. While the Company expects to remain in compliance with the covenants
contained in the debt agreements, it is possible that the Company may not comply
with such covenants in the future.

     The Company also has available for its German operations an unsecured
revolving credit line providing for up to 17 million German marks (approximately
$9,597) at an average borrowing rate of approximately 4% ("German Credit
Facility"). As of February 28, 1999, the German Credit Facility had availability
of approximately $2,709 with approximately $6,888 outstanding at fiscal 1999
year-end.

     Maturities of long-term debt in each fiscal year are as follows: $4,375 in
2000, $6,562 in 2001, $7,292 in 2002, $8,021 in 2003, $5,104 in 2004 and
$175,915 thereafter.

                                      F-12
<PAGE>   53
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. EMPLOYEE BENEFITS

     The Company sponsors several qualified and nonqualified pension plans and
other postretirement benefit plans for employees. The following tables provide a
reconciliation of the changes in the plans' benefit obligation and fair value of
assets over the two-year period ending February 28, 1999 and a statement of the
funded status as of February 28 for both years.

<TABLE>
<CAPTION>
                                                                              OTHER POSTRETIREMENT
                                                             PENSIONS               BENEFITS
                                                        -------------------   ---------------------
                                                          1999       1998       1999        1998
                                                        --------   --------   ---------   ---------
<S>                                                     <C>        <C>        <C>         <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of fiscal year........  $ 43,497   $ 38,096   $ 23,207    $ 20,865
  Service cost........................................     2,290      2,326        473         371
  Interest cost.......................................     2,920      2,648      1,305       1,529
  Amendments..........................................    (2,256)        --         --          --
  Net actuarial loss (gain)...........................    (2,903)       663     (3,403)      1,112
  Acquisitions........................................        --      1,205         --          --
  Curtailment (gains).................................    (1,019)        --     (4,243)         --
  Special termination benefit.........................     1,861         --         --          --
  Participant contributions...........................        --        224         --          --
  Benefits paid.......................................    (2,075)    (1,665)      (820)       (670)
                                                        --------   --------   --------    --------
Benefit obligation at end of fiscal year..............  $ 42,315   $ 43,497   $ 16,519    $ 23,207
                                                        ========   ========   ========    ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of fiscal
  year................................................  $ 29,611   $ 24,188   $     --    $     --
  Actual return on plan assets........................     2,067      4,159         --          --
  Company contributions...............................     3,035      2,558        820         668
  Participant contributions...........................       244        224         --          --
  Settlements.........................................       (21)        --         --          --
  Benefits paid.......................................    (1,872)    (1,518)      (820)       (668)
                                                        --------   --------   --------    --------
Fair value of plan assets at end of fiscal year.......  $ 33,064   $ 29,611   $     --    $     --
                                                        ========   ========   ========    ========
RECONCILIATION OF FUNDED STATUS
Benefit obligation in excess of plan assets at end of
  fiscal year.........................................  $  9,279   $ 12,681   $ 16,519    $ 23,207
  Unrecognized actuarial gain/(loss)..................      (590)    (3,692)     7,544       4,890
  Unrecognized prior service cost.....................       873     (1,198)        --         203
                                                        --------   --------   --------    --------
  Accrued benefit liability at end of fiscal year.....  $  9,562   $  7,791   $ 24,063    $ 28,300
                                                        ========   ========   ========    ========
</TABLE>

     The following table provides the amounts recognized in the statement of
financial position as of February 28, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                              OTHER POSTRETIREMENT
                                                             PENSIONS               BENEFITS
                                                        -------------------   ---------------------
                                                          1999       1998       1999        1998
                                                        --------   --------   ---------   ---------
<S>                                                     <C>        <C>        <C>         <C>
Accrued benefit cost..................................  $(10,095)  $ (8,055)  $(24,063)   $(28,300)
Intangible asset......................................       115        143         --          --
Accumulated other comprehensive income................       418        121         --          --
                                                        --------   --------   --------    --------
Net amount recognized.................................  $ (9,562)  $ (7,791)  $(24,063)   $(28,300)
                                                        ========   ========   ========    ========
</TABLE>

                                      F-13
<PAGE>   54
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of periodic costs for the pension and other postretirement
benefits were as follows:

<TABLE>
<CAPTION>
                                                             1999      1998      1997
                                                            -------   -------   -------
<S>                                                         <C>       <C>       <C>
PENSIONS:
  Service cost............................................  $ 2,290   $ 2,326   $ 2,229
  Interest cost...........................................    2,920     2,648     2,240
  Expected return on plan assets..........................   (2,546)   (4,159)   (2,575)
  Amortization of prior service cost......................      172     2,271     1,007
  Recognized net actuarial cost...........................       53        --        --
                                                            -------   -------   -------
  Net periodic benefit cost...............................  $ 2,889   $ 3,086   $ 2,901
  Net curtailment and special termination benefit costs...      842        --        --
                                                            -------   -------   -------
          Total pension benefit cost......................  $ 3,731   $ 3,086   $ 2,901
                                                            =======   =======   =======
OTHER POSTRETIREMENT BENEFITS:
  Service cost............................................  $   473   $   371   $   426
  Interest cost...........................................    1,305     1,529     1,707
  Expected return on plan assets..........................       --        --        --
  Amortization of prior service cost......................     (196)     (203)     (203)
  Recognized net actuarial cost...........................     (756)     (351)      (38)
                                                            -------   -------   -------
  Net periodic benefit cost...............................      826     1,346     1,892
  Net curtailment and special termination benefit costs...   (4,243)       --        --
                                                            -------   -------   -------
          Total other postretirement benefit cost.........  $(3,417)  $ 1,346   $ 1,892
                                                            =======   =======   =======
</TABLE>

     Periodically, the Company has offered early retirement programs to certain
of its salaried and hourly employees for which special termination benefits are
recognized.

     The assumptions used in computing the preceding information are as follows:

<TABLE>
<CAPTION>
                                                              1999    1998    1997
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
PENSION:
Discount rate at end of fiscal year.........................  7.0%    7.0%    7.5%
Expected long-term rate of return on plan assets............  8.5%    8.5%    8.5%
Rates of increase in compensation levels....................  4.5%    5.5%    5.5%
OTHER POSTRETIREMENT BENEFITS:
Discount rate at end of fiscal year.........................  7.0%    7.0%    7.5%
</TABLE>

     The rate of increase in per capita costs of covered health care benefits is
assumed to be 7.4% in 1999, decreasing gradually to 5.0% by the year 2010. A one
percentage point change in the assumed health care cost trend rate would have
the following effects:

<TABLE>
<CAPTION>
                                                              INCREASE   DECREASE
                                                              --------   --------
<S>                                                           <C>        <C>
Effect on accumulated postretirement benefit obligation as
of February 28, 1999........................................   $2,068    $(2,147)
Effect on net periodic postretirement benefit cost in fiscal
  1999......................................................   $  251    $  (259)
</TABLE>

     In addition to the pension and postretirement plans, the Company maintains
defined contribution savings plans in which substantially all domestic employees
are eligible to participate. The Company made contributions to these plans of
approximately $211, $85 and $79 during fiscal 1999, 1998 and 1997, respectively.

                                      F-14
<PAGE>   55
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. DISCONTINUED OPERATIONS

     During November 1998, the Company adopted plans for the sale of Aluminas
and accounted for the financial results, net assets and cash flow of the
business unit as a discontinued operation. Accordingly, previously reported
financial results for all periods have been restated to reflect the business as
a discontinued operation.

     In connection with the decision to discontinue this business, the Company
recognized a loss of $493 from operations during the phase-out period (December
1, 1998, through the effective date of the sale) and a loss on the disposal of
assets of $8,804, which includes a curtailment gain from employee pension and
postretirement plans of $3,863 and gain on the sale of one of the equity
investments held by Aluminas of $6,500. At February 28, 1999, the Company had
accrued approximately $19,167 for the expected loss on the remaining assets and
included the amount in net assets of discontinued operation.

     Net sales from Aluminas were $30,365, $38,444 and $40,241 for fiscal 1999,
1998 and 1997, respectively. Operating losses from discontinued operations for
the same fiscal periods totaled ($4,957), ($115) and ($3,897). Net interest
expense allocated to discontinued operations on the basis of sales and assets
was $2,126, $2,971 and $2,632 during fiscal 1999, 1998 and 1997, respectively.
Net interest of $764 was allocated after measurement date. The net assets of the
discontinued operation at February 28, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Accounts receivable, net....................................  $10,240   $ 8,747
Inventory...................................................    7,983     8,786
                                                              -------   -------
          Total current assets..............................   18,223    17,533
                                                              -------   -------
Property, plant and equipment, net..........................   32,003    30,744
Investment in and advances to affiliates....................    1,775     3,851
Other assets................................................      356       896
                                                              -------   -------
          Total assets......................................  $52,357   $53,024
                                                              =======   =======
Accounts payable............................................  $ 4,980   $ 2,773
Accrued loss on sale........................................   19,167        --
Deferred tax liability......................................    1,130     7,493
                                                              -------   -------
          Total liabilities.................................  $25,277   $10,266
                                                              -------   -------
Net assets from discontinued operation......................  $27,080   $42,758
                                                              =======   =======
</TABLE>

10. COMMITMENTS AND CONTINGENCIES

     The Company is subject to numerous federal, state and local environmental
laws and regulations. The Company is currently involved in the assessment,
removal and/or mitigation of chemical substances at various sites. Environmental
expenditures which relate to an existing condition caused by past operations and
which have no significant future economic benefit to the Company are expensed.
Future environmental related expenditures cannot be reliably determined in many
circumstances due to the early stages of investigations, the uncertainty of
specific remediation methods, changing environmental laws and interpretations
and other matters. Such environmental costs are accrued at the time the
expenditure becomes probable and the costs can be reasonably estimated. Costs
are accrued based upon estimates determined by management and in some cases with
the assistance of external consultants. At sites where a range of costs to be
incurred is determined and no amount within the range is more likely than
another, the lower amount of the range is recorded. As assessments and cleanups
proceed, these accruals are reviewed periodically and adjusted, if necessary, as
additional information becomes available. These accruals can change
substantially due to such factors as

                                      F-15
<PAGE>   56
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

additional information on the nature or extent of contamination, methods of
remediation required and other actions by governmental agencies or private
parties.

     The Company owns a variety of sites that may or will likely require
remediation. Under the provisions of the acquisition agreements for the
businesses, the former owners retained the obligations for any potential
liabilities arising from conditions or events occurring or attributable to
periods prior to the acquisition of properties acquired by the Company pursuant
to those agreements. At certain locations, such items were identified and
management believes that the former owners will fulfill their obligations under
the agreements.

     In connection with all sites, the Company recorded accruals of
approximately $249 and $1,100 in fiscal 1999 and 1997, respectively, and reduced
the accrual by approximately $.8 million during fiscal 1998. Other accrued
liabilities include $1,411 and $1,722 for the current portion of estimated
clean-up expenditures and related accruals at February 28, 1999 and 1998,
respectively. The balance of spending identifiable to future years in other
non-current liabilities totals $1,734 and $1,448 at February 28, 1999 and 1998,
respectively.

     While the Company believes that the recorded amounts represent the
Company's best estimate of the costs of such matters, it is reasonably possible
that additional costs may be incurred. Based on currently available information
and analysis, the Company believes that it is reasonably possible that costs
associated with these sites may exceed current accruals by amounts that may
prove insignificant or that could range, in the aggregate, up to approximately
$1.5 million. This estimate of the range of reasonably possible additional costs
is less certain than the estimates upon which accruals are based, and in order
to establish the upper limit of such range, assumptions least favorable to the
Company among the range of reasonably possible outcomes were used. In estimating
both its current accruals for environmental remediation and the possible range
of additional costs, the Company has not assumed it will bear the entire cost of
remediation of every site to the exclusion of the former owners of such sites.
The ability of the former owners to participate has been taken into account,
based generally on their financial condition and probable contribution on a per
site basis. No amounts have been recorded for potential recoveries from
insurance carriers.

     In May 1997, the Company reached a plea agreement with the U.S. Department
of Justice, along with other U.S. ammonium nitrate producers, in a government
investigation relating to a price fixing conspiracy among U.S. ammonium nitrate
producers during May 1992. On May 9, 1997, the Company and the federal
government reached an agreement to settle the matter for $1.5 million, plus
interest from May 1997, to be paid during the succeeding four-year period. The
penalty was paid in full during fiscal 1999.

     In December 1997, the Company was named as a defendant in three civil
antitrust actions, two of which were the same cases brought in separate
jurisdictions, one of which was subsequently dismissed. These actions were
brought predominately by various mining concerns alleging the Company violated
the federal antitrust laws, various state antitrust and unfair trade practice
statutes and common law fraud in connection with the Company's blasting grade
ammonium nitrate business as conducted in the mid-to-late 1980's and early
1990's. The Company believes that the plaintiffs in these cases have targeted
the Company because of the Company's above disclosed plea agreement with the
U.S. Department of Justice in which the Company agreed to plead guilty to a
one-count information charging the Company with participating in a conspiracy to
restrain competition in the pricing of ammonium nitrate during May 1992. In that
agreement, the Company did not admit, and the Department of Justice did not
contend, that the Company ever implemented any such conspiracy. Accordingly, the
Company filed answers denying liability in such civil actions. On or about May
5, 1999, the Company was dismissed as a defendant by the plaintiff in one of
such civil lawsuits. The Company has reached an agreement in principle with the
plaintiff to settle all claims against the Company. Under the terms of that
settlement, which will be reflected in a definitive settlement agreement, the
Company will make an initial payment of $.75 million and will make additional
payments not to exceed $3.75 million, based in part on the Company's net
earnings, over the next five years. Minimum payments of $.5 million are required
on the first three anniversaries of execution of the settlement and payments of
$.3 million are required on the last two

                                      F-16
<PAGE>   57
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

anniversaries with an aggregate minimum, inclusive of the initial payment, of $3
million. The Company has accrued the net present value of this settlement,
$2,504, at February 28, 1999.

     On June 27, 1996, Marathon Oil Company and Marathon Pipe Line Company
(together, "Marathon") initiated litigation against the Company and another
defendant in connection with a 1996 petroleum release near the Company's
Gramercy facility, and in connection therewith a class action lawsuit and one
other lawsuit were filed against the Company and Marathon. Marathon's lawsuit
against the company was settled for $2 million in October 1998. The Company has
met its $1 million self-insured retention and its liability insurance carrier
has paid the balance. The Company has coverage for, and continues to defend
itself against, the two remaining claims. In March 1999, plaintiffs accepted an
offer by all defendants to settle the class action for a lump sum of $1.5
million. The Company's allocated portion of the settlement is $375,000,
although, as stated above, the Company has insurance coverage for this amount.
The third claim has remained dormant since filing, and the Company, although it
believes it has meritorious defenses to the claim, believes that the case can be
settled for a nominal amount.

     In January 1997, the owner of the land over which the brine pipelines
serving the Company's Gramercy, Louisiana chlor-alkali facilities travel filed a
lawsuit seeking generally the removal of one of the pipelines and/or monetary
damages, based on its claims that the pipeline has suffered and continues to
suffer unpermitted leaks of brine. In connection with that lawsuit, the
landowner sought a preliminary injunction to stop the Company from using one of
its brine pipelines. The court refused to grant such relief, and instead
required the Company to implement a written remediation policy and a continuous
leak monitoring program, and to agree to shut down the pipeline when and if
leaks are detected in the future until any necessary repairs are completed. The
Company has complied with this order, and in January 1999, the Company completed
construction of a new pipeline which is now in service. The Company believes
that the landowner's lawsuit is without serious legal merit and is actively
defending it. The Company has developed appropriate strategies for ensuring a
continuous supply of brine to its Gramercy facility.

     In addition to the matters discussed above, the Company is involved in
certain other legal actions and claims arising in the ordinary course of
business. The amounts asserted in these matters are material to the Company's
financial statements, and certain claimants have not yet asserted an amount.
Although it is inherently impossible to predict with any degree of certainty the
outcome of such legal actions and claims, in the opinion of management (based on
advice of the Company's corporate and other legal counsel) such litigation and
claims are likely to be resolved without material adverse effect on the
Company's financial position and results of operations. It is possible, however,
that the resolution of certain matters could be material to the results of
operations of any single fiscal quarter.

     Certain of the Company's fluorocarbon products (CFC R-11 and R-12)
previously manufactured by the electrochemical products segment are subject to
federal regulations which provided for the phase out of production by January 1,
1996. Sales and income from operations of these products were immaterial for the
years ended February 28, 1999 and 1998. These products accounted for 23% of
income from operations for the fiscal year ended February 28, 1997. The Company
is also required to phase out the production of their hydrochloroflourocarbon
(HCFC-141b) by January 1, 2003. In fiscal years 1999, 1998 and 1997, this
product accounted for approximately 6%, 8% and 8% of net sales from continuing
operations and 2%, 19% and 18% of income from continuing operations,
respectively.

                                      F-17
<PAGE>   58
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company leases facilities and equipment consisting primarily of its
corporate office, electric power co-generation systems, transportation and
computer equipment. Some of the leases provide that the Company pay taxes,
maintenance, insurance and other occupancy expenses applicable to the leased
premises. Certain of the leases have renewal terms at the option of the Company.
Lease obligations for continuing operations with initial or remaining
non-cancelable terms in excess of one year as of February 28, 1999 are as
follows:

<TABLE>
<CAPTION>
                                                              CAPITAL   OPERATING
                                                              LEASES     LEASES
                                                              -------   ---------
<S>                                                           <C>       <C>
Fiscal years ending February,
  2000......................................................   $265      $ 5,592
  2001......................................................     85        4,783
  2002......................................................      5        3,970
  2003......................................................     --        3,468
  2004......................................................     --        2,830
  Thereafter................................................     --       36,374
                                                               ----      -------
          Total minimum lease payments......................   $355      $57,017
                                                                         =======
Less estimated executory costs and imputed interest costs...     30
                                                               ----
Present value of minimum lease payments.....................   $325
                                                               ====
</TABLE>

     Total rental expense under operating leases for continuing operations
totaled approximately $7,972, $7,247 and $5,798 during fiscal years 1999, 1998
and 1997, respectively.

     Several of the Company's facilities and those of some of its joint ventures
are integrated with the operations of other companies. As a result, the
companies involved share certain common facilities and services, including power
generation. Generally, the Company maintains certain long-term supply contracts
with the appropriate parties.

     As of February 28, 1999 and 1998, the Company had approximately $1,851 and
$2,100 committed for letters of credit, respectively.

11. INCOME TAXES

     The (provision) benefit for income taxes includes income taxes currently
payable and those deferred because of temporary differences between the
financial statement and tax bases of assets and liabilities. The components of
the (provision) benefit for income taxes are as follows:

<TABLE>
<CAPTION>
                                                             1999      1998      1997
                                                            -------   -------   -------
<S>                                                         <C>       <C>       <C>
Current:
  Federal.................................................  $ 1,046   $(1,582)  $ 4,883
  Foreign.................................................   (5,820)     (201)       --
  State...................................................       --       728       712
                                                            -------   -------   -------
                                                             (4,774)   (1,055)    5,595
                                                            -------   -------   -------
Deferred:
  Federal.................................................  $(2,960)  $ 4,871   $(5,432)
  Foreign.................................................    4,570        --        --
  State...................................................      385       (54)   (1,235)
                                                            -------   -------   -------
                                                              1,995     4,817    (6,667)
                                                            -------   -------   -------
</TABLE>

                                      F-18
<PAGE>   59
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                             1999      1998      1997
                                                            -------   -------   -------
<S>                                                         <C>       <C>       <C>
(Provision) benefit for income taxes from continuing
  operations before extraordinary charges.................   (2,779)    3,762    (1,072)
Tax (provision) benefit for discontinued operations.......    4,873      (109)      655
Tax benefit for extraordinary charges.....................       --     7,740        --
                                                            -------   -------   -------
          Total (provision) benefit for income taxes......  $ 2,094   $11,393   $  (417)
                                                            =======   =======   =======
</TABLE>

     The domestic and foreign components of (loss) earnings from continuing
operations before income taxes were as follows:

<TABLE>
<CAPTION>
                                                             1999       1998      1997
                                                           --------   --------   ------
<S>                                                        <C>        <C>        <C>
Domestic.................................................  $(34,424)  $(10,170)  $2,713
Foreign..................................................     4,235        446       --
                                                           --------   --------   ------
          Total..........................................  $(30,189)  $ (9,724)  $2,713
                                                           ========   ========   ======
</TABLE>

     The Company has not provided for U.S. income taxes or international
withholding taxes on $4,681 of international subsidiaries' undistributed
earnings as of February 28, 1999, which are reinvested indefinitely.

     Reconciliation of the differences between income taxes computed at the
federal statutory rate and the Company's consolidated income tax (provision)
benefit from continuing operations before extraordinary charges follows:

<TABLE>
<CAPTION>
                                                              1999      1998     1997
                                                             -------   ------   -------
<S>                                                          <C>       <C>      <C>
Tax at federal statutory rate..............................  $10,567   $2,688   $(1,032)
State income taxes, net of federal income tax Benefit......    1,449    1,155       (45)
Foreign tax provision in excess of federal statutory
  rate.....................................................      231      (45)       --
Increase in valuation allowance............................  (14,982)      --      (277)
Percentage depletion.......................................       --       70       886
Other......................................................      (44)    (106)     (604)
                                                             -------   ------   -------
          Total............................................  $(2,779)  $3,762   $(1,072)
                                                             =======   ======   =======
</TABLE>

     Significant components of the Company's deferred tax assets/(liabilities)
are as follows:

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Accrued expenses............................................  $ 10,174   $  2,617
Other.......................................................     3,175        512
                                                              --------   --------
  Current, net..............................................    13,349      3,129
                                                              --------   --------
Property, plant and equipment...............................   (33,039)   (28,675)
Employee benefit obligations................................    12,741     13,087
Loss carryforward...........................................    11,535         --
AMT credit carryforward.....................................     6,150      6,150
Other.......................................................       802     (3,116)
                                                              --------   --------
  Noncurrent, net...........................................    (1,811)   (12,554)
                                                              --------   --------
Valuation allowance for deferred tax assets.................   (15,582)      (600)
                                                              --------   --------
          Total attributable to continuing operations,
            net.............................................    (4,044)   (10,025)
Discontinued operations.....................................    (1,130)    (7,493)
                                                              --------   --------
Net deferred tax assets/(liabilities).......................  $ (5,174)  $(17,518)
                                                              ========   ========
</TABLE>

                                      F-19
<PAGE>   60
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     At February 28, 1999, the company had federal and state operating loss
carryforwards of approximately $25,183 that expire in 2019. The Company also has
approximately $6,150 in alternative minimum tax ("AMT") carryforwards available
to offset future taxes for an unlimited time period. For financial reporting
purposes, the valuation allowance has been increased at February 28, 1999 to
reduce the net deferred tax assets. The Company has not recognized any benefit
from the future use of domestic operating loss carryforwards because
management's evaluation of available evidence in assessing the current
realizability of the related tax benefits indicates that the underlying
assumptions of future domestic profitability contain risks that do not provide
sufficient assurance (based on generally accepted accounting principles) to
recognize such tax benefits. The Company will continue to assess the valuation
allowance and make adjustments as appropriate in future periods.

12. REDEEMABLE COMMON STOCK AND OTHER STOCK PLANS

     The Company allows certain of its executive officers, management employees
and directors to own common stock. At February 28, 1999 and 1998, 4,633 and
12,519 shares, respectively, were outstanding pursuant to its 1995 Stock
Purchase Plan (the "1995 Plan,") and the Board of Directors Stock Purchase Plan
(the "Directors Plan"). Generally participants in the 1995 Plan must use 25% of
any annual bonuses to purchase stock up to specified amounts. The 1995 Plan and
the Directors Plan provide that certain executive officers, management employees
and directors of the Company will be, at the discretion of the Board of
Directors, eligible to purchase shares of the Company's common stock at fair
value (as determined by independent appraisal).

     In connection with the 1995 Plan and the Directors Plan, the Company may
agree to guarantee loans used to finance the purchase of such stock. Upon
termination of employment or directorship, the shares must be sold to the
Company at fair value. Fair value, based upon an independent appraisal, was $114
and $280 per share at February 28, 1999 and 1998, respectively, and the
aggregate value of such applicable shares is reflected as redeemable common
stock in the accompanying consolidated balance sheets. The final settlement
prices for any shares may differ from the estimated amounts. All redemption
provisions of the Company's shares expire upon a public offering of the
Company's common stock. The Company has guaranteed indebtedness of certain
executive officers, management employees and directors pursuant to the 1995 Plan
and the Directors Plan aggregating $229 and $191 as of February 28, 1999 and
1998, respectively.

     The following table summarizes activity in the Company shares that have
redemption features:

<TABLE>
<CAPTION>
                                             1999         1998                1997
                                          ----------   ----------   -------------------------
                                          REDEEMABLE   REDEEMABLE   REDEEMABLE   COMMON STOCK
                                            COMMON       COMMON       COMMON       WITH PUT
                                            STOCK        STOCK        STOCK         RIGHTS
                                          ----------   ----------   ----------   ------------
<S>                                       <C>          <C>          <C>          <C>
Balance at beginning of Year............    $3,505       $4,177       $4,771        $7,475
Adjustment in value.....................      (769)        (248)         (98)           --
Other shares issued.....................       128          326        3,187
Repurchases.............................    (2,336)        (750)      (3,683)       (7,475)
                                            ------       ------       ------        ------
Balance at end of year..................    $  528       $3,505       $4,177        $   --
                                            ======       ======       ======        ======
</TABLE>

     The Company has recently instituted certain executive and other key
employee benefit plans intended to provide incentives to those employees. The
1997 Stock Option Plan ("Option Plan") provides incentives in the form of grants
of stock options and is intended to recognize and reward outstanding individual
performance. The Management Stock-Based Incentive Plan ("Stock Plan") enables
key management employees to acquire financial interests in the Company through
the award of phantom stock interests tracking the performance of the Company's
common stock but with the benefit payable in cash. The Annual Incentive Plan is
intended to provide a cash bonus incentive for key management employees to
achieve targeted

                                      F-20
<PAGE>   61
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operational results and individual goals. All such plans are to be administered
by the Compensation Committee, which is empowered to determine those employees
eligible to participate, the type and amount of awards to be made and the
various restrictions applicable to such awards.

     Prior to fiscal 1999, no awards under the Option Plan or the Stock Plan had
been granted. Effective March 1, 1998, phantom stock appreciation rights
("phantom SAR's") were issued to certain key management employees pursuant to
the stock plan. The phantom SAR's vest on the third anniversary of the issuance
date and forfeit if the recipient terminates employment for any reason prior to
the vesting date. The value of the phantom SAR's is based on the appreciation of
the share value between the issuance and vesting dates. A total of 2,150 phantom
SAR's was issued based on a share value of $280 with 800 having been forfeited
during fiscal 1999. Based on the February 28, 1999 share value of $114, the
1,350 phantom SAR's outstanding at fiscal year-end had no value and,
accordingly, no cost associated with these awards was recognized.

13. FINANCIAL INSTRUMENTS

     The Company is exposed to the impact of interest and foreign exchange rate
changes. With an objective of managing the impact of such changes on earnings
and cash flow, the Company is a party to three cross-currency interest rate swap
contracts. In connection with the ChlorAlp investment in fiscal 1998, the
Company entered into a five-year, $60,000 (372.4 million French francs) cross
currency interest rate swap contract with a bank. The Company remits quarterly
French franc interest payments at PIBOR plus an agreed-upon spread and receives
quarterly interest payments in US dollars at a rate equal to LIBOR. At the
termination date, the Company will pay 372.4 million French francs and receive
$60,000. In fiscal 1999, the Company entered into two five-year, $25,000 (45
million German marks) cross currency interest rate swap contracts with banks.
The Company remits quarterly German mark principal and interest payments at a
rate equal to LIBOR and receives quarterly US dollar principal and interest
payments at a fixed rate. At February 28, 1999 and 1998, the fair value of the
French franc contract was approximately ($2,871) and $191, respectively. The
combined fair value of the two German mark contracts at February 28, 1999 was
($2,302).

     At February 28, 1999 the Company has commitments outstanding under their
natural gas fixed price purchase contracts to purchase approximately $7,042 of
natural gas during the subsequent year. If the Company settled these contracts
at February 28, 1999, a $575 loss would have been recognized. The Company also
sold natural gas put options with a notional amount of $13,482 maturing in the
first half of fiscal 2000. At fiscal 1999 year-end, an unrealized loss of $2,247
was recorded on these contracts. Subsequent to February 28, 1999, the contracts
were settled for a loss of $863.

     The following sets forth the open positions and the fair value of its
natural gas collar positions, which mature in the subsequent fiscal year, as of
February 28, 1999 and 1998:

<TABLE>
<CAPTION>
                                                    QUANTITY     FAIR VALUE   CARRYING VALUE
                                                   -----------   ----------   --------------
                                                   (IN MMBTUS)
<S>                                                <C>           <C>          <C>
FEBRUARY 28, 1999
Purchased Call Options...........................     5,002        $ 106          $   --
Written Put Options..............................     5,002          (39)             --
FEBRUARY 28, 1998
Purchased Call Options...........................     5,118        $ 953          $   --
Written Put Options..............................     5,118         (412)             --
</TABLE>

     The fair values are based on quoted market prices. Approximately 20% of the
Company's estimated requirements for fiscal 2000 are subject to forward or
collar agreements.

     In connection with its acquisition of ChlorAlp in fiscal 1998 (see Note 3),
the Company indirectly obtained a joint venture interest in a power generation
facility, which uses natural gas to generate power for the manufacturing
operation. Prices for natural gas used in the facility are based on European
fuel and gas oil

                                      F-21
<PAGE>   62
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

prices. In fiscal 1999, the Company, through a wholly-owned European subsidiary,
entered into a spread oil swap agreement ("SOS agreement") to reduce its
exposure to fluctuations in its natural gas prices. The contract covers three
years and is for a notional amount of 2,430,000 barrels. A portion of the
contract settles every six months in an amount determined on a monthly basis,
which is based on a defined spread between certain forward fuel and gas oil
prices multiplied by the notional quantity settled. As of February 28, 1999, the
Company had recorded an unrealized loss of $2,303 on the SOS agreement.

     The carrying amount of the Company's variable rate debt approximates its
fair value. At February 28, 1999 and 1998, the fair value of all term debt
approximated $135,519 and $212,241, respectively, based primarily on market
prices.

     The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and equivalents and trade accounts
receivable. The Company places its cash and equivalents with high quality
institutions; however, at times, such investments may be in excess of the
Federal Deposit Insurance Corporation insurance limit. The Company routinely
assesses the financial strength of its customers and does not believe the trade
account receivable credit risk exposure is significant. The fair value of these
financial instruments approximated book value at February 28, 1999 and 1998,
respectively.

14. SEGMENT AND GEOGRAPHIC INFORMATION

     The Company's continuing operations are situated principally in three
business segments: Nitrogen Products, Electrochemical Products -- North America
("Electrochemicals -- NA") and Electrochemical Products -- Europe
("Electrochemicals -- Europe"). The Nitrogen Products segment consists of
facilities that manufacture and distribute agricultural and industrial nitrogen
products and distribute non-nitrogenous agricultural fertilizers in North
America. The Electrochemical -- NA segment consists of caustic soda, chlorine,
chlorinated methane compounds and fluorocarbons production facilities. The
Electrochemical -- Europe segment consists of caustic soda and chlorine
production facilities located in France and Germany (see Note 3). There is no
overlap in operational management reporting of or decision-making authority over
Electrochemicals -- NA and Electrochemicals -- Europe. Operating profit includes
all costs and expenses directly related to the segment involved.

                                      F-22
<PAGE>   63
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Following is a tabulation of business segment information for continuing
operations for each of the past three fiscal years:

<TABLE>
<CAPTION>
                                                           1999       1998       1997
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Net sales:
  Nitrogen products....................................  $188,775   $234,884   $242,408
  Electrochemical products -- North America............    68,475     87,482     96,636
  Electrochemical products -- Europe...................   132,292     20,204         --
                                                         --------   --------   --------
          Total........................................  $389,542   $342,570   $339,044
                                                         ========   ========   ========
(Loss) income from continuing operations:
  Nitrogen products....................................  $   (366)  $ 11,303   $ 11,710
  Electrochemical products -- North America............    (8,981)       202      8,562
  Electrochemical products -- Europe...................     3,424     (1,383)        --
  Corporate expense....................................    (7,716)    (4,829)    (5,738)
                                                         --------   --------   --------
(Loss) income from continuing operations...............   (13,639)     5,293     14,534
Interest and amortization expense......................   (20,314)   (14,539)   (12,249)
Income (loss) from equity investments..................     2,614       (619)        31
Other income, net......................................     1,150        141        397
                                                         --------   --------   --------
(Loss) income from continuing operations before income
  taxes and other items................................  $(30,189)  $ (9,724)  $  2,713
                                                         ========   ========   ========
Depreciation and amortization:
  Nitrogen products....................................  $ 13,747   $ 13,036   $ 14,693
  Electrochemical products -- North America............     9,600      4,986      5,665
  Electrochemical products -- Europe...................     2,968        801         --
  Corporate............................................     1,481        771        427
                                                         --------   --------   --------
          Total........................................  $ 27,796   $ 19,594   $ 20,785
                                                         ========   ========   ========
Capital expenditures (including acquisitions and plant
  turnarounds):
  Nitrogen products....................................  $ 12,645   $ 19,123   $ 26,922
  Electrochemical products -- North America............    21,985     13,060     10,773
  Electrochemical products -- Europe...................    13,284     17,622         --
                                                         --------   --------   --------
          Total........................................  $ 47,914   $ 49,805   $ 37,695
                                                         ========   ========   ========
Long lived assets by geographic area:
  North America........................................  $192,283   $215,926   $211,529
  Europe...............................................    76,701     33,963         --
                                                         --------   --------   --------
          Total........................................  $268,984   $249,889   $211,529
                                                         ========   ========   ========
</TABLE>

     Segment assets are not included in the above table because asset
information is not reported by segment in the information reviewed by the chief
operating decision maker for purposes of making decisions about allocating
resources to the segments and assessing their performance.

                                      F-23
<PAGE>   64
                            LAROCHE INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                           1999       1998       1997
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
EBITDA:
  Nitrogen products....................................  $ 17,075   $ 26,783   $ 26,446
  Electrochemical products -- North America............     1,454      7,125     14,269
  Electrochemical products -- Europe...................    21,949      1,610         --
  Corporate expense....................................    (7,408)    (4,978)    (5,738)
                                                         --------   --------   --------
          Total........................................  $ 33,070   $ 30,540   $ 34,977
                                                         ========   ========   ========
</TABLE>

     EBITDA represents income from operations plus cash received from equity
investments, plus depreciation, amortization and other non-cash and
non-recurring transactions reflected in income from operations. In addition,
EBITDA includes the Company's 50% share of ChlorAlp's EBITDA. EBITDA should not
be considered as an alternative measure of net income or cash flow provided by
operating activities (both as determined in accordance with generally accepted
accounting principles), but is presented to provide additional information
related to the Company's debt service capability. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity. The primary difference between EBITDA and cash flows
provided by operating activities relates primarily to changes in working capital
requirements and payments made for interest and income taxes.

15. UNAUDITED PRO FORMA FINANCIAL INFORMATION

     The following unaudited fiscal 1998 and 1997 pro forma financial
information gives effect to the investment in ChlorAlp (Note 5), the issuance of
the Notes (Note 7) and the acquisition of the German Facilities (Note 3), as if
each had occurred at the beginning of fiscal 1997. The unaudited pro forma
financial information is provided for informational purposes only. It is based
on historical information and does not necessarily reflect the actual results of
operations that would have occurred had such transactions actually occurred at
the beginning of such periods nor is it necessarily indicative of future results
of operations of the combined company:

<TABLE>
<CAPTION>
                                                                1998       1997
                                                              --------   --------
<S>                                                           <C>        <C>
Net sales...................................................  $480,191   $487,637
(Loss) income from continuing operations before income taxes
  and extraordinary charge..................................    (5,305)       640
Net (loss) income from continuing operations before
  extraordinary charge......................................   (17,595)       640
</TABLE>

                                      F-24
<PAGE>   65

                            LAROCHE INDUSTRIES INC.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                           BALANCE AT   CHARGED TO   CHARGED TO                  BALANCE AT
                                           BEGINNING    COSTS AND      OTHER                       END OF
               DESCRIPTION                 OF PERIOD     EXPENSES     ACCOUNTS    DEDUCTIONS       PERIOD
               -----------                 ----------   ----------   ----------   ----------     ----------
<S>                                        <C>          <C>          <C>          <C>            <C>
YEAR ENDED FEBRUARY 28, 1999
Allowance for doubtful accounts..........     $527            53        --            81(1)       $   499
Valuation allowance for deferred tax
  asset..................................      600        14,982        --            --           15,582
YEAR ENDED FEBRUARY 28, 1998
Allowance for doubtful accounts..........      776            36        --           285(1)           527
Valuation allowance for deferred tax
  asset..................................      600            --        --            --              600
YEAR ENDED FEBRUARY 28, 1997
Allowance for doubtful accounts..........      849            68        --           141(1)           776
Valuation allowance for deferred tax
  asset..................................      323           277        --            --              600
</TABLE>

---------------

(1) Uncollectible accounts written off, net of recoveries.

                                       S-1
<PAGE>   66

                         (LAROCHE INDUSTRIES INC. LOGO)