<PAGE>   1

                     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

[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]

                 FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997

                                     OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

       FOR THE TRANSITION PERIOD FROM               TO              .
                                      -------------    -------------

                       COMMISSION FILE NUMBER 33-79532

                           LAROCHE INDUSTRIES INC.
                        (Exact Name of Registrant as
                          Specified in its Charter)


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

                           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 28, 1997 was 
439,434.





<PAGE>   2


              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.

GENERAL

         LaRoche Industries Inc. (the "Company") is a major diversified
producer and distributor of organic and inorganic chemicals, including
electrochemical products, nitrogen products and alumina chemicals. The
Company's electrochemical products include chlorine, caustic soda and
fluorocarbons; the Company's nitrogen products include fertilizer, blasting
grade ammonium nitrate and industrial ammonia; and the Company's alumina
chemicals include a variety of specialty alumina chemicals.  The Company
participates in several joint venture arrangements such as CRILAR Alumina
Company L.L.C. ("CRILAR"), a joint venture with Criterion Catalyst Company L.P.
that produces VERSAL(TM) alumina chemicals, Kaiser LaRoche Hydrate Partnership
(the "Hydrate Partnership"), a partnership with Kaiser Aluminum and Chemical
Corporation  ("Kaiser") that markets alumina trihydrate ("hydrate"), and
Avondale Ammonia Company, a joint venture with Cytec Industries Inc. ("Avondale
Ammonia"), that produces ammonia.  The Company sells a majority of its products
in the United States and also participates in several foreign markets directly
and through agents.  The Company had consolidated net sales of $379.3 million,
EBITDA (as defined in "Selected Financial Data") of $39.1 million, cash flow
provided by operating activities of $25.3 million and net income of $0.7
million for fiscal 1997.

         The Company was formed in March 1986 by three former employees (each a
"Principal") of United States Steel Corporation (now known as USX Corporation
and hereinafter referred to as "USX") to acquire the nitrogen, mixed fertilizer
and retail business segments of the Agri-Chemicals Division of USX in a
leveraged management buy-out. Two affiliated companies, LaRoche Holdings Inc.
("LHI") and LaRoche Chemicals Inc. ("LCI") were formed to effect the July 1988
acquisition of the alumina chemicals and electrochemical products operations of
Kaiser (the "Kaiser acquisition").

         On August 17, 1994, LHI and LCI merged with and into the Company (such
transaction is hereafter referred to as the "Consolidation").  Concurrent with
the Consolidation, the Company issued $100 million of 13% Senior Subordinated
Notes due in 2004 (the "Notes").  The proceeds of the issuance of the Notes
were used to repay a substantial portion of the Company's outstanding debt, to
repay certain obligations of LCI incurred in connection with the repurchase of
LCI capital stock, to repay a bridge loan that financed the Company's initial
investment in Avondale Ammonia, to repurchase shares of LHI capital stock from
a retiring Principal and to implement a $45.0 million strategic growth plan
that included significant capital projects in each of its business segments.
The Company also entered into a $40.0 million senior secured revolving credit
facility (the "Credit Facility") secured by substantially all of the accounts
receivable and inventory of the Company.

         The Company's executive offices are located at 1100 Johnson Ferry
Road, N.E., Atlanta, Georgia 30342, and its phone number is (404) 851-0300.
Certain terms relating to the Company's business are defined in the "Business
Glossary" at the end of this Item 1.

         The major classifications of the Company's products are described
below.  For additional business segment information, see Note 12 to the
Consolidated Financial Statements of the Company included herein.





<PAGE>   3



ELECTROCHEMICAL PRODUCTS

         The Company manufactures and distributes chlorine, caustic soda and
fluorocarbon products for a wide range of uses. This segment of the Company's
business accounted for 25.5%, 30.9% and 30.1% of the Company's consolidated net
sales in fiscal 1997, 1996 and 1995, respectively.  The following table
represents some of the common applications of electrochemical products:

<TABLE>
<CAPTION>
 COMPANY PRODUCT                         TYPICAL APPLICATIONS
 <S>                                     <C>

 Chlorine                                Polyvinyl Chloride ("PVC"), fluorocarbons, titanium
                                         dioxide production, water treatment, rigid urethane
                                         foam, pulp and paper bleaching and the production of
                                         a wide variety of other chemicals and plastics

 Caustic Soda                            Soaps, detergents, petrochemicals, pulp and paper
                                         processing, aluminum and alumina chemicals
                                         production, water treatment and the production of a
                                         wide variety of other chemicals

 R-12                                    Refrigeration, home and automobile air conditioning

 R-141b                                  Foam insulation
</TABLE>

         Chlorine and Caustic Soda

         The Company manufactures and distributes chlorine and caustic soda for
a variety of industrial applications.  The Company is a niche participant in
the chlorine and caustic soda markets because chlorine producers with larger
capacity typically produce products for internal consumption, thereby allowing
producers with less capacity such as the Company to enter the market.

         Chlorine is used in the production of a wide variety of chemicals,
including PVC, urethane foams, titanium dioxide and fluorocarbons. Demand for
chlorine is sensitive to general economic cycles. Historically, the Company and
other chlorine producers have marketed chlorine to manufacturers of pulp and
paper as a bleaching agent and to producers of organic chemicals. Environmental
pressures have led to a decline in chlorine demand for pulp and paper
applications as well as chlorofluorocarbon production; growth in chlorine
demand for PVC, urethanes and titanium dioxide, however, has more than offset
such decline.  During fiscal 1997, the Company experienced an increase in
customer demand for its chlorine products.

         Caustic soda is a basic commodity chemical that is sold to
manufacturers of aluminum, alumina chemicals, other chemicals, soaps,
detergents and petrochemicals, to processors of pulp and paper and for water
treatment. Because caustic soda is used in the production of a wide variety of
basic chemicals, demand for caustic soda is sensitive to general economic
cycles.  The Company experienced a significant increase in the demand for
caustic soda during fiscal 1996 and continued to experience a strong demand
for caustic soda during fiscal 1997.

         The ratio of production of chlorine and caustic soda is fixed because
of the sodium to chlorine weight ratio in salt. When chlorine experiences a
decline in demand, the caustic soda market generally tightens, and vice versa.
Consequently, the price of a ton of chlorine plus the price of the accompanying
1.1 tons of caustic soda, known as an electrochemical unit ("ECU") ton, tends
to be somewhat more stable than the price of either commodity individually.

         The Company's focus in its chlorine and caustic soda business is to
concentrate on the PVC, rigid urethane foam and titanium dioxide markets, which
the Company believes present growth opportunities because the Company benefits
from certain cost and delivery advantages.  During fiscal 1996, the Company
approved and began implementing certain capital improvements designed to reduce
the electrical costs at its chlorine and caustic soda plant in Gramercy,
Louisiana.




                                      2
<PAGE>   4

These improvements are expected to be completed during fiscal 1998.  Over
one-half of the Company's chlorine and caustic soda sales are made to customers
located within a 100-mile radius of the Company's Gramercy facility. The
Company's marketing strategy is to focus on customers that are not vertically
integrated producers of chlorine and caustic soda.  The Company has developed
relationships with customers that prefer to purchase from a source that does
not also compete with them in the sale of end-use applications.  Most of the
Company's primary competitors are large integrated chemical companies with
significantly greater resources and larger and more modern facilities than the
Company. Three competitors, Dow Chemical Co., Occidental Chemical Corporation
and PPG Industries, Inc., account for more than 50% of the chlorine and caustic
soda production in the United States. The key competitive factors in the
chlorine and caustic soda markets are price and deliverability.

         Fluorocarbons

         The Company produces and markets fluorocarbons for use as blowing
agents in foam insulation, and has historically produced or marketed
fluorocarbons for use as refrigerant gases in air conditioning and
refrigeration systems.  The three primary types of fluorocarbons are CFCs,
HCFCs and HFCs. The Company currently distributes HCFC R-141b and has
historically distributed three other primary fluorocarbon products or blends
thereof: R-11 and R-12 (CFCs) and R-22 (HCFC).  The Company has also
distributed a limited amount of R-134a (an HFC) and other fluorocarbon
products. Environmental regulations have had a significant effect on the
fluorocarbon market in recent years. The Clean Air Act regulates the production
of CFCs and HCFCs and provides for the phase-out of the production of R-11 and
R-12 by January 1, 1996, followed by a phase-out of the production of R-141b by
January 1, 2003 and R-22 by January 1, 2020. In addition, most of the world's
developed and developing countries have entered into the Montreal Protocol, as
amended, which calls for the phase-out of CFCs and HCFCs. Other countries have
adopted fluorocarbon regulations at least as strict as those called for by the
protocol.

         In response to the United States government's mandated reduction of
R-11 and R-12 production for 1994 and 1995 to 25% of the 1986 industry volume,
the Company idled its R-11, R-12 and R-22 production plant at Gramercy in
January 1994 and contracted with other producers to manufacture R-22 and its
allocated production volume of R-11 and R-12.  The Company has quantities of
R-11 and R-12 in inventory that current regulations allow the Company to sell
after January 1, 1996.  The Company will continue to sell bulk CFCs until its
remaining inventory is depleted.  Sales of CFCs R-11 and R-12 accounted for
1%, 4% and 19% of net sales for fiscal years 1997, 1996 and 1995, respectively,
and a substantial portion of the Company's gross profit for the three years
ended February 28, 1997.  (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")

         As a result of the mandated CFC phase-out and the inability to remain
profitable in HCFC R-22 and other related packaged refrigerant products, the
Company elected to exit its packaged fluorocarbon business in October 1995 and
subsequently closed its packaging operations at the Gramercy facility on
January 15, 1996.  The operation was scaled down in an orderly fashion to
assist in selling all the packaged refrigerant fluorocarbon inventory.  The
Company has not experienced a material adverse impact from the packaged
fluorocarbon shut-down on results of operations or an impact on sales of
R-141b, which is primarily used in foam blowing applications.

         The Company's fluorocarbon products are marketed directly to end users
by its own sales force, as well as to distributors and repackagers for use as
foam blowing agents and, historically, in air conditioning and refrigeration
systems. A large portion of the Company's R-141b sales are made to customers
who previously purchased R-11 from the Company for foam blowing applications.
There currently are three domestic producers of R-141b, AlliedSignal, Inc., Elf
Atochem and the Company. Although the vast majority of the Company's
fluorocarbon customers are located in the United States, the Company has
successfully marketed R-141b in Europe and Asia.

         The Company is focusing its research and development efforts on CFC
and HCFC replacement products and processes. The Company has developed
proprietary desiccant cooling technology that has applications in home and
light industrial air conditioning and humidity control and currently is in an
advanced phase of development.  As the market for alternative products grows,
the Company believes that the key to remaining competitive will be the
Company's ability





                                      3
<PAGE>   5

to develop innovative processes and products that meet specific customer needs.
In addition, significant resources have been directed toward development of the
next generation of foam blowing agents, such as R-245fa.  R-245fa is the
leading HCFC candidate to replace R-141b, which is scheduled for phase out in
2003 (as discussed above).  The Company built a pilot plant to produce R-245fa
in fiscal 1997 and was issued a patent during fiscal 1997 for the process used
in the production of R-245fa.  (See "Business -- Patents.")

         Production Techniques and Facilities

         Chlorine and caustic soda are produced as co-products at a plant
located at the Company's Gramercy facility in a fixed ratio of 1 ton of
chlorine to 1.1 tons of caustic soda. The Gramercy plant has a capacity of
approximately 200,000 tons of chlorine and approximately 220,000 tons of
caustic annually. The manufacturing process consists of the electrolysis of
sodium chloride brine (salt water), which produces free hydrogen, chlorine and
caustic solution. The Company burns the hydrogen for power, and separates and
concentrates the chlorine and caustic soda. Although salt is the basic raw
material used in the production of chlorine and caustic soda, electricity is
the largest production cost component. The Company obtains electricity pursuant
to a lease and operating agreement with Kaiser for the cogeneration powerhouse
facility located at Kaiser's facility in Gramercy, Louisiana. This lease may be
extended through July 2008 at the option of the Company. 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.

         Fluorocarbons are produced through the reaction of a chlorinated
organic compound with anhydrous hydrofluoric acid in the presence of a
catalyst. The process is highly dependent on temperature, pressure and the
efficiency of the catalyst.  The Company produces R-141b at its Gramercy
facility.  The Company's research and development center developed the
proprietary R-141b production process and designed the plant.

         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. The Company generally purchases
natural gas through annual contracts at spot prices.  In addition, the Company
buys natural gas contracts for future delivery and enters into natural gas
option contracts with financial counterparties to control its natural gas
costs. Fluctuations in natural gas prices may affect the operating results of
the electrochemical products business. Anhydrous hydrofluoric acid and
chlorinated organic products are the primary raw materials needed for the
production of fluorocarbons. Hydrofluoric acid and the required chlorinated
organic products are readily available for purchase domestically. As the
Company develops CFC alternatives, however, additional raw materials may be
required.


NITROGEN PRODUCTS

         The nitrogen products segment of the Company's business includes the
manufacture and distribution of fertilizer, blasting grade ammonium nitrate and
industrial ammonia. Sales of nitrogen products accounted for 63.9%, 55.3% and
55.8% of the Company's consolidated net sales in fiscal 1997, 1996 and 1995,
respectively. The following table sets forth a description of typical uses of
the primary nitrogen products produced and distributed by the Company:





                                      4
<PAGE>   6


<TABLE>
<CAPTION>

COMPANY PRODUCT                                               TYPICAL APPLICATIONS
<S>                                                           <C>
High density ammonium nitrate                                 Fertilizer

UAN solutions                                                 Fertilizer

Low density ammonium nitrate                                  Explosives

83% ammonium nitrate liquor                                   Explosives

Anhydrous ammonia                                             Fertilizer, fertilizer feedstock, fermentation, chemical
                                                              processing, emission control, water treatment, heat
                                                              treating, waste acid neutralization and refrigeration

Aqua ammonia                                                  Emission control, water treatment and waste acid treatment

</TABLE>

         Fertilizer

         The Company manufactures fertilizer grade ammonium nitrate, UAN
solutions and other fertilizers. The Company also purchases these and other
fertilizer products for resale to supplement its own production.  The three
primary nutrients in fertilizer that are essential to plant growth are
nitrogen, phosphate and potash. The Company's fertilizer products supply and
enhance the natural fertility of soil by replacing these essential nutrients
that have been taken from the soil by previous crops. Typically, farmers add
various proportions of all three of these nutrients to the soil as fertilizer.
Nitrogen, to a greater extent than phosphate and potash, must be reapplied each
year in areas of intense agricultural usage because of crop use and the
tendency of excess nitrogen to escape from the soil by volatilization, leaching
or denitrification. Consequently, the demand for nitrogen fertilizer tends to
be more consistent on a per acre planted basis than the demand for phosphate or
potash fertilizer.

         The supply and demand for nitrogen fertilizer can dramatically affect
the prices the Company receives for its products. Nitrogen fertilizer demand in
the United States depends on a number of factors, including total planted
acreage, 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. Nitrogen fertilizer
application rates also are affected by the type of crops planted, local soil
conditions and weather. In recent years, nitrogen application rates have been
relatively stable.  Application rates may decline, however, if environmental
concerns result in government policies restricting nitrogen fertilizer use or
if land management practices significantly change. The demand for nitrogen
fertilizer in the United States is primarily related to the planted acreage of
corn and wheat, the primary crops which utilize nitrogen fertilizers.

         The Company operates four dry bulk warehouses strategically located
near major inland waterways from which it distributes nitrate, UAN solutions,
phosphate fertilizer (DAP and TSP), solid urea, potash, ammonium sulfate and
other fertilizers. The Company stores its own fertilizer products as well as
products of others, including other fertilizer producers that do not have
storage capabilities in certain regions. The Company's distribution business
focuses on the resale of fertilizers purchased from third parties. The
distribution business allows the Company to make available a full range of
fertilizers and gives the Company contact with customers it might not otherwise
serve.

         The Company primarily markets fertilizer grade ammonium nitrate and
UAN solutions 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 than some of its competitors.
The Company historically has sold more fertilizer grade ammonium





                                      5
<PAGE>   7

nitrate and UAN solutions than it had the capacity to produce, thus allowing it
to operate its fertilizer plants at or near capacity year-round.  The Company
selectively sells its UAN solutions in markets that can be advantageously
supplied by its Cherokee, Alabama facility.

         Competition

         The nitrogen fertilizer industry is highly competitive and no single
company is the dominant producer.   The Company's principal competitors in the
nitrogen fertilizer market include a number of manufacturers, some of which
have larger and more modern facilities than the Company. The high cost of
delivering fertilizer grade ammonium nitrate and UAN solutions tends to
restrict the geographical market area that a production facility can supply.
The primary competitive factors in the nitrogen fertilizer industry are price,
quality, manufacturing flexibility, delivery time and customer service.

         The Company also competes with foreign fertilizer producers, some of
which receive subsidies from their governments. Some countries also have
natural gas supplies which exceed domestic demand. This surplus natural gas may
have a low alternative value and, when used as feedstock for the manufacture of
ammonia and urea, can result in low-cost production. Imported products from
these countries compete with domestically manufactured nitrogen fertilizer,
including that sold by the Company. In addition, other importers subsidized by
foreign governments may import products into the United States for reasons not
related to United States fertilizer market conditions, such as the need to
obtain United States dollars.

         Blasting Grade Ammonium Nitrate

         The Company manufactures blasting grade ammonium nitrate prills and
83% ammonium nitrate solutions, the primary materials used in the production of
commercial grade explosives and blasting agents used in the United States.  The
majority of ammonium nitrate-based blasting agents and explosive tonnage is
used in the mining of coal, the volume of which is largely determined by
electric power demand. Metals mining and quarry activity also affect demand for
these blasting products. Several producers of blasting grade ammonium nitrate
regularly sell this product as a nitrogen fertilizer.

         On December 13, 1995, the Company acquired a blasting grade ammonium
nitrate manufacturing facility located near Seneca, Illinois and related assets
for an aggregate purchase price of approximately $39.5 million.  The facility
manufactures and sells ammonium nitrate only in the blasting market.  Blasting
grade ammonium nitrate is also manufactured at the Company's Geneva, Utah
facility. The Company also purchases blasting grade ammonium nitrate on a
contract basis from third parties.  Sales to both manufacturers and
distributors and end users are made through contracts and open market sales.

         As in its fertilizer business, the Company is committed to selling a
greater volume of blasting grade ammonium nitrate than it produces.  Unlike
other ammonium nitrate producers that tend to de-emphasize the blasting market
during periods of high fertilizer demand, the Company seeks to maintain product
quality and availability irrespective of conditions in the fertilizer market.
In May 1995, as a result of the Oklahoma City bombing and the Company's
commitment to the community as a Responsible Care(R) company, the Company
adopted a new policy severely limiting the sale of low density, blasting grade
ammonium nitrate to any entity outside the explosives industry.  In accordance
with such policy, the Company announced in May 1996 that it had temporarily
suspended production of low density nitrite at the Crystal City, Missouri
facility due to the lack of demand in the explosives market.  The Company is
investigating options to return this facility to production, including
feasibility studies relating to production of additional fertilizer grade
nitrate at such facility.





                                      6
<PAGE>   8


         Competition

         A number of manufacturers compete in the North American blasting grade
ammonium nitrate market. Freight charges typically account for a significant
percentage of the selling price of blasting grade ammonium nitrate, 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 distributes anhydrous and aqua ammonia, nitric acid and
ammonia storage systems and provides ammonia clean-out service and other
related equipment, parts and support services to various types of customers.
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 passage of the
Clean Air Act, which severely restricts the discharge of certain pollutants
into the environment, the domestic market for the treatment of sulfur and
nitrogen oxide gases has grown rapidly.  The industrial market for ammonia is
broken down into two categories: (i) large volume bulk industrial users that
use these products primarily as a basic raw material in the production of
various chemicals and resins (the bulk commodity market) and (ii) smaller
volume specialty users (the merchant market). The Company has focused its sales
primarily on smaller volume specialty users that require higher quality
products, special delivery service, technical service assistance and storage
and handling services.

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

         Approximately 50% of the Company's industrial ammonia sales are for
chemical processing applications. Sales have been declining for cylinder users
and heat-treating processes, while sales for chemical processing and
environmental processes have 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.

         Competition

         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 major competitor who
distributes industrial ammonia products nationally. Other competitors in the
industrial ammonia merchant market distribute only in local market areas.
Service and quality are significant competitive factors in the merchant market.

         Production Techniques and Facilities

         The Company produces nitrogen products at facilities located in
Cherokee, Alabama; Crystal City, Missouri; Geneva, Utah; Seneca, Illinois; and
Westwego, Louisiana.  The Company also purchases phosphates, solid urea,
potash, nitrate, UAN solutions and ammonium sulfate for resale from four dry
bulk warehouses strategically located near major inland waterways in Granite
City, Illinois; Caruthersville, Missouri; Sugar Creek, Missouri; and
Jeffersonville, Indiana.





                                      7
<PAGE>   9

As a result of the renovation of the older nitric acid plan and the
installation of a prill fattening process at its Cherokee, Alabama facility,
the Company has significantly increased its production capacity of high density
ammonium nitrate.  (See "Properties.")

         Anhydrous ammonia is the primary feedstock for commercially produced
nitrogen products.  Anhydrous ammonia gas is synthesized by processing air and
natural gas in the presence of a catalyst; by-product gaseous carbon dioxide is
also produced. 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 solid fertilizer and
blasting grade ammonium nitrate, or combined with urea liquor to produce UAN
solutions. The Company also sells ammonium nitrate liquor. The urea used in UAN
solutions is produced by reacting carbon dioxide that is generated in the
production process with ammonia.

         The Company operates 22 industrial ammonia distribution centers. The
Company converts anhydrous ammonia into aqua ammonia at ten of its ammonia
distribution facilities and purchases aqua ammonia at three other locations.
Because of higher growth in demand for aqua ammonia, the Company intends to
expand its aqua ammonia production capacity, while continuing to purchase and
remarket anhydrous 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 purchases approximately one-third  of its
ammonia feedstock requirements from other 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 Westwego facilities is natural gas.
Natural gas is supplied throughout the United States by large pipeline
companies and local distributors.


ALUMINA CHEMICALS

         The Company's alumina chemical business includes the production of
specialty alumina chemicals (activated and VERSAL). Sales of alumina chemicals,
excluding sales from the Hydrate Partnership and CRILAR, accounted for 10.6%,
13.8% and 14.1% of the Company's consolidated net sales for fiscal 1997, 1996
and 1995, respectively. The following chart describes various  end uses for the
alumina chemicals manufactured by the Company:

<TABLE>
<CAPTION>
 COMPANY PRODUCT            INTERMEDIATE PRODUCTS                  TYPICAL APPLICATIONS
 <S>                        <C>                                    <C>

 Activated alumina          Adsorbent materials, catalysts,        Polyethylene, hydrogen peroxide,
 chemicals                  desiccants                             petrochemicals and gasoline
                                                                   additives

 VERSAL(TM) alumina         Catalysts                              Oil refining, gasoline additives
 chemicals                                                         and automobile emission control

 Hydrate                    None                                   Detergents, plastics and flame
                                                                   retardant materials
</TABLE>

         Activated Alumina Chemicals

         The Company manufactures activated alumina chemicals that are used as
catalysts for a variety of applications, including dehydration of various gases
and liquids, HF alkylation, catalyst support, chloride removal, Claus catalyst,
and as adsorbent materials used in the manufacture of polyethylene, hydrogen
peroxide, petrochemicals and gasoline additives. The Company produces a number
of different activated alumina chemical products, all available in different
size fractions.





                                      8
<PAGE>   10
         The Company produces activated alumina chemicals at a plant located in
its Baton Rouge, Louisiana facility.  Activated alumina chemicals are marketed
to several different market segments. The Company's major customers include
major polyethylene manufacturers, hydrogen peroxide producers, petrochemical
manufacturers, natural gas processors and gasoline additive manufacturers.


         VERSAL(TM) Alumina Chemicals

         The VERSAL line of alumina chemicals includes several types of
products made by the Company at a plant located in its Baton Rouge facility
using the Company's proprietary VERSAL process. VERSAL products are used as
catalyst supports for a number of applications, including fluid cracking,
desulfurization (removal of sulfurs and metals from sour crude oil),
petrochemical reactions, production of additives used in reformulated gasoline
products and treatment of automotive emissions. The passage of the Clean Air
Act has resulted in increased demand for VERSAL products used as support for
desulfurization catalysts and as catalysts used in the production of
reformulated gasoline additives.

         VERSAL products are supplied to a wide variety of catalyst producers,
including oil refineries and automobile catalyst manufacturers. As evolving
environmental regulations alter the catalyst requirements of automobile
manufacturers, crude oil refiners and other catalyst users, the Company
believes that the key to increasing market share will be the ability to meet
unique customer demands for product characteristics. The Company believes that
the VERSAL process allows it to produce a full line of VERSAL powders to
satisfy the changing needs of its customers. Most of the Company's competitors
produce only one type of alumina powder.

         Industrial Alumina Chemicals

         The Company sold substantially all property, plant and equipment and
certain other assets used exclusively in its calcined and tabular alumina
production businesses to C-E Baton Rouge, Inc., an unrelated third party
("C-E"), on April 1, 1996.  The Company will continue to operate the plant and
equipment on behalf of C-E for up to three years subsequent to the effective
date of the sale for an annual operating fee of up to $500,000, subject to
reduction based on the volume of production and the production of nonconforming
products.  In addition, the Company will continue to sell its remaining
calcined and tabular inventories pursuant to an inventory consignment
arrangement with C-E into fiscal 1998.

         Hydrate

         Through the Hydrate Partnership, the Company markets hydrate, which is
used as an intermediate or feedstock in the production of a variety of
chemicals, including alumina chemicals. Hydrate is sold to manufacturers of
detergent zeolites, catalysts, water treatment chemicals and flame retardant
materials.

         Historically, the Company was a significant distributor of hydrate,
which it purchased from Kaiser. In January 1993, the Company ceased its
distribution of hydrate and entered into the Hydrate Partnership with Kaiser
for the development, operation and management of a marketing operation for the
sale of hydrate. The Company jointly manages and has a 45% ownership interest
in the Hydrate Partnership. The Hydrate Partnership purchases hydrate from
Kaiser at competitive prices pursuant to a 20-year contract. All of the hydrate
purchased by the Hydrate Partnership is sold to third parties, except for
certain sales to CRILAR.  During fiscal 1996, the Hydrate Partnership installed
capital improvements to produce a higher quality hydrate. In addition,
facilities were also constructed during 1996 to allow the Hydrate Partnership
to enter the hydrate wetcake market.  Shipments of wetcake began in fiscal 1996
and the facilities became fully operational during the first quarter of fiscal
1997.





                                      9
<PAGE>   11


         Production Facilities and Techniques

         The Company's alumina chemicals are manufactured at the Baton Rouge
facility, while the Hydrate Partnership distributes hydrate manufactured at
Kaiser's Gramercy facility. Activated alumina chemicals are produced by
combining hydrate with water and certain chemical additives. The resulting
product is then activated by heating it to a high temperature. The VERSAL
patented process produces various phases of partially hydrated alumina
chemicals by dissolving hydrate in sodium aluminate. The product is then
filtered, washed and dried to form a powder.

         Hydrate is recovered from the solution resulting when bauxite, the
base ore of aluminum metal, is dissolved in caustic soda. The hydrate is
filtered and washed to produce a chemical grade powder.

         Raw Materials

         Hydrate, which is the primary raw material in the production of
alumina chemicals, is generally supplied by aluminum manufacturers. The Company
purchases hydrate from Kaiser under a long-term contract and, on occasion, from
other third party suppliers. The Company and the Hydrate Partnership purchase a
significant portion of Kaiser's alumina production from its Gramercy facility.

         Competition

         The Company's major competitor in the alumina chemicals business is
the Aluminum Company of America (ALCOA), a large, vertically-integrated
aluminum metals producer that has significantly greater financial resources
than the Company. Other aluminum manufacturers and alumina chemicals producers
and distributors tend to compete only regionally or in specific niche markets.
Competition is increasing in the catalytic alumina chemicals market as
environmental regulations cause increased demand for alumina chemicals that
compete with the Company's VERSAL products. In the markets in which the Company
competes, the key competitive factors are product quality, price, the ability
to meet specific customer demands and technical service.


OTHER PRODUCTS

         In fiscal 1996, the Company formed a 100% owned subsidiary, LaRoche
Air Systems Inc. ("LASI").  LASI markets and sells desiccant wheels that are
used as an alternative in home and light commercial air conditioning systems
that currently use CFCs and HCFCs.  In fiscal 1997, the Company marketed the
desiccant wheel to major HVAC suppliers.  This desiccant wheel technology has
lead to the development of an air exchange wheel capable of permitting existing
cooling technology to meet new air quality standards.  The Company markets its
products in the industrial dehumidification and energy recovery industry.

         LaRoche Filter Systems Inc. ("LFSI") is a subsidiary of the Company
that was formed in 1992 to enter the cooking oil filtration market. The Company
is an 80%  stockholder of LFSI, with the remaining 20% owned by Filter Systems
Inc., an unrelated entity. LFSI produces and markets a cooking oil filtration
unit (PureTec(TM)) for use in restaurants that consists of two or three
filtering phases in one enclosed vacuum system. Since the organization of LFSI,
the PureTec unit has been undergoing development and testing and has been in
limited production.





                                      10
<PAGE>   12

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. The Company had research and development expenditures of approximately
$3.8 million, $3.4 million and $3.1 million in fiscal 1997, 1996 and 1995,
respectively. The research and development center focuses on both process and
product development. Many of the Company's innovations involve improvements to
processes that allow existing products to be used in new applications. The
research and development center also provides technical support for the
Company's various product lines and is involved in the Company's plant upgrade
projects.  Through its research and development center, the Company also
conducts research on a contract basis for third parties, including customers.
Particular areas of emphasis for the research and development effort have been
CFC and HCFC replacement processes and products and the development of new
alumina chemical products to meet the needs of the Company's customers.


PATENTS

         The Company owns or has applied for approximately 25 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 to be commercially viable and, in appropriate
circumstances, seeks licenses when such products or processes are developed by
others.  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.


SEASONALITY AND BACKLOG

         A portion of the Company's nitrogen business serves the agricultural
fertilizer market.  The business 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.")


KAISER RELATIONSHIP

         In connection with the acquisition of the Company's Gramercy and Baton
Rouge facilities from Kaiser in 1988, the Company and Kaiser entered into
certain agreements governing their relationship and respective obligations
concerning jointly operated or administered assets.  Kaiser and the Company
share the powerhouse complex at the Gramercy facility pursuant to certain
agreements that remain in effect (if the Company exercises renewal options)
until 2008.  Kaiser operates the powerhouse complex, and the costs thereof and
the utilization of energy generated therefrom are shared in accordance with
these agreements. At Gramercy, Kaiser operates its alumina plants adjacent to
the Company's facility that produces electrochemical products. The powerhouse
complex supplies energy and steam to the Gramercy facilities of both companies.

         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.


GOVERNMENTAL REGULATION

         The Company is subject to various federal, state and local
environmental laws and regulations governing the use, 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





                                      11
<PAGE>   13

rapidly over the last two 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. 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 is subject to the Clean Air Act and comparable state
statutes regulating air emissions. The Clean Air Act Amendments of 1990 contain
provisions that may result in the imposition of certain pollution control
requirements with respect to air emissions from the Company's operations. The
EPA is currently developing regulations to implement those requirements.
Depending on the nature of those regulations, and upon requirements that may be
imposed by state and local regulatory authorities, 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 new Clean Air Act Amendment requirements 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 new
production of CFCs (R-11 and R-12)  as of January 1, 1996, followed by the
phase-out of the production of HCFCs (R-141b and R-22) by January 1, 2003 and
2020, respectively.  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 alumina chemicals and ammonia products.

         Chlorine use has been affected by certain environmental regulations,
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's operations also are governed by extensive federal, state
and local regulatory requirements relating to environmental affairs, waste
management and chemical products. Consequently, the Company is required to
obtain operating 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 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'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 some
structural asbestos that the Company believes is properly contained.

         The Company voluntarily adheres 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, employee safety, pollution prevention and chemical
distribution.


EMPLOYEES

         As of February 28, 1997, the Company had 800 full-time employees, 410
of whom were represented by labor unions.  The Company considers its labor
relations to be satisfactory.





                                      12
<PAGE>   14



RECENT DEVELOPMENTS

         On May 12, 1997, the Company announced that it had reached a plea
agreement with the U.S. Department of Justice, pursuant to which the Company
will admit to participating in an agreement in restraint of competition for the
sale of ammonium nitrate in May 1992.  The plea agreement is subject to final
approval by the federal court.  Under the terms of such plea agreement, in
which the government does not contend that the Company implemented the
price-fixing agreement, the Company will pay a fine of $1.5 million in five
installments during the next four years.  Such payment is believed to be
considerably lower than the fines paid by several other companies in the
industry and is not expected to have a material adverse effect on the financial
condition or operations of the Company.


BUSINESS GLOSSARY

83% ammonium nitrate liquor - Ammonia reacted with nitric acid forms ammonium
nitrate liquor (83% solution), which is used to make blasting products.

activated alumina chemical - A type of specialty alumina chemical that removes
certain substances from a chemical mixture or serves to catalyze certain
reactions due to its physical and chemical characteristics.  For example, Claus
catalyst is used in refineries to convert hydrogen sulfide from petrochemical
streams into sulfur which is a commercial product.

adsorbent - A process (adsorption) by which an extremely thin layer of
molecules (for example, gases) adhere to the surface of a substance such as an
alumina chemical.

alumina trihydrate (hydrate) - A solid alumina produced by dissolving bauxite
in caustic soda.

ammonia clean-out service - Tanks and systems containing or using ammonia
become contaminated with oil or a build up of water.  This clean out service
restores these systems or makes the system ready for removal.

anhydrous ammonia - Anhydrous means without water.  Ammonia in its pure form
readily absorbs water.  Commercial and premium grade ammonia contain varying
minute quantities of water.

anhydrous hydrofluoric acid - A raw material used in the manufacture of 141b
and other flourocarbons.  Its elemental components are hydrogen and fluorine.

aqua ammonia - Ammonium hydroxide - a mixture of anhydrous ammonia (usually
30%) and water.

calcined alumina chemicals - An industrial alumina chemical that is produced by
heating alumina trihydrate to a high temperature without fusing to achieve
certain physical characteristics.  Calcined alumina chemicals are a raw
material for tabular alumina chemicals.

catalyst - A chemical substance, whose physical or chemical characteristics
speed up a chemical reaction without the catalyst becoming part of the
reaction.

catalyst support - A high strength substance on which a catalyst such as
platinum is deposited.

CFC - See fluorocarbons.

caustic soda - Sodium hydroxide - a strong chemical base whose formula is NaOH.

Claus catalyst - An activated alumina chemical that is used to remove sulfur
from petrochemical streams.





                                      13
<PAGE>   15


DAP, TSP - Diammonium phosphate and triple super-phosphate - two types of
phosphate fertilizers.

denitrification - The removal of nitrogen from a substance.

desiccant cooling system - A novel air conditioning system whereby a rotating
desiccant wheel (desiccant material suspended on a honeycomb matrix) is used to
dehumidify air.  The drier warmer air is cooled with a heat exchange device and
then rehumidified to create a cooling effect.

ECU - Electrochemical unit - a way of measuring the production of chlorine and
caustic soda from the electrolytic conversion of common salt.  One ECU is the
equivalent of a proportional amount of chlorine and caustic soda (1 to 1.1).
One ECU ton equals one ton of chlorine and 1.1 tons of caustic soda.

feedstock - A chemical substance used in the manufacture of another.  Natural
gas is the feedstock of ammonia.  Salt (or brine) is the feedstock for caustic
soda and chlorine.  Hydrate is the feedstock for alumina chemicals.

fluid cracking (fluid catalytic cracking) - A refinery process that produces
various hydrocarbon chemicals from petrochemical feedstocks.  For instance, it
is a primary step in producing gasoline.

fluorocarbons - Chlorinated hydrocarbon chemicals that have certain properties
making them suitable for uses such as foam blowing, air conditioning and
refrigeration.  Fluorocarbons include chlorofluorocarbons (CFCs),
hydrochlorofluorocarbons (HCFCs) and hydrofluorocarbons (HFCs).

HCFC - See fluorocarbons.

HF alkylation - A petroleum refining process using HF (Hydrogen Fluoride) as a
catalyst to convert a petrochemical.  The process is primarily used to increase
the octane of fuel.

HFC - See fluorocarbons.

high density ammonium nitrate - A solid, dense form of ammonium nitrate that
contains about 34% nitrogen by weight and is used primarily for agricultural
purposes.

HVAC - Heating, ventilator and air conditioning systems for homes and
commercial use are referred to as HVAC systems.

hydrate - Alumina trihydrate - A form of industrial alumina chemicals that
contain water and is used in flame retardants and as a feedstock for other
industrial and specialty alumina chemicals.

industrial alumina chemicals - Alumina chemicals for basic industrial uses,
such as calcined and tabular alumina chemicals, which are used as raw materials
in refractories and ceramics.

investment casting - A metal and ceramic casting process in which the mold is
destroyed when the piece is made.

kiln furniture - A rack that holds ceramic material in a high temperature oven.

leaching - The process of percolating water or other liquids to dissolve out
chemical substances from solids such as soils.

low density ammonium nitrate - Chemically the same as high density ammonium
nitrate.  A solid pelletized (prilled) form of ammonium nitrate capable of
absorbing fuels in the manufacture of blasting agents.  It also is often
referred to as blasting grade ammonium nitrate.





                                      14
<PAGE>   16


petrochemicals - Hydrocarbon chemicals (organic chemical compounds) made from
refinery gases, natural gas liquids or other organic sources.

polyurethane - A hydrocarbon substance, often in plastic form, used typically
for insulation.

PVC - Poly vinyl chloride - A chlorine-containing petrochemical feedstock for
certain plastics.

refractory - A refractory is a substance that resists heat and is used to
insulate or contain hot materials.  Industrial alumina chemicals are used in
refractories.

rigid urethane foam - A type of insulating polyurethane foam which uses a
propellant gas such as R-11 or R-141b to form insulating pockets within the
hardened foam.

sodium aluminate - A chemical resulting from the reaction between caustic soda
and hydrate, which is used in basic chemical processes.

sterilant gas - Gas used to sterilize medical equipment.

tabular alumina chemical - An alumina chemical made from ground calcined
alumina that is heated to very high temperatures and sintered to make heat
resistant ceramics.

titanium dioxide - A compound of oxygen and titanium metal for uses such as
paint and the production of hydrogen peroxide.

UAN solution - A liquid urea ammonium nitrate mixture in water, typically
containing 28-32% nitrogen by weight for fertilizer uses.

Urea - A chemically combined form of ammonia and carbon dioxide which contains
46% nitrogen by weight.  Urea liquor is the liquid form of the substance which
solidifies at room temperature.

VERSAL(TM)  alumina chemicals - A Company trade name for a type of specialty
alumina chemical made under special conditions to provide certain physical and
chemical characteristics.  

volatilization - The process of removing certain chemical compounds by adding
energy (heat).  For example, urea can decompose when applied to the ground
because of surface soil conditions and ammonia is volatilized to the
atmosphere.  Ammonium nitrate resists volatilization.


ITEM 2.    PROPERTIES

         The Company has seven facilities where its products are manufactured,
22 customer service centers from which it distributes anhydrous and aqua
ammonia and four warehouses that it uses for delivery and storage of
fertilizer. The Company's manufacturing facilities include the two facilities
located in Baton Rouge and Gramercy, which manufacture alumina chemicals and
electrochemical products, the four facilities located in Cherokee, Crystal
City, Geneva, and Seneca which manufacture nitrogen products and the Westwego
facility, which manufactures ammonia.

         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.





                                      15
<PAGE>   17


<TABLE>
<CAPTION>
LOCATION                                DESCRIPTION AND BUSINESS LINE                                STATUS
<S>                                     <C>                                                         <C>

Gramercy, Louisiana . . . . . . . .     Electrochemical products: hydrochlorofluorocarbons,          Owned
                                        caustic soda and chlorine facility.

Baton Rouge, Louisiana  . . . . . .     Alumina chemicals: activated and VERSAL alumina chemicals    Owned
                                        facility.

Cherokee, Alabama . . . . . . . . .     Nitrogen products: fertilizer and blasting grade ammonium    Owned
                                        nitrate facility and distribution center.

Crystal City, Missouri  . . . . . .     Nitrogen products: fertilizer and blasting grade ammonium    Owned
                                        nitrate facility.

Geneva, Utah  . . . . . . . . . . .     Nitrogen products: blasting grade ammonium nitrate           Owned
                                        facility.

Seneca, Illinois  . . . . . . . . .     Nitrogen products:  blasting grade ammonium nitrate          Owned
                                        facility.

Westwego, Louisiana . . . . . . . .     Nitrogen products: ammonia                                  Leased
</TABLE>

         The Crystal City facility was subject to a mortgage securing a loan
from USX.  The Company made certain prepayments of the USX Notes during fiscal
1996 and 1997 and made its final payment of $1,355,000, plus accrued interest
thereon, on April 30, 1997.  The Westwego facility is owned by Avondale Ammonia
and is situated on land leased from Cytec Industries Inc.

         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 nine of these centers. The Company also
sells related storage systems and equipment and provides certain customer
services at those centers. The Company owns the four agricultural warehouses
located in Missouri, Illinois and Indiana, where the Company stores and
distributes phosphate fertilizer (DAP and TSP), solid urea, potash, nitrate,
UAN solutions and ammonium sulfate. The Company also owns several sites that
were once used in the production or distribution of Company products, which
currently are surplus to its needs.


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 the
amount of any ultimate liability with respect to such matters cannot be
precisely determined, in the opinion of the Company, any such liability will
not have a material adverse effect on the Company, even though the resolution
of certain matters could be material to the results of operations of any single
fiscal quarter.  Additionally, the Company is involved, to the extent and with
the Company's assessment of the effect noted, in the proceedings set forth
below.

         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, 1997, have been approximately $3.5 million.
The Company estimates that the remaining cost to complete remediation could be
up to an additional $2.2 million over the next few years.





                                      16
<PAGE>   18


         On June 27, 1996, Marathon Pipe Line Company and Marathon Oil Company
(collectively, "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, Louisiana.  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.  The Company is continuing a diligent
investigation of the situation in order to evaluate the allegations and the
relative responsibility of the parties involved.  The Company is also
responding to inquiries from regulatory authorities of the State of Louisiana
related to the gasoline release.  Management believes the Company has
meritorious defenses to these claims and is vigorously defending itself against
them.  Because the investigation is in a preliminary stage, it is not yet
possible to predict whether the Company will incur any liability for the
rupture and release or to reasonably estimate the cost of any possible
liability.

         Chicago Heights, Illinois.  USX and Armour & Company ("Armour"),
former owners of the Company's Chicago, Illinois facility, and the Company have
agreed in principle to the cleanup of soil and groundwater at such facility.
This facility was previously used to manufacture fertilizers and to blend
pesticides into the fertilizers. Although the facility is currently owned by
the Company, pursuant to its agreement with USX and Armour, the Company will be
responsible for only 5.7% of the total project cost.  Corrective action is
underway by the companies and is expected to cost approximately $2.3 million
over the next several years, of which the Company expects to be responsible for
approximately $130,000.

         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.  The Company estimates that total assessment and remedial costs
will be between $1.7 million and $3.0 million over the next five years. USX has
retained liability with respect to a substantial portion of the investigation
and remediation costs.

         Pursuant to the Asset Purchase Agreement dated April 30, 1986 between
USX and the Company, USX 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.

         In addition to the matters described above, the Company is also
involved, to varying degrees, in remedial activities at other facilities.
Although the aggregate cost of such remedial activities cannot be precisely
predicted, in the opinion of the Company, such remedial activity will not have
a material adverse effect on the Company.

         Other Proceedings

         On May 9, 1997, the Company entered into a plea agreement with the
U.S. Department of Justice with respect to allegations that the Company
participated in discussions with competitors in restraint of competition for
the sale of ammonium nitrate.  (See "Business -- Recent Developments.")

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 1997.





                                      17
<PAGE>   19


                                   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 28, 1997, the
Common Stock is held by 13 persons, 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 1997.  The payment of dividends is a business 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.


ITEM 6.   SELECTED FINANCIAL DATA.

         The following selected historical consolidated financial information
should be read in conjunction with the Consolidated Financial Statements of the
Company and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included herein.  On August 17,
1994, LHI and LCI were merged into the Company, with the Company as the
surviving corporation.  The selected historical consolidated financial
information as of and for all periods prior to August 17, 1994 is that of LHI
and subsidiaries, and such information as of and for all periods subsequent to
August 17, 1994 is that of the Company as the surviving company.  Certain prior
year amounts have been restated to conform to the current year's presentation.





                                      18
<PAGE>   20



<TABLE>
<CAPTION>
                                                               Year Ended
                                                               ----------
                                     February     February      February      February     February
                                       28,           29,          28,           28,           28,
                                      1997(1)      1996(2)        1995          1994        1993(3)
                                      ----         ----           ----          ----        ----  
                                        (Dollars in thousands, except per share information)
<S>                                  <C>          <C>           <C>           <C>          <C>
STATEMENT OF OPERATIONS DATA:

Net sales . . . . . . . . . .        $379,285     $448,982      $420,723      $375,511     $368,058

Cost of sales . . . . . . . .         313,871      350,066       329,383       302,075      292,156
                                     --------     --------      --------      --------     --------

Gross profit  . . . . . . . .          65,414       98,916        91,340        73,436       75,902

Selling, general and
administrative expenses . . .          54,777       54,631        54,135        50,048       49,356
                                     --------     --------      --------      --------     --------

Income from operations  . . .          10,637       44,285        37,205        23,388       26,546

Interest expense  . . . . . .          14,881       15,973        13,083         7,118        7,158

Income from equity investments          4,909        2,647         2,540         3,257          416
                                                                                                   

Other income, net . . . . . .             411        1,163         1,581           128          659
                                     --------     --------      --------      --------     --------

Income before income taxes,
minority interests and
extraordinary charges . . . .           1,076       32,122        28,243        19,655       20,463

Provision for income taxes  .             417       13,170        12,297         8,499        8,353

Minority interests, net (4) .              --           --        (2,063)       (3,226)        (382)
                                     --------     --------      --------      --------     --------
Income before extraordinary
charges . . . . . . . . . . .             659       18,952        13,883         7,930       11,728

Extraordinary charges from
debt extinguishments  . . . .              --           --          (860)       (1,077)          -- 
                                     --------     --------      --------      --------     --------

Net income  . . . . . . . . .        $    659     $ 18,952      $ 13,023      $  6,853     $ 11,728
                                     ========     ========      ========      ========     ========

</TABLE>




                                      19
<PAGE>   21



<TABLE>
<CAPTION>
                                                             Year Ended
                                                             ----------
                                   February     February      February      February     February
                                     28,           29,          28,           28,           28,
                                    1997(1)      1996(2)        1995          1994        1993(3)
                                    ----         ----           ----          ----        ----  
<S>                                  <C>          <C>           <C>           <C>          <C>

BALANCE SHEET DATA (AT END OF
PERIOD):

Total assets  . . . . . . . .        $312,365     $305,932      $300,421      $241,721     $225,328

Working capital . . . . . . .           6,832       29,269        58,307         5,521       20,400

Total long-term debt and
capital leases  . . . . . . .         105,036      113,691       120,686        50,639       46,838

Minority interests(5) . . . .              --           --            --        15,432       24,992

Common stock with redemption
  features  . . . . . . . . .           4,177       12,246        15,392        16,538       16,107

Total stockholders' equity  .          50,906       51,296        34,478        23,404       16,982


OTHER DATA:

Gross profit margin . . . . .            17.2%        22.0%         21.7%         19.6%        20.6%

Cash received from equity
investment  . . . . . . . . .        $  5,701     $  1,332      $  2,933      $  2,455     $     --

Depreciation and amortization          22,634       18,580        16,067        16,682       13,997

EBITDA(6) . . . . . . . . . .          39,099       67,430        56,538        42,525       40,543

Cash flow provided by
operating activities(6) . . .          25,332       60,751         5,495        29,071       42,091

Capital expenditures,(7)
investments, and acquisition
of a business . . . . . . . .          43,453       58,521        33,597        31,119       23,441

Cash dividends per share  . .            2.00         0.50            --            --           --
</TABLE>

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

(1)      In April 1996, the Company sold substantially all of the property,
         plant and equipment and certain other assets used in its calcined and
         tabular alumina chemical businesses.

(2)      In September 1995, the Company entered into the CRILAR joint venture.
         Since that time, sales from the Company's VERSAL II facility have been
         excluded from the Company's sales and results of the Company's
         interest in the CRILAR joint venture have been accounted for as income
         from equity investments.  Fiscal 1996 results reflect the operations 
         of the Seneca facility as of December 1995, the date the Company 
         acquired sustantially all of the assets of the facility.

(3)      In January 1993, the Company entered into the Hydrate Partnership.
         Since that time, hydrate sales have been excluded from the Company's
         sales and results of the Company's interest in the Hydrate Partnership
         have been accounted for as income from equity investments.





                                      20
<PAGE>   22


(4)      Principally reflects adjustments to the value of redeemable capital
         stock held by LCI institutional stockholders. The Company estimated
         the formula value of such stock as outlined in the shareholders'
         agreements relating to such stock by using historical results and
         accreted such amounts to the estimated value over the terms of the
         agreements.

(5)      Principally reflects the estimated value of LCI's redeemable capital
         stock not held by the Company.  (See note (4) above.)

(6)      EBITDA represents income from operations plus cash received from
         equity investments plus depreciation, amortization and non-cash
         long-term asset writedowns reflected in income from operations. 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 flow
         provided by operating activities relates primarily to working capital
         requirements, and payments made for interest and income taxes.

(7)      Capital expenditures include expenditures on plant turnarounds and
         exclude non cash additions through capital leases.


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


SIGNIFICANT DEVELOPMENTS

         Fiscal 1997 was a year of significant changes in operations for the
Company resulting in decreased financial performance.  The Company experienced
a decline in sales volume and income from operations in fluorocarbons resulting
from the government-mandated phase-out of production of CFCs R-11 and R-12.
Net sales and income from operations generated from CFC R-11 and R-12 sales to
total Company net sales and income from operations were 0.8%, 4.0%, and 5.7%
and 23.2%, 18.4% and 33.3% in fiscal years 1997, 1996 and 1995, respectively.
The Company will continue to sell remaining bulk CFCs until its inventory is
depleted.  During fiscal 1997, the Company experienced decreased margins for
both ammonia and chlor-alkali products as a result of increased natural gas
costs of $10.3 million and other raw materials costs.  In addition, the Company
experienced lower average ECU prices and production problems at the Gramercy
facility that resulted in decreased income from operations of $12.5 million for
fiscal 1997.  The Company also experienced a decline in net sales and income
from operations from its Alumina Chemicals business as a result of the sale of
certain VERSAL alumina chemical production equipment to CRILAR in September
1995 and production problems experienced at the facility during fiscal 1997 of
$11.9 million and $8.5 million, respectively.

         The Company sold substantially all property, plant and equipment and
certain other assets used exclusively in its calcined and tabular alumina
production businesses to C-E, an unrelated third party, on April 1, 1996.  The
sales price of the assets was $3 million, plus an amount equal to the value of
the raw material inventory.  The Company will continue to operate the plant and
equipment on behalf of the purchaser for up to three years subsequent to the
effective date of the agreement for an annual operating fee of up to $500,000,
subject to substantial reduction based on the volume of production and the
production of nonconforming products.  In addition, the Company will continue
to sell its remaining calcined and tabular inventories pursuant to an inventory
consignment arrangement with C-E into fiscal 1998.


SEGMENT INFORMATION

         The following table presents business segment information for the
fiscal years ended February 28, 1997 and February 29, 1996 respectively:





                                      21
<PAGE>   23

<TABLE>
<CAPTION>
 
                                                                        FISCAL YEARS ENDED

                                                        FEBRUARY 28, 1997                  FEBRUARY 29, 1996
                                                ----------------------------------------------------------------
                                                                         Percent                        Percent
                                                  Amount                of Total        Amount          of Total
                                                  ------                --------        ------          --------
 <S>                                             <C>                     <C>          <C>               <C>
 SEGMENT INFORMATION:

 NET SALES:

 Electrochemical products                        $ 96,738                 25.5%       $138,775           30.9%

 Nitrogen products                                242,408                 63.9         248,438           55.3

 Alumina chemicals                                 40,139                 10.6          61,769           13.8
                                                 --------                -----        --------          -----

    Total                                        $379,285                100.0%       $448,982          100.0% 
                                                 ========                =====        ========          =====  
 INCOME (LOSS) FROM OPERATIONS:

 Electrochemical products                        $  8,562                 80.4%       $ 29,624           66.9%

 Nitrogen products                                 11,710                110.1          20,468           46.2

 Alumina chemicals                                 (3,897)               (36.6)           (448)          (1.0)

 Corporate                                         (5,738)               (53.9)         (5,359)         (12.1)
                                                 --------                -----        --------          -----   

    Total                                        $ 10,637                100.0%       $ 44,285          100.0% 
                                                 ========                =====        ========          =====  
</TABLE>


RESULTS OF OPERATIONS

         Years Ended February 28, 1997 and February 29, 1996

         Net sales for fiscal 1997 decreased  to $379.3 million from $449.0
million in fiscal 1996, a decrease of $69.7 million or 15.5%.  Nitrogen
products net sales decreased $6.0 million or 2.4% due primarily to increased
internal consumption of ammonia produced by Avondale Ammonia as well as
production problems experienced at the Avondale Ammonia facility.  In
connection with the formation of Avondale Ammonia in July 1994, the Company
agreed to fulfill certain market-based sales commitments expiring within
approximately one year of the formation of Avondale Ammonia.  Approximately
one-half of the sales commitments were renewed on an annual basis.
Accordingly, the Company's ammonia sales declined during 1997 as such sales
commitments expired and the ammonia became available for internal consumption.
In addition, the Company experienced decreased sales volumes at its nitrogen
warehouses as a result of poor regional weather and planting conditions.  Such
decreases were partially offset by increased sales volume resulting from  the
purchase of a blasting grade ammonium nitrate facility near Seneca, Illinois
during December 1995 and higher sales prices of ammonia.  Electrochemical
product net sales decreased $42.0 million or 30.3% primarily due to the
decrease in sales volume of fluorocarbon products as a result of the federally
mandated withdrawal from production of CFCs R-11 and R-12 and the Company's
exit from the packaged refrigerant products.  Remaining inventory levels of CFC
R-11 and CFC R-12 will be sold to the Company's existing customer base.  Also
contributing to the decline in net sales of electrochemical products were
decreased caustic soda prices experienced during fiscal year 1997.  Management
does not expect additional decreases in ECU prices from current levels during
the remainder of fiscal 1998.  Alumina chemicals net sales decreased $21.6
million or 35.0% as a result of (i) the formation of CRILAR and the resulting
exclusion of certain sales from the





                                      22
<PAGE>   24

segment's net sales and (ii) the sale of the calcined and tabular alumina
production facilities to C-E on April 1, 1996.  Such decreases were partially
offset by increased activated alumina net sales.

         Cost of sales for fiscal 1997 decreased to $313.9 million from $350.1
million in fiscal 1996, a decrease  of $36.2 million or 10.3%.  Cost of sales
for nitrogen products increased $2.8 million or 1.4% due primarily to increased
natural gas costs experienced during 1997 and increased ammonia feedstock
prices (as discussed above).  The Company has entered into fixed price forward
purchase contracts and option spread ("collar") arrangements in order to
establish a fixed price or a range of prices for its natural gas purchases
during fiscal 1998.  Cost of sales for electrochemical products decreased $16.4
million or 30.4%, primarily due to decreased fluorocarbon sales volume.  Cost
of sales for alumina chemicals decreased $20.9 million or 21.3% due primarily
to decreased sales volumes associated with the formation of CRILAR and the
resulting exclusion of certain cost of sales from the segment's cost of sales
and the sale of the calcined and tabular alumina production facilities.

         Gross profit decreased to $65.4 million for fiscal 1997 from $98.9
million in fiscal 1996, a decrease of $33.5 million or 33.9%.  The Company
experienced decreased margins of $7.2 million for nitrogen products, $21.1
million for electrochemical products, and $5.2 million for alumina chemicals
(as discussed above).  The decrease in gross profit was partially offset by
increased gross profit in nitrogen products experienced as a result of the
acquisition of the Seneca facility.  Gross profit as a percent of net sales
decreased to 17.2% in fiscal 1997 from 22.0% in fiscal 1996.

         Selling, general and administrative expenses were $54.8 million in
fiscal 1997 versus $54.6 million in fiscal 1996, an increase of $0.2 million or
0.3%.  As a percent of net sales, selling, general and administrative expenses
increased to 14.4% in fiscal 1997 from 12.2% in fiscal 1996.  The increase in
selling, general and administrative expense as a percentage of net sales during
fiscal 1997 is due primarily to the overall reduction in net sales during the
year (as discussed above) without a corresponding reduction in expenses.  In
addition, the Company recorded a $1.5 million charge to selling, general and
administrative expense as a result of a plea agreement with the U.S. Department
of Justice relating to a price fixing conspiracy among U.S. ammonium nitrate
producers during May 1992.  (See "Business -- Recent Developments.")

         Accordingly, income from  operations for fiscal 1997 decreased to
$10.6 million from $44.3 million in fiscal 1996, a decrease of $33.6 million or
75.9% due primarily to (i) the reduction in sales of fluorocarbons resulting
from the government-mandated phase-out of production of CFCs R-11 and R-12,
(ii) increased natural gas and other raw materials costs, (iii) lower average
ECU prices and (iv) production problems experienced at certain facilities
(as discussed above).  Income from operations was also negatively affected by
the operating agreement entered with C-E upon the disposition of the calcined
and tabular businesses as the Company incurred costs associated with the
transition of operations to C-E during fiscal 1997.  Management believes such
transition costs have been substantially incurred and, therefore, that there
should be a positive effect on future income from operations.

         Interest expense for fiscal 1997 decreased to $14.9 million from $16.0
million in fiscal 1996, a decrease of $1.1 million or 6.8%.  The decrease
resulted from payments of higher rate debt obligations of $11.7 million and
interest capitalized on major capital projects of $860,000.  The Company
capitalized no interest on major capital projects in fiscal 1996.

         Income from equity investments increased to $4.9 million in fiscal
1997 from $2.6 million in fiscal 1996, an increase of $2.3 million or 85.4%.
Equity income attributable to CRILAR and increases in income from the Hydrate
Partnership, due primarily to increased sales from the partnership, accounted
for the increase.

         Other income, net, for fiscal 1997 decreased to $0.4 million from $1.2
million for fiscal 1996, a decrease of $0.8 million or 64.7%.  The decrease is
primarily attributable to the decrease in interest income earned in fiscal
1997.

         Provision for income taxes for fiscal 1996 decreased to $0.4 million
from $13.2 million for fiscal 1996, a decrease of $12.8 million or 96.9%.  The
effective tax rates were 38.8% and 41.0% for fiscal 1997 and 1996,





                                      23
<PAGE>   25

respectively.  The Company's effective tax rate in fiscal 1997 was adversely
affected by the non-deductible charge relating to the Department of Justice
fine, which was more than offset by certain one-time benefits from tax
adjustments on prior year tax returns.


Years Ended February 29, 1996 and February 28, 1995

         Net sales for fiscal 1996 increased to $449.0 million from $420.7
million in fiscal 1995, an increase of $28.3 million or 6.7%.  Nitrogen
products net sales increased $13.5 million or 5.8% due to additional sales
volume primarily as a result of the purchase of a blasting grade ammonium
nitrate facility near Seneca, Illinois and higher sales price of ammonia. 
Electrochemical products net sales increased $12.3 million or 9.7% due to a
24.6% increase in chlorine and caustic soda sales coupled with steady sales of
fluorocarbons.  The chlorine and caustic plant outage over an extended
period during fiscal 1995 resulted in increased sales volume during fiscal 1996
compared to fiscal 1995.  The Company's income before income taxes during
fiscal 1995 was impacted adversely by $1.6 million due to the temporary outage
of the chlor-alkali plant.   Also contributing to greater net sales were higher
caustic soda prices during fiscal year 1996.  An increase in R-141b sales
volume offset the decreased sales volume of other fluorocarbon products and
lower R-11 and R-12 sales prices.  As of January 1, 1996, the Company completed
the phase-out of the production of CFCs R-11 and R-12.  Alumina chemicals net 
sales increased $2.5 million or 4.2% due to a change in sales product mix to 
higher priced alumina chemical products.

         Cost of sales for fiscal 1996 increased to $350.1 million from $329.4
million in fiscal 1995, an increase of $20.7 million or 6.3%.  Cost of sales
for nitrogen products increased $8.0 million or 4.2% because of increased sales
volume of ammonia, higher ammonia feedstock costs and a one-time inventory
writedown for purchased agricultural ammonium nitrate due to market conditions
and poor product quality.  Cost of sales for electrochemical products increased
$8.0 million or 8.8% primarily due to increased chlorine, caustic soda and
fluorocarbon sales volume.  Cost of sales for alumina chemicals increased $4.7
million or 9.6% due primarily to costs relating to the calcined and tabular
businesses disposition coupled with a change in sales product mix to higher
cost alumina chemical products.  During the fourth quarter of fiscal 1996,
natural gas prices increased.

         Gross profit increased to $98.9 million for fiscal 1996 from $91.3
million in fiscal 1995, an increase of $7.6 million or 8.3%.  Increased margins
for electrochemical products and nitrogen products more than offset the $2.3
million decrease in alumina chemicals gross profit.  Gross profit as a percent
of net sales increased to 22.0% in fiscal 1996 from 21.7% in fiscal 1995.

         Selling, general and administrative expenses increased to $54.6
million in fiscal 1996, from $54.1 million in fiscal 1995, an increase of $0.5
million or 0.9%.  As a percent of net sales, selling, general and
administrative expenses decreased to 12.2% in fiscal 1996 from 12.9% in fiscal
1995.

         Income from operations for fiscal 1996 increased to $44.3 million
from $37.2 million in fiscal 1995, an increase of $7.1 million or 19.1%.  The
increase is attributed to increased income in electrochemical products of $4.8
million due to higher ECU prices and increased volumes, and increased income in
nitrogen products of $6.6 million due to higher ammonia prices, offset slightly
by the $2.6 million decrease in income from alumina chemicals due to the cost
associated with the asset dispositions noted above.  Future income from
operations will be affected by the disposition of the calcined and  tabular
businesses.  In fiscal 1996 and 1995, the calcined and tabular businesses





                                      24
<PAGE>   26

recognized losses from operations of  $4.7 million and $3.0 million,
respectively.

         Interest expense for fiscal 1996 increased to $16.0 million from $13.1
million in fiscal 1995, an increase of $2.9 million or 22.1%.  The increase was
attributable to the additional interest incurred on the Notes which were
outstanding throughout fiscal 1996, but only outstanding for a portion of
fiscal 1995.

         Income from equity investments increased to $2.6 million in fiscal
1996 from $2.5 million in fiscal 1995, a increase of $0.1 million or 4.0%.
Equity income attributable to CRILAR offset by a $1.1 million decrease of
income attributed to the Hydrate Partnership, due to higher raw material costs,
accounted for the increase.

         Other income, net, for fiscal 1996 decreased to $1.2 million from $1.6
million for fiscal 1995, a decrease of $.4 million or 25%.  Fiscal 1996 other
income was primarily attributable to interest income compared to fiscal 1995
other income that was primarily associated with the insurance recovery from the
chlor-alkali plant outage.

         Provision for income taxes for fiscal 1996 increased to $ 13.2 million
from $12.3 million for fiscal 1995, an increase of $0.9 million or 7.3%.  The
effective tax rates were 41.0% and 43.5% for fiscal 1996 and 1995,
respectively, a 5.7% decrease.

         Minority interests for fiscal 1996 decreased to $0 from $2.1 million
in fiscal 1995 due to the purchase of minority shares of LCI in August 1994
concurrent with the completion of the sale of the Notes.


LIQUIDITY AND CAPITAL RESOURCES

         Net cash provided by operating activities for fiscal years 1997, 1996
and 1995 was $25.3 million, $60.8 million and $5.5 million, respectively.  The
decrease in net income and changes in working capital requirements contributed
primarily to the decrease in net cash provided by operating activities in
fiscal 1997.  The Company experienced a less significant increase in working
capital requirements during fiscal 1997 compared to a decline in working
capital requirements experienced in fiscal 1996.  Such decreases experienced in
fiscal 1996 resulted primarily from significant decreases in inventories from
fiscal 1995 due to a reduction in fluorocarbon inventories as a result of the
government-mandated phase-out of production of CFCs R-11 and R-12 and a
decrease in nitrogen products purchased for resale.  Management does not expect
the Company to experience these significant fluctuations in the future.

         Net cash used in investing activities for fiscal years 1997, 1996 and
1995 were $39.7 million, $52.0 million and $31.7 million, respectively.
Significant fiscal 1997 capital expenditures relate to the Company's Strategic
Growth Plan.  The primary use of cash during fiscal 1997 was for capital
expansion projects.  Major projects in process during fiscal 1997 include the
Cherokee facility expansion project and the electrochemical products powerhouse
improvement project.  The Cherokee facility projects have been substantially
completed and are expected to improve ammonium nitrate prill production, reduce
emissions, and increase capacity of the facility's nitric acid plants.  The
Company anticipates expenditures of $3.5 million to complete this Cherokee
facility expansion project.  Such expenditures are expected to be made  during
fiscal 1998.  In addition,the Company is evaluating the feasibility of
performing an expansion of its ammonia manufacturing facility at its Cherokee
facility.  If approved by the Company's Board of Directors, this expansion,
along with the two others presently underway, will permit this location to be
self-sufficient for its ammonia requirements.  The powerhouse project will
increase the capacity and efficiency at the Gramercy chlor-alkali facility and
is expected to be completed during fiscal 1998.  Future expenditures for the
project are expected to be approximately $12.0 million.  The Company also
incurred costs of approximately $1.5 million for its ongoing software
implementation project.  The project will replace the Company's existing
software for all software applications, including the financial and
manufacturing systems.  The Company expects to complete the implementation of
the project during the next eighteen months.  Future expenditures are expected
to be $4.5 million.   The Company intends to use cash flows from operations and
its revolving credit facility





                                      25
<PAGE>   27

as the source of funds for the projects mentioned above.  Net cash used in
investing activities for fiscal 1996 included $37.5 million for the purchase of
the Seneca facility in December 1995.

         Proceeds of $3.0 million from the sale of the Company's calcined and
tabular operations and $0.7 million from the sale of other properties,
contributed cash of $3.7 million.

         Net cash (used) / provided by financing activities for fiscal years
1997, 1996 and 1995 was $12.3 million, ($11.3) million and $28.3 million,
respectively.  Cash provided in 1997 was primarily due to borrowings of $32.9
million under the revolving credit facility.  Such amounts were primarily used
to fund the Company's capital expenditures during 1997, as discussed above.  In
addition, the Company repaid $11.7 million of long-term debt, including
accelerated payments of $4.5 million and scheduled payments of $5.7 million, on
notes payable to USX Corporation (the "USX Notes").  During the first quarter
of fiscal 1998, the Company made its final payments of $1.4 million plus
accrued interest on the USX Notes.  Current year activity also included
payments of $7.5 million to repurchase Common Stock pursuant to rights of a
former stockholder.

         The Company completed a major refinancing in fiscal 1995 with the
issuance of the Notes.  Proceeds from the Notes were used for the retirement of
debt, the repurchase of outstanding LCI minority shares and the repurchase of
certain LHI shares from a retiring Principal.  In addition, a portion of the
proceeds was used to retire the bridge financing associated with the
acquisition of Avondale Ammonia.

         Dividend payments of $0.50 per share to all shareholders were paid
each quarter during fiscal 1997.  On April 18, 1997, the Company's Board of
Directors approved the payment of a dividend of $0.50 per share to all
shareholders of record as of March 31, 1997.  The Board of Directors may or may
not declare additional dividends in the future depending upon the financial
condition of the Company and restrictions pursuant to the Company's debt
instruments.

         The Company historically has expanded its business through the
acquisition of other related businesses and investments in joint venture
arrangements, and the Company continues to seek and evaluate acquisition and
joint venture opportunities.  Management anticipates that the Company's
existing capital resources and cash flow generated from future operations or
additional borrowings will enable it to maintain its planned operations,
capital expenditures and debt service for the foreseeable future.

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, 1997, the Company had recorded $1.9 million of current
liabilities and $2.3 million of non-current liabilities to reflect the
estimated future costs associated with environmental matters. A significant
portion of the recorded liabilities is attributable to a soil and groundwater
contamination incident at the Company's Gramercy facility in fiscal 1990.
Remediation at Gramercy 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 up
to $2.2 million and are anticipated to be paid over the next few years.  In
addition, the Company has recorded liabilities attributable to the Greensboro,
North Carolina fertilizer plant contamination.  (See "Legal
Proceedings--Environmental Proceedings.")  Future expenditures by the Company
for the Greensboro facility are anticipated to be approximately $1.8 million.

         Capital expenditures made to address environmental matters were $7.8
million, $1.5 million and $1.2 million in fiscal 1997, 1996 and 1995,
respectively.

         Under the asset purchase agreements with USX and Kaiser, both USX and
Kaiser retained liability under certain circumstances for environmental matters
that existed prior to the date of sale.  (See Note 8 to the Consolidated
Financial Statements included herein.)  In connection with the Company's sale
of certain of the businesses it





                                     26
<PAGE>   28

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 "Legal Proceedings -- Environmental Proceedings.")

         The Company is a participant in certain other legal actions and
claims.  (See "Legal Proceedings" and "Business -- Recent Developments.")

         Based on the foregoing factors, management believes that is unlikely
that any of the identified matters, either individually or in the aggregate,
will have a material adverse effect on the Company's consolidated financial
position, results of operations or capital expenditures, although the
resolution of certain matters could be material to the results of operations
for any single fiscal quarter.


SEASONALITY

         Demand for the Company's fertilizer products is seasonal.  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 U.S. 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 U.S. government's agricultural policy.  In addition, the Company
periodically performs extended major maintenance on its manufacturing
facilities that results in reduced production at such facilities.


RECENTLY ISSUED ACCOUNTING STANDARDS

         Effective March 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."  SFAS No. 121 requires
that long-lived assets to be held and used by an entity, certain identifiable
intangibles and goodwill be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.  The adoption of this accounting standard did not have a material
effect on the Company's operating results or financial condition.

         In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position 96-1, "Environmental Remediation
Liabilities" ("SOP 96-1").  SOP 96-1 provides guidance with respect to the
recognition, measurement and disclosure of environmental remediation
liabilities.  The Company will adopt SOP 96-1 in the first quarter of fiscal
1998.  Based upon current information, the Company believes that the adoption
of this accounting standard will not have any material impact on its operating
results or financial conditon.


INFLATION

         Inflation has not had a significant impact on the Company's operations
during the periods covered by the Consolidated Financial Statements.


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Included herein beginning on page F-1.





                                     27
<PAGE>   29


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

         None.


                                  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 director of the Company.

<TABLE>
<CAPTION>
 NAME                                          AGE         POSITION

 <S>                                           <C>         <C>
 W. Walter LaRoche, III  . . . . . . . . .     45          Chairman of the Board and Director
 Victoria E. LaRoche . . . . . . . . . . .     38          Vice Chairman of the Board and Director
 Grant O. Reed . . . . . . . . . . . . . .     50          President, Chief Executive Officer and Director
 Harold W. Ingalls . . . . . . . . . . . .     49          Vice President and Chief Financial Officer
 Vincent R. Gurzo  . . . . . . . . . . . .     47          Vice President
 William G. Osborne, Ph.D. . . . . . . . .     56          Vice President
 Neil A. Stephansson . . . . . . . . . . .     51          Vice President
 Richard H. Watts  . . . . . . . . . . . .     50          Vice President
 Paul L. M. Beckwith, Ph.D.  . . . . . . .     38          Director
 John R. Hall  . . . . . . . . . . . . . .     59          Director
 Johnnie Lou LaRoche . . . . . . . . . . .     68          Director
 Louanne C. LaRoche  . . . . . . . . . . .     41          Director
 C. L. Wagner, Jr. . . . . . . . . . . . .     52          Director
 George R. Wislar  . . . . . . . . . . . .     64          Director
 Robert L. Yohe  . . . . . . . . . . . . .     61          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 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 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 to the Consolidation and he has continued to serve as a Director of
the Company since the Consolidation.  On October 1, 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 1,
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.

         GRANT O. REED -- President, Chief Executive Officer and Director. Mr.
Reed joined Monsanto Company in 1969 as a Chemical Engineer and later performed
in various sales, product management and planning positions. He joined Ashland
Chemical Company in 1980 and became Vice President and General Manager of the
Carbon Black Division in 1984. In 1988 the Carbon Black Division of Ashland was
sold to Degussa A.G. of Germany, and Mr. Reed became President of the Degussa
Carbon Black Corporation. In 1990 he was appointed Executive Vice





                                      28
<PAGE>   30

President of the Pigment Group of Degussa Corporation. Mr. Reed was appointed
President and Chief Operating Officer of LHI and the Company in July 1993 and
of LCI in August 1993. He became Chief Executive Officer of LHI, LCI and the
Company on April 1, 1994.  Mr. Reed remained in those positions and has
continued to serve as President, Chief Executive Officer and Director of the
Company since the Consolidation.

         HAROLD W. INGALLS -- Vice President and Chief Financial Officer.  Mr.
Ingalls joined the Company as Vice President and Chief Financial Officer on
July 15, 1996.  Prior to joining the Company, Mr. Ingalls served for
approximately one year as the Vice President and Chief Financial Officer of OHM
Corp. 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.

         VINCENT R. GURZO -- Vice President.  Mr. Gurzo joined the Company as
Vice President of Specialty Chemicals on August 22, 1996.  Prior to joining the
Company and taking responsibility for the Company's Alumina and Specialty
Chemicals business lines, Mr. Gurzo worked for one 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 the 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
responsible for merger and acquisition activity since May 1996.  Prior to that,
Dr. Osborne was responsible for purchasing and distribution 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.  Dr. Osborne was Vice President and General Manager --
Specialty Alumina Chemicals for LCI from 1988 through April 1992. He also held
a number of positions with Kaiser from 1969 through the Kaiser acquisition by
LCI in 1988. From 1966 to 1969, Dr. Osborne was a Research Engineer with E.I.
du Pont de Nemours and Co.

         NEIL A. STEPHANSSON -- Vice President. Mr. Stephansson has been
responsible for Gramercy products since April 1992. Prior to that time, Mr.
Stephansson was Vice President and General Manager -- Operations of LCI from
1988 through April 1992. Between 1969 and 1988 Mr. Stephansson held a variety
of management positions with Kaiser.

         RICHARD H. WATTS -- Vice President.  Mr. Watts has been responsible
for Nitrogen Products since April 1995.  Prior to that time Mr. Watts was the
Vice President and General Manager of Alumina Chemicals from April 1992 until
April 1995.  Mr. Watts was Vice President and General Manager -- Gramercy
Products of LCI from 1989 through April 1992.  Between 1968 and 1988 Mr. Watts
held a number of supervisory and management positions with Kaiser.

         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 is a Managing Director of The Chase Manhattan
Bank, N.A., where he has been employed since 1982.

         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 since 1981.  Mr. Hall stepped down from his position as Chief Executive
Officer of Ashland, Inc. on October 1, 1996, and retired as Chairman on
February 1, 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.





                                      29
<PAGE>   31


         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 from 1979 to 1995.

         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 & 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 was elected to the Board of
Directors of the Company in November, 1996.  Mr. Yohe retired as Vice Chairman
of Olin Corporation in 1994, after 11 years of distinguished 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., Betz Laboratorie, Inc., and Calgon Carbon Corporation.  He is also a
Trustee of Lafayette College.


ITEM 11.   EXECUTIVE COMPENSATION.

         The following table shows, for the fiscal years ended on February 28,
1997, February 29, 1996 and February 28, 1995, respectively, the compensation
paid to or earned by the Company's Chief Executive Officer and its four other
most highly compensated executive officers who were serving at the end of
fiscal 1997 (the "Named Executive Officers").





                                      30
<PAGE>   32


                          SUMMARY COMPENSATION TABLE
                             ANNUAL COMPENSATION


<TABLE>
<CAPTION>
                                                                            OTHER
 NAME AND                                                                   ANNUAL          ALL OTHER
 PRINCIPAL POSITION             YEAR      SALARY         BONUS        COMPENSATION (1)   COMPENSATION (2),(3),(4)
 ------------------             ----      ------         -----        ------------       ------------       
 <S>                            <C>     <C>             <C>               <C>                 <C>     
                                                                                          
 Grant O. Reed . . . . . .      1997    $331,683        $241,704  (5)     $101,550           $    --
   President and Chief          1996     267,963         708,504  (6)      372,721                --
   Executive Officer            1995     227,087         375,913  (7)      134,443                --
                                                                                          
 W. Walter LaRoche, III  .      1997     244,270          59,968                --             1,055           
   Chairman of the              1996     200,572         278,736            43,055            45,634
   Board                        1995     188,792         203,821            23,451            18,958
                                                                                          
 Harold W. Ingalls . . . .      1997     126,089         376,456  (9)      274,104                --
   Vice President and                                                                     
   Chief Financial                                                                        
   Officer(8)                                                                               

 Neil A. Stephansson . . .      1997     150,966          11,219                --               746
   Vice President               1996     129,940         118,449            16,403               711
                                1995     110,376         237,020 (10)      178,133               561
                                                                                          
 Richard H. Watts  . . . .      1997     150,725          11,219                --               720
   Vice President               1996     132,688         196,224 (11)       69,109               727
                                1995     118,508          84,710                --            14,277
</TABLE>

---------------
(1)      Amounts shown reflect (i) the tax gross-up amounts paid by the Company
         in connection with the bonuses awarded to Mr. Reed, Mr. Ingalls, Mr.
         Stephansson and Mr. Watts pursuant to the Company's Management Stock
         Purchase Plan, (ii) the tax gross-up amount paid by the Company in
         connection with the life insurance policy for Mr. LaRoche and (iii)
         the tax gross-up amount paid by the Company in connection with a club
         membership fee for Mr. LaRoche.  (See footnotes (3), (5), (6), (7),
         (9), (10) and (11) below, and "Management Stock Purchase Plan.").

(2)      Amounts shown for fiscal 1997 reflect matching 401(k) contributions 
         made by the Company to the Company's savings plan of $1,055, $746 and 
         $720 on behalf of Mr. LaRoche, Mr. Stephansson and Mr. Watts, 
         respectively.

(3)      Amounts shown for fiscal 1996 reflect (i) matching 401(k)
         contributions made by the Company to the Company's savings plan of
         $602, $711 and $727 on behalf of Mr. LaRoche, Mr. Stephansson and Mr.
         Watts, respectively, (ii) a life insurance premium of $18,392 paid on
         behalf of Mr. LaRoche, for the life insurance policy on his mother,
         Johnnie Lou LaRoche, and (iii) a one-time club membership fee of
         $26,640 paid on behalf of Mr. LaRoche.  The club is utilized for
         business meetings as well as for personal use.

(4)      Amounts shown for fiscal 1995 reflect (i) matching 401(k)
         contributions made by the Company to the Company's savings plan of
         $566, $561 and $700 on behalf of Mr. LaRoche, Mr. Stephansson and Mr.
         Watts, respectively, (ii) a life insurance premium of $18,392 paid on
         behalf of Mr. LaRoche for the life insurance policy on his mother,
         Johnnie Lou LaRoche, and (iii) a resettlement allowance of $13,577
         paid to Mr. Watts.





                                      31
<PAGE>   33


(5)      Amount shown reflects (i) a profit sharing bonus of $59,968 and (ii) a
         $181,736 bonus granted by the Company in fiscal 1997 in accordance 
         with the Company's Management Stock Purchase Plan.

(6)      Amount shown reflects (i) a profit sharing bonus of $307,238, (ii) a
         $301,266 bonus granted by the Compensation Committee pursuant to the
         Management Stock Purchase Plan as a result of the Company achieving a
         fixed ratio coverage exceeding certain annual performance goals in
         fiscal 1996, and (iii) a $100,000 bonus constituting matching funds
         for the purchase of the Company's Common Stock.

(7)      Amount shown reflects (i) a profit sharing bonus of $224,612, and (ii)
         a $151,301 bonus at the time of Consolidation in accordance with the
         Company's Management Stock Purchase Plan which was immediately applied
         to the purchase of the Company's Common Stock.

(8)      Amount shown reflects compensation for the approximately seven months
         of Mr. Ingalls's employment in fiscal 1997.

(9)      Amount shown reflects (i) a profit sharing bonus of $75,000 and (ii) a
         $301,456 signing bonus to purchase shares in accordance with the
         Company's Management Stock Purchase Plan.

(10)     Amount shown reflects (i) a profit sharing bonus of $84,710 and (ii) a
         $152,310 one-time bonus to purchase the Bonus Shares at the time of
         Consolidation in accordance with the Company's Management Stock
         Purchase Plan.

(11)     Amount shown reflects (i) a profit sharing bonus of $118,449 and (ii)
         a $77,775 bonus to purchase shares in accordance with the Company's
         Management Stock Purchase Plan.

PENSION PLANS

         The Company maintains a qualified defined benefit Employee Pension
Benefits Plan for participants. Under the plan, normal retirement age is 65.
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. 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.
The qualified and non-qualified plans use the same benefit formulas, which have
two components: the Final Earnings Benefit Formula and the Career Earnings
Benefit Formula. 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. In addition, in lieu of receiving the first three months of the
Final Earnings Benefit, a lump sum special retirement payment equal to nine
weeks of the participant's weekly vacation rate is paid during the first month
of retirement.

         The estimated annual benefits payable upon retirement at normal
retirement age for each of the Named Executive Officers is as follows:  Mr.
LaRoche - $306,468; Mr. Reed - $262,128; Mr. Ingalls - $129,216; Mr.
Stephansson - $122,664; and Mr. Watts - $132,024.


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 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
directors of the Company will be eligible to purchase up to 1,250 shares of the
Company's Common Stock at fair value (as determined by independent





                                      32
<PAGE>   34

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 value (based
upon an independent 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 1997, 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 1997, 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 $648,500.


EMPLOYMENT CONTRACTS, TERMINATIONS OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

         On August 21, 1992, Mr. Felix J. Prinzo, the Company's former Chief
Financial Officer, entered into a Shareholder's Agreement with LHI.  The
Shareholder's Agreement provided that in the event of death, bankruptcy,
termination of employment of Mr. Prinzo, or in the event Mr. Prinzo wishes to
dispose of his LHI stock, Mr. Prinzo will sell, and LHI will purchase, all of
the LHI stock owned by Mr. Prinzo. The purchase price of the stock would be at
least the fair market value of the LHI stock owned by the Executive as
determined by appraisal. At the time of the Consolidation, these Shareholder's
Agreements were assumed by the Company, and the shares of LHI stock were
converted to shares of Company stock.  On May 31, 1996, Mr. Prinzo put his
25,000 shares to the Company and received approximately $7,475,000, the fair
value of the shares as determined by an independent appraisal, in accordance
with the Shareholder's Agreement.

         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 and is expected to continue on substantially
such terms unless the Employment Agreement is renegotiated.  The Employment
Agreement provided that the term of the agreement may be extended only by the
prior written agreement of the Company and Mr. Reed. The Employment Agreement
provided that Mr. Reed is eligible to participate in certain variable and other
compensation programs. The Employment Agreement provided that Mr. Reed is
obligated to use at least 25% of all cash bonuses awarded to him to purchase
shares of LHI's common stock at their fair value. However, pursuant to the
terms of the Employment Agreement, Mr. Reed's equity ownership in the Company
may not exceed five percent of the shares of Company Common Stock outstanding
from time to time.  At the time of the Consolidation, the Employment Agreement
was assumed by the Company.  Concurrent with bonuses paid to Mr. Reed over the
past three fiscal years, Mr. Reed has purchased a total of 3,344 shares of the
Company's Common Stock valued at approximately $1,000,212.


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") will be, at the
discretion of the Board of Directors, eligible to purchase shares of the
Company's Common Stock at the then current fair value of such shares as
determined by independent appraisal.   Such employees also will be eligible to
receive bonuses in the form of shares of the Company's Common Stock or 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, including Mr. Stephansson, 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 (the
"Conversion Shares").  (See "Executive Compensation -- Summary Compensation
Table.")





                                      33
<PAGE>   35


         The terms of the 1994 Purchase Plan give Mr. Reed the opportunity to
purchase, through bonuses and/or the use of his own funds, up to five percent
of the outstanding shares of the Company's Common Stock. The Company awarded
Mr. Reed a cash bonus at the time of the Consolidation that was applied to the
purchase of shares.  The Company also intends to pay an annual cash bonus of at
least $150,000 to Mr. Reed for each of the four years following the
Consolidation, contingent upon the Company's achieving a certain fixed charge
coverage ratio for each of such years. Each such bonus will include an
additional amount which represents Mr. Reed's income tax liability for such
bonus. Each such bonus shall be applied to the repayment of the loan used to
finance the purchase of his shares of the Company's Common Stock.  (See
"Executive Compensation -- Summary Compensation Table.")

         Effective August 24, 1995, the Board adopted the 1995 Amended and
Restated Stock Purchase Plan (the "1995 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 shares reserved for issuance under the 1995
Purchase Plan total 50,000.  The 1995 Purchase Plan is administered by the
Company's Board of Directors.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT.

         The following table sets forth the ownership of the Common Stock as of
May 28, 1997 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
                                                          NUMBERS OF SHARES          PERCENTAGE
         NAME OF BENEFICIAL OWNER                        BENEFICIALLY OWNED           OWNED
         <S>                                                   <C>                   <C>
         
         Johnnie Lou LaRoche(1). . . . . . . . . . .           297,500                67.7%
         W. Walter LaRoche, III(1) . . . . . . . . .            42,500                 9.7
         Victoria E. LaRoche(1). . . . . . . . . . .            42,500                 9.7
         Louanne C. LaRoche(1) . . . . . . . . . . .            42,500                 9.7
         Grant O. Reed . . . . . . . . . . . . . . .             3,344                   *
         Neil A. Stephansson . . . . . . . . . . . .             2,500                   *
         Richard H. Watts  .  .  .  .  .  .  .  .  .             2,500                   *      
         William G. Osborne, Ph.D. . . . . . . . . .             2,500                   *
         Harold W. Ingalls . . . . . . . . . . . . .             1,506                   *
         Paul L. M. Beckwith, Ph.D.  . . . . . . . .               800                   *
         George R. Wislar  . . . . . . . . . . . . .               550                   *
         C. L. Wagner, Jr. . . . . . . . . . . . . .               400                   *
         Vincent R. Gurzo  . . . . . . . . . . . . .               334                   *
         John R. Hall  . . . . . . . . . . . . . . .                 0                   *
         Robert L. Yohe  . . . . . . . . . . . . . .                 0                   *
         Directors and executive officers as a group
         (15) persons  . . . . . . . . . . . . . . .           439,434               100.0%
</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
         Common Stock.





                                      34
<PAGE>   36


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In July 1988, William W. LaRoche, Jr. entered into a Salary
Continuation Agreement with the Company.  Mr. LaRoche died in February 1989
and in January 1992 the Salary Continuation Agreement was amended with the
approval of his widow, Johnnie Lou LaRoche. Under the Salary Continuation
Agreement, Johnnie Lou LaRoche is entitled to receive a death benefit of
$438,612 per year through June 1997. A portion of these payments is funded by
the proceeds of an insurance policy on the life of Mr. LaRoche of which the
Company was a beneficiary.

         (See "Executive Compensation -- Compensation Committee Interlocks and
Insider Participation.")


                                   PART IV

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


<TABLE>
<CAPTION>

   (A)     DOCUMENTS FILED AS PART OF THIS REPORT:                      PAGE NUMBER
       <S>       <C>                                                        <C>
       (1)       Financial Statements
                       Report of Independent Auditors                       F-1  
                       Consolidated Balanced Sheets                         F-2                       
                       Consolidated Statements of Income                    F-4  
                       Consolidated Statements of                                
                       Stockholders' Equity                                 F-5  
                       Consolidated Statements of Cash Flows                F-6  
                       Notes to Consolidated Financial Statements           F-7  
       
       (2)       Financial Statement Schedules
                        Schedule II - Valuation and Qualifying Accounts     S-1
       
                   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:
       
<CAPTION>
Exhibit No.      Description of Exhibit
-----------      ----------------------
   <S>           <C>

   2.1           Asset Purchase Agreement by and between LaRoche Industries Inc. and ETI Explosives Technologies
                 International Inc. dated November 15, 1995. (10)

   2.2           Asset Purchase Agreement by and between C-E Baton Rouge, Inc. and LaRoche Industries Inc. dated
                 February 28, 1996. (11)

   2.3           Amendment to Asset Purchase Agreement and Operating Agreement dated April 1, 1996. (11)

   3.1           Certificate of Incorporation of the Company, together with amendments thereto. (1)

   3.4           Bylaws of the Company. (1)

</TABLE>




                                      35
<PAGE>   37


<TABLE>
  <S>            <C>
   4.1           Indenture, dated as of August 17, 1994, between NationsBank of Georgia, 
                 National Association, as Trustee and the Company. (5)

   4.2           Form of Note (included in Exhibit 4.1). (5)

  10.1*          Employment Agreement, dated as of June 1993, between LHI and Grant O. Reed. (1), (7)

  10.2           Credit Agreement, dated as of August 17, 1994, among the Company, Bank 
                 South, N.A. (now known as NationsBank, N.A. South), as Agent, and the 
                 Lenders listed therein. (5)

  10.3           First Amendment to Credit Agreement dated as of May 17, 1995 and effective as 
                 of March 1, 1995 among the Company, Bank South, N.A. (now known as 
                 NationsBank, N.A. South), as Agent, and the lenders listed therein.

  10.4           10% Secured Note from the Company to USX, dated as of April 30, 1990 and due 
                 May 1, 2000. (4)

  10.5           12% Secured Noted from the Company to USX, dated as of April 30, 1990 and 
                 due May 1, 2000. (4)

  10.6           Letter Agreement dated as of July 17, 1995 extending the Credit Agreement 
                 dated as of August 17, 1994 among the Company, Bank South (formerly known as 
                 Bank South, N.A.), as Agent, and the lenders listed therein.

  10.7           Letter Agreement dated as of December 16, 1996 amending the Credit Agreement 
                 dated as of August 17, 1994 among the Company, NationsBank N.A., South 
                 (successor to Bank South), as Agent, and the lenders listed therein. (12)

  10.8*          Salary Continuation Agreement dated as of June 16, 1992 between LHI and C. 
                 Max Henderson. (1), (7)

  10.9*          Salary Continuation Agreement dated as of June 16, 1992 between LHI and Felix 
                 J. Prinzo. (1), (7)

  10.10*         Salary Continuation Agreement, dated as of July 1988, as amended with the 
                 approval of his widow on January 27, 1992 and June 2, 1992, between the 
                 Company and William W. LaRoche, Jr. (1), (7)

  10.11*         LaRoche Chemicals Inc. 1989 Key Management Stock Appreciation Bonus
                 Plan. (1), (7)

  10.12          LaRoche Holdings Inc. Supplemental Employee Retirement Plan. (1), (7)

  10.13*         LaRoche Executive Management Health Program. (1), (7)

  10.14          Hydrate Partnership Agreement, dated as of January 1, 1993, between Kaiser and 
                 LCI. (1)

  10.15          Hydrate Sales Agreement, dated as of January 1, 1993, between Kaiser and the 
                 Hydrate Partnership. (1)
</TABLE>




                                      36

<PAGE>   38



<TABLE>
   <S>           <C>
   10.16         Powerhouse Operating Agreement, dated as of July 26, 1988, between Kaiser and 
                 LCI, as amended January 8, 1994. (1)

   10.17         Powerhouse Lease, dated as of July 26, 1988, between Kaiser and LCI. (1)

   10.18         Specialty Aluminas Sales Agreement, dated as of July 26, 1988, between Kaiser 
                 and LCI. (1)

   10.19         Amendment No. 1 to Specialty Aluminas Sales Agreement, dated as of February 
                 1, 1993, between Kaiser and LCI. (1)

   10.20         Salt Agreement, dated as of May 3, 1957, between Texaco and Kaiser, as 
                 amended May 15, 1968. (1)

   10.21         Supply Agreement, dated as of April 1994, between AlliedSignal Inc. and LCI 
                 (portions redacted pursuant to a confidentiality request). (1)

   10.22*        Management Stock Purchase Plan and forms of related agreements with executive 
                 officers. (4), (7)

   10.23         Joint Venture Agreement, dated as of July 26, 1994, between Cytec Ammonia, 
                 Inc. and LaRoche Fortier Inc. (3)

   10.24*        LaRoche Industries Inc. 1995 Board of Directors Stock Purchase Plan and form of 
                 agreement. (8)

   12            Statement regarding Computation of Ratio of Earnings to  Fixed Charges.

   21            Subsidiaries of the Company.

   27            Financial Data Schedule (for SEC use only).

</TABLE>

--------------------                     
* Denotes a management contract or compensatory plan required to be filed
  pursuant to Item 601(b)(10)(iii) of Regulation S-K.

(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. 2 to Registration Statement
       No. 33-79532 filed July 19, 1994 and incorporated herein by reference.
(3) Previously filed as an exhibit to Amendment No. 3 to Registration Statement
       No. 33-79532 filed August 3, 1994 and incorporated herein by reference.
(4) Previously filed as an exhibit to Amendment No. 4 to Registration Statement
       No. 33-79532 filed August 9, 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, 1994 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, 1994 and incorporated herein by
       reference.
(7) Management contract or other compensatory plan or arrangement 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 August 31, 1995 and incorporated herein by 
       reference.
(9) Previously filed as an exhibit to the Current Report on Form 8-K filed July
       20, 1995 and incorporated herein by reference.





                                      37
<PAGE>   39

(10)  Previously filed as an exhibit to the Current Report on Form 8-K/A filed
         February 26, 1996 and incorporated herein by reference.
(11)  Previously filed as an exhibit to the Current Report on Form 8-K filed
         April 15, 1996 and incorporated herein by reference.
(12)  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.


         (B)     REPORTS ON FORM 8-K

         None.

         (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 imediately 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.





                                      38
<PAGE>   40

                                  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 28,
1997.

                                        LaRoche Industries Inc.


                                        By:  /s/ Harold W. Ingalls 
                                             -----------------------------------
                                             Harold W. Ingalls, 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 28, 1997.

<TABLE>
<CAPTION>
Signature                                                                    Title
<S>                                                                          <C>     


/s/ Grant O. Reed                                                            President, Chief Executive Officer and
-----------------------------------------------                              Director                              
Grant O. Reed                                                                


/s/ Harold W. Ingalls                                                        Vice President and Chief Financial Officer
-----------------------------------------------                                                                        
Harold W. Ingalls


/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/ Paul L. M. Beckwith                                                      Director
-----------------------------------------------                                         
Paul L. M. Beckwith


/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.


</TABLE>



                                      39
<PAGE>   41



<TABLE>
<S>                                                                          <C>
/s/ George R. Wislar                                                         Director
----------------------------------------------                                       
George R. Wislar


/s/Robert L. Yohe                                                            Director
----------------------------------------------                                       
Robert L. Yohe

</TABLE>









                                      40
<PAGE>   42



                       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, 1997 and February 29, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended February 28, 1997.  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, 1997 and February 29, 1996, and the
consolidated results of its operations and its cash flows for the each of the
three years in the period ended February 28, 1997, in conformity with generally
accepted accounting principles.  Also in our opinion, based on our audits, 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
April 30, 1997

                                                                             F-1

<PAGE>   43




                           LaRoche Industries Inc.

                         Consolidated Balance Sheets



<TABLE>
<CAPTION>
                                                      FEBRUARY 28,  FEBRUARY 29,
                                                          1997          1996
                                                      -------------------------
                                                            (In Thousands)

<S>                                                      <C>           <C>
ASSETS
Current assets:
 Cash                                                    $  1,165      $  3,265
 Receivables (Note 6):
  Trade, net of allowances of $776 and $849 in 1997
   and 1996, respectively                                  43,393        57,153
  Refundable income taxes                                   6,649         1,453
  Other                                                     7,159         3,395
 Inventories (Notes  4 and 6)                              39,924        46,004
 Other current assets                                       2,513         4,878
                                                         ----------------------
Total current assets                                      100,803       116,148

Investments (Note 5)                                       17,886        17,165

Property, plant and equipment, at cost (Note 6):
 Land and land improvements                                12,234        12,039
 Buildings                                                 19,547        12,388
 Machinery and equipment                                  220,613       195,872
 Capital leases                                             4,902         5,226
 Construction in progress                                  14,208        20,195
                                                         ----------------------
                                                          271,504       245,720
 Less accumulated depreciation                            (90,417)      (81,108)
                                                         ----------------------
Net property, plant and equipment                         181,087       164,612
Other assets                                               12,589         8,007
                                                         ----------------------
Total assets                                             $312,365      $305,932
                                                         ======================
</TABLE>




F-2
<PAGE>   44


<TABLE>
<CAPTION>
                                                    FEBRUARY 28,     FEBRUARY 29,
                                                        1997              1996
                                                    ----------------------------
                                                 (In Thousands Except Share Data)
<S>                                                  <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Revolving credit facility (Note 6)                  $ 37,605           $  4,755
 Accounts payable                                      35,992             37,770
 Accrued compensation                                   8,595             14,408
 Other accrued liabilities                              8,944             16,481
 Common stock with put rights (Note 11)                     -              7,475
 Current portion of long-term debt (Note 6)             2,835              5,990
                                                     ---------------------------
Total current liabilities                              93,971             86,879

Long-term debt (Note 6)                               104,441            112,940
Deferred income taxes (Note 9)                         22,335             15,668
Other noncurrent liabilities (Notes 7 and 8)           36,535             34,378

Commitments and contingencies (Note 8)

Redeemable common stock (Note 11)                       4,177              4,771

Stockholders' equity:
 10% cumulative, voting preferred stock,
  $.01 par value, 200,000 shares authorized,
  no shares outstanding                                     -                  -
 Common stock, $.01 par value, 1,200,000
  shares authorized, 425,000 non-redeemable         
  shares issued                                             4                  4
 Capital in excess of par value                           630                630
 Retained earnings                                     50,409             50,662
 Minimum pension liability                               (137)
                                                     ---------------------------
Total stockholders' equity                             50,906             51,296
                                                     ---------------------------
                                                     $312,365           $305,932
                                                     ===========================
</TABLE>

See accompanying notes.


                                                                             F-3

<PAGE>   45




                           LaRoche Industries Inc.

                      Consolidated Statements of Income



<TABLE>
<CAPTION>

                                                                                  YEAR ENDED
                                                              FEBRUARY 28,       FEBRUARY 29,       FEBRUARY 28,
                                                                  1997               1996               1995
                                                              -------------------------------------------------
                                                                                (In Thousands)   
<S>                                                            <C>                 <C>                 <C>  
Net sales                                                      $379,285            $448,982            $420,723             

Cost of sales                                                   313,871             350,066             329,383             
                                                               ------------------------------------------------             
Gross profit                                                     65,414              98,916              91,340             

Selling, general and administrative expenses                     54,777              54,631              54,135             
                                                               ------------------------------------------------             
Income from operations                                           10,637              44,285              37,205             

Interest  and amortization of debt expense                      (14,881)            (15,973)            (13,083)            
Income from equity investments (Note 5)                           4,909               2,647               2,540             
Other income, net                                                   411               1,163               1,581             
                                                               ------------------------------------------------             
Income before income taxes, minority interests and                                                                          
 extraordinary charge                                             1,076              32,122              28,243             

Provision for income taxes (Note 9)                                (417)            (13,170)            (12,297)            
                                                               ------------------------------------------------             
Income before minority interests and extraordinary                                                                          
 charges                                                            659              18,952              15,946             
Minority interests (Note 10)                                          -                   -              (2,063)            
                                                               ------------------------------------------------             
Income before extraordinary charges                                 659              18,952              13,883     

Extraordinary charge from debt extinguishment                         -                   -                (860)            
                                                               ------------------------------------------------             
Net income                                                          659              18,952              13,023             
Adjustment to estimated fair value of common stock                                                                          
 with put rights (Note 11)                                            -              (1,901)             (1,949)            
                                                               ------------------------------------------------             
Income attributable to non-redeemable common                                                                                
 stockholders                                                  $    659            $ 17,051            $ 11,074             
                                                               ================================================             
</TABLE>

See accompanying notes.


                                                                             F-4

<PAGE>   46




                           LaRoche Industries Inc.

               Consolidated Statements of Stockholders' Equity



<TABLE>
<CAPTION>
                                               CAPITAL IN               MINIMUM                           
                                     COMMON     EXCESS OF  RETAINED     PENSION
                                      STOCK     PAR VALUE  EARNINGS     LIABILITY       TOTAL         
                                     ---------------------------------------------------------                               
                                              (In Thousands, except per share data)                  
<S>                                    <C>         <C>     <C>          <C>            <C>           
Balance at February 28, 1994           $4          $630    $22,770      $   -          $23,404       
 Net income                             -             -     13,023          -           13,023       
 Adjustment to estimated fair                                                                        
  value of common stock with put                                                                     
  rights                                -             -     (1,949)         -           (1,949)      
                                       -------------------------------------------------------       
Balance at February 28, 1995            4           630     33,844          -           34,478       
 Net income                             -             -     18,952          -           18,952       
 Dividends paid, $.50 per share         -             -       (233)         -             (233)      
 Adjustment to estimated fair                                                                       
  value of common stock with put                                                                     
  rights                                -             -     (1,901)         -           (1,901)      
                                       -------------------------------------------------------       
Balance at February 29, 1996            4           630     50,662          -           51,296       
 Net income                             -             -        659          -              659       
 Dividends paid, $2.00 per share        -             -       (912)         -             (912)      
 Pension adjustments                    -             -          -       (137)            (137)      
                                       -------------------------------------------------------       
Balance at February 28, 1997           $4          $630    $50,409      $(137)         $50,906       
                                       =======================================================       
</TABLE>

See accompanying notes.




                                                                             F-5

<PAGE>   47




                           LaRoche Industries Inc.

                    Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                      FEBRUARY 28,  FEBRUARY 29,  FEBRUARY 28,
                                                          1997          1996          1995
                                                      ----------------------------------------
                                                                   (In Thousands)
<S>                                                      <C>          <C>           <C>         
OPERATING ACTIVITIES
Net income                                               $    659      $ 18,952      $ 13,023
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization                            23,061        18,996        16,360
  Deferred income taxes                                     6,667          (495)        1,358
  Equity income, net of distributions                         792        (1,315)           28
  Minority interests                                            -             -         1,870
  Net (gain) loss on disposal of assets                      (349)        3,021           112
  Extraordinary charges                                         -             -           860
  Changes in operating assets and liabilities
   (excluding acquisition):
     Receivables                                            4,800         4,749       (20,429)
     Inventories                                            5,946        17,129       (22,662)
     Other assets                                          (2,880)        1,874         2,036
     Accounts payable and accrued liabilities             (15,198)       (2,288)        9,136
     Noncurrent liabilities and other                       1,834           128         3,803
                                                         ------------------------------------
Net cash  provided by operating activities                 25,332        60,751         5,495

INVESTING ACTIVITIES
Capital expenditures                                      (35,784)      (16,894)      (17,651)
Acquisition of a business                                       -       (37,504)            -
Investments in joint ventures                              (2,631)       (1,451)      (13,357)
Plant turnarounds                                          (5,038)       (2,672)       (2,589)
Proceeds from sale of facilities                            3,708         6,484         1,628
                                                         ------------------------------------
Net cash used by investing activities                     (39,745)      (52,037)      (31,969)

FINANCING ACTIVITIES
Net borrowings (repayments) under revolving credit
 facility                                                  32,850        (1,350)      (10,306)
Additions to long-term debt                                     -             -       100,000
Repayments of long-term debt                              (11,654)      (11,352)      (38,156)
Costs of refinancing                                            -             -        (4,408)
Repurchase of minority interest in LaRoche
 Chemicals Inc.                                                 -             -       (14,490)
Sales of common stock with redemption features              3,187         1,918         1,214
Purchases of common stock with redemption features        (11,158)         (332)       (5,576)
Dividends paid                                               (912)         (233)            -
                                                         ------------------------------------
Net cash provided (used) by financing activities           12,313       (11,349)       28,278
                                                         ------------------------------------
Net (decrease) increase in cash                            (2,100)       (2,635)        1,804
Cash at beginning of year                                   3,265         5,900         4,096
                                                         ------------------------------------
Cash at end of year                                      $  1,165      $  3,265      $  5,900
                                                         ==================================== 
</TABLE>

See accompanying notes.


                                                                             F-6

<PAGE>   48




                           LaRoche Industries Inc.

                  Notes to Consolidated Financial Statements

                              February 28, 1997


1. ORGANIZATION AND DESCRIPTION OF BUSINESS

LaRoche Industries Inc. ("LII") is engaged in the manufacture, distribution,
and sale of agricultural and industrial nitrogen products and bulk fertilizer
materials, certain specialty aluminas, and electrochemical products.  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 intercompany
transactions and balances have been eliminated in consolidation.

On August 17, 1994, LaRoche Holdings Inc. ("LHI") and LaRoche Chemicals Inc.
("LCI") were merged into LaRoche Industries Inc. (collectively, the "Company").
Prior to this date, LII was a wholly-owned subsidiary of LHI, and LCI was a
majority-owned subsidiary of LHI.

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.  The Company
serves a variety of customers, and therefore, the Company believes that it has
limited exposure to credit loss.  The carrying amount of accounts receivable
approximates fair value due to the short settlement period of these
instruments.



                                                                             F-7

<PAGE>   49

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVENTORIES

Inventories are valued at the lower of cost or market.  The cost of
approximately 20% and 37% of total inventories was determined using the last
in, first out (LIFO) method at February 28, 1997 and February 29, 1996,
respectively.  Cost for all 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 related turnaround, generally ranging from one to five years.

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
8), are depreciated over their estimated useful lives using the straight-line
method for financial reporting purposes and accelerated methods for tax
purposes. Depreciation expense aggregated approximately $16,076,000,
$14,421,000 and $13,610,000 for fiscal years ended February 28, 1997, February
29, 1996 and February 28, 1995, respectively.  Costs of construction of certain
long-term assets include capitalized interest which is amortized over the
estimated useful life of the related asset.  The Company capitalized interest
costs of $860,000 on eligible projects during fiscal 1997.  No amounts of
interest were capitalized in fiscal years 1996 or 1995.



                                                                             F-8
<PAGE>   50

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 aggregated
$4,276,000 and $1,037,000 at February 28, 1997 and February 29, 1996,
respectively.

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 income are approximately $3,762,000, $3,388,000 and $3,148,000 of
such costs for the years ending February 28, 1997, February 29, 1996 and
February 28, 1995, respectively.

EARNINGS PER SHARE

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

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform with current year
presentation.  Consistent with the 1997 presentation, the Company has reflected
1996 and 1995 amortization of turnaround costs in depreciation and
amortization.



                                                                             F-9

<PAGE>   51

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)




2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


NEW ACCOUNTING STANDARDS

Effective March 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS No. 121).  The statement
standardizes the accounting for impairment of long-lived assets, certain
identifiable intangibles and goodwill.  The adoption of this accounting
standard did not have a material effect on the Company's operating results or
financial condition.

In October 1996, the AICPA issued SOP 96-1, Environmental Remediation
Liabilities.  The SOP provides guidance with respect to the recognition,
measurement and disclosure of environmental remediation liabilities.  The
Company will adopt SOP 96-1 in the first quarter of Fiscal 1998.  Based on
current information, the Company believes that the adoption of this accounting
standard will not have a material impact on its operating results or financial
condition.

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:



                                                                            F-10

<PAGE>   52

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)




<TABLE>
<CAPTION>

                                                          YEAR ENDED                   
                                           FEBRUARY 28,  FEBRUARY 29,  FEBRUARY 28,    
                                               1997          1996          1995        
                                           ----------------------------------------    
<S>                                         <C>            <C>           <C>
Supplemental disclosures of cash flow
 information (in thousands):
  Cash paid (received) during the year
   for:
     Interest, net of amounts capitalized   $15,192        $16,469       $12,607
     Income taxes, net of refunds              (809)        18,155         3,706

Non-cash investing and financing
 activities (in thousands):
  Capital leases for new equipment               90            545           644
  Contribution of assets to a joint
   venture  at cost                               -          1,243           600
  Note issued to purchase Company stock
   (Note 11)                                      -          7,401             -
</TABLE>



                                                                            F-11

<PAGE>   53

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



3. DISPOSITIONS, ACQUISITION AND OTHER MATTERS

During fiscal 1996, the Company re-evaluated portions of its alumina chemicals
segment.  In connection with the re-evaluation of its alumina chemicals
business, effective April 1, 1996, the Company sold substantially all property,
plant and equipment and certain other assets used exclusively in its calcined
and tabular alumina production businesses to C-E Baton Rouge, Inc., an
unaffiliated entity.  The sale price of the assets was $3 million, plus
$300,000 for raw material inventory.  The Company operates the plant and
equipment on behalf of the purchaser for an annual operating fee of $500,000,
subject to reduction based on the volume of production and the production of
nonconforming product.  Net sales and operating (losses) of the calcined and
tabular alumina business aggregated $3,659,000 and ($389,000) in fiscal 1997,
$18,801,000 and ($4,670,000) in fiscal 1996, $20,708,000 and ($3,024,000) in
fiscal 1995, respectively.  In fiscal 1996, the Company recorded equipment
writedowns of approximately $3.8 million in connection with the determination
to sell or otherwise dispose of its calcined and tabular aluminas business.  In
addition, during fiscal 1996 the Company recorded inventory selling costs of
$0.4 million pursuant to an inventory consignment arrangement.

Effective September 1, 1995, the Company sold a 50% interest in certain Versal
alumina production equipment to CRILAR Alumina Company ("CRILAR") for $5.5
million, consisting of $2.2 million in cash and $3.3 million in a note which
has been collected.  The remaining 50% interest in such equipment (with a net
carrying value of approximately $1,243,000) was contributed by the Company to
CRILAR.  CRILAR is equally owned by the Company and by Criterion Catalyst
Company LP, an unaffiliated entity.  In connection with the sale of the 50%
interest to CRILAR, the Company recognized a gain of approximately $3.4
million.  The Company operates the facility under an agreement with CRILAR and
the owners of CRILAR purchase substantially all of the production of the
facility.  The Company's net sales and operating profits prior to the
transaction from the assets associated with the CRILAR transaction were not
material to the Company's consolidated net sales or operating profits.



                                                                            F-12
<PAGE>   54

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)




3. DISPOSITIONS, ACQUISITION AND OTHER MATTERS (CONTINUED)

On December 13, 1995, the Company acquired an ammonium nitrate manufacturing
facility located near Seneca, Illinois and related assets for an initial
purchase price of approximately $37.5 million (the "Seneca Acquisition").  The
transaction was accounted for under the purchase method of accounting;
accordingly, the consolidated statements of income include the results of
operations of the Seneca plant since the acquisition date.  The Company used
available cash to fund the acquisition. During fiscal 1997, the Company
recorded an adjustment of approximately $2,055,000 to the purchase price of the
business as a result of certain additional consideration. The total purchase
price was allocated as follows (in thousands):


<TABLE>
<S>                                        <C>
Property, plant and equipment              $31,014
Inventory                                    2,259
Non-compete agreement, goodwill and other    6,286
                                           -------
                                           $39,559
                                           =======
</TABLE>

Unaudited pro forma results of operations as if the Seneca Acquisition had been
consummated as of March 1, 1995 are as follows (in thousands):


<TABLE>

                                                     YEAR ENDED 
                                                    FEBRUARY 29,
                                                        1996
                                                    -----------
                                                     (Unaudited)
<S>                                                   <C>
Net sales                                             $473,774
Income before extraordinary charges                     16,827
Net income                                              16,827
</TABLE>

Certain of the Company's fluorocarbon products (CFC R-11 and R-12) previously
manufactured by the electrochemical products segment (Note 12) are subject to
federal regulations which provided for the phase out of production by January
1, 1996.  These products accounted for 1%, 4% and 6% of net sales and 23%, 18%
and 33% of income from operations for the fiscal years ended February 28, 1997,
February 29, 1996 and February 28, 1995, respectively.



                                                                            F-13

<PAGE>   55

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



3. DISPOSITION, ACQUISITION AND OTHER MATTERS (CONTINUED)

As a result of the mandated phase-out of CFC R-11 and R-12 and the inability to
remain profitable in HCFC R-22 and other packaged refrigerant products, in
fiscal 1996 the Company elected to exit the packaged fluorocarbon business and
consequently, the Company closed its packaging facility.  Accordingly, the
Company recorded a writedown of the related property, plant and equipment of
approximately $1,255,000.


In July 1994 the Company purchased a 50% interest in an ammonia production
facility for $13.3 million from Cytec Industries Inc. ("Cytec").  The Company
and Cytec each contributed their 50% interest to a new partnership, Avondale
Ammonia.  The ammonia production facility is operated by Cytec pursuant to a
services agreement with the partnership.  Ammonia produced is transferred at
production cost to the partners relative to their respective ownership
interests.  The Company is required to purchase from Cytec, at market related
prices, that amount of Cytec's 50% share of production in excess of Cytec's
internal ammonia needs up to a maximum amount.

4. INVENTORIES

Components of inventory are as follows (in thousands):


<TABLE>
<CAPTION>
                                FEBRUARY 28,  FEBRUARY 29,
                                    1997          1996
                                --------------------------
<S>                                 <C>           <C>
Finished goods and in-progress      $21,019       $28,339
Inventory purchased for resale       11,931        13,215
Raw materials                           637           873
Supplies and catalysts                7,483         7,989
                                -------------------------
                                     41,070        50,416
Less LIFO reserve                    (1,146)       (4,412)
                                -------------------------
                                    $39,924       $46,004
                                =========================
</TABLE>




                                                                            F-14

<PAGE>   56

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



4. INVENTORIES (CONTINUED)

During fiscal 1997, certain inventory quantities were reduced resulting in the
liquidation of inventory quantities valued under the LIFO method.  The effect
of this liquidation was to increase income from operations during the year ended
February 28, 1997 by approximately $1,086,000.

5. EQUITY INVESTMENTS

The Company participates in several investment arrangements which it accounts
for under the equity method of accounting.  The primary investees include
CRILAR (50% owned), Kaiser LaRoche Hydrate Partnership ("KLHP", 45% owned), and
Avondale Ammonia (50% owned).  KLHP is a partnership with Kaiser Aluminum and
Chemical Corporation ("Kaiser") to jointly distribute hydrate, a product
manufactured by Kaiser.

All income generated by the equity investees, except Avondale Ammonia, is
distributed to the partners relative to their respective partnership interests.
Avondale Ammonia does not generate income or loss because all production is
transferred to the partners at production cost.

Summarized financial information for unconsolidated entities (excluding
Avondale Ammonia) is as follows (in thousands):


<TABLE>
<CAPTION>
                                        TWELVE MONTHS ENDED
                              FEBRUARY 28,  FEBRUARY 29,  FEBRUARY 28,
                                  1997          1996          1995
                              ----------------------------------------
<S>                                <C>           <C>           <C>
Summary of operations:
 Net sales                         $52,136       $35,674       $27,984
 Gross profit                       11,353         5,799         7,420
 Net income                         10,280         4,871         6,385
 Company's equity in earnings        4,909         2,647         2,540
</TABLE>




                                                                            F-15
<PAGE>   57

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)




5. EQUITY INVESTMENTS (CONTINUED)


<TABLE>
<CAPTION>
                                 FEBRUARY 28,  FEBRUARY 29,
                                      1997          1996
                                 -------------------------
<S>                                  <C>           <C>
Summary of financial position:
    Current assets                   $13,854       $ 9,228
    Noncurrent assets                 16,532        15,891
                                 -------------------------
Total                                $30,386       $25,119
                                 =========================

Current liabilities                  $ 8,948       $ 5,073
                                 =========================
</TABLE>

Purchases from Avondale Ammonia aggregated approximately $8.8 million, $6.9
million, and $6.7 million for the years ended February 28, 1997, February 29,
1996, and February 28, 1995, respectively.  Purchases from CRILAR aggregated
approximately $2.3 million and $2.8 million for the years ended February 28,
1997 and February 29, 1996, respectively.  Amounts due from CRILAR amounted to
approximately $4,338,000 and $1,374,000 at February 28, 1997 and February 29,
1996, respectively.




                                                                            F-16
<PAGE>   58

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



6. BORROWING ARRANGEMENTS

The Company's borrowings include the following (in thousands):


<TABLE>
<CAPTION>
                                  FEBRUARY 28,  FEBRUARY 29,
                                      1997          1996
                                  -------------------------
<S>                                  <C>           <C>
Revolving credit facility            $ 37,605      $  4,755
                                  =========================
Term debt:
 13% senior subordinated notes       $100,000      $100,000
 Notes payable to USX Corporation       1,355        11,529
 Note to former stockholder             5,921         7,401
                                  -------------------------
Total                                 107,276       118,930
Less current portion                   (2,835)       (5,990)
                                  -------------------------
Long-term debt                       $104,441      $112,940
                                  =========================
</TABLE>

The Company's $100 million 13% senior subordinated notes are due in 2004 (the
"Notes").  Semi-annual, interest only payments are due February 15 and August
15 of each year.  The Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after August 15, 1999 at redemption prices
set out in the Notes' indenture.  The Notes are unsecured obligations of the
Company, and the indenture contains limitations on stock redemptions,
dividends, borrowings and investments, and it restricts the Company from
entering into certain transactions, all as defined.  At February 28, 1997, the
Company is in compliance with such covenants; however, based upon currently
available information, it is possible that in fiscal 1998 the
Company will not achieve a minimum required fixed charge coverage ratio (as
defined).  If the minimum ratio is not achieved the payment of dividends, stock
redemptions, the incurrence of certain indebtedness and certain investments in
less than wholly-owned subsidiaries would be precluded.



                                                                            F-17
<PAGE>   59

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)




6. BORROWING ARRANGEMENTS (CONTINUED)

Concurrent with the sale of the Notes, the Company prepaid all existing term
notes (except the USX Notes), plus accrued interest thereon outstanding as of
August 17, 1994, and incurred a loss on the early extinguishment of debt
amounting to $860,000 (net of income tax benefit of $561,000).  Such loss is
reflected in the accompanying 1995 consolidated statement of income as an
extraordinary charge.

The USX notes bear fixed interest rates of 10% and 12% and are senior to the
Notes and are secured by the Company's Crystal City, Missouri plant.  These
agreements contain restrictions relating to changes in control, entering into
certain transactions, paying dividends and have cross-default provisions with
other debt.  The Company made certain prepayments of the USX Notes during
fiscal 1996 and 1997 and made its final payment of $1,355,000 plus accrued
interest thereon on April 30, 1997.

In July 1995, the Company executed an unsecured promissory note in favor of a
stockholder (the former chairman and chief executive officer of the Company) in
the principal amount of $7,401,250, bearing interest equal to the prime rate,
plus 1% per annum for the purchase of common stock owned by the stockholder.
The promissory note provides for the payment of the principal balance in five
equal annual installments beginning June 30, 1996, and the payment of quarterly
installments of interest, over a five year period, beginning September 30,
1995.

At February 28, 1997, approximately $11 million of the Company's retained
earnings was available for payment of dividends or distribution under the most
restrictive provisions of the above agreements.

Annual maturities of long-term debt are as follows:  $2,835,000 in 1998;
$1,480,000 in 1999; $1,480,000 in 2000; $1,480,000 in 2001; none in 2002 and
$100,000,000 thereafter.

The Company maintains a $40 million revolving credit facility that is senior to
the Notes and secured by accounts receivable and inventory.  Borrowings are
based on eligible accounts receivable and inventory, as defined.  Interest is
based on either the prime rate or LIBOR, plus up to 1.25%.  At February 28,
1997 and February 29, 1996, $37,605,000 and $4,755,000, respectively, were
outstanding under the revolving credit facility and at




                                                                            F-18
<PAGE>   60

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



6.  BORROWING ARRANGEMENTS (CONTINUED)


February 28, 1997, $594,000 was available.  Amounts available are net of
approximately $1,800,000 committed for letters of credit outstanding at
February 28, 1997.  The weighted average borrowing rates were 7.63% and 6.73%
at February 28, 1997 and February 29, 1996, respectively.  The agreement
terminates on August 1, 1998.  Under terms of the agreement, the Company pays
commitments fees, on a quarterly basis ranging from 0.125% to 0.25% per annum 
of average unused balances.  The Company is required, among other things, to 
maintain certain working capital, debt to equity, and net worth levels under 
the agreement.

The carrying amount of the Company's variable rate debt approximates its fair
value.  At February 28, 1997 and February 29, 1996, the fair values of the
Notes and the USX Notes is $113,354,000 and $121,418,000, respectively, based
primarily on market prices.

7. EMPLOYEE BENEFITS

The Company has a defined benefit pension plan covering substantially all of
its employees.  Salaried participant benefits are based on years of service and
the average of the highest five years of compensation earned during a ten year
consecutive period of employment.  Hourly participant benefits are based on
years of service.  Pension costs are funded in amounts determined by
management, but not less than the minimum funding required by the Employee
Retirement Income Security Act of 1974 (ERISA).  Salaried employees are
required to contribute 1% of their annual salaries to the plan.  The assets of
the plan primarily consist of investments in insurance company general
investment accounts and pooled separate accounts invested in marketable equity
securities and government and corporate debt securities.




                                                                            F-19
<PAGE>   61

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



7. EMPLOYEE BENEFITS (CONTINUED)

The following table sets forth the funded status of the plan and amounts
recognized in the Company's consolidated balance sheets (in thousands):


<TABLE>
<CAPTION>
                                                       FEBRUARY 28,  FEBRUARY 29,
                                                           1997          1996
                                                       --------------------------
<S>                                                         <C>           <C>
Actuarial present value of projected benefit
 obligation:
  Accumulated benefit obligation:
   Vested                                                   $25,326       $21,687
   Nonvested                                                  1,807         2,155
                                                       --------------------------
                                                             27,133        23,842
Additional amounts related to projected compensation
 levels                                                       6,861         6,429
                                                       --------------------------
Total projected benefit obligation                           33,994        30,271
Plan assets at fair value                                    24,188        19,195
                                                       --------------------------
Projected benefit obligation in excess of plan assets         9,806        11,076
Unrecognized net loss                                         2,723         3,626
Unrecognized prior service cost                                 851           787
                                                       --------------------------
Pension liability recognized in balance sheets              $ 6,232       $ 6,663
                                                       ==========================
</TABLE>




                                                                            F-20

<PAGE>   62

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



7. EMPLOYEE BENEFITS (CONTINUED)

Net pension costs for the plan include the following components (in thousands):


<TABLE>
<CAPTION>
                                                         YEAR ENDED
                                          ----------------------------------------
                                          FEBRUARY 28,  FEBRUARY 29,  FEBRUARY 28,
                                              1997          1996          1995
                                          ----------------------------------------
<S>                                           <C>           <C>            <C>
Service cost                                  $ 2,229       $ 1,814        $2,063
Interest on projected benefit obligation        2,240         1,987         1,783
Actual return on plan assets                   (2,575)       (2,921)         (110)
Net amortization and deferral                   1,007         1,713          (794)
                                          ---------------------------------------
Net periodic pension cost                     $ 2,901       $ 2,593        $2,942
                                          =======================================
</TABLE>

The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% as of February 28, 1997 and February 29,
1996.  The expected increase in compensation levels used in determining the
actuarial present value of the projected benefit obligation was 5.5% as of
February 28, 1997 and February 29, 1996.  The expected long-term rate of return
on assets was 8.5% for each of the three years in the period ended February 28,
1997.

The Company also provides unfunded supplemental retirement benefits to certain
executives which provides for incremental pension payments so that total
pension payments equal amounts that would have been payable from the Company's
principal pension plan if it were not for limitations imposed by federal tax
regulations.  The accrued liability for this plan totals $1,338,000 and
$1,265,000 at February 28, 1997 and February 29, 1996, respectively.  The
accrued liability at February 28, 1997 includes an additional minimum liability
of $303,000 of which $137,000 has been charged to a separate component of
stockholders' equity.  Pension expense related to the arrangement was $178,000
in 1997, $187,000 in 1996 and $175,000 in 1995, respectively.



                                                                            F-21
<PAGE>   63

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



7. EMPLOYEE BENEFITS (CONTINUED)

In addition, the Company maintains defined contribution savings plans in which
substantially all salaried and hourly employees are eligible to participate.
Employee contributions to the plans are on a voluntary basis and may range from
1/2% to 16% of the employee's compensation, as defined in the plans.  Under the
plan for salaried employees, the Company matches 10% of the employees'
qualified contributions up to a defined amount, and at the discretion of the
Board of Directors, contributions may be made to the account of employees who
are employed on the last valuation date in each year in an amount which cannot
exceed 15% of the annual salaries of the employees who are eligible to receive
contributions.  The Company made contributions to these plans of approximately
$79,000, $68,000 and $63,000 during fiscal 1997, 1996 and 1995, respectively.

The Company has a salary continuation agreement with a former executive which
provides for the continuation of all of the executive's salary payable to the
executive's spouse.  The Company charges to expense the expected amounts to be
paid when such payments become probable.  As of February 28, 1997 and February
29, 1996, $146,000 and $585,000, respectively, was accrued in connection with
this agreement.

The Company funds healthcare and life insurance benefits for retired employees
on a pay-as-you-go basis with the retiree paying a portion of the costs, except
that individuals who were not employed by the prior owners of certain acquired
businesses pay 100% of their allocated premium.  The Company's plans cover
substantially all employees of the Company and provide for life and health
coverage upon retirement.




                                                                            F-22
<PAGE>   64

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



7. EMPLOYEE BENEFITS (CONTINUED)

Summary information on the Company's postretirement health and life insurance
plans follows (in thousands):


<TABLE>
<CAPTION>
                                                      FEBRUARY 28,  FEBRUARY 29,
                                                          1997          1996
                                                      --------------------------
<S>                                                        <C>           <C>
Accumulated postretirement benefit obligation
(APBO):
  Retirees                                                 $ 7,728       $ 8,130
  Fully eligible active plan participants                    5,657         6,457
  Other active plan participants                             7,466         8,925
                                                      --------------------------
Total accumulated postretirement benefit obligation         20,851        23,512
Unrecognized net actuarial gain                              6,121         2,166
Unrecognized prior service cost asset                          406           608
                                                      --------------------------
Accrued postretirement benefit cost                        $27,378       $26,286
                                                      ==========================
</TABLE>

The  components of net periodic postretirement benefit costs follow (in
     thousands):


<TABLE>
<CAPTION>
                                                         YEAR ENDED
                                          ----------------------------------------
                                          FEBRUARY 28,  FEBRUARY 29,  FEBRUARY 28,
                                              1997          1996          1995
                                          ----------------------------------------
<S>                                            <C>           <C>           <C>
Service cost                                   $  426        $  426        $  529
Interest on accumulated postretirement
 benefit obligation                             1,707         1,758         1,677
Net amortization and deferral                    (241)         (221)          (69)
                                          ---------------------------------------
Net periodic postretirement benefit cost       $1,892        $1,963        $2,137
                                          =======================================
</TABLE>

The discount rate used in determining the APBO was 7.5% as of February 28, 1997
and February 29, 1996.  At February 28, 1997, the assumed healthcare cost trend
rates range from 7.60% to 8.00 in fiscal 1998, declining gradually to 6% after 
13 years and remaining at that level thereafter.  At February 29, 1996, the
assumed healthcare cost trend rates range from 7.68% to 10.00% in fiscal 1997,
declining gradually to 6% after 14 years and remaining at that level
thereafter.  The Company amortizes significant actuarial gains and losses over 
the estimated average remaining service periods.



                                                                            F-23

<PAGE>   65
                           LaRoche Industries Inc.

           Notes to Consolidated Financial Statements (continued)





7. EMPLOYEE BENEFITS (CONTINUED)

If the healthcare cost trend rate assumptions were increased by 1%, the APBO at
February 28, 1997 would be increased by approximately $2,554,000.  The effect
of this change on the aggregate of the service and interest components of net
periodic postretirement benefit cost for fiscal 1997 would be an increase of
approximately $283,000.

8. COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL AND LEGAL MATTERS

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



                                                                            F-24

<PAGE>   66

                           LaRoche Industries Inc.

           Notes to Consolidated Financial Statements (continued)



8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

ENVIRONMENTAL AND LEGAL MATTERS (CONTINUED)

The Company owns a variety of sites which may or will likely require
remediation.  Under the provisions of the acquisition agreements for the
businesses of LII and LCI, 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 LCI, such items must be identified by
July 26, 1998 for the former owner to remain obligated.  Management believes
that it is probable the former owners will fulfill their obligations under the
agreements.

In connection with all sites, the Company charged to expense approximately $1.1
million and $1.4 million during fiscal year 1997 and 1995, and an immaterial
amount was  charged to expense in 1996 in connection with remediation and
related activities.  Other accrued liabilities includes $1.9 million and $2.3
million for the current portion of estimated clean-up expenditures and related
accruals at February 28, 1997 and February 29, 1996.  The balance of spending
identifiable to future years is included in other non-current liabilities at
February 28, 1997 and February 29, 1996 and amounts to $2.6 million for each
year then ended.

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
$1.7 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.



                                                                            F-25

<PAGE>   67

                           LaRoche Industries Inc.

           Notes to Consolidated Financial Statements (continued)



8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

ENVIRONMENTAL AND LEGAL MATTERS (CONTINUED)

In May 1997, the Company reached a plea agreement with the U.S. Department of
Justice in connection with 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 a plea agreement
pursuant to which the Company agreed to pay a fine to settle the matter for
$1.5 million, plus interest from May 1997, to be paid during the succeeding
four year period. Such amount has been accrued in the Company's financial
statements as of February 28, 1997.  The plea agreement is subject to final
approval by a federal court.  Management believes that it is remote that the
terms of the existing agreement would change.

The Company is named as a defendant in a suit alleging the Company's contractor
struck and damaged a gasoline pipeline owned by the plaintiff while the
contractor was performing work on an adjacent Company owned facility.  The
pipeline later ruptured, resulting in the release of gasoline into the Blind
River and surrounding area near Gramercy, Louisiana.  In addition, the Company
has been named in a class-action petition filed on behalf of persons allegedly
harmed by the rupture of the pipeline.  The Company is continuing a diligent
investigation of the situation in order to evaluate the allegations and the
relative responsibility of the parties involved.  The Company is also
responding to inquiries from regulatory authorities of the State of Louisiana
related to the gasoline release.  Management believes the Company has
meritorious defenses to these claims and is vigorously defending itself against
them.  Because the matter is in a preliminary stage, it is not yet possible to
predict whether the Company will incur any liability for the rupture and
release or to reasonably estimate the cost of any possible liability. 
Accordingly, the Company has not recorded any losses related to such claims. 
Should the Company be found to have any liability, the amounts could be
material.

In addition, 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



                                                                            F-26

<PAGE>   68

                           LaRoche Industries Inc.

           Notes to Consolidated Financial Statements (continued)



8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

ENVIRONMENTAL AND LEGAL MATTERS (CONTINUED)

(based on advice of the Company's corporate and other legal counsel) such
litigation and claims will be resolved without material 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.

LEASES AND OTHER

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 and certain leases provide for periodic renewals at the Company's
option.

Minimum future obligations on leases that have initial or remaining
non-cancelable lease terms in excess of one year as of February 28, 1997 are as
follows (in thousands):


<TABLE>
<CAPTION>
                                                           CAPITAL LEASES  OPERATING LEASES
                                                           --------------  ----------------
<S>                                                                <C>              <C>
Fiscal years ending February,
  1998                                                             $  480           $ 7,769
  1999                                                                358             6,115
  2000                                                                212             5,601
  2001                                                                 63             4,959
  2002                                                                  3             4,562
  Thereafter                                                            -            18,588
                                                           --------------------------------
Total minimum lease payments                                        1,116           $47,594
                                                                                    =======
Less estimated executory costs and imputed interest costs              96
                                                           --------------
Present value of minimum lease payments                            $1,020
                                                           ==============
</TABLE>


                                                                            F-27
<PAGE>   69
                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)

8.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEASES AND OTHER (CONTINUED)

Total rental expense under operating leases aggregated approximately
$7,504,000, $7,519,000 and $5,893,000 during fiscal years 1997, 1996 and 1995,
respectively.

The Company enters into fixed price forward purchase contracts to establish
fixed prices for certain natural gas purchases.  At February 28, 1997, the
Company has commitments outstanding under these arrangements to purchase
approximately $15,638,000 of natural gas during the subsequent year.  In
addition, the Company buys call options and sells put options to effectively
establish a range of natural gas prices to hedge anticipated natural gas
purchases against rising prices.  The contracts are entered into with a
financial counter-party.  The Company is exposed to loss in the event of
nonperformance by the counter-party to the contracts.  However, the Company does
not anticipate nonperformance by the counter party.

The following sets forth the open option positions and the fair value of such
positions as of February 28, 1997:


<TABLE>
<CAPTION>
                         QUANTITY    FAIR VALUE  CARRYING VALUE
                        -----------  ----------  --------------

                        (in MMBTUs)        (in thousands)
<S>                      <C>                        <C>

Purchased Call Options   4,575,000   $ 366,000      $ -
Written Put Options      4,575,000   $(154,000)       -
</TABLE>

The fair values are based on quoted market prices.  There were no material open
option positions as of February 29, 1996.


The Company's Gramercy, Louisiana facility is integrated with both an alumina
production facility and a calcined coke operation, neither of which are owned
by the Company.  In addition, the production equipment of some of the Company's
joint ventures are integrated with other operations of the other partners to
the ventures.  As a result, the companies involved share certain common
facilities and services, including power generation.  Further, the Company
maintains certain long-term supply contracts with Kaiser.



                                                                            F-28
<PAGE>   70

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEASES AND OTHER (CONTINUED)

The Company's joint venture partner, Kaiser, maintains control of the operating
assets of KLHP, and another joint venture partner, Cytec, maintains control of
the operating assets of Avondale Ammonia.

9. INCOME TAXES

The provision 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.

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


<TABLE>
<CAPTION>
                                             FEBRUARY 28,  FEBRUARY 29,
                                                 1997          1996
                                             -------------------------
<S>                                              <C>           <C>
Deferred tax liabilities:
 Property, plant and equipment                   $32,819       $30,445
 Other                                             8,846         4,377
                                             -------------------------
Total deferred tax liabilities                    41,665        34,822

Deferred tax assets:
 Employee benefit obligations                     15,005        14,506
 AMT credit carryforward                             875             -
 Other                                             4,050         4,971
                                             -------------------------
Total deferred tax assets                         19,930        19,477
                                             -------------------------
Valuation allowance for deferred tax assets         (600)         (323)
                                             -------------------------
Net deferred tax liabilities                     $22,335       $15,668
                                             =========================
</TABLE>



                                                                            F-29

<PAGE>   71

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



9. INCOME TAXES (CONTINUED)

The components of the provision for income taxes are as follows (in thousands):


<TABLE>
<CAPTION>
                                                       YEAR ENDED
                                        ----------------------------------------
                                        FEBRUARY 28,  FEBRUARY 29,  FEBRUARY 28,
                                            1997          1996          1995
                                        ----------------------------------------
<S>                                         <C>           <C>           <C>
Federal:
  Current                                   $(5,456)      $11,317       $ 9,126
  Deferred                                    5,432          (317)        1,133
                                        ---------------------------------------
                                                (24)       11,000        10,259
State:
  Current                                      (794)        2,348         1,813
  Deferred                                    1,235          (178)          225
                                        ---------------------------------------
                                                441         2,170         2,038
                                        ---------------------------------------
Provision for income taxes before
 extraordinary charges                          417        13,170        12,297
Tax benefit for extraordinary charges             -             -          (561)
                                        ---------------------------------------
Total provision for income taxes            $   417       $13,170       $11,736
                                        =======================================
</TABLE>

A reconciliation between income taxes provided and the amount computed by
applying the federal income tax rate (35%) to income before income taxes
follows (in thousands):


<TABLE>
<CAPTION>
                                                         YEAR ENDED
                                         -------------------------------------------
                                         FEBRUARY 28,   FEBRUARY 29,    FEBRUARY 28,
                                             1997          1996            1995
                                         -------------------------------------------
<S>                                         <C>          <C>              <C>        
Computed amount based on federal                                                     
 statutory rate                             $ 377        $11,243          $ 9,885     
State income taxes, net of federal                                                   
 income tax benefit                            45          1,357            1,237     
Increase in valuation allowance               277              -              969     
Percentage depletion                         (886)             -                -     
Other, principally non-deductible items       604            570              206     
                                         ------------------------------------------- 
                                            $ 417        $13,170          $12,297     
                                         ===========================================
</TABLE>




                                                                            F-30

<PAGE>   72

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



10. MINORITY INTERESTS

In connection with the merger discussed in Note 1, during fiscal 1995 the
minority interests in LCI were repurchased by the Company or exchanged for
shares of the Company's stock.  The Company agreed to repurchase the shares
held by former LCI institutional shareholders (the "LCI Formula Shares") for
$14,337,000 contingent upon the sale of the Notes.  Such amount was $1,898,000
less than the carrying value of such shares.  This excess (after consideration
of deferred taxes) was applied to reduce the carrying value of LCI property,
plant and equipment.

The following table outlines the activity in the minority interests (in
thousands):


<TABLE>
<CAPTION>
                                                                                          YEAR ENDED      
                                                                                         FEBRUARY 28,     
                                                                                             1995         
                                                                                         ------------     
          <S>                                                                               <C>              
          Balance at beginning of year                                                      $ 15,432      
          Adjustment in value of LCI Formula 
           Shares                                                                              2,063      
          Adjustment in value of LCI 
           management shares                                                                      81      
          Repurchase of LCI Formula Shares                                                   (14,337)     
          Excess of carrying value over purchase 
           price of formula shares                                                            (1,898)     
          Repurchase of LCI shares held by LCI 
           management                                                                           (152)     
          Interest on prepayment                                                                (275)     
          Conversion of certain LCI shares to 
           Company shares (Note 11)                                                             (914)     
                                                                                         -----------      
          Balance at end of year                                                            $      -      
                                                                                         ===========      
</TABLE>


                                                                            F-31

<PAGE>   73

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



11. REDEEMABLE COMMON STOCK AND COMMON STOCK WITH PUT RIGHTS

The Company allows certain of its executive officers, management employees and
directors to own common stock.  At February 28, 1997 and February 29, 1996,
13,934 and 15,433 shares were outstanding pursuant to its 1995 Stock Purchase
Plan (the "1995 Plan," successor to the 1994 Stock Purchase Plan) and the Board
of Directors Stock Purchase Plan (the "Directors Plan").  Shares were
originally issued under the 1995 Plan, among other ways, by providing bonuses
to purchase such stock and by conversion of certain previously issued LCI
common stock (Note 10).  Generally participants in the 1995 Plan must use 25%
of any annual bonuses to purchase stock.  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.  The purchase price is fair value (based upon an
independent appraisal).  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 $455,000
and $1,567,000 as of February 28, 1997 and February 29, 1996, respectively.

The Company has estimated the value of such stock outstanding under the 1995
Plan and the Directors Plan and reflected the estimated full redemption value
as redeemable common stock in the accompanying consolidated balance sheets.
The final settlement prices for any shares may differ from the estimated
amounts.

The Company originally had shareholder agreements with two of the Company's
founding stockholders who were executive officers.  Such holders originally
held 15% (75,000 shares) of the Company's outstanding common stock.  As of
February 28, 1997, none (25,000 at February 29, 1996) of these shares were
outstanding.  Such agreements provided the holders the option to sell their
stock at any time to the Company for at least fair market value as determined
by independent appraisal and required the Company to repurchase such stock upon
the occurrence of certain conditions, such as death or termination of
employment.  The Company estimated the value of such stock



                                                                            F-32

<PAGE>   74

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)


11. COMMON STOCK WITH PUT RIGHTS AND REDEEMABLE COMMON STOCK (CONTINUED)

and reflected the estimated full redemption value as common stock with put
rights in the accompanying 1996 consolidated balance sheet.  Changes in the
value of these shares were charged directly to retained earnings as "Adjustment
to estimated fair value of common stock with put rights."  During fiscal 1995,
the Company's former chairman put 25,000 of his shares to the Company for
$5,512,500.  During fiscal 1996, the Company and its former chairman mutually
agreed to a repurchase of his remaining 25,000 shares in exchange for a
$7,401,250 promissory note (see Note 6).  Finally, during fiscal 1997, the
holder of the remaining 25,000 shares put his shares to the Company for
$7,475,000 in cash.

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





<TABLE>
<CAPTION>
                                                           YEAR ENDED
                         ---------------------------------------------------------------------------------
                               FEBRUARY 28,             FEBRUARY 29,               FEBRUARY 29,
                                  1997                      1996                        1995
                         ---------------------------------------------------------------------------------
                         REDEEMABLE      COMMON      REDEEMABLE   COMMON         REDEEMABLE       COMMON     
                          COMMON       STOCK WITH     COMMON    STOCK WITH         COMMON       STOCK WITH 
                          STOCK        PUT RIGHTS      STOCK    PUT RIGHTS         STOCK        PUT RIGHTS 
                         ---------------------------------------------------------------------------------
<S>                      <C>           <C>            <C>        <C>              <C>           <C> 
Balance at beginning                                                                                                
of year                  $ 4,771       $ 7,475        $2,417     $12,975          $    -        $16,538             
Adjustment in value          (98)            -           768       1,901             354          1,949             
Shares issued in                                                                                                    
 conversion of LCI                                                                                                  
 common stock                  -             -             -           -             914              -             
Other shares issued        3,187                       1,918           -           1,213              -             
Repurchases               (3,683)       (7,475)         (332)     (7,401)            (64)        (5,512)            
                         ------------------------------------------------------------------------------
Balance at end of year   $ 4,177       $     -        $4,771     $ 7,475          $2,417        $12,975             
                         ==============================================================================
</TABLE>

12. SEGMENT INFORMATION

The Company operates principally in three business segments.  The
electrochemical products segment consists of caustic soda, chlorine and
fluorocarbons.  (See Note 3).  The nitrogen products segment consists of
facilities which manufacture and distribute agricultural and industrial
nitrogen products and distribute non-nitrogenous agricultural fertilizers.  The
alumina chemicals segment consists of specialty aluminas and related products.
Intersegment sales are not material.



                                                                            F-33

<PAGE>   75

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)



12. SEGMENT INFORMATION (CONTINUED)

Operating profit includes all costs and expenses directly related to the
segment involved.  The corporate portion of operating profit includes corporate
general and administrative expenses.

Assets are assigned to segments based on use.  Corporate assets primarily
consist of cash and other assets.

Following is a tabulation of business segment information for each of the past
three fiscal years (in thousands):


<TABLE>
<CAPTION>
                                                      YEAR ENDED
                                       ---------------------------------------- 
                                       FEBRUARY 28,  FEBRUARY 29,  FEBRUARY 28, 
                                           1997          1996          1995     
                                       ---------------------------------------- 
<S>                                        <C>           <C>           <C>
Net sales:
 Electrochemical products                  $ 96,738      $138,775      $126,509
 Nitrogen products                          242,408       248,438       234,909
 Alumina chemicals                           40,139        61,769        59,305
                                        ---------------------------------------
Total                                      $379,285      $448,982      $420,723
                                        =======================================
Income (loss) from operations:
 Electrochemical products                  $  8,562      $ 29,624      $ 24,818
 Nitrogen products                           11,710        20,468        13,833
 Alumina chemicals                           (3,897)         (448)        2,196
 Corporate expense                           (5,738)       (5,359)       (3,642)
                                        ---------------------------------------
Income from operations                       10,637        44,285        37,205
Interest expense                            (14,881)      (15,973)      (13,083)
Income from equity investments                4,909         2,647         2,540
Other income, net                               411         1,163         1,581
                                        ---------------------------------------
Income before income taxes and other
 items                                     $  1,076      $ 32,122      $ 28,243
                                        =======================================
</TABLE>




                                                                            F-34

<PAGE>   76

                           LaRoche Industries Inc.

            Notes to Consolidated Financial Statements (continued)


12. SEGMENT INFORMATION (CONTINUED)


<TABLE>
<CAPTION>
                                                       YEAR ENDED                    
                                        ----------------------------------------
                                        FEBRUARY 28,  FEBRUARY 29,  FEBRUARY 28,     
                                            1997          1996          1995         
                                        ----------------------------------------     
<S>                                         <C>           <C>           <C>
Identifiable assets:
  Electrochemical products                  $ 68,956      $ 79,794      $ 99,823
  Nitrogen products                          178,179       160,346       130,130
  Alumina chemicals                           47,627        52,291        59,003
  Corporate                                   17,603        13,501        11,465
                                        ----------------------------------------
Total                                       $312,365      $305,932      $300,421
                                        ========================================
Depreciation and amortization:
  Electrochemical products                  $  5,665      $  4,493      $  4,641
  Nitrogen products                           14,693        10,425         7,965
  Alumina chemicals                            2,276         3,662         3,461
  Corporate                                      427           416           293
                                        ----------------------------------------
Total                                       $ 23,061      $ 18,996      $ 16,360
                                        ========================================
Capital expenditures (including
acquisitions and plant turnarounds):
  Electrochemical products                  $ 10,773      $  6,062      $  5,598
  Nitrogen products                           26,922        40,866         8,871
  Alumina chemicals                            3,127         3,652         5,771
                                        ----------------------------------------
Total                                       $ 40,822      $ 50,580      $ 20,240
                                        ========================================
</TABLE>



                                                                            F-35
<PAGE>   77


                           LAROCHE INDUSTRIES INC.

               SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                         BALANCE AT      CHARGED TO        CHARGED TO                      BALANCE AT
                                        BEGINNING OF      COSTS AND          OTHER                           END OF
             DESCRIPTION                   PERIOD         EXPENSES         ACCOUNTS         DEDUCTIONS       PERIOD
             -----------                   ------         --------         --------         ----------       ------

                                                                       (IN THOUSANDS)
 <S>                                        <C>             <C>             <C>            <C>               <C>
 YEAR ENDED FEBRUARY 28, 1995

 Allowance for doubtful accounts            $902            $---            $---           $ 95 (1)          $807

 Valuation allowance for deferred
 tax assets                                 $---            $969            $---           $---              $969
             

 YEAR ENDED FEBRUARY 29, 1996

 Allowance for doubtful accounts            $807            $102            $---           $ 60 (1)          $849


 Valuation allowance for deferred
 tax asset                                  $969            $---            $---           $646 (2)          $323
                                                                                                                 

 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.
(2) Write off of deferred tax assets.





                                     S-1
<PAGE>   78

                                EXHIBIT INDEX
<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER
    <S>       <C>

      2.1     Asset Purchase Agreement by and between LaRoche Industries Inc. and ETI Explosives
              Technologies International Inc. dated November 15, 1995. (10)

      2.2     Asset Purchase Agreement by and between C-E Baton Rouge, Inc. and LaRoche Industries Inc.
              dated February 28, 1996. (11)

      2.3     Amendment to Asset Purchase Agreement and Operating Agreement dated April 1, 1996. (11)

      3.1     Certificate of Incorporation of the Company, together with amendments thereto. (1)

      3.4     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. (5)

      4.2     Form of Note (included in Exhibit 4.1). (5)

     10.1*    Employment Agreement, dated as of June 1993, between LHI and Grant O. Reed. (1), (7)

     10.2     Credit Agreement, dated as of August 17, 1994, among the Company, BankSouth, N.A. (now
              known as NationsBank, N.A. South), as Agent, and the lenders listed therein. (5)

     10.3     First Amendment to Credit Agreement dated as of May 17, 1995 and effective as of March 1,
              1995 among the Company, Bank South, N.A. (now known as NationsBank, N.A. South), as
              Agent, and the lenders listed therein.

     10.4     10% Secured Note from the Company to USX, dated as of April 30, 1990 and due May 1,
              2000. (4)

     10.5     12% Secured Note from the Company to USX, dated as of April 30, 1990 and due May 1,
              2000. (4)

     10.6     Letter Agreement dated as of July 17, 1995 extending the Credit Agreement dated as of
              August 17, 1994 among the Company, Bank South (formerly known as BankSouth, N.A.), as
              Agent and the lenders listed therein.

     10.7     Letter Agreement dated as of December 16, 1996 amending the Credit Agreement dated as of
              August 17, 1994 among the Company, NationsBank N.A. South (successor to Bank South), as
              Agent, and the lenders listed therein. (12)

     10.8*    Salary Continuation Agreement dated as of June 16, 1992 between LHI and C. Max
              Henderson. (1), (7)

     10.9*    Salary Continuation Agreement dated as of June 16, 1992 between LHI and Felix J.
              Prinzo. (1), (7)

    10.10*    Salary Continuation Agreement, dated as of July 1988, as amended with the approval of his
              widow on January 27, 1992 and June 2, 1992, between the Company and William W. LaRoche,
              Jr. (1), (7)

    10.11*    LaRoche Chemicals Inc. 1989 Key Management Stock Appreciation Bonus Plan. (1), (7)
     
    10.12     LaRoche Holdings Inc. Supplemental Employee Retirement Plan. (1), (7)

    10.13*    LaRoche Executive Management Health Program. (1), (7)

</TABLE>




<PAGE>   79

<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER
    <S>       <C>

    10.14     Hydrate Partnership Agreement, dated as of January 1, 1993, between Kaiser and LCI. (1)

    10.15     Hydrate Sales Agreement, dated as of January 1, 1993, between Kaiser and the Hydrate
              Partnership. (1)

    10.16     Powerhouse Operating Agreement, dated as of July 26, 1988, between Kaiser and LCI, as
              amended January 8, 1994. (1)

    10.17     Powerhouse Lease, dated as of July 26, 1988, between Kaiser and LCI. (1)

    10.18     Specialty Aluminas Sales Agreement, dated as of July 26, 1988, between Kaiser and LCI. (1)

    10.19     Amendment No. 1 to Specialty Aluminas Sales Agreement, dated as of February 1, 1993,
              between Kaiser and LCI. (1)

    10.20     Salt Agreement, dated as of May 3, 1957, between Texaco and Kaiser, as amended May 15,
              1968. (1)

    10.21     Supply Agreement, dated as of April 1994, between AlliedSignal Inc. and LCI (portions
              redacted pursuant to a confidentiality request). (1)

    10.22     Management Stock Purchase Plan and forms of related agreements with executive
              officers. (4), (7)

    10.23     Joint Venture Agreement, dated as of July 26, 1994, between Cytec Ammonia, Inc. and
              LaRoche Fortier Inc. (3)

    10.24*    LaRoche Industries Inc. 1995 Board of Directors Stock Option Plan and form of
              agreement. (8)

     12       Statement regarding Computation of Ratio of Earnings to Fixed Charges.

     21       Subsidiaries of the Company.

     27       Financial Data Schedule (for SEC use only).

</TABLE>
--------------------                                     

* Denotes a management contract on compensatory plan required to be filed
pursuant to Item 601(b)(10)(iii) of Regulation S-K.
(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. 2 to Registration Statement
       No. 33-79532 filed July 19, 1994 and incorporated herein by reference.
(3)  Previously filed as an exhibit to Amendment No. 3 to Registration Statement
       No. 33-79532 filed August 3, 1994 and incorporated herein by reference.
(4)  Previously filed as an exhibit to Amendment No. 4 to Registration Statement
       No. 33-79532 filed August 9, 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, 1994 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, 1994 and incorporated herein by
       reference.
(7)  Management contract or other compensatory plan or arrangement 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 August 31, 1995 and incorporated herein by 
       reference.
(9)  Previously filed as an exhibit to the Current Report on Form 8-K filed July
       20, 1995 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Current Report on Form 8-K/A filed
       February 26, 1996 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Current Report on Form 8-K filed
       April 15, 1996 and incorporated herein by reference.
(12) 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.