================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
-----------
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
-----------
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-13404
THE GENERAL CHEMICAL GROUP INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 02-0423437
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
LIBERTY LANE
HAMPTON, NEW HAMPSHIRE 03842
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 929-2606
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO _____
The number of shares of Common Stock outstanding at August 1, 2000 was
16,857,817. The number of shares of Class B Common Stock outstanding at August
1, 2000 was 3,958,421.
================================================================================
THE GENERAL CHEMICAL GROUP INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2000
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months
And Six Months Ended June 30, 1999 and 2000............................................... 1
Consolidated Balance Sheets - December 31, 1999 and
June 30, 2000............................................................................. 2
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1999 and 2000.............................................................. 3
Notes to Consolidated Financial Statements................................................. 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................. 7-8
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders................................... 8
Item 6. Exhibits and Reports on Form 8-K...................................................... 8
SIGNATURES..................................................................................... 9
EXHIBIT INDEX.................................................................................. 10
EXHIBITS .................................................................................... 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -----------------------------
1999 2000 1999 2000
---- ---- ---- ----
Net revenues.............................................. $ 69,165 $ 65,774 $130,637 $119,954
Cost of sales............................................. 53,922 56,624 105,226 102,502
Selling, general and administrative expense............... 6,242 4,070 10,257 8,255
-------- -------- -------- --------
Operating profit.......................................... 9,001 5,080 15,154 9,197
Interest expense.......................................... 3,433 3,892 6,102 7,773
Interest income........................................... 284 266 581 595
Other (income) expense, net............................... (34) 61 (149) 72
-------- -------- -------- --------
Income before income taxes and minority interest.......... 5,886 1,393 9,782 1,947
Minority interest......................................... 2,920 2,375 5,507 5,426
-------- -------- -------- --------
Income (loss) before income taxes......................... 2,966 (982) 4,275 (3,479)
Income tax provision (benefit)............................ 671 (1,188) 1,001 (2,440)
-------- -------- -------- --------
Net income (loss).............................. $ 2,295 $ 206 $ 3,274 $(1,039)
======== ======== ======== ========
Earnings (loss) per common share:
Basic.......................................... $ .11 $ .01 $ .16 $ (.05)
======== ======== ======== ========
Assuming dilution.............................. $ .11 $ .01 $ .15 $ (.05)
======== ======== ======== ========
Dividends declared per share.............................. $ -- $ -- $ .05 $ --
======== ======== ======== ========
See the accompanying notes to consolidated financial statements.
-1-
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
DECEMBER 31, JUNE 30,
1999 2000
---- ----
(UNAUDITED)
Current assets:
Cash and cash equivalents..................................... $ 26,630 $ 19,397
Receivables, net.............................................. 57,970 63,827
Inventories................................................... 25,291 23,169
Deferred income taxes......................................... 6,089 6,074
Other current assets.......................................... 4,816 9,768
------------ ------------
Total current assets....................................... 120,796 122,235
Property, plant and equipment, net................................... 150,038 145,872
Other assets 22,374 22,065
------------ ------------
Total assets............................................... $ 293,208 $ 290,172
============ ============
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................................. $ 27,625 $ 29,554
Accrued liabilities........................................... 31,778 29,034
------------ ------------
Total current liabilities................................. 59,403 58,588
Long-term debt...................................................... 150,919 149,920
Other liabilities................................................... 87,700 88,614
------------ ------------
Total liabilities......................................... 298,022 297,122
Minority interest................................................... 42,079 41,010
------------ ------------
Equity (Deficit):
Preferred Stock, $.01 par value; authorized 10,000,000
shares; none issued or outstanding.......................... -- --
Common Stock, $.01 par value; authorized 100,000,000
shares; issued: 18,557,314 shares at
December 31, 1999 and June 30, 2000, respectively........... 186 186
Class B Common Stock, $.01 par value; authorized
40,000,000 shares, issued and outstanding: 3,958,421
shares at December 31, 1999 and June 30, 2000, respectively. 39 39
Capital deficit............................................... (105,060) (104,870)
Accumulated other comprehensive income........................ (2,804) (3,022)
Retained earnings............................................. 93,992 92,953
Treasury stock, at cost: 1,699,497 shares at
December 31, 1999 and June 30, 2000, respectively........... (33,246) (33,246)
------------ ------------
Total equity (deficit)........................................ (46,893) (47,960)
------------ ------------
Total liabilities and equity (deficit).................... $ 293,208 $ 290,172
============ ============
See the accompanying notes to consolidated financial statements.
-2-
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------
1999 2000
---- ----
Cash flows from operating activities:
Net income (loss)..................................................... $ 3,274 $ (1,039)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities
Depreciation and amortization....................................... 8,570 9,741
Increase in receivables............................................. (7,514) (5,857)
Decrease in inventories............................................. 4,122 2,122
Increase in accounts payable........................................ 5,705 1,929
Increase (decrease) in accrued liabilities.......................... 4,863 (2,744)
Decrease in income taxes payable.................................... (1,988) --
Decrease in other liabilities and assets, net....................... (5,955) (4,252)
Decrease in minority interest....................................... (3,436) (1,069)
------------ ------------
Net cash provided (used) by operating activities................ 7,641 (1,169)
------------ ------------
Cash flows from investing activities:
Capital expenditures.................................................. (9,346) (6,254)
------------ ------------
Net cash used for investing activities.......................... (9,346) (6,254)
------------ ------------
Cash flows from financing activities:
Net transactions with GenTek.......................................... (117,854) --
Proceeds from long-term debt.......................................... 145,439 --
Other financing activities............................................ (444) 190
------------ ------------
Net cash provided by financing activities....................... 27,141 190
------------ ------------
Increase (decrease) in cash and cash equivalents............................. 25,436 (7,233)
Cash and cash equivalents at beginning of period............................. 1,127 26,630
------------ ------------
Cash and cash equivalents at end of period................................... $ 26,563 $ 19,397
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................ $ 310 $ 7,361
See the accompanying notes to consolidated financial statements.
-3-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The General Chemical Group Inc. ("GCG" or the "Company") is a leading
North American supplier of soda ash and calcium chloride to a broad range of
industrial and municipal customers. The primary end markets for soda ash include
glass production, sodium-based chemicals, powdered detergents, water treatment
and other industrial end uses. Calcium chloride is mainly used for dust control
and roadbed stabilization during the summer and melting ice during the winter.
On April 30, 1999, GCG completed the separation of its Manufacturing
and Performance Products businesses from its soda ash and calcium chloride
business through a distribution of stock of GenTek Inc. ("GenTek") to
stockholders of GCG (the "Spinoff"). As a result of the Spinoff, GenTek became a
separate, publicly-traded company on the New York Stock Exchange. GCG continues
to trade using the GCG symbol. GCG owns and operates the soda ash and calcium
chloride business, and GenTek owns and operates the businesses comprising the
Manufacturing and Performance Products businesses.
The Spinoff was treated as a reverse spinoff for financial statement
purposes because a greater proportion of GCG's assets and operations are held by
GenTek after the Spinoff. Therefore, the Spinoff has been reflected, for
financial statement presentation, as if GCG is a new company consisting of the
soda ash and calcium chloride business.
The accompanying unaudited consolidated financial statements include
the accounts of GCG and its subsidiaries (collectively, the "Company"). These
unaudited financial statements have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. The financial
statements do not include certain information and footnotes required by
generally accepted accounting principles. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the six months
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. The Company's financial
statements should be read in conjunction with the financial statements and the
notes thereto for the year ended December 31, 1999 included in the Form 10-K.
For the purpose of governing certain ongoing relationships between the
Company and GenTek after the Spinoff and to provide mechanisms for an orderly
transition, the Company and GenTek have entered into various agreements.
Management believes that the agreements are comparable to those which would have
been reached in arm's length negotiations with unaffiliated parties.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin: No. 101 -- Revenue Recognition in Financial
Statements ("SAB 101"), which provides guidance related to revenue recognition
based on interpretations and practices followed by the SEC. SAB 101 is effective
for the Company during the the fourth fiscal quarter of the current year. The
Company does not expect the adoption of SAB 101 to have a material effect on the
Company's results of operations, financial condition or cash flows.
Certain prior-period amounts have been reclassified to conform with the
current-year presentation.
-4-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 2 - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) is comprised of net income (loss) and
foreign currency translation gains and (losses). Total comprehensive income
(loss) for the six months ended June 30, 1999 and 2000 was $3,301 and $(1,257),
respectively.
NOTE 3 - EARNINGS (LOSS) PER SHARE
The computation of basic earnings (loss) per share is based on the
weighted average number of common shares and contingently issuable shares
outstanding during the period. The computation of diluted earnings per share
assumes the foregoing and, in addition, the exercise of all stock options and
restricted units, using the treasury stock method.
The components of the denominator for basic earnings per common share
and diluted earnings per common share are reconciled as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1999 2000 1999 2000
---- ---- ---- ----
Basic earnings per common share:
Weighted average common shares
Outstanding.............................. 20,917,491 20,984,786 20,882,282 20,984,786
========== ========== ========== ==========
Diluted earnings per common share:
Weighted average common shares
Outstanding.............................. 20,917,491 20,984,786 20,882,282 20,984,786
Options and Restricted Units............. 493,656 -- 591,519 --
---------- ----------- ---------- ----------
Denominator for diluted earnings per
common share............................. 21,411,147 20,984,786 21,473,801 20,984,786
========== ========== ========== ==========
At June 30, 1999 and 2000 options to purchase 1,671,700 shares and
2,346,500 shares of common stock, respectively, were not included in the
computation of diluted earnings per common share because the exercise price was
greater than the average market price of the common shares. The options, which
expire during 2007, 2008 and 2009, were still outstanding at June 30, 2000. At
June 30, 2000, 455,512 restricted units were not included in the calculation of
diluted earnings per common share because its inclusion would have resulted in
an antidilutive effect.
-5-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 4 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows: DECEMBER 31, JUNE 30,
1999 2000
---- ----
(UNAUDITED)
Raw materials.......................... $ 3,603 $ 2,469
Work in process........................ 1,301 2,404
Finished products...................... 12,704 9,856
Supplies and containers................ 7,683 8,440
------------- -----------
$ 25,291 $ 23,169
============= ===========
NOTE 5 - DIVIDENDS
On March 10, 1999, GCG's Board of Directors declared a quarterly cash
dividend of $.05 per share, payable April 5, 1999, to shareholders of record on
March 24, 1999. As a consequence of the Spinoff, the Board of Directors of GCG
does not expect to pay dividends in the near future. The dividend policies of
GCG are subject to change and will be based on, among other factors, its
operating results and financial requirements and the restrictions imposed by its
financing facilities.
NOTE 6 - RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
The Company is party to a management agreement with Latona Associates
(which is controlled by a stockholder of the Company) under which the Company
receives corporate supervisory and administrative services and strategic
guidance for a quarterly fee. The Company's share of this management fee is $738
and $773 for the six months ended June 30, 1999 and 2000, respectively.
TRANSITION SUPPORT AGREEMENT
The Company and GenTek have entered into various transition agreements
that provide mechanisms for an orderly transition after the Spinoff. For the
six-months ended June 30, 1999 and 2000, the Company paid GenTek $618 and
$900 related to these transition agreements.
OTHER TRANSACTIONS
The Company supplies soda ash to GenTek. For the six months ended June
30, 1999 and 2000, sales to GenTek amounted to $5,106 and $2,422, respectively.
NOTE 7 - GEOGRAPHIC INFORMATION
TOTAL REVENUES OPERATING PROFIT
JUNE 30, JUNE 30,
-------- --------
1999 2000 1999 2000
---- ---- ---- ----
United States............................. $ 93,312 $ 89,479 $ 9,391 $ 10,174
Foreign ................................. 51,790 46,434 5,838 (977)
Elimination .............................. (14,465) (15,959) (75) --
----------- ----------- ---------- ----------
$ 130,637 $ 119,954 $ 15,154 $ 9,197
=========== =========== ========== ==========
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
June 30, 2000 Compared with December 31, 1999
Financial Condition
Cash and cash equivalents were $19.4 million at June 30, 2000 compared
with $26.6 million at December 31, 1999. During the first six months of 2000,
the Company used cash flow from operating activities of $1.2 million, and used
cash of $6.3 million for capital expenditures.
The Company had working capital of $63.6 million at June 30, 2000 as
compared with $61.4 million at December 31, 1999. The increase in working
capital principally reflects higher receivables and other current assets
partially offset by lower cash and inventory balances.
Results of Operations
June 30, 2000 Compared with December 31, 1999
Net revenues for the three and six month periods ended June 30, 2000
decreased 4.9 percent and 8.1 percent to $65.8 million and $120.0 million,
respectively, from $69.2 million and $130.6 million for the comparable prior
year periods. Net revenues were negatively affected by lower calcium chloride
volumes due to warm winter weather and wet spring weather as well as lower soda
ash prices.
Gross profit for the three month period ended June 30, 2000 decreased
$6.0 million to $9.2 million from $15.2 million for the comparable prior year
period. Gross profit as a percentage of net revenues for the three-month period
ended June 30, 2000 decreased to 14.0 percent from 22.0 percent for the same
period in 1999. Gross profit for the six-month period ended June 30, 2000
decreased $7.9 million to $17.5 million from $25.4 million for the comparable
prior year period. Gross profit as a percentage of net revenues for the
six-month period ended June 30, 2000 decreased to 14.6 percent from 19.5 percent
for the same period in 1999. These decreases were primarily due to the
above-mentioned decrease in net revenues as well as higher energy costs.
Selling, general and administrative expense decreased $2.2 million and
$2.0 million for the three and six month periods ended June 30, 2000 as compared
to the prior period principally due to the $1.9 million one-time charge related
to the Spinoff in the second quarter of 1999. Selling, general and
administrative as a percentage of net revenues for the three and six month
period ended June 30, 2000 and 1999 decreased to 6.2 percent from 9.0 percent
and to 6.9 percent from 7.9 percent primarily due to the above-mentioned
one-time charge.
Interest expense for the three and six month periods ended June 30,
2000 was $3.9 million and $7.8 million, which was $0.5 million and $1.7 million
higher, respectively, than the comparable prior period levels as a result of the
issuance of the Senior Subordinated Notes and borrowings under the Credit
Facility.
Minority interest for the three and six month periods ended June 30,
2000 was $2.4 million and $5.4 million, respectively, versus $2.9 million and
$5.5 million for the same period in 1999. The decreases in both periods reflect
lower earnings due to lower soda ash pricing of General Chemical (Soda Ash)
Partners.
Net income (loss) was $0.2 million and ($1.0) million for the three and
six-month periods ended June 30, 2000, respectively, versus net income of $2.3
million and $3.3 million for the comparable prior year periods, for the
foregoing reasons, net of available income tax benefits.
-7-
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not expect to enter into financial instruments for
trading purposes. The Company anticipates periodically entering into interest
rate swap agreements to effectively convert all or a portion of its
floating-rate debt to fixed-rate debt in order to reduce its exposure to
movements in interest rates. Such agreements would involve the exchange of fixed
and floating interest rate payments over the life of the agreement without the
exchange of the underlying principal amounts. The Company also anticipates
periodically entering into currency agreements to partially reduce its exposure
to movements in currency exchange rates. Swap agreements will only be entered
into with strong creditworthy parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 2000, the Company held its Annual Meeting of Stockholders. At
the meeting, Paul M. Montrone, Paul M. Meister, Philip E. Beekman, John M.
Kehoe, Jr., Gerald J. Lewis and Joseph Volpe were each elected as a director of
the Company to serve a one year term which will expire at the 2001 Annual
Meeting of Stockholders and until a successor has been duly elected and
qualified. For Paul M. Montrone, 51,356,523 votes were cast in favor and 700,110
votes were withheld. For Paul M. Meister 51,356,153 votes were cast in favor and
700,480 votes were withheld. For Philip E. Beekman, 51,356,153 votes were cast
in favor and 700,480 votes were withheld. For John M. Kehoe, Jr., 50,712,781
votes were cast in favor and 1,343,852 votes were withheld. For Gerald J. Lewis,
51,352,153 votes were cast in favor and 704,480 votes were withheld. For Joseph
Volpe, 51,349,523 votes were cast in favor and 707,110 votes were withheld.
The stockholders also approved the selection of Deloitte & Touche LLP
as the Company's independent auditors. 52,039,968 votes were cast in favor of
the the General Chemical Group Inc. 2000 Long-Term Incentive Plan; 13,741 were
voted against; and 2,924 abstained.
The stockholders also approved the adoption of The General Chemical
Group Inc. 2000 Long-Term Incentive Plan. 47,094,206 votes were cast in favor of
The General Chemical Group Inc. 2000 Long-Term Incentive Plan; 3,333,259 voted
against; 26,874 abstained; and 1,602,294 were broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.01 Financial Data Schedule
(b) No reports were filed on Form 8-K.
-8-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GENERAL CHEMICAL GROUP INC.
-----------------------------------
Registrant
Date August 11, 2000 /s/ John M. Kehoe, Jr.
------------------- ------------------
JOHN M. KEHOE, JR.
President and Chief Executive Officer
(Principal Executive Officer) and Director
Date August 11, 2000 /s/ David S. Graziosi
------------------- -----------------
DAVID S. GRAZIOSI
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-9-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ---------- ----------- ----
27 Financial Data Schedule............................ 11
-10-