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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 SEPTEMBER 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 November 1, 2000 was
16,930,201. The number of shares of Class B Common Stock outstanding at November
1, 2000 was 3,958,421.
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THE GENERAL CHEMICAL GROUP
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months
And Nine Months Ended September 30, 1999 and 2000................................... 1
Consolidated Balance Sheets - December 31, 1999 and
September 30, 2000.................................................................. 2
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1999 and 2000................................................... 3
Notes to Consolidated Financial Statements.......................................... 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 8
PART II. OTHER INFORMATION:
Item 6. Exhibits..................................................................... 9
SIGNATURES............................................................................ 10
EXHIBIT INDEX......................................................................... 11
EXHIBITS.............................................................................. 12
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -----------------------
1999 2000 1999 2000
---- ---- ---- ----
Net revenues ................................................ $64,117 $61,079 $194,755 $181,033
Cost of sales ............................................... 51,715 51,284 156,905 153,786
Selling, general and administrative expense ................. 4,352 4,468 14,647 12,723
------- ------- -------- --------
Operating profit ............................................ 8,050 5,327 23,203 14,524
Interest expense ............................................ 3,826 3,977 9,764 11,750
Gain on sale of assets ...................................... -- 7,699 -- 7,699
Interest income ............................................. 442 319 859 914
Other (income) expense, net ................................. 3 (48) (147) 24
------- ------- -------- --------
Income before income taxes and minority interest ............ 4,663 9,416 14,445 11,363
Minority interest ........................................... 3,484 4,096 8,992 9,522
------- ------- -------- --------
Income before income taxes .................................. 1,179 5,320 5,453 1,841
Income tax provision (benefit) .............................. 65 2,037 1,066 (403)
------- ------- -------- --------
Net income ....................................... $ 1,114 $ 3,283 $ 4,387 $ 2,244
======= ======= ======== ========
Earnings per common share:
Basic ............................................ $ .05 $ .16 $ .21 $ .11
======= ======= ======== =========
Assuming dilution ................................ $ .05 $ .15 $ .20 $ .10
======= ======= ======== =========
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, SEPTEMBER 30,
1999 2000
---- ----
(UNAUDITED)
Current assets:
Cash and cash equivalents............................................. $ 26,630 $ 31,723
Receivables, net...................................................... 57,970 58,228
Inventories........................................................... 25,291 23,704
Deferred income taxes................................................. 6,089 5,925
Other current assets.................................................. 4,816 7,751
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Total current assets............................................... 120,796 127,331
Property, plant and equipment, net........................................... 150,038 145,808
Other assets 22,374 21,808
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Total assets....................................................... $ 293,208 $ 294,947
========== ==========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................................... $ 27,625 $ 26,994
Accrued liabilities.................................................... 31,778 30,649
---------- ----------
Total current liabilities.......................................... 59,403 57,643
Long-term debt............................................................... 150,919 149,314
Other liabilities............................................................ 87,700 90,155
---------- ----------
Total liabilities.................................................. 298,022 297,112
Minority interest............................................................ 42,079 42,681
---------- ----------
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 and outstanding: 18,557,314 and 18,649,915 shares at
December 31, 1999 and September 30, 2000, respectively............... 186 187
Class B Common Stock, $.01 par value; authorized
40,000,000 shares, issued and outstanding: 3,958,421
shares at December 31, 1999 and September 30, 2000, respectively..... 39 39
Capital deficit........................................................ (105,060) (104,840)
Accumulated other comprehensive income................................. (2,804) (3,216)
Retained earnings...................................................... 93,992 96,236
Treasury stock, at cost: 1,699,497 and 1,719,714 shares at
December 31, 1999 and September 30, 2000, respectively............... (33,246) (33,252)
---------- ----------
Total equity (deficit)................................................. (46,893) (44,846)
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Total liabilities and equity (deficit)............................. $ 293,208 $ 294,947
========== ==========
See the accompanying notes to consolidated financial statements.
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THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 2000
---- ----
Cash flows from operating activities:
Net income ........................................................... $ 4,387 $ 2,244
Adjustments to reconcile net income to net cash
provided by operating activities
provided by operating activities:
Depreciation and amortization....................................... 12,821 14,504
Gain on sale of assets.............................................. -- (7,699)
Decrease (increase) in receivables.................................. 2,842 (258)
Decrease in inventories............................................. 4,311 1,587
Increase (decrease) in accounts payable............................. 4,413 (631)
Increase (decrease) in accrued liabilities......................... 916 (1,129)
Decrease in other liabilities and assets, net....................... (2,494) (678)
(Decrease) increase in minority interest............................ (1,695) 602
---------- ---------
Net cash provided by operating activities....................... 25,501 8,542
---------- ---------
Cash flows from investing activities:
Capital expenditures.................................................. (14,276) (11,744)
Proceeds from sale of assets.......................................... -- 8,080
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Net cash used for investing activities.......................... (14,276) (3,664)
---------- ---------
Cash flows from financing activities:
Net transactions with GenTek.......................................... (122,470) --
Proceeds from long-term debt.......................................... 145,439 --
Other financing activities............................................ (326) 215
---------- ---------
Net cash provided by financing activities....................... 22,643 215
---------- ---------
Increase in cash and cash equivalents........................................ 33,868 5,093
Cash and cash equivalents at beginning of period............................. 1,127 26,630
---------- ---------
Cash and cash equivalents at end of period................................... $ 34,995 $ 31,723
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................ $ 1,127 $ 8,438
Taxes............................................................... $ 330 $ --
See the accompanying notes to consolidated financial statements.
-3-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 nine
months ended September 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 its 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.
In June 2000, the FASB issued SFAS No. 138 "Accounting for Certain
Derivative Financial Instruments and Certain Hedging Activities -- an amendment
of FASB Statement No. 133". This statement amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and for certain hedging
activities. The Company plans to adopt SFAS 133 and SFAS 138 in the first
quarter of fiscal 2001. The Company does not expect that the adoption of these
pronouncements will have a material effect on its consolidated financial
statements.
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 NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 2 - COMPREHENSIVE INCOME
Total comprehensive income is comprised of net income and foreign
currency translation gains and (losses). Total comprehensive income for the nine
months ended September 30, 1999 and 2000 was $4,369 and $1,832, respectively.
NOTE 3 - EARNINGS PER SHARE
The computation of basic earnings 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 2000 1999 2000
---- ---- ---- ----
Basic earnings per common share:
Weighted average common shares
Outstanding.............................. 20,987,144 21,096,132 20,917,236 21,022,687
========== ========== ========== ==========
Diluted earnings per common share:
Weighted average common shares
Outstanding.............................. 20,987,144 21,096,132 20,917,236 21,022,687
Options and Restricted Units............. 475,614 483,992 552,865 463,344
---------- ---------- ---------- ----------
Denominator for diluted earnings per
common share............................. 21,462,758 21,580,124 21,470,101 21,486,031
========== ========== ========== ==========
At September 30, 1999 and 2000 options to purchase 1,674,500 shares and
2,339,500 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 September 30, 2000.
-5-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 4 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
DECEMBER 31, SEPTEMBER 30,
1999 2000
---- ----
(UNAUDITED)
Raw materials...................................... $ 3,603 $ 3,182
Work in process.................................... 1,301 2,931
Finished products.................................. 12,704 9,134
Supplies and containers............................ 7,683 8,457
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$25,291 $23,704
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NOTE 5 - DIVIDENDS
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 - SALE OF ASSETS
In the third quarter of 2000, the Company sold a quarry at its
Amherstburg, Ontario location for $8.1 million, resulting in a pretax gain of
$7.7 million.
NOTE 7 - 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. This management fee was $1,113 and $1,161 for the
nine months ended September 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
nine months ended September 30, 1999 and 2000, the Company paid GenTek $1,534
and $1,296, respectively, related to these transition agreements.
OTHER TRANSACTIONS
The Company supplies soda ash to GenTek. For the nine months ended
September 30, 1999 and 2000, sales to GenTek amounted to $10,045 and $3,390,
respectively.
-6-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 8 - GEOGRAPHIC INFORMATION
DEPRECIATION AND
TOTAL REVENUES OPERATING PROFIT CAPITAL EXPENDITURES AMORTIZATION
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------- ------------- ------------- -------------
1999 2000 1999 2000 1999 2000 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
United States..... $139,831 $135,401 $15,906 $ 17,841 $ 9,009 $ 9,803 $ 9,682 $10,810
Foreign ......... 76,485 69,456 7,511 (3,317) 5,267 1,941 3,139 3,694
Elimination ...... (21,561) (23,824) (214) -- -- -- -- --
-------- -------- ------- -------- ------- ------- ------- -------
$194,755 $181,033 $23,203 $ 14,524 $14,276 $11,744 $12,821 $14,504
======== ======== ======= ======== ======= ======= ======= =======
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
September 30, 2000 Compared with December 31, 1999
Financial Condition
Cash and cash equivalents were $31.7 million at September 30, 2000
compared with $26.6 million at December 31, 1999. During the first nine months
of 2000, the Company generated cash flow from operating activities of $8.5
million, and used cash of $3.7 million for investing activities.
The Company had working capital of $69.7 million at September 30, 2000
as compared with $61.4 million at December 31, 1999. The increase in working
capital principally reflects higher cash and other current assets in addition to
lower accounts payable and accrued liabilities.
The Company's liquidity needs arise primarily from working capital
requirements, capital expenditures and interest and principal payment
obligations. The Company's ability to satisfy its liquidity needs is dependent
on its financial performance, which in turn will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond the Company's control (such as soda ash prices and energy prices). The
Company believes that its existing cash balance and cash flow generated from
operations are sufficient to satisfy its current working capital, capital
expenditure and debt service requirements for the coming year. In the event the
Company proposes to undertake any acquisition, restructuring of its operations
or extraordinary capital expenditure, the Company may need additional cash and
cannot give any assurance that its existing capital resources (including credit
facilities) will be available or adequate.
Results of Operations
September 30, 2000 Compared with December 31, 1999
Net revenues for the three and nine month periods ended September 30,
2000 decreased 4.7 percent and 7.1 percent to $61.1 million and $181.0 million,
respectively, from $64.1 million and $194.8 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 and summer weather as well as
lower soda ash prices.
Gross profit for the three month period ended September 30, 2000
decreased $2.6 million to $9.8 million from $12.4 million for the comparable
prior year period. Gross profit as a percentage of net revenues for the
three-month period ended September 30, 2000 decreased to 16.0 percent from 19.3
percent for the same period in 1999. Gross profit for the nine month period
ended September 30, 2000 decreased $10.6 million to $27.3 million from $37.9
million for the comparable prior year period. Gross profit as a percentage of
net revenues for the nine month period ended September 30, 2000 decreased to
15.1 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 increased $0.1 million and
decreased $1.9 million for the three and nine month periods ended September 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 expense as a percentage of net revenues for the three
month period ended September 30, 2000 and 1999 increased to 7.4 percent from 6.9
percent primarily due to the decrease in net revenues. Selling, general and
administrative expense as a percentage of net revenues for the nine month period
ended September 30, 2000 and 1999 decreased to 7.0 percent from 7.5 percent
primarily due to the above-mentioned one-time charge.
Interest expense for the three and nine month periods ended September
30, 2000 was $4.0 million and $11.8 million, which was $0.2 million and $2.0
million higher, respectively, than the comparable prior period levels as a
result of the issuance of the 10 5/8% Senior Subordinated Notes in April 1999
and borrowings under the Credit Facility.
Minority interest for the three and nine month periods ended September
30, 2000 was $4.1 million and $9.5 million, respectively, versus $3.5 million
and $9.0 million for the same period in 1999. The increases in both periods
reflect higher earnings due to reductions in operating costs, partially offset
by lower soda ash pricing, at General Chemical (Soda Ash) Partners.
Net income was $3.3 million and $2.2 million for the three and nine
month periods ended September 30, 2000, respectively, versus net income of $1.1
million and $4.4 million for the comparable prior year periods, for the
foregoing reasons, net of available income tax benefits.
-8-
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 6. EXHIBITS
(a) Exhibits:
27.01 Financial Data Schedule
-9-
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 November 14, 2000 /s/ John M. Kehoe, Jr.
--------------------------- ------------------
JOHN M. KEHOE, JR.
President and Chief Executive Officer
(Principal Executive Officer) and Director
Date November 14, 2000 /s/ David S. Graziosi
--------------------------- -----------------
DAVID S. GRAZIOSI
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-10-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ---------- ----------- ----
27 Financial Data Schedule.......................................... 12
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