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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 March 31, 2001
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 May 14, 2001 was 30,003,131.
The number of shares of Class B Common Stock outstanding at May 14, 2001 was
7,014,846.
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THE GENERAL CHEMICAL GROUP INC.
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 2001
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months
Ended March 31, 2000 and 2001..................................... 1
Consolidated Balance Sheets - December 31, 2000 and
March 31, 2001.................................................... 2
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2000 and 2001..................................... 3
Notes to Consolidated Financial Statements......................... 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7-8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk............................................ 8
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K.............................. 9
SIGNATURES............................................................. 10
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
March 31,
---------------------------
2000 2001
---- ----
Net revenues.......................................................... $ 65,909 $ 65,326
Cost of sales......................................................... 57,607 64,484
Selling, general and administrative expense........................... 4,185 4,114
-------- --------
Operating profit (loss)............................................... 4,117 (3,272)
Interest expense...................................................... 3,881 4,076
Interest income....................................................... 329 274
Other expense, net.................................................... 11 87
-------- --------
Income (loss) before income taxes and minority interest............... 554 (7,161)
Minority interest..................................................... 3,051 855
-------- --------
Loss before income taxes.............................................. (2,497) (8,016)
Income tax (benefit) provision........................................ (1,252) 131
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Net loss................................................... $ (1,245) $ (8,147)
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Loss per common share:
Basic...................................................... $ (.06) $ (.39)
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Diluted.................................................... $ (.06) $ (.39)
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See the accompanying notes to consolidated financial statements.
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THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, March 31,
ASSETS 2000 2001
---- ----
(unaudited)
Current assets:
Cash and cash equivalents................................................... $ 20,815 $ 24,126
Receivables, net............................................................ 58,872 54,647
Inventories, net............................................................ 21,707 22,382
Deferred income taxes....................................................... 8,455 8,003
Other current assets........................................................ 13,792 8,598
--------- ---------
Total current assets..................................................... 123,641 117,756
Property, plant and equipment, net................................................. 108,883 105,558
Other assets 18,476 17,882
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Total assets............................................................. $ 251,000 $ 241,196
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LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................ $ 32,097 $ 29,709
Accrued liabilities......................................................... 42,595 43,619
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Total current liabilities................................................ 74,692 73,328
Long-term debt..................................................................... 149,314 147,027
Other liabilities.................................................................. 82,105 81,754
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Total liabilities........................................................ 306,111 302,109
Minority interest.................................................................. 41,446 41,460
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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: 18,650,515 shares at
December 31, 2000 and March 31, 2001, 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, 2000 and March 31, 2001, respectively...................... 39 39
Capital deficit.............................................................. (104,788) (104,738)
Accumulated other comprehensive loss......................................... (4,205) (1,924)
Retained earnings............................................................ 45,463 37,316
Treasury stock, at cost: 1,719,992 shares at
December 31, 2000 and March 31, 2001, respectively........................ (33,252) (33,252)
--------- ---------
Total equity (deficit)....................................................... (96,557) (102,373)
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Total liabilities and equity (deficit)................................... $ 251,000 $ 241,196
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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)
Three Months Ended
March 31,
----------------------
2000 2001
---- ----
Cash flows from operating activities:
Net loss.............................................................. $(1,245) $(8,147)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization....................................... 4,976 4,555
Decrease in receivables............................................. 3,822 4,225
Increase in inventories............................................. (798) (675)
Decrease in accounts payable........................................ (1,948) (2,388)
Increase in accrued liabilities..................................... 838 1,024
(Increase) decrease in other liabilities and assets, net............ (2,320) 6,085
Increase in minority interest....................................... 2,605 14
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Net cash provided by operating activities....................... 5,930 4,693
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Cash flows from investing activities:
Capital expenditures.................................................. (4,429) (1,432)
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Net cash used for investing activities.......................... (4,429) (1,432)
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Cash flows from financing activities:
Other financing activities............................................ 155 50
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Net cash provided by financing activities....................... 155 50
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Increase in cash and cash equivalents........................................ 1,656 3,311
Cash and cash equivalents at beginning of period............................. 26,630 20,815
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Cash and cash equivalents at end of period................................... $28,286 $24,126
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Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest............................................................ $ 1,616 $ 1,135
Taxes .............................................................. $ -- $(4,264)
See the accompanying notes to consolidated financial statements.
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2001
(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.
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 three
months ended March 31, 2001 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2001. The Company's financial
statements should be read in conjunction with the financial statements and the
notes thereto for the year ended December 31, 2000 included in the Form 10-K.
Certain prior-period amounts have been reclassified to conform with the
current-year presentation.
Note 2 - Comprehensive Loss
Total comprehensive loss is comprised of net loss and foreign currency
translation gains and (losses). Total comprehensive loss for the three months
ended March 31, 2000 and 2001 was ($1,331) and ($5,866), 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.
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the three months ended March 31, 2001
(Dollars in thousands)
(unaudited)
The components of the denominator for basic earnings per common share
and diluted earnings per common share are reconciled as follows:
Three Months Ended
------------------
2000 2001
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Basic earnings per common share:
Weighted average common shares
Outstanding ........................................ 20,987,144 21,152,127
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Diluted earnings per common share:
Weighted average common shares
Outstanding ........................................ 20,987,144 21,152,127
Options and Restricted Units........................ -- --
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Denominator for diluted earnings per
common share ....................................... 20,987,144 21,152,127
========== ==========
At March 31, 2000 and 2001 options to purchase 1,943,800 shares and
2,289,700 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 2008, 2009 and 2010, were still outstanding at March 31, 2001. At
March 31, 2000 and 2001, 455,512 and 462,864 restricted units and options were
not included in the calculation of diluted earnings per common share because its
inclusion would have resulted in an antidilutive effect.
Note 4 - Additional Financial Information
The components of inventories were as follows:
December 31, March 31,
2000 2001
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Raw materials...................................... $ 3,165 $ 995
Work in process.................................... 1,665 1,822
Finished products.................................. 10,743 13,768
Supplies and containers............................ 6,134 5,797
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$ 21,707 $ 22,382
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Note 5 - Restructuring
In the fourth quarter of 2000, the Company recorded a pretax
restructuring charge, including related asset writedowns and workforce
reductions, of $59.8 million. The restructuring involves the idling of the
Company's synthetic soda ash production capacity in Amherstburg, Ontario,
Canada. The balance of the restructuring accrual at December 31, 2000 was $16.1
million. Spending against this accrual was $0.8 million during the three months
ended March 31, 2001.
-5-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
For the three months ended March 31, 2001
(Dollars in thousands)
(unaudited)
Note 6 - Related Party Transactions
Management Agreement
The Company is party to a management agreement with Latona Associates
Inc. (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 $386 and $393 for the
three months ended March 31, 2000 and 2001, respectively.
Transition Support Agreement
GCG and GenTek have entered into various transition agreements that
provide mechanisms for an orderly transition after the Spinoff. For the three
months ended March 31, 2000 and 2001, the Company paid GenTek $477 and $339
related to these transition agreements.
Other Transactions
GCG supplies soda ash to GenTek. For the three months ended March 31,
2000 and 2001, sales to GenTek amounted to $1,183 and $959, respectively.
Note 7 - Geographic Information
Total Revenues Operating Profit (Loss)
March 31, March 31,
-------- --------
2000 2001 2000 2001
---- ---- ---- ----
United States............................. $ 56,157 $ 53,610 $ 5,985 $ (115)
Foreign ................................. 17,012 21,909 (1,868) (3,157)
Elimination .............................. (7,260) (10,193) -- --
----------- ------------ ---------- ----------
$ 65,909 $ 65,326 $ 4,117 $ (3,272)
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Note 8 - Subsequent Event
On May 14, 2001, the Company issued 13,072,608 shares of Common Stock
and 3,056,425 shares of Class B Common Stock in connection with the Company's
rights offering. Pursuant to the rights offering, the holders of record of the
Company's Common Stock and Class B Common Stock as of April 16, 2001 received,
at no cost, 0.77 rights to purchase one share of Common Stock or Class B Common
Stock, as appropriate, of the Company for each share of such stock they held as
of the record date. Each whole right entitled its holder to purchase one share
of Common Stock or Class B Common Stock, as appropriate, for a subscription
price of $0.62 per share. The proceeds to the Company from this issuance of
Common Stock and Class B Common Stock were approximately $10.0 million and will
be used to pay costs related to the idling of the Company's synthetic soda ash
production capacity in Amherstburg, Ontario, Canada and for general corporate
purposes.
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Financial Condition
March 31, 2001 Compared with December 31, 2000
Cash and cash equivalents were $24.1 million at March 31, 2001 compared
with $20.8 million at December 31, 2000. During the first three months of 2001,
the Company generated cash flow from operating activities of $4.7 million, and
used cash of $1.4 million for capital expenditures.
The Company had working capital of $44.4 million at March 31, 2001 as
compared with $48.9 million at December 31, 2000. This decrease in working
capital principally reflects lower receivable and other current assets due to
the receipt of $4.3 million of income tax refunds partially offset by higher
cash balances and lower accounts payable.
On May 14, 2001, the Company issued 13,072,608 shares of Common Stock
and 3,056,425 shares of Class B Common Stock in connection with the Company's
rights offering. Pursuant to the rights offering, the holders of record of the
Company's Common Stock and Class B Common Stock as of April 16, 2001 received,
at no cost, 0.77 rights to purchase one share of Common Stock or Class B Common
Stock, as appropriate, of the Company for each share of such stock they held as
of the record date. Each whole right entitled its holder to purchase one share
of Common Stock or Class B Common Stock, as appropriate, for a subscription
price of $0.62 per share. The proceeds to the Company from this issuance of
Common Stock and Class B Common Stock were approximately $10.0 million and will
be used to pay costs related to the idling of the Company's synthetic soda ash
production capacity in Amherstburg, Ontario, Canada and for general corporate
purposes.
The Company is significantly leveraged. At March 31, 2001, outstanding
indebtedness consisted of $100 million of Senior Subordinated Notes and $47.0
million outstanding under the Senior Secured Credit Facility. The Company
recently finalized several amendments to the financial covenants and other terms
of its Senior Secured Credit Facility. These amendments provide for more
flexible financial covenants for 2001 and 2002 in exchange for more restrictive
covenants regarding restricted payments, investments, incurrence of
indebtedness, sales of assets, payment of dividends or other distributions to
shareholders and related matters during these two years. In addition, the
maximum amount the Company can borrow under its Senior Secured Credit Facility
during 2001 and 2002 was reduced from $85 million to $70 million. The Company's
leverage and debt service requirements, among other things, (1) impose operating
and financial restrictions on the Company, (2) increase its vulnerability to
economic downturns, (3) potentially limit the Company's ability to respond to
competitive pressures, and (4) may limit the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, strategic investments or general corporate purposes.
Results of Operations
March 31, 2001 Compared with March 31, 2000
Net revenues for the three month period ended March 31, 2001 decreased
$0.6 million to $65.3 million from $65.9 million in the comparable prior year
period.
Gross profit for the three month period ended March 31, 2001 decreased
$7.2 million to $0.8 million from $8.3 million in the comparable prior year
period. Gross profit as a percentage of net revenues for the three month period
ended March 31, 2001 decreased to 1 percent from 13 percent for the same period
in 2000. These decreases were primarily due to higher energy costs as well as
costs incurred to start up operations at our Manistee, Michigan calcium chloride
facility.
-7-
Selling, general and administrative expense as a percentage of net
revenues for the three month period ended March 31, 2001 was unchanged from the
same period in 2000 at 6 percent.
Interest expense for the three month period ended March 31, 2001
increased $0.2 million to $4.1 million, from $3.9 million in the comparable
prior year period. The increase is a result of amendments to the Company's
Senior Secured Credit Facility.
Minority interest for the three month period ended March 31, 2001
decreased $2.2 million to $0.9 million, from $3.1 million in the comparable
prior year period. The decrease reflects lower earnings at General Chemical
(Soda Ash) Partners primarily due to higher energy costs.
Net loss was $8.2 million for the three month period ended March 31,
2001, versus $1.3 million for the comparable period in 2000, for the foregoing
reasons.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or cash flows of the
Company. The Company is exposed to market risk in the areas of interest rates.
Interest Rates
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's debt obligations. The Company has no cash
flow exposure due to rate changes on its $100 million in notes as of March 31,
2001 because the notes are at a fixed interest rate.
However the Company does have cash flow exposure on its committed and
uncommitted bank line of credit as interest is based on a floating rate. At
March 31, 2001 the Company had $47.0 million in borrowings under the line of
credit that had variable pricing. Accordingly, a 1 percent change in the
floating rate will result in interest expense fluctuating annually by
approximately $0.5 million.
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.
-8-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) No reports were filed on Form 8-K.
-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.
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Registrant
Date May 15, 2001 /s/ John M. Kehoe, Jr.
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John M. Kehoe, Jr.
President and Chief Executive Officer
(Principal Executive Officer) and
Director
Date May 15, 2001 /s/ Robert J. Gagalis
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Robert J. Gagalis
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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