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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, 2002
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 1, 2002 was 3,176,586.
The number of shares of Class B Common Stock outstanding at May 1, 2002 was
700,639.
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THE GENERAL CHEMICAL GROUP INC.
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 2002
INDEX
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Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months
Ended March 31, 2001 and 2002............................................................. 1
Consolidated Balance Sheets - December 31, 2001 and
March 31, 2002............................................................................ 2
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2001 and 2002............................................................. 3
Notes to Consolidated Financial Statements................................................. 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................. 8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk.................................................................... 9
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K...................................................... 10
SIGNATURES..................................................................................... 11
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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,
---------------------------
2001 2002
---- ----
Net revenues.......................................................... $ 65,326 $ 57,377
Cost of revenues...................................................... 64,484 49,120
Selling, general and administrative expense........................... 4,114 3,952
-------- --------
Operating (loss) profit .............................................` (3,272) 4,305
Interest expense...................................................... 4,076 3,584
Interest income....................................................... 274 122
Other expense, net.................................................... 87 81
-------- --------
(Loss) income before income taxes and minority interest............... (7,161) 762
Minority interest..................................................... 855 2,543
-------- --------
Loss before income taxes.............................................. (8,016) (1,781)
Income tax provision.................................................. 131 6
-------- --------
Net loss................................................... $(8,147) $(1,787)
-------- --------
Loss per common share:
Basic...................................................... $ (3.85) $ (0.46)
-------- --------
Diluted.................................................... $ (3.85) $ (0.46)
======== ========
See the accompanying notes to consolidated financial statements.
1
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THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, March 31,
----------------- ---------------
ASSETS 2001 2002
---- ----
(unaudited)
Current assets:
Cash and cash equivalents................................................... $ 16,045 $ 20,206
Receivables, net............................................................ 48,616 43,893
Inventories................................................................. 25,813 30,656
Deferred income taxes....................................................... 6,934 4,963
Other current assets........................................................ 5,485 5,530
-------- --------
Total current assets..................................................... 102,893 105,248
Property, plant and equipment, net................................................. 100,365 99,294
Other assets 16,933 17,339
-------- --------
Total assets............................................................. $220,191 $221,881
======== ========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................ $ 21,177 $ 21,121
Accrued liabilities......................................................... 30,355 31,661
-------- --------
Total current liabilities................................................ 51,532 52,782
Long-term debt..................................................................... 146,487 146,383
Other liabilities.................................................................. 78,641 78,683
-------- --------
Total liabilities........................................................ 276,660 277,848
-------- --------
Minority interest.................................................................. 38,983 41,137
-------- --------
Equity (Deficit):
Preferred Stock, $.01 par value; authorized 1,000,000
shares; none issued or outstanding......................................... -- --
Common Stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding: 3,348,910 and 3,350,775 shares at
December 31, 2001 and March 31, 2002, respectively........................ 33 33
Class B Common Stock, $.01 par value; authorized
4,000,000 shares, issued and outstanding: 700,639 shares
at December 31, 2001 and March 31, 2002, respectively...................... 7 7
Capital deficit.............................................................. (94,748) (94,748)
Accumulated other comprehensive income....................................... (1,428) (1,293)
Retained earnings............................................................ 33,936 32,149
Treasury stock, at cost: 174,189 shares at
December 31, 2001 and March 31, 2002, respectively........................ (33,252) (33,252)
-------- --------
Total equity (deficit)....................................................... (95,452) (97,104)
-------- --------
Total liabilities and equity (deficit)................................... $ 220,191 $ 221,881
-------- --------
See the accompanying notes to consolidated financial statements.
2
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THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
March 31,
-----------
2001 2002
---- ----
Cash flows from operating activities:
Net loss.............................................................. $ (8,147) $(1,787)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization....................................... 4,555 3,314
Decrease in receivables............................................. 4,225 4,723
Increase in inventories............................................. (675) (4,843)
Decrease in accounts payable........................................ (2,388) (56)
Increase in accrued liabilities..................................... 1,024 1,306
Decrease in other liabilities and assets, net....................... 6,085 1,751
Increase in minority interest....................................... 14 2,154
-------- -------
Net cash provided by operating activities....................... 4,693 6,562
-------- -------
Cash flows from investing activities:
Capital expenditures.................................................. (1,432) (2,401)
-------- -------
Net cash used for investing activities.......................... (1,432) (2,401)
-------- -------
Cash flows from financing activities:
Other financing activities............................................ 50 --
-------- -------
Net cash provided by financing activities....................... 50 --
-------- -------
Increase in cash and cash equivalents........................................ 3,311 4,161
Cash and cash equivalents at beginning of period............................. 20,815 16,045
-------- -------
Cash and cash equivalents at end of period................................... $ 24,126 $20,206
-------- -------
-------- -------
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest............................................................ $ 1,135 $ 623
Taxes .............................................................. $ (4,264) $(1,219)
See the accompanying notes to consolidated financial statements.
3
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2002
(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, 2002 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002. The Company's financial
statements should be read in conjunction with the financial statements and the
notes thereto for the year ended December 31, 2001 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, 2001 and 2002 was ($5,866) and ($1,652), respectively.
Note 3 - Loss Per Common Share
The computation of basic loss per common share is based on the weighted
average number of common shares and contingently issuable shares outstanding
during the period. The computation of diluted loss per common share assumes the
foregoing and, in addition, the exercise of all stock options and restricted
units, using the treasury stock method.
4
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the three months ended March 31, 2002
(Dollars in thousands)
(unaudited)
The components of the denominator for basic and diluted loss per common
share are reconciled as follows:
Three Months Ended
March 31,
---------
2001 2002
---- ----
Basic loss per common share:
Weighted average common shares
Outstanding......................................... 2,115,213 3,894,080
========= =========
Diluted loss per common share:
Weighted average common shares outstanding.......... 2,115,213 3,894,080
Options and Restricted Units........................ -- --
--------- ---------
Denominator for diluted loss per
common share........................................ 2,115,213 3,894,080
========= =========
At March 31, 2001 and 2002, options to purchase 228,970 shares and
211,796 shares of common stock, respectively, were not included in the
computation of diluted loss 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, 2002. At
March 31, 2001 and 2002, 46,286 and 28,469 restricted units and options were not
included in the calculation of diluted loss 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,
2001 2002
---- ----
Raw materials...................................... $ 1,302 $ 1,081
Work in process.................................... 3,448 5,263
Finished products.................................. 14,110 17,343
Supplies and containers............................ 6,953 6,969
-------- -------
$ 25,813 $30,656
======== =======
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. In the second quarter of 2001, the Company
provided for additional pretax restructuring charges of $1.7 million for revised
actuarial estimates of employee termination benefits. The restructuring involved
the idling of the Company's synthetic soda ash production capacity in
Amherstburg, Ontario, Canada. The balance of the restructuring accrual at
December 31, 2001 was $4.2 million. Spending against this accrual was $0.3
million during the three months ended March 31, 2002.
5
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the three months ended March 31, 2002
(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 $393 and $412 for the
three months ended March 31, 2001 and 2002, respectively.
Transition Support Agreement
GCG and GenTek, Inc. have entered into various transition agreements
that provide mechanisms for an orderly transition after the Spinoff. For the
three months ended March 31, 2001 and 2002, the Comnpany paid GenTek, Inc. $339
and $344, respectively, related to these transition agreements.
Other Transactions
GCG supplies soda ash to GenTek, Inc. For the three months ended
March 31, 2001 and 2002, sales to GenTek, Inc. amounted to $959 and $602,
respectively.
Note 7 - Geographic Information
Total Revenues Operating Profit (Loss)
March 31, March 31,
--------- ----------
2001 2002 2001 2002
---- ---- ---- ----
United States............................. $ 53,610 $ 51,527 $ (115) $ 5,913
Foreign ................................. 21,909 14,788 (3,157) (1,608)
Elimination .............................. (10,193) (8,938) -- --
--------- -------- ------- --------
$ 65,326 $ 57,377 $(3,272) $ 4,305
========= ======== ======= ========
6
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
For the three months ended March 31, 2002
(Dollars in thousands)
(unaudited)
Note 8 - Segment Information
Industry segment information is summarized as follows:
Three Months Ended
March 31,
----------
2001 2002
---- ----
Net revenues:
Soda Ash........................................... $ 54,427 $ 50,438
Calcium Chloride................................... 10,899 6,939
-------- --------
Total Segment......................... $ 65,326 $ 57,377
======== ========
Income (loss) before income taxes:
Soda Ash........................................... $ (2,195) $ 3,292
Calcium Chloride................................... (1,099) (1,486)
-------- --------
Total Segment......................... (3,294) 1,806
Eliminations and other corporate expenses............... (4,722) (3,587)
-------- --------
$ (8,016) $ (1,781)
======== ========
Capital Expenditures:
Soda Ash........................................... $ 970 $ 1,236
Calcium Chloride................................... 384 1,141
Elimination and other corporate expenses................ 78 24
-------- --------
$ 1,432 $ 2,401
======== ========
Depreciation & Amortization:
Soda Ash........................................... $ 3,994 $ 2,688
Calcium Chloride................................... 264 406
Elimination and other corporate expenses................ 297 220
-------- --------
$ 4,555 $ 3,314
======== ========
7
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Financial Condition
- -------------------
March 31, 2002 Compared with December 31, 2001
- ----------------------------------------------
Cash and cash equivalents were $20.2 million at March 31, 2002 compared
with $16.0 million at December 31, 2001. During the first three months of 2002,
the Company generated cash flow from operating activities of $6.6 million, and
used cash of $2.4 million for capital expenditures.
The Company had working capital of $52.5 million at March 31, 2002 as
compared with $51.4 million at December 31, 2001. This increase in working
capital principally reflects higher cash balances and inventories partially
offset by higher accrued liabilities and lower receivables.
The Company is significantly leveraged. At March 31, 2002, outstanding
indebtedness consisted of $100 million of notes and $46.4 million outstanding
under the credit facility. The Company's leverage and debt service requirements
(1) increase its vulnerability to economic downturns, (2) potentially limit the
Company's ability to respond to competitive pressures, and (3) 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. The Company's indenture and credit facility impose operating
and financial restrictions on the Company. These covenants affect, and in
certain cases, limit the Company's ability to incur additional indebtedness,
make capital expenditures, make investments and acquisitions and sell assets,
pay dividends and make other distributions to shareholders, and consolidate,
merge or sell all or substantially all assets. The Company was in compliance
with the covenants contained in its indenture and credit facility at March 31,
2002, although there can be no assurances given as to compliance with these
covenants in future periods. A failure to comply with the covenants contained in
the credit agreement or indenture may result in the Company's indebtedness
becoming immediately due and payable, which would have a material adverse effect
on our business results of operations and financial condition.
Results of Operations
- ---------------------
March 31, 2002 Compared with March 31, 2001
- -------------------------------------------
Net revenues for the three month period ended March 31, 2002 decreased
$7.9 million to $57.4 million from $65.3 million in the comparable prior year
period. Net revenues were negatively effected by lower calcium chloride volumes
due to warm winter weather and lower soda ash volumes due to the April 2001
idling of the Company's Amherstburg synthetic soda ash facility, partially
offset by higher domestic soda ash prices.
Gross profit for the three month period ended March 31, 2002 increased
$7.5 million to $8.3 million from $0.8 million in the comparable prior year
period. Gross profit as a percentage of net revenues for the three month period
ended March 31, 2002 increased to 14.4 percent from 1.3 percent for the same
period in 2001. These increases were primarily due to lower operating costs
resulting from the April 2001 idling of the Company's Amherstburg synthetic soda
ash facility, lower energy costs and higher domestic soda ash prices, partially
offset by lower calcium chloride volumes. In addition, the prior year's quarter
includes costs incurred to start up operations at our Manistee, Michigan calcium
chloride facility.
Selling, general and administrative expense as a percentage of net
revenues for the three month period ended March 31, 2002 was 6.9 percent as
compared to 6.3 percent in 2001.
Interest expense for the three month period ended March 31, 2002
decreased $0.5 million to $3.6 million, from $4.1 million in the comparable
prior year period. The decrease is a result of lower credit facility borrowing
rates and amendment fees expensed in the comparable prior year period.
8
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Minority interest for the three month period ended March 31, 2002
increased $1.7 million to $2.5 million, from $0.9 million in the comparable
prior year period. The increase reflects higher earnings at General Chemical
(Soda Ash) Partners primarily due to higher domestic soda ash prices and lower
energy costs.
Net loss was $1.8 million for the three month period ended March 31,
2002, versus $8.1 million for the comparable period in 2001, for the foregoing
reasons.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Market risk represents the 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 and foreign exchange
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 10 5/8% Senior
Subordinated Notes, as the interest rates on these notes are fixed.
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, 2002 the Company had $46.4 million in borrowings under the credit
facility that had variable pricing. Accordingly, as of fiscal 2002, a 1% change
in the floating rate will result in interest expense fluctuating approximately
$0.5 million.
The Company is also exposed to foreign exchange risk primarily to the
extent of adverse fluctuation in the Canadian dollar.
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 floating-rate
debt to fixed-rate debt in order to reduce 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 exposure to movements in currency
exchange rates. Swap and currency agreements will only be entered into with
creditworthy parties.
9
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) No reports were filed on Form 8-K.
10
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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 May 15, 2002 /s/ John M. Kehoe, Jr.
------------------- --------------------------------------
John M. Kehoe, Jr.
President and Chief Executive Officer
(Principal Executive Officer) and Director
Date May 15, 2002 /s/ David S. Graziosi
------------------- ---------------------------------------
David S. Graziosi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
11