================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-K
----------
(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934
--- FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
COMMISSION FILE NUMBER 1-13404
----------
THE GENERAL CHEMICAL GROUP INC.
(Exact name of Registrant as specified in its charter)
----------
Delaware 02-0423437
(State or 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
----------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $.01 per share
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 1, 2003, was approximately $1,697,675.
The number of outstanding shares of the Registrant's Common Stock and Class
B Common Stock as of March 1, 2003 was 3,203,160 and 700,639, respectively.
Documents Incorporated by Reference:
The Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 2, 2003 is incorporated by reference into Part III.
================================================================================
PART I
Item 1. Business
Overview and Recent Developments
The General Chemical Group Inc. (the "Company" or "General Chemical Group"
or "GCG") is a leading producer of soda ash and calcium chloride in North
America. The Company's soda ash is used in the manufacture of glass,
sodium-based chemicals (such as baking soda), detergents, paper, textiles, food
and many other familiar consumer products. The Company's calcium chloride is
used primarily by highway and road maintenance organizations for dust control
and roadbed stabilization during the summer and for de-icing roads and sidewalks
during the winter.
The Company, whose predecessor companies date back to 1899, was organized
in 1988 as a Delaware corporation. The Company's businesses were transferred in
1986 by AlliedSignal, Inc. to a predecessor of the Company, at which time new
operating management was installed. On May 15, 1996, the Company completed an
initial public offering of its Common Stock. The Company's common stock is
listed on the Over the Counter (OTC) Bulletin Board under the symbol "GNMP".
On April 30, 1999, General Chemical Group completed the separation of its
Manufacturing and Performance Products businesses from its soda ash and calcium
chloride businesses through a spinoff (the "Spinoff"), which the Company
effected by distributing the stock of GenTek Inc. ("GenTek"), its wholly-owned
subsidiary, on a pro rata basis to its shareholders. As a result of the Spinoff,
GenTek became a separate company.
The Company produces natural soda ash from trona ore, the raw material
precursor of soda ash, at its Green River, Wyoming facility, where it has access
to the largest and most economically recoverable trona ore deposits in the
world. The Company operates its Green River facility through General Chemical
(Soda Ash) Partners ("GCSAP"), a partnership with subsidiaries of ACI
International Limited and TOSOH Corporation. The Company owns a 51% equity
interest and is the managing partner of this partnership. ACI International
Limited is a subsidiary of Owens-Illinois, Inc., one of the world's largest
consumers of soda ash. TOSOH Corporation is a leading chemical company and a
distributor of soda ash in Japan. The Company produces calcium chloride at its
facility in Amherstburg, Ontario, Canada.
In December, 2002, as part of a restructuring of operations to reduce
production costs, the Company closed its calcium chloride production facility in
Manistee, Michigan and has consolidated its North American production of calcium
chloride to its Amherstburg, Ontario, Canada production facility. The Company
has developed brine wells at its Amherstburg and Manistee facilities to
supplement its third party brine supply contract. In addition, the Company
recently entered into a joint venture with Tangshan Sanyou (Alkali) Group Ltd.
for the marketing and sale of calcium chloride in Asia, Europe, Africa and the
Middle East. The joint venture, General Chemical Tangshan Sanyou Company Ltd.,
plans to construct a 100,000 ton calcium chloride production facility in China.
The Company idled approximately 500,000 tons per year of synthetic soda ash
production capacity at its Amherstburg, Ontario, Canada facility in April 2001.
The Company continues producing calcium chloride in Amherstburg. The capacity
idled constituted approximately 15% of the Company's total soda ash production
capacity, and all of the Company's synthetic soda ash production capacity. The
Company idled this capacity because it required substantially more resources -
principally energy and necessary capital improvements - for the Company to
manufacture synthetic soda ash at Amherstburg than to manufacture natural soda
ash at its production facility in Green River, Wyoming. The Company shifted
production from its relatively high-cost synthetic soda ash facility in
Amherstburg to its lower-cost natural soda ash facility in Green River, thereby
eliminating cash operating losses incurred in operating the Amherstburg facility
and reducing its exposure to fluctuations in energy prices. The Company has the
flexibility to resume its Amherstburg soda ash operations if market conditions
dictate. Until such time, the Company continues to serve customers of its
Amherstburg soda ash facility from its facility in Green River and, where
appropriate, through resale arrangements with other soda ash producers.
The Company's recent financial performance has been adversely impacted by
lower soda ash prices, rising energy costs and the weaker economic environment.
On March 7, 2001, the Company and its lenders entered into an amendment to the
Company's senior secured credit agreement ("Senior Credit Agreement"), which
provided for more flexible financial covenants for 2001 and 2002 and more
restrictive covenants regarding restricted payments, investments, incurrence of
indebtedness, capital expenditures, sale of assets and related matters. While
the Company was in compliance with the amended financial and other covenants
contained in the Senior Credit Agreement through December 31, 2002, the
amendments to the financial covenants expired on that date. The Company
anticipates that it will not be able to meet the financial covenants that will
be calculated in respect of the Company's financial results for the quarter
ending March 31, 2003, which failure will constitute an event of default under
the Senior Credit Agreement. As a result
2
of the foregoing, the Company's audit report for the fiscal year ended December
31, 2002 contains a "going concern" qualification. The inability of the Company
to deliver to its senior lenders an audit report that does not contain such a
qualification will itself constitute an event of default under the Company's
Senior Credit Agreement.
Any event of default under the Senior Credit Agreement could have a
material adverse effect on our business, results of operations and financial
condition. The occurrence of an event of default under our Senior Credit
Agreement would give our senior lenders the right, among other things, to
declare all amounts outstanding under the Senior Credit Agreement to be
immediately due and payable, together with accrued and unpaid interest. In
addition, if an event of default occurs, our senior lenders would have the right
to block payments of any principal or interest obligation related to our 10 5/8%
Senior Subordinated Notes due 2009 ("Subordinated Notes") or the purchase or
redemption of such obligations. In accordance with the Forbearance and Amendment
Agreement described below, we do not intend to make the interest payment on the
Subordinated Notes that will come due on May 1, 2003. On May 31, 2003, the 30
day grace period with respect to payment defaults on the Subordinated Notes will
expire and the failure to make the May 1, 2003 interest payment by such date
would constitute an event of default under the Subordinated Notes, following
which the holders of 25% in aggregate principal amount of the Subordinated Notes
may accelerate the amounts due under the related Indenture.
On March 25, 2003, we entered into a Forbearance and Amendment Agreement
with the lenders under our Senior Credit Agreement, pursuant to which such
lenders have agreed not to exercise any remedies for the existing defaults
through July 30, 2003 to allow the Company time to pursue a restructuring of
its existing indebtedness. The Company intends to negotiate a restructuring
of its indebtedness with its senior lenders and representatives of the holders
of the Subordinated Notes over the next several months. Such a restructuring
could result in substantial dilution to the Company's existing equity holders.
However, there is no assurance that the Company will be successful in reaching
an agreement with its various lenders on a restructuring plan. If the lenders
were to accelerate maturity of amounts due under the Senior Credit Agreement,
or if the holders of the Subordinated Notes were to accelerate the amounts due
under the Indenture, the Company would not have sufficient funds to repay its
outstanding debt, and the Company would have to explore other strategic
alternatives, including a sale of assets, obtaining alternative sources of
funding or other restructuring alternatives, which would likely have a
material adverse effect on the Company and its business.
The Soda Ash and Calcium Chloride Businesses
Soda Ash
Soda ash is used in the manufacture of glass, sodium-based chemicals,
detergents, paper and other consumer products. It is also used in water
treatment, pulp and paper and other industrial end-use applications.
Approximately one-half of global soda ash demand is attributable to glass
production. The glass production market is comprised of manufacturers of bottles
and other containers, commercial, residential and automobile windows, mirrors,
fiberglass, television tubes, lighting ware, tableware, glassware and laboratory
ware.
The following table sets forth estimated global end-market soda ash
consumption in 2002, by volume (1):
Glass........................................................................54%
Chemicals....................................................................21%
Detergents...................................................................11%
Water treatment and other....................................................14%
- ----------
(1) Developed from industry sources.
Management estimates the total annual world market for soda ash to be
approximately 39 million tons. Management estimates that the Company accounted
for approximately 6% of worldwide production in 2002. All of the soda ash
produced in the United States is natural soda ash, while overseas manufacturers
produce primarily synthetic soda ash. Production of natural soda ash, in which
the Company specializes, requires significantly less energy and raw materials
than synthetic soda ash production, and as a result is a significantly less
costly process. This cost differential allows the Company and other United
States producers to competitively export significant volumes of natural soda ash
to international markets. Management estimates that United States producers
exported 4 million tons of soda ash in 2002. The United States producers export
soda ash primarily through American Natural Soda Ash Company ("ANSAC"), the
export cooperative of United States producers, which enhances the United States
producers' low cost position by leveraging the cooperative's global sales and
marketing operations and creating distribution economies of scale.
Exports. Almost all of the soda ash produced outside the United States is
synthetic soda ash, which involves significantly more energy, labor and raw
materials than the natural refining process used in the United States and, as a
result, its process is significantly more costly. The production cost
differential between natural and synthetic soda ash is generally sufficient to
offset the costs of transporting U.S. produced soda ash into export markets,
allowing the U.S. producers of natural soda ash to compete in most geographic
regions with local sources of synthetically produced soda ash.
3
The Company, along with the other five U.S. producers of natural soda ash,
is a member of ANSAC, a soda ash export cooperative organized in 1984 under an
exemption from U.S. antitrust laws provided under the Webb-Pommerene Act.
Through this cooperative, all six U.S. producers export soda ash to all parts of
the world except Canada and the members of the European Union, where U.S.
producers export soda ash directly. The primary export markets served by ANSAC
are Asia and Latin America and, to a lesser extent, the Middle East, Africa and
Eastern Europe. Each individual member's allocation of ANSAC's volume is based
on the member's total nameplate capacity, with any member's expansion phased-in
over a multi-year period for allocation purposes. ANSAC is the exclusive
distributor of the soda ash of its members; however, subject to certain
limitations, members can distribute soda ash directly to their international
affiliates for their own consumption. One of the U.S. producers, IMC Global, has
announced its intention to withdraw from ANSAC effective January 1, 2004.
Certain countries have from time to time limited or have considered limiting or
prohibiting sales of products through export cooperatives such as ANSAC on
grounds that they are anticompetitive, though the Company is not aware of any
activity in this regard that would be material to its business.
Soda Ash Pricing and Capacity Utilization. The Company's principal product
is soda ash, and the market price of soda ash affects the profitability of the
Company more than any other factor. The market price of soda ash fluctuates and
in recent years has been negatively affected by factors beyond the Company's
control, such as increases in energy and transportation costs, fluctuations in
the global supply of soda ash, decreases in global demand for the consumer
products that require soda ash for their manufacture and the availability and
price of products that can be substituted for soda ash.
Average United States soda ash prices have fallen from $83 per ton in 1996
to $69 per ton in 2002, primarily due to reduced demand and increases in
production capacity, including capacity expansions by existing producers from
late 1996 to late 2000 of approximately 2.4 million tons, and the entry of
American Soda LLC ("American Soda") into the market in 2000.
The following chart indicates the average industry price of U.S. soda ash
per ton and global capacity utilized during the period from 1992 to 2002.
Average Price U.S. Capacity
Year Per Ton(1) Utilization(2)
- ---- ------------- --------------
1992........................................... 81 90
1993........................................... 74 88
1994........................................... 70 91
1995........................................... 74 90
1996........................................... 83 89
1997........................................... 77 91
1998........................................... 75 87
1999........................................... 69 87
2000........................................... 66 88
2001........................................... 68 88
2002........................................... 69(3) 85(3)
- ----------
(1) Based on data from the U.S. Geological Survey (not adjusted for inflation),
FOB production facility.
(2) Based on 95 percent of nameplate capacity as reported by industry sources.
(3) Company estimate.
Soda Ash Capacity Expansions. From 1982 until 1999, no new natural soda ash
plants were built in North America. In the fourth quarter of 2000, the American
Soda plant, which solution mines nahcolite reserves in Rifle, Colorado, began
operation. American Soda's management has estimated that the annual capacity of
their facility will be 1,000,000 tons, although in 2002 the facility produced
approximately 600,000 tons. Since 1982, other than the American Soda facility,
capacity expansion in the United States has taken place through expansion of
existing facilities and improved operating efficiencies with such new natural
soda ash capacity generally being offset by the closure of older, higher-cost
synthetic soda ash plants outside the United States. Since 1982, announced
synthetic soda ash plant closures have included IMC Global's 300,000 ton
facility in Germany, Asahi Glass' 400,000 ton facility in Japan, SE Soda's
200,000 ton facility in Taiwan, and the idling of the Company's 500,000 ton
facility in Amherstburg, Ontario, Canada.
In late 1998 OCI Wyoming L.P. ("OCI") completed an 800,000 ton expansion of
its Green River facility. However, after completion of the expansion, OCI
mothballed 900,000 tons of previously constructed capacity at the facility due
to then current soda ash market conditions. During the fourth quarter of 1999,
FMC Corporation ("FMC") announced it was reducing capacity at its Granger, Green
River facility by 650,000 tons, despite the fact that it had completed a 700,000
ton expansion in 1999. In late 2000, Solvay Minerals completed a 400,000 ton
expansion of its Green River facility. During the second quarter of 2001, FMC
announced it was idling the remaining capacity of 650,000 tons at its Granger,
Green River facility. During 2002, the Company believes OCI restarted 300,000
tons of previously mothballed capacity.
4
Calcium Chloride
Management estimates that annual production of calcium chloride in North
America is approximately 1,200,000 tons. The primary uses for the Company's
calcium chloride--road maintenance and ice removal--are seasonal and weather
dependent. During the summer, the Company's calcium chloride is used in liquid
form on unpaved roads for dust control and roadbed stabilization. During the
winter, the Company's calcium chloride is used in flake and liquid form for ice
removal. The Company primarily markets its calcium chloride to highway and road
maintenance organizations, as well as other industrial and governmental users.
The Company also markets a range of calcium chloride-based products for sidewalk
and driveway de-icing applications through retail home improvement centers.
Competition
Soda Ash
The worldwide soda ash industry is comprised of a number of domestic and
international producers, some of which produce large volumes of soda ash in
multiple geographic regions. Solvay S.A., with natural soda ash operations in
the U.S. through its Solvay Minerals subsidiary, and multiple synthetic soda ash
production facilities in Western and Eastern Europe, is the world's single
largest producer of soda ash, with total estimated capacity of approximately 9.0
million tons. FMC's 1999 acquisition of Tg Soda Ash, Inc. increased FMC's
combined total capacity to more than 4.8 million tons, of which 1.3 million tons
are currently mothballed.
Given the global nature of the soda ash industry and major soda ash
consumers, the Company competes with both international and North American soda
ash producers. The international soda ash producers include Brunner Mond plc,
Penrice Soda Ash Products Pty Ltd., Solvay S.A. and various Eastern European and
Asian producers.
Soda Ash capacity outside of North America in 2002 was as follows:
Capacity in
Region Thousands of Tons(1)
- ------ --------------------
Eastern Europe........................................... 7,300
Western Europe........................................... 7,500
China.................................................... 8,600
Other Asian Countries.................................... 5,300
Rest of World............................................ 1,200
------
Total capacity outside of North America............... 29,900
======
- ----------
(1) Estimated annual nameplate capacity; derived from industry sources.
North American soda ash capacity in 2002 was as follows:
Capacity in
Owner/Managing Partner Location Thousands of Tons(1)
- ---------------------- ---------- --------------------
General Chemical Group...................... Wyoming 2,800(2)
FMC Corporation............................. Wyoming 3,550(3)
Solvay Minerals............................. Wyoming 3,100
OCI Wyoming L.P............................. Wyoming 2,650(4)
IMC Global (5).............................. California 1,500
American Soda LLC .......................... Colorado 650(6)
------
Total North American Capacity............ 14,250
======
- ----------
(1) Estimated annual nameplate capacity; derived from industry sources.
(2) Excludes 500,000 tons of mothballed capacity in Amherstburg, Ontario,
Canada.
(3) Excludes 1,300,000 tons of mothballed capacity.
(4) Excludes 600,000 tons of mothballed capacity.
(5) Currently held by IMC Global through its wholly-owned subsidiary, North
American Chemical Company.
(6) Company estimate.
The soda ash industry also faces competitive pressures from the increased
use of glass substitutes and recycled glass in the container industry.
Competition from increased use of glass substitutes, such as plastic, and
recycled glass in the container industry has
5
had a negative effect on the demand for soda ash. Demand for soda ash in the
container industry has declined from approximately 2,300,000 tons in 1987 to
approximately 1,657,000 tons in 2002. Management believes that the use of
plastic containers will continue to negatively impact the growth in domestic
demand for soda ash.
Calcium Chloride
The Company is the largest producer of calcium chloride in Canada. The
Company's major competitors are The Dow Chemical Company ("Dow Chemical"), TETRA
Technologies, Inc. ("TETRA"), and various local producers in Canada and the
United States. In the United States, the Company is the third largest
distributor of calcium chloride behind Dow Chemical and TETRA, and in Canada the
Company is the largest distributor of calcium chloride. With respect to
capacity, the Company's Amherstburg facility has 450,000 tons of capacity and it
is estimated that Dow Chemical also has 700,000 tons of capacity. The next
largest U.S. producer is TETRA, which operates four plants with estimated total
capacity of 350,000 tons.
In certain markets, calcium chloride competes with a number of substitute
products. For example, in the highway ice control market, calcium chloride
competes with alternative de-icers such as rock salt and magnesium chloride. As
such, the Company also competes with the producers of these substitute products.
Reserves and Control of Resources
The Company mines trona ore under leases with the United States government,
the State of Wyoming and the Anadarko Petroleum Corporation. The Company's trona
reserves and mines are located in the Green River, Wyoming area. In the Green
River basin, the Green River formation was deposited in a lake that began in the
early Eocene geologic period (approximately 35 million years ago) as a large
body of fresh water, shrank in size and became saline, expanded and then became
fresh water again. In general, the sediments deposited during the saline phase
of this lake, which included the trona deposits, are called the Wilkins Peak
Member, and the overlying and underlying fresh water deposits are called the
Laney Shale Member and Tipton Shale Member, respectively.
The Company's estimated proven reserves within bed No. 17, which it is
currently mining, consist of approximately 160 million tons of extractable ore.
At the 2002 operating rate of 2.4 million tons of soda ash per year (4.5 million
tons of trona ore), there is approximately a 36-year supply within bed No. 17.
For the three years ended December 31, 2002, annual production of trona ore
averaged approximately 4.5 million tons. In addition, the Company's estimated
recoverable reserves contain three other major mineable trona beds containing
approximately 437 million tons of extractable ore. These beds, which may require
significant capital to access, will provide approximately 97 years of added
reserves based on current operating rates.
The Company's Amherstburg, Ontario, Canada calcium chloride operation
obtains its brine requirements from brine wells in Amherstburg and Manistee and
also under a third party supply contract. The Company cannot give any assurance
that if its access to its brine sources are interrupted it will be able to
secure alternative sources in a timely manner and on satisfactory terms, if at
all. The Company's failure to do so would hinder its ability to manufacture
calcium chloride at its Amherstburg facility and would have a material adverse
effect on its results of operations.
General Chemical (Soda Ash) Partners
Since 1986, the Green River plant has been owned by GCSAP, a partnership of
which the Company is the managing partner. The Company owns a 51 percent equity
interest and ACI International Limited and TOSOH Corporation, through
wholly-owned subsidiaries, respectively, own 25 percent and 24 percent of the
partnership's equity interests. ACI International Limited, a major world
producer of container glass and a customer of GCSAP, is a wholly-owned
subsidiary of Owens-Illinois Inc., a worldwide producer of packaging materials.
Management believes that Owens-Illinois and ACI International as a combined
entity represents one of the largest single purchasers of soda ash with annual
domestic and international requirements of approximately 2 million tons. TOSOH
Corporation is a leading chemical company and distributor of soda ash in the
Japanese market whose operations previously included a 300,000 ton synthetic
soda ash facility in Nanyo, Japan. In 1997, TOSOH Corporation closed its
synthetic soda ash facility and began purchasing soda ash through ANSAC.
The Company has been the managing partner of GCSAP since 1986, when the
partnership was formed. As managing partner, the Company has had and will
continue to have overall responsibility for management of the partnership,
including with respect to all operational, sales, marketing and financial
matters. However, certain significant actions of the partnership must be
approved by a majority, or in certain instances, all of the partners. The
partnership shall terminate on December 31, 2011, unless extended for an
additional five years or unless the partners mutually decide to terminate it at
any time prior to such date.
The partnership agreement requires the partnership to make quarterly cash
distributions to each of the three partners. The partnership agreement also
prohibits the partners from transferring their equity interests or withdrawing
from the partnership without the
6
consent of the other partners. The obligations of each partner are guaranteed by
its parent. Pursuant to a guaranty agreement, each parent company has agreed to
certain restrictions on its ability to sell the stock of its partner subsidiary.
If the parent company of any partner proposes to transfer ownership of its
partner subsidiary, the nontransferring parent companies may either: (1) acquire
the transferred partner, or its partnership interest, pursuant to a right of
first refusal; or (2) require the transferring parent company, or the proposed
purchaser, to acquire the partnership interest held by their own partner
subsidiaries.
If one or both of the Company's partners in GCSAP, Owens-Illinois, or TOSOH
Corporation, were to seek to transfer its interest in GCSAP and the Company did
not or could not exercise its right of first refusal, one or more new partners
could be admitted to the partnership. Any such new partner may have business or
financial objectives for GCSAP that are different from those of the Company.
Partnership with Church & Dwight
GCSAP and Church & Dwight are partners in a partnership that owns trona
reserves. Church & Dwight is the leading United States and worldwide producer of
sodium bicarbonate, commonly known as baking soda, sold under the Arm &
Hammer(R) brand. The trona is mined and processed by GCSAP under a tolling
agreement and all of the soda ash produced is purchased by Church & Dwight under
a sales contract.
Seasonality and Backlogs
Sales of soda ash are generally not seasonal, except for sales to the glass
container industry, which increase significantly in the summer due to stronger
beverage demand. Sales of calcium chloride are concentrated in late spring and
summer for dust control and late fall and winter for de-icing. As a result, the
Company's sales are generally lowest in the first quarter and highest in the
second quarter.
Due to the nature of our business, there are no significant backlogs.
Environmental Matters
The Company's mining and production operations, which have been conducted
at its Green River, Manistee and Amherstburg sites for many years, are subject
to numerous laws and regulations relating to the protection of human health and
the environment in the U.S. and Canada. The Company has an established program
to ensure that its facilities comply with environmental laws and regulations.
However, as a result of its operations, the Company is involved from time to
time in administrative and judicial proceedings and inquiries relating to
environmental matters. In addition, modifications or changes in enforcement of
existing laws and regulations or the adoption of new laws and regulations in the
future, particularly with respect to environmental and safety standards, or
changes in the operation of the Company's business or the discovery of
additional or unknown environmental contamination, could require expenditures
which might be material to the Company's results of operations or financial
condition. For further discussion of the Company's efforts to comply with the
environmental laws and regulations to which its operations are subject, as well
as a discussion of potential liabilities known to the Company under such laws
and regulations, see "Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Environmental Matters".
The Company, as the former parent of GenTek, may under certain
circumstances be found liable for obligations of GenTek related to the use or
transport of hazardous substances or environmental contamination at facilities
of GenTek for periods prior to the Spinoff. On October 11, 2002 GenTek filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Although GenTek has
agreed to indemnify and hold the Company harmless with respect to all such
liabilities and to bear all of the Company's expenses for defending any claims
related to these matters, the Company's results of operations or financial
condition could be materially adversely affected in the event GenTek is unable
or unwilling to perform its indemnification obligations.
On March 13, 2000, the Company's Canadian subsidiary received a letter from
Environment Canada ("EC"). The letter informed the Company that it faces an
alleged violation of the Canadian Fisheries Act, R.S.C., as amended, with
respect to effluent discharges at its Amherstburg, Ontario facility. According
to EC, the Company's chloride level of its effluent discharged to the Detroit
River exceeded permitted levels. The idling of the Amherstburg synthetic soda
ash production facility in April 2001 has improved the quality of the effluent
such that it complies with the Canadian Fisheries Act requirements as of August
2001. For principally this reason, EC notified the Company on June 12, 2002 that
it was closing its investigation into this matter. Because of the foregoing, the
Company does not believe that any additional expenses and/or capital
expenditures will be incurred in connection with this matter which would be
material to the Company's results of operations and/or financial condition.
7
Employees/Labor Relations
As of December 31, 2002, the Company had 735 employees, 241 of whom were
full-time salaried employees, 463 were full-time hourly employees and 31 were
hourly employees working in nonunion facilities.
Three union contracts, covering 463 employees at the Green River, Wyoming
and Amherstburg, Ontario facilities, have durations of three years and were
renewed during 2002.
Set forth below is information with respect to each of the Company's
executive officers and/or key employees.
John M. Kehoe, Jr., 69, is the President and Chief Executive Officer and a
Director of the Company. Since June 1999, Mr. Kehoe has served as the Chairman
of Wheelabrator Technologies Inc., a provider of waste management services that
is part of Waste Management. Mr. Kehoe was the President and Chief Executive
Officer of Wheelabrator Technologies, Inc. from January 1993 to June 1999.
DeLyle W. Bloomquist, 44, is Vice President and Chief Operating Officer of
the Company. Mr. Bloomquist was from 1996 until the Spinoff the Vice President
and General Manager, Industrial Chemicals of General Chemical Corporation.
David S. Graziosi, 37, is Vice President and Chief Financial Officer of the
Company. Mr. Graziosi was the Director of Finance for GenTek Inc. from August
1999 to February 2000. Mr. Graziosi held several financial management positions
in Sun Chemical Group B.V. from August 1996 to August 1999.
John D. Sanford, 49, is Executive Vice President of the Company. Since
April 2000, Mr. Sanford has served as Vice President and Chief Financial Officer
of ProcureNet, Inc., a provider of procurement and supply chain management
services to United States federal government agencies. Between November 1997 and
May 1999, he served as Executive Vice President and Chief Financial Officer of
CDI Corporation, a leading provider of temporary and permanent staffing
services. Prior to November 1997, Mr. Sanford was Senior Vice President and
Chief Financial Officer of Waste Management Inc.
Item 2. Properties
The Company's headquarters is located in Hampton, New Hampshire. The
locations and uses of major properties of the Company are as follows:
Location Use
-------- ---
United States Green River, Wyoming Trona Mine and Manufacturing
Facility
Manistee, Michigan Calcium Chloride Brine Wells
* Hampton, New Hampshire Headquarters
* Parsippany, New Jersey Offices
Canada Amherstburg, Ontario Manufacturing Facility
Brooks, Ontario Calcium Chloride Brine Fields
Drumheller, Ontario Calcium Chloride Brine Fields
* Mississauga, Ontario Offices
Philippines * Manila, Philippines Warehouse and Offices
- ----------
* Leased
Item 3. Legal Proceedings
The Company anticipates that it will not be able to meet the financial
covenants under its Senior Credit Agreement that will be calculated in respect
of the Company's financial results for the quarter ending March 31, 2003. The
failure to comply with these covenants would be an event of default under the
Senior Credit Agreement and our anticipated non-payment of the next interest
payment on our Subordinated Notes would be an event of default under the
Indenture for the Subordinated Notes. We have entered into a Forbearance and
Amendment Agreement as of March 25, 2003 with the lenders under our Senior
Credit Agreement, pursuant to which such lenders have agreed not to exercise any
remedies for the existing defaults through July 30, 2003, and have commenced
negotiations with these lenders and the holders of the Subordinated Notes on a
restructuring of its existing indebtedness. However, if we are unable to reach
agreement on a restructuring plan, our various lenders may determine to exercise
their legal remedies including accelerating obligations under the Senior Credit
Agreement or the Subordinated Notes or commencing a legal action against the
Company.
8
The Company from time to time also becomes involved in claims, litigation,
administrative proceedings and investigations relative to various matters.
Although the amount of any liability that could arise with respect to these
actions cannot be accurately predicted, the opinion of management based upon
currently-available information is that any such liability not covered by
insurance will have no material adverse effect on the Company's results of
operations or financial condition. See also "Item 7 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Environmental
Matters".
Item 4. Submission of Matters to a Vote of Security Holders
No items were submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise, during the fourth quarter of
fiscal 2002.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
The Company's common stock is traded on the Over the Counter (OTC) Bulletin
Board under the symbol "GNMP". The Company's common stock was traded on the New
York Stock Exchange ("NYSE") until July 18, 2001, at which time the NYSE
suspended trading of the Company's common stock. Effective with the open of the
market on July 19, 2001, the Company's common stock began trading over the
counter. In addition, the Company effected a one-for-ten reverse split of its
common stock, effective as of the close of business on July 18, 2001. The
following table shows the high and low recorded trading prices of the Company's
common stock, as reported on the NYSE composite tape and over the counter market
for each of the quarterly periods listed (for pre-July 19, 2001 periods,
adjusted to give effect to the one-for-ten reverse split):
Year Ended December 31, 2001 High Low
- ---------------------------- ------ -----
First Quarter................................................. $11.25 $7.50
Second Quarter................................................ 8.80 4.00
Third Quarter................................................. 3.75 2.00
Fourth Quarter................................................ 4.50 2.40
Year Ended December 31, 2002
- ----------------------------
First Quarter................................................. $ 4.00 $2.75
Second Quarter................................................ 3.60 2.80
Third Quarter................................................. 3.90 1.75
Fourth Quarter................................................ 2.75 0.50
- ----------
At March 1, 2003, there were 157 stockholders of record of the Company's
common stock and 3 stockholders of record of the Company's Class B common stock.
The following table sets forth the securities authorized for issuance under
the Company's equity compensation plan:
Number of securities to Weighted average Number of securities remaining
be issued upon exercise exercise of available for future issuance
of existing options outstanding options {excluding securities reflected in
(a) (b)(1) in (a)} (c)(2)
----------------------- ------------------- ----------------------------------
Plan Category
Equity compensation plans approved by
security holders..................... 230,825 $39.16 201,803
Equity compensation plans not approved
by security holders.................. -- -- --
------- ------ -------
Total................................... 230,825 $39.16 201,803
======= ====== =======
(1) Does not include 11,089 restricted units included in column (a) which have
no exercise price.
(2) The shares listed in column (c) may be issued in the form of Other Stock
Based Awards, which include restricted or unrestricted stock, restricted or
unrestricted stock units or dividend equivalents.
9
Dividends
Since the Spinoff, the Company has not paid a cash dividend and does not
expect that cash dividends will be paid to holders of its Common Stock in the
foreseeable future. In addition, certain restrictions in the Company's debt
instruments limit the ability of the Company to pay dividends.
Item 6. Selected Financial Data
The following selected consolidated financial data of the Company have been
derived from and should be read in conjunction with the Company's Consolidated
Financial Statements.
Years Ended December 31,
---------------------------------------------------------------
1998 1999 2000 2001 2002
-------- -------- -------- -------- ---------
(Dollars in thousands, except per share data)
Statement of Operations Data:
Net revenues..................................... $303,624 $312,617 $296,522 $286,056 $ 277,890
Operating profit (loss).......................... 41,049(1) 30,607(2) (46,352)(3) 11,442(4) 19,427(5)
Minority interest................................ 16,666 12,787 11,180 6,979 12,840
Income (loss) before interest expense and income
taxes ........................................ 24,342(1) 19,159(2) (48,905)(3) 4,361(4) 6,531(5)
Net income (loss)................................ 9,424(1) 4,985(2) (48,529)(3) (11,527)(4) (8,364)(5)
Per Common Share Data:
Net income (loss) basic.......................... $ 4.48(1) $ 2.38(2) $ (23.05)(3) $ (3.70)(4) (2.14)(5)
Net income (loss) diluted........................ 4.31(1) 2.32(2) (23.05)(3) (3.70)(4) (2.14)(5)
Other Data:
Capital expenditures............................. $ 18,498 $ 24,061 $ 20,836 $ 8,436 $ 7,889
Depreciation and amortization.................... 16,999 17,801 19,148 17,084 11,609
Balance Sheet Data (at end of period):
Cash and cash equivalents........................ $ 1,127 $ 26,630 $ 20,815 $ 16,045 $ 13,078
Total assets..................................... 248,714 293,208 251,000 220,191 204,179
Long-term debt................................... -- 150,919 149,314 146,487 144,394
Total equity (deficit)........................... 75,292 (46,893) (96,557) (95,452) (111,830)
- ----------
(1) Includes incremental accruals of $2.3 million ($1.4 million after tax or
$.64 per diluted share) principally related to cost of sales ($.9 million)
for the reclamation of brine wells and selling, general and administrative
expense ($1.4 million) primarily due to product delivery litigation.
(2) Includes a one-time charge of $1.9 million ($1.2 million after tax or $.56
per diluted share) related to the Spinoff.
(3) Includes a one-time gain on the sale of assets of $7.7 million ($6.3
million after tax or $2.99 per diluted share) and a restructuring charge of
$59.8 million ($46.5 million after tax or $22.09 per diluted share) related
to the idling of the synthetic soda ash production capacity in Amherstburg,
Ontario.
(4) Includes a restructuring charge of $1.7 million ($1.7 million after tax or
$.55 per diluted share) related to revised actuarial estimates of employee
termination benefits from the idling of the Amherstburg synthetic soda ash
production capacity.
(5) Includes a restructuring charge of $7.7 million ($7.7 million after tax or
$1.97 per diluted share) related to the closing of the calcium chloride
production facility in Manistee, Michigan.
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company is a leading global producer of soda ash and North American
producer of calcium chloride. The Company produces natural soda ash at its
facility in Green River, Wyoming, and calcium chloride at its facility in
Amherstburg, Ontario. The Company's soda ash is used in the manufacture of
glass, sodium-based chemicals (such as baking soda), detergents, paper,
textiles, food and many other familiar consumer products. The Company's calcium
chloride is used primarily by highway and road maintenance organizations for
dust control and roadbed stabilization during the summer and for de-icing roads
and sidewalks during the winter.
The Company's Green River facility, including the facilities and leases for
mining trona ore, is owned and operated through General Chemical (Soda Ash)
Partners, a partnership in which GCG owns a 51 percent partnership interest and
of which GCG is the managing partner. See "Item 1 -- Business -- General
Chemical (Soda Ash) Partners".
The Company's principal product is soda ash, and the profitability of its
operations is affected by the market price of soda ash more than any other
factor. For a discussion of factors affecting the prices of and demand for soda
ash, see "Item 1 -- Business." Average United States soda ash prices have fallen
from $83 per ton in 1996 to $69 per ton in 2002, due to reduced demand and
increases in production capacity. Average U.S. soda ash prices were $66 in 2000,
$68 in 2001 and $69 in 2002. Recently completed 2003 domestic soda ash supply
contracts include an average decrease in price of $5 per ton. High-energy prices
and concomitantly high transportation costs have negatively impacted the
Company's profitability in recent years.
The Company closed its calcium chloride production facility in Manistee,
Michigan in December 2002 and has consolidated its North American calcium
chloride production at its Amherstburg, Ontario facility. The Company recorded a
pre-tax charge of approximately $7.7 million in the fourth quarter of 2002 in
connection with the closing of its Manistee, Michigan calcium chloride
production facility. This charge included a $6.5 million noncash write-down in
the value of the plant assets, as well as severance and other cash charges of
$1.2 million.
The Company idled approximately 500,000 tons per year of synthetic soda ash
production capacity at its Amherstburg, Ontario, Canada facility in April 2001.
The capacity idled constituted approximately 15% of the Company's total soda ash
production capacity, and all of its synthetic soda ash production capacity. The
Company continues producing calcium chloride at Amherstburg. The Company
recorded a pre-tax charge of approximately $59.8 million in the fourth quarter
of 2000 in connection with the idling of its Amherstburg synthetic soda ash
capacity. This charge included a $43.5 million noncash write-down of the value
of the idled plant assets, as well as severance and other cash charges of
approximately $16.3 million. In the second quarter of 2001, the Company recorded
an additional restructuring charge of $1.7 million for revised actuarial
estimates of employee termination benefits.
The recent decline in the global equity markets has resulted in a decrease
in the value of the assets in our pension plans. The Company recorded a minimum
pension liability of approximately $8.2 million with corresponding reductions in
minority interest of $0.8 million and equity of $7.4 million on December 31,
2002. In addition, based on the value of the assets in our defined benefit
pension plans, we will be required to fund approximately $5.2 million to the
plans in fiscal 2003.
The Company, as the former parent of GenTek, may under certain
circumstances be found liable for obligations of GenTek related to the use or
transport of hazardous substances or environmental contamination at facilities
of GenTek for periods prior to the Spinoff. Although GenTek has agreed to
indemnify and hold the Company harmless with respect to all such liabilities,
GenTek may be unable or unwilling to perform its indemnification obligations as
a consequence of it filing under Chapter 11 of the U.S. Bankruptcy Code on
October 11, 2002. The Company's results of operations or financial condition
could be materially adversely affected by these eventualities.
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the respective notes thereto included in
Item 8 Financial Statements and Supplementary Data.
Covenant Compliance and Restructuring Efforts
On March 7, 2001, the Company and its bank lenders entered into an
amendment to the Company's Senior Credit Agreement, which provided for more
flexible financial covenants for 2001 and 2002 and more restrictive covenants
regarding restricted payments, investments, incurrence of indebtedness, capital
expenditures, sale of assets and related matters. While the Company was in
compliance with the amended financial and other covenants contained in the
Senior Credit Agreement through December 31, 2002, the amendments to the
financial covenants expired on that date. The Company anticipates that it will
not be able to meet the financial
11
covenants that will be calculated in respect of the Company's financial results
for the quarter ending March 31, 2003, which failure will constitute an event of
default under the Senior Credit Agreement. As a result of the foregoing, the
Company's audit report for the fiscal year ended December 31, 2002 contains an
explanatory paragraph regarding the Company's ability to continue as a going
concern. The inability of the Company to deliver to its lenders an audit report
that does not contain such a paragraph will itself constitute an event of
default under the Company's Senior Credit Agreement.
Any event of default under the Senior Credit Agreement could have a
material adverse effect on our business, results of operations and financial
condition. The occurrence of an event of default under our Senior Credit
Agreement would give our senior lenders the right, among other things, to
declare all amounts outstanding under the Senior Credit Agreement to be
immediately due and payable, together with accrued and unpaid interest. In
addition, if an event of default occurs, our senior lenders would have the right
to block payments of any principal or interest obligation related to our
Subordinated Notes or the purchase or redemption of such obligations. In
accordance with the Forbearance and Amendment Agreement described below, we do
not intend to make the interest payment on the Subordinated Notes that will come
due on May 1, 2003. On May 31, 2003, the 30 day grace period with respect to
payment defaults on the Subordinated Notes will expire and the failure to make
the May 1, 2003 interest payment by such date would constitute an event of
default under the Subordinated Notes, following which the holders of 25% in
aggregate principal amount of the Subordinated Notes may accelerate the amounts
due under the related Indenture.
On March 25, 2003, we entered into a Forbearance and Amendment Agreement
with the lenders under our Senior Credit Agreement, pursuant to which such
lenders have agreed not to exercise any remedies for the existing defaults
through July 30, 2003 to allow the Company time to pursue a restructuring of its
existing indebtedness. During the forbearance period the Company has agreed to
restrict its ability to incur additional liens, make payments on account of
indebtedness other than indebtedness under the Senior Credit Agreement or
currently scheduled payments, make any direct or indirect payment on or in
respect of the Subordinated Notes, or request Eurodollar loans with an interest
period of longer than two months. In addition, the Company has agreed to
permanently reduce the total commitments available under our Senior Credit
Agreement to $70 million and to reduce the total commitments during the
forbearance period to the lesser of (i) $60 million or (ii) 115% of the
projected usage under the Senior Credit Agreement for such day according to
a fixed schedule. We are also required under the Forbearance and Amendment
Agreement to meet certain milestones in the progress of our restructuring
efforts.
The Company intends to negotiate a restructuring of its indebtedness with
its senior lenders and representatives of the holders of the Subordinated Notes
over the next several months. Such a restructuring could result in substantial
dilution to the Company's existing equity holders. However, there is no
assurance that the Company will be successful in reaching an agreement with its
various lenders on a restructuring plan. If the lenders were to accelerate
maturity of amounts due under the Senior Credit Agreement, or if the holders of
the Subordinated Notes were to accelerate the amounts due under the Indenture,
the Company would not have sufficient funds to repay its outstanding debt, and
the Company would have to explore other strategic alternatives, including a sale
of assets, obtaining alternative sources of funding or other restructuring
alternatives, which would likely have a material adverse effect on the Company
and its business.
Critical Accounting Policies
The discussion and analysis of the Company's financial condition and
results of operations are based on the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to product returns, bad debts, inventory obsolescence, income taxes,
restructuring costs, retirement and insurance costs, and contingencies and
litigation. Those estimates and assumptions are based on the Company's
historical experience, observance of trends in the industry, and various other
factors that are believed to be reasonable under the circumstances; the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from those estimates under different assumptions or conditions.
The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
The Company provides for the allowance for doubtful accounts when it becomes
likely or known that the financial condition of a customer has deteriorated,
resulting in their inability to make payments. If those conditions change,
changes to the allowance for doubtful accounts may be necessary.
The Company writes down inventory for the estimated difference between the
cost of inventory and the estimated market value based upon assumptions about
future demand and market conditions. If actual future demand or market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
12
The Company records accruals for environmental liabilities, based on
current interpretations of environmental laws and regulations when it is
probable that a liability has been incurred and the amount can be reasonably
estimated. The Company's estimates are based upon reports prepared by
environmental specialists and management's knowledge and experiences with these
environmental matters. If interpretations of applicable laws and regulations and
cleanup methods or the extent of our responsibility change from our current
estimates, revisions to our estimated environmental liability may be required.
The Company records a valuation allowance to reduce deferred tax assets to
an amount that is more likely than not to be realized. While the Company has
considered future taxable income and ongoing tax planning strategies in
assessing the need for a valuation allowance, the Company cannot ensure that
such future events will occur. In the event that the Company determines that the
Company will not be able to realize all or portion of our deferred tax assets,
an adjustment to reduce assets and increase deferred tax expense would be
recorded.
Although the Company considers these policies to require management's more
complex estimates and assumptions, you may refer to "Item 8 - Financial
Statements and Supplementary Data - Note 2 - Summary of Significant Accounting
Policies" for a description of the Company's accounting policies necessary for a
complete understanding of the Company's financial statements.
Results of Operations
The following table sets forth statement of operations data for each of the
three years ended December 31, 2000, 2001 and 2002 and the corresponding
percentage of the net revenues for the relevant periods presented.
Years Ended December 31,
--------------------------------------------------------------
2000 2001 2002
--------------- ------------------------ ----------------
(Dollars in millions)
Net revenues .................................. $296.5 100% $286.1 100% $277.9 100%
Gross profit .................................. 30.4 10 30.1 11 43.0 15
Selling, general and administrative expense ... 17.0 6 16.9 6 15.8 6
Restructuring charge .......................... 59.8 20 1.7 1 7.7 3
Operating profit (loss) ....................... (46.4)(1) 16 11.4 (2) 4 19.4(3) 7
Interest expense .............................. 15.9 5 15.6 6 14.9 5
Minority interest ............................. 11.2 4 7.0 2 12.8 5
Net loss ...................................... (48.5)(1) 16 (11.5)(2) 4 (8.4)(3) 3
- ----------
1) Includes a one-time gain on the sale of assets of $7.7 million ($6.3
million after tax), and restructuring charge of $59.8 million ($46.5
million after tax) related to the idling of the synthetic soda ash
production capacity in Amherstburg, Ontario.
2) Includes a restructuring charge of $1.7 million ($1.7 million after tax)
related to revised actuarial estimates of employee termination benefits
from the idling of the Amherstburg synthetic soda ash production capacity.
3) Includes a restructuring charge of $7.7 million ($7.7 million after tax)
related to the closing of the calcium chloride production facility in
Manistee, Michigan.
2002 as Compared with 2001
Net revenues for 2002 were $277.9 million, which was $8.2 million, or 2.9
percent below the prior year level. Net revenues were negatively affected by
lower soda ash volumes due to the April 2001 idling of the Company's synthetic
soda ash production capacity in Amherstburg, Ontario, Canada, as well as lower
calcium chloride volumes due to warm winter weather partially offset by higher
domestic soda ash prices.
Gross profit for 2002 was $43.0 million compared with $30.1 million in
2001. Gross profit as a percentage of net revenues for 2002 increased to 15.5
percent from 10.5 percent for 2001. These increases were primarily due to lower
operating costs resulting from the April 2001 idling of the Company's synthetic
soda ash production capacity, lower energy costs and depreciation expense, and
higher domestic soda ash prices, partially offset by lower calcium chloride
volumes, and higher calcium chloride feedstock costs. In addition, the prior
year includes costs incurred to start up operations at the Company's Manistee,
Michigan calcium chloride facility which was subsequently closed in December
2002.
Selling, general and administrative expense as a percentage of net revenues
for 2002 was 5.7 percent as compared to 5.9 percent in 2001.
Restructuring charge of $7.7 million in 2002 was due to the closure of the
Company's calcium chloride production facility in Manistee, Michigan.
13
Restructuring charge of $1.7 million in 2001 was due to revised actuarial
estimates of employee termination benefits for the April 2001 idling of the
Company's synthetic soda ash production capacity.
Interest expense for 2002 was $14.9 million, which was $0.7 million lower
than the comparable prior period level primarily due to lower borrowing rates
partially offset by costs to amend the Company's Senior Credit Agreement and an
increase in borrowings under the credit facility.
Minority interest for 2002 was $12.8 million, versus $7.0 million for 2001.
The increase reflects higher earnings at General Chemical (Soda Ash) Partners
primarily due to higher domestic soda ash prices, lower energy costs and
depreciation expense.
Net loss was $8.4 million for 2002, versus a net loss of $11.5 million for
2001, for the foregoing reasons.
2001 as Compared with 2000
Net revenues for 2001 were $286.1 million, which was $10.4 million, or 3.5
percent below the prior year level. Net revenues were negatively affected by
lower soda ash volumes due to the April 2001 idling of the Company's synthetic
soda ash production capacity in Amherstburg, Ontario, Canada, as well as lower
calcium chloride volumes due to reduced export demand partially offset by higher
calcium chloride prices.
Gross profit for 2001 was $30.1 million compared with $30.4 million in
2000. Gross profit as a percentage of net revenues for 2001 increased to 10.5
percent from 10.3 percent for 2000. This increase in gross profit as a
percentage of net revenues was primarily due to higher calcium chloride prices
and lower operating costs resulting from the April 2001 idling of the Company's
Amherstburg soda ash facility partially offset by higher energy costs at General
Chemical (Soda Ash) Partners as well as 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 2001 was 5.9 percent as compared to 5.7 percent in 2000.
Restructuring charge of $1.7 million in 2001 was due to revised actuarial
estimates of employee termination benefits for the April 2001 idling of the
Company's synthetic soda ash production capacity in Amherstburg, Ontario,
Canada.
Interest expense for 2001 was $15.6 million, which was $0.3 million lower
than the comparable prior period level primarily due to lower borrowing rates
partially offset by costs to amend the Company's Senior Credit Agreement.
Minority interest for 2001 was $7.0 million, versus $11.2 million for 2000.
The decrease reflects lower earnings at General Chemical (Soda Ash) Partners
primarily due to higher energy costs.
Net loss was $11.5 million for 2001, versus a net loss of $48.5 million for
2000, for the foregoing reasons.
Liquidity and Capital Resources
Cash and cash equivalents were $13.1 million at December 31, 2002 compared
with $16.0 million at December 31, 2001. During 2002 the Company provided cash
flow from operating activities of $4.9 million and used cash of $7.9 million for
capital expenditures.
The Company had working capital of $44.7 million at December 31, 2002 as
compared with $51.4 million at December 31, 2001. The decrease in working
capital principally reflects higher accounts payable and lower deferred income
taxes and cash balances partially offset by higher inventories and receivables
and lower accrued liabilities.
The Company's liquidity needs arise primarily from working capital
requirements, capital expenditures and interest and principal payment
obligations. The Company satisfies its liquidity needs from cash flow from
operations and short-term borrowings under its Senior Credit Agreement.
Accordingly, the Company's ability to satisfy its capital requirements will be
dependent upon future 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. The Company has borrowed, and
expects to borrow, from time to time under its Senior Credit Agreement for
working capital needs resulting from the seasonality of its calcium chloride
business. The Company's ability to borrow under its Senior Credit Agreement is
subject to certain conditions including the Company's compliance with its
financial covenants and the terms of the Forbearance and Amendment Agreement.
14
While the Company was in compliance with the amended financial and other
covenants contained in the Senior Credit Agreement through December 31, 2002,
the Company anticipates that it will not be able to meet the financial covenants
that will be calculated in respect of the Company's financial results for the
quarter ending March 31, 2003, which failure will constitute an event of default
under the Senior Credit Agreement. As a result of the foregoing, the Company's
audit report for the fiscal year ended December 31, 2002 contains an explanatory
paragraph regarding the Company's ability to continue as a going concern. The
inability of the Company to deliver to its senior lenders an audit report that
does not contain such a paragraph will itself constitute an event of default
under the Company's Senior Credit Agreement. The Company's failure to meet such
covenant requirements will result in the Senior Credit Agreement becoming
callable by the lenders. In addition, in accordance with the Forbearance and
Amendment Agreement described below we are not permitted to make payments on
our Subordinated Notes, and failure to pay within the grace period for the next
payment date would constitute an event of default causing the Subordinated Notes
to be callable as well. If the Company fails to be in compliance with its
financial or other covenants under the Senior Credit Agreement or if the
borrowings under that facility are called by the lenders, counterparties to the
Company's interest rate swap agreement will have the right to require the
Company to cash settle this agreement by paying fair value to the
counterparties.
On March 25, 2003, we entered into a Forbearance and Amendment Agreement
with the lenders under our Senior Credit Agreement, pursuant to which such
lenders have agreed not to exercise any remedies for the existing defaults
through July 30, 2003 to allow the Company time to pursue a restructuring of its
existing indebtedness.
The Company's seasonal working capital requirements are expected to result
in peak borrowing needs during June and July of 2003. The Forbearance and
Amendment Agreement allows the Company to borrow up to the lesser of (i) $60
million or (ii) 115% of the projected usage under the Senior Credit Agreement
for such day according to a fixed schedule through the end of the forbearance
period on July 30, 2003. The Company also anticipates fees and expenses
associated with its restructuring efforts of approximately $7.0 million. In
addition, the Company paid a fee equal to .50% of the total commitments to the
senior lenders for their forbearance and increased the applicable margins for
loans under the Senior Credit Agreement. The Company's ongoing liquidity will
depend upon a number of factors, including our ability to develop and implement
a restructuring plan, available cash resources, cash flows from operations, and
proceeds from the sale of assets, if any. As part of its restructuring efforts,
the Company has commenced discussions with its lenders towards amending its
Senior Credit Agreement and restructuring its obligations under the
Subordinated Notes. If these discussions do not result in an acceptable
amendment or restructuring of our existing indebtedness, or if our expectations
regarding any of the other factors enumerated above are not realized, we may be
required to reduce capital expenditures, sell additional assets, restructure all
or a portion of our existing debt or obtain alternative sources of financing.
However, there can be no assurance that alternative sources of financing will be
available or at terms which are favorable to the Company. These conditions,
together with the Company's net loss in fiscal 2002, raise substantial doubt
about the Company's ability to continue as a going concern. The Company's
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
liabilities that may result from the outcome of this uncertainty. To the extent
that the relevant debt covenants are not amended or the respective debt is
accelerated or not otherwise restructured or refinanced prior to the issuance of
the Company's quarterly report on Form 10-Q for the quarter ending June 30,
2003, a significant portion of the Company's debt will be classified as a
current liability.
On April 30, 1999, the Company completed the offering of $100 million 10
5/8% Senior Subordinated Notes, due 2009. Approximately $80 million of the net
proceeds were used to fund a distribution to GenTek prior to the Spinoff and the
balance for general corporate purposes. In addition, concurrent with the
Spinoff, the Company entered into the Senior Credit Agreement, due 2004 with an
original capacity of $85 million. As part of the Forbearance and Amendment
Agreement to the Company's Senior Credit Agreement, the maximum amount that the
Company may borrow under its Senior Credit Agreement during 2003 was permanently
reduced to $70 million and further reduced during the forbearance period to up
to the lesser of (i) $60 million or (ii) 115% of the projected usage under the
Senior Credit Agreement for such day according to a fixed schedule through the
end of the forbearance period on July 30, 2003.
The Company is significantly leveraged and, absent the restructuring, will
not have the operating cash flow to service its long-term debt. At December 31,
2002, outstanding indebtedness consisted of $100 million of Subordinated Notes,
$44.4 million outstanding under the Senior Credit Agreement and $2.3 million of
letters of credit. 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 Subordinated Notes Indenture and Credit
Facility Agreement 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.
In addition, pursuant to the Forbearance and Amendment Agreement, the
Company agreed to restrict its ability to incur additional liens, make payments
on account of indebtedness other than indebtedness under the Senior Credit
Agreement or currently
15
scheduled payments, make any direct or indirect payment on or in respect of the
Subordinated Notes, or request Eurodollar loans with an interest period of
longer than two months.
The Company uses supplier contracts related to future natural gas
requirements. The objective is to limit the fluctuations in prices paid and the
potential volatility in earnings or cash flows from future price movements.
The Company is required to restore certain land to its pre-existing state
upon ceasing of operations or federal enforcement. In addition, these
liabilities have been collateralized through self-bonding and surety bonds with
third party insurers, although the Company will be required to reimburse the
insurers upon their payment of amounts due under the bonds for the restoration
of land. The Company has recorded liabilities for this restoration in the
accompanying financial statements.
Future minimum rental payments for operating leases (primarily for
transportation equipment, mining equipment, offices and warehouses) having
initial or remaining noncancellable lease terms in excess of one year as of
December 31, 2002 are as follows (in thousands):
Years Ending December 31,
- -------------------------
2003................................... $10,851
2004................................... 9,555
2005................................... 8,299
2006................................... 6,794
2007 .................................. 5,007
Thereafter............................. 9,022
The recent decline in the global equity markets has resulted in a decrease
in the value of the assets in our defined benefit pension plans. This decline
will likely adversely affect our related accounting results in future periods
through higher pension expense, additional minimum liabilities with
corresponding reductions in equity, and increased cash funding requirements. In
addition, the Company may incur higher expense related to our postretirement
health plans as a result of higher health care cost trends.
The Company recorded a minimum pension liability of approximately $8.2
million with corresponding reductions in minority interest of $0.8 million and
equity of $7.4 million on December 31, 2002.
Future estimated cash contributions to fund the Company's defined benefit
pension plans are as follows (in thousands):
Years Ending December 31,
- -------------------------
2003................................... $ 5,226
2004................................... 8,718
2005................................... 10,663
2006................................... 11,176
2007 .................................. 9,830
Related Party Agreements
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 $1.6 million, $1.6
million, and $1.7 million in 2000, 2001 and 2002, respectively.
The Company and GenTek entered into various transition support agreements
that provide mechanisms for an orderly transition after the Spinoff. For the
years ended December 31, 2000, 2001 and 2002, the Company paid GenTek $1.7
million, $1.4 million, and $1.4 million related to these transition support
agreements.
GenTek provides the Company with management information services, and
subleases to it office space in Parsippany, New Jersey used as its operations
headquarters, pursuant to agreements entered into at the Spinoff . On October
11, 2002, GenTek filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. If GenTek becomes unable to meet its obligations under these
agreements, the Company would have to obtain our management information services
and office space from third parties. The Company is developing a contingency
plan in the event GenTek terminates these agreements. No assurances can be given
as to the timely and cost effective replacement of management information
services.
The Company supplies soda ash and calcium chloride to GenTek. For the years
ended December 31, 2000, 2001 and 2002, sales
16
to GenTek amounted to $4.4 million, $4.0 million, and $2.8 million,
respectively.
Environmental Matters
The Company's mining and production operations, which have been conducted
at its Green River, Manistee and Amherstburg sites for many years, are subject
to numerous laws and regulations relating to the protection of human health and
the environment in the U.S. and Canada. The Company has an established program
to ensure that its facilities comply with environmental laws and regulations.
However, as a result of its operations, the Company is involved from time to
time in administrative and judicial proceedings and inquiries relating to
environmental matters. In addition, modifications or changes in enforcement of
existing laws and regulations or the adoption of new laws and regulations in the
future, particularly with respect to environmental and safety standards, or
changes in the operation of the Company's business or the discovery of
additional or unknown environmental contamination could require expenditures
which might be material to the Company's results of operations or financial
condition.
On March 13, 2000, the Company's Canadian subsidiary received a letter from
Environment Canada ("EC"). The letter informed the Company that it faces an
alleged violation of the Canadian Fisheries Act, R.S.C., as amended, with
respect to effluent discharges at its Amherstburg, Ontario facility. According
to EC, the Company's chloride level of its effluent discharged to the Detroit
River exceeded permitted levels. The idling of the Amherstburg synthetic soda
ash production in April 2001 has improved the quality of the effluent such that
it complies with the Canadian Fisheries Act requirements as of August 2001. For
principally this reason, EC notified the Company on June 12, 2002 that it was
closing its investigation into this matter. Because of the foregoing, the
Company does not believe that any additional expenses and/or capital
expenditures will be incurred in connection with this matter which would be
material to the Company's results of operations and/or financial condition.
Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations and No. 142, Goodwill and Other Intangible Assets. SFAS 141
requires that all business combinations initiated after June 30, 2001, be
accounted for using the purchase method of accounting. In addition, it further
clarifies the criteria for recognition of intangible assets separately from
goodwill. The Company adopted this statement effective July 1, 2001. SFAS 142
establishes new standards for goodwill acquired in a business combination and
eliminates the amortization of goodwill over its estimated useful life. Rather,
goodwill will now be tested for impairment annually, or more frequently if
circumstances indicate potential impairment, by applying a fair value based
test. The Company adopted this statement effective January 1, 2002. The adoption
of this standard did not have a material impact on the Company's financial
position or results of operations.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. The Company adopted SFAS 143 effective January 1, 2001.
The adoption of this standard did not have a material impact on the Company's
financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. SFAS 144 supersedes FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. SFAS 144 retains the fundamental provisions of SFAS 121 for (a)
recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to be disposed of by sale. The
Company adopted this statement effective January 1, 2002. The adoption of this
standard did not have a material impact on the Company's financial position or
results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
4, 44 and 64, Amendment of FASB Statement 13, and Technical Corrections. SFAS
145 rescinds the provisions of SFAS 4 that requires companies to classify
certain gains and losses from debt extinguishments as extraordinary items,
eliminates the provisions of SFAS 44 regarding transition to the Motor Carrier
Act of 1980 and amends the provisions of SFAS 13 to require that certain lease
modifications be treated as sale leaseback transactions. The provisions of SFAS
145 related to classification of debt extinguishment are effective for fiscal
years beginning after May 15, 2002. Commencing January 1, 2003, the Company will
classify debt extinguishment costs within income from operations. The provisions
of SFAS 145 related to lease modifications are effective for transactions
occurring after May 15, 2002. The Company does not expect the provisions of SFAS
145 related to lease modifications to have a material impact on its financial
position or results of operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146
17
nullifies Emerging Issues Task Force ("EITF") No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The principal difference
between SFAS 146 and EITF 94-3 relates to its requirements for recognition of a
liability for a cost associated with an exit or disposal activity. SFAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability for an exit cost was recognized at the date of an entity's commitment
to an exit plan. SFAS 146 is effective for exit and disposal activities that are
initiated after December 31, 2002. The Company does not expect the provisions of
SFAS 146 to have a material impact on its financial position or results of
operations.
In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company is required to implement SFAS 148
in fiscal 2003 and certain disclosure provisions for the year ended December 31,
2002. The Company does not expect the provisions of SFAS 148 to have a material
impact on its financial position or results of operations.
In November 2002, FASB Interpretation ("FIN") 45, Guarantor's Accounting
And Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, was approved by the FASB. FIN 45 clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of this interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The interpretation also requires enhanced and additional
disclosures of guarantees in financial statements ending after December 15,
2002. In the normal course of business, the Company does not issue guarantees,
accordingly this interpretation has no effect on the financial statements.
Forward-Looking Statements
This Annual Report includes forward-looking statements. All statements
other than statements of historical facts included in this Annual Report may
constitute forward-looking statements. The Company has based these
forward-looking statements on its current expectations and projections about
future events. Although it believes that the assumptions made in connection with
the forward-looking statements are reasonable, there can be no assurances that
its assumptions and expectations will prove to have been correct. These
forward-looking statements are subject to various risks, uncertainties and
assumptions including, among other things:
o The Company's ability to reach agreement with its various lenders on
amending or restructuring its existing debt and successfully
implementing a restructuring plan;
o If the Company is unable to reach agreement on or implement a
restructuring plan; the Company may become the subject of adverse
legal proceedings;
o The Company's outstanding indebtedness and its leverage, and the
restrictions imposed by its indebtedness and the Company's ability to
comply with these restrictions;
o The Company's ability to obtain or develop sufficient calcium chloride
brine sources on satisfactory terms;
o Fluctuations in the world market price for soda ash due to changes in
supply and demand;
o Fluctuations in prices for calcium chloride in North America due to
changes in supply and demand;
o Increases in the Company's energy, transportation or labor costs;
o Future modifications to existing laws and regulations affecting the
environment, health and safety;
o Discovery of unknown contingent liabilities, including environmental
contamination at its facilities, and
o The Company' s ability to complete and start-up a calcium chloride
joint venture in China.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this Annual Report might not occur.
18
Item 7a. 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 Senior Credit Agreement as interest is based on a floating rate. At
December 31, 2002 the Company had $44.4 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. As of fiscal 2001, the Company also had $46.5 million in
borrowings under the Senior Credit Agreement that had a floating interest rate.
Accordingly, as of fiscal 2001 a 1% change in the floating rate would have
resulted 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.
In October 2002, the Company entered into an interest rate swap agreement
with a total notional amount of $8.8 million that qualifies and is designated as
a cash flow hedge in accordance with SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. The swap agreement matures in April 2004 and
was executed in order to convert a portion of the Senior Credit Agreement
floating-rate debt into fixed-rate debt, maintain a capital structure containing
appropriate amounts of fixed and floating-rate debt, and reduce net interest
payments and expense in the near-term. The Company has recorded the change in
fair value of this interest rate swap at December 31, 2002 as a component of
other comprehensive income. At December 31, 2002, a 10 percent change in
interest rate structure would not materially change the fair value of the
interest rate swap.
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.
Item 8. Financial Statements and Supplementary Data
19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
THE GENERAL CHEMICAL GROUP INC.:
We have audited the accompanying consolidated balance sheets of The General
Chemical Group Inc. and subsidiaries (the "Company") as of December 31, 2001 and
2002, and the related consolidated statements of operations, changes in equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 2002. Our audits also included the financial statement schedule
listed in the Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The General Chemical Group Inc.
and subsidiaries as of December 31, 2001 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying consolidated financial statements for the year ended
December 31, 2002 have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 1 to the consolidated financial
statements, the Company's ability to maintain compliance with its debt covenants
during 2003 raises substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 13, 2003
(except for Note 12 as to which the date is March 25, 2003)
20
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
-------------------------------------
2000 2001 2002
-------- -------- --------
(In thousands, except per share data)
Net revenues .............................................. $296,522 $286,056 $277,890
Cost of revenues .......................................... 266,080 255,991 234,914
Selling, general and administrative expense ............... 16,992 16,902 15,849
Restructuring charge ...................................... 59,802 1,721 7,700
-------- -------- --------
Operating profit (loss) ................................... (46,352) 11,442 19,427
Interest expense .......................................... 15,921 15,590 14,865
Gain on sale of assets .................................... 7,671 -- --
Interest income ........................................... 1,302 960 320
Foreign currency transaction losses ....................... 24 931 270
Other expense, net ........................................ 322 131 106
-------- -------- --------
Income (loss) before minority interest and income taxes ... (53,646) (4,250) 4,506
Minority interest ......................................... 11,180 6,979 12,840
-------- -------- --------
Loss before income taxes .................................. (64,826) (11,229) (8,334)
Income tax provision (benefit) ............................ (16,297) 298 30
-------- -------- --------
Net loss ............................................... $(48,529) $(11,527) $ (8,364)
======== ======== ========
Loss per common share:
Basic .................................................. $ (23.05) $ (3.70) $ (2.14)
======== ======== ========
Diluted ................................................ $ (23.05) $ (3.70) $ (2.14)
======== ======== ========
See the accompanying notes to consolidated financial statements.
21
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------
2001 2002
-------- ---------
(In thousands, except
share data)
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 16,045 $ 13,078
Receivables, net ................................................ 48,616 49,392
Inventories ..................................................... 25,813 28,248
Deferred income taxes ........................................... 6,934 --
Other current assets ............................................ 5,485 5,881
-------- ---------
Total current assets ......................................... 102,893 96,599
Property, plant and equipment, net ................................. 100,365 91,062
Other assets ....................................................... 16,933 16,518
-------- ---------
Total assets ................................................. $220,191 $ 204,179
======== =========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable ................................................ $ 21,177 $ 22,680
Accrued liabilities ............................................. 30,355 29,266
-------- ---------
Total current liabilities .................................... 51,532 51,946
Long-term debt ..................................................... 146,487 144,394
Other liabilities .................................................. 78,641 86,522
-------- ---------
Total liabilities ............................................ 276,660 282,862
-------- ---------
Minority interest .................................................. 38,983 33,147
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 3,382,543 shares at
December 31, 2001 and 2002, respectively ..................... 33 34
Class B Common Stock, $.01 par value; authorized 4,000,000
shares; issued and outstanding: 700,639 shares
at December 31, 2001 and 2002, respectively .................. 7 7
Capital (deficit) ............................................... (94,748) (94,748)
Accumulated other comprehensive loss ............................ (1,428) (9,443)
Retained earnings ............................................... 33,936 25,572
Treasury stock, at cost: 174,189 and 179,383 shares at
December 31, 2001 and 2002, respectively ..................... (33,252) (33,252)
-------- ---------
Total equity (deficit) ....................................... (95,452) (111,830)
-------- ---------
Total liabilities and equity (deficit) ....................... $220,191 $ 204,179
======== =========
See the accompanying notes to consolidated financial statements.
22
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------
2000 2001 2002
-------- -------- -------
(In thousands)
Cash flows from operating activities:
Net loss ................................................... $(48,529) $(11,527) $(8,364)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization .............................. 19,148 17,084 11,609
Deferred income tax ........................................ (8,163) 2,446 5,042
Net loss on disposition of long-term assets ................ 33,795 289 6,317
Decrease (increase) in receivables ......................... (902) 10,256 (776)
Decrease (increase) in inventories ......................... 3,584 (4,106) (2,435)
Increase (decrease) in accounts payable .................... 4,472 (10,920) 1,503
Increase (decrease) in accrued liabilities ................. 12,172 (12,240) (1,089)
Increase (decrease) in other liabilities and assets, net ... (8,269) 4,992 (1,080)
Decrease in minority interest .............................. (633) (2,463) (5,836)
-------- -------- -------
Net cash provided by (used in) operating activities 6,675 (6,189) 4,891
-------- -------- -------
Cash flows from investing activities:
Capital expenditures ....................................... (20,836) (8,436) (7,889)
Proceeds from sales or disposals of long-term assets ....... 8,080 -- --
-------- -------- -------
Net cash used for investing activities .................. (12,756) (8,436) (7,889)
-------- -------- -------
Cash flows from financing activities:
Borrowings under credit facility ........................... -- -- 5,106
Repayment of credit facility ............................... -- -- (5,076)
Proceeds from sales of stock ............................... -- 9,655 --
Other financing activities ................................. 266 200 1
-------- -------- -------
Net cash provided by financing activities ............... 266 9,855 31
-------- -------- -------
Decrease in cash and cash equivalents ......................... (5,815) (4,770) (2,967)
Cash and cash equivalents at beginning of period .............. 26,630 20,815 16,045
-------- -------- -------
Cash and cash equivalents at end of period .................... $ 20,815 $ 16,045 $13,078
======== ======== =======
Cash refunded for income taxes, net of payments ............ $ 1,460 $ 8,272 $ 6,288
======== ======== =======
Cash paid for interest ..................................... $ 14,786 $ 14,668 $13,494
======== ======== =======
See the accompanying notes to consolidated financial statements.
23
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
For the three years ended December 31, 2002
Accumulated
Class B Other
Common Common Treasury Capital Comprehensive Retained Comprehensive
Stock Stock Stock Deficit Loss Earnings Total Income (Loss)
------ ------- -------- --------- ------------- -------- --------- -------------
(In thousands, except per share data)
Balance at December 31, 1999 .... $19 $ 4 $(33,246) $(104,858) $(2,804) $ 93,992 $ (46,893)
Net loss ..................... -- -- -- -- -- (48,529) (48,529) $(48,529)
Foreign currency translation . -- -- -- -- (1,401) -- (1,401) (1,401)
--------
Comprehensive loss ........... -- -- -- -- -- -- -- $(49,930)
========
Restricted Unit Plan grants,
cancellations, tax benefits
and other ................. -- -- -- 272 -- -- 272
Purchase of Treasury stock ... -- -- (6) -- -- -- (6)
--- --- -------- --------- ------- -------- ---------
Balance at December 31, 2000 .... 19 4 (33,252) (104,586) (4,205) 45,463 (96,557)
Net loss ..................... -- -- -- -- -- (11,527) (11,527) $(11,527)
Foreign currency translation . -- -- -- -- 2,777 -- 2,777 2,777
--------
Comprehensive loss ........... -- -- -- -- -- -- -- $ (8,750)
========
Restricted Unit Plan grants,
cancellations, tax benefits
and other ................. -- -- -- 200 -- -- 200
Rights Offering .............. 14 3 -- 9,638 -- -- 9,655
--- --- -------- --------- ------- -------- ---------
Balance at December 31, 2001 .... 33 7 (33,252) (94,748) (1,428) 33,936 (95,452)
Net loss ..................... -- -- -- -- -- (8,364) (8,364) $ (8,364)
Foreign currency translation . -- -- -- -- (521) -- (521) (521)
Change in net unrealized loss on
derivative instrument ..... -- -- -- -- (54) -- (54) (54)
Minimum premium liability
adjustment ................ -- -- -- -- (7,440) -- (7,440) (7,440)
--------
Comprehensive loss ........... -- -- -- -- -- -- -- $(16,379)
========
Restricted Unit Plan grants,
cancellations, tax benefits
and other ................. 1 -- -- -- -- 1
--- --- -------- --------- ------- -------- ---------
Balance at December 31, 2002 .... $34 $ 7 $(33,252) $ (94,748) $(9,443) $ 25,572 $(111,830)
=== === ======== ========= ======= ======== =========
See the accompanying notes to consolidated financial statements.
24
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
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, General Chemical Group completed the separation of its
Manufacturing and Performance Products businesses from its soda ash and calcium
chloride businesses through a spinoff (the "Spinoff"), which the Company
effected by distributing the stock of GenTek Inc. ("GenTek"), its wholly-owned
subsidiary, on a pro rata basis to its shareholders. As a result of the Spinoff,
GenTek became a separate company.
The Company's recent financial performance has been negatively impacted by
lower soda ash pricing, rising energy costs and the weaker economic environment.
The Company is in compliance with its financial and other covenants contained
in its Revolving Credit Facility as of December 31, 2002. However, management
anticipates that it will not be in compliance with certain financial covenants
contained in its credit facility for the quarter ending March 31, 2003. The
Company's failure to meet such debt covenant requirements will result in the
Company's long-term debt becoming callable by the Company's lenders. The Company
has commenced discussions with its lenders towards restructuring its existing
indebtedness. If these discussions do not result in an acceptable restructuring
plan, the Company will not have sufficient funds to repay its outstanding
debt, and would explore alternative sources of financing. However, there can be
no assurance that alternative sources of financing will be available or on terms
which are favorable to the Company. The consolidated financial statements have
been prepared assuming that the Company will continue as a going concern and do
not include any adjustments that might result from the outcome of this
uncertainty. See Note 12 -- Long-Term Debt for further discussion.
The Company effected a one-for-ten reverse split of its common stock,
effective as of the close of business on July, 18, 2001. The accompanying
financial statements reflect the one-for-ten reverse split for all periods
presented.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Note 2 -- Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the results of
operations and financial position of the Company, including wholly-owned
subsidiaries and General Chemical (Soda Ash) Partners ("GCSAP") of which the
Company owns 51 percent. Minority interests relate solely to partnerships,
primarily GCSAP, in which the Company has a controlling interest. Intercompany
balances and transactions are eliminated in consolidation.
Included in other current assets at December 31, 2001 and 2002 are taxes
receivable of $3,644 and $3,537, respectively.
At each period end the Company assesses the recoverability of its deferred
tax assets by reviewing a number of factors including operating trends, future
projections and taxable income to determine whether a valuation allowance is
required to reduce such deferred tax assets to an amount that is more likely
than not to be realized. At December 31, 2002 the Company has reviewed its
deferred tax assets and believes that the valuation allowance reduces such
assets to an amount that is more likely than not to be realized.
Inventories are valued at the lower of cost or market, using the last-in,
first-out ("LIFO") method for most domestic production inventories and the
first-in, first-out ("FIFO") or average-cost method for all other inventories.
Production inventory costs include material, labor and factory overhead.
Certain property, plant and equipment are carried at cost and are
depreciated using the straight-line method, using estimated lives which range
from 2 to 30 years. Mines and machinery and equipment of GCSAP are depreciated
using the units-of-production method. Approximately 84 percent of machinery and
equipment and 100 percent of mines and quarries are depreciated using the
units-of-production method.
25
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands, except share data)
The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying value of these assets against the estimated
future cash flows associated with them. At the time such evaluations indicate
that the future cash flows are not sufficient to recover the carrying value of
such assets, the assets are adjusted to their fair values.
Deferred financing costs associated with various debt issues are being
amortized over the terms of the related debt using the effective interest
method.
The Company provides for the expected costs to be incurred for the eventual
reclamation of properties pursuant to local law. Reclamation costs are being
accrued in accordance with Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations. Included in long-term liabilities
at December 31, 2001 and 2002 are accruals of $26,396 and $26,819, respectively,
related to these asset retirement obligations. Accretion expense for the years
ended December 31, 2001 and 2002 was $264 and $259, respectively.
The Company recognized deferred tax assets and liabilities based on
differences between financial statement and tax basis of assets and liabilities
using presently enacted tax rates.
The Company does not hold or issue financial instruments for trading
purposes.
All highly liquid instruments purchased with a maturity of three months or
less are considered to be cash equivalents.
The Company recognizes revenue upon shipment of product with provisions
recorded for estimated returns. Included in net revenues and cost of sales are
related shipping and handling fees and costs.
In July 2001, the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations and No. 142, Goodwill and Other Intangible Assets. SFAS 141
requires that all business combinations initiated after June 30, 2001, be
accounted for using the purchase method of accounting. In addition, it further
clarifies the criteria for recognition of intangible assets separately from
goodwill. The Company adopted this statement effective July 1, 2001. SFAS 142
establishes new standards for goodwill acquired in a business combination and
eliminates the amortization of goodwill over its estimated useful life. Rather,
goodwill will now be tested for impairment annually, or more frequently if
circumstances indicate potential impairment, by applying a fair value based
test. The Company adopted this statement effective January 1, 2002. The adoption
of this standard did not have a material impact on the Company's financial
position or results of operations.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. The Company adopted SFAS 143 effective January 1, 2001.
The adoption of this standard did not have a material impact on the Company's
financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. SFAS 144 supersedes FASB Statement 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. SFAS 144 retains the fundamental provisions of SFAS 121 for (a)
recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to be disposed of by sale. The
Company adopted this statement effective January 1, 2002. The adoption of this
standard did not have a material impact on the Company's financial position or
results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
4, 44 and 64, Amendment of FASB Statement 13, and Technical Corrections. SFAS
145 rescinds the provisions of SFAS 4 that requires companies to classify
certain gains and losses from debt extinguishments as extraordinary items,
eliminates the provisions of SFAS 44 regarding transition to the Motor Carrier
Act of 1980 and amends the provisions of SFAS 13 to require that certain lease
modifications be treated as sale leaseback transactions. The provisions of SFAS
145 related to classification of debt extinguishment are effective for fiscal
years beginning after May 15, 2002. Commencing January 1, 2003, the Company will
classify debt extinguishment costs within income from operations. The provisions
of SFAS 145 related to lease modifications are effective for transactions
occurring after May 15, 2002. The Company
26
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands, except share data)
does not expect the provisions of SFAS 145 related to lease modifications to
have a material impact on its financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 nullifies Emerging Issues Task Force
("EITF") No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). The principal difference between SFAS 146 and EITF 94-3
relates to its requirements for recognition of a liability for a cost associated
with an exit or disposal activity. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under EITF 94-3, a liability for an exit cost was recognized at the
date of an entity's commitment to an exit plan. SFAS 146 is effective for exit
and disposal activities that are initiated after December 31, 2002. The Company
does not expect the provisions of SFAS 146 to have a material impact on its
financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company is required to implement SFAS 148
in fiscal 2003 and certain disclosure provisions for the year ended December 31,
2002. The Company does not expect the provisions of SFAS 148 to have a material
impact on its financial position or results of operations.
The Company accounts for stock based compensation issued to employees in
accordance with Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees, which recognizes compensation expense
based upon the intrinsic value of the stock options as of the date of grant.
SFAS 123 encourages, but does not require, companies to recognize compensation
expense for grants of stock options based on their fair value. The Company has
elected, as permitted by SFAS 123, to adopt the disclosure requirement of SFAS
123 and to continue to account for stock based compensation under APB 25.
Had compensation expense for the Company been determined based upon the
fair value method in accordance with SFAS 123, the Company's net loss and loss
per share would have been increased to the pro forma amounts as follows:
Years Ended December 31,
-----------------------------------
2000 2001 2002
-------- -------- -------
(In thousands, except per share amounts)
Net loss as reported ........................................ $(48,529) $(11,527) $(8,364)
Deduct: Total stock based employee compensation expense
determined under fair value based methods for all awards,
net of related tax effects .............................. (715) (446) (176)
-------- -------- -------
Pro forma net loss .......................................... $(49,244) $(11,973) $(8,540)
======== ======== =======
Basic and diluted loss per share
As reported ................................................. $ (23.05) $ (3.70) $ (2.14)
Pro forma ................................................... (23.38) (3.84) (2.18)
Weighted average fair value of options granted at
market price during year ............................... $ 15.64 $ 2.40 --
The pro forma disclosures shown above were calculated for all options using
Black-Scholes option pricing model with the following assumptions:
Years Ended December 31,
------------------------
2000 2001 2002
---- ---- ----
Expected dividend yield...................................... -- -- --
Expected stock price volatility ............................. 107% 104% 108%
Risk-free interest rate...................................... 6.64% 6.07% 5.72%
Weighted average expected life (in years).................... 6 6 6
27
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands, except share data)
In November 2002, FASB Interpretation ("FIN") 45, Guarantor's Accounting
And Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, was approved by the FASB. FIN 45 clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of this interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The interpretation also requires enhanced and additional
disclosures of guarantees in financial statements ending after December 15,
2002. In the normal course of business, the Company does not issue guarantees,
accordingly this interpretation has no effect on the financial statements.
Certain prior-period amounts have been reclassified to conform with the
current presentation.
Note 3 -- Capital Stock
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, par value $.01 per share, of which 3,174,721 and 3,203,160 were
outstanding at December 31, 2001 and 2002, respectively, and 4,000,000 shares of
Class B Common Stock, par value $.01 per share, which has ten votes per share,
is subject to significant restrictions on transfer and is convertible at any
time into Common Stock on a share-for-share basis, of which 700,639 were
outstanding at December 31, 2001 and 2002. The Common Stock and Class B Common
Stock are substantially identical, except for the disparity in voting power,
restriction on transfer and conversion provisions.
The Company's Preferred Stock, par value $.01 per share, consists of
1,000,000 authorized shares, none of which was outstanding at December 31, 2001
and 2002.
Note 4 -- Earnings (Loss) Per Common Share
The computation of basic earnings (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 earnings (loss) per
common 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 (loss) per common
share and diluted earnings (loss) per common share are reconciled as follows:
Years Ended December 31,
---------------------------------
2000 2001 2002
--------- --------- ---------
Basic earnings (loss) per common share:
Weighted average common shares outstanding ......... 2,105,499 3,118,533 3,910,710
========= ========= =========
Diluted earnings (loss) per common share:
Weighted average common shares outstanding ......... 2,105,499 3,118,533 3,910,710
Options and Restricted Units ....................... -- -- --
--------- --------- ---------
Denominator for diluted earnings (loss) per common share ...... 2,105,499 3,118,533 3,910,710
========= ========= =========
Options to purchase 231,770, 215,396 and 219,736 of common stock at
December 31, 2000, 2001 and 2002, respectively, were excluded from the
computation of diluted earnings (loss) per common share because the option
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
December 31, 2002. At December 31, 2001 and 2002, 28,469 and 13,469 options and
restricted units, respectively, were not included in the calculation of diluted
earnings (loss) per common share because their inclusion would have resulted in
an antidilutive effect.
Note 5 -- Income Taxes
Income (loss) before income taxes is as follows:
Years Ended December 31,
-----------------------------
2000 2001 2002
-------- -------- -------
United States ................................ $ (4,317) $ (5,935) $(3,441)
Foreign ...................................... (60,509) (5,294) (4,893)
-------- -------- -------
Total .............................. $(64,826) $(11,229) $(8,334)
======== ======== =======
28
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands, except share data)
The components of the income tax provision (benefit) are as follows:
Years Ended December 31,
-----------------------------
2000 2001 2002
--------- ------- -------
United States:
Current ...................................... $ 3,824 $(1,190) $(5,068)
Deferred ..................................... (5,189) 1,290 5,068
Foreign:
Current ...................................... (12,159) (882) 56
Deferred ..................................... (2,671) 1,080 (26)
State:
Current ...................................... 201 (76) --
Deferred ..................................... (303) 76 --
--------- ------- -------
Total ..................................... ($16,297) $ 298 $ 30
========= ======= =======
A summary of the components of deferred tax assets and liabilities is as
follows:
December 31,
-----------------
2001 2002
------- -------
Postretirement benefits ................................... $12,487 $12,150
Nondeductible accruals .................................... 12,498 11,669
Foreign operations ........................................ 1,148 --
Other ..................................................... 110 99
------- -------
Deferred tax assets ............................. 26,243 23,918
------- -------
Property, plant and equipment ............................. 2,200 3,270
Pensions .................................................. 6,024 7,053
Inventory ................................................. 693 740
------- -------
Deferred tax liabilities ........................ 8,917 11,063
------- -------
Valuation allowance ....................................... 11,986 12,855
------- -------
Net deferred tax assets ......................... $ 5,340 $ --
======= =======
In 2002, the Company recorded an additional valuation allowance related to
their entire domestic operations. The Company had previously recorded a
valuation allowance related to the idling of the synthetic soda ash production
capacity in Amherstburg, Ontario, Canada.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some or all of the deferred tax assets
will not be realized. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning strategies in
making this assessment. The Company has concluded that for the year ended
December 31, 2002, it is more likely than not that it will not be able to
realize its domestic net deferred tax assets during the carryforward period.
Accordingly, the Company recorded a full valuation allowance on all domestic net
deferred tax assets. The Company will continue to monitor the likelihood of
realizing its net deferred tax assets. Future adjustments to the deferred tax
asset valuation allowance will be recorded as necessary.
The difference between the Company's effective income tax rate and the
United States statutory rate is reconciled below:
Years Ended December 31,
------------------------
2000 2001 2002
----- ----- -----
U.S. federal statutory rate ................................... 35.0% 35.0% 35.0%
Valuation allowance ........................................... -- (22.0) (64.4)
State income taxes, net of federal benefit .................... 0.1 0.7 1.4
Tax effect of foreign operations .............................. (10.4) (17.7) (13.8)
Depletion ..................................................... 0.6 2.0 19.5
Excess federal refund ......................................... -- -- 23.2
Other ......................................................... (0.2) (0.7) (1.3)
----- ----- -----
Total ......................................................... 25.1% (2.7%) (0.4%)
===== ===== =====
29
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except share data)
In connection with the Spinoff, the Company entered into a tax sharing
agreement with GenTek which requires GenTek to indemnify and hold harmless the
Company for consolidated tax liabilities attributable to periods prior to the
Spinoff date. On October 11, 2002 GenTek filed for reorganization under Chapter
11 of the U.S. Bankruptcy Code. Although GenTek has agreed to indemnify and hold
the Company harmless with respect to all such liabilities and to bear all of the
Company's expenses for defending any claims related to these matters, the
Company's results of operations or financial condition could be materially
adversely affected in the event GenTek is unable or unwilling to perform its
indemnification obligations.
Note 6 -- Pension Plans and Other Postretirement Benefits
The Company maintains several defined benefit pension plans covering
substantially all employees. A participating employee's annual postretirement
pension benefit is determined by the employee's credited service and, in most
plans, final average annual earnings with the Company. Vesting requirements are
five years in the U.S. and two years in Canada. The Company's funding policy is
to annually contribute the statutorily required minimum amount as actuarially
determined. The Company also maintains several plans providing non-pension
postretirement benefits covering substantially all hourly and certain salaried
employees. The Company funds these benefits on a pay-as-you-go basis. Pension
assets of $11,944 and $13,011 at December 31, 2001 and 2002, respectively, are
included in other assets on the balance sheet. The long-term portion of accrued
non-pension postretirement benefit cost of $35,066 and $35,443 and pension
liabilities of $8,822 and $9,391 at December 31, 2001 and 2002, respectively,
are included in other liabilities on the balance sheet. The Company's
consolidated net periodic benefit cost related to pension benefits, which has
been recorded in the accompanying statement of operations in 2000, 2001 and
2002, was $6,605, $1,889 and $1,746 respectively. The Company's consolidated net
periodic benefit cost related to other postretirement benefits, which has been
recorded in the accompanying statement of operations in 2000, 2001 and 2002, was
($589), $1,814 and $2,417, respectively.
The recent decline in the global equity markets has resulted in a decrease
in the value of the assets in our defined benefit pension plans. This decline
will likely adversely affect our related accounting results in future periods
through higher pension expense, additional minimum liabilities with
corresponding reductions in equity, and increased cash funding requirements. In
addition, the Company may incur higher expense related to our non-pension
postretirement plans as a result of higher health care cost trends.
The Company recorded a minimum pension liability of approximately $8.2
million with corresponding reductions in minority interest of $0.8 million and
equity of $7.4 million on December 31, 2002. In addition, based on the value of
the assets in our defined benefit pension plans, we will be required to fund
approximately $5.2 million to the plans in fiscal 2003.
Other
Pension Benefits Postretirement Benefits
December 31, December 31,
--------------------------- ------------------------
2000 2001 2002 2000 2001 2002
------- ------- ------- ------ ------ ------
United States:
Components of Net Periodic Benefit Cost:
Service Cost ................................... $ 2,206 $ 2,013 $ 2,048 $ 756 $ 773 $ 884
Interest Cost .................................. 5,196 5,437 5,698 1,098 1,163 1,337
Expected Return on Plan Assets ................. (5,928) (6,618) (6,856) -- -- --
Amortization of Net Prior Service Cost ......... 784 825 1,325 (840) (840) (840)
Gain ........................................... (255) (600) (425) (367) (210) (77)
------- ------- ------- ------ ------ ------
Net Periodic Benefit Cost ...................... $ 2,003 $ 1,057 $ 1,790 $ 647 $ 886 $1,304
======= ======= ======= ====== ====== ======
30
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except share data)
Other
Pension Benefits Postretirement Benefits
December 31, December 31,
------------------- -----------------------
2001 2002 2001 2002
-------- -------- -------- --------
Change in Benefit Obligation:
Benefit Obligation at Prior Measurement Date ............ $ 79,317 $ 80,225 $ 15,940 $ 19,270
Service Cost ............................................ 2,013 2,048 773 884
Interest Cost ........................................... 5,437 5,698 1,163 1,337
Actuarial (Gain)/Loss ................................... (4,088) 6,873 2,224 3,268
Benefits Paid ........................................... (2,917) (3,251) (830) (1,292)
Plan Amendments ......................................... 463 (8,184) -- --
-------- -------- -------- --------
Benefit Obligation at Measurement Date .................. $ 80,225 $ 83,409 $ 19,270 $ 23,467
======== ======== ======== ========
Change in Plan Assets:
Fair Value of Assets at Prior Measurement Date .......... $ 76,452 $ 66,410 $ -- $ --
Actual Return on Plan Assets ............................ (9,981) (2,858) -- --
Employer Contributions .................................. 2,856 1,220 830 1,292
Benefits Paid ........................................... (2,917) (3,251) (830) (1,292)
-------- -------- -------- --------
Fair Value of Assets at Measurement Date ................ $ 66,410 $ 61,521 $ -- $ --
======== ======== ======== ========
Reconciliation of Funded Status:
Funded Status ........................................... $(13,815) $(21,888) $(19,270) $(23,467)
Unrecognized Net Prior Service Cost ..................... 2,976 (6,538) (2,856) (1,770)
(Gain) Loss ............................................. 2,017 19,035 (1,352) 1,747
-------- -------- -------- --------
Net Amount Recognized ................................... $ (8,822) $ (9,391) $(23,478) $(23,490)
======== ======== ======== ========
The change in benefit obligation includes the effect of plan amendments due
to 2002 labor contract renewals.
For pension plans included above with accumulated benefit obligations in
excess of plan assets, for 2001 and 2002, the projected benefit obligations were
$45,370 and $83,409 respectively, the accumulated benefit obligations were
$35,612 and $78,880 respectively, and the fair values of plan assets for those
plans were $32,628 and $61,521, respectively.
The assumptions used in accounting for the plans were as follows:
2000 2001 2002
----- ---- -----
Discount rate ............................................... 7 1/2% 7 1/4% 6 3/4%
Long-term rate of return on assets .......................... 9% 9% 8 3/4%
Average rate of increase in employee compensation ........... 5% 5% 4%
The assumption used in accounting for the non-pension postretirement plans
in 2002 was an 11 percent health care cost trend rate. A one percent increase in
the health care trend rate would increase the accumulated postretirement benefit
obligation by $886 at year-end 2002 and the net periodic cost by $73 for the
year. A one percent decrease in the health care trend rate would decrease the
accumulated postretirement benefit obligation by $991 at year-end 2002 and the
net periodic cost by $82 for the year.
The dates used to measure plan assets and liabilities were October 31, 2001
and 2002 for all plans. Pension plan assets are invested primarily in stocks,
bonds, short-term securities and cash equivalents.
31
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except share data)
Other
Pension Benefits Postretirement Benefits
December 31, December 31,
--------------------------- -----------------------
Canada: 2000 2001 2002 2000 2001 2002
------- ------- ------- ------- ---- ------
Components of Net Periodic Benefit Cost:
Service Cost ............................................... $ 1,380 $ 1,135 $ 608 $ 298 $125 $ 150
Interest Cost .............................................. 3,944 4,590 4,211 975 803 947
Expected Return on Plan Assets ............................. (5,368) (5,749) (5,237) -- -- --
Curtailment Loss ........................................... 397 -- -- -- -- --
Settlement Loss (Gain) ..................................... 4,071 778 -- (2,509) -- --
Amortization of Net
Prior Service Cost ..................................... 78 78 29 -- -- (74)
Loss ................................................... 100 -- 345 -- -- 90
------- ------- ------- ------- ---- ------
Net Periodic Benefit Cost ...................................... $ 4,602 $ 832 $ (44) $(1,236) $928 $1,113
======= ======= ======= ======= ==== ======
Other
Pension Benefits Postretirement Benefits
December 31, December 31,
----------------- -----------------------
2001 2002 2001 2002
------- ------- ------- -------
Change in Benefit Obligation:
Benefit Obligation at Prior Measurement Date ............... $57,604 $64,337 $11,333 $12,496
Service Cost ............................................... 1,135 608 125 150
Interest Cost .............................................. 4,590 4,211 803 947
Actuarial Loss (Gain) ...................................... 1,961 (8,559) 1,311 10,397
Foreign Currency Translation ............................... (2,408) (779) (475) (151)
Benefits Paid .............................................. (3,842) (3,966) (601) (608)
Curtailment Loss ........................................... -- 4,376 -- --
Plan Amendment ............................................. -- -- -- (3,494)
Settlement Loss (Gain) ..................................... 5,297 (3,506) -- --
------- ------- ------- -------
Benefit Obligation at Measurement Date ..................... $64,337 $56,722 $12,496 $19,737
======= ======= ======= =======
Other
Pension Benefits Postretirement Benefits
December 31, December 31,
------------------ -----------------------
2001 2002 2001 2002
------- -------- -------- --------
Change in Plan Assets:
Fair Value of Assets at Prior Measurement Date ............. $68,718 $62,977 $ -- $ --
Actual Return on Plan Assets ............................... (3,221) (2,675) -- --
Employer Contributions ..................................... 4,182 2,486 601 608
Foreign Currency Translation ............................... (2,860) (762) -- --
Settlements ................................................ -- (3,980) -- --
Benefits Paid .............................................. (3,842) (3,966) (601) (608)
------- ------- -------- --------
Fair Value of Assets at Measurement Date ................... $62,977 $54,080 $ -- $ --
======= ======= ======== ========
Reconciliation of Funded Status:
Funded Status .............................................. $(1,360) $(2,690) $(12,496) $(19,737)
Unrecognized Net Prior Service Cost ........................ 30 -- -- (3,420)
Loss ....................................................... 13,274 15,701 908 11,204
------- ------- -------- --------
Net Amount Recognized ...................................... $11,944 $13,011 $(11,588) $(11,953)
======= ======= ======== ========
32
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except share data)
The assumptions used in accounting for the plans were as follows:
2000 2001 2002
----- ----- ----
Discount rate............................................. 7 1/2% 7 1/4% 7%
Long-term rate of return on assets........................ 9% 9% 8%
Average rate of increase in employee compensation......... 5 1/4% 5 1/4% 4%
The assumption used in accounting for the non-pension postretirement plans
was a health care cost trend rate ranging from 6.3 percent in 2003 (decreasing
to 3.9 percent in 2010 and beyond) to 10 percent in 2003 (decreasing to 5
percent in 2011 and beyond). A one percent increase in the health care trend
rate would increase the accumulated postretirement benefit obligation by $5,631
at year-end 2002 and the net periodic cost by $448 for the year. A one percent
decrease in the health care trend rate would decrease the accumulated
postretirement benefit obligation by $4,313 at year-end 2002 and the net
periodic cost by $355 for the year.
The dates used to measure plan assets and liabilities were October 31, 2001
and 2002 for all plans. Pension plan assets are invested primarily in stocks,
bonds, short-term securities and cash equivalents.
Note 7 -- Commitments and Contingencies
Future minimum rental payments for operating leases (primarily for
transportation equipment, mining equipment, offices and warehouses) having
initial or remaining noncancellable lease terms in excess of one year as of
December 31, 2002 are as follows:
Years Ending December 31,
- -------------------------
2003.................................................................. $10,851
2004.................................................................. 9,555
2005.................................................................. 8,299
2006.................................................................. 6,794
2007 ................................................................. 5,007
Thereafter............................................................ 9,022
Rental expense for the years ended December 31, 2000, 2001 and 2002 was
$11,096, $10,034 and $9,421, respectively.
Parent Guaranty and Transfer Agreement. A restated parent guaranty and
transfer agreement between New Hampshire Oak, a wholly-owned subsidiary of GCG
and the parent of General Chemical Industrial Products Inc. ("GCIP"), and ACI
International Limited and TOSOH America, Inc. provides that in the event that
either New Hampshire Oak, ACI International Limited or TOSOH America, Inc. (such
entities being referred to as a "transferring parent" or "nontransferring
parent" as the context requires) proposes to sell or otherwise transfer or cause
to be sold or transferred the voting securities of GCIP, The Andover Group, Inc.
or TOSOH Wyoming, Inc. (the respective subsidiaries constituting the partners of
GCSAP) as the case may be, the nontransferring parents will have the following
options: (1) to purchase the transferring parent's subsidiary's interest in
GCSAP at fair market value; (2) to require the transferring parent to purchase
the nontransferring parents' subsidiaries' interests in GCSAP at fair market
value; (3) to buy the voting securities to be sold by the transferring parent on
the same terms and conditions and at the same price as the transferring parent
proposes to sell or otherwise transfer or cause to be sold or transferred such
voting securities; or (4) to cause the proposed transferee to purchase the
nontransferring parents' subsidiaries' interests in GCSAP for a price reflecting
the price to be paid by the proposed transferee for such voting securities. In
the event that New Hampshire Oak ceases to own at least 51 percent of GCIP while
GCIP is a partner, GCIP shall pay to The Andover Group, Inc. $2,833.
The Company is involved in certain claims, litigation, administrative
proceedings and investigations relative to environmental matters. Although the
amount of any ultimate liability which could arise with respect to these matters
cannot be accurately predicted, it is the opinion of management, based upon
currently available information and the accruals established, that any such
liability will have no material adverse effect on the Company's financial
condition, results of operations or cash flows.
33
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands, except share data)
On March 13, 2000, the Company's Canadian subsidiary received a letter from
Environment Canada ("EC"). The letter informed the Company that it faces an
alleged violation of the Canadian Fisheries Act, R.S.C., as amended, with
respect to effluent discharges at its Amherstburg, Ontario facility. According
to EC, the Company's chloride level of its effluent discharged to the Detroit
River exceeded permitted levels. The idling of the Amherstburg synthetic soda
ash production in April 2001 has improved the quality of the effluent such that
it complies with the Canadian Fisheries Act requirements as of August 2001. For
principally this reason, EC notified the Company on June 12, 2002 that it was
closing its investigation into this matter. Because of the foregoing, the
Company does not believe that any additional expenses and/or capital
expenditures will be incurred in connection with this matter which would be
material to the Company's results of operations and/or financial condition.
GenTek provides the Company with management information services, and
subleases to it office space in Parsippany, New Jersey used as its operations
headquarters, pursuant to agreements entered into at the Spinoff. On October 11,
2002, GenTek filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. If GenTek becomes unable to meet its obligations under these agreements,
the Company would have to obtain our management information services and office
space from third parties. The Company is developing a contingency plan in the
event GenTek terminates these agreements. No assurances can be given as to the
timely and cost effective replacement of management information services.
Note 8 -- Additional Financial Information
The following are summaries of selected balance sheet items:
RECEIVABLES
December 31,
-----------------
2001 2002
------- -------
Trade ..................................................... $44,014 $44,556
Other ..................................................... 6,598 6,953
Allowance for doubtful accounts ........................... (1,996) (2,117)
------- -------
$48,616 $49,392
======= =======
INVENTORIES
December 31,
-----------------
2001 2002
------- -------
Raw materials ............................................. $ 1,302 $ 1,172
Work in process ........................................... 3,448 3,134
Finished products ......................................... 14,110 16,830
Supplies and containers ................................... 6,953 7,112
------- -------
$25,813 $28,248
======= =======
Inventories valued at LIFO amounte d to $2,621 and $2,901 at December 31,
2001 and 2002, respectively, which were below estimated replacement cost by
$4,099 and $5,043 respectively. The impact of LIFO liquidations in 2001 and 2002
was not significant.
PROPERTY, PLANT AND EQUIPMENT
December 31,
---------------------
2001 2002
--------- ---------
Land and improvements.................................. $ 24,534 $ 24,908
Buildings and leasehold improvements................... 16,650 15,357
Machinery and equipment................................ 217,641 216,874
Construction-in-progress............................... 1,431 3,461
Mines and quarries..................................... 16,647 16,658
--------- ---------
276,903 277,258
Less accumulated depreciation and amortization......... (176,538) (186,196)
--------- ---------
$ 100,365 $ 91,062
========= =========
34
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands, except share data)
ACCRUED LIABILITIES
December 31,
-----------------
2001 2002
------- -------
Restructuring reserves.................................... $ 4,172 $ 3,169
Wages, salaries and benefits.............................. 9,011 9,754
Taxes, other than income taxes............................ 6,773 6,526
Other..................................................... 10,399 9,817
------- -------
$30,355 $29,266
======= =======
Note 9 - Sale of Assets
In the third quarter of 2000, the Company sold a quarry at its Amherstburg,
Ontario, Canada location for $8,080, resulting in a pretax gain of $7,671.
Note 10 - Restructurings
In the fourth quarter of 2000, the Company recorded a pretax restructuring
charge, including related asset writedowns and workforce reductions, of $59.8
million or $28.40 per diluted common share. The restructuring involved the
idling of the Company's synthetic soda ash production capacity in Amherstburg,
Ontario, Canada which resulted in the writedown of long-lived assets and
workforce reductions of approximately 250 hourly and salaried employees. The
Company idled this capacity because it requires substantially more resources -
principally costly natural gas and necessary capital improvements - for the
Company to manufacture synthetic soda ash at Amherstburg than to manufacture
natural soda ash at its production facility in Green River, Wyoming. The Company
has shifted production from its relatively high-cost synthetic soda ash facility
in Amherstburg to its lower-cost natural soda ash facility in Green River,
thereby eliminating cash operating losses incurred in operating the Amherstburg
facility and reducing its exposure to fluctuations in energy prices.
In the second quarter of 2001, this Company provided for additional pretax
restructuring charges of $1.7 million or $0.55 per diluted common share for
revised actuarial estimates of employee termination benefits.
The cash and noncash elements of the restructuring charge approximate $16.3
million and $45.2 million, respectively. The components of the restructuring
reserve were as follows:
Balance at Balance at
December 31, 2000 Utilized Cash Noncash December 31, 2001
----------------- ------------- ------- -----------------
Employee severance and termination benefits .. $ 8,598 $5,044 $2,470 $1,084
Site preparation costs ....................... 4,641 2,858 -- 1,783
Other (1) .................................... 2,872 1,137 430 1,305
------- ------ ------ ------
$16,111 $9,039 $2,900 $4,172
======= ====== ====== ======
Balance at Balance at
December 31, 2001 Utilized Cash Noncash December 31, 2002
----------------- ------------- ------- -----------------
Employee severance and termination benefits... $ 1,084 $ 59 $1,025 $ --
Site preparation costs........................ 1,783 687 -- 1,096
Other (1)..................................... 1,305 2 318 985
------- ------ ------ ------
$ 4,172 $ 748 $1,343 $2,081
======= ====== ====== ======
(1) Primarily includes contract termination fees and environmental compliance.
In the fourth quarter of 2002, the Company recorded a pretax restructuring
charge, including related asset writedowns and workforce reductions, of $7.7
million or $1.97 per diluted common share. The restructuring involved the
closing of the Company's calcium chloride production capacity in Manistee,
Michigan which resulted in the writedown of long-lived assets and workforce
reductions of approximately 40 hourly and salaried employees. The Company plans
to consolidate its North American production of calcium chloride to its
Amherstburg, Ontario production facility. This operations consolidation is
intended to improve operating efficiencies, logistics and utilization of
capital. It is expected that the restructuring actions will be substantially
completed by September 30, 2003.
35
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands, except share data)
Balance at
Original Accrual Utilized Cash Noncash December 31, 2002
---------------- ------------- ------- -----------------
Writedown of long-lived assets................ $6,233 $ -- $6,233 $ --
Employee severance and termination benefits... 584 21 -- 563
Site preparation costs........................ 440 6 -- 434
Other (1)..................................... 443 103 249 91
------ ---- ------ ------
$7,700 $130 $6,482 $1,088
====== ==== ====== ======
(1) Primarily includes writedowns of inventories, contract termination fees and
environmental compliance.
Note 11 -- 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, management and administrative services and
strategic guidance for a quarterly fee. This management fee was $1,595, $1,621
and $1,672 in 2000, 2001 and 2002, respectively.
Other Transactions
In connection with the Spinoff of GenTek from the Company in April 1999,
GenTek agreed to provide the Company with certain management information
services and to sublease to the Company the office space in Parsippany, New
Jersey used as its operations headquarters. For the years ended December 31,
2000, 2001 and 2002, the Company paid GenTek $1,692, $1,355, and $1,379 for
these services and office space.
The Company supplies soda ash and calcium chloride to GenTek. For the years
ended December 31, 2000, 2001 and 2002, sales to GenTek amounted to $4,389,
$4,036 and $2,794, respectively.
Note 12 -- Long-Term Debt
Long-term debt consists of the following:
December 31,
-------------------
Maturities 2001 2002
-------------- -------- --------
$70 Million Revolving Credit Facility-floating rate... April 30, 2004 $ 46,487 $ 44,394
Senior Subordinated Notes -- 10 5/8%.................. April 30, 2009 100,000 100,000
-------- --------
Total Debt............................................ 146,487 144,394
Less: Current Portion.............................. -- --
-------- --------
Net Long-Term Debt.................................... $146,487 $144,394
======== ========
On April 30, 1999, in connection with the Spinoff, the Company's
subsidiary, GCIP, and GCIP's Canadian subsidiary, General Chemical Canada Ltd.,
entered into an $85,000 revolving credit facility ("Credit Facility") with
certain lenders party thereto; The Chase Manhattan Bank, as Administrative
Agent, The Chase Manhattan Bank of Canada, as Canadian Administrative Agent, The
Bank of Nova Scotia, as Syndication Agent, and The First National Bank of
Chicago as Documentation Agent. Of this amount, up to $60,000 is available for
borrowing by the Canadian subsidiary. The Company applied the proceeds of its
initial borrowing under the Credit Facility and a portion of the proceeds of the
offering of its Senior Subordinated Notes to repay approximately $127 million of
pre-Spinoff debt. On November 9, 1999, GCIP completed an exchange offer pursuant
to which all of GCIP's unregistered 10 5/8% Senior Subordinated Notes due 2009
(issued on April 30, 1999) were exchanged for registered 10 5/8% Senior
Subordinated Notes due 2009 ("Subordinated Notes") that are identical to the
terms of the unregistered notes. The Securities and Exchange Commission declared
effective GCIP's Registration Statement on Form S-4 with respect to such
registered notes on October 6, 1999. In addition, on April 30, 1999, GCIP issued
and sold $100,000 aggregate principal amount of 10 5/8% Senior Subordinated
Notes due 2009.
36
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except share data)
The Subordinated Notes are unsecured while the Credit Facility is secured
by 100 percent of the capital stock of GCIP, 100 percent of the owned capital
stock of, and guarantees from, the direct and indirect domestic subsidiaries of
the Company, and substantially all of the other assets of the Company. In
addition, the portion of the Credit Facility available to the Company's
Canadian subsidiary is secured by substantially all of the assets of
the Company's Canadian subsidiary. The Subordinated Notes and the Credit
Facility contain certain covenants with respect to additional indebtedness,
preferred stock issued by subsidiaries, restricted payments, transactions with
affiliates, liens, dividends and other payment instructions affecting
subsidiaries, consolidations, mergers, the sale of assets and financial tests.
Prior to the Spinoff, the Company paid a regular quarterly cash dividend to
holders of its Common Stock. The Company has not paid dividends since the
Spinoff and does not expect to pay cash dividends in the foreseeable future.
On March 7, 2001, the Company and its lenders entered into an amendment
to the Credit Facility, which provided for more flexible financial covenants
for 2001 and 2002 and more restrictive covenants regarding restricted payments,
investments, incurrence of indebtedness, capital expenditures, sale of assets
and related matters. While the Company was in compliance with the amended
financial and other covenants contained in the Credit Facility through
December 31, 2002, the amendments to the financial covenants expired on that
date. The Company anticipates that it will not be able to meet the financial
covenants that will be calculated in respect of the Company's financial results
for the quarter ending March 31, 2003, which failure will constitute an event
of default under the Credit Facility. As a result of the foregoing, the
Company's Independent Auditors' Report for the fiscal year ended December 31,
2002 contains an explanatory paragraph regarding the Company's ability to
continue as a going concern. The inability of the Company to deliver to its
senior lenders an Independent Auditors' Report that does not contain such a
paragraph will itself constitute an event of default under the Company's Credit
Facility. The occurrence of an event of default under our Credit Facility would
give our senior lenders the right, among other things, to declare all amounts
outstanding under the Credit Facility to be immediately due and payable,
together with accrued and unpaid interest. In addition, if an event of default
occurs, our senior lenders would have the right to block payments of any
principal or interest obligation related to our Subordinated Notes or the
purchase or redemption of such obligations. In accordance with the Forbearance
and Amendment Agreement described below, we do not intend to make the interest
payment on the Subordinated Notes that will come due on May 1, 2003. On May 31,
2003, the 30 day grace period with respect to payment defaults on the
Subordinated Notes will expire and the failure to make the May 1, 2003 interest
payment by such date would constitute an event of default under the Subordinated
Notes, following which the holders of the Subordinated Notes may accelerate
the amounts due under the related Indenture.
On March 25, 2003, we entered into a Forbearance and Amendment Agreement
with the lenders under our Credit Facility, pursuant to which such
lenders have agreed not to exercise any remedies for the existing defaults
through July 30, 2003 to allow the Company time to pursue a restructuring of its
existing indebtedness. During the forbearance period the Company has agreed to
restrict its ability to incur additional liens, make payments on account of
indebtedness other than indebtedness under the Credit Facility or
currently scheduled payments, make any direct or indirect payment on or in
respect of the Subordinated Notes, or request Eurodollar loans with an interest
period of longer than two months. In addition, the Company has agreed to
permanently reduce the total commitments available under our Credit
Facility to $70 million and to reduce the total commitments during the
forbearance period to the lesser of (i) $60 million or (ii) 115% of the
projected usage under the Credit Facility for such day according to a fixed
schedule. We are also required under the Forbearance and Amendment Agreement
to meet certain milestones in the progress of our restructuring efforts.
The Company intends to negotiate a restructuring of its indebtedness with
its senior lenders and representatives of the holders of the Subordinated Notes
over the next several months. However, there is no assurance that the Company
will be successful in reaching an agreement with its various lenders on a
restructuring plan. If the senior lenders were to accelerate maturity of amounts
due under the Credit Facility, or if the holders of the Subordinated Notes were
to accelerate the amounts due under the Indenture, the Company would not have
sufficient funds to repay its outstanding debt, and the Company would have to
explore other strategic alternatives, including a sale of assets, obtaining
alternative sources of funding or other restructuring alternatives. These
conditions, together with the Company's net loss in fiscal 2002, raise
substantial doubt about the Company's ability to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or liabilities that may result from the outcome of this uncertainty.
On May 14, 2001, the Company issued 13,081,048 shares of Common Stock and
3,047,985 shares of Class B Common Stock in connection with the Company's rights
offering (corresponding to approximately 1,308,105 and 304,799 shares after the
reverse split on July 18, 2001). 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
37
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except share data)
proceeds to the Company from this issuance of Common Stock and Class B Common
Stock of approximately $9.7 million was 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.
Note 13 -- Stock Option Plan and Restricted Unit Plan
The Company's 1996 Stock Option and Incentive Plan (the "1996 Plan")
provides for the issuance of up to 220,000 shares of Common Stock. The 1996 Plan
authorizes the granting of incentive and nonqualified stock options, stock
appreciation rights, restricted and unrestricted stock and performance share
awards to executives, directors and other key persons. Any incentive stock
options granted under the 1996 Plan must have an exercise price at least equal
to the market value of the shares on the day the option is granted and a maximum
term of 10 years.
The Company's 2000 Long-Term Incentive Plan (the "2000 Plan") provides for
the issuance of up to 200,000 shares of Common Stock. The 2000 Plan authorizes
the granting of incentive stock options and non-qualified stock options to
officers, employees, directors and other key persons. Any incentive stock
options granted under the 2000 Plan must have an exercise price at least equal
to the market value of the shares on the day the option is granted and a maximum
term of 10 years.
Information with respect to all stock options is summarized below:
2000 2001 2002
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------- -------------- ------- -------------- ------- --------------
Outstanding at beginning at year... 194,380 $45.65 236,270 $40.50 230,396 $38.44
Options Granted.................... 46,200 18.51 15,000 2.40 -- --
Options Exercised.................. -- -- -- -- -- --
Options Cancelled.................. 4,310 37.40 20,874 35.82 10,660 23.59
------- ------- -------
Outstanding at end of year........ 236,270 $40.50 230,396 $38.44 219,736 $39.16
======= ======= =======
The following table summarizes information about stock options outstanding
at December 31, 2002:
Outstanding Exercisable
--------------------------------------------- --------------------------
Weighted Average
Remaining Weighted Weighted
Number of Contractual Average Number of Average
Range of Exercise Prices Options Life Exercise Price Options Exercise Price
- ------------------------- --------- ---------------- -------------- --------- --------------
$0.00 - $8.99...................... 15,000 8.75 2.40 15,000 2.40
$9.00 - $23.99..................... 33,440 7.16 20.06 20,360 20.09
$24.00 - $38.99.................... 17,750 6.29 33.03 17,750 33.03
$39.00 - $53.99.................... 119,896 3.67 43.98 83,896 43.96
$54.00 - $68.99.................... 33,650 5.03 60.57 32,650 60.66
The Company's Restricted Unit Plan provides for the issuance of 85,000
units, with each unit representing one share of Common Stock to be issued to the
participant upon the occurrence of certain conditions ("vesting") unless the
participant elects to defer receipt thereof. All awards are subject to a
five-year vesting schedule under which a portion of each participant's award
vests annually over a five-year period. Dividend equivalents on outstanding
units accrue to the benefit of the participants and are paid at the time
dividends are paid to Common Stock shareholders. These units were awarded during
the second quarter of 1996 in replacement of the rights earned by participants
beginning in 1989 under the Phantom Equity Plan and certain other prior equity
programs of the Company which were then terminated.
38
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands, except share data)
Note 14 -- Financial Instruments
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
December 31, 2001 December 31, 2002
---------------------------- ----------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
Long-term debt.......... $146,487 $121,487 $144,394 $105,394
The fair values of cash and cash equivalents, receivables and payables
approximate their carrying values due to the short-term nature of the
instruments.
The fair value of the Company's long-term debt was based on quoted market
prices for publicly traded notes and discounted cash flow analyses on its
nontraded debt.
The Company periodically enters into interest rate swap agreements to
effectively convert a portion of its floating-rate to fixed-rate debt in order
to reduce the Company's exposure to movements in interest rates and achieve a
desired proportion of variable versus fixed-rate debt, in accordance with the
Company's policy. Such agreements involve the exchange of fixed and floating
interest rate payments over the life of the agreement without the exchange of
the underlying principal amounts. Swap agreements are only entered into with
strong creditworthy counterparties. All swap agreements have been designated as
cash flow hedges, and all are 100 percent effective. As a result, there is no
impact to earnings due to hedge ineffectiveness. The fair value of the swap
agreement approximates its carrying value at December 31, 2002. The swap
agreement in effect was as follows:
Interest Rate
-------------
Notional Amount Maturities Receive Pay
--------------- ----------- ------- ----
December 31, 2002 $8,793 April, 2004 2.80 3.42
Note 15 -- Geographic Information
Information regarding geographic areas at December 31, and for each of the
years then ended is as follows:
Long-Lived
Net Revenues Operating Profit (Loss) Assets(4)
------------------------------ ---------------------------- --------------------
2000 2001 2002 2000 2001 2002 2001 2002
-------- -------- -------- -------- ------- ------- -------- --------
United States(1)... $223,880 $231,661 $233,973 $ 17,644 $11,757 $21,253 $ 95,633 $ 83,070
Foreign(2)......... 107,315 103,127 92,744 (63,996) (315) (1,826) 20,564 24,510
Elimination(3)..... (34,673) (48,732) (48,827) -- -- -- -- --
-------- -------- -------- -------- ------- ------- -------- --------
$296,522 $286,056 $277,890 $(46,352) $11,442 $19,427 $116,197 $107,580
======== ======== ======== ======== ======= ======= ======== ========
- ----------
(1) Includes export sales of $70,020, $72,748 and $72,344 for the years ended
December 31, 2000, 2001 and 2002, respectively.
(2) Principally Canada.
(3) Sales between geographic areas are recorded at prices comparable to market
prices charged to third-party customers and are eliminated in
consolidation.
(4) Represents all noncurrent assets except deferred tax assets and financial
investments.
39
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands, except share data)
Note 16 - Segment Information
Industry segment information is summarized as follows:
2000 2001 2002
-------- -------- --------
Net revenues:
Soda Ash................................... $237,799 $227,582 $221,620
Calcium Chloride........................... 58,723 58,474 56,270
-------- -------- --------
Total .................................. $296,522 $286,056 $277,890
======== ======== ========
Income (loss) before income taxes:
Soda Ash................................... $(59,700) $ 5,254 $ 14,779
Calcium Chloride........................... 6,189 1,067 (7,203)
-------- -------- --------
Subtotal................................ (53,511) 6,321 7,576
Eliminations and other
Corporate expenses......................... (11,315) (17,550) (15,910)
-------- -------- --------
Total................................ .. $(64,826) $(11,229) $ (8,334)
======== ======== ========
Income (loss) before income taxes for the calcium chloride segment
include a restructuring charge of $7,700 recorded in the fourth quarter of 2002.
Income (loss) before income taxes for the soda ash segment includes a
restructuring charge of $1,721 recorded in the second quarter of 2001. Income
(loss) before income taxes for the soda ash segment includes a restructuring
charge of $59,802 recorded in the fourth quarter of 2000. Income (loss) before
income taxes for elimination and other corporate expenses includes a gain on
sale of assets of $7,671 recorded in the third quarter of 2000.
Capital Expenditures:
2000 2001 2002
-------- -------- --------
Soda Ash....................................... $ 14,360 $ 4,347 $ 2,958
Calcium Chloride............................... 6,102 3,648 4,895
Elimination and other corporate expenses....... 374 441 36
-------- -------- --------
$ 20,836 $ 8,436 $ 7,889
======== ======== ========
Depreciation & Amortization:
Soda Ash....................................... $ 17,006 $ 14,605 $ 9,180
Calcium Chloride............................... 948 1,169 1,521
Elimination and other corporate expenses....... 1,194 1,310 908
-------- -------- --------
$ 19,148 $ 17,084 $ 11,609
======== ======== ========
40
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Concluded)
(Dollars in thousands, except share data)
Note 17 -- Unaudited Quarterly Information
2001
-----------------------------------------------
First Second Third Fourth Year
------- ------- ------- ------- --------
Net revenues ....................... $65,326 $79,369 $73,201 $68,160 $286,056
Gross profit ....................... 842 10,050 7,669 11,504 30,065
Net loss ........................... (8,147) (1,084) (1,969) (327) (11,527)
Loss per common share:
Basic ........................... (3.85) (.34) (.53) (.09) (3.70)
Diluted ......................... (3.85) (.34) (.53) (.09) (3.70)
2002
------------------------------------------------
First Second Third Fourth Year
------- ------- ------- ------- --------
Net revenues ....................... $57,377 $73,830 $71,327 $75,356 $277,890
Gross profit ....................... 8,257 10,955 12,885 10,879 42,976
Net income (loss) .................. (1,787) 1,224 766 (8,567) (8,364)
Earnings (loss) per common share:
Basic ........................... (0.46) 0.31 0.20 (2.19) (2.14)
Diluted ......................... (0.46) 0.31 0.19 (2.19) (2.14)
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
41
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors. For information relating to the Company's Directors, see the
information under the caption "Nomination and Election of Directors" in the
Company's definitive 2002 Proxy Statement (the "Proxy Statement"), which is
hereby incorporated by reference.
Executive Officers. For information relating to the Company's executive
officers, see the information under the caption "Employees/Labor Relations" in
Part I of this report.
Compliance with Section 16(a) of the Exchange Act. For information relating
to the compliance of the directors and officers of the Company, as well as any
holder of ten percent or more of any registered class of the equity securities
of the Company, with Section 16(a) of the Exchange Act, see the information
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's Proxy Statement, which is hereby incorporated by reference.
Item 11. Executive Compensation
Executive Compensation. For information relating to the compensation of the
Company's executives, see the information under the caption "Compensation of
Directors and Executive Officers" in the Company's Proxy Statement, which is
hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners. For information relating
to the beneficial ownership of more than five percent of the Company's Common
Stock and Class B Common Stock, see the information under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement, which is hereby incorporated by reference.
Security Ownership of Management. For information relating to the
beneficial ownership of the Company's Common Stock and Class B Common Stock by
management, see the information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement, which is
hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Certain Relationships and Related Transactions. For information relating to
certain relationships and related transactions of the Company, see the
information under the caption "Certain Relationships and Transactions" in the
Company's Proxy Statement, which is hereby incorporated by reference.
Item 14. Controls and Procedures
The Company has established disclosure controls and procedures to ensure
that material information relating to the Company, including its consolidated
subsidiaries, is made known to the officers who certify the Company's financial
reports and to other members of senior management and the Board of Directors.
Based on their evaluation as of a date within 90 days of the filing date of
this Annual Report on Form 10-K, the principal executive officer and principal
financial officer of The General Chemical Group Inc. have concluded that The
General Chemical Group Inc.'s disclosure controls and procedures (as defined in
Rules 13a-14[c] and 15d-14[c] under the Securities Exchange Act of 1934) are
effective to ensure that the information required to be disclosed by The General
Chemical Group Inc in reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time period specified in SEC rules and forms.
There were no significant changes in The General Chemical Group Inc.'s
internal controls or in other factors that could significantly affect those
controls subsequent to the date of their most recent evaluation.
42
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 10-K.
Exhibit
No. Description
- ------- -----------
*3.1 -- Amended and Restated Certificate of Incorporation of the Company
*3.2 -- Amended and Restated By-Laws of the Company
*4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value,
of the Company
*10.1 -- Agreement dated as of March 15, 1996 between Paul M. Montrone and
the Company
'D'10.4 -- Restated Environmental Matters Agreement among Allied-Signal,
Henley, The Wheelabrator Group Inc., New Hampshire Oak, Inc., and
Fisher Scientific Group Inc., dated as of February 26, 1986, as
amended and restated as of July 28, 1989
'D'10.5 -- Second Amended and Restated Partnership Agreement of GCSAP dated
June 30, 1992, among General Chemical, The Andover Group, Inc.,
and TOSOH Wyoming, Inc.
'D'10.6 -- Amended and Restated Parent Guaranty and Transfer Agreement dated
June 30, 1992, among New Hampshire Oak, Inc., ACI International
Limited and TOSOH America, Inc.
*10.7 -- The General Chemical Group Inc. Deferred Compensation Plan for
Non-Employee Directors
*10.8 -- The General Chemical Group Inc. Retirement Plan for Non-Employee
Directors
*10.9 -- The General Chemical Group Inc. Restricted Unit Plan for
Non-Employee Directors
*10.10 -- The General Chemical Group Inc. 1996 Stock Option and Incentive
Plan
*10.11 -- The General Chemical Group Inc. Performance Plan
*10.12 -- The General Chemical Group Inc. Restricted Unit Plan
'D'10.13 -- First Amendment to General Chemical Corporation Equity Program,
effective as of October 1, 1993.
*10.14 -- General Chemical Group Dividend Award Program, as amended
December 15, 1995, effective as of October 1, 1993
*10.15 -- General Chemical Corporation Supplemental Savings and Retirement
Plan
**10.16 -- Employee Benefits Agreement among The General Chemical Group Inc.
and GenTek Inc.
**10.17 -- Intellectual Property Agreement among General Chemical Industrial
Products Inc., General Chemical Corporation, GenTek, Inc. and The
General Chemical Group Inc.
**10.18 -- Credit Agreement, dated as of April 30, 1999, among General
Chemical Industrial Products Inc., and General Chemical Canada
Ltd. as Borrowers, the several Lenders from time to time parties
thereto, The Chase Manhattan Bank, as Administrative Agent, The
Chase Manhattan Bank of Canada, as Canadian Administrative Agent,
The Bank of Nova Scotia, as Syndication Agent, and The First
National Bank of Chicago as Documentation Agent
10.19 -- First Amendment, dated as of March 7, 2001, to the Credit Agreement
referred to in Exhibit 10.18
**10.20 -- Guarantee and Collateral Agreement, dated as of April 30, 1999,
made by General Chemical Industrial Products Inc., and certain of
its subsidiaries in favor of the Chase Manhattan Bank, as
Collateral Agent. Incorporated by reference to the relevant
exhibit to the GCG First Quarter 1999 10-Q.
**10.21 -- Amended and Restated Management Agreement between Latona
Associates Inc. and The General Chemical Group Inc. Incorporated
by reference to the relevant exhibit to The General Chemical
Group Inc.'s 10-Q for the three months ended June 30, 1999 with
the Securities and Exchange Commission on August 16, 1999 (the
"GCG Second Quarter 10-Q").
**10.22 -- Tax Sharing Agreement between The General Chemical Group Inc. and
GenTek Inc.
**10.23 -- Sublease Agreement between General Chemical Industrial Products
Inc and General Chemical Corporation.
**10.24 -- Transition Support Agreement between The General Chemical Group
Inc. and GenTek Inc.
***10.25 -- Forbearance and Amendment Agreement, dated as of March 25, 2003, to
the Credit Agreement referred to in Exhibit 10.18
43
Exhibit
No. Description Page
- ------- ----------- ----
11 -- Statement regarding computation of per share earnings
**22 -- Subsidiaries of the Company
- ----------
* Incorporated by reference to the relevant exhibit to the Company's
Registration Statement on form S-1 filed with the Securities and Exchange
Commission (the "SEC") on May 3, 1996, File No. 33-83766.
** Incorporated by reference to the relevant exhibit to the Registration
Statement on Form S-4 of General Chemical Industrial Products Inc. filed
with the SEC on September 30, 1999, File No. 333-81469.
*** Filed Herewith.
'D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation's Registration Statement filed with the SEC on August 11,
1993, File No. 33-64824.
'D''D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 filed with the SEC.
Financial Statements
See Item 8, beginning on page 19.
Financial Statement Schedules
See Index to Financial Statement Schedules on page 46.
Reports on Form 8-K
None.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in Hampton, State of New
Hampshire on the 31st day of March 2003.
THE GENERAL CHEMICAL GROUP INC.
By: /s/ DAVID S. GRAZIOSI
-----------------------------
David S. Graziosi
Vice President and Chief
Financial Officer
March 31, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ PAUL M. MONTRONE Chairman of the Board and Director March 31, 2003
- ---------------------------------
(Paul M. Montrone)
/s/ JOHN M. KEHOE, JR. President, Chief Executive Officer March 31, 2003
- --------------------------------- (Principal Executive Officer) and
(John M. Kehoe, Jr.) Director
/s/ DAVID S. GRAZIOSI Vice President and Chief Financial Officer March 31, 2003
- --------------------------------- (Principal Financial and Accounting Officer)
(David S. Graziosi)
/s/ PAUL M. MEISTER Director March 31, 2003
- ---------------------------------
(Paul M. Meister)
/s/ PHILIP E. BEEKMAN Director March 31, 2003
- ---------------------------------
(Philip E. Beekman)
/s/ GERALD J. LEWIS Director March 31, 2003
- ---------------------------------
(Gerald J. Lewis)
/s/ JOSEPH M. VOLPE Director March 31, 2003
- ---------------------------------
(Joseph M. Volpe)
45
THE GENERAL CHEMICAL GROUP INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts................................
Schedules required by Article 12 of Regulation S-X, other than those listed
above, are omitted because of the absence of the conditions under which they are
required or because the required information is included in the consolidated
financial statements or notes thereto.
46
SCHEDULE II
THE GENERAL CHEMICAL GROUP INC.
VALUATION AND QUALIFYING ACCOUNTS
Translation
Balance at Additions Deductions Adjustment Balance at
Beginning Charged to from During End of
of Period Income Reserves Period Period
---------- ---------- ---------- ----------- -----------
(In thousands)
Year ended December 31, 2000
Allowance for doubtful accounts..................... $2,679 $397 $(526) $(15) $2,535
Year ended December 31, 2001
Allowance for doubtful accounts..................... $2,535 $202 $(713) $(28) $1,996
Year ended December 31, 2002
Allowance for doubtful accounts..................... $1,996 $651 $(533) $ 3 $2,117
47
EXHIBIT INDEX
Exhibit
No. Description Page
- ------- ----------- ----
*3.1 -- Amended and Restated Certificate of Incorporation of the Company....
*3.2 -- Amended and Restated By-Laws of the Company.........................
*4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value, of
the Company.........................................................
*10.1 -- Agreement dated as of March 15, 1996 between Paul M. Montrone and
the Company.........................................................
'D'10.4 -- Restated Environmental Matters Agreement among Allied-Signal,
Henley, The Wheelabrator Group Inc., New Hampshire Oak, Inc., and
Fisher Scientific Group Inc., dated as of February 26, 1986, as
amended and restated as of July 28, 1989............................
'D'10.5 -- Second Amended and Restated Partnership Agreement of GCSAP dated
June 30, 1992, among General Chemical, The Andover Group, Inc.,
and TOSOH Wyoming, Inc..............................................
'D'10.6 -- Amended and Restated Parent Guaranty and Transfer Agreement dated
June 30, 1992, among New Hampshire Oak, Inc., ACI International
Limited and TOSOH America, Inc......................................
*10.7 -- The General Chemical Group Inc. Deferred Compensation Plan for
Non-Employee Directors..............................................
*10.8 -- The General Chemical Group Inc. Retirement Plan for Non-Employee
Directors...........................................................
*10.9 -- The General Chemical Group Inc. Restricted Unit Plan for
Non-Employee Directors..............................................
*10.10 -- The General Chemical Group Inc. 1996 Stock Option and Incentive
Plan................................................................
*10.11 -- The General Chemical Group Inc. Performance Plan....................
*10.12 -- The General Chemical Group Inc. Restricted Unit Plan................
'D''D'10.13 -- First Amendment to General Chemical Corporation Equity Program,
effective as of October 1,1993......................................
*10.14 -- General Chemical Group Dividend Award Program, as amended
December 15, 1995, effective as of October 1, 1993..................
*10.15 -- General Chemical Corporation Supplemental Savings and Retirement
Plan................................................................
**10.16 -- Employee Benefits Agreement among The General Chemical Group Inc.,
and GenTek Inc......................................................
**10.17 -- Intellectual Property Agreement among General Chemical Industrial
Products Inc., General Chemical Corporation, GenTek, Inc. and The
General Chemical Group Inc..........................................
**10.18 -- Credit Agreement, dated as of April 30, 1999, among General
Chemical Industrial Products Inc., and General Chemical Canada
Ltd. as Borrowers, the several Lenders from time to time parties
thereto, The Chase Manhattan Bank, as Administrative Agent, The
Chase Manhattan Bank of Canada, as Canadian Administrative Agent,
The Bank of Nova Scotia, as Syndication Agent, and The First
National Bank of Chicago as Documentation Agent.....................
10.19 -- First Amendment, dated as of March 7, 2001, to the Credit Agreement
referred to in Exhibit 10.18.
**10.20 -- Guarantee and Collateral Agreement, dated as of April 30, 1999,
made by General Chemical Industrial Products Inc., and certain of
its subsidiaries in favor of the Chase Manhattan Bank, as
Collateral Agent. Incorporated by reference to the relevant
exhibit to the GCG First Quarter 1999 10-Q..........................
**10.21 -- Amended and Restated Management Agreement between Latona
Associates Inc. and The General Chemical Group Inc. Incorporated
by reference to the relevant exhibit to The General Chemical
Group Inc.'s 10-Q for the three months ended June 30, 1999 with
the Securities and Exchange Commission on August 16, 1999 (the
"GCG Second Quarter 10-Q")..........................................
**10.22 -- Tax Sharing Agreement between The General Chemical Group Inc. and
GenTek Inc..........................................................
**10.23 -- Sublease Agreement between General Chemical Industrial Products Inc
and General Chemical Corporation....................................
**10.24 -- Transition Support Agreement between The General Chemical Group Inc.
and GenTek Inc......................................................
***10.25 -- Forbearance and Amendment Agreement, dated March 25, 2003, to the
Credit Agreement referred to Exhibit 10.18.......................
48
Exhibit
No. Description Page
- ------- ----------- ----
11 -- Statement regarding computation of per share earnings
** 22 -- Subsidiaries of the Company
* Incorporated by reference to the relevant exhibit to the Company's
Registration Statement filed with the Securities and Exchange Commission
(the "SEC") on May 3, 1996, File No. 33-83766.
** Incorporated by reference to the relevant exhibit to the Registration
Statement on Form S-4 of General Chemical Industrial Products Inc. filed
with the SEC on September 30, 1999, File No. 333-81469.
*** Filed Herewith.
'D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation's Registration Statement filed with the SEC on August 11,
1993, File No. 33-64824.
'D''D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 filed with the SEC.
49
CERTIFICATION
I, John M. Kehoe, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of The General
Chemical Group Inc. ("Registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Registrant as of, and for, the periods presented in this
annual report;
4. Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation of the Evaluation Date;
5. Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Registrant's
ability to record, process, summarize and report financial data
and have identified for Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Registrant's
internal controls; and
6. Registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ JOHN M. KEHOE, JR.
-------------------------------------------
John M. Kehoe, Jr.
President, Chief Executive Officer
(Principal Executive Officer) and Director
March 31, 2003
50
CERTIFICATION
I, David S. Graziosi, certify that:
1. I have reviewed this annual report on Form 10-K of The General
Chemical Group Inc. ("Registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Registrant as of, and for, the periods presented in this
annual report;
4. Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation of the Evaluation Date;
5. Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Registrant's
ability to record, process, summarize and report financial data
and have identified for Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Registrant's
internal controls; and
6. Registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ DAVID S. GRAZIOSI
-------------------------------------------
David S. Graziosi
Vice President and Chief Financial Officer
March 31, 2003
51
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as.................... 'SS'
The dagger symbol shall be expressed as..................... 'D'
The double dagger symbol shall be expressed as.............. 'DD'