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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to__________
Commission File Number 33-64824
GENERAL CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 22-2689817
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
90 EAST HALSEY ROAD
PARSIPPANY, NEW JERSEY 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 515-0900
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
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GENERAL CHEMICAL CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months and Nine Months
Ended September 30, 1995 and 1996................................... 1
Consolidated Balance Sheets - December 31, 1995 and
September 30, 1996.................................................. 2
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1995 and 1996................................... 3
Notes to the Consolidated Financial Statements....................... 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8-9
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................................. 10
Item 6. Exhibits and Reports on Form 8-K.............................. 11
SIGNATURES................................................................. 12
EXHIBIT INDEX.............................................................. 13
EXHIBITS................................................................... 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENERAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDING NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------
1995 1996 1995 1996
---- ---- ---- ----
Net revenues...................................... $ 118,647 $132,324 $344,982 $382,780
Cost of sales..................................... 79,935 90,267 238,429 262,015
Selling, general and administrative expense....... 10,011 9,832 28,340 37,440
--------- -------- -------- --------
Operating profit.................................. 28,701 32,225 78,213 83,325
Interest expense.................................. 6,143 5,616 18,665 17,737
Interest income................................... 272 301 881 859
Foreign currency transaction (gains) losses....... (773) 26 (1,549) (113)
Other (income) expense, net....................... (98) (212) (115) 143
--------- -------- -------- --------
Income before income taxes and minority interest . 23,701 27,096 62,093 66,417
Minority interest................................. 5,725 8,265 14,928 23,034
--------- -------- -------- --------
Income before income taxes ....................... 17,976 18,831 47,165 43,383
Income tax provision.............................. 6,587 7,200 17,500 16,592
--------- -------- -------- --------
Net income................................. $ 11,389 $ 11,631 $ 29,665 $ 26,791
========= ======== ======== ========
See the accompanying notes to the consolidated financial statements.
-1-
GENERAL CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31, SEPTEMBER 30,
---------------------------
1995 1996
---- ----
(UNAUDITED)
Current Assets:
Cash and cash equivalents................................... $ 13,279 $ 34,404
Receivables, net............................................ 76,440 92,067
Inventories................................................. 35,427 30,383
Deferred income taxes....................................... 12,559 11,637
Other current assets........................................ 916 1,538
--------- ---------
Total current assets.................................... 138,621 170,029
Property, plant and equipment, net............................... 187,417 201,356
Other assets..................................................... 29,297 32,314
--------- ---------
Total assets............................................ $ 355,335 $ 403,699
========= =========
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable............................................ $ 44,388 $ 46,070
Accrued liabilities......................................... 71,280 62,160
Income taxes payable........................................ 1,083 4,124
Current portion of long-term debt........................... 17,392 17,392
--------- ---------
Total current liabilities............................... 134,143 129,746
Long-term debt................................................... 255,608 221,565
Other liabilities................................................ 161,691 165,268
--------- ---------
Total liabilities....................................... 551,442 516,579
--------- ---------
Minority interest................................................ 28,278 40,516
--------- ---------
Equity (deficit):
Common stock, $.01 par value
authorized: 1,000 shares
issued and outstanding: 100 shares........................ -- --
Capital deficit............................................. (232,241) (188,026)
Foreign currency translation adjustments.................... (1,362) (1,379)
Retained earnings .......................................... 9,218 36,009
--------- ---------
Total equity (deficit).................................. (224,385) (153,396)
--------- ---------
Total liabilities and equity (deficit).................. $ 355,335 $ 403,699
========= =========
See the accompanying notes to the consolidated financial statements.
-2-
GENERAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1995 1996
---- ----
Cash flows from operating activities:
Net income ................................................... $ 29,665 $ 26,791
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................... 19,191 19,431
Net (gain) loss on disposition of long-term assets.......... (93) 363
Unrealized exchange (gain) loss............................. (2,085) 3
Restricted unit plan costs ................................. -- 8,615
(Increase) in receivables................................... (4,196) (15,648)
Decrease in inventories..................................... 858 5,031
(Increase) decrease in other assets........................ 1,167 (3,609)
Increase (decrease) in accounts payable.................... (1,538) 1,693
(Decrease) in accrued liabilities........................... (1,810) (9,125)
Increase in income taxes payable............................ 646 3,053
Increase (decrease) in other liabilities.................... (4,489) 3,577
Increase in minority interest............................... 3,211 12,238
-------- --------
Net cash provided by operating activities................. 40,527 52,413
-------- --------
Cash flows from investing activities:
Capital expenditures.......................................... (17,124) (33,155)
Proceeds from sales or disposals of long-term assets......... 123 312
-------- --------
Net cash provided by (used for) investing activities....... (17,001) (32,843)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt.................................. 2,000 20,000
Repayment of long-term debt................................... (14,000) (54,043)
Capital contribution from parent.............................. -- 35,600
Dividends..................................................... (11,500) --
-------- -------
Net cash provided by (used for) financing activities....... (23,500) 1,557
-------- --------
Effect of exchange rate changes on cash.......................... 485 (2)
-------- --------
Increase (decrease) in cash and cash equivalents................. 511 21,125
Cash and cash equivalents at beginning of period................. 18,284 13,279
-------- --------
Cash and cash equivalents at end of period....................... $ 18,795 $ 34,404
======== ========
Supplemental information:
Cash paid for income taxes.................................... $ 8,196 $ 5,543
======== ========
Cash paid for interest........................................ $ 18,951 $ 17,877
======== ========
See the accompanying notes to the consolidated financial statements.
-3-
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared by General Chemical Corporation ("General Chemical" or the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission.
The financial statements do not include certain information and footnotes
required by generally accepted accounting principles. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. General Chemical's financial statements should be read in conjunction with
the financial statements and the notes thereto included in General Chemical's
Annual Report on Form 10-K for the year ended December 31, 1995.
NOTE 2 - CAPITAL CONTRIBUTION
On May 16, 1996, The General Chemical Group Inc. (the Company's ultimate
parent) completed an initial public offering in which it issued and sold
2,500,000 shares of Common Stock for $17.50 per share. A portion of the net
proceeds, $35,600, was contributed to the Company and was recorded as a capital
contribution. Additionally, $8,309 was recorded as a capital contribution by the
Company related to The General Chemical Group Inc. restricted unit plan. See
"Note 7 - Phantom Equity Plan."
NOTE 3 - RELATED PARTY TRANSACTIONS
Management Agreement
The Company is party to a Management Agreement with The General Chemical
Group Inc. Pursuant to the Agreement, the Company was charged $2,219 and $2,280
for the nine months ended September 30, 1995 and 1996, respectively, for general
corporate supervisory services, strategic guidance and payments made to Company
management personnel in connection with incentive compensation programs. The
Management Agreement expires in 1997 and is subject to extension.
NOTE 4 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
DECEMBER 31, SEPTEMBER 30,
----------- -------------
1995 1996
---- ----
(unaudited)
Raw materials....................................... $ 9,053 $ 8,256
Work in process..................................... 2,668 3,050
Finished products................................... 15,927 11,292
Supplies ........................................... 7,779 7,785
-------- --------
$ 35,427 $ 30,383
======== ========
-4-
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 5- LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, SEPTEMBER 30,
----------- -------------
MATURITIES 1995 1996
---------- ---- ----
(unaudited)
Bank Term Loan - floating rate................... 1996-2001 $ 100,000 $ 86,957
Senior Subordinated Notes - 9.25%................ 2003 100,000 100,000
Canada Senior Notes - 9.09%...................... 1999 52,000 52,000
U.S. Revolving Credit Facility - floating rate... 1999 21,000 --
--------- -------
Total Debt....................................... 273,000 238,957
Less: Current Portion........................... 17,392 17,392
--------- ---------
Net Long-Term Debt............................... $ 255,608 $ 221,565
========= =========
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Richmond Works July 26, 1993 Incident. On July 26,1993 a pressure relief
device on a railroad tank car containing oleum that was being unloaded at the
Company's Richmond, California, facility, ruptured during the unloading process,
causing the release of a significant amount of sulfur trioxide. Approximately
150 lawsuits seeking substantial amounts of damages were filed against the
Company on behalf of in excess of 60,000 claimants in municipal and superior
courts of California and in federal court. All state court cases were
coordinated before a coordination trial judge in Contra Costa County Superior
Court. The federal court cases were stayed until completion of the state court
cases.
On November 22, 1995, the court approved a comprehensive settlement
agreement pursuant to which the Company, with funds to be provided by its
insurers pursuant to the terms of the Company's insurance policies agreed to
make available a maximum of $180,000 to implement the settlement.
The settlement agreement provides, among other things, that while
claimants may "opt out" of the compensatory damages portion of the settlement
and pursue their own case separate and apart from the class settlement
mechanism, they have no right to opt out of the punitive damages portion of the
settlement. Consequently, under the terms of the settlement, no party may seek
punitive damages from the Company outside of those provided by the settlement.
The deadline for claimants electing to opt out of the compensatory damages
portion of the settlement was October 5, 1995. Fewer than 3,000 claimants, which
constitutes approximately 5 percent of the total number of claimants, have
elected to so opt out.
-5-
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Under the terms of the settlement agreement, settling claimants may
receive payment of their claims prior to the resolution of any appeal of the
settlement upon providing, among other things, a signed release document
containing language which fully releases the Company from any further claims,
either for compensatory or punitive damages, arising out of the July 26, 1993
incident. Plaintiffs' liaison counsel are currently undertaking to obtain signed
releases from the approximately 95 percent of claimants who have elected to
participate in the settlement.
Notices of appeal of all or portions of the settlement approved by the
court were filed by five law firms representing approximately 2,750 claimants,
with approximately 2,700 of these claimants represented by the same law firm.
Based on papers filed by the appellants in the California Court of Appeals, the
primary grounds for the appeal were that the settlement is not "fair, reasonable
and adequate" under California law, that the trial court erred in certifying a
class action for purposes of settlement and in certifying a mandatory punitive
damage class, that the trial court awarded excessive attorneys' fees to the
plaintiffs' management committee and plaintiffs' class counsel, that the trial
court exceeded its authority in reducing contingent fees payable to attorneys
for representing individual claimants, and that the trial court erroneously
applied a state statute that governs unclaimed residuals remaining from class
action settlements.
On May 8, 1996, the California Court of Appeals dismissed each of the
appeals that had been filed challenging the trial court's approval of the class
action settlement. The Court of Appeals dismissed the appeal relating to the
trial court's rulings on plaintiffs' attorney's fees on the ground that the
appealing attorneys lacked standing to appeal. The Court of Appeals also
dismissed each of the other pending appeals ruling that the trial court's orders
and rulings approving the settlement were not presently appealable, if at all,
by the appealing claimants since they had all elected to opt out of the
settlement. The appealing attorneys and some of the appealing claimants then
filed a petition for review with the California Supreme Court which on August
15, 1996 elected not to review the Court of Appeals' decision. Notwithstanding
this decision, it is possible that one or more of the appealing claimants, once
their cases are finally litigated through trial, may attempt to refile all or a
portion of the appeals that have now been dismissed.
While there can be no assurances regarding how the California Supreme
Court might rule in the event of such a refiling, the Company believes that the
settlement will be upheld on appeal. If the settlement is upheld on appeal, the
Company believes that any further liability in excess of the amounts made
available under the settlement agreement will not exceed the available insurance
coverage, if at all, by an amount that could be material to its financial
condition or results of operations. In the event of a reversal or modification
of the settlement on appeal, with respect to lawsuits by any then remaining
claimants (opt-outs and settling claimants who have not signed releases) the
Company believes that, whether or not it elects to terminate the settlement in
the event it is reversed or modified on appeal, it will have adequate resources
from its available insurance coverage to vigorously defend these lawsuits
through their ultimate conclusion, whether by trial or settlement. However, in
the event the settlement is overturned or modified on appeal, there can be no
assurance that the Company's ultimate liability resulting from the July 26, 1993
incident would not exceed the available insurance coverage by an amount which
could be material to its financial condition or results of operations, nor is
the Company able to estimate or predict a range of what such ultimate liability
might be, if any.
-6-
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 7 - PHANTOM EQUITY PLAN
During the second quarter of 1996, participants in the Phantom Equity
Plan (the "Plan") received rights in a Restricted Unit Plan adopted by The
General Chemical Group Inc. replacing their rights earned beginning in 1989
under the Plan; the Plan was then terminated. The Restricted Unit Plan
authorizes the issuance of 850,000 units, with each unit representing one share
of Common Stock of the General Chemical Group to be issued to the participant
upon the occurrence of certain conditions. All awards are subject to a five year
tiered vesting schedule under which a portion of each participant's award vests
annually over a five year period. Accordingly, during the second quarter of 1996
the Company recorded an $8,309 charge related to the Restricted Unit Plan for
amounts earned in the Plan since 1989. The offsetting credit has been recorded
as a capital contribution.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
September 30, 1996 Compared with December 31, 1995
Financial Condition
Cash and cash equivalents were $34.4 million at September 30, 1996 as
compared with $13.3 million at December 31, 1995. During the first nine months
of 1996 the Company generated cash flow from operating activities of $52.4
million, received $35.6 million as a capital contribution from its parent, and
used cash of $33.2 million for capital expenditures and $34.0 million for net
repayment of long-term debt.
The Company had working capital of $40.3 million at September 30, 1996 as
compared with $4.5 million at December 31, 1995. This increase in working
capital reflects higher cash and accounts receivable balances, coupled with
lower accrued liabilities, partially offset by lower inventories, higher
accounts payable and income taxes payable.
Nine Months Ended September 30, 1996, Compared with Nine Months Ended
September 30, 1995
Results of Operations
The following table sets forth the results of operations and percentage
of net revenues represented by the components of operating income and expense
for the nine months ended September 30, 1995 and 1996 (dollars in millions).
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1995 1996
----------------- -------------
Net revenues.................................... $345.0 100% $382.8 100%
Cost of sales................................... 238.5 69 262.0 68
------ --- ------ ---
Gross profit.................................... 106.5 31 120.8 32
Selling, general and administrative expense..... 28.3 8 37.5 10
------ --- ------ ---
Operating profit................................ $ 78.2 23% $ 83.3 22%
====== === ====== ===
Net revenues for the nine months ended September 30, 1996 were $382.8
million or 11 percent higher than the prior year level due primarily to
continued favorable pricing for soda ash as well as performance improvement in
all other product lines.
Gross profit for the first nine months of 1996 increased 13 percent to
$120.8 million from $106.5 million for the comparable prior year period. Gross
profit as a percentage of net revenues increased to 32 percent for the first
nine months of 1996 from 31 percent for the prior year level due to favorable
soda ash pricing, partially offset by higher manufacturing expenses.
Selling, general and administrative expense was 10 percent of net
revenues for the first nine months of 1996 versus 8 percent for the first nine
months of 1995. The increase is due primarily to a one-time noncash pretax
charge of $8.3 million related to a Restricted Unit Plan created by the
Company's parent which satisfied the Company's liability under its former
Phantom Equity Plan.
Interest expense for the first nine months of 1996 was $17.7 million
which was $1.0 million lower than the 1995 level due to lower outstanding debt
balances.
-8-
Interest income for the first nine months of 1996 was $.9 million which
approximated the 1995 level.
The foreign currency transaction gain for 1996 was $.1 million versus a
$1.5 gain in 1995. These amounts are principally due to the impact of exchange
rate fluctuations on a $52 million U.S. denominated loan of the Company's
Canadian subsidiary. The impact of foreign currency transaction (gains) losses
on this loan is noncash.
Minority interest for the first nine months of 1996 was $23.0 million as
compared with $14.9 million for the same period last year, reflecting the higher
earnings of General Chemical (Soda Ash) Partners.
Net income for the first nine months of 1996 was $26.8 million as
compared with $29.7 million for the same period in 1995, for the foregoing
reasons, in particular, the one-time charge related to the Restricted Unit Plan.
-9-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following developments have occurred with respect to this matter
since the filing of the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1996:
Richmond Works July 26, 1993 Incident. In connection with efforts by
plaintiffs' liaison counsel to obtain signed releases from the approximately 95
percent of claimants who have elected to participate in the settlement, as of
September 30, 1996 the Company had already received releases from approximately
94 percent of the settling claimants. Final payments to the plaintiffs'
management committee on behalf of these settling claimants have been made with
funds provided principally by the Company's insurers pursuant to the terms of
the insurance policies described in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and further payments will be made as additional
releases are received and reviewed.
With respect to the notices of appeal of all or portions of the
settlement approved by the court which have been filed by five law firms
representing approximately 2,750 claimants (2,700 represented by the same law
firm), these claimants have not specified the amount of their claims in court
documents, although the Company believes that their alleged injuries are no
different in nature or extent than those alleged by the settling claimants.
Based on papers filed by the appellants with the California Court of Appeals,
the primary grounds for appeal were that the settlement is not "fair, reasonable
and adequate" under California law, that the trial court erred in certifying a
class action for purposes of settlement and in certifying a mandatory punitive
damage class, that the trial court awarded excessive attorneys' fees to the
plaintiffs' management committee and plaintiffs' class counsel, that the trial
court exceeded its authority in reducing contingent fees payable to attorneys
for representing individual claimants, and that the trial court erroneously
applied a state statute that governs unclaimed residuals remaining from class
action settlements.
On May 8, 1996, the California Court of Appeals dismissed each of the
appeals that had been filed challenging the trial court's approval of the class
action settlement. The Court of Appeals dismissed the appeal relating to the
trial court's rulings on plaintiffs' attorneys' fees on the ground that the
appealing attorneys lacked standing to appeal. The Court of Appeals also
dismissed each of the other pending appeals ruling that the trial court's orders
and rulings approving the settlement were not presently appealable, if at all,
by the appealing claimants since they had all elected to opt out of the
settlement. The appealing attorneys and some of the appealing claimants filed a
petition for review with the California Supreme Court which on August 15, 1996
elected not to review the Court of Appeals' decision. Notwithstanding this
decision, it is possible that one or more of the opt-out claimants, once their
opt-out cases are finally litigated through trial, may attempt to refile all or
a portion of the appeals that have now been dismissed.
For additional information, refer to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996 as filed with the Securities and Exchange
Commission.
-10-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
(27) Financial Data Schedule
b) No report on Form 8-K has been filed during the period covered by
this report.
-11-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL CHEMICAL CORPORATION
----------------------------
(Registrant)
Date November 11, 1996 /s/Edward J. Waite, III
-------------------- --------------------
EDWARD J. WAITE, III
Vice President, General Counsel
and Secretary (Authorized Officer)
Date November 11, 1996 /s/Ralph M. Passino
-------------------- --------------------
RALPH M. PASSINO
Chief Financial Officer and Vice
President of Administration
(Principal Financial Officer)
-12-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
---------- ----------- -----
27 Financial Data Schedule (EDGAR filings only) 14
13