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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)
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OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______ to_______
Commission File Number 1-13404
THE GENERAL CHEMICAL GROUP INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 02-0423437
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
LIBERTY LANE
HAMPTON, NEW HAMPSHIRE 03842
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 929-2606
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The number of shares of Common Stock outstanding at May 9, 1997 was 20,925,747.
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THE GENERAL CHEMICAL GROUP INC.
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 1997
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months
Ended March 31, 1996 and 1997.................................... 1
Consolidated Balance Sheets - December 31, 1996 and
March 31, 1997................................................... 2
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1997.................................... 3
Notes to the Consolidated Financial Statements.................... 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 7-8
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings........................................... 9
Item 6. Exhibits and Reports on Form 8-K............................ 10
SIGNATURES........................................................... 11
EXHIBIT INDEX........................................................ 12
EXHIBITS............................................................. 13-14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1997
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Net revenues................................................................ $ 144,571 $ 149,566
Cost of sales............................................................... 103,060 104,364
Selling, general and administrative expense................................. 13,981 15,114
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Operating profit............................................................ 27,530 30,088
Interest expense............................................................ 6,464 5,257
Interest income............................................................. 608 750
Foreign currency transaction (gains) losses................................. (51) 546
Other (income) expense, net................................................. (86) (453)
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Income before income taxes and minority interest............................ 21,811 25,488
Minority interest........................................................... 6,458 6,221
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Income before income taxes ................................................. 15,353 19,267
Income tax provision........................................................ 6,037 7,553
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Net income ........................................................... $ 9,316 $ 11,714
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Earnings per common and common
equivalent share........................................................... $ .47 $ .50
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Dividends declared per share................................................ $ -- $ .05
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Weighted average common and common
equivalent shares outstanding.............................................. 19,736,842 23,294,662
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See the accompanying notes to consolidated financial statements.
-1-
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31, MARCH 31,
1996 1997
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(UNAUDITED)
Current Assets:
Cash and cash equivalents.................................................. $ 51,700 $ 63,164
Receivables, net........................................................... 102,478 105,312
Inventories................................................................ 41,429 41,424
Deferred income taxes...................................................... 11,264 11,933
Other current assets....................................................... 2,153 3,028
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Total current assets................................................... 209,024 224,861
Property, plant and equipment, net.............................................. 239,819 237,182
Other assets .............................................................. 36,294 35,591
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Total assets............................................................... $ 485,137 $ 497,634
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LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable........................................................... $ 53,772 $ 50,305
Accrued liabilities........................................................ 74,205 71,588
Income taxes payable....................................................... 5,500 11,179
Current portion of long-term debt.......................................... 17,392 17,392
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Total current liabilities............................................. 150,869 150,464
Long-term debt.................................................................. 217,217 212,869
Other liabilities............................................................... 198,232 199,370
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Total liabilities..................................................... 566,318 562,703
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Minority interest............................................................... 38,572 43,844
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Equity (deficit):
Preferred Stock, $.01 par value; authorized:
10,000,000 shares; none issued or outstanding............................. -- --
Common Stock, $.01 par value; authorized:
50,000,000 and 100,000,000 shares, issued
8,009,601 and 8,009,601 shares at December 31, 1996 and
March 31, 1997, respectively.............................................. 80 80
Class B Convertible Common Stock, $.01 par value;
authorized 40,000,000 shares; issued and outstanding:
14,261,467 shares at December 31, 1996 and March 31, 1997................. 143 143
Capital deficit............................................................ (185,215) (184,862)
Foreign currency translation adjustments................................... (1,435) (1,499)
Retained earnings ......................................................... 66,797 77,399
Treasury stock, at cost: 6,325 shares at December 31, 1996
and 8,600 shares at March 31, 1997, respectively.......................... (123) (174)
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Total equity (deficit)................................................ (119,753) (108,913)
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Total liabilities and equity (deficit)................................ $ 485,137 $ 497,634
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See the accompanying notes to the consolidated financial statements.
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THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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1996 1997
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Cash flows from operating activities:
Net income ................................................................ $ 9,316 $ 11,714
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................................. 7,539 7,930
Net (gain) loss on disposition of long-term assets........................ 85 192
Unrealized exchange loss.................................................. 67 740
Restricted unit plan costs................................................ -- 351
(Increase) in receivables................................................. (10,657) (3,071)
(Increase) in inventories................................................. (1,659) (149)
(Decrease) in accounts payable............................................ (806) (3,405)
(Decrease) in accrued liabilities......................................... (94) (2,552)
Increase in income taxes payable.......................................... 3,673 5,640
Increase (decrease) in other liabilities and assets, net.................. (133) 186
Increase in minority interest............................................. 5,356 5,272
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Net cash provided by operating activities.............................. 12,687 22,848
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Cash flows from investing activities:
Capital expenditures..................................................... (8,622) (5,842)
Repayment of related party loans ........................................ 2,000 --
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Net cash used for investing activities................................. (6,622) (5,842)
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Cash flows from financing activities:
Proceeds from long-term debt............................................. 5,000 --
Repayment of long-term debt.............................................. (8,418) (4,348)
Payments to acquire treasury stock....................................... -- (51)
Dividends................................................................ -- (1,112)
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Net cash used for financing activities................................. (3,418) (5,511)
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Effect of exchange rate changes on cash........................................ (49) (31)
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Increase in cash and cash equivalents......................................... 2,598 11,464
Cash and cash equivalents at beginning of period............................... 19,025 51,700
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Cash and cash equivalents at end of period..................................... $ 21,623 $ 63,164
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Supplemental information:
Cash paid for income taxes............................................... $ 2,268 $ 2,653
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Cash paid for interest................................................... $ 7,299 $ 6,134
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See the accompanying notes to the consolidated financial statements.
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of The General Chemical Group Inc. and its subsidiaries (the
"Company"). These unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements do not include certain information and
footnotes required by generally accepted accounting principles. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1997 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997. The
Company's financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
The Financial Accounting Standards Board issued Statement of Accounting
Standards No. 128, "Earnings Per Share" ("FAS 128"). The Company is required to
adopt FAS 128 for both interim and annual periods ending after December 15,
1997. FAS 128 requires the Company to present Basic Earnings Per Share which
excludes dilution and Diluted Earnings Per Share which includes potential
dilution. The Company believes that the adoption of FAS 128 will not have a
material effect on the Company's earnings per share calculations.
NOTE 2 - RELATED PARTY TRANSACTIONS
Management Agreement
The Company is party to a management agreement with Latona Associates
Inc. (a management and advisory company which is controlled by a stockholder of
the Company). Pursuant to the agreement, the Company was charged $1,406 and
$1,460 for the three months ended March 31, 1996 and 1997, respectively, for
corporate supervisory and administrative services and strategic advice and
guidance. The management agreement expires on December 31, 2004.
NOTE 3 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
DECEMBER 31, MARCH 31,
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1996 1997
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(unaudited)
Raw materials.................................................. $11,022 $ 9,772
Work in process................................................ 4,900 6,772
Finished products.............................................. 17,403 16,664
Supplies and containers....................................... 8,104 8,216
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$41,429 $ 41,424
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-4-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
MATURITIES DECEMBER 31, MARCH 31,
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1996 1997
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(UNAUDITED)
GCC Debt:
Bank Term Loan - floating rate.......................... 1997-2001 $ 82,609 $ 78,261
Senior Subordinated Notes - 9.25%....................... 2003 100,000 100,000
Canada Senior Notes - 9.09%............................. 1999 52,000 52,000
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Total Debt.............................................. 234,609 230,261
Less: Current Portion.................................. 17,392 17,392
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Net Long-Term Debt...................................... $ 217,217 $ 212,869
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NOTE 5 - DIVIDENDS
On March 15, 1997, the Company's Board of Directors declared a
quarterly cash dividend of $.05 per share, payable April 15, 1997, to
shareholders of record on April 1, 1997.
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 (Contra Costa and San Francisco Counties) and in
federal court (United States District Court for the Northern District of
California). All state court cases were coordinated before a coordination trial
judge (In Re GCC Richmond Works Cases, JCCP No. 2906) and the federal court
cases were stayed until completion of the state court cases.
After several months of negotiation under the supervision of a
settlement master, the Company and a court-approved plaintiffs' management
committee executed a comprehensive settlement agreement which resolved the
claims of approximately 95 percent of the claimants who filed lawsuits arising
out the July 26th incident, including the federal court cases. After a final
settlement approval hearing on October 27, 1995, the coordination trial judge
approved the settlement on November 22, 1995. Pursuant to the terms of the
settlement agreement, the Company, with funds to be provided by its insurers
pursuant to the terms of its insurance policies, has agreed to make available a
maximum of $180,000 to implement the settlement. In addition, 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 cases
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.
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
FOR THE QUARTER ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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.
Virtually all of 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. 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.
On March 11, 1997, the coordination judge dismissed the claims of 1,269
of the approximately 2,750 opt-out claimants, primarily on the grounds that they
had failed to comply with previous pre-trial orders. On April 18, 1997, the
California Court of Appeals denied a petition for review of the dismissals filed
by attorneys for the dismissed opt-out claimants, thereby electing not to review
the decision. The same attorneys have recently filed a petition with the
California Supreme Court for review of the California Court of Appeals' denial
of their prior petition.
It is possible that one or more of the appealing claimants, once their
opt-out cases are finally litigated through trial, may attempt to refile all or
a portion of the appeals that were dismissed by the Court of Appeals. While
there can be no assurances regarding how an appellate 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.
The Company has insurance coverage relating to this incident which
totals $200,000. The first two layers of coverage total $25,000 with a sublimit
of $12,000 applicable to the July 26, 1993 incident, and the Company also has
excess insurance policies of $175,000 over the first two layers. The Company
reached an agreement with the carrier for the first two layers whereby the
carrier paid the Company $16,000 in settlement of all claims the Company had
against that carrier. In the third quarter of 1994, the Company recorded a
$9,000 charge to earnings for costs which the Company incurred related to this
matter. The Company's excess insurance policies, which are written by two
Bermuda-based insurers, provide coverage for compensatory as well as punitive
damages. Both insurers have executed agreements with the Company confirming
their respective commitments to fund the settlement as required by their
insurance policies with the Company and as described in the settlement
agreement. In addition, these same insurers currently continue to provide
substantially the same insurance coverage to the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
March 31, 1997 Compared with December 31, 1996
Financial Condition
Cash and cash equivalents were $63.2 million at March 31, 1997 as
compared with $51.7 million at December 31, 1996. During the first three months
of 1997 the Company generated cash flow from operating activities of $22.8
million, and used cash of $4.3 million for net repayment of long-term debt, $5.8
million for capital expenditures and paid a cash dividend of $1.1 million.
The Company had working capital of $74.4 million at March 31, 1997 as
compared with $58.2 million at December 31, 1996. This increase in working
capital reflects higher cash and accounts receivable coupled with lower accounts
payable and accrued liabilities, partially offset by higher income taxes
payable.
On April 23, 1997, the Company purchased 1,343,046 shares of common
stock at $20 per share for a total of $26.9 million. The purchase was funded
from the Company's cash and cash equivalents balance.
Results of Operations
Net revenues for the three month period ended March 31, 1997 increased
4 percent to $149.6 million, from $144.6 million for the comparable period in
1996. This increase is due to higher sales in the Manufacturing Segment,
partially offset by lower sales in the Chemical Segment. The increase in the
Manufacturing Segment primarily reflects higher volumes. The decrease in the
Chemical Segment is due primarily to weaker pricing of soda ash and lower
calcium chloride volumes caused by the mild winter weather in the northeastern
United States, partially offset by volume improvements across the majority of
all other product lines.
Gross profit for the three month period ended March 31, 1997 increased
9 percent to $45.2 million from $41.5 million for the comparable prior year
period.
Gross profit as a percentage of sales increased 1 percent to 30 percent
for the three months ended March 31, 1997 versus 29 percent for the three month
period ended March 31, 1996 primarily due to higher volumes in the Manufacturing
Segment
Selling, general and administrative expense as a percentage of net
revenues was 10 percent for the three months ended March 31, 1996 and 1997.
Interest expense for the three month period ended March 31, 1997 was
$5.3 million, which was $1.2 million lower than the comparable prior year level
as a result of lower outstanding debt balances.
Interest income for the three month period ended March 31, 1997 was $.7
million, which approximated the prior year levels.
The foreign currency transaction loss for the three month period ended
March 31, 1997 was $.5 million versus a gain of $(.1) million for the comparable
period in 1996, 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 these foreign currency transaction gains on this loan is noncash.
-7-
Minority interest for the three month period ended March 31, 1997 was
$6.2 million which approximated the comparable period in 1996.
Net income was $11.7 million for the three month period ended March 31,
1997, versus $9.3 million for the comparable period in 1996, for the foregoing
reasons.
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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 Annual Report on Form 10-K for the year ended
December 31, 1996:
Richmond Works July 26, 1993 Incident. On March 11, 1997, the
coordination judge dismissed the claims of 1,269 of the approximately 2,750
opt-out claimants, primarily on the grounds that they had failed to comply with
previous pre-trial orders. On April 18, 1997, the California Court of Appeals
denied a petition for review of the dismissals filed by attorneys for the
dismissed opt-out claimants, thereby electing not to review the decision. The
same attorneys have recently filed a petition with the California Supreme Court
for review of the California Court of Appeals' denial of their prior petition.
-9-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
(11) Computation of Earnings per Common and Common Equivalent Share.
(27) Financial Data Schedule
b) No report on Form 8-K has been filed by the Company during the period
covered by this report.
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GENERAL CHEMICAL GROUP INC.
(Registrant)
Date May 12, 1996 /s/ Richard R. Russell
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RICHARD R. RUSSELL
President and Chief Executive
Officer (Principal Executive Officer) and Director
Date May 12, 1996 /s/ Ralph M. Passino
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RALPH M. PASSINO
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-11-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
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11 Computation of Net Earning per Common and 13
common equivalents shares for the three
months ended March 31, 1996 and 1997
27 Financial Date Schedule (EDGAR filings only) 14