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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
- ----------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 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
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I
(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
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 MARCH 31, 1997
INDEX
PAGE NO.
--------
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
EXHIBIT ................................................... 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENERAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1997
---- ----
Net revenues.............................................. $ 117,395 $ 115,736
Cost of sales............................................. 83,525 82,612
Selling, general and administrative expense............... 9,491 10,440
---------- -----------
Operating profit.......................................... 24,379 22,684
Interest expense.......................................... 6,079 5,233
Interest income........................................... 279 464
Foreign currency transaction (gains) losses............... (51) 546
Other (income) expense, net............................... (108) (509)
---------- -----------
Income before income taxes and minority interest ......... 18,738 17,878
Minority interest......................................... 6,458 6,220
---------- -----------
Income before income taxes ............................... 12,280 11,658
Income tax provision...................................... 4,811 4,535
---------- -----------
Net income .................................... $ 7,469 $ 7,123
========== ===========
See the accompanying notes to consolidated financial statements.
-1-
GENERAL CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31, MARCH 31,
------------ ---------
1996 1997
---- ----
(UNAUDITED)
Current Assets:
Cash and cash equivalents................................................... $ 32,742 $ 41,681
Receivables, net............................................................ 87,288 88,683
Inventories ............................................................. 34,444 32,927
Deferred income taxes....................................................... 9,323 9,662
Other current assets........................................................ 1,318 2,675
----------- -----------
Total current assets...................................................... 165,115 175,628
Property, plant and equipment, net............................................. 212,743 210,401
Other assets ............................................................. 30,919 30,476
----------- -----------
Total assets.............................................................. $ 408,777 $ 416,505
=========== ===========
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................................... $ 46,208 $ 43,033
Accrued liabilities....................................................... 59,900 59,014
Income taxes payable...................................................... 3,033 5,630
Current portion of long-term debt......................................... 17,392 17,392
----------- -----------
Total current liabilities............................................. 126,533 125,069
Long-term debt................................................................. 217,217 212,869
Other liabilities.............................................................. 167,591 168,507
----------- -----------
Total liabilities..................................................... 511,341 506,445
----------- -----------
Minority interest.............................................................. 38,572 43,844
----------- -----------
Equity (deficit)
Common stock, $.01 par value
authorized: 1,000 shares
issued and outstanding: 100 shares................................... -- --
Capital deficit........................................................... (187,652) (187,359)
Foreign currency translation adjustments.................................. (1,435) (1,499)
Retained earnings ........................................................ 47,951 55,074
----------- -----------
Total equity (deficit)................................................ (141,136) (133,784)
----------- -----------
Total liabilities and equity (deficit)................................ $ 408,777 $ 416,505
=========== ===========
See the accompanying notes to the consolidated financial statements.
-2-
GENERAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1997
---- ----
Cash flows from operating activities:
Net income ................................................................ $ 7,469 $ 7,123
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................................. 6,545 6,954
Net loss on disposition of long-term assets............................... 85 188
Unrealized exchange loss.................................................. 67 740
Restricted unit plan costs................................................ -- 293
(Increase) in receivables................................................. (9,485) (1,632)
(Increase) decrease in inventories........................................ (274) 1,363
(Increase) in other assets................................................ (290) (1,692)
(Decrease) in accounts payable............................................ (1,690) (3,113)
Increase (decrease) in accrued liabilities................................ 445 (821)
Increase in income taxes payable.......................................... 2,235 2,558
Increase (decrease) in other liabilities.................................. (325) 1,256
Increase in minority interest............................................. 5,356 5,272
--------- ----------
Net cash provided by operating activities.............................. 10,138 18,489
--------- ----------
Cash flows from investing activities:
Capital expenditures..................................................... (8,121) (5,171)
--------- ----------
Net cash used for investing activities................................ (8,121) (5,171)
--------- ----------
Cash flows from financing activities:
Proceeds from long-term debt............................................. 5,000 --
Repayment of long-term debt.............................................. (4,348) (4,348)
--------- ----------
Net cash provided by (used for) financing activities................... 652 (4,348)
--------- ----------
Effect of exchange rate changes on cash........................................ (49) (31)
--------- ----------
Increase in cash and cash equivalents......................................... 2,620 8,939
Cash and cash equivalents at beginning of period............................... 13,279 32,742
--------- ----------
Cash and cash equivalents at end of period..................................... $ 15,899 $ 41,681
========= ==========
Supplemental information:
Cash paid for income taxes............................................... $ 2,250 $ 2,543
========= ==========
Cash paid for interest................................................... $ 6,942 $ 6,134
========= ==========
See the accompanying notes to the consolidated financial statements.
-3-
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1997
(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 three months ended March 31, 1997 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997.
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, 1996.
NOTE 2 - RELATED PARTY TRANSACTIONS
Management Agreement
The Company is party to the Management Agreement with New Hampshire
Oak. Pursuant to the Agreement, the Company was charged $760 and $789 for the
three months ended March 31, 1996 and 1997, respectively, for general corporate
supervisory services and strategic guidance. The Management Agreement expires
during 1997, subject to extension.
NOTE 3 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
DECEMBER 31, MARCH 31,
------------ ---------
1996 1997
---- ----
Raw materials....................... $ 9,567 $ 8,518
Work in process..................... 2,326 2,838
Finished products................... 14,506 13,364
Supplies ........................... 8,045 8,207
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$ 34,444 $ 32,927
========= =========
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, MARCH 31,
------------ ---------
MATURITIES 1996 1997
---------- ---- ----
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
-------- ---------
Net Long-Term Debt........................... $217,217 $ 212,869
======== =========
-4-
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Aggregate maturities of long-term debt at December 31, 1996 for each of
the years in the five year period ending December 31, 2001 are $17,392, $17,392,
$69,392, $17,392 and $13,041, respectively.
NOTE 5 - 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.
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.
-5-
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
FOR THE QUARTER ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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.
-6-
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 $41.7 million at March 31, 1997 as
compared with $32.7 million at December 31, 1996. During the first three months
of 1997 the Company generated cash flow from operating activities of $18.5
million, and used cash of $5.2 million for capital expenditures and used cash of
$4.3 million for payment of long-term debt.
The Company had working capital of $50.6 million at March 31, 1997 as
compared with $38.6 million at December 31, 1996. This increase in working
capital reflects higher cash and accounts receivable balances, coupled with
lower accounts payable and accrued liabilities partially offset by lower
inventory and higher income taxes payable. These changes arose in the normal
course of business.
Three Months Ended March 31, 1997, Compared with Three Months Ended
March 31, 1996
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 three months ended March 31, 1996 and 1997 (dollars in
millions).
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1996 1997
--------------- -----------
Net revenues............................................... $117.4 100% $115.7 100%
Cost of sales.............................................. 83.5 71 82.6 71
------ --- ------ ---
Gross profit............................................... 33.9 29 33.1 29
Selling, general and administrative expense................ 9.5 8 10.4 9
------ --- ------ ----
Operating profit........................................... $ 24.4 21% $ 22.7 20%
====== === ====== ===
Net revenues for the three months ended March 31, 1997 were $115.7
million or one percent lower than the prior year level 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 first three months of 1997 was $33.1 million
compared with $33.9 million for the comparable period in 1996. Gross profit as a
percentage of net revenues was 29 percent for the first three months of 1996 and
1997.
Selling, general and administrative expense was 9 percent of net
revenues for the first three months of 1997, versus 8 percent for the first
three months of 1996, primarily due to charges for the restricted unit plan and
cost increases due to inflation.
Interest expense for the first three months of 1997 was $5.2 million
which was $.8 million lower than the first three months of 1996 due to lower
outstanding debt balances.
Interest income for the first three months of 1997 was $.5 million
which was $.2 million higher than the first three months of 1996 due to higher
cash balances.
-7-
The foreign currency transaction loss for the first three months of
1997 was $.5 million versus a gain of $(.1) million for the first three months
of 1996. This is 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 three months of 1997 was $6.2 million
which approximated the 1996
amount.
Net income for the first three months of 1997 was $7.1 million compared
with $7.5 million for the same period in 1996, due to the foregoing.
-8-
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) (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.
GENERAL CHEMICAL CORPORATION
(Registrant)
Date May 12, 1997 /s/ Edward J. Waite, III
---------------- --------------------
EDWARD J. WAITE, III
Vice President, General Counsel
and Secretary (Authorized Officer)
Date May 12, 1997 /s/ Ralph M. Passino
---------------- --------------------------------
RALPH M. PASSINO
Chief Financial Officer and Vice President
of Administration (Principal Financial Officer)
-11-
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
27 Financial Data Schedule 13
(EDGAR Filings Only)
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