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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, 1998
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 07054
PARSIPPANY, NEW JERSEY (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (973) 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, 1998
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and 1998......................................... 1
Consolidated Balance Sheets - December 31, 1997 and
March 31, 1998........................................................ 2
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1997 and 1998......................................... 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
EXHIBIT............................................................ 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENERAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
---- ----
Net revenues...................................................... $ 115,736 $123,541
Cost of sales..................................................... 82,612 94,229
Selling, general and administrative expense....................... 10,440 10,760
--------- ---------
Operating profit.................................................. 22,684 18,552
Interest expense.................................................. 5,233 5,509
Interest income................................................... 464 238
Foreign currency transaction (gains) losses....................... 546 (172)
Other (income) expense, net....................................... (509) --
--------- --------
Income before income taxes and minority interest ................. 17,878 13,453
Minority interest................................................. 6,220 4,437
--------- ---------
Income before income taxes ....................................... 11,658 9,016
Income tax provision.............................................. 4,535 3,814
--------- ---------
Net income .............................................. $ 7,123 $ 5,202
========= =========
See the accompanying notes to consolidated financial statements.
1
GENERAL CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31, MARCH 31,
1997 1998
---- ----
(unaudited)
Current Assets:
Cash and cash equivalents...................................... $ 9,023 $ 15,926
Receivables, net.............................................. 106,419 98,226
Inventories .................................................. 37,584 38,776
Deferred income taxes......................................... 11,273 10,598
Other current assets.......................................... 1,879 95,986
--------- ---------
Total current assets........................................ 166,178 259,512
Property, plant and equipment, net............................... 277,107 274,503
Other assets .................................................. 44,515 45,480
--------- ---------
Total assets................................................ $ 487,800 $ 579,495
========= =========
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable............................................ $ 52,135 $ 46,774
Accrued liabilities......................................... 58,835 60,617
Income taxes payable........................................ 1,850 5,422
Current portion of long-term debt........................... 17,392 138,392
--------- ---------
Total current liabilities................................ 130,212 251,205
Long-term debt................................................... 240,612 194,506
Other liabilities................................................ 183,989 185,179
--------- ---------
Total liabilities........................................ 554,813 630,890
--------- ---------
Minority interest................................................ 43,301 47,697
--------- ---------
Equity (deficit)
Common stock, $.01 par value
authorized: 1,000 shares
issued and outstanding: 100 shares...................... -- --
Capital deficit............................................. (176,058) (169,823)
Accumulated other comprehensive income...................... (2,197) (2,411)
Retained earnings .......................................... 67,941 73,142
--------- ---------
Total equity (deficit)................................... (110,314) (99,092)
--------- ---------
Total liabilities and equity (deficit)................... $ 487,800 $ 579,495
========= =========
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,
-----------------------
1997 1998
---- ----
Cash flows from operating activities:
Net income .................................................. $ 7,123 $ 5,202
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................... 6,954 8,519
Net loss on disposition of long-term assets................. 188 34
Unrealized exchange (gain) loss............................. 740 (125)
Restricted unit plan costs.................................. 293 235
(Increase) decrease in receivables.......................... (1,632) 8,329
(Increase) decrease in inventories.......................... 1,363 (1,110)
(Increase) in other assets.................................. (1,692) (2,297)
(Decrease) in accounts payable.............................. (3,113) (5,434)
Increase (decrease) in accrued liabilities.................. (821) 1,750
Increase in income taxes payable............................ 2,558 3,578
Increase in other liabilities............................... 1,256 1,002
Increase in minority interest............................... 5,272 4,396
------- --------
Net cash provided by operating activities................. 18,489 24,079
------- --------
Cash flows from investing activities:
Capital expenditures........................................ (5,171) (5,281)
Deposit for pending acquisition of business (Note 3)........ -- (84,532)
Other investing activities.................................. -- (7,770)
Proceeds from sales or disposals of long-term assets........ -- 3
------- --------
Net cash used for investing activities................... (5,171) (97,580)
------- --------
Cash flows from financing activities:
Proceeds from long-term debt................................ -- 79,000
Repayment of long-term debt................................. (4,348) (4,348)
Capital contribution from parent............................ -- 6,000
------- --------
Net cash provided by (used for) financing activities...... (4,348) 80,652
------- --------
Effect of exchange rate changes on cash.......................... (31) (248)
------- --------
Increase in cash and cash equivalents........................... 8,939 6,903
Cash and cash equivalents at beginning of period................. 32,742 9,023
------- --------
Cash and cash equivalents at end of period....................... $41,681 $ 15,926
======= ========
Supplemental information:
Cash paid for income taxes.................................. $ 2,543 $ 1,990
======= ========
Cash paid for interest...................................... $ 6,134 $ 5,512
======= ========
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, 1998
(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, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1998.
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, 1997.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") which the Company adopted for both interim and fiscal years beginning
after December 31, 1997. FAS 130 requires the reporting and display of
comprehensive income and its components. The Company's foreign currency
translation adjustments, which were previously reported as a separate component
of equity, are now included in Accumulated other comprehensive income within
the equity section of the Consolidated Balance Sheets. Comprehensive income for
the three months ended March 31, 1997 and 1998, was $7,059 and $4,988,
respectively.
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 $789 and $794 for the three
months ended March 31, 1997 and 1998, respectively, for general corporate
supervisory services and strategic guidance. The Management Agreement expires
during 1998, subject to extension.
NOTE 3 - ACQUISITIONS
On April 1, 1998, the Company acquired all of the outstanding stock of
Reheis Inc. ("Reheis"). Reheis is headquartered in New Jersey and is the world's
leading producer and supplier of the active chemical ingredients in
antiperspirants and over-the-counter antacids as well as a supplier of
pharmaceutical intermediates and other products. Funding for this transaction
was provided by existing cash and borrowings under the Company's revolving
credit facility. As of March 31, 1998, the Company placed approximately $84,500
in escrow related to the pending acquistion of Reheis. Such amount is included
in other current assets.
The acquisition will be accounted for under the purchase method, and
accordingly, the net assets and results of operations will be included in the
consolidated financial statements from the date of acquisition, based on
valuation information available to the Company, which is subject to change as
such information is finalized. The excess of purchase price over the estimated
fair values of the net tangible assets acquired will be treated as goodwill.
Goodwill will be amortized on a straight line basis over a period of 25 years.
4
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 4 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
DECEMBER 31, MARCH 31,
----------- ----------
1997 1998
---- ----
Raw materials....................................... $ 9,063 $ 8,522
Work in process..................................... 247 1,588
Finished products................................... 17,736 17,968
Supplies ........................................... 10,538 10,698
------- --------
$37,584 $ 38,776
======= ========
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, MARCH 31,
---------------------
MATURITIES 1997 1998
---------- ---- ----
Bank Term Loan - floating rate........................ 1998-2001 $ 65,217 $ 60,869
Senior Subordinated Notes - 9.25%..................... 2003 100,000 100,000
Canada Senior Notes - 9.09%........................... 1999 50,787 51,029
$130,000 U.S. Revolving Credit Facility - floating rate 1999 42,000 121,000
--------- --------
Total Debt............................................ 258,004 332,898
Less: Current Portion................................ 17,392 138,392
--------- --------
Net Long-Term Debt.................................... $ 240,612 $194,506
========= ========
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 of 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
5
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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.
On March 11, 1997, the coordination judge dismissed the material 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 8, 1997,
the California Court of Appeals denied a petition for review of the dismissals
filed by attorneys for the dismissed opt-out claimants, and on June 8, 1997, the
California Supreme Court denied the same attorneys' petition for review of the
California Court of Appeals' denial of their prior petition. On March 20, 1998,
the coordination judge dismissed the material claims of an additional 167 of the
opt-out claimants.
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.
6
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
FOR THE QUARTER ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
March 31, 1998 Compared with December 31, 1997
Financial Condition
Cash and cash equivalents were $15.9 million at March 31, 1998 as
compared with $9.0 million at December 31, 1997. During the first three months
of 1998 the Company generated cash flow from operating activities of $24.1
million, and used cash of $5.3 million for capital expenditures and used cash of
$4.3 million for payment of long-term debt.
The Company had working capital of $8.3 million at March 31, 1998 as
compared with $36.0 million at December 31, 1997. This decrease in working
capital principally reflects the higher current portion of long-term debt,
partially offset by higher other current assets. The increase in the current
portion of long-term debt reflects the increase in borrowings related to the
Reheis acquisition and the maturity of the Company's U.S. Revolving Credit
Facility on March 31, 1999. The increase in other current assets represents
an escrow deposit related to the pending acquisition of Reheis. The Company's
ultimate parent The General Chemical Group Inc. has commenced a $600 million
bank financing to improve financial flexibility, simplify the capital structure
and support future growth efforts. This transaction will refinance certain
existing debt and provide substantial funds for new acquisitions.
Three Months Ended March 31, 1998, Compared with Three Months Ended March 31,
1997
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, 1997 and 1998 (dollars in millions).
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1998
------------- -----------
Net revenues.................................... $115.7 100% $123.5 100%
Cost of sales................................... 82.6 71 94.2 76
------ --- ----- ---
Gross profit.................................... 33.1 29 29.3 24
Selling, general and administrative expense..... 10.4 9 10.8 9
------- --- ----- ---
Operating profit................................ $ 22.7 20% $18.5 15%
====== === ===== ===
Net revenues for the three months ended March 31, 1998 were $123.5
million or 7 percent higher than the prior year level due primarily to sales of
Peridot Holdings, Inc. which was acquired on July 1, 1997, partially offset by
weaker pricing of soda ash and calcium chloride.
Gross profit for the first three months of 1998 was $29.3 million
compared with $33.1 million for the comparable period in 1997 reflecting the
aforementioned sales changes. Gross profit as a percentage of net revenues was
24 percent and 29 percent for the first three months of 1998 and 1997,
respectively, reflecting lower soda ash and calcium chloride pricing and higher
natural gas costs.
Selling, general and administrative expense was 9 percent of net revenues
for the first three months of 1998, which approximated the prior year level.
Interest expense for the first three months of 1998 was $5.5 million
which was $.3 million higher than the first three months of 1997 due to higher
outstanding debt balances.
8
Interest income for the first three months of 1998 was $.2 million which
was $.2 million lower than the first three months of 1997 due to lower cash
balances.
The foreign currency transaction gain for the first three months of 1998
was $.2 million versus a loss of $.5 million for the first three months of 1997.
This is principally due to the impact of exchange rate fluctuations on the
Company's Canadian subsidiary.
Minority interest for the first three months of 1998 was $4.4 million
compared with $6.2 million for the first three months of 1997, reflecting lower
earnings due to lower soda ash pricing of General Chemical (Soda Ash) Partners.
Net income for the first three months of 1998 was $5.2 million compared
with $7.1 million for the same period in 1997, due to the foregoing.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following developments have occurred since the filing of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997:
In April of 1998, approximately 40 employees (and their respective
spouses) of the Sun Company, Inc. refinery in Marcus Hook, Pennsylvania, filed
lawsuits in the Court of Common Pleas, Delaware County, Pennsylvania, against
the Company, alleging that sulfur dioxide (SO2) and sulfur trioxide (SO3)
releases from the Company's Delaware Valley facility caused various respiratory
and pulmonary injuries. Unspecified damages in excess of $50,000 for each
plaintiff are sought. As these lawsuits have only recently been served on the
Company, no investigation of the allegations has yet been performed. The
Company believes that its available insurance provides adequate coverage
in the event of an adverse result in this matter and that, based on currently-
available information, this matter will not have a material adverse effect on
the Company's financial condition or results of operations.
10
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.
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 May 12, 1998 /s/ Michael R. Herman
-----------------------------
MICHAEL R. HERMAN
Vice President and General Counsel
Date May 12, 1998 /s/ Ralph M. Passino
-----------------------------
RALPH M. PASSINO
Chief Financial Officer and
Vice President of Administration
(Principal Financial Officer)
12
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
27 Financial Data Schedule 14
(EDGAR Filings Only)
13
STATEMENT OF DIFFERENCES
Characters normally expressed as subscript shall be expressed as baseline
characters.