<PAGE>
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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 JUNE 30, 1999
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 001-14789
GENTEK INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 02-0505547
(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)
</TABLE>
Registrant's telephone number, including area code: (603) 929-2264
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 NO X
----- -----
The number of shares of Common Stock outstanding at August 2, 1999 was
16,859,825.
The number of shares of Class B Common Stock outstanding at August 2, 1999 was
3,958,421.
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<PAGE>
GENTEK INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months and Six Months
Ended June 30, 1998 and 1999................................................. 1
Consolidated Balance Sheets - December 31, 1998 and
June 30, 1999................................................................ 2
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1998 and 1999....................................................... 3
Notes to the Consolidated Financial Statements................................ 4-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 11-13
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K......................................... 14
SIGNATURES........................................................................ 15
EXHIBIT INDEX..................................................................... 16
EXHIBITS ........................................................................ 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENTEK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues............................................................ $ 118,355 $ 217,726 $ 218,891 $ 345,489
Cost of sales........................................................... 82,533 165,088 154,243 258,146
Selling, general and administrative expense............................. 14,098 29,240 26,396 45,844
----------- ----------- ----------- -----------
Operating profit.................................................. 21,724 23,398 38,252 41,499
Interest expense........................................................ 3,853 7,993 6,527 12,301
Interest income......................................................... 84 234 342 593
Foreign currency transaction (gains) losses............................. 327 (247) 291 (388)
Other expense, net...................................................... 110 126 120 138
----------- ----------- ----------- -----------
Income from continuing operations before income
taxes and extraordinary item................................... 17,518 15,760 31,656 30,041
Income tax provision.................................................... 7,021 6,923 13,409 12,994
----------- ----------- ----------- -----------
Income from continuing operations before
extraordinay item.............................................. 10,497 8,837 18,247 17,047
Income (loss) from discontinued operations (net of tax)................. 4,189 (189) 6,299 1,006
----------- ----------- ----------- -----------
Income before extraordinary item.................................. 14,686 8,648 24,546 18,053
Extraordinary item - loss from extinguishment of debt (net
of tax of $2,395 and $3,225, respectively)........................... 3,661 4,939 3,661 4,939
----------- ----------- ----------- -----------
Net income................................................... $ 11,025 $ 3,709 $ 20,885 $ 13,114
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations....................................... $ .50 $ .42 $ .86 $ .81
Income (loss) from discontinued operations (net of tax)................. .19 (.01) .30 .05
Extraordinary item - loss from extinguishment of debt
(net of tax)........................................................ .17 .24 .17 .24
----------- ----------- ----------- -----------
Net income................................................... $ .52 $ .17 $ .99 $ .62
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Income from continuing operations....................................... $ .48 $ .41 $ .83 $ .79
Income (loss) from discontinued operations (net of tax)................. .19 (.01) .29 .05
Extraordinary item - loss from extinguishment of debt
(net of tax)....................................................... .17 .23 .17 .23
----------- ----------- ----------- -----------
Net income................................................... $ .50 $ .17 $ .95 $ .61
=========== =========== =========== ===========
</TABLE>
See the accompanying notes to the consolidated financial statements.
-1-
<PAGE>
GENTEK INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 61,310 $ 14,454
Receivables, net............................................................ 60,620 129,914
Inventories................................................................. 37,619 65,338
Deferred income taxes....................................................... 11,494 16,378
Other current assets........................................................ 826 7,896
------------ ------------
Total current assets..................................................... 171,869 233,980
Property, plant and equipment, net................................................. 196,526 270,367
Goodwill, net of amortization...................................................... 71,444 256,026
Other assets ...................................................................... 21,687 25,704
Net assets of discontinued operations.............................................. 75,292 --
------------ ------------
Total assets............................................................. $ 536,818 $ 786,077
============ ============
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................. $ 42,813 $ 68,787
Accrued liabilities.......................................................... 51,965 77,982
Income taxes payable......................................................... 8,960 7,702
Current portion of long-term debt............................................ 50,802 3,239
------------ ------------
Total current liabilities................................................ 154,540 157,710
Long-term debt..................................................................... 306,729 498,063
Other liabilities.................................................................. 130,245 132,296
------------ ------------
Total liabilities........................................................ 591,514 788,069
------------ ------------
Equity (deficit):
Preferred Stock, $.01 par value; authorized 10,000,000
shares; none issued or outstanding.......................................... -- --
Common Stock, $.01 par value; authorized 100,000,000
shares; issued: 12,654,489 and 16,875,252 shares at
December 31, 1998 and June 30, 1999, respectively........................... 127 168
Class B Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding:
9,758,421 and 3,958,421 shares at December 31, 1998 and
June 30, 1999, respectively................................................. 97 39
Capital deficit.............................................................. (182,563) (5,605)
Accumulated other comprehensive income....................................... (2,446) 25
Retained earnings............................................................ 162,378 3,611
Treasury stock, at cost: 1,641,166 and 15,427 shares at
December 31, 1998 and June 30, 1999, respectively........................... (32,289) (230)
------------ -----------
Total equity (deficit)................................................... (54,696) (1,992)
------------ -----------
Total liabilities and equity (deficit)................................... $ 536,818 $ 786,077
============ ===========
</TABLE>
See the accompanying notes to the consolidated financial statements.
-2-
<PAGE>
GENTEK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 20,885 $ 13,114
Adjustments to reconcile net income to net cash
Depreciation and amortization.................................... 11,228 18,133
Net loss on disposition of long-term assets...................... 74 6
Unrealized exchange gain (loss).................................. 444 (937)
Restricted unit plan costs....................................... 562 465
Loss on extinguishment of debt................................... 6,056 8,164
Income from discontinued operations.............................. (6,299) (1,006)
(Increase) decrease in receivables............................... 599 (13,950)
Increase in inventories.......................................... (4,173) (543)
Decrease in accounts payable..................................... (7,399) (815)
Increase (decrease) in accrued liabilities....................... (11,470) 8,781
Increase (decrease) in income taxes payable...................... 6,593 (2,948)
Increase in other liabilities and assets, net.................... 596 4,301
------------ -------------
Net cash provided by continuing operations................... 17,696 32,765
------------ -------------
Cash flows from investing activities:
Capital expenditures............................................... (14,745) (15,410)
Proceeds from sales or disposals of long term assets............... 136 8
Cash provided by discontinued operations........................... 14,179 118,095
Acquisition of businesses net of cash acquired*.................... (90,935) (282,564)
------------ -------------
Net cash used for investing activities....................... (91,365) (179,871)
------------ -------------
Cash flows from financing activities:
Proceeds from long-term debt....................................... 383,655 482,206
Repayment of long-term debt........................................ (292,273) (379,955)
Other financing activities......................................... (82) (603)
Dividends.......................................................... (1,048) (1,037)
------------ -------------
Net cash provided by financing activities.................... 90,252 100,611
------------ -------------
Effect of exchange rate changes on cash............................ (71) (361)
------------ -------------
Increase (decrease) in cash and cash equivalents.......................... 16,512 (46,856)
Cash and cash equivalents at beginning of period.......................... 20,401 61,310
------------ -------------
Cash and cash equivalents at end of period................................ $ 36,913 $ 14,454
=========== ===========
Supplemental information:
Cash paid for income taxes......................................... $ 11,849 $ 15,003
=========== ===========
Cash paid for interest............................................. $ 11,250 $ 9,619
=========== ===========
*Acquisition of businesses net of cash acquired:
Working Capital, other than cash................................... $ (14,303) $ (30,522)
Plant, property and equipment...................................... (36,436) (71,990)
Other assets....................................................... (41,622) (202,864)
Noncurrent liabilities............................................. 1,426 22,812
------------ -------------
Net cash used to acquire businesses.............................. $ (90,935) $ (282,564)
=========== ===========
</TABLE>
See the accompanying notes to the consolidated financial statements.
-3-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
GenTek Inc.'s ("GenTek" or the "Company") manufacturing and performance
products businesses (the "GenTek Business") were formerly part of The General
Chemical Group Inc. ("GCG"). GCG separated the GenTek Business from GCG's soda
ash and calcium chloride business (the "Industrial Chemicals Business") through
a spinoff (the "Spinoff"). GCG accomplished the Spinoff by transferring the
GenTek Business to GenTek, and distributing the common stock of GenTek to GCG's
shareholders on April 30, 1999 (the "Spinoff Date"). Since the Spinoff Date, GCG
and GenTek have been separate, stand-alone companies with GenTek operating the
GenTek Business, and GCG operating the Industrial Chemicals Business.
The Spinoff has been treated as a reverse spinoff for financial
statement purposes because the GenTek Business constitutes a greater proportion
of GCG's assets and operations. Therefore, the Spinoff has been reflected, for
financial statement presentation, as if GenTek formed a new company consisting
of the Industrial Chemicals Business and distributed the stock of that company
as a dividend to GenTek's stockholders, with the assets and operations of the
Performance Products and Manufacturing Segments remaining with GenTek.
Accordingly, the GenTek financial statements reflect the financial position and
results of operations of the GenTek Business as continuing operations and the
financial position and results of operations of the Industrial Chemicals
Business as discontinued operations. The distribution of the net liabilities
of the Industrial Chemicals Business has been recorded as a capital contribution
to the Company.
For the purpose of governing certain ongoing relationships between GCG
and GenTek after the Spinoff and to provide mechanisms for an orderly
transition, GCG and GenTek entered into various agreements which are described
in Amendment No. 2 to the Registration Statement on Form 10 (file no. 001-14789)
of GenTek (the "Form 10") filed with the SEC under the Securities Exchange Act
of 1934.
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). 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 six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. These statements should be read in conjunction with the
Form 10.
-4-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 2 - DISCONTINUED OPERATIONS
Discontinued operations represent the Industrial Chemical Business of
GCG (see Note 1). Prior to the Spinoff Date an allocation of certain assets,
liabilities and expenses was made related to discontinued operations. In the
opinion of management, expenses were allocated to the discontinued operations in
a reasonable and consistent basis using management's estimate of services
provided to the discontinued business by GCG. General corporate overhead
expenses were not allocated to discontinued operations. However, such
allocations are not necessarily indicative of the level of expenses which might
have been incurred had the industrial chemicals business been operating as a
stand-alone entity during the periods presented or expected to be incurred in
the future.
In connection with the Spinoff, General Chemical Industrial Products,
Inc., a subsidiary of GCG issued and sold $100,000 aggregate principal amount
of 10 5/8% Senior Subordinated Notes due 2009 and entered into an $85,000
revolving credit facility. Out of the proceeds, approximately $130,000 was
transferred to GCG and used to repay outstanding borrowings of GCG under its
existing credit facilities prior to the Spinoff.
NOTE 3 - STOCKHOLDER'S EQUITY
Prior to the Spinoff, a stockholder converted 5.8 million shares of GCG
Class B Common Stock into an identical number of shares of GCG Common Stock. On
the Spinoff Date, GCG issued shares of Common Stock and Class B Stock of GenTek
and distributed them to the holders of GCG's stock on a one-for-one basis.
Accordingly, as of the Spinoff Date, the equity accounts have been reclassified
to reflect the formation of GenTek and the issuance of its stock by recording
the par value of the stock issued and reclassifying all other equity to paid in
capital.
In conjunction with the Spinoff, the distribution of the net liabilities
of the industrial chemicals business has been recorded as a capital contribution
of $42,199 to the Company. Certain industrial chemical business asset and
liability balances, including but not limited to pension, postretirement and
deferred taxes, have been recorded based on preliminary estimates. As a result,
the capital contribution recorded by the Company reflects these estimates and is
subject to adjustment based on the final calculation of these balances.
NOTE 4 - COMPREHENSIVE INCOME
Total comprehensive income is comprised of net income and foreign
currency translation gains and losses. Total comprehensive income for the three
months ended June 30, 1998 and 1999 was $11,082 and $3,739, respectively. Total
comprehensive income for the six months ended June 30, 1998 and 1999 was $20,814
and $12,953, respectively.
-5-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 5 - EARNINGS PER SHARE
The computation of basic earnings per share is based on the weighted
average number of common shares and contingently issuable shares outstanding
during the period. The computation of diluted earnings per share also includes
the exercise of all stock options and restricted units, using the treasury stock
method.
The shares outstanding used for the basic and diluted earnings per
common share computation are reconciled as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per common share:
Weighted average common shares
outstanding............................ 21,103,029 20,909,603 21,076,344 20,909,603
============= =============== =============== ===============
Diluted earnings per common share:
Weighted average common shares
outstanding ............................ 21,103,029 20,909,603 21,076,344 20,909,603
Options..................................... 898,170 548,535 872,333 548,535
------------- --------------- --------------- ---------------
Total................................. 22,001,199 21,458,138 21,948,677 21,458,138
============= =============== =============== ===============
</TABLE>
At June 30, 1998 and 1999 options to purchase 60,000 shares and 672,500
shares of common stock, respectively, were not included in the computation of
diluted earnings per common share because the exercise price was greater than
the average market price of the common shares. The options, which expire during
2007 through 2009, were still outstanding at June 30, 1999.
NOTE 6 - ACQUISITIONS
On February 6, 1998, the Company acquired for $6,999 all of the
outstanding stock of Sandco Automotive Ltd. ("Sandco"), a manufacturer of engine
parts for the North American automobile industry and its aftermarket. On April
1, 1998, the Company acquired for $83,936 all of the outstanding stock of Reheis
Inc. ("Reheis"), a 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. On February 11,
1999, the Company acquired for $58,020 the shares of Defiance Inc. ("Defiance"),
a manufacturer of specialty antifriction bearings for the transportation
industry and a provider of vehicle testing services, tooling design and
preproduction dies and components primarily for the automotive industry. On
April 6, 1999, the Company acquired for approximately $220,000 the shares of
Noma Industries Limited ("Noma"), a leading North American producer of insulated
wire and wire-related products for the automotive, appliance and electronic
industries. Funding for these transactions was provided by existing cash and
borrowings under GCG's revolving credit facility. The acquisitions are accounted
for under the purchase method, and accordingly, the net assets and results of
operations are included in the financial statements from the date of their
respective acquisitions. The allocation of purchase price of Defiance and Noma
is based on valuation information
-6-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
available to the Company which is subject to change as such information is
finalized. Goodwill is being amortized on a straight line basis over a period
which ranges from 25 to 35 years. The following proforma information presents
the results of operations as if the Defiance and Noma acquisitions had occurred
on January 1, 1998. The proforma information has been prepared for comparative
purposes and is not necessarily indicative of what would have occurred had the
acquisitions occurred on such date or of results which may occur in the future.
Had the acquisitions occurred as of January 1, 1998, net sales would have been
$805,584 and $424,930, income before extraordinary items would have been $59,854
($2.74 per share) and $18,751 ($0.87 per share) and net income would have been
$56,193 ($2.57 per share) and $13,812 ($0.64 per share) for the year ended
December 31, 1998 and the six months ended June 30, 1999.
NOTE 7 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Raw materials ................................. $ 11,395 $ 25,996
Work in process................................ 6,049 12,124
Finished products.............................. 15,706 22,763
Supplies and containers........................ 4,469 4,455
----------- -----------
$ 37,619 $ 65,338
=========== ===========
</TABLE>
NOTE 8 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
MATURITIES 1998 1999
---------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Bank Term Loan A - floating rate................... 2000-2004 $ 100,000 $ --
Bank Term Loan B - floating rate................... 1999-2006 199,000 --
Tranche A Term Loan - floating rate............... 2000-2005 -- 100,000
Tranche B Term Loan - floating rate................ 1999-2007 -- 150,000
$300,000 Revolving Credit Facility -
floating rate..................................... 2005 -- 235,000
Canada Senior Notes - 9.09%........................ 1999 48,269 --
General Chemical Canada Limited
Revolving Credit Facility - floating rate........ 2000 3,877 --
Other Debt - floating rate......................... 6,385 16,302
----------- -----------
Total Debt................................... 357,531 501,302
Less: Current Portion....................... 50,802 3,239
----------- -----------
Net Long-Term Debt........................... $ 306,729 $ 498,063
=========== ===========
</TABLE>
-7-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
On April 30, 1999, the Company entered into a new credit facility with a
syndicate of banks and other financial institutions consisting of a $100,000
Term Loan ("Tranche A") maturing on April 30, 2005, a $150,000 Term Loan
("Tranche B") maturing on April 30, 2007 and a $300,000 Revolving Credit
Facility maturing on April 30, 2005. The term loans and revolving credit
facility bear interest at a rate equal to a spread over a reference rate.
Tranche A is payable in consecutive quarterly installments commencing September
30, 2000. Tranche B is payable in consecutive quarterly installments commencing
September 30, 1999. The facility is secured by a first priority security
interest in all of the capital stock of the Company's domestic subsidiaries,
Noma and its subsidiaries and 65 percent of the capital stock of the Company's
other foreign subsidiaries. The facility is guaranteed by all of the Company's
domestic subsidiaries. The proceeds were used to repay outstanding borrowings
of GCG under its existing credit facilities prior to the Spinoff, resulting
in an extraordinary loss from the extinguishment of debt of $4,939, net of a
tax benefit of $3,225.
NOTE 9 - DIVIDENDS
On June 9, 1999, GenTek's Board of Directors declared a quarterly cash
dividend of $.05 per share of Common Stock and Class B Common Stock, payable
July 7, 1999, to shareholders of record on June 23, 1999.
NOTE 10 - RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
The Company is party to a management agreement with Latona Associates
("Latona") under which the Company receives strategic management, business,
financial and administrative advisory services. The Company's controlling
shareholder and Chairman of the Board also controls Latona. Prior to the
Spinoff, Latona provided these services to the GenTek Business pursuant to
its agreement with GCG. The Company was charged $2,390 and $2,493 for the six
months ended June 30, 1998 and 1999, respectively. In connection with the
Spinoff, Latona agreed to provide its services separately to GenTek and GCG.
GenTek will pay Latona, for periods subsequent to the Spinoff, a quarterly
fee of $1,125, to be adjusted after 1999 for increases in U.S. CPI. In
addition, if Latona provides advisory services to GenTek in connection with any
acquisition, business combination or other strategic transaction, GenTek will
pay Latona Associates additional fees comparable with fees received by
investment banking firms for such services. During 1998, the GCG paid Latona
$500 in connection with acquisitions relating to the GenTek Business. During
1999 GenTek paid Latona fees of $1,850 in the aggregate in connection with
the acquisitions of Defiance and Noma. The management agreement expires on
December 31, 2004.
TRANSITION SUPPORT AGREEMENT
After the Spinoff, GenTek provides GCG with certain administrative
services pursuant to the Transition Support Agreement. For the second quarter of
1999, GenTek charged GCG $618 for various services provided pursuant related
to this agreement.
-8-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
OTHER TRANSACTIONS
GCG supplies soda ash and calcium chloride to General Chemical
Corporation ("GCC"), a wholly-owned subsidiary of GenTek. For the six months
ended June 30, 1998 and 1999, purchases from GCG amounted to $3,434 and $5,106,
respectively.
NOTE 11 - SEGMENT INFORMATION
Industry segment information for continuing operations is summarized as
follows:
<TABLE>
<CAPTION>
TOTAL REVENUES OPERATING PROFIT
SIX MONTHS ENDED SIX MONTHS ENDED
---------------- ----------------
JUNE 30, JUNE 30,
-------- --------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Performance Products.............................. $ 154,800 $ 165,409 $ 24,987 $ 21,774
Manufacturing..................................... 64,091 180,080 15,228 28,737
----------- ------------ ----------- -----------
Total Segment............................ 218,891 345,489 40,215 50,511
Eliminations and other corporate expenses......... -- -- (1,963) (9,012)
----------- ------------ ----------- -----------
Consolidated...................................... $ 218,891 $ 345,489 38,252 41,499
=========== ===========
Interest expense.................................. 6,527 12,301
Other expense (income), net....................... 69 (843)
----------- -----------
Consolidated income from continuing
operations before income taxes................ $ 31,656 $ 30,041
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
-------------------
DECEMBER 31, JUNE 30,
------------ --------
1998 1999
---- ----
<S> <C> <C>
Performance Products.......................... $ 381,202 $ 327,090
Manufacturing................................. 78,267 458,112
Corporate..................................... 2,057 875
----------- -----------
Consolidated.................................. $ 461,526 $ 786,077
=========== ===========
</TABLE>
-9-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 12 - SUBSEQUENT EVENTS
On July 2, 1999, the Company acquired the Structural Kinematics business
from EG&G, Inc. Structural Kinematics is a leading provider of testing and
engineering services to the automotive, truck and agricultural industries. On
July 12, 1999, the Company announced that it has agreed to purchase
Berlin-based Krone AG from Jenoptik AG for approximately $222,000, including
the assumption of approximately $63,000 of debt. Krone is a leading global
supplier of connector technology for telecommunications and data networks. The
Krone acquisition is expected to be completed during the third quarter. The
acquisitions will be financed through existing credit facilities.
On August 9, 1999, the Company issued $200,000 11% Senior Subordinated
Notes due 2009 under Rule 144A of the Securities Act of 1933. The Company used
the net proceeds to repay a portion of the borrowings outstanding under its
revolving credit facility. The net proceeds of this offering were $194,000.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
June 30, 1999 Compared with December 31, 1998
Financial Condition
Cash and cash equivalents were $14.5 million at June 30, 1999 compared
with $61.3 million at yearend 1998. During the first six months of 1999, the
Company generated cash flow from continuing operations of $32.8 million, had net
proceeds from debt of $482.2 million and cash flow from discontinued operations
of $118.1 million, which was used to fund acquisitions of $282.6 million, to
repay debt of $380.0 million and for capital expenditures of $15.4 million.
The Company had working capital of $76.3 million at June 30, 1999 as
compared with $17.3 million at December 31, 1998. This increase in working
capital principally reflects the working capital of the newly acquired companies
partially offset by lower cash balances.
The increases in property, plant and equipment, goodwill and long-term
debt reflect the assets and debt related to the Defiance and Noma acquisitions.
On July 2, 1999, the Company acquired the Structural Kinematics business
from EG&G, Inc. Structural Kinematics is a leading provider of testing and
engineering services to the automotive, truck and agricultural industries. On
July 12, 1999, the Company announced that it has agreed to purchase Berlin-based
Krone AG from Jenoptik AG for approximately $222.0 million, including the
assumption of approximately $63,000 of debt. Krone is a leading global
supplier of connector technology for telecommunications and data networks.
The Krone acquisition is expected to be completed during the third quarter.
The acquisitions will be financed through existing credit facilities. The
Company expects to have increased leverage as a result of the Krone acquisition.
On August 9, 1999, the Company issued $200.0 million 11% Senior
Subordinated Notes due 2009. The net proceeds of the offering were $194.0
million. The Company used the net proceeds to repay a portion of the borrowing
outstanding under its revolving credit facility.
Results of Operations
Net revenues for the three and six month periods ended June 30, 1999
increased 84 percent and 58 percent to $217.7 million and $345.5 million,
respectively, from $118.4 million and $218.9 million, for the comparable periods
in 1998. These increases were primarily in the Manufacturing Segment due to the
acquisitions of Defiance and Noma and higher unit volume of automotive engine
components.
Gross profit for the three and six month periods ended June 30, 1999
increased $16.8 million and $22.7 million, respectively, over the comparable
prior year periods. These increases were principally related to the
abovementioned acquisitions in the Manufacturing Segment. Gross profit as a
percentage of net revenues for the first six months of 1999 was 25.3 percent
compared to 29.5 percent for the prior year. This decrease is principally due to
lower margins in the acquired businesses and pricing pressures in certain of the
Company's performance chemical markets.
Selling, general and administrative expense increased $15.1 million and
$19.4 million for the three and six month periods ended June 30, 1999 as
compared to the prior year levels, principally due to the abovementioned
acquisitions and a $6.2 million one-time charge recorded in the second quarter
of 1999 primarily related to the Spinoff. Selling, general and administrative
expense as a percentage of net revenues for the first six months of 1999 was
13.3 percent as compared to 12.1 percent for the comparable period in 1998,
principally due to the abovementioned one-time charge of $6.2 million.
Interest expense was $8.0 million and $12.3 million for the three and
six month periods ended June 30, 1999 as compared with $3.9 million and $6.5
million for the comparable periods of 1998 principally due to higher outstanding
debt balances following the 1998 and 1999 acquisitions.
-11-
<PAGE>
Liquidity and Capital Resources
In connection with the Spinoff, GenTek and GCG arranged for separate
credit facilities, the proceeds of which were used to repay outstanding
borrowings of GCG under its existing credit facilities prior to the Spinoff. On
April 30, GenTek put in place, with a syndicate of banks and other financial
institutions, credit facilities totaling $550 million, consisting of a $300
million revolving credit facility maturing in 2005 and term loans of $100
million and $150 million maturing in 2005 and 2007, respectively. The related
agreements contain certain restrictive covenants related to maximum leverage and
minimum interest coverage to be maintained by the Company.
On August 9, 1999, the Company issued $200,000 11% Senior Subordinated
Notes due 2009. The net proceeds of this offering were $xxxxxxxx million.
The Company used the net proceeds to repay a portion of the borrowings
outstanding under its revolving credit facility. The Company expects to use
cash on hand and borrowings under its revolving credit facility to pay the
purchase price for Krone.
YEAR 2000 ISSUE
The Company has implemented a program to assess, mitigate and remediate
the potential impact of the Year 2000 problem. A Year 2000 problem can occur
where date-sensitive software uses two digit year date fields, sorting the Year
2000 ("00") before Year 1999 ("99"). The Year 2000 problem can arise in
hardware, software, or any other equipment or process that uses embedded
software or other technology. The failure of such systems to properly recognize
dates after December 31, 1999 could result in data corruption and processing
errors.
Pursuant to agreements entered into in connection with the Spinoff,
GenTek provides GCG with MIS and MIS-supported functions, including MIS
personnel, hardware and software on a service contract basis. GenTek will
provide these services to GCG through approximately December 2001. During this
period, GenTek will provide to GCG the services related to the mitigation and
remediation of the potential impact of Year 2000 problems on the industrial
chemicals business.
The Company completed its assessment of its Year 2000 compliance status
in early 1997 and began work on its remediation program immediately thereafter.
The Company's remediation program has been structured to address its information
and noninformation technology hardware, software, facilities and equipment
(collectively, "Systems"). GenTek has spent approximately $1.0 million to
replace or reprogram existing Systems for the Year 2000 compliance program. All
material Systems were Year 2000 compliant by March 31, 1999 and substantially
all Systems will be Year 2000 compliant by December 31, 1999, except those for
Noma and Definance. In the event that the Company's material Systems are not
Year 2000 compliant, the Company may experience reductions or interruptions
in operations which could have a material adverse effect on the Company's
results of operations.
In addition, the Company has implemented a program to determine the Year
2000 compliance status of its material vendors, suppliers, service providers and
customers, including the railroad and trucking companies used to ship its
products or to transport raw materials to its manufacturing facilities. Based on
currently available information, the Company does not anticipate any material
impact to the Company based on the failure of such third parties to be Year 2000
compliant. However, the process of evaluating the Year 2000 compliance status of
material third parties is continually ongoing and, therefore, no guaranty or
warranty can be made as to such third parties' future compliance status or its
potential effect on the Company. The Company believes there exists a sufficient
number of suppliers of raw materials for the Company so that if any supplier is
unable to deliver raw materials due to Year 2000 problems, alternate sources
will be available and that any supply interruption will not be material to the
Company. There can be no assurances, however, that the Company would be able to
obtain all of its supply requirements from such alternate sources in a timely
manner or on terms comparable with those of its current suppliers. If the
railroads or trucking
-12-
<PAGE>
companies that ship its products or raw materials fail to be Year 2000
compliant, the Company may not be able to arrange alternative and timely means
to ship its goods or raw materials, which could lead to interruptions or
slowdowns in its business. The Company is preparing for the possible use of
alternative suppliers and means of transportation, possible adjustment of raw
materials and product inventory levels and contingencies with respect to
potential energy source interruptions, all in an effort to minimize the effects,
if any, of Year 2000 related interruptions or slowdowns caused by suppliers and
transporters.
Before proceeding with the acquisitions of Defiance and Noma and as part
of its acquisition-related due diligence, the Company reviewed Year 2000-related
concerns for Defiance and Noma and received assurances from their respective
managements that their businesses are, or prior to yearend 1999 will be,
materially Year 2000 compliant. As part of its preacquisition due diligence, the
Company reviewed, for Defiance, the assessments and reports prepared by its
outside consultants and, for Noma, the periodic internal reports prepared by MIS
personnel for senior management. Management has completed its own assessment for
Noma's and Defiance's Systems, and the Company expects that their material
Systems will be Year 2000 compliant by December 31, 1999. The Company estimates
that it will spend approximately $.8 million to replace or reprogram Noma's and
Defiance's existing Systems for Year 2000 compliance. As of June 30, 1999
approximately $.6 million has been spent. In the event that the material Systems
for Noma and Defiance are not Year 2000 compliant, the Company may experience
reductions or interruptions in their operations which could have a material
adverse effect on the Company's results of operations or financial condition.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's cash flows and earnings are subject to fluctuations
resulting from changes in interest rates and changes in foreign currency
exchange rates and the Company selectively uses financial instruments to manage
these risks. The Company's objective in managing its exposure to changes in
foreign currency exchange rates and interest rates is to reduce volatility on
earnings and cash flow associated with such changes. The Company has not
entered, and does not intend to enter, into financial instruments for
speculation or trading purposes.
The Company measures the market risk related to its holding of financial
instruments based on changes in interest rates and foreign currency rates using
a sensitivity analysis. The sensitivity analysis measures the potential loss in
fair values, cash flows and earnings based on a hypothetical 10 percent change
in interest and currency exchange rates. The Company used current market rates
on its debt and derivative portfolio to perform the sensitivity analysis. Such
analysis indicates that a hypothetical 10 percent change in interest rates or
foreign currency exchange rates would not have a material impact on the fair
values, cash flows or earnings of the Company.
-13-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.01 Financial Data Schedule.
(b) No reports were filed on Form 8-K.
-14-
<PAGE>
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.
GENTEK INC.
-------------------------------------------
Registrant
<TABLE>
<S> <C>
Date August 5, 1999 /s/ Richard R. Russell
---------------- --------------------------------------------
RICHARD R. RUSSELL
President and Chief Executive Officer
(Principal Executive Officer) and Director
Date August 5, 1999 /s/ William C. Keightley
---------------- --------------------------------------------
WILLIAM C. KEIGHTLEY
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
-15-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule............................................ 17
</TABLE>
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the period ended June 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001077552
<NAME> GENTEK INC.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<PERIOD-TYPE> 6-MOS
<CASH> 14,454
<SECURITIES> 0
<RECEIVABLES> 133,824
<ALLOWANCES> 3,910
<INVENTORY> 65,338
<CURRENT-ASSETS> 233,980
<PP&E> 409,515
<DEPRECIATION> 139,148
<TOTAL-ASSETS> 786,077
<CURRENT-LIABILITIES> 157,710
<BONDS> 498,063
0
0
<COMMON> 207
<OTHER-SE> (2,199)
<TOTAL-LIABILITY-AND-EQUITY> 786,077
<SALES> 345,489
<TOTAL-REVENUES> 345,489
<CGS> 258,146
<TOTAL-COSTS> 258,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,301
<INCOME-PRETAX> 30,041
<INCOME-TAX> 12,994
<INCOME-CONTINUING> 17,047
<DISCONTINUED> 1,006
<EXTRAORDINARY> 4,939
<CHANGES> 0
<NET-INCOME> 13,114
<EPS-BASIC> .62
<EPS-DILUTED> .61
</TABLE>
