<PAGE>
================================================================================
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, 2000
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 X NO
--- ---
The number of shares of Common Stock outstanding at August 1, 2000 was
20,233,006.
The number of shares of Class B Common Stock outstanding at August 1, 2000 was
4,750,107.
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<PAGE>
GENTEK INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2000
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, 1999 and 2000................................................... 1
Consolidated Balance Sheets - December 31, 1999 and
June 30, 2000.................................................................. 2
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1999 and 2000......................................................... 3
Notes to the Consolidated Financial Statements.................................. 4-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 14-15
Item 3. Quantitative and Qualitative Disclosure about Market Risk.................. 16
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings......................................................... 17
Item 2. Changes in Securities and Use of Proceeds................................. 17
Item 3. Defaults upon Senior Securities........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders....................... 17
Item 5. Other Information......................................................... 17
Item 6. Exhibits and Reports on Form 8-K........................................... 17
SIGNATURES.......................................................................... 18
EXHIBIT INDEX....................................................................... 19
EXHIBITS ......................................................................... 20
</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,
-------- --------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues............................................................ $217,726 $326,453 $345,489 $642,132
Cost of sales........................................................... 165,088 232,153 258,146 460,205
Selling, general and administrative expense............................. 29,240 49,253 45,844 100,149
------- -------- -------- --------
Operating profit.................................................. 23,398 45,047 41,499 81,778
Interest expense........................................................ 7,993 16,872 12,301 33,760
Interest income......................................................... 234 366 593 605
Other (income) expense, net............................................. (121) (2,486) (250) (2,714)
------- -------- -------- --------
Income from continuing operations before income
taxes and extraordinary item...................................... 15,760 31,027 30,041 51,337
Income tax provision.................................................... 6,923 13,022 12,994 22,588
------- -------- -------- --------
Income from continuing operations before
extraordinary item............................................... 8,837 18,005 17,047 28,749
Income (loss) from discontinued operations (net of tax)................. (189) -- 1,006 --
------- -------- -------- -------
Income before extraordinary item.................................. 8,648 18,005 18,053 28,749
Extraordinary item - loss from extinguishment of debt (net
of tax of $3,231)...................................................... 4,939 -- 4,939 --
------- -------- -------- -------
Net income................................................... $ 3,709 $ 18,005 $ 13,114 $ 28,749
======= ======== ======== ========
EARNINGS PER COMMON SHARE - BASIC:
Income from continuing operations....................................... $ .42 $ .72 $ .81 $ 1.20
Income (loss) from discontinued operations (net of tax)................. (.01) -- .05 --
Extraordinary item - loss from extinguishment of debt
(net of tax)........................................................... .24 -- .24 --
------- -------- -------- -------
Net income................................................... $ .17 $ .72 $ .62 $ 1.20
======= ======== ======== ========
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Income from continuing operations....................................... $ .41 $ .70 $ .79 $ 1.17
Income (loss) from discontinued operations (net of tax)................. (.01) -- .05 --
Extraordinary item - loss from extinguishment of debt
(net of tax)........................................................... .23 -- .23 --
------- -------- -------- --------
Net income................................................... $ .17 $ .70 $ .61 $ 1.17
======= ======== ======== ========
</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,
1999 2000
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 20,562 $ 28,787
Receivables, net............................................................ 205,508 213,291
Inventories................................................................. 119,337 128,911
Deferred income taxes....................................................... 25,682 26,696
Other current assets........................................................ 15,321 18,206
---------- ----------
Total current assets..................................................... 386,410 415,891
Property, plant and equipment, net................................................. 359,359 414,633
Goodwill, net ..................................................................... 386,490 364,828
Other assets 78,105 56,042
---------- ----------
Total assets............................................................. $1,210,364 $1,251,394
========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable............................................................. $ 98,035 $ 97,970
Accrued liabilities.......................................................... 155,033 157,510
Current portion of long-term debt............................................ 18,758 33,174
---------- ----------
Total current liabilities................................................ 271,826 288,654
Long-term debt..................................................................... 705,357 682,742
Other liabilities.................................................................. 211,612 205,771
---------- ----------
Total liabilities........................................................ 1,188,795 1,177,167
---------- ----------
Equity:
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: 16,876,017 and 20,251,357 shares at
December 31, 1999 and June 30, 2000, respectively........................... 169 203
Class B Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding:
3,958,421 and 4,750,107 shares at December 31, 1999 and
June 30, 2000, respectively................................................. 40 48
Paid in capital.............................................................. 4,856 42,956
Accumulated other comprehensive loss......................................... (3,489) (15,238)
Retained earnings............................................................ 20,270 46,521
Treasury stock, at cost: 18,058 and 18,351 shares at
December 31, 1999 and June 30, 2000, respectively........................... (277) (263)
---------- ----------
Total equity............................................................. 21,569 74,227
---------- ----------
Total liabilities and equity............................................. $1,210,364 $1,251,394
========== ==========
</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,
----------
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 13,114 $ 28,749
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................... 18,133 30,056
Net loss (gain) on disposition of long-term assets............... 6 (970)
Unrealized exchange gain......................................... (937) --
Restricted unit plan costs....................................... 465 182
Loss on extinguishment of debt................................... 8,170 --
Income from discontinued operations.............................. (1,006) --
Increase in receivables.......................................... (13,950) (9,510)
Increase in inventories.......................................... (543) (12,004)
Increase (decrease) in accounts payable.......................... (815) 146
Increase in accrued liabilities.................................. 5,833 1,861
Increase (decrease) in other liabilities and assets, net......... 4,295 (5,101)
----------- ---------
Net cash provided by continuing operations................... 32,765 33,409
----------- ---------
Cash flows from investing activities:
Capital expenditures............................................... (15,410) (23,835)
Proceeds from sales or disposals of long term assets............... 8 5,942
Cash provided by discontinued operations........................... 118,095 --
Acquisition of businesses net of cash acquired*.................... (282,564) (32,455)
Other investing activities......................................... -- (1,000)
----------- ---------
Net cash used for investing activities....................... (179,871) (51,348)
----------- ---------
Cash flows from financing activities:
Proceeds from sale of stock........................................ -- 37,973
Proceeds from long-term debt....................................... 482,206 28,000
Repayment of long-term debt........................................ (379,955) (35,639)
Dividends.......................................................... (1,037) (2,498)
Other financing activities......................................... (603) --
----------- ---------
Net cash provided by financing activities.................... 100,611 27,836
----------- ---------
Effect of exchange rate changes on cash................................... (361) (1,672)
----------- ---------
Increase (decrease) in cash and cash equivalents.......................... (46,856) 8,225
Cash and cash equivalents at beginning of period.......................... 61,310 20,562
----------- ---------
Cash and cash equivalents at end of period................................ $ 14,454 $ 28,787
=========== =========
Supplemental information:
Cash paid for income taxes......................................... $ 15,003 $ 13,613
=========== =========
Cash paid for interest............................................. $ 9,619 $ 33,530
=========== =========
*Purchase of businesses net of cash acquired:
Working Capital, other than cash................................... $ (30,522) $ (1,475)
Plant, property and equipment...................................... (71,990) (4,284)
Other assets....................................................... (202,864) (29,119)
Noncurrent liabilities............................................. 22,812 2,423
----------- ---------
Net cash used to acquire businesses.............................. $(282,564) $ (32,455)
=========== =========
</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, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
GenTek Inc. ("GenTek" or the "Company") was spun off from The General
Chemical Group Inc. ("GCG") on April 30, 1999 (the "Spinoff"). The Spinoff has
been treated as a reverse spinoff for financial statement purposes because a
greater proportion of the former assets and operations of GCG are held by
GenTek. Accordingly, the financial position and results of operations of the
industrial chemicals business that remained with GCG have been reflected as
discontinued operations.
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"). In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. In addition, the Company recorded
adjustments to the carrying values of its assets and liabilities to reflect
refinements in purchase price allocations for acquisitions made within the last
year. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. These statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
NOTE 2 - COMPREHENSIVE INCOME
Total comprehensive income is comprised of net income, unrealized gains
and losses on marketable securities and foreign currency translation gains and
losses. Total comprehensive income for the three months ended June 30, 1999 and
2000 was $3,739 and $13,376, respectively. Total comprehensive income for the
six months ended June 30, 1999 and 2000 was $12,953 and $17,000, respectively.
NOTE 3 - CAPITAL STOCK
On February 22, 2000, the Company issued 3,371,340 shares of Common
Stock and 791,685 shares of Class B Common Stock in connection with the
Company's rights offering. Pursuant to the rights offering, the holders of
record of the Company's Common Stock and Class B Common Stock as of January 24,
2000 received, at no cost, 0.20 rights to purchase one share of Common Stock or
Class B Common Stock of the Company, as appropriate, for each share of such
stock they held as of the record date. Each whole right entitled the holder to
purchase one share of Common Stock or Class B Stock, as the case may be, at the
price of $9.43 per share. The net proceeds to the Company from this issuance of
Common Stock and Class B Common Stock were approximately $38 million and were
used to repay existing indebtedness and for general corporate purposes.
NOTE 4 - EARNINGS PER SHARE
The computation of basic earnings per share is based on the weighted
average number of common shares and 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.
-4-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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,
-------- --------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per common share:
Weighted average common shares
outstanding................................ 20,909,603 25,135,758 20,909,603 23,946,322
========== ========== ========== ==========
Diluted earnings per common share:
Weighted average common shares
outstanding................................ 20,909,603 25,135,758 20,909,603 23,946,322
Options and restricted units................ 548,535 604,014 548,535 604,014
---------- ---------- ---------- ----------
Total................................. 21,458,138 25,739,772 21,458,138 24,550,336
========== ========== ========== ==========
</TABLE>
At June 30, 1999 and 2000 options to purchase 672,500 shares and
566,500 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.
NOTE 5 - ACQUISITION
On May 31, 2000, the Company acquired approximately 85 percent (81
percent on a fully diluted basis) of the outstanding stock of Con-X Corporation,
an emerging leader in the development of automated cross-connect systems for
digital subscriber line and other broadband service providers. Funding for these
transactions was provided by existing cash and borrowings under the Company's
existing credit facilities. The acquisitions were 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 allocations of purchase price for the above-mentioned
acquisitions are based on valuation information available to the Company which
is subject to change as such information is finalized. Subject to the receipt of
a definitive appraisal, the Company may account for some portion of the purchase
consideration for the acquisition of Con-X as acquired in-process research and
development in the quarter ending September 30, 2000.
NOTE 6 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ --------
1999 2000
---- ----
<S> <C> <C>
Raw materials.................................. $ 51,652 $ 53,156
Work in process................................ 18,472 21,202
Finished products.............................. 45,004 49,507
Supplies and containers........................ 4,209 5,046
-------- --------
$119,337 $128,911
======== ========
</TABLE>
-5-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ --------
MATURITIES 1999 2000
---------- ---- ----
<S> <C> <C> <C>
Bank Term Loans - floating rate.................... 2000-2007 $249,250 $248,500
Revolving Credit Facility - floating rate.......... 2005 220,000 223,000
Senior Subordinated Notes - 11%.................... 2009 200,000 200,000
Other Debt - floating rate......................... 54,865 44,416
-------- --------
Total Debt................................... 724,115 715,916
Less: Current Portion....................... 18,758 33,174
-------- --------
Net Long-Term Debt........................... $705,357 $682,742
======== ========
</TABLE>
NOTE 8 - DIVIDENDS
On June 6, 2000, GenTek's Board of Directors declared a quarterly cash
dividend of $.05 per share of Common Stock and Class B Common Stock, payable
June 30, 2000, to shareholders of record on June 17, 2000.
NOTE 9 - RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
The Company is party to a management agreement with Latona Associates
("Latona"), a company controlled by a stockholder of the Company, under which
the Company receives corporate supervisory and administrative services and
strategic guidance. Prior to the Spinoff, Latona provided these services to
GenTek's businesses pursuant to a substantially similar agreement with GCG. The
Company was charged $2,493 and $2,299 for the six months ended June 30, 1999 and
2000, respectively. In connection with the acquisition of Con-X, the Company
paid $275.
TRANSITION SUPPORT AGREEMENT
GenTek provides GCG with certain administrative services pursuant to a
transition support agreement entered into in connection with the Spinoff. For
the six months ended June 30, 1999 and 2000, GenTek charged GCG $618 and $900,
respectively, related to this agreement.
OTHER TRANSACTIONS
GCG supplies soda ash and calcium chloride to GenTek. For the six
months ended June 30, 1999 and 2000, purchases from GCG amounted to $5,106 and
$2,375, respectively.
-6-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 10 - 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,
-------- --------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Performance Products.............................. $165,409 $176,326 $21,774 $24,096
Manufacturing..................................... 180,080 293,526 28,737 39,147
Telecommunications Equipment...................... -- 172,280 -- 21,273
-------- -------- ------- -------
Total Segment............................ 345,489 642,132 50,511 84,516
Eliminations and other corporate expenses......... -- -- (9,012) (2,738)
-------- -------- ------- -------
Consolidated...................................... $345,489 $642,132 41,499 81,778
======== ========
Interest expense.................................. 12,301 33,760
Other income, net................................. (843) (3,319)
------- -------
Consolidated income from continuing
operations before income taxes and
extraordinary item............................... $30,041 $51,337
======= =======
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
--------------------
DECEMBER 31, JUNE 30,
----------- --------
1999 2000
---- ----
<S> <C> <C>
Performance Products.......................... $ 360,597 $ 379,151
Manufacturing................................. 467,886 471,360
Telecommunications Equipment.................. 368,495 406,135
Corporate..................................... 13,386 11,540
---------- ----------
Consolidated.................................. $1,210,364 $1,268,186
========== ==========
</TABLE>
-7-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 11- SUMMARIZED FINANCIAL INFORMATION
The Company's Senior Subordinated Notes due 2009 are fully and
unconditionally guaranteed, on a joint and several basis, by all of the
Company's wholly owned, domestic subsidiaries ("Subsidiary Guarantors"). The
non-guarantor subsidiaries are foreign or are part of the Industrial Chemicals
Business, which are no longer part of GenTek as a result of the Spinoff.
The following condensed consolidating financial information illustrates
the composition of the combined Subsidiary Guarantors. The Company believes that
the separate complete financial statements of the respective guarantors would
not provide additional material information which would be useful in assessing
the financial composition of the Subsidiary Guarantors.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues......................................... $ -- $166,274 $66,257 $(14,805) $217,726
Cost of sales........................................ -- 125,975 53,918 (14,805) 165,088
Selling, general and administrative expenses......... 6,332 19,536 3,372 -- 29,240
------- -------- ------- -------- --------
Operating profit................................. (6,332) 20,763 8,967 -- 23,398
Interest expense ................................... 6,305 5,312 2,501 (6,125) 7,993
Other (income) expense, net.......................... (6,107) (1,073) 700 6,125 (355)
------- -------- ------- -------- -------
Income from continuing operations before
income taxes and extraordinary item............. (6,530) 16,524 5,766 -- 15,760
Income tax provision................................. (2,831) 7,320 2,434 -- 6,923
Equity in income from subsidiaries................... 12,347 3,143 -- (15,490) --
------- -------- ------- -------- --------
Income from continuing operations before
extraordinary item.............................. 8,648 12,347 3,332 (15,490) 8,837
Income from discontinued operations
(net of tax)....................................... -- -- (189) -- (189)
------------------- ------- -------- --------
Income before extraordinary item..................... 8,648 12,347 3,143 (15,490) 8,648
Extraordinary item - loss from extinguishment
of debt (net of tax) of $3,231..................... 4,939 -- -- -- 4,939
-------- -------- ------- -------- --------
Net income ................................... $ 3,709 $ 12,347 $ 3,143 $(15,490) $ 3,709
======= ======== ======= ======== ========
</TABLE>
-8-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues......................................... $ -- $179,441 $155,719 $ (8,707) $326,453
Cost of sales........................................ -- 136,013 104,847 (8,707) 232,153
Selling, general and administrative expense.......... 670 18,642 29,941 -- 49,253
-------- -------- -------- -------- --------
Operating profit................................. (670) 24,786 20,931 -- 45,047
Interest expense ................................... 11,804 12,154 4,647 (11,733) 16,872
Other (income) expense, net.......................... (11,643) (506) (2,436) 11,733 (2,852)
-------- -------- -------- -------- --------
Income before income taxes....................... (831) 13,138 18,720 -- 31,027
Income tax provision................................. (329) 5,033 8,318 -- 13,022
Equity in income from subsidiaries................... 18,507 10,402 -- (28,909) --
-------- -------- -------- -------- --------
Net income ................................... $ 18,005 $ 18,507 $ 10,402 $(28,909) $ 18,005
======== ======== ======== ======== ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues......................................... $ -- $285,350 $75,405 $(15,266) $ 345,489
Cost of sales........................................ -- 212,383 61,029 (15,266) 258,146
Selling, general and administrative expenses......... 6,685 34,861 4,298 -- 45,844
------- -------- -------- -------- ---------
Operating profit................................. (6,685) 38,106 10,078 -- 41,499
Interest expense ................................... 11,754 9,533 2,614 (11,600) 12,301
Other (income) expense, net.......................... (11,347) (1,811) 715 11,600 (843)
------- -------- -------- -------- --------
Income from continuing operations before
income taxes and extraordinary item............. (7,092) 30,384 6,749 -- 30,041
Income tax provision................................. (3,085) 13,324 2,755 -- 12,994
Equity in income from subsidiaries................... 22,060 5,000 -- (27,060) --
------- -------- -------- -------- --------
Income from continuing operations before
extraordinary item.............................. 18,053 22,060 3,994 (27,060) 17,047
Income from discontinued operations
(net of tax)....................................... -- -- 1,006 -- 1,006
------- -------- -------- -------- ---------
Income before extraordinary item..................... 18,053 22,060 5,000 (27,060) 18,053
Extraordinary item - loss from extinguishment
of debt (net of tax) of $3,231..................... 4,939 -- -- -- 4,939
------- -------- -------- -------- ---------
Net income ................................... $13,114 $ 22,060 $ 5,000 $(27,060) $ 13,114
======= ======== ======== ======== =========
</TABLE>
-9-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues......................................... $ -- $354,302 $304,790 $(16,960) $642,132
Cost of sales........................................ -- 268,570 208,595 (16,960) 460,205
Selling, general and administrative expense.......... 1,557 40,376 58,216 -- 100,149
-------- -------- -------- -------- --------
Operating profit................................. (1,557) 45,356 37,979 -- 81,778
Interest expense ................................... 23,482 24,551 12,226 (26,499) 33,760
Other (income) expense, net.......................... (23,467) (3,955) (2,396) 26,499 (3,319)
-------- -------- -------- -------- --------
Income before income taxes....................... (1,572) 24,760 28,149 -- 51,337
Income tax provision................................. (622) 10,920 12,290 -- 22,588
Equity in income from subsidiaries................... 29,699 15,859 -- (45,558) --
-------- -------- -------- -------- --------
Net income ................................... $ 28,749 $ 29,699 $ 15,859 $(45,558) $ 28,749
======== ======== ======== ======== ========
</TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 51 $ 6,050 $ 14,461 $ -- $ 20,562
Receivables, net............................. -- 99,723 105,785 -- 205,508
Inventories.................................. -- 56,234 63,103 -- 119,337
Other current assets......................... 523 29,418 11,062 -- 41,003
-------- -------- -------- --------- ----------
Total current assets......................... 574 191,425 194,411 -- 386,410
Property, plant and equipment, net............... -- 255,412 103,947 -- 359,359
Goodwill, net of amortization.................... -- 121,027 265,463 -- 386,490
Intercompany receivable (payable)................ 514,067 (400,878) (113,189) -- --
Investment in subsidiaries....................... 33,473 79,736 -- (113,209) --
Other assets..................................... 245 37,549 40,311 -- 78,105
-------- -------- -------- --------- ----------
Total assets ............................... $548,359 $284,271 $490,943 $(113,209) $1,210,364
======== ======== ======== ========= ==========
Current liabilities:
Accounts payable............................. $ 16 $ 42,555 $ 55,464 $ -- $ 98,035
Accrued liabilities.......................... 6,202 69,274 79,557 -- 155,033
Current portion of long-term debt............ 1,250 1,255 16,253 -- 18,758
-------- -------- -------- --------- ----------
Total current liabilities.................... 7,468 113,084 151,274 -- 271,826
Long-term debt ............................... 518,750 8,019 178,588 -- 705,357
Other liabilities ............................... 572 129,695 81,345 -- 211,612
-------- -------- -------- --------- ----------
Total liabilities............................ 526,790 250,798 411,207 -- 1,188,795
Equity........................................... 21,569 33,473 79,736 (113,209) 21,569
-------- -------- -------- --------- ----------
Total liabilities and equity................. $548,359 $284,271 $490,943 $(113,209) $1,210,364
======== ======== ======== ========= ==========
</TABLE>
-10-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
NON-
SUBSIDIARY GUARANTOR
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ............ $ 5 $ 4,258 $ 24,524 $ -- $ 28,787
Receivables, net ..................... -- 104,609 108,682 -- 213,291
Inventories .......................... -- 56,920 71,991 -- 128,911
Other current assets ................. 406 28,277 16,219 -- 44,902
-------- -------- -------- --------- -----------
Total current assets ................. 411 194,064 221,416 -- 415,891
Property, plant and equipment, net ....... -- 262,324 152,309 -- 414,633
Goodwill, net of amortization ............ -- 125,251 239,577 -- 364,828
Intercompany receivable (payable) ........ 533,265 (526,422) (6,843) -- --
Investment in subsidiaries ............... 89,385 207,039 -- (296,424) --
Other assets ............................. 245 46,849 8,948 -- 56,042
-------- -------- -------- --------- -----------
Total assets ......................... $623,306 $309,105 $615,407 $(296,424) $1,251,394
======== ======== ======== ========= ===========
Current liabilities:
Accounts payable ..................... $ 14 $ 25,728 $ 72,228 $ -- $ 97,970
Accrued liabilities .................. 25,364 63,738 68,408 -- 157,510
Current portion of long-term debt .... 2,500 260 30,414 -- 33,174
-------- -------- -------- --------- -----------
Total current liabilities ............ 27,878 89,726 171,050 -- 288,654
Long-term debt ........................... 520,500 1,337 160,905 -- 682,742
Other liabilities ........................ 701 128,657 76,413 -- 205,771
-------- -------- -------- --------- -----------
Total liabilities .................... 549,079 219,720 408,368 -- 1,177,167
Equity (deficit) ......................... 74,227 89,385 207,039 (296,424) 74,227
-------- -------- -------- --------- -----------
Total liabilities and equity (deficit) $623,306 $309,105 $615,407 $(296,424) $1,251,394
======== ======== ======== ========= ===========
</TABLE>
-11-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
NON-
SUBSIDIARY GUARANTOR
PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED
------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities........................................ $ 6,921 $ 23,209 $ 2,635 $ 32,765
---------- ---------- --------- ---------
Cash flows from investing activities:
Acquisition of businesses net of cash
acquired...................................... -- (282,564) -- (282,564)
Cash provided by discontinued operaitons....... -- -- 118,095 118,095
Other.......................................... -- (12,953) (2,449) (15,402)
---------- ---------- --------- ---------
Net cash provided by (used in) investing
activities........................................ -- (295,517) 115,646 (179,871)
---------- ---------- --------- ---------
Cash flows from financing activities:
Intercompany cash transfers.................... (45,478) 168,384 (122,906) --
Other.......................................... 35,410 55,660 9,541 100,611
---------- ---------- --------- ---------
Net cash provided by (used in) financing
activities........................................ (10,068) 224,044 (113,365) 100,611
---------- ---------- --------- ---------
Effect of exchange rates on cash................... -- -- (361) (361)
---------- ---------- --------- ---------
Increase (decrease) in cash and cash
equivalents....................................... (3,147) (48,264) 4,555 (46,856)
Cash and cash equivalents at beginning
of year........................................... 3,147 57,159 1,004 61,310
---------- ---------- --------- ---------
Cash and cash equivalents at end of period......... $ -- $ 8,895 $ 5,559 $ 14,454
========== ========== ========= =========
</TABLE>
-12-
<PAGE>
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
NON-
SUBSIDIARY GUARANTOR
PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED
------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities........................................ $ 19,863 $ (4,090) $17,636 $33,409
-------- --------- ------- -------
Cash flows from investing activities:
Acquisition of businesses net of cash
acquired...................................... -- (32,455) -- (32,455)
Other.......................................... -- (9,707) (9,186) (18,893)
-------- --------- -------- -------
Net cash provided by (used in) investing
activities........................................ -- (42,162) (9,186) (51,348)
-------- --------- -------- -------
Cash flows from financing activities:
Proceeds from sale of stock.................... 37,973 -- -- 37,973
Intercompany cash transfers.................... (58,384) 49,446 8,938 --
Other.......................................... 502 (4,986) (5,653) (10,137)
-------- --------- ------- -------
Net cash provided by (used in) financing
activities........................................ (19,909) 44,460 3,285 27,836
-------- --------- ------- -------
Effect of exchange rates on cash................... -- -- (1,672) (1,672)
-------- --------- ------- -------
Increase (decrease) in cash and cash
equivalents....................................... (46) (1,792) 10,063 8,225
Cash and cash equivalents at beginning
of year........................................... 51 6,050 14,461 20,562
-------- --------- ------- -------
Cash and cash equivalents at end of period......... $ 5 $ 4,258 $24,524 $28,787
======== ========= ======= =======
</TABLE>
NOTE 12 - SUBSEQUENT EVENTS
On July 6, 2000 GenTek agreed to acquire the Digital Communications
Group of Prestolite Wire Corporation for $90,000 in cash. Prestolite's Digital
Communications Group manufacturers voice- and data-quality copper and
fiber-optic cable for the telecommunications industry. As Prestolite Wire is
controlled by the controlling shareholder of GenTek, the transaction will be
accounted for in a manner similar to a pooling of interests. The transaction is
expected to close during the third quarter and is subject to a regulatory
approval.
On July 14, 2000 legislation was enacted in Germany reducing income tax
rates beginning January 1, 2001. Accordingly, the Company expects to record a
charge of approximately $3,000 to income tax expense in the third quarter,
reflecting the revaluation of the deferred tax assets at the new, lower
effective tax rates.
On August 9, 2000, the Company entered into an amendment to its credit
facility which added $250,000 of additional term loans. The Company intends to
use the proceeds to pay for the acquisition of the Digital Communications Group
of Prestolite Wire Corporation, and to repay the existing borrowings on its
revolving credit facility.
-13-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include those discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Forward-Looking Statements" contained in the Company's Form 10-K
for the year ended December 31, 1999.
Results of Operations
Net revenues for the three and six month periods ended June 30, 2000
increased 50 percent and 86 percent to $326.5 million and $642.1 million,
respectively, from $217.7 million and $345.5 million, for the comparable periods
in 1999. These increases were primarily due to the acquisitions of Krone AG
(Telecommunications Segment) in the third quarter of 1999 and the acquisition of
Noma Industries Limited (Manufacturing Segment) in the second quarter of 1999 as
well as higher sales in both the Manufacturing and Performance Product Segments.
Gross profit for the three and six month periods ended June 30, 2000
increased $41.7 million and $94.6 million, respectively, over the comparable
prior year periods. These increases were principally related to the
abovementioned acquisitions and the higher sales levels in the Manufacturing and
Performance Product Segments. Gross profit as a percentage of net revenues for
the first six months of 2000 was 28.3 percent compared to 25.3 percent for the
prior year. This increase is principally due to the inclusion of the sales of
Krone, which are at higher margins than the existing businesses.
Selling, general and administrative expense increased $20.0 million and
$54.3 million for the three and six month periods ended June 30, 2000 as
compared to the prior year levels, principally due to the abovementioned
acquisitions, partially offset by a $6.2 million charge recorded in the second
quarter of 1999 related to the Spinoff.
Interest expense was $16.9 million and $33.8 million for the three and
six month periods ended June 30, 2000 as compared with $8.0 million and $12.3
million for the comparable periods of 1999 principally due to higher outstanding
debt balances related to the Company's acquisitions.
The increase in other income for the three and six month periods ended
June 30, 2000 is primarily due to a $1.9 million gain on disposition of a
long-term asset realized during the second quarter.
On July 14, 2000 legislation was enacted in Germany reducing income tax
rates beginning January 1, 2001. Accordingly, the Company expects to record a
charge of approximately $3,000 to income tax expense in the third quarter,
reflecting the revaluation of the deferred tax assets at the new, lower
effective tax rates.
Financial Condition, Liquidity and Capital Resources
Cash and cash equivalents were $28.8 million at June 30, 2000 compared
with $20.6 million at year-end 1999. During the first six months of 2000, the
Company generated cash flow from continuing operations of $33.4 million and had
net proceeds from the sale of stock and other long term assets of $43.9 million
which was used to make net repayments of debt of $7.6 million and capital
expenditures of $23.8 million.
-14-
<PAGE>
The Company had working capital of $127.2 million at June 30, 2000 as
compared with $114.6 million at December 31, 1999. This increase in working
capital principally reflects higher cash, accounts receivable and inventory
balances, partially offset by higher accrued liabilities and a higher current
portion of long-term debt.
On July 6, 2000 GenTek agreed to acquire the Digital Communications
Group of Prestolite Wire Corporation for $90,000 in cash. Prestolite's Digital
Communications Group manufacturers voice- and data-quality copper and
fiber-optic cable for the telecommunications industry. As Prestolite Wire is
controlled by the controlling shareholder of GenTek, the transaction will be
accounted for in a manner similar to a pooling of interests. The transaction is
expected to close during the third quarter and is subject to a regulatory
approval.
On August 9, 2000, the Company entered into an amendment to its credit
facility which added $250,000 of additional term loans. The Company intends to
use the proceeds to pay for the acquisition of the Digital Communications Group
of Prestolite Wire Corporation, and to repay existing borrowings on its
revolving credit facility.
Other Matters
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Financial Instruments and Certain Hedging Activities - an amendment
of FASB Statement No. 133". This statement amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and for certain hedging
activities. The Company plans to adopt SFAS 133 and SFAS 138 in the first
quarter of fiscal 2001. The Company does not expect that the adoption of these
pronouncements will have a material effect on its Consolidated Financial
Statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 was issued to provide guidance in applying generally
accepted accounting principles to revenue recognition issues including
nonrefundable, up-front fees and the disclosure of judgements as to the
appropriateness of the principles relating to revenue recognition accounting
policies. The SEC has delayed the required implementation date of SAB 101 until
no later than the fourth fiscal quarter of 2000. The Company does not expect
that the implementation of SAB 101 will have a material effect on its
Consolidated Financial Statements.
-15-
<PAGE>
ITEM 3. 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.
-16-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 2000, the Company held its Annual Meeting of Stockholders. At
the meeting, Paul M. Montrone, Paul M. Meister, John W. Gildea, Bruce L.
Koepfgen, Richard R. Russell, Scott M. Sperling and Ira Stepanian were each
elected as a director of the Company to serve a one year term which will expire
at the 2001 Annual Meeting of Stockholders and until a successor has been duly
elected and qualified. For Paul M. Montrone, 63,839,292 votes were cast in favor
and 292,341 votes were withheld. For Paul M. Meister, 63,605,208 votes were cast
in favor and and 526,425 votes were withheld. For John W. Gildea, 63,837,350
votes were cast in favor and 294,283 votes were withheld. For Bruce L. Koepfgen,
63,839,672 votes were cast in favor and 291,961 votes were withheld. For Richard
R. Russsell, 63,112,608 votes were cast in favor and 1,019,025 votes were
withheld. For Scott M. Sperling, 63,839,672 votes were cast in favor and 291,961
votes were withheld. For Ira Stepanian, 63,840,672 votes were cast in favor and
290,961 votes were withheld.
The stockholders also ratified the selection of Deloitte & Touche LLP
as the Company's independent auditors, 63,859,124 votes were cast in favor and
of the ratification; 270,215 were votes against; and 2,294 abstained.
The stockholders also ratified the adoption of The GenTek Inc. 2000
Long-Term Incentive Plan. 59,874,404 votes were cast in favor of the
ratification; 2,237,833 votes against; 714,887 abstained; and 1,304,509 were
broker non-votes.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule.
(b) The Company did not file any current reports on Form 8-K
during the last quarter covered by this report.
-17-
<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
Date August 10, 2000 /s/ Richard R. Russell
------------------- -------------------------------
RICHARD R. RUSSELL
President and Chief Executive Officer
(Principal Executive Officer) and
Director
Date August 10, 2000 /s/ Stewart A. Fisher
------------------- -------------------------------------
STEWART A. FISHER
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
-18-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C>
27 Financial Data Schedule.............................. 20
</TABLE>
-19-
