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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______ to______
Commission File Number 33-64824
GENERAL CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 22-2689817
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
90 EAST HALSEY ROAD
PARSIPPANY, NEW JERSEY 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 515-0900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I
(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and is not contained in the
definitive information statement incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
There was no voting stock of the Registrant beneficially held by
non-affiliates of the Registrant as of March 20, 1998.
The number of outstanding shares of the Registrant's Common Stock
as of March 20, 1998 was 100 shares of Common Stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE:
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PART I
ITEM 1. BUSINESS
GENERAL
General Chemical Corporation ("General Chemical"), incorporated under
the laws of the State of Delaware, is a diversified chemical manufacturing
company. General Chemical and its subsidiaries (collectively, the "Company")
have production facilities in the United States and Canada that sell to a broad
range of industrial and municipal customers. The Company is a leading producer
of soda ash in North America, and a major North American supplier of calcium
chloride, sodium and ammonia salts, sulfites, nitrites, aluminum-based chemical
products and refinery and chemical sulfuric acid regeneration services. General
Chemical is a wholly owned subsidiary of New Hampshire Oak, Inc. ("New Hampshire
Oak") which is a wholly owned subsidiary of The General Chemical Group Inc.
("GCG").
For certain information concerning the Company's revenue, income and
assets attributable to the Company's geographic areas and the amount of export
sales, see "Notes to the Consolidated Financial Statements, Note 10 - Geographic
Information", which are incorporated by reference herein.
PRODUCT SALES
The Company's sales by product line (and the percentage of total sales
represented by such sales) during the lat three fiscal years are as follows:
<TABLE>
<CAPTION>
Product Line 1995 1996 1997
- ------------ -------------------- ------------------ -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Industrial Chemicals............................ $265,329 58% $298,941 59% $289,699 56%
Derivative Products and Services............. 196,287 43 215,084 42 234,644 45
Elimination and other (1) .................... (5,386) (1) (5,405) (1) (5,239) (1)
--------- ---- --------- ---- --------- ----
Total.................................. $456,230 100% $508,620 100% $519,104 100%
======== === ======== === ======== ====
</TABLE>
(1) Primarily comprised of the elimination of intracompany sales.
INDUSTRIAL CHEMICALS
Soda ash and calcium chloride comprise the Company's industrial
chemical product lines. The Company is the second largest producer of soda ash
in the U.S. and Canada and is the only producer of both synthetic and natural
soda ash in North America. General Chemical (Soda Ash) Partners ("GCSAP"), the
Company's 51 percent-owned partnership, produces natural soda ash by refining
mined trona deposits at its plant in Green River, Wyoming. The Green River
basin, where all but one of the U.S. producers of natural soda ash are located,
contains the largest known economically recoverable trona deposits in the world.
Soda ash is also produced by the Company's Canadian subsidiary, General Chemical
Canada Ltd. ("GC Canada") at its plant in Amherstburg, Ontario, by using the
synthetic process. This production process, which is energy and labor intensive,
is considerably more costly than refining natural soda ash. The Amherstburg
plant remains profitable due to its operating efficiency, successful marketing
of calcium chloride, a co-product, and favorable freight rates to major Canadian
soda ash markets. GC Canada is the largest producer of calcium chloride in
Canada.
Soda Ash. The major use of soda ash is in the production of glass
bottles and other glass containers. Soda ash is also used in the manufacture of
windows, mirrors, fiberglass, television tubes, lighting ware, tableware,
glassware and laboratory ware. The chemical industry uses soda ash in the
production of sodium bicarbonate, sodium phosphates, sodium silicates and chrome
chemicals. The detergent industry often uses soda ash as the prime alkali to
make phosphates and silicates for dry detergent applications. Soda ash is also
used, to a lesser extent, by the water treatment industry to control pH levels
and by the pulp and paper industries in the pulping of wood fiber.
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Due to the low-cost position of the U.S. natural soda ash producers,
the export market has grown significantly and now accounts for approximately
forty percent of U.S. production. The Company, along with the other five U.S.
producers of natural soda ash, exports soda ash through the American Natural
Soda Ash Corporation ("ANSAC"), an export organization organized in 1984 under
the Webb-Pomerrene Act. ANSAC ships to virtually all parts of the world except
Canada and Western Europe. Each individual member's allocation of ANSAC volume
is based on the member's total nameplate capacity, with any member's expansion
phased in over a multi-year period for allocation purposes.
Calcium Chloride. Calcium chloride is used predominantly for dust
control and roadbed stabilization on unpaved roads in the summer, and for
melting ice on highways in the winter. Although the summer road market is the
dominant end use in the Canadian market, the winter deicing market and
industrial applications are the major end-use markets in the U.S. Industrial
applications include asphalt recycling, water treatment and concrete and
drilling mud additives.
DERIVATIVE PRODUCTS AND SERVICES
The Company's derivative products and services product lines include a
wide variety of products such as sulfuric acid, sodium and ammonia salts,
sulfites, aluminum-based chemical products and nitrites that are derived
principally from the production of soda ash and the regeneration of sulfuric
acid. These products are categorized into four major product lines with end
markets including refinery and chemical sulfuric acid regeneration, water
treatment, photo chemicals, pulp and paper, chemical processing and
semiconductor devices.
Refinery and chemical regeneration services. Refineries use sulfuric
acid as an alkylation process catalyst in the production of high-quality,
high-octane and low-vapor-pressure gasoline. The alkylation process contaminates
and dilutes the sulfuric acid catalyst, generating an 85 percent to 90 percent
spent sulfuric acid stream, which is then removed from the refineries via
pipeline or tank truck. The Company thermally decomposes the spent acid to
regenerate fresh sulfuric acid, which is then recycled back to the refinery. A
similar service is provided to the chemical industry for the manufacture of ion
exchange resins, silicone polymers, liquid detergents and surfactants.
Water Treatment. The Company, through its broad geographic network of
33 strategically located plants, is the largest North American producer of
aluminum sulfate ("alum"). Municipalities, which use alum as a flocculant and
coagulant in the treatment of water and waste water, are the predominant
customers. Other products sold to the water treatment market include sodium and
ammonia salt and sulfite products, which are used in dechlorination and to
inhibit the corrosion of steel lines and equipment.
Photo Chemicals. Sodium and ammonia sulfites and bisulfites have major
applications as fixing and developing solutions for conventional film and x-ray
processes. The Company has leading market share positions in these products.
Pulp and Paper. The pulp and paper industry utilizes alum and enhanced
coagulants to impart water resistance ("sizing") to paper and to treat the
substantial quantities of water required in the papermaking process. Paper mills
also use sulfuric acid in the sulfur dioxide pulp bleaching process, in pH
adjustments and in water treatment. Other products used to a lesser extent by
the pulp and paper industry include sodium sulfites, which are used for
digesting fibers in the thermo-mechanical pulping process, reducing bleaching
agents such as chlorine and hydrogen peroxide, and as a raw material for other
bleaching agents.
Chemical Processing. The chemical processing market utilizes a number
of the Company's products. Sodium nitrite is primarily used as a reactant in the
manufacture of various organics (i.e. dyes and pigments and rubber processing
chemicals), in applications as a heat transfer salt in high temperature chemical
reactions and as a cooling tower corrosion inhibitor. Potassium fluoride and
fluoborate derivatives are low-volume, higher priced chemicals used in brazing
fluxes, agricultural chemicals, surfactants and analytical reagants. Sulfuric
acid is used in the manufacture of titanium pigments, fertilizer, synthetic
fibers, steel, alum, paper and many other products.
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Semiconductor Devices. The Company supplies high-purity semiconductor
acids, caustics and etchants to customers throughout North America, Western
Europe and the Pacific Rim. These customers manufacture silicon wafers and
convert the wafers to integrated circuits. Fluoborate derivatives are also sold
to this market for use in electroplating.
ITEM 2. PROPERTIES
In conducting its operations, the Company uses properties having
offices, storage facilities or manufacturing facilities at 87 locations
throughout the United States, Canada and the Philippines. Twenty-eight of these
properties are leased while the remainder are owned by the Company. The leased
properties are occupied under rental agreements having terms ranging up to four
years and under month-to-month tenancies. The two properties at which the
Company's co-headquarters are located are Parsippany, New Jersey, and Hampton,
New Hampshire, which are leased by the Company and its parent, respectively.
The locations and uses of certain major properties of the Company are
as follows:
<TABLE>
<CAPTION>
Location Use
-------- ---
<S> <C> <C>
United States................ * Pittsburg, California Manufacturing Facility
* Richmond, California Manufacturing Facility
* North Claymont, Delaware Manufacturing Facility,
Offices and Warehouse
Augusta, Georgia Manufacturing Facility
* East St. Louis, Illinois Manufacturing Facility
** Hampton, New Hampshire Offices
Newark, New Jersey Manufacturing Facility
** Parsippany, New Jersey Offices
Solvay, New York Manufacturing Facility
* Marcus Hook, Pennsylvania Manufacturing Facility,
Offices and Warehouse
* Anacortes, Washington Manufacturing Facility
Green River, Wyoming Trona Mine and
Manufacturing Facility
Canada........................ Amherstburg, Ontario Manufacturing Facility
and Undeveloped Lots
** Mississauga, Ontario Offices
Valleyfield, Quebec Manufacturing Facility
</TABLE>
* Each of the indicated facilities has been mortgaged as security by the
Company for the U.S. Revolving Credit Facility and Bank Term Loan.
** Leased.
The Company's Green River plant currently has a nameplate capacity of
approximately 2.5 million tons of soda ash per year. The plant is owned by
GCSAP, a partnership of which the Company is the managing partner and in which
the Company has a 51 percent equity interest, The Andover Group, Inc., which is
a wholly owned subsidiary of ACI International Limited, has a 25 percent equity
interest and TOSOH Wyoming, Inc., which is a wholly owned subsidiary of TOSOH
America, Inc., has a 24 percent equity interest. Each partner is prohibited from
transferring its interest in GCSAP or withdrawing from GCSAP without the prior
written consent of the other partners.
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In addition to such restrictions on the transfer of interests in GCSAP,
there are certain restrictions and obligations with respect to the transfer of
either the Company's interest in GCSAP or the voting securities of the Company.
For further information, see Notes to the Consolidated Financial Statements,
Note 7 - Commitments and Contingencies.
Reserves. The Company mines trona ore under leases with the United
States government, the State of Wyoming, and the Union Pacific Resources
Corporation. The Company's trona reserves and mines are located in the Green
River, Wyoming, area.
The Company's estimated proven reserves within bed No. 17, which the
Company is currently mining, consist of approximately 89 million tons of
extractable ore. At the 1997 operating rate of 2.4 million tons of soda ash per
year (4.1 million tons of trona ore), there is approximately a 22-year supply.
For the three years ended December 31, 1997, annual production of trona ore
averaged approximately 4.2 million tons. In addition, the Company's reserves
contain three other major minable trona beds containing approximately 324
million tons of extractable ore. These beds, which may require significant
capital to access, will provide more than 79 years of added reserves based on
current operating rates.
At the Company's synthetic soda ash plant in Amherstburg, Ontario,
Canada, the Company uses salt and limestone as its raw materials. Based on
current production levels, the Company has approximately 29 years of salt
reserves. Limestone reserves owned by the Company total approximately 15 years,
with an option on an additional six years of reserves. However, the Company is
not currently utilizing its limestone reserves and is instead purchasing all of
its limestone requirements under a long-term contract with a major limestone
producer due to the economic benefit of using purchased limestone.
ITEM 3. LEGAL PROCEEDINGS
Richmond Works July 26, 1993 Incident. On July 26, 1993, a pressure
relief device on a railroad tank car containing oleum that was being unloaded at
the Company's Richmond, California, facility ruptured during the unloading
process, causing the release of a significant amount of sulfur trioxide.
Approximately 150 lawsuits seeking substantial amounts of damages were filed
against the Company on behalf of in excess of 60,000 claimants in municipal and
superior courts of California (Contra Costa and San Francisco counties) and in
federal court (United States District Court for the Northern District of
California). All state court cases were coordinated before a coordination trial
judge (In Re GCC Richmond Works Cases, JCCP No. 2906) and the federal court
cases were stayed until completion of the state court cases.
After several months of negotiation under the supervision of a
settlement master, the Company and a court-approved plaintiffs' management
committee executed a comprehensive settlement agreement which resolved the
claims of approximately 95 percent of the claimants who filed lawsuits arising
out of the July 26th incident, including the federal court cases. After a final
settlement approval hearing on October 27, 1995, the coordination trial judge
approved the settlement on November 22, 1995.
Pursuant to the terms of the settlement agreement, the Company, with
funds to be provided by its insurers pursuant to the terms of the insurance
policies described below, has agreed to make available a maximum of $180 million
to implement the settlement. Various "funds" and "pools" are established by the
settlement agreement to compensate claimants in different subclasses who meet
certain requirements. Of this amount, $24 million has been allocated for
punitive damages, notwithstanding the Company's strong belief that punitive
damages are not warranted. The settlement also makes available $23 million of
this $180 million for the payment of legal fees and litigation costs to class
counsel and the plaintiffs' management committee.
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The settlement agreement provides, among other things, that while
claimants may "opt out" of the compensatory damages portion of the settlement
and pursue their own cases separate and apart from the class settlement
mechanism, they have no right to opt out of the punitive damages portion of the
settlement. Consequently, under the terms of the settlement, no party may seek
punitive damages from the Company outside of those provided by the settlement.
Approximately 2,800 claimants, which constitutes less than 5 percent of the
total number of claimants, originally elected to so opt out. Except with respect
to compensatory damage claims by claimants electing to opt-out, the settlement
fully releases from all claims arising out of the July 26, 1993 incident the
Company and all of its related entities, shareholders, directors, officers and
employees, and all other entities who have been or could have been sued as a
result of the July 26th incident, including all those who have sought or could
seek indemnity from the Company.
Notices of appeal of all or portions of the settlement approved by the
court have been filed by five law firms representing approximately 2,750 of the
opt-outs, with 2,700 of these claimants represented by the same law firm.
Virtually all of these claimants have not specified the amount of their claims
in court documents, although the Company believes that their alleged injuries
are no different in nature or extent than those alleged by the settling
claimants. On May 8, 1996, the California Court of Appeals dismissed each of the
appeals that had been filed challenging the trial court's approval of the class
action settlement. The Court of Appeals dismissed the appeal relating to the
trial court's rulings on plaintiffs' attorneys' fees on the ground that the
appealing attorneys lacked standing to appeal. The Court of Appeals also
dismissed each of the other grounds for appeal, ruling that the trial court's
orders and rulings approving the settlement were not presently appealable, if at
all, by the appealing claimants since they had all elected to opt out of the
settlement. The appealing attorneys and some of the appealing claimants filed a
petition for review with the California Supreme Court which, on August 15, 1996,
elected not to review the Court of Appeals' decision.
On March 11, 1997, the coordination judge dismissed the material claims
of 1,269 of the approximately 2,750 opt-out claimants, primarily on the grounds
that they had failed to comply with previous pre-trial orders. On April 8, 1997,
the California Court of Appeals denied a petition for review of the dismissals
filed by attorneys for the dismissed opt-out claimants, and on June 8, 1997, the
California Supreme Court denied the same attorneys' petition for review of the
California Court of Appeals' denial of their prior petition. On February 5,
1998, a hearing was held before the coordination judge on the Company's motion
to dismiss the material claims of another 800 of the approximately 2,750
original opt-out claimants, again primarily on the grounds that they failed to
comply with previous pre- trial orders. As of March 5, 1998, the Company is
awaiting the decision of the coordination judge on this motion.
The settlement includes various terms and conditions designed to
protect the Company in the event that the settlement as approved by the court is
overturned or modified on appeal. If such an overturn or modification occurs,
the Company has the right to terminate the settlement and make no further
settlement payments, and any then unexpended portions of the settlement proceeds
(including, without limitation, the $24 million punitive damage fund) would be
available to address any expenses and liabilities that might arise from any such
an overturn or modification. In addition, in the event that the settlement as
approved by the court is overturned or modified on appeal, the release document
signed by settling claimants contains language which fully releases the Company
from any further claims, either for compensatory or punitive damages, arising
out of the July 26, 1993 incident. The Company has presently obtained releases
from over 94 percent of the settling claimants and believes that it will have
obtained the majority of releases from the remaining settling claimants prior to
any such appeal being ruled on by an appellate court.
It is possible that one or more of the opt-out claimants, once their
opt-out cases are finally litigated through trial, may attempt to refile all or
a portion of the appeals that were dismissed by the California Court of Appeals.
While there can be no assurances regarding how an appellate court might rule in
the event of a refiling of an appeal of the settlement, the Company believes
that the settlement will be upheld on appeal. In the event of a reversal or
modification of the settlement on appeal, with respect to lawsuits by any then
remaining claimants (opt-outs and settling claimants who have not signed
releases)
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the Company believes that, whether or not it elects to terminate the settlement
in the event it is overturned or modified on appeal, it will have adequate
resources from its available insurance coverage to vigorously defend these
lawsuits through their ultimate conclusion, whether by trial or settlement.
However, in the event the settlement is overturned or modified on appeal, there
can be no assurance that the Company's ultimate liability resulting from the
July 26, 1993 incident would not exceed the available insurance coverage by an
amount which could be material to its financial condition or results of
operations, nor is the Company able to estimate or predict a range of what such
ultimate liability might be, if any.
The Company has insurance coverage relating to this incident which
totals $200 million. The first two layers of coverage total $25 million with a
sublimit of $12 million applicable to the July 26, 1993 incident, and the
Company also has excess insurance policies of $175 million over the first two
layers. The Company reached an agreement with the carrier for the first two
layers whereby the carrier paid the Company $16 million in settlement of all
claims the Company had against that carrier. In the third quarter of 1994, the
Company recorded a $9 million charge to earnings for costs which the Company
incurred related to this matter. The Company's excess insurance policies, which
are written by two Bermuda-based insurers, provide coverage for compensatory as
well as punitive damages. Both insurers have executed agreements with the
Company confirming their respective commitments to fund the settlement as
required by their insurance policies with the Company and as described in the
settlement agreement. In addition, these same insurers currently continue to
provide substantially the same insurance coverage to the Company.
Milwaukee Litigation. In March 1993, an outbreak of cryptosporidia
occurred in the public water supply of the City of Milwaukee. As a result of
that incident, several lawsuits have been filed with the Milwaukee County
Circuit Court against one or more of the City of Milwaukee, its Department of
Public Works, Sara Lee Corporation, E.D. Wesley Co., Peck Foods Corporation,
certain hotels, numerous insurance companies, several municipalities and the
Company. The complaints generally allege, among other things, that the outbreak
was caused when certain defendants other than the Company illegally disposed of
waste into the water supply, and that the City of Milwaukee failed to properly
operate its water treatment plant in a manner that would have prevented the
outbreak. The principal allegations against the Company are that a water
treatment chemical sold to the City of Milwaukee by the Company should have
removed the bacteria and failed to do so and that the Company consulted with the
City concerning the water purification.
One of the suits (Markwiese, et al v. Peck Foods Corporation, et al
filed in 1993) had been certified, prior to the service of a complaint against
the Company, as a class action in favor of all persons who sustained damage as a
result of the wrongful acts of the various defendants. Subsequently, the Company
and the City of Milwaukee challenged, among other things, the class
certification, and the Wisconsin Court of Appeals remanded this matter to the
trial court for a determination of how certain issues impact whether class
certification was appropriate. On March 13, 1998, a hearing was held before a
new trial judge on the issue of whether class certification is appropriate in
this matter, and the judge ruled from the bench that this matter shall not
proceed as a class action. It is unknown at this time whether lawyers for the
plaintiffs will appeal this ruling.
In addition to the Markwiese action, several other lawsuits have since
been filed by the same lead attorneys in the Circuit Court of Milwaukee County
against the same basic group of defendants, including two multi-party actions,
Quandt et al v. Northbrook Property and Casualty Insurance Co. filed in 1994 and
Winiarski et al v. Peck Foods et al filed in 1996, on behalf of a total of 98
plaintiffs. The unspecified damages sought by these various complaints is
alleged to be "far in excess of $1.0 million dollars" for personal injury,
economic loss, emotional distress, pain and suffering, medical expenses and
punitive damages.
The Company has denied all material allegations of the complaints and
will continue to defend these lawsuits vigorously. The Company further believes
that its available insurance provides adequate coverage in the event of an
adverse result in this matter, and that this matter will not have a material
adverse effect on its financial condition or results of operations.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no stock owned by nonaffiliates and accordingly there is no
established trading market for General Chemical's Common Stock. The number of
holders of record of the Company's Common Stock as of March 25, 1998 was one.
General Chemical did not pay cash dividends to its shareholder for the
year ended December 31, 1996. For the year ended December 31, 1997, General
Chemical declared and paid $20,000,000 in cash dividends to its shareholder.
General Chemical has covenanted in the indentures and agreements
related to the Senior Subordinated Notes, the Bank Term Loan and the U.S.
Revolving Credit Facility that it will not declare or pay any cash dividends
unless at the time of such payment certain conditions are met, including that no
event of default shall have occurred and be continuing, that a certain minimum
fixed charge ratio shall have been met and that the aggregate amount of all
restricted payments (as defined) under such indentures and agreements not exceed
a maximum amount determined on the basis of certain formulas. At December 31,
1997, approximately $62.2 million was available for dividend payments in
accordance with these covenants.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
General Chemical Corporation, which has a history dating back to 1899,
is a diversified manufacturing company predominantly engaged in the production
of inorganic chemicals, with manufacturing facilities located in the United
States and Canada. The Company is a leading producer of soda ash in North
America, and a major North American supplier of calcium chloride, sodium and
ammonia salts, sulfites, nitrites, aluminum-based chemical products and refinery
and chemical regeneration services to a broad range of industrial and municipal
customers.
The industrial chemical product lines consisting of soda ash and
calcium chloride accounted for approximately 56 percent of the Company's
consolidated 1997 net revenues. The derivative products and services product
lines accounted for approximately 44 percent of the Company's consolidated 1997
net revenues. The derivative products and services product lines encompass a
wide range of products that are principally derived from the Company's
production of soda ash and regeneration of sulfuric acid.
Sales in 1997 rose to $519.1 million from $508.6 in 1996. The higher
sales in 1997 were due primarily to sales of Peridot Holdings, Inc., ("Peridot")
which was acquired on July 1, 1997 and volume gains in most product lines,
partially offset by lower soda ash and calcium chloride pricing. Net income
increased to $40.0 million from the prior year of $38.7 million. The Company's
natural soda ash facility in Green River, Wyoming, and the synthetic soda ash
facility in Amherstburg, Ontario, were essentially sold out for the third
consecutive year. A recent capacity expansion at the Company's Green River,
Wyoming, facility, allowed the Company to take advantage of the growth in
exports.
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the respective notes thereto included in
Item 8. This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in such statements as a result of the following
risk factors: risks and uncertainties in connection with business conditions in
the markets the Company serves and in the general economy, and the impact of
competitive products and pricing, in particular, the price of soda ash.
RESULTS OF OPERATIONS
The following table sets forth the results of operations and percentage
of net revenues represented by the components of operating profit and expense
for the years ended December 31, 1996 and 1997 (dollars in millions).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1997
---- ----
<S> <C> <C> <C> <C>
Net revenues.............................................. $508.6 100% $519.1 100%
Cost of sales............................................. 344.2 68 363.9 70
------ --- ------ ---
Gross profit.............................................. 164.4 32 155.2 30
Selling, general and administrative expense............... 47.8 9 44.4 9
------ --- ------ ---
Operating profit.......................................... $116.6 23% $110.8 21%
====== === ====== ===
</TABLE>
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1997 Compared with 1996
Net revenues for 1997 were $519.1 million or 2 percent higher than the
prior year. This increase is primarily due to sales of Peridot which was
acquired on July 1, 1997, and volume gains in most other product lines,
partially offset by weaker pricing of soda ash and calcium chloride.
Gross profit for 1997 decreased to $155.2 million compared with $164.4
million for the prior year. Gross profit as a percentage of net revenues
decreased to 30 percent for 1997 from 32 percent for 1996 reflecting lower soda
ash and calcium chloride pricing, partially offset by higher volumes in most
product lines.
Selling, general and administrative expense was $44.4 million or 9
percent of net revenues for 1997 versus $47.8 million or 9 percent for 1996.
This decrease is due primarily to a one-time charge of $8.3 million recorded in
1996, related to a Restricted Unit Plan created by the Company's parent which
satisfied the Company's liability under its former Phantom Equity Plan,
partially offset by higher expense related to the aforementioned acquisition in
1997.
Interest expense for 1997 was $21.5 million which was $1.6 million
lower than the 1996 level due to lower outstanding debt balances for the first
half of 1997.
Interest income for 1997 was $1.5 million which was comparable to the
prior year.
The foreign currency transaction loss for 1997 was $0.6 million
compared with a $0.2 million gain in 1996, principally due to the impact of
exchange rate fluctuations on the Company's Canadian subsidiary.
Minority interest for 1997 was $24.3 million compared with $31.6
million for the same period of 1996, reflecting lower earnings due to lower soda
ash pricing of General Chemical (Soda Ash) Partners.
Net income for 1997 was $40.0 million versus $38.7 million for 1996,
due to the foregoing.
OTHER MATTERS
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("FAS 131"). The
Company is required to adopt FAS 130 and FAS 131 for fiscal years beginning
after December 15, 1997. The Company is currently evaluating the impact of FAS
131 on its segments.
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium ("Year 2000") approaches. The
Company is utilizing both internal and external resources to replace or
reprogram, to make them Year 2000 compliant. The Company believes that the cost
of Year 2000 compliance will not have a material effect on the Company's results
of operations, financial condition and cash flows. The Company cannot anticipate
the impact of customers', suppliers' or vendors' non-compliance with the Year
2000.
On February 13, 1998, the Company entered into an agreement to acquire,
subject to certain conditions precedent to closing, all of the outstanding stock
of Reheis, Inc. ("Reheis"). Reheis is headquartered in New Jersey and is the
world's leading producer and supplier of the active chemical ingredients in
antiperspirants and over-the-counter antacids as well as a supplier of
pharmaceutical intermediates and other products. Funding for this transaction
will be provided by existing cash and borrowings on the Company's revolving
credit facility. GCC will account for this transaction using the purchase
method.
-10-
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K."
-11-
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
GENERAL CHEMICAL CORPORATION:
We have audited the accompanying consolidated balance sheets of General
Chemical Corporation and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, changes in equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedule in the Index at Item
14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of General Chemical Corporation
and subsidiaries at December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as whole, presents
fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Parsippany, New Jersey
February 13, 1998
-12-
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues......................................................... $ 456,230 $ 508,620 $ 519,104
Cost of sales........................................................ 318,692 344,234 363,848
Selling, general and administrative expense.......................... 39,156 47,810 44,441
--------- --------- ---------
Operating profit..................................................... 98,382 116,576 110,815
Interest expense..................................................... 24,796 23,110 21,526
Interest income...................................................... 1,163 1,233 1,507
Foreign currency transaction (gains) losses.......................... (1,382) (169) 627
Other expense, net................................................... 759 598 343
--------- --------- ---------
Income before minority interest and income taxes .................... 75,372 94,270 89,826
Minority interest.................................................... 19,458 31,635 24,253
--------- --------- ---------
Income before income taxes .......................................... 55,914 62,635 65,573
Income tax provision................................................. 39,885 23,902 25,583
--------- --------- ---------
Net income.................................................. $ 16,029 $ 38,733 $ 39,990
========= ========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
13
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
---- ----
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 32,742 $ 9,023
Receivables, net.............................................................. 87,288 106,419
Inventories................................................................... 34,444 37,584
Deferred income taxes......................................................... 9,323 11,273
Other current assets.......................................................... 1,318 1,879
--------- ---------
Total current assets...................................................... 165,115 166,178
Property, plant and equipment, net............................................... 212,743 277,107
Other assets..................................................................... 30,919 44,515
--------- ---------
Total assets.............................................................. $ 408,777 $ 487,800
========= =========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................................................. $ 46,208 $ 52,135
Accrued liabilities........................................................... 59,900 58,835
Income taxes payable.......................................................... 3,033 1,850
Current portion of long-term debt............................................. 17,392 17,392
--------- ---------
Total current liabilities................................................. 126,533 130,212
Long-term debt................................................................... 217,217 240,612
Other liabilities................................................................ 167,591 183,989
--------- ---------
Total liabilities......................................................... 511,341 554,813
--------- ---------
Minority interest................................................................ 38,572 43,301
--------- ---------
Equity (deficit):
Common stock, $.01 par value;
authorized 1,000 shares;
issued and outstanding: 100 shares....................................... -- --
Capital deficit.............................................................. (187,652) (176,058)
Foreign currency translation adjustments.................................... (1,435) (2,197)
Retained earnings........................................................... 47,951 67,941
--------- ---------
Total equity (deficit)................................................... (141,136) (110,314)
--------- ---------
Total liabilities and equity (deficit)................................... $ 408,777 $ 487,800
========= =========
</TABLE>
See the accompanying notes to the consolidated financialstatements.
14
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 16,029 $ 38,733 $ 39,990
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................................... 25,050 25,861 29,383
Net loss on disposition of long-term assets....................... 906 1,132 1,107
Unrealized exchange (gain) loss................................... (1,586) 31 1,405
Restricted unit plan costs........................................ -- 8,989 1,094
(Increase) decrease in receivables................................ 1,614 (10,927) (15,809)
(Increase) decrease in inventories................................ (5,512) 967 (1,148)
Increase in accounts payable...................................... 1,420 1,849 3,942
Increase (decrease) in accrued liabilities........................ 6,597 (11,425) (8,121)
Increase (decrease) in income taxes payable....................... (2,891) 1,967 (1,213)
Increase in other liabilities and assets, net..................... 8,867 6,047 10,847
Increase in minority interest..................................... 686 10,294 4,729
-------- -------- --------
Net cash provided by operating activities....................... 51,180 73,518 66,206
-------- -------- --------
Cash flows from investing activities:
Capital expenditures................................................ (27,909) (51,367) (52,961)
Proceeds from sales or disposals of long-term assets................ 350 73 45
Acquisition of business, net of cash acquired (Note 3)*............. -- -- (30,130)
-------- -------- --------
Net cash used for investing activities.......................... (27,559) (51,294) (83,046)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt........................................ 2,000 20,000 49,000
Repayment of long-term debt......................................... (14,000) (58,391) (45,536)
Capital contributions from parent................................... -- 35,600 10,500
Dividends........................................................... (16,900) -- (20,000)
-------- -------- --------
Net cash used for financing activities.......................... (28,900) (2,791) (6,036)
-------- -------- --------
Effect of exchange rate changes on cash................................. 274 30 (843)
-------- -------- --------
Increase (decrease) in cash and cash equivalents........................ (5,005) 19,463 (23,719)
Cash and cash equivalents at beginning of period........................ 18,284 13,279 32,742
-------- -------- --------
Cash and cash equivalents at end of period.............................. $ 13,279 $ 32,742 $ 9,023
======== ======== ========
Supplemental information:
Cash paid for income taxes.......................................... $ 20,315 $ 18,500 $ 22,401
======== ========= ========
Cash paid for interest.............................................. $ 23,573 $ 22,222 $ 20,923
======== ======== ========
* Purchase of business, net of cash acquired:
Working capital, other than cash.................................... $ 3,110
Plant, property and equipment....................................... (43,007)
Other assets........................................................ (19,593)
Noncurrent liabilities.............................................. 29,360
--------
Net cash used to acquire business............................... $(30,130)
========
</TABLE>
See the accompanying notes to the consolidated financial statements.
15
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
CAPITAL TRANSLATION RETAINED
DEFICIT ADJUSTMENTS EARNINGS TOTAL
------- ----------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1994....................... $(232,241) $(1,414) $ 10,089 $(223,566)
Net income.................................... 16,029 16,029
Foreign currency translation.................. 52 52
Dividends..................................... (16,900) (16,900)
--------- ------- -------- ---------
Balance at December 31, 1995....................... (232,241) (1,362) 9,218 (224,385)
Net income.................................... 38,733 38,733
Foreign currency translation.................. (73) (73)
Capital transactions with parent.............. 44,589 44,589
--------- ------- -------- ---------
Balance at December 31, 1996....................... (187,652) (1,435) 47,951 (141,136)
Net income.................................... 39,990 39,990
Foreign currency translation.................. (762) (762)
Dividends..................................... (20,000) (20,000)
Capital transactions with parent.............. 11,594 11,594
--------- ------- -------- ---------
Balance at December 31, 1997....................... $(176,058) $(2,197) $ 67,941 $(110,314)
========= ======= ======== =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
16
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
General Chemical Corporation ("General Chemical" or the "Company") is a
wholly owned subsidiary of New Hampshire Oak, Inc. ("New Hampshire Oak" or the
"Parent"), which is a wholly owned subsidiary of The General Chemical Group Inc.
("GCG"). General Chemical is a diversified manufacturing company engaged in the
production of inorganic chemicals, with production facilities located in the
United States and Canada. General Chemical is a leading producer of soda ash in
North America, and a major North American supplier of calcium chloride, which
combined accounted for approximately 56 percent of the Company's 1997 net
revenues. General Chemical is also a major North American supplier of sodium and
ammonia salts, sulfites, nitrites, aluminum-based chemical products and refinery
and chemical regeneration services. The Company's products are supplied to a
broad range of industrial and municipal customers.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The consolidated financial statements include the accounts of General
Chemical Corporation, its wholly owned subsidiaries and General Chemical (Soda
Ash) Partners ("GCSAP"), of which it owns 51 percent. Minority interests relate
solely to partnerships in which the Company has a controlling interest.
Intercompany balances and transactions are eliminated in consolidation.
The Company's parent was acquired in January 1989. The purchase price
assigned to the Company at January 1989 was $168,113 which was offset by
pushdown parent company acquisition debt of $308,000, intercompany transactions
with the parent company during 1989 of $92,006 and other miscellaneous
adjustments totalling $348, resulting in a capital deficit of $232,241 at
December 31, 1994.
Inventories are valued at the lower of cost or market, using the
last-in, first-out ("LIFO") method for all domestic production inventories and
the first-in, first-out ("FIFO") or average cost method for all other
inventories. Production inventory costs include material, labor and factory
overhead.
Property, plant and equipment are carried at cost. Mines and machinery
and equipment of the General Chemical (Soda Ash) Partners are depreciated using
the units-of-production method. All other plant and equipment are depreciated
principally using the straight-line method, using estimated lives which range
from 3 to 35 years.
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over a 25 year
period. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation.
The Company recognizes deferred tax assets and liabilities based on
differences between financial statement and tax bases of assets and liabilities
using presently enacted tax rates. Taxes on income are generally computed as if
General Chemical were a stand-alone company. (See Note 8 for a description of
the Tax Sharing Agreement.) General Chemical pays its current U.S. federal tax
liabilities to GCG in accordance with the Tax Sharing Agreement.
17
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Accruals for environmental liabilities are recorded based on current
interpretations of environmental laws and regulations when it is probable that a
liability has been incurred and the amount of such liability can be reasonably
estimated. Amounts recorded do not include estimated third-party recoveries nor
have they been discounted.
The Company provides for the expected costs to be incurred for the
eventual reclamation of mining properties pursuant to local law. Land
reclamation costs are being provided for over the estimated remaining life of
the reserves currently under lease.
The Company does not hold or issue financial instruments for trading
purposes. Amounts to be paid or received under interest rate swap agreements are
recognized as increases or reductions in interest expense in the periods in
which they accrue.
The financial statements of the Company's foreign subsidiaries have
been translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("FAS 131"). The
Company is required to adopt FAS 130 and FAS 131 for fiscal years beginning
after December 15, 1997. The Company is currently evaluating the impact of FAS
131 on its segments.
All highly liquid instruments purchased with a maturity of three months
or less are considered to be cash equivalents.
Certain prior period amounts have been reclassified to conform with
current presentation.
NOTE 2 - CAPITAL CONTRIBUTIONS
The Company's parent made capital contributions to the Company of
$35,600 and $10,500 during 1996 and 1997, respectively. In addition, capital
contributions of $8,989 and $1,094 were recorded during 1996 and 1997,
respectively, related to The General Chemical Group Inc. Restricted Unit Plan.
See "Note 9 - Phantom Equity Plan."
NOTE 3 - ACQUISITIONS
On July 1, 1997, the Company acquired all of the outstanding stock of
Peridot Holdings, Inc. ("Peridot"), a leading manufacturer and supplier of
sulfuric acid and water treatment chemicals. Funding for this transaction was
provided with existing cash and borrowings under the Company's revolving credit
facility. The acquisition was accounted for under the purchase method, and
accordingly, the net assets and results of operations have been included in the
consolidated financial statements since the date of acquisition, based on
preliminary valuation information available to the Company, which is subject to
change as such information is finalized. The excess of purchase price over the
estimated fair values of the net tangible assets acquired has been treated as
goodwill. Goodwill is being amortized on a straight line basis over a period of
25 years. The acquisition did not have a material pro forma impact on
consolidated earnings.
On February 13, 1998, the Company entered into an agreement to acquire,
subject to certain conditions precedent to closing, all of the outstanding stock
of Reheis Inc. ("Reheis"). Reheis is headquartered in New Jersey and is the
world's leading producer and supplier of the active chemical ingredients in
antiperspirants and over-the-counter antacids as well as a supplier of
pharmaceutical intermediates and other products. Funding for this transaction
will be provided by existing cash and
18
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
borrowings under the Company's revolving credit facility. GCC will account for
this transaction using the purchase method.
NOTE 4 - INCOME TAXES
Income before income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
United States.............................................. $ 32,139 $ 44,186 $ 51,258
Foreign.................................................... 23,775 18,449 14,315
-------- -------- --------
Total.......................................... $ 55,914 $ 62,635 $ 65,573
======== ======== ========
</TABLE>
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
United States:
Current.................................................. $ 25,591 $ 13,708 $ 15,427
Deferred................................................. 3,627 557 1,675
Foreign:
Current.................................................. 8,867 7,296 5,662
Deferred................................................. (601) (791) (836)
State:
Current.................................................. 1,516 3,118 3,297
Deferred................................................. 885 14 358
-------- -------- --------
Total......................................... $ 39,885 $ 23,902 $ 25,583
======== ======== ========
</TABLE>
A summary of the components of deferred tax assets and liabilities is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Postretirement benefits.................................. $ 27,029 $ 27,504
Nondeductible accruals................................... 35,502 41,443
Foreign operations....................................... 8,958 4,302
Other ................................................... 342 1,288
-------- --------
Total deferred tax assets............................. 71,831 74,537
Valuation allowance................................... (16,090) (11,434)
-------- --------
Net deferred tax asset................................ 55,741 63,103
-------- --------
Deferred tax liabilities:
Property, plant and equipment............................ 27,774 39,544
Pensions................................................. 7,437 7,237
Inventory................................................ 2,846 3,006
Other.................................................... 657 360
-------- --------
Total deferred tax liabilities....................... 38,714 50,147
-------- --------
Total net deferred tax assets..................... $ 17,027 $ 12,956
======== ========
</TABLE>
The Company has deferred tax assets related to foreign tax credits
of $16,090 and $11,434 at December 31, 1996 and 1997, respectively, against
which a full valuation allowance has been recorded. The Company reversed $1,426
and $4,656 of previously recorded valuation allowances during 1996 and 1997,
respectively, primarily related to foreign tax credits that expired.
19
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The difference between the effective income tax rate and the United
States statutory rate is reconciled below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate................................ 35.0% 35.0% 35.0%
State income taxes, net of federal benefit................. 2.8 3.2 3.6
Tax effect of foreign operations........................... 7.6 5.9 4.4
Provision for disputed items............................... 30.6 -- --
Depletion.................................................. (5.3) (6.4) (4.4)
Other...................................................... 0.6 0.5 0.4
----- ---- ----
Total................................................ 71.3% 38.2% 39.0%
===== ==== ====
</TABLE>
The Internal Revenue Service (the "IRS") examinations of the Company's
parent corporation's federal tax returns resulted in the issuance of a
deficiency notice during 1995. GCG has informed the Company that it has filed an
administrative appeal with the IRS contesting the items denoted in the
deficiency notice. Notwithstanding such appeal, in 1995 the Company recorded a
provision for disputed items of $17,100 for all years prior to 1995 in
connection with the deficiency notice. Management believes the amounts provided
at December 31, 1997 are adequate.
NOTE 5 - PENSION PLANS
The Company maintains several defined benefit pension plans covering
substantially all employees. A participating employee's annual postretirement
pension benefit is determined by the employee's credited service and, in most
plans, final average annual earnings with the Company. Vesting requirements are
five years in the U.S. and two years in Canada. The Company's funding policy is
to annually contribute the statutorily required minimum amount as actuarially
determined.
The net periodic pension cost for U.S. pension plans included the
following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits earned during the year)............. $ 3,283 $ 4,100 $ 4,551
Interest cost on projected benefit obligation.............. 11,059 11,737 12,448
Actual return on assets.................................... (22,475) (22,319) (26,596)
Net amortization and deferral.............................. 13,337 12,141 15,344
-------- ------- --------
Net periodic pension cost............................ $ 5,204 $ 5,659 $ 5,747
======== ======= ========
</TABLE>
The net periodic pension cost for Canadian pension plans included the
following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits earned during the year)............. $ 1,140 $ 1,494 $ 1,352
Interest cost on projected benefit obligation.............. 3,527 3,727 3,868
Actual return on assets.................................... (6,614) (4,662) (4,877)
Net amortization and deferral.............................. 2,457 559 522
------- ------- ------
Net periodic pension cost .............................. $ 510 $ 1,118 $ 865
======= ======= ======
</TABLE>
20
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The funded status and (accrued) prepaid pension cost for all plans are
as follows:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------ ------
DECEMBER 31, DECEMBER 31,
---------------- -----------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested.................................. $(130,386) $(141,380) $(40,421) $(42,819)
Nonvested............................... (10,897) (11,764) (205) (217)
--------- --------- -------- --------
Accumulated benefit obligation.......... $(141,283) $(153,144) $(40,626) $(43,036)
========= ========= ======== ==========
Plan assets at fair value.................. $ 149,552 $ 173,842 $ 60,224 $ 65,019
Projected benefit obligation............... (168,302) (182,913) (50,783) (53,796)
--------- --------- -------- --------
Projected benefit obligation (in
excess of) less than plan assets.......... (18,750) (9,071) 9,441 11,223
Unrecognized prior service cost............ 6,823 6,011 942 809
Unrecognized net (gain) loss .............. (7,908) (20,281) 8,761 6,196
--------- --------- -------- --------
(Accrued) prepaid pension cost............. $ (19,835) $ (23,341) $ 19,144 $ 18,228
========= ========= ======== ========
</TABLE>
The Canadian prepaid pension cost is included in other assets on the
balance sheet.
The assumptions used in accounting for the plans in 1995, 1996 and 1997
were
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------------------- ------------------------
1995 1996 1997 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Estimated discount rate................................ 7 1/2% 7 1/2% 7 1/2% 8% 8% 7 1/2%
Estimated long-term rate of return on assets........... 9% 9% 9% 9% 9% 9%
Average rate of increase in employee
compensation......................................... 5% 5% 5% 5 1/4% 5 1/4% 5 1/4%
</TABLE>
The dates used to measure plan assets and liabilities were October 31,
1996 and 1997 for all plans. Plan assets are invested primarily in stocks,
bonds, short-term securities and cash equivalents.
NOTE 6 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company maintains several plans providing postretirement benefits
covering substantially all hourly and the majority of salaried employees. The
long-term portion of accrued postretirement benefit cost of $74,843 and $75,265
at December 31, 1996 and 1997, respectively, is included in other liabilities on
the balance sheet.
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits earned during the year)........................ $ 1,384 $ 1,560 $ 1,595
Interest cost on projected postretirement benefit obligation.......... 4,186 3,770 4,216
Net amortization and deferral......................................... (1,994) (2,323) (2,128)
------- ------- -------
Net periodic postretirement benefit cost........................ $ 3,576 $ 3,007 $ 3,683
======= ======= =======
</TABLE>
21
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The funded status and accrued postretirement benefit obligations are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................. $(35,844) $(39,472)
Fully eligible plan participants..................... (10,620) (9,431)
Other active plan participants....................... (10,893) (9,555)
-------- --------
Accumulated postretirement benefit obligation............. (57,357) (58,458)
Plan assets at fair value................................. -- --
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets................................. (57,357) (58,458)
Unrecognized net reduction in prior service costs......... (12,632) (11,052)
Unrecognized net gain .................................... (7,084) (8,210)
-------- --------
Accrued postretirement benefit cost....................... $(77,073) $(77,720)
======== ========
</TABLE>
The assumptions used in accounting for the plans in 1996 were an 11
percent health care cost trend rate (decreasing to 7 1/2 percent in the year
2000 and beyond) and a 7 1/2 percent discount rate for the U.S. plans and an 11
percent health care cost trend rate (decreasing to 7 percent in the year 2000
and beyond), an 8 percent discount rate and a 5 1/4 percent salary scale for the
Canadian plans.
The assumptions used in accounting for the plans in 1997 were a 10
percent health care cost trend rate (decreasing to 7 1/2 percent in the year
2000 and beyond) and a 7 1/2 percent discount rate for the U.S. plans and an 11
percent health care cost trend rate (decreasing to 7 percent in the year 2000
and beyond), a 7 1/2 percent discount rate and a 5 1/4 percent salary scale for
the Canadian plans. A one percent increase in the health care trend rate would
increase the accumulated postretirement benefit obligation by $4,671 at year end
1997 and the net periodic cost by $447 for the year.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Future minimum rental payments for operating leases having initial or
remaining noncancellable lease terms in excess of one year as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998................................................ $ 10,197
1999................................................ 5,028
2000................................................ 1,659
2001................................................ 219
2002 and thereafter................................. 42
--------
$ 17,145
========
</TABLE>
Rental expense for the years ended December 31, 1995, 1996 and 1997 was
$13,159, $15,042 and $16,913, respectively.
Parent Guaranty and Transfer Agreement. A restated parent guaranty and
transfer agreement between New Hampshire Oak, ACI International Limited and
TOSOH America, Inc. provides that in the event that either New Hampshire Oak,
ACI International Limited or TOSOH America, Inc. (such entities being referred
to as a "transferring parent" or "nontransferring parent" as the context
requires) proposes to sell or otherwise transfer or cause to be sold or
transferred the voting securities of the Company, the
22
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Andover Group, Inc. or TOSOH Wyoming, Inc. (the respective subsidiaries
constituting the partners of GCSAP) as the case may be, the nontransferring
parents will have the following options: (1) to purchase the transferring
parent's subsidiary's interest in GCSAP at fair market value; (2) to require the
transferring parent to purchase the nontransferring parents' subsidiaries'
interest in GCSAP at fair market value; (3) to buy the voting securities to be
sold by the transferring parent on the same terms and conditions and at the same
price as the transferring parent proposes to sell or otherwise transfer or cause
to be sold or transferred such voting securities; or (4) to cause the proposed
transferee to purchase the nontransferring parents' subsidiaries' interest in
GCSAP for a price reflecting the price to be paid by the proposed transferee for
such voting securities. In the event that New Hampshire Oak ceases to own at
least 51 percent of General Chemical while General Chemical is a partner,
General Chemical shall pay to The Andover Group, Inc. $2,833.
Richmond Works July 26, 1993 Incident. On July 26, 1993 a pressure
relief device on a railroad tank car containing oleum that was being unloaded at
the Company's Richmond, California, facility ruptured during the unloading
process, causing the release of a significant amount of sulfur trioxide.
Approximately 150 lawsuits seeking substantial amounts of damages were filed
against the Company on behalf of in excess of 60,000 claimants in municipal and
superior courts of California (Contra Costa and San Francisco Counties) and in
federal court (United States District Court for the Northern District of
California). All state court cases were coordinated before a coordination trial
judge (In Re GCC Richmond Works Cases, JCCP No. 2906) and the federal court
cases were stayed until completion of the state court cases.
After several months of negotiation under the supervision of a
settlement master, the Company and a court-approved plaintiffs' management
committee executed a comprehensive settlement agreement which resolved the
claims of approximately 95 percent of the claimants who filed lawsuits arising
out of the July 26th incident, including the federal court cases. After a final
settlement approval hearing on October 27, 1995, the coordination trial judge
approved the settlement on November 22, 1995. Pursuant to the terms of the
settlement agreement, the Company, with funds to be provided by its insurers
pursuant to the terms of its insurance policies, has agreed to make available a
maximum of $180,000 to implement the settlement. In addition, the settlement
agreement provides, among other things, that while claimants may "opt out" of
the compensatory damages portion of the settlement and pursue their own cases
separate and apart from the class settlement mechanism, they have no right to
opt out of the punitive damages portion of the settlement. Consequently, under
the terms of the settlement, no party may seek punitive damages from the Company
outside of those provided by the settlement.
Notices of appeal of all or portions of the settlement approved by the
court were filed by five law firms representing approximately 2,750 claimants,
with approximately 2,700 of these claimants represented by the same law firm.
Virtually all of these claimants have not specified the amount of their claims
in court documents, although the Company believes that their alleged injuries
are no different in nature or extent than those alleged by the settling
claimants. On May 8, 1996, the California Court of Appeals dismissed each of the
appeals that had been filed challenging the trial court's approval of the class
action settlement. The Court of Appeals dismissed the appeal relating to the
trial court's rulings on plaintiffs' attorney's fees on the ground that the
appealing attorneys lacked standing to appeal. The Court of Appeals also
dismissed each of the other pending appeals, ruling that the trial court's
orders and rulings approving the settlement were not presently appealable, if at
all, by the appealing claimants since they had all elected to opt out of the
settlement. The appealing attorneys and some of the appealing claimants then
filed a petition for review with the California Supreme Court which, on August
15, 1996, elected not to review the Court of Appeals' decision.
23
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
On March 11, 1997, the coordination judge dismissed the material claims
of 1,269 of the approximately 2,750 opt-out claimants, primarily on the grounds
that they had failed to comply with previous pre-trial orders. On April 8, 1997,
the California Court of Appeals denied a petition for review of the dismissals
filed by attorneys for the dismissed opt-out claimants, and on June 8, 1997, the
California Supreme Court denied the same attorneys' petition for review of the
California Court of Appeals' denial of their prior petition. On February 5,
1998, a hearing was held before the coordination judge on the Company's motion
to dismiss the material claims of another 800 of the approximately 2,750
original opt-out claimants, again primarily on the grounds that they failed to
comply with previous pre- trial orders. As of March 5, 1998, the Company is
awaiting the decision of the coordination judge on this motion.
It is possible that one or more of the appealing claimants, once their
opt-out cases are finally litigated through trial, may attempt to refile all or
a portion of the appeals that were dismissed by the Court of Appeals. While
there can be no assurances regarding how an appellate court might rule in the
event of such a refiling, the Company believes that the settlement will be
upheld on appeal. If the settlement is upheld on appeal, the Company believes
that any further liability in excess of the amounts made available under the
settlement agreement will not exceed the available insurance coverage, if at
all, by an amount that could be material to its financial condition or results
of operations. In the event of a reversal or modification of the settlement on
appeal, with respect to lawsuits by any then remaining claimants (opt-outs and
settling claimants who have not signed releases) the Company believes that,
whether or not it elects to terminate the settlement in the event it is reversed
or modified on appeal, it will have adequate resources from its available
insurance coverage to vigorously defend these lawsuits through their ultimate
conclusion, whether by trial or settlement. However, in the event the settlement
is overturned or modified on appeal, there can be no assurance that the
Company's ultimate liability resulting from the July 26, 1993 incident would not
exceed the available insurance coverage by an amount which could be material to
its financial condition or results of operations, nor is the Company able to
estimate or predict a range of what such ultimate liability might be, if any.
The Company has insurance coverage relating to this incident which
totals $200,000. The first two layers of coverage total $25,000 with a sublimit
of $12,000 applicable to the July 26, 1993 incident, and the Company also has
excess insurance policies of $175,000 over the first two layers. The Company
reached an agreement with the carrier for the first two layers whereby the
carrier paid the Company $16,000 in settlement of all claims the Company had
against that carrier. In the third quarter of 1994, the Company recorded a
$9,000 charge to earnings for costs which the Company incurred related to this
matter. The Company's excess insurance policies, which are written by two
Bermuda-based insurers, provide coverage for compensatory as well as punitive
damages. Both insurers have executed agreements with the Company confirming
their respective commitments to fund the settlement as required by their
insurance policies with the Company and as described in the settlement
agreement. In addition, these same insurers currently continue to provide
substantially the same insurance coverage to the Company.
Environmental Matters. Accruals for environmental liabilities are
recorded based on current interpretations of applicable environmental laws and
regulations when it is probable that a liability has been incurred and the
amount of such liability can be reasonably estimated. Estimates are established
based upon information available to management to date, the nature and extent of
the environmental liability, the Company's experience with similar activities
undertaken, estimates obtained from outside consultants and the legal and
regulatory framework in the jurisdiction in which the liability arose. The
potential costs related to environmental matters and their estimated impact on
future operations are difficult to predict due to the uncertainties regarding
the extent of any required remediation, the complexity and interpretation of
applicable laws and regulations, possible modification of existing laws and
regulations or the adoption of new laws or regulations in the future, and the
numerous alternative
24
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
remediation methods and their related varying costs. The material components of
the Company's environmental accruals include potential costs, as applicable, for
investigation, monitoring, remediation and ongoing maintenance activities at any
affected site. Accrued liabilities for environmental matters were $10,843 and
$10,768 at December 31, 1996 and 1997, respectively.
By letter dated March 22, 1990 from the Environmental Protection Agency
(the "EPA"), the Company received a Notice of Potential Liability pursuant to
Section 107(a) of the Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), as amended, with respect to a site located in
Front Royal, Virginia, owned at the time by Avtex Fibers, Inc. (the "Avtex
Site"), which has since filed for bankruptcy. A sulfuric acid plant adjacent to
the main Avtex Site was previously owned and operated by the Company (the "acid
plant"). The letter requested that the Company perform certain activities at the
acid plant including providing the security, preventing discharges, removing
certain specific residue and sludges from two storage vessels and the transfer
line to the main Avtex facility and determining the extent of contamination at
the site, if any. In April 1991, the Company submitted a draft work plan with
respect to the acid plant including each of the activities requested by the EPA
discussed above. The Company has provided for the estimated costs of $1,600 for
these activities in its accrual for environmental liabilities. The EPA has not
yet responded to this work plan, nor has it requested that an initial
investigation and feasibility study for the acid plant be performed. As a
result, the extent of remediation required, if any, is unknown. The Company
believes that the acid plant is separate and divisible from the main Avtex Site
and, as a result, is not subject to any liability for costs related thereto. The
Company will continue to vigorously assert this position with the EPA. There has
been very limited contact by the EPA with the Company over the past four years,
as it appears that the EPA is focused on remediation activities at the main
Avtex Site.
In addition to the matters discussed above, the Company is involved in
other claims, litigation, administrative proceedings and investigations and
remediation relative to environmental matters. Although the amount of any
ultimate liability which could arise with respect to these matters cannot be
accurately predicted, it is the opinion of management, based upon currently
available information and the accruals established, that any such liability will
have no material adverse effect on the Company's financial condition, results of
operations or cash flows.
NOTE 8 - RELATED PARTY TRANSACTIONS
TRANSITION AGREEMENT
The Company is party to an agreement (the "Company Transition
Agreement") providing for, among other things, the provision of certain services
to New Hampshire Oak by the Company, the allocation between the Company and New
Hampshire Oak of certain ongoing liabilities incurred when the Company was
acquired by New Hampshire Oak and other matters governing the relationship
between the Company and New Hampshire Oak.
TAX SHARING AGREEMENT
Under the terms of the Tax Sharing Agreement between New Hampshire Oak,
GCG and General Chemical, General Chemical will be responsible for its own U.S.
federal income tax liabilities. For this purpose, General Chemical will
generally be required, during the period that it is a consolidated subsidiary of
New Hampshire Oak for federal income tax purposes, to pay GCG the amount of
federal tax, if any, it would have incurred if it filed a separate consolidated
federal income tax return with its subsidiaries for such periods. The Company is
generally responsible for all of its own foreign, state and local income tax
liabilities for all periods.
25
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
MANAGEMENT AGREEMENT
The Company is party to the Management Agreement with New Hampshire
Oak. Pursuant to the Agreement, the Company was charged $2,959, $3,039 and
$3,130 for the years ended December 31, 1995, 1996 and 1997, respectively, for
general corporate supervisory services, strategic guidance and payments to
Company management personnel in connection with incentive compensation programs.
The Management Agreement expires in 1998 subject to extension.
NOTE 9 - PHANTOM EQUITY PLAN
Key employees of General Chemical participated in a phantom equity
program (the "Plan") established by the Company. Each equity unit provided a
participant with the opportunity to receive payments, based upon the
appreciation in the value of the Company over a value established in the Plan,
in the event of a sale, merger or public offering involving the Company.
During the second quarter of 1996, participants in the Plan received
rights in a Restricted Unit Plan adopted by The General Chemical Group Inc.
replacing their rights earned beginning in 1989 under the Plan; the Plan was
then terminated. The Restricted Unit Plan authorizes the issuance of 850,000
units, with each unit representing one share of Common Stock of the General
Chemical Group to be issued to the participant upon the occurrence of certain
conditions. All awards are subject to a five year vesting schedule under which a
portion of each participant's award vests annually.
NOTE 10 - GEOGRAPHIC INFORMATION
Geographic area information is summarized as follows:
<TABLE>
<CAPTION>
UNITED STATES(1) FOREIGN(2) ELIMINATIONS(3) TOTAL
--------------- --------- -------------- -----
<S> <C> <C> <C> <C>
Net revenues:
1995............................................. $372,706 $122,659 $(39,135) $456,230
1996............................................. 428,990 128,345 (48,715) 508,620
1997............................................. 440,187 121,762 (42,845) 519,104
Operating profit:
1995............................................. $ 71,775 $ 26,607 $ -- $ 98,382
1996............................................. 93,908 22,668 -- 116,576
1997............................................. 92,197 18,618 -- 110,815
Assets:
1995............................................. $255,247 $100,088 $ -- $355,335
1996............................................. 307,992 100,785 -- 408,777
1997............................................. 387,430 100,370 -- 487,800
</TABLE>
- -----------------------------
(1) Includes export sales amounting to $57,669, $71,413 and $79,462 for 1995,
1996 and 1997, respectively.
(2) Principally of General Chemical Canada Holding Inc.
(3) Sales between geographic areas are recorded at prices comparable to market
prices charged to third-party customers and are eliminated in
consolidation.
26
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 - ADDITIONAL FINANCIAL INFORMATION
The following are summaries of selected balance sheet items:
RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---- ----
<S> <C> <C>
Trade.................................................. $ 88,917 $ 104,153
Other.................................................. 3,048 7,801
Allowance for doubtful accounts........................ (4,677) (5,535)
-------- ---------
$ 87,288 $ 106,419
======== =========
</TABLE>
INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---- ----
<S> <C> <C>
Raw materials.......................................... $ 9,567 $ 9,063
Work in process........................................ 2,326 247
Finished products...................................... 14,506 17,736
Supplies .............................................. 8,045 10,538
-------- --------
$ 34,444 $ 37,584
======== ========
</TABLE>
Inventories valued at LIFO amounted to $15,328 and $13,269, at December
31, 1996 and 1997, respectively, which was below estimated replacement cost by
$2,823 and $2,753, respectively. The impact of LIFO liquidations in 1995, 1996
and 1997 was not significant.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---- ----
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Land and improvements.................................. $ 26,367 $ 39,791
Machinery and equipment................................ 288,636 359,792
Buildings and leasehold improvements................... 26,497 31,618
Construction in progress............................... 17,140 15,615
Mines and quarries..................................... 13,539 13,658
--------- ---------
372,179 460,474
Less accumulated depreciation and
amortization.......................................... (159,436) (183,367)
--------- ---------
$ 212,743 $ 277,107
========= =========
ACCRUED LIABILITIES
Wages, salaries and benefits........................... $ 19,848 $ 21,350
Interest............................................... 5,752 5,387
Taxes other than income taxes.......................... 12,713 10,638
Other.................................................. 21,587 21,460
--------- ---------
$ 59,900 $ 58,835
========= =========
</TABLE>
27
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12 - LONG-TERM DEBT
Long-term debt consisted of the following
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
MATURITIES 1996 1997
---------- ---- ----
<S> <C> <C> <C>
Bank Term Loan - floating rate................................... 1996-2001 $ 82,609 $ 65,217
Senior Subordinated Notes - 9.25%................................ 2003 100,000 100,000
Canada Senior Notes - 9.09%...................................... 1999 52,000 50,787
$130,000 U.S. Revolving Credit Facility - floating rate.......... 1999 -- 42,000
--------- ---------
Total Debt....................................................... 234,609 258,004
Less: Current Portion........................................... 17,392 17,392
--------- ---------
Net Long-Term Debt............................................... $ 217,217 $ 240,612
========= =========
</TABLE>
Aggregate maturities of long-term debt for each of the years in the
five year period ending December 31, 2002 are $17,392, $110,179, $17,392,
$13,041 and $0, respectively.
The U.S. Revolving Credit Facility allows General Chemical to borrow up
to $130,000, including letters of credit of up to $30,000, through March 31,
1999. The unused letter of credit balance was $21,033 at December 31, 1996 and
1997. This facility bears interest at a rate equal to a spread over a reference
rate chosen by the Company from various options. At December 31, 1996 there were
no outstanding borrowings under this facility. The rate in effect at December
31, 1997 was 7 percent.
General Chemical Canada Limited has a $15,000 (Canadian Dollar)
Revolving Credit Facility maturing June 22, 2000. This facility bears interest
at a rate equal to a spread over a reference rate chosen by General Chemical
Canada Limited from various options. At December 31, 1996 and 1997, there were
no outstanding borrowings under this facility.
Commitment fees paid for all facilities were $350, $414 and $274 for
1995, 1996 and 1997, respectively.
The Bank Term Loan bears interest at a rate equal to a spread over a
reference rate chosen by the Company from various options. The rate in effect at
December 31, 1996 and 1997 including effects of interest rate swap agreements
(see Note 13) was 7.4 percent.
The U.S. Revolving Credit Facility and the Bank Term Loan are secured
by (1) substantially all of the assets of General Chemical, (2) 65 percent of
the capital stock of General Chemical Canada Holding Inc., (3) General
Chemical's 51 percent general partnership interest in GCSAP, and (4) all of the
stock of the other direct and indirect subsidiaries of General Chemical.
While the U.S. and Canadian Revolving Credit Facilities, Bank Term Loan
and the Canadian Senior Notes are outstanding, the Company must meet specific
financial tests, on an ongoing basis, which are customary for these types of
facilities.
28
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
General Chemical has covenanted in the indentures and agreements
related to the Senior Subordinated Notes, the Bank Term Loan and the U.S.
Revolving Credit Facility that it will not declare or pay any cash dividends
unless at the time certain conditions are met, including that no event of
default shall have occurred and be continuing, that a certain minimum fixed
charge ratio shall have been met and that the aggregate amount of all restricted
payments under such indentures and agreements not exceed a maximum amount
determined on the basis of certain formulas. At December 31, 1997, the Company
had available approximately $62.2 million dividend payments in accordance with
these covenants.
NOTE 13 - FINANCIAL INSTRUMENTS
Swap Agreements
The Company does not enter into financial instruments for trading
purposes. The Company periodically enters into interest rate swap agreements to
effectively convert all or a portion of its floating-rate debt to fixed-rate
debt in order to reduce the Company's risk to movements in interest rates. Such
agreements involve the exchange of fixed and floating interest rate payments
over the life of the agreement without the exchange of the underlying principal
amounts. Accordingly, the impact of fluctuations in interest rates on these
interest rate swap agreements is fully offset by the opposite impact on the
related debt. Swap agreements are only entered into with strong creditworthy
counterparties. The swap agreements in effect were as follows:
<TABLE>
<CAPTION>
INTEREST RATE
NOTIONAL -------------
DECEMBER 31, AMOUNT MATURITIES RECEIVE(1) PAY(2)
----------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1996.................. $ 75,000 1998-1999 5.5% 6.8%
1997.................. $ 75,000 1998-1999 5.8% 6.8%
</TABLE>
(1) Three-month LIBOR.
(2) Represents the weighted average rate.
In addition to the swap agreements described above, the Company has
entered into a forward swap agreement, which will begin in 1998 and mature in
2002, which has a notional amount of $30,000 and a fixed payment rate of 6.6
percent.
At December 31, 1997, the Company was also party to a currency and
interest rate swap, which partially hedges the Company's Canadian subsidiary's
52,000 U.S. dollar 9.09% Senior Notes. The agreement, which matures in 1999,
provides for the payment of 48,000 Canadian dollars at a fixed rate of 7.54% in
exchange for the receipt of 35,000 U.S. dollars at a fixed rate of 9.09%.
Unrealized gains and losses on the currency portion of the swap are recognized
and offset the foreign exchange gain or loss on the related debt in the
consolidated statements of operations. Net amounts paid or received on the
interest portion of the swap are accrued as adjustments to interest expense.
29
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
(DOLLARS IN THOUSANDS)
Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt........................................ $ 234,609 $ 238,967 $ 258,004 $ 262,918
Unrealized (loss) gain on swap agreements............. $ -- $ (1,200) $ -- $ 521
</TABLE>
The fair values of cash and cash equivalents, receivables and payables
approximate their carrying values due to the short-term nature of the
instruments.
The fair value of the Company's long-term debt was based on quoted
market prices for publicly traded notes and discounted cash flow analyses on its
nontraded debt. The fair value of the Company's interest rate swap agreements is
the estimated amount the Company would have to pay or receive to terminate the
swap agreements based upon quoted market prices as provided by financial
institutions which are counterparties to the swap agreements.
30
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
31
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF INDEX
- -------- --------------------
<S> <C>
* 3(a) - Certificate of Incorporation of the Company
* 3(b) - By-Laws of the Company
'D' 4(a) - Indenture, dated as of August 15, 1993, between the Company
and Continental Bank, National Association, as trustee, with
respect to the Senior Subordinated Notes
'D''D' 4(b) - Note Agreement, dated as of April 1, 1992, among GC Canada
and certain note purchasers, with respect to $52 million of 9.09%
Senior Notes due 1999
'D' 4(c) - Credit Agreement, dated as of June 22, 1992, between GC
Canada and The Toronto-Dominion Bank, with respect to a $15
million revolving credit facility (the "GC Revolver")
'D''D' 4(d) - First Amendment to the GC Revolver
'D''D' 4(e) - Amended and Restated Credit Agreement and Revolving Credit
Notes, dated as of September 15, 1993, between the Company and
Chemical Bank, as Administrative Agent and NationsBank of North
Carolina, National Association, as Co-Agent, with respect to $130
million revolving credit facility (the "Chemical Revolver")
'D''D' 4(f) - First Amendment to Chemical Revolver, dated as of December 11,
1995
'D''D' 4(g) - Term Loan Agreement, dated as of August 4, 1994, between
the Company and Chemical Bank, As Administrative Agent, and
NationsBank of North Carolina, National Association, as Co-Agent,
with respect to a $100 million term loan (the "Term Loan")
* 10(a) - Transition Agreement dated as of November 1, 1989, between the
Company and New Hampshire Oak, Inc.
'D' 10(b) - Amendment to the Transition Agreement dated as of July 1, 1991
'D' 10(c) - Amendment to the Transition Agreement dated as of January 1, 1992
* 10(d) - Tax Sharing Agreement, dated as of September 30, 1989, between the
Company and New Hampshire Oak, Inc
* 10(e) - Management Agreement dated as of November 1, 1989, between the
Company and New Hampshire Oak, Inc.
'D''D' 10(f) - Settlement Agreement relating to July 26, 1993 Richmond incident
litigation
32
<PAGE>
<PAGE>
* 10(g) - The Company's Equity Program
* 10(h) - The Company's Salaried Employees' Pension Plan
* 10(i) - New Hampshire Oak, Inc. Savings and Profit Sharing Plan
'D' 10(j) - Second Amended and Restated Partnership Agreement, of General
Chemical (Soda Ash) Partners ("GCSAP"), dated June 30, 1992, among
the Company, The Andover Group, Inc., and TOSOH Wyoming, Inc.
'D' 10(k) - Amended and Restated Parent Guaranty and Transfer Agreement, dated
June 30, 1992, among New Hampshire Oak, Inc., ACI International
Limited and TOSOH America, Inc.
'D' 10(l) - Amended and Restated Services Agreement, dated June 30, 1992, by
and between the Company and GCSAP
'D' 10(m) - Employee Transfer Agreement, dated June 30, 1992, by and between
the Company and GCSAP
'D' 10(n) - Guaranty dated as of June 30, 1992, from New Hampshire Oak, Inc.,
for the benefit of GCSAP
* 10(o) - First Amendment General Chemical Corporation Equity Program
effective October 1, 1993
'D''D' 10(p) - The General Chemical Group Inc. Dividend Award Program, as amended
October 15, 1995, effective October 1, 1993
27 - Financial Data Schedule
* Incorporated by reference to the relevant exhibit to the Company's
Registration Statement filed with the Securities and Exchange Commission
(the "SEC") on August 23, 1989, File No. 33-30664.
'D' Incorporated by reference to the relevant exhibit to the Company's
Registration Statement filed with the SEC on August 11, 1993 File No.
33-64824.
'D''D' Incorporated by reference to the relevant exhibit to The General Chemical
Group Inc.'s Registration Statement filed with the SEC on May 3, 1996, File
No. 33-83766.
</TABLE>
FINANCIAL STATEMENTS
See Item 8, beginning on page 11.
FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statement Schedules on page 35.
REPORTS ON FORM 8-K
No report on Form 8-K has been filed by the Company during the last
quarter of the period covered by this report.
33
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Parsippany, State of New Jersey on the 26th of March 1998.
GENERAL CHEMICAL CORPORATION
By /s/ RICHARD R. RUSSELL
--------------------------------
RICHARD R. RUSSELL
PRESIDENT
MARCH 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ RICHARD R. RUSSELL President (Principal Executive
- --------------------------- Officer) and Director March 26, 1998
RICHARD R. RUSSELL
/s/ RALPH M. PASSINO Chief Financial Officer,
- --------------------------- Vice President of Administration
RALPH M. PASSINO (Principal Financial Officer) and
Director March 26, 1998
/s/ KEVIN J. O'CONNOR Controller (Principal Accounting
- --------------------------- Officer) March 26, 1998
KEVIN J. O'CONNOR
</TABLE>
34
<PAGE>
<PAGE>
GENERAL CHEMICAL CORPORATION
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
Schedule II - Valuation and Qualifying Accounts......................... 36
Schedules required by Article 12 of Regulation S-X, other than those
listed above, are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
consolidated financial statements or the notes thereto.
35
<PAGE>
<PAGE>
SCHEDULE II
GENERAL CHEMICAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TRANSLATION
BALANCE AT ADDITIONS DEDUCTIONS ADJUSTMENT BALANCE AT
BEGINNING CHARGED TO FROM DURING END OF
OF PERIOD INCOME RESERVES PERIOD PERIOD
--------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts............ $ 5,192 $ 193 $(351) $ (20) $ 5,014
Year ended December 31, 1996:
Allowance for doubtful accounts............ $ 5,014 $ 119 $(456) $ -- $ 4,677
Year ended December 31, 1997:
Allowance for doubtful accounts............ $ 4,677 $ 886 $ (5) $ (23) $ 5,535
</TABLE>
36
<PAGE>
<PAGE>
PART IV
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF INDEX PAGE
- -------- -------------------- ----
<S> <C> <C>
* 3(a) - Certificate of Incorporation of the Company --
* 3(b) - By-Laws of the Company --
'D' 4(a) - Indenture, dated as of August 15, 1993, between the Company and Continental
Bank, National Association, as trustee, with respect to the Senior Subordinated
Notes --
'D''D' 4(b) - Note Agreement, dated as of April 1, 1992, among GC Canada and certain
note purchasers, with respect to $52 million of 9.09% Senior Notes due 1999 --
'D' 4(c) - Credit Agreement, dated as of June 22, 1992, between GC Canada and The
Toronto-Dominion Bank, with respect to a $15 million revolving credit facility (the
"GC Revolver") --
'D''D' 4(d) - First Amendment to the GC Revolver --
'D''D' 4(e) - Amended and Restated Credit Agreement and Revolving Credit Notes, dated as of
September 15, 1993, between the Company and Chemical Bank, as Administrative
Agent and NationsBank of North Carolina, National Association, as Co-Agent, with
respect to $130 million revolving credit facility (the "Chemical Revolver") --
'D''D' 4(f) - First Amendment to Chemical Revolver, dated as of December 11, 1995 --
'D''D' 4(g) - Term Loan Agreement, dated as of August 4, 1994, between the
Company and Chemical Bank, As Administrative Agent, and NationsBank
of North Carolina, National Association, as Co-Agent, with respect
to a $100 million term loan (the "Term Loan") --
* 10(a) - Transition Agreement dated as of November 1, 1989, between the Company and
New Hampshire Oak, Inc. --
'D' 10(b) - Amendment to the Transition Agreement dated as of July 1, 1991 --
'D' 10(c) - Amendment to the Transition Agreement dated as of January 1, 1992 --
* 10(d) - Tax Sharing Agreement, dated as of September 30, 1989, between the Company and
New Hampshire Oak, Inc. --
* 10(e) - Management Agreement dated as of November 1, 1989, between the Company and
New Hampshire Oak, Inc. --
'D''D'10(f) - Settlement Agreement relating to July 26, 1993 Richmond incident litigation --
* 10(g) - The Company's Equity Program --
37
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
* 10(h)- The Company's Salaried Employees' Pension Plan --
* 10(i)- New Hampshire Oak, Inc. Savings and Profit Sharing Plan --
'D' 10(j)- Second Amended and Restated Partnership Agreement of General Chemical
(Soda Ash) Partners ("GCSAP"), dated June 30, 1992, among the Company, The
Andover Group, Inc., and TOSOH Wyoming, Inc. --
'D' 10(k)- Amended and Restated Parent Guaranty and Transfer Agreement dated June 30,
1992, among New Hampshire Oak, Inc., ACI International Limited and TOSOH
America, Inc. --
'D' 10(l)- Amended and Restated Services Agreement, dated June 30, 1992, by and
between the Company and GCSAP --
'D' 10(m)- Employee Transfer Agreement, dated June 30, 1992, by and between the
Company and GCSAP --
'D' 10(n)- Guaranty dated as of June 30, 1992, from New Hampshire Oak, Inc., for the
benefit of GCSAP --
* 10(o)- First Amendment General Chemical Corporation Equity Program effective
October 1, 1993 --
'D''D'10(p)- The General Chemical Group Inc. Dividend Award Program, as amended
October 15, 1995, effective October 1, 1993 --
27 - Financial Data Schedule 39
* Incorporated by reference to the relevant exhibit to the Company's
Registration Statement filed with the Securities and Exchange Commission
(the "SEC") on August 23, 1989, File No. 33-30664.
'D' Incorporated by reference to the relevant exhibit to the Company's
Registration Statement filed with the SEC on August 11, 1993 File No.
33-64824.
'D''D' Incorporated by reference to the relevant exhibit to The General Chemical
Group Inc.'s Registration Statement filed with the SEC on May 3, 1996, File
No. 33-83766.
</TABLE>
38
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as .............................'D'
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from Form 10-K for the period
ended December 31,1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<CASH> 9,023
<SECURITIES> 0
<RECEIVABLES> 111,954
<ALLOWANCES> 5,535
<INVENTORY> 37,584
<CURRENT-ASSETS> 166,178
<PP&E> 460,474
<DEPRECIATION> 183,367
<TOTAL-ASSETS> 487,800
<CURRENT-LIABILITIES> 130,212
<BONDS> 240,612
0
0
<COMMON> 0
<OTHER-SE> (110,314)
<TOTAL-LIABILITY-AND-EQUITY> 487,800
<SALES> 519,104
<TOTAL-REVENUES> 519,104
<CGS> 363,848
<TOTAL-COSTS> 363,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 886
<INTEREST-EXPENSE> 21,526
<INCOME-PRETAX> 65,573
<INCOME-TAX> 25,583
<INCOME-CONTINUING> 39,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,990
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
