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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
- ---------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 1-13404
THE GENERAL CHEMICAL GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware 02-0423437
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Liberty Lane
Hampton, New Hampshire 03842
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 929-2606
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares of Common Stock outstanding at October 31, 1998 was
11,102,899. The number of shares of Class B Common Stock outstanding at October
31, 1998 was 9,758,421
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THE GENERAL CHEMICAL GROUP INC.
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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PART I.FINANCIAL INFORMATION:
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1997 and 1998........................ 1
Consolidated Balance Sheets - December 31, 1997 and
September 30, 1998................................................... 2
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1997 and 1998.................................... 3
Notes to the Consolidated Financial Statements........................ 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8-10
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................................. 11
Item 6. Exhibits and Reports on Form 8-K.............................. 12
SIGNATURES............................................................ 13
EXHIBIT INDEX......................................................... 14
EXHIBITS.............................................................. 15-16
</TABLE>
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues ................................. $ 169,842 $ 175,495 $ 484,365 $ 525,030
Cost of sales ................ ............... 117,447 129,151 332,126 383,558
Selling, general and administrative expense .. 15,871 17,952 46,383 51,821
---------- ---------- ---------- ----------
Operating profit ............................. 36,524 28,392 105,856 89,651
Interest expense ............................. 5,711 7,029 16,061 19,426
Interest income .............................. 611 592 1,934 1,246
Foreign currency transaction losses .......... 16 86 530 529
Other (income) expense, net .................. 247 (93) 51 187
---------- ----------- ---------- ---------
Income before income taxes, minority
interest and extraordinary item ........... 31,161 21,962 91,148 70,755
Minority interest ............................ 6,459 3,639 18,801 11,766
---------- ---------- ---------- ----------
Income before income taxes and extraordinary
item ...................................... 24,702 18,323 72,347 58,989
Income tax provision ......................... 9,600 6,557 28,273 22,676
---------- ---------- ---------- ----------
Income before extraordinary item.............. 15,102 11,766 44,074 36,313
Extraordinary item - loss from extinguishment
of debt (net of tax)....................... -- -- -- 3,661
---------- ---------- ---------- ----------
Net income .......................... $ 15,102 $ 11,766 $ 44,074 $ 32,652
========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
Income before extraordinary item .......... $ .72 $ .56 $ 2.04 $ 1.72
Extraordinary item - loss on
extinguishment of debt (net of tax)..... -- -- -- .17
---------- ---------- ---------- ----------
Net income .......................... $ .72 $ .56 $ 2.04 $ 1.55
========== ========== ========== ==========
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Income before extraordinary item .......... $ .68 $ .54 $ 1.95 $ 1.65
Extraordinary item - loss from
extinguishment of debt (net of tax)..... -- -- -- .16
---------- ---------- ---------- ----------
Net income .......................... $ .68 $ .54 $ 1.95 $ 1.49
========== ========== ========== ==========
Dividends declared per share ................. $ .05 $ .05 $ .15 $ .15
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding ............. 22,184,199 21,876,562 22,609,761 21,979,478
========== ========== ========== ==========
</TABLE>
See the accompanying notes to the consolidated financial statements.
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THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................... $ 21,753 $ 47,444
Receivables, net .................................... 122,720 125,950
Inventories ......................................... 45,958 58,775
Deferred income taxes ............................... 14,145 11,323
Other current assets ................................ 2,370 5,907
-------- --------
Total current assets ............................. 206,946 249,399
Property, plant and equipment, net 304,189 344,871
Other assets ........................................... 50,502 97,609
-------- --------
Total assets...................................... $561,637 $691,879
======== ========
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable .................................... $ 61,332 $ 58,797
Accrued liabilities ................................. 73,258 73,300
Income taxes payable ................................ 4,576 9,058
Current portion of long-term debt ................... 17,392 51,044
-------- --------
Total current liabilities ........................ 156,558 192,199
Long-term debt.......................................... 240,612 304,044
Other liabilities ...................................... 215,405 219,017
-------- --------
Total liabilities ................................ 612,575 715,260
Minority interest ...................................... 43,301 44,524
-------- --------
Equity (deficit):
Preferred Stock, $.01 par value; authorized:
10,000,000 shares; none issued or outstanding .... -- --
Common Stock, $.01 par value; authorized: 100,000,000
shares; issued: 12,558,697 shares at December 31,
1997 and September 30, 1998 ...................... 126 126
Class B Convertible Common Stock, $.01 par value;
authorized 40,000,000 shares; issued and
outstanding: 9,758,421 shares at December
31, 1997 and September 30, 1998 .................. 97 97
Capital deficit ..................................... (183,814) (183,010)
Accumulated other comprehensive income .............. (2,197) (2,533)
Retained earnings ................................... 118,855 148,367
Treasury stock, at cost: 1,362,898 and 1,535,798
shares at December 31, 1997 and September
30, 1998, respectively ........................... (27,306) (30,952)
-------- --------
Total equity (deficit) ............................ (94,239) (67,905)
-------- --------
Total liabilities and equity (deficit) ............ $561,637 $691,879
======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
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THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 44,074 $ 32,652
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................... 24,368 30,425
Net loss on disposition of long-term assets ................. 702 250
Loss on extinguishment of debt .............................. -- 6,056
Unrealized exchange loss .................................... 753 898
Restricted unit plan costs .................................. 994 843
(Increase) decrease in receivables .......................... (15,440) 7,168
(Increase) decrease in inventories .......................... 3,825 (3,750)
(Decrease) in accounts payable .............................. (1,584) (5,860)
(Decrease) in accrued liabilities ........................... (4,220) (5,758)
Increase in income taxes payable ............................ 2,724 4,397
(Increase) decrease in other assets and liabilities, net .... 1,255 (3,177)
Increase in minority interest ............................... 7,191 1,223
-------- ---------
Net cash provided by operating activities ................ 64,642 65,367
-------- ---------
Cash flows from investing activities:
Capital expenditures ........................................ (38,631) (35,468)
Proceeds from sales or disposals of long-term assets ........ 34 256
Acquisition of businesses, net of cash acquired (Note 3*) ... (30,131) (90,935)
-------- ---------
Net cash used for investing activities ................... (68,728) (126,147)
-------- ---------
Cash flows from financing activities:
Proceeds from long-term debt ................................ 35,000 383,428
Repayment of long-term debt ................................. (22,251) (290,804)
Payments to acquire treasury stock .......................... (27,174) (4,000)
Exercise of stock options ................................... -- 314
Dividends ................................................... (3,273) (2,099)
-------- ---------
Net cash provided by (used for) financing activities ..... (17,698) 86,839
-------- ---------
Effect of exchange rate changes on cash ........................... (270) (368)
-------- ---------
Increase (decrease) in cash and cash equivalents .................. (22,054) 25,691
Cash and cash equivalents at beginning of period .................. 51,700 21,753
-------- ---------
Cash and cash equivalents at end of period ........................ $ 29,646 $ 47,444
======== =========
Supplemental information:
Cash paid for income taxes .................................. $ 26,944 $ 16,721
======== =========
Cash paid for interest ...................................... $ 14,204 $ 16,830
======== =========
* Purchase of businesses, net of cash acquired:
Working capital, other than cash ............................ $ 3,110 $ (14,303)
Plant, property and equipment ............................... (43,007) (36,436)
Other assets ................................................ (19,593) (41,622)
Noncurrent liabilities ...................................... 29,359 1,426
-------- ----------
Net cash used to acquire businesses ...................... $(30,131) $ (90,935)
======== ==========
</TABLE>
See the accompanying notes to the consolidated financial statements.
- 3 -
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of The General Chemical Group Inc. and its subsidiaries (the
"Company"). These unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements do not include certain information and
footnotes required by generally accepted accounting principles. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. The Company's financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
In 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") which the Company adopted for both interim and fiscal years beginning
after December 31, 1997. FAS 130 requires the reporting and display of
comprehensive income and its components. The Company's foreign currency
translation adjustments, which were previously reported as a separate component
of equity, are now included in Accumulated other comprehensive income within the
equity section of the Consolidated Balance Sheets. Comprehensive income for the
three and nine months ended September 30, 1997 was $14,850 and $43,779,
respectively. Comprehensive income for the three and nine months ended September
30, 1998 was $11,550 and $32,316, respectively.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 requires that all derivative
instruments be measured at fair value and recognized in the balance sheet as
either assets or liabilities. The Company is currently evaluating the impact FAS
133 will have on its consolidated financial statements.
Certain prior period amounts have been reclassified to conform with current
presentation.
NOTE 2 - RELATED PARTY TRANSACTIONS
Management Agreement
The Company is party to a management agreement with Latona Associates Inc.
(a management and advisory company which is controlled by a stockholder of the
Company). Pursuant to the agreement, the Company was charged $4,379 and $4,442
for the nine months ended September 30, 1997 and 1998, respectively, for
corporate supervisory and administrative services and strategic advice and
guidance. In addition, pursuant to the management agreement, during the second
quarter of 1998 the Company paid Latona Associates Inc. $500 for additional
services provided in connection with the acquisition of Reheis, Inc. The
management agreement expires on December 31, 2004.
NOTE 3 - ACQUISITIONS
On July 1, 1997 the Company's wholly owned subsidiary, General Chemical
Corporation ("GCC"), 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 on GCC's revolving credit facility.
- 4 -
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
On February 6, 1998, the Company's wholly owned subsidiary, Toledo
Technologies, Inc. acquired all of the outstanding stock of Sandco Automotive
Ltd. ("Sandco"), a manufacturer of engine parts for the North American
automobile industry and its aftermarket. Sandco is based in Waterdown, Ontario.
Funding for this transaction was provided with new borrowings.
On April 1, 1998, the Company's wholly owned subsidiary GCC, acquired all
of the outstanding stock of Reheis Inc. ("Reheis"). Reheis is headquartered in
New Jersey and is the world's leading producer and supplier of the active
chemical ingredients in antiperspirants and a leading supplier of the active
ingredients in over-the-counter antacids, as well as a supplier of
pharmaceutical intermediates and other products. Funding for this transaction
was provided by existing cash and borrowings under GCC's revolving credit
facility.
The acquisitions are being accounted for under the purchase method, and
accordingly, the net assets and results of operations are included in the
consolidated financial statements from the date of acquisition, based on
valuation information available to the Company, which is subject to change as
such information is finalized. The excess of purchase price over the estimated
fair values of the tangible assets acquired is being treated as goodwill.
Goodwill is being amortized on a straight line basis over periods ranging from
25 to 35 years. The acquisitions did not have a material pro forma impact on
consolidated earnings.
NOTE 4 - ADDITIONAL FINANCIAL INFORMATION
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Raw materials........................ $10,875 $13,687
Work in process...................... 3,295 8,890
Finished products.................... 21,209 25,299
Supplies and containers.............. 10,579 10,899
------- -------
$45,958 $58,775
======= =======
</TABLE>
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MATURITIES DECEMBER 31, SEPTEMBER 30,
---------- ------------ -------------
1997 1998
---- ----
(UNAUDITED)
<S> <C> <C> <C>
Bank Term Loan A - floating rate .. 2000-2004 $ -- $100,000
Bank Term Loan B - floating rate .. 1998-2006 -- 199,500
Bank Term Loan - floating rate .... 1998-2001 65,217 --
Senior Subordinated Notes - 9.25% . 2003 100,000 --
Canada Senior Notes - 9.09%........ 1999 50,787 49,044
$130,000 U.S. Revolving Credit
Facility - floating rate ....... 42,000 --
Other Debt - floating rate ........ -- 6,544
-------- --------
Total Debt ..................... 258,004 355,088
Less: Current Portion ......... 17,392 51,044
-------- --------
Net Long-Term Debt ............... $240,612 $304,044
========= ========
</TABLE>
- 5 -
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
On June 15, 1998 the Company entered into a new credit facility consisting
of a $100,000 Term Loan ("Term Loan A") maturing on June 15, 2004, a $200,000
Term Loan ("Term Loan B") maturing on June 15, 2006 and a $300,000 Revolving
Credit Facility maturing on June 15, 2004. The term loans and revolving credit
facility bear interest at a rate equal to a spread over a reference rate chosen
by the Company from various options. Term Loan A is payable in consecutive
quarterly installments commencing March 31, 2000. Term Loan B is payable in
consecutive quarterly installments commencing September 30, 1998. The facility
is secured by a first priority security interest in all of the capital stock of
the Company's domestic subsidiaries and 65 percent of the capital stock of the
Company's foreign subsidiaries.
Proceeds from the new credit facility were used to retire certain
outstanding indebtedness. In connection with the retirement the Company recorded
an extraordinary loss of $3,661 net of a tax benefit of $2,395, related to the
early retirements.
NOTE 6 - DIVIDENDS
On September 30, 1998, the Company's Board of Directors declared a
quarterly cash dividend of $.05 per share, payable October 20, 1998, to
shareholders of record on October 7, 1998.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Richmond Works July 26, 1993 Incident. On July 26, 1993 a pressure relief
device on a railroad tank car containing oleum that was being unloaded at the
Company's Richmond, California, facility, ruptured during the unloading process,
causing the release of a significant amount of sulfur trioxide. Approximately
150 lawsuits seeking substantial amounts of damages were filed against the
Company on behalf of in excess of 60,000 claimants in municipal and superior
courts of California (Contra Costa and San Francisco Counties) and in federal
court (United States District Court for the Northern District of California).
All state court cases were coordinated before a coordination trial judge (In Re
GCC Richmond Works Cases, JCCP No. 2906) and the federal court cases were stayed
until completion of the state court cases.
After several months of negotiation under the supervision of a settlement
master, the Company and a court-approved plaintiffs' management committee
executed a comprehensive settlement agreement which resolved the claims of
approximately 95 percent of the claimants who filed lawsuits arising out of the
July 26th incident, including the federal court cases. After a final settlement
approval hearing on October 27, 1995, the coordination trial judge approved the
settlement on November 22, 1995. Pursuant to the terms of the settlement
agreement, the Company, with funds to be provided by its insurers pursuant to
the terms of its insurance policies, has agreed to make available a maximum of
$180,000 to implement the settlement. In addition, the settlement agreement
provides, among other things, that while claimants may "opt out" of the
compensatory damages portion of the settlement and pursue their own cases
separate and apart from the class settlement mechanism, they have no right to
opt out of the punitive damages portion of the settlement. Consequently, under
the terms of the settlement, no party may seek punitive damages from the Company
outside of those provided by the settlement.
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THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Notices of appeal of all or portions of the settlement approved by the
court were filed by five law firms representing approximately 2,750 claimants,
with approximately 2,700 of these claimants represented by the same law firm.
Virtually all of these claimants have not specified the amount of their claims
in court documents, although the Company believes that their alleged injuries
are no different in nature or extent than those alleged by the settling
claimants. On May 8, 1996, the California Court of Appeals dismissed each of the
appeals that had been filed challenging the trial court's approval of the class
action settlement. The Court of Appeals dismissed the appeal relating to the
trial court's rulings on plaintiffs' attorney's fees on the ground that the
appealing attorneys lacked standing to appeal. The Court of Appeals also
dismissed each of the other pending appeals, ruling that the trial court's
orders and rulings approving the settlement were not presently appealable, if at
all, by the appealing claimants since they had all elected to opt out of the
settlement. The appealing attorneys and some of the appealing claimants then
filed a petition for review with the California Supreme Court which, on August
15, 1996, elected not to review the Court of Appeals' decision.
On March 11, 1997, the coordination judge dismissed the material claims of
1,269 of the approximately 2,750 opt-out claimants, primarily on the grounds
that they had failed to comply with previous pre-trial orders. On April 8, 1997,
the California Court of Appeals denied a petition for review of the dismissals
filed by attorneys for the dismissed opt-out claimants, and on June 8, 1997, the
California Supreme Court denied the same attorneys' petition for review of the
California Court of Appeals' denial of their prior petition. On March 20, 1998,
the coordination judge dismissed the material claims of an additional 167 of the
opt-out claimants. As of September 30, 1998, as a result of these dismissals and
various settlements, there are approximately 1,000 opt-out claimants remaining.
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.
- 7 -
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Financial Condition
September 30, 1998 Compared with December 31, 1997
Cash and cash equivalents were $47.4 million at September 30, 1998 compared
with $21.8 million at December 31, 1997. During the first nine months of 1998
the Company generated cash flow from operating activities of $65.4 million and
had net proceeds from debt of $92.6 million which was used to finance
acquisitions of $90.9 million, capital expenditures of $35.5 million and
purchases of treasury stock of $4.0 million.
The Company had working capital of $57.2 million at September 30, 1998 as
compared with $50.4 million at December 31, 1997. The increase in working
capital was primarily a result of higher cash and the impact of the Reheis, Inc.
acquisition on April 1, 1998, partially offset by higher current portion of
long-term debt.
During the second quarter of 1998, the Company completed a $600 million
refinancing plan to improve financial flexibility, simplify the capital
structure, support future growth efforts, refinance certain existing debt and
provide substantial funds for new acquisitions.
On April 1, 1998, the previously-announced acquisition of Reheis, Inc.
("Reheis") by a subsidiary of the Company was closed. Funding for this
transaction was provided with existing cash and borrowings from the Company's
revolving credit facility.
Results of Operations
Net revenues for the three and nine month periods ended September 30, 1998
increased 3 percent and 8 percent to $175.5 million and $525.0 million,
respectively, from $169.8 million and $484.4 million for the comparable periods
in 1997. These increases were due to higher sales in the Chemical and
Manufacturing Segments. The increases in the Manufacturing Segment primarily
reflected higher volumes. The increases in the Chemical Segment for the three
and nine month periods were due to sales of Reheis, Inc., offset by weaker
pricing for Industrial Chemicals and lower export soda ash volumes to Asia. In
addition, the increase for the nine month period was also related to sales of
Peridot Holdings, Inc., which was acquired on July 1, 1997.
Gross profit for the three month period ended September 30, 1998 decreased
11 percent to $46.3 million from $52.4 million for the same period in 1997.
Gross profit for the nine month period ended September 30, 1998 decreased 7
percent to $141.5 million from $152.2 million for the same period in 1997. The
three and nine month decreases were primarily related to the lower export soda
ash volumes and the lower pricing for Industrial Chemicals partially offset by
acquisition related sales increases and higher Manufacturing Segment sales.
Gross profit as a percentage of sales for the three months ended September
30, 1998 decreased to 26 percent from 31 percent for the same period in 1997.
Gross profit as a percentage of sales for the nine months ended September 30,
1998 decreased to 27 percent from 31 percent for the same period in 1997. These
decreases were primarily due to the lower pricing for Industrial Chemicals and
lower soda ash volumes.
Selling, general and administrative expense compared with the prior year
increased $2.1 million and $5.4 million, respectively, for the three and nine
month periods ended September 30, 1998. This increase was due primarily to the
abovementioned acquisition of Reheis.
- 8 -
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<PAGE>
Interest expense for the three and nine month periods ended September 30,
1998 was $7.0 million and $19.4 million, which was $1.3 million and $3.4 million
higher, respectively, than the comparable prior year levels as a result of
higher outstanding average debt balances.
Interest income for the nine months ended September 30, 1998 was $1.2
million which was $.7 million below the prior year level as a result of lower
average cash balances. Interest income for the third quarter of 1998 was
comparable with the prior year level.
The foreign currency transaction loss for the three and nine month periods
ended September 30, 1998 was $.1 million and $.5 million, respectively, which
was essentially at the prior year levels.
Minority interest for the three and nine month periods ended September 30,
1998 was $3.6 million and $11.8 million, respectively, versus $6.5 million and
$18.8 million for the comparable periods in 1997. The decrease in both periods
reflect lower earnings due to lower soda ash pricing and volumes of General
Chemical (Soda Ash) Partners.
Net income was $11.8 million and $32.7 million for the three and nine month
periods ended September 30, 1998, respectively, versus $15.1 million and $44.1
million for the comparable periods in 1997, for the foregoing reasons and a $3.7
million extraordinary item related to the early extinguishment of debt recorded
during the second quarter of 1998.
Year 2000 Readiness Disclosure
The Company has implemented a program to assess, mitigate and remediate the
potential impact of the "Year 2000" problem throughout the Company. A "Year
2000" problem will occur where date-sensitive software uses two digit year date
fields, sorting the Year 2000 ("00") before the year 1999 ("99"). The Year 2000
problem can arise in hardware, software, or any other equipment or process that
uses embedded software or other technology. The failure of such systems to
properly recognize dates after December 31, 1999 could result in data corruption
and processing errors.
The Company completed its assessment of its Year 2000 compliance status in
early 1998 and began work on its remediation program immediately thereafter. The
Company's remediation program has been structured to address its information and
non-information technology hardware, software, facilities and equipment
(collectively, "systems"). Based on its current estimates, the Company expects
to spend approximately $1.0 million to replace or reprogram existing systems and
otherwise complete its Year 2000 compliance program. The Company believes that
all of its material systems will be Year 2000 compliant prior to the
commencement of the year 2000. In the event that the Company's material systems
are not Year 2000 compliant, the Company may experience reductions or
interruptions in operations which could have a material adverse effect on the
Company's results of operations.
In addition, the Company has implemented a program to determine the Year
2000 compliance status of its material vendors, suppliers, service providers and
customers, and based on currently available information does not anticipate any
material impact to the Company based on the failure of such third parties to be
Year 2000 compliant. However, the process of evaluating the Year 2000 compliance
status of material third parties is continually ongoing and, therefore, no
guaranty or warranty can be made as to such third parties' future compliance
status and its potential effect on the Company. The Company believes there
exists a sufficient number of suppliers of raw material for its business so that
if any supplier is unable to deliver raw materials due to Year 2000 problems,
alternate sources will be available and that any supply interruption will not be
material to the Company's operations. There can be no assurances, however, that
the Company would be able to obtain all of its supply requirements from such
alternate sources in a timely way or on terms comparable with those of its
current suppliers. In addition, the Company relies heavily in its business on
railroads and trucking companies to ship finished product to its customers as
well as to transport raw materials to its manufacturing facilities. To the
extent the Company is unable to ship finished product or transport raw materials
as a result of such railroads' or trucking companies' failure to be Year 2000
compliant, the Company may not be able to arrange alternative and timely means
to ship its goods, which could lead to an interruption or slowdown in its
- 9 -
<PAGE>
<PAGE>
business. The Company is preparing for the possible use of alternative suppliers
and means of transportation, possible adjustment of raw material and product
inventory levels and contingencies with respect to potential energy source
interruptions, all in an effort to minimize the effects, if any, of Year 2000
related interruptions or slowdowns caused by suppliers and transporters.
The information set forth in the preceding three paragraphs constitutes a
"Year 2000 Readiness Disclosure" pursuant to the Year 2000 Information and
Readiness Disclosure Act. (P.L. 105-271, signed into law October 19, 1998).
Forward Looking Statements
The preceding discussions contain various forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934 and the
Section 27A Securities Act of 1933. These forward-looking statements represent
the Company's beliefs or expectations regarding future events. All
forward-looking statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the projected results.
Certain factors that might cause such a difference include: changes in the
market price for soda ash, unusually warm winter weather in the northern United
States and Canada, which decreases demand for calcium chloride; the overturning
of the Company's settlement of certain claims relating to the Richmond Works
July 26, 1993 incident; the occurrence or discovery of unexpected environmental
contamination; risks and hazards relating to the manufacture and transportation
of industrial and other chemicals; and increases in the cost of energy or raw
materials used in the manufacture of the Company's products. The Company's
results are also sensitive to general economic conditions. When used in the
"Year 2000 Issue" discussion, the words "believes," "expects," "estimates" and
similar expressions are intended to identify forward-looking statements.
Forward-looking statements with respect to the Year 2000 Issue include, without
limitation, the Company's expectations as to when it will complete the
modification and testing phases of its Year 2000 project plan as well as its
Year 2000 contingency plans; its estimated cost of achieving Year 2000
readiness; and the Company's belief that its internal systems will be Year 2000
compliant in a timely manner. Factors that may cause these differences include,
but are not limited to, the availability of qualified personnel and other
information technology resources; the ability to identify and remediate all date
sensitive lines of computer code or to replace embedded computer chips in
affected systems or equipment; and the actions of governmental agencies or other
third parties with respect to Year 2000 problems.
- 10 -
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following developments have occurred with respect to this matter since
the filing of the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1998:
In April of 1998, approximately 40 employees (and their respective spouses)
of the Sun Company, Inc. refinery in Marcus Hook, Pennsylvania, filed lawsuits
in the Court of Common Pleas, Delaware County, Pennsylvania, against the
Company, alleging that sulfur dioxide (SO2 ) and sulfur trioxide (SO3) releases
from the Company's Delaware Valley facility caused various respiratory and
pulmonary injuries. Unspecified damages in excess of $50,000 for each plaintiff
are sought. The Company has answered the complaints and begun the discovery
phase of the litigation, and will vigorously defend itself in this matter. The
Company believes that its available insurance provides adequate coverage in the
event of an adverse result in this matter and that, based on currently-available
information, this matter will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
With respect to the Milwaukee cryptosporidium litigation discussed in the
Company's Annual Report on Form 10-K for the period ending December 31, 1997, on
September 17, 1998, the court preliminarily approved a class action settlement
with Sara Lee Corporation ("Sara Lee"), whereby Sara Lee would pay to the
plaintiffs $250,000 to cover certain expenses related to the litigation. A final
approval hearing is scheduled for December 17, 1998. The remaining parties in
the litigation, including the Company, are continuing in the discovery phase of
the litigation.
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 CERCLA with respect to a site located in Front Royal, Virginia
(the "Avtex Site"), owned at the time by Avtex Fibers Front Royal, Inc.
("Avtex"), 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 site 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 provided for the estimated
costs of $1.6 million for these activities in its accrual for environmental
liabilities. The EPA never responded to this work plan, nor requested that an
initial investigation and feasibility study for the acid plant be performed.
There had been very limited contact by the EPA with the Company since 1993, as
the EPA has been focused on remediation activities at the main Avtex site. On
September 30, 1998, EPA issued an administrative order under Section 106 of
CERCLA (the "Order") which requires the Company, AlliedSignal, Inc. and Avtex to
undertake certain removal actions at the acid plant. On October 19, 1998, the
Company delivered to EPA written notice of its intention to comply with the
Order, subject to numerous defenses. The requirements of the Order, which
include preparation of a study to determine the extent of any contamination at
the site, is substantially similar to the voluntary action proposed by the
Company to the EPA in 1991. The Company is working cooperatively with EPA with
respect to compliance with the Order and believes that such compliance will not
have a material effect on the Company's financial condition or results of
operations.
- 11 -
<PAGE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
(11) Statement regarding computation of per share earnings.
(27) Financial Data Schedule
b) No report on Form 8-K has been filed by the Company during the period
covered by this report.
- 12 -
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GENERAL CHEMICAL GROUP INC.
-------------------------------
(Registrant)
Date November 11, 1998 /s/ Richard R. Russell
------------------------------------------
RICHARD R. RUSSELL
President and Chief Executive Officer
(Principal Executive Officer) and Director
Date November 11, 1998 /s/ Ralph M. Passino
------------------------------------------
RALPH M. PASSINO
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
- 13 -
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
11 Computation of per share earnings for the 15
three and nine months ended September 30,
1997 and 1998
27 Financial Date Schedule (EDGAR filings only) 16
</TABLE>
- 14 -
<PAGE>
<PAGE>
EXHIBIT 11
THE GENERAL CHEMICAL GROUP INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
Earnings per share were calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic
Income before extraordinary item used for
basic earnings per share ................. $ 15,102 $ 11,766 $ 44,074 $ 36,313
Extraordinary item .......................... -- -- -- (3,661)
-------- -------- -------- --------
Total income used for basic
earnings per share ....................... $ 15,102 $ 11,766 $ 44,074 $ 32,652
======== ======== ======== ========
Weighted average common shares
outstanding .............................. 21,038 21,100 21,555 21,085
Basic earnings per common share. ............ $ .72 $ .56 $ 2.04 $ 1.55
======== ======== ======== ========
Diluted
Income before extraordinary item used for
basic earnings per share ................. $ 15,102 $ 11,766 $ 44,074 $ 36,313
Extraordinary item .......................... -- -- -- (3,661)
-------- -------- -------- --------
Total income used for diluted
earnings per share ....................... $ 15,102 $ 11,766 $ 44,074 $ 32,652
======== ======== ======== ========
Weighted average common shares
outstanding .............................. 21,038 21,100 21,555 21,085
Weighted average common
equivalents shares ....................... 1,147 777 1,055 894
-------- -------- -------- --------
Weighted average common and
common equivalent shares ................. 22,185 21,877 22,610 21,979
======== ======== ======== ========
Diluted earnings per common share
and common equivalent shares ............. $ .68 $ .54 $ 1.95 $ 1.49
======== ======== ======== ========
</TABLE>
- ----------------
All prior period per share figures have been restated in accordance with FAS
128.
- 15 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from Form 10-Q for the
period ended September 30, 1998 and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000929697
<NAME> THE GENERAL CHEMICAL GROUP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 47,444
<SECURITIES> 0
<RECEIVABLES> 131,426
<ALLOWANCES> 5,476
<INVENTORY> 58,775
<CURRENT-ASSETS> 249,399
<PP&E> 572,290
<DEPRECIATION> 227,419
<TOTAL-ASSETS> 691,879
<CURRENT-LIABILITIES> 192,199
<BONDS> 304,044
0
0
<COMMON> 223
<OTHER-SE> (68,128)
<TOTAL-LIABILITY-AND-EQUITY> 691,879
<SALES> 525,030
<TOTAL-REVENUES> 525,030
<CGS> 383,558
<TOTAL-COSTS> 383,558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,426
<INCOME-PRETAX> 58,989
<INCOME-TAX> 22,676
<INCOME-CONTINUING> 36,313
<DISCONTINUED> 0
<EXTRAORDINARY> 3,661
<CHANGES> 0
<NET-INCOME> 32,652
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.49
</TABLE>
