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SECURITIES AND EXCHANGE COMMISSION
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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, 1998
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM [X] TO [ ]
COMMISSION FILE NUMBER 1-13404
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THE GENERAL CHEMICAL GROUP INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: (603) 929-2606
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Securities registered pursuant to Section 12(b) of the Act
<TABLE>
<S> <C>
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.01 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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]
The aggregate value of the voting stock held by non-affiliates of the
registrant as of March 1, 1999, was approximately $312,567,195.
The number of outstanding shares of the Registrant's Common Stock as of
March 1, 1999 was 11,079,392 shares of Common Stock, $.01 par value per share.
The number of outstanding shares of the Registrant's Class B Common Stock
as of March 1, 1999 was 9,758,421 shares of Class B Common Stock, $.01 par value
per share.
Documents Incorporated by Reference:
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 11, 1999 are incorporated by reference into
Part III.
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PART I
Item 1. Business
General
The General Chemical Group Inc. (the "Company or General Chemical
Group"), which has a history dating back to 1899, is a diversified manufacturing
company with manufacturing facilities located in the United States, Canada and
Ireland. Through its Industrial Chemicals Segment, the Company is a leading
producer of soda ash and calcium chloride in North America. Through its
Performance Products Segment, the Company is a leading producer of sodium and
ammonia salts, sulfites, nitrites, aluminum-based chemical products, printing
plates and refinery and chemical regeneration services to a broad range of
industrial and municipal customers. Through its Manufacturing Segment, the
Company manufactures precision and highly engineered metal products to the
automotive and industrial markets, and provides vehicle testing services,
tooling design and preproduction components and dies primarily for the
automotive industry.
The Company was organized in 1988 as a Delaware corporation. The
Company's principal operating subsidiaries were transferred in 1986 by
AlliedSignal, Inc. ("AlliedSignal") to a predecessor of the Company, at which
time new operating management was installed. On May 15, 1996, the Company and a
then principal stockholder completed an initial public offering of Common Stock.
For certain information concerning the Company's revenue, operating
profit and identifiable assets attributable to each of the Company's segments,
geographic areas and the amount of export revenues in the aggregate to which
such revenues were made, see Note 13 of Notes to the Consolidated Financial
Statements.
GenTek Inc. Spinoff
The Company announced plans to separate its Performance Products
and Manufacturing Segments from its Industrial Chemicals Segment through a
spinoff (the "Spinoff"). The Company proposes to accomplish the Spinoff by
transferring the Performance Products and Manufacturing Segments to its
subsidiary, GenTek Inc. ("GenTek"), and distributing the stock of GenTek
to shareholders of General Chemical Group. After the Spinoff, the Company and
GenTek would be separate, independent companies. The Company would own and
operate the Industrial Chemicals Segment, and GenTek would own and operate the
Performance Products Segment and the Manufacturing Segment. As a result, the
Company's activities and operations will be significantly different following
the Spinoff. Certain members of the Board of Directors of the Company will
resign and be elected as directors of GenTek as of the Spinoff. In addition, the
senior management of GenTek will include the effective officers of General
Chemical Group currently responsible for the GenTek Business.
The Company currently anticipates that the consummation of the Spinoff
will occur in the second quarter of 1999. The Spinoff, however, is subject to a
number of conditions, including, among other things, (i) the receipt of a
favorable private letter ruling from the Internal Revenue Service concerning the
tax-free nature of the Spinoff, (ii) appropriate equity and debt market
conditions for the Spinoff, (iii) various regulatory approvals, (iv) closing
under new financing facilities for each of GenTek and the Company and the
application of a portion of their proceeds to repay debt of the Company, and (v)
approval by the Board of the Company of the final terms of the Spinoff,
including the formal declaration of a dividend to the Company's shareholders.
-2-
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Acquisitions
On February 23, 1999, the Company completed its previously-announced
acquisition of Defiance, Inc. ("Defiance"), which is headquartered in Cleveland,
Ohio, in a transaction that valued Defiance's equity at approximately $57
million. Defiance manufactures specialty antifriction bearings and provides
vehicle testing services, tooling design and preproduction dies and components
primarily for the automotive industry. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
On March 1, 1999, the Company announced a cash tender offer of CDN
$9.25 per share for all of the outstanding shares of Noma Industries Limited
("Noma"). Noma, which is based in Toronto, Canada, is a leading manufacturer of
insulated copper wire and related products for the automotive, appliance and
electronic component industries. This transaction is valued at approximately
U.S. $220 million and will be funded with existing cash and new borrowings.
Industrial Chemicals Segment
The Industrial Chemicals Segment produces natural soda ash through
General Chemical (Soda Ash) Partners ("GCSAP"), a partnership of which General
Chemical Group owns a 51 percent equity interest and is the managing partner.
The other partners of GCSAP are subsidiaries of ACI International Limited,
recently acquired by Owens-Illinois, Inc. ("Owens-Illinois") and TOSOH
Corporation ("TOSOH"). The Industrial Chemicals Business, through GCSAP,
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.
The Industrial Chemicals Segment also produces synthetic soda ash and
calcium chloride using the Solvay process at its plant in Amherstburg, Ontario.
The Solvay process produces low-density light soda ash, which is preferred in
certain detergent and chemical processes. 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, the successful marketing of the co-product calcium chloride and its
proximity to major Canadian and eastern U.S. markets.
The Industrial Chemicals Segment has an estimated 23 percent share of
the North American soda ash market, achieved principally as a result of the
operating efficiency of its facilities, the low-cost production of natural soda
ash at the Green River basin, its distribution capabilities resulting from its
extensive storage and distribution networks, experienced sales force and
extensive network of specialty distributors, and the favorable freight cost of
transporting product from its Amherstburg operation to the Canadian and eastern
U.S. soda ash markets.
Over the past two years, the worldwide demand for soda ash has
declined due to the economic crisis in Asia, resulting in lower prices. The
Company believes that, as a leading and efficient producer of soda ash, it can
capitalize on future increases in the worldwide demand for soda ash. In
addition, the increasingly global nature of the industry has resulted in the
consolidation of soda ash producers in the last five years, a trend that
Management believes it will be able to capitalize on in the future.
Markets for Soda Ash and Calcium Chloride
The Industrial Chemicals Segment's product lines consist of soda ash
and calcium chloride. Soda ash is used for glass production, sodium-based
chemicals, detergents, pulp and paper, water treatment and numerous other
applications. Calcium chloride is used for dust control and roadbed
stabilization during the summer, melting ice during the winter and industrial
applications in markets such as newsprint recycling, oil field services, cement
and food processing.
-3-
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Soda Ash
Total industry production of soda ash in the U.S. and Canada during
1998 was approximately 11.7 million tons with U.S. producers estimated to have
exported approximately 4.0 million tons. The total annual world market for soda
ash currently is estimated at 34 million tons. Almost all of the soda ash
produced outside the United States is synthetic soda ash, which involves
significantly higher production costs than the natural process used in the
United States.
The following table sets forth the 1998 end-market breakdown, by
volume, for soda ash produced in the United States(1):
<TABLE>
<S> <C>
Glass production.............................................. 31%
Chemicals..................................................... 17
Detergents.................................................... 7
Pulp and paper, water treatment and other..................... 10
Exports....................................................... 35
</TABLE>
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(1) Developed from industry sources.
Glass Production. Approximately one-half of the domestic soda ash
industry demand is attributable to glass production. The glass production market
is comprised of manufacturers of bottles and other containers, commercial,
residential and automobile windows, mirrors, fiberglass, television tubes,
lighting ware, tableware, glassware and laboratory ware.
Within the glass sector, container glass is the major end use and
comprises the majority of current demand. Historically, domestic consumption of
soda ash in the glass container industry has been adversely affected by the
increasing use of cullet (broken, recycled glass) and competition from aluminum
containers and plastic containers made of polyethylene terephthalate ("PET") and
polyethylene napathalate ("PEN"). Although management believes that the use of
plastic containers and cullet will continue to negatively impact the growth in
demand for soda ash, this trend has slowed over the last several years.
Management believes that, since the rate of recycling has leveled off, there
should be reduced growth in use of cullet. As most of the conversions from glass
to plastic containers have taken place, management expects that the market
erosion of glass versus plastic will decelerate. Although there is a risk that
additional alternative packaging technologies may emerge and thereby take
further market share from glass containers, management believes that the
continued growth of specialty uses for glass containers will substantially
offset any such decline. For example, the continued growth of microbrew
specialty beers should provide additional opportunities for producers of glass
containers.
Chemicals. Sales of soda ash into the sodium-based chemicals market
represent approximately one-fourth of domestic consumption. The chemical
industry uses soda ash as a source of sodium ions and as a fluxing agent where
it is mainly used in the production of sodium bicarbonate, sodium phosphates,
sodium silicates and chrome chemicals. Many of these products ultimately find
use in higher growth, specialty applications in the beverage, coatings, food and
personal care sectors.
Detergents. In the detergent market, soda ash is used as a component of
powdered detergents. This market represents approximately one-eighth of domestic
soda ash consumption. Soda ash is often the prime alkali used to make phosphates
and silicates for dry detergent applications. Due to product reformulation by
select customers, the Company has seen an increasing demand for the low-density
(or "light" soda ash) product that is only produced in North America by the
Company at its Amherstburg plant. Light soda ash is preferred in some markets
such as detergents due to its lower bulk density, higher absorption rates and
faster rates of reaction.
-4-
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Pulp and Paper and Water Treatment. Additional markets for soda ash
include pulp and paper and water treatment. In the pulp and paper market, soda
ash supplies the sodium ion required in the pulping of wood fiber. In the water
treatment market, soda ash can be used to control pH levels and also provides
the sodium ion needed for water softening. In this market, soda ash competes
with caustic soda, which is manufactured as a co-product with chlorine. Due to
strong demand for chlorine in recent years, caustic soda has been oversupplied
and its prices have fallen. In the past year, however, chlorine demand has begun
to slow, which in the past has resulted in higher caustic soda prices.
Exports. Because in the U.S. soda ash is produced naturally, the U.S.
producers have significantly lower costs than non U.S. producers who produce
soda ash using the synthetic process. This production cost differential is great
enough that U.S. producers can compete effectively in overseas markets with
synthetically produced overseas products, despite the freight costs for the U.S.
produced soda ash.
Due to the low-cost position of the U.S. soda ash producers, U.S.
exports of soda ash have more than doubled since 1987, increasing from 2.2
million tons in 1987 to 4.6 million tons in 1997 before declining to
approximately 4.0 million tons in 1998 due principally to the Asian economic
crisis. Management expects, however, that in the future U.S. producers will
continue to capitalize on both the growth in world markets and the closure of
older, uneconomical synthetic soda ash plants outside of North America. In this
regard, since 1993, nine producers have announced the closure of fourteen plants
outside of North America with an aggregate capacity of 2.9 million tons of soda
ash.
In spite of the breadth of export markets, U.S. producers' shipments
into the Western European market during 1998 totaled only 0.3 million tons,
after peaking at more than 0.6 million tons in 1992, while total Western
European demand for soda ash is estimated at 7.0 million tons annually. The
lower exports are attributable to the stronger U.S. dollar, more aggressive
pricing by local producers and the leveling of provisional antidumping duties by
the European Commission against five of the six U.S. soda ash producers,
including The General Chemical Group. The provisional antidumping duties were
removed in November 1997, which should permit U.S. producers to be more
competitive in shipping soda ash into Western Europe.
GCSAP, along with the other five U.S. producers of natural soda ash, is
a member of American Natural Soda Ash Corporation ("ANSAC"), a soda ash export
cooperative organized in 1984 pursuant to an exemption from U.S. antitrust laws
provided under the Webb-Pommerene Act. Through ANSAC, the six U.S. producers
export soda ash to 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. ANSAC is the exclusive distributor of the soda
ash exports of its members. However, members can distribute soda ash directly to
their affiliates in other countries, but only for those affiliates' own
consumption. Certain countries, however, have from time to time considered
limiting or prohibiting sales of products through export cooperatives such as
ANSAC on grounds that they are anticompetitive, though management is not
currently aware of any pending or threatened activity in this regard that would
be material to the results of operations or financial condition of the Company.
Calcium Chloride
In addition to soda ash, the Company produces calcium chloride which is
sold predominantly into the highway and road maintenance and the oil field
services markets. Calcium chloride, a co-product of the synthetic soda ash
process utilized by the Industrial Chemicals Segment's Amherstburg plant, is
used primarily on Canada's extensive network of unpaved roads for dust control
and roadbed stabilization during the summer and on U.S. highways and roads for
melting ice during the winter. Other applications include retail ice control,
concrete additives, water treatment, newsprint recycling and food processing.
-5-
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The Company's major growth opportunities in calcium chloride include
roadbed stabilization and dust control markets in Latin America and
distillate-drying and oil field services applications in both the domestic and
export markets and road stabilization in the U.S.
Soda Ash Pricing and Capacity Utilization
The Industrial Chemicals Segment's principal product is soda ash, and
the profitability of its operations is affected by the market price of soda ash
more than any other factor. The price of soda ash has fluctuated in recent years
and is affected by numerous factors beyond the Company's control, such as
increases in industry capacity, decreases in demand for soda ash in either the
U.S. or the export market (or its end-use products such as glass, sodium-based
chemicals and detergents) and the change in price and/or availability of
substitute products. U.S. domestic demand for soda ash has been subject to
fluctuations based on, among other factors, general economic conditions,
particularly due to the use of soda ash for glass production by the cyclical
construction and automotive industries.
Management believes that export growth, the closure of additional
synthetic soda ash facilities outside North America, new customer applications
for soda ash and customer utilization of soda ash in place of caustic soda (soda
ash can be used as a substitute for caustic soda in pulp and paper and certain
other chemical applications) will increase demand for U.S. soda ash thus
increasing industry utilization rates and soda ash prices, although there can be
no assurances that this will take place.
Capacity Utilization
Historically, the price of soda ash has fluctuated on the rate of
industry capacity utilization by U.S. producers. In general, over time,
profitability increases and decreases with concomitant increases and decreases
in the industry utilization rate. For the past ten years, estimated realizable
capacity utilization has ranged from a high of 99 percent in 1989 to a low of 86
percent in 1998.
The soda ash industry was destabilized in 1982, when a new producer
entered the market by starting up a one million-ton-per-year plant at a time
when the economy was depressed, glass manufacturers were consolidating
facilities and the export market was still being developed. This combination of
events resulted in industry soda ash prices decreasing from an average of $91
per ton in 1981 to $65 per ton in 1986.
From 1986 to 1991, industry soda ash prices recovered to $84 per ton,
mainly due to the surge in exports. From 1991, soda ash prices declined to a low
of $70 per ton in 1994 because of a number of capacity expansions before again
increasing to $83 per ton in 1996 on the continued growth of exports. Since
1996, industry soda ash prices have fallen to an estimated $73 per ton,
primarily due to expansions totaling 1.2 million tons brought onstream in late
1996, including a 700,000 ton expansion by FMC Corporation and a 300,000 ton
expansion by Solvay Minerals, combined with the reduced export demand resulting
from the Asian crisis. For 1999, management expects industry soda ash prices to
approximate $69 per ton.
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The following chart indicates the average industry price of soda ash
per ton and U.S. capacity utilized during the period from 1981 to 1998.
<TABLE>
<CAPTION>
Average Price U.S. Capacity
Year Per Ton (1) Utilization (2)
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<S> <C> <C>
1981............................................... $91 84%
1982............................................... 88 74
1983............................................... 77 80
1984............................................... 67 80
1985............................................... 68 80
1986............................................... 65 84
1987............................................... 67 89
1988............................................... 67 97
1989............................................... 77 99
1990............................................... 83 97
1991............................................... 84 95
1992............................................... 81 92
1993............................................... 74 86
1994............................................... 70 89
1995............................................... 74 94
1996............................................... 83 89
1997............................................... 77 93
1998............................................... 75 86
</TABLE>
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(1) Based on data from the U.S. Geological Survey (not adjusted for inflation),
FOB production facility.
(2) Based on announced capacity (as reported by the U.S. Geological Survey)
adjusted to 95 percent which management believes better approximates
onstream capacity.
Capacity Expansions
Since 1982, no new natural soda ash plants have been built in North
America. During this period, capacity expansion in the United States has been
achieved by expansion of existing facilities and improved operating efficiencies
with such new natural soda ash capacity generally being offset by the closure of
older, uneconomical synthetic soda ash plants outside the United States.
Recently, however, American Soda, LLP, a joint venture between American Alkali
and the Williams Company, has announced its intention to solution mine nahcolite
reserves in White River, Colorado, for processing into soda ash and sodium
bicarbonate. The reported capacity of soda ash production at this facility, if
constructed, has been estimated by its management to be one million tons per
year. While there can be no assurance that this plant will not proceed, its
construction is contingent upon obtaining all of the necessary regulatory
approvals and permits and mineral leases.
Regarding existing soda ash producers, in late 1998, Oriental Chemical
completed an 800,000 ton expansion of its Green River facility. Upon completion
of the expansion, due to current soda ash market conditions Oriental Chemical
"mothballed" 900,000 tons of previously constructed capacity at the facility.
Separately, management believes that in the future, Oriental Chemical may also
close its 350,000 ton synthetic soda ash facility in Korea, although there can
be no assurances that this will take place. In addition, Solvay Minerals
announced the delay of its previously planned 400,000 ton U.S. expansion,
originally scheduled for completion in late 1998, until the fourth quarter of
2001.
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Competition
The highly competitive worldwide soda ash industry is comprised of a
number of domestic and international producers, some of which have significantly
greater production capacity than General Chemical Group. Solvay S.A., with
operations in the U.S. and internationally, is the world's single largest
producer of soda ash with total estimated capacity of approximately nine million
tons. If completed, the pending acquistion of Tg Soda Ash, by FMC Corporation
will increase FMC's total capacity to more than 4.8 million tons. The General
Chemical Group, FMC Corporation, Oriental Chemical Co. and Solvay Minerals all
have joint venture partners.
The Industrial Chemical Segment's North American soda ash competitors
are listed below:
<TABLE>
<CAPTION>
1998 Annual
Nameplate Capacity
Owner/Managing Partner Location in Tons Partner(s)
<S> <C> <C> <C>
The General Chemical Group....Wyoming 2,800 ACI (25%)(1), TOSOH (24%)
Amherstburg 500
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3,300
FMC Corporation...............Wyoming 3,550 Sumitomo (10%), Nippon Sheet Glass (10%)
Oriental Chemical Co. (2).....Wyoming 2,200 Union Pacific Resources Corp. (49%)
Solvay Minerals, Inc..........Wyoming 2,300 Asahi Glass (20%)
IMC Global (3).............California 1,500
Tg Soda Ash, Inc. (4).........Wyoming 1,300
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Total U.S. and Canadian
Capacity 14,150
</TABLE>
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(1) Acquired by Owens-Illinois in April 1998.
(2) Excludes 900,000 tons of mothballed capacity. See "--Capacity Expansion"
above.
(3) Currently held by IMC Global through its wholly-owned subsidiary,
North American Chemical Company. In December 1998, IMC Global announced
that it intends to sell 60% of North American Chemical Company and certain
non-U.S. soda ash production facilities to Mincorp LLC.
(4) Currently, 100% owned by Elf Aquitaine S.A. In January 1999, FMC
Corporation announced that it had signed a letter of intent for the
purchase of Tg Soda Ash, Inc.
Due to the low-cost position of soda ash production at the Green River
basin and increasing worldwide demand for soda ash, both international customers
and producers have been making substantial investments in the Green River
facilities. In May 1992, Solvay Minerals, a subsidiary of Solvay S.A., the
world's largest producer of soda ash with synthetic capacity in excess of 5.0
million tons, purchased an 80 percent interest in the 2.0 million-ton Green
River facility previously owned by Tenneco Inc. In 1995, Sumitomo Corporation
and Nippon Sheet Glass collectively purchased a 20 percent stake in the FMC
Corporation's facility. Finally, in 1996, Oriental Chemical Co., a diversified
Korean chemical producer, purchased Rhone-Poulenc's 51 percent interest in its
soda ash facility.
More recently, in December 1998, Mincorp LLC, a holding company formed
by Citigroup Venture Capital, agreed to purchase 60 percent of North American
Chemical Company, which operates a soda ash production facility in California,
from IMC Global. Citigroup Venture Capital also owns Brunner Mond, a United
Kingdom-based manufacturer of soda ash with additional operations in Magadi,
Kenya. In January 1999, FMC Corporation, the largest Wyoming producer of soda
ash, announced that it has signed a letter of intent to purchase another Wyoming
producer, Tg Soda Ash, Inc.
-8-
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The Industrial Chemicals Segment also competes with a number of
non-U.S. soda ash producers, including: Brunner Mond, Solvay, Pernice (owned by
IMC Global) and various Eastern European and Asian producers.
Regarding calcium chloride, the Industrial Chemicals Segment, with
450,000 tons of capacity, is the largest producer of calcium chloride in Canada.
Its major competitors are Dow Chemical, Ambar and Tetra Technologies in the
U.S., and Dow Chemical and local producers in Canada. In the U.S., the
Company is the third largest distributor of calcium chloride behind Dow Chemical
and Tetra Technologies. It is estimated that Dow Chemical has 700,000 tons of
capacity. The next largest U.S. producer is Tetra Technologies, which operates
four plants with estimated total capacity of 350,000 tons. In addition, Ambar
Inc., an oil services company, purchased an existing salt evaporation facility
in Michigan for conversion to calcium chloride production. During 1997, the
facility came onstream with announced capacity of 250,000 tons, although
management believes some portion of this production will be used by Ambar for
internal consumption in its oil service business in the Gulf Coast region.
Management believes its long standing reputation and service, strategic
location, size and extent of its storage and distribution facilities and use of
its sales force and specialty distributors will allow it to maintain its leading
market share positions in the highway and road maintenance market, although no
assurances can be given that this will occur.
Reserves and Control of Resources
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. In the Green River basin, the Green River formation was deposited in a
lake that began in the early Eocene geologic period (approximately 35 million
years ago) as a large body of fresh water, shrank in size and became saline,
expanded and then became fresh water again. In general, the sediments deposited
during the saline phase of this lake, which included the trona deposits, are
called the Wilkins Peak Member, and the overlying and underlying fresh water
deposits are called the Laney Shale Member and Tipton Shale Member,
respectively.
The Wilkins Peak Member contains at least 42 beds of trona in an area
of about 1,300 square miles, at depths ranging from about 400 feet to 3,500
feet. The major beds, those that are known to exceed 4 feet in thickness and to
underlie at least 100 square miles, are numbered 1 through 25, beginning with
the bottommost beds. One bed, No. 17, is currently being mined at the Company's
Green River facility at a depth of about 1,600 feet. The underground mine is
accessible by one service and personnel shaft, one production shaft and three
ventilation shafts. The trona deposits are mined through continuous mining and
bore mining techniques which use machines to rip the ore from the seam. Both
methods use the room and pillar technique mine plan.
Surface operations include facilities for crushing, calcining,
dissolving, classifying, clarifying, crystallizing, drying (conversion of
monohydrate to anhydrous), storing and loading.
The Company's estimated proven reserves within bed No. 17, which it is
currently mining, consist of approximately 85 million tons of extractable ore.
At the 1998 operating rate of 2.3 million tons of soda ash per year (4.2 million
tons of trona ore), there is approximately a 21-year supply within bed No. 17.
For the three years ended December 31, 1997, annual production of trona ore
averaged approximately 4.2 million tons. In addition, the Company's estimated
recoverable 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.
-9-
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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 28 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.
General Chemical (Soda Ash) Partners
Since 1986, the Green River plant has been owned by GCSAP, a
partnership of which General Chemical Group, through its subsidiary, has been
the managing partner and owned a 51 percent equity interest. In connection with
the Spinoff, General Chemical Group will substitute General Chemical Industrial
Products Inc. as the managing partner of GCSAP and the holder of its 51 percent
interest in the partnership. The Andover Group, Inc., a wholly owned subsidiary
of ACI International Limited, owns a 25 percent equity interest, and TOSOH
Wyoming, Inc., a subsidiary of TOSOH, owns a 24 percent equity interest. ACI
International Limited, a major world producer of container glass and a customer
of GCSAP, was acquired in April 1998 by Owens-Illinois, a worldwide producer of
packaging materials. Management believes that Owens-Illinois and ACI
International Limited as a combined entity will be one of the largest single
purchasers of soda ash with annual domestic and international requirements of
approximately 2.0 million tons. GCSAP and ANSAC are significant suppliers of
soda ash to Owens-Illinois and ACI International Limited. TOSOH is a leading
Japanese chemical company whose operations previously included a 300,000 ton
synthetic soda ash facility in Nanyo, Japan. In 1997, TOSOH closed its synthetic
soda ash facility and began purchasing soda ash through ANSAC.
There are no material restrictions on the distribution of funds from
GCSAP to General Chemical Group and available cash is distributed quarterly to
the three partners in accordance with their ownership percentages. The
partnership-related agreements include prohibitions against the transfer by the
current partners of their equity interests (either directly or through the sale
of the subsidiary holding the partnership interest) or withdrawal from the
partnership without the consent of the other partners. These provisions also
provide put and call options in respect of any proposed sale to protect the
other partners.
The Company does not have any single customer accounting for over 10
percent of its sales. However, a few customers account for a significant portion
of soda ash sales by the Company, such as Church & Dwight, which has a joint
venture with GCSAP relating to the refining of trona in Green River, the
Owens-Illinois group, which now includes ACI International Limited, a 25 percent
partner in GCSAP, and Ball-Foster, a major glass producer.
The Company sells calcium chloride to a broad range of industrial and
municipal customers.
Sales of soda ash are generally not seasonal, except for sales to the
glass container industry, which increase significantly in the summer due to
stronger beverage demand. Sales of calcium chloride are concentrated in late
spring and summer for dust control.
Due to the nature of the Industrial Chemicals Business, there are no
significant backlogs.
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Performance Products Segment
Products and Services
Through its Performance Products Segment, the Company provides a broad
range of value-added products and services to four principal market segments:
Pharmaceutical and Personal Care, Environmental, Technology and Chemical
Processing. Its principal products include antiperspirant and antacid active
ingredients, water treatment chemicals, specialty agrichemicals, advanced
lithographic printing plates and related pressroom chemicals, ultra-high-purity
electronic chemicals, and a range of chemical intermediates used in
photographic, pulp and paper and other applications. The Company also provides
"closed loop" sulfuric acid regeneration services, which significantly reduce
the waste streams generated by certain refineries and chemical plants.
The Company's activities in each of its principal market segments are
discussed below.
Pharmaceutical and Personal Care. The Company is a leading supplier of
the active chemical ingredients used in the manufacture of over-the-counter
("OTC") antacids and antiperspirants, and also supplies active ingredients used
in prescription pharmaceuticals, nutritional supplements, nutraceuticals,
veterinary health products and personal care products. Its product line includes
aluminum and zirconium complexes for use in antiperspirants; aluminum hydroxide
and magnesium hydroxide blends used in OTC antacids for acid-neutralization;
high-purity aluminum hydroxide for use as veterinary and human vaccine
adjuvants; potassium chloride used in electrolyte replacement medications and
intravenous solutions; sodium nitrite used as a reactant in the production of
artificial sweeteners; and pharmaceutical-grade sulfuric acid used in the
production of vitamin C tablets.
The Company maintains leadership positions in many of its
pharmaceutical and personal care products. In the market for antiperspirant
active ingredients, for example, management believes it has a leading market
share and its research and development group works closely with its customers in
the development of their antiperspirant products. Recent new product
introductions have included nonresidue-forming antiperspirant actives designed
for the growing clear stick/gel antiperspirant market and a line of
antiperspirant active ingredients designed to appeal to European consumer
preferences.
Environmental. The Company supplies a broad range of products and
services designed to address the important environmental issues confronting the
company's customers. These value-added products and services provide
cleaner-burning gasoline and cleaner drinking water; restore algae-infested
lakes; reduce damaging phosphorous runoff from agricultural operations; and
significantly reduce industrial waste streams.
The Company's water treatment products consist primarily of aluminum
sulfate ("alum"), polymer-based enhanced coagulants, and sodium and ammonia
salts and sulfites. With a network of 34 plants strategically located throughout
the United States and Canada, it is the largest North American producer of alum,
which is used as a flocculent (a polymer-based material used for settling and/or
separating solids from liquids) and coagulant in potable water and waste water
treatment applications.
With the assistance of its Technical Center in Syracuse, New York, the
Company recently introduced Al+Clear, an agrichemical product for the poultry
market. When applied to the litter in poultry houses, Al+Clear not only improves
sanitation and productivity, but also benefits the environment by aiding in the
control of phosphorous runoff. Phosphorous runoff from agricultural activities
has been linked to contamination in lakes, rivers, streams and other water
bodies.
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<PAGE>
In the environmental market, the Company also provides sulfuric acid
regeneration services to the refining and chemical industries, and markets
pollution abatement and sulfur recovery services to selected refinery customers.
Refineries use sulfuric acid as a catalyst in the production of alkylate, a
gasoline blending component with favorable performance and environmental
properties. The alkylation process contaminates and dilutes the sulfuric acid.
The Company transports the contaminated acid back to the company's facilities
for recycling and redelivers the fresh, recycled acid back to customers. This
"loop" process offers customers significant savings versus alternative disposal
methods and also benefits the environment by significantly reducing refineries'
waste streams. Similar regeneration services are provided to manufacturers of
ion exchange resins and silicone polymers. The Company is expanding its
pollution abatement services of treating and removing other waste streams
generated by refineries, including hydrogen sulfide and sulfur dioxide.
Technology. In the technology market, the Company provides
computer-to-plate ("CTP") technology and bimetal lithographic printing plates
for high-quality commercial printing applications, as well as ultra-high-purity
electronic chemicals for the semiconductor industry.
A Company subsidiary, Printing Developments Inc. ("PDI"), recently
introduced its Prisma(TM) CTP technology which allows printers to transfer
computer images directly to digitally imageable printing plates, thereby
eliminating intermediate film processing and reducing labor and material costs.
PDI's proprietary bimetal plating system provides sharper color reproduction,
greater durability and superior on-press economics relative to the polymer
plates offered by other industry participants.
The Company's electronic chemicals include ultra-high-purity acids,
caustics and etchants for use in the manufacture of semiconductor processing
chips. The Company produces ultra-high-purity sulfuric acid with impurities
measured in the parts-per-trillion range, and recently became the exclusive U.S.
licensee for the manufacture and sale of Spinetch(TM) etchants, a proprietary
product line developed by Merck KgaA of Germany.
Chemical Processing. The Company manufactures a broad range of products
that serve as chemical intermediates in the production of such everyday products
as newspapers, tires, paints, dyes and carpets. The company is a leading
producer of alum and polymer-based enhanced coagulants used in paper
manufacturing to impart water resistance. The Company's sodium and ammonia
sulfites are commonly used to produce fixing and developing solutions for
conventional film and x-ray processing. Sodium nitrite, of which the Company is
one of only two North American producers, is primarily used as a reactant in the
manufacture of dyes, pigments and rubber processing chemicals. Additional
chemical intermediate products include potassium fluoride and fluoborate
derivatives sold into the metal treatment, agrichemical, surfactant and
analytical reagent markets. The Company also produces sulfuric acid, which is
used in the manufacturing of titanium pigments, fertilizers, synthetic fibers,
steel, petroleum and paper, as well as many other products.
Availability of Resources
The Company's competitive cost position and high-quality products are
in part attributable to its control of certain raw materials that serve as the
feedstocks for many of its other products. For its sulfuric acid regeneration
business, the Company has the ability to manufacture sulfur dioxide and sulfuric
acid relatively inexpensively. Sulfur dioxide is a major raw material in the
manufacture of many of the Company's sodium salts and sulfites, and sulfuric
acid is an important raw material in the manufacture of aluminum sulfate as well
as in the manufacture of ultra-high-purity electronic chemicals. Consequently,
major raw material purchases are limited primarily to sulfuric acid where it is
uneconomical for the Company to supply itself due to distribution costs, soda
ash (for the manufacture
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<PAGE>
of sodium salts, sulfites and nitrites), bauxite and hydrate (for the
manufacture of alum), sulfur (for the manufacture of sulfuric acid), and
aluminum (for the manufacture of printing plates). The Company has the ability
to purchase these raw materials from a number of suppliers and believes that
these raw materials will be available in sufficient supply on a competitive
basis for the foreseeable future.
Competition
Although the Performance Products Segment generally has significant
market shares in the product areas in which it competes, most of its end markets
are extremely competitive. The Company's major competitors are typically
segregated by end markets and include international, regional and, in some
cases, small independent producers. The Company's ability to compete effectively
depends on its ability to maintain competitive prices and to provide reliable
and responsible service to its customers. The Company believes that, with
certain products which have relatively higher freight costs, the proximity of
the Company's production facility to the end market user is a key factor in
being price competitive. In general, raising prices has been difficult over the
past several years and will likely continue to be so in the near future.
In the pharmaceuticals and personal care market, the Company competes
primarily with Giulini, Barcroft and Summit, which produce active ingredients
used in antacid and antiperspirants production. The Company's competitors for
its environmental market products and services include the refineries that
perform their own sulfuric acid regeneration, as well as DuPont, Marsulex, Arch,
PVS and Rhodia, which also have sulfuric acid regeneration facilities that are
generally located near their major customers. In addition, the Company competes
with Geo Specialty Chemicals, U.S. Aluminates and other small market
participants for water treatment services. Competitors in the technology market
include Kodak-Polychrome and Fuji, which also provide printing-related
products. With regard to electronic chemicals, the Company's principal
competitors are Ashland and Arch. Competitors in the chemical processing market
include BASF, Calabrian, U.S. Salt, Kerley, Rhodia and Solvay S.A.
Sales and Distribution
The Company employs over 100 experienced sales, marketing, distribution
and customer service personnel in its Performance Products Segment. The sales
force is divided into a general group and specialized groups which focus on
specific products, end users and geographic regions, thereby providing the
Company with insight into industry trends and creating opportunities for product
development.
The sales force markets products and services both directly to end
users and indirectly through independent distributors. Generally, sulfuric acid
regeneration services are only sold directly to end users, often pursuant to
long-term contracts. In addition, the Company contracts with an extensive
network of independent distributors both in the United States and
internationally. Distributors typically promote a full line or focused range of
products to a larger market or to a market focused on specific end users or
regions. The Performance Products Segment's sales contracts with its end users
and distributors are usually for one to three-year periods.
Customers; Seasonality; Backlogs
The Performance Products Segment does not have any single customer, or
a small number of customers, which if lost would have a material adverse affect
on the Company. The business of the Performance Products Segment is generally
not seasonal. Due to the nature of the Performance Products Segment's business,
there are no significant backlogs.
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<PAGE>
Manufacturing Segment
The Company's Manufacturing Segment produces stamped and machined metal
components and specialty antifriction bearings for use in automotive and
industrial markets as well as fluid transport and handling equipment for the
automotive service market and for industrial applications. In addition, the
Manufacturing Segment provides vehicle testing services, tooling design and
preproduction dies and components for the automotive industry. Upon completion
of the Noma acquisition, the Company, through Noma, will be a leading
manufacturer of insulated copper wire and related products for the automotive,
appliance and electronics component market.
Automotive
The Company's stamped and machined engine components improve engine
efficiency by reducing engine friction and component mass. These components are
used in the increasingly popular single and double overhead cam (OHC) engines
automakers are installing in cars, light trucks and sport utility vehicles (such
as Ford Expedition and F-150, Lincoln Navigator and DaimlerChrysler Minivan).
The increased use of these OHC engines has resulted in significant volume growth
through market share gains, as vehicle manufacturers have been able to obtain
better fuel economy and higher horsepower using OHC engines. Management believes
that this OHC trend is projected to continue. Additionally, the Company has
participated in the automakers' conversion of traditional overhead valve engines
to reduced-friction valve train components (using bearings) to obtain some of
the efficiency of OHC engines. The Company's products compare favorably with
other technologies by providing comparable performance characteristics at a
lower delivered cost. This reduced cost is a function of lower raw material cost
as well as lower machining cost. In addition, these products have received
increased acceptance as automakers strive to reduce vehicle weight and improve
performance at a reasonable cost.
On February 23, 1999, the Company completed its previously-announced
acquisition of Defiance, Inc. ("Defiance"), which is headquartered in Cleveland,
Ohio. Defiance manufactures specialty antifriction bearings and provides
vehicle testing services, tooling design and preproduction dies and components
primarily for the automotive industry. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Defiance's bearings are used primarily in the valve trains of
automotive and truck engines. In addition, Defiance manufactures
production-intent prototype metal parts which are used by its customers for
prototype and short production runs of automotive systems.
Defiance's testing and tooling services group provides computer-aided
design, engineering and simulation services for automotive structural and
mechanical systems. Defiance provides services on a wide range of systems from
single sub systems, such as chassis, suspensions, seats and seating assemblies,
to entire vehicles. Defiance's engineering and simulation services provide
customers with finite element modeling, kinematics, crash and variation
simulation analyses, experimental dynamics and vehicle development programs, and
allows its customers to test their automotive products for durability, stress,
noise, vibration and environmental considerations.
Industrial
The Manufacturing Segment's fluid transport and handling equipment is
used in the automotive service industry (by customers such as Jiffy Lube and
automotive service bays in tire stores and auto dealerships) as well as in the
machine tool industry (primarily for delivering cutting fluids to the cutting
surface in metal-cutting equipment manufactured by such companies as Bridgeport,
Mori Seiki and
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<PAGE>
Cincinnati Milicron). The Manufacturing Segment's long history and in-depth
applications knowledge has resulted in the design and production of quality
products with a solid reputation among end users and systems integrators. The
Manufacturing Segment also produces stamped and machined metal products and
components for a wide range of industrial applications, such as machine cranks,
hose reels, metal fasteners and components for bulldozer treads.
On March 1, 1999, the Company announced a cash tender offer for all of
the outstanding shares of Noma Industries Limited. Noma, which is based in
Toronto, Canada, is a leading manufacturer of insulated copper wire and related
products for the automotive, appliance and electronic component industries.
Noma's products include wire harnesses, ignition cables, molded parts,
electro-mechanical assemblies, engine block heaters, battery blankets, power
cords, small and major appliance harnesses, electrical switches and a wide array
of single-and-multi-conduction wire and cable products. With state-of-the-art
production facilities in Canada, the United States and Mexico, Noma has fully
integrated manufacturing capabilities and offers a wide range of technical
capabilities.
Suppliers; Customers
The Company purchases its major raw materials from a number of
suppliers and believes that these raw materials will be available in sufficient
supply on a competitive basis for the foreseeable future. In addition,
management believes that alternative sources are available to fulfill the
Company's major raw material requirements.
The Company deals primarily with the automotive industry, including
DaimlerChrysler, Ford and General Motors. The loss of any one of these customers
would not have a material adverse impact on the operating results or financial
condition of the Company.
Seasonality; Backlogs; Competition
The Manufacturing Segment's business is generally not seasonal. Due to
the nature of the Manufacturing Segment, there are no significant backlogs. The
Company competes with other automotive engine component manufacturers based on a
number of factors including design and engineering capabilities, quality,
delivery terms and price. Competitors include Eaton, Hitchiner, INA, Ingersoll-
Rand and captive OEMs.
Patents, Trademarks and Licenses
The Company has certain patents, trademarks and licenses, none of which
are material to the business.
Environmental Matters
Regulation. The Company's various manufacturing operations, which have
been conducted at a number of facilities for many years, are subject to numerous
laws and regulations relating to the protection of human health and the
environment in the U.S., Canada and Ireland. The Company believes that it is in
substantial compliance with such laws and regulations. However, as a result of
its operations, the Company is involved from time to time in administrative and
judicial proceedings and inquiries relating to environmental matters. These
include several currently pending administrative proceedings concerning alleged
environmental violations at the Company's facilities. Based on information
available at this time with respect to potential liability involving these
facilities, the Company believes that any such
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<PAGE>
liability will not have a material adverse affect on its financial condition or
results of operations. However, modifications of existing laws and regulations
or the adoption of new laws and regulations in the future, particularly with
respect to environmental and safety standards, or discovery of any additional or
unknown environmental contamination, if any, could require capital expenditures
which may be material or otherwise adversely impact the Company's operations.
Accruals/Insurance. The Company's accruals for environmental
liabilities are recorded based on current interpretation 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. Accruals for environmental
matters were $16.2 million and $20.1 million at December 31, 1997 and 1998,
respectively. The Company maintains a comprehensive insurance program, including
customary comprehensive general liability insurance for bodily injury and
property damage caused by various activities and occurrences and significant
excess coverage to insure against catastrophic occurrences. However, it does not
maintain any insurance other than as described above for potential liabilities
related specifically to remediation of existing or future environmental
contamination, if any. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Environmental Matters."
The Company has an established program to ensure that its facilities
comply with environmental laws and regulations. Expenditures made pursuant to
this program approximated $13.4 million in 1998 (of which approximately $1.6
million represented capital expenditures and approximately $11.8 million related
to ongoing operations and the management and remediation of potential
environmental contamination relating to prior operations). Expenditures for 1997
approximated $11.2 million (of which approximately $4.4 million represented
capital expenditures and approximately $6.8 million related to ongoing
operations and the management and remediation of potential environmental
contamination relating to prior operations). The Company expects a similar level
of environmental compliance expenditures in 1999; however, should environmental
laws and regulations affecting the Company's operations become more stringent,
the Company's costs for environmental compliance could increase above such
level.
Additionally, the Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), as amended, and similar state Superfund
statutes have been construed as imposing joint and several liability on present
and former owners and operators of contaminated sites and transporters and
generators of hazardous substances for remediation of contaminated properties
regardless of fault. The Company has received written notice from the
Environmental Protection Agency (the "EPA") that it has been identified as a
potentially responsible party ("PRP") under CERCLA at four Superfund sites. The
Company does not believe that its liability, if any, arising from these sites
will be material to its results of operations or financial condition. In
addition, Congress continues to consider the reauthorization of and
modifications to CERCLA. Because Congress has not yet acted with respect to
CERCLA, the Company does not have sufficient information to ascertain the impact
any change might have on the Company's potential liabilities, if any.
Pending Proceedings. At any time, the Company potentially may be
involved in proceedings with various regulatory authorities which could require
the Company to pay fines and penalties relating to violations of environmental
laws and regulations at its sites, or to remediate contamination at some of
these sites, to comply with applicable standards or other requirements, or to
incur capital expenditures to add or change certain pollution control equipment
or processes at its sites. Again, although the amount of any liability that
could arise with respect to these matters cannot be accurately predicted, it is
the opinion of management that the ultimate resolution of these matters will
have no material adverse affect on the Company's operations or financial
condition. The following information addresses those matters of which the
Company is presently aware.
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Avtex Site at Front Royal, Virginia. On March 22, 1990, the EPA issued
to the Company a Notice of Potential Liability pursuant to Section 107(a) of
CERCLA (the "Notice") with respect to a site located in Front Royal, Virginia
(the "Avtex Site"), owned at the time by Avtex Fibers Front Royal, Inc., which
has filed for bankruptcy. A sulfuric acid plant adjacent to the main Avtex Site
was previously owned and operated by the Company. On September 30, 1998, the 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 the EPA
written notice of its intention to comply with the Order, subject to numerous
defenses. The requirements of the Order include preparation of a study to
determine the extent of any contamination at the acid plant site. The Company
has provided for the estimated costs of $1.6 million for these activities in its
accrual for environmental liabilities relating to the Order. The Company is
working cooperatively with the EPA with respect to compliance with the Order and
believes that such compliance will not have a material affect on the Company's
results of operations or financial condition.
Employees/Labor Relations
As of December 31, 1998, the Company, other than Defiance, had 2,799
employees, 1,028 of whom were full-time salaried employees, 1,475 were full-time
hourly employees covered under 27 different union contracts and 296 were hourly
employees working in nonunion facilities. In addition, at December 31, 1998,
Defiance had 368 employees, 259 of whom were hourly employees, represented by
one union.
The Company's 27 union contracts have durations which vary from two to
four years. Since 1986, the Company has been involved in 135 labor negotiations,
only five of which have resulted in work disruptions. During these disruptions,
management has operated the plants and supplied customers without interruption
until the labor disruptions were settled and new contracts were agreed upon. In
this respect, several contracts covering employees including the contracts at
the Green River, Wyoming, and Amherstburg, Ontario, facilities will be up for
renewal during 1999.
Executive Officers and Key Employees
Set forth below is information with respect to each of the Company's
executive officers and/or key employees.
An asterisk (*) denotes Executive Officers of the Company's General
Chemical Corporation ("General Chemical") subsidiary.
Richard R. Russell, 56, President, Chief Executive Officer and Director
of the Company, has held such positions since 1994. Mr. Russell is also the
President and Chief Executive Officer and a Director of General Chemical,
positions he has held since 1986.
* DeLyle W. Bloomquist, 40, Vice President and General
Manager-Industrial Chemicals of General Chemical since 1996. Between 1995 and
1996, Mr. Bloomquist had been the Director of the Company's Corporate
Distribution Department. Between 1993 and 1995, Mr. Bloomquist served as
Controller-Industrial Chemicals.
* Michael R. Herman, 36, Vice President and General Counsel of General
Chemical since 1997. Between 1995 and 1997, Mr. Herman had been Deputy General
Counsel. Between 1992 and 1995, Mr. Herman served as Associate General Counsel.
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William C. Keightley, 45, has been Vice President, Finance and Chief
Financial Officer of the Company since March 1999. Mr. Keightley served as Vice
President, Finance of Waste Management, Inc. from June 1997 to December 1998,
and was Vice President, Finance of Wheelabrator Technologies Inc. ("WTI") from
May 1996 to June 1997. From prior to 1994 until May 1996, Mr. Keightley served
as Chief Financial Officer of a subsidiary of Waste Management.
* Bodo B. Klink, 61, Vice President, Business Development and Services
of General Chemical since 1996. Mr. Klink was Vice President of Marketing
between 1993 and 1996. Mr. Klink had been General Manager-Water Treatment
Chemicals from 1991 to 1993.
Ralph M. Passino, 47, has been Vice President and General Manager -
Manufacturing Group of the Company since March 1999. Mr. Passino served as Vice
President and Chief Financial Officer of the Company from 1994 to March 1999.
Since 1986, Mr. Passino has been Chief Financial Officer and Vice President of
Administration of General Chemical, and has been a Director of General Chemical
since 1994.
* James N. Tanis, 54, Vice President and General Manager-Derivative
Products and Services of General Chemical. Mr. Tanis has held this position
since 1987.
* James A. Wilkinson, 57, Vice President of Manufacturing of General
Chemical. Mr. Wilkinson has held this position since 1986.
Item 2. Properties
In conducting its operations, the Company uses properties having
offices, storage facilities or manufacturing facilities at approximately 115
locations throughout the United States, Canada, Ireland and the Philippines.
Approximately 50 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 six years and under month-to-month tenancies. The Company's
headquarters is located in Hampton, New Hampshire.
The locations and uses of major properties of the Company are as
follows:
<TABLE>
<CAPTION>
Location Use
-------- ---
<S> <C> <C>
United States
Industrial Chemicals Segment Green River, Wyoming Trona Mine and
Manufacturing Facility
Performance Products Segment 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
Berkeley Heights, New Jersey Manufacturing Facility
Newark, New Jersey Manufacturing Facility
Solvay, New York Manufacturing Facility
Marcus Hook, Pennsylvania Manufacturing Facility,
Offices and Warehouse
Midlothian, Texas Manufacturing Facility
Anacortes, Washington Manufacturing Facility
Racine, Wisconsin Manufacturing Facility
and Offices
</TABLE>
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<TABLE>
<S> <C> <C>
Manufacturing Segment * Livonia, Michigan Manufacturing Facility
* Westland, Michigan Manufacturing Facility
and Offices
Weaverville, North Carolina Manufacturing Facility,
Offices and Warehouse
Defiance, Ohio Manufacturing Facility
Perrysburg, Ohio Manufacturing Facility
and Offices
Toledo, Ohio Manufacturing Facility
* Upper Sandusky, Ohio Manufacturing Facility
Corporate * Hampton, New Hampshire Offices
* Parsippany, New Jersey Offices
Canada
Industrial Products Segment Amherstburg, Ontario Manufacturing Facility and
Undeveloped Lots
* Mississauga, Ontario Offices
Performance Products Segment Valleyfield, Quebec Manufacturing Facility
Manufacturing Segment Waterdown, Ontario Manufacturing Facility
and Offices
Ireland
Performance Products Segment Dublin, Ireland Manufacturing Facility
</TABLE>
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* Leased
Noma, which is being acquired by the Company and will be part of its
Manufacturing Segment, is headquarted in Willowdale, Ontario, Canada. It
operates eleven manufacturing facilities in Ontario, Canada, the United States
and Mexico.
Item 3. Legal Proceedings
General. The Company is involved in claims, litigation administrative
proceedings and investigations of various types, including the Milwaukee and
Delaware Valley litigation discussed below and certain environmental proceedings
previously discussed. Although the amount of any liability that could arise with
respect to these actions cannot be accurately predicted, the opinion of
management based upon currently-available information is that any such liability
not covered by insurance will have no material adverse affect on the Company's
results of operations or financial condition.
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 ("Sara Lee"), E.D. Wesley Co., Peck Foods
Corporation, certain hotels, numerous insurance companies, several
municipalities and General Chemical Group. The principal allegations against
General Chemical Group are that a water treatment chemical sold to the City of
Milwaukee by General Chemical Group should have removed certain bacteria
contained in the water supply and failed to do so and that General Chemical
Group consulted with the City concerning the water purification.
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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
General Chemical Group, as a class action in favor of all persons who sustained
damage as a result of the wrongful acts of the various defendants. An appeal of
this class certification was filed by General Chemical Group and the City of
Milwaukee, and in a March 13, 1998 hearing, a new trial judge ruled from the
bench that this matter shall not proceed as a class action. If this matter
proceeds to trial, it is possible that lawyers for the plaintiffs could appeal
this ruling after conclusion of the trial. 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. In
total, General Chemical Group believes the total number of individual plaintiffs
in all suits filed to date is approximately 700. 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.
On September 17, 1998, the court preliminarily approved a class action
settlement with Sara Lee, whereby Sara Lee would pay to the plaintiffs $250,000
to cover certain expenses related to the litigation. Final approval of the
settlement was granted by the court on December 17, 1998. The remaining parties
in the litigation, including General Chemical Group, are continuing in the
discovery phase of the litigation.
General Chemical Group has denied all material allegations of the
complaints and will continue to defend these lawsuits vigorously. Management
further believes that the Company's available insurance should provide adequate
coverage in the event of an adverse result in this matter, and that this matter
will not have a material adverse affect on the Company's results of operations
or financial condition.
Delaware Valley Litigation. In April 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 General Chemical Group, alleging that sulfur dioxide and
sulfur trioxide 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. General Chemical Group has answered the
complaints, and the litigation has entered the discovery phase. The Company has
denied all material allegations of the complaints and will vigorously defend
itself in this matter. Management further believes that the Company's current
accruals and available insurance should provide 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 affect on the
Company's results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No items were submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise, during the fourth quarter of
fiscal 1998.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
The Company's Common Stock is traded on the New York Stock Exchange
(the "NYSE") under the symbol "GCG." The following table shows the high and low
recorded sales prices of the Company's Common Stock, as reported by the NYSE for
each of the quarterly periods listed:
Year Ended December 31, 1997
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
First Quarter........................................... $ 24.00 $ 20.25
Second Quarter.......................................... 26.75 21.88
Third Quarter........................................... 33.38 23.00
Fourth Quarter.......................................... 33.06 25.00
Year Ended December 31, 1998
First Quarter........................................... $ 30.75 $ 25.00
Second Quarter.......................................... 29.00 21.08
Third Quarter........................................... 28.75 17.38
Fourth Quarter.......................................... 18.50 13.19
</TABLE>
As of March 1, 1999, there were 171 stockholders of record of the
Company's Common Stock and 4 stockholders of record of the Company's Class B
Common Stock.
Dividends
During 1997 and 1998 General Chemical Group paid a regular quarterly
cash dividend of $.05 per share of Common Stock.
-21-
<PAGE>
<PAGE>
Item 6. Selected Financial Data
The following selected consolidated financial data of the Company has
been derived from and should be read in conjunction with the Company's
Consolidated Financial Statements.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net revenues................................... $ 525,912 $ 550,871 $ 623,659 $ 652,977 $ 700,063
Cost of sales.................................. 361,637 387,255 422,633 451,442 523,639(7)
----------- ----------- ----------- ----------- -----------
Gross profit................................... 164,275 163,616 201,026 201,535 176,424
Selling, general and administrative expense.... 66,034(1) 56,619 71,810 64,443 82,206(8)
----------- ----------- ----------- ----------- -----------
Operating profit............................... 98,241 106,997 129,216(6) 137,092 94,218
Minority interest.............................. 16,957 19,458 31,635 24,253 16,666
Interest income................................ 2,487 2,937 2,433 2,504 2,095
Foreign currency transaction (gains) losses.... 4,004 (1,382) (169) 627 1,076
Other expense.................................. 63 735 704 454 844
----------- ----------- ----------- ----------- -----------
Income before interest, income taxes and
extraordinary item ........................... 79,704 91,123 99,479(6) 114,262 77,727
Interest expense............................... 33,006 26,704 23,748 21,602 26,371
----------- ----------- ----------- ----------- -----------
Income before income taxes and
extraordinary item............................ 46,698 64,419 75,731(6) 92,660 51,356
Income tax provision........................... 18,393 43,326 (2) 29,123 36,345 (12)(9)
----------- ----------- ----------- ----------- -----------
Income before extraordinary item .............. 28,305 21,093 (2) 46,608(6) 56,315 51,368
Extraordinary item-loss from extinguishment
of debt (net of tax).......................... 8,203 -- -- -- 3,661
----------- ----------- ----------- ----------- -----------
Net income..................................... $ 20,102 $ 21,093 (2) $ 46,608(6) $ 56,315 $ 47,707
Per Share:
Income before extraordinary item - basic....... $ 1.43 $ 1.07 (2) $ 2.19(6) $ 2.63 $ 2.44
Income before extraordinary item - diluted..... 1.43 1.07 (2) 2.13(6) 2.50 2.35
Net income - basic............................. 1.02 1.07 (2) 2.19(6) 2.63 2.27
Net income - diluted........................... 1.02 1.07 (2) 2.13(6) 2.50 2.18
Dividends...................................... .70 1.00 .13 .20 .20
Weighted average number of shares
outstanding - basic........................... 19,736,842 19,736,842 21,317,657 21,424,401 21,048,240
Weighted average number of shares
outstanding - diluted......................... 19,736,842 19,736,842 21,898,548 22,502,642 21,855,644
Other Data:
Capital expenditures........................... $ 28,503 $ 34,093 $ 54,165 $ 56,671 $ 52,235
Depreciation and amortization (3).............. 25,062 27,095 28,619 32,454 39,510
Balance Sheet Data (at end of period):
Cash, cash equivalents and short-term
investments................................... $ 28,701 $ 19,025 $ 51,700 $ 21,753 $ 62,437
Adjusted working capital (4)................... 4,471 12,484 23,847 46,027 45,549
Total assets................................... 433,627 431,325 485,137 561,637 704,935
Long-term debt (5)............................. 304,750 291,495 234,609 258,004 357,531
Total equity (deficit)......................... (216,831) (215,336) (119,753) (94,239) (54,696)
</TABLE>
- --------------
(1) Includes a one-time charge of $9.0 million ($5.4 million after tax) due to
litigation related to an accident at one of the Company's manufacturing
facilities.
(2) The Company recorded a nonrecurring charge to income tax expense of $17.1
million ($.87 per share) for all years prior to 1995 related to Internal
Revenue Service (the "IRS") examinations.
(3) Consolidated depreciation and amortization excluding amortization of
deferred financing costs.
(4) Adjusted working capital consists of total current assets (excluding cash
and short-term investments) less total current liabilities (excluding the
current portion of long-term debt).
-22-
<PAGE>
<PAGE>
(5) Includes the current portion of long-term debt.
(6) Includes a one-time charge of $12.5 million ($7.6 million after tax or
$.34 per share) due primarily to awards made under the Restricted Unit
Plan, reflecting the portion earned under prior equity programs.
(7) Includes a one-time charge of $12.9 million ($7.8 million after tax or
$.36 per share) primarily due to an asset impairment writedown for two of
the Company's manufacturing facilities.
(8) Includes incremental accruals of $11.3 million ($6.8 million after tax or
$.31 per share) principally related to litigation and environmental
spending.
(9) Includes a nonrecurring gain of $19.5 million ($.89 per share) related to
an income tax settlement. See Note 5 of Notes to the Consolidated
Financial Statements.
-23-
<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The General Chemical Group Inc., is a diversified manufacturing company
with manufacturing facilities located in the United States, Canada and Ireland.
Through its Industrial Chemical Segment, the Company is a leading producer of
soda ash and calcium chloride in North America. Through its Performance Products
Segment the Company is a leading producer of sodium and ammonia salts, sulfites,
nitrites, aluminum-based chemical products, printing plates and refinery and
chemical regeneration services to a broad range of industrial and municipal
customers. Through its Manufacturing Segment, the Company manufactures precision
and highly engineered metal products to the automotive and industrial markets,
and provides vehicle testing services, tooling design and preproduction
components and dies primarily for the automotive industry. Within the
Performance Products Segment, 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. Peridot was merged
into GCC on April 1, 1998. On April 1, 1998, the Company acquired all of the
outstanding stock of Reheis Inc. ("Reheis"). Reheis is a leading producer and
supplier of the active chemical ingredients in antiperspirants and
over-the-counter antacids, as well as a supplier of pharmaceutical intermediates
and other products. Within the Manufacturing Segment, on February 6, 1998, the
Company acquired all of the outstanding stock of Sandco Automotive Ltd.
("Sandco"), a Waterdown, Ontario manufacturer of engine components for the North
American automobile industry and its aftermarket. Funding for these transactions
was provided with available cash and bank borrowings. These acquisitions were
accounted for under the purchase method. In February 1999 the Company completed
its acquisition of Defiance, Inc., a leading manufacturer of specialty and
antifriction bearings and provider of vehicle testing services, tooling design
and preproduction dies and components primarily for the automotive industry.
This transaction valued the equity of Defiance at approximately $57 million. It
operates manufacturing facilities in Defiance and Upper Sandusky, Ohio and other
production and testing facilities in the Detroit, Michigan area. See Note 4 of
Notes to the Consolidated Financial Statements.
On March 1, 1999, the Company announced a cash tender offer of CDN
$9.25 per share for all of the outstanding shares of Noma Industries Limited
("Noma"). Noma, which is based in Toronto, Canada, is a leading manufacturer of
electrical wiring and related components for the automotive, appliance and
electronics industries. This transaction is valued at approximately U.S. $220
million and will be funded with existing cash and new borrowings.
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the respective notes thereto included in
Item 8.
-24-
<PAGE>
<PAGE>
Results of Operations
The following table sets forth certain income statement data for each
of the three years in the period ended December 31, 1998 (dollars in millions).
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1996 1997 1998
---------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues..................................... $ 623.7 100% $ 653.0 100% $ 700.1 100%
Cost of sales.................................... 422.6 68 451.4 69 523.6(2) 75
------- ---- ------- ---- -------- ----
Gross profit..................................... 201.1 32 201.6 31 176.4 25
Selling, general and administrative expense...... 71.8(1) 12 64.4 10 82.2(3) 12
------- ---- ------- ---- -------- ----
Operating profit................................. 129.2 20 137.1 21 94.2 13
Interest expense................................. 23.7 4 21.6 3 26.4 4
Interest income.................................. 2.4 -- 2.5 -- 2.1 --
Foreign currency transaction (gains)/losses...... (.2) -- .6 -- 1.1 --
Other expense, net............................... .8 -- .4 -- .8 --
Minority interest................................ 31.6 5 24.3 4 16.7 2
------- --- ------- ---- -------- ----
Income before income taxes ...................... 75.7 12 92.7 14 51.4 7
Income tax provision............................. 29.1 5 36.4 6 --(4) --
------- --- ------- ---- ------- ----
Income before extraordinary item................. 46.6 7 56.3 9 51.4 7
Extraordinary item - loss from
extinguishment of debt (net of tax)............. -- -- -- -- 3.7 --
------- ---- -------- ---- -------- ----
Net income....................................... $ 46.6 7% $ 56.3 9% $ 47.7 7%
======== ==== ======== ==== ======== ====
</TABLE>
Note: May not add due to rounding.
- ----------------
(1) Includes a one-time charge of $12.5 million ($7.6 million after-tax or
$.34 per share) due primarily to awards made under the Restricted Unit
Plan, reflecting the portion earned under prior equity programs.
(2) Includes a one-time charge of $12.9 million ($7.8 million after tax or
$.36 per share) primarily due to an asset impairment writedown for two of
the Company's manufacturing facilities.
(3) Includes incremental accruals of $11.3 million ($6.8 million after tax or
$.31 per share) principally related to litigation and environmental
spending.
(4) Includes a nonrecurring gain of $19.5 million ($.89 per share) related to
an income tax settlement.
1998 Compared with 1997
Net revenues were $700.1 million for 1998, an increase of 7 percent
over the prior year level, principally due to higher Performance Products and
Manufacturing Segment sales partially offset by lower Industrial Chemical
Segment sales. The increase in the Performance Products Segment sales includes
the acquisition of Reheis Inc. and Peridot Holdings, Inc. partially offset by
lower volumes and pricing in the Electronics and Fine Chemicals product lines.
The increase in the Manufacturing Segment sales primarily reflects higher unit
volumes. The decline in Industrial Chemicals sales is the result of weaker
pricing and lower export soda ash volumes to Asia.
Gross profit of $176.4 million was $25.2 million below the prior year
level principally due to the abovementioned lower export soda ash volumes and
weaker Industrial Chemical pricing partially offset by acquisition-related
increases in the Performance Products Segment and higher Manufacturing Segment
volumes and a one-time charge recorded in 1998 of $12.9 million principally
related to an asset impairment writedown related to two of the Company's
manufacturing facilities. See "Note 1 of the Notes to the Consolidated Financial
Statements."
-25-
<PAGE>
<PAGE>
Excluding the effect of one-time charges, gross profit as a percentage
of sales was 27 percent for 1998 versus 31 percent for 1997, reflecting lower
export soda ash volumes and weaker pricing in the Industrial Chemical Segment
and lower volumes and pricing for the Electronics and Fine Chemicals product
lines and unfavorable product mix in the Performance Products Segment.
Selling, general and administrative expense as a percentage of net
revenues increased from 10 percent to 12 percent primarily due to incremental
accruals of $11.3 in 1998 principally related to litigation and environmental
spending.
Interest expense increased $4.8 million due to higher average
outstanding debt balances during 1998, principally due to acquisitions.
The foreign currency transaction loss for 1998 was $1.1 million
compared with $.6 million for the prior year, due to the impact of exchange rate
fluctuations between the U.S. and Canadian dollars.
Minority interest for 1998 was $16.7 million compared with $24.3
million for 1997, reflecting lower earnings due to lower export sales volumes
and weaker soda ash pricing by General Chemical (Soda Ash) Partners ("GCSAP").
Net income for 1998 was $47.7 million versus $56.3 million for 1997,
reflecting the foregoing and an extraordinary loss from the extinguishment of
debt recorded in 1998 of $3.7 million.
1997 Compared with 1996
Net revenues were $653.0 million for 1997 compared with $623.7 million
for 1996, or an increase of 5 percent. The increase was due to higher
Performance Products and Manufacturing Segment sales partially offset by lower
Industrial Chemical Segment sales. The increase in Performance Products sales
were due primarily to sales of Peridot, which was acquired on July 1, 1997, and
volume gains in most other product lines. Higher Manufacturing Segment sales
were the result of increased volume and product mix improvements toward
higher-value-added automotive engine components. The decrease in Industrial
Segment sales was principally due to lower pricing of soda ash and calcium
chloride.
Gross profit of $201.6 million for 1997 was comparable to the prior
year level. Gross profit as a percentage of sales decreased to 31 percent for
1997 versus 32 percent for 1996, primarily due to lower pricing of soda ash and
calcium chloride, partially offset by higher volumes in the Manufacturing
Segment and in the majority of the product lines in the Performance Products
Segment.
Selling, general and administrative expense as a percentage of net
revenues decreased from 12 percent to 10 percent for 1997. This decrease is due
to the recording in 1996 of a one-time charge of $12.5 million related primarily
to a new restricted unit plan created by the Company which replaced certain
prior equity programs.
The $2.1 million decrease in interest expense for 1997 compared with
1996 was primarily due to lower outstanding debt balances for the first six
months of 1997.
Minority interest for 1997 was $24.3 million compared with $31.6
million for 1996, reflecting lower earnings of GCSAP due to lower soda ash
pricing.
-26-
<PAGE>
<PAGE>
Other Matters
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 required to adopt FAS 133
for fiscal years beginning after June 15, 1999. The Company does not expect the
adoption of FAS 133 will have a material affect on the Company's results of
operations or financial condition.
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.
General Chemical Group 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 noninformation technology hardware, software,
facilities and equipment (collectively, "Systems"). Based on current estimates,
the Company expects to spend approximately $1.0 million to replace or reprogram
existing Systems and complete its Year 2000 compliance program. As of December
31, 1998, the Company has spent approximately $.8 million. Management
expects all material Systems to be Year 2000 compliant by March 31, 1999 and
substantially all Systems to be Year 2000 compliant by December 31, 1999. 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 affect on the Company's results of operations.
In addition, General Chemical Group 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,
the Company does not anticipate any material impact to the Company based on the
failure of any such third parties to be Year 2000 compliant. However, the
process of evaluating the Year 2000 compliance status of material third parties
is ongoing and, therefore, no guaranty or warranty can be made as to such third
parties' future compliance status or its potential affect on the Company. The
Company believes there exists a sufficient number of suppliers of raw materials
for the Company so that if an individual supplier is unable to deliver raw
materials due to Year 2000 problems, alternate sources will be available and
that any supply interruption will not be material to the Company. There can be
no assurances, however, that the Company would be able to obtain all of its
supply requirements from such alternate sources in a timely manner or on terms
comparable with those of its current suppliers. In addition, the Company relies
heavily 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 that 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 interruptions or slowdowns
in its business. The Company is preparing for the possible use of alternative
suppliers and means of transportation, possible adjustment of raw 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.
-27-
<PAGE>
<PAGE>
Notwithstanding the foregoing, in assessing Year 2000 compliance for
Defiance, which was acquired in February 1999, and Noma, which is expected to be
acquired in the second quarter of 1999, the Company has relied upon assessments
prepared or endorsed by current or former management of those companies and
their consultants. As such, except to the limited extent possible in connection
with acquisition-related due diligence, the Company has not made its own
independent review of Year 2000 compliance status of these companies. The
Company expects to conduct its own assessment of Year 2000 readiness shortly
after completion of these acquisitions. Therefore, in the event that the
material systems of Defiance or Noma are not Year 2000 compliant, the affected
company may experience reductions or interruptions in operations which could
have a material adverse affect on the Company's results of operations.
Forward Looking Statements
This document includes forward-looking statements and information that
are based on the beliefs, plans, expectations and assumptions of the Company and
on information currently available to these entities. The words "may," "should,"
"expect," "anticipate," "intend," "plan," "continue," "believe," "seek,"
"estimate" and similar expressions used in this Information Statement are
intended to identify forward-looking statements. The forward-looking statements
in this Information Statement involve certain risks, uncertainties and
assumptions. Many of these factors are beyond the ability of the Company to
control or predict. As a result, the future actions, financial condition,
results of operations and stock price of the Company could differ materially
from those expressed in any forward-looking statements.
The following factors, among others, in some cases have affected and
in the future could affect the actions, financial condition, results of
operations and stock price of the Company: (i) the degree of leverage of the
Company and the financial and operating restrictions imposed by its debt
facilities; (ii) the cyclicality of the chemical and manufacturing industries,
together with the highly competitive nature of these industries; (iii) discovery
of any additional or unknown environmental contamination at the company's
facilities, possible modification of existing laws and regulations relating to
the protection of human health and the environment, and the adoption of new laws
and regulations in the future; (iv) the Company's ability to identify suitable
acquisitions, complete such acquisitions on reasonable prices and terms, and
successfully integrate any acquired businesses into the company's operations;
(v) increases in the cost of energy or raw materials used in the manufacture of
the Company's products; (vi) susceptibility of the Company's business to general
economic conditions, both in North America and globally; and (vii) the Company's
ability to assess, mitigate and remediate the potential impact of the "Year
2000" problem, and in particular relating to the Defiance and Noma acquisitions.
The Company does not intend to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
All subsequent written and oral forward-looking statements attributable to
General Chemical Group or persons acting on behalf of any of them, are expressly
qualified in their entirety by these cautionary statements.
Liquidity and Capital Resources
Cash and cash equivalents were $62.4 million at December 31, 1998
compared with $21.8 million at December 31, 1997. During 1998 the Company
generated cash flow from operating activities of $95.9 million, used cash of
$52.2 million for capital expenditures, $5.5 million for the acquisition of
treasury stock, $90.9 million for the acquisition of businesses and $4.2 million
for the payment of dividends.
The Company had working capital of $57.2 million at December 31, 1998
compared with $50.4 million at December 31, 1997.
-28-
<PAGE>
<PAGE>
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. Term Loan A is payable in quarterly installments commencing
March 31, 2000. Term Loan B is payable in 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 partially 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.
GC Canada has a revolving credit facility of $15 million (Canadian),
which expires on June 22, 2000. This revolving credit facility bears interest at
a rate equal to a spread over a reference rate.
On February 6, 1998, a wholly owned subsidiary of the Company acquired
all of the outstanding stock of Sandco Automotive Ltd. ("Sandco"), a Waterdown,
Ontario based manufacturer of engine parts for the North American automobile
industry and its aftermarket. On April 1, 1998, another wholly owned subsidiary
acquired all of the outstanding stock of Reheis Inc. ("Reheis"), a leading
producer and supplier of the active chemical ingredients in antiperspirants and
over-the-counter antacids as well as a supplier of pharmaceutical intermediates
and other products. Funding for these transactions was provided by existing cash
and borrowings under GCC's revolving credit facility. The acquisitions are
accounted for as purchases. The excess of purchase price over the estimated fair
values of the tangible assets acquired is being amortized on a straight line
basis over periods ranging from 25 to 35 years. The proforma effect of the
acquisitions was not material to the consolidated earnings.
On February 23, 1999, the Company completed its previously-announced
acquisition of Defiance, Inc. ("Defiance"), which is headquartered in Cleveland,
Ohio. Defiance manufactures specialty antifriction bearings and provides vehicle
testing services, tooling design and preproduction dies and components primarily
for the automotive industry. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
On March 1, 1999, the Company announced a cash tender offer of CDN $9.25
per share for all of the outstanding shares of Noma Industries Limited ("Noma").
Noma, which is based in Toronto, Canada, is a leading manufacturer of electrical
wiring and related components for the automotive, appliance and electronics
industries. This transaction is valued at approximately U.S. $220 million and
will be funded with existing cash and new borrowings.
The Company anticipates that the capital spending level for 1999 will
approximate the prior-year level. Management believes that the Company's cash
flows will be sufficient to cover its future interest expense, capital
expenditures and working capital requirements. Other than the Defiance and Noma
acquisitions, the Company is not party to any agreement or arrangement with
respect to any future acquisition. In the event the Company identifies
additional acquisition candidates, however, the Company's current sources of
liquidity may not be adequate. Accordingly, the Company may issue additional
equity or debt securities, subject to market and other conditions.
-29-
<PAGE>
<PAGE>
Environmental Matters
The Company has an established program to ensure that its facilities
comply with environmental laws and regulations. Expenditures made pursuant to
this program approximated $13.4 million in 1998 (of which approximately $1.6
million represented capital expenditures and approximately $11.8 million related
to ongoing operations and the management and remediation of potential
environmental contamination from prior operations). Expenditures for 1997
approximated $11.2 million (of which approximately $4.4 million represented
capital expenditures and approximately $6.8 million related to ongoing
operations and the management and remediation of potential environmental
contamination from prior operations). The Company expects environmental
compliance expenditures in 1999 to be in the range of $12.0 million to $14.0
million; however, should environmental laws and regulations affecting the
Company's operations become more stringent, the Company's costs for
environmental compliance could increase above such range.
Additionally, CERCLA, as amended, and similar state Superfund statutes
have been construed as imposing joint and several liability on present and
former owners and operators of contaminated sites and transporters and
generators of hazardous substances for remediation of contaminated properties
regardless of fault. The Company has received written notice from the EPA that
it has been identified under CERCLA as a PRP at four Superfund sites. The
Company does not believe that its liability, if any, arising from these sites
will be material to its results of operations or financial condition. See
"Business - Environmental Matters - Pending Proceedings." In addition, Congress
continues to consider the reauthorization of and modifications to CERCLA.
Because Congress has not yet acted with respect to CERCLA, the Company does not
have sufficient information to ascertain the impact any change might have on the
Company's potential liabilities, if any.
Inflation
Inflation has had a minimal affect on the results of the Company.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The following discussion and the estimated amounts generated form the
sensitivity analyses referred to below include forward-looking statements of
market risk which assume for analytical purposes that certain adverse market
conditions may occur. Actual future market conditions may differ materially
from such assumptions because the amounts noted below are the result of
analyses used for the purpose of assessing possible risks. Accordingly, the
forward-looking statements should not be considered projections by the Company
of future events.
The Company's cash flows and earnings are subject to fluctuations
resulting from changes in interest rates and changes in foreign currency
exchange rates and the Company selectively uses financial instruments to manage
these risks. The Company does not enter into financial instruments for
speculation or trading purposes. Additional information regarding the Company's
financial instruments is contained in Note 12 to the financial statements. The
Company's objective in managing its exposure to changes in foreign currency
exchange rates and interest rates is to reduce volatility on earnings and cash
flow associated with such charges.
The Company measures its market risk, related to its holding of
financial instruments based on charges in interest rates and foreign currency
rates using a sensitivity analysis. The sensitivity analysis measures the
potential loss in fair values, and cash flows and earnings based on a
hypothetical 10% change in interest and currency exchange rates. The Company
used current market rates on its debt and derivative portfolio to perform
the sensitivity analysis. A hypothetical 10% change in interest rates or
foreign currency exchange rates does not have a material impact on the fair
values, cash flows or earnings of the Company.
-30-
<PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
See "Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 10-K."
-31-
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of THE GENERAL CHEMICAL GROUP INC.:
We have audited the accompanying consolidated balance sheets of The
General Chemical Group Inc. and subsidiaries as of December 31, 1997 and 1998,
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, 1998. 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 The General Chemical Group
Inc. and subsidiaries at December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 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 11, 1999
(March 1, 1999 as to Note 15)
-32-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
---- ---- ----
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Net revenues .......................................... $ 623,659 $ 652,977 $ 700,063
Cost of sales ......................................... 422,633 451,442 523,639
Selling, general and administrative expense ........... 71,810 64,443 82,206
--------- --------- ---------
Operating profit .................................... 129,216 137,092 94,218
Interest expense ...................................... 23,748 21,602 26,371
Interest income ....................................... 2,433 2,504 2,095
Foreign currency transaction (gains) losses ........... (169) 627 1,076
Other expense, net .................................... 704 454 844
--------- --------- ---------
Income before minority interest, income taxes and
extraordinary item ................................. 107,366 116,913 68,022
Minority interest ..................................... 31,635 24,253 16,666
--------- --------- ---------
Income before income taxes and extraordinary item ... 75,731 92,660 51,356
Income tax provision .................................. 29,123 36,345 (12)
--------- --------- ---------
Income before extraordinary item .................... 46,608 56,315 51,368
Extraordinary item - loss from extinguishment
of debt (net of tax, $2,395) ......................... -- -- 3,661
--------- --------- ---------
Net income .................................. $ 46,608 $ 56,315 $ 47,707
========= ========= =========
EARNINGS PER COMMON SHARE - BASIC:
Income before extraordinary item .................... $ 2.19 $ 2.63 $ 2.44
Extraordinary item - loss on extinguishment
of debt (net of tax) ............................... -- -- .17
--------- --------- ---------
Net income .................................. $ 2.19 $ 2.63 $ 2.27
========= ========= =========
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Income before extraordinary item .................... $ 2.13 $ 2.50 $ 2.35
Extraordinary item - loss from extinguishment
of debt (net of tax) ............................... -- -- .17
--------- --------- ---------
Net income ....................................... $ 2.13 $ 2.50 $ 2.18
========= ========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
-33-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---- ----
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 21,753 $ 62,437
Receivables, net ....................................... 122,720 119,221
Inventories ............................................ 45,958 63,127
Deferred income taxes .................................. 14,145 15,886
Other current assets ................................... 2,370 2,485
--------- ---------
Total current assets .............................. 206,946 263,156
Property, plant and equipment, net .......................... 304,189 338,334
Other assets ................................................ 50,502 103,445
--------- ---------
Total assets ...................................... $ 561,637 $ 704,935
========= =========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable ....................................... $ 61,332 $ 67,111
Accrued liabilities .................................... 73,258 77,111
Income taxes payable ................................... 4,576 10,948
Current portion of long-term debt ...................... 17,392 50,802
--------- ---------
Total current liabilities ......................... 156,558 205,972
Long-term debt .............................................. 240,612 306,729
Other liabilities ........................................... 215,405 203,501
--------- ---------
Total liabilities ................................. 612,575 716,202
--------- ---------
Minority interest ........................................... 43,301 43,429
--------- ---------
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 and
12,654,489 shares at December 31, 1997 and
1998, respectively .................................... 126 127
Class B Common Stock, $.01 par value;
authorized 40,000,000 shares; issued and outstanding:
9,758,421 shares at December 31, 1997 and 1998 ........ 97 97
Capital deficit ........................................ (183,814) (182,563)
Accumulated other comprehensive income ................. (2,197) (2,446)
Retained earnings ...................................... 118,855 162,378
Treasury stock, at cost: 1,362,898 and 1,641,166 shares
at December 31, 1997 and 1998, respectively ........... (27,306) (32,289)
--------- ---------
Total equity (deficit) ............................ (94,239) (54,696)
--------- ---------
Total liabilities and equity (deficit) ............ $ 561,637 $ 704,935
========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
-34-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................ $ 46,608 $ 56,315 $ 47,707
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................. 29,745 33,094 40,064
Net loss on disposition/impairment of long-term assets ........ 1,170 1,127 12,370
Unrealized exchange loss ...................................... 31 1,405 1,313
Restricted unit plan costs .................................... 11,319 1,302 1,309
Loss on extinguishment of debt ................................ -- -- 6,056
(Increase) decrease in receivables ............................ (12,126) (16,920) 13,405
(Increase) decrease in inventories ............................ 525 (2,537) (8,350)
Increase in accounts payable .................................. 2,814 5,575 2,781
Decrease in accrued liabilities ............................... (9,970) (6,890) (962)
Increase (decrease) in income taxes payable ................... 1,279 (954) 6,266
Increase (decrease) in other liabilities and assets, net ...... 9,125 10,468 (26,135)
Increase in minority interest ................................. 10,294 4,729 128
--------- --------- ---------
Net cash provided by operating activities .................. 90,814 86,714 95,952
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures ............................................. (54,165) (56,671) (52,235)
Proceeds from sales or disposals of long-term assets ............. 73 70 868
Payments from related parties .................................... 14,000 -- --
Acquisition of businesses net of cash acquired (Note 4)* ......... -- (30,130) (90,935)
--------- --------- ---------
Net cash used for investing activities ..................... (40,092) (86,731) (142,302)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from initial public offering ........................ 40,600 -- --
Proceeds from long-term debt ..................................... 20,000 49,000 389,858
Repayment of long-term debt ...................................... (76,886) (45,536) (293,778)
Payments to acquire treasury stock ............................... (123) (27,183) (5,485)
Exercise of stock options ........................................ -- -- 445
Dividends ........................................................ (1,668) (5,368) (4,184)
--------- --------- ---------
Net cash used for financing activities ..................... (18,077) (29,087) 86,856
--------- --------- ---------
Effect of exchange rate changes on cash .............................. 30 (843) 178
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ..................... 32,675 (29,947) 40,684
Cash and cash equivalents at beginning of period ..................... 19,025 51,700 21,753
--------- --------- ---------
Cash and cash equivalents at end of period ........................... $ 51,700 $ 21,753 $ 62,437
========= ========= =========
Supplemental information:
Cash paid for income taxes ....................................... $ 23,051 $ 35,179 $ 19,754
========= ========= =========
Cash paid for interest ........................................... $ 22,809 $ 20,923 $ 29,353
========= ========= =========
* 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............................................ 29,360 1,426
--------- ----------
Net cash used to acquire businesses......................... $ (30,130) $ (90,935)
========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
-35-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ACCUMULATED
CLASS B OTHER
COMMON COMMON TREASURY CAPITAL COMPREHENSIVE RETAINED COMPREHENSIVE
STOCK STOCK STOCK DEFICIT INCOME (LOSS) EARNINGS TOTAL INCOME
----- ----- ----- ------- ------------- -------- ----- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 .......... $ 197 $ -- $ -- $(237,140) $(1,362) $ 22,969 $(215,336)
Net income .......................... -- -- -- -- -- 46,608 46,608 $46,608
Foreign currency translation ........ -- -- -- -- (73) -- (73) (44)
-------
Comprehensive income ................ -- -- -- -- -- -- -- $46,564
Dividends (Per Share $.125) ......... -- -- -- -- -- (2,780) (2,780) =======
Proceeds from initial public offering 25 -- -- 40,575 -- -- 40,600
Conversion of Common Stock to
Class B Common Stock ................ (197) 197 -- -- -- -- --
Conversion of Class B Common
Stock to Common Stock ............... 54 (54) -- -- -- -- --
Restricted Unit Plan grants,
cancellations, tax benefits and other 1 -- -- 11,350 -- -- 11,351
Purchase of Treasury stock .......... -- -- (123) -- -- -- (123)
----- ----- ------- --------- ------- -------- ---------
Balance at December 31, 1996 .......... 80 143 (123) (185,215) (1,435) 66,797 (119,753)
Net income .......................... -- -- -- -- -- 56,315 56,315 $56,315
Foreign currency translation ........ -- -- -- -- (762) -- (762) (461)
-------
Comprehensive income ................ -- -- -- -- -- -- -- $55,854
Dividends (Per Share $.20) .......... -- -- -- -- -- (4,257) (4,257) =======
Conversion of Class B Common
Stock to Common Stock ............... 46 (46) -- -- -- -- --
Restricted Unit Plan grants,
cancellations, tax benefits and other -- -- -- 1,401 -- -- 1,401
Purchase of Treasury stock .......... -- -- (27,183) -- -- -- (27,183)
----- ----- ------- --------- ------- -------- ---------
Balance at December 31, 1997 .......... 126 97 (27,306) (183,814) (2,197) 118,855 (94,239)
Net income .......................... -- -- -- -- -- 47,707 47,707 $47,707
Foreign currency translation ........ -- -- -- -- (249) -- (249) (150)
-------
Comprehensive income ................ -- -- -- -- -- -- -- $47,557
Dividends (Per Share $.20) .......... -- -- -- -- -- (4,184) (4,184) =======
Restricted Unit Plan grants,
cancellations, tax benefits and other 1 -- -- 1,313 -- -- 1,314
Purchase of Treasury stock .......... -- -- (4,983) (62) -- -- (5,045)
----- ----- ------- --------- ------- -------- ---------
Balance at December 31, 1998 .......... $ 127 $ 97 $(32,289) $(182,563) $(2,446) $162,378 $ (54,696)
===== ===== ======== ========= ======= ======== =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
-36-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The General Chemical Group Inc. (the "Company") is a diversified
manufacturing company with manufacturing facilities located in the United
States, Canada and Ireland. Through its Industrial Chemical Segment, the Company
is a leading producer of soda ash and calcium chloride in North America. Through
its Performance Products Segment, the Company is a leading supplier of sodium
and ammonia salts, sulfites, nitrites, aluminum-based chemical products,
printing plates, pharmaceutical and personal care products and refinery and
chemical regeneration services to a broad range of industrial and municipal
customers. Through its Manufacturing Segment, the Company manufactures precision
and highly engineered stamped and machined metal products, principally
automotive engine parts as well as fluid-handling equipment, manual controls and
trailer hitches for the automotive market.
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 the
Company and of all wholly owned and majority-owned subsidiaries and General
Chemical (Soda Ash) Partners ("GCSAP"), of which the Company indirectly owns 51
percent. Minority interests relate solely to partnerships, primarily GCSAP, in
which the Company has a controlling interest. Intercompany balances and
transactions are eliminated in consolidation.
Inventories are valued at the lower of cost or market, using the
last-in, first-out ("LIFO") method for most 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 GCSAP are depreciated using the units-of-production method. All
other plant and equipment are depreciated principally using the straight-line
method. Estimated lives range from 5 to 40 years for buildings and leasehold
improvements and one to 20 years for machinery and equipment.
The Company evaluates the recovery of long-lived assets not held for
sale by measuring the carrying value of these assets against the estimated
undiscounted future cash flows associated with them. At the time such
evaluations indicate that the future cash flows are not sufficient to recover
the carrying value of such assets, the assets are adjusted to their fair values,
which have been determined on a discounted cash flow basis. During 1998, based
on these evaluations, the Company recorded a $11.6 million impairment charge,
which is included in cost of sales, primarily related to two of its
manufacturing facilities in its Performance Products Segment.
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over a period
which ranges from 25 to 35 years. 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. On December 31, 1997 and 1998,
goodwill totalled $19,192 and $71,444, respectively, net of accumulated
amortization of $400 and $2,671, respectively, which is included in other assets
on the balance sheet.
-37-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
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 a liability can be reasonably
estimated. Liabilities for environmental matters were $16,244 and $20,116 at
December 31, 1997 and 1998, respectively. These amounts 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 accrued 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 swap agreements are
recognized as increases or reductions in interest expense in the periods to
which they relate.
All highly liquid instruments purchased with a maturity of three months
or less are considered to be cash equivalents.
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 required to adopt FAS 133
for fiscal years beginning after June 15, 1999. The Company does not expect the
adoption of FAS 133 will have a material effect on the Company's results of
operations or financial condition.
The capital deficit at December 31, 1995 of $237,140 arose as a result
of dividends and distributions exceeding accumulated earnings and capital
contributions.
Certain prior-period amounts have been reclassified to conform with the
current presentation.
NOTE 2 - CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares
of Common Stock, par value $.01 per share, of which 11,195,799 and 11,013,323
were outstanding at December 31, 1997 and 1998, respectively, and 40,000,000
shares of Class B Common Stock, par value $.01 per share, which has ten votes
per share, is subject to significant restrictions on transfer and is convertible
at any time into Common Stock on a share-for-share basis, of which 9,758,421
shares were outstanding at December 31, 1997 and 1998, respectively. The Common
Stock and Class B Common Stock are substantially identical, except for the
disparity in voting power, restriction on transfer and conversion provisions.
The Company's Preferred Stock, par value $.01 per share consists of
10,000,000 authorized shares, none of which were outstanding at December 31,
1997 and 1998.
During the second quarter of 1997, a former stockholder converted all
4.4 million shares of Class B Common Stock into an identical number of shares of
Common Stock. On April 23, 1997, the Company purchased approximately 1.3 million
shares of Common Stock from the same stockholder, at a price of $20 per share.
During 1997 and 1998, the Company purchased 1,356,573 and 278,268 shares of
Common Stock, respectively. These purchases were funded from the Company's cash
balance and have been recorded as treasury stock.
-38-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3 - EARNINGS PER SHARE
The computation of basic earnings per share is based on the weighted
average number of common shares and contingently issuable shares outstanding
during the period. The computation of diluted earnings per share assumes the
foregoing and, in addition, the exercise of all stock options and restricted
units, using the treasury stock method.
The components of the denominator for basic earnings per common share
and diluted earnings per common share are reconciled as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Basic earnings per common share:
Weighted average common
shares outstanding.................................. 21,317,657 21,424,401 21,048,240
========== ========== =============
Diluted earnings per common share:
Weighted average common
shares outstanding.................................. 21,317,657 21,424,401 21,048,240
Options and Restricted Units......................... 580,891 1,078,241 807,404
----------- ----------- -------------
Denominator for diluted earnings per common share............. 21,898,548 22,502,642 21,855,644
========== ============ =============
</TABLE>
Options to purchase 10,000 and 398,500 of common stock were issued
during 1997 and 1998 respectively, but were not included in the computation of
diluted earnings per common share because the exercise price was greater than
the average market price of the common shares. The options, which expire during
2007 and 2008, were still outstanding at December 31, 1998.
NOTE 4 - ACQUISITIONS
On July 1, 1997 a wholly owned subsidiary acquired all of the
outstanding stock of Peridot Holdings, Inc. ("Peridot"), a manufacturer and
supplier of sulfuric acid and water treatment chemicals. On February 6, 1998,
another wholly owned subsidiary 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. On April 1, 1998, the Company
acquired all of the outstanding stock of Reheis Inc. ("Reheis") a leading
producer and supplier of the active chemical ingredients in antiperspirants and
over-the-counter antacids, as well as a supplier of pharmaceutical intermediates
and other products. Funding for these transactions was provided by existing cash
and borrowings under the Company's revolving credit facility. The acquisitions
are accounted for under the purchase method, and accordingly, the net assets and
results of operations are included in the financial statements from the date of
their respective acquisitions. The allocation of the purchase price of Sandco
and Reheis are based on valuation information available to the Company which is
subject to change as such information is finalized. The operations of these
acquired companies were not significant, individually or in the aggregate to the
consolidated results of operations of the Company.
-39-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5 - INCOME TAXES
Income before income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
United States............................................ $ 57,282 $ 78,345 $ 43,739
Foreign.................................................. 18,449 14,315 7,617
--------- -------- --------
Total.................................................. $ 75,731 $ 92,660 $ 51,356
========= ======== ========
</TABLE>
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
United States:
Current................................................ $ 18,524 $ 26,195 $ 892
Deferred............................................... 38 (236) (6,468)
Foreign:
Current................................................ 7,296 5,662 2,414
Deferred............................................... (791) (836) (112)
State:
Current................................................ 4,201 5,596 5,022
Deferred............................................... (145) (36) (1,760)
--------- -------- -------
Total........................................... $ 29,123 $ 36,345 $ (12)
========= ======== ========
</TABLE>
A summary of the components of deferred tax assets and liabilities is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Postretirement benefits.................................. $ 31,965 $ 32,104
Nondeductible accruals................................... 48,696 57,193
Foreign operations....................................... 4,302 4,291
Other.................................................... 2,577 3,477
--------- ----------
Deferred tax assets................................... 87,540 97,065
--------- ----------
Property, plant and equipment............................ 43,817 48,716
Pensions................................................. 7,237 6,740
Inventory................................................ 3,123 2,756
Other.................................................... 1,088 3,005
--------- ----------
Deferred tax liabilities.............................. 55,265 61,217
--------- ----------
Valuation allowance...................................... 11,434 11,423
--------- ----------
Net deferred tax asset............................ $ 20,841 $ 24,425
========= ==========
</TABLE>
The Company has deferred tax assets related to foreign tax credits of
$11,434 and $11,423 at December 31, 1997 and 1998, respectively, against which a
full valuation allowance has been recorded. The Company reversed $1,426, $4,656
and $11 of previously recorded valuation allowances during 1996, 1997 and 1998,
respectively, primarily related to foreign tax credits that had expired.
-40-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
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,
---------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate................................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.................. 3.5 3.9 4.1
Tax effect of foreign operations............................ 5.1 3.1 (3.7)
Reversal of provision for disputed items.................... -- -- (33.3)
Depletion................................................... (5.3) (3.1) (4.1)
Other....................................................... 0.2 0.4 2.0
----- ----- -----
Total.................................................... 38.5% 39.3% 0.0%
===== ===== =====
</TABLE>
The Internal Revenue Service ("IRS") examinations of the Company's
federal income tax returns for 1990 and 1991 resulted in the issuance of a
deficiency notice during 1995. The Company filed an administrative appeal with
the IRS in 1995 contesting the items denoted in the deficiency notice. During
1998 the Company entered into a settlement agreement with the IRS settling all
items denoted in the original deficiency notice. The settlement agreement binds
the IRS for all years subsequent to 1989 on the items denoted in the original
deficiency notice. The Company recorded an income tax benefit of $19,527 in
connection with the reversal of amounts previously accrued in connection with
the deficiency notice settlement agreement.
NOTE 6 - PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
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 Company also maintains several plans providing postretirement
benefits covering substantially all hourly and certain salaried employees. The
Company funds these benefits on a pay-as-you-go basis. The long-term portion of
accrued postretirement benefit cost of $86,517 and $87,531 at December 31, 1997
and 1998, respectively, is included in other liabilities on the balance sheet.
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
DECEMBER 31, DECEMBER 31,
-----------------------------------------------------
UNITED STATES: 1996 1997 1998 1996 1997 1998
-------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Cost
Service Cost................................ $ 4,748 $ 5,217 $ 5,645 $ 1,455 $ 1,575 $ 1,568
Interest Cost............................... 13,125 13,873 14,935 3,587 3,896 4,046
Expected Return on Plan Assets.............. (12,241) (13,466) (15,156) -- -- --
Amortization of Net
Prior Service Cost.................... 841 843 910 (1,604) (1,604) (1,604)
(Gain)/Loss........................... 80 46 10 (757) (587) (628)
-------- -------- -------- -------- --------- ---------
Net Periodic Benefit Cost................... $ 6,553 $ 6,513 $ 6,344 $ 2,681 $ 3,280 $ 3,382
======== ======== ======== ======== ========= =========
</TABLE>
-41-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
DECEMBER 31, DECEMBER 31,
------------ ------------
UNITED STATES: 1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Prior Measurement Date............ $ 187,760 $ 203,495 $ 55,578 $ 57,522
Service Cost............................................ 5,217 5,533 1,575 1,568
Interest Cost........................................... 13,873 14,856 3,896 4,046
Actuarial (Gain)/Loss................................... 960 22,332 (1,800) (948)
Benefits Paid........................................... (9,077) (10,648) (2,318) (2,989)
Plan Amendments......................................... 699 -- -- --
Business Combinations................................... 4,063 1,333 591 --
----------- ------------ ---------- ----------
Benefit Obligation at Measurement Date.................. $ 203,495 $ 236,901 $ 57,522 $ 59,199
=========== ============ ========== ==========
Change in Plan Assets
Fair Value of Assets at Prior Measurement Date.......... $ 166,661 $ 193,301 $ -- $ --
Actual Return on Plan Assets............................ 29,122 17,124 -- --
Employer Contributions.................................. 2,470 3,065 2,318 2,989
Benefits Paid........................................... (9,077) (10,649) (2,318) (2,989)
Business Combinations................................... 4,125 1,147 -- --
----------- ------------ ---------- ----------
Fair Value of Assets at Measurement Date................ $ 193,301 $ 203,988 $ -- $ --
=========== ============ ========== ==========
Reconciliation of Funded Status
Funded Status........................................... $ (10,194) $ (32,913) $ (57,522) $(59,199)
Unrecognized Net
Transition (Asset)/Obligation..................... -- 13 -- --
Prior Service Cost................................ 7,091 6,178 (11,104) (9,500)
(Gain)/Loss....................................... (23,796) (3,540) (8,309) (8,629)
----------- ------------ ---------- ----------
Net Amount Recognized................................... $ (26,899) $ (30,262) $ (76,935) $ (77,328)
=========== ============ ========== ==========
</TABLE>
The assumptions used in accounting for the plans in 1996, 1997 and 1998
were:
<TABLE>
<CAPTION>
PENSION PLANS
-------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Discount rate ................................................... 7 1/2% 7 1/2% 6 3/4%
Long-term rate of return on assets............................... 9% 9% 9%
Average rate of increase in employee compensation................ 5% 5% 5%
</TABLE>
The assumption used in accounting for the medical plans in 1998 was an
8 percent health care cost trend rate (decreasing to 6 3/4 percent in the year
2001 and beyond). A one percent increase in the health care trend rate would
increase the accumulated postretirement benefit obligation by $3,881 at year end
1998 and the net periodic cost by $330 for the year. A one percent decrease in
the health care trend rate would decrease the accumulated postretirement benefit
obligation by $4,206 at year end 1998 and the net periodic cost by $357 for the
year.
-42-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The assumption used in accounting for the plans in 1997 was a 10
percent health care cost trend rate (decreasing to 7 1/2 percent in the year
2000 and beyond).
The dates used to measure plan assets and liabilities were October 31,
1997 and 1998 for all plans. Pension plan assets are invested primarily in
stocks, bonds, short-term securities and cash equivalents.
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
DECEMBER 31, DECEMBER 31,
------------ ------------
CANADA: 1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Cost
Service Cost................................ $ 1,494 $ 1,352 $ 1,463 $ 310 $ 302 $ 332
Interest Cost............................... 3,727 3,868 3,789 864 1,032 1,014
Expected Return on Plan Assets.............. (4,662) (4,877) (4,881) -- -- --
Amortization of Net
Prior Service Cost.................... 92 90 84 -- -- --
(Gain)/Loss........................... 467 432 458 -- -- --
-------- -------- -------- -------- --------- ---------
Net Periodic Benefit Cost................... $ 1,118 $ 865 $ 913 $ 1,174 $ 1,334 $ 1,346
======== ======== ======== ======== ========= =========
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
DECEMBER 31, DECEMBER 31,
------------ ------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Prior Measurement Date............ $ 50,714 $ 55,493 $ 13,297 $ 14,631
Service Cost............................................ 1,349 1,457 302 330
Interest Cost........................................... 3,857 3,773 1,029 1,010
Actuarial (Gain)/Loss................................... 3,977 5,823 592 (934)
Foreign Currency Translation............................ (899) (3,701) (235) (977)
Benefits Paid........................................... (3,505) (3,240) (354) (370)
--------- ----------- ---------- ----------
Benefit Obligation at Measurement Date.................. $ 55,493 $ 59,605 $ 14,631 $ 13,690
========= =========== ========== ==========
Change in Plan Assets
Fair Value of Assets at Prior Measurement Date.......... $ 59,940 $ 66,181 $ -- $ --
Actual Return on Plan Assets............................ 10,611 2,633 -- --
Employer Contributions.................................. 1,085 1,643 370 354
Foreign Currency Translation............................ (1,950) (4,412) -- --
Benefits Paid........................................... (3,505) (3,240) (370) (354)
---------- ----------- ---------- ---------
Fair Value of Assets at Measurement Date................ $ 66,181 $ 62,805 $ -- $ --
========== =========== ========== =========
Reconciliation of Funded Status
Funded Status........................................... $ 11,576 $ 3,201 $ (14,631) $ (13,691)
Unrecognized Net
Prior Service Cost................................ 834 695 -- --
(Gain)/Loss....................................... 6,392 13,560 1,340 316
---------- ----------- ---------- ---------
Net Amount Recognized................................... $ 18,802 $ 17,456 $ (13,291) $ (13,375)
========== =========== ========== =========
</TABLE>
-43-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The prepaid pension cost related to the Canadian plans is included in
other assets on the balance sheet.
The assumptions used in accounting for the plans in 1996, 1997 and 1998
were
<TABLE>
<CAPTION>
PENSION PLANS
-------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Estimated discount rate ...................................... 8% 7 1/2% 6 3/4%
Estimated long-term rate of return on assets.................. 9% 9% 9%
Average rate of increase in employee compensation............. 5 1/4% 5 1/4% 5 1/4%
</TABLE>
The assumption used in accounting for the medical plans in 1998 was an
8.4 percent health care cost trend rate (decreasing to 6 percent in the year
2003 and beyond). A one percent increase in the health care trend rate would
increase the accumulated postretirement benefit obligation by $2,803 at year end
1998 and the net periodic cost by $289 for the year. A one percent decrease in
the health care trend rate would decrease the accumulated postretirement benefit
obligation by $2,209 at year end 1998 and the net periodic cost by $223 for the
year.
The assumption used in accounting for the plans in 1997 was a 10
percent health care cost trend rate (decreasing to 7 1/2 percent in the year
2003 and beyond).
The dates used to measure plan assets and liabilities were October 31, 1997
and 1998 for all plans. Plan assets are invested primarily in stocks, bonds,
short-term securities and cash equivalents.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Future minimum rental payments for operating leases (primarily for
transportation equipment, offices and warehouses) having initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1999............................................... $ 14,750
2000............................................... 7,652
2001............................................... 2,538
2002............................................... 2,200
2003 and thereafter................................ 2,096
----------
$ 29,236
===========
</TABLE>
Rental expense for the years ended December 31, 1996, 1997 and 1998 was
$15,414, $17,393, and $19,545, respectively.
-44-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Parent Guaranty and Transfer Agreement. A restated parent guaranty and
transfer agreement between New Hampshire Oak, a wholly owned subsidiary of GCG
and the parent of General Chemical Corporation ("GCC"), 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 GCC, the 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 GCC while
GCC is a partner, GCC shall pay to The Andover Group, Inc. $2,833.
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 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 $16,244 and $20,116 at December 31, 1997 and 1998,
respectively. These amounts do not include estimated third-party recoveries nor
have they been discounted.
Avtex Site at Front Royal, Virginia. On March 22, 1990, the EPA issued
to the Company a Notice of Potential Liability pursuant to Section 107(a) of
CERCLA (the "Notice") with respect to a site located in Front Royal, Virginia
(the "Avtex Site"), owned at the time by Avtex Fibers Front Royal, Inc., which
has filed for bankruptcy. A sulfuric acid plant adjacent to the main Avtex Site
was previously owned and operated by the Company. On September 30, 1998, the 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 the EPA
written notice of its intention to comply with the Order, subject to numerous
defenses. The requirements of the Order include preparation of a study to
determine the extent of any contamination at the acid plant site. The Company
has provided for the estimated costs of $1.6 million for these activities in its
accrual for environmental liabilities relating to the Order. The Company is
working cooperatively with the EPA with respect to compliance with the Order and
believes that such compliance will not have a material effect on the Company's
results of operations or financial condition.
-45-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
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
MANAGEMENT AGREEMENT
The Company is party to a management agreement with Latona Associates
(which is controlled by a stockholder of the Company) under which the Company
receives corporate supervisory and administrative services and strategic
guidance for a quarterly fee of $1,400, $1,460 and $1,480 in 1996, 1997 and
1998, respectively. In addition, in connection with any acquisition or business
combination with respect to which Latona Associates advises the Company, the
Company has agreed to pay Latona Associates additional fees comparable with fees
received by investment banking firms for such services. During 1998, the Company
paid Latona $500 in connection with the acquisition of Reheis. This agreement
expires on December 31, 2004.
NOTE 9 - ADDITIONAL FINANCIAL INFORMATION
The following are summaries of selected balance sheet items:
<TABLE>
<CAPTION>
Receivables
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Trade......................................................... $ 120,385 $ 117,667
Other......................................................... 8,577 7,938
Allowance for doubtful accounts............................... (6,242) (6,384)
---------- -----------
$ 122,720 $ 119,221
========== ===========
<CAPTION>
Inventories
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Raw materials................................................. $ 10,875 $ 14,875
Work in process............................................... 3,295 7,888
Finished products............................................. 21,209 29,003
Supplies and containers....................................... 10,579 11,361
---------- -----------
$ 45,958 $ 63,127
========== ===========
</TABLE>
Inventories valued at LIFO amounted to $19,310 and $26,974 at December
31, 1997 and 1998, respectively, which were below estimated replacement cost by
$2,578 and $2,741, respectively. The impact of LIFO liquidations in 1996, 1997
and 1998 was not significant.
-46-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Property, Plant and Equipment DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Land and improvements......................................... $ 40,800 $ 46,134
Machinery and equipment....................................... 387,403 439,309
Buildings and leasehold improvements.......................... 48,244 56,404
Construction in progress...................................... 17,524 24,378
Mines and quarries............................................ 13,658 14,395
----------- -----------
507,629 580,620
Less accumulated depreciation and amortization................ (203,440) (242,286)
----------- -----------
$ 304,189 $ 338,334
=========== ===========
<CAPTION>
Accrued Liabilities
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Wages, salaries and benefits.................................. $ 24,317 $ 28,680
Interest...................................................... 5,387 1,061
Taxes, other than income taxes................................ 10,871 10,894
Other......................................................... 32,683 36,476
----------- -----------
$ 73,258 $ 77,111
=========== ===========
</TABLE>
NOTE 10 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MATURITIES DECEMBER 31, DECEMBER 31,
---------- ------------ ------------
1997 1998
---- ----
<S> <C> <C> <C>
Bank Term Loan A - floating rate................. 2000-2004 $ -- $ 100,000
Bank Term Loan B - floating rate................. 1999-2006 -- 199,000
Bank Term Loan - floating rate................... 1999-2001 65,217 --
Senior Subordinated Notes - 9.25%................ 2003 100,000 --
Canada Senior Notes - 9.09%...................... 1999 50,787 48,269
$130,000 U.S. Revolving Credit Facility -
floating rate................................... 42,000 --
General Chemical Canada Limited
Revolving Credit Facility - floating rate....... 2000 -- 3,877
Other Debt - floating rate....................... -- 6,385
----------- -----------
Total Debt................................... 258,004 357,531
Less: Current Portion....................... 17,392 50,802
----------- -----------
Net Long-Term Debt........................... $ 240,612 $ 306,729
=========== ===========
</TABLE>
Aggregate maturities of long-term debt for each of the years in the
five year period ending December 31, 2003 are $50,802, $11,780, $19,700, $13,250
and $23,250.
-47-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
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. The rate in effect at
December 31, 1998 for Term Loan A and Term Loan B was 6.25 percent and 7.25
percent, respectively. 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.
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.
Commitment fees paid for the abovementioned facilities were $414, $274,
and $446 for 1996, 1997 and 1998, respectively.
NOTE 11 - STOCK OPTION PLAN AND RESTRICTED UNIT PLAN
The Company's 1996 Stock Option and Incentive Plan (the "Plan") provides
for the issuance of up to 2,200,000 shares of Common Stock. The Plan authorizes
the granting of incentive and nonqualified stock options, stock appreciation
rights, restricted and unrestricted stock and performance share awards to
executives, directors and other key persons. Any incentive stock options granted
under the Plan must have an exercise price at least equal to the market value of
the shares on the day the option is granted and a maximum term of 10 years.
Information with respect to all stock options is summarized below:
<TABLE>
<CAPTION>
AVERAGE OPTION
SHARES PRICE PER SHARE
------ ---------------
<S> <C> <C>
Options Outstanding at December 31, 1995.................. -- $ --
Options Granted.................................. 1,281,000 17.66
Options Exercised................................ -- --
Options Forfeited................................ 10,000 17.50
------------
Options Outstanding at December 31, 1996.................. 1,271,000 17.66
Options Granted.................................. 100,000 22.70
Options Exercised................................ -- --
Options Forfeited................................ 29,800 18.23
------------
Options Outstanding at December 31, 1997.................. 1,341,200 18.02
Options Granted.................................. 398,500 23.72
Options Exercised................................ 25,200 17.67
Options Forfeited................................ 35,000 18.24
------------
Options Outstanding at December 31, 1998.................. 1,679,500 $ 19.37
============
</TABLE>
-48-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company applies APB Opinion 25 in accounting for the Plan. Had
compensation cost for this plan been determined under FASB Statement No. 123,
the Company's net income for 1996 would have been reduced to $45,623 with basic
earnings per common share of $2.14 and diluted earnings per share of $2.08. Net
income for 1997 would have been reduced to $55,140 with basic earnings per
common share of $2.57 and diluted earnings per share of $2.45. Net income for
1998 would have been reduced to $45,857 with basic earnings per common share of
$2.18 and diluted earnings per share of $2.10. For purposes of this calculation,
the fair value of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions used for 1996,
1997 and 1998, respectively: dividend yield of 1.0 percent, 0.7 percent and 1.5
percent, respectively; expected volatility of 27 percent, 41 percent and 42
percent, respectively; weighted average risk free interest rate of 6.42 percent,
5.50 percent and 4.65 percent, respectively; and, weighted average expected
lives of six years. All options granted to date under the stock option plan have
an exercise price equal to the market price of the Company's stock on the grant
date.
The Company's Restricted Unit Plan provides for the issuance of
850,000 units, with each unit representing one share of Common Stock to be
issued to the participant upon the occurrence of certain conditions ("vesting")
unless the participant elects to defer receipt thereof. All awards are subject
to a five year vesting schedule under which a portion of each participant's
award vests annually over a five year period. Dividend equivalents on
outstanding units accrue to the benefit of the participants and are paid at the
time dividends are paid to Common Stock shareholders. These units were awarded
during the second quarter of 1996 in replacement of the rights earned by
participants beginning in 1989 under the Phantom Equity Plan and certain other
prior equity programs of the Company which were then terminated. The Company
recorded a charge to income of $11,319, $1,302 and $1,309 for 1996, 1997 and
1998, respectively, with a contra credit to capital deficit.
NOTE 12 - 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>
NOTIONAL INTEREST RATE
-------- -------------
DECEMBER 31, AMOUNT MATURITIES RECEIVE(1) PAY(2)
------------ ------ ---------- ---------- -----
<S> <C> <C> <C> <C>
1997................... $ 75,000 1998-1999 5.8% 6.8%
1998................... 100,000 1999-2006 5.6% 6.6%
</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 began in 1998 and matures in 2002,
which has a notional amount of $30,000 and a fixed payment rate of 6.6 percent.
-49-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
At December 31, 1998, 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 percent Senior Notes. The agreement, which matures in
1999, provides for the payment of 48,400 Canadian dollars at a fixed rate of
7.54 percent in exchange for the receipt of 35,000 U.S. dollars at a fixed rate
of 9.09 percent. 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt............................... $ 258,004 $ 262,918 $ 357,531 $ 357,737
Unrealized gain (loss) on swap
agreements................................. $ -- $ 521 $ -- $ 309
</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.
NOTE 13 - GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies.
Geographic area information is summarized as follows:
<TABLE>
<CAPTION>
IDENTIFIABLE
TOTAL REVENUES OPERATING PROFIT ASSETS
----------------------------------- ----------------------------------- ----------------------
1996 1997 1998 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States (1)..... $ 544,029 $ 574,060 $ 615,325 $ 106,548 $ 118,474 $ 81,585 $ 461,267 $ 589,371
Foreign (2)........... 128,345 121,762 119,469 22,668 18,618 12,633 100,370 115,564
Elimination (3)....... (48,715) (42,845) (34,731) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 623,659 $ 652,977 $ 700,063 $ 129,216 $ 137,092 $ 94,218 $ 561,637 $ 704,935
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
- ----------
(1) Includes export sales of $71,413, $79,462 and $65,624 for the years ended
December 31, 1996, 1997 and 1998, respectively.
(2) Principally Canada.
(3) Sales between geographic areas are recorded at prices comparable to market
prices charged to third-party customers and are eliminated in
consolidation.
-50-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
Industry segment information is summarized as follows:
<TABLE>
<CAPTION>
TOTAL REVENUES OPERATING PROFIT
--------------------------------------- ------------------------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Industrial Chemicals................ $ 298,945 $ 289,700 $ 261,469 $ 80,493 $ 69,566 $ 42,497
Performance Products................ 240,895 260,351 315,787 43,202 48,292 25,711 (1)
Manufacturing....................... 89,225 108,165 128,132 12,472 23,531 30,649
----------- ----------- ----------- ---------- ---------- ----------
Total Segment.................. 629,065 658,216 705,388 136,167 141,389 98,857
Eliminations and Other.............. (5,406) (5,239) (5,325) -- -- --
Corporate Expenses.................. -- -- -- (6,951) (4,297) (4,639)
----------- ----------- ----------- ---------- ---------- ----------
Consolidated........................ $ 623,659 $ 652,977 $ 700,063 129,216 137,092 94,218
=========== =========== ===========
Interest Expense.................... 23,748 21,602 26,371
Other (income) expenses, net........ (1,898) (1,423) (175)
Minority interest................... 31,635 24,253 16,666
---------- ---------- ----------
Consolidated income
before income taxes................ $ 75,731 $ 92,660 $ 51,356
========== ========== ==========
</TABLE>
(1) Includes a one time charge of $12.9 million due primarily to asset
impairment writedowns at two of the Company's manufacturing facilities and
incremental accruals of $11.3 million principally related to litigation
and environmental spending.
Net revenues by operating segment include intersegment sales, which are
generally recorded at prices comparable to market prices charged to third-party
customers. Other income, net includes interest income, foreign currency
translation (gains) losses and other nonoperating expense.
<TABLE>
<CAPTION>
DEPRECIATION
CAPITAL EXPENDITURES AND AMORTIZATION
-------------------- ----------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Industrial Chemicals................ $ 34,934 $ 30,468 $ 18,498 $ 15,646 $ 16,798 $ 16,999
Performance Products................ 17,612 23,563 24,260 11,332 13,688 19,763
Manufacturing....................... 1,619 2,640 9,477 2,767 2,608 3,302
---------- ---------- ---------- ---------- ---------- ----------
Consolidated........................ $ 54,165 $ 56,671 $ 52,235 $ 29,745 $ 33,094 $ 40,064
=========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
-------------------
1997 1998
---- ----
<S> <C> <C>
Industrial Chemicals................ $ 266,707 $ 291,500
Performance Products................ 235,230 332,388
Manufacturing....................... 56,586 78,267
Corporate........................... 3,114 2,780
----------- ----------
Consolidated........................ $ 561,637 $ 704,935
=========== ==========
</TABLE>
-51-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Note 14 - Unaudited Quarterly Information
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Net revenues.................................. $ 149,566 $ 164,957 $ 169,842 $ 168,612 $ 652,977
Gross profit.................................. 45,202 54,642 52,395 49,296 201,535
Net income ................................... 11,714 17,258 15,102 12,241 56,315
Earnings per common share:
Basic...................................... .53 .81 .72 .58 2.63
Diluted.................................... .50 .77 .68 .55 2.50
<CAPTION>
1998
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Net revenues.................................. $ 161,469 $ 188,066 $ 175,495 $ 175,033 $ 700,063
Gross profit.................................. 42,035 53,093 46,344 34,952 176,424
Income before extraordinary item.............. 9,861 14,686 11,766 15,055 51,368
Net income ................................... 9,861 11,025 (1) 11,766 15,055 (2) 47,707
Earnings per common share - basic:
Income before extraordinary item........... .47 .69 .56 .72 2.44
Extraordinary item - loss on
extinguishment of debt (net of tax)....... -- .17 -- -- .17
----------- ----------- ----------- ----------- -----------
Net income........................... .47 .52 .56 .72 2.27
Earnings per common share -
assuming dilution:...........................
Income before extraordinary item........... .45 .67 .54 .69 2.35
Extraordinary item - loss from
extinguishment of debt (net of tax)....... -- .17 -- -- .17
----------- ----------- ----------- ------------ -----------
Net income........................... .45 .50 .54 .69 2.18
</TABLE>
Note: Basic earnings per common share calculations are based on the weighted
average number of shares outstanding during each of the quarters.
Diluted earnings per common share assume the foregoing and, in
addition, the exercise of all stock options and restricted units. The
sum of the four quarters may not equal the full year computation due to
rounding.
(1) In the second quarter of 1998, the Company recorded an extraordinary
loss of $3.7 million ($.17 per share) related to the early retirement of
certain outstanding indebtedness.
(2) During the fourth quarter of 1998, the Company recorded a one-time
charge of $12.9 million ($7.8 million after tax or $.36 per share)
primarily due to an asset impairment writedown for two of the Company's
manufacturing facilities and incremental accruals of $11.3 million ($6.8
million after tax or $.31 per share) principally related to litigation
and environmental spending. During the fourth quarter of 1998, the
Company also recorded a non-recurring gain of $19.5 million ($.89 per
share) related to an income tax settlement.
-52-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
(DOLLARS IN THOUSANDS)
NOTE 15 - SUBSEQUENT EVENTS
In January 1999, the Company announced plans to separate its
Performance Products and Manufacturing Segments from its Industrial Chemicals
Segment through a spinoff (the "Spinoff"). The Company proposes to accomplish
the Spinoff by transferring the Performance Products and Manufacturing Segments
to its subsidiary, GenTek Inc. ("GenTek"), and distributing the stock of GenTek
to shareholders of General Chemical Group. After the Spinoff, the Company and
GenTek would be separate, independent companies; the Company would own and
operate the Industrial Chemicals Segment, and GenTek would own and operate the
Performance Products Segment and the Manufacturing Segment. As a result, the
Company's activities and operations will be significantly different following
the Spinoff. Certain members of the Board of Directors of the Company will
resign and be elected as directors of GenTek as of the Spinoff. In addition, the
senior management of GenTek will include the effective officers of General
Chemical Group currently responsible for the GenTek Business.
The Company currently anticipates that the consummation of the Spinoff
will occur in the second quarter of 1999. The Spinoff, however, is subject to a
number of conditions, including, among other things, (i) the receipt of a
favorable private letter ruling from the Internal Revenue Service concerning the
tax-free nature of the Spinoff, (ii) appropriate equity and debt market
conditions for the Spinoff, (iii) various regulatory approvals, (iv) closing
under new financing facilities for each of GenTek and the Company and the
application of a portion of their proceeds to repay debt of the Company, and (v)
approval by the Board of the Company of the final terms of the Spinoff,
including the formal declaration of a dividend to the Company's shareholders.
On February 23, 1999, the Company completed its previously-announced
acquisition of Defiance, Inc. ("Defiance") in a transaction that valued
Defiance's equity at approximately $57 million. Defiance, headquartered in
Cleveland, Ohio, manufactures specialty antifriction bearings and provides
vehicle testing services, tooling design and pre-production dies and components
primarily for the automotive industry. Funding for this transaction will be
provided by existing cash and borrowings on the Company's credit facilities. The
Company will account for this transaction using the purchase method.
On March 1, 1999, the Company announced an offer to acquire all of the
outstanding common stock of Noma Industries Limited ("Noma") in a transaction
that values Noma's equity at approximately U.S. $220 million. Noma is
headquartered in Toronto, Canada, and is a leading manufacturer of electrical
wire and components for the automotive, appliance and electronics industries.
Funding for this transaction will be provided from the Company's existing bank
credit facilities.
-53-
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-54-
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors. For information relating to the Company's Directors, see the
information contained under the caption "Election of Directors-Board of Director
Nominees" in the Company's definitive 1998 Proxy Statement (the "Proxy
Statement"), which information is hereby incorporated by reference.
Executive Officers. For information relating to the Company's executive
officers, see the information contained under the caption "Executive Officers
and Key Employees" in Part I of this report.
Compliance with Section 16(a) of the Exchange Act. For information
relating to the Company's compliance with Section 16(a) of the Exchange Act, see
the information contained under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement, which information is
hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation. For information relating to the compensation of
the Company's executives, see the information contained under the caption
"Compensation of Executive Offices and Key Employees" and "Election of
Directors-Compensation of Directors" in the Company's Proxy Statement, which
information is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners. For information
relating to the beneficial ownership of more than five percent of the Company's
Common stock and Class B Common Stock, see the information contained under the
caption "Principal Stockholders" in the Company's Proxy Statement, which
information is hereby incorporated by reference.
Security Ownership of Management. For information relating to the
beneficial ownership of the Company's Common Stock and Class B Common Stock by
Management, see the information contained under the caption "Management
Stockholders" in the Company's Proxy Statement, which information is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Transactions. For information
relating to certain relationships and related transactions of the Company, see
the information contained under the caption "Certain Relationships and
Transactions" in the Company's Proxy Statement, which information is hereby
incorporated by reference.
-55-
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-- -----------
<S> <C>
***2.0 -- Form 10, for Registration of Securities relating to Registration of GenTek, Inc.
**3.1 -- Amended and Restated Certificate of Incorporation of the Company
**3.2 -- Amended and Restated By-Laws of the Company
**4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value, of the
Company
*10.1 -- Agreement dated as of March 15, 1996 between Paul M. Montrone and the
Company
**10.2 -- Amended and Restated Management Agreement effective as of
January 1, 1995 between the Company and Latona Associates, Inc.
'D'10.4 -- Restated Environmental Matters Agreement among Allied-Signal,
Henley, The Wheelabrator Group Inc., New Hampshire Oak, Inc., and
Fisher Scientific Group Inc., dated as of February 26, 1986, as
amended and restated as of July 28, 1989
'D'10.5 -- Second Amended and Restated Partnership Agreement of GCSAP
dated June 30, 1992, among General Chemical, The Andover Group,
Inc., and TOSOH Wyoming, Inc.
'D'10.6 -- Amended and Restated Parent Guaranty and Transfer Agreement
dated June 30, 1992, among New Hampshire Oak, Inc., ACI
International Limited and TOSOH America, Inc.
**10.7 -- The General Chemical Group Inc. Deferred Compensation Plan for Non-
Employee Directors
**10.8 -- The General Chemical Group Inc. Retirement Plan for Non-Employee Directors
**10.9 -- The General Chemical Group Inc. Restricted Unit Plan for Non-Employee
Directors
**10.10 -- The General Chemical Group Inc. 1996 Stock Option and Incentive Plan
**10.11 -- The General Chemical Group Inc. Performance Plan
**10.12 -- The General Chemical Group Inc. Restricted Unit Plan
'D''D'10.13 -- First Amendment to General Chemical Corporation Equity Program, effective
as of October 1, 1993.
**10.14 -- General Chemical Group Dividend Award Program, as amended December 15, 1995,
effective as of October 1, 1993
**10.15 -- General Chemical Corporation Supplemental Savings and Retirement
Plan
**10.22 -- Note Agreement dated as of April 1, 1992, among GC Canada and certain
noteholders, with respect to the 9.09% Senior Notes due 1999 in aggregate
principal amount of $52 million
'D'10.23 -- 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 "Canada Revolver")
**10.24 -- First Amendment to Canada Revolver
**10.29 -- Stockholder Agreement among the Company, the GRAT, Paul M. Montrone
and Sandra G. Montrone, dated as of April 15, 1996
**10.30 -- Stockholder Agreement between the Company and Stonor, dated as of May 15, 1996
</TABLE>
-56-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-- -----------
<S> <C>
***10.31 -- Credit Agreement, dated as of June 15, 1998, among the Company, Bank of
America National Trust and Savings Association, as Documentation Agent,
The Bank of Nova Scotia, as Syndication Agent and The Chase Manhattan
Bank, as Administrative Agent.
**22 -- Subsidiaries of the Company
27 -- Financial Data Schedule
</TABLE>
- ---------------
** Incorporated by reference to the relevant exhibit to the Company's
Registration Statement filed with the Securities and Exchange
Commission (the "SEC") on May 3, 1996, File No. 33-83766.
*** Incorporated by reference to the relevant exhibit to GenTek's
Registration Statement on Form 10 (File No. 007-14789) with the
Securities and Exchange Commission on January 27, 1999.
'D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation'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 General Chemical
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 filed with the SEC.
FINANCIAL STATEMENTS
See Item 8, beginning on page 31.
FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statement Schedule on page 59.
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.
-57-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hampton, State of New
Hampshire on the 15th day of March 1999.
THE GENERAL CHEMICAL GROUP INC.
By: /s/ WILLIAM C. KEIGHTLEY
--------------------------------------------
WILLIAM C. KEIGHTLEY
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
March 15, 1999
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>
<S> <C> <C>
/s/ PAUL M. MONTRONE Chairman of the Board and Director March 15, 1999
- ------------------------------------
PAUL M. MONTRONE
/s/ RICHARD R. RUSSELL President, Chief Executive March 15, 1999
- ------------------------------------ Officer (Principal Executive
RICHARD R. RUSSELL Officer) and Director
/s/ WILLIAM C. KEIGHTLEY Vice President and Chief Financial March 15, 1999
- ------------------------------------ Officer (Principal Financial and
WILLIAM C. KEIGHTLEY Accounting Officer)
/s/ PHILIP E. BEEKMAN Director March 15, 1999
- ------------------------------------
PHILIP E. BEEKMAN
/s/ JOHN W. GILDEA Director March 15, 1999
- ------------------------------------
JOHN W. GILDEA
/s/ GERALD J. LEWIS Director March 15, 1999
- ------------------------------------
GERALD J. LEWIS
/s/ PAUL M. MEISTER Director March 15, 1999
- ------------------------------------
PAUL M. MEISTER
/s/ SCOTT M. SPERLING Director March 15, 1999
- ------------------------------------
SCOTT M. SPERLING
/s/ IRA STEPANIAN Director March 15, 1999
- ------------------------------------
IRA STEPANIAN
</TABLE>
-58-
<PAGE>
<PAGE>
THE GENERAL CHEMICAL GROUP INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts ..........................60
</TABLE>
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 notes thereto.
-59-
<PAGE>
<PAGE>
SCHEDULE II
THE GENERAL CHEMICAL GROUP INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
TRANSLATION
BALANCE AT ADDITIONS DEDUCTIONS ADJUSTMENT BALANCE AT
BEGINNING CHARGED TO FROM DURING END OF
OF PERIOD INCOME RESERVES PERIOD PERIOD
--------- ------ -------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts........... $ 5,674 $ 174 $ (481) $ -- $ 5,367
Year ended December 31, 1997
Allowance for doubtful accounts........... $ 5,367 $ 890 $ 8 $ (23) $ 6,242
Year ended December 31, 1998
Allowance for doubtful accounts........... $ 6,242 $ 587 $ (411) $ (34) $ 6,384
</TABLE>
-60-
<PAGE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
--- ----------- ----
<S> <C> <C>
***2.0 -- Form 10, for Registration of Securities relating to Registration of GenTek, Inc.
**3.1 -- Amended and Restated Certificate of Incorporation of the Company
**3.2 -- Amended and Restated By-Laws of the Company --
**4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value, of the
Company --
**10.1 -- Agreement dated as of March 15, 1996 between Paul M. Montrone and the
Company --
**10.2 -- Amended and Restated Management Agreement effective as of January 1, 1995
between the Company and Latona Associates, Inc. --
'D'10.4 -- Restated Environmental Matters Agreement among Allied-Signal, Henley, The
Wheelabrator Group Inc., New Hampshire Oak, Inc., and Fisher Scientific
Group Inc., dated as of February 26, 1986, as amended and restated as of July
28, 1989 --
'D'10.5 -- Second Amended and Restated Partnership Agreement of GCSAP dated June
30, 1992, among General Chemical, The Andover Group, Inc., and TOSOH
Wyoming, Inc. --
'D'10.6 -- Amended and Restated Parent Guaranty and Transfer Agreement dated June 30,
1992, among New Hampshire Oak, Inc., ACI International Limited and
TOSOH America, Inc. --
**10.7 -- The General Chemical Group Inc. Deferred Compensation Plan for Non-
Employee Directors --
**10.8 -- The General Chemical Group Inc. Retirement Plan for Non-Employee
Directors --
**10.9 -- The General Chemical Group Inc. Restricted Unit Plan for Non-Employee
Directors --
**10.10 -- The General Chemical Group Inc. 1996 Stock Option and Incentive Plan --
**10.11 -- The General Chemical Group Inc. Performance Plan --
**10.12 -- The General Chemical Group Inc. Restricted Unit Plan --
'D''D'10.13 -- First Amendment to General Chemical Corporation Equity Program, effective
as of October 1,1993.
**10.14 -- General Chemical Group Dividend Award Program, as amended December 15,
1995, effective as of October 1, 1993 --
**10.15 -- General Chemical Corporation Supplemental Savings and Retirement Plan --
'D'10.16 -- Indenture dated as of August 15, 1993 between General Chemical and
Continental Bank, National Association, as trustee, with respect to the Senior
Subordinated Notes --
**10.22 -- Note Agreement dated as of April 1, 1992, among GC Canada and certain
noteholders, with respect to the 9.09% Senior Notes due 1999 in aggregate
principal amount of $52 million --
'D'10.23 -- 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 "Canada Revolver") --
**10.24 -- First Amendment to Canada Revolver --
</TABLE>
-61-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
--- ----------- ----
<S> <C> <C>
**10.29 -- Stockholder Agreement among the Company, the GRAT, Paul M. Montrone
and Sandra Montrone, dated April 15, 1996
**10.30 -- Stockholder Agreement between the Company and Stonor, dated May 15,
1996
***10.31 -- Credit Agreement, dated as of June 15, 1998, among the Company, Bank of
America National Trust and Savings Association, as Documentation Agent, The
Bank of Nova Scotia, as Syndication Agent and The Chase Manhattan Bank, as
Administrative Agent.
**22 -- Subsidiaries of the Company
27 -- Financial Data Schedule 63
</TABLE>
- ----------
** Incorporated by reference to the relevant exhibit to the Company's
Registration Statement filed with the Securities and Exchange
Commission (the "SEC") on May 3, 1996, File No. 33-83766.
*** Incorporated by reference to the relevant exhibit to GenTek's
Registration Statement on Form 10 (File No. 007-14789) with the
Securities and Exchange Commission on January 27, 1999.
'D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation'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 General Chemical
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 filed with the Securities and Exchange Commission.
-62-
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, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 12-MOS
<CASH> 62,437
<SECURITIES> 0
<RECEIVABLES> 125,605
<ALLOWANCES> 6,384
<INVENTORY> 63,127
<CURRENT-ASSETS> 263,156
<PP&E> 580,620
<DEPRECIATION> 242,286
<TOTAL-ASSETS> 704,935
<CURRENT-LIABILITIES> 205,972
<BONDS> 306,729
0
0
<COMMON> 224
<OTHER-SE> (54,920)
<TOTAL-LIABILITY-AND-EQUITY> 704,935
<SALES> 700,063
<TOTAL-REVENUES> 700,063
<CGS> 523,639
<TOTAL-COSTS> 523,639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 587
<INTEREST-EXPENSE> 26,371
<INCOME-PRETAX> 51,356
<INCOME-TAX> (12)
<INCOME-CONTINUING> 51,368
<DISCONTINUED> 0
<EXTRAORDINARY> (3,661)
<CHANGES> 0
<NET-INCOME> 47,707
<EPS-PRIMARY> 2.27
<EPS-DILUTED> 2.18
</TABLE>
