10-Q 1 a31175.txt GENERAL CHEMICAL INDUSTRIAL PRODUCTS 10-Q =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) -------- OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) -------- OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 1-13404 GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. (Exact name of Registrant as specified in its charter) Delaware 22-3649282 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Liberty Lane Hampton, New Hampshire 03842 (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (603) 929-2606 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ =============================================================================== GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. FORM 10-Q QUARTERLY PERIOD ENDED JUNE 30, 2001 INDEX

Part I. Financial Information Item 1. Financial Statements GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited)

See the accompanying notes to consolidated financial statements. -1- GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)

See the accompanying notes to consolidated financial statements. -2- GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)

See the accompanying notes to consolidated financial statements. -3- GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended June 30, 2001 (Dollars in thousands) (unaudited) Note 1 - Basis of Presentation General Chemical Industrial Products Inc. ("GCIP" or the "Company") is a leading North American supplier of soda ash and calcium chloride to a broad range of industrial and municipal customers. The primary end markets for soda ash include glass production, sodium-based chemicals, powdered detergents, water treatment and other industrial end uses. Calcium chloride is mainly used for dust control and roadbed stabilization during the summer and melting ice during the winter. The accompanying unaudited consolidated financial statements include the accounts of GCIP and its subsidiaries (collectively, the "Company"). These unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements do not include certain information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The Company's financial statements should be read in conjunction with the financial statements and the notes thereto for the year ended December 31, 2000 included in the Form 10-K. In July 2001, the Financial Accounting Standards Board ("FASB"), issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets". Statement No. 141 requires that all business combinations initiated after June 30, 2001, be accounted for using the purchase method of accounting. In addition, it further clarifies the criteria for recognition of intangible assets separately from goodwill. Statement No. 142 establishes new standards for goodwill acquired in a business combination and eliminates the amortization of goodwill over its estimated useful life. Rather, goodwill will now be tested for impairment annually, or more frequently if circumstances indicate potential impairment, by applying a fair value based test. The Company expects to adopt this statement during the first quarter of fiscal 2002. Management does not believe that the adoption of these standards will have a material impact on the Company's financial position or results of operations. Certain prior-period amounts have been reclassified to conform with the current-year presentation. Note 2 - Comprehensive Loss Total comprehensive loss is comprised of net loss and foreign currency translation gains and (losses). Total comprehensive loss for the six months ended June 30, 2000 and 2001 was ($1,289) and ($8,672), respectively. -4- GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the three and six months ended June 30, 2001 (Dollars in thousands) (unaudited) Note 3 - Additional Financial Information The components of inventories were as follows:

Note 4 - Restructuring In the fourth quarter of 2000, the Company recorded a pretax restructuring charge, including related asset writedowns and workforce reductions, of $59.8 million. The restructuring involves the idling of the Company's synthetic soda ash production capacity in Amherstburg, Ontario, Canada. The balance of the restructuring accrual at December 31, 2000 was $16.1 million. Spending against this accrual was $4.9 million during the six months ended June 30, 2001. In the second quarter of 2001, the Company provided for additional pretax restructuring charges of $1.7 million for revised actuarial estimates of employee termination benefits. Note 5 - Capital Contribution On May 14, 2001, The General Chemical Group Inc. ("GCG") raised $10.0 million of equity through a rights offering in which the shareholders of GCG received rights to subscribe for and purchase newly issued shares of GCG's common stock. The proceeds to GCG were contributed to the Company and will be used to pay costs related to the idling of the Company's synthetic soda ash production capacity in Amherstburg, Ontario, Canada and for general corporate purposes. -5- GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the three and six months ended June 30, 2001 (Dollars in thousands) (unaudited) Note 6 - Related Party Transactions Management Agreement The Company is party to a management agreement with Latona Associates Inc. (which is controlled by a stockholder of GCG) under which the Company receives corporate supervisory and administrative services and strategic guidance for a quarterly fee. This management fee was $773 and $798 for the six months ended June 30, 2000 and 2001, respectively. Transition Support Agreement The Company and GenTek Inc. ("GenTek") have entered into various transition agreements that provide mechanisms for an orderly transition following the spin-off of GenTek from the Company. For the six months ended June 30, 2000 and 2001, the Company paid GenTek $900 and $678 related to these transition agreements. Other Transactions The Company supplies soda ash to GenTek. For the six months ended June 30, 2000 and 2001, sales to GenTek amounted to $2,422 and $2,111, respectively. Note 7 - Geographic Information

Operating profit (loss) for the foreign segment includes additional restructuring charges of $1,721 recorded in the second quarter of 2001. -6- GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded) For the three and six months ended June 30, 2001 (Dollars in thousands) (unaudited) Note 8 - Segment Information Industry segment information is summarized as follows:

Income (loss) before income taxes for the soda ash segment includes additional restructuring charges of $1,721 recorded in the second quarter of 2001. -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. June 30, 2001 Compared with December 31, 2000 Financial Condition Cash and cash equivalents were $15.6 million at June 30, 2001 compared with $18.4 million at December 31, 2000. During the first six months of 2001, the Company used cash flow from operating activities of $7.8 million, used cash of $4.6 million for capital expenditures and provided cash flow from financing activities of $9.6 million. The Company had working capital of $54.3 million at June 30, 2001 as compared with $46.6 million at December 31, 2000. The increase in working capital principally reflects higher receivables and inventories and lower accrued liabilities partially offset by lower cash balances and other current assets due to the receipt of $4.3 million of income tax refunds. On May 14, 2001, The General Chemical Group Inc. ("GCG") raised $10.0 million of equity through a rights offering in which the shareholders of GCG received rights to subscribe for and purchase newly issued shares of GCG's common stock. The proceeds to GCG were contributed to the Company and will be used to pay costs related to the idling of the Company's synthetic soda ash production capacity in Amherstburg, Ontario, Canada and for general corporate purposes. The Company is significantly leveraged. At June 30, 2001, outstanding indebtedness consisted of $100 million of Senior Subordinated Notes and $48.6 million outstanding under the Senior Secured Credit Facility. The Company amended the financial covenants and other terms of its Senior Secured Credit Facility on March 7, 2001. These amendments provide for more flexible financial covenants for 2001 and 2002 in exchange for more restrictive covenants regarding restricted payments, investments, incurrence of indebtedness, sales of assets, payment of dividends or other distributions to shareholders and related matters during these two years. In addition, the maximum amount the Company can borrow under its Senior Secured Credit Facility during 2001 and 2002 was reduced from $85 million to $70 million. The Company's leverage and debt service requirements, among other things, (1) impose operating and financial restrictions on the Company, (2) increase its vulnerability to economic downturns, (3) potentially limit the Company's ability to respond to competitive pressures, and (4) may limit the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, strategic investments or general corporate purposes. Results of Operations Net sales for the three and six month periods ended June 30, 2001 decreased 0.1 percent and 0.1 percent to $79.4 million and $144.7 million, respectively, from $80.0 million and $145.9 million for the comparable prior year periods. -8- Gross profit for the three month period ended June 30, 2001 increased $0.9 million to $10.1 million from $9.2 million for the comparable prior year period. Gross profit as a percentage of net sales for the three month period ended June 30, 2001 increased to 12.7 percent from 11.4 percent for the same period in 2000. Gross profit for the six month period ended June 30, 2001 decreased $6.6 million to $10.9 million from $17.5 million for the comparable prior year period. Gross profit as a percentage of net sales for the six month period ended June 30, 2001 decreased to 7.5 percent from 12.0 percent for the same period in 2000. This decrease was primarily due to higher energy costs at General Chemical (Soda Ash) Partners as well as costs incurred to start up operations at our Manistee, Michigan calcium chloride facility, partially offset by higher calcium chloride prices and lower operating costs resulting from the April 2001 idling of the Company's synthetic soda ash production capacity in Amherstburg, Ontario, Canada. Selling, general and administrative expense as a percentage of net sales for the three and six month period ended June 30, 2001 and 2000 decreased to 5.0 percent from 5.1 percent and to 5.6 percent from 5.7 percent. In the second quarter, the Company recorded a restructuring charge of $1.7 million for revised actuarial estimates of employee termination benefits. Interest expense for the three and six month periods ended June 30, 2001 was $4.0 million and $8.0 million, which was $0.1 million and $0.2 million higher, respectively, than the comparable prior period levels as a result of amendments to the Company's Senior Secured Credit Facility. Minority interest for the three and six month periods ended June 30, 2001 was $1.5 million and $2.3 million, respectively, versus $2.4 million and $5.4 million for the same period in 2000. The decreases in both periods reflect lower earnings at General Chemical (Soda Ash) Partners primarily due to higher energy costs. Net income (loss) was ($1.0) million and ($9.2) million for the three and six month periods ended June 30, 2001, respectively, versus net income (loss) of $0.2 million and ($1.1) million for the comparable prior year periods, for the foregoing reasons. Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB"), issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets". Statement No. 141 requires that all business combinations initiated after June 30, 2001, be accounted for using the purchase method of accounting. In addition, it further clarifies the criteria for recognition of intangible assets separately from goodwill. Statement No. 142 establishes new standards for goodwill acquired in a business combination and eliminates the amortization of goodwill over its estimated useful life. Rather, goodwill will now be tested for impairment annually, or more frequently if circumstances indicate potential impairment, by applying a fair value based test. The Company expects to adopt this statement during the first quarter of fiscal 2002. Management does not believe that the adoption of these standards will have a material impact on the Company's financial position or results of operations. -9- Item 3. Qualitative and Quantitative Disclosures about Market Risk Market risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company. The Company is exposed to market risk in the areas of interest and foreign exchange rates. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's obligations under its Senior Secured Credit Facility as interest for the loans is based on a floating rate. The Company has no cash flow exposure due to rate changes on its fixed interest rate under the $100 million Senior Subordinated Notes as of June 30, 2001. At June 30, 2001 the Company had $48.6 million in borrowings under the Senior Secured Credit Facility. Accordingly, a one percent change in the floating rate will result in interest expense fluctuating annually by approximately $0.5 million. The Company is also exposed to foreign exchange risk primarily to the extent of adverse fluctuation in the Canadian dollar. The Company does not expect to enter into financial instruments for trading purposes. The Company anticipates periodically entering 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 its exposure to movements in interest rates. Such agreements would involve the exchange of fixed and floating interest rate payments over the life of the agreement without the exchange of the underlying principal amounts. The Company also anticipates periodically entering into currency agreements to partially reduce its exposure to movements in currency exchange rates. Swap agreements will only be entered into with strong creditworthy parties. Item 4. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None -10- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. ------------------------------------------------ Registrant Date August 14, 2001 /s/ De Lyle W. Bloomquist ------------------- ------------------------------------------ De Lyle W. Bloomquist President and Chief Executive Officer (Principal Executive Officer) and Director Date August 14, 2001 /s/ David S. Graziosi ------------------- ------------------------------------------ David S. Graziosi Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -11-

GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC 10-Q