10-Q 1 a31605.txt GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) ----------- OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 SEPTEMBER 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) ASSETS

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 nine months ended September 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 nine months ended September 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. In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective January 1, 2003. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated results of operations. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective January 1, 2002. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated results of operations. -4- GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the three and nine months ended September 30, 2001 (Dollars in thousands) (unaudited) Certain prior-period amounts have been reclassified to conform with the current-year presentation. Note 2 - Comprehensive Income (Loss) Total comprehensive income (loss) is comprised of net income (loss) and foreign currency translation gains (losses). Total comprehensive income (loss) for the nine months ended September 30, 2000 and 2001 was $1,780 and ($8,798) respectively. Note 3 - Additional Financial Information

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 $7.3 million during the nine months ended September 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 productions 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 nine months ended September 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 the Company) under which the Company receives corporate supervisory and administrative services and strategic guidance for a quarterly fee. This management fee was $1,161 and $1,210 for the nine months ended September 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 nine months ended September 30, 2000 and 2001, the Company paid GenTek $1,296 and $1,016 related to these transition agreements. Other Transactions The Company supplies soda ash to GenTek. For the nine months ended September 30, 2000 and 2001, sales to GenTek amounted to $3,390 and $3,036, respectively. Note 7 - Geographic Information

Operating profit 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 nine months ended September 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. Income (loss) before income taxes for elimination and other corporate expenses includes a gain on sale of assets of $7,699 recorded in the third quarter of 2000. -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. September 30, 2001 Compared with December 31, 2000 -------------------------------------------------- Financial Condition ------------------- Cash and cash equivalents were $22.1 million at September 30, 2001 compared with $18.4 million at December 31, 2000. During the first nine months of 2001, the Company provided cash flow from operating activities of $.3 million, used cash of $7.0 million for capital expenditures and provided cash flow from financing activities of $10.4 million. The Company had working capital of $46.4 million at September 30, 2001 as compared with $46.6 million at December 31, 2000. The decrease in working capital principally reflects lower receivables and other current assets, due to the receipt of $4.3 million of income tax refunds partially offset by lower accounts payable and accrued liabilities, and higher cash balances. The Company is significantly leveraged. At September 30, 2001, outstanding indebtedness consisted of $100 million of Senior Subordinated Notes and $46.9 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 --------------------- September 30, 2001 Compared with December 31, 2000 -------------------------------------------------- Net sales for the three and nine month periods ended September 30, 2001 decreased 1.5 percent and 1.1 percent to $73.2 million and $217.9 million, respectively, from $74.3 million and $220.2 million for the comparable prior year periods. Gross profit for the three month period ended September 30, 2001 decreased $2.1 million to $7.7 million from $9.8 million for the comparable prior year period. Gross profit as a percentage of net sales for the three month period ended September 30, 2001 decreased to 10.5 percent from 13.2 percent for the same period in 2000. Gross profit for the nine month period ended September 30, 2001 decreased $8.7 million to $18.6 million from $27.3 million for the comparable prior year period. Gross profit as a percentage of net sales for the nine month period ended September 30, 2001 decreased to 8.5 percent from 12.4 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. -8- Selling, general and administrative expense as a percentage of net sales for the three and nine month period ended September 30, 2001 and 2000 decreased to 5.3 percent from 6.0 percent and to 5.5 percent from 5.8 percent. In the second quarter of 2001, the Company recorded a restructuring charge of $1.7 million for revised actuarial estimates of employee termination benefits. In the third quarter of 2000, the Company sold a quarry at its Amherstburg, Ontario location for $8.1 million resulting in a pre-tax gain of $7.7 million. Interest expense for the three and nine month periods ended September 30, 2001 was $3.8 million and $11.9 million, which was $0.2 million lower and $0.1 million higher, respectively, than the comparable prior period levels as a result of lower interest rates and amendments to the Company's Senior Secured Credit Facility. Minority interest for the three and nine month periods ended September 30, 2001 was $1.8 million and $4.1 million, respectively, versus $4.1 million and $9.5 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 loss was ($2.0) million and ($11.2) million for the three and nine month periods ended September 30, 2001, respectively, versus net income of $3.3 million and $2.2 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. In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective January 1, 2003. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated results of operations. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective January 1, 2002. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated 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 September 30, 2001. At September 30, 2001 the Company had $46.9 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 6. 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 November 14, 2001 /s/ De Lyle W. Bloomquist -------------------- ---------------------------------------------- De Lyle W. Bloomquist President and Chief Executive Officer (Principal Executive Officer) and Director Date November 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