10-Q 1 a33170.txt THE GENERAL CHEMICAL GROUP 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 June 30, 2002 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) ----------- OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 1-13404 THE GENERAL CHEMICAL GROUP INC. (Exact name of Registrant as specified in its charter) Delaware 02-0423437 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Liberty Lane Hampton, New Hampshire 03842 (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (603) 929-2606 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of Common Stock outstanding at August 1, 2002 was 3,203,205. The number of shares of Class B Common Stock outstanding at August 1, 2002 was 700,639. ================================================================================ THE GENERAL CHEMICAL GROUP INC. FORM 10-Q QUARTERLY PERIOD ENDED JUNE 30, 2002 INDEX

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

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

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

See the accompanying notes to consolidated financial statements. -3- THE GENERAL CHEMICAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended June 30, 2002 (Dollars in thousands) (unaudited) Note 1 - Basis of Presentation The General Chemical Group Inc. ("GCG" 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 GCG 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, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. The Company's financial statements should be read in conjunction with the financial statements and the notes thereto for the year ended December 31, 2001 included in the Form 10-K. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4, 44 and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS No. 145 rescinds the provisions of SFAS No. 4 that requires companies to classify certain gains and losses from debt extinguishments as extraordinary items, eliminates the provisions of SFAS No. 44 regarding transition to the Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require that certain lease modifications be treated as sale leaseback transactions. The provisions of SFAS No. 145 related to classification of debt extinguishment are effective for fiscal years beginning after May 15, 2002. Commencing January 1, 2003, the Company will classify debt extinguishment costs within income from operations. The provisions of SFAS No. 145 related to lease modification are effective for transactions occurring after May 15, 2002. The Company does not expect the provisions of SFAS No. 145 related to lease modification to have a material impact on its financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging Issues Task Force ("EITF") No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in as Restructuring)". The principal difference between SFAS No. 146 and EITF No. 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. The Company does not expect the provisions of SFAS No. 146 to have a material impact on its financial position or results of operations. Certain prior-period amounts have been reclassified to conform with the current-year presentation. -4- 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, 2001 and 2002 was ($8,706) and ($2,790) respectively. Note 3 - Earnings (Loss) Per Share The computation of basic earnings (loss) 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 (loss) per common share and diluted earnings (loss) per common share are reconciled as follows:

At June 30, 2001 and 2002, options to purchase 225,400 shares and 211,796 shares of common stock, respectively, 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 2008, 2009 and 2010, were still outstanding at June 30, 2002. At June 30, 2001 and 2002, 36,493 and 26,089 restricted units and options were not included in the calculation of diluted earnings per common share because its inclusion would have resulted in an antidilutive effect. Note 4 - Additional Financial Information The components of inventories were as follows:

Note 5 - 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. 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. 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, 2001 was $4.2 million. Spending against this accrual was $0.4 million during the six months ended June 30, 2002. -5- THE GENERAL CHEMICAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the three and six months ended June 30, 2002 (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 $798 and $830 for the six months ended June 30, 2001 and 2002, respectively. Agreements with GenTek, Inc. In connection with the spin-off of GenTek, Inc. ("GenTek") from the Company in April 1999, GenTek agreed to provide the Company with certain management information services and to sublease to the Company the office space in Parsippany, New Jersey used as its operations headquarters. For the six months ended June 30, 2001 and 2002, the Company paid GenTek $678 and $690 for these services and office space. Other Transactions The Company supplies soda ash to GenTek. For the six months ended June 30, 2001 and 2002, sales to GenTek amounted to $2,111 and $1,341, 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- THE GENERAL CHEMICAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded) For the three and six months ended June 30, 2002 (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. Capital Expenditures: Soda Ash ............................ $1,307 $ 631 $2,277 $1,867 Calcium Chloride .................... 1,587 815 1,971 1,956 Elimination and other corporate expenses 258 6 336 30 ------ ------ ------ ------ $3,152 $1,452 $4,584 $3,853 ====== ====== ====== ====== Depreciation & Amortization: Soda Ash ............................ $4,257 $2,211 $8,251 $4,899 Calcium Chloride .................... 321 394 585 800 Elimination and other corporate expenses.. 341 219 638 439 ------ ------ ------ ------ $4,919 $2,824 $9,474 $6,138 ====== ====== ====== ======

-7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. June 30, 2002 Compared with December 31, 2001 Financial Condition Cash and cash equivalents were $12.2 million at June 30, 2002 compared with $16.0 million at December 31, 2002. During the first six months of 2002, the Company used cash flow from operating activities of $5.1 million, used cash of $3.9 million for capital expenditures and provided cash flow from financing activities of $5.1 million. The Company had working capital of $56.9 million at June 30, 2002 as compared with $51.4 million at December 31, 2001. The increase in working capital principally reflects higher receivables and other current assets and lower accounts payable and accrued liabilities partially offset by lower cash balances and deferred tax assets. The Company is significantly leveraged. At June 30, 2002, outstanding indebtedness consisted of $100 million of Senior Subordinated Notes and $54.0 million outstanding under the Senior Secured Credit Facility. The Company's leverage and debt service requirements (1) increase its vulnerability to economic downturns, (2) potentially limit the Company's ability to respond to competitive pressures, and (3) 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. The Company's indenture and credit facility impose operating and financial restrictions on the Company. These covenants affect, and in certain cases, limit the Company's ability to incur additional indebtedness, make capital expenditures, make investments and acquisitions and sell assets, pay dividends and make other distributions to shareholders, and consolidate, merge or sell all or substantially all assets. The Company was in compliance with the covenants contained in its indenture and credit facility at June 30, 2002, although there can be no assurances given as to compliance with these covenants in future periods. A failure to comply with the covenants contained in the credit agreement or indenture may result in the Company's indebtedness becoming immediately due and payable, which would have a material adverse effect on our business results of operations and financial condition. GenTek provides the Company with management information services, and subleases to it office space in Parsippany, New Jersey used as our operations headquarters, pursuant to agreements entered into at the time of GenTek's spin-off in April 1999. GenTek recently announced that it is in default under agreements with certain of its lenders, and that it is exploring strategic alternatives. In the event that GenTek becomes unable to meet its obligations under its agreements with the Company, we would have to obtain our management information services and office space from third parties. The Company is developing a contingency plan in the event GenTek is unable to perform its obligations under these agreements. No assurances can be given as to the timely and cost effective replacement of management information services and office space. Results of Operations June 30, 2002 Compared with June 30, 2001 Net revenues for the three and six month periods ended June 30, 2002 decreased 7.0 percent and 9.3 percent to $73.8 million and $131.2 million, respectively, from $79.4 million and $144.7 million for the comparable prior year periods. Net revenues were negatively effected by lower calcium chloride volumes due to warm winter weather and lower soda ash volumes due to the April 2001 idling of the Company's Amherstburg synthetic soda ash facility, partially offset by higher domestic soda ash prices. -8- Gross profit for the three month period ended June 30, 2002 increased $0.9 million to $11.0 million from $10.1 million for the comparable prior year period. Gross profit as a percentage of net revenues for the three month period ended June 30, 2002 increased to 14.8 percent from 12.7 percent for the same period in 2001. Gross profit for the six month period ended June 30, 2002 increased $8.3 million to $19.2 million from $10.9 million for the comparable prior year period. Gross profit as a percentage of net revenues for the six month period ended June 30, 2002 increased to 14.6 percent from 7.5 percent for the same period in 2001. These increases were primarily due to lower operating costs resulting from the April 2001 idling of the Company's Amherstburg synthetic soda ash facility, lower depreciation expense, lower energy costs and higher domestic soda ash prices, partially offset by lower calcium chloride volumes, costs related to the annual trona mine maintenance outage completed in June 2002 and higher calcium chloride feedstock costs. In addition, the prior year includes costs incurred to start up operations at our Manistee, Michigan calcium chloride facility. The prior year annual trona mine maintenance outage was completed in August 2001. Selling, general and administrative expense as a percentage of net revenues for the three and six month period ended June 30, 2002 and 2001 increased to 5.2 percent from 5.0 percent and to 5.9 percent from 5.6 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. Interest expense for the three and six month periods ended June 30, 2002 was $3.6 million and $7.2 million, which was $0.3 million and $0.8 million lower, respectively, than the comparable prior period. The decrease is a result of lower credit facility borrowing rates and amendment fees expensed in the comparable prior year partially offset by an increase in borrowings under the credit facility. Minority interest for the three and six month periods ended June 30, 2002 was $2.5 million and $5.1 million, respectively, versus $1.5 million and $2.3 million for the same period in 2001. The increases in both periods reflect higher earnings at General Chemical (Soda Ash) Partners primarily due to higher domestic soda ash prices and lower energy costs. Net income (loss) was $1.2 million and ($0.6) million for the three and six month periods ended June 30, 2002, respectively, versus net loss of ($1.1) million and ($9.2) million for the comparable prior year periods, for the foregoing reasons. Accounting Pronouncements In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4, 44 and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS No. 145 rescinds the provisions of SFAS No. 4 that requires companies to classify certain gains and losses from debt extinguishments as extraordinary items, eliminates the provisions of SFAS No. 44 regarding transition to the Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require that certain lease modifications be treated as sale leaseback transactions. The provisions of SFAS No. 145 related to classification of debt extinguishment are effective for fiscal years beginning after May 15, 2002. Commencing January 1, 2003, the Company will classify debt extinguishment costs within income from operations. The provisions of SFAS No. 145 related to lease modification are effective for transactions occurring after May 15, 2002. The Company does not expect the provisions of SFAS No. 145 related to lease modification to have a material impact on its financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging Issues Task Force ("EITF") No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in as Restructuring)". The principal difference between SFAS No. 146 and EITF No. 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. The Company does not expect the provisions of SFAS No. 146 to have a material impact on its 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 debt obligations. 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, 2002. However, the Company does have cash flow exposure on its committed and uncommitted bank line of credit as interest is based on a floating rate. At June 30, 2002 the Company had $54.0 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. Submission of Matters to a Vote of Security Holders On May 8, 2002, the Company held its Annual Meeting of Stockholders. At the meeting, Paul M. Montrone, Paul M. Meister, Philip E. Beekman, John M. Kehoe, Jr., Gerald J. Lewis and Joseph M. Volpe were each elected as a director of the Company to serve a one year term which will expire at the 2003 Annual Meeting of Stockholders and until a successor has been duly elected and qualified. For Paul M. Montrone, 9,698,924 votes were cast in favor and 12,856 were voted against. For Paul M. Meister, 9,673,798 votes were cast in favor and 37,982 were voted against. For Philip E. Beekman, 9,703,308 votes were cast in favor and 8,472 were voted against. For John M. Kehoe, Jr., 9,703,214 votes were cast in favor and 8,566 were voted against. For Gerald J. Lewis, 9,703,418 votes were cast in favor and 8,362 were voted against. For Joseph M. Volpe, 9,702,828 votes were cast in favor and 8,952 were voted against. The stockholders also approved the selection of Deloitte & Touche LLP as the Company's independent auditors. 9,676,254 votes were cast in favor; 35,160 were voted against; and 366 abstained. 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. THE GENERAL CHEMICAL GROUP INC. -------------------------------- Registrant Date August 14, 2002 /s/ John M. Kehoe, Jr. ----------------- ------------------------------------------ John M. Kehoe, Jr. President and Chief Executive Officer (Principal Executive Officer) and Director Date August 14, 2002 /s/ David S. Graziosi ----------------- -------------------------------------------- David S. Graziosi Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -11- STATEMENT OF DIFFERENCES The section symbol shall be expressed as...................................'SS'

GENERAL CHEMICAL GROUP INC 10-Q