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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
- ----------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 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
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
----- -----
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GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2002
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months
And Six Months Ended June 30, 2001 and 2002......................... 1
Consolidated Balance Sheets - December 31, 2001 and
June 30, 2002....................................................... 2
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2001 and 2002........................................ 3
Notes to Consolidated Financial Statements........................... 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 7-8
Item 3. Qualitative and Quantitative Disclosures about Market Risk...... 9
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K................................ 9
SIGNATURES............................................................... 10
Part I. Financial Information
Item 1. Financial Statements
GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------------
2001 2002 2001 2002
---- ---- ---- ----
Net revenues.................................................... $ 79,369 $73,830 $144,695 $131,207
Cost of revenues................................................ 69,319 62,875 133,803 111,995
Selling, general and administrative expense..................... 4,008 3,807 8,122 7,759
Restructuring charge .......................................... 1,721 -- 1,721 --
-------- ------- -------- --------
Operating profit ............................................... 4,321 7,148 1,049 11,453
Interest expense................................................ 3,972 3,635 8,048 7,219
Interest income................................................. 186 42 420 160
Other expense (income), net..................................... 80 (188) 167 (107)
-------- ------- -------- --------
Income (loss) before income taxes and minority interest......... 455 3,743 (6,746) 4,501
Minority interest............................................... 1,463 2,547 2,318 5,090
-------- ------- -------- --------
Income (loss) before income taxes............................... (1,008) 1,196 (9,064) (589)
Income tax provision (benefit).................................. 2 (22) 133 (16)
-------- ------- -------- --------
Net income (loss).................................... $ (1,010) $ 1,218 $(9,197) $ (573)
======== ======= ======= ========
See the accompanying notes to consolidated financial statements.
-1-
GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
December 31, June 30,
2001 2002
---- ----
(unaudited)
Current assets:
Cash and cash equivalents...................................... $ 14,182 $ 10,187
Receivables, net............................................... 48,961 56,015
Inventories.................................................... 25,813 25,756
Deferred income taxes.......................................... 6,934 4,963
Other current assets........................................... 5,485 6,848
--------- ----------
Total current assets........................................ 101,375 103,769
Property, plant and equipment, net.................................... 100,365 98,476
Other assets.......................................................... 16,881 17,930
--------- ---------
Total assets................................................ $ 218,621 $ 220,175
========= =========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................ $ 21,177 $ 19,989
Accrued liabilities............................................. 30,545 28,588
--------- ---------
Total current liabilities................................... 51,722 48,577
Long-term debt........................................................ 146,487 153,981
Other liabilities..................................................... 78,498 79,793
--------- ---------
Total liabilities........................................... 276,707 282,351
--------- ---------
Minority interest..................................................... 38,983 37,678
--------- ---------
Equity (Deficit):
Common Stock, $.01 par value; authorized 1,000
shares; issued and outstanding; 1,000 shares at
December 31, 2001 and June 30, 2002, respectively............. -- --
Capital deficit................................................. (43,523) (43,507)
Accumulated other comprehensive income (loss)................... 1,412 (816)
Retained earnings............................................... (54,958) (55,531)
--------- ---------
Total equity (deficit).......................................... (97,069) (99,854)
--------- ---------
Total liabilities and equity (deficit)...................... $ 218,621 $ 220,175
========= =========
See the accompanying notes to consolidated financial statements.
-2-
GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended
June 30,
--------------------
2001 2002
---- ----
Cash flows from operating activities:
Net loss....................................................... $ (9,197) $ (573)
Adjustments to reconcile net loss to net cash
used by operating activities provided by operating
activities:
Depreciation and amortization................................ 9,474 6,138
Increase in receivables...................................... (1,469) (7,054)
(Increase) decrease in inventories........................... (1,123) 57
Decrease in accounts payable................................. (6,794) (1,188)
Decrease in accrued liabilities.............................. (7,086) (1,957)
Decrease in other liabilities and assets, net................ 9,267 618
Decrease in minority interest................................ (895) (1,305)
--------- ---------
Net cash used by operating activities.................... (7,823) (5,264)
--------- ---------
Cash flows from investing activities:
Capital expenditures........................................... (4,584) (3,853)
--------- ---------
Net cash used for investing activities................... (4,584) (3,853)
--------- ---------
Cash flows from financing activities:
Borrowings under credit facility............................... -- 5,106
Capital contribution........................................... 10,000 --
Other financing activities..................................... (445) 16
--------- ---------
Net cash provided by financing activities................ 9,555 5,122
--------- ---------
Decrease in cash and cash equivalents................................. (2,852) (3,995)
Cash and cash equivalents at beginning of period...................... 18,419 14,182
--------- ---------
Cash and cash equivalents at end of period............................ $ 15,567 $ 10,187
========= =========
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest..................................................... $ 7,441 $ 6,529
Taxes........................................................ (4,264) (1,219)
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, 2002
(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, 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.
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 ($8,672) and ($2,801) respectively.
-4-
GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the three and six months ended June 30, 2002
(Dollars in thousands)
(unaudited)
Note 3 - Additional Financial Information
The components of inventories were as follows:
December 31, June 30,
2001 2002
---- ----
(unaudited)
Raw materials...................................... $ 1,302 $ 887
Work in process.................................... 3,448 4,412
Finished products.................................. 14,110 13,312
Supplies and containers............................ 6,953 7,145
--------- ---------
$ 25,813 $ 25,756
========= =========
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. 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.
Note 5 - 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 General Chemical Group Inc.)
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.
-5-
GENERAL CHEMICAL INDUSTRIAL PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
For the three and six months ended June 30, 2002
(Dollars in thousands)
(unaudited)
Note 6 - Geographic Information
Net Revenues Operating Profit (Loss)
June 30, June 30,
-------- --------
2001 2002 2001 2002
---- ---- ---- ----
United States................. $114,119 $111,137 $ 3,609 $ 12,366
Foreign ..................... 51,816 43,054 (2,560) (913)
Elimination .................. (21,240) (22,984) -- --
-------- -------- --------- --------
$144,695 $131,207 $ 1,049 $ 11,453
======== ======== ========= ========
Operating profit for the foreign segment includes additional
restructuring charges of $1,721 recorded in the second quarter of 2001.
Note 7 - Segment Information
Industry segment information is summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------- --------
2001 2002 2001 2002
---- ---- ---- ----
Net revenues:
Soda Ash................................... $ 59,623 $54,018 $114,045 $104,456
Calcium Chloride........................... 19,746 19,812 30,650 26,751
-------- ------- -------- --------
Total Segment................. $ 79,369 $73,830 $144,695 $131,207
======== ======= ======== ========
Income (loss) before income taxes:
Soda Ash................................... $ 954 $ 2,953 $ (1,242) $ 6,245
Calcium Chloride........................... 2,246 1,640 1,147 154
--------- -------- -------- --------
Total Segment................. 3,200 4,593 (95) 6,399
Eliminations and other corporate expenses...... (4,208) (3,397) (8,969) (6,988)
-------- ------- -------- ---------
$ (1,008) $ 1,196 $ (9,064) $ (589)
======== ======= ======== ========
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
======== ======== ======== ========
-6-
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 $10.2 million at June 30, 2002 compared
with $14.2 million at December 31, 2002. During the first six months of 2002,
the Company used cash flow from operating activities of $5.3 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 $55.2 million at June 30, 2002 as
compared with $49.8 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.
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
-7-
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 ($1.0)
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.
-8-
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
-9-
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, 2002 /s/ DeLyle W. Bloomquist
------------------ --------------------------------------------
DeLyle W. Bloomquist
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)
and Director
-10-
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as....................................'SS'