Back to GetFilings.com
================================================================================
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, 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 001-14789
GENTEK INC.
(Exact name of Registrant as specified in its charter)
Delaware 02-0505547
(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) 929-2264
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 outstanding shares of the Registrant's Common Stock and Class B
Common Stock as of, October 31, 2002 was 20,586,416 and 4,750,107, respectively.
================================================================================
GENTEK INC.
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 2002 and 2001...................... 1
Consolidated Balance Sheets - September 30, 2002 and
December 31, 2001.................................................. 2
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2002 and 2001.................................. 3
Notes to the Consolidated Financial Statements......................... 4-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 18-25
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 25
Item 4. Controls and Procedures.......................................... 25
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings................................................ 26-27
Item 2. Changes in Securities and Use of Proceeds........................ 27
Item 3. Defaults upon Senior Securities.................................. 27-28
Item 4. Submission of Matters to a Vote of Security Holders.............. 28
Item 5. Other Information................................................ 28
Item 6. Exhibits and Reports on Form 8-K................................. 28-29
SIGNATURES ..................................................................... 30
CERTIFICATIONS.................................................................. 31-32
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GENTEK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net revenues ...................................... $279,458 $299,698 $ 859,124 $ 959,134
Cost of sales....................................... 220,948 232,809 681,891 760,357
Selling, general and administrative expense......... 46,732 49,147 137,761 184,228
Restructuring and impairment charges................ 49,722 2,910 73,340 110,928
-------- -------- --------- ---------
Operating profit (loss)......................... (37,944) 14,832 (33,868) (96,379)
Interest expense.................................... 20,752 18,858 57,337 56,349
Interest income..................................... 568 346 1,779 804
Other (income) expense, net......................... 495 745 (494) (939)
-------- -------- --------- ---------
Loss before income taxes and cumulative
effect of change in accounting principle... (58,623) (4,425) (88,932) (150,985)
Income tax provision (benefit)...................... (791) (4,615) 118,261 (51,221)
-------- -------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle............. (57,832) 190 (207,193) (99,764)
Cumulative effect of change in accounting
principle (net of tax benefit of $39,760)....... -- -- (161,125) --
-------- -------- --------- ---------
Net income (loss)............................ $(57,832) $ 190 $(368,318) $ (99,764)
======== ======== ========= =========
Income (loss) per common share - basic:
Income (loss) before cumulative effect of
change in accounting principle.................. $ (2.26) $ .01 $ (8.12) $ (3.92)
Cumulative effect of change in accounting
principle....................................... -- -- (6.32) --
-------- -------- --------- ---------
Net income (loss)............................ $ (2.26) $ .01 $ (14.44) $ (3.92)
======== ======== ========= =========
Income (loss) per common share - assuming
dilution:
Income (loss) before cumulative effect of change
in accounting principle......................... $ (2.26) $ .01 $ (8.12) $ (3.92)
Cumulative effect of change in accounting
principle....................................... -- -- (6.32) --
-------- -------- --------- ---------
Net income (loss)............................ $ (2.26) $ .01 $ (14.44) $ (3.92)
======== ======== ========= =========
See the accompanying notes to the consolidated financial statements.
-1-
GENTEK INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
2002 2001
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 128,101 $ 9,205
Receivables, net.......................................................... 191,111 183,962
Inventories............................................................... 102,360 107,674
Deferred income taxes..................................................... 1,604 39,345
Other current assets...................................................... 17,276 13,471
---------- ----------
Total current assets................................................. 440,452 353,657
Property, plant and equipment, net............................................ 300,708 358,526
Goodwill ..................................................................... 127,717 328,975
Deferred income taxes......................................................... 30,683 79,447
Other assets ................................................................ 38,005 44,238
---------- ----------
Total assets......................................................... $ 937,565 $1,164,843
========== ==========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................................... $ 79,248 $ 107,382
Accrued liabilities....................................................... 145,687 135,094
Current portion of long-term debt......................................... 975,135 32,674
---------- ----------
Total current liabilities............................................ 1,200,070 275,150
Long-term debt................................................................ 2,553 799,752
Other liabilities............................................................. 240,695 232,278
---------- ----------
Total liabilities.................................................... 1,443,318 1,307,180
---------- ----------
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: 20,736,376 and 20,712,973 shares at September 30, 2002
and December 31, 2001, respectively................................... 207 207
Class B Common Stock, $.01 par value; authorized 40,000,000 shares;
issued and outstanding: 4,750,107 shares at September 30, 2002
and December 31, 2001.................................................. 48 48
Paid in capital........................................................... 3,288 3,830
Accumulated other comprehensive loss...................................... (18,857) (24,302)
Accumulated deficit....................................................... (489,194) (120,876)
Treasury stock, at cost: 149,960 and 145,570 shares at
September 30, 2002 and December 31, 2001, respectively................. (1,245) (1,244)
---------- ----------
Total equity (deficit)............................................... (505,753) (142,337)
---------- ----------
Total liabilities and equity (deficit)............................... $ 937,565 $1,164,843
========== ==========
See the accompanying notes to the consolidated financial statements.
-2-
GENTEK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30,
------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net loss........................................................... $(368,318) $(99,764)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Cumulative effect of change in accounting principle............. 161,125 --
Depreciation and amortization................................... 36,188 53,520
Asset impairment charges........................................ 64,819 94,245
Net gain on disposition of long-term assets..................... (596) (1,219)
Long-term incentive plans....................................... (542) (103)
Decrease in receivables......................................... 2,325 20,555
Decrease in inventories......................................... 7,730 5,949
(Increase) decrease in deferred tax assets...................... 126,400 (49,786)
Decrease in accounts payable.................................... (33,888) (825)
Increase in accrued liabilities................................. 6,296 1,154
Decrease in other liabilities and assets, net................... (3,759) (3,541)
--------- --------
Net cash provided by (used for) operating activities.......... (2,220) 20,185
--------- --------
Cash flows from investing activities:
Capital expenditures............................................... (36,026) (63,153)
Proceeds from sales or disposals of long-term assets............... 13,449 8,643
Acquisition of product lines/businesses net of cash acquired*...... (464) --
Other investing activities......................................... -- (3,718)
--------- --------
Net cash used for investing activities........................ (23,041) (58,228)
--------- --------
Cash flows from financing activities:
Proceeds from long-term debt....................................... 167,778 93,551
Repayment of long-term debt........................................ (24,601) (49,372)
Payment to acquire treasury stock.................................. (1) (277)
Exercise of stock options.......................................... -- 206
Dividends.......................................................... -- (2,515)
--------- --------
Net cash provided by financing activities..................... 143,176 41,593
--------- --------
Effect of exchange rate changes on cash................................ 981 (812)
--------- --------
Increase in cash and cash equivalents.................................. 118,896 2,738
Cash and cash equivalents at beginning of period....................... 9,205 4,459
--------- --------
Cash and cash equivalents at end of period............................. $ 128,101 $ 7,197
========= ========
Supplemental information:
Cash paid (refunded) for income taxes.............................. $ (6,853) $ 7,998
========= ========
Cash paid for interest............................................. $ 48,465 $ 62,210
========= ========
*Purchase of product lines/businesses net of cash acquired:
Working capital, other than cash.................................. $ 59 $ --
Property, plant and equipment..................................... (364) --
Other assets...................................................... (159) --
--------- --------
Net cash used to acquire product lines/businesses................. $ (464) $ --
========= ========
See the accompanying notes to the consolidated financial statements.
-3-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Note 1 - Subsequent Event - Voluntary Petition for Relief Under Chapter 11
On October 11, 2002, GenTek Inc. ("GenTek" or the "Company") and 31 of
its direct and indirect subsidiaries, including Noma Company, a Canadian
subsidiary, (collectively, including the Company, the "Debtors") filed voluntary
petitions for reorganization relief (the "Filing") under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The
Debtors' cases (the "Chapter 11 Cases") are being jointly administered as Case
No. 02-12986 (MFW). GenTek and the other Debtors will continue to operate their
respective businesses as "debtors-in-possession" under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code and orders of the Bankruptcy Court.
The Debtors filed for relief under Chapter 11 as a result of the
Company's inability to obtain an amendment to its senior credit facility. The
Company believes that the protection afforded by Chapter 11 best preserves its
ability to continue to serve its customers and preserve the value and goodwill
of its businesses, while it reorganizes, and develops and implements a new
strategic plan to deleverage the Company's balance sheet and create an improved
long-term capital structure.
The Company believes that its available cash and continued cash flow
from operations should be adequate to fund ongoing operations and meet
anticipated obligations to customers, vendors and employees in the ordinary
course during the Chapter 11 process. However, should the Company's available
cash and continued cash flow from operations prove to be insufficient, or the
Company otherwise requires post-petition credit accommodations, the Company may
seek to obtain debtor-in-possession financing. The filing of a bankruptcy
petition results in an immediate acceleration of the Company's senior credit
facility and 11% Senior Subordinated Notes, subject to the automatic stay of the
Bankruptcy Code.
The potential adverse publicity associated with the Chapter 11 filing
and the resulting uncertainty regarding the Company's future prospects may
hinder the Company's ongoing business activities and its ability to operate,
fund and execute its business plan by: impairing relations with existing and
potential customers; limiting the Company's ability to obtain trade credit;
impairing present and future relationships with vendors; and negatively
impacting the ability of the Company to attract, retain and compensate key
employees and to retain employees.
At hearings held on October 17 and November 7, 2002, the Bankruptcy
Court granted the Debtors' first day motions for various relief designed to
stabilize their operations and business relationships with their customers,
vendors, employees and others, and entered orders granting authority to GenTek
and the other Debtors to, among other things: (1) pay certain pre-petition and
post-petition employee wages, benefits and other employee obligations; (2) honor
customer programs; (3) pay certain pre-petition taxes and fees; (4) pay certain
pre-petition obligations to foreign vendors; (5) pay certain pre-petition
shipping charges; and (6) pay certain pre-petition claims of critical vendors.
The Bankruptcy Court also entered orders authorizing the Debtors to use cash
collateral of their senior lenders, and Noma Company to use GenTek's cash
collateral, on terms specified in such orders.
-4-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
As a result of the Filing, pending pre-petition litigation and claims
against the Debtors have been stayed automatically in accordance with Section
362 of the Bankruptcy Code and no party may take any action to seek payment on
its pre-petition claims except pursuant to further order of the Bankruptcy
Court. In addition, the Debtors may reject pre-petition executory contracts and
unexpired lease obligations, and parties affected by these rejections may file
claims with the Bankruptcy Court. The Company anticipates that most liabilities
of the Debtors as of the date of the Filing will be treated in accordance with
one or more Chapter 11 plans of reorganization which will be proposed to be
voted on by interested parties and approved by the Bankruptcy Court in
accordance with the provisions of the Bankruptcy Code.
Although GenTek expects to file a reorganization plan that may provide
for its emergence from Chapter 11 during 2003, there can be no assurance that a
reorganization plan will be proposed by GenTek or confirmed by the Court, or
that any such plan will be consummated.
GenTek and the other Debtors will incur significant administrative and
reorganization expenses resulting from the Chapter 11 filing. The amount of
these expenses, which will be expensed as incurred, are expected to have a
material affect on the Company's results of operations.
At this time, it is not possible for the Company to predict the effect
of the Chapter 11 reorganization process on the Company's business, various
creditors and security holders, or when it may be possible to emerge from
Chapter 11.
The Company's common stock was delisted from the New York Stock
Exchange on April 8, 2002 and currently trades on the over the counter bulletin
board under the symbol GNKIQ.
The ultimate treatment of and recovery, if any, by creditors, security
holders and/or common shareholders will not be determined until confirmation of
a plan or plans of reorganization. GenTek and the other Debtors are unable to
predict at this time what the treatment of creditors and equity holders of the
respective Debtors will ultimately be under any plan or plans of reorganization
finally confirmed. Accordingly, the Company urges that appropriate caution be
exercised with respect to existing and future investments in any of these
securities.
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. However, as a result of the Filing, such realization of assets and
liquidation of liabilities are subject to uncertainty. While operating as
debtors-in-possession under the protection of Chapter 11 of the Bankruptcy Code
and subject to Bankruptcy Court approval or otherwise as permitted in the normal
course of business, the Company may sell or otherwise dispose of assets and
liquidate or settle liabilities for amounts other than those reflected in the
consolidated financial statements. Further, a plan of reorganization could
materially change the amounts and classifications reported in the consolidated
financial statements, which do not give effect to any adjustments to the
carrying value of assets or amount of liabilities that might be necessary as
consequence of a plan of reorganization.
-5-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. 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, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. These statements should be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2001.
Note 3 - Summary of Significant Accounting Policies
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other
Intangible Assets." SFAS No. 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting, and
broadens the criteria for recording intangible assets separate from goodwill.
SFAS No. 142 requires the use of a nonamortization approach to account for
purchased goodwill and certain intangibles. Under a nonamortization approach,
goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. The provisions
of each statement which apply to goodwill and intangible assets acquired prior
to June 30, 2001 were adopted by the Company on January 1, 2002, and
accordingly, the Company ceased amortizing goodwill. Upon adoption of SFAS No.
142, the Company recorded a charge of $161,125 (net of a tax benefit of $39,760)
as a cumulative effect of a change in accounting principle. The following
illustrates what net income (loss) and income (loss) per share would have been
had these provisions been adopted for all periods presented:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
Reported net income (loss)............................. $(57,832) $ 190 $(368,318) $(99,764)
Add back: goodwill amortization.................... -- 2,745 -- 8,428
-------- ------ --------- --------
Adjusted net income (loss)......................... $(57,832) $2,935 $(368,318) $(91,336)
======== ====== ========= ========
Income (loss) per share, basic and assuming dilution:
Reported net income (loss)......................... $ (2.26) $ .01 $ (14.44) $ (3.92)
Add back: goodwill amortization.................... -- .11 -- .33
-------- ------ --------- --------
Adjusted net income (loss)......................... $ (2.26) $ .12 $ (14.44) $ (3.59)
======== ====== ========= ========
-6-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Carrying amount of goodwill by segment is as follows:
Performance
Products Manufacturing Communications Consolidated
-------- ------------- -------------- ------------
Balance at December 31, 2001................... $ 65,765 $154,174 $ 109,036 $ 328,975
Adoption of SFAS No. 142....................... (44,027) (48,200) (109,036) (201,263)
Foreign currency translation................... -- 5 -- 5
-------- -------- --------- ---------
Balance at September 30, 2002.................. $ 21,738 $105,979 $ -- $ 127,717
======== ======== ========= =========
During the second quarter of 2002, the Company revised its projection
of domestic taxable income. These estimates projected significantly lower
domestic taxable income than previous projections, principally due to the
downturn in the global communications market. As a result of lower projected
domestic taxable income and the Company's evaluation of potential tax-planning
strategies, the Company has concluded that it is more likely than not that it
will not be able to realize its domestic net deferred tax assets. Accordingly,
the Company recorded a valuation allowance of $140,950 in the second quarter
effectively reducing the carrying value of its domestic net deferred tax assets
to zero. During the third quarter and for the foreseeable future, the Company
will not record any tax expense or benefit on its domestic income or loss. The
Company will continue to monitor the likelihood of realizing its net deferred
tax assets and future adjustments to the deferred tax asset valuation allowances
will be recorded as necessary.
In July 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations," which requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred and the associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived asset. SFAS No. 143 is effective for years
beginning after June 15, 2002. The Company is currently evaluating the impact
that adoption of this standard will have on its consolidated financial
statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets," which requires all long-lived
assets classified as held for sale to be valued at the lower of their carrying
amount or fair value less cost to sell and which broadens the presentation of
discontinued operations to include more disposal transactions. The Company
adopted this standard on January 1, 2002. There was no effect upon adoption on
the Company's consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities," which requires that a liability
for costs associated with an exit or disposal activity be recognized when the
liability is incurred. This differs from prior guidance, which required the
liability to be recognized when a commitment plan was put into place. SFAS No.
146 also establishes that fair value is the objective for initial measurement of
the liability. This statement is effective for exit or disposal activities that
are initiated after December 31, 2002. The Company does not expect that the
adoption of this standard will have a material impact on its financial position,
results of operations or cash flow.
-7-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Note 4 - Comprehensive Income (Loss)
Total comprehensive income (loss) is comprised of net income (loss),
foreign currency translation adjustments and the change in unrealized gains and
losses on marketable securities and derivative financial instruments. Total
comprehensive income (loss) for the three months ended September 30, 2002 and
2001 was $(59,157) and $2,633, respectively. Total comprehensive income (loss)
for the nine months ended September 30, 2002 and 2001 was $(362,873) and
$(114,622), respectively.
Note 5 - Earnings Per Share
The computation of basic earnings per share is based on the weighted
average number of common 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 shares outstanding used for basic and diluted earnings per common
share are reconciled as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Basic earnings per common share:
Weighted average common shares
outstanding.......................... 25,563,185 25,503,468 25,515,445 25,423,347
========== ========== ========== ==========
Diluted earnings per common share:
Weighted average common shares
outstanding.......................... 25,563,185 25,503,468 25,515,445 25,423,347
Options and restricted units............. -- 32,844 -- --
---------- ---------- ---------- ----------
Total............................... 25,563,185 25,536,312 25,515,445 25,423,347
========== ========== ========== ==========
For the nine months ended September 30, 2002 and 2001, options to
purchase 2,899,500 and 1,772,633 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.
For the nine months ended September 30, 2002 and 2001, 50,583 and 425,983
options and restricted units, respectively, were not included in the computation
of diluted earnings per common share due to their antidilutive effect.
-8-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Note 6 - Inventories
September 30, December 31,
2002 2001
---- ----
Raw materials............................... $ 37,402 $ 47,112
Work in process............................. 17,508 15,156
Finished products........................... 42,580 40,795
Supplies and containers..................... 4,870 4,611
-------- --------
$102,360 $107,674
======== ========
Note 7 - Long-Term Debt
September 30, December 31,
Maturities 2002 2001
---------- ---- ----
Bank term loans - floating rates............. 2002-2007 $474,349 $486,250
Revolving credit facility - floating rate.... 2005 269,234 115,000
Senior Subordinated Notes - 11%.............. 2009 200,000 200,000
Other debt - floating rates.................. 2002-2018 34,105 31,176
-------- --------
Total debt.............................. 977,688 832,426
Less: current portion................... 975,135 32,674
-------- --------
Net long-term debt...................... $ 2,553 $799,752
======== ========
The Company previously reported that it was not in compliance with
certain covenants contained in its senior credit facility. The Company's failure
to meet such covenant requirements gave the lenders under the senior credit
facility and a $25 million (Canadian) facility the right to accelerate the
loans. On July 29, 2002, the Company received a payment blockage notice from its
senior lenders preventing the Company from making its scheduled August 1, 2002
interest payment on its 11% Senior Subordinated Notes. The Company's failure to
pay the August 1, 2002 interest payment within 30 days of its due date
constituted an event of default under the 11% Senior Subordinated Notes and
could have resulted in the acceleration of the principal amount and all accrued
interest on the Notes. Accordingly, amounts outstanding under these facilities
have been classified as current liabilities at September 30, 2002. In addition,
as a result of noncompliance with certain terms of the Company's senior credit
facility, counterparties to the Company's interest rate swap agreements had the
right at September 30, 2002 to require the Company to cash settle these
agreements by paying fair value to the counterparties. Through November 5, 2002,
the Company received notices from counterparties to four out of the Company's
five interest rate swap agreements that they were exercising their rights to
terminate the agreements. Although the Company has not received precise demand
amounts from all of the counterparties, the Company estimates that the total of
the termination payment demands received and the fair value of the remaining
swaps approximates $12,870 as of September 30, 2002. In addition, due to the
Filing, the Company's bank term loans and revolving credit facility have been
converted to fixed interest rates, with interest rates ranging from 6.25 percent
to 7 percent.
-9-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
On October 11, 2002, the Company and 31 of its direct and indirect
subsidiaries filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code. The filing of a bankruptcy petition resulted in an immediate
acceleration of the principal amount and accrued and unpaid interest on the
Company's senior credit facility and 11% Senior Subordinated Notes. At this
time, it is not possible for the Company to predict the effect of the Chapter 11
reorganization process on the Company's business, various creditors and security
holders, or when it may be possible to emerge from Chapter 11. The ultimate
treatment of and recovery, if any, by creditors, security holders and/or common
shareholders will not be determined until confirmation of a plan or plans of
reorganization. GenTek and the other Debtors are unable to predict at this time
what the treatment of creditors and equity holders of the respective Debtors
will ultimately be under any plan or plans of reorganization finally confirmed.
See Note 1 for further discussion of the Company's bankruptcy.
Note 8 - Segment Information
Industry segment information is summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
Net Revenues:
2002 2001 2002 2001
---- ---- ---- ----
Performance products......................... $ 94,034 $ 94,087 $272,511 $275,879
Manufacturing................................ 113,016 114,793 367,976 363,798
Communications............................... 72,408 90,818 218,637 319,457
-------- -------- -------- --------
Total segments...................... $279,458 $299,698 $859,124 $959,134
======== ======== ======== ========
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
Operating Profit (Loss):
2002 2001 2002 2001
---- ---- ---- ----
Performance products......................... $ 10,620 $ 12,054 $ 23,423 $ (32,008)
Manufacturing................................ 9,066 9,071 34,436 349
Communications............................... (53,610) (5,221) (82,250) (56,215)
-------- -------- -------- ---------
Total segments...................... (33,924) 15,904 (24,391) (87,874)
Eliminations and other corporate expenses.... (4,020) (1,072) (9,477) (8,505)
-------- -------- -------- ---------
Consolidated................................. (37,944) 14,832 (33,868) (96,379)
Interest expense............................. 20,752 18,858 57,337 56,349
Other (income) expense, net.................. (73) 399 (2,273) (1,743)
-------- -------- -------- ---------
Loss before income taxes..................... $(58,623) $ (4,425) $(88,932) $(150,985)
======== ======== ======== =========
-10-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Identifiable Assets
September 30, December 31,
2002 2001
---- ----
Performance products........... $249,530 $ 303,788
Manufacturing (1).............. 357,101 409,006
Communications................. 246,804 426,767
Corporate .................... 84,130 25,282
-------- ----------
Consolidated $937,565 $1,164,843
======== ==========
(1) Includes equity method investments of $18,536 and $21,608, respectively.
Note 9 - Restructuring and Impairment Charges
The Company initiated its 2002 restructuring program during the quarter
ended June 30, 2002 and recorded restructuring charges of $1,201 related to
employee termination costs for 86 employees. In the third quarter, the Company
recorded additional charges of $7,217 related to employee termination costs for
217 employees and $103 for closure costs at a facility that will no longer be
used. The employee terminations impacted the Company's communications segment.
As of September 30, 2002, approximately 100 employees have been terminated
pursuant to the 2002 restructuring program.
The Company's 2001 restructuring program consists of a workforce
reduction, several plant closings and the discontinuation of certain product
lines. During the year ended December 31, 2001, the Company recorded
restructuring charges of $37,384 consisting of: $20,160 related to employee
termination costs for approximately 2,000 employees; $11,920 associated with the
write-down of assets resulting from plant closings and product line
discontinuance; and $5,304 related primarily to lease obligations and other
closure costs at facilities that will no longer be used. The Company expects to
substantially complete implementation of the 2001 restructuring program by the
end of 2002. Management does not expect that the 2001 restructuring program will
have a material impact on the Company's revenues. The employee terminations
impacted all of the Company's business segments, with the majority of the
terminations occurring in the manufacturing and communications segments. As of
September 30, 2002, approximately 1,350 employees had been terminated pursuant
to the 2001 restructuring program.
The following tables summarize the Company's accruals for restructuring
costs:
Employee
Termination Facility
Costs Exit Costs
----- ----------
Provisions................................. $20,160 $5,304
Amounts utilized........................... 8,539 676
------- ------
Balance at December 31, 2001............... 11,621 4,628
Provisions................................. 8,418 103
Amounts utilized........................... 7,478 1,290
------- ------
Balance at September 30, 2002.............. $12,561 $3,441
======= ======
-11-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
The Company has continued to experience significant declines in its
communications businesses resulting in operating losses for several business
units in 2002. The Company's revised forecast for these businesses indicated
that, based upon continuing diminished prospects in the market served by these
operations, the cash flow to be generated by these businesses would not be
sufficient to recover the carrying value of the long-lived assets at these
operations. In the second quarter, the Company recorded non-cash impairment
charges totaling $22,417 primarily related to fixed assets at two manufacturing
facilities in the communications segment. In the third quarter, the Company
recorded non-cash impairment charges totaling $42,402 primarily related to fixed
assets in the Company's connectivity products business in the communications
segment. The charges were due to changes in the principal markets served by
these operations. The fair values of the assets were determined based upon a
calculation of the present value of the expected future cash flows.
Note 10 - Summarized Financial Information
The Company's 11% Senior Subordinated Notes due 2009 are fully and
unconditionally guaranteed, on a joint and several basis, by all of the
Company's wholly owned, domestic subsidiaries ("Subsidiary Guarantors"). The
non-guarantor subsidiaries are the Company's foreign subsidiaries.
The following condensed consolidating financial information illustrates
the composition of the combined Subsidiary Guarantors. The Company believes that
the separate, complete financial statements of the respective guarantors would
not provide additional material information which would be useful in assessing
the financial composition of the Subsidiary Guarantors.
Condensed Consolidating Statement of Operations
Three Months Ended September 30, 2002
Subsidiary Non-Guarantor
Parent Guarantors Subsidiaries Eliminations Consolidated
------ ---------- ------------ ------------ ------------
Net revenues ..................................... $ -- $181,454 $107,239 $(9,235) $279,458
Cost of sales .................................... -- 145,789 84,394 (9,235) 220,948
Selling, general and administrative expense....... 119 27,782 18,831 -- 46,732
Restructuring and impairment charges.............. -- 102 49,620 -- 49,722
-------- -------- -------- ------- --------
Operating profit (loss)....................... (119) 7,781 (45,606) -- (37,944)
Interest expense.................................. 16,593 16,076 3,079 (14,996) 20,752
Other (income) expense, net....................... (15,084) (746) 761 14,996 (73)
-------- -------- -------- ------- --------
Income (loss) before income taxes............. (1,628) (7,549) (49,446) -- (58,623)
Income tax provision (benefit).................... 388 (150) (1,029) -- (791)
Equity in income (loss) from subsidiaries......... (55,816) (48,417) -- 104,233 --
-------- -------- -------- -------- --------
Net income (loss)............................. $(57,832) $(55,816) $(48,417) $104,233 $(57,832)
======== ======== ======== ======== ========
-12-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Condensed Consolidating Statement of Operations
Three Months Ended September 30, 2001
Subsidiary Non-Guarantor
Parent Guarantors Subsidiaries Eliminations Consolidated
------ ---------- ------------ ------------ ------------
Net revenues...................................... $ -- $187,839 $123,453 $(11,594) $299,698
Cost of sales .................................... -- 153,737 90,666 (11,594) 232,809
Selling, general and administrative expense....... 561 33,631 14,955 -- 49,147
Restructuring and impairment charges.............. -- 2,740 170 -- 2,910
-------- -------- -------- -------- --------
Operating profit (loss)....................... (561) (2,269) 17,662 -- 14,832
Interest expense.................................. 15,184 24,287 4,488 (25,101) 18,858
Other (income) expense, net....................... (14,000) 2,584 (13,286) 25,101 399
-------- -------- -------- -------- --------
Income (loss) before income taxes............. (1,745) (29,140) 26,460 -- (4,425)
Income tax provision (benefit).................... (630) (12,846) 8,861 -- (4,615)
Equity in income (loss) from subsidiaries......... 1,305 17,599 -- (18,904) --
-------- -------- -------- -------- --------
Net income (loss)............................. $ 190 $ 1,305 $ 17,599 $(18,904) $ 190
======== ======== ======== ======== ========
Condensed Consolidating Statement of Operations
Nine Months Ended September 30, 2002
Subsidiary Non-Guarantor
Parent Guarantors Subsidiaries Eliminations Consolidated
------ ---------- ------------ ------------ ------------
Net revenues...................................... $ -- $ 559,121 $ 329,784 $ (29,781) $ 859,124
Cost of sales .................................... -- 454,351 257,321 (29,781) 681,891
Selling, general and administrative expense....... 1,401 81,540 54,820 -- 137,761
Restructuring and impairment charges.............. -- 23,285 50,055 -- 73,340
--------- --------- --------- -------- ---------
Operating profit (loss)....................... (1,401) (55) (32,412) -- (33,868)
Interest expense.................................. 46,190 44,548 7,877 (41,278) 57,337
Other (income) expense, net....................... (41,258) (1,893) (400) 41,278 (2,273)
--------- -------- --------- -------- ---------
Income (loss) before income taxes and
cumulative effect of change in
accounting principle........................ (6,333) (42,710) (39,889) -- (88,932)
Income tax provision.............................. 4,940 69,685 43,636 -- 118,261
Equity in income (loss) from subsidiaries......... (357,045) (179,291) -- 536,336 --
Cumulative effect of change in accounting
principle (net of tax).......................... -- (65,359) (95,766) -- (161,125)
--------- --------- --------- -------- ---------
Net income (loss)............................. $(368,318) $(357,045) $(179,291) $536,336 $(368,318)
========= ========= ========= ======== =========
-13-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Condensed Consolidating Statement of Operations
Nine Months Ended September 30, 2001
Subsidiary Non-Guarantor
Parent Guarantors Subsidiaries Eliminations Consolidated
------ ---------- ------------ ------------ ------------
Net revenues...................................... $ -- $598,026 $393,946 $(32,838) $ 959,134
Cost of sales .................................... -- 501,921 291,274 (32,838) 760,357
Selling, general and administrative expense....... 1,704 117,966 64,558 -- 184,228
Restructuring and impairment charges.............. -- 98,008 12,920 -- 110,928
-------- -------- -------- -------- ---------
Operating profit (loss)....................... (1,704) (119,869) 25,194 -- (96,379)
Interest expense.................................. 45,495 53,822 11,712 (54,680) 56,349
Other (income) expense, net....................... (43,432) (5,734) (7,257) 54,680 (1,743)
-------- -------- -------- -------- ---------
Income (loss) before income taxes............. (3,767) (167,957) 20,739 -- (150,985)
Income tax provision (benefit).................... (1,277) (56,975) 7,031 -- (51,221)
Equity in income (loss) from subsidiaries......... (97,274) 13,708 -- 83,566 --
-------- -------- -------- -------- ---------
Net income (loss)............................. $(99,764) $(97,274) $ 13,708 $ 83,566 $ (99,764)
======== ======== ======== ======== =========
-14-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Condensed Consolidating Balance Sheet
September 30, 2002
Subsidiary Non-Guarantor
Parent Guarantors Subsidiaries Eliminations Consolidated
------ ---------- ------------ ------------ ------------
Current assets:
Cash and cash equivalents................. $ 62,152 $ 18,230 $ 47,719 $ -- $ 128,101
Receivables, net.......................... 47 111,169 79,895 -- 191,111
Inventories............................... -- 47,870 54,490 -- 102,360
Other current assets...................... 237 10,306 8,337 -- 18,800
--------- --------- -------- -------- ----------
Total current assets.................... 62,436 187,575 190,441 -- 440,452
Property, plant and equipment, net............ -- 204,868 95,840 -- 300,708
Goodwill, net................................. -- 45,005 82,712 -- 127,717
Intercompany receivable (payable)............. 699,840 (672,188) (27,652) -- --
Investment in subsidiaries.................... (438,927) 39,567 -- 399,360 --
Other assets.................................. -- 32,732 35,956 -- 68,688
--------- --------- -------- -------- ----------
Total assets............................ $ 323,349 $(162,441) $377,297 $399,360 $ 937,565
========= ========= ======== ======== ==========
Current liabilities:
Accounts payable.......................... $ -- $ 51,194 $ 28,054 $ -- $ 79,248
Accrued liabilities....................... 18,443 79,547 47,697 -- 145,687
Current portion of long-term debt......... 798,454 100 176,581 -- 975,135
--------- --------- -------- -------- ----------
Total current liabilities............... 816,897 130,841 252,332 -- 1,200,070
Long-term debt................................ -- 624 1,929 -- 2,553
Other liabilities............................. 12,205 145,021 83,469 -- 240,695
--------- --------- -------- -------- ----------
Total liabilities....................... 829,102 276,486 337,730 -- 1,443,318
Equity (deficit).............................. (505,753) (438,927) 39,567 399,360 (505,753)
--------- --------- -------- -------- ----------
Total liabilities and equity
(deficit).......................... $ 323,349 $(162,441) $377,297 $399,360 $ 937,565
========= ========= ======== ======== ==========
-15-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Condensed Consolidating Balance Sheet
December 31, 2001
Subsidiary Non-Guarantor
Parent Guarantors Subsidiaries Eliminations Consolidated
------ ---------- ------------ ------------ ------------
Current assets:
Cash and cash equivalents................. $ -- $ 443 $ 8,762 $ -- $ 9,205
Receivables, net.......................... -- 105,246 78,716 -- 183,962
Inventories............................... -- 55,205 52,469 -- 107,674
Other current assets...................... 1,488 43,633 7,695 -- 52,816
--------- --------- -------- --------- ----------
Total current assets.................... 1,488 204,527 147,642 -- 353,657
Property, plant and equipment, net............ -- 270,780 87,746 -- 358,526
Goodwill, net................................. -- 161,664 167,311 -- 328,975
Intercompany receivable (payable)............. 643,909 (742,123) 98,214 -- --
Investment in subsidiaries.................... (88,541) 203,931 -- (115,390) --
Other assets.................................. 3,995 110,242 9,448 -- 123,685
--------- --------- -------- --------- ----------
Total assets............................ $ 560,851 $ 209,021 $510,361 $(115,390) $1,164,843
========= ========= ======== ========= ==========
Current liabilities:
Accounts payable.......................... $ 274 $ 73,292 $ 33,816 $ -- $ 107,382
Accrued liabilities....................... 37,211 53,013 44,870 -- 135,094
Current portion of long-term debt......... 15,125 110 17,439 -- 32,674
--------- --------- -------- --------- ----------
Total current liabilities............... 52,610 126,415 96,125 -- 275,150
Long-term debt................................ 639,875 678 159,199 -- 799,752
Other liabilities............................. 10,703 170,469 51,106 -- 232,278
--------- --------- -------- --------- ----------
Total liabilities....................... 703,188 297,562 306,430 -- 1,307,180
Equity (deficit).............................. (142,337) (88,541) 203,931 (115,390) (142,337)
--------- --------- -------- --------- ----------
Total liabilities and equity
(deficit).......................... $ 560,851 $ 209,021 $510,361 $(115,390) $1,164,843
========= ========= ======== ========= ==========
-16-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
For the three and nine months ended September 30, 2002
(Dollars in thousands, except per share data)
(unaudited)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2002
Subsidiary Non-Guarantor
Parent Guarantors Subsidiaries Consolidated
------ ---------- ------------ ------------
Net cash provided by (used for) operating
activities....................................... $ (2,294) $(24,285) $ 24,359 $ (2,220)
-------- -------- -------- --------
Net cash used for investing activities............. -- (16,224) (6,817) (23,041)
-------- -------- -------- --------
Cash flows from financing activities:
Intercompany cash transfers.................... (79,007) 58,961 20,046 --
Other.......................................... 143,453 (665) 388 143,176
-------- -------- -------- --------
Net cash provided by financing activities.......... 64,446 58,296 20,434 143,176
-------- -------- -------- --------
Effect of exchange rates on cash................... -- -- 981 981
-------- -------- -------- --------
Increase in cash and cash equivalents.............. 62,152 17,787 38,957 118,896
Cash and cash equivalents at beginning of period... -- 443 8,762 9,205
-------- -------- -------- --------
Cash and cash equivalents at end of period........ $ 62,152 $ 18,230 $ 47,719 $128,101
======== ======== ======== ========
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2001
Subsidiary Non-Guarantor
Parent Guarantors Subsidiaries Consolidated
------ ---------- ------------ ------------
Net cash provided by (used for) operating
activities....................................... $ 2,554 $ (7,027) $ 24,658 $ 20,185
-------- -------- -------- --------
Net cash used for investing activities............. -- (42,913) (15,315) (58,228)
-------- -------- -------- --------
Cash flows from financing activities:
Intercompany cash transfers.................... (40,718) 50,926 (10,208) --
Other.......................................... 38,164 4,913 (1,484) 41,593
-------- -------- -------- --------
Net cash provided by (used for) financing
activities....................................... (2,554) 55,839 (11,692) 41,593
-------- -------- -------- --------
Effect of exchange rates on cash................... -- -- (812) (812)
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents... -- 5,899 (3,161) 2,738
Cash and cash equivalents at beginning of period... -- (4,889) 9,348 4,459
-------- -------- -------- --------
Cash and cash equivalents at end of period......... $ -- $ 1,010 $ 6,187 $ 7,197
======== ======== ======== ========
-17-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Quarterly Report may contain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended, that reflect, when made,
the Company's expectations or beliefs concerning future events that involve
risks and uncertainties, including the ability of the Company to satisfy the
conditions and requirements of its credit facilities, the effects of the Chapter
11 Cases on the operation of the Company, the Company's ability to obtain court
approval with respect to motions in the Chapter 11 Cases prosecuted by it from
time to time, the ability of the Company to develop, prosecute, confirm, and
consummate one or more plans of reorganization with respect to the Chapter 11
Cases, the effect of international, national and regional economic conditions,
the overall level of consumer spending, the performance of the Company's
products within the prevailing environment, financial difficulties encountered
by customers, the ability of the Company to attract, motivate and retain key
executives and employees and the ability of the Company to attract and retain
customers. All statements other than statements of historical facts included in
this Quarterly Report, including, without limitation, the statements under
Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. These forward-looking statements may contain the words
"believe", "anticipate", "expect", "estimate", "project", "will be", "will
continue", "will likely result", or other similar words and phrases.
Forward-looking statements and the Company's plans and expectations are subject
to a number of risks and uncertainties that could cause actual results to differ
materially from those anticipated, and the Company's business in general is
subject to certain risks that could effect the value of the Company's stock.
On October 11, 2002, GenTek Inc. ("GenTek" or the "Company") and 31 of
its direct and indirect subsidiaries, including the Company's Noma Company
subsidiary (collectively, the "Debtors") filed voluntary petitions for
reorganization relief (the "Filing") under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). The Debtors' cases (the
"Chapter 11 Cases") are being jointly administered as Case No. 02-12986 (MFW).
GenTek and the other Debtors will continue to operate their respective
businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy
Court and in accordance with the applicable provisions of the Bankruptcy Code
and orders of the Bankruptcy Court.
The Debtors filed for relief under Chapter 11 as a result of the
Company's inability to obtain an amendment to its senior credit facility. The
Company believes that the protection afforded by Chapter 11 best preserves its
ability to continue to serve its customers and preserve the value and goodwill
of its businesses, while it reorganizes, and develops and implements a new
strategic plan to deleverage the Company's balance sheet and create an improved
long-term capital structure.
The Company believes that its available cash and continued cash flow
from operations should be adequate to fund ongoing operations and meet
anticipated obligations to customers, vendors and employees in the ordinary
course during the Chapter 11 process. However, should the Company's available
cash and continued cash flow from operations prove to be insufficient, or the
Company otherwise requires post-petition credit accommodations, the Company may
seek to obtain debtor-in-possession financing. The filing of a bankruptcy
petition results in an immediate acceleration of the Company's senior credit
facility and 11% Senior Subordinated Notes, subject to the automatic stay of the
Bankruptcy Code.
-18-
The potential adverse publicity associated with the Chapter 11 filing
and the resulting uncertainty regarding the Company's future prospects may
hinder the Company's ongoing business activities and its ability to operate,
fund and execute its business plan by: impairing relations with existing and
potential customers; limiting the Company's ability to obtain trade credit;
impairing present and future relationships with vendors; and negatively
impacting the ability of the Company to attract, retain and compensate key
employees and to retain employees.
At hearings held on October 17 and November 7, 2002, the Bankruptcy
Court granted the Debtors' first day motions for various relief designed to
stabilize their operations and business relationships with their customers,
vendors, employees and others, and entered orders granting authority to GenTek
and the other Debtors to, among other things: (1) pay certain pre-petition and
post-petition employee wages, benefits and other employee obligations; (2) honor
customer programs; (3) pay certain pre-petition taxes and fees; (4) pay certain
pre-petition obligations to foreign vendors; (5) pay certain pre-petition
shipping charges; and (6) pay certain pre-petition claims of critical vendors.
The Bankruptcy Court also entered orders authorizing the Debtors to use cash
collateral of their senior lenders, and Noma Company to use GenTek's cash
collateral, on terms specified in such orders.
As a result of the Filing, pending pre-petition litigation and claims
against the Debtors have been stayed automatically in accordance with Section
362 of the Bankruptcy Code and no party may take any action to seek payment on
its pre-petition claims except pursuant to further order of the Bankruptcy
Court. In addition, the Debtors may reject pre-petition executory contracts and
unexpired lease obligations, and parties affected by these rejections may file
claims with the Bankruptcy Court. The Company anticipates that most liabilities
of the Debtors as of the date of the Filing will be treated in accordance with
one or more Chapter 11 plans of reorganization which will be proposed to be
voted on by interested parties and approved by the Bankruptcy Court in
accordance with the provisions of the Bankruptcy Code.
Although GenTek expects to file a reorganization plan that may provide
for its emergence from Chapter 11 during 2003, there can be no assurance that a
reorganization plan will be proposed by GenTek or confirmed by the Court, or
that any such plan will be consummated.
GenTek and the other Debtors will incur significant administrative and
reorganization expenses resulting from the Chapter 11 filing. The amount of
these expenses, which will be expensed as incurred, are expected to have a
material affect on the Company's results of operations.
At this time, it is not possible for the Company to predict the effect
of the Chapter 11 reorganization process on the Company's business, various
creditors and security holders, or when it may be possible to emerge from
Chapter 11.
The Company's common stock was delisted from the New York Stock
Exchange on April 8, 2002 and currently trades on the over the counter bulletin
board under the symbol GNKIQ.
The ultimate treatment of and recovery, if any, by creditors, security
holders and/or common shareholders will not be determined until confirmation of
a plan or plans of reorganization. GenTek and the other Debtors are unable to
predict at this time what the treatment of creditors and equity holders of the
respective Debtors will ultimately be under any plan or plans of reorganization
finally confirmed. Accordingly, the Company urges that appropriate caution be
exercised with respect to existing and future investments in any of these
securities.
The consolidated financial statements included elsewhere in this report
have been prepared on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of
-19-
liabilities in the ordinary course of business. However, as a result of the
Filing, such realization of assets and liquidation of liabilities are subject to
uncertainty. While operating as debtors-in-possession under the protection of
Chapter 11 of the Bankruptcy Code and subject to Bankruptcy Court approval or
otherwise as permitted in the normal course of business, the Company may sell or
otherwise dispose of assets and liquidate or settle liabilities for amounts
other than those reflected in the consolidated financial statements. Further, a
plan of reorganization could materially change the amounts and classifications
reported in the consolidated financial statements, which do not give effect to
any adjustments to the carrying value of assets or amount of liabilities that
might be necessary as consequence of a plan of reorganization.
Results of Operations
The following table sets forth the Company's net revenues and operating
profit (loss) by segment for the three and nine month periods ended September
30, 2002 and 2001 (in millions):
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ---------------
2002 2001 2002 2001
---- ---- ---- ----
Net Revenues:
Performance products............. $ 94.1 $ 94.1 $272.5 $275.9
Manufacturing.................... 113.0 114.8 368.0 363.8
Communications................... 72.4 90.8 218.6 319.4
------ ------ ------ ------
Total................... $279.5 $299.7 $859.1 $959.1
====== ====== ====== ======
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ---------------
2002 2001 2002 2001
---- ---- ---- ----
Operating Profit (Loss):
Performance products............. $ 10.6 $ 12.0 $ 23.4 $(32.0)
Manufacturing.................... 9.1 9.1 34.4 .3
Communications................... (53.6)(1) (5.2) (82.2)(3) (56.2)
Eliminations/other corporate..... (4.0) (1.1) (9.5) (8.5)
------ ------ ------ ------
Total................... $(37.9) $ 14.8(2) $(33.9) $(96.4)(4)
====== ====== ====== ======
(1) Includes restructuring and impairment charges of $49.7 million.
(2) Includes restructuring charges of $0.2 million in the manufacturing segment
and $2.7 million in the communications segment.
(3) Includes restructuring and impairment charges of $73.3 million.
(4) Includes restructuring, impairment and other charges of $62.3 million in
the performance products segment, $26.4 million in the manufacturing
segment, $59.2 million in the communications segment and $5.7 million in
other corporate.
Net consolidated revenues for the three and nine month periods ended
September 30, 2002 decreased by 7 percent and 10 percent from the comparable
prior year periods to $280 million and $859 million, respectively. For the three
and nine month periods ended September 30, 2002, sales in the performance
products segment were flat and decreased $3 million, respectively, versus the
comparable prior year periods. The decrease for the nine month period reflects
lower sales in the environmental services and chemical processing markets
partially offset by higher sales in the pharmaceutical and personal care market
and the technology market. In the manufacturing segment, sales decreased 2
percent from prior year levels to $113 million for the three month period ended
September 30, 2002. This
-20-
decrease can be attributed to lower sales in the appliance and electronics
markets partially offset by higher sales in the industrial and automotive
markets. For the nine month period ended September 30, 2002, manufacturing
segment sales grew 1 percent versus prior year levels, principally due to higher
volumes in the industrial market partially offset by weakness in the automotive
services sector. For the three and nine month periods ended September 30, 2002,
sales in the communications segment decreased to $72 million and $219 million,
respectively, representing decreases of 20 percent and 32 percent versus prior
year levels. These decreases are the result of lower volumes and pricing
pressures, principally driven by a continuing weakness in demand for the
Company's public and private network products and services in the North American
and European markets.
Gross profit for the three and nine month period ended September 30,
2002 decreased $8 million and $22 million from the comparable prior year periods
to $59 million and $177 million, respectively. The decrease in gross profit for
the third quarter is principally due to the lower volumes in the communication
segment, partially offset by lower goodwill amortization and depreciation
expense. Excluding the impact of a $16 million charge to cost of sales recorded
in 2001 principally due to obsolete and excess inventory, discontinued products
and fixed asset write offs, gross profit for the nine month period decreased $38
million. This decrease is principally due to lower sales volumes in the
communications segment and costs associated with the expedited repair of two
boilers and a loss of production at one of the Company's performance products
facilities, partially offset by lower goodwill amortization and depreciation
expense.
Selling, general and administrative expense decreased $2 million for
the three month period ended September 30, 2002 and decreased $20 million after
excluding the impact of a $26 million loss provision for accounts receivable
recorded in 2001, for the nine month period ended September 30, 2002. These
decreases resulted from lower expenses in the communications segment reflecting
the impact of the Company's restructuring programs, which included the closure
of two non-core research and development facilities in 2001, partially offset by
financial and legal advisory fees incurred in connection with the Company's debt
restructuring plans.
Operating loss for the three months ended September 30, 2002 was $38
million as compared to operating profit of $15 million for the prior year
period. This decrease was principally due to an increase in restructuring and
impairment charges of $47 million, lower sales volume in the communications
segment, partially offset by lower goodwill amortization and depreciation
expense. Operating loss for the nine months ended September 30, 2002 was $34
million as compared to an operating loss of $96 million for the comparable prior
year period. The operating loss in the prior year period includes restructuring,
impairment and other charges totaling $154 million recorded in 2001 that are
related to asset impairments, severance, plant closures, discontinuation of
certain product lines and receivable and inventory write-downs and, in addition,
operating costs related to two non-core research and development facilities in
the communications segment which were closed during the fourth quarter of 2001.
The current year period reflects a restructuring and impairment charge of $73
million and lower depreciation and amortization expense and favorable
performance in the manufacturing segment. The decrease in depreciation expense
and amortization expense is the result of asset impairment charges recorded in
2001 and an accounting change related to SFAS No. 142, respectively. The
favorable performance in the manufacturing segment reflects a more stable
automotive production environment, and the impact of the Company's restructuring
program implemented in 2001, partially offset by lower prices. The
abovementioned positive factors were offset by: lower sales volume in the
communications segment; unfavorable performance in the performance product
segment due to costs associated with the expedited repair of two boilers and a
loss of production at one of the Company's facilities; and financial and legal
advisory fees incurred in connection with the Company's debt restructuring
plans.
-21-
Interest expense for the three months ended September 30, 2002 was $21
million, which was $2 million higher than the prior year level due to higher
average outstanding debt balances, partially offset by lower average borrowing
rates. The Company's average effective interest rate for the third quarter was
8.5 percent as compared to 8.6 percent for the third quarter of last year.
Interest expense for the nine months ended September 30, 2002 was $1 million
higher than the prior year level due to higher average debt balances partially
offset by lower average borrowing rates. The Company's average effective
interest rate for the nine months ended September 30, 2002 was 8.0 percent as
compared to 8.7 percent for the prior year.
The Company recorded income tax expense of $118 million for the nine
months ended September 30, 2002. During the second quarter of 2002, the Company
revised its projection of domestic taxable income for the year 2002 and the year
2003. These estimates projected significantly lower domestic taxable income than
previous projections, principally due to the downturn in the global
communications market. As a result of lower projected domestic taxable income
and the Company's evaluation of potential tax-planning strategies, the Company
has concluded that it is more likely than not that it will not be able to
realize its domestic net deferred tax assets. Accordingly, the Company recorded
a valuation allowance of $141 million in the second quarter effectively reducing
the carrying value of its domestic net deferred tax assets to zero. During the
third quarter and for the foreseeable future, the Company will not record any
tax expense or benefit on its domestic income or loss. The Company will continue
to monitor the likelihood of realizing its net deferred tax assets and future
adjustments to the deferred tax asset valuation allowances will be recorded as
necessary. The Company adopted SFAS No. 142 "Goodwill and Other Intangible
Assets" effective January 1, 2002, which resulted in a charge of $161 million
(net of a tax benefit of $40 million) reported as a cumulative effect of a
change in accounting principle. Please see "Recent Accounting Pronouncements".
Restructuring and Impairment Charges
The Company initiated its 2002 restructuring program during the quarter
ended June 30, 2002 and recorded restructuring charges of $1 million related to
employee termination costs for 86 employees. In the third quarter, the Company
recorded additional charges of $7 million related to employee termination costs
for 217 employees and $0.1 million for closure costs at a facility that will no
longer be used. The employee terminations impacted the Company's communications
segment. As of September 30, 2002, approximately 100 employees have been
terminated pursuant to the 2002 restructuring program.
Cash payments charged against the restructuring liability for the 2002
and 2001 restructuring programs combined totaled $7 million and $9 million for
employee termination costs and $1 million and $1 million for facility exit costs
in the nine months ended September 30, 2002 and the twelve months ended December
31, 2001, respectively. While management expects that cash outlays related to
the restructuring programs will be substantially completed by the end of the
second quarter 2003, certain facility exit costs, primarily lease obligations,
have payment terms extending beyond 2003. Management intends to fund these cash
outlays from existing cash balances and cash flow generated by operations.
Management expects that the 2001 and 2002 restructuring programs will result in
an estimated annual reduction in employee and facility related expense and cash
flows of approximately $40-$45 million. The Company began to realize these
reductions in the third quarter of fiscal 2001.
The Company has continued to experience significant declines in its
communications businesses resulting in operating losses for several business
units in 2002. The Company's revised forecast for these businesses indicated
that, based upon continuing diminished prospects in the markets served by these
operations, the cash flow to be generated by these businesses would not be
sufficient to recover the carrying value of the long-lived assets at these
operations. In the second quarter, the Company recorded non-cash impairment
charges totaling $22 million, primarily related to fixed assets at two
manufacturing facilities in
-22-
the communications segment. In the third quarter, the Company recorded non-cash
impairment charges totaling $42 million, related to fixed assets in the
Company's connectivity products business in the communications segment. The
charges were due to changes in the principal markets served by these operations.
The fair values of these assets were determined based upon a calculation of the
present value of the expected future cash flows.
The Company will continue to review its operations, and may record
additional restructuring charges to tailor its cost structure to current
economic conditions. Part of any restructuring plan may include the sale of
assets. In addition, the Company will continue to evaluate the recoverability of
its assets, which may result in additional charges.
Financial Condition, Liquidity and Capital Resources
Cash and cash equivalents were $128 million at September 30, 2002
compared with $9 million at December 31, 2001. During the first nine months of
2002 the Company had proceeds from asset sales of $13 million and had net
borrowings of $143 million from its revolving credit facility, a portion of
which was used to make capital expenditures of $36 million.
During the nine month period ended September 30, 2002, the Company
incurred approximately $8 million of one time costs associated with the
expedited repair of two boilers and other related costs at one of the
manufacturing facilities in the Company's performance products segment. While
the boiler repairs have been completed and the facility is now operational, it
is possible that significant additional spending may be required to improve
reliability. The Company is currently reviewing a range of alternatives designed
to address the facility's reliability and operating issues.
The Company had negative working capital of $760 million at September
30, 2002 as compared with working capital of $79 million at December 31, 2001.
This decrease reflects the reclassification of $924 million of the Company's
long-term debt to current liabilities as a result of the Company's failure to
meet certain covenant requirements contained in its senior credit facility and
the Company's failure to make its scheduled August 1, 2002 interest payment on
its 11% Senior Subordinated Notes and lower deferred tax assets due to a
valuation allowance recorded during the second quarter of 2002, partially offset
by higher cash and accounts receivable balances and lower accounts payable.
During the first quarter of 2002, the Company borrowed all of its
remaining availability on its revolving credit facility, which approximated $155
million. As of September 30, 2002, the Company had approximately $128 million in
cash on hand, which management believes will provide sufficient liquidity to
fund ongoing operations and meet anticipated obligations to customers, vendors
and employees in the ordinary course during the Chapter 11 process. However,
should the Company's available cash and continued cash flow from operations
prove to be insufficient or the Company otherwise requires post-petition credit
accommodations, the Company may seek to obtain debtor-in-possession financing.
The Company's ability to obtain such financing may be limited. At hearings held
on October 17 and November 7, 2002, the Bankruptcy Court also entered orders
authorizing the Debtors' to use cash collateral of their senior lenders, and
Noma Company to use GenTek's cash collateral, on terms specified in such orders.
GenTek and the other Debtors will incur significant administrative and
reorganization expenses resulting from the Chapter 11 filing. The amount of
these expenses, which will be expensed as incurred, are expected to have a
material effect on the Company's results of operations. In addition, due to the
Filing, the Company's senior credit facility converted to fixed interest rates,
with interest rates ranging from 6.25 percent to 7 percent.
-23-
The potential adverse publicity associated with the Chapter 11 filing
and the resulting uncertainty regarding the Company's future prospects may
hinder the Company's ongoing business activities and its ability to operate,
fund and execute its business plan by: impairing relations with existing and
potential customers; limiting the Company's ability to obtain trade credit;
impairing present and future relationships with vendors; and negatively
impacting the ability of the Company to attract, retain and compensate key
employees and to retain employees.
Based on the recent investment performance of the assets in the
Company's various pension trusts, the Company anticipates a significant increase
in the amount of required pension funding in the future, beginning in 2004. The
magnitude of the required funding is not presently determinable, but could have
a material impact on the Company's cash requirements.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other
Intangible Assets." SFAS No. 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting, and
broadens the criteria for recording intangible assets separate from goodwill.
SFAS No. 142 requires the use of a nonamortization approach to account for
purchased goodwill and certain intangibles. Under a nonamortization approach,
goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. The provisions
of each statement which apply to goodwill and intangible assets acquired prior
to June 30, 2001 were adopted by the Company on January 1, 2002. Accordingly,
the Company ceased amortizing goodwill. Upon adoption of SFAS No. 142, the
Company recorded a charge of $161 million (net of a tax benefit of $40 million)
as a cumulative effect of a change in accounting principle. The following
illustrates what net income (loss) and income (loss) per share would have been
had these provisions been adopted for all periods presented (in thousands,
except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
Reported net income (loss).................. $(57,832) $ 190 $(368,318) $(99,764)
Add back: goodwill amortization......... -- 2,745 -- 8,428
-------- ------ --------- --------
Adjusted net income (loss).............. $(57,832) $2,935 $(368,318) $(91,336)
======== ====== ========= ========
Income (loss) per share, basic and
assuming dilution:
Reported net income (loss).............. $ (2.26) $ .01 $ (14.44) $ (3.92)
Add back: goodwill amortization......... -- .11 -- .33
-------- ------ --------- --------
Adjusted net income (loss).............. $ (2.26) $ .12 $ (14.44) $ (3.59)
======== ====== ========= ========
In July 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations," which requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred and the associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived asset. SFAS No. 143 is effective for years
beginning after June 15, 2002. The Company is currently evaluating the impact
that adoption of this standard will have on its consolidated financial
statements.
-24-
In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets," which requires all long-lived
assets classified as held for sale to be valued at the lower of their carrying
amount or fair value less cost to sell and which broadens the presentation of
discontinued operations to include more disposal transactions. The Company
adopted this standard on January 1, 2002. There was no effect upon adoption on
the Company's consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities," which requires that a liability
for costs associated with an exit or disposal activity be recognized when the
liability is incurred. This differs from prior guidance, which required the
liability to be recognized when a commitment plan was put into place. SFAS No.
146 also establishes that fair value is the objective for initial measurement of
the liability. This statement is effective for exit or disposal activities that
are initiated after December 31, 2002. The Company does not expect that the
adoption of this standard will have a material impact on its financial position,
results of operations or cash flow.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
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'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 changes. The Company has not
entered, and does not intend to enter, into financial instruments for
speculation or trading purposes.
The Company measures the market risk related to its holding of
financial instruments based on changes in interest rates and foreign currency
rates using a sensitivity analysis. The sensitivity analysis measures the
potential loss in fair values, cash flows and earnings based on a hypothetical
10 percent change in interest and currency exchange rates. The Company used
current market rates on its debt and derivative portfolio to perform the
sensitivity analysis. Such analysis indicates that a hypothetical 10 percent
change in interest rates or foreign currency exchange rates would not have a
material impact on the fair values, cash flows or earnings of the Company.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such term
is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934, as amended) (the "Exchange Act") as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to the Company required to be
included in the Company's reports filed and submitted under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have
not been any significant changes in the Company's internal controls or in other
factors that could significantly affect such controls.
-25-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On October 11, 2002, GenTek Inc. and 31 of its direct and indirect
subsidiaries, including Noma Company, a Canadian subsidiary, (collectively,
including the Company, the "Debtors") filed voluntary petitions for
reorganization relief (the "Filing") under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). The Debtors' cases (the
"Chapter 11 cases") are being jointly administered as Case No. 02-12986 (MFW).
GenTek and the other Debtors will continue to operate their respective
businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy
Court and in accordance with the applicable provisions of the Bankruptcy Code
and orders of the Bankruptcy Court.
The prosecution against the Debtors of claims and efforts to recover
from the Debtors payments related to litigation existing on October 11, 2002,
the date of filing for protection under Chapter 11 of the Bankruptcy Code, are
automatically stayed in accordance with section 362 of the Bankruptcy Code and
no party may take action to realize its pre-petition claims, except pursuant to
an order of the Bankruptcy Court.
Sunoco Employee Litigation. In April 1998, approximately 40 employees
(and their respective spouses) of the Sunoco refinery in Marcus Hook,
Pennsylvania, filed lawsuits in the Court of Common Pleas, Delaware County,
Pennsylvania, against The General Chemical Group Inc. (whose obligations have
been assumed by the Company pursuant to the terms of the Spinoff), 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. As a result of pretrial
proceedings, there are presently only 36 employees who are pursuing individual
personal injury claims and 29 spouses claiming loss of consortium. There is a
trial date of March 2003. The Company has denied all material allegations of the
complaints and will continue to defend itself vigorously in this matter.
Management further believes that 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 effect on the Company's results of operations or financial
condition.
In addition, on September 24, 1999 the same attorneys that filed the
April 1998 individual actions against the Company also filed a purported class
action complaint against the Company, titled Whisnant vs. General Chemical
Corporation, (in the Court of Common Pleas, Delaware County, Pennsylvania), on
behalf of more than 1,000 current and former employees of the Sunoco Marcus
Hook, Pennsylvania refinery located immediately adjacent to the Company's
Delaware Valley facility. The complaint alleges that unspecified releases of
sulfur dioxide and sulfur trioxide over unspecified timeframes caused injuries
to the plaintiffs, and seeks, among other things, to establish a "trust fund"
for medical monitoring for the plaintiffs. In May 2002, the trial court denied
plaintiffs' motion to certify the case to proceed as a class action. Plaintiffs
have appealed that decision. The Company believes this claim is without merit
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 effect on the Company's results of operations or financial condition.
-26-
May 1, 2001 Incident Litigation. Starting on or about April 29, 2002,
lawyers claiming to represent approximately 18,000 persons filed approximately
18 lawsuits in Contra Costa, San Francisco and Alameda counties in California
state court, making claims against the Company and a third party arising out of
a May 1, 2001 release of sulfur dioxide and sulfur trioxide from the Company's
Richmond, California sulfuric acid facility. A class action lawsuit arising out
of the same facts has also been filed. The release was caused when the third
party's truck hit a power pole and damaged an electrical substation owned by the
local utility, thereby knocking out electrical power to a number of users,
including the Company. This resulted in a loss of vacuum pressure at the
Company's facility, which led to the release. The Company, which has also filed
suit against the third party in California State Court in Contra Costa County in
connection with the May 1, 2001 incident, has been served with some of the
lawsuits. The lawsuits claim various damages for alleged injuries, including,
without limitation, claims for personal injury, emotional distress, medical
monitoring, nuisance, loss of consortium and punitive damages, but the amount of
damages sought is not known. The Company has filed a petition for coordination
asking that all of the lawsuits be coordinated before a single judge. That
petition is pending. The Company will vigorously defend itself against these
lawsuits. The Company believes it has sufficient insurance coverage in the event
of an adverse result in these lawsuits and does not believe that this matter
will have a material adverse effect on its financial condition or results of
operations.
Delaware Valley Settlement. On July 2, 2002, the Company's Delaware
Valley facility experienced a release of fluosulfonic acid while loading a
railcar for delivery to a customer. In connection with this accident and other
releases and emissions at the Delaware Valley facility, the Company and
representatives of the Delaware Department of Natural Resources and
Environmental Control ("DNREC") have reached agreement to resolve all alleged
violations relating to the July 2, 2002 accident and any other releases and
emissions occurring on or after January 1, 2001. Without admitting liability,
the Company agreed to pay a $475,000 civil penalty, plus DNREC's out-of-pocket
costs in investigating the July 2, 2002 incident. In addition, the Company also
agreed, among other things to make certain improvements to its process safety
and risk management programs at the facility. The settlement was approved by the
Superior Court of the State of Delaware on September 25, 2002. Payment of the
civil penalty is dependant upon Bankruptcy Court approval.
Item 2. Changes in Securities and Use of Proceeds.
NONE
Item 3. Defaults Upon Senior Securities.
The Company previously reported that it was not in compliance with
certain covenants contained in its senior credit facility. The Company's failure
to meet such covenant requirements gave the lenders under the senior credit
facility and a $25 million (Canadian) facility the right to accelerate the
loans. On July 29, 2002, the Company received a payment blockage notice from its
senior lenders preventing the Company from making its scheduled August 1, 2002
interest payment on its 11% Senior Subordinated Notes. The Company's failure to
pay the August 1, 2002 interest payment within 30 days of its due date
constituted an event of default under the 11% Senior Subordinated Notes and
could have resulted in the acceleration of the principal amount and all accrued
interest on the Notes. Accordingly, amounts outstanding under these facilities
have been classified as current liabilities at September 30, 2002. In addition,
as a result of noncompliance with certain terms of the Company's senior credit
facility, counterparties to the Company's interest rate swap agreements had the
right at September 30, 2002 to require the Company to cash settle these
agreements by paying fair value to the counterparties. Through November 5, 2002,
the Company received notices from counterparties to four out of the Company's
five interest rate swap agreements that they were exercising their rights to
terminate the agreements. Although
-27-
the Company has not received precise demand amounts from all of the
counterparties, the Company estimates that the total of the termination payment
demands received and the fair value of the remaining swaps approximates
$13 million as of September 30, 2002.
On October 11, 2002, the Company and 31 of its direct and indirect
subsidiaries filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code. The filing of a bankruptcy petition resulted in an immediate
acceleration of the principal amount and accrued and unpaid interest on the
Company's senior credit facility and 11% Senior Subordinated Notes. At this
time, it is not possible for the Company to predict the effect of the Chapter 11
reorganization process on the Company's business, various creditors and security
holders, or when it may be possible to emerge from Chapter 11. The future
results of the Company are dependent upon confirming and implementing, on a
timely basis, a plan of reorganization. The ultimate treatment of and recovery,
if any, by creditors, security holders and/or common shareholders will not be
determined until confirmation of a plan or plans of reorganization. GenTek and
the other Debtors are unable to predict at this time what the treatment of
creditors and equity holders of the respective Debtors will ultimately be under
any plan or plans of reorganization finally confirmed.
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
Item 5. Other Information.
NONE
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits;
99.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K;
1. Form 8-K filed with the Securities and Exchange Commission
dated July 30, 2002 with respect to receipt of a payment
blockage notice from the Registrant's senior lenders.
2. Form 8-K filed with the Securities and Exchange Commission
dated August 14, 2002 with respect to certifications
required by (i) the Securities and Exchange Commission Order
of June 27, 2002 pursuant to Section 21(a)(1) of the
Securities Exchange Act of 1934, and (ii) 18 United States
Code Section 1350, as enacted by Section 906 of the
Sarbanes-Oxley Act of 2002.
3. Form 8-K filed with the Securities and Exchange Commission
dated August 28, 2002 with respect to receipt of a 60 day
grace period on the default of the 11% Senior Subordinated
Notes from an ad hoc committee of noteholders representing
66 percent of the Senior Subordinated Notes.
4. Form 8-K filed with the Securities and Exchange Commission
dated October 15, 2002, regarding the Registrant and certain
of its direct and indirect subsidiaries in the United
-28-
States and Canada filing voluntary petitions for bankruptcy
protection under Chapter 11 of the United States Bankruptcy
Code for the District of Delaware on October 11, 2002.
-29-
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 there unto duly authorized.
GENTEK INC.
------------------------------------------
Registrant
Date November 14, 2002 /s/ Richard R. Russell
---------------------- ------------------------------------------
Richard R. Russell
President and Chief Executive Officer
(Principal Executive Officer) and Director
Date November 14, 2002 /s/ Matthew R. Friel
---------------------- ------------------------------------------
Matthew R. Friel
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-30-
CERTIFICATIONS
I, Richard R. Russell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of GenTek Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date November 14, 2002 /s/ Richard R. Russell
--------------------- ---------------------------------------
Richard R. Russell
President and Chief Executive Officer
-31-
I, Matthew R. Friel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of GenTek Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date November 14, 2002 /s/ Matthew R. Friel
----------------------- -------------------------------------------
Matthew R. Friel
Vice President and Chief Financial Officer
-32-
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as ..................................'SS'