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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 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 1-13404
THE GENERAL CHEMICAL GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware 02-0423437
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Liberty Lane
Hampton, New Hampshire 03842
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 929-2606
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares of Common Stock outstanding at November 1, 2002 was
3,203,197.
The number of shares of Class B Common Stock outstanding at November 1, 2002 was
700,639.
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THE GENERAL CHEMICAL GROUP 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, 2001 and 2002 ............. 1
Consolidated Balance Sheets - December 31, 2001 and
September 30, 2002 ............................................ 2
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2001 and 2002 ............................. 3
Notes to Consolidated Financial Statements ...................... 4-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 8-10
Item 3. Qualitative and Quantitative Disclosures about Market Risk .. 10
Item 4. Controls and Procedures ..................................... 11
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K ............................ 11
SIGNATURES .......................................................... 12
Certification........................................................ 13-14
Part I. Financial Information
Item 1. Financial Statements
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2001 2002 2001 2002
---- ---- ---- ----
Net revenues .............................................. $ 73,201 $ 71,327 $217,896 $202,534
Cost of revenues .......................................... 65,532 58,442 199,335 170,437
Selling, general and administrative expense ............... 3,886 3,893 12,108 11,652
Restructuring charge ...................................... -- -- 1,721 --
-------- -------- -------- --------
Operating profit .......................................... 3,783 8,992 4,732 20,445
Interest expense .......................................... 3,817 3,737 11,865 10,956
Interest income ........................................... 154 77 640 247
Other expense, net ........................................ 303 520 470 413
-------- -------- -------- --------
Income (loss) before income taxes and minority interest ... (183) 4,812 (6,963) 9,323
Minority interest ......................................... 1,765 4,044 4,083 9,134
-------- -------- -------- --------
Income (loss) before income taxes ......................... (1,948) 768 (11,046) 189
Income tax provision (benefit) ............................ 21 2 154 (14)
-------- -------- -------- --------
Net income (loss) .............................. $ (1,969) $ 766 $(11,200) $ 203
======== ======== ======== ========
Earnings (loss) per common share:
Basic .......................................... $ (0.53) $ 0.20 $ (3.84) $ 0.05
======== ======== ======== ========
Diluted ........................................ $ (0.53) $ 0.19 $ (3.84) $ 0.05
======== ======== ======== ========
See the accompanying notes to consolidated financial statements.
-1-
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
December 31, September 30,
2001 2002
---- ----
(unaudited)
Current assets:
Cash and cash equivalents ............................................. $ 16,045 $ 26,356
Receivables, net ...................................................... 48,616 43,714
Inventories ........................................................... 25,813 28,946
Deferred income taxes ................................................. 6,934 4,963
Other current assets .................................................. 5,485 6,658
-------- --------
Total current assets ............................................... 102,893 110,637
Property, plant and equipment, net ........................................... 100,365 96,871
Other assets ................................................................. 16,933 18,935
-------- --------
Total assets ....................................................... $220,191 $226,443
======== ========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable ....................................................... $ 21,177 $ 23,117
Accrued liabilities .................................................... 30,355 34,122
-------- --------
Total current liabilities .......................................... 51,532 57,239
Long-term debt ............................................................... 146,487 146,879
Other liabilities ............................................................ 78,641 79,334
-------- --------
Total liabilities .................................................. 276,660 283,452
-------- --------
Minority interest ............................................................ 38,983 38,614
-------- --------
Equity (Deficit):
Preferred Stock, $.01 par value; authorized 1,000,000
shares; none issued or outstanding ................................... -- --
Common Stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding : 3,348,910 and 3,382,543 shares at
December 31, 2001 and September 30, 2002, respectively ............... 33 34
Class B Common Stock, $.01 par value; authorized
4,000,000 shares, issued and outstanding: 700,639 shares
at December 31, 2001 and September 30, 2002, respectively ............ 7 7
Capital deficit ........................................................ (94,748) (94,748)
Accumulated other comprehensive loss ................................... (1,428) (1,803)
Retained earnings ...................................................... 33,936 34,139
Treasury stock, at cost: 174,189 and 179,346 shares at
December 31, 2001 and September 30, 2002, respectively ............... (33,252) (33,252)
-------- --------
Total equity (deficit) ................................................. (95,452) (95,623)
-------- --------
Total liabilities and equity (deficit) ............................. $220,191 $226,443
======== ========
See the accompanying notes to consolidated financial statements.
-2-
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30,
-------------
2001 2002
---- ----
Cash flows from operating activities:
Net income (loss) ............................................ $(11,200) $ 203
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization .............................. 13,356 9,111
Decrease in receivables .................................... 12,678 4,902
Decrease (increase) in inventories ......................... 738 (3,133)
(Decrease) increase in accounts payable .................... (8,772) 1,940
(Decrease) increase in accrued liabilities ................. (7,643) 3,767
Decrease (increase) in other liabilities and assets, net ... 3,914 (659)
Decrease in minority interest .............................. (2,515) (369)
-------- --------
Net cash provided by operating activities .............. 556 15,762
-------- --------
Cash flows from investing activities:
Capital expenditures ......................................... (7,183) (5,482)
Disposals of property, plant and equipment ................... 218 --
-------- --------
Net cash used for investing activities ................. (6,965) (5,482)
-------- --------
Cash flows from financing activities:
Borrowings under credit facility ............................. -- 5,106
Repayment of credit facility ................................. -- (5,076)
Proceeds from sale of stock .................................. 9,686 --
Other financing activities ................................... 150 1
-------- --------
Net cash provided by financing activities .............. 9,836 31
-------- --------
Increase in cash and cash equivalents ............................... 3,427 10,311
Cash and cash equivalents at beginning of period .................... 20,815 16,045
-------- --------
Cash and cash equivalents at end of period .......................... $ 24,242 $ 26,356
======== ========
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest ................................................... $ 8,315 $ 7,642
Taxes ...................................................... (4,294) (1,219)
See the accompanying notes to consolidated financial statements.
-3-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 2002
(Dollars in thousands)
(unaudited)
Note 1 - Basis of Presentation
The General Chemical Group Inc. ("GCG" or the "Company") is a leading
North American supplier of soda ash and calcium chloride to a broad range of
industrial and municipal customers. The primary end markets for soda ash include
glass production, sodium-based chemicals, powdered detergents, water treatment
and other industrial end uses. Calcium chloride is mainly used for dust control
and roadbed stabilization during the summer and melting ice during the winter.
The accompanying unaudited consolidated financial statements include the
accounts of GCG and its subsidiaries (collectively, the "Company"). These
unaudited financial statements have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. The financial
statements do not include certain information and footnotes required by
generally accepted accounting principles. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the nine
months ended September 30, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002. The Company's
financial statements should be read in conjunction with the financial statements
and the notes thereto for the year ended December 31, 2001 included in the Form
10-K.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements 4, 44 and 64, Amendment of FASB Statement 13, and Technical
Corrections". SFAS No. 145 rescinds the provisions of SFAS No. 4 that requires
companies to classify certain gains and losses from debt extinguishments as
extraordinary items, eliminates the provisions of SFAS No. 44 regarding
transition to the Motor Carrier Act of 1980 and amends the provisions of SFAS
No. 13 to require that certain lease modifications be treated as sale leaseback
transactions. The provisions of SFAS No. 145 related to classification of debt
extinguishment are effective for fiscal years beginning after May 15, 2002.
Commencing January 1, 2003, the Company will classify debt extinguishment costs
within income from operations. The provisions of SFAS No. 145 related to lease
modifications are effective for transactions occurring after May 15, 2002. The
Company does not expect the provisions of SFAS No. 145 related to lease
modifications to have a material impact on its financial position or results of
operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging
Issues Task Force ("EITF") No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". The principal difference between SFAS No.
146 and EITF No. 94-3 relates to its requirements for recognition of a liability
for a cost associated with an exit or disposal activity. SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF No. 94-3, a liability for
an exit cost was recognized at the date of an entity's commitment to an exit
plan. SFAS No. 146 is effective for exit and disposal activities that are
initiated after December 31, 2002. The Company does not expect the provisions of
SFAS No. 146 to have a material impact on its financial position or results of
operations.
Certain prior-period amounts have been reclassified to conform with the
current-year presentation.
Note 2 - Comprehensive Income (Loss)
Total comprehensive income (loss) is comprised of net income (loss) and
foreign currency translation gains and (losses). Total comprehensive income
(loss) for the three and nine months ended September 30, 2001 and 2002 was
($110) and ($8,816), and $2,619 and ($172), respectively.
-4-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands)
(unaudited)
Note 3 - Earnings (Loss) Per Share
The computation of basic earnings (loss) per share is based on the
weighted average number of common shares and contingently issuable shares
outstanding during the period. The computation of diluted earnings per share
assumes the foregoing and, in addition, the exercise of all stock options and
restricted units, using the treasury stock method.
The components of the denominator for basic earnings (loss) per common
share and diluted earnings (loss) per common share are reconciled as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2002 2001 2002
---- ---- ---- ----
Basic earnings(loss) per common share:
Weighted average common shares
outstanding .............................. 3,729,398 3,920,691 2,920,151 3,907,387
========= ========= ========= =========
Diluted earnings (loss) per common share:
Weighted average common shares
outstanding .............................. 3,729,398 3,920,691 2,920,151 3,907,387
Options and restricted units ............. -- 11,958 -- 3,986
--------- --------- --------- ---------
Denominator for diluted earnings (loss) per
common share ............................. 3,729,398 3,932,649 2,920,151 3,911,373
========= ========= ========= =========
At September 30, 2001 and 2002, options to purchase 212,606 shares and
205,346 shares of common stock, respectively, were not included in the
computation of diluted earnings per common share because the exercise price was
greater than the average market price of the common shares. The options, which
expire during 2008, 2009 and 2010, were still outstanding at September 30, 2002.
At September 30, 2001, 27,235 restricted units and options were not included in
the calculation of diluted earnings per common share because their inclusion
would have resulted in an antidilutive effect.
Note 4 - Additional Financial Information
The components of inventories were as follows:
December 31, September 30,
2001 2002
---- ----
(unaudited)
Raw materials ................ $ 1,302 $ 1,058
Work in process .............. 3,448 4,090
Finished products ............ 14,110 16,392
Supplies and containers ...... 6,953 7,406
------- -------
$25,813 $28,946
======= =======
Note 5 - Restructuring
In the fourth quarter of 2000, the Company recorded a pretax restructuring
charge, including related asset writedowns and workforce reductions, of $59.8
million. In the second quarter of 2001, the Company provided for additional
pretax restructuring charges of $1.7 million for revised actuarial estimates of
employee termination benefits. The restructuring involves the idling of the
Company's synthetic soda ash production capacity in Amherstburg, Ontario,
Canada. The balance of the restructuring accrual at December 31, 2001 was $4.2
million. Net spending against this accrual was $0.1 million during the nine
months ended September 30, 2002.
-5-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the three and nine months ended September 30, 2002
(Dollars in thousands)
(unaudited)
Note 6 - Related Party Transactions
Management Agreement
The Company is party to a management agreement with Latona Associates Inc.
(which is controlled by a stockholder of the Company) under which the Company
receives corporate supervisory, management and administrative services and
strategic guidance for a quarterly fee. This management fee was $1,210 and
$1,251 for the nine months ended September 30, 2001 and 2002, respectively.
Agreements with GenTek, Inc.
In connection with the spin-off of GenTek, Inc. ("GenTek") from the
Company in April 1999, GenTek agreed to provide the Company with certain
management information services and to sublease to the Company the office space
in Parsippany, New Jersey used as its operations headquarters. For the nine
months ended September 30, 2001 and 2002, the Company paid GenTek $1,016 and
$1,034 for these services and office space.
Other Transactions
The Company supplies soda ash to GenTek. For the nine months ended
September 30, 2001 and 2002, sales to GenTek amounted to $3,036 and $1,994,
respectively.
Note 7 - Geographic Information
Net Revenues Operating Profit (Loss)
September 30, September 30,
------------- -------------
2001 2002 2001 2002
---- ---- ---- ----
United States ...... $ 173,191 $ 167,871 $ 7,258 $ 21,135
Foreign ............ 78,154 69,493 (2,526) (690)
Elimination ........ (33,449) (34,830) -- --
--------- --------- --------- ---------
$ 217,896 $ 202,534 $ 4,732 $ 20,445
========= ========= ========= =========
Operating profit for the foreign segment includes additional restructuring
charges of $1,721 recorded in the second quarter of 2001.
-6-
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
For the three and nine months ended September 30, 2002
(Dollars in thousands)
(unaudited)
Note 8 - Segment Information
Industry segment information is summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2002 2001 2002
---- ---- ---- ----
Net revenues:
Soda Ash .............................. $ 57,612 $ 55,746 $ 171,657 $ 160,202
Calcium Chloride ...................... 15,589 15,581 46,239 42,332
--------- --------- --------- ---------
Total Segment ............ $ 73,201 $ 71,327 $ 217,896 $ 202,534
========= ========= ========= =========
Income (loss) before income taxes:
Soda Ash .............................. $ 2,441 $ 4,690 $ 1,199 $ 10,935
Calcium Chloride ...................... (175) 383 972 537
--------- --------- --------- ---------
Total Segment ............ 2,266 5,073 2,171 11,472
Elimination and other corporate expenses ... (4,214) (4,305) (13,217) (11,283)
--------- --------- --------- ---------
$ (1,948) $ 768 $ (11,046) $ 189
========= ========= ========= =========
Income (loss) before income taxes for the soda ash segment includes
additional restructuring charges of $1,721 recorded in the second quarter of
2001.
Capital Expenditures:
Soda Ash .............................. $ 829 $ 449 $ 3,106 $ 2,316
Calcium Chloride ...................... 1,680 1,174 3,651 3,129
Elimination and other corporate expenses ... 90 6 426 37
--------- --------- --------- ---------
$ 2,599 $ 1,629 $ 7,183 $ 5,482
========= ========= ========= =========
Depreciation & Amortization:
Soda Ash .............................. $ 3,264 $ 2,296 $ 11,515 $ 7,195
Calcium Chloride ...................... 292 456 877 1,256
Elimination and other corporate expenses ... 326 221 964 660
--------- --------- --------- ---------
$ 3,882 $ 2,973 $ 13,356 $ 9,111
========= ========= ========= =========
Note 9 - Subsequent Events
The recent decline in the global equity markets has resulted in a decrease
in the value of the assets in our pension plans. This decline will likely
adversely affect our related accounting results in future periods through higher
pension expense, additional minimum liabilities with corresponding reductions in
equity, and increased cash funding requirements. In addition, the Company may
incur higher expense related to our postretirement health plans as a result of
higher health care cost trends.
The Company currently estimates that it will be required to record a
minimum pension liability of approximately $9.6 million with corresponding
reductions in minority interest of $1.0 million and equity of $8.6 million on
December
-7-
31, 2002. In addition, based on the value of the assets in our pension plans, we
will be required to fund approximately $6.0 million to the plans in fiscal 2003.
In October 2002, the Company entered into an interest rate swap agreement
with a total notional amount of $8.8 million that qualifies and is designated as
a cash flow hedge in accordance with SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." The swap agreement matures in April 2004
and was executed in order to convert a portion of the Senior Secured Credit
Facility floating-rate debt into fixed-rate debt, maintain a capital structure
containing appropriate amounts of fixed and floating-rate debt, and reduce net
interest payments and expense in the near-term.
GenTek provides the Company with management information services, and
subleases to it office space in Parsippany, New Jersey used as its operations
headquarters, pursuant to agreements entered into at the time of GenTek's
spin-off in April 1999. On October 11, 2002, GenTek filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. If GenTek becomes unable to meet
its obligations under these agreements, the Company would have to obtain our
management information services and office space from third parties. The Company
is developing a contingency plan in the event GenTek terminates these
agreements. No assurances can be given as to the timely and cost effective
replacement of management information services.
In October 2002, the Company received U.S. income tax refunds of $4.1
million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
September 30, 2002 Compared with December 31, 2001
Financial Condition
Cash and cash equivalents were $26.4 million at September 30, 2002
compared with $16.0 million at December 31, 2001. During the first nine months
of 2002, the Company provided cash flow from operating activities of $15.8
million and used cash of $5.5 million for capital expenditures.
The Company had working capital of $53.4 million at September 30, 2002 as
compared with $51.4 million at December 31, 2001. The increase in working
capital principally reflects higher cash, inventories and other current assets,
partially offset by lower receivables and deferred tax assets and higher
accounts payable and accrued liabilities.
The Company is significantly leveraged. At September 30, 2002, outstanding
indebtedness consisted of $100 million of Senior Subordinated Notes and $46.9
million outstanding under the Senior Secured Credit Facility. The Company's
leverage and debt service requirements (1) increase its vulnerability to
economic downturns, (2) potentially limit the Company's ability to respond to
competitive pressures, and (3) may limit the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, strategic investments or general corporate purposes. The Company's
indenture and credit facility impose operating and financial restrictions on the
Company. These covenants affect, and in certain cases, limit the Company's
ability to incur additional indebtedness, make capital expenditures, make
investments and acquisitions and sell assets, pay dividends and make other
distributions to shareholders, and consolidate, merge or sell all or
substantially all assets. The Company was in compliance with the covenants
contained in its indenture and credit facility at September 30, 2002, although
there can be no assurances as to compliance with these covenants over the next
four quarters. A failure to comply with the covenants contained in the credit
agreement or indenture may result in the Company's indebtedness becoming
immediately due and payable, which would have a material adverse effect on our
business results of operations and financial condition.
-8-
The recent decline in the global equity markets has resulted in a decrease
in the value of the assets in our pension plans. This decline will likely
adversely affect our related accounting results in future periods through higher
pension expense, additional minimum liabilities with corresponding reductions in
equity, and increased cash funding requirements. In addition, the Company may
incur higher expense related to our postretirement health plans as a result of
higher health care cost trends.
The Company currently estimates that it will be required to record a
minimum pension liability of approximately $9.6 million with corresponding
reductions in minority interest of $1.0 million and equity of $8.6 million on
December 31, 2002. In addition, based on the value of the assets in our pension
plans, we will be required to fund approximately $6.0 million to the plans in
fiscal 2003.
GenTek provides the Company with management information services, and
subleases to it office space in Parsippany, New Jersey used as its operations
headquarters, pursuant to agreements entered into at the time of GenTek's
spin-off in April 1999. On October 11, 2002, GenTek filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. If GenTek becomes unable to meet
its obligations under these agreements, the Company would have to obtain our
management information services and office space from third parties. The Company
is developing a contingency plan in the event GenTek terminates these
agreements. No assurances can be given as to the timely and cost effective
replacement of management information services.
In October 2002, the Company received U.S. income tax refunds of $4.1
million.
Results of Operations
September 30, 2002 Compared with September 30, 2001
Net revenues for the three and nine month periods ended September 30, 2002
decreased 2.6 percent and 7.1 percent to $71.3 million and $202.5 million,
respectively, from $73.2 million and $217.9 million for the comparable prior
year periods. Net revenues were negatively effected by lower calcium chloride
volumes due to warm winter weather and lower soda ash volumes due to the April
2001 idling of the Company's Amherstburg synthetic soda ash facility, partially
offset by higher domestic soda ash prices.
Gross profit for the three month period ended September 30, 2002 increased
$5.2 million to $12.9 million from $7.7 million for the comparable prior year
period. Gross profit as a percentage of net revenues for the three month period
ended September 30, 2002 increased to 18.1 percent from 10.5 percent for the
same period in 2001. Gross profit for the nine month period ended September 30,
2002 increased $13.5 million to $32.1 million from $18.6 million for the
comparable prior year period. Gross profit as a percentage of net revenues for
the nine month period ended September 30, 2002 increased to 15.9 percent from
8.5 percent for the same period in 2001. These increases were primarily due to
lower operating costs resulting from the April 2001 idling of the Company's
Amherstburg synthetic soda ash facility, lower depreciation expense, lower
energy costs and higher domestic soda ash prices, partially offset by lower
calcium chloride volumes, and higher calcium chloride feedstock costs. In
addition, the nine months ended September 30, 2001 includes costs incurred to
start up operations at the Company's Manistee, Michigan calcium chloride
facility.
Selling, general and administrative expense as a percentage of net
revenues for the three and nine month period ended September 30, 2002 and 2001
increased to 5.5 percent from 5.3 percent and to 5.8 percent from 5.6 percent.
In the second quarter of 2001, the Company recorded a restructuring charge
of $1.7 million for revised actuarial estimates of employee termination
benefits.
Interest expense for the three and nine month period ended September 30,
2002 was $3.7 million and $11.0 million, which was $0.1 million and $0.9 million
lower, respectively, than the comparable prior period. The decrease is a result
of lower credit facility borrowing rates and amendment fees expensed in the
comparable prior year partially offset by an increase in borrowings under the
credit facility.
-9-
Minority interest for the three and nine month periods ended September 30,
2002 was $4.0 million and $9.1 million, respectively, versus $1.8 million and
$4.1 million for the same period in 2001. The increases in both periods reflect
higher earnings at General Chemical (Soda Ash) Partners primarily due to higher
domestic soda ash prices and lower energy costs.
Net income was $0.8 million and $0.2 million for the three and nine month
periods ended September 30, 2002, respectively, versus net loss of ($2.0)
million and ($11.2) million for the comparable prior year periods, for the
foregoing reasons.
Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements 4, 44 and 64, Amendment of FASB Statement 13, and Technical
Corrections". SFAS No. 145 rescinds the provisions of SFAS No. 4 that requires
companies to classify certain gains and losses from debt extinguishments as
extraordinary items, eliminates the provisions of SFAS No. 44 regarding
transition to the Motor Carrier Act of 1980 and amends the provisions of SFAS
No. 13 to require that certain lease modifications be treated as sale leaseback
transactions. The provisions of SFAS No. 145 related to classification of debt
extinguishment are effective for fiscal years beginning after May 15, 2002.
Commencing January 1, 2003, the Company will classify debt extinguishment costs
within income from operations. The provisions of SFAS No. 145 related to lease
modifications are effective for transactions occurring after May 15, 2002. The
Company does not expect the provisions of SFAS No. 145 related to lease
modifications to have a material impact on its financial position or results of
operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging
Issues Task Force ("EITF") No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". The principal difference between SFAS No.
146 and EITF No. 94-3 relates to its requirements for recognition of a liability
for a cost associated with an exit or disposal activity. SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF No. 94-3, a liability for
an exit cost was recognized at the date of an entity's commitment to an exit
plan. SFAS No. 146 is effective for exit and disposal activities that are
initiated after December 31, 2002. The Company does not expect the provisions of
SFAS No. 146 to have a material impact on its financial position or results of
operations.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company. The
Company is exposed to market risk in the areas of interest and foreign exchange
rates.
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's debt obligations. The Company has no cash
flow exposure due to rate changes on its fixed interest rate under the $100
million Senior Subordinated Notes as of September 30, 2002.
However, the Company does have cash flow exposure on its committed and
uncommitted bank line of credit as interest is based on a floating rate. At
September 30, 2002 the Company had $46.9 million in borrowings under the Senior
Secured Credit Facility. Accordingly, a one percent change in the floating rate
will result in interest expense fluctuating annually by approximately $0.5
million.
The Company is also exposed to foreign exchange risk primarily to the
extent of adverse fluctuation in the Canadian dollar.
-10-
In October 2002, the Company entered into an interest rate swap agreement
with a total notional amount of $8.8 million that qualifies and is designated as
a cash flow hedge in accordance with SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." The swap agreement matures in April 2004
and was executed in order to convert a portion of the Senior Secured Credit
Facility floating-rate debt into fixed-rate debt, maintain a capital structure
containing appropriate amounts of fixed and floating-rate debt; and reduce net
interest payments and expense in the near-term.
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic SEC filings. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls subsequent to the date of their
evaluation.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
-11-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GENERAL CHEMICAL GROUP INC.
-------------------------------
Registrant
Date November 14, 2002 /s/ John M. Kehoe, Jr.
-------------------- ----------------------------------------------
John M. Kehoe, Jr.
President and Chief Executive Officer
(Principal Executive Officer) and Director
Date November 14, 2002 /s/ David S. Graziosi
-------------------- ----------------------------------------------
David S. Graziosi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-12-
CERTIFICATION
I, David S. Graziosi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The General Chemical
Group 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 officer 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 officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the 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 officer 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 an material
weaknesses.
Date: November 14, 2002
By: /s/ David S. Graziosi
-----------------
Name: David S. Graziosi
Title: Vice President and Chief Financial Officer
-13-
CERTIFICATION
I, John M. Kehoe, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of The General Chemical
Group 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 officer 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 officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the 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 officer 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 an material
weaknesses.
Date: November 14, 2002
By: /s/ John M. Kehoe, Jr.
------------------
Name: John M. Kehoe, Jr.
Title: President and Chief Executive Officer
-14-
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as ..................................'SS'